Welfare reform: what should the Lib Dems do?

This much I think I know… Cuts to the overall welfare budget are inescapable: it accounts for too large a chunk of of public spending for it to be immune — certainly if the NHS, schools and overseas aid budgets are to be protected at the same time as spending is reduced.

These cuts would be happening whichever party was in power, though doubtless the precise methods would differ. The IFS’s verdict in 2010 on what they termed Labour’s “fiscal drift” was stark: “By the eve of the financial crisis … the UK [had] one of the largest structural budget deficits in the developed world.”

Lib Dem ministers have accepted the Coalition’s reforms: here’s pensions minister Steve Webb last week, for example. Behind the scenes, the party has fought off attempts by Tory ministers to go further, for example ending housing benefit for under-25s or limiting child benefit to the first two children. Even the 1% benefits uprating bill was at least preferable to the Tories’ instinct to freeze it.

The party’s main focus has been on raising the threshold of income tax to benefit low- and middle-income earners. Popular and right thought his is, by its very nature it benefits only those with income. To be fair, the party has also championed the Coalition’s Youth Contract and the major boost to apprenticeships. Steve Webb has also worked hard on the universal credit to try and ensure people are always better off in work than on benefits; while also introducing the ‘triple-lock’ to protect pensioners’ incomes. Meanwhile Paul Burstow, Norman Lamb and others have tried to ensure social care is made affordable for all in the future. In addition, Nick Clegg has put forward a view, with support from party members, to means-test some benefits for wealthy pensioners.

However, Lib Dem party policy is silent on the Coalition’s controversial reform package. You can see a summary of the party’s current policies here.

Many of us (though not all, by any means) have accepted much of the Coalition’s policies to date: partly because we think cuts are inevitable; and partly because we know the cuts would have been so much worse if the Lib Dems had not been able to restrain the Tories.

With public spending restraint looking like it will continue for at least the next five years (and quite possibly beyond) all parties are going to be under increasing pressure to say what we would do. Lots of us argue the ‘bedroom tax’ is the wrong kind of cut. There are areas of spending we would probably prefer to cut — the out-dated and expensive Trident nuclear weapons system is a case in point. There are new taxes we would feel comfortable introducing, such as Vince Cable’s mansion tax. Some, like Tim Farron, will argue for restoring the 50% level of top-rate tax for those earning more than £150k.

We cannot write the manifesto yet: we do not know what state the economy will be in come 2015. But we as a party do need to start saying what we would do on such a charged issue as welfare. What would you do?

* Stephen Tall is Co-Editor of Liberal Democrat Voice, and editor of the 2013 publication, The Coalition and Beyond: Liberal Reforms for the Decade Ahead. He is also a Research Associate for the liberal think-tank CentreForum and writes at his own site, The Collected Stephen Tall.

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25 Comments

  • Yes, I agree Tony, both on the inevitability (not) and the focus of cuts. Stephen, I know you have carefully put” This much I think I know..” but there has been far too much talk about “no alternative” and “inevitability” in the area of cuts and austerity. We should have looked long and hard at al;l this before signing up in 2010!

  • David Allen 8th Apr '13 - 12:31pm

    We talk about changing the education budget, or the defence budget, because there we are going out into the market and buying things.

    However, when we talk about taxes, we use a different language. We can change the rate of tax. We can also find that a fixed rate of tax starts to bring in more or less money this year than it did last year, because the tax base is changing. As the above article comments, when that happens we talk about “fiscal drift”. We don’t, of course, ignore it. But we think about it a different way. We certainly don’t assume that just because the tax take falls, the tax rate should automatically be increased to compensate. We generally hear a phalanx of right-wingers (or right whingers) yelling that this would be unfair or would somehow automatically not work.

    So why do we use the silly phrase “welfare budget”?

    Welfare is a transfer payment, not a purchase of goods. In that sense it is just like taxation.

