Austerity isn’t inevitable. Labour needs to be bolder on the alternative

by Matthew Whittley

We have grown familiar with Tory backbencher’s frustration at the reality of coalition government that prevents them from delivering the yet deeper cuts to social security that a Conservative manifesto would likely call for. So much so that it’s easy to forget just how radical this government has been on welfare. The austerity driven assault on the poor has started to gather pace, with the first raft of welfare reforms already implemented.

This month, the vital link between benefits and inflation will be broken. With inflation remaining at close to 3%, the 1% cap on the uprating of benefits will make it even harder for those families already struggling to keep pace with the rising cost of living. Furthermore, the ending of full council tax rebate is forcing two million low-income households to contribute hundreds of pounds to their council tax – a tax that, until now, they have been considered too poor to pay.

This appears to have gone largely under the radar. One cut that has attracted substantial media attention is the introduction of under-occupancy charges for 660,000 social housing tenants – what’s been dubbed the ‘bedroom tax’. Those with a spare bedroom are having to deal with cuts to their housing benefit of, on average, £56 a month. As well as reducing the housing benefit bill, the government argues that this policy has been designed to make the best use of housing stock. Unfortunately, there aren’t anywhere near enough small properties to move people into.

This is especially the case in the North. Teeside based housing association Coast and Country Housing, for example, has 1,800 tenants classed as under-occupying, but they have only two one-bed properties available to let. People are being sanctioned for not moving into smaller houses that don’t exist.

The bedroom tax is not only punitive and unfair; it’s indicative of the economic illiteracy this government has become renowned for. In addition to sucking demand out of our most deprived communities, many affected tenants will, because of the shortage of social homes, end up moving to the private rented sector where rents are higher. The housing benefit bill is likely to increase, not fall, as a result of the bedroom tax.

One doesn’t have to look hard to find statistics to illustrate the incoherence and unfairness of these cuts. Perhaps more effective in connecting with the wider public are the plethora of emotive individual cases that have come to light of people impacted by the bedroom tax. Welfare reform may enjoy popular support in principle, but much of that support is likely to be withdrawn when becomes clear that it’s not scroungers that are being hit but the vulnerable – those with disabilities and the working poor who continue to suffer rapidly declining living standards.

There is an air of inevitability about welfare reform. Listen to the coalition and you could be forgiven for thinking that the impending pain is unavoidable. We must remember, however, that austerity is a policy choice, not some naturally occurring phenomenon. There are alternatives to balancing the books on the backs of the poorest. What is required, as the Institute for Fiscal Studies has called for, is a shift in the burden of taxation from income to wealth and assets to help ensure the most affluent pay their fair share.

Labour’s direction of travel is encouraging. Ed Miliband’s plan to fund a reinstatement of the 10p tax band with a “mansion tax” –  a 1% levy on properties worth over £2 million, half of which are second homes, is a promising start to the task of putting flesh on the bones of the one nation theme: an economy that works for the millions, not just millionaires. Progressives concerned about the increase in poverty that will occur when austerity really begins to bite should be calling for more same.

In January, Caroline Lucas, former leader of the Green party, introduced a Land Value Tax Private Members’ Bill. This suggests taxing the unearned wealth pocketed by those who have benefited from rising property prices at the expense of others unable to afford to get on the housing ladder. When David Cameron talks of a “something for nothing culture” this is what should spring to mind, not people scraping by on benefits.

We also need watch closely to see if George Osbourne’s recent talk of closing down loopholes on tax avoidance is followed by meaningful action and that he isn’t just riding the wave of public opinion.  It’s morally repugnant that at a time when food banks are becoming a permanent fixture within our most disadvantaged communities, tax accountants continue to, in the words of Margaret Hodge, chair of the Public Accounts Committee, “run rings” around HMRC. The PAC estimates tax avoidance by wealthy individuals and corporations to be costing the taxpayer at least £5bn a year, although the actual figure is likely to be far higher. This is the advantage of taxing wealth and assets – capital may be mobile but it’s hard for even the most dogged tax avoider to move their mansion to Switzerland.

