THE BLOG

What a Clever Clever Budget

09/07/2015 12:18 BST | Updated 09/07/2016 10:59 BST

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The Summer Budget of 2015 sets out clearly the priorities of the Government, and it was a highly effective piece of showmanship. While almost every detail had been trailed in advance the really big item - the National Living Wage - was a true bolt out of the blue. The policy will unsettle many of the Government's critics, leaving the Government free to impose 4 years of even deeper cuts on the poorer half of the population, knowing it can fall back on the promise of higher salaries in the future.

The idea of a National Living Wage (rebranding and modestly uplifting the National Minimum Wage) is a significant state intervention in the labour market and perhaps seems surprising for a party accused of neoliberalism. However the policy makes sense on a number of levels:

  • The tax credit system is messy and confusing, however it can only be replaced if there is a significant increase in salary rates for middle-earners. Otherwise it will not just be the poorest who continue to suffer, but also many in the middle, and the Government will need their votes in the future.
  • The system of Universal Credit that will replace current working-age benefits also becomes too expensive if salaries start too low.
  • Politically the policy is even more brilliant. Sadly, few people seem to care about the incomes of the poorest or about the fate of disabled people (a group who have been the primary target for cuts). But the idea of fixing salaries at a decent level is intuitively attractive. In fact many activists had been encouraging the Labour Party to adopt the same policy. Osbourne's move leaves the Labour Party with even less room to say anything distinctive on social justice.

Of course, there is a long way to go before the next election. The Budget was full of confident assertions of victories not yet achieved: deficits cut, savings made, taxes reduced. The fundamental fragility of our economy - resting as it does on massive private debt - may eventually undo all these expectations. Moreover, none of this deals with the real injustice of the 'new welfare settlement' that the Government is so proud of:

  • The last Government targeted cuts on the poorest 10% - cutting post-tax incomes by 9%. This policy will continue and for the poorest things will just get worse, as benefit levels drift further downward and as the poor continue to pay higher taxes than any other group - currently 49% (see chart).
  • Disabled people will continue to face a triple attack: on incomes, housing and social care. Social care has already been cut by more than 30% and the Chancellor has now announced plans to cut £30 per week from the incomes of half a million disabled people by changing the rules on Employment Support Allowance. A vicious policy disguised in technical gobbledygook.
  • The latest round of cuts, caps and freezes, particularly the changes to tax credits, will impose hardship on many more. Not just the poorest 10%, but the next poorest 40%, will continue to become poorer, whilst the richest 50%, are likely to keep getting richer. The UK is now the most unequal country in Europe.

But clever clever Tories. The reality of these policies was brilliantly disguised; it takes a real geek to unravel the layers of injustice and to distinguish the real policies behind smokescreen policies like the benefit cap. For many the National Living Wage will never compensate them for what they've lost, but for some it may, and rhetorically it provides the Government with a powerful narrative going into the next election.

Notice too the perverted sense of values at work here. If you were lucky enough to own a modest house in London which has now rocketed in value, you are feted as one of life's great entrepreneurs, worthy to pass on £1 million tax free to your children. If instead you've been living in affordable housing and refused to ride the home ownership gravy train then you are despised for somehow stealing from the tax payer and will be punished by higher rents. Yet it is home owners who have been the real beneficiary of Government largesse.

The gulf between the have and have nots is at its clearest in housing. Home ownership is now falling and those forced to rent are subject to rising costs. It is this inequity which is driving up the cost of Housing Benefit. But home owners and buy-to-let landowners are core Tory voters, so must be cosseted. In the long-run this cannot be sustainable.

However, for today, I'm sure the Chancellor and his friends must be congratulating themselves on their clever clever budget. However, I hope that he remembers, as the Champagne corks pop, that 6 million Britons must live on just £40 per week after tax - less than a round of drinks for him.