1. The short game
Osborne has smashed some of the foundations of the welfare state today. An assault on universality has begun. But given the enormity of this decision, it is surprising he has raised so little money. Around £1bn from restricting child benefit is relatively small beer given the state of the public finances.
This suggests there is much more to come. He may return for another raid on child benefit (restrictions on payments for more than two children, or a cap on payments at 16). Other universal benefits such as winter fuel payments and free bus passes are also looking vulnerable.
It also points to a salami slicing spending review — at least within this four year spending review period. Osborne seems convinced that preserving these benefits in hollowed out form is better than deciding to abolish them completely and use the money in a better way.
2. The long game
It may seem like salami slicing now. But these changes may be part of an effort to weaken the system so that it can be reshaped around a new universal credit in the next parliament. The Treasury have placed universal benefits in a vice and they’ll be tightening it over the coming decade.
Osborne, for instance, decided against more aggressively means testing of child benefit because it would effectively end up abolishing it (the payments would have been wrapped in with child tax credits). He has forgone the £6bn for now. But the changes he has made make it easier to take this step in the next parliament.
Why? When a “universal credit” is introduced, won’t it make sense to make child benefit part an element of that credit? It will effectively be a means test like child tax credit so that the marginal withdrawal rates for working families are smoothed out. It may be too complicated and painful to do now. Politicians may always step back from scrapping child benefit. But once you break the principle of universality and introduce a universal credit, the case is much easier to make.
Jim Pickard
Kiran Stacey