Cutting Housing Benefit is a false economy

Earlier this month, the Young Fabian Work and Families Policy Development Group looked at the issue of housing, here PDG member Catriona Hatton finds that the arguments for and against cutting housing benefit all point towards the need for more housing.

In June George Osborne announced that a new housing benefit cap would be introduced in an attempt to slash the cost of housing benefit, which has risen sharply to £19.6 billion per year from approx £11 billion in 1997. The cap places an upper limit of £400 a week on a four bedroom house and £280 for a two bedroom property in rented private sector.

In favour of the cap, there is a strong argument that leaving housing benefit uncapped increases the housing benefit bill, since landlords effectively set the rate at which the benefit is paid. If Government willingly pays housing benefit at the price set by the market, landlords have incentives to set the rents as high as possible, since raising rents will not affect the tenant’s ability to live there. The result is tax payer’s money going to the benefit of private landlords in the buy-to-let market, an upward pressure on property prices for all, and an ever increasing housing benefit bill.

However the arguments against the cap, in my opinion, far outweigh the arguments for it. The impact of the cap will have devastating consequences for recipients, particularly in London and the South East where in many places it is simply not possible to find quality housing at the rate set by the cap. In addition any future increases in the cap would be linked to consumer price inflation rather than increases in rental prices, reducing the real value of the allowance.

Importantly the social mix of the London would be drastically changed, with thousands of families being forced out of inner London, causing greater disparity in wealth between different parts of London. Overcrowding will occur and new slum areas are likely to develop, resulting in the less well off being geographically cut off from the wealthy in society.

All evidence shows that separation in this way lowers life opportunities, for instance due to inferior access to education and employment opportunities and lack of connections. In addition there would be greater pressure on schools and social services in other areas as a result of a sudden influx and overcrowding.

It is argued that the cap will increase incentives to find work. However this is unfair on recipients who are not able to work such as pensioners, people with serious disabilities, and also on those recipients who are already in work but it is too low paid for them to cover their rent fully.

The root cause of the escalation in the housing benefit bill is the under supply of affordable housing and addressing this would be the most beneficial solution. The priority should be to create more affordable homes through the building of council housing, the expansion of housing association schemes, private investment through subsidies and through the expansion of shared ownership schemes. Only when the supply of affordable homes is increased will it be unnecessary for the tax payer to subsidise high private sector rent. Unfortunately the cap will only serve to worsen the problem as waiting lists for council housing and housing association homes lengthen, and ultimately it will push people into poverty.

We must stand by our NHS

In this guest post, Young Fabian member Martin Edobor argues that we might fight the proposed changes to the structure of NHS service provision in the UK, or risk undoing many of the improvements Labour achieved in its time in government.

Upon reading the Coalition Government’s NHS white paper, I was both shocked and dismayed with their plans to restructure the NHS. The proposals are likely reverse the progress that has been made under Labour, where the NHS delivered a new level of health and equality to the people of Britain.

One of the major proposed changes is to give GPs the power to commission the vast majority of health services for patients, which would result in the closure of Primary Care Trusts (PCTs) – the bodies currently tasked with commissioning healthcare from NHS providers. At this moment in time a reorganisation would be the wrong direction to take; in this period of financial uncertainty, the NHS requires stability.

Michael Dixon, Chair of the NHS Alliance, has argued that only 5% of GPs are ready to take over commissioning. While the chief executive of the NHS, Sir David Nicholson, has suggested that the quality of current GP practice-based commissioners isn’t at the level which would be required to transfer commissioning to them under the proposed timetable. At this moment in time, most GPs are simply not prepared nor ready to commission services for their communities. By pushing forward with this reform, the Coalition Government are placing the quality of GP services at risk.

Another major announcement is the increase in patient choice of providers, but this is likely to lead to privatisation by the back door. Allowing private firms greater opportunities to win NHS contracts may result in a two tier system, where those with money will be able to receive better care than those without.

Edward Davies, editor of BMJ Career Focus, claims that the white paper was ‘expected and little more than a logical continuation of 13 years work from the previous government’. He couldn’t be more wrong: the British public did not vote for a re-organisation or privatisation of the NHS. For that reason we must do all we can to oppose this white paper, in order to maintain the quality of the service the NHS provides.

Cameron and the spirit of Stanley Baldwin

In this guest post, Young Fabian member Laurence Turner reflects on the historical comparisons made with the current coalition government.

Nick Clegg would have us believe that we live in an age of reform comparable to the 1830s, but in truth it feels more like the 1930s.

