Benefits Uprating Bill: Steve Webb’s arguments FOR

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 was Editor (and Co-Editor) of Liberal Democrat Voice from 2007 to 2015, and writes at The Collected Stephen Tall.

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  • Norman Fraser 22nd Jan '13 - 11:43am

    This appears to me to be a fairly straight-forward exercise in hypocrisy. In spending terms £3.6 billion is small beer and could have been found from elsewhere had there been a will. That further benefit cuts were necessary at all was caused by the failure of the coalition’s economic policy which caused a reduction in revenues requiring extra borrowing. Nick Clegg’s failure to secure a wealth tax is another contributory factor.

    I am disgusted to be a member of a party that connives in an attack on that part of society living barely above subsistence when bankers still get their bonuses and the most incompetent chancellor in recent memory continues to wreck the economy.

  • “There is not a free way of finding money without any impact.”

    But money can be found to cut income tax for all basic rate taxpayers, 40% of whom have above-average incomes.

  • James Sandbach 22nd Jan '13 - 12:07pm

    I’d be interested to know whether the Bill is actually necessary – as I think benefits changes in uprating can policy, on my understanding, be delivered administratively or under secondary legislation. So the concern is that the Tories are using this Bill to make a big political statement about curbing benefit growth and dependency etc (Sarah Teather’s speech was excellent on the macho and and stigmatising politics of this), One of the reasons I find so much Govt. policy irksome is because they legislate when they don’t need to purely for the politics and semantics of it..we have far more Bills annually from this Govt than new labour in a bad year,,,we Lib Dems though have always decried legislative hyperactivity..

    On the general principle though of depressing benefits below inflation, whilst distasteful I do actually agree that the policy may be the lesser of several evils, and far fairer than for example another big top-slicing of disabilty benefits..

    Interesting also that Steve says DWP have a new £10b savings target (or ‘cut’ depending on what language you tend to use) for benefits, beyond what is already being cut (around £80b) through the restructing of benefit entitlements under the Welfare Reform Act..,,Nick’s office had been spinning that the Lid Dems had seen-off the Tories demand for another £10-20b cut..More interesting still is Steve’s admission that the uprating changes may only save £3-£4 billion so where’s the rest going to come from?

  • Because we are stuck in a coalition we cannot expect to get what we want. I wonder if the Tories gave way and stopped protecting the rich if we could of found enough money to prevent the need for this legislation.

    I refer specifically to the Tory refusal to look at a mansion tax – removing freebies & top-up benefits from rich pensioners etc.

  • “the IFS analysis clearly shows that the deficit reduction strategy is hitting the wealthiest 10% the hardest.”

    But as far as the other 90% are concerned, the effect has been entirely regressive. Those on the lowest incomes have suffered the largest percentage decrease, while those on the highest (i.e. the 81st-90th percentiles – well above average income) have suffered the smallest.

  • Bill le Breton 22nd Jan '13 - 2:54pm

    My father was a mutineer. We weren’t really aware of this or its significance until, towards the end of his life, historians began interviewing him.

    As a young man he was one of a thousand sailors in the British Atlantic Fleet who, at Invergordon in May 1931, went on strike over the Admiralty’s implementation of the Geddes’ cuts to public expenditure.

    The principle on which they risked their careers and future prospects in the Service was that a 10% cut to every sailors’ pay was not fair as its impact on the lowest ranks was disproportionate. To an Admiral, what was a 10% reduction, as compared to the effects of an identical percentage cut to a lowly rating?

    As a consequence of the Mutiny, , the policy across public services was reconsidered. Britain came off the Gold Standard four days later providing a considerable monetary stimulus which heralded a rapid improvement in the UK economy and the adoption of similar policies in the other great trading nations of the world.

    And here we are again: fixated with reducing the deficit by cuts and tight monetary policy instead of stimulating growth; denigrating fairness as a crude parity; cutting in real terms the benefits of those forced to live off £50 or £70 a week.

    They will not mutiny. They do not vote. They are in many ways fatalistic fellow members of our society, easily traduced and undefended by a political class without vision, focused on the small print, too timid and unimaginative to believe in the powers of our people to create a better, stronger society; given a chance.

    When my father died an Admiral running the Navy Pension Fund wrote to my mother praising her husband as ‘gallant and right-minded’.

    Where is the gallantry in the House of Commons? Where the right-mindedness?

