Welfare goes up in recessions as the so-called automatic stabilisers kick in to protect the poorest from increased deprivation. Indeed the Chancellor pointed to this effect as an explanation of why the deficit wasn't reducing as fast as he had hoped when his Plan A austerity strategy was failing to deliver growth. Now growth seems to have returned as he has abandoned this policy in favour of a Plan B that includes a slower pace of deficit reduction and a fiscal stimulus to reflate the domestic housing market that the economist and former member of the Bank of England's Monetary Policy Committee, David Blanchflower, described in his article yesterday's Independent as the 'Help to Raise House Prices Scheme'. No doubt the renewed optimism that this increase in growth has fired up lays behind last week's promise by the Chancellor to find 'billions of pounds of welfare savings'.
Where he plans to find these savings remains unclear. If you look at the chart below you will see that we spend around £160 bn a year on welfare. Yet almost half of this is spent on state pensions and the Coalition will be hard pressed to reduce this given our aging population and their commitment not only to exempt it from the austerity cuts, but to restore the link between earnings growth and pensions rises.
The next biggest welfare benefit weighing in at almost £17 bn a year is housing benefit. Initially the Coalition, no doubt influenced by the views of Ian Duncan-Smith and his Centre for Social Justice, appeared to assume that as the economy bounced back to growth, as was normal after recessions, employment would rise and getting people back to work and off benefits, with the help of a carrot and stick approach, would ensure that the welfare bill would reduce. Indeed in the early days of this government the media was full of stories that seemed to suggest that there was a view held by many that work-shy shirking was at the root of the welfare bill. The fact that half the bill was accounted for by pensioners who were collecting the pensions they had paid in for during their working lives seemed to have passed them by.
The Tories’ War on Welfare has had the positive effect of waking us up to the inconvenient truth that an awful lot of the benefit bill goes on paying benefits to people in work. The final rousing from our collective stupor must surely have come when the Government’s own Commission on Social Mobilty and Child Poverty reported in October. The Commission, headed by former Labour Cabinet Minister Alan Milburn but also including the former Conservative Cabinet Minister Gillian Shepherd, found that two thirds of poor children are now from families where an adult works. Working parents in Britain, ‘simply do not earn enough to escape poverty,’ Milburn said and child poverty is, ‘no longer a problem of the workless and the work-shy’.
The elephant in the room is that many of these families are in receipt of housing benefit because rents are so high, especially in London and the South East. I will conclude with a few sobering facts. If you manage to get a full time job in London on the London Living Wage of £8.80 an hour, then you will be earning around £18,000 a year for a 40 hour week. This is gross of course, that is, before deductions for tax and national insurance. In Lewisham it costs around £1,500 a month to rent a three bedroom house from a private landlord. That’s £18,000 a year. It costs around £400 a month to rent a 3 bedroom property from Lewisham Homes, the organisation that manages Lewisham Council’s homes. Perhaps if we had more of these to rent out to our poorest residents, they wouldn’t need to claim so much in housing benefit. So maybe if the Government wanted to reduce the welfare bill it would gives us more money to build more Council and Housing Association homes. Too bad then that since coming to power the Coaltion has done the opposite.
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