Natalie Elphicke: This must be the year in which the small boat channel crossings are ended

4 Jan

Natalie Elphicke is MP for Dover & Deal.

More than 28,000 people came into the UK through the small boats route alone last year. Many lives have been lost. What started as a trickle of boats and a few people has become a booming international criminal business, with ever greater numbers of illegal craft coming in day after day, month after month. Even on Christmas Day, the people smugglers didn’t stop plying their trade – putting even more lives at risk on the English Channel.

The range of departure countries is extraordinary and spans continents. Vietnam in the Far East, and the African countries of Eritrea and Somalia, as well as the Middle East: Iran, Iraq, Syria and more besides. Each of these routes has its own brokers and their own specialities. But they all have in common a clear belief that the UK is easy to break into and even easier to stay in.

Last year, records were broken on every measure. The record for the number of people arriving in a single day, for the number of unaccompanied young people arriving, for the number of people arriving in a month and a year (see here). It was a truly shocking year at the Dover border.

As the numbers have increased, so has the impact. Across the land, hotels, bed and breakfasts, old army barracks and rented housing were snapped up by the Home Office to house the equivalent population of a small town.

In addition, there’s the extra strain on GPs, schools, hospitals, skills and language training, as well as welfare payments. That doesn’t include the millions spent last year on new short-term facilities to hold and process migrants. The traditional facilities at Dover have simply been unable to cope with the numbers now arriving.

It’s not just a matter of money. It’s also one of national security. It is an uncomfortable truth, but one still the same, that not everyone who comes into our country through the illegal channel crossing route wishes us well.

People wanted for serious crimes, including those wanted by other intelligence services, have been detained in Dover as they tried to enter clandestinely by small boat. Not every person who lands on our beaches is picked up. Residents of coastal villages, such as Kingsdown and St Margaret’s, make regular reports of arrivals in the dead on night and in the early hours of the morning. Grown men knock on doors, hide in local woods where villagers walk their dogs, or are picked up by waiting cars and vans.

Beyond money and national security, there is also the question of fairness. It’s unfair to people choosing the right way to apply to come to the UK, when people are able to enter the UK illegally and remain. It’s also unfair to people seeking a way out of poverty, who want opportunity, and who are lawfully resident in our own country, including migrants and refugees who come into the UK through legal routes of entry.

Moreover, the bottom line is that no-one has to make these dangerous crossings. We need to be crystal clear about that. Every person getting into the water is already safe in France, which has an established and responsible asylum system. People are safe in many places before France too, both inside the European Union and elsewhere.

We also need to be clear that there are legal routes of entry into the UK. These are the routes that should be taken. Many people who are making the crossing are fleeing poverty, not persecution. They lack opportunity, not safety. The lure of the UK is predominantly economic. That’s why people borrow and save to pay to come to the UK. It’s an investment in their future.

And right now, there are hundreds of thousands of work visas up for grabs – in a huge array of sectors, including charity worker visas, seasonal worker visas, young persons’ mobility visas, creative workers’ visa, health and social care, HGV, and even amusement arcade work. You can come and work in the UK legally, and millions of people do. But you need to go about it the right way.

There are safe and legal routes for family members, too. Any person with a case for family reunion can make that case on behalf of their relatives in the UK and from the UK. There is absolutely no need for any close family member to be smuggled in at the dead of night.

It is absolutely right that the UK should help those most in need around the world and we do. But encouraging or facilitating people smuggling is not the way to do it. We need to bring an end to the small boat crossings and stop the dangers of people being in the hands of people smugglers and the risk of further deaths on the Channel.

This is the first of two articles by the author on small boats.  The second will be published on this site on Thursday.

Omicron. How Starmer is swelling the number of today’s Conservative rebels.

14 Dec

When a revolt of Government backbenchers swells, the Leader of the Opposition must choose: is he to be a John Smith or a William Hague?

First, Smith

In 1993, John Major’s administration was attempting to steer its Bill to enshrine the Maastricht Treaty into domestic law through the Commons.

John Smith sought tactical opportunities to vote down its provisions (forcing a vote on confidence on one occasion in the wake of having done so).

This had the plus, for Labour, of defeating the Government and weakening its standing, but the minus of disincentivising Conservative backbenchers to oppose Major.

For after all, one doesn’t like voting with the Labour Party if one is a Tory backbencher.

Next, Hague.

In 1997, Tony Blair’s newly-elected Labour administration to proposed a cut in the payments of some benefits to lone parents who were new claimants.

Hague decided to vote with the Government – a decision presumably informed by not having the numbers to defeat it were the Conservatives to join with Labour rebels.

But his decision had the effect of maximising the Labour revolt, as horror at the prospect of voting with the Tories swelled the ranks of the rebels.

Furthermore, a Minister and four junior members of the Government resigned in protest.

Which takes us to Starmer.

As I write, the Labour leader is set to be a Hague rather than a Smith.  He seems willing to shun the tactical gain of defeating the Government in order to win the strategic one of maximising Tory rebellion.

This would cover Starmer’s bases.  He is unwilling to alientate pro-lockdown voters, who comprise much of Labour’s base: public sector workers who are relatively insulated against the effect of restrictions.

Furthermore, he is offering the Conservative rebels a risk-free option.  Since there is no prospect of today’s measures being defeated, they are insulated against consequences that might follow their defeat.

For in the event of the NHS being unable to cope with Omicron, the Government will get the blame – not the rebels.

The latter now also appear to have strength in numbers.

Once a critical mass of backbenchers revolt, as Theresa May kept finding out when she put her Withdrawal Agreement to the Commons, revolt gathers its own momentum.

