Cuts Watch: The consequences of Mr Osborne

George Osborne used his emergency Budget to cut public spending by an additional £32 billion by 2014-15. The growing list of cuts underway makes for painful reading.

Our guest writer is Richard Exell, Senior Policy Adviser, TUC

In his emergency Budget, George Osborne made two important choices: to bring down the deficit earlier and faster than Labour would have, and to use a higher proportion of cuts and a lower proportion of tax increases. In addition, he introduced some important spending increases (such as £3.7 billion to partly reverse the increase in employer NI Contributions and £3.9 billion to raise income tax personal allowances) that have to be paid for by bigger cuts than would otherwise be necessary.

Alistair Darling planned to cut spending by 2014-15 by £52 billion and to increase taxes by £21 billion; George Osborne’s budget added £32 billion to the cuts and £8 billion to the tax increases (net of cuts in NI, income, and corporation tax). As Tim Horton and Howard Reed have pointed out, the cuts have a disproportionate impact on low income families, even when offset by any gains from the increase in personal allowances.

The scale of the cuts made it obvious that anyone who wanted to make the case against them would have to keep up with a growing list of cuts announcements and that we would need a resource that kept a record of them. Try looking for the 1980s cuts on the Internet – there’s bits and pieces, but there isn’t a comprehensive list. That’s why the Trades Union Congress established Cuts Watch on our Touchstone blog – noting down the news of cuts as we learn about them.

There are three groups of cuts. First, there are the “savings” announced by the Treasury on 24 May, which cut this year’s spending by £6.2 billion. During the election the Conservatives promised that there would be “efficiency savings” this year rather than cuts. The measures on the list include real cuts, such as the abolition of the Future Jobs Fund, the Low Carbon Buildings Programme and the Child Trust Fund and the decision to abandon the loan for Forgemasters. On the same day, the new government began a review of spending commitments made by their predecessors, leading eventually to the cancellation of Building Schools for the Future. Since then there has been a steady trickle of these cuts, emerging from all Departments – most recently the cancellation of Domestic Violence Protection Orders that would have protected the families of violent men while they are going through the legal process necessary to get a longer-term Protection Order. Even people who see themselves as progressive supporters of the Coalition will have at least one item on that list that they believe should never have been touched.

The May “savings” also included £1.2 billion in funding for local authorities and ring fences being removed from another £1.7 billion. This has led to so many cuts around the country that we’ve only been able to report a fraction. One clear theme that is emerging is that the removal of ring-fencing is leaving youth services exposed and in the last week we have reported on cuts to Connexions and youth projects in Birmingham, Hampshire, Norfolk, Sheffield, Coventry, Northumberland and Slough. It seems likely that, by the end of the year, we will no longer have a careers service that covers the whole country

The second group of savings is made up of those cuts that were announced in the Budget. There was the two-year freeze in public sector pay and £11 billion in cuts to benefits and tax credits. Payments to families with babies were hit by cuts in Maternity Grants and Baby Tax Credits and the abolition of the Health in Pregnancy Grant and all children will lose out because of the 3-year freeze of Child Benefit. Cuts in tax credits worth £3.2 billion are dwarfed by what looks like a technical change: uprating benefits and public sector pensions in line with the Consumer Price Index instead of the Retail Price Index is expected to save the government £5.8 bn a year. The Budget announced that everyone who gets Disability Living Allowance is going to be re-assessed, with the expectation that the entitlement of one claimant in every five will be removed. Housing Benefit reforms will put a cap on the amount that can be claimed – regardless of what your rent may actually be – and will subject unemployed people to an arbitrary 10 per cent reduction in their HB once they have been unemployed for over a year.

Finally, there are the rumours of the cuts that are going to be announced in the Comprehensive Spending Review on 20 October. The Coalition’s supporters are working themselves into a lather about the possibility that Trident or the RAF’s Tornados may be scrapped or the army may lose three of its eight brigades – hence Simon Heffer’s proposal that the aid budget should be scrapped instead. Heffer is in a perpetual harrumph about the Cameron government, but the pre-emptive leaking of October cuts is bound to focus attention on the decision to exempt overseas aid from the cuts – the Tory right could mobilise around this issue. Other possibilities that may just be kite-flying but could be genuine leaks include means-testing Child Benefit and scrapping bus passes.

The totality of these cuts – which go far beyond anything envisaged by Alistair Darling – is to achieve a new British settlement with a smaller state and higher levels of inequality. The success of the Coalition will depend on whether they get away with claiming these were an inevitable consequence of the deficit or whether their is a backlash against the inevitable unfairness of this ideological approach.

19 Responses to “Cuts Watch: The consequences of Mr Osborne”

  1. Hitchin England

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  2. House Of Twits

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  3. Luke Murphy

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  4. The consequences of Mr Osborne | ToUChstone blog: A public policy blog from the TUC

    […] at Left Foot Forward I’ve tried to summarise what we have learnt by producing Cuts Watch, listing some of the […]

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  6. Other TaxPayers Alli

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  9. Chloe Forbes

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  10. Anon E Mouse

    Richard Excell – I think this is a factually accurate piece and I agree with a lot of it.

    Where I disagree with you is over your final point regarding inequality. Under the Labour government inequality increased – without exception it always does under Labour governments.

    The point is that with a smaller state costing less in taxes it means Lib Dem ideas like the £10k tax break for individuals means inequality will decrease, at least for those in work.

    If the government forces people to work (presuming the jobs are available) then the inequality will decrease – your presumption is that the high tax hopeless way Labour ran the state will continue. These cuts show it won’t and your conclusion is therefore wrong.

  11. Martin Johnston

    RT @leftfootfwd: Cuts Watch: The terrifying consequences of Mr Osborne http://bit.ly/9LNq9X #fightthecuts

  12. Ash

    Anon –

    “inequality will decrease, at least for those in work”

    Well – the most you can claim is that inequality will decrease for those in work *and earning enough to pay income tax*. The gap between part-time low-wage workers and the rest of the income spectrum will, of course, widen every time the tax threshold is raised; like other non-taxpayers (the unemployed, disabled people, pensioners) they’ll fall further and further behind.

    In any case, Labour took similar steps to make lower earners better off – e.g. tax credits – and, as you say, inequality *increased*. Why? Because the incomes of the better-off continued to pull ahead of those of the worse-off. So even if we ignore non-taxpayers (and we shouldn’t), there’s no reason to think tax threshold rises benefitting low-to-average earners will actually reduce inequality.

    If inequality *does* decrease any time soon, it will be because of measures targeted higher up the income scale – most likely Labour’s 50p tax rate. But with many of the coalition’s policies pulling in the other direction (VAT up, tax threshold up, benefits down etc), I’m not holding my breath.

  13. Mike

    The first people tolosetheir jobs asa result of cuts in my street were private sector, ad peoples, design and computers

    only a percentage of contract with publicservices, butthe withdrawl of regular “core” businesswas enough for their companies to sack them

    Camerons main issue on public sector cuts web sites was to get volunteers to do gardening for councils etc

    uuuummmm 90% of is done by the private sector as part of a contract

    bye bye more private sector jobs

  14. Gordon Herd

    RT @leftfootfwd: Cuts Watch: The terrifying consequences of Mr Osborne http://bit.ly/9LNq9X

  15. John Sullivan

    Look at little Gideon catching on he’s the big man! Mean and moody.

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    […] the main, to April-June 2010: it will be several more months before we start to see the impact of sharp public spending cuts on the jobs […]

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    […] about a ‘debt crisis’ only raises expectations for calamitous policies like the rapid cuts to public services or the ideological rise in VAT which was only necessary to pay for tax cuts to […]

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