Monday 11 October 2010

First Signs of Panic from the Coalition?

Much to the surprise of most people, the Tory Party Conference turned into a bit of a shambles.  The main reason for this was of course the announcement that from 2013 child benefit will be abolished for households where one or more people pay income tax at the 40% rate.  In other words where one partner earns more than £44, 000.   Unfortunately someone had not done their homework properly.  For it immediately emerged that this measure will in fact penalize single earner households.   A family with one earner who earns over £44,000 will lose all their child benefits, while a similar family with two earners with a combined income of over £80,000 will continue to receive child benefit in full.   And we are talking about serious money here.  £1,055 per year for one child, £1,752 for two children and £2, 449 for three children.  So the Tories were subjected to a barrage of attacks from their erstwhile allies in the media for daring to penalize the hard working middle class.  And then came the first signs of panic with the Prime Minister suddenly rolling out proposals to introduce some kind of tax break for married couples.  No doubt very appealing to the Daily Mail and the like.  But will this be welcomed by the majority in the country?  What’s so special about a marriage certificate?  And of course any tax break will benefit childless couples as well, so long as they are married.  Not a well thought out policy.
How did this all come about?  As far as I can see this proposal is all part of the softening up process by which the Coalition hopes to avoid raising income tax and at the same time start to dismantle key elements in the Welfare State.    Let’s start with income tax.  The Tories will do almost anything to avoid raising income tax.  They will increase VAT, but not income tax.  Yet if the country is in such an economic and financial mess as they claim, then why not raise income tax, especially for higher earners.  After all why shouldn’t the better off, these who benefitted most from the excesses of the last two decades, pay a higher share of reducing the deficit.   So instead of abolishing child benefits for higher rate taxpayers why not raise income tax for this group by for example 2p?  The additional income tax to be paid would still leave most families with children better off.  A two child family would need to earn over £90,000 before they were worse off.  However raising income tax for all higher rate taxpayers has the twin advantages of a) making childless earners contribute to reducing the deficit and b) preserving the principle of universal benefits.  
However I suspect that is precisely why the Tories in particular rejected this approach.  They don’t want to be seen to raise income tax on this higher earning group and most important of all they do want to do away with the universal principle when it comes to benefits.  Thus by taking something away from higher earners the Coalition hoped to demonstrate that they were being fair and that everyone, including the better off, will have to bear their share of the burden.  What they hoped the message would be was something along the lines of look we have shown we can make cuts in benefits for the rich, so now we can really clobber the poor.
Which they have already started to do.  For example alongside the announcement of the cuts to child benefit for the better off, came the announcement that welfare benefits for the unemployed are to be capped at £500 per week.  And unlike the cuts in child benefit, which won’t happen until 2013, the cuts to the poor will take place immediately.  And now we have advance warning of the Coalition’s plans to attack the wages of the poor.  The New Labour renegade, Hutton, is recommending that public sector workers will have to work longer, pay more in contributions and get less back in pension.  While there may be a few headlines about the very small number of high earners in the public sector, the fact remains that the overwhelming majority of public service workers are low paid, with an average pension of around £7,000 per year.  And these are the people who the Coalition wants to bear the brunt of paying to sort out the mess that the rich created.   For, never forget who created the current financial and economic crisis.  When the Coalition rant on about the size and magnitude of the national debt, they always conveniently forget to mention that most of this debt comes from bailing out the Banks.  Yet this debt, which had nothing to do with public services or working people, is the excuse the Coalition rolls out to justify their attacks on public services.
In all this we can see the true, nasty agenda of the Coalition.  It is straight back to the early Victorian notion of the deserving and the undeserving poor.  The classic divide and rule strategy of the rich since time immemorial.  Get the low paid to blame each other and leave the rich free to get richer and richer.  See the latest projections for bonus payments in the City of London.
Unfortunately it hasn’t worked out quite as planned.  The outrage shown by many of the Tories’ usual supporters, and in particular the claim that this attack on the middle classes is unfair, will make it even more difficult for the Coalition to force through the real cuts that are to come.   Just watch out for lots of references to Fairness when the next round of cuts to jobs and services come.  How long before the public begins to fight back?  Will Labour under Ed Milliband lead the fight back?  One can only dream.

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