Why austerity doesn’t work

The government might be facing ‘difficult decisions’, but they’re not nearly as intimidating as those that many households are experiencing daily – like being forced to choose between heating and eating.

Right-Wing Watch

As we await next week’s fiscal statement, when £60bn in tax rises and spending cuts are expected to be announced to fill a so-called ‘black-hole’ in the public finances that has been labelled as being between £35bn and £60bn, there’s one ‘helluva’ row brewing within Tory ranks, as discord over government spending deepens.

On one side, there’s the belief that Hunt should reform the tax system, including abolishing inheritance tax reliefs, introducing higher council tax bands, and raising capital gains tax rates. The party has to move on from “half baked Thatcherism” and the failed experiment of “Trussonomics”, said Tim Pitt, former Conservative special advisor and author of a paper that recommended tax rises, including council tax, inheritance tax and capital gains.

On the other, there’s the Truss-supporting diehards, who may have been humiliated, but haven’t gone away, and are lobbying hard and fast for more spending cuts rather than tax rises.

At the helm at such thinking, is, you guessed it, the controversial Patrick Minford.  Described as Truss’s economic guru, Minford claims that Truss and Kwasi Kwarteng got their policies right, but it was their communication that was wrong, and that ‘we will all suffer” from the demise of the “pro-growth agenda.’” The Cardiff University economics professor says those who believed the fall in the value of the pound was a problem are “idiots.”

“The tragedy was that she and her chancellor Kwasi Kwarteng failed to produce the documentary evidence that would reassure the markets that their tax cuts would be covered by faster growth,” Minford wrote in the Telegraph.

“Politically, for the Conservatives, the outlook is grim. If Sunak and Hunt press ahead in the November 17 Autumn Statement with their triple whammy of tax rises, spending cuts and higher mortgage rates, the country is unlikely to forgive them,” he continued.

Liz Truss and Kwasi Kwarteng are now feuding over their failed policies, with the former chancellor saying he had warned Truss that she was going too fast with her ill-fated economic plans. Meanwhile, The Telegraph hasn’t held back this week, hawking resentment towards Hunt’s ‘attack on taxpayers’, and declaring that, without changing tack, he will risk a return to the ‘anti-growth, redistribution Britain of Gordon Brown.’

Iain Duncan Smith joined the anti-tax rise camp. Writing for The Sun, the former Tory leader argues against raising taxes, saying it is “simply un-Conservative at this point in the economic cycle to hike levies on struggling Brits even more.”

That’s a bit rich isn’t it, a Conservative criticising policies that will create greater upheaval for struggling households, when, for twelve years, cuts in public spending have impacted on those on the lowest incomes and failed to deliver economic growth.

When making the case for lower taxes, these commentators also fail to point to, or perhaps even realise, that in terms of European standards, the UK is not overtaxed. As this graph in the Financial Times shows, the UK still pays relatively low levels of tax. We are not even at the OECD average.

Rishi Sunak was supposed to restore unity in the party, regain trust and control, but deep contention about how to put the public finances in order confirms how divided and chaotic Tories remain.

The ‘A’ word and ‘difficult decisions’

Reluctant to label it ‘austerity’ – even impervious Tories recognise that admitting to the ‘A’ word during the current climate would be a tad foolish and could risk voters making a beeline elsewhere – those behind the country’s economic steering wheel are dressing it up as anything but austerity. 

‘Difficult decisions’ seems to be the buzzword among ministers attempting to frame austerity as an unavoidable war effort.

Decisions of ‘eye-watering difficulty’ are needed said the new chancellor, echoing the PM, who warned of ‘difficult decisions to come’, to ‘fix’ the mistakes made by Liz Truss.

Cabinet Office Minister Oliver Dowden previously acknowledged that there would be ‘difficult decisions’ on both spending and tax.

“We are going to have to face difficult decisions both on the tax side – we haven’t got to the end of the difficult decisions there – and difficult decisions on the spending side.

“We need to bear down on spending first and eliminate waste, excessive spending and only go to tax rises if it’s the last resort but given the difficulty of the public finances, there is likely to be a mix of the two,” he told Sky News.

The government may be facing ‘difficult decisions,’ but they’re not nearly as intimidating as those that many households are experiencing daily – like being forced to choose between heating and eating – literally

Meanwhile, Hunt’s austerity plans are creating a strong sense of déjà vu.

David Cameron’s government initiated a harsh programme of austerity. Sold as a necessary response to the financial crash, in 2010, the then chancellor George Osborne, opted for an 80:20 split between spending cuts and tax increases. Hunt, it appears, will plump for a more balanced 50:50 split.

