Wednesday, June 23, 2010

BUDGET PRECIS

Wading through the treacle of Coalition claims and media endorsement, we must bear in mind three truths about George Osborne's emergency budget:

1. It was not necessary to slash and burn to preserve Britain's economy. Much of the deficit does not need to be paid back for decades, and Britain's massive deficit has been caused by the recession, not a "bloated public sector" or out-of-control spending. Many businesses will have been forced to borrow as their income is held back by the recession. These loans will not mature for several years, and no business in its right mind would pay in full before it needed to, especially if consumers are still not spending money. Yet this is exactly what Osborne has done with the country's finances.

2. These measures will not wipe out the deficit. The Coalition has nodded to Canada in the early 1990s, or Ireland in the last couple of years, or Greece in the last couple of months to justify public spending cuts. Yet none of these comparisons stand up to scrutiny.

Canada succeeded in balancing its books not by cutting public services, but because a period of sustained economic growth rapidly increased tax revenues paid to the government. It is extremely doubtful whether public service cuts (which were almost as savage as Osborne's) made any impact on the deficit at all.

The Irish assault on welfare is more recent, but it has not lifted Ireland out of recession. Public services - especially education and transport - have been hammered, but in 2009 (the year after the cuts were implemented) the economy shrank, tax revenues fell and unemployment grew. The deficit remains as high as when Ireland entered recession.

The Greek comparison is the most specious of all. The Greek debt is very different to Britain's in that, under the terms under which money was borrowed, it has to be paid back much more quickly. Lenders have been spooked by the Greek government's rush to austerity - it has cut too much, too soon, and (again) tax revenues have plummeted as a result. Osborne's budget actually makes a Greek-style crisis more likely than it was before.

3. Virtually all of this budget's measures are unfair and regressive. The increase in income tax allowance may benefit some of the lowest-paid, but this is negated by the increase in VAT to 20%. The 25% cuts in non-ringfenced departments will force up to a million people into unemployment (according to the Tory-aligned thinktank Reform), and will wipe out services used by the most vulnerable (including those provided by the private and voluntary sectors). This will, in turn, lead to private-sector redundancies (since people will have less money to spend), decrease tax revenues and increase the welfare bill (the new economics foundation suggests that for every public sector worker made redundant, the Treasury will make a net saving of less than £2,000 a year).

The assault on benefits has shocked even those who were prepared for the worst. People on Disability Living Allowance (which, as its name suggests, is not so much a "benefit" as a mere recognition that the cost of living is higher for disabled people) will be reassessed and, in many cases, stripped of their £50 per week.

Through reforms to Housing Benefit, the government wants make cuts of £1.8bn per year by the end of this Parliament. Osborne claimed that HB was "out of control," and used a claim of £104,000 per year to prove why the system was "in dire need of reform." This was perhaps the single most mendacious argument the Chancellor made: the homelessness charity Shelter has said that the only households eligible for this sort of sum would be a family of two adults living with an elderly relative and six children under 16 paying full market rent on a large property in inner-city London. If anybody can find a single example of this situation, I will be extremely surprised. It is a sham argument, used to back up a horrible policy.

The rich, meanwhile, will be rubbing their hands. Corporation tax is down; tax for small businesses is also down; capital gains tax stays the same for all but the highest earners; the banks are hardly touched.

The majority of people in Britain will suffer as a result of this Budget, and the poor will suffer the most. It is unnecessary, it is harmful to economic growth, it will not reduce the deficit, it is ideologically driven, and it is a direct attack on the poor. It is a convenient tool for doing what the Tories have wanted to do for years: dismantle the welfare state, strengthen capital, emasculate workers, and force people who cannot work into dismally low-paid jobs. Time will tell how long Liberal Democrat politicians, who have saved this budget from unilateral incredibility, can keep their noses pegged and their tongues held. Either way, it is up to politicians, workers and consumers to say what the media refuses to admit: that George Osborne's Budget is politically unacceptable.

2 Comments:

Anonymous Anonymous said...

Interesting Robson. Irritates me that the 40% cuts now being suggested are a tactic for population to be grateful when its transpires they are only 25% - Tories are playing with peoples fears and futures.

9:22 AM  
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