George Osborne thinks he has set the Labour party a welfare trap.
By capping increases in various out of work benefits and tax credits at 1%, he hopes to lead Labour by the nose to a position where our MPs are calling for more money to be spent on welfare while working families struggle.
If he were running for election, the Chancellor might then remind these working families, that while Labour spends on such wastrels, they will instead benefit from a fuel duty freeze and an increased personal tax allowance thanks to his chancellorial parsimony on welfare.
In turn, Labour think the chancellor has stepped into his own trap. By including Tax credits and Maternity pay in this group of capped benefits, he is squeezing the poorest workers while offering a tax cut of enormous proportions to his million-a-year friends.
Instead, I want to focus on the precise nature of the trap, and the best way of dismantling it.
In truth, this Welfare trap is a little more carefully laid than most. What Osborne is proposing is a three-year period of 1% increases in benefits and tax credits. Those three years run from April 2013 to April 2016.
In other words, after the date of the next election.
Previously, Labour shadow ministers have been able to oppose cuts by employing a sort of stentorian moral finger-wagging, then somewhere toward the end of their press release, interview, or tub-thumping speech about the inequity of the government, quietly slipping in a subordinate cause caveat that, once decoded, meant that a future Labour government had made no firm commitment to reversing the Tory iniquity the shadow firebrand has just denounced. Thus the Cake of moral righteousness is consumed, while the cake of economic responsibility is preserved.2
This time though, we get a clear choice.
Come the next election, will Labour reverse the planned cap on benefits and tax credits? The 1% limit will still have a year to run on election day. In 2015/16, the total Welfare package is scored to save the government £3.6 billion. Labour, could if it chose, promise to reverse that entirely, restoring the “lost” uprating.
If that costs too much, Labour could promise to return to CPI indexation from day one of a Labour government. the chart below sets out how much the treasury expects to get from some of its welfare changes in each fiscal year.
I make it a roughly £1.3billion total cost to increase Benefits and Tax credits by CPI in 2015-16.
Of course, that £1.3billion would have to be found from somewhere.
For perspective, it would cost slightly more than reversing the Personal Allowance changes, slightly less than reversing the Fuel duty freeze.
Alternatively, Labour could say that it would accept a restraint on “non-working” benefits, but reverse the changes to tax credits and maternity pay. I don’t have a precise level of the costs, but let’s say it’s about half of the total that goes to Tax credits. That means a £1.8billion or £600million spending commitment (depending on whether you’d unpick the whole thing, or just a years worth).
Again, just for perspective, £600 million a year is about what Labour might want to spend on a British Investment Bank, according to the Tott report.
All of which leads me to a very simple conclusion. Osborne’s trap for Labour is not really about Welfare.
It’s about getting us to forget our priorities.
Come 2015, we will be asked to say where would be different to this government.
Mr Osborne is suggesting that we might like to differentiate ourselves by offering to spend more money on tax credits and benefits.He is encouraging us to put on our most pious and outraged face, and thunder against his cruelty, because he thinks he can win that battle.
He may be right, He may be wrong. the more incompetently he does, it, the more unfairly he cuts, the more likely he is wrong.
But that isn’t really the question we need to answer.
The trap isn’t so much whether we agree with Osborne’s cuts, it’s that in responding to them, we allow the current Chancellor to define the priorities of the next Labour government.
The real question is what do we want to prioritise? Where do we think the funding of government will do most good?
Every pound we spend on correcting Osborne’s welfare mistake is a pound it becomes a little harder to find to do other things.
So whether the cost is £3.6billion, or £1.8billion, or £600million, we should really be asking if we really can’t think of anything we’d rather invest that money in for the future of the country. Is Tax credits, or the Fuel allowance, or CPI benefits uprating, is any of it really where the big political argument should be.
So here’s my closing thought. George Osborne is reduced to fiddling with the benefits bill because he has failed to deliver a core growth strategy with any meaningful chance of success.
If Labour is able to offer the nation the prospect of success where Osborne has failed, his cynicism in benefits fiddling will be insignificant, a rounding error.
This entails Labour not falling for the distraction of political chaff, and understanding that while being the party of growth will not be as Keynesian-ly straightforward in 2015 as it is now, it is still the real, big political prize, and the one that Mr Osborne really does not want us to aim for.
It will be easy, over the next few weeks and months, for Labour MPs and spokespeople to condemn the Tory choices, and leave some small space to avoid being put fully on the hook for the sort of costs I’ve set out.
Yet in doing so, in wagging the finger and saying how terrible it is, and then trying to avoid any real spending commitment on the topic, Labour risks being dragged into a messy and confusing fight on the wrong terrain, and so losing the chance to grasp at doing one or two big things that might be transformative, both for our economy and Labour’s reputation.
That is Osborne’s real trap. Will we step into it?
- For the record, though, my view is that the out of work benefits bill is reasonably sustainable, but it makes little political sense to me for out-of work benefits to rise faster than incomes during recessions, and really little sense for benefits to rise while tax credits are frozen, as happened last year. So I’d tend towards a limit to the increase in benefits during recessions when general incomes don’t rise, but increase the value of tax credits to balance that out. If I was in charge of everything, I’d probably index benefit increases a notch above inflation during good times, as I tend to believe inflation is worse on the poorest, and I’d pay for that generosity by getting rid of the utterly fiscally insane pensions triple lock [↩]
- To be clear, This is only sensible politics. I have a personal dislike of the preachy self-satisfaction that tends to accompany this sort of opposition, but the basic principle of not tying yourself to reversing something you don’t like when you don’t know how much money you have to spend is smart. My objection is stylistic. I think it’s a bit cheap to get traction by telling people how awful this lot are, then give yourself a get out clause when it comes to doing something about it. It’s the sort of trick that made me decide Cameron was a cynical, shallow politician [↩]