David Gauke: Sunak’s options for a Budget windfall. Lower debt, tax cuts and higher spending. Which will he choose?

27 Sep

David Gauke is a former Justice Secretary, and was an independent candidate in South-West Hertfordshire at the recent general election.

In a month’s time, Rishi Sunak will have some good news to deliver in his Budget. He will have more money to play with than was forecast at the time of the last as forecast by the Office for Budget Responsibility. How he uses these additional resources will tell us a great deal about his priorities and the priorities of the Government.

Before turning to his options, it is worth setting out some context. The overall state of the public finances cannot be described as being particularly cheery, even if they are significantly improved since March.

The debt to GDP ratio will still be nearly 100 per cent, higher than at any point since the early 1960s, and not forecast to fall fast. The Government still has substantial spending pressures in the short and medium term – Covid catch-up, levelling up, net zero and social care – as well as long term demographic pressures that will bite in the 2030s. In response, the Government has this year announced substantial tax increases with the Corporation Tax rise, a freeze on thresholds and allowances in the personal tax system and the National Insurance increase announced earlier in the month. We now have the highest tax burden in our peacetime history.

The tax rises have not taken effect yet, but many people are already facing a squeeze in living standards. Inflation is set to hit four per cent, with energy prices rising much faster than that and six million people are about to see the end of the £20 per week Universal Credit uplift.

So at a time of high debt, high taxes, falling living standards and unfunded spending commitments, a bit of good news does not come amiss.

The good news is that the OBR’s March assessments of GDP growth in 2021 (4 per cent) and of the long term scarring effect of Covid on the economy (or, to put it another away, the capacity for the UK economy to grow in future) of three per cent looks to be pessimistic. With GDP growth this year likely to be approximately seven per cent (although the current supply chain uncertainties may bring it down a little) and scarring as little as one per cent, the difference to the public finances could be low tens of billions – a very handy sum.

Assuming that this is the case, what are Rishi Sunak’s options?

First, he can strengthen the public finances by bringing debt down faster than originally planned. We are getting our debt away cheaply at the moment which, some argue, suggests that there is not an imperative to do make a further reduction. But our debt levels are uncomfortably high in the event of another recession, and even small increases in interest rates could result in us paying a lot more to service our debt. Maintaining market credibility is always important to the Treasury and, by all accounts, the Chancellor of the Exchequer. We can assume that he will be keen to ensure that a significant proportion of the improvement in the public finances is put to this purpose. It also means that the Government may have more choices available nearer the time of the general election.

Second, taxes could be cut. This seems very unlikely to be announced in October ,given that the Prime Minister has just announced some tax rises, there remain outstanding spending pressures and it is still relatively early in the electoral cycle. Many Conservative MPs are not happy with the historically high level of taxes, but that is not going to change any time soon.

Third, he could increase departmental spending. The Treasury is downplaying the chances of this option by stating that the spending envelope has been set and is not going to be re-opened, but I am somewhat sceptical that this is quite so hard and fast a position.

There are two conflicting views on the pressures on departmental spending. One view is that the current spending plans assume no Covid costs after 2021-22 which is unrealistic; that generous spending plans for health, education and defence mean that there is precious little left for other departments – to the extent that unprotected departments face a real terms reduction and, if you compare the departmental spending numbers with what was announced in March 2020, there has been a cut.

The alternative argument put forward by the Treasury spending hawks is to point out the extent to which March 2020 signalled a turning-on of the spending taps. The long term trend growth of our economy is forecast to be 1.5 per cent. If departmental spending is to remain constant as a share of GDP, it would also grow at 1.5 per cent but, instead, the plans involved increases of four per cent a year and the capital spending element by seveb per cent a year.

The Treasury gets very annoyed at any suggestion made by the good people at the Institute of Fiscal Studies that there are departmental ‘cuts’ because the current spending plans are lower than those announced in March 2020. It is reminiscent of the trick Gordon Brown used to pull of setting out steep increases in public spending and, when the Conservatives set out slightly shallower increases in spending but increases nonetheless, describing the differences in spending as ‘Tory cuts’.

The bigger point the Treasury will be making is that, for those departments that have much more to spend, they really should absorb the short-term Covid recovery costs because spending is going up fast enough as it is, thank you very much.

(And, by the way, given that we are giving you this extra money, how about some proper efficiency reforms in return? Spending reviews should be the moment when the Treasury and spending departments make some big strategic decisions as to how taxpayer value for money is achieved but, since the Prime Minister has just reshuffled many spending ministers and the Chief Secretary to the Treasury, such a development does not seem likely on this occasion.)

The real issue is the position with the unprotected departments. There is a political vulnerability if departments do, in fact, see real term cuts (“the return to austerity”). With regard to two departments of which I have experience, the Ministry of Justice clearly needs more resources to function effectively and, in terms of protecting the public finances, penny-pinching with HMRC is counter-productive. My guess is that, with the exception of overseas aid, the Chancellor at the very least will find the resources to ensure no department faces real term cuts.

The final choice is on welfare. The £20 per week Universal Credit uplift will have gone by the time we get to 27 October and, particularly at a time of rising prices, this is going to be painful for many. Lowering the taper rate will not help the poorest claimants, but it is consistent with the Government’s emphasis on incentivising work by essentially lowering the marginal tax rate. It would also provide a reasonably good answer to what the Government is doing to help people with the squeeze on living standards. Taken in the round, a reduction in the taper rate ticks so many boxes that I would be surprised if it does not happen.

