Softening the ground to cut in-work benefits

Many have expressed doubts as to whether the government will go through with the full £12 billion of benefit cuts. To do so would entail cutting deeper than in 2010-2015, risking adverse headlines and crucially going after the benefits paid to support working households. Surely that’s too politically difficult, the reassuring cry goes up. Given that in-work housing benefit has been an increasing cost pressure for DWP in recent years, it’s a debate we’ve been watching at Shelter with acute interest.

Today the prime minister clearly set out his intention to frame in-work benefits as a hindrance and not a help for those who need them most. Tax credits are part of the problem, Mr Cameron implied, calling for the UK to move from a “low wage, high tax, high welfare society to a higher wage, low tax, low welfare society”. Renters may wonder why a commitment to move from high rents to low rents wasn’t included.

As a standalone aspiration, wishing to cut spending on tax credits (and presumably in work housing benefit) by increasing wages is not a bad thing, nor is it particularly novel. The Social Mobility and Child Poverty Commission called for as much last year and Ed Miliband’s great wonk hope of ‘predistribution’ spoke to the same aims.

Worryingly, the PM’s contribution to moving the debate forward seemed to focus not on the knotty problems of how do you increase productivity and shift firms towards higher pay without compromising jobs, but on the hope that cutting tax credits would force up wages.

It’s a dubious claim, as the Institute for Economic Affairs helpfully set out. And while higher wages sound great, they can do remarkably little to lift households out of poverty, given that many minimum wage earners are second earners in more affluent households, and low income workers lose much of their pay rise in reductions to tax credits and housing benefits (a problem you don’t simply fix by cutting benefits). As a result the research suggests that if you’re serious about poverty reduction then you have to bank the benefit savings from higher wages and recycle them into targeted tax credit and benefit increases for those families who remain on low incomes.

That speaks to the beauty of the social security system; it enables targeted help for those who need it most, precisely because they need it. Employers cannot hope and should not be expected to increase wages because someone has had a child or they live in the high cost private rented sector because of a shortage of social housing. But the benefit system can step in and target assistance at such cases.

Cutting in-work benefits is controversial, hence the optimism/vain hope that it wouldn’t happen. Benefit cuts in the last parliament were framed within an often toxic strivers versus skivers debate. Ministers reassured us all that cutting benefits would restore fairness to the system and force people into work, helping and not hurting in the long-term. Such arguments cease to apply if the focus shifts to cutting benefits paid to the very strivers who get up at anti-social hours to do jobs for low pay.

Today’s speech was an important early step in laying the ground for in-work benefit cuts. Such a tactic even has a name – pre-rolling. Number 10 will hope that by framing first they shape the reaction on July 8th.  And by not being explicit about cuts the PM has embraced the lesson that it’s always easier to build support for reform in the abstract before those impact assessments and case studies point out the real life consequences.

Incidentally it’s also a reminder not to be glib with language. Anti-poverty activists have frequently referred to tax credits as employer subsidies and housing benefit as landlord subsidies, which sound like thoroughly harmless things to cut. But a debate frequently conducted in no more than 140 characters cannot hope to unpick the complex realities behind these two labels.

Sometimes describing the problem isn’t the same thing as identifying the solution. It appears true that the UK has a problem with low pay. At Shelter we also see that it has a massive problem with unaffordable housing costs, which are borne most by those on the lowest incomes locked out of homeownership. In this context it’s unsurprising that housing benefit and tax credits are costly for the Treasury, making them obvious targets for cuts.

We’d very much welcome a strategic look at how the UK can reduce demand for in-work benefits, starting with the need for lower housing costs. And we’re initiating an extensive look at how housing benefit should be reformed, including to recognise the growth of in-work support. But cutting support without addressing these underlying pressures will do nothing to address these structural challenges.