The government is seeking to reduce public expenditure to 36.5 per cent of GDP by 2020, a level last achieved in the depression era of the 1930s
George Osborne’s Autumn Statement confirms that the UK is on a path of never-ending austerity.
Under pressure from the Labour Party, the government’s own backbenchers, the House of Lords and civil society, the promised cuts in tax credits have been dropped.
Only about four weeks ago, the government said that it would press-on regardless of the outcry. However, not everyone will benefit from this u-turn, because 140,000 people on Universal Credits will still suffer loss in the support received form the state.
The government claims to have a £27 billion tax windfall, but is still committed to a £12 billion reduction in welfare expenditure as it seeks to reduce public expenditure to 36.5 per cent of GDP by 2020, a level last achieved in the depression era of the 1930s.
The Conservative government hit this kind of target in 1997 and was accompanied by deprivation in inner cities, high unemployment, riots and ultimately complaints that without investment in healthcare, education and transport, the private sector could not thrive.
Historically, the UK economy has been built by a combination of public and private investment, but the government increasingly loathes the ‘public’ in this equation.
There are to be draconian £20 billion cuts in the budgets of major government departments, which will have a knock-on effect on jobs and public services. The private sector will suffer too because it supplies goods and services to government departments.
The government is looking for £22 billion of what is calls ‘efficiency savings’ in the National Health Service (NHS) which is already hard-pushed for cash. In addition, the government is looking for a 25 per cent cut in the Department of Health’s Whitehall budget.
The government has a poor record on chasing tax avoiders, but there are to be 18 per cent further cuts, which the government terms efficiency savings, to Her Majesty’s Revenue and Customs (HMRC).
Other cuts include 26 per cent for the Cabinet Office; 22 per cent for the Department for Energy and Climate Change, 15 per cent for the Department for the Environment, Food and Rural Affairs; 14 per cent for the Department of Works and Pensions, 37 per cent for the Department of Transport and 17 per cent for the Department of Business, Innovation and Skills.
The government is to close a number of courts even though some 30,000 cases relating to taxation are waiting to be heard. Altogether some 80,000 civil servant jobs are expected to disappear which will have a knock-on effect as people will have less to spend.
The country needs skilled labour and jobs, and the state can play in key part in rebuilding the economy. The government has imposed a new apprenticeship levy which will force employers to pay about £3 billion a year in additional tax.
Local councils have been squeezed as the government has dumped child care, social care and other matters on them. Local councils are to be allowed add 2 per cent to council tax to fund social care. This is expected to raise £6.2 billion, but are ordinary people in a position to provide this?
The workers’ share of GDP now stands at 49.3 per cent, the lowest ever recorded. The government could have reversed the tax cuts for the rich or the cancelled the planned cuts in corporate tax rates, but it has not done so.
What about funding libraries, road repairs, flood defences, services for the elderly, etc? Here the government says that councils can sell £250 billion of assets they hold.
The difficulty is that assets can only generate one-off cash and can’t solve the deeper funding problems. Selling household silver to pay for operating costs is not a good policy. Most of the assets are buildings and parks. The sale of buildings would mean that council would need to lease offices and pay rents. The sale of parks would decimate the local environment.
The stamp duty for buy-to-let landlords will be increased. This may generate £30 million in 2015/16 and £625 million in 2016/17 and provide some of the resources for building 400,000 more houses. The government’s previous housing targets have not been met.
Some £2 billion is to be handed over the private sector builders. Most of the houses are likely to be in the price range of £200,000 – £450,000, and beyond the reach of those on average earning.
At the same time, the government is capping housing benefit, which will result in exodus of the less well-off from inner cities and good housing stock.
The Conservative government is pursuing its ideological project of shrinking the state even though ultimately only the state can provide social infrastructure, bailout of banks, security and enable citizens to have a collective identity.
The government may achieve its deficit reduction and appease the City of London, but at what social cost? A new society is being crafted where timely healthcare will be available to those able to pay, and decent housing will be beyond the reach of many.
In the government’s policies, poverty, poor health, lack of economic opportunity, decent housing and reliance on welfare are portrayed as failures of the individual rather than as properties of a social system. Such policies are divisive and cannot produce a harmonious society.
Prem Sikka is Professor of accounting at the University of Essex
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