    We should talk about welfare drift, just like fiscal drift. If we pay people at a rate which just avoids them starving, and the numbers of people requiring that payment increase because we have made a pig’s ear of the economy, we should not talk about an increased “welfare budget”. We should talk about welfare drift, and we should accept that we need to find more money from somewhere if people are not to starve.

  • What would I do? Refreshing question and it needs to be asked – I can’t agree with Tony Greaves’ suggestion that we should simply duck it. If we do not deal with the overall welfare budget, then control of it will ultimately be taken out of our hands as a country and we must not let this happen.

    We speak locally and nationally about fighting for the vulnerable and that’s where we should start:
    1. So our red line should be that no cuts can come before wealthy pensioner benefits. TV licences, bus passes, fuel allowances for those who are comfortably off have to go. It’s not that we can’t afford them; it’s that we could never have afforded them. Coalition deal-breaker in 2015.
    2. I have passed the ‘£53′ test; I spent 3 months unhappily on benefits before finding a good job and have got myself to the point where I earn comfortably and can provide for my wife. At that time, welfare was an essential safety net. But I would have no objection to being asked to pay it back now that I am earning enough to do so. We should look at the principle of paying back past benefits when earning well above minimum (possibly median national income?)
    3. We should point out relentlessly that Labour have no intention of abolishing the bedroom tax and their protests are the emptiest of words. However councils choosing how to define bedrooms just to get around it is scandalous – we should insist on national definitions.
    4. Our first ‘increase’ should be reducing the council tax benefit reductions – it’s hard to write this as someone who believes in localism but there is something very unfair about the poor in one area being hit by benefit cuts and not another. If this is to be handled locally, it shouldn’t have been done with a cut and we should seek to revoke the cut when the economy allows.

    Hope there is something useful here.

  • Peter Davies 8th Apr '13 - 1:09pm

    I agree with David that transfer payments are not the same as government spending. Much of the “Welfare Budget” is not even a transfer since it is raised from and distributed to the same people. If all you want to do is reduce the “Welfare Budget”, all you have to do is replace in-work and pensioner benefits for tax-payers with increased tax allowances. More bureaucracy for absolutely no real-world gain but it would slash the headline figure.

  • James Sandbach 8th Apr '13 - 3:05pm

    It would help if we stopped talking about “welfare” altogether – it’s become a loaded and toxic term full of patronising paternalist inuendo..and instead reclaim the language of “social security”

    Stephen – it’s simply not true to say that “Lib Dem party policy is silent on the Coalition’s controversial reform package” – there have been several highly critical motions (especially on top-slicing disability support) passed overwhelmingly.

  • Tom Richards 8th Apr '13 - 3:26pm

    I hope the next manifesto has a bit more detail on welfare – Steve Webb’s excellent stuff on pensions aside, the 2010 one had practically nothing on welfare except a vague commitment to “restrict tax credits” – a lot of the stuff on that briefing (work programme etc) is just Tory stuff that’s now coalition policy

  • Stephen,

    thank you for asking What would you do?

    1. Minimum wage job guarantee scheme to replace existing workfare program Job guarantees. There would be heavy emphasis on providing affordable social care for the elderly and child care support for working familes in the job guarantee scheme.
    2. Bacic Citizens Income to replace £10k personal allowance/employee NI threhold and JSA/ESA/Income support Citizens Income. Bacic Child income to replace family allowance and child tax credits.
    3. Housing benefit and social housing tenancies restricted to retired, disabled and those in employment including participants in the job guarantee scheme.
    4. Combining income tax and employee NI to flat tax of 32% on all sources of income including pensions and corporate taxes. Pensioners would receive citizens income tax free in addition to flat rate pension taxed at 32% but other pensioner benefits would be withdrawn. Companies could deduct dividend payments from taxable profits and divident tax credit woud be withdrawn.
    5. Land Value Tax would replace both higher rate income tax, business rates and council tax with householder allowance.
    6. One off capital Levy on net worth of individuals and trusts in excess of £5m along the lines proposed by Donald Trump in 1999 Trump Proposes a Tax for the Rich / One-time levy on net worth would pay off entire national debt. The levy would be used to retire the approximate £375 billion of outstanding public debt acquired by the BofE in the course of the Quantative easing program that has inflated asset prices for the super-wealthy while at the same time reducing the earnings of those of fixed incomes, annuity payments and interest on savings very substantially for several years now.
    7. ATOS examinations to be conducted at GP surgeries with family doctor present to co-sign work capability assessments and fitness for placement with job guarantee scheme.

