THE Government is facing hard choices over welfare. Public finances have a £60-billion shortfall. Defence costs are rising. If the Chancellor, Rachel Reeves, abandons her self-imposed fiscal rule — of matching day-to-day spending with income, and only borrowing to invest — she could expect a damaging backlash from the markets.
Should she restore the universal winter fuel payment for pensioners, as the Prime Minister would like? Or scrap the rule that parents may claim benefits for their first two children only? Or make it harder to claim disability benefits?
Each policy speaks to a different part of the electorate — and a different kind of need. But how should we decide? By looking at opinion polls and voting figures or by examining the facts? That is a loaded question, of course. Public opinion has been skewed by decades of scapegoating headlines about “scroungers” and “benefit cheats”. If Labour makes choices based on the politics of suspicion rather than evidence, it entrenches bad policy, even if it wins votes.
The two-child benefit cap was introduced by the Conservatives in 2017 to disincentivise people on benefits from having more children than they can afford to look after. Today, this “moral hazard” argument is undermined by the fact that two-thirds of the children it excludes live in households where one of the parents works, but in such a poorly paid job that they qualify for Universal Credit. The policy doesn’t encourage responsibility: it penalises children for the family that they are born into.
Scrapping the cap entirely would lift over 250,000 children out of poverty, say eight expert charities. It would cost about £3.5 billion. Allowing families to claim for a third child, but not a fourth or more, would cost £2 billion. These are significant figures, but reforms here would be targeted at those in deepest poverty.
Compare that with the winter fuel payment. Restoring that to all pensioners will cost about £1.5 billion a year. Pensioner poverty was dire in the past, but that has changed over recent decades. Pensioner poverty is now lower than child poverty. There is no serious case for restoring universal winter fuel payments beyond the political one that old people vote more than younger people. Even so, it would make far more sense for Labour to add the fuel payment to the state pension — and then tax richer pensioners on it.
The issue of reforming disability welfare is more complicated. Costs for disability support have risen dramatically since Covid. Reforms to weed out malingerers are understandable, but a large component of this increase is due to claims for mental rather than physical ill health. We must guard against stigmatising people with mental-health difficulties.
Labour hopes to save £5 billion a year by tightening the eligibility criteria for personal independence payments. The Resolution Foundation estimates that more than 800,000 people could lose their entitlements. The Government needs to be honest here. Are these genuine reforms, or are they just cuts? It needs to proceed with caution. Past attempts at reform met with limited success. They also decreased spending by disabled households, transferred costs to the NHS through poorer health outcomes, and increased tribunal costs. But the choice between winter fuel and the two-child cap is a no-brainer.
