Social Security and Welfare Reform

Working-age benefits should be linked to earnings – always

  • Published: Oct 01, 2014
  • Author: Peter Kenway
  • Category: Social Security and Welfare Reform

George Osborne’s announcement that working-age benefits are to be frozen from April 2016 can be defended on grounds of both pragmatism and principle. Principles, however, are not just for the bad times. If they’re bold, Osborne’s political opponents can match his austerity today, offer hope for tomorrow and repair a 30 year-old flaw in the benefit system all at the same time.

If a government is determined to restrict spending on social security and tax credits, holding down the rate at which the benefits are uprated each year is as good a way as any to do it. Given that “if” Osborne’s announcement in his speech to the Conservative party conference can be defended on the same pragmatic grounds as his first step away from the 30 year old practice of uprating benefits automatically in line with inflation. This happened in April 2013, when benefit uprating was limited to 1% a year. As we wrote in reaction then, a slower pace of uprating:

“does not muck up or undermine reform. It does not cost anything to implement. Nobody suffers an absolute, sudden or large cut in their money. Rather it is just that the relief on the squeeze they have suffered from inflation is less than it would have been. There is time to adjust. Applying to a large number of people, a small reduction can still yield a lot of money in total. It is honest”.

We might also add that slower uprating doesn’t either explicitly or implicitly denigrate, demean or demonise those citizens who are receiving these benefits. Instead, in the language of 2010, its case rests on our all being in it together:

Osborne put the point by asserting that “the fairest way to reduce welfare bills is to make sure that benefits are not rising faster than the wages of the taxpayers who are paying for them.” According to the Guardian, unnamed officials added substance by comparing the 22% rise in most working-age benefits since 2007 with the 14% rise over the same period in average earnings. A two year freeze, it was said, would close this gap.

The validity of this comparison can certainly be challenged, but George Osborne’s political opponents have a problem if they do so, which is that anything less than a freeze will be painted as irresponsible. In circumstances when they will anyway feel under great pressure to match the freeze, accepting the inevitable creates the space to take the principle to its logical conclusion. If working-age benefits should move in line with earnings in the bad times, then so they should in the good times too. If we are all in it together, then we should all get out of it together too.

The basic case for this is that over the long term, it is hard to see why out-of-work benefits should not move in line with average earnings. Since the minimum acceptable standard of living is bound to be linked to a level of earnings, benefits must be related too else they will eventually fail in their fundamental role of making that minimum possible.

The principle that benefits should be linked to earnings has been conceded for pensioners: one of the three parts of the triple lock on pensions. Switching the uprating of benefits from earnings to prices was one of the most important of the changes made during the first term of the Thatcher government. By taking his argument to its logical conclusion, Osborne’s opponents can finally bury it.

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