Broadening welfare in this UK Budget makes good political sense

The writer, a former senior adviser to UK chancellors Philip Hammond and Sajid Javid, is a partner at Flint Global; he writes in a personal capacity

There is a reason that as chancellor, George Osborne painted vivid pictures of those “sleeping off a life on benefits”. Being tough on welfare allowed the Tories to deliver billions towards their deficit reduction plans while tapping into a public mood that thought benefits had become too generous under the previous Labour government. 

Covid-19 means Rishi Sunak’s chancellorship will, like Osborne’s, be dominated by repairing the public finances. He has indicated he will use this week’s Budget to begin to map out how he will approach that unenviable task.

In the short term, Sunak looks set to extend the uplift to universal credit he instigated when Covid hit. But before long he will need to make a long-term strategic decision. He could borrow from his predecessor’s playbook and tap the welfare budget for savings. Or he could use the pandemic to draw a line and make the Conservative case for building a permanently more generous safety net. He should do the latter, for two reasons.

First, the Conservative party has a different political base to a decade ago. Since 2013, the proportion of Tory voters who think the benefits system is too generous has more than halved, according to YouGov. Its electoral coalition is now built on swaths of working-class voters in the north and Midlands. 

Looking to cement this support, the party has promised to “level up” these areas, with ambitious plans for more spending on infrastructure and science. These policies will, however, take years if not decades to deliver real change. To make a material difference to working families in those areas before the next election, the most effective levers available are through the tax and benefit system. Analysis from the Resolution Foundation shows that in “red wall” regions, a third of non-pensioner households will lose £1,000 a year if the temporary uplift is discontinued.

Second, if the past few years have taught us anything, it is that economic insecurity can breed political instability. In recent decades, globalisation and deindustrialisation combined with rising inequality have contributed to the appeal of populist politicians across many advanced economies. The resulting instability — and the negative impact on social mobility — should worry all conservatives. 

More disruption is on its way. Over the coming years, the UK economy will restructure significantly as it adjusts both to its new trading relationship with the EU and to long-term behavioural changes that Covid will usher in. These shifts will hit an economy already braced for the threat automation poses to middle-income jobs. While new opportunities will be created in other parts of the economy, history tells us that this often doesn’t help those whose jobs have been lost. 

A more generous welfare system is not a silver bullet. It needs to be part of a wider strategy to support those whose livelihoods are disrupted. But the millions who will experience the sharp end of this disruption should be able to fall back on a safety net.

If the Tories do put more money into welfare, they need to have a distinctive rationale for why and how it should be spent. With millions of working people claiming universal credit, the Tories should stop framing the debate as a false dichotomy between being on welfare or in work. Instead, they need to make the case for how the welfare system can reinforce the traditional Conservative mantra that paid work plays a vital role in supporting low-income families. 

That means challenging the assumption that simply extending the existing uplift is the best long-term option. Tories fond of a tax cut should remember that those coming off universal credit only keep 25p in every extra pound earned — the type of marginal tax rate that would have all Tories decrying its incentive-destroying effects if it was at the other end of the distribution. Funding an increase in the work allowances or lowering the taper rate, for example, would act like a tax cut while more effectively targeting lower earners and strengthening work incentives.

The chancellor is right to use the Budget to begin making the politically difficult case that taxes will need to rise to repair the public finances. Choosing to make the welfare settlement permanently more generous would mean those tax rises would need to be even bigger, with all the added short-term political pain that would bring. But it would be the right thing to do. Unless the Conservatives use this crisis as a genuine moment of reset they risk sowing the seeds of further resentment and instability in the future.