Nick Clegg: Osborne’s cuts to welfare a ‘monumental mistake’

Deputy Prime Minister Nick Clegg accused Mr Osborne, his coalition government partner, of heaping the impact of further budget cuts on those with the “narrowest shoulders”, after Mr Osborne said that £12bn would need to be cut from the welfare budget.

Mr Clegg said: “The Conservative party is now out on an ideological limb, almost unique in developed economies, in saying we are not going to ask people of very great wealth, very high incomes making any additional contributions to the tax system at all but only ask people with narrower shoulders to make further sacrifices to finish the job.”

‘Hard truths’

The comments follow a speech from the chancellor on the state of the UK economy, in which he outlined his “five-point plan” to mend the UK’s budget deficit. Mr Osborne announced Treasury predictions that there would need to be a further £25bn of public spending cuts in the first two years of the next parliament, with £12bn of those cuts being made to welfare.

Branding 2014 the “year of hard truths”, Mr Osborne said the UK needed a permanently smaller government and welfare system. He said the government’s plan for economic recovery “is working”, but said there is “no shortcut to economic security”.

Government is going to have to be permanently smaller – and so too is the welfare system. George Osborne

The chancellor said that in total over the next four years, £62bn would need to be cut from government spending, with £17bn this year, £20bn next year, and £25bn over the two years after that.

The chancellor said: “If 2014 is a year of hard truths for our country, then it starts with this one: Britain should never return to the levels of spending of the last government.

“We’d either have to return borrowing to the dangerous levels that threatened our stability, or we’d have to raise taxes so much we’d put our country out of business. Government is going to have to be permanently smaller – and so too is the welfare system.”

‘Substantial cuts’

Mr Osborne said that the best way to put money in the public’s pockets was to cut taxes, and said the only way this could be achieved would be by “permanently cutting the spending those taxes pay for”.

Among the spending that needs to be cut is on welfare, Mr Osborne said – framing the issue as a choice between welfare and services such as the NHS and schools.

He is being forced to make more cuts is because his failure on growth and living standards has led to his failure to balance the books by 2015. Ed Balls

“Welfare cannot be protected from further substantial cuts,” he said. “I can tell you today that on the Treasury’s current forecasts, £12bn of further welfare cuts are needed in the first two years of the next parliament.

“That’s how to reduce the deficit without even faster cuts to government departments, or big tax rises on people.

“So when you see people on the telly who say that welfare can’t be cut anymore – or, even worse, promising they will reverse the changes we’ve already made and increase housing benefit – ask yourself this: ‘What public services would they would cut instead? What taxes they would put up in their place? Or would they borrow and spend more, and risk our country’s economic stability again?'”.

Osborne’s £25bn “hard choices” are 1. More deficit reduction 2. From cuts not tax rises 3. From welfare not Whitehall 4. From young not old

— Faisal Islam (@faisalislam) January 6, 2014

Mr Osborne added that this year the government will, for the first time, set a cap on the welfare budget. He added that pensions will not be included in this cap, in line with David Cameron’s pledge to protect pensions.

Five-point plan

He said there were five points in his plan for recovery, which also included capping immigration and delivering better schools.

On immigration, Mr Osborne said: “Migration, when it’s controlled, is an important part of a successful economy. But uncontrolled immigration, of the kind we saw over the last decade, brings pressures on public services and leads to abuse of our welfare system.

“That’s why we’ve tightened the rules so people can’t just come to this country to claim benefits – and it’s why for the first time we’ve introduced an immigration cap.”

Osborne again distinguishes between “people who work and pay taxes” and people receiving welfare, when many millions on both at same time

— Faisal Islam (@faisalislam) January 6, 2014

On schools, the chancellor said the coalition government would turn more schools into academies and free schools, despite recent criticism of the free schools model following the closure of the al-Madinah school in Derby.

Mr Osborne said: “One of the most depressing discoveries of 2013 was that over the last decade Britain’s education fell even further behind other countries in the world. Reversing that is essential.

“That’s why were turning more and more schools into academies, and creating new free schools. It’s why we insist on exam standards that are more rigorous. We’re also creating many more apprenticeships, so more young adults get a chance to earn and learn in companies like this.

“And this autumn we’ll start lifting the cap we impose on the number of university students.

“If Britain is going to compete in the global race to the top, there should be no limits on aspirations – we need all our young people to develop their talents to the maximum.”

‘Monumental mistake’

However, Mr Clegg said that the Conservative vision for healing the economy was a “monumental mistake”.

“On the right, you’ve got a Conservative Party now who are driven, it seems to me, by two very clear ideological impulses,” the Liberal Democrat leader said.

“One is to remorselessly pare back the state, for ideological reasons just cut back the state. Secondly, and I think they are making a monumental mistake in doing so, they have said that the only section of society which will bear the burden of further fiscal consolidation are the working-age poor – those dependent on welfare.

“You’ve got an agenda on the right which appears to believe in cuts for cuts’ sake, and an agenda on the left which believes in spending for spending’s sake.”

He added: “There is not a serious economist around who believes that fiscal consolidation should take place from cuts to welfare alone, which is the Conservative approach. I literally don’t know of a serious economist who believes that you only do it (with) that lopsided, unbalanced approach.

“Almost all serious economists say you have some kind of mix. The vast majority of economists say more of it should be composed of public spending savings than taxation but taxation should play a role.

“Whether it is 80-20, 75-25, you can dance on the head of a pin on that one but that kind of territory is where I think most people accept that you strike the right note economically and socially.”

‘Failures’

Labour said the reason the chancellor is being forced to make more cuts is because of his “failure on growth and living standards.”

Ed Balls, Labour’s shadow chancellor, said: “George Osborne is desperate to stop talking about the cost-of-living crisis on his watch. But that won’t stop working people from doing so as they are on average £1,600 a year worse off under the Tories and prices are still rising faster than wages.

“Nor will the chancellor admit the reason why he is being forced to make more cuts is because his failure on growth and living standards has led to his failure to balance the books by 2015.

“This failure means Labour will have to make cuts and in 2015/16 there will be no more borrowing for day-to-day spending. But we will get the deficit down in a fair way, not give tax cuts to millionaires. And we know that the way to mitigate the scale of the cuts needed is to earn and grow our way to higher living standards for all.

“The social security bill is rising under George Osborne, but the best way to get it down for the long-term is to get people into work and build more homes. The Tories should back our compulsory jobs guarantee for young people and the long-term unemployed. And in tough times it cannot be a priority to continue paying the winter fuel allowance to the richest five per cent of pensioners.

“What we need is Labour’s plan to earn our way to higher living standards for all, tackle the cost-of-living crisis and get the deficit down in a fairer way.”

(Below: Channel 4 News Economics Editor Faisal Islam explains the key points from George Osborne’s speech in 45 seconds)