24 March 2016
IDS Falls On His Sword
A look at the whys and wherefores.
By John Watson
Being Chancellor of the Exchequer must be like trying to steer a raft on a stormy sea. You do your sums. They all seem to add up nicely and then, suddenly, horror of horrors, you are knocked off course by changes in the figures which you can do little to prevent. For Mr Osborne last week it was a drop in growth forecasts from 2.4% to 2%, caused by a slowdown in China and no doubt lots of other things as well. Mr Osborne did not cause it but it is his role to act as financial street sweeper and to deal with the mess.
To do that he needed money and Treasury teams combed lists of government expenditure to see if there was anything with could be reduced or removed. When they did so their eyes lighted on Personal Independence Payments, a system for providing benefits to disabled people of working age, the cost of which seemed to be out of control. Estimates of expenditure on disability benefits over the period 2015-2019 had mushroomed from £56 billion in 2014 to £66 billion in 2016. Personal Independence Payments were given to compensate for the extra costs of disabled living, and yet a study by the DWP found that in 96% of cases examined the “likely ongoing extra costs of daily living were nil, low or minimal”, largely because any appliances required were provided free from the NHS. That didn’t mean that benefits were not important to recipients, of course, but merely that they did not meet the costs for which they had been designed.
Anyway, the Treasury thought they saw a saving and, after discussion with the DWP, pencilled in £1.2 billion a year to be obtained by tightening the criteria for payments. Slightly surprisingly, bearing in mind that he had agreed the changes, Mr Duncan Smith resigned.
It is at this point that everyone seems to have lost their marbles. Baroness Altmann, the pensions minister, tried to link the resignation to the EU referendum when it clearly had nothing to do with it. The Government backed off the changes in panic and failed to identify an alternative saving. The Times said that Iain Duncan Smith was “shocked” by the language used by Mr Cameron when he discovered that the resignation had been disclosed to the press before he was told. Really? Are senior Cabinet ministers truly shocked when someone rips into them? Poor darlings, I had thought that they were made of sterner stuff. Then there is talk about fall-guys, maximum damage, animosity, resentment and vitriol; all the clichés of political fiction were rolled out. Oh well, there are column inches to fill I suppose but that doesn’t mean that we should get dragged into this magimix of hysteria, so it’s worth trying to work out what this is all about.
It is acknowledged in Mr Duncan Smith’s resignation letter that the changes to Personal Independence Payment system are defensible in narrow terms. That is hardly a surprise as he had agreed them and anyway, whether the changes in criteria were the right ones, clearly something had gone wrong with a scheme that had moved so far from its target. No, his complaint is slightly different. He suggests that combining the changes (which will reduce amounts payable by some 1.2 billion per annum) with tax cuts is a betrayal of one nation conservatism. He also objects to the way it was done. Changes were forced through under pressure from the Treasury rather than being implemented through a well-designed process.
Let’s weigh up those arguments. The decision whether to reduce taxes or preserve benefits is not simply a matter of deciding who is to bear the cost of austerity. If a reduction in taxes will make people more confident about spending and therefore increase growth, it has economic effects which an increase in benefits would not. It is thus possible to justify increases in tax and reductions in benefits in the same budget on economic grounds. It would be rather less attractive, of course, if the only reason was political.
One can see why the second point was important from Iain Duncan Smith’s point of view. He was anxious to deliver a package to encourage people into work, and to see elements of it being sliced away by the Treasury’s anxiety for funds would be disheartening if it was done scientifically. It is doubly so if it is done in a rush to make the figures work, and the fact that the government has now backed off the changes does make you wonder how well designed they really were. From Mr Osborne’s point of view, however, it looks different. He has a budget to balance and the lack of growth is making it difficult to achieve his deficit reduction targets. He sees a system that needs reform and thinks that there is money to be saved there. He would hardly be human if he did not want to bank that saving in the Government balance sheet. Indeed, if he didn’t do so, unnecessary saving might have to be made somewhere else.
Still, it is a different point which may be the most damaging for Mr Osborne. He is often described as a highly political Chancellor and he clearly likes theatricals. No one who remembers the way he built up an expectation of cuts before the autumn statement to then announce that because of the nation’s performance they were unnecessary, will have any doubt about that. His budgets always smell of party politics and are laced with jibes at his opponents, particularly, on this occasion, the Liberal Democrats. The trouble with that is that he gives the electorate a feeling that he is more interested in scoring party political points and playing to his own supporters than he is in getting the economy right. Therefore people will look at the tax cuts and see an attempt to obtain political advantage rather than a wish to increase spending. They will see him as a man whose desire to achieve targets is driven by an anxiety to make a political impact.
Actually, I don’t suppose that George Osborne thinks like that at all, but his tendency to drama makes people suspicious of him and it is only the slightly avuncular presence of David Cameron, clearly a big tent man to the core, which prevents Osborne’s manner becoming toxic. How would that play out if ever he becomes Prime Minister? Not at all well, you might think. If, by resigning, Mr Duncan Smith has spoiled the chances of Mr Osborne taking over from Mr Cameron, he has probably done his party a favour.
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