So the Chancellor should have some positive announcements on borrowing, departmental spending and Universal Credit. In what may prove to be a difficult autumn for the Government, Sunak’s October Budget looks likely to be one of its better moments.

Iain Duncan Smith: The Universal Credit uplift is an opportunity, not a problem. Keeping it would help save taxpayers’ money and improve lives.

13 Sep

Iain Duncan Smith is a former Secretary of State for Work and Pensions, and is MP for Chingford and Woodford Green.

This year has tested many of our institutions to the limit but one, Universal Credit (UC), has been the quiet ship in the fleet, rising to the challenge, and delivering – despite the huge increase in claims as the Coronavirus struck, providing a lifeline for millions up and down the country.

Even the Labour Party has acknowledged the triumph of UC. Despite its to scrap it, Stephen Timms, the Labour Chair of the House of Commons Work and Pensions Committee and former self-confessed critic, now calls UC “…a national asset which we should make the most of” and rightly stated that through the pandemic “Universal Credit has delivered”.

An astonishing million new claims were made in a fortnight in March 2020 but, despite this unprecedented influx, 96 per cent of claims made during the first months were paid in full and on time, a figure which is now at 98 per cent.

The five million claims made since the beginning of the pandemic represent two-fifths of all claims made since UCs creation in April 2013 – a figure that would just not have been possible under the paper based legacy system that UC replaced.

It is also worth reminding ourselves that, under the previous system, many claimants would have had to go in person to the Job Centre to make their claims, thus increasing the risk of catching Covid: instead, they were able to avoid that and claim online.

In the face of this unprecedented challenge, the Chancellor made the right decision to increase the amount that UC claimants received. This meant families on UC had an extra £20 a week in their pockets and, over the winter of 2020, 600,000 people were insulated from poverty.

I and five of my successor Secretaries of State at the Department for Work and Pensions have since made it clear that we believe the Chancellor should seize the opportunity to protect more families from poverty and make the £20 uplift permanent.

Importantly, the £20 returned to UC some of the original investment that was in my design, but which was removed by the then Chancellor, George Osborne. The additional money shouldn’t be seen as an exceptional uplift, but as a means of restoring UC to its rightful level. Removing it now would hit one third of working age families with children across the country.

As Conservatives, we believe in a welfare system that supports aspiration and allows people to live with dignity. UC is designed to support people and move them into work, which ultimately is the best route out of poverty. Those on UC who take on extra work hours are supported through the flexible taper rate, meaning that no one is penalised for securing extra work.

The furlough scheme has a fraud and error rate as high as 10 per cent and, although it was needed through the critical phase of the pandemic, the Chancellor is right to now bring to an end.

The Treasury must understand that, since UC gives a true picture of the need of each household, it can be better targeted and more efficient, thus resulting in significant further savings. UC has, more than any other form of Government spending, the greatest capacity to tackle poverty as it is hugely targeted meaning every pound spent on UC goes in the pockets of those who need it most. Research by the Resolution Foundation has shown that increases to UC, and in particular raising the UC work allowance, is a notably much more efficient way of improving the incomes of the poorest than raising the personal income tax allowance.

As our economy fully re-opens, there may be bumps along the way and the flexible design of UC allows the system to adjust nimbly to these changes. As the jobs market begins to expand, the taper rate of UC could, for example, be lowered. This would leave low hours workers with more money, helping accelerate them into full-time work and off benefits. This in turn would reduce the total amount of money spent on UC, as people move on into work and start to pay tax.

That’s why, instead of seeing this £20 uplift to UC as a problem to be solved, we should see it as a dynamic investment in a system that can turn people’s prospects around, in turn saving taxpayers’ money whilst improving lives.

As the economy reopens, UC won’t just be critical in building social cohesion, but will be seen as an investment in people who have too often been left behind. After all, you can’t advocate levelling up if you first level down.

David Gauke: There are signs that the Treasury is winning. And that more tax rises are coming.

19 Jul

David Gauke is a former Justice Secretary, and was an independent candidate in South-West Hertfordshire at the 2019 general election.

When asked about the proposal by Henry Dimbleby that a new Salt and Sugar Reformulation Tax should be introduced, the Prime Minister responded by saying that he is ‘not attracted to extra taxes on hard working people’.

At one level, this is what one might expect him to say, given his reluctance to be the bearer of bad news. But some have taken this to be not just a holding response to the publication of the National Food Strategy, but a firm determination to hold the line against tax rises. If so, there may be problems ahead.

It was only a few months ago that Rishi Sunak delivered a tax-raising Budget, with the freezing of allowances and thresholds in the personal tax system, plus a hefty increase in the rate of Corporation Tax (which, in the end, will be paid by people because all taxes are). These increases may well be sufficient to meet the Chancellor’s fiscal rules ,but only if he maintains the current spending plans.

This looks unlikely. To take just three examples, the cost of Covid catch-up, social care reform and net zero could easily cost £10 billion a year a piece. Add to that the cost of levelling up, plus the risks that debt interest payments could increase significantly, the Chancellor’s target of current expenditure being paid for by current revenue and debt falling as a proportion of GDP looks precarious.

It would be fair to say that the cause of spending control has been strengthened in recent days. The Government saw off attempts to block the cut in overseas aid more comfortably than expected, with Sunak very heavily involved in talking round potential rebels.

The temporary uplift in Universal Credit is looking like it will indeed be temporary (although this is likely to store up problems, I suspect) and the Chancellor has – to all intents and purposes – ruled out a huge increase in the state pension, which would happen if the triple lock was applied in the normal manner. On the latter point, this is entirely sensible and has been met with little opposition.

