Osborne thinks outside of the box. But has he got the wrong end of thestick?

The suggestion that George Osborne is thinking about cutting £5 billion from the social welfare bill by reducing tax credits to their 2003/4 level (in real terms) is an unexpected turn in some ways. That's partly because there will be many who wouldn't have suspected that they had risen by more than the rate of inflation in the first place, but also because everyone has been going on about 'hard working families' and how important it is to provide an incentive to work.

There is no doubt that the growth of tax credits as a way of 'making work pay' has had some impact, but it is interesting to note the words coming from the Conservatives that tax credits have, effectively, subsidised employers. They have, at least, spotted the dilemma that Gordon Brown's tinkering has created. However, they have done drawn a conclusion which demonstrates the difference between Liberal Democrat thinking and Conservative thinking.

The Conservative approach appears to be that it is perfectly acceptable for employers to pay salaries that require state intervention to bring them up to a sufficient level, and that the solution is to make the relatively poor somewhat poorer. But why not instead raise the minimum wage by something above inflation (not too much, and perhaps over a number of years), and raise benefits by just a little less than inflation? That way, you can reduce the tax credit bill at both ends, whilst retaining the incentive to work.

And perhaps, whilst you're at it, you could do something about the pensions triple lock, which is looking increasingly generous towards a group of people who disproportionately vote Conservative. After all, their real term increases are one of the reasons why such large cuts are needed from the rest of the social welfare budget. I suspect that I may have answered my own question in the first sentence of this paragraph...

And yet, despite this, George Osborne is being made to look moderate relative to some of the thinkers within his own party. Kwasi Kwarteng is suggesting that the young should be paid their benefits in the form of a repayable loan, suggesting as he does that, even if they remained unemployed for the entire period between 18 and 25, the amount would still be 'less than a student loan'. Might I point out to him that if someone is unemployed for significant periods at that point in their lives, they are highly unlikely to ever earn the sort of salary that would allow them to repay such a loan.

I have a nasty feeling that it's going to be a very difficult five years...