During the decade of austerity, unemployment may have fallen but new jobs that emerged were notoriously low paid. As a consequence, debt reached mountainous levels in the austerity years.

Everyday people bore the brunt of Osborne’s cost-cutting measures. Councils lost a third of the spending power, housing benefit was reduced, family tax credits revised, child benefit frozen, while spending on essential public services, including schools, courts, police, hospitals, and prisons was reduced. 

At the time, warnings about the policies were brushed aside as alarmism. But research shows that the social and economic consequences of Osborne’s austerity were dire.

More than 330,000 excess deaths in Britain have been attributed to spending cuts to public services and benefits introduced by a government pursuing a programme of austerity.

A study known as the Sir Michael Marmot Review found that in 2020, life expectancy had stalled for the first time in over 100 years, and the gap in health inequalities had widened – largely due to the impact of the government’s austerity policies.

The ruthless policies introduced by Osborne still resonate deeply today. For example, the challenges schools are facing follow years of spending cuts.

When David Cameron and George Osborne introduced a budget of austerity, schools were meant to be protected. However, the opposite happened, with figures from 2019 showing that education spending had been slashed by more than £7bn since 2011, with schoolchildren and adult learners “paying the price for austerity.”

This week, heart-breaking reports have circulated about schools in England being in the grip of funding crises that will force them to make ‘catastrophic’ cuts, including redundancies.

Benefits cuts

Targeting those he believed viewed welfare as a ‘lifestyle choice’, in 2010 Osborne announced he would slash the benefit budget for the unemployed by a further £4bn. The announcement may have drawn fury from some of Osborne’s Lib Dem coalition partners at the time, but benefits have continued to be hacked away at, leading to Britain’s welfare system being described this year as ‘unfit for purpose.’

In a policy introduced by Sunak when he was chancellor, on October 6, 2021, brutal cuts to welfare benefits saw low-income claimants lose the £20-a-week uplift to UC that was introduced as a means of helping struggling families get through the pandemic. The UC cut is compounding the cost-of-living crisis for many living on shoestring budgets.

The threat of yet more Tory-imposed austerity comes as recent evidence shows people across Britain are dying younger as a result of austerity, with the people in the poorest areas being hit the hardest. A study led by the Glasgow Centre for Population Health (GCPH) and the University of Glasgow, shows that over 300,000 ‘excess’ deaths in the UK are attributed to government austerity policies.

Anti-poverty campaigners are urging the government to increase benefits in line with inflation and bring rises to welfare payments forward rather than waiting until next April to protect the poorest families. They have warned those in power not to “abandon children when they need support the most”. Sunak has refused to commit to increasing benefits in line with inflation, though the measure is reportedly being considered by the government.

A breach of human rights

With energy bills reaching jaw-dropping levels, and many households are having to either go without heating or go without food, warnings have been made that a new wave of austerity will not only inflame fuel poverty but could breach human rights obligations.

Olivier de Schutter, rapporteur to the United Nations on extreme poverty, says he is “extremely troubled” by the prospect of public spending cuts.

Talking to the Guardian, de Schutter said: “This is the worst time to impose such cuts.”

“You do not impose austerity measures when the whole population is facing a cost of living crisis. What you do is you raise taxes on the rich, you raise taxes on corporations.”

Other ways of raising money

While Tories continue to try and convince us that financial austerity is an ‘unavoidable’ choice characterised by ‘tough but fair’ decisions, sensible, feasible and more socially-just alternatives to deliver economic recovery are being put forward.

The New Statesman writes that rather than relying on cuts to reduce the UK’s debts, Sunak should prioritise higher taxes on static assets. By taxing unearned income more heavily, and earned income more lightly, the government would promote enterprise and reward work, the progressive political magazine argues.

The Resolution Foundation maps out several ways of raising and saving funds, though admits, none are easy.

Reducing capital spending may raise £10bn but, trimming public investment would be an ‘anti-growth’ option, says the think-tank.

The ‘austerity’ option would raise £20bn but will mean daily spending cuts for departments except health and defence. This would be on top of real-terms reduction in departmental spending due to higher inflation.

Reneging on the promise to raise benefits and the state pension so they are in-line with inflation would save £9bn. However, this ‘income-cutting policy would mean a low-income family with two children would lose around £750 a year.

As well as a beefed-up windfall tax, another ‘tax-raising’ option could be extending the freeze on income tax thresholds, making pension tax relief less generous for those on higher incomes, and reinstating Sunak’s increase in NICs, says the think-tank.

Left Foot Forward columnist Prem Sikka also argues that there is no economic case for austerity. Instead, billions could be released by curbing and tackling tax avoidance, as each year HMRC fails to collect between £32bn – £34bn of taxes due to avoidance, evasion, and errors.