A month ago, there were complaints from the Treasury that the Prime Minister was going around making unfunded spending commitments but Boris Johnson appears to have been reined in. Big promises on climate change seem to have been deferred to the autumn, and a supposedly big speech on levelling up involved a spending commitment of just £50 milliom. Whereas most observers considered the Coventry address to be one of the least impressive set-piece Prime Ministerial speeches ever delivered, the Treasury would have considered it a triumph.

An announcement on social care reform is imminent, but this does look like it may be properly funded by additional taxes, suggesting that ‘not attracted to extra taxes’ does not mean ‘no extra taxes’ after all. It is reported that it is the Chancellor who is sceptical about the proposed policy, although I suspect this is driven by Treasury doubts about pursuing a Dilnot-style cap on social care costs (which benefits those with the largest estates most), rather than by an objection to the principle that new spending commitments have to be paid for.

For the first time in a while, the cause of fiscal conservatism – ensuring that public finances are sustainable – is gaining the upper hand. There are two reasons for this.

First, the Chesham & Amersham by-election has caused some nervousness. The fear within Government is that high spending is all very well, but a section of the Conservative voting electorate will draw the conclusion that they are the ones who will have to pay for it. It was striking that the Prime Minister spent much of his levelling-up speech saying that he does not want to make rich places poorer, which may come as a disappointment to parts of the Red Wall, but is clearly designed to reassure the South East.

The second reason why a more cautious approach to the public finances might be pursued is the apparent return of inflation. This may be transitory as we return to some kind of normality, and adjust to Brexit frictions and labour shortages, but it may not be. If it results in higher interest rates, the costs for the exchequer in funding our debt could rise very quickly – as the Office for Budget Responsibility has pointed out. An increase in interest rates of one per cent would add £21 billion to our debt interest bill. If our fiscal policy is considered to lack credibility, our problems could be worse.

There remains, however, the question of how the Conservative Party maintains the support of the new supporters it gained in 2019, whose views on tax and spend are much closer to those of the Labour Party than the traditional Conservatives. On spending on public services in general ,plus investment in their localities, they will want to see evidence of delivery.

Boris Johnson will be given the benefit of the doubt and, I suspect, be able to retain most of the Red Wall at the next general election but the pressure to spend money – not least from Red Wall MPs – will be considerable. The Treasury has won a few battles of late, but with a Prime Minister prone to change direction like a shopping trolley (as one prominent Westminster pundit likes to put it), he may be on the other side of the aisle before long.

There is also another reason for raising taxes, as well as funding public services. Tax can be used as a lever to change behaviour. The Prime Minister has declared that he is on a mission to reduce obesity, and it is hard to see how this could be done without using tax to change behaviour.

Ultimately, this may not mean consumers paying much of a price because producers reformulate their products (as happened with the Soft Drink Industry Levy) in order to prevent consumers facing higher prices. It was an effective way of using the price mechanism to achieve a Government objective, but it did mean legislating for a new tax.

A similar argument can be made for using taxes to help achieve net zero. If we want people to consume less carbon, the most efficient way to do this is to ensure that the cost of carbon is incorporated into the price of products by using a carbon tax. (By the way, those of us who value markets as a means of allocating resources should be instinctively more sympathetic to meeting environmental objectives by using the price mechanism where possible, rather than through regulation which can be cumbersome and ill-targeted.)

In both cases, tax increases, as a behavioural stick, may be required. They are also likely to be regressive, which may mean compensating mechanisms of some description which – in turn – will need to be paid for.

All of this means that extra taxes on hard working people may be necessary to deliver sound public finances and to meet other Government objectives, however unattractive the Prime Minister considers them to be.

The Universal Credit Uplift. Easy in, but not easy out.

8 Feb

We can’t speak for other enthusiasts for the free market economy – including Allister Heath, our columnist Ryan Bourne, and John Redwood – who urged unprecedented state intervention when the pandemic broke.  (As we did: the economy was undergoing the equivalent of a heart attack, and needed emergency surgery urgently.)

But we believe that they also knew well that, when it comes to the expansion of government, it’s easy in, but not easy out.  Of which the Universal Credit uplift is providing a classic illustration.

The Benefits Uprating Order is being considered in the Commons this week, but a decision on the uplift’s future has been postponed.  Ministers are telling Conservative MPs that “a decision regarding its future will be made in due course…it is only right that we wait for more clarity on the national economic and social picture before assessing the best way to support low-income families moving forward”.

On the one hand, that is not a principle that has been applied to other benefits.  On the other, Universal Credit, though paid to some people who don’t as well as to some who do, is becoming the main employment-related benefit.

In the summer of 2019, 33 per cent of those receiving Universal Credit were in employment, and 41 per cent were in the Searching for Work conditionality regime.  That snapshot from before the arrival of Covid-19 gives a sense of what the payment does and where it was going.

But pandemic has exploded figures like those.  At the start of the pandemic, about three million people were claiming it; now, that figure has all but doubled.  Unemployment has already hit five per cent, or 1.7 million people.

However, this uncertainty isn’t the main reason for the delayed decision on uprating.  The driver of the pause is an institutional clash between the Treasury, the guardian of the public finances, and the Department of Work and Pensions, the steward of what goverments used to call the social security system.

Rishi Sunak has floated one-off payments to keep down costs to the taxpayer (or such has been the briefing); Therese Coffey has said that these are not her “preferred approach” (no briefing here: she said so publicly last week to the Work and Pensions Select Committee).

She can point to Universal Credit as one of the government’s pandemic success stories – the main one, arguably, before the vaccines came along.  As Iain Duncan Smith wrote on this site, “on the old system, these claimants would have to be processed physically ,and the queues and chaos at job centres would have dwarfed anything we have seen so far, as well as increasing infection rates”.

