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Coffee House

Ed Balls reverses over his own progress on fiscal responsibility

8 January 2013

1:56 PM

8 January 2013

1:56 PM

The battle-lines over the Welfare Benefits Up-rating Bill — which faces its second reading in the Commons this afternoon — have been drawn. Labour has tied its opposition to the Resolution Foundation’s analysis showing that the bulk of the policy will hit working families. As Ed Balls put it last week, ‘Two-thirds of people who will be hit by David Cameron and George Osborne’s real terms cuts to tax credits and benefits are in work.’ They’ve labelled the move a ‘strivers’ tax’, a continuation of the divisive rhetoric from both them and the Conservatives that seeks to pit ‘hardworking families’ against ‘people who won’t work’ (as a recent Tory ad put it).

Then there’s the new Tory poster, highlighted by Isabel this morning, proclaiming that ‘Today Labour are voting to increase benefits by more than workers’ wages.’ But that’s not strictly true. Labour are voting to continue increasing benefits in line with prices (as measured by the Consumer Prices Index). And according to the Office for Budget Responsibility’s latest forecasts, prices will rise more slowly than earnings from the end of this year. So, under the old policy, benefits would increase by less than wages anyway from next year.

[Alt-Text]


The Tories’ argument is really more about the fact that benefits have risen more quickly than earnings over the past few years. In his Autumn Statement, George Osborne said:

‘over the last five years those on out of work benefits have seen their incomes rise twice as fast as those in work. With pay restraint in businesses and government, average earnings have risen by around 10 per cent since 2007. Out of work benefits have gone up by around 20 per cent. That’s not fair to working people who pay the taxes that fund them.’

And this morning, party chairman Grant Shapps said:

‘For years, the gap between those who earn and those who live on benefits has grown – and this government is restoring fairness to the system.’

By saying ‘for years’, Shapps may make it sound as if benefits have been rising more quickly than wages for a longer time than they really have. Really, he should’ve said ‘for four years’. Jobseeker’s Allowance for a single adult aged over 25 has risen from 10.5 per cent of average full-time earnings in 2008 to 11.7 per cent now. But in a longer-term context 11.7 per cent doesn’t seem that high. When Labour took power in 1997, for example, it was 13.2 per cent. And when Margaret Thatcher left office in 1990 it was 14.2 per cent.

The stronger attack on Labour’s position was deployed by Nick Clegg in Deputy PMQs this morning. Responding to Harriet Harman, Clegg said:

‘The challenge for her and her colleagues is firstly to explain to this House and to the British public why she could support a 1 per cent limit on the pay increases for doctors, nurses, teachers in the public sector, but not take exactly the same approach in this area. And secondly, where she’s going to find the £5 billion that this measure would save over the next three years.’

By opposing today’s bill, Labour is reversing back over the progress it made in supporting the government’s limit on public sector pay rises. And Ed Balls and colleagues offer no explanation as to why they support one but not the other. Indeed, if Labour’s main gripe is that 68 per cent of those the benefit cut hits are in work, the party should surely have been apoplectic about the public sector pay policy: 100 per cent of those it hits are in work.

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