Wednesday, 21 March 2012

Budget 2012: The conclusions...

Andrew Harrop, General Secretary of the Fabian Society, gives his response to the chancellor's budget statement this afternoon

This is a budget of reheated Thatcherism.

The Chancellor has unveiled a £5,000 annual Easter present for anyone earning a quarter of a million pounds, while keeping quiet about his real-terms cuts to tax credits and the minimum wage.

From next year the Budget’s headline tax giveaway, the increase in the income tax Personal Allowance, will spread £3.3 billion between rich and poor alike. But by then tax credit payments will be £2.5 billion lower than under Labour’s plans. Add to that Monday’s announcement that the Minimum Wage will rise by far less than inflation (again). Following this week’s announcements most low earners will lose more than they gain, just as the super rich see their income tax slashed. 

Britain is becoming a more unequal country under Mr. Osborne.

George Osborne tried to justify his embarrassing cut of the 50p rate with new wealth taxes. It is far from certain that they will raise the revenues he hopes for, but even on his own estimates they amount to barely half a billion pounds. Compare that to the £7 billion Osborne will have slashed from welfare by next year. There was for example no move to reduce the huge amount spent on pension tax relief for the highest paid.

The Budget also contains grim reading for Labour politicians serious about retaking power in 2015. Osborne signalled that after the next election he would extend the annual cuts to departmental spending budgets for another two years and also slash welfare by a further £10 billion. To be credible at the next election Labour will need to develop an alternative plan for closing the deficit or work out how it can deliver savings on this scale without a devastating impact on the most vulnerable.

Comments on specific proposals:

Public Sector Pay: The proposal to ‘regionalise’ public sector pay has troubling implications for aggregate demand in poorer regions. It would reduce the extent to which public spending redistributes national wealth from rich to poor areas, further unbalancing our economy.

State Pension Age: It is right that the State Pension Age gradually rises to reflect longer life expectancy and an automatic process will help politicians of all parties push through unpopular decisions in the future. The critical question is what index should be used. Raising the State Pension Age in line with average life expectancy will substantially disadvantage poor communities where people die younger and live more of their lives with disabilities. While health inequalities are so wide, any automatic system should be based on changes to the healthy life expectancy of people living in low income areas.

National Minimum Wage: This is the sixth year in a row that the National Minimum Wage has failed to keep up with inflation. Low paid workers will be £1,000 per year worse off than they would have been if the NMW had been indexed to inflation since 2006. The Government is willingly presiding over rising earnings inequality.

Income tax age-related allowances: George Osborne’s stealthy tax raid on the top-half of pensioners will raise him an annual £1.2 billion by 2016. In principle it makes sense for richer pensioners to pay the same amount of tax as everyone else. But this measure will raise more than the Government could expect to save from mean-testing the Winter Fuel Payment so the quid pro quo should be an end to talk of removing universal age-related entitlements.

Child Benefit: The principle of universal child-focused cash payments is important and its loss could undermine long-term support for the welfare state. George Osborne’s concession will be welcome relief for people in ‘cliff-edge’ cases but the price is the greater complexity of tapered means-testing. Now that child credit is part of the means-tested system it would make sense to explore the case for a single child-focused payment that integrates tax credits, child benefit and childcare tax relief and provides support at some level to every family.

Corporation Tax: The UK must avoid engaging in a ‘race to the bottom’ on corporate taxes. It is in the long term interests of all rich nations to maintain a buoyant corporate tax base. Rather than playing ‘beggar my neighbour’ the UK should encourage greater coordination of business tax rates through the EU, OECD and G20.

Stamp Duty: It’s good news that the Government is clamping down on tax avoidance and raising Stamp Duty to seven per cent for homes worth over £2 million. But the proof of the pudding will be in the eating and it remains to be seen whether the promised revenue is actually realised. Very high transaction taxes are likely to encourage avoidance and could silt-up the property market. In due course they should be replaced by more affordable annual charges, such as the ‘mansion tax’ proposed by the Liberal Democrats.

Budget 2012: The green imperative

Give the Green Investment Bank real power. Now.

When it comes to crises, this generation is spoilt. I’d like to talk about 3 in particular. The climate crisis, the public attitudes to climate crisis and the economic crisis. There is one thing that could go someway to addressing all of these crises: A Green Investment Bank with real power. George Osborne should use the budget to give it real power. Immediately.

 The climate crisis has been well documented and evidenced. The threat of dangerous climate change is immense and real. Thanks to a powerful anti-climate PR machine and some hacking of University of East Anglia computers, we also have a public attitudes to climate crisis. Evidence from upcoming Fabian Society research has further confirmed this. Our focus groups on aviation policy have shown that public attitudes towards climate change are increasingly characterised by suspicion of exaggerated climate science.

This means that how the Government acts and deals with climate issues is of great importance not only for policy outcomes, but also for public perceptions.

 We also have an economic crisis. Large infrastructure projects are an effective economic stimulus. Keynes has taught as us much. Rachel Reeves also makes very good arguments for this in her Left Foot Forward article

The urgency of both the economic and climate crises mean that we cannot afford to delay the investment in green infrastructure. And what is worse, failing to do so only exacerbates the public attitudes to climate crisis. Why? Because if climate change is, as David Cameron states, one of, if not the greatest challenge facing our generation, then why is the Green Investment Bank something that can wait a few years before it becomes effective?

