Posted by: Jules Birch, Inside Housing

26/06/2012

It would be easy to criticise the ideas in David Cameron’s speech on welfare reform as half-baked and impractical. They are both but that is not the main point.

One paragraph is missing from the transcript of the speech he gave in Kent today. This is a reference by Cameron to the way that the last Labour government allegedly ran up ‘a huge income transfer industry that they ran from the Treasury pushing tax credits and benefits around in a bid to try hit the poverty targets they’d set up’. This is marked as ‘political content excised’.

It’s a label that might as well apply to the whole speech, given that it’s a vision of what the welfare system would look like under a Conservative, Liberal Democrat-free government. You don’t have to look very far today to find Lib Dem bloggers calling on Nick Clegg to condemn Cameron’s ideas in the strongest language imaginable’ and Lib Dem think-tanks calling them ‘daft’ and ‘unworkable’. For more on the speech and the reaction, see Inside Housing’s stories here and here.

What Cameron said should not have come as a great surprise to anyone. In April plans leaked of a Downing Street/DWP plan to cut housing benefit for the under-25s (see my blog here) as part of a plan to cut welfare by another £10 billion and in May the Telegraph reported plans for lower regional caps and a crackdown on part-time workers as elements of a programme to save £25 billion (here). That’s all in the context of the downgrading of legally-binding targets to eradicate child poverty (here).

However, while those reports were based on off-the-record briefings from advisors and sources, here is the prime minister and Conservative leader saying the same things in a speech that was not just on the record but widely trailed over the weekend.

The speech makes clear that working-age benefits are the main targets for cuts and is littered with comparisons between ‘hard-working families’ and feckless claimants. There’s the working couple taking home £24,000 and the claimant family with four children claiming £27,000 a year. Never mind that the working couple would receive thousands in child benefit and tax credits if they had children and might well get housing benefit too.

Then there’s the woman who’s just left college and forced to live at home contrasted with the 19-year-old who does not have a job but is sharing with friends and claiming housing benefit. No mention again that housing benefit is also an in-work benefit or that most under-25s have a shortfall between their benefit and their rent.

Then there are the commuters travelling long hours each day because they cannot afford to live in central London who are contrasted with high-earning council tenants paying sub-market rent. The government has of course already published plans to make tenants earning more than £60,000 pay to stay, but Cameron criticises ‘people on salaries of £40, 60, £80,000 paying sub-market rents and living in council houses’. Even so this has apparently ‘sent out some incredibly damaging signals. That it pays not to work. That you are owed something for nothing’.

All of which, says someone who moved effortlessly from Eton to Brasenose College, Oxford to the Conservative Research Department, has created a ‘culture of entitlement’.

The most widely trailed idea is to cut housing benefit for the under-25s, which is said to cost £2 billion a year for 210,000 people. Cameron contrasts that with the plight of three million people aged 20-34 who are forced to live at home because they cannot afford their own place. However, he uses a personal example to back this up that either reveals breathtaking ignorance of the benefits system or breathtaking cynicism:

‘Perversely, the benefits system encourages this process from one generation to the next.

If a family living on benefits wants their adult child to stay living at home they are actually penalised – as soon as that child does the right thing and goes out to work.

You get what’s called a non-dependent deduction, removing up to £74 off your housing benefit each week.

I had a heartrending letter from a lady in my constituency a few weeks ago who said that when her son leaves college next month, her housing benefit will drop significantly, meaning her family may have to split up. This doesn’t seem right.’

Indeed – until you consider who is responsible for the heartrending letter. The man to blame for penalising the child that ‘does the right thing and goes out to work’ is of course his work and pensions secretary, Iain Duncan Smith, who has just increased the non-dependent deduction and will from next April leave thousands of social housing tenants with a choice between that and the bedroom tax.

Cameron does not spell out exactly how he would cut housing benefit for the under-25s, or mention that it is already restricted to the shared accommodation rate in the private sector or that it goes to people in work as well as out of work, or that eliminating it would amount to telling young people not to get on their bikes and look for work. Nicola Hughes of Shelter has five reasons why she thinks it won’t work

here while Tim Leunig of Centre Forum has an intriguing argument that the real losers will be the middle aged here.

However, in addition to all that, there are hints of even more radical reform including:

Uprating benefits in line with inflation or wages, whichever is lower

Cutting benefit entitlement for long-term claimants (a less harsh version of Clinton-era welfare reforms in the US that saw caseloads fall by over 50 per cent but also saw

the number of people with no safety net at all soar).

Capping benefit entitlement by region.

Reducing both the overall benefit cap and the bedroom caps for housing benefit. Cameron quotes the maximum housing benefit figure of £20,000 a year and compares it to being on a salary of £80,000.

Cutting benefits for large families (‘isn’t it right that we ask whether those in the welfare system are faced with the same kinds of decisions that working people have to wrestle with when they have a child?’)

Applying any cuts to existing as well as new claimants (‘for now, both stock and flow options should be there on the table’.

At one point he even seems to question the principle behind the universal credit:

‘The argument goes that if you give more welfare money to those who are higher up the income scale as well as those at the bottom then you iron out the perverse incentives that encouraged people not to work, not to save, not to do the right thing.

‘Indeed, that’s part of the thinking behind Universal Credit – it’s about helping more people to escape the poverty trap and get on in life.

‘But anyone thinking we can just keep endlessly pumping money in is wrong.’

The point of course is that without tackling the underlying problems of low wages and high housing costs any policy designed to ‘make work pay’ is doomed to lurch from soaring costs to swingeing cuts.

Cameron says he is not making policy prescriptions, just starting a debate, but he is also setting an agenda. This is about a political calculation of the gains that can be made from pitching pensioners against young people, home owners against tenants, commuter towns against the inner cities and ‘hard-working families’ against benefit claimants. And playing to the Conservative backbenches.

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