Government accused of imposing cuts through ideology not economics

By staff writers
June 22, 2010

The Government's emergency budget will have taken a gigantic £40 billion out of the economy by 2014-15 at a time when the recovery is fragile, and cuts will hit those with fewest resources hardest, say a range of critics in response to the statement from Chancellor George Osborne in the House of Commons on Tuesday 22 June.

They suggest that the Government is imposing cuts through ideology, including its belief in 'small government' and in shrinking the public sector viz a vis the private one, not through sober economic necessity.

The budget has imposed 25% cuts in all government departments other than those where core spending has been ring fenced (including health and international development), though what these mean in practice will not be spelled out until the government's Spending Review in the autumn.

Mr Osborne also made it clear in interviews after the budget that he has not ruled out further welfare 'efficiency' cuts - on top of those already imposed in relation to housing benefit, disability living allowance and others.

The most controversial single measure in the budget is the raising of VAT from 17.5 per cent to 20 per cent. This will claw in £13 billion in the lifetime of the parliament, has a clearly regressive effect, hits the poorest disproportionately and was described as a doom-laden "tax bombshell" before the election by the Liberal Democrats - who will now be required to back it.

An overview analysis suggests that the Chancellor has taken from VAT what he has chosen not to raise from capital gains, where the change (which would be paid for by the wealthier) is less dramatic than anticipated, netting just £1 billion.

A spokesperson for the Citizen's Advice Bureau in the North-East told the BBC that many measures in the Chancellor's statement would hit vulnerable and low income families: particularly the rise in VAT, swingeing cuts in benefits, a reduction in support for job seekers, lower-level proportional provision for pensioners (in spite of the pension link to earnings) and - in the long-run - the three year freeze on child benefit, which is only partially offset for poorer households by the increase in child tax credit.

She added that the true impact of the budget on those who draw on CAB services will only be fully understood over the next few years, since the 'cancelling out' impact of different measures and the uncertainty about how the reduction in child benefit in relation to inflation and rising retail prices are not immediately calculable.

How cuts will actually fall from department to department will not be clarified until October 2010, the Chief Secretary to the Treasury, Danny Alexander conceded. This makes them difficult to assess in detail.

Economics correspondent Stephanie Flanders has written in her BBC blog, following the statement from the Chancellor, that, "uprating benefits to the CPI measure of inflation rather than RPI is a big deal - at a time when the RPI measure has gone up by 5.1 per cent in the past year - while the CPI has risen by 3.4 oer cent.

She continued: "Quite apart from the many other benefit changes Mr Osborne has announced, this change will feel like a significant cut in living standards for households that are dependent on benefits. Research has tended to show that the cost of the basket of goods bought by poorer households often rises faster than the basket of goods included in the CPI."

Responding for the opposition, the acting Labour leader, Harriet Harman, hit out at the Coalition government's economic choices, repeating again and again in relation to different groups in society that it was "unfair". She was particularly hard on Liberal Democrats, and alleged that business secretary Vince Cable had now moved from "national treasure" to "treasury poodle".

The Scottish National Party said that it was a matter of shame that the large UK parties would not contemplate cutting the £10 billion Trident nuclear submarine replacement programme.

They added that an irresponsible Labour Government had been replaced by an irresponsible Conservative-Liberal Democrat one which was pushing Britain towards a double-dip recession.

Palid Cymru declared that "the Tories are still the bankers' friends, with no tax on bonuses, and cuts on the poorest."

Dave Prentis, of the trade union UNISON, predicted that hundreds of thousands of jobs were now at risk as the result of the budget. He rejected the plea by the Chief Secretary to the Treasury, Danny Alexander, for a mitigating 'combined effect', pointing out that the private sector would lose out from massive cuts in the public sector, which was being expected to bear 80 per cent of the pain of austerity.

Unions are also reacting angrily to George Osborne’s announcement that public sector workers will face a two-year pay freeze. George Nowak of the TUC responded: "To expect 4.3 million hard-working public servants to take a pay freeze at a time when Britain’s directors have just pocketed an inflation-busting increase of 7 per cent , on top of a 22.5 per cent hike in bonus payments, beggars belief."

"Let’s be clear," he added. "When you factor in inflation, this isn’t a pay freeze, it's a pay cut."

The government is calculating that its stringent measures will not result in further recession, that the public and private sectors effectively operate separately, and that if recession does result, the Bank of England will be able to respond adequately. Many economists doubt this, and point out that the forecasts from the new Office of Budget Responsibility (OBR) raise serious questions about the risks involved.

Much depends on whether private businesses choose to invest significantly, which the Chancellor hopes it will. But the immediate reaction on the stock markets was a fall in the value of sterling.

There were some measures which brought a more positive response from those working for 'just economics'. Advocates of a tax on financial transactions will look at the bank levy proposed in the budget to see how the detail stacks up. There were also green incentives, though these are minor compared to the scale of re-orientation towards a low-carbon society recommended by 'Green New Deal' economists.

The Green Party in England and Wales, which published its own detailed budget programme this week, says that cuts such as those enacted by the Conservatives and the Liberal Democrats “are not an economic inevitability but an ideological choice”.


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