Winners and Welsh losers in the benefit cuts

Rhys David reports on an accentuation of the north-south divide driven by Westminster Government’s policy

Rhys David is a trustee of the IWA.

Guildford in Surrey and Merthyr Tydfil have something in common. Both are 20 miles or so from their nearest metropolitan centre and contemporary sources of employment – London and Cardiff. There the similarity ends, as a report last week in the Financial Times on the Coalition Government’s austerity policies, commissioned from Professors Christina Beatty and Steve Fothergill of Sheffield Hallam University, makes clear.

In Merthyr one in four of the population receives some benefit or other. The jobless claimant count in December 2012 – those receiving jobseekers’ allowance while searching for jobs – was 11.6 per cent in Merthyr, marginally lower than in neighbouring Blaenau Gwent. This was twice the Welsh rate of 5.5 per cent and four times the rate in the best-performing Welsh area, Gower (2.9 per cent). In Guildford it currently stands at 1.6 per cent and in the UK as a whole at 3.9 per cent.

In Merthyr (and in Blaenau Gwent, Hull, Blackpool and a number of other economically depressed parts of the UK) more than 10 per cent of all men of working age are claiming benefits, compared with a Welsh figure of around 6 per cent and lows in prosperous towns in the south east and elsewhere of only 2-3 per cent.

Yet, as the Financial Times report (here) demonstrates, the proposed benefit changes – designed to ensure individuals are not better off out of work than in it  – and hence encourage economic dynamism – risk widening the already considerable gap between rich and poor areas of the UK and between those individuals at the bottom of the economic ladder and those above them.

The FT research claims this month’s benefit changes – to housing benefit, disability living allowance, child benefit, tax credits, council tax benefit and other supports – will take a massive £19 billion out of working age social security between now and 2015. However, because of the geographical location of benefit claimants the older industrial areas of Britain will lose up to five times as much as their richer southern counterparts. Part of this picture is captured in the table below.

The biggest effect will be felt in Blackpool, a town that has attracted a large number of benefit claimants because of its excess of cheap rented accommodation, the legacy of its days as a mass tourist destination. The Blackpool economy, which had been hoping to find its salvation through the previous Government’s subsequently abandoned plans for super-casinos, stands to lose £914 per head of working age person. Knowsley, near Liverpool, stands to lose  £797, Middlesbrough £717 and Merthyr £722.

Merthyr will lose £263 per working age adult from changes to incapacity benefits alone, more than anywhere else in Britain. Surprisingly, Conservative-controlled Westminster – which combines social deprivation and steep housing costs – stands to lose more than most – a total of £821 per working age person.

Unless the individuals concerned can find their way into paid employment or set up their own businesses – and for most in the Heads of the Valleys that is going to be very difficult – the result will be a big drop in local spending power, with an inevitable impact going well beyond the personal hardship that will result. Most of Britain’s High Streets are now dominated by retail chains and these businesses are certain to accelerate the withdrawal already taking place from centres where funds are scarce.

Retail vacancy rates across Wales were estimated two months ago to be running at 17 per cent and in some weaker centres the figure is much higher. Even Cardiff, despite the pull of the St. David’s Centre has experienced a significant increase in the number of empty units in the periphery of the city centre. Marks and Spencer’s proposed full line 4,645 square metre store in Hammerson’s Cyfarthfa Retail Park, where a total of £30 million is being invested, has to be seen, therefore, as a courageous decision given what is likely to happen to local incomes.

However, more shop closures and more rundown town centres are likely to be only the most visible of the consequences of the drop in wealth. According to the FT, the biggest wave of welfare changes for a generation is breaking on to a largely unprepared society. “Politicians are obsessed with the squeezed middle but those affected by this welfare shake-up are members of another group altogether: the squeezed bottom,” the FT’s Sarah Neville observes. “For the first time since the welfare state was created… the Government has chosen to make the poorest 10 per cent poorer.”

She also reminds us that the clients of this new welfare state are by no means uniformly the shiftless poor of popular imagination:

“The Joseph Rowntree Foundation points out that 6.1 million people classified as living in poverty are in working households, more than 1 million more than  in workless homes. For many, notions of work or worklessness are surprisingly fungible as they drift from one to the other in a precarious labour market. About one in six economically active Britons has claimed unemployment benefit at least once in the past two years.”

The real differences between Merthyr and Guildford perhaps become even more apparent when data on economic activity in the two towns – the one twice the size of the other – are compared. Office for National Statistics data (not in this case referred to in the FT report) show what might in the circumstances be considered a relatively modest four percentage points difference between activity levels in the south eastern and Welsh towns. They also show a remarkable parity in the proportions expressing a wish to work (25 per cent) and not to (75 per cent) in both cases.

The composition of economic inactivity in the two towns tells the real story of the divergence in the economy of post-heavy industrial Wales and modern financial services southeast England. Fourteen per cent of those who are economically inactive in Merthyr are students, compared with 30.3 per cent in Guildford. Some 39.5 per cent in Merthyr are long term sick compared with 17.5 per cent in the English town. These figures tell a story of a much less healthy and less well-educated population in south east Wales. It emphasises just how difficult it is going to be inject new dynamism into the economy even when the crises that have afflicted Britain and its European partners are finally over.

Perhaps, however, there is one similarity between the two towns – and a lesson – that is overlooked. You have to leave both places to get work. Every day thousands of people in Guildford – more than half the working population – pile into overcrowded trains from six in the morning onwards for that 20 mile, half-an-hour journey, sometimes standing all the way, to jobs in London. Many them will not get back until late in the evening.

There seems to be little resistance in the south-east to the idea that you travel to where the jobs are and that in the modern economy you cannot simply lay down employment at will where the people are. This is a lesson for south-east Wales as we edge towards creating an integrated transport system, a Metro for Cardiff and the Valleys.

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