The chancellor’s options in the autumn budget to allay voters’ frustrations over austerity are diminishing by the day
In the weeks that followed their disastrous election result, a delegation of Tory MPs marched to Downing Street with a clear message for the prime minister and her team. After years of austerity, voters’ patience was running out, and some positivity was needed.
The MPs went away from the meeting convinced they had secured an end to the public sector pay cap that would mark a loosening of spending cuts that they could use to show their constituents that the government was listening.
Yet while Theresa May and her chancellor, Philip Hammond, are preparing to make a gesture to selected public servants, the years of salami slicing mean that, quite apart from Brexit, there are now myriad issues that ministers fear could erupt into full-blown political crises.
It is why some Tories are now concerned that, far from staging a political recovery in the autumn, the party may do well to dodge a winter of discontent that would provoke renewed anger among voters and make the once-distant prospect of prime minister Jeremy Corbyn more likely.
The spinning plates most in danger of crashing to the floor include not just public sector pay, but forthcoming welfare cuts, the increasingly controversial rollout of a new benefits system, local government funding and an NHS heading into an early winter crisis.
“The next three to four months are possibly going to be the rockiest so far – with Brexit uncertainty affecting some of these domestic issues,” said one minister. “These are choppy waters to navigate between now and New Year’s Eve.
“The question is what concessions can be made in the budget consistent with our reputation for sound money and balancing the books. The threat of prime minister Corbyn is the only glue that is holding the Tory party together.”
The immediate threat is coming from the unions, some of whom are threatening strikes should the government attempt to reward some public sector workers rather than others.
Major unions are already warning ministers not to be selective about which public servants deserve a raise. A survey by the public services union Unison of nearly 11,000 employees, including paramedics, teaching assistants, hospital porters and police staff, found that more than two in five (43%) described their standard of living as worse than a year ago, and a quarter (26%) said they owed more money than they did 12 months ago.
“Enough is enough,” said Dave Prentis, Unison’s general secretary. “The pay cap must end, not this autumn or next year, but now. The government cannot pick and choose who should benefit. Everyone working in the NHS, schools and higher education, local government and the police service is long overdue a rise.”
Meanwhile, a coming welfare squeeze – combined with the new universal credit system of administering a series of benefits – is also threatening to unravel. Some Tories who rebelled over past attempts to cut tax credits still have concerns. “The problem with universal credit is the so-called taper rate [the amount of benefits a claimant loses for each pound they earn] – it is at 63p in the pound, meaning some are paying an effective 63% rate of tax on extra money they earn,” said Stephen McPartland, one of the leading Tory campaigners on the issue. “I would like to see the chancellor look at this again in the budget.”
There is an even more pressing issue emerging over the way universal credit is being administered. From October, the number of job centres introducing the new benefit is set to increase from five to 50 a month. However, highly respected Citizens Advice has taken the extreme move of calling for a pause of the rollout amid signs that delayed payments are pushing recipients into debt.
In an analysis of more than 50,000 cases published last Monday, it found that claimants are 14% more likely to have problems with pressing debts if they are on universal credit compared with the benefits it is replacing. A fifth of recipients on universal credit are not being paid in full within six weeks.
Frank Field, the chairman of the work and pensions select committee, said: “The idea of making people wait six weeks, and sometimes longer, for their benefit to be paid is made to look increasingly questionable by each bleak new piece of evidence on universal credit. People who are already hard up simply cannot cope that long without an income.
“I’ve pleaded with the government for a Christmas truce – a postponement of the full rollout of universal credit in Birkenhead [the Labour MP’s constituency] – otherwise the system will push families into destitution over the festive period.”
Gillian Guy, chief executive of Citizens Advice, said universal credit remained “deeply flawed”, adding: “If government doesn’t fix these problems, its expansion is a disaster waiting to happen.”
A spokeswoman for the Department for Work and Pensions said the organisation’s analysis was not representative. “The vast majority of claimants are comfortable managing their money, and for anyone who needs extra help we have budgeting advice and benefit advances,” she said.
Also in the precarious policy mix is evidence that the NHS may face an early winter crisis. Last week, NHS Providers, which represents 229 of the 233 NHS trusts in England, said that the health service was on course for disaster unless an extra £350m was found for extra beds and staff.
It all adds up to a very long queue outside the chancellor’s door as he draws up one of the most challenging budgets in recent years. While the uncertainty over Brexit means he instinctively wants to take a conservative approach, political pressures to turn on the spending taps are growing.
Ending austerity comes with a hefty price tag of £33bn a year, according to the respected Institute for Fiscal Studies. It says that, among other things, allowing public sector pay to rise in line with pay in the private sector until 2020 would cost £9.7bn by 2021-22. Unfreezing benefits would cost £3.6bn, while reversing the cuts to work allowances in universal credit would cost about £3.2bn. Allowing departmental spending to rise in line with economic growth would cost £12.3bn.
“Hammond has indicated that he has listened to the message in the election, but has also indicated he remains wedded to the idea of balancing the books by the middle of the next decade,” said Howard Archer, chief economic adviser to the EY Item Club. “At the moment he is on course to slightly undershoot his public finance target for 2017-18. That could give him some wiggle room, but not much.”
Hammond is still said to be in cautious mode, but sympathetic to aiming any budget help at the young. Cancelling the forthcoming rise in student debt interest is one option.
Some senior Tories see the mounting threats as part of a wider lack of vision from their party that needs to be addressed urgently. Grant Shapps, the former party chairman, said: “Winning elections involves having both positive achievements and a positive message. It is vital that in this party conference and budget season we grasp the opportunity to show that there is no party in Britain more aspirational for the future of the British people than Conservatives.”