Recent media reports have suggested that the Government is considering
freezing or limiting benefits increases. This move is very welcome – and long
This year, benefits went up across the board by 5.2% deepening the
deficit by an extra £10 billion per year. This is because the inflation figure
used for setting the benefit increase was the September 2011 one – the highest
monthly inflation figure in recent years.
An increase of this magnitude was simply not fair. Firstly, inflation has
averaged about 3.5% over the last year, and is now down to 2.5%. Secondly, public
servants such as nurses, police officers, teachers and members of the armed
forces had to make do with pay rises of only around 2%. And in the private
sector, many people have not had a pay rise at all. Why should benefits go up
so much more than the wages of those who actually work?
During Labour’s time in Government, the welfare bill doubled – from £93
billion to £188 billon. Even adjusting for inflation, it went up by 50% during
their time in office. Today, at £207 billion per year, it consumes about 30% of
all Government spending and is by far the biggest line item in the national
budget. If we are going to tackle the deficit, it is vital to get the welfare
bill under control.
But there is an equally important social point. If benefits pay too
much compared to working, people do not have an incentive to work. The
TaxPayers' Alliance has published research showing that when someone moves from
benefits to a minimum wage job that person is only 26p per hour better off on
average. I heard about this at first hand from someone living in the seat I
contested at the last election, who wrote to me saying:
“I went back to work, albeit only on £6.50 per hour. I am 57 years
old. When I was on unemployment benefits I was entitled to £67 per week and
rent and council tax benefits. Now that I am working full time I have to pay my
rent in full (no housing benefit), plus now I have to pay my own council tax. My
net income after all this lost benefit and taxes is £100 per week. So for
working 5 days a week I am better off by just £23 per week. Mind you I forgot to
take transport costs off. Wow I am actually worse off.”
This is simply not right. Controlling the benefit level at least helps
tip the balance somewhat back in the right direction.
Given the 5.2% increase last year, there is a very clear case to freeze
benefits in cash terms for the next two years. Pensioners, who can’t work,
might be exempted from this and given a CPI inflation-linked rise of around
2.5% per year. The savings realised could either be put towards deficit
reduction, or used to increase the income tax threshold towards £10,000 and further
help incentives to work – by helping people like the man quoted above keep a
bit more of his income.
The politics of this even amongst people on low incomes are not as
toxic as might be imagined. In the constituency I fought at the last election, it
was working people on low incomes who were the most angry about benefit
dependency. This is because they can see their neighbours earning about the
same as they do for not working, while they themselves are working hard in
often quite tough jobs. They will actually welcome a fairer balance between
what you get paid working, versus on benefits.
As a country, we simply can’t afford welfare bills as high as they are.
And we certainly can’t afford to have people better off on benefits than they
are working. I hope that the media
reports we have recently seen translate into action on this issue.