Saturday, 20 September 2014

Yet more cuts

From: Inside edge

As Crisis launches a campaign against ‘unworkable and irresponsible’ cuts in housing benefit for the under-25s, there is another scary reminder today of the bleak prospects for the next spending review.

Fiscal Fallout, a report from the Social Market Foundation and Royal Society of the Arts, concludes that the flat-lining economy will make the structural deficit significantly higher than forecast in the Budget in March.

Things were already bad enough then, with £26 billion of cuts from annual spending pencilled in for the three years after 2014/15 and the detail left until the next spending review. But the report warns that lower than forecast growth and higher borrowing means the government will need to make another £22 billion of cuts on top of that to get its public spending plans back on truck to meet its deficit reduction target.

The current government plan is to leave taxes unchanged and cut welfare payments by £10.5 billion a year, which is where the proposal that Crisis is campaigning against comes from. According to estimates by the Institute for Fiscal Studies, Cutting housing benefit for the under 25s would save £2.3 billion a year while a two-year freeze in working age benefits, another proposal with major implications for housing, would save £4.5 billion. Cuts to pensioner benefits and child benefit could make up the rest of the total. If pensioner benefits were protected, as they have been so far, then the impact elsewhere would be much higher.

And that is not the end of it. Departmental expenditure would still have to fall by £37 billion between 2014/15 and 2017/18 – a fall of 11 per cent a year in real terms. For the Department for Communities and Local Government that translates as cuts of either £2.8 billion. If health, education and international aid continue to be protected, the real terms cut would be 23 per cent and £5.9 billion at the DCLG. With figures like this, the 2010 spending review begins to look generous and the chances of further grant for new homes begin to look even more slender.  

Ahead of the autumn statement on December 5, the Crisis campaign includes a parliamentary briefing that reveals just how ‘arbitrary, unworkable and irresponsible’ a housing benefit cut for the under-25s would be. As I’ve blogged before (here and here), the effects would be felt by people with no parents to go back to, by victims of abuse, by people who are working but can’t afford their rent and by people who have children themselves. The briefing groups all the stats together on the 383,440 people under 25 currently claiming housing benefit.

With other policies like the bedroom tax meaning that downsizing parents will have even less room for their grown-up children, the result would be an explosion of youth homelessness and rough sleeping. As the briefing argues: ‘If this cut is brought in then there will be significant knock on costs which would potentially outweigh any savings. Homelessness is expensive to the taxpayer and society and this proposal would also risk frustrating claimants’ attempts to secure training and employment undermining their potential to contribute to the economy.’

In public statements, the DWP insists that it any cut for the under-25s would only apply to new claimants. Iain Duncan Smith repeated this at work and pensions questions last week:

‘As I said previously, we are looking at all this. Anyway, entitlement would never be removed from those who are already on housing benefit. The review is about flow and about re-establishing fairness in a system which many think has become unfair and does not help those who are not eligible for such benefits. I accept that there would be people who would be ineligible. That is the point of examining the system and figuring out how the policy would go, but like all policy reports, it is worth looking at. It deals with an element of unfairness and the thing about the benefits system is that if it is unfair, people who should support it will not support it, such as taxpayers.’

Whether you believe the assurances and that rather convoluted answer or not, it still raises a big question about what else would have to be cut given that the bulk of the £2.3 billion would still be going to existing claimants. That implies that virtually everything about the welfare budget in general and the housing benefit budget in particular will be up for grabs and nothing is safe.

Fiscal Fallout concludes that neither the cuts in annual managed expenditure nor more cuts in departmental expenditure limits ‘are sustainable fiscal solutions’ and calls for ‘a frank discussion about the way we make policy, how we deliver it, and what we measure and value in public services’.

I don’t have space to go into the details here, and the report is more about principles than specifics, but the gist appears to be to build on the Total Place approach to local budgeting, with decision making devolved from Whitehall so that growth can be driven by several cities not just London. Cities and counties would get more control over spending and maybe the chance to keep some of the savings in return for efficiencies gained from integrated working and preventative spending. ‘Future demand will swamp the health, social care and housing sectors without better integration across organisations and sectors,’ warns the report.

All of which could be an opportunity for housing to argue the case for the wider benefits of investment in a way that is not possible as things stand, perhaps along the lines of the ‘progressive localism’ proposed by the IPPR in the summer. However, the report concludes that this is all a debate for the future and that the 2013 spending review is more likely to on conventional departmental lines.

Which means that the battle over housing benefit for the under-25s could be just the start of much, much worse to come.

Readers' comments (7)

  • Hi Jules - My guess is that the only way to secure £10bn is to finally come after the pensioners. Thus far the gvt have resisted this; but I don';t see where else the cuts could come from so as to make savings of that scale. I wonder what the rationalization for this will be, should it occur. Such a policy will risk undermining Tory (and LibDem) electoral support from the over 60s (very risky) and therefore the discourse of how they frame it will be crucial...More reasons to keep reading Flyvberg and Stuart Hall!