    This is a foul and pernicious act for which those who voted for it should feel enduring shame.

  • Tony Dawson 22nd Jan '13 - 6:07pm

    Bill, my father was only two years old in 1931 and you and I are of a reasonably similar age. Are you the child of a somewhat elderly parent?

  • For me this is a question of priorities. The first priority of the government should be the bottom income decile, the second the second from bottom and the third the third from bottom and so on.

    The bottom decile is almost exclusively on benefits. Why, then, is it a Liberal Democrat priority to deliver a real terms cut for the poorest whilst taking the costly measure of raising the personal allowance threshold early – which benefits those in the 5th, 6th, 7th deciles the most. To the question of where the money comes from:

    1) Slow down the raising of the personal allowance
    2) Further lower the annual allowance on pension pots (nobody but the very rich can afford to put 40k in every year)
    3) Means test universal pensioner benefits (WFA etc) – perhaps link to pension credit
    4) End relief on capital gains tax at death
    5) Bring down the higher tax threshold further

    We should be throwing major toys out of prams on this . I want constitutional reform as much as any Lib Dem, but why is it that we draw a red line on things like Lords reform, but we don’t on protecting the most vulnerable?

  • Bill le Breton,

    hats off to your father, it must have taken a lot of guts to stand with fellow sailors in that mutiny.

    This welfare uprating issue has two distinct strands – economic policy and fairness. The same issues that were of concern in the 1930s and indeed those of our central message – that the Liberal Democrats are building a stronger economy in a fairer society

    As you note, the government gave up the Gold Standard in 1931. The gold standard was a way of making sure that the pound kept its value and Britain did not suffer from the inflation that had ruined Germany’s economy in 1923 and 1924. Unfortunately, it also made it difficult for businesses to borrow money for expansion because interest rates were high. Similarly it made British exports expensive, depressing staple industries further. Removing the gold standard helped with housing development and new industries in London and the Southeast, but the millions of unemployed in the traditional industries noticed little improvement in their lives.

    We have no such monetary constraints today. Interest rates are at historic lows. Despite Sterlings depreciation against major currencies, exports have not surged and the trade gap has not been reduced in any significant way. In these times, we need more innovative and fairer forms of monetary stimulus than quantative easing has delivered.

    The National Government of 1931 cut benefits of insured workers by ten per cent. The Prime Minister, Ramsay MacDonald, faced the prospect of millions of workers relying on ‘poor law relief’, paid for by local ratepayers, who were hard pressed themselves. It became clear that the unemployed had to be supported from national taxation and not local rates – a process that was completed by 1934 when he government passed the Special Areas Act. The Act identified South Wales, Tyneside, West Cumberland and Scotland as areas with special employment requirements, and invested in projects like the new steelworks in Ebbw Vale. Success of the Act was limited because the level of investment was not high enough and it was not until the late 1930s that the shadow of unemployment lifted from Britain, thanks in part to government investment in rearmament.

    In order to qualify for dole, a worker had to pass a means test. The Public Assistance Committees (PACs) put the worker’s finances through a rigorous investigation before they could qualify for benefit. Officials went into every detail of a family’s income and savings. The intrusiveness of the means test and the insensitive manner of officials who carried it out frustrated and offended the workers. This was the era of the Jarrow marches and the background to the creation of Beveridge’s post-war welfare state.

    Steve Webb makes the basic case well enough, but where I would disagree is on the timing of these measures. All current efforts on deficit reduction should be focused on stimulating economic growth with a moratorium on any further significant cuts in public expenditure until the economy is restored to a healthy state.

    Higher interest rates can just as easily come about as a consequence of failure to restore UK economic growth while other developed economies are recovering. Implementing major welfare cuts at this time can only make the goverments task in this respect that much harder. If we allow ourselves to get into a situation where we face a combination of rising interest rates and flatling growth, prospects will become very bleak indeed.

  • The unspoken, and unanswerable, logic that the Minister misses is that benefits are set at subsistence levels and by reducing them in real terms you end up leaving the most vulnerable at below subsistence levels. This does not apply to any but those on benefits and those at the lowest levels of earning – the very people this will hit hardest. If there is a case that benefits are not set at subsistence levels and can cope with a reduction make it, on a benefit by benefit level.

    It’s a shocking piece of legislation that any who vote for should be ashamed of. Note pension benefits are not affected, nothing to do with pensioners voting more I’m sure….

