“The best way to rob a bank is to own one” – Placard at anti-cuts protest
Since the end of 2008 Britain (and the rest of the world) has been in an economic recession that is widely acknowledged to be the result of the recklessness and greed of the banks, who made risky financial gambles with money they didn’t have – as a result, the stock market crashed and the economy was plunged into recession. But the bankers were rewarded for their greed. Not only were they bailed out to the tune of £1.2 trillion, according to the Bank of England, but they, along with the rest of British corporations, have also received a 5% tax cut – 2% last year and 1% for each of the next 3 years. This tax cut will bring the corporate tax rate down to 23% on paper and will bring the effective corporate tax rate (what they actually pay) down to just 16%. Last year, partly as a result of extra money from the bailouts and tax cuts, the directors from the richest 100 companies in the UK saw a 55% increase in their pay, the bailed out banks paid a total of £7 billion in bonuses to their employees and there are 20 more billionaires than there were last year. The Government’s High Pay Commission estimates that if current trends continue the richest 0.1% of people in Britain will see their income rise from 5% to 14% of total nation income by 2030, giving them a higher proportion of national income than when the figures were first recorded in 1910. The four biggest banks reported a 10% increase in their profits last year, bringing them a total of £24 billion in profit. One of these banks, Barclays, admitted to paying just 1% tax in 2009, when it made a profit of £11.6 billion.
However, the people of Britain are being punished for the crimes they didn’t commit. Not only has the latest budget witnessed a VAT increase of 2.5% (reaching 20%), which will cost each household an estimated £520 a year (£10.4 billion a year for the whole population), but social services are facing an average cut of 13% over the next five years. The government aims to cut spending by £95 billion over the next 5 years. But people, especially those living in poverty, rely on public services. Here are some examples of the cuts: a 60% cut in subsidies for affordable housing for the poor; a 40% cut in the higher education budget; child benefits will be frozen for the next 3 years; a scrapping of the Education Maintenance Allowance scheme; an £18.5 billion cut in benefits spending. Nursing homes, HIV-prevention schemes, domestic violence centres, subsidies for affordable food and furniture, discount bus services, special services for disabled children, youth clubs, therapy services, rubbish collection services, libraries, debt advice services, community groups, childcare services, extra-curricular school programs, fire stations, and numerous other small-scale services that serve as lifelines for the poor, the elderly, and communities in general will be cut or even eliminated. If people want to keep using these essential services they will have to pay more for private ones, an option which most people who rely on these services can’t afford. As a result, the glue that holds communities together will disintegrate and people’s standard of living will decline.
The cuts and the rise in VAT are extremely regressive policies. The government’s own figures show that cuts to local council funding are on average four times deeper in the poorest areas of the country than in the best off and that in absolute terms the poorest 10% of the population will lose 20% more than the richest 10%, while in relative terms they will lose 1,500% more. Using the governments own figures UNISON and the TUC calculated that an average family with two children will suffer service cuts equivalent to 13% of their income, while the poorest 10% of the population (who live on less than £57 a week and have negative net wealth) will suffer service cuts and a VAT rise equivalent to 32% of their income – meaning that the poorest people in Britain will lose about 1/3 of their purchasing power. And this is the decline in purchasing power they will face if their real incomes remain the same. But real income has been declining and is predicted to decline further. Average disposable income fell by 4.5% in 2010 and the Resolution Foundation has calculated from the government’s own figures that average real income will fall by at least 7.5% next year. According to Mervyn King, the governor of the Bank of England, by the end of the year “real wages are likely to be no higher than they were in 2005.” The 13% (or 32%) decline in purchasing power resulting from lost social services will occur on top of this decline in real income, resulting in a colossal squeeze of purchasing power for the majority of the population.
