Ed M: I would have cut benefits bill, not benefits


3:22 pm - January 17th 2013

by Sunny Hundal    


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In an interview with the Financial Times today, Ed Miliband takes the correct position on welfare changes.

He told the FT that “universal benefits are part of the badge of citizenship”, otherwise it undermines the welfare state.

I think there is a sort of little truth here lurking in this which I don’t think has properly been exposed which is, probably is part of the long-term strategy of the Tory right to undermine the welfare state,” he told us. “They think we need to turn it into a service just for the poorest. And, then, as part of that strategy, we can undermine support for it?

But if you are trying to maintain universal benefits, says the FT’s Jim Pickard, then your welfare bill balloons because you have to pay them out for the relatively wealthier as well as the poorest.

So how would you cut welfare, asks the FT?

I don’t want to be cutting benefits, I want to be cutting the benefit bill.

Good, and an important point to make.

The best way to cut the benefits bill is to focus on lowering unemployment rather than focusing on austerity.

The bizarre thing is, the FT’s Jim Pickard seems to believe there was nothing in the government’s power to influence employment. But this can be refuted.

1) The government could have resisted axing hundreds of thousands of public sector jobs.

2) The government could have considered a stimulus (Obama’s stimulus created over a million jobs) too.

3) It could have stopped hyping austerity, which led to a steep drop in consumer confidence.

4) As some have pointed out on Twitter, building housing would have also helped: it would have stimulated economy while reducing housing benefits bill.

All these measures would have reduced the welfare bill much more than the current punitive cuts, which have been mostly aimed at disabled people and the unemployed.

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About the author
Sunny Hundal is editor of LC. Also: on Twitter, at Pickled Politics and Guardian CIF.
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Reader comments


What a load of guff. What would be the point of lowering the benefits bill if the way you go about is creating a whole load of non-jobs using borrowed money, thereby increasing the deficit still further – and with it the crippling amounts of interest that have to be serviced? This is why lefties should never have control of the economic tiller.

I’m sorry I can’t agree, we can’t live on debt, labour seems to think robbing Peter to pay Paul will solve things, they won’t they will get worse, debt increases growth is stymied by international issues not just domestic and we will swan dive into a Greece situation, not nice far harder austerity will come then

3. gastro george

I see the debt-monkeys are jibbering again.

There is a desperate need for proper social housing. I’d like to see good old-fashioned council housing built to a modern version of Parker-Morrison, with constraints on the right-to-buy. It’s a lot to ask for but I reckon it could be done if Labour became less nervous about the Daily Mail. Dacre’s going to be retired soon anyway.

I see the inhabitants of Never-Never land where money grows on trees, insults are cheap and debt is the same as deficit are sneering again.

6. gastro george

@5 Colin

Like austerity is working so well, no?

What brand of debt-monkey are you? Goldbug? Austrian? Still living in the pre-fiat world?

It takes money to make money.

Colin and Peter.

Have you not noticed that the National debt has gone up since the Tories got in power. It is the only thing that grows along with unemployment which is predicted to be 2.6 million people (8.1%) this year. Lack of employee rights has led to under employment and a growth in part time work and years of no pay rise and wage cuts for millions of hard working British people.

The Economy has gone into a double dip recession and we are probably heading for a triple dip after one pathetic olympic fuelled quarter of dodgy statistical growth. Managers report no confidence in our prospects and we are likely to lose our triple A credit rating that Cameron has told us is why we must bear so much pain.

Austerity is not working. The Tories have failed the country. We need a new direction.

I cannot understand why people think that public sector jobs are “non-jobs”. Why should jobs that are, on the whole, in existence so that we can take care of each other, be seen as useless? What a messed up world we live in if people think the only “real” jobs are those where money is being made, where somewhere along the like exploitation is very likely.

And Colin, I’m sure you must know that there is plenty of money around; that more and more money is being siphoned off into the pockets and bank accounts of the rich.

And by the way, the only sneering that I can see here is being done by you.

@6. gastro george

You have to have the right type of austerity. There is no doubt that you could have approached this mess from another angle by printing more money and trying to stimulate the economy on a massive scale, what America has done. What is this? its kicking the can down the road. America is on such a dangerous path now that there is no turning back. They say their growth will reduce the debt over time, but they aren’t kidding anyone. Even if America were to achieve China levels of growth (which they won’t) it would take them decades to recover from the amount of debt they have accumulated.

