This budget is more of the same, and that’s bad news for poverty

Inequality, Poverty in the UK

It’s been billed as a ‘Robin Hood’ budget but, as Moussa Haddad reports, today’s budget does little to help the poorest in society who have been hit the hardest by the cuts to welfare and public services.

 

Sometimes, it’s helpful to take a step back from the chatter of the moment, all the better – hopefully – to observe a fuller picture.

Clearly, a budget that allocates billions of pounds and affects, in one way or another, every single person in the UK is more than just chatter. Nonetheless, for all the dramatic headlines of the moment – change is news; stability goes unremarked – the story today is one of continuity, not of radical new directions.

So what is it that’s being continued? Continuing more or less unabated is a fiscal retrenchment (spending cuts and tax rises combined) of unprecedented speed and severity. Nor is there any let up in the – again, unprecedented – attempt to achieve this predominantly through spending cuts, rather than tax increases (a 3-to-1 ratio is the target). In the jargon, it’s about as regressive as you can get. You or I might think of a
stronger word or two for government deficit reduction policy that seeks to cut public services and benefit spending as quickly as possible, while taxing as little as possible. (In the UK today, the poorest fifth of the population pay more of their income in tax than the richest fifth. There is plenty of room for the rich to pay their share.)

Taken together, this amounts to the most brutally focused attack on public services in modern British history, combined with enormous cuts to both in- and out-of-work benefits. That was the big story yesterday, and it remains the big story today.

That all said, the major measures announced today warrant their own analysis. There are numerous ways in which the distributional impact of a budget (how it affects people of different incomes) can be assessed, and this question will undoubtedly be debated vociferously over the next day or two. Treasury analysis suggests the very richest will feel the biggest impact, but otherwise, the poorer you are, the harder you’re hit. Though the figures for the rich don’t include the cut in the top rate of tax
(from 50% to 45%), so the extent to which they have lost out is likely a significant overestimate.

It’s always a good rule of thumb to ask what isn’t included, rather than (or in addition to) poring endlessly over what is. In this case, public service cuts are not counted, because the science behind measuring their impact is very underdeveloped. Yet, given the likely enormity of that impact, in this case, an equivocal answer might well be better than no answer at all. Oxfam’s programme experience tells us that people living in poverty, particularly women, rely more than anyone on public services. If you prefer your evidence quantitative, the TUC published research in 2010 which suggests that spending cuts hit the poorest tenth of the UK population thirteen times hard than the richest tenth. That puts in perspective arguments about a percentage point here or there in the distributional impact of tax and benefit changes.

Rather than purporting to give a complete overview, I’m going to focus on a pair of issues that are fairly indicative of the debates that matter around taxation – and then a warning from the future of where the ‘fuller picture’ described above is liable to take us. (Lest we forget, focusing too hard on tax is to miss most – three quarters, in fact – of the broader whole.)

First, the rise in the income tax threshold will help many on moderate incomes, but the worst off – the ‘squashed bottom’ – won’t feel any benefit at all. Around 1.5 million workers were already paying no income tax in 2010/11 because they did not earn enough, and this measure will do nothing to help them. More importantly, this measure
takes more money out of the Treasury. And in the overall context of huge cuts to services and benefits, and where tax credits for the lowest earners are already being reduced substantially, this ends up as a case of robbing Peter to pay Paul – where Paul had far more than Peter to begin with. If the measure was revenue neutral – if the money came from within the income tax system – then raising the threshold and, say, adding a penny to the basic rate of tax could make things fairer. As it is, this measure does little for
the poorest in isolation; and, in the wider context, contributes to their hardship.
 
Second, and a more encouraging hint of what could be done if the political will were there, is the announcement of a consultation on a General Anti-Avoidance Rule (GAAR) to tackle aggressive tax avoidance. While a decision to consult on legislation a year from now is a bit ‘jam tomorrow’ compared with a specific and dated tax cut for the very richest, the political commitment to tackle the substantial UK tax gap is welcome.

The effectiveness of this one particular measure will be analysed over the days and weeks ahead, and the devil will certainly be in the detail if and when legislation ultimately arrives (and there are already signs that strong legislation will be strenuously resisted), but the bigger picture is this: there is money in British society, and in the British economy. Brazil may be hot on our heels, but the UK is still the sixth richest country in the world. The decision to make the poorest pay, through service and benefit cuts, as well as through regressive taxes like the VAT increase, is a political one. The wealthiest tenth of the UK population own more than 100 times more than the least wealthy tenth. There are numerous powerful levers in the hands of governments to tackle
wealth inequality, while closing the deficit (and raising the revenues for the public services and benefits that are the bedrock of a civilised society); the GAAR is just one small step in the right direction.

Instead, one comment in the Chancellor’s speech – less an announcement, more an ominous warning of what is to come – sets out quite clearly, to anyone who chooses to listen, where the path we are on leads.

‘So I am today publishing analysis that shows that if in the next Spending Review we maintain the same rate of reductions in departmental spending as we have done in this review, we would need to make savings in welfare of £10 billion by 2016.’

Already, the welfare budget has taken as big a hit as any, and, much hardship as is being caused now, the worst is yet to come. The change in how benefits are uprated (or increased year by year) from the higher RPI to the lower CPI measure of inflation is particularly pernicious, as it will lock in cuts to benefits, year after year. You can think of it as inequality in one clause. With benefits already at historically low levels, it is hard to
overstate the damage that cutting away still further will do. And with twenty or more job seekers chasing each vacancy in some parts of the country (not to mention the millions more who are either ‘underemployed’ or shut out of the labour market altogether), responding with ‘get on your bike’-ism is both cruel and unrealistic. Most worrying of all, this is not a shot in the
dark: it is the direct and inevitable consequence of a fiscal policy that seeks to cut back on state spending as its first priority, irrespective of the self-defeating economic logic.

So, at first glance, this budget is a mixed bag, with tax changes broadly, but not exclusively, favouring the better off, and with a real positive in the continued movement towards tackling tax avoidance. Far more important, though, is the direction of travel that it largely continues. Even though the wheels have been in motion since the Emergency Budget of 2010, many of the worst impacts have yet to be felt, and much of the hardship – and, one hopes, resistance – is yet to come.
It is vitally important, as its effects are increasingly felt, to recognise that this continuity is as much a political choice as would be taking a different course. There are more progressive – fairer – alternatives. Today’s budget does not provide them.

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Author: Oxfam
Archive blog. Originally posted on Oxfam Policy & Practice.