Friday, 23 November 2012

How to save £5 billion a year from welfare

Apparently George Osborne and the tories want to freeze unemployment and other benefits in the spring, which, after inflation, is effectively a cut. Their argument for this is that welfare is a huge part of government expenditure and needs cutting in order to close the deficit.

But the problem with this is that even if you froze every working age benefit, including ones like disability benefits, which Osborne apparently doesn't want to freeze, you would only save at most £2 billion a year - and probably a lot less than that due to the impact of the cuts increasing the demand on, and the cost of, other government services.

And, since this would only save a fraction of the £20 billion we apparently need to save, and cause hardship for people who are already struggling to get by, I've got a better plan.

In fact, I know away to save £5 billion from welfare without hurting anybody.

Let me explain.

First of all, let's quickly look at the one area of welfare the tories consider a sacred cow and refuse to touch: pensioner benefits.

At the moment pensioners, regardless of whether they're living in poverty or whether they're a multi-millionaire, receives the winter fuel allowance (£100 to £300 a year each), free bus travel, free TV licenses if they're over 75 and quite a few other perks.

Now, I've got nothing against pensioners receiving a but of extra help from the government. I know that for plenty of people, including some of my relatives, things like the winter fuel allowance make a big difference to being able to afford to heat their homes or not.

But why on earth should these benefits be given to all pensioners regardless of whether they need them? If you've got £10 million in the bank why should the taxes of someone on the minimum wage go to giving you a free TV license? Why should they have to help pay for you to receive a winter fuel allowance which you don't actually need?

The reason, as usual, is political cowardice. You see, the over fifties are the only demographic that overwhelmingly votes for the tories. And because of that, the tories have refused to cut even one penny from pensioners benefits - despite the fact that they make up a huge chunk of our overall welfare bill.

So here's how we could save money - if all of these pensioner benefits were restricted to only those who need them then we could save about £1 to £1.5 billion a year.

Then, on top of that, we could save at least another £4 billion by implementing into law the concept of a living wage and raising the minimum wage to match it.

In brief, the living wage is an hourly rate, calculated independently, that is high enough to allow people to live off of. It is significantly higher than the minimum wage - for example in London, where living costs are very high, the living wage is £8.55 while the minimum wage is just £6.19.

And, in addition to the fact that the living wage (which has received at least lip service support from every major party) would take hundreds of thousands of people out of poverty if implemented, recent research has also shown that paying the living wage to all low paid workers in London would save the government almost a billion a year through increasing the number of taxpayers and, most importantly, reducing the number of people who are paid so little that they are forced to depend on state benefits in order to survive.

Extrapolating this saving across the country based proportionally on London's population then you're looking at the government saving £6.1 billion a year if everyone was paid the living wage.

Now, obviously that's an overestimate because the gap between living costs and the minimum wage isn't quite so large outside of London and so the savings would be smaller.

But even so, at the very least paying the living wage everywhere would save between £4 and £5 billion a year. And, in addition to that saving, and the people taken out of poverty, paying the living wage would also increase worker productivity and reduce absenteeism, benefiting employers as well. And, most significantly to me, it would also end the decades old disgrace of the welfare system subsidising the profits of employers by allowing them to page wages too low for people to live off of.

Now, there would be problems with paying a living wage, obviously. The increase in wages would be difficult for some companies, particularly the smaller ones, to absorb. So it might well lead to a small increase in unemployment.

But, given the scale of the savings we're talking about, and that the dire predictions of millions being made unemployed which were used as arguments against introducing the minimum wage utterly failed to come true, the scale of the increase in unemployment would be extremely likely to be manageable and would be offset many times over by the savings to the government and the benefits to workers up and down the country. It would be a lie to say it would be painless but at least those made unemployed would still be supported by the benefits system and, overall, workers, the government and the country would see a net benefit from the change.

So, to recap, here is how we could save £5 billion from welfare:

  • Ending perks for wealthy pensioners: would save £1 to £1.5 billion a year
  • Implementing the Living Wage on a national basis: would save £4 to £5 billion a year
Which, being extremely conservative, and allowing for unpredicted costs, means that, as a bare minimum, the government would still end up saving at least £5 billion a year from the welfare bill - and all without having to freeze benefits for the unemployed and the low paid.

Now if only someone had the political courage to implement it.


  1. The problem, George, is that the Lib Dems will continue to enable this disgraceful Tory assault on benefit claimants because they are afraid of losing power. I know you'll deny this - you have always stood against the cuts and I am grateful to you for that - but this is exactly how it looks and feels to people like me who are scared stiff of what the future holds. Despite Lord Freud's comments today, despicable as they are, claimants like myself do not have "a lifestyle" - we have survival, and that survival is being eroded by this Coalition.

    Your ideas listed here are interesting but I sincerely doubt that your party would back them - ill and disabled people are far too easy a target for them and it sickens me, frankly.

  2. Great Article George.I see many of the Younger Generation with a good moral attitude.The Younger LibDems,from what I have seen.May one day restore Liberal values to its party.
    Not right winged neoliberal values what we have now.

  3. I like your thinking George, the living wage would help enormously however you have not considered the cost of implementing either of these policy's. For example to means test pensioner benefits would require a large amount of spending to come up with a system, a suitable cut off, and the cost of rolling out the policy across the country. If only things were as simple as implementing policy's that make sense!


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