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  • Colin McCulloch

    A great piece, well written Jules.

    We're moving towards a model of welfare that will be unsustainable for people to survive on, even in the medium term. This government is committed to creating a welfare system akin the old debtors prisons; somewhere you'd never want to go and if you're there, you want to get out asap.

    Some people will agree that this should be the target destination, that welfare in general should only ever be a temporary help. Others, like myself, will argue that the labour market has not and will not respond accordingly and that the reforms will penalise the poor, widen the wealth gap and increase poverty and homelessness across the board.

    We have to reassess what welfare needs to do in the modern world; people are working more flexibly now, taking on shorter hours and contracts, with pay fluctuating accordingly. The Universal Credit system, far from helping people deal with this, will demand people stress themselves into oblivion with endless demands from the Claimant Contract. The Overal Benefit Cap will penalise those whose housing costs are too high; is this the fault of the claimant or the landlord?

    A potential answer is the introduction of a non-means tested citizens income. As a non-taxable payment, you would receive this as a condition of adult citizenship, regardless of your financial status. There would be no taper and working any hours would let you keep 100% of the financial gain. You would be able to work the 16 hour a week job without the threat of further demands.

    Of course, it would put the employee back in firm control of the labour market, forcing employers to offer better terms and conditions to attract workers and that would never do, would it?

    As a starting point for discussion, it must be considered, as the HB/UC changes will create a gaping chasm in our society that will likely be filled by civil unrest.

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  • The con dems have already rushed through
    severe leglislation to impose £18 Billion
    of benefit cuts onto the poorest people in the uk,
    and these are not one off reductions but annual
    cuts to devastate the vital basic incomes of
    millions of poorer people in the uk.
    For example , the bedroom tax is a £1 billion
    per annum punishment upon 670,000 council
    tenants , which they will have to pay out of
    their other benefits which are also being cut ! the
    con dems also want this figure to increase by
    £80 million per annum on top of the £1 Billion
    per annum starting figure , meaning these tenants
    are having to face paying an £11 Billion shortfall
    over the next decade just to live in their existing homes !

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  • These cuts are annual reductions to benefit entitlements , and not just one off cuts ,
    meaning that the condems are aiming to take away
    tens of Billions of vital benefit income from
    the pooreset people in the uk in the near future,
    whilst allowing ever increasing price rise for the
    basic costs of living.

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  • Rosa Hooses

    "Some people will agree that this should be the target destination, that welfare in general should only ever be a temporary help. " Whereas you would argue that it should be permanent?

    "non-means tested citizens income". This is an interesting idea. But what sort of figure did you have in mind? If paid to all citizens of working age, and presumably including enough to cover housing costs, the bill would be huge. e.g. 40,000,000 x 10k (or more) per year = 400 billion, which is about twice the current benefit bill.

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  • Consider this scenario:
    Scotland votes for Independence in 2014.
    Trident will need to be relocated - the costs of which are immense. Not the submarines, the hardened missile store is the expensive bit. The rUK government then has an opportunity to decommission the stupit thing (while blaming somemone else) - there's your £90bn saving, right there.

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  • Colin McCulloch

    Rosa,

    I have discussed this on the site before, with Chris and others. My current thinking (and I'm open to debate and change) is a figure of £800 pcm, or £9600 p.a. It would have to be coupled with a simplified tax system; you need to encourage people to pay it! I propose a singular individual and business tax rate of 25%, on all income and sales. Penalties for evasion would need to be severe.

    You're right, the initial cost would be horrific. However, which the labour market now open to all, people will start to fill the low hour jobs currently sitting vacant as they will keep all of their earnings (minus tax) without penalty. People will start businesses with their basic living costs covered. People will spend money. What you lose in paying out will come back in in VAT, PAYE and Corporation Tax. As people will not "need" to work, they will choose employment that suits them. They might work voluntarily. They might raise their children whilst their partner works. People will have the choice and the labour market will become heavily weighted in favour of the worker, driving up wages. Conceivably, a minimum wage could be abolished, although I wouldn't favour this in the short term whilst incomes remain low.

    Of course, some will choose not to work. The difference for them is that we will not be spending billions on welfare to work programmes that have no chance of working, nor will we spending billions on a social security system (and the tribunals) that is blatantly not up to the job.

    Some stipulators:

    1) Rents would need to be regulated to avoid landlords jacking up rents to match the income. More social housing could also help this.

    2) Children at school would need to be taught the value of the income, the responsibilities as well as their rights too. Finland employs a civilian national service; would consider something to get our young people to "buy in" to society, although I would not favour military service.

    It's worth a look.

    Thanks to Chris for providing many of the ideas above.

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