George Osborne has taken the axe to public spending as he announced the largest set of cuts since the Thatcher era.
The Chancellor is cutting spending by £81 billion over four years, much faster and deeper than is required and therefore threatening the fragile economic recovery. The chance of the UK falling into recession once more has been increased by his actions, according to most economic commentators.
There was also evidence of an old political trick at work: leak that a series of highly unpopular measures are being considered – and then don’t make any of them. The idea is to make the real announcement seem slightly less alarming when it comes.
It’s like a surgeon telling you that your arm will have to come off. When he later tells you that you will only lose two fingers, it doesn’t seem quite so bad.
Osborne, predictably, blamed the previous government for his cuts. And in a bizarre attempt at spin, the Chancellor also claimed that the cuts would “only” be 19% – because he would save an additional £7 billion from the welfare budget. So that’s a saving not a cut? I don’t quite understand that particular piece of sophistry.
The headline announcement is large scale cuts on the spending of just about every government department. In addition, the pension age will rise to 66 sooner than expected, some incapacity benefits will become time limited and other money will be clawed back through cuts to tax credits and housing benefit.
While health and education get some protection, local authorities, policing and justice are badly hit. The arts, housing and the BBC will all suffer. And the budgets of the devolved countries will be cut too. Scotland’s annual budget will fall in real terms by £3bn to £25bn over the period. This, according to the Scotland Office, represents a reduction of 10.6%. The SNP however believes the level of cuts will actually be higher.
A new bank levy will also be brought in, with full details to be announced later today. It is expected to raise about £2.5bn a year by 2013 – much less that Labour would raise. The levy will be based on bank’s balance sheets and set at just 0.04% in the first year, rising to 0.07%.
Osborne’s new welfare cuts of £7 billion are in addition to the £11 billion of cuts already announced in his emergency budget. The Employment and Support Allowance, which is paid to disabled people ruled fit to work while they look for employment, will now be limited to one year.
After twelve months, people with any assets or savings, or a partner who works, will no longer receive any benefit at all. Single people with no assets may be able to qualify for a means tested safety net.
To make this reduction at a time of rising unemployment, and as part of a review that even the government’s own figures indicate will cost 490,000 jobs, is nothing short of spiteful.
It is abundantly clear that the poorest in society will bear the brunt of these cuts. They will suffer from the local authority services that will have to be reduced or withdrawn altogether. The only announcement that will affect those on above average earnings is the reduction in child benefit – and even that was badly handled and unfairly implemented.
For Labour, Alan Johnson, the shadow chancellor, attacked “the deepest cuts to public spending in living memory”, which he warned could end up “stifling” the economic recovery.
He also said that the announcements would affect “people’s futures, people’s jobs, people’s pensions, people’s services, their prospects for the future”.
The BBC’s Economics Editor Stephanie Flanders agrees, saying, “the cuts to the welfare benefit are regressive, in the most basic sense of costing families in the lower half of the income distribution more”.
The Institute for Fiscal Studies also called Osborne’s cuts “regressive”, arguing that the extra benefit cuts, “on average will impact those in the bottom half of the income distribution more than the top half”.
And even the Centre for Social Justice, a think-tank founded by Work and Pensions Secretary Iain Duncan Smith, has warned that the Spending Review involves “real cuts in financial assistance to low-income families”. It added that government plans are not “sufficiently focused on the welfare of Britain’s families”.
If a body set up by the Tories themselves thinks the measures are unfair and regressive, then the cat is very much out of Osborne’s bag.
But what of the coalition’s junior partners?
In a letter to party members Nick Clegg said that, “Liberal Democrat ministers have been involved every step of the way. Our values and priorities are written through the review, like the message in a stick of rock.”
Should we take that as acceptance of the level of cuts, which his party campaigned against in the election? As agreement that the poorest should take the biggest share of the burden? Or as final proof that the Lib Dems are now nothing more than a wing of the Tory party.
George Osborne has chosen to attack the state with an ideological assault on public services. He is gambling on the economy surviving and the private sector creating jobs. And Osborne has said today there is no “plan B” if his policies fail.
The Chancellor’s slash and burn approach to economics will cause misery for millions. There will be protests as the cuts are implemented – and there will be a difficult winter ahead for those who rely on public services.
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