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- The Reformer Blog
24 November 2015
Tomorrow, the Chancellor will unveil his spending plan to wipe the deficit and run a surplus by 2019-20. Unless the Government does a major U-turn, pension age spending will continue to be protected by the triple lock, leaving cuts to fall on those of working age.
In the Summer Budget earlier this year, Osbourne pledged to find £12 billion welfare savings by the end of the Parliament. These would come from large cuts to tax credits (£6 billion), a four year working-age benefit freeze (£4 billion), and a cut in cash terms to social rents for housing associations and LAs (£1.4 billion). The proposed introduction of a ‘Living Wage’ was a minor concession for tax credit claimants, but, under current plans, will increase the minimum wage by only 13 per cent more by 2020 than the National Minimum Wage. It is clear that this will not compensate the significant cuts to tax credits and the welfare of some of the poorest families will be hit the hardest.
Instead of seeking short term cuts, the Chancellor should focus on building a sustainable welfare state. This requires structural reform, to tackle the three main drivers of welfare expenditure:
1. Housing benefits: the Government must prioritise building and retaining an adequate supply of social housing. Providing affordable accommodation through social housing, rather than subsidising more expensive private rents, is essential if we are to cut the £24 billion housing benefit bill. This means building more social housing and abandoning the extension of the Right to Buy scheme.
2. Tax credits: a sustainable welfare system will be impossible without tackling persistent low pay. The Government should ensure that the proposed Living Wage is adequate and formally commit to reducing the number of people on low pay. The Chancellor should scrap entirely the changes to the tax credit taper rate and earnings disregard.
3. Disability benefits: The Government must overhaul the out-of-work sickness and disability benefit system, which, at present, comes at a cost of £14 billion and does not serve the needs of 2.5 million working age people. The Government should take Universal Credit as an opportunity for radical reform, so that more people are incentivised and supported into work.
The welfare system is not sustainable or fit for purpose. The Chancellor has two options: to continue seeking short term savings, or to look beyond the Parliament and propose long term change that addresses the underlying drivers of high welfare spend.
Hannah Titley, Researcher, Reform