Frank Field

George Osborne could revolutionise welfare - but does he know what he’s doing?

George Osborne could revolutionise welfare - but does he know what he's doing?
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Have we ever had a more political Chancellor of the Exchequer? I doubt it. The political skills of George Osborne were on full display in July’s Summer Budget. Here he tweaked Labour’s tail particularly violently by pinching the party’s higher minimum wage strategy that all too many within Labour thought would be a winning card at the last election.

I still wonder whether he sees the revolutionary potential of his Labour-baiting initiative, the ‘National Living Wage’. With a little more development it could become the most important game changer in Britain’s post-war welfare debate.

A little over two centuries ago, with the rise of a dual agricultural and industrial society, those in charge of the Poor Law had to deal with honest labourers whose wages were insufficient to prevent their families being plunged into a state of hunger. Ratepayer-funded remedies were devised to top up these below-subsistence wage packets. Hence the beginning of what was called the Speenhamland system, named after the town in which this particular wage subsidy was devised.

Now wind the clock forward to the early 1970s with the beginning of the break-up of the post-war boom in Britain and other Western economies. The break-up saw an increase in poverty. Its cause – low wages – was ‘rediscovered’ by the poverty lobby.

In the 1970s the Heath Government reintroduced the Speenhamland system, calling it the Family Income Supplement. From these modest beginnings a wage subsidy programme began to take on a life of its own, just as it did two centuries before. Costs rose inexorably (in today’s prices) from an expenditure of a mere £42 million in 1971, through a series of transformations of names and into today’s Working and Child Tax Credit system, to £30.3 billion at its peak in 2011. £30.3 billion is the equivalent of 7p on the standard rate of tax.

Here lies the significance of the Chancellor’s National Living Wage strategy. It hasn’t just blown the whistle on a fifty year welfare programme of subsidising low wages. The intellectual basis of post-war welfare was that a benefits system had to be devised to remedy what was called the dis-welfare of the market, i.e. low pay. The National Living Wage is potentially far more revolutionary because it turns upside down established welfare thinking. The true significance of the Chancellor’s initiative is that for the first time a modern government will place a duty of providing a decent minimum income on industry, in place of calling on taxpayers to provide ever more generous wage subsidies.

This National Living Wage was rolled-out as the climax to the Summer Budget, and was reported simply as a breathtaking rhetorical conclusion that left Labour winded. It did that. But it could also have set off a counter-revolution to the poverty lobby’s understandable design of better deals for the poor within our present system. The Chancellor’s National Living Wage has the potential of abolishing welfare as we have known it.

The new welfare reformers must now switch their attention to how industry can pay higher real wages without the Jeremiahs’ prophecy of rising unemployment becoming self-fulfilling. Welfare reform mark 2 is about using a new statutory National Living Wage to kick-start a much wider programme of raising productivity throughout industry, but first in low-paying industries. Easier said than done, of course.

A note of caution: lying in the Chancellor’s immediate path is an elephant trap of his own making. Osborne’s further deficit reduction plan announced in the Summer Budget contained a whacking huge attack on existing tax credit claimants. These are not only of a truly gigantic proportion – at £4.5 billion they represent the largest single raid ever on tax credit claimants – but with the speed of a blitzkrieg raid, the Chancellor has bombed his own political strategy of marking the Tories as champions of the strivers.

In the long run up to the election, during the election campaign and since, Osborne placed the Conservatives on the side of strivers, simultaneously stigmatising Labour as the party of welfare. But not anymore, if these tax credit cuts go through.

The proposed cuts in tax credits leave 3.2 million strivers in low paid work on average over £1,300 worse off a year. Some will lose in excess of £2,000. As more Tory MPs realise the political significance of these cuts so too will the rebellion on the Tory side grow. If the Chancellor allows that rebellion to grow, the whole repositioning of the Tory Party will fracture as he deserts the strivers who, on their daily way to low paid jobs, pass, as he expressed it, the drawn curtains of their neighbours on benefit.

Frank Field is the Labour MP for Birkenhead.