Social Security and Welfare Reform

Benefits uprating - oppose the Bill, defend the principle

  • Published: Jan 09, 2013
  • Authors: Peter Kenway, Tom MacInnes
  • Category: Social Security and Welfare Reform

The wording of the Welfare Benefits Uprating Bill, which limits the annual increases in tax credits and most working-age social security benefits to 1% in both 2014 and 2015, is utterly devoid of merit. While that 1% limit has caught the headline, it is actually the maximum allowed since if price inflation falls below 1%, the Bill decrees no increase in the value of these credits and benefits at all. Unless inflation turns negative – something which no-one expects – this is a straightforward  unashamed attack on the incomes of many low income households. This Bill can only be opposed. 

But the principle behind this Bill is a different matter altogether. It is entirely correct to look at the issue of benefit uprating, and both the Labour party and anti-poverty campaigners should want to do so. When the Chancellor first announced the restriction on working-age benefits and tax credits in December’s Autumn Statement, he did so by comparing the rise in benefits with the rise in public sector pay. Of course, the specific comparisons that Osborne chose to make that day, for example, looking at prices and earning only back to 2007, were ones that suited his case best. In different circumstances, it is also easy to imagine him comparing the rise in benefits with the rise in private sector pay.

But leaving aside the tendentious nature of these specifics, Osborne’s underlying principle is the correct one: out-of-work benefits and in-work tax credits should move in line with some suitable measure of earnings not prices. Technically, this is the right principle because it is the only one that over the long term – and benefit uprating is very much something that should be judged over the long term – preserves the necessary proportions, both between earnings and benefits, but also between the money available (from taxes on earnings) and the total value of those benefits which need to be funded.

Politically, it is also the right principle because it expresses a unity of interest between those with low incomes in work and those with low incomes out of work (who are often the same people at different times, as they move into, and then out of, paid work).

In the short term, it is true, the financial impact on recipients would be the same as under the Coalition’s proposal: in a word, painful. It is perfectly true that at the point of its introduction, a link to earnings is worse for recipients than the status quo – price inflation – but the government has made sure that the status quo is no longer an option.

But in two respects at least, there would be a gain. One is that that pain would be free of added stigma. The Bill as worded is punitive. A Bill that stated the principle would not be. The other is that a rule for the long term would have been established that was more favourable than the status quo. Taking the last decade as a whole, rather than the five year horizon the Chancellor prefers, earnings rose by 36% while prices rose by 30% (CPI). Frankly, if earnings continue to rise more slowly than inflation then we have bigger problems than benefit uprating to worry about.

What the wording of the Bill shows is that, for the government, the principle first set out by Osborne was really just an excuse for cuts. Very well: but a favourable principle, stated by a Conservative Chancellor, is an opportunity not to be missed. Instead of mere outright opposition, the principle of linking benefits to earnings should be extolled at every opportunity, with an eye to the years beyond 2014 and 2015 about which something could still be done.

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