  • jenny barnes 8th Apr '13 - 3:55pm

    Nice ideas, Joe. I’d like to add a massive social housing programme, using compulsorily purchased low value land, part of which could be sold to developers with residential planning permission. The money from that would then be used to build social housing, and the jobs created would help provide the jobs for the job creation scheme, and once the homes were in occupation, would reduce the need for housing benefit.

  • The largest element of the Welfare budget I believe is pensions. These are paid for by the current tax-paying workforce to previous work-forces (and yes, some of their pension is taxed but that’s in effect just making a reduced net payment with added bureaucracy).

    The nettle that no government has ever grasped is that these current payments are not linked to past contributions.

    Linking pension payments to wealth might be a start; in much the way that those going into care have to sell their homes, perhaps pensioners should realise some of the value of their existing assets or only receive the pension if their assets are below a certian level.

  • “2. I have passed the ‘£53′ test; I spent 3 months unhappily on benefits before finding a good job and have got myself to the point where I earn comfortably and can provide for my wife. At that time, welfare was an essential safety net. But I would have no objection to being asked to pay it back now that I am earning enough to do so. We should look at the principle of paying back past benefits when earning well above minimum (possibly median national income?)”

    This is possibly one of the worst ideas I have ever read. Yes, you have been fortunate, after a short unemployment period, you have found well-paid work to sustain yourself, most on benefits will never see this luxury. Most of those pn benefits are people whose work is less stable and their income less high. As such, your basically saying to the poor, benefits are the noose by which you can hang yourself.

    This is because your idea means benefits are now a regressive loan, that means if someone goes back to work, then they have to spend a large proportion of, what in most cases will be a very merger income, paying back their ‘debt’ to society for them daring to fall on hard-times. This means your idea fundamentally gives the poor three objections:
    1=Never claim benefits, unless you literally have a choice between benefits and starving, for fear of amassing large debts to society.
    2=Once on benefits, never bother working because unless you gain a higher than average income, your debt to society for daring to fall on hard times will be a noose around your neck forever, constantly entrapping you and your dependents into a never-ending spiral of poverty.
    3=Take the benefits because have no object, then spend the rest of your life barely staying afloat as the state’s noose grows tighter and tigther.

    My god, even the Tories would not suggest something this egregious., and in fact, when we have people in this who can afford to spend 800,000 on acholol in a single night, I actually think, may be the rich do have a paternalistic obligation to the poor, they have just once again had their witch-doctors try to convince us otherwise.

  • Lee_Thacker 8th Apr '13 - 9:44pm

    Good grief. I have paid thousands of pounds of national insurance over the last few decades and been in work for all but a couple of months. So according to tpfkar the state will continue taking my NI contributions, but if I am out of work I’ll be given a loan to support myself. What next repaying the cost of NHS operations? Fortunately, my employer pays for health insurance ….

  • Ian Wallace 8th Apr '13 - 10:19pm

    The problem of how to support people out of work can only get worse. As we move to a post industrial society we are
    going to have fewer people earning increased income while the number of people surplus to this society and living on welfare grows. What is a problem now will soon become a crisis.
    There is a solution which is to ensure that we become a country with the best educated and trained people. We are to raise the school leaving age, a good start but not if we continue to have people leaving school with minimum literacy.
    All out of work payments should be linked to either time spent on training or education. Most people out of work will leap at the chance to increase their skills.
    We can seek to reduce the cost of labour by reducing wages to Chinese levels or out smart them. I know what I would choose.