Why the right type of auterity? because the countries that have cut public spending drastically have succeeded in restabalising their economies. Countries like Iceland and Estonia, although not big examples have shown that austerity can be used effectively. It simply hasn’t in this case, but that does not support the argument for massive debt spending. The hole is already too deep.

You also jeer at Austrian style economies, but consider this fact. The economies that were comparitively free and following Austrian type economic policies (Hong Kong, Singapore, Switzerland) when the crash happened have faired the best. Very low unemployment (2.8% in Switzerland), GDP growth, and business stability. It is the countries that have embraced the idea of debt spending and huge public sectors that have fallen behind. (UK, Japan, France, Spain, etc)

@ 8 Razor,

Are you really surprised the national debt is up considering the size of the deficit they inherited? The Tories predicted that the debt would increase by around £350bn in this Parliament, even with their so called austerity measures.

I see the inhabitants of Never-Never land where money grows on trees

This is a nonsensical argument. Most money is virtual, so metaphorically it does grow on trees.

If we eliminated all govt debt then the world’s financial markets would essentially freeze up in a massive credit crunch. We need debt, the only thing to discuss is how much.

13. coffeecoffeecoffee

How does this square with “unemployment benefits are only a small (3%?) percentage of the benefits bill”…

So without cuts to specific benefits, unless the savings from a reduction in unemployed claimants, is greater than the natural growth in other benefits (low income and universal -winter fuel allowance etc) how would the overall bill possibly be reduced ?

@13 Presumably the Tories have a cull of pensioners planned or something, since pensions make up about 47% or so of the benefits bill (and is 15 times the amount spent on Jobseeker’s Allowance). The pensions bill also dwarves what is being spent on servicing our debt.

Still waiting for New Labour’s apology for starting the attacks on social security, now being finished for them by the Condems. People were claiming sickness benefits as it’s to find an employer willing to hire disabled. Also – better medical care means longer lifespans for once fatal illnesses.

16. Chaise Guevara

@ Colin

“What a load of guff. What would be the point of lowering the benefits bill if the way you go about is creating a whole load of non-jobs using borrowed money, thereby increasing the deficit still further – and with it the crippling amounts of interest that have to be serviced?”

Weirdly, I can’t find anything in the OP that recommends we create non-jobs. Could you point me to it?

17. gastro george

@10 freeman

“You have to have the right type of austerity.”

i.e. more? Like that’s worked really well in Greece, Spain, etc.

“America is on such a dangerous path now that there is no turning back.”

More debt hysteria. There is zero evidence that the US (or UK) debt is unsustainable. Look at Japan – they have been running substantial deficits for a decade, with no dire consequences.

Then the US hasn’t done a massive stimulus, just a small one. But the evidence of that, and the UK’s mild stimulus post-crash but pre-election, is that it makes a significant difference. Imagine what difference a proper stimulus might do …

“Countries like Iceland and Estonia …”

Well we can all cherry-pick supposedly good examples. I’m surprised that you didn’t mention Latvia – I thought they were the latest poster-boys for the austerians. Except that they lost 25% of their GDP and a huge number of educated young people have emigrated. Not something to be recommended for a major economy.

“You also jeer at Austrian style economies …”

Austrians have some valuable insights, but are fundamentally wrong on a number of issues. They predicted massive inflation as a result of QE, but it didn’t happen. Etc.

The best way to cut the benefits bill is to focus on lowering unemployment rather than focusing on austerity.

Two points on this. The first is that unemployment is falling, and it’s falling despite large scale reductions in public sector employment.
http://www.bbc.co.uk/news/business-20691842

The second is that Ed Miliband, last week, said that benefit cuts would hit people in work the hardest, not the unemployed. http://www.standard.co.uk/news/politics/ed-miliband-those-in-work-will-be-hardest-hit-by-benefit-cuts-8443517.html

Ultimately, if you want to reduce the benefit bill (and Miliband says he does, today at least), then you either have to reduce its scope, or reduce the level of payments. Or both. Pretending that you can shake the magic growth tree and make all the nasties go away is just infantile.

@17. gastro george

“i.e. more? Like that’s worked really well in Greece, Spain, etc.”

