- Created: Wednesday, 05 August 2015 13:06
- Written by Robert Clough
The Conservative government’s July Budget was a naked act of class war. Its intention to slash spending on benefits by £12bn a year will bring destitution to large sections of the working class. It showed that capitalism is no longer able or prepared to provide an adequate system of state welfare for the working class. It was also an arrogant demonstration of power: the ruling class is confident that it is free to drive the working class into the ground without facing meaningful opposition. Labour leadership candidates Liz Kendall, Andy Burnham and Yvette Cooper agree that the benefit system is too generous to the working class. Acting leader Harriet Harman concurred and announced that the Labour Party would not oppose the welfare bill implementing the Budget’s benefit cuts. Three quarters of Labour MPs duly followed her lead including Kendall, Burnham and Cooper. Only 48, including the fourth leadership candidate, Jeremy Corbyn, voted against. Robert Clough reports.
A fantasy recovery
The ideological context for the Budget was the fiction that it would ‘move Britain from a low wage, high tax, high welfare economy to a higher wage, lower tax, lower welfare economy.’ Presenting a rosy picture of ‘the fastest growing G7 economy in 2014’ where ‘employment has reached record levels, and wages are rising above inflation’, Chancellor Osborne boasted that the government would eliminate a current budget deficit running at 4.9% of GDP, make the economy more productive, ‘reward work and back aspiration’ and ‘secure a truly national recovery’.
The reality is quite different. Nothing of substance has changed since we reported on the March budget: rising household debt and stagnant investment show that whatever spin Osborne puts on the state of the economy, Britain is facing a ‘permanent low-pay, low productivity and debt-fuelled “recovery”’ (‘Fantasy economics for a decaying economy’, FRFI 244). Overall productivity at the end of 2014 remained below its pre-crisis peak in 2007. Manufacturing productivity is running 15% below what it would have been if pre-crisis trends had continued, and lagging 27-31% behind that of Germany, France and the US. Even Osborne had to acknowledge that investment in 2014 as a share of output was lower in the UK than in all other major advanced economies other than Italy.
Manufacturing output in 2014 remained 4% below that of 2008, and industrial production overall 8% below. This stagnation is reflected in a balance of payments deficit on trade in goods running at nearly 6% of GDP or £30bn a quarter (£121.2bn overall in 2014). This would be completely unsustainable without the surplus on services which stood at £86.0bn in 2014 and other resources looted from the rest of the world. The overall balance of payments deficit of £35.2bn in 2014, or 2.2% of GDP, demonstrates the underlying weakness of the British economy.
Plans to eliminate the public sector deficit by 2019/20, rather than 2018/19 as set out in March, will depend on the overall performance of the economy in a period of ever-growing uncertainty: with the political instability that will accompany the build-up to the referendum on EU membership due in 2017 and the unknown implications of the deepening financial crisis in China.
The onslaught on benefits
The centrepiece of the Budget, however, is an onslaught on welfare benefits whose impact on the condition of the working class will be staggering. Its consequences are such that the Institute for Fiscal Studies calculates that between now and April 2019:
• the poorest 10% or decile of the working age population will lose an average £800 per annum or nearly 7% of net income;
• the second poorest decile will lose £1,300 per annum, more than 7% of net income;
• the third poorest decile will lose £1,100 per annum, over 5% of net income.
Even the fourth poorest 10% stands to lose over £600 on average per annum or more than 3% of its income. By contrast, the wealthiest 30% stand to lose a fraction of 1% at most. The ruling class is not bothered to even pretend that the wealthy will be required to contribute.
The main benefit cuts are:
• A four-year freeze on working age benefits from April 2016 which will imply a real-term cut of some 6% over the period. Such benefits include Local Housing Allowance, Jobseeker’s Allowance (JSA), and Working Tax and Child Tax Credits. This will remove £4bn a year by 2020 from those families either already in poverty or on the edge of it.
• Working Tax Credit itself will be slashed: the income threshold above which the benefit is progressively withdrawn will be reduced from £6,420 per annum to £3,850 per annum, and the rate at which the benefit is withdrawn once this earning threshold has been met will be increased from 41p in the pound to 48p. For those few who have already been transferred to the new Universal Credit, single claimants without dependants, the equivalent work allowance will be withdrawn altogether. The impact of these cuts will be felt by claimants immediately after April 2016: £4.35bn will be cut in the first year from those on poverty pay.
• Child Tax Credit will be removed for the third and any subsequent child born after April 2017, a measure Harman specifically supported. However, under Universal Credit it will happen regardless for any new claim starting in April 2017 adding a further penalty to a family with three or more children where earners become unemployed after that date. Other cuts directly affecting poor families are to the Family Element in tax credits and the Family Premium in Housing Benefit – more taken away from those on poverty pay.