What will this rapid decline in purchasing power mean for people? According to the Institute for Fiscal Studies between 200,000 and 300,000 children and over 600,000 adults will be pushed into poverty as a result – before the cuts 30% of British children (3.9 million children) and 22% of the population (13 million people) lived in poverty. UNICEF commented that as a result of the austerity in the latest budget “the largest growth we are likely to see is in the number of children living in poverty.” As a result of the £2.17 billion cut in disability living allowance and the £2 billion cut in Employment and support allowance families with sick or disabled members will lose a total of approximately £9 billion worth of income and 700,000 disabled people could see their benefits reduced or removed. Staff working for jobcentres and other Department of Work and Pensions contractors have, for the first time ever, been given guidelines on how to deal with suicide threats from claimants, and a senior jobcentre employee said he believes that the guidelines have “been put together ahead of the incapacity benefit and disability living allowance cuts.” According to the Governance's Office for Budget Responsibility, household debt will rise by 36% over the next 4 years, reaching 175% of household income (over £2.1 trillion). This increase is over 2.5 times more than the increase the OBR predicted before the budget. In addition, a comparison of the OBR’s predictions for both public and private debt before and after the budget shows that in the post-budget prediction public debt will be £43 billion lower but private debt will be £245 billion higher than in the pre-budget prediction. In other words, private debt will rise more than five times faster than public debt will fall under the austerity. Oxfam recently warned that “more and more poor people in this country are being forced to choose between feeding their families and paying their bills” – about 5% of Britain’s population (3 million people) are already malnourished, according to the British Association for Parenteral and Enteral Nutrition. Because of the cuts in the Local Housing Allowance budget adults under-35 on benefits will be unable to afford to rent a council flat on their own, and will have to either share a flat with other claimants or become homeless – already over 650,000 homes (with 1.6 million children) are overcrowded in England alone, 62,000 households are homeless and more than third of all homes (7.4 million) failed to meet the Government's Decent Homes Standard. The government itself has recently admitted that between 490,000 and 725,000 public sector workers and 400,000 private sector workers will lose their jobs as a result of the cuts – adding to the 6 million people (almost 20% of the working population) already unemployed or underemployed, the 20% of 16-24 year olds already fully unemployed, and the 1.9 million children (17%) in entirely workless households. Overall, Mervyn King warned of the largest squeeze in the population’s standard of living since the 1920s.
Over 50,000 NHS staff will lose their jobs as a result of the cuts, under which the NHS will lose £976 million a year,
will have to make “annual efficiency savings” of £20 billion by 2015, and will have to turn over 60% of its budget to private consortiums. As a result, the Chief Executive of the London NHS, Ruth Carnall, warned of a deterioration of services, and about a fifth of NHS trusts in England have admitted to closing or considering closing major services. A recent survey of GPs (from the Guardian) shows that 40% are seeing restrictions in ophthalmology services and 30% are seeing restrictions on orthopaedic services, and the Federation of Surgical Speciality Associations published an open letter expressing concerns about the rationing of care that some hospitals are proposing to deal with the cuts. The Royal College of GPs has recently called for “radical changes” of the coalition’s plans for the NHS and warned that the changes could lead to higher costs for patients, damaged patient care, less integration of services and a breaking up of different services. And Professor Steve Field, chairman of the NHS Future Forum, said the coalitions plans for the NHS “would destroy essential services” and run the risk of “destabilising the NHS at the local level.”
The cuts will even hurt Britain’s ecosystem, as the charity Butterfly Conservation has warned that the 30% cut to the Department for Environment, Food and Rural Affairs’ budget will most likely lead to the withdrawal of funding for nature reserves and other conservation programs that have proved vital for species conservation.
And the fall in purchasing power for the vast majority of the population that accompanies the cuts in services and rise in VAT will harm the economy as a whole well. When purchasing power falls, demand falls and there is less supply. This will mean further deflation and a deeper recession. Major recessions have always been resolved with expansionary fiscal stimuli, from the New Deal in America to the creation of the Welfare State in Britain, and austerity has an extremely poor track record in this regard, from Hoover’s disastrous handling of the Great Depression in America to Chancellor Brüning’s equally disastrous handling of the Great Depression in Germany to the failed Snowden Budget in Britain. Nobel Prize winning economist Joseph Stiglitz has argued that “we cannot afford austerity”, pointing out that “cutbacks in government spending will mean lower output and higher unemployment … cutbacks in spending will weaken Britain, and even worsen its long-term fiscal position… More likely than not, it will add one more data point to the well-established result that austerity in the midst of a downturn lowers GDP and increases unemployment, and excessive austerity can have long-lasting effects.” Other Nobel Prize winning economists, including Christopher Pissarides and Paul Krugman, agree. Even the IMF agrees, estimating that spending cuts equivalent to 1% of GDP will subtract between 0.5% and 2% from growth – the coalitions cuts are equivalent to 6.3% of GDP. And UNISON, the public services union, warned recently that “cutting 500,000 public service jobs could cost the government around £4.6 billion in lost tax revenue and £6.1 billion in extra benefits” and that “the negative ‘multiplier’ effect” of austerity “will weaken recovery and could result in a ‘double-dip’ or ‘lost decade’ of persistent unemployment and stagnation.”
