British budget hits workers and poor

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British budget hits workers and poor
By Ann Talbot
23 June 2010

The Conservative/Liberal Democrat coalition’s emergency budget will hit the
poorest members of society hardest. Chancellor George Osborne wrapped his
measures in rhetoric about fairness and burden sharing, but this was a budget
for the rich.

Osborne announced a total of £11 billion in cuts to welfare spending. In
addition, Value Added Tax (VAT) will go up from its present 17.5 percent level
to 20 percent, raising a further £13 billion. VAT is a regressive sales tax that
inevitably hits the lowest paid most heavily.

Overall the budget aims to raise £40 billion. Most of this will come from cuts
to public spending. This unprecedented attack on the welfare state is the price
of the bank bailout, which saw the Labour government come to the rescue of
financial institutions that had bankrupted themselves through their own
speculative frenzy.

Osborne set out plans to entirely eliminate the UK’s record £155 billion deficit
within the five-year lifetime of this parliament. Achieving this target will
mean five years of austerity involving cuts in welfare benefits, public
services, jobs, pay and pensions.

“This is an unavoidable budget,” Osborne said in the run-up to the announcement.
Last week the credit rating agency Fitch warned that Britain needed to speed up
its deficit reduction strategy to avoid the risk of sovereign downgrade
escalating. “[B]oth the size of the deficit currently projected for 2011 and the
failure to reduce the deficit to 3 percent of GDP within five years are
striking,” Fitch commented.

Osborne and his Liberal Democrat coalition partners have responded to the
demands of the financial elite with a budget that will transfer money from the
majority of the population to the wealthy elite. “I want a sign to go up over
the British economy saying ‘open for business’“, Osborne told Parliament.

Corporation Tax is to be cut from its present level of 28 percent to 24 percent.
This will give the UK the lowest level of corporate taxation in any developed
economy. National Insurance contributions paid by employers will be cut for
lower paid workers. This too will shift more of the cost of the welfare state
onto workers. Small companies will receive extra tax benefits. “Manufacturing as
a whole will pay less tax”, Osborne assured business.

While the banking sector will have to pay a bank levy on financial transactions,
this will easily be offset by the cut in corporation tax.

Capital Gains Tax is to go up from 18 percent to 28 percent. But this will have
a bigger effect on individuals who have invested in property as a means of
providing themselves with a pension. Major corporations and the rich have been
exploring ways of avoiding this increase, which was long expected.

The public sector faces cuts of over £100 billion over the next five years.
Osborne announced that public spending will rise, but this is entirely accounted
for by debt repayments. Labour already planned to cut 20 percent across the
board from all government departments. Osborne plans to go further. He announced
a 25 percent cut in public spending. Health, defence and overseas aid spending
would be exempt, he said, meaning that other departments would have to make
bigger cuts.

This does not mean that the National Health Service will be protected from cuts.
“Efficiency savings” announced by the previous government are already working
their way through the system. On top of that the coalition government introduced
a £6 billion package of cuts when it came into office.

Osborne’s budget, grim though it is, does not tell the full story. A
comprehensive spending review will introduce further cuts in the autumn.

Many of the implications of the cuts will be hidden from public scrutiny in an
attempt to dissipate opposition and prevent nationwide opposition from
developing. They are being devolved to local government, regional government,
Health Trusts and universities.

Osborne announced a series of cuts to welfare provision. Child Benefit, one of
the few remaining universal benefits, will be frozen for three years. The Child
Tax Credits system, which Osborne described as “unsustainable”, is to be
revised. Payments to families collectively earning just £40,000 a year will be
restricted.

The planned rise in state pension age to 66 will be accelerated. The state
pension and state pension credit will in future be uprated in line with the
Consumer Price Index (CPI) and not the Retail Price Index (RPI). Since the RPI
is usually higher than the CPI, this will save the government £11 billion.

Osborne announced cuts to a number of benefits. One of the main targets was the
Disability Living Allowance, which allows disabled people to live in their own
homes and continue to work. This is a benefit that already has stringent
criteria and is notoriously hard to access. Osborne aims to save 10 percent of
its current budget by imposing a stricter medical assessment on claimants.

Housing Benefit costs, Osborne claimed, were “completely out of control”. The
government would restrict access to this benefit, which allows those on low
incomes to rent homes.

Some issues were deferred, indicating that this budget is not the sum total of
the attacks to come.

Public sector pensions are to be reviewed by a commission under the chairmanship
of John Hutton, who was work and pensions secretary under Labour. The choice of
Hutton points to the continuity between this government and its predecessor.
Public sector pay will be reviewed by another commission under the hitherto
Labour-supporting economist, Will Hutton. But Osborne announced a two-year pay
freeze for public sector workers, with the exception of those on less than
£21,000 per annum who will get a £250 flat rate pay rise in both these years.

Public sector workers will bear the brunt of the coalition’s fiscal policies,
whether in the form of job losses, pay cuts, loss of pension rights or
privatisation. Osborne indicated that the government intended to go ahead with a
number of privatisations, including the student loan book, air traffic control,
the Tote (state-run gambling) and the Royal Mail.

One of the new features of this budget was the role of the Office of Budgetary
Responsibility (OBR), which the coalition has just set up. The OBR is an
unelected body that has the job of determining government economic and fiscal
policy in the same way that the unelected Bank of England determines government
monetary policy.

The scale of the budget cuts has put strain on the coalition. Nick Clegg, the
Liberal Democrat deputy prime minister, wrote to all his party members the night
before the budget telling them that the austerity measures were necessary to
prevent Britain becoming “another Greece”. His aim was to head off protests from
his own supporters.

During the election a Liberal Democrat poster had warned of a Tory VAT
bombshell. Now Clegg is part of the government that has implemented a massive
hike in VAT and imposed cuts in government spending that he previously warned
would lead to a double-dip recession.

Clegg denied that he had “sold out”. “We have always argued that cuts would be
necessary, but the timing should be based on economic circumstances, not
political dogma”, he said. “The economic situation today means that time has come.”

The Tories are scarcely in a stronger position. Prime Minister David Cameron
claimed they had no plans to raise VAT throughout the election campaign.
Inevitably, the tax rise will hit shops and other businesses that are already
struggling under the impact of the recession. A government that came to power
with little popular support is in danger of rapidly losing what little political
capital it had.

Osborne offered a token cut in income tax in an effort to elicit some popular
support for the coalition. The tax threshold will be raised by £1,000 to £7,475
and there will be a £200 tax cut for basic rate taxpayers. On the face of it
this will benefit more than 1 million people. But the impact of the measures is
in fact very limited. People earning minimum wage will still be paying tax,
while the VAT rise and the cuts to other benefits wipe out any gains.

This budget foreshadows immense class struggles as the welfare state concessions
of the post-war period come under systematic attack from a financial oligarchy
that is no longer prepared to tolerate any diminution of its profits.

http://wsws.org/articles/2010/jun2010/budg-j23.shtml

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