Five reasons why Labour MPs should oppose the welfare cap

Despite Ed Balls saying Labour will back the welfare cap, because Ed Miliband has already expressed support for a welfare cap, here are five reasons why Labour MPs should vote against on Wednesday (26 March). If you have a Labour MP, email them (template letter via Left Futures).
 
1.    It means need is subject to an arbitrary cap

The welfare state was founded on the principle of "from each according to their ability, to each according to their need".

This government has failed to address that need: it's welfare programmes are failing - from the Work Programme to the Youth Contract to the Work Capability Assessment. Failing privatised schemes need capping, people in need do not.

2.    It feeds the Tory myth that spending is out of control

In fact the UK spends less on social security than other developed nations, and before the recession welfare spending was falling (read more here, via TUC).

France, Italy, Belgium, Austria, Germany, Denmark, Sweden, Finland, Norway, and the Czech Republic all spend more than the UK on social security (see chart below, using OECD data)


3.    It does nothing to challenge the reasons for high welfare spending

Low pay, weak trade union rights and an unregulated rental market. When pay is too low or there isn't enough work, people become eligible for tax credits and housing benefit. As the 1945 Labour manifesto said, “there is no reason why Britain should not afford such programmes but she will need full employment and the highest possible industrial efficiency in order to do so”. This government has failed to meet those criteria.

Both tax credits and housing benefit for people in work are subject to the welfare cap. If wages continue to  lag behind inflation, and rental costs continue to exceed inflation, that will mean welfare costs rise. Under this proposal, disabled people's benefits or pensioners' winter fuel allowance could be cut because landlords jack up rents or because employers don't give decent pay rises.

4.    This is feeding the demonisation of people on benefits
Disabled people have already suffered the most under this government's cuts to social security - with the failed Work Capability Assessment  for Employment and Support Allowance (ESA), the cuts to Disability Living Allowance (DLA), the closure of Remploy and the forthcoming abolition of the Independent Living Fund. Both DLA and ESA are within the welfare cap.

They have also suffered a massive rise in disability hate crime, which follows the demonisation of those on benefits by Tory politicians using the divisive language of 'skivers', 'shirkers' and 'scroungers' - which has then been echoed in the media.

5.    It does nothing to help those in real need
With half a million families using food banks, an extra million people in poverty, homelessness rising, and the number of families housed in B&B accommodation at a ten year high - what will a welfare cap do for them?

It is a gimmick, but a nasty gimmick. And Labour MPs should reject it.

p.s. if Labour MPs want to know how to cut welfare spending from a socialist perspective, read this

The two faces of Ed Balls

During the Labour leadership election, many people were impressed by Ed Balls' apparent conversion to a social democratic economic settlement as espoused in his Bloomberg speech.

But since then Balls has committed a Labour government in 2015 to sticking with Tory spending plans for at least the first year. He has also said that Labour will not promise to reverse Tory cuts, and that Labour would have to make more in office. He has supported the public sector pay freeze, while Ed Miliband somewhat contradictorily waxes on about the cost of living crisis.

This morning the media was filled with similar tough messages, briefing ahead of Balls' speech at the Fabian Society, including the parliamentary garbage that "Balls will promise to legislate for new fiscal rules within 12 months of the general election, including a commitment to a budget surplus by the end of the parliament". Legislate for it? Really? Will the chancellor be surcharged if the target is not met? Or will a technocrat be installed to make cuts? It really is nonsense. On the upside, it should be noted that Balls is committing to a current account surplus, which allows for borrowing for capital investment - see 'Borrowing for Growth - some advice for Ed'.

Nevertheless, like any wannabe chancellor, Balls knows how to pull a rabbit out of a hat. And so the tough, 'we'll enforce austerity too' message will be overshadowed by a debate about a modestly higher rate of income tax on a few high earners. It is very welcome that Balls has committed to restoring the 50% tax rate on those earning over £150,000. It was probably the most popular policy in Gordon Brown's premiership.

