Will 2013 Be a Year of Social Unrest in Britain?

The potentiality of 2013 proving one of the most convulsive and ugly in Britain’s social history is real.

The brunt of this Tory-led coalition government’s assault on welfare and public spending come on stream in April. Swingeing cuts in child benefit, housing benefit, and a cut in council tax benefit will plunge millions of UK families into the abyss of destitution and despair. Add to this a one percent freeze on Jobseekers Allowance, tantamount to a real terms cut, and the conditions for social unrest in the UK have hardly been more propitious.

Since coming to power 2010 this Tory-led coalition government, aided by its allies in the right wing press, has been diligent in its efforts to prepare the public for the economic tsunami that it intends to unleash on the public sector, the poor and benefit claimants. It has engaged in a concerted and determined propaganda campaign designed to demonize the unemployed, people on disability benefits, and public sector workers, the main targets of its attacks with the objective of turning what was and remains an economic crisis caused by private greed into a crisis of public spending. Pitting one section of working people against another has been a key plank of the Tory strategy to minimise resistance to the most egregious and brutal assault on the incomes and lives of poor people in living memory.

Save The Children calculate that currently in the UK 1.6million children are living in what they describe as severe poverty. Households mired in severe poverty are forced to make a choice between heating and eating each winter on an income of £15,000 or less. The extent of child poverty in the UK is a badge of shame in the word’s seventh largest economy. Indeed, along with food banks, it is this badge of shame and not the Olympics which is Britain’s lasting legacy in 2012.

Given the criminal lack of social and affordable housing in Britain, a consequence of Thatcher’s decimation of council housing stock throughout the 1980s, a policy continued throughout the nineties, wherein tenants were able to buy council properties at huge discount, and New Labour’s failure to address the yawning gap during its 13 years in office, millions of people are currently living on the edge of homelessness, victims of the inflated rents and insecure and short term tenancies offered by private landlords. With the collapse in the mortgage market, demand for private rented accommodation has spiked, which with the government’s intention of scrapping housing benefit for under 25’s and restricting it for everyone else is a recipe for disaster.

These facts, no matter how shocking, do not come close to describing the stress suffered by those on the receiving end of the government’s assault. This is a crime in itself, a cruel and brutal attack on the welfare of millions of men, women, and children, punished for daring to be poor by a government of the rich, by the rich, and for the rich.

Meanwhile, as 2013 gets underway, those same rich have never had it so good. Last year’s Sunday Times Rich List confirmed that the 1000 richest people in Britain have seen their wealth increase by a staggering £155 billion over the past three years of the worst economic recession since the 1930s, enough to wipe out the entire deficit with around £30 billion to spare. Yet thanks to the government’s decision to reward those earning £1 million a year or more with a £42,000 tax cut starting this spring, the rich can look forward to their wealth increasing still more. As for the corporations and businesses which many of them run, those are set to enjoy a two percent reduction in corporation tax in 2013, while VAT remains at 20 percent, a tax on consumption with a disproportionate impact on the poor.

Thanks in large part to the unstinting efforts of the campaign group UK Uncut when it comes to shining a light on the immorality of tax avoidance by the rich and big business, we now know the full extent of the theft committed by multinational companies such as Asda, Ikea, Starbucks,Vodafone, Google, Amazon, and others when it comes to exploiting tax loopholes to avoid paying anything like their fair share of tax on UK revenues. Plugging these loopholes at any time, never mind in the midst of the deepest recession since the 1930s, you would think would be done as a matter of urgency by a coalition government whose mantra since it entered Downing Street after the 2010 general election has been ‘fairness’ and ‘we are all in this together’.

The opposite has been the case. In fact, worse, the government has turned its guns on the poor and working class to make sure that the wealth and profits of the rich remain intact. It is class war by any other name.

The lack of investment by the private sector has led to a collapse in demand, which in other words means we are living through a crisis of underconsumption. It is a crisis screaming out for an investment-led response by the government to fill the vaccum left by the lack of private investment in the economy, specifically via the banks, the beneficiaries of billions in taxpayers money to keep them afloat at the height of the financial crisis.