Public opinion is firmly opposed to the measures the government is taking. The latest survey by YouGov on public opinion of the latest budget shows that the public consider it wrong for the economy by a margin of 3% and wrong for them personally by a margin of 16%, that only 10% expect their financial situation to improve, and that 59% believe that both unemployment and poverty will increase as a result. Other polls show that 63% of the population opposes the rise in VAT (YouGov), 52-58% say the cuts are unfair (ICM and Populus) only 29% think that the cuts are right (YouGov), and the public thinks that the coalition is doing a bad job by a margin of 5% (ICM).
There are alternatives to the cuts in services and the rise in VAT, alternatives which will not harm the population or the economy. One alternative is the closing of tax loopholes. According to Tax Research UK only 1/3 of all British companies paid any tax in 2010, and the government’s own figures show that it receives over 25% less corporate tax than it is supposed to (Tax Research UK estimates this figure to be nearly 50%) and that it is currently losing £120 billion a year through various forms of tax evasion. This is over four times the extra revenue the cuts in services and rise in VAT are bringing the government. According to Robert Field, the head of tax at Farrer & Co, the lawyers to the Royal Family, the government “could generate billions more by introducing a principle-based approach” to the tax system, replacing the current system of “legal certainty”. He believes that this change would almost entirely eliminate corporate tax avoidance. But instead of trying to close the tax loopholes, the government is trying to extend them: they are scrapping the rule that forces companies bringing profits from foreign subsidiaries into the UK to pay the difference between the UK rate of tax and the rate of tax in the country where the profits were made (companies will still, however, be able to claim the expense of funding their foreign branches against the tax they pay in the UK); and they have cut the Controlled Foreign Company tax, the tax on cash stored by UK registered multinationals in foreign countries, to 5.75%, making it cheaper for a UK registered company to store profits abroad than in the UK. These changes incentivise, and create more loopholes for, further corporate tax dodging. Another possibility is to take the rich off benefits. The Bank of England estimates that since the recession started British banks alone have received subsidies (on top of their bailouts) of an average of £20 billion a year. Ending these subsidies (let alone those for the rest of the corporate world) would save the government an almost identical revenue to the amount it is saving by cutting public services. In a similar vein we could also reinvest the surplus of Britain’s largest corporations. By the end of 2009 UK?based non-financial companies were making profits £64.7 billion higher than the amount they were investing and were holding cash and bank deposits worth £652.4 billion pounds with UK banks. If this surplus was invested in the economy it would be more than enough to solve the deficit crisis and even to stimulate a recovery. But instead this surplus is going straight into the deep pockets of the richest, while the poorest suffer the results of deflation and austerity. Another alternative is the introduction of a Robin Hood tax. This is a tax on banks’ unproductive financial transactions, and it would have no effect on the economy or the population. If this was introduced at 0.05% on transactions in sterling alone it would raise £20 billion per year. This tax is supported by the public by a margin of 3 to 1 (Oxfam) – and 80% of the population support further taxes on banks (ComRes) -, by charities such as Oxfam and War on Want, by Financial Services Authority Chairman Lord Turner, and by 1,000 leading economists from 53 countries who called on the G20 finance ministers to introduce this tax. The austerity is therefore not the only option for cutting the deficit and, since for every pound it will cut from government debt it will add over five pounds to household debt, and since it will enforce so much misery on the population and bring so much harm to the economy, it is clearly the worst option.
