Our Coalition government is certainly doing its best to pass on the pain to the long suffering UK citizen. We now face the prospect of what might be aptly termed a triple whammy. First up came the decision to force through an additional £6.5 billion of public-sector cuts this year. Next came the so-called emergency budget with a further £11.5 billion of cuts. The latest wheeze is a new threat to the free bus pass, the winter fuel allowance and universal benefits such as child benefit.
The cumulative effect of all these cuts is quite astounding. With the exception of the state pension, all other benefits will in future rise in line with the consumer prices index (CPI), instead of the retail prices index (RPI). As the CPI is lower than the RPI, because it does not include housing costs, this means everyone relying on benefits will be worse off. And all to save £6 billion a year. It is not any better for people who are lucky enough to be in work. All public sector workers earning more than £21, 000 per year will have their pay frozen for two years.
However it looks like fewer and fewer of us will be in work. With the exception of heath and international aid, all Whitehall departments face real-term cuts of anything between 25-40% in their budgets over the next three years. It is pretty much impossible to see how this can happen without a savage reduction of the workforce and an equally savage reduction in the quality and range of services provided.
And all for what? According to the government and their apologists in the media, we need this dose of pain in order to protect the country from the “markets”, who might otherwise lower our credit rating and thus push up the costs of government borrowing. This is of course all tosh.
In the first place there is no crisis in government borrowing. Unlike the situation in some other countries, the vast majority of UK government debt is held by UK institutions and is not due to be repaid for 10 or more years. The biggest threat to our credit rating is the prospect of a double dip recession. Which is precisely what the government’s cut and slash proposals may end up delivering.
Secondly the government’s finances are not anything like as terrifying as the Coalition is want to portray them. Recent figures from the Office for National Statistics show that net borrowing is already coming down. No doubt to a large extent due to the stimulus measures introduced by the last government. These have helped produce a pick up in tax receipts.
However all this is in jeopardy as a direct result of the government’s policies. Already there are disturbing signs that the Coalition’s austerity measures are beginning to plunge the economy into reverse, with figures showing a slowing of high street sales and renewed falls in house prices. With the prospect of widespread job cuts in the public sector to come the outlook for the economy is pretty gloomy. The Coalition’s strategy, or perhaps more accurately, reliance on a miracle, is that the private sector with pick up the slack on the back of a resurgent export boom. Fat change of this. Although the German economy has shown recent signs of recovery, Europe as a whole is also deeply mired in recession. While the most recent data from the USA is deeply worrying with shares plunging due to a increase in unemployment and weak signals from industry. The USA too is facing the prospect of a double dip recession. Where will all this leave the Coalition’s economic programme? In tatters.
None of this of course is in any way necessary. There are lots of things the Coalition could do to rebalance the economy and gradually reduce the deficit while still maintaining or even improving public services. I will highlight one area here. Corporate tax avoidance is a massive industry in its own right and costs the rest of us taxpayers billions every year. A recent survey estimated that corporate tax avoidance comes to the incredible figure of £85 billion per year. £85 billion - just think of it and what it could mean for the rest of us if even a quarter of that were to be collected each year.
This figure is particularly relevant as the Coalition has just announced yet another crackdown on benefit fraud. Now nothing against trying to cut down on fraud against the taxpayer. But a couple points are worth making. The government claims that about £5 billion is lost in benefit fraud every year. However it seems that up to £7 billion in benefits go unclaimed every year. Is the Coalition planning to ensure that these people get the benefits they are legitimately entitled to? Thought not. And of course if the government was to invest at least as much money and effort into recovering the £85 billion lost in corporate fraud then we would all be much better off.
Of course no such thing will happen. This is after all one of the nastiest governments in the history of the UK. And there has been a lot of competition, but so far the current Coalition wins hands down. The majority of us suffer the pain without any gain. As US economist Paul Krugman puts it - though the story shifts, the moral is always the same: the little people have to suffer.