• A reduction in the Overall Benefit Cap (OBC) from £26,000 per annum to £23,000 in London, and to £20,000 elsewhere, to be introduced in April 2016. While the government claims it will affect 90,000 families, other estimates put the figure much higher, with perhaps three quarters of a million children in families possibly facing homelessness during 2016 with a claimed saving of £495m per annum by 2020/21.
• Jobless youth under 21 will no longer be automatically entitled to housing benefit.
• The education maintenance grant available to 50,000 students from the poorest families will be replaced by repayable loans to save £1.6bn a year.
• Those in work who are under 25 will be excluded from the provisions of the new National Living Wage, itself set at a level below poverty pay.
• Claimants on Employment Support Allowance (ESA) who have been placed into the work activity-related group will have their ESA cut by £29 per week to the JSA level from April 2017.
Other measures in the Budget will worsen housing conditions for the working class. A reduction in tax relief on buy-to-let mortgages from 40% to 20% will force rents up at the same time as Local Housing Allowance is frozen for those who have to rent privately. ‘Pay to stay’ will force social housing tenants described as ‘higher income’ to pay market rents to remain in their homes. The threshold for this will be an annual household income of £40,000 for London and £30,000 outside; government estimates are that 340,000 tenants will be liable. Inside London, it will mean a family will have to pay an extra £1,000 a month. Outside London, the definition of a ‘higher income’ household would include a couple in full-time work on the minimum wage with three children – definitely poverty pay.
Councils which retain housing stock will have to pay the surplus they get from a market rent back to central government. They cannot invest it in new homes. The aim is clear: to force social tenants into buying their homes and so further reduce the remaining social housing stock. Plans to reduce social sector rents by 1% per annum will have the same effect by cutting housing association income and so restricting investment in new social housing. Already housing associations are turning to the market to make money: in 2014, 15% of the homes they built were for sale and only 14% for a social rent. Most of the remainder were to let at the misleading ‘affordable rent’. The National Housing Federation, which represents housing associations, has just produced ‘A plan for homes’ which sets out to build 120,000 houses a year, none of which will be for social rent – 60,000 will be for sale, 60,000 to be let at either market or ‘affordable’ rents. The impact of the Budget on housing conditions for the working class will be catastrophic: the outcome will be soaring rent arrears, evictions and homelessness.
More regressive taxation
At the same time as benefits are being cut, indirect taxation, which is a greater burden for the lower paid, is increasing. Budget proposals that insurance premium tax should rise from 6% to 9.5% is an example of this trend, as are the changes to the road tax. The increase in personal tax allowances is of little consequence to those on poverty pay: the 2016/17 threshold of £11,000 per annum is meaningless for five million part-time workers who earn less than that, and does not begin to address the losses incurred from the benefit cuts. The Budget spin is that the principal source of tax is income tax and that those who pay more income tax are shouldering a greater burden. It is a complete fiction: the poor have always paid a greater share of their income in taxes than the rich. Recent government figures show that the poorest 10% of working age households pay 45% of their income in taxes, while the richest 10% pay just 34.6%.
Handouts for the banks and multinationals
The assault on the living standards of the working class is in stark contrast to the largesse shown to the banks and multinationals. When the government denounces what it calls ‘benefit dependency’ it is speaking only of the poor. Excluded from its condemnation are the enormous handouts given to the banks as part of their bailout during the crisis, as well as the estimated £93bn handed out to the multinationals every year in grants, tax breaks and other benefits.
The Budget had even more to offer the rich. Inheritance tax will be changed to introduce an extra £175,000 tax-free allowance per person for their main property on top of the existing £325,000 allowance that can be applied to all assets. The plan to reduce corporation tax from 20% to 18% reflects the determination of the government to maintain Britain and the City of London as a pole of attraction for the international banks and multinationals. It reinforces the City’s tax haven status: with reliefs, the real rate will be close to 16% (Financial Times 9 July). The decision to phase out the bank levy on profits made from overseas operations and raise their level for domestic operations is a part of this drive. It is a response to the likes of HSBC which threatened to relocate their headquarters from London because of the levy. A fire sale of government assets including shares in Royal Mail and RBS will be a handout to the wealthy, in particular the RBS shares which are being valued at £13bn less than when they were bought as part of the bank’s bailout in 2008.
The ruthless assault on the living standards of the poorer sections of the working class will force a response from the millions who are affected. It is not just a fight against the Tory government, ruthless though it is, but against the ruling class as a whole, and its political representatives. The Labour Party has already capitulated. Desperate to avoid being stigmatised by the ruling class as the party of benefits, it is now in complete disarray. The Tories have Labour on the run and, together with the provisions of the new anti-trade union bill, intend to crush it altogether. Trade union leaders will mouth opposition, safe in the knowledge that they will not have to take action: they do not organise let alone represent those who will be affected most – young people, who make up fewer than one in 20 union members, or part-time workers or those on poverty pay. With further huge cuts to local government spending to be announced in the autumn budget, we have to organise amongst those who have no privileged status to defend, those who will face a dramatic loss of income or homelessness in the months to come. We have to start now.
FRFI 246 August/September2015