It can be argued that the payment does not target our poorest people.  Philippa Stroud, formerly Duncan Smith’s adviser when he was Work and Pensions Secretary, has put that case.

“The Government could decide to focus on those who are moving in and out of poverty and close to the labour market (the top seven million). That is in effect what the £20 uplift has done in Universal Credit. Or, it could decide to focus energy and resources on those in deep poverty – those who are 50 per cent below the poverty line (bottom 4.5 million),” she wrote on ConservativeHome.

“This is the most vulnerable group and where I would put my energy and effort at a time of national crisis.”  However, the poorest are not necessarily those who have been hit hardest by Covid.

Stroud is now at the Legatum Institute, and a recent report from the think tank found that “poverty has reduced among some groups…this is because many non-working families have seen their benefits increase, meaning that they are less likely to be in poverty than would have been the case in the absence of the Covid-19 pandemic.”

The story of the Coronavirus continues and all judgements must be provisional.  But our take on the virus so far is that manual workers, younger people, women, and a section of the self-employed have been disproportionately affected in economic terms.

A substantial slice of these are the battlers, strivers and just-about managings of electoral legend.  And the number of them on Universal Credit has soared – as we have seen.  They will be well represented in the Red Wall and other former Labour seats in England’s provinces in which the Conservatives did so startling well at the last election.

The debate that Stroud wants about anti-poverty policy is made harder, she argues, by the absence of an offical measure of poverty – abolished in 2016.

“We are allowing others to create a narrative for us, and in the absence of an agreed poverty measure and subsequent strategy, we always will,” she says.  She champions a new measure from the Social Metrics Commission which she has helped to drive; the Centre for Social Justice disagrees, arguing for a focus on outcomes that reduce family breakdown, addiction, worklessness and poor schools instead.

We wrote yesterday that if Boris Johnson wants to take healthcare policy left (which Ministers are denying), Parliament will probably let him do so.  It may be a different matter with the Universal Credit decision.

Our sense is that Conservative backbenchers, as so often, will be driven by their constituents’ immediate needs, first and foremost.  Maybe there is some one-off compromise – the Prime Minister’s reflex will be to hunt for one – that involves some new scheme, such as that floated by the Centre for Policy Studies.

But it is hard to see how the Government can avoid running the uplift for another year: the alternative of doing so for a few months, which would do little if anything to abate the political pressure on Ministers, doesn’t look appealing.

We end where we began.  Once benefit payments have been raised, it is difficult to cut them.  The conventional means of establishing control is either to freeze their value, or replace them altogether – while getting more people into work.  That’s part of the recent story of benefits, through Peter Lilley’s reform of incapacity benefit under John Major to the Employment Support Allowance of the Labour years.

So much for the short term.  What about the medium?  Is the divided backbench reaction to Marcus Rashford’s campaigning the shape of things to come, with Tory MPs taking a less stringent view of welfare than during the years of much higher employment?

Frank Young: Today’s Commons debates, why measuring relative poverty doesn’t work – and what Ministers should do instead

18 Jan

Frank Young is political director at the Centre for Social Justice

Today’s Opposition Day debates in the Commons on Universal Credit and free school meals would commit the Government to spending an additional £9 billion a year on Universal Credit: whatever the welfare plan, its costs are always huge.

The Government should be given credit for stepping in quickly at a time of crisis. It acted fast to provide an uplift for recipients of Universal Credit. Nonetheless, the debates will bring into painful focus the lack of a coherent approach to tackling poverty.

The absence of such a strategy has left ministers haplessly exposed, and gifted their opponents a moral high ground. A government in want of a thought-through approach to poverty is also a government that will find itself constantly accused of being uncaring – and vulnerable to excitable campaigns to expose this supposed malice.

It is always tempting to try and answer the question ‘how many people are poor’ by drawing a line in the sand. Some sophisticated attempts have been made to identify much deeper poverty, isolating groups of people from the ebbs and flows of average wealth. This absolutist approach takes us much closer to what most people would recognise as ‘poverty’.

At any rate, the David Cameron-era 2016 Work and Welfare Act is the closest the Government comes to having an official poverty measure. This Act compels the Government to publish a set of child poverty statistics based on a relative measure of 60 per cent of median incomes, and a more severe absolute measure of poverty based on the same measure from 2011 and adjusted for inflation. That 60 per cent figure is close to a religious creed among poverty campaigners. In consequence, they are able to say that each year roughly one in five of us are living in poverty.

There a plenty of voices from poverty charities and experts encouraging a different approach, arguing for a different poverty measure – or measuring relative poverty in a more detailed way.

Some charities call for the introduction of a minimum income measure, whereby an income of almost £37,000 for a family of four would be needed to avoid being considered poor. Others attempt to find a more sophisticated way of measuring the number of people who fall below a line – and those who persistently fall a long way below it.

Increasingly, poverty campaigners are calling absolute poverty “destitution”, as the word “poverty” itself becomes devalued. The Government itself seems as perplexed as everyone else, having published “experimental” poverty statistics a little more than a year ago, which are still based on a measure of poverty relative to average incomes.

But the reduction of poverty to a single, relative number distracts attention from a serious long-term approach by reducing the misery of poverty to a simple transactional approach to calm Twitter for a day. This is the realpolitik of poverty measurement. And at its worst, this “line-ist” approach leads to ministers focusing their efforts on moving people above an imagined line so they are no longer ‘poor’ – which does nothing to solve persistent problems.

