Prem Sikka is an Emeritus Professor of Accounting at the University of Essex and the University of Sheffield, a Labour member of the House of Lords, and Contributing Editor at Left Foot Forward.
Chancellor Rachel Reeves’ Spring Statement is a watershed moment in British politics. A Labour government traditionally associated with the working class has unveiled welfare cuts of £4.8bn, mainly targeting the poor and disabled. It is protecting corporate profits and wealth of the ultra-rich by cutting support for the poor. More than 3m families will lose an average of around £1,720 a year in real terms in this parliament. The government claims that cuts in benefits will force the disabled people to work, assuming that there are suitable jobs. The Office for Budget Responsibility (OBR) states that individuals receiving disability benefits generally have limited capability for work and is unable to substantiate the government’s claims of any savings.
The UK already has 16m people, including 5.2m children, living in poverty. The government’s own analysis shows that as a direct result of the government’s measures the number of people living in poverty will increase by 250,000, including 50,000 children. The Joseph Rowntree Foundation estimates that 400,000 additional people are likely to be plunged into poverty. Inevitably, there will be more holes in the welfare safety net. The current government is set to be the first Labour government under which child poverty is set to increase.
The benefit cut is hurting people who already have too little. The bottom 50% of the population has 5% of wealth, and the bottom fifth has only 0.5% of wealth. The real average wage is unchanged since 2008. Work does not pay enough. Some 37% of the Universal Credit claimants are in work. The poorest are hit the hardest by taxes. The richest fifth pay 30% of gross household income in direct taxes, compared with 16% paid by the poorest fifth. The richest fifth pay 11% of their disposable income in indirect taxes compared with the poorest fifth who pay 27%. Altogether, the poorest pay a higher proportion of their income in taxes, and that is damaging society.
The causes of higher demand for welfare include lack of timely healthcare, access to family doctors and dentists; poverty, poor food and housing, insecure employment leading to insecurity and anxiety, and unchecked profiteering pushing more people to the edge of society. However, these issues receive little attention. Instead, impoverishing the old, poor, sick, disabled and children have become a feature of economic policy. The poor and disabled are being blamed for economic stagnation caused by neoliberal policies.
Progressive taxation, equitable distribution of income and wealth did not get any mention in the Chancellor’s statement. No steps have been taken to reduce billions of subsidies handed to banks, oil, gas, auto, steel, internet and other companies. A relentless squeeze of the less well-off won’t help with rejuvenation of the economy. The Office for Budget Responsibility (OBR) already expects the 2025 economic growth to fall to 1%, half the rate forecast in October 2024. Living standards are on track to fall over the next five years. The package of benefit cuts, job losses and tax rises (income tax thresholds remain frozen) will reduce incomes of the poorest half by 1.5% compared to 0.5% fall for the richest fifth. Yet the Spring Statement removes billions from the economy.
The benefit cut for the poorest and disabled was not part of Labour’s 2024 election manifesto commitment. In May 2024, Prime Minister Sir Keir Starmer declared, “I’m a socialist” and in August 2024 said that “those with the broadest shoulders should bear the heavier burden” in rejuvenating the economy. By January 2025, this morphed into he would be “ruthless” over public spending cuts to help meet the government’s self-imposed fiscal rules. The result is the biggest cut in benefits for poor and the disabled since the one imposed by the Tory Chancellor George Osborne in July 2015. It was partially curtailed by resignation of the Work and Pensions Secretary. This time, the Work and Pensions Secretary is the architect of the cuts. No Labour minister has shown any inclination to resign.
Sir Keir has turned out to be a political chameleon, an admirer of former Conservative Prime Minister Margaret Thatcher and even portrayed himself as a Conservative. He has adopted a raft of Conservative policies that hurt low/middle income families. These include continuation of the two-child benefit cap, freeze on income tax thresholds, and went further by removing the winter fuel payments from pensioners below the poverty line. The last Conservative government’s Data Protection and Digital Information Bill fell because of the May 2024 general election. It sought to give the state unprecedented powers to 24/7 snoop on the bank accounts of benefit recipients without any court order or right to appeal. The government has now resurrected the same through the Public Authorities (Fraud, Error and Recovery) Bill.
Austerity is a political choice, and not an economic necessity. The government has plenty of options for social investment and letting people live with dignity. It can cut corporate welfare and increase borrowing. It can eliminate tax anomalies favouring the rich, such as by aligning the taxation of capital gains and dividends with wages. It can introduce wealth tax. Just 685,500 Britons in the richest 1% have wealth totalling £2.8 trillion. In comparison, approximately 48m Britons (70% of the population) have a total £2.4 trillion. The richest four Britons have more wealth than 20m people combined. It can introduce a financial transactions tax and reduce the tax reliefs available to corporations. But the government does not wish to upset its corporate and rich backers.
How to curtail the latest dose of austerity and prevent the cuts pushed by the government is a pressing issue. It was people’s power which halted poll tax and bedroom tax. It was people’s power that curbed the 2016 Tory benefit cuts. Resistance was based on petitions, protests and marches in towns and villages. Trade unions, civil society and MPs were mobilised. Letters to newspapers and phone calls to talk shows were used. The same is necessary again, otherwise one-by-one the poorer parts of society will continue to be picked-off. Citizens ought to seek face-to-face meetings with MPs to show their anger. People can send emails and write letters to MPs, but may be fobbed-off with standard replies. A face-to-face engagement has a better chance of jolting MPs out of their comfort zone. A rebellion of Labour MPs is growing and must be fomented. People must come before any political dogma.
The relentless squeeze of low and middle income families is part of a deeper malaise. The political system is captured by big business and the rich. They fund political parties and hand consultancy contracts and fake jobs to too many legislators to exercise power and shape policies. The never-ending austerity and cuts in living standards are being used to transfer wealth from the less well-off to ultra wealthy. Their power needs to be curbed. A start can be made by criminalising the receipt and payment of political donations and gifts to parties and politicians. Legislators must act exclusively as legislators and that means a total ban on second and third jobs for legislators, which in most cases are bribes. This can enable people’s voices to be heard and help to build a just society.
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