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No sooner has one Budget cycle concluded than attention turns to the next. Over the last year the ballooning welfare budget has understandably attracted plenty of its own attention as the crippling legacy of youth unemployment and economic inactivity left by the Tories continues to send shockwaves through the economy.
The Government has accepted that it got it wrong over its approach to welfare earlier this year but the media and the markets have drawn the wrong lesson from that. They assume that Labour is ideologically unwilling to find welfare savings.
They are wrong. We simply don’t want to see false economies – cuts that cost more in homelessness, crisis care or long-term unemployment. Or cuts that punish some of the most vulnerable people in society all whilst the overall bill continues to rise.
Recent analysis from the Institute for Fiscal Studies underlines the risk of this approach. It shows that cuts to non-health benefits in the 2010s contributed to more people ending up on disability benefits instead – shifting costs around the system rather than reducing them.
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And the Centre for Social Justice has warned of the long-term scarring effects if early intervention and routes into work are not strengthened. Against that backdrop, the fact that over 2,000 people a day are being signed onto long-term sickness benefits is not a sign of individual failure, but systemic.
Reform must start with an understanding that the welfare challenge cannot be separated from what is happening in housing, health and work. The rise in disability benefits, particularly among young people with mental health conditions, is a symptom of deeper social problems, not an abundance of generosity by the state. The pandemic took a heavy toll, and we should be taking the long view about supporting our young people who more than most have suffered, directly and indirectly, as a result of Covid-19. We must ensure a new system provides them with work, purpose and opportunity as part of the treatment – but only if the right support is in place.
As I have written before, there are genuine reforms that the PLP would gladly support. Savings would come gradually but sustainably, compounding over time. It’s unlikely that much of the benefit would come within the existing five-year forecast and so the OBR must be asked to model savings over longer-term forecasts and crucially must be involved with the policy development from the beginning, not forced into a last-minute negotiation over scorings. If the government were to set out a credible strategy with a statement of principles and direction Labour MPs would get behind it could surprise markets on the upside and rebuild public confidence.
The Timms Review offers a way forward, getting Personal Independence Payments back to their original purpose: helping with the real, additional costs of living and working with a disability. Its focus on functional impact and genuine costs is the right one. Savings should not be the objective – but they will follow if we create a fairer, clearer system.
And while the Budget’s reform to Motability is a sensible adjustment, the real gains lie in wider, long-term redesign, not isolated measures.
Then there is housing. The steady rise in Housing Benefit reflects the decline in social housing and the ballooning cost of private rents. That is not welfare generosity – it is a transfer from taxpayers to landlords. Building more social homes is the structural answer. Angela Rayner’s landmark uplift in investment is a crucial start, but we should go further. The Treasury should publish analysis showing how social housing investment, even after accounting for the cost of borrowing, pays for itself through lower benefit costs and greater opportunity.
Of course, the Chancellor did signal a reset on social security at the most recent Budget by lifting the two-child cap. This was a principled step that will lift hundreds of thousands of children out of poverty. But it doesn’t bear a moral imperative alone; there is a clear economic case for lifting children out of poverty, which once again our fiscal institutions refuse to recognise.
In costing the removal of the two-child cap, the OBR made passing reference to the fact it would lift 450,000 children out of poverty but made no attempt to assess either the short-term impact of reducing barriers to work or the longer-term effects on the economy of reducing the scarring of child poverty.
We now know that SureStart delivered £2 of savings for every pound spent – proof that investing in children’s services will deliver long-term benefits. Again, the OBR failed to present its abolition as a fiscal risk when Osborne removed them with the stroke of a pen.
Children raised in poverty face worse health, weaker educational outcomes and reduced lifetime earnings. Tackling poverty is an economic necessity.
With the Budget opening the way for a reset, we have a responsibility to address the structural and systemic issues that have kept people out of work, driven up the cost to the taxpayer and held back our economy. Britain deserves a system that supports people properly, helps them into work, and strengthens – not undermines – the foundations of national renewal.
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