The government has announced plans to alter annual benefit increases. Presently, the annual rise in benefits rises in line with inflation but the government’s plans could see it rise in line with wage increases instead. While it is unclear roughly how much it will save a year, Whitehall ministers have claimed that if these changes had come in 2008 then £14 billion would have been saved. This can be seen as since 2003 after inflation, real wage growth for someone in the middle of the earnings spectrum stands at 1.2% whilst inflation has remained above this. George Osborne cited the governments need for £10 billion worth of cuts to the welfare budget for this move and said that aggressive cuts in welfare would mean that other important areas such as healthcare and education would not be hit badly. We can compare this to 1979 where health and social security took up 1/3 of public expenditure while now it takes up 1/2.
The huge savings the government could make lies in the value of inflation over recent years. Inflation, though seemingly slowing down as of late, persistently rose from January 2010 to its peak in October 2011 with CPI reaching a high of 5.2% in September 2011, far above the government’s target of 2%. This high inflation helped to increase benefits and put a strain on government books. Over the same period of time wage increases severely lagged behind inflation. This excellent article by the telegraph, written at a time when inflation was at its peak, illustrates this well and it claims that the average wage fell, in the context of inflation, by 3%.
The talk among parliament of the possibility of even freezing some benefits has caused a stir lately with the liberal democrats unhappy at the potential changes. Deputy liberal democrat leader Simon Hughes said that “there will be a concern clearly about any changes in benefits” and that “the party has been fairly robust about these things”. BBC news reports that some Lib Dems believe money should be found through wealth tax increases rather than benefit cuts. But whether they will be robust this time around still remains to be seen.
Chairwoman of the commons work and pensions committee and senior Labour MP, Dame Anne Begg, told BBC news that “more than 50% of benefits go to people in work but on the low pay end” and that the changes could cause a “double whammy of lower wages and lower benefits” concluding that they would be “hurt badly”
Further criticism has come from Alison Garnham, an opinionated journalist from the Guardian. She claims the value of benefits has decreased from 21% of average earnings in 1970 to under 11% by 2010 and that any more cuts in benefits would be disastrous.
The Institute for Public Policy Research (IPPR) has estimated that, if benefit rises had been linked to wage increases rather than inflation, Jobseekers allowance would pay out a weekly figure of £66.81 rather than the current £71.
After a British social attitudes survey showed the amount of people agreeing that the government should be responsible for the unemployed went down from 88% in 2001 to 59% now, is it still possible for Osborne to deliver on his promise not to “balance the book on the backs of the poor”?