What is also welcome, and will hopefully be widely reported, is that Balls also said:

"The latest figures show that those earning over £150,000 paid almost £10 billion more in tax in the three years when the 50p top rate of tax was in place than when the government conducted its assessment of the tax back in 2012"

This corrects the crap put out by the Treasury in its dodgy dossier of the 2012 Budget. Both the move to pledge to restore the 50% rate and the analysis is welcome, and hints at a return to '
Bloomberg Balls'.

However, before Labour activists start getting weak at the knees about a return to some form of modest social democracy, Balls also told the Fabian conference that Labour supported the benefit cap, the public sector pay freeze, thought public utilities belonged in the open market, and that universal winter fuel payments for pensioners should be means-tested.

We've seen the two faces of Ed Balls today in one day. Capitulating to Osborne, the financial markets and the Murdoch media this morning, while throwing a modest redistributive morsel to the left at lunchtime. Bon appetit!

Are you really worse off? Er, yes.

Labour has recently made some headway with its message that there is a cost of living crisis - which has continued despite Osborne's recovery. This feeds a number of other important messages, including that this is a recovery for the rich, and that you're being ripped off - and so the energy price freeze fits into the same narrative.

The average non-retired household is today 6.4% worse off since the recession - that was the finding of a report by the Office for National Statistics out earlier this week. It showed that the average household income fell from £37,900 to £32,600, in real terms over the last five years.

In fact, the average household is £300 a year worse off than it was in 2002/03. There is therefore a 'lost decade' of stagnation for household incomes.

This decline in income triggered entitlement to extra benefits (e.g tax credits) so that benefits rose from providing 7.6% to 12.3% of gross income for the median household. This is fundamentally a redistribution in the cost of living from the employer to the state - as a result of pay freezes and pay caps. So when Labour talks about a structural welfare spending cap (not individual benefit caps which are disgraceful) it is alluding to this phenomenon, and pledging to deal with the structural issues - and advocating the living wage is a part of tackling low pay subsidies like tax credits.

The resonance that Labour has had with this line has rattled the Tories.

So, in a blatantly politically-driven misanalysis, HM Treasury has produced data that shows compensation for workers has stayed the same, but what they don't see is that employers are paying more in national insurance and pension contributions. The idea that wages have been cut to sustain or even increase profits is, apparently, a myth.

Sky's economic correspondent, Ed Conway, says the Treasury report explains:

"Overall compensation includes not just wages but also the social contributions made by employers, including pension contributions and National Insurance Contributions. Technically-speaking, these are forms of payment, except that because they don’t go straight into your pocket they don’t feel particularly obvious."

In fact a less kind interpretation of this Tory spin - still not on the Treasury website - is that because it doesn't goes into your pocket, it's not really payment.

So the Tory argument is that pay has gone down (Ed Miliband's cost of living crisis) due to NI contributions going up (all Gordon Brown's fault) and pension contributions going up (your fault for living longer).

However, the argument doesn't really stack up for several reasons:

1. Pension contributions have only gone up in real terms for funded pension schemes - which most workers don't have
2. Part of the reason extra pension contributions are needed are due to pension holidays taken by employers in the 1990s
3. Is the logic of the Treasury analysis of NI rise that a cut in NI would be passed on to workers in higher wages
4. If that's the case why have the cuts in corporation tax not been passed on to workers then? Because corporation tax has fallen from 33% to 28% under New Labour, and now down to 22%.
5. If we're all actually no worse off why - by official figures - are a million more of us living in poverty? Why are half a million of us using food banks this year?

(There's a more detailed and wonkish analysis by the TUC's Duncan Weldon here)

So was this just a political attack to try to blunt Labour's resonant cost of living line? If so, it's another sign of the civil service being used for party political purposes (and not the first time either).

But it's an indication that ahead of this year's Autumn Statement, Osborne has only spin to offer.

