George Osborne’s statement that senior Liberal Democrats have agreed in principle to a further £10bn of welfare cuts in 2015-16 has prompted a strong reaction from many party members and a TV rebuttal from Nick Clegg.
But the issue is one worth pausing on, for it raises some important questions for Liberal Democrats.
Starting at the beginning, the first question raised is how we wish to close the deficit that will now exist in the first years of the next Parliament following the Chancellor’s decision in last year’s autumn statement to push back the period in which the structural deficit is to be eliminated. That is assuming we do wish to do so.
The options, as ever, are further tax rises or greater public spending cuts. But within these options there are, of course, further choices. If we think that at least a proportion of the deficit in these years should be eliminated through spending cuts this raises the further question of whether the cuts should fall on departmental budgets or on the part of government spending not classed as departmental spending – ie the welfare bill.
There are downsides to each. Cutting departmental spending, particularly after five years of spending reductions, inevitably means cutting jobs in those departments. Making nurses, teachers, prison wardens and police officers redundant is not an attractive proposition, in both social and economic terms
The problems with cutting the welfare bill are equally clear. The majority of those in receipt of welfare are the poorest in society, and again there are clear economic and moral reasons to want to avoid this.
Within welfare spending, though, there are two options that might be more acceptable to Liberal Democrats, but the politics are difficult: cutting universal benefits received by the relatively wealthy and looking at the biggest part of the welfare bill, namely the state pension.
The latter of these looks immediately politically unfeasible, given our long campaigning for (and delivery of) a more generous state pension. The first – cutting universal benefits – is also politically difficult, but it makes economic and moral sense. But cutting these benefits alone wouldn’t plug the gap.
Which leaves tax rises. By 2015 we will have had a VAT rise, a significant rise in capital gains tax, an annual bank levy and various increases to taxes paid by the most wealthy.
Closing the deficit in 2015-16 through tax rises alone would mean another tax rise raising a similar amount to the increase in VAT by 2.5 percentage points. And if, as looks likely, the party wishes to continue to raise the income tax personal allowance to the level of the salary earned by someone being paid the national minimum wage, this means more tax rises elsewhere. Every £100 increase costs half a billion pounds.
And net tax rises, too, hurt the economy.
The bottom line? If we wish to continue to move towards a situation where the government is not spending more money than it raises, there are no easy choices. The welfare bill is the biggest single item of spending by the state; we can leave it untouched, but we shouldn’t pretend it makes those choices any easier.
* Nick Thornsby is Thursday Editor of Liberal Democrat Voice and blogs here.