Though low income is a useful proxy measure, it does not tell the full story of an individual’s situation. Often, living on a very low income is a symptom of deeper difficulties. There are five million illiterate adults in the UK, so the long-term answer to poverty for them is help to read and write. This kind of approach tackles the root causes of poverty, not just the symptoms.

It is more than four years since David Cameron came within a matter of days of announcing a Life Chances Strategy based on the lived reality of poverty and a route map out of it. Mandarins might want to go further back to find answers in a framework of social justice measures pioneered in the early days of the Coalition Government. These focused the government on outcomes that reduced family breakdown and dysfunction, improved recovery from addiction, provided help into work, and ensured that our education system helps children growing up in poor households.

There is plenty of support on the backbenches for an ambitious approach – such as the MPs who attend the Social Justice Caucus of Conservative MPs each week. The Social Justice Outcomes Framework was put together to give governments the right targets to tackle poverty. They are still available through a simple Google search, and should be updated and re-instated as the focus of a long-term government poverty strategy. If the Prime Minster is looking for such a plan, he could do worse than dust off some of the old hits and set to work with a grand plan to tackle the root causes of poverty.

Esther McVey: We should honour our manifesto commitment to close the digital divide. Especially during this time of Covid.

3 Dec

Esther McVey is a former Work and Pensions Secretary, and is MP for Tatton.

The country has just entered what is essentially a third lockdown. Ninety-nine per cent of the population is now in the highly restrictive Tier Two or Three until early February, along with all the huge damage that will continue to bring to people’s mental health and livelihoods. So it is desperately important that everyone is able to connect online.

Covid has speeded up the digital revolution that would have evolved over a longer period of time. GP appointments, business meetings and education have rapidly moved to online, and millions of us have stayed in touch by using video services for the first time. It is becoming more and more essential for people to be able to get online with a reliable online connection for vital day-to-day services like banking and shopping. Yet many are being left behind.

According to research by the Good Things Foundation, nine million people who struggle to use the internet independently have been locked out of this digital economy and are being left behind. Nearly 200,000 children in the UK have almost no connectivity at home, and had no hope of getting an education whilst schools were shut, and 23 per cent of children from the poorest families do not have access to broadband at home.

This digital poverty is hitting society’s most vulnerable the hardest. Millions of people have become completely disconnected from 2020 society, and if we want to kickstart our economy, and start digging our way out of the enormous economic difficulties we’re in, we need every part of our country and economy able to make the most of these enormous opportunities online, rather than leaving millions of people on the other side of the digital divide without internet access or training.

The Conservative Party pledged during the last general election to bring world class gigabit-capable broadband to every home and business across the UK by 2025. Despite the widespread availability of the so-called “super fast” broadband, many parts of country are experiencing quite the opposite: unreliable connectivity and slow speeds, especially in rural areas.

Many of my constituents in Tatton and across Cheshire have been told that their properties do not qualify for commercial rollout of broadband. Across my constituency, broadband accessibility varies from street to street, and in Tatton, only six per cent of my constituents’ homes and businesses currently have access to full fibre broadband. This postcode lottery is only reinforcing the digital divide and exacerbating digital poverty.

So it was particularly concerning to me that the Chancellor’s Spending Review quietly ditched the commitment for 100 per cent gigabit capability by 2025 and slashed the financial support for it by three quarters from £5 billion to £1.2 billion. Whilst the new £4 billion “levelling up fund” is welcome, rolling out broadband would itself facilitate social mobility, so this seems a wasted opportunity.

So I am calling on the government to do two things, which I will be raising in the House of Commons today as part of the Blue Collar Conservative campaign on fixing the digital divide.

First, we must honour our manifesto commitments to the millions of people across this country who put their trust in our Party, and commit once again to delivering full fibre by 2025. NHS Test and Trace relies on dependable broadband, as do the 1.62 million people (and rising) unemployed who have to use the Universal Credit benefit system, and my constituents’ quality of life is dependent on this internet access.

Second, if we’re going to lock people down again for the next two months, and ask people to work from home and isolate from family and friends, they must get the tools and the training so that they can stay both socially and economically active. We have suggested investment in a new “digital catch up scheme” which is ready to be implemented immediately and could allow everyone, whatever their background, the opportunity to make the most of their potential whilst life has to be spent online.

We were elected last year to “level up” opportunity throughout the country. Blue Collar Conservatives all over the Britain know that there’s as much genius and talent in the north as anywhere else, and our Party’s task is to ensure everyone has the opportunity to break free and make the most of those talents, and not be held back by their background, and not have to move south to fulfil their ambitions.

The levelling up agenda depends upon nation-wide digital inclusivity. If we give up on this manifesto commitment, fail to invest in our digital infrastructure, and refuse to take the urgent action necessary to level up and fix the digital divide, we will be trying to deliver the levelling up agenda with one hand held behind our back.

The Department for Digital, Housing, Communities and Local Government itself said that digital equality “can help mitigate some of the deep social inequalities derived from low incomes, poor health, limited skills or disabilities”.

These repeated lockdowns in 2020 will leave a lasting legacy. But as painful as the year has been, we have seen an unprecedented mass movement online, which has brought with it many innovations which will shape our lives and the way we work forever.

So it is more important than ever that we turn our attention to the number one infrastructure project as we move forward: digital connectivity and digital inclusivity. We must redouble our efforts to roll out full fibre broadband, whilst at the same time fixing the digital divide. Not doing so would betray the very communities this government was elected to deliver for.

Sunak opts to suck it and see

25 Nov

We must be thankful that no-one is forecasting that Government borrowing will rise to record levels this year.  Or Rishi Sunak wouldn’t have been in a position to announce that Government spending will rise at its fastest rate for 15 years.