The result is an economic shambles with injustice at its heart and the wonder is that we have yet to witness wholesale riots and civil unrest in towns and cities all over the country in response. 2013 may well see it erupt.


Miliband and Balls Have Got It Wrong on the Economy

The capitulation of the Labour leadership to the austerity and cuts agenda of the Tories and right wing press was confirmed by shadow chancellor Ed Balls’ recent statement that Labour would not reverse the cuts and would maintain the pay freeze within the public sector if they win the next election (Balls Accepts Tory Cuts and Pay Freeze, Guardian, January 14)

This comes in the wake of Ed Miliband’s public statements to the same effect, statements made after public criticism of his leadership by Maurice (Lord) Glasman, Labour peer and founder of the Blue Labour tendency within the party. This is a philosophy of conservative Labourism that espouses an emphasis on the role of voluntary organisations, churches and local charities in promoting mutualism and self help as opposed to centralism and a focus on equality. In essence Glasman’s theory echoes the postulates behind Cameron’s Big Society wheeze, at once a rejection of modern society and government as the necessary enabler of social and economic justice, and the embrace of a social model rooted in a rose tinted view of the past.

Blue Labour fell out of favour due to Glasman’s controversial views on immigration, culminating in him calling for engagement by Labour with supporters of the English Defence League.

The fact that Miliband felt obliged to respond to Glasman’s critique of his leadership with an attempt at burnishing his credentials with a near wholesale embrace of the Tory cuts agenda could prove a seminal moment in the political orientation of the party and its future direction.

The economic logic behind austerity remains as flawed now as it was when first announced by the Coalition. Rather than understand the deficit as a consequence of a global recession decimating demand in the economy, with a sharp fall in tax revenues due to a sharp rise in unemployment, the government is intent on deepening the same cycle by introducing drastic cuts in spending in the forlorn hope that the private sector will invest and create new jobs to replace those lost. The fact that those new jobs will come with lower wages, pensions, and worse terms and conditions than the ones lost is a moot point as far as the Tories and their backers within big business and the right wing press are concerned.

The UK’s deficit and national debt as a percentage of GDP currently compares favourably to other major economies. Currently it is sitting at around 60 percent. Compare this to France at just over 80 percent, Germany at 75 percent, Japan at 196 percent, and the United States at 60 percent, and the UK’s national debt cannot in any way be described as extraordinary. It also compares favourably when measured historically. By the end of the Second World War it had climbed to over 200 percent, yet under these conditions the postwar Labour government initiated the largest and most wide ranging programme of structural reforms of any British government before or since.

Today, of course, the nature of the economy is far different from what it was then. The role of international markets as the determinant of domestic economic policy is hard to resist as a result of the success of free market nostrums in dominating the ideological and economic debate when it comes to the realm of ideas. We see this with the role of the ratings agencies in deciding the rate of borrowing for national economies, with the much prized AAA rating elevated to the status of a symbol of national prestige. It reprises Marx’s analysis of credit as ‘the economic judgment on the morality of man’, with in this case the ratings agencies passing economic judgment on the morality of nations.

The idea that the likes of Standard & Poor’s, Moody’s and Fitch’s, the three main international ratings agencies, operate in a politically and ideologically neutral environment is false. They make their profit from the fees they receive from banks, financial institutions and governments. In this regard they have come in for sharp criticism over the fact they constitute a de facto cartel and continuously rate debt instruments and securities issued by banks more favourably than bonds issued by governments – this because the banks and financial institutions pay them more. The subprime mortgage crisis that hit the US in 2007 and was the catalyst for the global recession that followed is a case in point.

The difficulty for any national economy trying to come out of recession lies with the decline in international aggregate demand. In fact, there has long been a crisis in international aggregate demand due to the overconsumption that has been a factor in the West and the concomitant underconsumption of the developing world, leading to downward pressure on prices and rising levels of consumer debt.

The ongoing crisis in the Eurozone negates the viability of Britain being able to export its way out of the recession, certainly not in the short term anyway, leaving either a policy of cuts or measures to stimulate domestic demand. This should range from the simple act of reversing the rise in VAT – and indeed cutting it below the 18 percent it was set at previously, which would benefit those on moderate to low incomes who spend rather than save – to implementing a system of progressive taxation and closing off tax loopholes, which for too long have ensured that the rich have been able to avoid contributing their fair share to the exchequer as a proportion of income.

