by Ed Balls
Today will be a black Wednesday for millions of families across Britain.
David Cameron promised to lead the most family-friendly government ever. George Osborne said we’re all in this together. So why are their changes to tax and benefits, which come into force today, hitting women harder than men? And why are they taking so much support from children: with families on low and middle incomes being hit the hardest of all?
We’ve been through a global financial crisis; not a recession made in Britain. And, like every major economy in the world, we now have a big challenge to get the deficit down. So there have to be tough decisions. They will include some spending cuts, fair tax rises, like the 50p top rate of tax for the richest, and the national insurance rise we proposed last year.
But as we have consistently argued, by making a political choice to cut the deficit further and faster than any other major country, George Osborne is going too deep and too fast. He is putting jobs and growth at risk. And he is doing so in an unfair way, giving the banks a tax cut this year while low and middle income families are hit hard.
This month families aren’t just seeing their national insurance contributions go up. David Cameron and George Osborne have gone further and faster: with a big hike in VAT, cuts to tax credits, cuts to childcare support and a three year child benefit freeze as well.
For many families, the first time they realise just how hard these changes will hit them will be in their pay packets in the coming weeks. And these are not the only big changes in store. In 2013, the 1.5 million families with a higher rate taxpayer will lose all their child benefit, worth £2,500 for a family with three children.
Analysis by the House of Commons library, for Fiona O’Donnell MP, has found that the changes coming in today, combined with the government’s VAT rise, will cost a family with three children and each parent earning £26,000 over £1,700 a year. This is equivalent to around 5p extra on the basic rate of income tax.
The government is cutting childcare support through the working tax credit. The resolution foundation says this will cost 450,000 people, which includes almost 290,000 lone parents, an average of £436 a year. For some families with two or more children it could be up to £1560 lost. This little-noticed change will have a huge impact on hundreds of thousands of families, but particularly mothers who work part time for low pay. Cuts to childcare support make no sense if it simply makes it harder for parents to work – as the office for budget responsibility has warned – and so ends up costing the taxpayer more.
Once again we can expect Nick Clegg to spend this week trumpeting an income tax cut for some on lower incomes as a key achievement of the coalition. But the truth is that the increase in the personal allowance is a fig leaf for what’s really happening to families. As the institute for fiscal studies has said: the government is giving a little with one hand, but taking away much more with lots of other hands.
So we should remind Nick Clegg that it is more than offset by the Tory VAT rise that he campaigned against a year ago – which the treasury says will cost a family with children an average of £450 a year – and all the other changes coming into effect today.
We should also remind him that the increase in the personal allowance doesn’t apply to pensioners, who will see lower winter fuel payments this year. And the stealthy switch to raising the personal allowance by the lower CPI index of inflation rather than RPI – a trick the government is doing this month on benefits too – will net the government £1 billion a year by 2015.
I don’t think that George Osborne, David Cameron and Nick Clegg understand just how difficult many families, particularly working parents with young children, will find it to get by from this week. Ed Miliband has rightly made the cost of living crisis facing the squeezed middle a key theme of his leadership. The Labour party will continue to stand up for families on low and middle incomes
Of course, after the global financial crisis every major economy in the world, including Britain, has a huge challenge to get their deficits down. But this Conservative-led government has made a political choice to rip up Labour’s plan to halve the deficit steadily over four years. And they have made a political choice to not only go further and faster than any other major country but also to make ordinary families bear the burden; while the banks who caused that crisis actually pay less tax than last year.
All this pain, all in one go, aimed at families with children, is not just deeply unfair but it will hamper our economy too. By going too deep and too fast, George Osborne is damaging consumer confidence, which is now at a near 20 year low. He is holding back an economy that should be growing strongly this year. The government is now set to spend over £12 billion more on benefits than it planned to in the autumn. This creates a vicious circle. The higher unemployment and slower growth now forecast mean that the government is actually set to borrow £46 billion more over the coming years.
The government’s own watchdog, the office for budget responsibility (OBR), believes that families will get deeper and deeper into debt in the next few years, following the austerity measures. Some economists say that a rise in household borrowing is the only way the OBR can explain its forecasts for economic growth. I fear it is the only way some families will be able to get by.
To make things harder still, George Osborne’s VAT rise is looking like an own goal as it pushes up inflation, which threatens higher interest rates for mortgages and household borrowing.
That is why Labour says that this reckless plan to cut too deep and too fast is not only hurting; it also isn’t working.
There is an alternative. Putting jobs and growth first. Cutting the deficit in a steadier and fairer way. And repeating the bank bonus tax this year to build affordable homes, boost business investment and create thousands of real jobs for the future.
So in the run up to the elections on 5 May, we are saying to millions of families and pensioners that Labour is your voice in tough times.
Ed Balls is Labour and Cooperative MP for Morley and Outwood and shadow chancellor of the exchequer.
Tags: Black Wednesday, Ed Balls, Tory cuts
Ed is absolutely right. We need to be protecting jobs and not implementing crazy cuts that only cause pain and hardship to many. At a time when unemployment is over 2.5m, over 5,000 frontline welfare to work staff are facing redundancy from welfare to work providers as they prepare for the new government flagship “Work Programme”. Many of these people will not find allternative work in the sector and will find work elsewhere (eventually). They are a sad loss and a bitter scar on the track record of this government.