So why is the government cutting public services and raising VAT, when the public opposes these policies and supports alternatives that would not harm the population. The answer lies in the fact that we are ruled by a government of the rich, by the rich and for the rich. 23 out of the 29 members of the coalition government are millionaires. Sir Phillip Green, the government’s “cuts tsar”, has a fortune of £5 billion and has dodged at least £285 million in tax. George Osborne, who is in charge of the budget which will prevent benefit claimants from being able to afford to rent a council flat on their own, owns 2 houses, one of which is worth over £2 million, and is heir to the Osborne baronetcy. 16 out of 19 members of the government’s Business Advisory Group, which “provide[s] regular, high level advice on critical business and economic issues”, are top executives of large corporations. And all seven of the government committees created to “provide strategic oversight of the development of corporate tax policy” are made up entirely of “representatives from businesses”, with even tax-dodging companies such as Tesco, Vodafone, and Barclays represented. In addition, in the last 3 months of 2010 the Conservative party alone received “donations” of £2 million by rich individuals and £700,000 by companies, all of whom expect to get the policies they want in return. Andrew Lansley, the Secretary of State for Health who is in charge of privatising the NHS, was funded by by H5 (a pressure group of the five biggest private healthcare providers in the UK) throughout his opposition, and John Nash, the Chairman of Care UK, gave £21,000 to Lansley’s personal office in 2009 and gave £60,000 to the Conservative Party with his wife. So the government will always act in the interests of the rich because it is made up of and funded by them. It is increasingly being recognised that our governing system is controlled primarily by the elite and not the public. Power, an independent public inquiry into the state of British democracy, concluded that “politics and government are increasingly slipping back into the hands of privileged elites”. And according to the British Social Attitudes Survey only 37% of the population think that the present system of government works well.
The cuts in social services and the rise in VAT are unnecessary and cruel policies. The average British family will lose 13% of their purchasing power because of them, and the poorest families will lose 32% of their purchasing power, a near-certain fall into destitution for those not already there. Across Britain basic consumption will become more expensive, social services that poor communities rely on will be cut or even eliminated, the NHS’ service will deteriorate, benefits will be cut, around a million workers will lose their jobs, over 800,000 will fall into poverty, household debt will rise, and the recession will get worse. Yet this attack on the purchasing power of the majority of the population is occurring at the same time as a 5% corporate tax cut, massive bailouts for the banks whose greed caused the recession and a rise in the incomes and profits of the richest. What we are witnessing is simply a massive robbery. In effect, the majority of the population will give more to the government and get less while the richest will give less and get more. Jeffrey Sachs, special advisor on economics to UN Secretary General Ban Ki-Moon, described it as part of “a profound shift of income distribution from the poor and the middle-class to the rich”. Even Deborah Hargreaves, chairwoman of the government’s High Pay Commission, said that “we have to ask ourselves whether we are paying more and getting less.” The 5% corporate tax cut alone costs the government £7.5 billion per year, subsidies to banks alone cost almost £20 billion a year, and the bank bailouts costed a total of £1.2 trillion. In order to offset this dramatic loss of revenue the government has had to cut social services and raise VAT, slashing the purchasing power of the majority of the population. Over the next 5 years the British public will lose approximately £260 billion (about £52 billion a year), and the poorest 10% of the population alone will lose almost £63 billion (over £12 billion a year), from the rise in VAT and the cuts in services. This money will go straight into the coffers of the richest people in Britain, the same people whose greed caused the recession. As a result, those at the bottom and in the middle are facing further poverty, unemployment and hardship, while the richest are doing better than ever, their wealth paid for by the increasing poverty of the poor.
The Great Robbery in Numbers
- £95 billion will be cut from the social services budget in the next 5 years
- The public will lose a total of £260 billion over 5 years (about £52 billion a year) from cuts in services and the rise in VAT
- The poorest 10% will lose a total of £62.5 billion over 5 years (almost £12.5 billion a year) from cuts in services and the rise in VAT
- The banks have been given over £1.2 trillion in public money as bail-outs
- The bailed out banks paid their employees £7 billion in bonuses last year
- The banks get an average subsidy from the government of £20 billion a year
- VAT has been increased by 2.5%, bringing it to 20%, causing the average household to pay £520 a year extra and the public as a whole to pay £10.4 billion a year extra
- Corporate taxes have been lowered by 5%, bringing the effective rate to 16%, resulting in a £7.5 billion a year gain in profit and an equivalent loss of government revenue
- The government loses £120 billion a year through tax evasion by the rich
- In 2010 the 4 largest banks increased their profits by 10%, bringing them to £24 billion
- 200,000 to 300,000 children and over 600,000 adults will be pushed into poverty
- 990,000 to 1,125,000 workers will become unemployed
- The government will lose over £10 billion a year as a result of the loss of over 500,000 public sector jobs
- Real income is projected to fall by 7.5% next year
- The average family will lose the equivalent of 13% of their income in services
- The purchasing power of poorest 10% will fall by the equivalent of 32% of their income
- In 2010 average disposable income fell by 4.5%
- In 2010 the directors of the 100 richest companies increased their salaries by 55%