Britain’s under par infrastructure is crying out for major investment, as is a housing crisis that grows worse year on year. The jobs created would give a massive boost to domestic demand, with every pound invested having a multiplier effect throughout the rest of the economy. Inflation could be controlled via a combination of taxation and interest rates. The only pay freeze within the public sector should be applied to management and high earners, such as the 9000 who are currently taking home more pay than the prime minister.

When it comes to welfare, Labour needs to fight for those on benefits rather than accepting the narrative that they are workshy scroungers who are morally deficient and deserve to be treated as criminals. The government’s cuts in housing benefit and its policy of forcing people on disability benefits to come off on spurious grounds must be reversed. The current level of Jobseekers Allowance is set far too low to achieve anything other than forcing claimants to survive by entering the black economy. Furthermore, the knock-on effect of rising levels of stress related illnesses, crime, and other social maladies associated with poverty impact society as a whole. In economic terms, demand needs to be introduced at the bottom rather than the top of the income scale, where as a matter of necessity people spend every penny they earn rather than save or invest on the financial markets.

Also as a matter of priority should be more government control over the operations of the banking sector, with a view to engineering a gradual replacement of an economy configured around inflated property prices that has dominated over the past three decades with one based on new technologies, green industries, and manufacturing. Renationalisation of utilities and the commanding heights of the economy would take us back to the future.

The aforementioned constitutes a concrete and viable alternative to the status quo. Unfortunately, the current Labour leadership seems unfit to the task of breaking through the free market consensus of the establishment, including the media, to argue that alternative.

What should never be forgotten is that any debate over the economy is fuelled as much by ideology as economics. The public capitulation of Ed Miliband and Ed Balls to the right wing narrative of austerity reveals an ideological accommodation to the free market that should worry every Labour member and supporter who had higher expectations and hopes of a resurgence of the left within the party after the last leadership election.


The Occupation of Wall Street: an Idea Whose Time Has Come

The first day of the Tory Party conference in Manchester was completely upstaged by the huge anti-austerity demonstration outside, comprised of 30,000 plus trade unionists, students, pensioners, the unemployed and others whose lives are being turned upside down by an economic policy that increasingly resembles a vast experiment in human despair.

Up until now the Coalition has more or less had a free run in the media with its mantra of cuts and austerity in response to the global recession, pandering to the interests of international bondholders and investors as more of a priority than protecting public services and the jobs of millions of ordinary people up and down the country.

In fact the nation has been bombarded by the government’s pro cuts propaganda since the election, resulting in most people accepting that there will have to be at least some cuts. In this though they happen to be correct, and we should be careful when making the argument against the government’s economic policy not to sidestep the incontrovertible facts in support of certain cuts, which I’ll get back to in a minute.

Before that it is worth reiterating how this recession came about in the first place, if only to highlight the lies which are being employed to make the argument in favour of the government’s assault on public spending and the public sector as a whole.

In late 2007 a banking crisis which emanated from the US as a consequence subprime lending hit the UK when Northern Rock, a bank built almost solely around its mortgage business, came unstuck after it was unable to continue selling on its mortgage debt as bonds on the international markets when they dried up, thereby shutting off its cash flow. A run on the back resulted in its share price tumbling and it being unable to continue servicing its existing debts. After an unsuccessful attempt to sell the bank to another private owner, the then Labour government took it over, effectively nationalising it.

This succeeded in stabilising the bank, but due to the international dimension of the credit crunch that was unfolding other UK banks soon also found themselves in dire straits and threatened with complete collapse the government stepped in to bail them out too. Overall, the bailout of the British banking system since the start of the banking crisis has amounted to a staggering £850 billion (around 40 percent of GDP).

But while this intervention saved the banking system from collapse, the government failed to prevent the ripple effect of the crisis from reaching the rest of the economy. A lack of political will informed the then Labour government’s refusal to take the step that was fundamental to protecting the entire economy by taking the banks into public ownership in order not only to underwrite their debts and customer deposits, but also to direct their operations. This refusal led to a situation where the banks, continuing to operate according to market norms after having been bailed out, essentially shut up shop and refused to continue to lend to small businesses and customers, many of which could not survive without ready access to overdrafts and loans in order to maintain cash flows. This resulted in businesses going bust, which created a spike in unemployment and a concomitant collapse in tax revenues.