Public attitudes towards these issues have altered in the last couple of years. Although most weren’t quite as “intensely relaxed” as Peter Mandelson about those at the top getting “filthy rich” during the boom, the growing gap between the rich and the rest didn’t really register on the political agenda because voters thought they would continue to take their fair share of an ever-increasing pie. In the current climate, however, it offends a basic sense of fairness that while the safety net is being slashed for the poorest and the middle are now looking down instead of up, the rich continue as if the financial crisis never happened. If the government is serious about tackling the deficit, it’s incumbent upon it to ensure that the wealthiest are making their contribution; deficit reduction shouldn’t be a task left to ordinary folk.

Matthew Whittley works in the housing sector in a Midlands-based housing association, analysing the impact of coalition policies

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5 Responses to “Austerity isn’t inevitable. Labour needs to be bolder on the alternative”

  1. Nick says:

    It’s completely inevitable.

    The state has 7,000 bn of debts. 550 bn a year from taxes, spending of 700 bn a year.

    It has no assets that it can sell off to raise that sort of money. With the press reporting today that the total wealth of the UK is 7,000 bn, what’s the state going to do? Bankrupt everyone in the UK to pay? ie. 100% tx raid on all bank accounts. Sell off all housing? Er, you’ve just taken everyone’s money, they can’t buy anything.

    There is no increasing pie. That’s just a delusion caused by government debts being hidden off the books. The pensions aren’t on the books.

    The rich can’t pay. Note, the debts is the same as everything in the UK. All the wealth. You have to take everything from everyone. The rich only own a fraction of the wealth. You’re deluded if you think you can get the money.

    You are defrauding people by say, look, carry on giving us money, we will look after you in your old age, when you can’t.

  2. benj says:

    @ nick

    Take a look at page 6 from the link below.

    The reason for this inequality is the ownership of land is the mechanism whereby wealth trickles up from the richest to the poorest.

    Land, unlike other assets has no cost of production. This has two crucial consequences. Firstly, the value derived from it is not produced or sustained by the owner. It is in fact commonly produced wealth, which like that from other natural resources, should be an equal share to all citizens. However, because it is not taxed and used as Government revenue, it is left unevenly divided in the hands of owner occupiers, banks and landlords. This leaves the overwhelming majority without an equal share, or no share at all. That graph shows exactly who’s getting what share. This has had damages our economy and society.

    Secondly, because as stated above, Land has no cost of production, if you tax it, it doesn’t reduce production ie no dead weight costs.

    This means if it where used as revenue instead of Income Tax, VAT etc our economy would permanently expand by around 15% GDP.

    So, our economy is not a fixed cake, and how we decide to raise revenues and share our Common Wealth directly affects it’s size.

  3. swatantra says:

    Unfortunately you have to factor in the vagaries of the Market, even with NI.
    eg I was duped into taking out a PPI in 1990, and I’ve been paying in for 23 years, and when it matures in 2015 it’ll be worth one third of what I was promised. And there’s b***er all I can do about it.
    Same with Pensions, same with any Investments.

  4. BenM says:

    Nick’s getting hysterical again.

    The State hasn’t taken all of my money. And I think that applies to the rest of the population.

    £7000bn of debts? This has been inflated from £4000bn by about £1000bn per annum by the unhinged debt hysterics.

  5. Benj says: “This leaves the overwhelming majority without an equal share, or no share at all.”

    It’s actually worse than that. Land rents are a zero sum game.

    Some people are mortgage and rent free (so they break even and we can ignore them) and twenty per cent are in social housing (so they get a reasonable deal and we can ignore them).

    But half of households are paying rent (or mortgage interest) and a few per cent at the top are collecting it all.

    So half of people don’t just have NO share (which would be bad enough), they have a NEGATIVE share (to balance out the top few per cent’s POSITIVE share).

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