The work and pensions select committee asked the Resolution Foundation and the Institute for Fiscal Studies about the options available to mitigate the effect of tax credit cuts. According to the FT, Torsten Bell and Paul Johnson told them there aren’t any. This bit made me laugh, especially the last paragraph:
Frank Field, a veteran Labour welfare reformer who now chairs the committee, suggested that a delay might give people “more time to scramble around to try to mitigate the consequences” by raising their working hours.
However, Mr Johnson argued that rules under which people receive tax credits if they work 16 hours a week for a single parent, or 24 hours a week for a couple, meant there was little incentive to work longer.
Mr Field argued that the changes to tax credits might amount to “shock treatment” and that people “might just cast themselves adrift from the earnings rule” and seek longer hours regardless, given the size of the losses, “if employers had the work to offer”.
But he added: “I am slightly depressed by the answers you are giving.” The committee had hoped to hear options for mitigating the tax credit changes “and you seem to be telling us it’s all hopeless”.
I’ve worked with people like that. You give them the facts and they shout back, “Wrong answer!”
And the facts are that the government doesn’t really have anywhere to go. The Lords have asked it to reconsider but, as Stephen Bush says, if it wants to keep its pledges not to raise taxes, cuts pensions or run a deficit after 2019-20, it has to cut in-work benefits.
What really surprises me about all this, though, is the surprise.
That any of this should come as a shock to MPs or journalists is a pretty poor show. Anyone with a calculator, a rudimentary grasp of the welfare system and half-an-hour spare to read the OBR’s report should have spotted this months ago. By the time George Osborne promised to take £12 billion off the cost of social security, David Cameron had already promised to protect pensions. It was therefore quite clear that cutting an eighth of the working-age welfare bill would have to hit in-work benefits. If I, as a rank amateur, could see it eighteen months before the budget, so should the people who are paid to understand this stuff.
Part of the problem is the persistent idea that welfare is only paid to people who are out of work. It was this comment in the Telegraph over two years ago that started me banging on about this in the first place.
Several ministers have begun to openly question why the welfare bill is still rising, as unemployment has fallen by about 200,000 since the general election.
If so, a lot of government MPs clearly thought welfare costs were a function of unemployment.
That hasn’t been the case for years though. A report by the Resolution Foundation earlier this year showed just how out-of-date that view is.
As Gavin Kelly said:
[T]he UK’s longstanding problem of workless families has been transformed since the late 1990s: once viewed as the biggest social ill facing the country, the rate of worklessness in households in which there are no disabled adults has plummeted.
Welfare policy – and ministerial rhetoric – are yet to catch up with this.
The downward trend in the proportion of adults on out-of-work benefits started towards the end of the last Conservative government and has continued ever since. It’s a story that is now twenty years old. Over the last two decades, the welfare system has shifted away from paying people who are not in work and towards paying them to take jobs, even though those jobs might not pay enough for them to live on. This has, as Ben Chu shows, almost certainly mitigated what would otherwise have been a steep rise in inequality. It has also meant that spending on tax credits has steadily increased. After pensions, tax credits now account for the largest proportion of welfare costs.
Chart by Institute for Fiscal Studies
There is, then, no way of taking £12 billion from welfare without hitting in-work benefits, unless the Chancellor wants to do something even more unpopular like hit the disabled more severely than he already has.
It’s difficult to see how much of this is think-againable. The numbers just don’t add up. If the government insists on cutting the deficit by 2019-20 and is so adamant about not raising taxes that it’s talking about making it illegal, the only way to mitigate tax credit cuts is with even bigger cuts to public services. As Stephen says, the government has boxed itself in. Its dilemma is the same as it ever was. Having closed off all its other options, it has a straight choice between cutting benefits or cutting public services, neither of which will be popular.