Were MPs right to cap the benefits rise at 1 per cent?

Ryan Bourne

THE government is struggling to control borrowing and this is partly due to a 5.9 per cent increase in net social security payments this financial year compared with last. Many benefits were uprated by 5.2 per cent for 2012-13 because of high consumer price index inflation in the previous year, when average earnings were only increasing by 1.8 per cent. Since 2007, benefits have risen by 20 per cent; average earnings have gone up by only 10 per cent. The government is having to borrow large amounts to pay more in benefits (which no economic model suggests will boost growth), and the divergence in the growth of benefits and earnings risks weakening work incentives. The government’s broad approach to stop growth in unearned income, while increasing the personal allowance to make work pay, therefore makes both financial and economic sense.

Ryan Bourne is head of economic research at the Centre for Policy Studies.

Jonathan Portes

OVER the last 30 years, the value of the Jobseekers’ Allowance compared to average earnings has fallen by a third. It is now less than one sixth of average weekly earnings. It’s true that the unemployed caught up a little – but only a little – over the last few years, but this will only be temporary. The government’s own forecasts say that, even if benefits were uprated in line with inflation, the value of benefits compared to average earnings would fall over the next three years. So we don’t need to cut benefits to stop them outpacing wages – the opposite is true. We also don’t need to cut benefits because we can’t afford them. We spend in the region of 3 per cent of national income on benefits for people out of work. This proportion has been falling, not rising, while the number of people claiming such benefits has fallen by more than 1m since its peak in the mid-1990s.

Jonathan Portes is director of the National Institute of Economic and Social Research.