A budget of welfare cuts for the poor, tax cuts for business and the rich

Pete Green writes on the reality of a nasty budget that is being obscured by the spin.

The headline on Sky News this afternoon tells us how the Tory press and spin-doctors are going to sell this. Apparently the budget was all about a “Pay rise for UK with a National Living Wage”. The word austerity doesn’t even appear (except in a quote from a Liberal Democrat they managed to find somewhere).

They push down the page the fact that this so-called living wage won’t come about until 2020, will only be for the over-25s and involve a mere 60 pence an hour increase in April next year. They ignore the likelihood that by 2020 this £9 an hour could be worth a lot less than a living wage, especially in London. They don’t even mention the fact that there will still be a public sector pay freeze, for another 4 years, affecting everyone working in education, the NHS and for local authorities.

Most shamefully of all, as even Labour have felt obliged to stress, most low-income working families with children will be far worse off as a result of the cuts in tax credits. The new benefit cap of £20,000 (£23,000 in London but down £3,000) alone will push another 40,000 children into poverty (see the piece by Felicity Dowling on the effects of that).

It will take a day or so for the precise assessments of winners and losers to emerge from the Institute of Fiscal Studies. It will take much longer to judge the scale of the impact of further austerity on the economy. But some facts are already clear:

  • There will be £32 billion of cuts in public spending in the course of this parliament, with £12 billion of those from the welfare budget. These cuts will be more spread out than in the last government (when they were concentrated in the first two years) but the effect will still be harsher than anything attempted in the Thatcher years. Women, children and those on disability-related benefits will be most directly affected.
  • The young will be especially hurt by the removal of housing benefits and the replacement of student maintenance grants for those from low-income families by yet more loans. Under-25s won’t even get the so-called living wage.
  • Corporation tax on businesses will be cut again to 18%, making Britain one of the countries with the lowest rate in Europe (the rate was 28% as recently as 2010). Yet overall companies are still not investing as much as they were before the financial crisis in 2008.
  • The rise in the inheritance tax threshold to £1 million will benefit a tiny percentage of the wealthiest in society.
  • The changes in tax allowances by raising the thresholds at which people start paying tax at the different rates will as usual provide more benefits for those on higher incomes.
  • Claims that they will tackle tax evasion by putting more money into tax collection conveniently forget the scale of cuts to the HMRC offices over recent years.
  • The abolition of permanent non-dom tax status (ending a notorious scandal) is one of the few measures we should welcome, but many of those affected will one suspects have time to find other ways to avoid paying the ‘full taxes’.
  • What this will mean for the economy is less clear. But there’s no doubt that cuts in public spending on the scale envisaged will contribute to slower growth, as consumer demand stagnates as a result of low pay and part-time jobs. Osborne has already got his excuse for stagnation over the next few years, using his speech to blame the problems of the Eurozone for the poor export record and lack of investment.

    In truth this is an economy which remains imbalanced, grotesquely unequal and vulnerable to further financial instability. The so-called puzzle of low productivity should be no surprise at all. An economy where job growth is mostly coming from low-paid precarious jobs in service sectors is also an economy where investment in the much more technology-intensive high productivity manufacturing sectors remains poor. Nothing in the budget is going to change that. What the cuts in welfare will do is confirm that austerity kills – and we must struggle to kill austerity.



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