Cameron’s welfare reforms will hit the young hardest – while leaving pensioners’ benefits untouched

David Kingman explores the intergenerational injustice which is at the heart of the government’s proposed welfare reforms

On Monday 25 June, David Cameron made a speech at Bluewater shopping centre in Kent during which he set-out his major plans for reforming the benefits system.

The speech contained 17 major points, which helpfully have been outlined by the Guardian. He emphasized that these were just proposals rather than concrete plans, and very few of them, if any, could be implemented before the next general election in 2015. Nevertheless, they reveal the direction in which government thinking has moved as the coalition seeks to cut overall government expenditure by a further £10 billion per year to meet deficit reduction targets.

A number of the reforms he mentioned are likely to have a significant impact upon the young, including:

– Removing access to Housing Benefit for anyone aged 16-24, which would save £2 billion per year and affect 210,000 social housing tenants, according to forecasts

– Allowing councils to prioritise people who have local connections and those who are in work when allocating social housing

– Linking the value of available benefits to the number of years that the claimant spent contributing tax and national insurance

– Preventing school-leavers from going straight on to claiming benefits

– Paying more benefits in kind rather than cash (e.g. free school meals)

– Introducing regional benefit levels linked to the cost of living in each region (although this was removed from the final version of Cameron’s speech, following concerns about the impact it would have on certain marginal Conservative seats)

Pensioners protected

During the same speech, Cameron also explicitly said that benefits which are paid to the elderly – such as the state pension, the winter fuel allowance and free bus passes – will be ring-fenced for the remainder of this parliament (at least):

“On this I want to be very clear. Two years ago I made a promise to the elderly of the country and I am keeping it. I was elected on a mandate to protect those benefits – so that is what we have done.”

Cameron claims that he made a specific promise to the electorate back in 2011 to leave old-age benefits intact, which he has a moral responsibility to live up to.

How should we reform welfare?

As IF broadly supports the government’s attempts to put the public finances back on a more sustainable footing, we recognise that painful deficit-reduction policies are going to have to be pursued. The big question is how should this pain be distributed – who should have to pay, and how much?

Estimates of the total welfare bill vary, partly because of debates over what counts as welfare spending, but an article in the Guardian of the same date claims it’s around £220 billion a year. In generational terms, £110 billion goes to pensioners, while £84 billion is paid to people of working age.

The amounts involved are so vast that it seems implausible to suggest that public spending could be retrenched significantly without looking at welfare; yet by aiming his cuts squarely at people of working age, Cameron is automatically ruling out changes to the biggest area of social expenditure, which doesn’t seem logical.

Some of the reforms that he proposes would also risk doing damage to other areas of the economy, and would thus be counterproductive. Notably, his plans to restrict access to housing benefit for young people, and to make it more difficult for newer arrivals in an area to get social housing, will have the effect of making it harder for young people to move around the country in search of work.

The cost of Housing Benefit may be large, but much of it supports productive economic activity by allowing people with less money to live in areas where there are jobs which they couldn’t afford to live in otherwise, particularly in inner-London.

Then there is the issue of whether benefits for the elderly should automatically be protected. Some of these benefits are grossly inefficient, such as the Winter Fuel Allowance (a scheme whose failings have been explored in a previous blog), and seem ripe for cutbacks, so it’s a shame the government has steadfastly refused to countenance them so far.

Looking ahead, any government that wishes to get social spending under control will have to examine the key drivers of welfare expenditure, many of which involve the ageing population.

The OECD published a report in 2011 which compared welfare spending in different member states. Using a broader definition of social spending which included healthcare, they concluded that:

“Public expenditure on health and pensions are the largest social spending items. On average across the OECD, public spending on pensions was 7% of GDP in 2007 and public expenditure on health amounted to 5.8%. Public spending on income support for the working-age population (3.9% of GDP) and on other social services (2.1%) was comparatively limited.” (p. 9)

The figures given above show that Britain’s welfare state is broadly consistent with the OECD average: the elderly are the largest recipients of social spending, and their numbers are going to increase as the population ages. Any serious attempts to address spending on benefits will surely have to address these facts, whatever the electoral consequences of doing so.

Give youth a chance

When viewed cynically, Cameron’s proposals would appear to be founded on electoral rather than economic calculation – older people are more likely to vote (and to vote Conservative) than younger ones, so their handouts must be preserved at all costs.

Of course, political parties have always had their particular interest-groups to support. What is more worrying about these proposed welfare reforms is that the ones which will hit young people are aimed at the symptoms of the problems rather than their causes.

If the Housing Benefit bill is too high, the best way of bringing it down would be to pursue much more assertive policies aimed at increasing Britain’s supply of housing, rather than just slamming thousands of doors in the faces of the people who rely on Housing Benefit to fund their accommodation.

Similarly, if the government wants to stop people leaving school and going straight on benefits, it needs to educate them better and help make the transition into the world of work more easily. Reforms like that – which really attempt to address some of the deep-seated issues that cause so many working-age people to spend years living on benefits – would really be worthy of the term “radical”.