Since coming to power, the Coalition has exerted itself in deflecting the argument away from the role of the banks and the City in causing the recession, while at the same time shifting its consequences onto the poor and ordinary people, first by putting up VAT to 20 percent, then with an attack on the welfare state and public sector workers. In line with these measures they have outdone themselves in placing the blame on Labour’s failure to properly regulate the banks and the size of the nation’s ‘structural deficit’ (the disparity between tax revenue and public spending out with the deficit resulting from the bank bailout) while in office. What Cameron and Clegg et al. don’t inform the public is that the economy’s structural deficit is not fixed in stone, and that with the ability to raise revenue through taxation, and to increase output via currency controls and interest rates, the government possesses the ability to reduce the structural deficit without making drastic cuts in spending.

During the boom years New Labour borrowed to invest in education, the NHS, and various capital investment projects at one end of the economic spectrum, filling the massive investment gap that was bequeathed the country by the Tories, while keeping taxes low at the other in order to appease big business and the rich. The main rate of corporation tax came down to 28 percent under New Labour, making it the lowest of any G7 economy. Under Thatcher it came down from 52 percent to 35 percent. George Osborne now plans to lower it still further to 24 percent.

The extent to which Labour under Blair and Brown embraced free market orthodoxy is evident in the light touch regulation of the banking and financial sector that was employed, a lack of investment in other sectors of the economy, especially manufacturing, the introduction of PFI and PPP contracts, whereby private capital was employed to help fund and in many instances take over the provision of public services, and the maintenance and indeed deepening of the UK as a tax friendly environment for the rich, resulting in London assuming the dubious honour of being the location of choice for the world’s super rich. Add to this the preponderance of tax avoidance schemes that were made available and you had the disgusting scenario whereby Barclays Bank paid just 1 percent in corporation tax in 2009 on profits of £11.6 billion.

Contrary to what the government tells us there is an alternative path out of recession. It is one which places a priority on investment, progressive taxation and jobs. A public works programme to alleviate the housing crisis, investment in a publicly owned and modern transport system, improving the roads, in manufacturing and in the Green economy would create jobs which would increase tax revenues. Moreover, the multiplier effect of this economic stimulus would more than offset the cost of any borrowing involved.

When it comes to cuts, these should take the form of cuts to Trident, bankers’ bonuses, executive salaries, tax avoidance schemes, and public subsidy to the private rail monopolies and utility companies, both of which should be returned to public ownership as a matter of priority.

Overall, what is required is government intervention in the organisation, ownership and direction of the UK economy, the fundamentals that once informed the thinking of a Labour Party that created the welfare state, public pensions, free education, and the social cohesion which the present right wing coalition government is intent on destroying, thus finishing the job begun by Thatcher in the 1980s, continued by John Major and then Tony Blair, both of whom proved worthy heirs to the Iron Lady’s legacy.

As any of the thousands of demonstrators in Manchester outside the Tory Party conference at the weekend know, the UK economy relies on the welfare state and the public sector as a ballast of demand. Without it the private sector will be unable to function and the recession will get worse.

There are those who argue that if we tax the rich in a manner which befits a civilised society, and if we bear down on the City in order to end its economic stranglehold over the entire country, we will merely precipitate a mass exodus. However, blackmail of this type should be rejected out of hand else the entire country will be plunged into economic and social freefall.

Under this government, which has only been in office since last May, we’ve seen two sets of riots, the first by students protesting the hike in tuition fees last winter, the second by disaffected youth in England’s inner cities. We’ve had the single biggest trade union demonstration in London in March, when over 300,000 people took to the streets in opposition to the Tories and their austerity programme, and now we’ve just had the largest demonstration outside a Conservative Party conference since Thatcher was in power.

None yet has had any meaningful impact on the determination of the Tories to proceed with what increasingly resembles a vast experiment in human despair.

