Blog Menu

The budget, policy and party power

Budget Day 2015

Like many people, I puzzled over the budget on Wednesday. Many were puzzled by the complexity of working out what the impact of some significant changes in both tax and welfare would be. Others were puzzled—baffled, or just plain wrong-footed—by the mix of proposals. As Nick Robinson said on the BBC that evening, there were things that would have clearly pleased Margaret Thatcher, and things that clearly would not have. Chief amongst these was the remarkable pledge to raise the minimum wage, now called the ‘living wage’, to £9 per hour by 2020. Thatcher would have seen this as an unacceptable and unwelcome interference in the market, and commentators have suggested that it will lead to real problems for business, and possible job losses—and the introduction of the minimum wage by Labour was something the Tories bitterly opposed for just these reasons.


But there is something else remarkable about this measure, along with the commitment to clamp down on tax evasion and avoidance and the loss of tax privileges for ‘non-doms’: these are lifted straight from Labour’s manifesto, and in some cases, exceed what Labour promised to do. The last thing we expected of this Conservative government was to out-Labour old Labour. As Jonathan Freedland put it rather wittily:

Like a grasping relative rummaging through the cupboard of a dying family member who lies helpless on the bed, Osborne set about stealing any item of Labour clothing that took his fancy – picking out all those with mainstream appeal.

It seems to me that, if the Conservatives are wanting to move more to the centre ground, this can only be a good thing. In some ways, this appears to be doing what Tony Blair did in the other direction in 1997. This is surely good for the electorate, as it blunts the edges of our crude first-past-the-post, all-or-nothing electoral system. In the absence of any hope of electoral reform, it is somewhat comforting that, even if the ballot box did not listen to the range of views of the people, someone in the Government has. After all, the promised cuts to welfare reform were widely unpopular; six out of 10 did not like what was proposed (the election result notwithstanding) and the same was even true of four out of 10 Tory voters.

It is not the first time this has happened. The modified austerity programme implemented by the Coalition Government took them not to the position they themselves had planned, but to almost exactly the place that Labour had promised before the previous election.


_84152797_de25-1It is difficult to know what internal dynamics, in Osborne or the cabinet, led to this poaching of policy. But it was clear that Work and Pensions Secretary Iain Duncan Smith was delighted. His double fist punch as the living wage was announced went viral. Perhaps it was his own Christian convictions that had made him push for this, and compensated for criticism he has received from Christian leaders on other issues.

How would Labour respond? During the budget, they all looked like they were sulking. Not only had they lost the election; now they had even lost their manifesto. But this was the wrong reaction. Surely Harriet Harmon should have stood there, and on these three issues, proclaimed how delighted she was that the Conservatives had seen fit to adopt Labour policy. They might have lost the vote, but on these three issues at least, they had clearly won the argument. Unfortunately, to say something like this you would need to think that policies and principles were more important than party and power, and there is not often evidence of that in Parliament. For a good example of the desire for power triumphing over personal principle, have a look at Nicky Morgan’s move from opposition of same-sex marriage to campaigning endorsement in return for a cabinet post.


That would all have been interesting enough, until the analysis of the impact of the budget started in earnest. Nick Palmer, former MP for my constituency of Broxtowe, offered his own assessment:

The current changes do three important things:

  • Tax credits are severely squeezed, so that your income if you get them may well go down substantially: three million low-income families will lose an average of £1000/year.
  • A “Living Wage” of £9/hour is introduced, pushing employers to pay the poorest workers more, to make up for the drop in tax credits. Effectively this transfers responsibility from the State to the employers.
  • There is a drastic and little-noticed cut in Employment Support Allowance for people who are unwell – if it’s thought that you’re not yet well enough to work but can take measures to prepare for it, you currently get £29/week to encourage you. This is being abolished.

After looking at the numbers, he offered a sobering assessment:

The economic situation remains difficult, so it’s clear to everyone that either tax increases or spending reductions are needed. But it’s striking that a huge proportion of the impact is being focused on low-income people, while high-income earners actually do rather well out of the Budget. That, to be political for a moment, is what Conservative Governments do. It’s in many people’s short-term interest, but do we really want a more divided country?

This was confirmed by the politically neutral Institute for Fiscal Studies.

Thirteen million UK families will lose £260 a year on average because of the Budget’s tax and benefits changes, says the Institute for Fiscal Studies (IFS). Tax credit changes could hit three million families, which are likely to lose an average of £1,000, it said.  Even taking into account higher wages, people receiving tax credits would be “significantly worse off”, said Paul Johnson, director of the IFS.

This does not just look incredibly unfair; it also fails to make much economic sense either. I can see the economic logic of transferring the burden of responsibility away from the welfare system and the state to employers—but there is no economic sense in doing this in a way which actually penalises people in work, or on the boundaries of work.

“It will reduce the incentive for the first earner in a family to enter work,” [Johnson] said. The IFS analysis suggests that those in work – but receiving low salaries – will be the worst-affected. Those in the second poorest category are likely to lose more than £1,200 a year. By contrast, the richest 10% stand to lose less than £400 each. And those in the second wealthiest category will be better off, by more than £100.

Just a glance at the the IFS graphic on the likely effect on different economic groups makes the impact of these changes clear.

_84181797_tax_and_benefit_reforms_624gr

Is there anyone out there who voted for this Government who can look at this and not shudder? Is there any possible economic or moral justification for this kind of net change in a country with already accelerating inequality between the rich and the poor?


Much of my work is done on a freelance basis. If you have valued this post, would you consider donating £1.20 a month to support the production of this blog?

 

, , , , , ,

10 Responses to The budget, policy and party power

  1. Peter Ould July 10, 2015 at 9:15 am #

    Shuddering.

