In next months budget, Chancellor of the Exchequer, George Osborne, will spell out how he plans to cut £12bn from the UK’s welfare bill, cuts that are expected to fall most heavily on working age and disability benefits.
Whether you’re for or against austerity, there can be no doubt that the UK deficit needs to be bought down. It currently stands at 4.7% of UK GDP, higher than most other advanced economies. Most other countries are running at a surplus, even Greece.
Debt versus deficit
It’s worth pointing out here the difference between the UK’s debt and its budgetry deficit. Debt is the amount of money owed by the government, built up over years of borrowing. Deficit is the amount that spending on welfare and other government costs, such as policing, the NHS, etc, exceeds the governments income in tax receipts each year.
While the economy is running in deficit, the national debt grows and the amount of interest we pay servicing that debt alone rises. Think of it as being like a shortfall in your household budget. If you’re spending more than you earn, you’ll be adding to your household debt in credit card, overdrafts etc, and losing an increased amount of your income to interest payments, so the best option is always to rein in spending and live within your means.
Although the need to cut spending and bring the the deficit under control can’t be argued with, the startlingly harsh welfare cuts by which George Osborne is planning to do it can.
The 2015-16 welfare spend is expected to be £220bn and is made up as the chart below demonstrates, with nearly half going on old age related benefits, such as pensions. But the government has pledged these, along with child benefit, will not be touched. This leaves tax credits, housing benefit and disability and incapacity benefits to fall at the mercy of the Chancellor’s welfare bill sword, essentially the sick, the underpaid and those with children will bear the brunt of it.
Tackle the causes of low pay
In his speech on the subject, David Cameron said that the UK must tackle the causes, not the symptoms of low pay and this is absolutely spot on. George Osborne also said that it isn’t right that companies can pay a low wage and essentially have their employees wages, and therefore, company profits, subsidised by the state in the form of tax credits, an argument I myself made here.
David Cameron has said that we need to recognise the causes of stalled social mobility and lack of opportunity, such as family breakdown, debt, addiction, poor schools and a lack of employment and by recognising them, solutions such as strong families, a great education system and well paid work will follow.
And, again, yes he is right. But the problem is that he’s not explaining how these solutions will arise. He’s saying we need welfare cuts and we need a stronger education system, but the money isn’t being taken from the welfare bill and spent on eduction.The government is simply trying to save the money, not distribute it to other areas.
Similarly whilst arguing that we need well paid jobs, he’s not offering any solution as to how to create these jobs. There’s no mention of increasing the minimum wage, which would make a huge saving to the tax credit bill. There’s also no mention of where these ‘well paid’ jobs will come from. Whilst unemployment is falling, it is still currently at 5.5%, and in 2014 3 million UK workers were classed as being ‘under employed’ meaning they were working less hours than they wanted to. In fact, most people in poverty and reliant on benefit have jobs. But with a fifth of workers earning less than is needed to sustain a decent standard of living and one in four single parents working full time and still living below the poverty line, how will these cuts help them?
I can’t argue that the government doesn’t need to save money, I can’t argue that we don’t need to improve education and tackle social issues to give everyone the best possible opportunity in life. But, a government that has refused any form of VAT or income tax increase, and believes the poorest and most vulnerable members of society should foot the bill whilst offering them no help to rectify their situation, is really offering no solutions at all.
And as we all know, if you’re not going to be part of the solution, you’re going to be part of the problem.