  • I actually agree with most of what Liberal Al has written – to incentivise work you’d have to have a high threshold before any repayments are payable, and there is no way this should apply to someone on low wages. I suggested median income (26k individual or 41k household) It comes from the principle of having to find further savings from those who can pay rather than those on the breadline.

  • “The cuts to the “welfare” budget are not inevitable.”
    I’m afraid they are inevitable. With no discernible economic growth, and none on the visible horizon, we have to acknowledge that we have a shrinking economic pie. The dilemma is how that shrinking pie is apportioned. Fairness is a measure that ought to be used, and if it were to be used, the young would have the greatest slice of the pie.
    Sadly, much government policy is designed to keep the boomers and the ‘grey vote’ happy. But there should be a bold shift of policy away from boomers and towards the young. A first start, would be to let house prices fall, to where they are accessible to the young. A second, to have a draconian tax hit, on Buy to Let and second home investors (mostly boomer investments), to stop them ‘eating the young’, with high rents to support their boomer retirement incomes. A third, would be to means test state pensions. ( No it’s not fair, but tough ).
    It’s time to give the young some breathing space. They can’t continue to be used as the cash cow for aging boomer welfare. I speak as a boomer.

  • Yellow Bill 9th Apr '13 - 12:31am

    Stephen

    Can you come back on George Potters post about the policy motions passed at conference?

  • Matthew Huntbach 9th Apr '13 - 1:30am


    But we as a party do need to start saying what we would do on such a charged issue as welfare. What would you do?

    We need to be honest. Start off by saying that rising lifespans and improvements in health care inevitably mean we will have to pay more for people who are not in a position to work. To pay more, we need to raise more money to do it. The political right are not honest about this. They don’t want to admit that a steady state level of welfare support means rise in welfare expenditure, and pretend the rise is down to paying out luxury levels of support to bad people – see the recent controversy.

    There is an aspect of this where liberals find it hard to be honest. Part of the success of China comes from illiberal social and political culture. We can’t and should not want to match that. Quite a bit of our welfare payment comes from the breakdown of informal social support that comes from a more rigidly organised society. There is also the issue that instead of us becoming a country whose own people are the best educated and trained, it’s cheaper for business to leave it to other countries to do the education and training of their people and then to import the results. We don’t like to talk about that for fear of it sounding racist.

  • Peter Watson 9th Apr '13 - 10:27am

    @Liberal Al “This is because your idea means benefits are now a regressive loan … My god, even the Tories would not suggest something this egregious”
    Given that Lib Dems now support the principle of high university tuition fees funded by repayment of a loan through the taxation system, is it really much of a leap for the party to support the same mechanism to fund the benefits system? Or the costs of NHS treatment?

  • Andrew Tennant 9th Apr '13 - 11:45am

    What would I do?

    Let’s start with half of what we’ve been reported as a party as having stopped the Conservatives doing!

    We help no-one by building up the national debt by operating a structural deficit for longer than is necessary.

    Our focus should be on reforms to education and adult skills training, as well as competitive taxes and business regulation to equip people to take a growing number of jobs within businesses relocating to or expanding within the UK. The only way to solve the welfare issue is to equip people to be autonomous and self-sufficient. Reliance on welfare will undoubtedly harm those trapped ever more in the longer term as the country has to continually reassess what it can and cannot afford.

  • John Dunn – hear hear

  • Martin Lane 11th Apr '13 - 4:15pm

    Welfare reform: what should the Lib Dems do?

    Hmmm…..prepare for political destruction perhaps?

    A long time friend has an autistic child. Because said child goes to college, where he has a support worker to help him through the day, my friend’s child has lost his DLA. I suppose ATOS think he no longer has autism? As a consequence my friend has lost his carer’s allowance and is now on JSA, My friend looks after his autistic child alone, as well as another son. How can he work full time and look after an autistic child? What happens when the autistic child leaves college?

    What should you do? I’m afraid it’s too late.

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