Benefits: Reductions

Lord Livermore Excerpts

Thursday 1st November 2018 Lords Chamber

[Lord Livermore (Lab)]

My Lords, I congratulate my noble friend Lord Bassam on securing this debate and on his powerful opening speech. I did not know Lady Hollis nearly as well as many other noble Lords speaking today, but I know—both from her formidable reputation and from having had the pleasure of hearing her speak—that she was a consistent, eloquent and uniquely powerful voice for so many who too often have no voice of their own and I greatly admired her for it. How desperately do so many in our country need that powerful voice today. I know that many of my noble friends, in speaking up for the most vulnerable in society, will continue the work and maintain the legacy of Lady Hollis.

During the last Labour Government, I worked for 10 years in the Treasury. Welfare reform was central to the mission of the then Chancellor. The principles underpinning his reforms remain both relevant and right today: to ensure work always pays more than welfare and to prioritise support on to children and, in so doing, to reduce child poverty. It is a tragedy then—for so many families’ prospects, for our nation’s prosperity and for the fabric of our society—that over the past eight years successive cuts to the UK’s social security system have undermined every one of those principles.

Since 2010, we have repeatedly been told that those cuts were an economic necessity. The Government’s policy of austerity—of not just reducing the deficit but of aiming to run a surplus—was used to justify over £12 billion of cuts to the welfare system. Yet in his Budget speech on Monday the Chancellor announced that austerity is coming to an end. He abandoned his fiscal objective of running a budget surplus in the next decade and instead embarked on a £55 billion giveaway. If there is so much money to spend and austerity really is over, any cuts that the Chancellor now imposes must surely be a matter not of economic necessity but of political choice.

Let us look at the choices that this Government have made. We should, of course, begin by welcoming the £1,000 increase in universal credit work allowances, which, while it does not address some of the underlying design flaws, puts back some three-quarters of the cuts made to universal credit by George Osborne. However, more than 75% of the benefit cuts that the former Chancellor announced in 2015 remain government policy, with the freeze in working-age benefits still continuing next year. Of the £12 billion of planned welfare cuts by the end of this decade, only a quarter have now been reversed and over £4 billion of further working-age benefit cuts are due over the next five years.

Even with the new universal credit measures, those in the bottom 30% of the income distribution will still gain less from the increase in work allowances than they will lose from the continued benefits freeze. As a result, a couple with children in the bottom half of the income distribution will lose £200 a year, while a single parent working full-time on the minimum wage will still be £1,940 a year worse off. To reverse these cuts would cost the Exchequer £1.5 billion, but clearly this was not a choice that the Chancellor was willing to make.

Instead, the Chancellor chose to announce tax cuts costing £2.8 billion, 90% of which benefit the top half of the income distribution. Nearly half the gain goes to the top 10% alone. Looking at the overall effect of the Budget, the richest 10% of households will gain 14 times more than the poorest 10%. The IFS has calculated the distributional impact of changes to tax and benefits since 2015. It is strongly regressive. The poorest decile loses £1,100 a year, while the richest decile gains £400 a year. While some of the richest working-age families with children gain £1,000 a year, the poorest lose £3,000 every year—15% of their income. These are quite some choices that the Government have made.

These are not the inevitable consequences of reducing the deficit. No longer are they the necessary result of austerity; rather, they are deliberate policy choices reflecting the Government’s values. Their choice is to continue to cut ever deeper into working families’ incomes, not out of economic necessity, but out of ideological determination. The choice to spend £2.8 billion on tax cuts, half of which benefits the richest 10%, while it is still their policy to cut £1.5 billion from low-income and middle-income families, is a bad one. It is a bad choice for the Government to make and a bad choice for the Opposition to support.

Look back at the distributional impact of Labour Budgets over the 10 years that Gordon Brown was Chancellor and you will see a 12% increase in net income for the poorest 10% of families and a 5% decrease for the very richest. That is what progressive tax and benefit reform looks like and those who now claim to be more progressive could learn much from it. The reality is that austerity may have ended for a few at the top, but it is far from over for many hard-working lower-income and middle-income families. By cutting support to them, this Government break the promise that work will always pay more than welfare. By their choices, they betray a generation of children and, by their actions, they expose a Government deliberately targeting the very poorest in society while handing billions back to the better-off.