Benefits Uprating Bill: Steve Webb’s arguments FOR

by Stephen Tall on January 22, 2013

steve webbI have posted here the arguments delivered by Andrew George and Charles Kennedy against the Benefits Uprating Bill, the third and final reading of which was passed last night. Steve Webb, the Lib Dem pensions minister at the Department for Work and Pensions, summed up for the Government and responded to their arguments. Here are excerpts from the Hansard transcript of what he had to say…

First, I want to respond to the point about the language in which the debate is constructed. My right hon. Friend the Member for Ross, Skye and Lochaber (Mr Kennedy) and a number of other Members said that we should avoid divisive language, and I entirely agree. I seem to recall that it was the Labour party that used the phrase “strivers’ tax” about this debate—indeed, a year or so ago, the shadow Secretary of State used his party conference speech to create the very divisions that his hon. Friends are criticising. He said:

“Let’s face the tough truth—that many people on the doorstep at the last election felt that too often we were for shirkers not workers.”

The right hon. Gentleman has form on this issue. In 2012, he was at it again. During a speech at the London School of Economics, to what I imagine was a packed house, he said:

“Labour is the party of hard workers not free-riders. The clue is in the name. We are the Labour party. The party that said that idleness is an evil. The party of workers, not shirkers.”…

The second question that has arisen is why the Bill is necessary. It has been suggested that the Bill is simply a political device, but that draws a veil over the fact that we are dealing with one of the biggest deficits in peacetime history. To listen to the Labour leadership, one would think that they took such matters seriously. The leader of the Labour party said on “The Andrew Marr Show”, in an interview, I think, with James Landale:

“So when it comes to the next Labour government, if I was saying to you, ‘I can absolutely promise to restore this cut or that cut’, you would say ‘Well, where is the money going to come for that?’…We are absolutely determined that Labour shows we would be fiscally credible in government.”

We have not heard a lot of that today. The shadow Chancellor has said:

“The public want to know that we are going to be ruthless and disciplined in how we go about public spending”.

In fact, we have heard speech after speech calling for the Bill to be scrapped but there has not been a hope of hearing where the money would come from. The Bill and related measures save £3.6 billion. When I challenged the shadow Minister, the right hon. Member for East Ham (Stephen Timms), about where that money would come from, he said—I paraphrase—“We wouldn’t start from here.” I am afraid that the Opposition have to do rather better than that. …

A number of my hon. Friends asked perfectly reasonably about why we needed to set out in legislation exactly where we were going. We all want our constituents to continue to enjoy, for example, the low mortgage rates that are absolutely crucial to their standard of living. We all know that for those of our constituents in the position of owning their own homes, the mortgage is their biggest single outgoing by a long way. It is vital, therefore, that we keep interest rates under control. …

Why is that necessary? Let me share what the International Monetary Fund’s “World Economic Outlook” said as recently as October 2012:

“To anchor market expectations, policymakers need to specify adequately detailed medium-term plans for lowering debt ratios, which must be backed by binding legislation”.

That is the important point. Were we to go year by year, seeing how it went, we would not have the credibility of deficit reduction to which all of us who signed up to the coalition agreement are committed.

Likewise, the OECD’s economic outlook said:

“The government’s fiscal policy stance and strong institutions have secured the confidence of financial markets, as evidenced by the near record-low government bond yields.”

In other words, this is for a purpose—the purpose of tackling the vast, sprawling deficit. To give a sense of scale, my hon. Friend the Member for Argyll and Bute (Mr Reid) was absolutely right when he said that in the final year of the previous Labour Government, for every £3 raised in tax, £4 was spent. What did that add up to? We are talking about a Bill and related measures that will eventually save about £3 billion a year. Labour was borrowing £3 billion a week, so we would need, say, 50 of these Bills to tackle just one year of Labour borrowing. That is the scale of the situation. When Labour Members airily take the moral high ground and pretend that there is a free lunch to be had—that we do not have to do this or make all the other cuts, but that somehow the deficit will disappear—we need to remind people that these are Labour cuts tackling Labour’s deficit.

People should not just take my word for it regarding the need to include social security as part of deficit reduction. Clearly, as my right hon. Friend the Member for Wokingham (Mr Redwood) said, this is not comfortable stuff, and it is not something that any of us take any pleasure in. However, the IFS has said this about why social security is part of the mix:

“When cutting public spending dramatically to help reduce an unsustainable budget deficit”—

that is the IFS’s language, not mine—

“it is almost inevitable that spending on benefits and tax credits—which account for 30% of the government’s total budget—will be targeted.” …

We have a target for 2015-16 of £10 billion of spending reductions. We have not yet found that £10 billion. Even with this Bill, we are on about £6 billion, and without the Bill and related measures we would be down to about £3 billion. The challenge for Opposition Members who have said that taking money away from benefits takes spending power out of the economy is that so do other forms of spending cuts. If the money comes not from benefits but from local government, that will be money out of the local economy; if it comes from infrastructure projects, that will be money out of the local economy. There is not a free way of finding money without any impact. …

The most credible, coherent amendment in this group is amendment 10, which was moved by my hon. Friend the Member for St Ives (Andrew George). He was so nice about me that I was almost tempted to accept the amendment, but not quite. Let me explain the reasons why not.