Prem Sikka, who is a Labour member of the House of Lords and an Emeritus Professor of Accounting at the University of Essex and the University of Sheffield, also notes how the poorest 10% of households pay 47.6 percent of their gross income in direct and indirect taxes, compared to 33.5% by the richest 10%. The government needs to recalibrate tax policies to boost the spending power of the poor and fund public services, he says.

A modest redesign on windfall tax on energy companies could raise £40bn. Such tax could also be levied on bank and supermarkets making excessive profits. Taxing capital gains at the same rates as earned income and levying national insurance on the receipts can raise around £25bn a year.

Currently, no national insurance is levied at the rate of 12 percent on annual taxable income of up to £50,270 and only 2 percent above that. As Prem Sikka says, by extending the 12% rate to all incomes, some £12bn-£15bn can be raised.

12 years of Tory rule and we’re back to where we started – peeling back the public’s coffers and selling it like these ‘difficult choices’ are something ‘none of us’ can avoid and that we’re all ‘in it together.’

Well, no Mr Sunak, and no Mr Hunt, we are not ‘all in it together.’ Firstly, you are both multi-millionaires who haven’t got an iota of an idea what it is like to live with the worry of not knowing how you are going to pay your bills.

Secondly, we are not the ones who got us into the need-to-make-difficult-decisions blackhole. Economic mismanagement, in-party warring, arrogance and overreach, and devastating austerity has got us nowhere.

You only have yourselves to blame, and it will be the poor who, as usual, pay the price.

Right-wing media watch – Tory press in a stew

The Conservative press seems to be getting seriously agitated about what might be in Hunt’s budget.

On November 8, the Telegraph broke the news that Sunak and Hunt are considering expanding the top rate of income tax.

Rishi Sunak could raise top rate of income tax, breaking Tories’ manifesto pledge,’ read the headline. The newspaper says it understands that raising the 45 percent top rate or lowering the £150,000 annual income threshold at which it kicks in are options now being discussed. The Treasury is also looking at increasing the National Insurance rate paid by employers by 1.25 percentage points, despite, as the Telegraph is quick to remind, a similar move being reversed by Liz Truss.

Just two weeks ago, the same newspaper had said it would be ‘politically impossible’ for Rishi Sunak to bring back the ‘controversial’ NI tax rise and that Sunak allies had insisted the PM will hold fire on the increase.

Now the rumour mill is buzzing with the possibility that ministers are having to “think the unthinkable” to fill a fiscal black hole of around £60 billion, the Tory newspaper seems a little vexed.

Many of the tax rises “were hoped” to have come from freezing thresholds in areas like inheritance tax, pensions lifetime allowance, income tax, National Insurance capital gains tax, it reports, adding that discussions have turned to larger individual tax rises. The same report talks about the ‘risks’ involved with slashing what the author refers to as a Tory ‘bugbear,’ namely it risks driving away some of the highest earners.

The article quotes Paul Johnson, director of the Institute for Fiscal Studies (IFS). openDemocracy, incidentally, did a great investigative report on the IFS in which it researched the institute’s so-called political bias.

“The IFS’s political ideology reveals itself most obviously in its approach to inequality. At several points on its website, we are warned that “reliance on taxing ‘the rich’ and big companies to pay more has its limits and would be far from risk-free. We find no equivalent warning about the risks associated with increased inequality or the growing concentration of corporate power. Repeatedly placing rich in inverted commas is in itself an indicator of political orientation.”

The IFS’s director didn’t exactly shout about the sense of raising taxes on the rich to combat inequality, noting the ‘various issues’ and ‘risks’ with this approach in the Telegraph.  

“One, is it a good way of raising a lot of extra money? No, because increasing the top rate brings a huge amount of uncertainty about future revenues and on a central estimate it would raise very little. Is raising it a good way of reducing inequality? It might be, so you might want to do it for that reason.

“Are there risks for raising it? Yes, there are. Quite a sizeable fraction of those people at the top are foreign born, meaning they could choose to live elsewhere if they wanted. People paid in dividends and non-traditional income streams could also change their arrangements in the future,” said Paul Johnson.

Lowering the threshold to would “drag even more people into the top tax band,” says the Telegraph, noting how, under the Tories, the number of people who pay the higher rate of income tax has tripled from 200,000 in 2010 to around 600,000 today.

Sharing less ‘subtle’ disproval towards the rumoured top tax hike, the Daily Mail didn’t hold back, writing that Hunt faces ‘backlash over shock budget plans to raise the top rate of tax to 50p despite warnings it would break 2019 Tory manifesto.’