It is now more important than ever that we expose Tory lies and fightback against these cuts. A raft f Labour gains on May 5th would be an excellent start to our campaign.
How can Cameron justify the money he is throwing at Pakistan , bombing Libya the cost of the fuel the bombs . Then turns around and cuts 17000 jobs in the Armed Forces. Were will the people find homes , jobs etc. Not thought no planing.
We were told we are all in this together. Yes they are inside and we are outside. How does that add up for a the future of this country.
The NHS is being cut, cut cut. It is ok for the like of Cameron who has Private health care. Many can not afford one thanks to his bag man Osborne. With his increase in VAT. Then blame Labour for all the problems. It does not add up . If things are bad why throw money at other nations. Charity beings at home . Does Cameron want a B N P Government. If he is not careful he will push votes that way. Then god help us.
Despite accusing Osborne of not understanding what a fiscal multiplier is it was apparent in Balls’ interview with Evan Davies on R4 this morning that he actually doesn’t understand it.
As Davies showed with IFS figures every extra £1 of deficit only contributes 30p of extra economic activity. That is the road to bankruptcy.
Balls still seems to think, erroneously, that deficit spending results in more economic activity than its cost.
Would that were the case, but unfortunately it isn’t.
itting women harder than men? And why are they taking so much support from children: with families on low and middle incomes being hit the hardest of all?
If you would like to explain how you would have saved kept cuts to 20% from all departments, by focusing on welfare-without doing this, I would be very grateful if you could tell us.
But what would we have called to day if labour had won the last election dooms day, the welfare reforms are all labour, many of the cuts the Tories had put in place were in fact planed by labour.
I cannot imagine the rubbish Brown would have brought in if he had still been labour.
No thanks, OK the Tories are no better, but i had enough of Brown and his ilk.
I would ‘fisk’ this article, but unfortunately there would be more fisk than article.
Everything Edgar writes/says is just verbiage, sundry woffle, and blah blah wrapped around three steaming great porkies.
Steaming Great Porkie #1. The economic mess of the UK is the world’s fault, not my and Gordon’s fault’
Steaming Great Porkie #2. I regret not opposing the Tories more when they kept calling for us to lighten banking regulation.
Steaming Great Porkie #3. The deficit/debt not that much of a problem anyway no really it isn’t just trust me on this one will you.
Anyway, leaving Fantasy Island and getting back to the real world -the destruction of the British economy is a direct result of
1. TUCLabour’s completely inadequate oversight of the UK banking system and
2. TUCLabour’s ill-targeted and gross overspending.
Look no further.
And again out pops the ‘coots too far too fast’ mantra.
Once more I ask on here the question they can’t answer – if 3% real coots by 2014/2015 is ‘too far too fast’ give us *your* idea of coots that aren’t ‘too far too fast’.
Or if that’s all a bit too much, just plod out yet another gee whiz 1500 word unthink piece on ‘fairness’ and put us all to sleep.
What does everyone think of that picture of The chancellor with his throat slashed that Micael Meacher posted.To me it seems the perfect expression of the thuggishness & criminality that runs through The Labour movement.
At least the Tories give something back. All Labour did was take money, but they were so useless they still managed to have to borrow excessively.
@Rob – these Labour politicians keep on going in for the Davies torture chamber – they almost seem like masochists. For heavens sake Davies is an intelligent inquisitorial guy who enjoys questioning politicians on stuff in which he’s totally immersed. He treats Balls and Miliband like tennis balls and simply leaves the game when he’s scored too many points. He’s a classic.
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Sorry Ed, come back when you have an alternative.
AS Mike Smithyson at Ladbroke’s points out,opinion polls show Labour with a 15 point lead over the government as to whose faults the cuts etc are.Nobody will take a politician seriously, who comes up with ‘black Wednesday’, but makes no mention of the catastrophic misconduct of the economy by the last government,as Iain Ker points out.How about a bit of ‘mea culpa’, Mr. Balls?
Disturbing to see so many Tories posting on a Labour site. Oh well, looks like it’s time for us to go en masse and start posting on Consrvative Home! 😉
On Radio 4 yesterday Ed Balls was a complete disaster – it was so poor a performance it was cringe-making.
Until Labour admit they were due to impose as they put it “Worse cuts than Thatcher” (which would hardly be hard since her scam on cuts was as blatant as the current governments – don’t Labour see that?) no one will even consider voting for them.
Being poorly paid as I currently am I saw my tax code go up yesterday to 603 making me around £200 a month better off.
Being a tax avoiding multimillionaire is fine for Ed Miliband but please don’t start lecturing a real Labour demographic voter…
‘So many tories posting on a Labour site’?I voted Labour in 1992,but saw through the absurd postures of Gordon Brown well before 1997.We all know what happened after the first term.When the tories screwed up in 1974, they did not elect a new leader associated with Heath.They also had a profound rethink in opposition,and were back in power in 1979 for 18 years.The next Labour Pm will not be Miliband E, Balls, Harman or anybody else connected with Brown,the worst PM since Lord North, or anybody seen as the union’s man.Heath took on the unions and failed,Brown took on the economy and tanked.Labour needs to find a new Roy Jenkins/David Owen type, tough but not impossible,with an agenda that appeals in ENGLAND.