On May 12th, David Cameron announced that the Conservatives and the Liberal Democrats had ‘overcom[e] political differences to forge a new government in the national interest.’ This was powerful rhetoric, but the words were of a different age. They could easily have been uttered by a triumphant Stanley Baldwin almost eighty years earlier.

As historical actors, Baldwin and Cameron strike a similar pose. Both modernisers, both easy media performers, both leaders of anti-Labour coalitions. It seems from his speeches that Cameron is taking Baldwin’s style of leadership seriously, and so should we.

Like Cameron, Baldwin transformed the Conservative Party from a sectional organisation, ill-equipped to appeal to a changed electorate, into the dominant force in British politics. Most importantly, he successfully established his Party’s ‘non-political’ credentials and, by way of contrast, associated his opponents with the stigma of factionalism.

Of course, ‘non-political’ appeals are by their nature political, and inclusive rhetoric can be one of the most effective means of excluding and marginalising opposition groups. Baldwin spent almost ten years building a contrast between the ‘National’ Conservative Party and a ‘Socialist’ Labour Party – a strategy which provided the National Government with its rhetorical clothing.

There is a present danger for Labour here.

As Philip Williamson has argued, after 1931 ‘appeals to national interest, national unity, equal sacrifices, and responsibility overwhelmed those to socialism, social justice, and class’. The proof is striking: the National Government ticket won the 1935 General Election with 53.3% of the vote. Labour must engage more meaningfully with values and ideology, but if we phrase our appeal too narrowly then we will be similarly outmanoeuvred. The Left’s intellectual renaissance during the thirties needs to be emulated today, but that in itself was small compensation for a decade of Tory ascendancy.

Cameron and Clegg will try to emulate this achievement. The Left must develop the arguments needed to prevent this from occurring. History provides us with one small example: how can this be the ‘New Politics,’ when even the rhetoric has been lifted from the era of the Great Depression?

Of course, the parallel is inexact, and the contrasts are encouraging. Labour is not so hopelessly fractured as in 1931, and Cameron – though he has taken to coalition life well – does not seem as formidable an opponent as Baldwin. In terms of grand vision, for example, the Big Society is weak stuff compared to the enduring appeal of the Property Owning Democracy.

The spectre of The National Government does, however, help us to define the scale of the challenge that must be overcome if we are to see a genuinely progressive government back in Number 10.

The government is right to address the pensions issue

Firstly, let’s separate out two different issues relating to pensions – the pension entitlement (essentially a benefit), and public sector pensions (part of a contract between the government and its employees). The Coalition government has made proposals relating to both this week, which is likely to confuse the issue of how specific measures might decrease deficit spending/government liabilities.

Both are Pay As You Go (PAYG) schemes – where current payments are funded from the contributions of those who currently work – and both will become more difficult to fund in future years, largely for demographic reasons.

The are several problems for governments looking to tackle the issue of pensions – for example, people often don’t know the true value of their pension entitlement as it relates to a period a long way in the future; and older people are disproportionately vocal on the issue because it affects them currently, but any concessions we make to existing older generations makes it harder to rectify for future generations.

On State Pension Entitlement, the medium-term choice facing government is harsh – restrict pension entitlement to a shorter period of people’s lives (by raising the age at which the entitlement kicks in), or spread the benefits more thinly (i.e. pay less to each pensioner each week). It really is as stark as that, and the problem will get worse as the baby-boomers start retiring in this decade. (PwC did a good report on the impact to public sector debt if we don’t address this structural problem – and it would make the financial crisis look small by comparison). It is understandable in the context of better healthcare and the fact people are more active to a later stage in life that delaying the start of the benefit, rather than cutting the value of the benefit to each individual, is the preferred route.

I always thought Labour could and should have done more whilst in power to address the impending pensions crisis. I’m glad that the current government is speeding up measures announced by Labour, and thinking of going further. Linking the age at which state pensions kick in to average life expectancy – a measure which the current government is looking at – is a bold move, but one which I would support. Such a link reduces the downside financial risk to government/taxpayers of having to fund pensions over an ever increasing period of time, and ensures what limited resources are available to pensioners go further. Aligning the retirement ages of men and women is right and we should also make it easier for older people to carry on working, if they want to.

Of course, some of the problems which may occur in future in relation to state pension affordability will be directly consequence of measures they propose to introduce – in particular, the cap on non-EU economic immigrants will reduce the UK’s ability to afford pensions, for example by preserving the replacement ratio (roughly the ratio of the working age population to pensioners). This is another reason why that particular barmy proposal ought to be opposed.

