Saturday, 13 July 2013

Welfare cuts: the case is not black-and-white

As Stephen Tall remarks, the Conservatives' current campaign demonises Labour and the Liberal Democrats as being on the side of scroungers, based on some rather simplistic opinion survey interpretation. Of course people are going to reply "no" if asked whether the out-of-work should be paid more than those who have a job, or if recipients of housing allowance should be paid for rooms they do not need but this should not be taken as endorsement of other mean-minded cuts which Osborne favours. Tall reckons that the concentration on cutting social spending is a sign that the Conservatives feel they need to concentrate on their core vote.

If the current economic upturn continues, there may be no need for such trench warfare. The electorate if it feels good will give credit to the incumbent parties. Besides, at times of economic well-being people are more generous, less inclined to look around for scapegoats. There is plenty of time for the Conservatives to change tack if they need to, but for the foreseeable future they need to hang on to their party workers in the face of poaching by UKIP in order to hold on in county by-elections as far as they can.

I trust that the next Liberal Democrat manifesto will undertake to reverse the Tory cuts which affect the poorest. However, there is one area which could do with tweaking, and that is the triple-lock guarantee.

Tories inveigh against welfare spending (by the way, when did we accept the American usage which tends to be used abusively, rather like "liberal"?), but the greatest single component of the welfare budget is the state pension. It has long puzzled me why the third lock of the guarantee is a minimum 2.5% annual increase in the pension. There was obviously a need to avoid another 75p moment, something which dogged Gordon Brown. More likely was an assumption that when the credit constipation was over UK would resume GDP growth of 2-3%, so that pension increases in that range could be afforded even if the wages rate and consumer prices indices indicated otherwise. However, several commentators have suggested that the days of GDP growth of more than 2% are over for mature economies and that 1% trend growth is more realistic.

So it would make sense to keep the link to the higher of WI and CPI, but to reduce the third lock from 2.5% to 1%. This change would have made no difference since the coalition came to power nor for the foreseeable future as inflation forges ahead, but when this is under control and assuming that wage rates continue to be constrained, it would seem right not to give us old-age pensioners special privileges over other social security recipients.

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