If there is one thing that George Osborne wants you to think about him it is that he is a man to stay the course – a chancellor who sets out clear rules to guide the way forward, and then follows them to the letter. Except, it transpires, where those rules concern benefit payments. According to well-sourced reports, Osborne is plotting to bend strictures about uprating social security for inflation which he himself penned just a few months ago.
Traditionally, benefits had gone up each spring with the overall cost of living as measured by the retail price index. But in his first budget the chancellor signalled that they would henceforth rise in line with September’s consumer price index instead, which measures the cost of shopping more narrowly.
There was some spurious pretext about bringing the arrangement into line with the Bank of England’s inflation target, but he did not bother to conceal his real game. The CPI excludes costly housing and so tends to rise slower, thereby ratcheting down the benefit bill every year until – by the end of the parliament – £6bn will be saved every year. This is not small change – it is one third of the vast £18bn which the government is hacking off the annual welfare budget. Debating alternative inflation measures is very much a minority sport, but over time they turn out to have vast effects. That is true not merely for the exchequer but also for those on the receiving end. Benefits could be pegged to the price of baked beans or even the tumbling price of computers, but those who rely on them would still need to grapple with rising rents to keep a roof over their head. This was always a change that ignored that reality, and achieved savings by making the poor steadily poorer.
Now, however, Osborne seems to have concluded that this impoverishing process is taking place rather too steadily for his taste. Although September’s CPI rose by 0.4% less than the overall cost of living as captured by the old RPI, amid rising prices it nonetheless climbed at the relatively rapid rate of 5.2%. That should obviously trigger an automatic 5.2% rise in most benefits, but the chancellor is said to be bristling at the thought of claimants getting a rise that outstrips those for people in work. Regular pay is currently rising at a mere 1.8% a year, and hence the chancellor is scrambling round for some means to evade his responsibilities under his own new rules.
There is talk of an outright freeze, but this is mere kite-flying designed to soften up opinion for a somewhat less savage proposal that finally emerges. To deny poor families and still more poor pensioners any assistance in meeting rising fuel and food bills would be beyond the political pale. It would also almost certainly breach the law and trigger a judicial review. Beyond an obligation to do something, however, there is much wiggle room within the legislation. Whereas the value of income tax allowances have been protected through an automatic uprating process which parliament wrote into law by parliament back in the 1970s, MPs have shown less concern for benefit claimants than wage earners, and have mandated the work and pensions secretary merely to “have regard for prices” in setting benefit rates.
There are slightly tighter duties in respect of the national insurance benefits that accrue to those who have paid their stamp, including the state pension. Ministers have in any case signalled they want to protect the basic pension, and indeed have actually moved towards a more generous indexation regime for this payment, even though it is the costliest benefit of the lot. The £18bn in cuts they have already pencilled in are loaded away from the old, and piled instead upon the shoulders of the younger poor. And it is in relation to the means-tested benefits that these people claim that the government now enjoys the freest hand to snatch back what should be an automatic rise.
Osborne’s political calculator is still functioning – no doubt many workers on stagnant pay will resent benefit rises. But his moral compass is askew: the reason why benefit payments need special protection during hard times is precisely because they affect the poor. The unemployed and the sick do not have the scope to muddle through by scrimping and saving as those who are lucky enough to be in work do. Iain Duncan Smith understands that the government’s claims of concern about the unfortunate in a broken society are already strained, and would be shredded entirely by an arbitrary move to cheat people out of protection against inflation which that they were so recently promised. The welfare secretary is said to be ready to take the chancellor on over this, as indeed should any Liberal Democrat who still wants to claim that they are part of a progressive government. After all the regressive cuts announced, that phrase already rings hollow. A policy expressly designed to ensure that the poor suffer the pain of inflation would take the “progressive” claim into the realms of bitter satire.