George Osborne’s headline-grabbing U-turn on tax credits wasn’t really a U-turn at all. To stretch the analogy, he put the indicator on to make it look as if he was going to pull a u-ey but then he just slowed down and kept going in the same direction.
The clever folk at the Resolution Foundation spotted this within minutes:
@FlipChartRick UC cuts still happening – so only a delay to in-work cuts
— Adam Corlett (@adamcorlett) November 25, 2015
By scrapping tax credits but moving people onto universal credit, the overall effect by the end of the decade is pretty much the same.
As the IFS said, “the reversal of tax credit cuts makes no difference in long run.” The government still plans to cut in-work benefits but not just yet.
In the short-term, therefore, those on low incomes get a reprieve.
By the end of the decade, though, they are more-or-less where they would have been under the original plan.
Of course, the chancellor couldn’t possibly have U-turned on cuts to in-work benefits minutes after he had promised that his £12 billion welfare cuts would be “delivered in full“. With most of the other big chunks of benefit spending already off limits it would have been arithmetically impossible.
The social security cuts are even more important now that the chancellor has eased up on cuts to public services. As the OBR’s report shows, welfare forms a much bigger proportion of the planned spending reduction than it did in the last parliament.
I still can’t see it happening though. Taking £12 billion off the welfare bill, even allowing for pay increases later in the decade, still looks like a tall order. As Matt Whitaker noted, the OBR has slightly downgraded its forecasts for household income and average wage growth since the last budget.
Even if the National Living Wage boosts incomes for the lowest paid it will be nowhere near enough to offset the benefit cuts.
Cutting £12 billion from welfare will be difficult to do without causing considerable distress to millions of people. At best this will be politically damaging, at worst it could lead to serious social unrest.
But if the government can’t make its welfare savings and it is only taking £10 billion off public service spending, how will it meet its deficit target?
I suspect this is where the real U-turn will occur. More crafty tax increases, some of them outsourced to local government and the new devolved authorities, together with some blarney about why welfare costs didn’t come down, probably blaming employers for not stepping up. If the chancellor has ruled out extra borrowing, is cutting less from public services and then finds he can’t cut welfare, the only option left is to increase tax. For all the hullabaloo, Wednesday’s U-turn wasn’t really a U-turn at all. The tax U-turn will be slower and a lot quieter. More like one of those long gentle bends in the road that you don’t even realise has taken you in a different direction.