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.

Frank Young: Educational Long Covid. Why the collapse of schooling over lockdown will haunt the poor for years to come.

3 Nov

Frank Young is Political Director at the Centre for Social Justice

If the Marcus Rashford affair has taught us anything, it is that the Government is in urgent need of a poverty strategy to plug the hole in thinking when emergency measures come in.

Until recently, being Education Secretary was the Cabinet job everyone wanted, and for good reason. Number crunchers at the Department for Work & Pensions worked out some years ago that, for a poor child, failing at school was the number one predictor of staying poor in adult life. It’s as simple as that.

Well before state schools were closed down last spring (with private schools moving almost entirely online), the so-called educational attainment gap persisted as an annual reminder of this particular pathway into future poverty. Disadvantaged pupils are particularly prone to low levels of literacy and numeracy – and this in turn leads to low pay, insecure jobs and unemployment.

If we really want to ‘build back better’ when the pandemic is in the rear view mirror, we will need to tackle educational inequalities of outcome, in much the same way that we need to build houses.

More than half a billion school days have been missed since March, with children from disadvantaged backgrounds having less contact with their teachers and less work marked than wealthier children. In the first month of lockdown, private school children were twice as likely to take part in daily online lessons as those in state school.

The full impact of school closures on children’s outcomes is not yet known, but the closures are likely to have worsened the attainment gap. The exam fiasco over the summer will have further disrupted education for children at a critical time in their studies. This is a form educational Long Covid that will have an impact on already disadvantaged lives for many years to come.

We seemed to have stopped talking about the ‘root causes’ of disadvantage as we chase our tail to lockdown, bail out and subsidise our way out of the pandemic. Any poverty strategy will need to take a long hard look at where the educational disadvantage starts – and that is in the home. Between the ages of four to 16, a typical British child will spend only 15 per cent of their time at school. Damian Hinds got this when he described family life as the last educational “taboo”.

Home environments marked by multiple transitions, disrupted attachment to a parent and frequent conflict increase the likelihood of children displaying externalising behaviour problems, leading to poor engagement and attainment at school.

The experience of lockdown has only increased made the situation worse. In response to the escalating education crisis, we spend £26 on catch-up schemes for every £1 we spend on reducing conflict within families. That’s an argument for increasing the £1 – not decreasing the £26 that is desperately needed.

Our nursery sector is teetering on the brink following an extended, enforced shutdown. It is too soon to tell how many will shut their doors, unable to make running a nursery work but as ever this will hit the poorest hardest. At just 3 years old, disadvantaged children are almost 1.5 years behind their more affluent peers in their early language development.

Once attainment gaps arise, they are hard to close. Children who attend high-quality settings for two to three years are almost eight months ahead of children who attend none. This is exactly where we need to focus a renewed push to tackle poverty and disadvantage.

Schools are receptacles of disadvantage – whether it is a dysfunctional home life or a terrible start in life. We can now predict longer term educational underperformance from the earliest days: when Frank Field looked at this issue he found more than half of children in the bottom 20 per cent of attainment in school at school will remain at the bottom when they take their GCSEs.

As Robert Halfon has said on this website, we need a poverty strategy. The money set aside for catch-up should be rolled into the next spending review to give schools a permanent pot for focused, back-to-basics tuition in literacy and numeracy.

Small is beautiful when it comes to catch up – and we can lock this into our efforts to rebuild from the pandemic. Teachers make the difference, and getting the best teachers into schools with disadvantaged catchments should be a big priority. High-quality teaching is particularly transformative for disadvantaged pupils. Over a school year, these pupils get 1.5 years’ worth of learning with high-quality teachers; they lose half a year’s learning when taught by poorly performing teachers.

Don’t overlook family support, hidden away in the Department for Work & Pensions. The Reducing Parental Conflict programme now has three years of evidence based interventions to stabilise family life. It is much an education issue as it is a poverty issue for the department doleing out welfare payments. We need action now to tackle children going without – but we also need a plan that tackles disadvantage early on.

Philippa Stroud: The Coalition stopped officially measuring poverty – which left its successor unsightedover free schools meals

28 Oct

Philippa Stroud is Chief Executive Officer of the Legatum Institute, and leads the Social Metrics Commission.

Marcus Rashford presents the Conservative Party with a problem. No Conservative believes that any child in this country should ever go hungry, but we also want to build a society in which parents are able to earn enough to support their own children and, where that is not the case, in which there is a welfare state that supports those in need. These are our long-term objectives.

So what happens at a moment of crisis when there is a short-term need, and why has the call for the expansion of holiday provision of food and activities to support an additional 1.1 million children in the short term gathered such momentum?

