Budget 2015

On Wednesday the 8th of July George Osborne delivered the 2015 emergency budget, the first Conservative government budget in almost 20 years. The Conservatives had promised to cut the welfare budget by £12 billion. This has turned out to include cuts to housing benefit and tax credits. In the budget speech, Osborne announced the removal of automatic housing benefit for people aged 18 to 21 with exceptions for the most vulnerable. He also said the benefit cap will be lowered to £23,000 in London and £20,000 everywhere else. The income threshold for working tax credits is going to be reduced from £6,420 to £3,850. The budget includes a controversial 'two child policy' meaning tax credits and housing benefit will only be provided for the first two children in a family, but not for any further children. What do these policies entail for people who are homeless, vulnerably housed, in extreme poverty or dependent on in-work benefits?

Tax credits fall into two kinds: child tax credits for those who are on a low wage and care for children, and working tax credits for low income workers. Housing benefits are aimed at people who are unable to pay their rent because they are on a low income. Cuts to these benefits will affect those who are already struggling, and will hit them hard. Osborne has said the housing cuts are aimed at those with high incomes who are in council housing, but hasn't explained what effect it will have on those people with low incomes, the people most in need of support.

Osborne has justified the ever deepening cuts to welfare by arguing that cutting government spending will help to reduce the deficit and revitalise the economy. He has also made the moral argument for reducing benefits to the unemployed being fairer, because “People who are not in work shouldn’t get more than people in work”. But do these arguments hold water?

Firstly, the percentage of government budget aimed at people who are unemployed or on low income is only 6% (as I pointed out in my last blog), yet these are the benefits which will be most affected by the cuts. In other words, those who are economically the most vulnerable are disproportionately affected. This belies the claim that these cuts will make society “fairer”. Especially when the budget includes tax cuts to corporations which could give the UK the status of a tax haven.

Will these cuts help to revitalise the economy? Only if they help to get people into well paid, full time work. Employment at a fair wage is the way to reduce the deficit. When people are employed and have a living wage, they create as well as spend more, which stimulates economic growth. The budget introduces a living wage, £7.20 rising to £9 by 2020. However, this isn't going to be enough, as businesses are expected to cut jobs in order to pay for a living wage. Regardless, the argument that cutting working tax credits will help people into work is unjustified. According to the Institute of Economic Affairs there is no evidence for tax credits bringing down wages, so there is no evidence that cuts to in-work benefits will create growth.

There is no reason to think cutting housing benefits will help the economy either. Genuinely affordable investment in social housing is actually one way to sustainably reduce welfare spending, according to the social housing group SHOUT. The fact is there isn’t enough affordable housing, so if housing benefits are cut more people will become unable to pay their rent. On the other hand, if more money is put into creating affordable housing, this will stimulate the economy by creating jobs. Some may argue this solution isn't affordable as it will mean further government spending, but in SHOUT's economic appraisal the case is made for government investment in social housing having two benefits. The first is fixed assets such as housing are a good investment over the long term, as the costs of management and maintenance are paid for by rent from the tenants. The second is the savings which would be made in welfare, as families who would otherwise be in private rented accommodation would be living in cheaper, better quality housing and so require less welfare support (p. 40)

As a result of the cuts to housing benefits, more people will become vulnerably housed or at risk of homelessness. This will further impact the economy, as it becomes much more expensive to help someone once they become homeless. Living on the streets incurs medical costs and makes it progressively more difficult to find work or a place to live. There is ample evidence for providing people with affordable housing costing less than homelessness. Recently, the 100 Day Challenge initiative in Connecticut brought together agencies and providers to find housing for 400 people using pre-existing resources. The initiative demonstrated a simple fact: keeping someone in a home costs less than keeping them in homelessness.

How did we as a society come to believe cutting benefits for the poorest, most dependent in society would be fairer or economically viable? Why would we think kicking away someone’s crutches would allow them to run faster?

I think it is partially because of the public perception of welfare and welfare recipients. In 2013, the Trade Unions Congress published the findings of a YouGov poll concerning the perceptions of welfare and benefit spending. It was found there were numerous widespread misconceptions about welfare. For example, on average people thought 27% of welfare is claimed fraudulently, while the government's own figure is less than 1%. People tended to think almost half people on jobseeker's allowance claim it for over a year, though in actual fact only a tenth do so. Given the scenario of an unemployed couple with two school aged children, almost 80% of people didn't think the family would be better off if one of the couple had a thirty hour minimum wage job, but the family would actually be £138 a week better off. This shows the public support for welfare cuts is dependent on misinformation and "hostile attitudes" to welfare claimants.

The budget cuts being enacted show we still have a long way to go in changing the public perception of welfare, as well as poverty and homelessness. In a democracy the government we vote for is affected by the public's perception of its policies, so it’s important to ensure the electorate are well informed about the realities of society. The reality is the cuts won’t just hurt the poorest, they’ll hurt us all by making our society less fair. If you care about the effect this will have, I urge you to consider becoming a friend of New Hope. In times like this, people in poverty need our help. Brick by brick, we can make things a little fairer.


Alex Charlton