  2. ren July 10, 2015 at 10:34 am #

    You wonder why the Labour Party weren’t happy when the Budget was announced when it seemed to conclude that they’d won the argument.

    I suspect that they are aware that you cannot pick and choose policies borne from another political standpoint, when your overall ideology hasn’t changed. Thus, we have a policy that seems to ‘appease’ Labour yet in reality is hitting the poorest hardest. That, I suspect is why they weren’t sulking, but were angry.

    One of my friends remarked on Frank Field’s face – he happens to be the chair of the work and pensions select committee and has publicly asked IDS why one of his terminally ill constituents was asked when they were going to die. Also, John Pring of Disability News Service has been publishing stories which make for sobering reading.

    And I don’t think the ESA (and ILF) changes have been little-noticed, perhaps only in the press. Between 75,000 and 250,000 people were protesting in London on 20 June. I was there.

    I’m a Christian who happens to work for a health charity. The stories we are hearing are quite concerning, particularly for carers. And now the charity sector is being attacked in the press…

    I suppose the question is – how as Christians can (and should) we respond? With prayers, compassion and heartfelt concerns.

    • Ian Paul July 10, 2015 at 10:47 am #

      Thanks Ren. Thanks for all this information.

      It seems to me, though, that there are three things going on. The first is an ideological commitment to shift responsibility from the state to employment for those in work. That can be debated in terms of both economics and ideology.

      The second is the reconfiguration of Tory identity moving to the centre and taking on some Labour policies. In principle, this seems to me to be only a good thing.

      But the final thing is the detail of the way this is implemented. It is the degree of cuts in the Working Tax Credit that has caused the real problem, and not the trade with the Living Wage as such.

      I would hope that opposition politicians might be able to tease these things out. A higher Living Wage is a strategic change of significance.

      • Ali July 10, 2015 at 2:44 pm #

        A higher living wage is a good thing, but in this context could it be seen as clever PR, more than paid for by the cuts?

        Throughout the election campaign we heard lots of rhetoric across the parties about ‘hard working families’, ‘the working poor’ etc. From your really helpful analysis it looks like those in situations like this are worse off and not better. To me it also raises wider questions about how we as a society value individuals- is it purely in terms of their productivity? How do we empower those who are poor and out of work – the value placed on ‘hard working families’ implicitly excludes those not in work and places them further outside the narrative and therefore less likely to see a way forward.

  3. Don Benson July 10, 2015 at 12:59 pm #

    I think that, besides party politics and economic theory, there is an unspoken issue which is increasingly impacting on national budgets: globalisation. And the effect of globalisation is undoubtedly to widen the gap between the highest and lowest earners. I wonder if part of the reason for this is that big global players operate on capitalist assumptions which are red in tooth and claw, they are not stakeholders in the wellbeing of the societies in each of the nations where they operate and (most significantly) there is no international agreement by governments on how to control them.

    Given that kind of attitude and exercise of power, whichever party finds itself in government its economic levers are far more restricted than once was the case; hence perhaps the move to the centre when it comes to budgets? On top of that, for us as EU members, we are currently subject to such things as free movement of labour and high non EU immigration (which clearly impacts low wage earners most). At least we’re not also in the straightjacket of the Eurozone!

  4. James Byron July 10, 2015 at 9:06 pm #

    “In the absence of any hope of electoral reform …”

    There’s plenty hope for electoral reform: the smaller parties have, at last, banded together on the issue, the Labour Party is split on it, and if a clear consensus emerges, there’s various ways to pressure the Conservative Party, from hitting their funding, to delaying everything in the House of Lords, to dragging the EU in. (It already forced Britain to abolish FPTP in European elections.)

    If the government dug its heels in, there’s the nuclear option of persuading the British courts to void any election until a referendum is held with a proportional option on the table, either by ditching parliamentary sovereignty (which, paradoxically, exists at the courts’ discretion), or by reinterpreting it to require a parliament to be elected fairly.

  5. Lf Buckland July 11, 2015 at 8:34 am #

    You are right, we should all shudder at the immediate effects on poor families. But we shouldn’t overlook the long-term aims – the £9/hour Living Wage is one of two life-changing goals – linked to the aim of getting more people off benefits and into work. You mention the £29/week benefit paid at present to those not yet well enough to return to work…’replacing’ that with a much higher Living Wage, will do more *in the long run* for this country than any other proposal by any party.
    In human terms, this twin goal shows Christian hope and enabling; in the country’s terms it is essential – not only in terms of the economy, but most importantly, changing perceptions of what matters and how we can achieve a better world for the next generation.

  6. David July 12, 2015 at 5:41 pm #

    As one of those affected by the changes, I find it all rather bizarre. Why, of all people, are those in work being targeted in this way, especially when we earn so little in exchange for so much labour? I appreciate that a living wage is a good thing, but it’s all jam tomorrow.

  7. David July 17, 2015 at 9:52 am #

    Good post Ian, I too think that looking at things so far the Budget does tend to favour the richer half of the population compared to the poorer. The IFS graph you cite in your post is particularly insightful I think, and the 2010-2019 one shows a similar picture in that proportionally (in terms of % of income) the poorer have been hit harder.

    I’ve also written a post for Conservative Home (I’m politically neutral btw!) focussing on the tax credit changes announced and how in particular they’ll lower work incentives for many. Given that work is ordained in the Bible as good and necessary (Genesis 2:15) I do think this issue is worth reflecting on. The piece can be read here: http://www.conservativehome.com/platform/2015/07/david-binder-a-week-on-from-the-budget-we-are-still-a-long-way-from-a-britain-where-work-always-pays.html

    • Ian Paul July 17, 2015 at 5:09 pm #

      Thanks for the link to your article David. Very interesting.

Leave a Reply