The welfare cap ties a Labour government to ‘predistribution’

The welfare cap could help focus attention on the drivers of benefit spending.

The welfare cap – put forward by government and supported by the opposition, and voted through almost unanimously last night – is a crude piece of political manoeuvring playing on the public’s worst fears about the benefits system; but can we salvage something from the wreckage?

Politically the intent of the cap is clear; it makes it easier for governments who want to cut working age benefits, and makes it harder for governments who want to raise them. We saw this manoeuvring in action yesterday morning before the bill was passed when Iain Duncan Smith jumped on Labour’s support for the cap to demand that they justify their opposition to the bedroom tax.

But it’s already (politically) easy for governments to cut benefits and politically hard to raise them, so in this – at least in the short term – it changes little.

It also does nothing to alter the impact on people’s lives and the public finances of crude cuts to benefit levels or entitlements: cuts usually drive people into, or further into poverty, prolong reliance on benefits or impose extra costs on other areas of spending – healthcare, social services, homelessness support, the criminal justice system.

The dangers of the cap are plain to see – rising costs are dealt with via punitive and short-sighted cuts.

But the welfare cap does – potentially – have a silver lining for those willing to make the most of a bad situation; it could focus attention on the drivers of benefit spending and expose a deep flaw in government spending rules.

Currently, government budgets are organised such that spending on institutions and programmes – on education, or skills, or healthcare, or transport, or prison or the police – is virtually divorced from spending on social security benefits, which sit in a whole category of their own, run from the Treasury.

Thus a department – say the Department for Education, or for Business – is focused resolutely on its own budget and has little incentive to promote programmes which might act to reduce the need for benefits at all. The Treasury could try and join up the dots but – as the Public Accounts Committee pointed out last year – rarely does so in practice: there is virtually no analysis in government of how spending in one department might affect spending in another, particularly over the longer term.

The welfare cap comes nowhere close to solving this problem, but it has the potential to prise open a chink in the armoury. Exposing the benefits budget to the same regular scrutiny as that afforded to departmental budgets could be used – by those interested in social goals within government or by activists outside – to force the Treasury to take seriously the impact of a wide range of policy on the benefits bill.

It could help reveal how investment in early action – in education, skills, mental health or childcare – can reduce benefit costs. It could also help reveal how our country’s economic structures – the housing market, the labour market, the energy market – leave people exposed and in need of social security not as a safety net but to make ends meet every day.

So the welfare cap doesn’t preclude redistribution via spending on public services, and if anything encourages spending on those that act earlier.

On the other hand it doesn’t leave room for a significant increase in redistribution via social security spending. Instead it forces any government interested in social outcomes particularly for the poorest to focus on challenging the structural causes of low pay, expensive housing, disability and ill health.

Ed Miliband has consistently argued that this approach – some call it ‘predistribution’ – will lie at the heart of a Labour government. The welfare cap may, paradoxically, strengthen his hand. It certainly leaves him with fewer alternatives.

2 Responses to “The welfare cap ties a Labour government to ‘predistribution’”

  1. GO

    Housing Benefit bill set to top £30 billion? Best start looking at rent control, building affordable housing, etc.
    Tax Credits bill set to top £30 billion? Best start looking at wage levels, cost and availability of childcare, etc.
    Pension Credit bill climbing? Best start looking at ways to improve workplace pensions.
    etc., etc.
    If Labour move on from the New Labour approach of ‘let rents keep climbing – we’ll just pay the extra Housing Benefit’, ‘let poverty wages continue – we’ll just pay the extra Tax Credits’, etc., that’s a good thing.

  2. Alec

    To be fair, the attitudinal problem predates 1997.

    But, yes, there’s a strange idea that being left-wing or socialist necessitates throwing about endless amounts of public money.


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