Activists at the last Conservative Conference before the General Election left Manchester with a slight spring in their step. Why? There were two reasons: the planned welfare freeze and income tax cuts, and the promise to clamp down on corporate tax evasion.
If the party wins a majority in 2015, benefits paid to people of working age will be frozen for two years, affecting child benefit payments and income support, hitting approximately 10 households (two thirds of the working population), saving £3 billion per annum over the period 2016-18. The Chancellor has also promised to cut the basic rate of tax by £500 per person by 2020, saving those earning between £50,000 – £100,000 per year some £1,313 in tax payments each year. Also planned is a tax free personal allowance of £12,500. Those working 30 hours per week or less will pay no tax.
Pensioners (tax winners over the last 5 years) will not have their benefits cut. They will also stand to gain from from the proposal to scrap the 55% tax rate on inherited pension funds and about half of all welfare payments go to those over 65 rather than to the demographic groups most in need. All this is justified on the grounds that wages during the economic recovery have risen slower than the increase in welfare payments, and why should “hard working families” (a group beloved by all politicians) subsidise those who “live off the state” whilst the economy continues to recover and unemployment is falling.
The “cunning” part of these proposed measures is not economic, but political; they are designed to appeal to “Middle England”, detaching many on both the right and the left from the siren call of UKIP. Attitude surveys indicate that those in work with long term career prospects actually resent paying for the welfare of the poor and those choosing to live “inappropriate” lifestyles. We have become a less compassionate society.
However, these measures may raise social costs in the short and long term. The maximum amount working households can claim in welfare payments is currently £26,000 per annum. This will reduce to £23,000 or £56, or £56 a week if the Chancellor’s proposals are implemented. The Treasury calculates that over the next two years the total cost of welfare will be £356 billion. The Chancellor’s proposals represent only 0.9% of this bill. So much for cutting the national defecit and reducing rising interest payments on international loans.
Child poverty in depressed areas is likely to rise as a direct result of the decline in living standards and with welfare payments also falling. Social divisions are likely to grow as a result.
The question of how the costs to the Treasury of these tax giveaways are to be paid for have yet to be answered, though nor have those regarding the opposition’s plans for the economy. NHS expenditure has been declared sacrosanct and education will be similarly protected; defence spending may also have to rise, the longer we stay in the Middle East. All of this means that, despite their own unanswered questions, the opposition has plenty to get its teeth into before the next general election in Spring 2015. The Chancellor’s “cunning plan” may yet not prove quite so cunning after all.
Terry Jones taught History to adult students taking Foundation courses at a College of Higher Education prior to their entry into full-time degree courses at Warwick and Coventry Universities. Since taking early retirement, he has travelled widely in Eastern Europe, pursuing a life-long interest in 19th and early 20th century European history. He has been a GCSE and "A" level tutor with OOL since 1996.