Can we call it class war? Honestly, I cannot think of what else to call the emergency budget. While investigating what was in the UK emergency budget, the words of an old song (Emerson, Lake and Palmer? A hint to my age unfortunately) kept on going through my head (it may be tinnitus, but I think it is a hint of déjà vu) "welcome back my friends, to the show that never ends." In a budget composed of massive £11 billion in spending cuts to benefits and services that of course have a disproportional effect on the poor and working poor, an increase in VAT from 17.5 -20% that again affects the income and expenditure of the poor and working poor, state worker wage freezes and job cuts, and attacks on the principle that the poor have the right to support independent of ability to work and availability of employment, we are told that this budget composed of the worst spending cuts since WWII is "fair".
Crossposted at European Tribune (http://www.eurotrib.com/)
According to the IFS (Institute for Fiscal Studies, see Chote, http://www.ifs.org.uk/... ), current planned cuts represent 80% of the budget as compared to 20% for taxation; by 2015-16, these proportions are planned to be 85-15% (in actuality these proportions are 74-26% and 77-23% due to the maintenance of some provision from the last series of Labour budgets). These cuts can be compared to 50% cuts-50% taxation in the Clarke and Lamont budgets of 1993.
Insisting that said budget actually splits sacrifices as evenly distributed between classes, it is clear that it is only some maintenance of the previous spending has prevented this from being the most aggressive attack against the poor, the working poor and the working and middle classes since the 1980s. With an impudent sneer and a level of cynicism unseen in some time, this coalition attacks the social welfare state while telling us that this will be for the good of the majority.
Are budget cuts necessary?
What we are seeing are unnecessary attacks on the social welfare state that will actually endanger an economic recovery that is already jobless and raising the strong possibility of a double-dip recession with a weakened social welfare state to provide for those victims of the recession and the system. There is no doubt that the victims of the economic crisis are now being asked to bear the burden of an economic crisis caused by banks, financial institutions and political forces reluctant to curb the excesses of the system through regulation and reform.
Budget Cuts
According to the IFS, (http://www.ifs.org.uk/...) spending (outside of the protected areas of foreign aid and the NHS) will need to be cut 25% in real terms by the end of the Parliament. They argue that these cuts in central government public services will completely reverse the entire increase of the previous Labour governments.
According to Brewer from the IFS (http://www.ifs.org.uk/...), these cuts amount to £11 billion in welfare cuts by 2014-15. These cuts include:
- £5.8 billion in cuts due to change in indexing of benefits, tax credits, state second pensions and public service pensions using Consumer Price Index (which excludes most housing costs) instead of the Retail Price Index and will mean smaller increases in benefits and pensions relative to the cost of living; 2) £3.2 billion benefits and tax credits for families with children; 3) £1.8 billion housing benefit; 4) £1.1 billion disability living allowance; 5) further cuts of £0.7 billion
Impact of these cuts
A) Increased Unemployment and decreased economic growth: Budget cuts essentially mean job losses for state sector workers and decreased investment for indirect job creation. It is estimated that 1.3 million jobs will be lost due to the cuts over the public and private sectors. Perhaps it is irony, but the Office of Budget Responsibility (OBR) has insisted that 2.5 million jobs will be created from this budget ... the question is, where do these mystery jobs come from? Perhaps it is an overwhelming ideological faith in the power of the private sector, the same private sector responsible for the crisis and also which has no reason to increase employment and output when facing decreases in effective demand brought about by the crisis and now this emergency budget.
The independent OBR has already adjusted its earlier forecasts following the presentation of the budget. They claim that the effect of this budget will be to increase unemployment up to 2014 over its pre-budget forecasts. In 2015, unemployment is forecast to fall below the OBR’s earlier estimates for 2014. According to the OBR:
"In 2011, ILO unemployment is forecast to be 8%, 0.1% higher than the earlier forecasts. This rises to a difference of 0.2% through to 2014, while unemployment is forecast to be reducing to 6.5%. A sharp fall to 6.1% is then forecast in 2015, the figure the Chancellor highlighted. Claimant count unemployment is forecast to fall through to 2015, but more slowly (by 100,000 a year) than the previous forecast. Claimant unemployment is forecast to fall to 1.1 million in 2015."
