Could Ed Balls have delivered the Autumn Statement?

Working-age social security is set to emerge as the new right/left dividing line

November 26, 2015
Was the old Shadow Chancellor speaking through George Osborne? © Stefan Rousseau/PA Archive/Press Association Images
Was the old Shadow Chancellor speaking through George Osborne? © Stefan Rousseau/PA Archive/Press Association Images
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This was a Spending Review Ed Balls could have delivered, were it not for the chancellor’s plans for working-age social security. More on those in a moment. But when it came to departmental spending, George Osborne yesterday looked like a centrist social democrat.

Most importantly, he heeded warnings not to slash future-facing spending on childcare, education, science and skills as well as choosing to increase capital. Prioritising investment-style expenditure was the central recommendation of a Fabian Society Commission on spending choices, which reported in 2013.

He also protected health and social care, bowing to the inevitable financial pressures those twin sectors face. More details will be needed on the settlement for adult social care, given that services were facing financial catastrophe even before the new minimum wage policy was announced. But it’s a lot better than many feared.

A Labour chancellor would have found more for social housebuilding and action on climate change, and would have been far more concerned about distributing money around the country according to need. But these are second order questions compared to the size of overall department spending, which reflect the pre-election plans of Ed Balls not George Osborne. Osborne has been able to pull off this trick partly by introducing some stealthy tax rises, but the game-changer was the OBR’s new forecasts for higher tax receipts, most of which arise from modelling changes rather than improvements to the economic fundamentals. Whereas before the election, Labour had to promise earmarked tax rises and borrowing for investment, the chancellor has been able to match their plans simply through good luck.

Those higher tax receipts may never materialise. Both Osborne himself, and Gordon Brown before him, have run unexpectedly high deficits as a result of inaccurate revenue forecasts. In Brown’s case, it was weak tax receipts, not spending profligacy, that explain why he was running a deficit before the financial crisis. But this week none of that matters, because Osborne had the fiscal data he needed to set plausible four year plans for public services.

For the time being, low and middle income families have also benefited from the chancellor’s unexpected windfall. But the announcement on tax credits yesterday was a delay, not a u-turn. The Treasury is still planning deep cuts to the incomes of the working poor by 2020, on a scale that no true champion of the "strivers" would ever contemplate.

Once Universal Credit is finally in place, low earning families will face the same eye-watering cuts in disposable income which the House of Lords rejected this month. The share of national income we spend on working-age families will shrink rapidly for the rest of the decade and then carry on falling through the 2020s, assuming no change of policy.

This means, by simple arithmetic, that the incomes of poorer families will not keep up with rising GDP and average earnings (the new minimum wage is only a modest counter-balance). Indeed the real disposable incomes of the poorest people of working age are likely to be no higher in 2030 than at the turn of the century. Contrast this to the prospects for people in retirement, where there is cross-party consensus for a decent pension system which will ensure that incomes roughly keep up with rising national prosperity.

Can this dichotomy between the support available for working-age families and pensioners possibly be sustainable? Already the living standards of typical pensioners are higher than those of non-retired households, and as each year passes George Osborne’s policies will widen that divide.

Labour is just starting to wake up to this and working-age social security is set to emerge as the new fault-line between left and right. For five years the party has been cowed and hesitant on welfare, but not anymore. Labour will fall in love with Brownism again and proclaim that generous social security for low earning families is essential in our unequal market economy.