Queen's speech needs to tackle drivers of the benefits bill to reduce spending

Cutting welfare is false economy without better jobs and more affordable homes, says Katie Schmuecker.

Two defining areas for this government will be its record in reducing poverty and reducing spending on benefits. This can only be achieved through actions to tackle the root causes of poverty, and tomorrow’s Queen’s Speech is its first opportunity to set these out.

The government has made clear it intends to reduce the benefits bill by £12 billion over the next two years. But until we are told more about how this will be achieved, it’s difficult to assess the impact on poverty. We know that the state pension and universal benefits for pensioners (like free TV licences and Winter Fuel Payments) are being protected. This accounts for 40 per cent of the benefits bill, and leaves £125bn of benefit and tax credit spending unprotected.

We also know that:

  • most working age benefits and tax credits are to be frozen in value for the next two years (affecting 11million low income households by an average of £100 a year); 
  • the benefit cap is being lowered from £26,000 to £23,000 a year (affecting fewer than 100,000 households), and;
  • 18 to 21-year-old jobseekers will no longer be able to claim housing benefit (affecting 20,000 young people). 

Collectively, these measures will save less than £1.5 billion, so where might the rest come from? A paper published today by the Institute for Fiscal Studies for the Joseph Rowntree Foundation outlines some illustrative measures that could be taken to reduce spending. It also assesses how much each measure might save and the implications for low-income households. The chart below sets out some of the potential options.

There are no easy or appealing options, and it is almost certain that a £12billion budget reduction cannot be achieved without hitting some low-income families. But poverty is not only about the money in people’s pockets; it’s also about their prospects for the future. And while the incomes of the poorest can be protected to some degree by means-testing universal benefits, this risks weakening work incentives by creating cliff edges in the system for those that can work. It also depends upon the availability of sufficient jobs with pay and conditions that enable people to exit poverty.

If it gets this wrong, the government may find itself failing on its own terms. Over the last parliament the Coalition found cuts of around £17 billion to the benefits bill, but overall spending on benefits remained pretty flat. This is because falling earnings, increasing rents and growing numbers of older people pushed the bill ever upwards. They were running to stand still. Unless the causes of increasing benefits spending are addressed, finding £12billion of cuts may also go the same way, with hardship increasing to boot.

To succeed, benefit reforms need to be part of a wider package of measures to sustainably reduce poverty in the UK. This means boosting productivity to increase pay and security in work, working with business to introduce ways to help people progress once they’re in work, and building more genuinely-affordable homes. Unless the Queen’s Speech outlines a suite of measures that make progress in these areas, both poverty and spending are likely to rise.