James Forsyth reviews the week in politics
For one night only, the band was back together. On Monday night, Tony Blair — looking toned and tanned — addressed the Institute for Government, the think-tank set up by his ally Lord Sainsbury. Cherie was in the front row, resplendent in a white salwar kameez. Blair’s two loyalist Cabinet allies, Tessa Jowell and Andrew Adonis, were also in attendance. There was even a question to the former prime minister from a fellow member of Ugly Rumours, Blair’s university band, to add to the reunion feel. This former rocker is now a civil servant at the Department for Work and Pensions.
Most of what Blair said was technocratic not political; he talked about the ‘process lessons’ he had learned in government. But there was one moment when we saw a flash of the old Blair, the man prepared to pull his party out of its comfort zone. As he reflected on how the coalition could learn from other governments across the world about welfare reform, the pace of his delivery quickened and he said: ‘If my guys are smart, we’ll engage with this in a way that isn’t a purely partisan exercise.’
On the day that the papers had been full of Labour leadership contenders denouncing Iain Duncan Smith for suggesting that the state should make it easier for people to move to areas where there are jobs, Blair’s message to Labour was clear: don’t set yourself against any reform of the welfare state, don’t place yourself on the wrong side of the argument.
Every new government talks about reforming welfare and reducing the costs of social failure. Few governments succeed, however. Welfare reform is the toughest task in politics.
But the coalition has to succeed. Total welfare spending now stands at £192 billion. If that number is not significantly reduced, it is impossible to see how the structural deficit can be eliminated within a parliament — the goal the coalition set itself in the Budget. The mantra of those involved in the internal government discussions about welfare reform is that ‘the status quo is not an option’.
So the coalition cannot afford to back off in the way that the Blair government did when opposition to his reforms began to mount. The Treasury’s principal concern is, understandably, to make savings from the welfare budget. But the Department for Work and Pensions wants savings through reform rather than just cuts. In the negotiations before the Budget, I understand that the DWP saw off a Treasury effort simply to freeze benefits. The DWP argued that while this would save money, it would also slap some of the most vulnerable people in society in the face.
An outline deal on welfare reform between the DWP and the Treasury is needed in time for the spending review, scheduled for 20 October. Iain Duncan Smith’s team at the Department for Work and Pensions know what they want this deal to look like. The most important thing is to make getting a job the logical choice. As Iain Duncan Smith said recently, at the moment, many of those who move from benefits to work appear to be ‘bloody morons’, because they end up losing their benefits and paying tax on whatever they earn. The system has to change so that people do not face punitively high marginal tax rates as they move from welfare into work. It is worth noting that nothing in the Budget precluded a move to such a system.
There have always been tensions between the DWP and the Treasury. This tension is fuelled in part by the fact that the DWP wants control of the tax-credits system but the Treasury is reluctant to cede this part of its empire. No system can make work pay if it doesn’t have the benefits system and tax credits working in tandem.
The DWP has a strong hand in the coming negotiations because of its Secretary of State. Iain Duncan Smith’s presence in government is crucial to the success of the coalition and he has always been clear that if he doesn’t get what he wants, he’ll walk away. Having been Tory leader, Duncan Smith has no desire to climb the greasy pole again. This makes him far less biddable than other Cabinet ministers. When the Tory communications team in Downing Street attempted to impose a media adviser on him, Duncan Smith simply refused to accept it.
Duncan Smith is vital to the coalition because he is one of the few representatives of the Tory right in the Cabinet. Even before the election, there were grumblings about the Tory top team being unrepresentative of the party. Today, the situation is far worse for those on the party’s right. At one recent dinner there were loud murmurs of agreement when a senior backbencher declared that the government’s leadership consisted of ‘five Lib Dems and two Tories’. The two Tories were Duncan Smith and Liam Fox.
If David Cameron is to keep his party happy, he must keep at least one of these men on board. If he loses them, his right flank would be dangerously exposed.
Duncan Smith’s position has been further strengthened by Fox’s troubles. The Defence Secretary has generals to the right of him, Downing Street to the left of him, and the Ministry of Defence in front of him, as Tennyson almost said. MoD officials are putting it about that Fox spends little time in the department and doesn’t read his briefing papers. They moan that there’s little point in putting stuff in his weekend box as it won’t be looked at. (In fairness to Fox, what he is encountering within the MoD is institutional resistance to change.) Downing Street, meanwhile, is still smarting from the fact that Fox announced the departure of the Chief of Defence Staff in a newspaper interview without telling them first.
Few Cabinet ministers have spent as long thinking about their brief as Duncan Smith. After resigning as Tory leader, Duncan Smith set up a think tank to examine welfare issues. But now he has only a few months to come up with a scheme, one that saves money and means no one is a ‘bloody moron’ for wanting to get a job.
The conventional wisdom is that welfare reform is best done at a time of economic prosperity, that it is easier to push people from welfare into work when jobs are plentiful. The work of the Centre for Social Justice, which Duncan Smith founded, reflected this view: most of its ideas cost money. But in a time of plenty, there would always have been the temptation to put reform off to another day. Now that is not an option: the fiscal crisis has made reform a necessity.
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