This leaves open the only step that so far hasn’t been employed: a mass campaign of civil disobedience. Here the example of our American cousins looms large. The ongoing occupation of Wall Street has continued and grown to the point where it has become a main item across US news networks. More and more people in the US are waking up to the fact that their only weapon is the collective will to action. Echoes of Tahrir Square in Cairo are currently resonating in Wall Street, where for the first time since this crisis broke people in the US are standing up against the economic juggernaut that is trampling over the lives and livelihoods of millions.

Their example must be the catalyst for action here. The occupation of the City of London is overdue. Enough is enough.

Tax Avoidance Protests Spread

The complex was packed with Christmas shoppers but about 20 campaigners targeted Vodafone and Topshop – the same stores which they demonstrated at last week.

UK Uncut announce that protests against corporate tax avoidance occured in 55 towns across the Uk today.There have been confirmed Vodaphone store closures in Edinburgh, Truro, Manchester, Cambridge, Liverpool, Wrexham, Walthamstow, Brixton, Tunbridge Wells, Islington, Bristol, Nottingham, and Oxford. Protests against Vodafone are because the company reached a ‘settlement’ on a long standing tax dispute with HMRC earlier this year, following the change in government. Some experts believe the deal meant that Vodafone saved up to £6bn in tax

 and from Manchester Evening News

Protestors returned to Manchester’s Arndale for the second consecutive weekend to cause disruption.

The complex was packed with Christmas shoppers but about 20 campaigners targeted Vodafone and Topshop – the same stores which they demonstrated at last week.

The group were protesting against the tax status of the companies.

This time there was a heavy police presence but six protesters got into Vodafone. Click to continue reading

Comprehensive Spending Review

A Very Public Sociologist

The phony war is over. George Osborne’s Comprehensive Spending Review statement is the artillery barrage signalling the start of the shooting war. Far from striking a sombre note appropriate to the circumstances and despite Dave’s handwringing, the Tory benches were in a chipper mood as the chancellor announced assault after assault on the social wage and the public sector.

Osborne prefaced his avalanche of cuts with the usual deficit deceptions. The Coalition’s actions in the summer saw Britain “step from the brink”. The cuts are designed to reduce the “waste and welfare we can no longer afford” and that we are stuck paying billions upon billions out to foreign creditors – even though the bulk of debt is domestically owned!

Measures introduced were

* Capital spending at £51bn, £49bn, £46bn and £47bn until 2014-15.

* Total public spend of £702bn, £712bn, £724bn, £740bn until 2014-15. In real term this is the same as at 2008.

* 3 principles – reform – fairness ‘all in it together’ ‘broadest shoulders’ – growth (prioritise those promoting growth)

* £6bn Whitehall savings with an estimated 490,000 job losses over four years (claims much will come from natural turnover). Believes private sector will take up the slack and cited 178,000 new jobs created over the last three months as an example of the economy’s capacity to absorb the shock. Money to be provided for BigSoc projects.

* Treasury dept. budget to be reduced by a third. Cabinet office to find £55m savings.

* Civil List: a new settlement with one year cash freeze, 14% fall in 2012-13 royal household costs. Receive grant linked to proportion of crown estate income. How will the Queen survive?

* Decentralisation – recognises not all services need be provided by govt but can come from private or voluntary providers. Green light for further privatisations.

* Local government – councils face 7.1% reduction year on year. Reducing core grants to councils from 90 to 10. Funding available for council tax freeze. £2bn additional resources for social care by end of 2014-15 period.

* Housing benefits capped and entitlement reduced, new social housing tenants 80% of market rates. Will have the effect of pricing many claimants out of their communities.

* Military – 8% reduction by 2014-15.

* Police -4% reductions year on year without affecting frontline services. Fall by 4% each year. Counter-terrorism being maintained. Home office reduction by 6%. More reforms for streamlining justice system. £7bn budget by 2015. Ministry of Justice also 6% fall.

* Banks face more regulation. Bank of England in charge and independent commission on banking. Implementing code of banking practice which will see banks give up tax avoidance. Additional £900m to go after £7bn in tax fraud.

