The last week has seen one of potentially more bruising inter-Cabinet battles of the Coalition’s time in office begin to take shape. Rather than a straightforward, and now increasingly common, Liberal Democrat vs. Conservative face-off however, the battle lines being currently drawn are between two rather unlikely alliances. On one side is the Work and Pensions Secretary, Iain Duncan-Smith, supported by the Deputy Prime Minister, Nick Clegg. Opposing them is the rather unlikely alliance of the Chancellor, George Osborne, and, the Labour Party.
The issue at hand is next April’s benefits payments, which as a result of bumper inflation have become a severe headache for George Osborne and his increasingly-cautious Treasury team ahead of his Autumn Statement on November 29th. The Financial Times reported last Wednesday that the Chancellor has ordered Treasury officials to provide a number of different models aimed at avoiding the increase of next year’s benefits payments to meet inflation.
The primary opposition to such a move is Ian Duncan-Smith. Not only is he an established political operator, but he is also arguably one of the most qualified Ministers for his brief in his role at the Department of Work and Pensions. After setting up a think-tank in 2004 which aims to identify centre-right policy prescriptions for tackling poverty called the Centre for Social Justice, IDS has since passionately taken up the cause of welfare reform. His promise now in Government to make “work always pay” has been welcomed across the political spectrum, even winning support from a Guardian editorial back in 2009. The problem with the reform however remains the short-term financial costs involved, with previous estimates back in 2009 suggesting that the upfront cost of the programme would be £3.6 billion. With inflation now rampant, the costs of welfare per se, let alone welfare reform, are now rapidly escalating.
These financial pressures have resulted in continuous skirmishes with Osborne and the Treasury; however the latest row seems likely to be one of the most significant. IDS’s case on this issue is strongly echoed by Nick Clegg who argues that it would be foolish to oversee an increase in poverty as the UK tries to secure economic recovery.
These arguments are both powerful and honourable, however there must be no doubting that faced with the need to get control of Britain’s record deficits, Osborne will be keenly considering his political hand on the issue. On the basis of current polling data many voters would support cuts to welfare payments. Interestingly the Labour Party’s politics on this issue seem to be in line with Osborne’s thinking. With the party having struggled to pick up support from c2 voters in last year’s general election, Labour party strategists will be keenly aware that there remains widespread support for cuts to benefits particularly amongst that voter base.
Labour’s approach will no doubt seem opportunistic to many of the left, who would argue that the party is the principled friend to those who are unfortunate enough to find themselves out of work. By contrast IDS’s views on welfare are both passionate and well-informed, and he will no doubt mount a fierce lobby along with Nick Clegg for the Treasury not to freeze payments.
Despite this, the Institute for Fiscal Studies predict moving benefit payments to an average inflation figure – calculated over six months to September – might save about £1.4bn. Osborne would probably be prudent to make announce a change along these lines come November 29th despite IDS and Clegg’s strong opposition for two reasons. Firstly, economists expect inflation to drop sharply in the coming months, and secondly, the fact it would be a move which would be supported by the majority of voters. As a result, it seems possible, if not likely, that Osborne will announce some kind of freeze on welfare payments come November 29th.