The first relates to the specifics of the amendment, which links benefit increases in 2014-15 and 2015-16 to whatever amount average earnings grow by. Based on the forecasts—I accept that that is what they are—that would mean an above inflation increase in the second of those two years, because we think that average earnings in a couple of years’ time will be more than CPI, as is the case in many normal years. At a time when we all agree that money will be tight, my hon. Friend is suggesting that an above inflation benefit increase in the second of those two years should be a priority. I do not think that it should be. At a time when we will have to make other difficult decisions about saving, the first consequence of his amendment—I do not imagine that he meant this—would be to lock in what we expect to be an above inflation increase in benefits in 2015-16. I do not believe that that will be our priority at that point.

Had we been in Committee upstairs and the Bill had further stages to go through, my hon. Friend may well have said that this was a probing amendment and we could have had a chat about it, but if we were to agree to the amendment tonight it would become part of the Bill that will go to the other place. It is a serious amendment that would have an unintended consequence.

Secondly, this is not intended as a wrecking amendment, but it would have that effect. We estimate that it would wipe out virtually all the Bill’s savings. Although I understand that my hon. Friend shares my concern about the impact on people on low incomes, that money would have to be found somewhere else. I do not believe that there is a painless way of finding that money or that the social security budget would be exempted from finding it.

We have already had to do some very difficult things on welfare spending in the Parliament whereby we have targeted particular benefits and identified particular issues, and a relatively small number of people have faced large cash losses. This is a different approach. It is a gradual approach that will create much smaller losses, but for much larger numbers of people. At a time when we are trying to find savings from this budget, I believe that spreading the pain relatively thinly across a larger group, rather than focusing on a smaller one, is the way to go. …

I want to say something a bit more positive to my hon. Friend. The gist of his amendment is that he believes that fairness demands that benefits go up in line with earnings. The Bill will deliver that for him over what I believe is not an arbitrary period but a sensible, realistic one. He knows that over the five years since it became difficult to find money for things—the credit crunch and financial crisis of 2008—we have put benefits up by 20%, including 5.2% last year, when inflation was very high. With three years of uprating at 1%, we would be on something like 23%. Wages have gone up by 10% or so over that period, and I would wager that on any credible estimate of wage inflation, benefits will have gone up at least as fast as earnings over the whole eight-year period, if not faster. Over a tempestuous period for the economy and the welfare state, we will have ensured that benefits rise at least as fast as earnings, which is a record to be proud of. The Bill will deliver what his amendment asks for—benefits rising in line with earnings overall. …

I say to my hon. Friend the Member for St Ives that we cannot find the savings that we need by excluding the social security budget from them. The two biggest things that the Government spend money on are public sector pay, which has already been the subject of a separate measure, and social security benefits. The two together account for a vast swathe of public spending. When we need savings, we cannot ring-fence social security. What we can do, however, is try to do things gradually. …

More broadly, my hon. Friend the Member for St Ives asks what would happen if inflation ran away, but the Government would not sit idly by and watch—we have various measures available to us to respond to that. The OBR’s forecast for CPI is lower for 2015 than it is now. It is, of course, a forecast, but we will not simply let inflation rip. If we do not commit now to firm targets on where we are going, the OBR will not sign them off, they will not appear in our spending plans and the market will not believe us. If the market does not believe us, interest rates will go up as will the mortgages of our constituents who will have less spending power—where?—in the local economy, which is exactly where everybody has said they want to see demand. There is a knock-on effect from all those things, and the failure of the Labour party to suggest an alternative is shocking. …

I have no doubt that amendment 10, in the name of my hon. Friend the Member for St Ives, is well-intended, but unfortunately it would tie the Government in to an above-inflation increase in 2015-16. The Liberal Democrats would not choose that as a priority, but I can assure him that the Bill, on top of the decisions the Government have made to prioritise the poor, will mean that benefits will rise in line with earnings over the period since the financial crisis.

* Stephen Tall is Co-Editor of Liberal Democrat Voice, a Research Associate for the liberal think-tank CentreForum, and also writes at his own site, The Collected Stephen Tall.

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