Philip Hammond made much of his decision to soften cuts in state benefits for hard-pressed working families today, but it is not as generous as it looks. The Chancellor pre-announced it for Wednesday morning’s newspapers and broadcasters, knowing that if held it back until the Autumn Statement, it would be eclipsed by the “Brexit effect” on the public finances.
Mr Hammond's advance billing of his partial retreat garnered some positive headlines, but he didn’t really deserve them. He abandoned only about £700m of a £3bn-a-year cut in Universal Credit top-ups for low income earners. They will keep 2p more of every extra pound they earn than under George Osborne’s original plan, and will now retain 37p instead of 35p – hardly a huge extra incentive to work.
The small print of the Autumn Statement shows that Hammond will hand back only £35m to the 3 million beneficiaries in the 2017-18 financial year and £175m the following year.
A better course would have been to ditch Osborne’s cuts to work allowances – the amount people can earn before the state top-ups are pared back.
Hammond judged that the deficit did not allow him to do that, but it would have been the best way to help the six million “just about managing” families (known as “Jams”) that Theresa May has vowed to champion. They are in the bottom half of the income scale but above the bottom 10 per cent.
Mr Hammond could and should have done more to help the Jams. He limited his own room for manoeuvre by reaffirming plans to cut income tax by £8bn for people higher up the income ladder.
He is determined to honour the pledge in last year’s Tory manifesto to raise the personal allowance to £12,500 and the threshold for the 40p tax rate to £50,000, but most of the gains from these measures will go to people in the top half of the income scale.
Mrs May diagnosed the right problem: the people who feel “left behind” by globalisation. Many voted “Leave” in the June referendum, and the same group have now put Donald Trump in the White House. But the Autumn Statement showed that her Government has not yet produced a big enough remedy.
True, it took a welcome small step away from George Osborne’s divisive strategy of pitching “strivers” against “scroungers” to win support for his £12bn of welfare cuts in this five-year Parliament. But Mr Osborne’s four-year freeze in working age benefits until 2020 will go ahead under May, a £4bn cut. With in-work poverty rather than scrounging the biggest welfare problem, this will hit many of the very “strivers” the Conservatives purport to stand for.
To make a real difference to the Jams, Messrs May and Hammond needed to go further. They spend a higher proportion of their income on food, energy and petrol than those who are better off. With inflation set to rise higher than wages, the living standards of this group are going to take a big hit from the “Brexit effect”.
Tory MPs should not be bought off by Hammond's small concession on Universal Credit. Support for further austerity on the Tory benches is waning. They should use their parliamentary muscle to force the Government to build the “economy that works for everyone” it promises.
The Chancellor should have cushioned the just managing and not managing against the inevitable decline in living standards ahead. The money was there if he had delayed the income tax cuts that will largely help people who are better off. In refusing to take this opportunity, the Tories have shown that their true colours have not changed as much as Mrs May would like us to think.
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