You seem to have deliberately ignored my examples of Iceland and Estonia. Greece and Spain haven’t had the right type of auterity at all, thats the point. In fact Greece has been one of the most recalcitrant countries to adopt any form of cost cutting, they have been forced by Germany.

“More debt hysteria. There is zero evidence that the US (or UK) debt is unsustainable. Look at Japan – they have been running substantial deficits for a decade, with no dire consequences.”

Japan is really a model you don’t want to follow, and the suggestion for doing so is daft. The only reason Japan is in a remotely better position is because of the very high levels of personal savings, enabling the debt to stay in country. The UK economy simply cannot be treated the same why. Interest payments would cripple us in a single quarter.

“Imagine what difference a proper stimulus might do …”

And how is this stimulus created? Through money printing. You say the stimulus in the UK was small, yet we saw a swing to inflation levels of over 5%. So if we implement a “proper stimulus” as you put it, what should we expect to see? 15…20%. Fine, but understand you will ruin the poor, while enabelling those with secure capital to sell goods and services at inflationary prices. I personally don’t want to see a return to 1970’s where peoples real spending power dropped massively.

“They predicted massive inflation as a result of QE, but it didn’t happen. Etc”

It hasn’t happened yet. We are only 4 years post crash, and those who believe this will be over in a jiffy are in for a shock. We are in this quagmire for the long haul. 10-15 years is what is coming and we will eventually see the result of catastophic levels of public debt come to the surface. The only way of dealing with it, will be through inflationary fiscal policy. You are right though, they predicted a number of things. The mortgage crises and foreclosures, the public debt, the damage of ultra low interest rates, the collapse of public confidence, and resulting raft of legislation that will make things worse.

20. gastro george

@18 freeman

“You seem to have deliberately ignored my examples of Iceland and Estonia.”

No, I said that I’m not going to discuss cherry-picked examples where I don’t have any detailed knowledge. I’m sure neither of us have such knowledge of every country in the world, so it’s too easy to play that game. [Didn't you know that Nauru is the stimulus poster-boy? Just joking ...] I’m happy to discuss countries where we both have enough knowledge to think we’re competent enough to talk about it.

“Greece and Spain haven’t had the right type of austerity at all …”

Please enlighten me how the right type of austerity could make Greece better off.

“Japan is really a model you don’t want to follow …”

No, I really do. Debt hysterics always go on about how Japan is a special case – it’s the universal rule that, when the facts don’t correspond to the theory, then it’s a special case.

“Interest payments would cripple us in a single quarter.”

Typical debt hysteria. Interest rates are effectively set by the BoE, using normal monetary operations. What do you think QE is if not a direct manipulation of bond yields? As Japan shows, despite their deficit, bond rates are rock bottom. If Japan is such a basket case, then why haven’t they risen? The same for the US … and the UK.

“Fine, but understand you will ruin the poor …”

I think Osborne is managing that already.

“It hasn’t happened yet.”

Debt hysterics are like millenarians. The country is always doomed some time in the future.

Please enlighten me how the right type of austerity could make Greece better off.

And when he’s done that, you can enlighten us on how Greece should borrow more money to pay for a fiscal stimulus?

” I don’t want to be cutting benefits, I want to be cutting the benefit bill ”

Sounds suspiciously like something a New Labour apparatchik would say. Saying you want to reduce the benefits bill and actually doing is difficult. The difficulty is because a high proportion of the benefits are going to the retired and people already in work. You really are not going to significantly reduce the benefits bill unless you take stuff off those groups.

The UK does not have a significantly bad long-term unemployment problem.
http://cdn.theatlantic.com/static/mt/assets/business/EuroLongTermUnemployment.png

That actually makes it difficult to reduce the welfare bill through demand increasing. Although there could be some decline through reducing underemployment and part-time workers moving into full time work.

The UK does have a significant problem with youth unemployment. Moreover, the high youth unemployment level predates the financial crisis.
http://cdn.theatlantic.com/static/mt/assets/business/RealEuroUnemployment.png

Solving why UK business does not want to employ UK youth is something that would reduce the benefits bill. However, if you are going to reduce youth unemployment by spending more on training, then you are just shifting spending from one area to another. Albeit spending that may in the long-term pay for itself.

