Party that made the welfare state has lost its credibility

You have to hand it to the Chancellor: the original £26,000 benefits cap was a stroke of propaganda genius. Who could object to a policy that limited individual benefit entitlement to average wages? It was popular in Scotland as everywhere else, even though only a handful of claimants were affected.

But it was only the first step. Yesterday, an overall cap on the UK benefits bill of £119 billion was passed overwhelmingly by Westminster, by 522 votes to 22 with the support of the Labour Opposition. Only the SNP and a handful of Labour rebels like Diane Abbot voted against the cap, which will cover everything except jobseekers' allowance. In fact Labour now claims to have thought of it first.

Of course, Shadow Chancellor Ed Balls says not to worry - the cap just means that if a future government wishes to increase it above £119bn, there has to be a vote in parliament. But this is naïve or disingenuous; it will be politically very difficult to break this cap now it is in place. Yesterday's vote in Westminster is of much more than symbolic importance.

Labour is now on record as accepting the logic of an indefinite limit on welfare, something no party has ever proposed before because it locks in unfairness and penalises those least able to look after themselves. When Labour next attempt to abolish the bedroom tax they will be asked: what else are they going to cut to meet the £400m cost? Disability benefits, sickness, child benefits?

As the Conservative commentator Matthew D'Ancona put it, yesterday's vote represents "a momentous punctuation mark in the history of the post-war state". And the Chancellor is even now contemplating the next stages of the welfare squeeze. First, as Iain Duncan Smith has already indicated, there could be a regional cap on individual benefits. Why should it be £26k in Scotland when average wages are much lower than that here? Then Osborne is planning to put a further £12bn cut in social security spending in the Tory manifesto for 2015. He'll argue that, if NHS spending is to be protected, the benefits bill must be trimmed, and Labour will find it difficult to disagree. It will now be political suicide to go into the election campaign calling for higher welfare spending.

This is what a race to the bottom really looks like. And it's not as if the policy makes much administrative sense. If the birth rate increases child benefits will have to be cut. Housing benefit will not take account of rising rents. Universal Credit is supposed to be introduced next year by the Work and Pensions Secretary Iain Duncan Smith. The idea is to cut through the macrame of benefits and make a simpler system. But how will this work when some elements within Universal Credit are capped like child benefit and housing benefit and others like jobseekers' benefit are not?

Labour insist they are only responding to public opinion, which has hardened against welfare, and that benefits will not be cut further in real terms. However, once again, this is disingenuous. The cap allows spending to rise with CPI inflation, not RPI. This still means a fall in real terms because the cost of basics like food is rising much faster, at nearer 5% in recent years. Claimants have already seen their benefits eroded by below-inflation increases in recent years. Around £4.5bn has been taken out of benefits in Scotland alone in the current spending round to 2015/16. This can never be recovered. And remember, the biggest increase in the benefits bill is for the working poor who do not earn enough to raise their families. The benefits bill locks unfairness into the heart of the welfare system.

There is a very disturbing historical precedent here. In 1981, when the Conservatives broke the link between the state pension and increases in average wages, there was initially little public concern. After all, it was said, pensions would still rise with inflation so pensioners wouldn't lose out. But within a decade, the state pension had become so low relative to pay, that even Tory Treasury Secretary Michael Portillo admitted it had become "nugatory" and was causing real hardship.

Pensioners were left at the mercy of a brutal means test to secure enough to live on. This unfair system remained in place until 2012 when the government agreed to introduce a new flat rate state pension and pensioners were given the triple lock to ensure their living standards never fell behind again. Pensioners are now part of the deserving poor, again. They will get upratings based on RPI OR rising wages OR 2.5%. It is to be younger people on tax credits and child benefits who are to be squeezed. And yet there has been remarkably little discussion of this in the media, despite the historic significance of yesterday's vote. There is a fear voters just will not tolerate sympathy for people on Benefits Street.

Now at this point I would usually write something about how different the situation is in Scotland. Scots do not show the same degree of hostility to benefit claimants as people in the South of England, partly because most Scots have less wealth and are only a redundancy away from living on Benefits Street themselves. However, I would caution all those on the left of the independence debate who assume the benefits cap is unpopular here. This is because Labour has, through its actions in Westminster yesterday, legitimised the Conservative welfare agenda. The party that created the welfare state has lost the ability to defend its fundamental principles.

If Labour can't defend benefits, who can? Welfare is not devolved to Scotland and there is no obvious way in which the Scottish Government can mitigate the impact of these reforms. No doubt Scottish Labour leader Johann Lamont will continue to claim the cuts are, in some mysterious way, the fault of the Scottish Government and Alex Salmond in person. But that is going to be a very hard argument to sustain after yesterday's vote.

Meanwhile, Scottish charities say all the progress made in eradicating poverty since 1999 has been thrown into reverse. Food banks can't keep up with demand; young people are unable to leave home, disabled people are losing essential benefits; and more people are now experiencing multiple deprivation in Scotland than in 1983.

Labour in Westminster were congratulating themselves last night for avoiding the Tory benefits "bear trap". But they have lost something much more valuable: moral credibility. Last week, Ed Miliband accused Mr Salmond of mimicking Tory policies and abandoning social justice; this week the Labour leader stands accused of gross hypocrisy.