In 2016, the Government abolished the old measure of poverty as an official measure. This means since that year it has been walking blind. Policy decisions have been made in a vacuum without a tool that shines a spotlight on the needs of the most disadvantaged.

The Government has made some great decisions, but without the certainty that what they are doing is hitting the target. Has poverty gone up? Is it plateauing? Until there is an agreed metric that tracks this, who can say?

That is why I launched the Social Metrics Commission (SMC) in 2016, drawing from left and right, and have proposed a new set of poverty metrics: to end the war on poverty measurement so that we could put our energy into working towards an effective poverty reduction strategy.

By the SMC measure, until the start of Covid-19, Conservatives could rightly declare that work was the best route out of poverty and, with record high levels of employment, this strategy was clearly effective, with 90 per cent of households where both adults work full time being out of poverty.

But during this global pandemic, the SMC measure also tells us it is those in deep poverty who are being most significantly impacted by the virus. Two in three (65 per cent) of those employed and in deep poverty prior to the crisis have seen reduced hours or earnings, been furloughed, and/or lost their job.

Although these numbers are not tracked by the Government, the public instinctively feels this to be the case. Locally, Conservatives know this too and are responding with short-term fixes.

The London borough of Kensington and Chelsea for example has promised £15 food vouchers over half-term for its 3,300 local children eligible for free school meals. Councillor Josh Rendall, the lead member for family and children’s services, said: “This is not a long-term solution but this is an exceptional year and we know it has been a tough one for many families.”

Conservatives have a good story to tell. Number 10 and 11 have worked tirelessly to put the entire resources of Government behind protecting the British people from Covid-19, including in the short term with increased support in the benefit system, the Job Retention (and soon Support) Scheme and, in the long term, through improved services for mental health and education, tackling the costs of housing and driving forward the levelling up agenda.

But in the absence of an effective poverty measure, we are unable to quantify the positive impact of all of these choices, gain credit for a comprehensive strategy on poverty, or identify whether there are short term challenges that still need to be addressed.

We need to be able to say that no child in Britain will go hungry on our watch – but we can’t. And 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. This does not need to be the case.

Had we had the SMC measure already in place, we would have been monitoring the impact of Covid-19 on the most vulnerable during this time of crisis. Had we adopted the SMC measure, we would have known in May that although the pandemic is hitting everyone, it is hitting those in deepest poverty the most and that short term measures may be required to see the poorest through this time.

It was Will Quince, a Work and Pensions Minister, who first announced that the department was taking forward the SMC measure of poverty and developing Experimental Statistics, back in May 2019. But even now, when accurate and timely data is needed more than ever, the work has stalled.

I know there will be some who will be nervous about a new measure of poverty, even one that has gained consensus across the political spectrum and already won the Government much political capital. But the measure is in effect a framework. It is the best way of capturing the “who” is in poverty – the “who” we need to be concerned about and looking out for. The Government can then decide where it wants to place its effort – so at a time like this it would have focused on those most impacted.

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). This is the most vulnerable group and where I would put my energy and effort at a time of national crisis. This is who many of the public thinks of as being in poverty, which is why they are so concerned now and why Rashford has received so much support.

I know that many Conservatives, like myself, came into politics because we were concerned about the long-term drivers of poverty. We feel deeply concerned about the most vulnerable in the nation. We know that poverty is about money, but that it is also about family, education and skills, debt, housing, sickness and disability, and employment. It is about the support being there when you need it so that you can get up and onto your own two feet again and find your own way out of poverty for you and your family.

This is a moment to take action in the short term – as the Government has been doing and still needs to do – but it is also a moment to get our house in order for the long term: to adopt the SMC poverty measure and build a comprehensive poverty strategy so that now and in the future we can say hand on heart, on our watch: no child went hungry.

Ryan Bourne: If you want to feed hungry children, don’t target food poverty. Aim to reduce poverty as a whole.

28 Oct

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

Covid-19’s initial economic impact fell disproportionately on those least able to mitigate it. An Institute for Fiscal Studies paper in July found that single parents, low educated poor households, and ethnic minority groups suffered the worst relative hit. Since then, workers in low-wage services industries such as hospitality, transport, and retail, have faced both the worst of unexpected job losses and uncertainty about their income.

With this unique shock, it is unsurprising that a welfare state built around previous experiences has exhibited failures in protecting against hardship. Falling incomes, especially for those without savings or access to government benefits, have consequences. The Food Standards Agency reports greater food bank use, self-reported hunger, and families eating out-of-date produce.

That context is why the Government faces intense pressure over extending free school meals during school holidays through Easter 2021. Given the uncertainty around the efficacy of other government support, you can see the temptation to follow the advice of Iain Martin, who proposes caving to Marcus Rashford’s campaign again. Give the “£20m, handshake with Marcus R on steps of Number 10 on Monday and Royal Commission into child poverty,” Martin tweeted.

