“Britain’s welfare budget should be used to fund new transport links in the north which will bring a “real economic return” rather than “trapping people in poverty”, the Chancellor has said.”
The article goes on to quote Osborne as saying:
“I think the real choice in our country is actually spending money on this big economic infrastructure, trans-pennine rail links, Crossrail 2 in London and the like, and spending money on, for example, welfare payments which are not generating a real economic return and at the same time are trapping people in poverty.”
This creates the very strong impression that Osborne really wants to ramp up infrastructure spending, but is being prevented from doing so by people “trapped in poverty”. I’m not entirely sure what the ‘real choice’ means in policy terms, but it’s a completely false choice.
The social security bill is not preventing the Chancellor from increasing spending on roads and rail, if that’s what he wants to do. If there are enough skilled workers, spare land and building materials available, then we can afford to do it. If there aren’t, then cutting the social security budget further is not going to make much of a difference.
Osborne seems to misunderstand what social security is for. It functions to prevent individuals from falling into penury, but it also has a macroeconomic function, in that it dampens economic shocks by stopping people’s incomes falling below a certain point meaning as people lose their jobs, they can still afford to buy things – sales which other people’s jobs rely on.
The flipside of this is that when an economy is recovering from a recession, the social security bill naturally contracts, as people find jobs and go back to work. Increasing spend on infrastructure will help aid this contraction further by creating additional jobs.
So far from needing to cut social security spending to be able to afford extra spending on infrastructure, the extra spending itself would actually contribute towards Osborne’s stated aim of reducing the social security bill.
Of course what actually traps people in poverty is low pay, which again could be partially addressed by creating decent paid construction and engineering jobs through – you’ve guessed it – additional infrastructure . Of course, this type of spending is not a solution to all problems. To really start to tackle low pay, the government should get serious about job creation and remember that governments actually can and do create jobs. A full job guarantee would be a more complete answer.