As young people, it is important we contribute to the debate. After all, we are the generations which will have to fund baby boomer pension entitlements as well as face reduced entitlements ourselves. The short-sightedness (or selfishness?) of older generations isn’t a mistake we should repeat. When you add in funding our university education, environmental problems, and the massive transfer of wealth to them via housing stock, I think we are entitled to feel short-changed but it is important to address structural issues in our pension funding to avoid selling future generations down the river. (See David Willet’s book The Pinch for more on some of these intergenerational travesties).

Public sector pensions, on the other hand, are an altogether different beast.

There are a lot of arguments thrown around about public sector pensions – that they are lavish, ’gold-plated’, or act as compensation for employees who accept lower current wages than would be payable in the private sector. The truth, of course, is a little more complex.

In my own experience I know of people who have left private sector jobs to joint the public sector and who have secured higher pay, better pension entitlement and have to work a lot less for it. There is some evidence to suggest that the pay gap between private and public sector jobs has narrowed considerably over the last ten or so years, with a concurrent fall in public sector productivity. However, I think the worst excesses are mostly confined to management level positions, rather than more junior and frontline positions (nurses, firefighters etc). We should be careful not to assume that all public sector workers have it good.

In the context of a reduced number of current contributors to state pension funds (i.e. a smaller government workforce) as well as the demographic burdens of promises to older generations, it is understandable that the government want to limit the liability to the Treasury (i.e. the ‘unfunded’ bit of current pension payments). However, addressing this issue will be much harder for them than the state pension issue for a number of reasons:

• pensions are contractual entitlements, which would make it hard for the government to change already committed entitlements (which means they are unlikely to reduce current pension costs);
• changing pension benefits for new employees (for example, switching to average salary schemes) would not have a direct benefit to the public finances until those workers retire – possibly several decades;
• trade unions are likely to oppose any material changes to existing workers, and possibly new workers.

Making existing members of pensions schemes increase their payments into the scheme would be challenging, but probably the least worse option. Likewise, it might be possible to reduce the entitlement existing members accrue in future. Both are likely to meet strong opposition.

The tribal response to the appointment of John Hutton to chair a review into into public sector pensions was incredibly disappointing, and trivialises a very serious issue for the UK. It is likely we will need cross-party support for any measures to make public sector pensions affordable. Labour should be at the heart of those debates and contributing to the development of policy on those issues. Far from being deriding him for being a “traitor”, Labour should welcome Hutton’s appointment and make the most of his involvement.

After all, we can’t afford not to.

The Emergency Botch-it

Last night the Young Fabians and Progress jointly-hosted an event on the Emergency Budget. Rachel Reeves MP, Kitty Ussher, Councillor Claire Kober (leader of Haringey Council) and Young Fabian Chair David Chaplin were all on a panel, chaired by Stephen Twigg MP.

Despite coming only hours after the Budget speeches ended, there was a good, detailed discussion.

• Rachel Reeves MP highlighted the false comparison between the Greek and Canadian economies and the UK, suggesting that the measures in yesterday’s budget ran the risk of a double-dip recession. She didn’t believe the budget presented a positive vision for what the economy would look like in future, focusing far too much on government expenditure – she believed it was false to ignore growth as one of the main pillars of deficit reduction. She argued for a balanced, fair economic recovery.
• Cllr Claire Kober spoke about the difficulties the new housing benefits regime would cause not just for her own Borough, but also other in London where property prices are high. She also said that her own council were looking at ways of creating their own Future Jobs Fund following the abolition of the central government programme as an “efficiency saving”, highlighting the wider indirect benefits of such programmes – for instance, reductions in crime.
• Kitty Ussher, now Chief Economist at Demos, highlighted the ideological nature of the cuts in today’s budget as well as the Osborne’s evasive tactics in relation to the OBR’s revised forecasts which appear to show that, as a direct consequence of the budget measures, growth would be lower and unemployment higher – she pointed out that cuts in benefits and a rise in VAT would impact consumer spending, a key determinant of growth in the UK economy.



• David Chaplin said it was the first time he had experienced a Budget speech where cuts were ideologically driven, and that many other young people would be experiencing the same for the first time too. He highlighted measures which he thought would affect young people in the future, particularly a reduction in the spending on skills which he said was vital to social mobility. He also argued that Labour needed to change the way it responded to the economic narrative being written by the Coalition government or risk being out of power for a generation – he called on the Labour leadership candidates to be more specific about the sorts of economic measures they would advocate were they to win, arguing that we couldn’t oppose every single measure implemented by the Government without offering a credible alternative.

