The temporary £1,000 increase in Universal Credit must end. The Government is already in over £2.1 trillion of debt, and simply cannot afford to carry on giving out money it does not have. The time has come for Rishi Sunak to make the difficult decisions necessary to reduce the budget deficit. He should start by cutting these generous benefits.
By restoring Universal Credit to 2019/20 levels in 2021/22, the Government could save £6bn, a significant dent in what is forecast to be a budget deficit of over £100bn for that year. Johnson must stand firm against Labour, the Northern Research Group and Therese Coffey and make the case for fiscal prudence, just as David Cameron and George Osborne did over 10 years ago.
There are two reasons why the cuts should be made. First, the Government is wasting £24bn on interest servicing the national debt, money that could otherwise be spent by taxpayers themselves, or on repaying the national debt. Yes, Government debt interest is at a 320-year low, but that suggests the rate can only go up.
The bond market need only raise interest rates by 0.5 per cent to lumber the Government with additional interest payments of £12bn, equivalent to almost the whole policing budget. When inflation rises as an inevitable consequence of the Bank of England’s £450bn quantitative easing programme, interest rates will most probably rise too. Betting on them being low forever is simply not a sustainable strategy.
Second, there is also the issue of intergenerational fairness. Neglecting the deficit now would pass on an unbearable debt to our children. According to the OBR, debt will reach £2.8tn by 2025/26, a figure that will certainly need reducing either via tax rises or spending cuts. Given current voters are the ones benefiting from the Government’s spending, it stands to reason they should pay for the costs.
To this proposed cut, Labour leader Keir Starmer has said that the £1,000 is “the difference between being able to pay the gas, electricity, and internet bill combined.” Implying that families will not be able to afford the essentials without Universal Credit staying at its current level, he argues the increase must remain.
Things simply are not that dire. Reducing Government spending is always going to disadvantage someone, but according to ONS data, the bottom 10 per cent of earners can easily afford a 7 per cent pay cut.
Universal Credit was, and is, already very generous. According to Entitledto.co.uk a couple with two children living in Newcastle, privately renting a two-bedroom house, with the husband working a 40hr week on minimum wage, would today be entitled to £11,188.32, with the £20 per week (£1,040 a year) proposed cut still leaving a large £10,148.32 annually. This is leaving out the unaffected £1,820 in Child Benefit, and the £962.52 in Council Tax Support. Universal Credit, even at the old level 2019/20, is far from stingy.
Nonetheless, I suspect there are still some who would prefer to maintain the benefit at its current level by increasing taxation. This would be the worst time to consider such an idea. Increased taxation would have many negative effects, one of which would be reducing the incentive to work. To fund the £6bn cost of the increased rate, those earning £30,000 or more would have to pay an extra £175 per year.
Alternatively, fuel duty would have to increase by 5p, which again would reduce the incentive to work as people would be less willing to commute due to the additional cost. Furthermore, many delivery companies would be hit by the increased duty, which in turn would have to be passed onto consumers.
The Government must stand firm against those who wish to increase the national debt even further. Austerity must be put back on the agenda, starting with restoring Universal Credit to its 2019/20 level, thereby saving £6bn annually. Cutting public expenditure is never going to be popular, but it is nonetheless a necessary step in restoring Britain’s finances to a sound state of affairs: A must for any Conservative Government.