Economic Forecasting is notoriously unreliable. If the private sector does not increase investment, employment and output (the latter was not included in calculating OBR’s forecast, btw) as predicted then these forecasts can be disastrously inaccurate. If the government’s OBR has adjusted their figures on growth and unemployment, others have been far more sceptical. The CIPD (Chartered Institute of Personnel and Development) warned the government's growth forecasts "will prove too good to be true", and measures to tackle the deficit will push unemployment towards three million (http://www.personneltoday.com/... ) John Philpott, the chief economic adviser at the CIPD, said:
"Economic growth will slow by far more than today's Budget suggests and, rather than peaking at 8% this year, unemployment will continue to rise toward three million (10%) by the time Mr Osborne's measures take full effect. This will add to public borrowing and debt, not reduce it. The emergency Budget is not the beginning of the end of the UK's post-recession economic difficulty, but the start of a period of painfully slow growth, falling living standards, and prolonged high unemployment."
B) Public sector pay freezes: Osborne announced the public sector pay freeze - due to start in April 2011 - will now be extended to 2012, and will cover all staff earning more than £21,000. Those earning less than this threshold will be paid an extra £250 each year during the freeze.
How does the budget affect the Poor (benefits dependent deciles 1-2 and those from 3-5 earning 20% of income from benefit)?
A) Linkage of benefit with work is punitive and does not deal with the real causes of unemployment. The vast majority of people on short and long-term benefit would certainly prefer to be employed. This type of punitive response to unemployed people is based on the idea that unemployment is voluntary which is fallacious and does not take into account the fact that persistent unemployment is systemic in a capitalist economic system. They are returning to the old argument of eligibility for assistance contingent upon showing good faith by working in the workhouse. Unemployment is a by-product of the capitalist economic system. Long-term unemployed people will now be forced to compete for jobs with the recently unemployed and with a national shortage of jobs caused both by systemic changes and the unemployment caused by the recession.
If the government actually engaged in direct job creation, this would be less problematic, but there is no talk of the government actually doing anything; so literally they are creating a situation where people have to find non-existent jobs in private industry which has no reason to create said jobs. Essentially you are pulling the rug out from the most desperate people in society.
B) Loss of services and benefits to the poor and their children
- According to IFS, the lowest 10% were hit relatively hard. Moreover, welfare cuts of £11b by 2014-15 partly due to indexation of benefits to a lower inflation rate using the CPI rather than the Retail Price Index (implicit assumption that the poor were getting increases greater than cost of living). According to the Centre for Economic and Social Inclusion (http://www.cesi.org.uk:81/IS/subscriptions/news/emergency_budget_2010), the Jobseeker’s Allowance and Income Support have been indexed by a RPI variant excluding housing and council tax costs, which has been the main difference between the CPI and RPI. The assumption that this source can ensure benefit savings may not be the case. http://www.ifs.org.uk/...
- Housing Benefit "reforms"
According to the Centre for social and economic inclusion:
Long-term Jobseeker’s Allowance (JSA) claimants will have their Housing Benefit cut from April 2013 to 90% of the full award. This will reduce benefit income and so raise work incentives according to the UK government. If there are no jobs, then all you are essentially doing is lowering benefits income ... this does not require a PhD to figure out.
Specifically, Housing benefit is capped at 30% of local rents as opposed to the current median of local rents. Moreover, additional be cuts will be imposed with respect to the rates that will be paid for larger properties, which accommodate families.
