“Cutting welfare spending is not the way to cut the budget deficit”
Saturday’s Daily Telegraph featured a piece Chancellor George Osborne and Minister of State for Employment Priti Patel, defending the government’s cuts to tax credits – “There’s no alternative to our tax credit cuts”
Writing for The Telegraph – ever the beacon for affluent selfishness – is an odd choice, because they’re probably preaching to the converted; nevertheless, let’s have a look at a few gems from yesterday’s attempt at justifying this inequality-increasing decision.
After some regurgitation of the 4% of global GDP / 7% of global welfare spending statistics (irrelevant) we have the statement that:
“In the last parliament, we made important progress to bring the unsustainable bill for working-age welfare under control, introducing a benefits cap and beginning to rein in the vast tax credits bill we inherited from Gordon Brown.”
Here we go again – the notion that the previous Labour government overspent and left us with an “unsustainable” welfare bill. If this were the case, and it were welfare spending that caused a high budget deficit, then we would have seen higher current account deficits under Labour than we did under the Coalition government, and will continue to see under the Conservative government. However, we can see from this chart that only in 2009-10 was the budget deficit higher than in any year since the Conservatives have come to power.
I am sure I am repeating both myself and others when I say this, but it cannot be repeated often enough.
Cutting welfare spending is not the way to cut the budget deficit. When a government reduces spending power – particularly of low-income groups – it reduces its power to raise tax receipts through VAT and duties. When low-income groups have more spending power, they spend more. This means the government collects more money in VAT. This also means that there is greater demand for goods and services, which increases demand for workers, which generates more hours of work in the economy. When there are more hours of work available, people’s spending power is increased, and round and round we go. George Osborne – take note – this is called the multiplier effect. John Maynard Keynes elucidated this and it is this theory that ended The Great Depression. Frankly, it frightens me that this government seems to be either unaware of or unwilling to take heed of this.
Moving on from the nonsense, Mickey Mouse economics that Osborne practices, we now have a few cherry-picked examples of how the tax credit cuts will be a benefit to hard-working families:
“The National Living Wage will mean a £900-a-year pay rise for someone working full-time on the minimum wage from next April, and by 2020, when it will be worth more than £9 an hour, at least £4,800 a year extra in cash terms.”
This is true, but this is assuming that this person working full-time on the minimum wage is not eligible for, or claiming, tax credits. If, however, they are on tax credits they are likely to lose out. Somebody with two children working full-time on £7.10 an hour will lose over £1,750 a year. This doesn’t sound like a better deal for hard-working families from my perspective.
Another thing to mention is that the National Living Wage is not enough to live on. The Living Wage Foundation calculates that at present the living wage needs to be £7.85 an hour, but the so-called Living Wage that the government will introduce in April 2016 will be set at £7.20 per hour. The difference in take-home pay on these two wages is over £850 per year – this is just over 6%.
A Living Wage that pays 6% less than what is required to live on is not a Living Wage.
The Conservative Party, some five and a half years after Labour were removed from power, continue to paint the picture of themselves as firemen who have come in to save us all from some profligate, out-of-control country full of self-entitled scroungers. The reality is that the only thing they will save us from is a more equitable, fairer and cohesive society by continuing to describe Labour as “profligate” when it was actually Labour who – while not perfect – at least weren’t making the most vulnerable workers in the country poorer.
Inequality is like a cancer, and the government’s obsession towards cutting the size of the state in the name of free-market economics will only further it. But they will continue on this reckless path because they think it is what works. George Osborne – for goodness’ sake – go back to university, stay away from the Bullingdon Club and study a degree in economics. Priti Patel – just try to base your outlook on something other than whichever Dickens novel it is that you’ve most recently read.
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