Conservative Home

« Kwasi Kwarteng MP: Why the Government must end national pay bargaining | Main | Cllr Phil Taylor: The left don't want you to hear Sir Michael Wilshaw »

Chris Philp: A freeze in benefits will cut the deficit and increase the incentive to work

Philip ChrisChris Philp was the Conservative Candidate for Hampstead & Kilburn at the 2010 General Election, losing to Glenda Jackson by just 42 votes.

Recent media reports have suggested that the Government is considering freezing or limiting benefits increases. This move is very welcome – and long overdue.

This year, benefits went up across the board by 5.2% deepening the deficit by an extra £10 billion per year. This is because the inflation figure used for setting the benefit increase was the September 2011 one – the highest monthly inflation figure in recent years.

An increase of this magnitude was simply not fair. Firstly, inflation has averaged about 3.5% over the last year, and is now down to 2.5%. Secondly, public servants such as nurses, police officers, teachers and members of the armed forces had to make do with pay rises of only around 2%. And in the private sector, many people have not had a pay rise at all. Why should benefits go up so much more than the wages of those who actually work?

During Labour’s time in Government, the welfare bill doubled – from £93 billion to £188 billon. Even adjusting for inflation, it went up by 50% during their time in office. Today, at £207 billion per year, it consumes about 30% of all Government spending and is by far the biggest line item in the national budget. If we are going to tackle the deficit, it is vital to get the welfare bill under control.

But there is an equally important social point. If benefits pay too much compared to working, people do not have an incentive to work. The TaxPayers' Alliance has published research showing that when someone moves from benefits to a minimum wage job that person is only 26p per hour better off on average. I heard about this at first hand from someone living in the seat I contested at the last election, who wrote to me saying:

“I went back to work, albeit only on £6.50 per hour. I am 57 years old. When I was on unemployment benefits I was entitled to £67 per week and rent and council tax benefits. Now that I am working full time I have to pay my rent in full (no housing benefit), plus now I have to pay my own council tax. My net income after all this lost benefit and taxes is £100 per week. So for working 5 days a week I am better off by just £23 per week. Mind you I forgot to take transport costs off.  Wow  I am actually worse off.”

This is simply not right. Controlling the benefit level at least helps tip the balance somewhat back in the right direction.

Given the 5.2% increase last year, there is a very clear case to freeze benefits in cash terms for the next two years. Pensioners, who can’t work, might be exempted from this and given a CPI inflation-linked rise of around 2.5% per year. The savings realised could either be put towards deficit reduction, or used to increase the income tax threshold towards £10,000 and further help incentives to work – by helping people like the man quoted above keep a bit more of his income.

The politics of this even amongst people on low incomes are not as toxic as might be imagined. In the constituency I fought at the last election, it was working people on low incomes who were the most angry about benefit dependency. This is because they can see their neighbours earning about the same as they do for not working, while they themselves are working hard in often quite tough jobs. They will actually welcome a fairer balance between what you get paid working, versus on benefits.

As a country, we simply can’t afford welfare bills as high as they are. And we certainly can’t afford to have people better off on benefits than they are working.  I hope that the media reports we have recently seen translate into action on this issue.


You must be logged in using Intense Debate, Wordpress, Twitter or Facebook to comment.