The debate from the floor was good – particular policies were highlighted as pernicious, such as the changes to disability living allowances and housing benefit – but there was pragmatism in the room. The panel and the floor recognised that had Labour been in government then they too would have to have made difficult decisions, and also that Labour didn’t get everything right while in Government (there was particular discussion about improving the housing benefit system).

Nonetheless, as Rachel Reeve eloquently argued, we need to tackle the Coalition head-on on the argument that the cuts presented yesterday are “unavoidable” – growth is a key way of reducing the deficit and the measures announced will slow trend growth – and even where we do cut, there is a fair way to do it and then there was yesterday’s budget.

Perhaps surprisingly, there was little discussion about the Liberal Democrat’s role in the Budget measures.

Overall, the consensus at yesterday’s event was that Osborne’s announcement wasn’t a budget, it was a botch-it.

(As a footnote, I’ll add that it is reassuring we have elected officials like Rachel in Parliament and Claire in Local Government – we need more like them. It is also a shame that Kitty felt she’d have more impact outside of Westminster, than as part of it.)

A podcast of the event will be published on the Young Fabian website later.

Live Budget webchat

Join our live webchat on the Emergency Budget from 12 noon today.

Can we stop fighting the Tory Party of the 1980’s?

Every time I hear that clip of John McDonnell saying he would go back in time and assassinate Margaret Thatcher I shudder.

I know many people will say that I’m too young to remember Thatcher and so I wouldn’t understand the way some people in the Labour Party like the ill-judged McDonnell or other long-standing Thatcher opponents such as Ken Livingstone still feel about her and the politics she represented. Perhaps it’s ok if they are allowed to continue to hate her, fight her, and moan about her. Its conversely similar to the way some web-savvy Tories still talk about her.

But the rest of the Party – those who actually want to return to government and win the confidence of voters again – must now stop fighting the Tory party of the 1980’s.

It’s not just the mobile phones which have changed since 1980’s, it’s the politics and also our society which has moved on, and so Labour should too. We’ve got to accept that this new coalition has shaken up our politics and it’s made people think that there is a new centre-ground in British politics which is a natural space for the Conservative Party and their Liberal Democrat colleagues.

But to show where this coalition is failing – and it already is – we need to do more than simply point out the mad right-wingers who still dominate the Tory backbenches. We need to stop arguing that Tories are all toffs with baronets who want to destroy the state and privatise everything in sight. Otherwise people won’t want to listen, we know that because we’ve tried it before and it doesn’t work.

Crewe and Nantwich showed us that, remember the Labour activist dressed-up in a DJ and top-hat? I think that’s a campaign to forget.

What I’d like to see now from all the Leadership candidates is a new and confident message about the modern conservative party under David Cameron which shows how their ideology is driving the desire to cut spending. The contest to be the next Leader of the Labour Party should help us reframe our view of the conservative party and find a way to really hold them to account and challenge them, not fall back to our old arguments about class and Thatcher.

David Chaplin
Chair, Young Fabians

GUEST POST: Triple-jeopardy in welfare proposals increase risk of poverty

In this guest post, Young Fabian member Neil Coyle argues that, despite the supposed similarities in the welfare policy of Labour and the Coalition government, the proposed changes announced by the Coalition so far are regressive.

Incoming Secretary of State for Work and Pensions, Iain Duncan Smith, has announced welfare commitments including:

• Putting DWP at the forefront of improving quality of life for worst-off citizens;
• Ensuring work pays; and
• A Social Justice Cabinet Committee.

Sound progressive? Examination of the detail available is more worrying. Overall, proposals could mean the triple-jeopardy of:

1. enforced, ineffective medical tests;
2. cuts to support to find work; and
3. cuts to in-work support.

Medical tests

Labour introduced a ‘Work Capability Assessment’ (WCA) to ascertain the impact of health conditions on people’s ability to work. But organisations that supported reform have criticised WCA implementation.

Disability organisations suggest the WCA is unable to effectively ascertain the impact health conditions have on ability to work. Cases have arisen of people assessed as ‘fit for work’ being exempted from undertaking work related activity on appeal. 40% of the people who appeal have DWP decisions overturned and the number of appeals already outstrips other benefits.

Instead of addressing WCA challenges, the new Government is bringing forward wider reform plans using the assessment on all 2.6 million Incapacity Benefit (IB) claimants. Labour had proposed 1.5 million IB claimants undergo the WCA at a rate of 10,000 per week to 2014. The new Government’s WCA plans will require significant additional costs – recruiting Jobcentre Plus/medical assessment staff to handle assessments and public resources wasted in costly appeals.

Support to find work

Labour provided support for people furthest from the job market through initiatives like Pathways to Work. The coalition has announced it will scrap Pathways and other programmes in favour of a single ‘Work Programme’.