* Welfare: Crack down on estimated £5bn fraud. Pensionable retirement age of 66 brought forward to 2020 to save £5bn. Staggered increased progressive employee contributions to public sector pensions. £1.8bn savings 2014-15. 12 months limit for sickness benefit not deemed incapable of work. £2bn universal credit fund to make it work. Savings from cap on benefits at average wage resulting in a total welfare saving of £7bn savings.

* Universal benefits: No further change to child benefit apart from higher rate tax payers – £2.5bn saving. Keep universal benefits for elderly. Permanent increase in cold weather payments.

* NHS: Total health spending to rise above inflation. £114bn budget by 2014-15. (but see Will Straw questoning this)

* £1.5bn Equitable Life pay out.

* Dept Business: Costs to fall by 7.1%. Maintain Post Offices, support for students. £4.6bn science funding frozen maintained by finding £320m worth of savings. £1bn committed to carbon capture and storage project. Another £1bn to offshore wind farms. £1bn green bank. ‘Green Deal’ incentives.

* Culture media and sport: 19 quangos to go and budget 15% reduction over four years. 41% admin costs reduction. Free entry to museums and galleries maintained. BBC to fully fund World Service and Monitor, and part fund S4C. Frozen license fee for six years. BBC to face a 16% budget saving in line with govt departments. Reducing online spend, no encroachment into local media markets, and contribute to superfast broadband.

* Dept of Transport: invest £30bn over next four years.

* £1bn regional growth fund.

* Schools budget rising from £35bn to £39bn. Replacing EMAs with targeted support. Five education quangos, to be scrapped with a one third reduction of admin. Money to be found for a £2.5bn pupil premium.

In his bullish reply, shadow chancellor Alan Johnson rightly labelled the Coalition cuts programme a “reckless gamble”. In addition to the 490,000 public sector job losses, according to Price Waterhouse Cooper a further half million private sector jobs are at risk. Furthermore for every 100,000 lost jobs there is – assuming those people claim JSA – an additional half a billion cost.

Despite Coalition rubbish about being “all in it together” this is a budget whose consequences fall disproportionately on working class shoulders (and working class women at that). To pretend a top banker or tax-dodging business owner might have to take one less holiday, an extra new car, or an additional summer home is in the same league as being turfed out of your community because of housing benefit changes or losing your job because it’s “redundant” is risible and deeply insulting.

The Tories and LibDems are pleased as Punch with their work. But the cuts are not inevitable. The labour movement can defeat these cuts not because it’s the right thing to do, but because it’s necessary.

Cognitive Dissonance Reigns at Number Ten

Cameron’s conference speech today will no doubt have already been rewritten and tweaked more than once in response to the furore caused by his chancellor George Osborne’s announcement that child benefit is to be cut for high earners – which in conservative parlance equates to those earning £44,000 a year and above.

Clearly, the first Tory Party conference after winning the party’s first general election in 13 years, albeit one which failed to result in a working majority, was not meant to result in David Cameron having to fight a rearguard action in order to appease not only those much valued middle England voters that are the lifeblood of the conservatives, but also a groundswell of dissent within the ranks.

But a deeper concern arises from this broo-ha over the government’s ill conceived proposal on child benefit – namely that the entire panoply of cuts drawn up by the government, and set to be announced later this month, are likewise ill conceived.

In fact, considering the alacrity and aggression with which the coalition government has gone about cutting the deficit, despite strong arguments warning of the dangers of a double dip recession as a result of the collapse in demand that will ensue, people are entitled to question the economic literacy behind the Coalition’s entire economic policy.

The possibility, nay near certainty, that ideology is blinding judgment when it comes to dealing with the deficit rightly has more and more people worried – and not just Labour Party supporters or those who sit on the left. The argument currently being put forth by the Coalition in favour of cutting spending on the welfare state is that it is being done in order to make sure that everyone who can moves into work. But such simplistic and populist rhetoric is based on the assumption that there is work available for those people to move in to. The simple fact is there is not. The most recent Office for Budget Responsibility figures reveal that long term unemployment has doubled in the last two years to 800,000, with five people currently chasing every new vacancy.

Cognitive dissonance currently reigns within Number Ten and the Treasury with the mistaken belief that the British economy consists of an overlarge and iniquitous public sector sitting alongside a too small but virtuous private sector. Listening to the likes of George Osborne and Danny Alexander, you’d think that each sector doesn’t intersect with the other in a relationship of mutual dependency. They do.

