Cuts: welfare or spending

May 16, 2011, 1:29 AM UTC

Nearly a week on from the Budget and it is already clear what the government’s political strategy is for making the massive proposed cuts in public spending. It wants us to choose. It’s asking us: should the axe fall on public services or on welfare benefits?

In the end, of course, both will be cut – the sums are simply too large for either to be spared completely. But the government is trying to persuade us that if we will agree to cuts in welfare spending, then services won’t be quite as badly hit as otherwise they would be. Cut welfare to save services is the message.

George Osborne, the chancellor, made this clear to reporters over the weekend on the fringes of the G20 summit in Toronto. Ahead of this week’s first meeting of the cabinet’s committee on public spending, he said of the £192bn annual welfare bill: “It’s a trade-off. Some of these benefits individually are very much larger than most government departments. Housing benefit is one of the largest. In its own right, it would be treated as one of the largest government departments.”

It has been estimated that without significant cuts in welfare spending some government departments will face having their budgets slashed by 33%. But the Institute for Fiscal Studies reckons that if £13bn could be sliced off the welfare bill, then average cuts in departments providing services could be reduced to around 25%, still a very substantial reduction and more than previous governments have ever managed to achieve.

As well as housing benefit, the government has incapacity benefit in its sights. The annual cost of this is £12bn, paid to 2.6 million claimants. It wants to devise new tests for claimants and then reduce the level of benefits to those deemed fit for work.

Mr Osborne said of the planned re-examination of incapacity benefit: “It’s a choice we all face. It’s not a choice we can duck.” The government clearly believes not only that financial savings can be made in this budget but that it could well prove better for both individuals and the economy at large if those who don’t really qualify for the benefit and could actually work had the incentive not to do so taken away from them. He said: “Incapacity benefit and employment and support allowance is a very large budget. We have got to look at all these things, make sure we do it in a way that protects those with genuine needs, protects those who can’t work but also encourages those who can work into work.”

The political attraction to the government of making the justification for welfare cuts the need to protect public services is obvious enough. It provides a different way of telling the story about curbing welfare payments from the one the coalition’s opponents on the left would prefer to tell. Their line would be that Tories are happy to slash benefits and hit the poor because they are ideologically committed to such an approach and heartless with it. As for the Liberal Democrats, they are just going along with it for the sake of the novelty of being in government again after all these years, their opponents say.

Over the weekend it became clear just how open to this sort of attack the government is on issues relating to poorer people. Iain Duncan Smith, the Tory work and pensions secretary, suggested that help ought to be given to people living in council properties in areas of high unemployment to enable them to move to areas where there was more work. He said: “The middle class do this all the time. You have a house, if you have to move to work, you use that as a portable asset … Why is it that for a group of people on low incomes, we leave them trapped, rather than give them portability?”

What Mr Duncan Smith seemed to have in a mind was some sort of scheme whereby people in council accommodation would be able to qualify for council homes in areas where there was work without having to join the queue there. He wasn’t, he made clear, suggesting that people should be forced to move.

His remarks were immediately attacked by two contenders in the Labour leadership contest. Ed Miliband said the minister’s remarks were reminiscent of Norman Tebbit’s suggestion back in the 1980s that the unemployed should follow his father’s example in the Thirties and “get on your bike”. Mr Miliband said: “What he is saying to whole parts of the country is: ‘We have no hope as a government of getting work into your area so you are going to have to move out of your communities’. And that is frankly disgraceful.”

His rival, Ed Balls, said: “[Duncan Smith] is saying to people in high employment areas which are more affluent, if you are living in social housing, he is saying ‘we are going to get you out of your homes to make space’. He goes further than ‘on your bike’. It is actually ‘on your bike and lose your home’.”

But there has also been a different line of attack on the government’s suggestion that welfare spending needs cutting to save services. It is that there are other candidates for cuts that should be examined too.

During the election the Tories said they would ring-fence spending on the health service and overseas aid and save them from cuts. It is this that has come into question. The former Tory chancellor, Lord Lawson, has argued that the NHS should not be regarded as a special case. As for overseas aid, it became explicit at Toronto this weekend that the G8 had abandoned the commitment it made at Gleneagles five years ago to increase aid substantially. Some are arguing that the new coalition government here should not protect the aid budget either.

Other commitments the coalition has made are also in the firing line. The promise to protect universal pensioner benefits, such as the winter fuel allowance, free TV licences and generous travel concessions has been attacked as wasting money by subsidising the rich.

Other critics say that the most obvious way to protect services from swingeing cuts is to raise taxes. Of course there were tax rises in last week’s budget, notably on VAT. But some commentators are saying that tax rises should play a much bigger role in reducing the government’s deficit and spending cuts much less.

In short, then, the government’s attempt to make us see the choice as being between cuts in services and cuts in welfare benefits is itself under attack. How things pan out will in large part depend on how public opinion responds to these arguments. That’s why, in the end, it may be our choice.

What’s your view? Do you think the government is right to pose the choice as being between cuts in welfare and cuts in services? Do you think the welfare budget can be cut anyway, or not? In particular do you think housing benefit and incapacity benefit need reform or not? Do you think savings could be made elsewhere, in areas currently ring-fenced such as health, overseas aid, and pensioner benefits or not? Do you think taxes should be raised further or not? What do you make of the spat between Iain Duncan Smith and the Labour leadership contenders over council housing? And what do you think the government will end up doing over the deficit: slashing welfare substantially, cutting services, raising taxes further or all three?