Child benefit would be reduced in real terms by an incoming Labour government, Ed Balls will announce on Monday as the party tries to convince voters it is ready to make painful cuts in order to balance the nation’s books.
In his speech to the Labour Party conference in Manchester, the shadow Chancellor will risk a backlash from women voters by arguing that all sections of society will have to make sacrifices so Labour could clear the deficit by 2020.
Under his controversial plan, child benefit would rise by only 1 per cent in the first two financial years if Labour wins power at next May’s general election – less than the retail price index, currently 2.4 per cent. The £400m saved would be used to help cut the deficit.
Mr Balls will also announce that he would cut the salaries of all government ministers by 5 per cent from next May. Their pay would be frozen until the nation’s books are balanced, which Labour has pledged to do by 2020. This would save about £300,000 immediately and more in future years.
Although Labour leads the Conservatives in the opinion polls, it trails heavily on economic competence and many voters blame the Coalition’s cuts on overspending by the previous Labour government. The highly symbolic move on child benefit is designed to persuade voters that Labour could be as tough as the Tories in making sensitive cuts. The Coalition froze the payment for three years, before capping rises to 1 per cent, and reduced it for families with one earner on at least £50,000 a year. It is currently worth £20.50 a week for the first child and £13.55 a week for each other child.
Mr Balls will tell Labour’s conference: “We will have to make decisions which I know will not be popular with everyone. I want to see child benefit rising again in line with inflation in the next parliament, but we will not spend money we cannot afford. So for the first two years of the next parliament, we will cap the rise in child benefit at 1 per cent.
“This is our task: not to flinch from the tough decisions we must make and to show the country that there is a better way forward.”
The shadow Chancellor will add: “People know we are the party of jobs, living standards and fairness for working people. But they also need to know that we will balance the books and make the sums add up and that we won’t duck the difficult decisions we will face if they return us to government.”
Mr Balls will pledge that an incoming Labour ministers would give “take the lead” by cutting their own pay by 5 per cent. “We are all clear that everybody in the next Labour government will be fully focused on that vital task of getting the deficit down,” he said. On Sunday night, the Conservatives dismissed Labour’s plan, saying that the savings on ministerial pay would amount to just 0.003 per cent of the deficit. Priti Patel, Exchequer Secretary to the Treasury, said: “This speech isn’t a serious plan for the economy – Labour would put the deficit up, not down. For all his bluster, Ed Balls still refuses to admit that Labour spent too much and he’s opposed every decision we’ve taken to cut the deficit. All a Labour government would offer is more inefficient spending, more taxes and more debt than our children could ever hope to repay.”
While some Labour delegates will oppose the child benefit curbs, yesterday they welcomed the party’s announcement that the national minimum wage would rise from £6.50 an hour next month to £8 an hour by 2020. The proposed increase would affect around 1.4m jobs. It would be introduced in annual stages by the Low Pay Commission before October 2019.
The TUC general secretary, Frances O’Grady, said: “Raising the minimum wage and putting more money into the hands of low-paid workers won’t just be welcomed by hard-pressed families, it will also be good news for local economies who will benefit from a boost in workers’ spending power.
“After years of falling real pay we need a range of policies to ensure fairer pay from board level to the shop floor.”
But business groups warned that a further rise would put jobs at risk. Katja Hall, the CBI’s deputy director general, said Labour should not “play politics” with the Low Pay Commission, the independent body that recommends the annual rise in the minimum wage. She said: “The national minimum wage has enjoyed broad business support and a move to a politicised US-style system is not in the interest of companies or workers.”
Simon Walker, director general of the Institute of Directors, said: “The only sustainable drivers of wage growth are productivity gains and improvements in company performance. Allowing wage rates to be determined by anything other than these measures would be a risky move.”
But Dave Prentis, the general secretary of Unison, welcomed Labour’s plan, saying: “Hundreds of thousands of public sector workers are on the minimum wage... and that is a disgrace in the 21st century.”
Labour promises and their hazards
Pledge: Bring back the 10p starting rate of income tax, worth about £2 a week for workers.
How funded: From a “mansion tax” on properties worth over £2m, raising some £2bn a year.
Danger: In areas where house prices have over-heated, it could be seen as unfair.
Pledge: Extend free childcare from 15 to 25 hours a week.
How funded: £800m cost paid for by a higher levy on the banks.
Danger: Banks could find the extra raid on balance sheets undermines profitability.
Pledge: Long-term unemployed 18 to 24-year-olds are offered a taxpayer-funded job for six months and lose benefit if they refuse.
How funded: £5.5bn cost over five years met by taxing bank bonuses and changing tax rules on high earners’ pensions.
Danger: The money isn’t there. The Tories say Labour has “spent” it several times over.
Pledge: Scrap the so-called “bedroom tax”.
How funded: The bill could be at least £465m a year. Ed Miliband has said it would be afforded by “abolishing the shady schemes of tax loopholes for the privileged few”.Danger: The cash raid hits the value of some pensions schemes.