To add insult to injury, JSA claimants that also receive Housing Benefit will also be penalised: from April 2013, if they have been claiming JSA for a year, their Housing Benefit entitlement will be cut by 10%. Given the statements by IDS concerning willingness to pay for moving to areas with jobs, the shortfall will either mean that they have to move house, become homeless or pay the extra with their £65 a week JSA; so will their moving to other areas with employment possibilities be a prerequisite for JSA?
This has a direct impact on housing benefit in London. From next April, Mr Osborne has capped four-bedroom houses at £400 a week, three-beds at £340 and two-beds at £290. In London, About 170,000 families in London pay rent to landlords and receive the local housing allowance. The cap essentially blocks out the following boroughs: Westminster, City, Hackney, Camden, Tower Hamlets, Kensington and Chelsea, Hammersmith and Fulham and partially blocks Barnet, Brent, Haringey, Islington, Ealing, Hounslow, Richmond, Lambeth, and Merton, essentially pushing those on benefits (http://www.thisislondon.co.uk/...) into the outer borough of the far west, South, North and east London (from Newham east). Will London start to resemble Paris with the poor forced out to the outer areas and the centre being a no-go zone for the poor?
- Single/Lone Parents
According to the Centre for Social and Economic Inclusion, lone parents whose youngest child is aged over five years will be moved from Income Support onto Jobseeker’s Allowance from 2011-12. The government estimates that this could move up to 15,000 lone parents into employment. Supposedly, according to the government, this will help reduce child poverty. Currently, the government states that they do not believe lone parents with children under school age should be required to seek work and they are certainly unwilling to provide for crèches for the poor, and they claim to be pro-family, so it is possible that changes to Income Support may stop here ... but they have never claimed the need for consistency.
In an almost Malthusian move, from April 2011 the government will restrict eligibility to the Sure Start Maternity Grant to the first child only and abolish the Health in Pregnancy Grant from January 2011. Perhaps they believe that this will limit family size of the poor to only 1 child? http://www.cesi.org.uk:81/...
How does this affect the working poor?
By working poor(http://www.resolutionfoundation.org/...), we mean deciles 3, 4, and 5 earning between £13,500-25,800. This accounts for 7.2 m households, 14m adults and receiving less than 20% of income from benefits, in general they are more dependent on working tax credits, child tax credits, state pensions, winter fuel payments.
The Chancellor insisted that this would be a government that "rewards work", and benefit reforms would provide "a tool to support work".
Vat increase means rationing of purchases and less received relative to money spent.
No discussion of living wages, but they claim this is still on the table. However all their policies will certainly lead to wage stagnation.
Due to attempts to link benefits to work, there will be increased competition for jobs leading to further insecurity due to poor competing for work. This may also affect wages which are already too low, especially for part-time workers, whom are predominately women. Certainly, the increased competition for employment will lead to stagnation in wages for the working poor and prevent any increases.
Loss of extended free school food for children
Measures aimed at making work pay included increasing the budget for discretionary Housing Benefit payments by £40m and increasing the child element of Child Tax Credit by £150 above inflation in 2011.
In a small payback to the Lib Dems (whom will probably become redundant themselves after joining this coalition), the Income Tax personal allowance will also be increased by £1,000 to £7,475 in April 2011, which will result in 800,000 people no longer having to pay income tax. Needless to say, this is a bit less than the £10,000 income tax cut off line proposed by the Lib Dems in their pre-election economic pledges. So, what have the Lib Dems gotten out of joining this coalition except a tiny taste of power before losing all credibility?
Conclusion
In many ways we cannot talk of the UK’s emergency budget without looking at the austerity measures being imposed on the rest of Europe and agreed to spread further at the G20. It seems that the resurrection of Keynes has been a very short resurrection indeed and we have now returned to neoliberalism with its proven track record of economic crises, persistent unemployment and rising inequality in income and wealth. With left and centre left parties extremely weakened, trade unions weak and their sectors undermined and endangered, the poor, working poor and working class now face extended attacks on the welfare state, the only thing that has ameliorated the excesses of capitalism, with little or no support.