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Why I Wish The Government Really Would Cap Welfare Spending

Why I Wish The Government Really Would Cap Welfare Spending

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One item in the budget yesterday that I found really perplexing was the new welfare cap of £119.5 billion per year, not including out of work benefits and pensions.

As Jonathan Portes argues, there is no reason whatever to believe that that this is a credible policy: "Putting a number on the welfare cap without policies to deliver it is meaningless. If you are going to take money away from people you need to change policy and there is nothing to tell us how the cuts will be achieved."

And beyond credibility, there is the problem of mean-spiritedness. Yes, in an ideal world there would be no need for government welfare, as everyone would either have a decent-paying job, or enough savings to support themselves, or sufficiently charitable friends, family and neighbours. But we don't live in an ideal world, and there is absolutely no reason to believe that an arbitrary capful of money can fulfil the redistributive needs of the poor of the nation in housing benefit, disability benefits, working tax credits, etc. Will the poor face arbitrary salami-slicing cuts to their incomes if the benefit cap is hit? Will new applicants — who have recently lost their job or become disabled — be refused benefits if the benefit cap has already been hit? What if a new recession hits? This all reminds me of King Canuut standing in front of the waves and ordering, beseeching, begging them not to go further. But alas, reality does not always oblige.

These deeper cuts come on the back of years of welfare cuts and austerity, where an unprecedented number of people — including many of Osborne's beloved "hard working people" — are now using food banks. Labour politicians, including Ed Miliband continue to rail against this. But the rise of food banks is, practically, government policy. David Cameron's chief political r
aison d'être is the downfall of Big Government, and its replacement with some abstract thing the campaign posters referred to as the Big Society. Food banks are a voluntary charitable redistributive endeavour. And to the libertarian-leaning creed to which Osborne and Cameron belong, that is infinitely preferable to redistribution via the largesse of the state. So what Osborne is shooting for with this policy target is more food banks. More housing charities, less social housing. Less welfare handouts, more church handouts. The welfare cap, I think, is aiming for that.

Can that work? Before the welfare state, there was the workhouse and debtors prisons, truly horrendous, exploitative institutions. While I am sure that our society has progressed morally and ethically since then — and while we live in a much richer country than Victorian Britain — there is no guarantee that private charity can really fill the gap left behind by welfare cuts. 
Cameron and Osborne are believers in Coolidge's maxim: "All growth depends upon activity. There is no development physically or intellectually without effort, and effort means work." But not everyone can pull themselves up by their bootstraps. These cuts, then, risk large-scale hardship for thousands and perhaps millions. And that risks undermining the social fabric in a large way, and driving the jobless and desperate toward political and human extremes. The riots we saw in 2011 may not be the last we see, especially if Osborne and Cameron form the next government and continue to dismantle the British welfare state.

Of course, I don't necessarily think the idea of wanting to cap welfare or reduce the welfare bill is a bad idea at all. It is, after all, quite unproductive to have millions of people not working and collecting money from the government. Yes, their spending is everyone else's income, but their spending could be a lot higher if they had good jobs. The easiest way to cap welfare would be to reduce unemployment by spending lots and lots of money to create jobs. 
Every penny spent creating useful, productive jobs in the real economy is a penny not spent on welfare.  I think that after four years of austerianism, Osborne is finally beginning to grasp the importance of government policy in job creation, given his enthusiastic introduction of higher personal earnings allowances, a few reasonably large public infrastructure projects, and extending Help to Buy to encourage housebuilding. Jobs don't just magically appear with austerity rhetoric, Osborne and Cameron have had to learn. (And yes, Cameron actually thought this!)

I don't know when or if Cameron and Osborne will go the whole hog, and come out as big public spenders. 
I certainly don't think Osborne and Cameron are being disingenuous about the virtues of work. They (as Coolidge did) really believe the hype. But Cameron stuck a lot of his reputation on "Age of Austerity" derp. So I don't think Cameron and Osborne will ever ditch the anti-debt rhetoric, exactly. That element of silliness is too thoroughly ingrained. But I do know Reagan and Thatcher spent the economy into growth, eventually, for all of their anti-government and pro-market rhetoric. If you are in government, and you want the economy to grow, there's no easier way to than to kick start that than with public investment. The same thing goes if you want to reduce the welfare bill. It's all very well to derp all day 'til you're blue in the face about the private sector, but if the private sector isn't in job-creating mode, then that's not going to bring unemployment and the welfare bill down.

Of course, if Cameron and Osborne lose the next election then this argument is probably moot. Perhaps Osborne's newfound enthusiasm for public investment will all prove too little, too late. Labour hold a pretty big inbuilt electoral advantage over the Conservatives, and the Liberal Democrat vote is likely to collapse back to Labour thanks to Clegg's new clothes. But if Cameron and Osborne somehow sneak back into power, I wouldn't be surprised to see them going down the same road as Reagan and Thatcher, toward higher public spending.


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Strange to quote a Krugman article where he is predicting austerity will cause a double dip recession, bet he feels silly now. Then again....when does Krugman ever admit he is wrong.

Since the welfare cap does NOT include unemployment benefit, spending the odd billion on creating makework "jobs" will have zero impact on the capped part of the welfare bill.
At first I thought that Mr Aziz had failed to read the small print of government policies before pontificating. But no, he recognises that the cap excludes unemployment benefit but still says "Will new applicants — who have recently lost their job or become disabled — be refused benefits if the benefit cap has already been hit?" Even Ed Miliband is not going to try that one on in public.
Is this a "a social-network of experts" or an online party political broadcast for the Labour Party?

Jonathan, I was hoping to read more about the easiest way to cap welfare would be to reduce unemployment by spending lots and lots of money to create jobs. Perhaps you could enlighten everyone on exactly how any government can invest its taxes to achieve this. Please include examples from real life. Many thanks.

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