Apologies for the sarcasm – which isn’t aimed at the Chancellor’s measures, but is meant instead to provide an introduction to the thinking behind them.

One response to a ballooning deficit is to cut the rate of growth of spending.  That’s what the Coalition did after 2010, when the deficit hit seven per cent of GDP.

The Office for Budget Responsibility is forecasting a peak of 19 per this year.  But Sunak’s response is to raise the rate of spending.  Why?

Because in 2010 George Osborne judged the deficit to be structural (he was right), and his successor judges this one to be exceptional (he’s right, too).

It is almost entirely a product of the pandemic and what has followed.  It is in this context that the OBR forecasts the economy to shrink by 11 per cent this year and unemployment to hit 2.6 million next year.

In these circumstances, the Chancellor has found it impossible to produce the four year spending review he hoped for, and has been forced to issue one for a single year instead.

Furthermore, his statement was only one side of the tax and spending coin. Today, we got the spending.  In the Spring, we will get the Budget – and the tax.

Given all this, it will be very odd if Sunak turns up then with large-scale tax rises to raise revenue quickly.  The foundation of his measures today appears to be: suck it and see.

Broadly speaking, the spending package suggests that the Chancellor is going for growth.  That’s the logic of the infrastructure spending, the coming review of regulation, the new northern bank and the enlarged Restart programme.

The Levelling-Up Fund is a classic Treasury exercise in the English centralist tradition, with its central feature of bids from the provinces to Westminster for money.  So it is in a country with relatively few local taxes.

On that point, Sunak announced “extra flexibility for Council Tax and Adult Social Care precept”.  Local authorities will like that, council taxpayers not so much.

It’s worth stressing that the OBR’s forecasts, like all such animals, shouldn’t be taken too seriously.  Our columnist Ryan Bourne debunked its record on this site earlier this week.

If you walk down the sunny side of the street, you will smack your lips at the thought of a Roaring Twenties effect, as employment recovers, consumers spend, the hospitality sector booms and people pile into holidays abroad.

And it may be that post-Covid changes even out for the better, with a shift in activity and spending from city centres to the suburbs and countryside, together with music, art, theatre and all the rest of it.

That might not be such a bad things for towns and their centres, at which the new Levelling Up Fund is partly aimed.  Our columnist James Frayne believes they are a core concern for provincial voters, and government listens to him.

If on the other hand you stick to the shady side, you will point to the economic equivalent of Long Covid: fearsome economic and social bills for damaged mental health, postponed operations, lost educational opportunities.

All that is a big minus for levelling-up – because it’s the disabled, poor and disadvantaged who have been hit hardest by restrictions and lockdowns, especially if they work in the private sector.

The background in recent years is not encouraging.  Since the financial crash exploded, we haven’t grown at more than 2.6 per cent a year.  That suggests recovery may be sticky.

Sunak’s persuasive manner, grip of detail and spare eloquence have served him well during this crisis.  Others holding his post would not have survived roughly ten major finance annoucements in less than a year.

It’s not as though he hasn’t sometimes had to recast his plans – as in October, when he pumped more money into his Job Support Scheme.

And if the economics of his strategy are straightforward enough, its politics was sometimes a bit odd.  If the Government’s overall plan in the short-term is expansionary, why raise the minimum wage but curb public sector pay?

If spending on nearly everything else is rising, why crack down on the 0.7 per cent aid spend?  Doing so because you think aid is wasted or the target is wasteful is one thing.

But that wasn’t the basis of Sunak’s decision – since, after all, he said that the Government intends to return to 0.7 per cent “when the fiscal situation allows”.

The Chancellor also left a big unresolved question hanging in the air.  What will the Government do about the Universal Credit uplift?  Will it be extended or not?

The sense of a statement with contradictory messages was picked up Rob Covile of the Centre for Policy Studies.  (The Treasury would do well when the Budget approaches to look at its supply side ideas.)

“Feels slightly like Treasury couldn’t decide whether the message was ‘tighten belts’ or ‘we’re still spending’,” he tweeted. “So we’re getting two or three minutes of each in turn.”

That first element in the Chancellor’s statement, plus the OBR’s horrid short-term forecasts, comes at a bad time for the Government.

For tomorrow, the toughened tiering details are announced. Lots of Conservative MPs won’t like them.  The detail of which tiers apply in which areas will be published, too.  Many Tory MPs will like those even less.

Graham Brady, Steve Baker, Mark Harper, and the Covid Recovery Group will say that the economic damage of restrictions is so severe that the Commons should not vote for more – at least, without an impact assessment.

They may not be alone.  “These measures may be a short-term strategy, but they cannot be a long-term one,” Jeremy Wright declared in the Commons during the recent debate on the lockdown regulations.

He and Edward Timpson (another ex-Minister) plus other MPs backed the Government but, sounded a cautionary note.

Will the prospect of vaccines be sufficient to rally the doubters round?  Or will they take a leaf from the book of Theresa May, who savaged the regulations during the same debate?

We shall see – but Ministers are not helping themselves by dodging requests for that impact assessment, urged by this site and others, and the subject of a dogged campaign by Mel Stride, Chair of the Treasury Select Committee.

All in all, Sunak is shaping up to go for growth.  Good for him.  Nonetheless, he must watch and wait to see how and when the economy rebounds.  Brady and company are less patient.

Ryan Bourne: Calm down, stay cool – and drop this talk of tax rises. It’s too early to know how everything will settle down.

25 Nov

Ryan Bourne is Chair in Public Understanding of Economics at the Cato Institute.

