Sir Bufton Tufton, the archetypal British Conservative MP, is deeply unhappy. He did not spend decades advocating free market economics to see such a dire situation visited on the country’s economy. Growth is anaemic, inflation rampant, the tax burden at its highest in six decades and every corner of the public realm has an insatiable appetite for money.
Were he a real politician, Sir Bufton would be part of the loud chorus of Tories now calling on chancellor Rishi Sunak to slash taxes. Faced with a spiralling cost of living, the party’s natural instinct would be to reduce the state’s demands — perhaps by bringing forward the 1p income tax cut due in 2024.
But there is a far more pressing issue for Tories to grapple with: the plight of the poorest. Those who are unemployed or unable to work find themselves at the sharp end of this crisis, with no imminent hope of a rise in income. It is now widely accepted in the Treasury that not enough help was provided in March’s Spring Statement.
Take the 5p cut to fuel duty. Its £2.4bn cost has delivered no political dividend. In a surprise to almost no one, prices at the pumps stayed high. Kwasi Kwarteng, business secretary, sighs that the duty cut “does not appear to have been passed through to forecourt prices in any visible or meaningful way”.
The Treasury’s default mindset is to do as little as possible until almost too late. So more still has to be done to address the cost of living and help those out of work. Handily, one of the few parts of the British state that functions well is universal credit. Despite cost overruns and all manner of technical glitches, the UK has the most digitalised, advanced benefits system in Europe.
For much of the past decade, however, UC has been underfunded. Its budget was slashed by £3.2bn in 2015 — leading Iain Duncan Smith, then work and pensions secretary, to quit and accuse the government of “balancing the books on the backs of the poor and vulnerable”.
But in 2018, its work allowances rose, allowing those on benefits to earn more money from part-time work. And the social security system came into its own during the pandemic, when the lockdown-induced economic crisis saw more than one million extra people on benefits. The government duly introduced a temporary uplift of £20-a-week for claimants at a cost of around £6bn. According to the government, the extra spend cut child poverty by 400,000.
The uplift ended in October; the Treasury was eager to ensure extra spending did not become permanent. Half a dozen former work and pensions secretaries pleaded against — to no avail. With inflation soaring, Tory calls to reinstate the £20 a week are growing. Sir Bernard Jenkin, an MP on the right of the party, says it “should immediately be restored”.
This 13 per cent rise in UC spending would be well above the current nine per cent inflation rate. With fears rife about stimulating more inflation, one compromise endorsed by the Centre for Social Justice, a centre right think-tank, could be an emergency reassessment of universal credit to reflect inflation across the last quarter. As the cost of living crisis unfolds, ministers should consider a quarterly welfare assessment. If the energy price cap is to be updated on this schedule, why not UC?
The Labour party supports more welfare spending. But for Tories such as Sir Bufton, the case is just as strong. UC ensures it is always better to be in work (for those who can). The system minimises waste: the Tories should be much louder and prouder of it.
Plus the funds are there to make a rise permanent. Sunak has a healthy windfall from higher-than-forecast tax receipts. Spending £3bn-4bn on UC is proportionate — especially when the Treasury had no qualms about writing off £5bn in Covid payment fraud. Politically, Sunak has to act. Economically, a UC rise is plausible. But, crucially, boosting benefits is morally the right thing to do.
sebastian.payne@ft.com
Source: Economy - ft.com
