General election 2019 IFS Manifesto Analysis - Welfare Spending And The Labour Market

28th November 2019

Welfare spending and the labour market

Considering the scale of increases they propose on public service and investment spending Labour's proposals on working age welfare spending are relatively modest, undoing only just over half the cuts implemented since 2015 and less than a quarter of those put in place since 2010.

Conservative proposals appear to be all but non-existent, though the continued roll out of Universal Credit, a benefit that will be received by more than a quarter of working age households, is of course a big ongoing change in itself.

Labour say that they would abandon Universal Credit altogether and replace it with a new benefit system, but provide no details or costings. Whatever the merits of Universal Credit another complete redesign of the working age benefit system would be unwise. It would be expensive, disruptive and unnecessary. There are plenty of elements of Universal Credit that can be changed to make it more generous and easier to cope with for claimants. Change it, improve it, rebrand it, but for goodness sake don’t put the system and claimants through another decade of turmoil by starting afresh.

Labour’s policies do not come close to being enough to deliver on their pledge to end in work poverty within a single parliament. Laudable though that aim is it is hard to imagine any set of policies which could deliver on such a pledge over such a short period. Their proposed benefit changes by themselves might reduce in work poverty from 18% of people in working households to 16%. Even their radical minimum wage policies would make remarkably little difference. Only about 10% of the extra cash paid to low earners would go to workers in poverty.

In the longer term though it does seem likely that the overall effect of Labour’s policies on taxes, welfare, minimum wages and sectoral collective bargaining would be to reduce labour market inequality and hence in work poverty, possibly risking slower increases in average earnings.

All three parties remain committed to being relatively generous to pensioners - maintaining the triple lock, and retaining winter fuel payments and free bus passes. Labour want to restore free TV licenses to the over 75s. No party is suggesting any serious attempt to tax the wealth tied up in the houses or assets of this group, or to recoup anything from the extraordinarily generous tax treatment many have enjoyed on their occupational pensions. There is still no recognition that this is an age cohort which has been extraordinarily fortunate.

In this context Labour’s decision to spend £58 billion compensating the so called WASPI women is all the more extraordinary. While many were not aware their state pension age was rising, and some have clearly suffered hardship as a result, the decision was taken at least 15 years before the increase in pension age and most in the group are relatively well off. To believe the whole group should receive compensation is a recipe for complete stasis in policy. How can you ever defend any policy which ever makes anyone worse off if you think this change in pension age, implemented with 15 years notice, designed to equalise treatment between men and women, and in the face of dramatic increases in life expectancy, is in some sense unethical? Clearly some suffered hardship and there may be scope for much more limited compensation. Communication should have been far better, and policymakers need to take note of that and act on it for future change.

Labour’s pledge to keep state pension ages at 66 and not increase them further as currently legislated is another expensive promise likely to mean another one per cent of national income being diverted towards pensioners in decades to come, and ensuring that an ever increasing fraction of life is spent in retirement.