That defeat might seem a small price to pay to end the optics of opposing meals for hungry children, regardless of any questions you might have about the realities, or the desirability of extending the government scheme. As Isabel Hardman writes, the belief that Conservatives are insensitive to “food poverty,” coming first in righteous anger over food bank use in 2010-2015 and now “free” school meals, has hung around the Conservatives for a decade, whether fair or not.

Martin’s short-term solution, however, neglects that campaigners won’t be satiated by extending out-of-term meal vouchers to Easter 2021. Rashford’s campaign’s ultimate aim, remember, is to implement the Dimbleby Review, which would double the number of kids on benefit-triggered free school meals by extending eligibility to every child from a Universal Credit household (an extra 1.5 million kids.)

Crossbench peer Baroness D’Souza is already pushing for out-of-term meal vouchers to become a permanent feature. Combined, that would be billions of pounds, year on year, not tens of millions.

Come next year, no matter the labour market’s health, the Government will face the same criticism. If much of austerity taught us anything, it’s that even when acute need passes, wrapping up programmess will renew accusations that Conservatives “want to starve kids” by “snatching” their lunches.

Milton Friedman’s warning that “there’s nothing more permanent than a temporary government programme,” in part stems from recipients’ aversion to losses. A Royal Commission packed with do-gooders who examine food poverty in isolation will bring further demands for spending and diet control.

That is why, I suspect, some Conservative MPs vociferously oppose the Rashford campaign. It’s not heartlessness, or even this specific extension they oppose, but the precedent and direction of travel. They can foresee the vision of government this type of reflexive policymaking and its paternalistic particulars end with.

The problem for them is that they are on a hiding to nothing in claiming this specific measure risks creating longer-term “dependency” or “nationalising children” if the public think today’s needs are real. Conservatives who believe in a small, limited state have to have answers —about what responsibility the Government should have in dealing with hardship, what tools it should use, and what its role should be for those falling through gaps.

After ten years in government and riding cycles of support for the welfare state, there’s a lack of clarity in the Party’s position, with a mix of preferences among its MPs for income support, service provision, civil society solutions, and combinations of the three. There is a clear, principled alternative vision of how to deal with poverty if the Tories want it. But it requires getting off the fence.

That alternative would say that “food poverty” is not distinct from poverty. Free school meal campaigners are broadly right that hunger is not usually caused by parental fecklessness.

Therefore, logically, food poverty largely results from insufficient disposable income for some families. If widespread hunger is evidenced, the debate should therefore be about whether benefit levels or eligibility are sufficient to meet basic needs—the goal of a safety net welfare state.

This type of limited support that trusts people to use top-ups for the betterment of their families is vastly preferable to a paternalistic state stripping us of responsibility, through demeaning out-of-term food vouchers akin to U.S. style food stamps.

In deep unexpected crises, the case for additional emergency income relief is greater. But if there really is a more structural problem of hunger, then it demands examining why wages plus benefits are insufficient to deliver acceptable living standards. Rather than just look at benefits then, we should examine living costs, too—the poor spend disproportionately high amounts on housing, energy, food, clothing and footwear, and transport.

My former colleague Kristian Niemietz wrote a free-market anti-poverty agenda back in 2011, which I’ve pushed MPs to adopt since. He showed that market-friendly policies on housing (planning reform), food and clothes (free trade), energy (ending high-cost green regulations), childcare (reversing the credentialism and stringent ratios), and cutting sin taxes to economically-justified levels could shrink poverty by slashing the cost of living for the poor, so reducing food hardship, homelessness and more.

Most of this agenda would require no extra spending or busybodying from government paternalists; some of the policies would bring the double-dividend of raising wages .

The Government has ambitious policies in a number of these areas. But why are they never linked to the poverty discussions? As they press for planning liberalisation, why is nobody highlighting how cheaper housing would lessen these tales of distress? Why is nobody identifying the discrepancy of some campaigning about food poverty while opposing trade deals that would make food, clothes, and manufactured goods cheaper, to the huge relative betterment of poor consumers?

Sure, there would be families who make bad decisions and find themselves in trouble, even in a world of cheap and abundant housing and an effective safety net.

But instances of poverty owing to lack of resources would be much lower and these thornier challenges (often stemming from addictions, loss, ill-health, criminality and more) are much better identified by local charities and civil society groups anyway, as Danny Kruger argued in the Commons last week in relation to hinger. Giving nearly three million kids “free” school meals year-round would be an absolute sledgehammer to crack any remaining nut.

In today’s emotive debates, it’s not enough to just oppose proposals when the need is perceived as urgent. Conservatives must be better at re-setting the debate on their terms—a task much easier if they held a clear vision of the role and limits of state action.