The chancellor is considering ‘shock moves’ says the Mail and is facing ‘mounting opposition’ over plans to reinstate Labour’s 50p top tax rate. The clearly ‘uneasy’ report notes how economists have warned that the move would raise little cash, as top earners would find ways to avoid it or even move abroad.

Like the Telegraph, the Mail quotes the IFS’s Paul Johnson, saying that ‘tinkering’ with the top rate was unlikely to raise significant sums. The same piece also features the Independent Business Network’s John Longworth labelling the government as ‘socialist’.’

“These are the sorts of things you would expect from a Labour government,” said Longworth.

Mind you, the Tory press’s agitation about the possibility of a new top rate tax grab comes as little surprise when you consider how much senior execs at these newspapers are earning. In 2020, the two top executives at the owner of the Daily Mailtook home £24m. Four execs and the Daily Mail and General Trust (DMGT) netted almost double the £13m in pay, bonuses, and long-term incentive plan (LTIP) awards they received in 2019.

I guess the same senior execs are calculating how much a top rate increase will cost them.

Woke bashing of the week  – Telegraph defends ‘anti-woke’ insurgent group despite public rejection

‘Anti-woke’ insurgents Restore Trust failed miserably in their bid to take control of the National Trust (NT). At last week’s Annual General Meeting, members rejected motions that criticised the NT’s involvement in Gay Pride events and rewilding projects.

Restore Trust (RT) believes the Trust has lost focus in its original purpose. The group has also taken issue with the Trust’s approach to gay and transgender rights. Following its defeat last weekend, which saw none of the candidates it put forward for the NT council get elected, the future of the group is uncertain. Will they admit defeat and ‘shut up shop’, or will they double down and chuck more cash at their project to infiltrate next year’s AGM?

Interestingly, the group’s Facebook page has been sparsely updated following last weekend’s bashing. The only post in the last week is a whinge about the use of the “Quick Vote” system.

Meanwhile, the right-wing press that propped up RT’s antagonistic campaigning has not been so dormant.

Reporting on the defeat – or perhaps whining would be a more fitting word – the Telegraph wrote about the AGM featuring an ‘unusual moment when every resolution proposed by members was voted down.’

Noting the criticism NT have faced over, in the Telegraph’s words, “its support for a new road at Stonehenge, its participation in Gay Pride events, its democratic processes, its dealing with complaints and the way in which it responded to members’ questions,” the newspaper said that NT had “opposed every single one of the resolutions proposed by its members and each vote went in the board’s favour.”

One might be forgiven for thinking that the Telegraph may be hinting that some kind of foul play had been involved at the meeting.

The article continued how RT had taken exception to the Trust’s introduction of a “quick vote” system, which “allowed members to press a button to automatically vote online in favour of the Trustees recommendations.” RT claim the process is undemocratic as members could be “handing their vote to the trustees without knowing what they are voting for.”

The piece went on to complain about some of the resolutions that were voted against, describing one as “divisive and unacceptable use of members’ funds” on participating in “woke vanity projects” like Gay Pride.

The Telegraph also readily noted how the Trust’s leadership has been accused of ‘not listening to the membership on a number of issues,’ and how Zewditu Gebreyohanes, director of campaign group Restore Trust, accused the management of “disingenuous obfuscation” because they were not answering questions directly.

In the run up to the AGM, the same newspaper published a string of reports seemingly embracive of RT’s fetid war against the National Trust. ‘Rejoin the National Trust to save it from wokery,’ was a headline in August’ in a piece written by Zewditu Gebreyohanes.

Just a day before the meeting on November 4, the Telegraph published another scathing report, in what could have been a last-minute bid to whip up furore against the Trust ahead of the AGM.

National Trust ‘block’s critics from the key meeting amid heated row over its future’ read the headline.

While the future of the right-wing insurgents that have been running a politicalised campaign against the much-loved National Trust since 2021 is uncertain, it looks likely that, with the right-wing press’s continued attempt to rouse support for the group and its objectives, Restore Trust won’t go down without a fight.

Gabrielle Pickard-Whitehead is author of Right-Wing Watch

As you’re here, we have something to ask you. What we do here to deliver real news is more important than ever. But there’s a problem: we need readers like you to chip in to help us survive. We deliver progressive, independent media, that challenges the right’s hateful rhetoric. Together we can find the stories that get lost.

We’re not bankrolled by billionaire donors, but rely on readers chipping in whatever they can afford to protect our independence. What we do isn’t free, and we run on a shoestring. Can you help by chipping in as little as £1 a week to help us survive? Whatever you can donate, we’re so grateful - and we will ensure your money goes as far as possible to deliver hard-hitting news.

Comments are closed.