But a ‘one size fits all’ approach will be ineffective at ensuring all citizens, especially disabled people, are supported to find work. At a time of higher unemployment this is doubly disadvantageous and could cause a bias in the system against helping people with highest needs to find work.

Reduced in-work support

Labour proposed a £40 per week better off in work guarantee for many people moving off benefits. The coalition has cut this proposal, instead making loose statements about ‘making work pay’ which some fear may mean cuts to benefits in the June Budget.

The coalition’s tax credit proposals also cut in-work support. The threshold of income planned to restrict access to tax credits may not reflect some people’s – especially parents of disabled children’s – higher living costs and could push families into poverty.

The coalition agreement also pledges an employment law review. A weakening of employers’ obligations on parental rights, flexible working and ‘Reasonable Adjustments’ for disabled employees could make work untenable.

The ‘C’ change

Despite shared terminology and a general media focusing on similarities in the main parties’ on welfare, the combination of recent announcements represent a sea change from Labour to Coalition.

Progressives must monitor the impact of proposals on poverty.

Lib Dem policy and the coalition

An interesting outcome of the coalition negotiations that produced the Cabinet and Ministerial teams across Whitehall is the noticeable absence of Liberal Democrats in a small number of Departments.

In DEFRA, DCMS and the Wales Office there is no LibDem representation at all, which must raise questions over the Party’s ability to retain an independent stance on policy in these areas.

The South West of England is Liberal Democrat heartland territory, and DEFRA plays a significant role in many people’s lives due to the rural agricultural nature of the region’s economy. The Liberal Democrats have to be seen to play a role in this area of policy. Who is the Liberal Democrat spokesperson for rural affairs?

DCMS controls the budgets for the Olympics and tourism, has regulatory oversight for broadcasting and journalism, among many other areas. The 2012 London Olympics will continue to be controversial due to the huge sums of money and the national prestige at stake. Who is the Liberal Democrat spokesperson for DCMS?

The answer to both questions is that there isn’t one.

The formal coalition that has been hammered means that the Liberal Democrat parliamentary party is bound into Government, regardless of whether they have members in each department. There will be no official spokespeople from the Liberal Democrat side of the house for these departments. As with any Governing party there will be backbenchers who express differing views to the Government, but no LibDem ministers to explain to their peers why a certain policy should be supported or otherwise. They now have no formal role in these areas at all.

Looking further afield, it will be interesting to see whether the LibDems as a party will continue to produce an alternative policy platform to the Conservatives in any areas of Government. It will be very difficult to retain an independently LibDem stance on any issue when they are a full coalition partner. When faced with the prospect of being totally subsumed into the Conservative party with regards policy, I wonder how long LibDem members, activists and their Councillor base will refrain from rocking the coalition boat.

Just what is Liberal Conservatism?

This week is set to be the International week of the 2010 Election campaign. So in theory, we should all understand a little more of what William Hague’s Liberal Conservatism is all about. Ahead of the week I’ve just read the Tory manifesto International affairs section and am still puzzled. I’m hoping, but not expecting a little more clarity during the week.

Rightly, the manifesto identifies that more than ever the interests of nation states are interconnected, economically and politically.  But the policy solutions still seem ideologically unclear and unsound.   

While the answers to Britain’s domestic challenges are met with a shrink-state response, the manifesto calls for “a concerted response from the state” in its international chapter.

There also seems to be a glaring contradiction in Conservative policy to the European single currency, varying between forthright hostility to a guarantee for the public to have their say:

“a Conservative government would never take the UK into the euro.”

And later “We will ensure that by law no future government can hand over areas of power to the EU or join the Euro without a referendum of the British people.”

Now, I’m not advocating that now is the right time to join the Euro, but a manifesto is always the right time to be clear what your position is.

The document is unclear of what One World Conservatism is or what Liberal Conservatism would achieve. But from the Tories foreign policy record, I don’t relish the prospect of these ideologies guiding British foreign policy.

Let’s not forget these things as we move into the international week of this election David Cameron went on a free trip to South Africa, funded by a lobbying group founded by a former member of the South African military intelligence to bust sanctions against South Africa. Let’s also not forget that when Labour took office our international aid budget was in decline and we where losing a beef war with Europe. And today in the European Parliament, the Tories lose more legislative proposals than the Liberals, Greens and Communists because of Hague and Cameron’s self-imposed exile from the mainstream grouping.

In the week ahead let’s continue to take a long hard look at the Tories and ask Cameron and Hague, just what is your vision for Britain in the world and where would we be if we took your advice?