Can Miliband beat Osborne on Welfare?

There is a political speech that I will never forget. It was by Neil Kinnock after Labour had just lost the 1992 General Election. He described it as the triumph of fear over hope. It was the first general election I’d followed and it has left its mark. Labour made enormous errors over its tax policy in that election. George Osborne wants to make welfare the equivalent of tax in 1992 next time round.

In that context, the interventions from Ed Miliband in the press this morning are intriguing. The only logical conclusion is that Labour will oppose the Government’s new welfare bill. Battle lines have been drawn.

Ed Miliband has a habit of getting ahead of the political debate. He did on corporate irresponsibility and again on press intrusion and corruption. And, lets be honest, he did so with his own leadership campaign. He is either astute or lucky. Whichever it is, as long as he doesn’t lose the knack, it will bode well politically. Once again he is setting himself against conventional political wisdom. How will it play out?

Today’s YouGov poll for the Sunday Times would seem to lean in the direction of the conventional political wisdom: that this is not a smart short or long term political move by Miliband. 52% think that George Osborne’s three year, 1% increase for most benefits is either right or too generous (19% favour a cash freeze). A third of Labour voters are in this camp. 35% of the total are against the real terms cut.

Open and shut case? Not quite. Firstly, if you look at the wording of the YouGov question it specifies benefits and doesn’t mention tax credits. My hunch is that people don’t see tax credits as benefits. Humans are conditioned with deep loss aversion. If you ask them about a loss of credits that will hit them rather than other people then the polling result could be very different. There is a framing issue here.

Moreover, there is a broader context. The major strategic error that George Osborne has made is the cut in the 50p rate of tax supported by some pretty flimsy calculations by HMRC. He failed to rectify it in the Autumn Statement.

The biggest irony of all is that if the Prime Minister hadn’t stopped the Chancellor capitulating to Liberal Democrat demands for a mansion tax, then this welfare debate may be slightly clearer cut. Ironically, the Liberal Democrats’ proposal would have given George Osborne more political cover to limit in-work credits. People will be confused why they have to suffer while the wealthiest seem to suffer minimally despite being able to afford it the least.

A safe counter-position for Labour is to oppose the squeeze on in-work benefits and promising to protect all benefits for the disabled. This could be funded by a commitment to reintroduce the 50p rate of tax or introduce a mansions tax. As a political position, this would likely evade the Osborne trap. It may even spring it on the person who set it.

The problem here is that this would mean deserting some of the weakest and most needy in society. Just how one nation is that? So it would appear that Labour is going to oppose the whole package. This creates two issues: one fiscal and one political. The fiscal problem is that would Labour would have to show how it would plug a £3.5billion per annum hole by 2015. What’s more, you can guarantee that there will be further cuts to come in the Spending Review 2013. And politically, there is still a widespread feeling that out of work welfare recipients do not do all they can – in general  – to haul themselves back into work. That’s just where the public is, like it or not.

For Miliband’s gamble to pay off depends on this latter condition changing. For months now left-wing columnists have been forecasting that public attitudes to welfare are about to go through a sea-change. There has been some minor shift but no more. An avalanche of stories about food banks, pay-day loan (legal) sharks, fuel poverty, families (veterans? disabled?) in unsuitable accommodation and yes, there could be a shift. If this happens then yet another Miliband gamble has paid off. Maybe, as Will Hutton rather histrionically argues in this morning’s Observer, people will feel that there is something going on that doesn’t quite chime with what it is to be part of ‘western civilisation’. It is just that there is little sign of this as yet.

So the likely outcome is a scrappy no score draw. Hope and fear are not clearly defined in this battle – Osborne has botched the operation luckily. The problem Miliband faces is that he still needs to convince people that Labour does care as much about every pound of public spending as the individual taxpayer does. Despite moves in a sensible direction earlier this year, Labour is just not demonstrating that it understands people’s anxieties about the party. ‘We told you so’ and ‘aren’t the Tories mean’ politics isn’t delivering. That is why Osborne was able to float through this week despite an appalling Financial Statement in every conceivable respect.

On the question of welfare and politics, the conventional wisdom is only half right. This welfare battle will be fought and there is unlikely to be a clear winner. But the bigger strategic issues remain – how can Labour convince people it can be trusted? Only by more firmly addressing this – being clear that Labour would manage the public finances effectively but in a fairer fashion than the Coalition – will hope have a chance to defeat fear and another 1992 can be avoided. Miliband is taking his stance as a moral rather than a political position and that is to his credit. That doesn’t mean that there aren’t political ramifications. Unfortunately, Labour may just be allowing Osborne to get away with it. And that is of no benefit to the weakest and most vulnerable at all.