Welfare Reform: Heads I win, Tails You Lose

What is more important: benefits linked to what is happening to everyone else in the country? Or protecting claimants’ absolute income level?

Ministers want to uprate benefits to reflect earnings (which are rising slowly) rather than prices (which are rising faster). What does this mean for benefits claimants? That would depend on how long such a policy were to last.

During the many years of economic growth, the raising of most benefits just in line with inflation meant that the lowest-income households in Britain did not share in the general rise in prosperity. Now that things are going the other way, they are being asked to take a share of the general fall. But would a new link to earnings be sustained when the economy starts to grow again? Probably not.

I have calculated that, even given the recession, a consistent link to earnings over the past decade would have produced a basic Income Support level of £75 a week in 2012 – £4 above its actual level. We need to decide: do we want out-of-work benefits to rise and fall with general earnings, to maintain a link with what is happening to everyone else in the country? Or do we just want to protect claimants’ absolute income level, keeping benefits constant in real terms (inflation protection only)?

If the Treasury simply adapts the system to whatever saves it the most money at the time, its message to the country’s worst-off families will be clear: “heads I win, tails you lose”.

Donald Hirsch is Director of the Centre for Research in Social Policy at Loughborough University.