As the Chancellor said, this needs to change: pay needs to be higher, and welfare lower. The bill for tax credits has soared from £1 billion to £30 billion, which is plainly unaffordable. Everyone agrees that the government ought to help those who are unemployed, but why subsidise supermarkets who get away with paying the minimum wage, knowing that the government will top it up? So the case for reform is clear.
What’s less clear is how you proceed — without causing undue hardship to low-waged families who had come to base their budgets upon the tax credits which have ended up distorting the economics of the workplace. Osborne’s plan to phase them out via a four-year freeze, rather than tear them away, is wise. It will mean slower progress with the deficit, but is probably worth the price. Even with a lower target of £8 billion in cuts, there will still be much pain ahead — and freezing working-age benefits for four years will be progressively tougher. The Chancellor says that wages will rise to compensate — but that is a gamble.
This was perhaps the toughest Budget that Osborne has delivered: had he introduced these changes earlier, it would have been easier. But he faces almost no opposition now, with the Labour party in crisis and the Liberal Democrats fighting for their own survival. So he can afford to change his tone. He dismissed the ‘depressingly inevitable howls’ of pain that accompany welfare reform — he was thinking about his political opponents. But he ought to remember that the pain is felt by those on low wages, the people whom the Conservatives ought to stand full square behind.
So the next few years will not be a story of workers vs welfare claimants. It will be a mission to clean up the mess created by tax credits, without damaging the work incentive. Osborne has overseen tremendous amounts of job creation; he must now try to wean workers off welfare without pushing them back on the dole — or pricing workers out of the market. It will be a tough mission, but it will decide the success or failure of One Nation conservatism.
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