What is George Osborne doing to benefits?

http://www.guardian.co.uk/society/reality-check/2012/dec/20/george-osborne-benefits-reality-check

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In his autumn atatement, the chancellor announced he was going to reform the way benefits and tax credits increase year-on-year. On Thursday, the detailed proposals on the steps are being rolled out, accompanied by two clashing polls, published in the Sun and the Independent. We're unpicking exactly what's changing, who's affected, and what the public thinks.

What's happening

Most benefits and tax credits paid to working-age adults – including jobseekers' allowance, child tax credits, statutory sick pay, and employment and support allowance – will no longer rise in line with inflation, but will increase by 1% a year for three years. All pensions, and some disability benefits, are unaffected.

Previously, benefits increased in line with inflation, making the new proposal a cut to real incomes. This is easier to explain in figures:

Let's imagine someone receives £100 a month, all of which is spent on goods and services (domestic heating, food, bills, etc). The current inflation rate is 2.7%, which means in a year's time buying the exact same things would cost £102.70. Under the previous system, this is what benefits would've risen to.

But with the changes, they would now only rise to £101 – leaving the recipient £1.70 worse off. Given the changes will last for at least three years, this represents a cut in income of between 3% to 6%, depending what happens with inflation.

In reality, the impact could be even worse, as research by the Institute for Fiscal Studies suggests low-income households experience a higher inflation rate than richer ones.

The move (alongside some other Universal Credit changes) saves the Treasury £505m next year, £1.88bn the following year, and £3.4bn a year by 2015-16 – around the cost of axing the planned fuel duty increase, announced in the same budget.

Who's affected

The IFS and Labour party both stress that the changes to benefits, tax credits, and the new Universal Credit affect low-income families in work as well as those not working.

Ed Miliband claimed 60% of those affected by the changes are in work – it's not clear this is definitely the right figure, but the broader analysis is supported the the Institute of Fiscal Studies report into the impact of the autumn statement.

The meat is contained on three slides in this presentation. The first, on page 17, shows the distributional impact of the autumn statement.

It shows, in relative terms, that the bottom 40% of the country loses a bigger share of their income than the top 10%. Most people in the richer half of the country actually gain, slightly.

The broader picture is reflected in the following slide. This shows that, taking all changes since January 2010 into account, the richest 10% have lost the biggest share of their income – but after them, it's the poorer 50% who lose out most.

Finally, slide 19 shows that it's households with children who have – at most income levels – lost out more than those without, an effect of real-terms cuts to child benefits, but increases to tax thresholds.

Do the public support real-terms benefit cuts?<br />

Just like we're getting used to on a whole string of issues (notably gay marriage), two apparently contradictory polls were published on Thursday, coming to opposite conclusions on the popularity of the new benefits regime.

A poll by ComRes was published by the Independent under the headline: "Less than half the public back George Osborne on decision to raise most state benefits by less than inflation".

The headline is accurate, but the figures actually suggest more voters support the move than oppose it: 49% versus 43%. The party breakdown is a potential herald of trouble ahead for the coalition – Conservative voters backed the shift overwhelmingly (69% versus 26%), while Liberal Democrats opposed it by a similar margin (28% support, 65% oppose).

It's worth noting how the ComRes question was phrased. Respondents were asked to agree or disagree with this statement: "The government is right to limit the rise on benefits and tax credits to only 1% for the next three years"

There are arguments to make in both directions as to why this might be loaded. Referring to "only 1%" makes a measure seem stingy, encouraging disagreement – but there is no mention made that the benefit shift is a real-terms cut, something many voters might not understand if not spelled out.

The second poll, carried out by Populus, was published in the Sun, who said it showed "63% of voters agreed that the cap was needed to help control the welfare bill, with 25% disagreeing".

This is a drastically different result. Unpicking why lies partly in looking at who commissioned the Populus poll – the Conservative party.

At the time of writing the full tables aren't available (Populus has promised they will be published soon), but ConservativeHome have published more details.

The question used as the basis for the Sun's story asked respondents to agree or disagree with the following: "Benefits have been rising twice as fast as wages since the crisis began so it's fair to cap in-work and out-of-work benefit rises at 1% for a temporary period".

Two other similar statements, one referring to public sector pay, and another on the deficit, are used to repeat the same question.

While there are some doubts over the ComRes questions, the Populus ones seem strongly slanted towards provoking a particular answer. The phrase "tax credits" is not used. Mention is made of benefits rising faster than wages (true, as wages have not kept pace with inflation – but many people receive a wage and tax credits). Rather than saying "three years", the statement refers to "a temporary period". And no mention whatsoever is made of the fact the changes comprise a real-terms cut.

The result is effectively a "push poll" – questions designed to elicit a particular answer, and thus allow the Conservatives to claim public support.

What the public really thinks on the benefit changes, then, remains unclear. But there's one final, interesting, note to be taken from this interview with YouGov's Peter Kellner on BBC Radio 4's More Or Less. Though he was discussing polls on press regulation, Kellner notes that question phrasing only makes a big difference on issues where the public's view isn't yet fixed.

In other words, whichever party frames the debate on cuts to benefits and tax credits on their terms could well emerge as its winner.