I feel as if I am stuck in some mid-2010s time warp. Rishi Sunak will today update us on how much the Government has splurged during this Covid-ridden year and what it intends to spend next year.

But commentators are already pivoting to sizing up what deficit reduction will eventually be needed, and whether tax rises or spending cuts should fill the future fiscal hole. That conversation will be spurred today by the Office for Budget Responsibility updating its guesstimates of how far the pandemic will permanently impair the economy’s potential, and so the “structural deficit” to deal with. Welcome to the Austerity Wars 2.0.

As I’ve said before, all this debate is massively premature. Yes, this pandemic has caused masses of government borrowing—producing a deficit of 21 percent of GDP or around £400 billion, according to the Resolution Foundation. But we are (still) in a once-in-a-half-century pandemic where we have knowingly kept shuttered swathes of the economy and paid people to sit at home.

There will obviously be “deficit reduction” next year, in the sense that the vaccines ending the pandemic will bring furlough to a close, make Covid-19 test and tracing redundant, and see the end of the inoculation and PPE scrambles. Like demobilisation at the end of war, so the government will de-Covidise its budget with drastic cuts to virus-related expenditure. Likewise, as things re-open, tax revenues will ascend again. So, the deficit will fall.

But anyone who claims they know what level it will settle at, and so what “needs to be done” to re-achieve pre-Covid borrowing levels, is, quite frankly, talking poppycock – including the Office for Budget Responsibility.

None of us, nor them, really have a clue what the long-term impact of this crisis will be on the economy. Will a whole bunch of industries shrink permanently now that the risk of government shutdown orders in future pandemics is understood? Will people stick with online retail and eat out less than they did? Will professionals work from home more, transforming parts of inner cities? Or is there a pent-up demand for socialising and “the old life on speed,” with a roaring 20s to come, as after the Spanish Flu?

Without knowing all this, nobody can say what demands on public service spending will be or how tax revenues will perform over the next five years. Add in the uncertainty of whether there will be a Brexit deal, and the underlying budget position for Sunak is pretty much unknowable today – the whole reason, remember, that the Chancellor is only delivering a one-year spending review.

To see the scale of uncertainty, note that various independent forecasters have predicted that UK government borrowing in 2021 could be anywhere from £102 billion up to £273 billion. That’s a bigger range than the actual unprecedented borrowing of 2009/10.

So we need to take whatever comes out of the OBR’s economic and fiscal outlook today with gallons of salt. Their forecasts have already proven unduly pessimistic, with borrowing outturns from April through October a massive £76.5 billion lower than they were expecting. Nor, historically, have they had a stellar record in assessing the growth potential of the UK economy exiting a deep crisis.

Back in 2010, remember, the OBR predicted a return to robust productivity growth, meaning George Osborne’s strict spending limits were predicted to eliminate the structural deficit as early as 2015. That didn’t happen, despite spending levels being delivered as planned.

So it’s baffling why think-tanks are taking the OBR assessments today as truth, and outlining “fiscal repair” measures of £40 billion to be delivered from 2023 onwards already. The Resolution Foundation wants significant tax rises on everyone earning over £20,000, for example.

Why not just calm down a bit, and see how things shake out? My central assumption is indeed that there will be a bit of a hit to our growth potential from living through this crisis, pushing the structural deficit up. And, obviously, if the Government keeps NHS spending higher and permanently raises Universal Credit generosity even after the pandemic ends, on top of recent announcements on defence spending and the “green industrial revolution,” then this makes the prospect of future deficit reduction less likely. But it’s the underlying economy that still has the biggest impact on the public finances, and that should be our focus right now.

Indeed, in talking up the need for restraint, the Chancellor, the OBR, and others may be unwittingly damaging our recovery prospects. Tell people big tax hikes are coming, and they begin thinking their permanent incomes will be lower because the economy’s prospects are weaker.

Of course, the Chancellor is trying to balance risks, and make clear to bond markets that the government is aware of the need for fiscal discipline in the longer-term. But what does he think headlines telling people to “prepare for tax pain next year” achieve? As Julian Jessop asked, wisely, on Twitter, what should that preparation look like? “Increase savings? Cut investment? Dump assets? Don’t start that new business?” How is that helpful given where we are?

Rather than lasering in on the deficit as a target, it would be better for now if the debate stayed focused on how to achieve a strong recovery. Whether they help or hinder the economic rebound should be the metric by which we judge almost all new spending and tax choices today, as well as regulatory policy. Anything that we can do to ensure the vaccine roll-out goes as smoothly and quickly as possible, for example, will produce a huge economic stimulus. Bringing forward the end of pandemic restrictions by just one month could generate tens of billions in value.

But even beyond getting that right, we need to stop talking as if spending measures are something wholly independent of our recovery prospects. The whole public sector pay debate, for example, has been tiresome in focusing on whether the Government can afford to raise public sector pay, or whether it is fair too, rather than about how setting pay rates will affect the jobs recovery. A more disaggregated analysis would surely conclude that raising pay in areas of the public realm under severe strain due to Covid is highly desirable to ensure good retention and recruitment, whereas pay restraint is justified in areas where public sector productivity has plunged due to home working.

Yet, sadly, thinking through how spending or tax policy affects our growth potential is not where public discourse is. Instead, people are already fighting the last war, battling over shaping the narrative on whether another round of spending cuts are desirable, or else buttering us up for yet higher taxes despite the historically high burden even before Covid-19 hit. The biggest 2010s economic policy mistake was not austerity, but that the focus on it led us to being fatalistic about growth. Let’s not do the time warp again.