Good morning from New Economy Brief.
A punitive social security policy introduced by the DWP in 2017 has been in the news this week after Keir Starmer announced that Labour would not repeal the ‘two-child limit’ over the weekend.
It’s caused a row at all levels of the Labour Party, including in the Shadow Cabinet. New research this week has found strong evidence that the policy fails on its own terms and only serves to increase child poverty.
This week’s New Economy Brief analyses the policy at the heart of the row, and outlines why many are pushing for its abolition.
Labour row over the two-child limit. Over the weekend Keir Starmer confirmed that a Labour government would keep the two-child limit in Universal Credit and child tax credits, which removes support for third and subsequent children born after April 2017. Senior Labour figures have previously attacked the policy in public and a broad coalition of civil society organisations, such as Save the Children, Barnardos, the NSPCC and others, have signed an open letter to party leaders opposing the policy. This has sparked a fresh row within Labour, as the Leadership is keen to show its commitment to fiscal responsibility, but Labour MPs with constituents in more deprived areas may find the policy difficult to defend.
Fiscal prudence? The decision not to scrap the policy, as with so many of Labour’s recent policy proposals, has been driven by a desire to demonstrate ‘fiscal prudence’. The argument from the leadership is that the economy that Labour might inherit is in such a dire state that ‘good Labour policies’ need to be sacrificed on the altar of fiscal rectitude, and that any spending commitment needs to be ‘fully funded’. Given the party also has no interest in going into an election talking about tax rises, this in practice means that new policies need to be ‘funded’ by finding savings from other departmental budgets. (We have discussed the debate around fiscal rules elsewhere.)
Has the policy been working on its own terms? The government’s rationale for implementing the two-child limit is to change work incentives and influence low-income families’ decisions to have children, ensuring that “families in receipt of benefits face the same financial choices as those supporting themselves solely through work”.
Political case for scrapping the two-child limit. Whilst one poll has shown the majority of the public still back the policy, pollster John Curtice suggests that the public has been more supportive of income support for working age people since the Covid-19 pandemic. He thinks that “an opportunity will indeed open up for the [Labour] party to create a narrative that persuades voters that it should be given the task of running an enhanced welfare state in post-Covid-19 Britain.“ The ‘scrounger’ narrative about benefit claimants has also been in decline: the proportion of people disagreeing with the statement that “many people who get social security don’t really deserve any help” in the British Social Attitudes survey has been over 40% since 2018, whilst those who agree has dropped to around 20%. Further, between 40-50% of the public think that the benefit system offers too little support for people on low incomes bringing up children, around double the proportion of those who think that it offers the right amount of support and triple the proportion of those who think it offers too much support.
Climate change and food insecurity. Climate change and biodiversity loss “are among the biggest medium to long-term risks to UK domestic food production as well as soil degradation and water quality”, claims a new report by the IPPR. The report calls for a “long-term vision for the future of land and agriculture”. Proposals include a Government strategy that reflects “the desirability of reducing meat and dairy production’s land share” as well as local authority food partnerships.
Private jets. According to official data, private jets account for more than one in ten departures from UK airports. During the pandemic, the proportion of private flights rose to over 20%. According to polling conducted by Survation on behalf of Possible, 74% of people agree that private jets should be subject to higher taxes than commercial flights.
The energy trilemma. The “trilemma” of energy security, lower bills and the need to reduce emissions can - and should - be tackled together argues the IPPR’s Joshua Emden. Emden argues that an accelerated rollout of renewables will not only delivery energy security faster than new oil and gas, but is the “best way of reducing energy bills” and even “protect workers better” than via employment in new oil and gas fields.
Big pharma and the NHS. Big drug firms are “ripping off the NHS with £12 billion excess profits”, according to Global Justice Now. Research shows that the NHS could have saved £12 billion on just 10 medicines over the last decade such as the anti-cancer drug Revlimid. Global Justice Now also highlights that big pharma companies are “charging huge mark-ups of up to 23,000% above production cost on key drugs, even assuming a reasonable profit margin of up to 50%”.
Higher interest rates and household wealth. High interest rates mean that households are now struggling to save following an all time high adjusted saving ratio during the pandemic. A new report by the Resolution Foundation highlights how the wealth-to-GDP ratio fell to around 650% by early 2023 which is “by far the biggest fall on record as a proportion of GDP”.
Taxing wealth. “The money you make from working hard shouldn’t be taxed at a higher rate than the money shareholders and property investors generate from their existing wealth”, argue TUC General Secretary Paul Nowak and entrepreneur Julian Richer. In the joint op-ed, Nowak and Richer call for “a national conversation about how we tax wealth and how we ensure that the super wealthy pay a fairer share”.
The wage price spiral myth? Research by the IPPR finds that pay increases of 10.5% for public sector workers would have an almost negligible (at most 0.14%) effect on inflation. The research also found that the effect would be virtually zero if increases in pay were financed from taxation.
‘Microworkers’. Nearly all (95%) of ‘microworkers’ earn below the UK minimum wage with almost two-third earning less than £4 an hour, according to new research. Microwork is described as “small, fragmented tasks assigned by requesters that range from data categorisation to identifying objects in pictures and filling out surveys”. University of Exeter’s James Muldoon argues that many of these workers “do not consider their labour as ‘real’ work” which “degrades the value of their labour and facilitates companies offering low pay and poor conditions”.
‘Future-oriented fiscal rules’. “Misinformed fear about financial markets and debt sustainability has clouded the debate on Europe’s new fiscal rules”, according to a new report by Finance Watch. The report argues that the borrowing required to invest in Europe’s resilience, sustainability and prosperity can be “easily be absorbed by financial markets that care less about the debt stock of a country than about its economy’s overall strength and resilience”.
Tackling the housing crisis. The Fabian Society has recommended a £15 billion fund over 10 years to acquire 500,000 private rented homes to be provided as social housing in a new report which sets out five proposals to tackle regional inequality. The report also suggests increasing social housebuilding and building mixed tenure communities on well-connected green belt and underutilised land. The suggestion comes as the Department for Levelling Up, Housing and Communities hand back £1.9 billion earmarked for tackling England’s housing crisis, because the department was allegedly struggling to find projects to spend it on.