The coalition parties promised to protect health and education spending. They also pledged not to cut benefits for the retired because they are more likely to vote for one of the coalition parties. That is a huge chunk of where the government actually spends money effectively off limits for cuts. Therefore, to reduce spending means the other areas of benefits spending are inevitably going to be disproportionately hit. Promising jam for everyone and no pain is just not credible in an ageing society.

” The government could have resisted axing hundreds of thousands of public sector jobs. ”

Which made very little difference to the growth figures or unemployment. Government spending has been contributing to growth in every quarter. Whatever those PS workers were actually doing reducing their headcount did not make any difference to the economy because they were not contributing anything to the economy.

23. gastro george

@20 Tim J

Greece is, of course, different in this respect from the UK, US or Japan, as it’s in the eurozone. So a different, eurozone-wide, fiscal solution is required – or a Grexit.

@20 Gastro George

‘As Japan shows, despite their deficit, bond rates are rock bottom. If Japan is such a basket case, then why haven’t they risen? The same for the US … and the UK.’

Japan is a basket case – Japanes Govt bonds will crash. 60% of all tax revenues are spent on servicing debt. They finance Govt spending by borrowing more. This is clearly not suustainable, particularly when you have more people retiring each year than joining the workforce.

http://www.csmonitor.com/Business/The-Daily-Reckoning/2011/0110/On-the-worthlessness-of-Japanese-government-debt

25. gastro george

@24 Fungus

“Japanes Govt bonds will crash”

So why are their rates rock bottom? Surely the markets (in their infinite wisdom) have made their judgement?

Its time for some facts to replace the myths.The fact is the National Debt fell as a proportion to GDP 1997-2008.Those who blame Labour for the crash of 2008 must have friends in Banking!Before everyone rushes in I don’t recall the Tory opposition prior to the crash asking for stronger curbs on Banking!

There is one other deficit that everyone sooner or later will have to turn their attention to.It is of course the Social Deficit which is like a timebomb ticking away in the background.Sooner or later it will have to be addressed and I’m sorry but it will be in the way it always has!

I’m sorry but austerity isn’t about deficits its about power pure and simple,the power of the few over the many.

@25 GG

You make a fair point that the marke tis pricing JGBs at very high values. however, as Keynes said, ‘the market can stay irrational longer than you can stay solvent’.

Currently Japanese savers are buying JGBs. However from my original link:

“There is no way that this crazy system of government finance can continue. The only reason it has come this far is that Japanese savers have no idea of what is going on. They’ve been saving for their retirements. And now, they are retiring in record numbers. Japan went over the demographic hump in 2002. Now, its population is falling. And there are more people retiring than there are entering the workforce. These retirees don’t realize that the government has taken their retirement savings and spent the money. They think it is waiting for them, ready to finance their golden years.

They’re in for a shock. And so are investors, when they finally realize that those JGBs are worthless.”

With Japanes inflation being as low as it is I guess Japanese savers don’t mind receiving such low interest on their investments. I doubt UK gilts would ever get to such low rates with inflation running at 2.7%+. Japan can get away with sovereign debt at 245% of GDP as long as interest rates stay around the 0.5% level. This is not going to last as the Japanese people stop buying JGBs – this has to happen as the savings rate has reduced from 15% to 1% and more people retire, thereby spending rather than saving.

Two more recent articles:

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/9814218/Revolutionary-Japan-is-suddenly-the-centre-of-world-affairs.html

http://www.marketoracle.co.uk/Article38495.html

28. gastro george

@Fungus

The trouble is that you try to have it both ways.

The fundamentals of your economic theory is that “the markets” and/or the individual representative agent is an all-seeing, all-knowing identity that can even see well into the future in order to balance up the pros and cons of any action today. That’s the basis of Osborne’s famous Ricardian Equivalence, which foresees that people will observe reduced public expenditure today and assume future tax cuts, which will lead to investment – and vice versa.

Yet you also say “the market can stay irrational longer than you can stay solvent” when it suits you to “disprove” an inconvenient fact.

You can’t have it both ways. Are markets irrational or rational?

Ricardian Equivalence is, of course, nonsense. And the Japanese bond rate will stay low, because the Japanese government can control it (see my comment on QE).

29. gastro george

And to counter your contention that Japanese debt is special because it’s all held locally: “Foreign ownership of Japanese government debt rises to record”


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