Britain’s poorest households are bracing themselves for some of deepest cuts we have ever seen, with Labour warning that George Osborne is seeking nothing less than the complete dismantling of the welfare state.
The Chancellor is said to be preparing a devastating myriad of cuts to benefits and vital services for some of the poorest and most vulnerable people in society, which he will unveil in the Autumn Spending Review later this week.
Osborne is reported to have reached a deal with the Work and Pensions Secretary, Iain Duncan Smith, to safeguard the Universal Credit budget in return for cuts in other areas of welfare spending.
Iain Duncan Smith reportedly threatened to resign if Osborne raided Universal Credit to soften the blow of tax credits cuts.
The move would have meant that the taper rate for Universal Credit would rise from 65p to 75p, meaning that working people would lose 75 pence for every pound earned over the earnings threshold – removing “work incentives”, say opponents.
However, the Chancellor let slip this morning in an interview on The Andrew Marr Show that the government hopes to press ahead with cuts to Universal Credit.
Shadow Work and Pensions Secretary Owen Smith MP said: “Taking money from Universal Credit is simply rebadging cuts to tax credits, so will throw up all of the same problems for the Tories that the planned cuts caused in the first place.
“Osborne claimed that the Commons agreed to billions of pound of cuts to Universal Credit last week. Labour opposed these moves and forced a vote, precisely because they create yet another work penalty.
“They also breach the crucial Lords amendment, which called for full transitional protection for 3 years for the 120,000 Universal Credit claimants caught up in the tax credits cuts fiasco.
“Iain Duncan Smith should make clear that any proposed cuts to Universal Credit will be reversed. Failure to do so will destroy the idea of a social security system that incentivises work and confirm that the government’s reforms have descended in to chaos.”
It is believed that cuts to tax credits will continue to go ahead, be it in a slightly diluted form, despite opposition from a growing number of Tory MPs and recent defeats in the House of Lords.
The exact scale of those changes is as yet unknown, but it is believed that Osborne is seeking reductions in housing benefit to “mitigate”, or slow down, the pace of cuts to tax credits.
It has also been reported that Osborne will push for far-reaching cuts to council services, including reductions in social care spending for the elderly.
Sickness and disability benefits may also be targeted for further cuts.
Shadow Chancellor John McDonnell says Tory austerity cuts are ideologically driven, and more about shrinking the state than tackling the nation’s deficit.
George Osborne will use “smoke and mirrors” to cut spending on social security, he said.
Figures published by the Office for National Statistics (ONS) show that the deficit – the gap between what the government spends and takes in – grew by 16% in the year from October 2014 to £8.2bn, significantly higher than the £6bn forecast by economists.
The Office for Budget Responsibility (OBR) has forecast that this could reach a staggering £69.5bn in the fiscal year to April 2016.
The damning figures have exposed Osborne to claims that his austerity agenda simply isn’t working, and also that the government is failing to balance the books.
However, John McDonnell says George Osborne’s cuts aren’t about tackling the deficit.
“If he really wanted to do that, he wouldn’t have cut inheritance tax, or corporation tax or sold off some of the things that were making profits.
“That’s why I think it’s about more than that. It’s ideological. He wants to dismantle the welfare state brick by brick.”
Mr McDonnell says power-hungry Osborne is putting his ambition to lead the Conservative Party “in front of the basic needs of the country”, adding that he’s becoming “disconnected from the real world”.
He added that the “underfunded” NHS will be placed under significant pressure this winter. A government cash injection of £8bn will be undermined by £22bn of cuts, says McDonnell.
Institute for Fiscal Studies (IFS) director Paul Johnson, says Osborne’s austerity cuts will shrink the size of the state to a level not seen since before the War.
In an interview with the Telegraph, Mr Johnson said: “The make-up of the state will be extremely different by 2020 from what it was in 2010.
“It will be much more focused on health and pensions and much less focused on things like provision of local services, police, further education, and other things like that.
“If you put these cuts on top of what we saw in the last Parliament, there really isn’t anything to compare. We have never had anything like it.
“The size of the state overall will be roughly where it was at the end of the 1990s, which was a historic low for the post-War period.”
Meanwhile, Scotland’s deputy First Minster John Swinney has called on the Chancellor to “do the right thing” for low-income families, a plea which will almost certainly fall on deaf ears.
In a letter to the Chancellor, Mr Swinney says fiscal targets set out by the UK Government will require a significant reduction in public spending, with cuts of £12 billion to welfare and up to £20 billion to public services.
Mr Swinney is particularly concerned about tax credit cuts, which he warns could see working people’s annual income slashed by an average £1,500 from next April (2016).
“Such cuts are unacceptable, not only do they cut the incomes of working families across Scotland, but they will damage work incentives and inhibit future economic growth.”
There is “growing opposition to your plans for further cuts to public services and social security”, he tells George Osborne, “and the impact that they are having on families across the country”.
In his letter, Mr Swinney urges the Chancellor “to change course” and “scrap your planned cuts to tax credits”.
“One option would be to target a current budget balance rather than an overall budget surplus from 2019-20 onwards”, he says.
“This target ensures that no borrowing is required to fund day-to-day public services. Limited borrowing would be undertaken only to support capital investment aimed at boosting the UK’s long term productive capacity.
He added: “Balancing the current budget and increasing public sector net investment to 2% of GDP by 2019-20 (the long run level of capital spending) would allow an additional £150 billion in cumulative investment in public services compared to your current plans.
“Maintaining these objectives in subsequent years would also ensure that public sector debt continued to fall as a share of GDP and that the public finances remain on a sustainable path.”
Responding to ministers claim that cuts to tax credits would be mitigated by the so-called ‘National Living Wage’, and an increase to the Personal Tax Allowance, Mr Swinney argues:
“It is also clear that the other measures you have announced in no way compensate households for the cuts in tax credits.
“Both the Resolution Foundation and the Institute for Fiscal Studies have stated that the introduction of the National Living Wage will not compensate those at the bottom end of the income distribution for their loss.”
A Treasury spokesman told the BBC: On Wednesday the government will set out its plan to deliver economic security for the whole of the UK so that we can enhance our national security, and extend opportunity to all.
To Welfare Weekly, this sounds like political speak for funding military action in the middle-East against IS. Now you know where your food money is going… as your desperate family heads off to the nearest foodbank.
They added: “Key to this is delivering sustainable public finances and getting the deficit under control to prepare the country for any economic shocks that lie ahead.
“The chancellor has already made clear that the government will listen about how we make a transition to a higher wage, lower tax and lower welfare economy he wants to see.
“The end goal is clear – this country cannot have an unlimited welfare budget that squeezes out other areas of public expenditure.”
Last updated at 17:36 on 22 November 2015.