  • Bill le Breton 23rd Jan '13 - 9:14am

    @Joe, thank you. He was also a red head and known all his life as ‘Ginger’, so he was unlikely to have been able to keep a low profile. Somehow he survived when many others were quietly removed from the service or refused any further promotion.

    We do have constraints – and again they are self imposed by incompetent central bankers, ill advised and timid politicians. I hope everyone has read the postscript to ITEM’s Winter Forecast:—Postscript—The-UK-needs-a-new-approach-to-monetary-policy

    Those timid politicians need to look at this graph (by Britmouse) before they go to bed each night and first thing in the morning:

    The case for change in monetary policy is unanswerable.

    @Tony, yes, but probably not for want of trying 😉

  • David Wilkinson 23rd Jan '13 - 10:30am

    Well done Andrew George and Charles Kennedy for standing up for values, sadly despite the fancy words of Steve Webb what it really means is that the poor are just too expensive.
    The arguement of % rises of wages v benefits is rubbish, many benefits such as JSA are set at the minimum to live on, so by setting this 1% rise this Tory led government is saying to the poor you can live on less than the minimum. The eating v heating issue will become even worse.
    Those Lib Dems MP’s going on about the % rise in wages seemed to have forgotten that 2.2 M will be taken out tax and 23 million have had a tax reduction , the only ones on less are the ones at the bottom of the social heap.
    What makes me laugh is the anti poor remarks come from the most privileged in the land, the public has not forgotton MP’s fake expense claims and those who claimed £400 a month for food, talk about pigs snouts.
    The same MP’s including Lib Dems who now moan how terrible the current pay and expense system is to them.

    its nice to know we are in it together

  • Where would the money come from?

    Quite easy – not reducing the top rate of tax and actively investigating those who were not paying it would be a start. Forcing the multinationals to pay tax on their profits would be another. Clawing back the taxes from those who avoid paying it would bring in more than enough.

    There are around 30,000 users of what are known as employment intermediary schemes and partnership loss schemes alone, closing down those loopholes would net around 10 billion (thanks go to the BBC for the info). This cannot be right when the working poor are having to suffer.

    We are hearing almost daily of new multinational companies who are avoiding paying even the reduced corporation tax. Stop them, bring in a law that states that debts paid to other companies owned by the same corporation must be paid from profits.

    Taking a different tack, get the more than two million unemployed into meaningful, permenant full time work that isn’t relient on zero hours contracts, temperary contracts or becoming self employed. This will have the double wammy effects of lowering the unemployment bill and raising the governments tax take.

    It’s whether this coalition has the political will to annoy its old school chums in the business world that is most questionable.

  • I used to respect Steve Webb even though his responses to questions were sometimes a bit odd.

    However this speech is laughable. I literally went “HAHAHA – Ridiculous” during the speech!

  • In other threads, people on the left of the Lib Dems such as Alex Marsh have argued for a moving definition of “needs” based on what the majority of people have in the particular place and time; I characterised it as “keeping up with Joneses” as the only need, they would probably talk about something they call “relative poverty”.
    In a recession, as the country has less, then by their way of thinking presumably a person’s “needs” become reduced to, or do I not understand how it works? I wonder if any of them will come on here and argue that below inflation rises make sense in a recession, or if their favoured means of working out needs is suspended in a recession.

    It is interesting that there are so many people who want someone else to be the hero and be a left-wing leader of the lib dems, but there are so few people who are volunteering to make laughing stocks of themselves on national television by arguing for their kind of nonsense.

  • Bill le Breton 24th Jan '13 - 8:07am

    Now that the IMF’s chief economist, Olivier Blanchard, has urged the Coalition to use the March budget to ‘take stock’ and revise fiscal policy, would Steve Webb have been able to make case that there is no alternative to welfare cuts to the benefits of the poorest and most vulnerable?

    @ Peter Tyzach writes, ‘but if I am looking for financial advice I shall go to Steve.’ Would that be the private person Steve Webb or the government minister?

    As a minister he has to parrot the line that austerity and increasing the speed of deficit reduction remains the ‘only course’ despite the evidence that , as even the Governor of the Bank of England now admits, ‘there has been barely any growth at all over the past 2 ½ years’.

    In private Steve Webb would probably be a lot franker about the macro policy of his fair weather colleagues

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