Will the welfare cap stand the test of time?
George Osborne’s welfare cap will be voted on tomorrow. It’s viewed by many as a moment of reckoning for Labour in which it will be caught in a deadly trap: support eye-wateringly tight and binding proposals that threaten the future of the welfare state or oppose them and stand exposed as the believers in big welfare spending that their critics allege.
It’s not only supposed to be a tricky tactical test but it’s also billed as a strategically important piece of policy that will make it more likely that any future government will have to back the choices being made by the current one. Which, depending on your political point of view, is why it’s lauded as a ‘potentially momentous punctuation mark’ in Britain’s attachment to overblown welfare spending or a grave threat to what remains of social security. Both friend and foe of the proposal concur that it will cast a long shadow.
Or perhaps not. Leaving the parliamentary theatre to one side, self-conscious attempts by one government to constrain the hands of their successors rarely work. They tend to generate much media and parliamentary excitement at the time but leave relatively little historical mark.
The last Labour government also attempted this via legislation in 2009 that was supposed to enshrine a legal duty on the Secretary of State for Welfare to abolish child poverty by 2020. There were no caveats or get-outs and it paved the way, or so it was thought, for judicial reviews to be mounted against a non-compliant government. There were a panoply of reporting requirements, legal duties and new bodies like the Child Poverty Commission to give life to the ambition.
Yet the world didn’t really change. Even the tactical challenge didn’t work: the parliamentary vote turned out to be quite useful for the then Conservative opposition (the Labour leadership may end up feeling the same about this week’s vote). Five years on and it’s safe to say that Ian Duncan Smith doesn’t wake up in the morning worrying about the provisions of Labour’s law. The 2020 child poverty objectives are going to be missed by a country mile. The legislation didn’t lock in anything.
In some respects this week’s vote is less meaningful. For a start, the Coalition’s fiscal mandate, of which the new welfare cap is a part, automatically dissolves at the end of this Parliament. It will be replaced by whatever new fiscal arrangements that the government of the day selects. The opportunities for adjusting the cap are many — this could be done in a low-key way by simply changing the very tight forecast margin that is built into the numbers or more overtly by shifting which benefits fall inside it, or the time period over which it applies.
More fundamentally, any government that wanted to undertake policy changes to cut spending on social security is likely to do so with or without the cap. And if they wanted to let spending rise by more than the cap would permit they would also be able to do so (and if they can’t win a commons vote on a budget related issue like this they won’t be in power for long). Nothing about its introduction alters the real choices on the underlying deficit: raise taxes, cut social security or public services by more than is already planned or have a larger deficit for longer.
Which isn’t to say that it is irrelevant. Like many of these devices, the welfare cap is effectively a self-embarrassment tool. Its real effect is to make it more likely than would have otherwise been the case that higher than expected social security spending will get noticed and be debated. In a climate of widespread welfare-scepticism that could matter.
It’s also the case that if the government of the day wishes to use adherence to the cap as a public justification for making controversial policy measures then the design of it matters. And here it is noteworthy that the proposed cap sits uneasily with Universal Credit, the coalition’s flagship welfare reform that aims to seamlessely integrate a wide range of benefits. Most of these will fall inside the cap (mainly for the in-work) and some outside (mainly for the out of work such as JSA and housing benefit for the unemployed). A rushed effort to bear down on covered areas of welfare spending — if the OBR reports at an Autumn Statement that there is likely to be an overshoot in spending it is supposed to result in policy changes in the following Budget — could change the shape of Universal Credit and very easily undermine work incentives.
There is another sense in which all this should, or at least could, in theory matter. For all the heat in the current welfare debate there is relatively little light about the underlying causes of the trends in social security expenditure, and far less still on whether alternative policy choices would, or wouldn’t, affect them (a point Graeme Cook also makes). How much difference would a major boost to housing supply, or a steadily rising minimum wage over a Parliament, make to spending on tax credits and benefits? We don’t really know. Because it’s not anyone’s job in government to think hard about the interactions of policy choices and welfare spending, we have only a limited sense of what the real choices and trade-offs are. An improved process of thinking about social security (and other) spending including on costly tax-reliefs could help remedy this.
Amidst the Parliamentary antics this week we should keep all this in proportion. When the next chapter of the history of the welfare state gets written, this week’s vote is unlikely to have a leading part.
Originally published at www.resolutionfoundation.org on March 25, 2014.