Covid-19 Benefit Increases Should Stay Say Resolution Foundation

RESOLUTION FOUNDATION - Have just published this article in the Financial Times.

Resisting pressure to spend more on disadvantaged groups is seen as part of the job by battle-hardened officials in the UK Treasury. But stripping away benefit increases that have only just been introduced is rather different and doing so in the midst of an economic collapse would, to put it mildly, be something extraordinary.
Yet that is the course the government is currently on. At a time when many are talking about the need for a new social contract in the wake of the pandemic, the prosaic reality is that Whitehall’s focus is on whether to cut, or keep, this year’s benefits increase. It will be a telling choice. Either the safety net is going to be weakened just as millions are teetering on the edge, or the government will reverse the trend of a decade and make its benefit boost permanent.

The issue arises because, in the immediate response to the pandemic, Chancellor Rishi Sunak announced a significant and well-targeted but “temporary” package of support: an extra £20 per week in the basic level of universal credit and tax credits, more help for low-income renters and an easing of restrictive benefit rules facing the self-employed.

This was overshadowed by the introduction of the furlough scheme, and so has received far less attention than it merited. To put it in context, the £9bn bill is double the sum of the savings arising from George Osborne’s post-2015 benefit freeze, though it only amounts to reversing roughly one-quarter of all cuts to working-age welfare between 2010 and 2023.

If this package is allowed to expire by next spring, the poorest 6m working age households will lose at least £1,000 in income, with many losing up to £2,000. The basic level of support for an out-of-work single adult would fall to the level it was at when Margaret Thatcher left office in 1990. Even if the recent increases endure it will still be the case that benefit levels are set below the poverty line, and the social security system is riddled with inequity. Statutory sick pay is designed to exclude the lowest paid, family support penalises large families, and “universal” credit is withheld from those who have built up savings.

As more workers are laid-off this autumn, the grim reality of meagre support — and the sharp contrast with the furlough’s generous and straightforward wage-protection — will become painfully apparent to a broader spectrum of society. Some in government may be tempted to adopt a preemptive tough stance on this looming benefits decision, in an attempt to signal the return of their fiscal virtue. That would be a mistake.

It’s not just that it would be ethically wrong to make the poorest in society the target for retrenchment, and economically misguided to remove cash from those most certain to spend it. It would be politically unwise, too. The more unemployment soars and earnings plummet in the months ahead, the larger the benefit bill and the greater the public pressure to keep the increases. Those striving to sound fiscally tough could end up looking politically weak.

The social upheaval created by the Covid-19 crisis will lead to at least some reappraisals. One of these might concern the brutally low levels of support on which the most vulnerable are expected to survive. Recent months have taught us that a less punitive welfare system would make for a more resilient, as well as a more decent, society. Acting on this lesson would require a re-evaluation of the vital role that social security plays within our system of democratic capitalism.

The immediate question, however, is whether Boris Johnson’s government will protect its own benefit rises. It should and, crucially, it ought to let it be known that it intends to do so. The state must cushion risk rather than amplify it. Insecure families, like businesses, need some certainty. Mr Sunak should move swiftly this autumn to give it to them.

Image: Gavin Kelly, Resolution Foundation. 

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