Newton Emerson: Stormont needs to get ahead of Labour on benefits reform

Stormont could solve all its financial problems and address most of its policy goals through modest changes to the benefits system.

The potential has just been demonstrated by Labour Chancellor Rachel Reeves. Her decision to means-test the winter fuel payment for pensioners in England and Wales would save around £70 million in Northern Ireland.

This is equivalent to half the extra funding required by NI Water, or almost all the subsidy to university tuition fees, or nearly twice the cost of mitigating the welfare reforms introduced a decade ago with universal credit.

If the saving was redistributed to low-income pensioners, they could all receive another £1,200 a year.

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Unfortunately, Stormont will not get the £70m if ministers follow suit. It will go to the Treasury because Reeves thought of the fuel payment cut first.

Under the strange way benefits are devolved to Northern Ireland, Westminster pays the £9.5 billion benefits bill as a separate item to Stormont’s budget, provided Stormont maintains parity with benefits in Britain.

If Stormont wants to be more generous, as it did with universal credit, it has to pay for that out of its own budget.

If it wants to be less generous, it has to negotiate with the Treasury to have the saving added to its block grant. Spending on benefits varies with demand, so an estimated saving has to be agreed.

If Stormont had thought of means-testing the winter fuel payment 11 years ago, it would have saved enough by now to fund its half of the A5, for example, or it could have built 8,000 social housing units.

Switching money from income to investment is tricky under budgetary rules, so Stormont is more likely to have sunk any savings into day-to-day spending. That could still have made a substantial difference over time to outcomes in health or education.

Any such saving would have been lost this week as Reeves brought benefits in Britain and Northern Ireland back into parity. However, another negotiation would have been required to reduce the block grant, so the executive would have been well placed to phase in or reduce its loss.

Instead, Stormont will now be under public pressure to maintain the fuel payment from its own budget, which it cannot possibly afford. Although executive parties appear determined not to fall out in this instance, there is an obvious risk ahead of a repeat of the welfare reform crisis that paralysed Stormont a decade ago.

All of this underlines the importance of staying in front of Labour’s planned benefit changes. There are opportunities and hazards to manage, both financial and political.

The winter fuel payment was an easy target for Reeves because it had a ready-made means test via pensions credit, a benefit for low-income pensioners. This allowed her to take rapid action while avoiding the sort of mess the Tories made in 2013, when they rushed through a clumsy test for child benefit based on tax brackets.

Other changes will take longer but it is no mystery what is next in the chancellor’s sights: getting people off disability benefits, through sanctions if necessary.

Labour has inherited a report commissioned by the Conservatives that advises moving away from cash benefits towards targeted help on health and training, especially for conditions such as stress, anxiety and depression. These are the primary conditions for one quarter of Northern Ireland’s 300,000 disability claimants.

Labour has commissioned its own report from former health minister Alan Milburn, who says 70% of the long-term sick should return to work.

Few disability benefits are means-tested; they could also be reviewed on that basis.

Northern Ireland’s disability benefits bill is close to £3 billion. Stormont could not afford to mitigate a fraction of it and would be rendered a spectator to any meaningful changes the government makes.

In an ideal world, where the executive parties were capable of difficult decisions, they would have proposed their own reforms years ago and obtained vast savings to spend more effectively.

Stormont could solve all its financial problems and address most of its policy goals through modest changes to the benefits system

The least they must do now is ensure the Treasury passes on an appropriate cut of its savings, so Stormont can deliver the healthcare, training and other services people moving off benefits will need.

Labour’s planned benefit changes are aimed at raising productivity and growth. They should be good for the UK overall, Northern Ireland included. But there will be growing pains, contention and crisis, all of which Stormont could step in to reduce.

What is the point of devolution if it is too timid to do so?