Hard Evidence: is Osborne ‘hacking away at the same people’?

Now you see it … now you don’t. Owen Humphreys/PA Wire

George Osborne has warned that a further £25bn of spending cuts will be needed after the next election – with about half of those cuts to be made from the social security budget, largely from cuts in benefits for people of working age rather than from pensioners. This has caused not only a potential split between the Conservatives and Liberal Democrats but also within the Conservative party itself as the secretary of state for Work and Pensions, Iain Duncan Smith, is concerned the cuts will be “hacking away at the same people”. And he’s right.

Benefits for people of working age have already been the target for some of the most draconian cuts in social security since the 1920s. These include: the overall benefit cap (of £26,000); uprating many benefits with the Consumer Prices Index rather than the Retail Prices Index; an annual uprating cap of 1%; housing benefit reforms – including the bedroom tax; reforms of child benefit, Employment Support Allowance, Personal Independence Payments and Council Tax Benefit.

And if that isn’t enough for Duncan Smith’s ministry to be implementing, they have the introduction of Universal Credit on the (ever-receeding) horizon following a host of design, implementation and computer problems.

Money’s too tight to mention

Many of these reforms have yet to take effect as, for example, the changes in uprating will take time to erode benefit levels, but the amounts received by those out of work on means-tested benefits are already extremely low. Someone older than 25 but younger than state pension age will currently receive £71.70 per week from income-based Jobseeker’s Allowance but once they reach state pension age, their payments will more than double overnight to £145.40 in Pension Credit if they do not have other sources of income. And then there are the free bus pass and winter fuel payments.

Pensioners have, so far, been sheltered from the benefit cuts facing other groups and we see the consequence of this in research from the Minimum Income Standards (MIS) team at Loughborough University which carries out research every year to calculate how much different groups need to reach a minimum standard of living. They find that pensioners, if they claim all the benefits to which they are entitled, have enough to reach that standard – and, in fact, have a tiny bit more – 101% of a minimum income in 2013.

Meanwhile a couple with two children only get about 58% of what they need from means-tested benefits, a lone parent with one child will only get about 57% and a single person only 38% (see the graphic below). Benefits for working age people have already been hit since 2010 and the Osborne’s proposals look set to make matters even worse.

Of course, the chancellor would probably argue that people of working age should get a job and not rely on means-tested benefits, but the statistics also tell us that work is no guarantee of escaping poverty. Indeed, for the first time on record, more than half of those in poverty in the UK are living in a working family; and the real value of workers’ wages in 2013 fell back to 2003 levels. Young working-age people have been hit particularly hard with high rates of youth unemployment (about one in five), underemployment and low pay. Those who go to university face fees of £9,000 a year and there are major difficulties for young/middle aged people in getting a foot on the housing ladder.

Grey power

So why not save some money by cutting the benefits that pensioners receive? This is certainly a very large pot of money, totalling about £85 billion in 2011/12 compared with only £5 billion for benefits for unemployed people and £42 billion for people of working-age people on low incomes. There are probably a number of reasons why the chancellor does not want to raid pensioners’ benefits. First, of course, pensioners are more likely to vote than other groups and are a substantial proportion of the electorate, given increasing longevity.

Grey power is a force to be reckoned with compared with the apparently apathetic “youth of today” (who, admittedly, are the least likely to vote). There is also general public sympathy for pensioners, who are not expected to work – unlike those below pension age who can be targeted as “scroungers” or “skivers”. Finally, and importantly, while most people don’t aspire to being unemployed, most of us do hope and expect to be pensioners some day – so we don’t want to cut back on benefits that we may need when our time comes.

But as more people are affected by the benefit cuts in the next few years, perhaps those of working age – particularly younger people – will become more active and campaign and vote against the cuts. Even pensioners themselves will usually have children and grandchildren to be concerned about if the government continues to “hack away” at their welfare.

There’s every likelihood that the government will have to start to cast its net wider for savings, and – if money has to be found from the benefits pot – pensioners may find this begins to affect them as well as their children and grandchildren.

Hard Evidence is a series of articles in which academics use research evidence to tackle the trickiest public policy questions.