Another canard is the continued attempt by the government to equate the nation’s economy with a household economy. Again, such simplistic rhetoric reveals either a deep disdain for the intelligence of the public, or a woeful lack of understanding when it comes to macro economics.

A national economy run along capitalist lines, involving the economic activity of millions of people domestically, in competition with other national economies globally, must by definition take into account a number of variables. It has to balance investment with production – inputs and outputs – in order to achieve an equilibrium that maintains stability. This has to be done taking into account the social costs or benefits attached to either failure or success in doing so. The relationship between inputs and outputs is a circular one, but without input (investment) there can be no output (growth). The basic nub of the government’s economic policy, and its inherent weakness, is the fallacious idea that cutting investment, or spending, will result in growth. This is patent nonsense.

The only thing that will result from such an economic policy is unemployment and double dip recession.

New Study by Ifs Challenges Govt’s ‘progressive Budget’ Claim


Press Release

Institute For Fiscal Studies

The Chancellor claimed in his Budget speech that the June 2010 Budget was a ‘progressive Budget’, backed up by distributional analysis in the Budget documentation that showed that tax and benefit changes due to come into effect between now and 2012–13 will hit the richest more than the poorest. IFS researchers have previously cast doubt on this claim, noting that the main measures which will lead to losses amongst better-off households were announced by the previous government, and that the reforms to be in place by 2014–15 are generally regressive. The distributional analysis in the Budget documents also excluded the effects of some cuts to housing benefit, Disability Living Allowance and tax credits that will tend to hit the bottom half of the income distribution more than the top half.

IFS research published today makes use of analysis published by the Department for Work and Pensions since the Budget, and attempts to reflect the impact of all the benefit cuts announced in the Budget. It shows that, once all of the benefit cuts are considered, the tax and benefit changes announced in the emergency Budget are clearly regressive as, on average, they hit the poorest households more than those in the upper-middle of the income distribution in cash, let alone percentage, terms. The distributional effect of all tax and benefit reforms due to be implemented by 2014–15 is clearly regressive within the bottom nine decile groups of the income distribution when losses are expressed as a percentage of net income, although it is less clear cut when losses are expressed as a proportion of expenditure.

The report also considers the impact of tax and benefit reforms on different sorts of households. Low-income households of working age lose the most as a proportion of income from the tax and benefit reforms announced in the emergency Budget. Those who lose the least are households of working age without children in the upper half of the income distribution. They do not lose out from cuts in welfare spending, and they are the biggest beneficiaries from the increase in the income tax personal allowance.

The biggest single change to benefit policy in the June 2010 Budget in fiscal terms was the decision to link benefits with the Consumer Price Index (CPI) rather than the Retail Prices Index (RPI) or Rossi index from April 2011. This is very likely to mean less generous benefits in the years ahead. The Government argued that the CPI is a better measure of inflation than the indices to which benefits are currently linked because the way it is calculated allows for the fact consumers are able to protect themselves from price changes by substituting towards relatively cheaper goods, and because the goods and services it covers better reflect the “inflation experience” of households receiving benefits.

We find the first of these arguments to be sound but the second to be more questionable – only 23% of benefit claimants are unaffected by increases in mortgage interest payments and council tax, which are the main items that are excluded from the CPI but included in the RPI.


Backlash Faced by Lib Dems over Budget


The lead story in today’s Observer is on the ramifications of the Budget for the Liberal Democrats. In a poll conducted by YouGov/Brand Democracy, 48% of those polled who voted Lib Dem at the last election have stated that they are unlikely to vote for them again.

This comes in the same week as the G20 Summit in Canada, during which US president, Barack Obama, warned European governments of the dangers of cutting spending during a recession, whilst continuing to advocate more fiscal stimulus in order to ensure growth.

More significantly, a study conducted by the Fabian Society has revealed the true extent of the devastating impact of Osborne’s emergency budget on the poor, with the nation’s poorest 10% of families facing cuts equivalent to 21.7% of their household income. At the other end of the spectrum, meanwhile, those households earning £49,700 or more are facing cuts equivalent to 3.6% of income.