Labour’s plan to support more people into work through cost-cutting welfare reforms has been called into question by the Office for Budget Responsibility’s (OBR) own economic forecast.
Released to accompany the party’s spring statement, the spending watchdog’s report said it was not provided with an analysis of how the reforms could boost employment, adding it was also unable to make its own in the limited time available.
The revelation follows accusations Rachel Reeves “rushed” welfare reforms in light of pressure from the OBR to secure a larger fiscal headroom.
The chancellor laid out more details of Labour’s planned £4.8 billion in welfare cuts on Wednesday as she delivered the new government’s first spring statement in power.
Confirming the changes, Ms Reeves said: “The Labour Party is the party of work. We believe that if you can work, you should work. But if you can’t work, you should be properly supported.
“This government inherited a broken system,” she said, adding: “If we do nothing, we are writing off an entire generation. That cannot be right, and we will not stand for it. It is a waste of their potential and it is a waste of their futures.”
Responding to the announcement, Conservative shadow chancellor Mel Stride said: “It was rushed, it was botched, and it was last minute,” adding: “That’s not fair on millions of people, many of whom are vulnerable and need to be supported, because you don’t rush those decisions.”
The OBR says that Labour’s plans constitute the largest single proposal of welfare cuts since measures announced in July 2015 by the Conservatives under then-prime minister David Cameron.
Offering a preliminary analysis of their possible effects on employment, the OBR said the cuts “would be expected to reduce income and so increase work incentives for existing claimants.” However, its forecast adds that individuals receiving disability benefits do generally have limited capability for work, so it is difficult to evaluate the changes in the same way as it would for non-disabled people.
Tom Pollard, head of social policy at the New Economics Foundation says the Treasury’s aims are an “economic fantasy.”
“I think it is just like something straight out of an economics textbook that doesn’t bear any relation to the people’s lived experience,” he said.
“What actually happens when you reduce someone’s income is that they struggle more to make ends meet… they become very focused on the the day-to-day task of survival [and] it becomes harder for them to think about and move towards longer term objectives.”
The Department for Work and Pensions’ (DWP) own assessment of the plans admits that they will push an additional 250,000 people into poverty, including 50,000 children – and some experts claim even this is an underestimate.
Leading anti-poverty charity Joseph Rowntree Foundation (JRF) said the true number would be closer to 400,000. This is because the DWP’s assessment factors in a 150,000 reduction in poverty figures made from reversing the previous government’s plans to change the Work Capability Assessment (WCA).
However, the charity argued that because these changes never happened it was a misleading statistic to include.
Following the changes, an estimated 800,000 people are also set to lose their entitlement to the Personal Independence Payment (PIP) as eligibility for the benefit is restricted. This forms the bulk of the government’s cost-cutting package, but the OBR said that PIP can be received both in and out of work, making it less likely that it will boost claimants’ incentive to work.
Mr Pollard suggested Labour’s sudden decision to slash spending could be explained by the tension between the OBR and ministers. “We’re in this place of DWP being put under pressure by Number 10 and Treasury to make blunter cuts,” he said.
“I think there’s a real risk where the DWP gets pushed into a corner where the only type of savings that the OBR and Treasury would acknowledge are very crude cuts to benefit rates.”
He said he department’s ‘Get Britain Working’ White Paper published last year offered a much more “positive agenda” to support people back to work, but likely didn’t sufficiently convince the OBR that savings would be made in the long-term. This paper included measures like Jobcentre reform and a ‘Youth Guarantee’ to bring down economic activity amongst young people.
The DWP has been approached for comment.
