Deputy Prime Minister Nick Clegg has disputed the Institute of Fiscal Studies’ analysis, which found that government policies will hurt those on low incomes most (1).
He claims tax cuts will lead to economic growth which will create jobs, increasing the incomes of the poorest as they are employed. This is wishful thinking. Even the most enthusiastic advocate of this theory would have to admit that in the past such policies have never ended mass unemployment, which rose under both Reagan and Thatcher.
Even the government influenced Office for Budget Responsibility estimated over 600,000 public sector job losses by 2015, with 700,000 more made unemployed due to knock on unemployment in the private sector due to reduced demand (2) – (3).
Clegg is claiming that unemployment will fall under a government which is going to be sacking hundreds of thousands of public sector employees, both directly and by cutting funding to local councils.
This is combined with public sector pay freezes (effective pay cuts taking inflation into account) and benefit cuts, including changes in the way inflation is calculated for increases in benefits and pensions, so both will effectively rise more slowly than inflation and be cut in practice (4).
Only full employment and everyone working for life could avoid benefit cuts and unfair taxes hurting the poorest (including the poorest pensioners). Neither Clegg nor his coalition partners have guaranteed that.
There will be a lot more special pleading from Cameron, Osborne and Clegg on how the debt left to them by Labour makes these measures unavoidable if the debt's to be tackled.
This lacks all credibility while they continue to provide unlimited funding to grossly over-priced ‘Private Finance Initiatives’ and ‘Public Private Partnerships’, keep pretending Britain can afford it's own nuclear deterrent and keep subsidising privatised rail companies (as well as BAE arms exports through arms credit export guarantees) ,just like the previous government.
It would also be interesting to know how they can afford big cuts in corporation tax for all companies, including the biggest multinationals, if the public finances are in such a bad state that they're cutting benefits for the poorest (5).
How is it that the poorest are once again being made to pay most in cuts, while taxes for the biggest companies are being cut?
If the job cuts in the public sector do lead to knock on job losses in the private sector and another recession, the result will not have been to reduce the debt or increase tax revenues, but to increase it massively as tax revenues collapse in another recession. This is a scenario seen as a serious risk by most economists – and all the more likely because Angela Merkel’s government in Germany and Nicholas Sarkozy’s in France have adopted similar policies – and the rest of the EU is one of the largest markets for British exports.
(1) = BBC News 25 Aug 2010 ‘Nick Clegg slams 'partial' IFS report on Budget’,http://www.bbc.co.uk/news/business-11086137
(2) = BBC News 30 Jun 2010 ‘Forecast suggests 600,000 public sector jobs to go’,http://www.bbc.co.uk/news/10457352
(3) = guardian.co.uk 29 Jun 2010 ‘Budget will cost 1.3m jobs – Treasury’,http://www.guardian.co.uk/uk/2010/jun/29/budget-job-losses-unemployment-austerity
(4) = Observer 04 Jul 2010 ‘Public sector pensions lose £20,000 as calculations switched to lower index’, http://www.guardian.co.uk/society/2010/jul/04/public-sector-pensions
(5) = Guardian 22 Jun 2010 ‘Budget 2010: corporation tax slashed to 24p’,http://www.guardian.co.uk/uk/2010/jun/22/budget-2010-corporation-tax-slashed-to-24p