Middle-class welfare must go

Spending pledges have been scaled down, but the Conservatives will have to find bigger savings

By Andrew Haldenby

Speaking to the head of strategy of one of the big government departments last week, he pointed out that the world has changed for Whitehall. Since 1997, senior civil servants have been promoted on the basis of spending more money and employing more people. From now on, they will make their careers by spending less and employing less.

What will go for civil servants will go for Ministers too. Gordon Brown was behind the times to make heavy spending commitments in his conference speech. This was the old politics.

Would the Conservatives be different? The first years of David Cameron's leadership also saw major spending commitments at conference, such as Andrew Lansley's pledge  to double the number of single rooms in hospitals last year, costing well over £1 billion. But in 2009, the Conservatives have steadily scaled back their spending ambitions. The pledge to match current Government spending plans was dropped. A pledge to protect spending in defence, education, benefits, health and international development was restricted to the latter two.

As yet, actual recommendations are few. The most important are both by David Cameron. The first was to move public sector pensions from defined benefit to defined contributions, which is essential but which will not make large immediate savings.

The second, and more important in the short term, was to limit tax credits to individuals earning less than £50,000 per year. As he said in April, “When the age of austerity means that we must focus on the real priorities, can we honestly say it’s right for people earning over £50,000 a year to get state benefits in the form of tax credits?”

David Cameron was careful not to raise the broader principle. But it is there nevertheless: that the benefits system is for hardship, and that benefits should not go to high earners. The real benefits for a Conservative Exchequer would come when the principle is applied to universal benefits such as child benefit. Writing before this April's Budget, Reform estimated that the saving from abolishing child benefit for all but families on low incomes would be £7 billion.

Since then a range of left-leaning commentators, such as Steve Richards and Polly Toynbee, has seized on the idea. They argue that if public spending is to be cut, it should be the affluent rather than the needy that are targeted. This formulation may appeal to a Cameron government that has already said that the better off must share in the pain of rebalancing the public finances, and which in general will seek to develop a "progressive Conservatism" of which we will hear much this week.

Following the Government's belated conversion, all three parties are now committed to finding major savings in public spending. The size of UK government is at its high water mark - it will never have as many functions, people or resources again. Universal benefits - "middle class welfare" - should be in all of the parties' sights.

Andrew Haldenby is director of the independent think tank Reform (www.reform.co.uk)

To find out more about this article, visit: http://www.reform.co.uk

5 October 2009

Andrew Haldenby. Director, Reform think tank