Why - and how - Labour should pledge to renationalise Royal Mail

Yesterday, Labour's shadow Business Secretary Chuka Umunna - tipped as a possible future leader by some - announced that Labour would keep Royal Mail in private ownership if, as is likely, the Tory-led government pushes through privatisation before 2015.

Writing for the Huffington Post, Umunna argued:

"I have been very clear that we are not in a position to pledge to renationalise the Royal Mail if we get into government in 2015. I do not know how much Royal Mail shares will be trading at in May 2015, so I do not know how much it would cost to renationalise. No credible future Business Secretary would therefore make such a pledge"

What struck me was how woefully unaware Umunna seems of Britain's long history of nationalisations. But, first some good news to be read into Umunna's otherwise depressing statement: if Labour won't nationalise because of cost, then rail renationalisation is on the cards - since the franchises can be brought back under public control as they expire, cost-free. Come on Maria Eagle, you can do it!

But I digress. Labour has of course already said it will stick to the Tory spending plans that it criticises as being flawed, and therefore Mr Umunna is unable to make spending commitments, unless funded by some other cut (like Trident perhaps?).

But still, governments have rarely used current expenditure accounts for nationalisations. Even the colossal shovelling of public money at the banking system in 2008/09 was done through an arcane stand-alone Bank of England fund.

The largest swathe of nationalisations occurred under Clement Attlee's 1945 government, and included coal, steel, electricity, gas, electricity, railways, road haulage - alongside a massive expansion of publically-owned social security, public health, education and housing.

Now you might say, 'that's all well and good, but Labour will come to office in 2015 with a very different inheritance. Didn't you hear Liam Byrne? There's no money left!'. To which the reply is 'I never listen to Liam Byrne. Why on earth would anyone? But I see your point, Attlee only took office after six years of war, with the country's infrastructure and labour force decimated, and with a national debt nearly four times what it is today. But I just think maybe today's Labour could manage one relatively small renationalisation...'

Attlee's government also reduced the national debt during its term in office. 'But how?' you ask, 'when they must have spent billions on all those nationalisations'. Attlee's government largely exchanged shares for Treasury bonds - sustainable low cost funding of the purchase of assets that often generated revenue in return (Royal Mail made a profit of £430m last year) or were steered in the public interest to underpin economic growth and to meet social need ('meet social need' aka 'predistribution'). Another question Mr Umunna should be asking is why would any government wanting to reduce the debt, sell off a steady income stream?

But of course saying now that if the Tories privatise Royal Mail, Labour will renationalise will drive away the vultures circling over Royal Mail. Who would pay for shares now, knowing they'll be exchanged in less than 18 months. Labour committing itself now to renationalisation in 2015 could scupper the move entirely.

All is not lost if Labour waits. The inevitable result of Labour committing itself to renationalisation next year would be to reduce the share price of a privatised Royal Mail. Look at the impact of Ed Miliband's modest price freeze announcement for energy companies. This would make even a cash buyback considerably cheaper.

The Attlee government did something very simple, it told the electorate what it would do - boldly - and it won a landslide. Until it finally announced some policies at its conference last week, today's Labour was barely ahead in the polls, against a deeply unpopular government. It went from being level to four points ahead before, to 8 to 11 points ahead after the announcement to freeze energy prices and repeal the bedroom tax.

There's a lesson there. One is that, if Labour wants to look 'credible' it shouldn't oppose privatisation only until it happens. That's rather like being a vegetarian between meals.

UPDATE (05/10/13): It is now estimated that Royal Mail will be valued at around £3 billion for the sell-off. Chuka Umunna has described this as "on the cheap", stating that two of Royal Mail's sites in London are alone worth £1.5 billion - and that these sites are at risk of being sold off once the shares are sold to private investors.
Such asset-stripping is common in privatisation - and occurred following the privatisations of the railways and of the water boards. If such asset-stripping occurs, then Labour should renationalise in 2015 by compensating shareholders on the basis of the valuation of the company at time of privatisation, minus the value of any assets sold off. If they can privatise on the cheap, we can renationalise on the cheap!