 Let us give the Green Investment Bank real power and send the message out that the UK will not tolerate sluggish growth, and furthermore, this country is taking the climate challenge seriously. Responsible capitalism needs responsible Government. Right now we have neither.

At next week’s Climate Justice conference, we’ll be talking in more depth about how to win the public argument on climate using notions of fairness and responsibility. What will you be doing to play your part Gideon?

Tuesday, 20 March 2012

Budget 2012: The case for investment

By Anthony Painter

Politics is the enemy of good fiscal and growth policy. This dynamic reveals itself in the tough times rather than the fair. The worst thing you can do if you want to support both short and medium growth is eliminate expenditures on investment. And yet, when you have to reduce a deficit that is exactly what gets cut first.

So this explains why net public investment is scheduled to fall from £38.6billion in 2010-11 to £21billion in 2016-17. And it’s economically mad. Capital investment has a higher ‘multiplier’ – ie a greater impact on growth than tax cuts or increases in current spending on services. To cut it creates undue economic harm and over time - it will pay for itself as the country’s growth potential is enhanced.

There is an obvious need for tens of billions of capital investment – transport, energy, digital infrastructure, higher education, schools, skills and new housing. The Government’s National Infrastructure Plan identifies £250billion of needed infrastructure investment. There should be a register of ‘shovel’ or service-ready projects running into the tens of billions that should be ready at any time to be brought forward should the economic need to do so be there.

The IFS demonstrated in its green budget that a £9billion short-term stimulus can be initiated without harming medium-term consolidation. There are some signs that pension funds are also very willing to invest in public infrastructure projects. It is important to create investment vehicles for them to do so. A National Infrastructure Bank along the lines of the European Investment Bank (of which we are a member!) would make sense to enable this investment to be channelled into our infrastructure needs as soon as possible.

The SMF has argued that there is a different way to consolidate – a fiscally neutral stimulus – in its recent pamphlet, Osborne’s choice. Essentially, this involves, in the American vernacular, shifting expenditures from recurring entitlements to discretionary investments. Once you have built a road you don’t need to build it again. However, you have to pay a tax credit every year while you are legislatively committed to do so. What’s more, entitlements are more politically sticky. The SMF identified £15billion of expenditures that can be shifted from current to capital expenditure.

One final aspect to this approach that needs to be considered. There is a perverse accounting logic at the moment when it comes to prioritising investment. There is current expenditure such as certain elements of welfare-to-work, skills and higher education (eg engineering degrees) that have the characteristics of investment rather than current expenditure. Even if we reverse the short-termist political logic of cutting capital expenditure then we may still miss these important investments.

Actually, there is quite a bit that can be done in the short-term to boost growth now and in the future. It can be done in a fiscally responsible manner. Actually, it’s irresponsible not to do it. This doesn’t alleviate the pain of returning to a more fiscally sustainable path but it does salve some of the economic pain. It will create jobs and growth and help reduce the deficit more effectively in the medium term.

An invest to grow strategy while pursuing a fiscally sustainable policy is precisely what has been proposed by the Obama administration in its 2013 budget. It reduces the deficit by 3% from 2012 to 2013 and eliminates the primary deficit by 2018. And it still finds room for massive investment in infrastructure and human capital. For me, this is the essence of what the In the black Labour argument was about. It argued for an ‘enterprise’ rather than a ‘welfare’ state. To achieve that requires political leadership, determination and a move away from retail politics. It turns out that it’s the politics, stupid.

Anthony Painter is a writer and commentator. He co-authored "In the black Labour" and his book on the future of the left will be published later this year.

Monday, 19 March 2012

Budget 2012: A budget for women

Ivana Bartoletti, Editor of Fabiana, the Fabian Women's Network magazine, writes on what women need from George Osborne's budget on Wednesday. 

The Government will present the Budget on Wednesday, and I fear it will be another missed opportunity to address crucial issues affecting women in Britain.

The British economy is failing women, and the Government’s plan is not working: unemployment has increased to 2.67 million in the three months to January 2012 and Jobseeker’s Allowance (JSA) claimants increased for the twelfth consecutive month to 1.6 million.

Women are being affected disproportionately by the cuts and failure of the economy. But what are the key priorities the Government should deal with in the Budget to protect women? In my opinion, these should be: a plan for women’s jobs, less ideology and more common sense on welfare policy; and women’s safety.

A plan for women’s jobs

Female unemployment has reached its highest level in two decades; beyond the 1.1 million mark. 65% of public sector workers are women, and that is where the Government has perpetrated the biggest cuts.

Research, published by Aviva last summer, showed that, since the third quarter of 2011, 32,000 women have already left their jobs to look after their children, because they cannot afford to work. And things will get worse. The Social Market Foundation estimates that, by 2015, childcare costs will rise by 62% compared to 2006. The Institute for Public Policy Research (IPPR) has shown how the gap between the rates of female employment and maternal employment (women with children under the age of fifteen years) is higher in Britain than in other OECD countries.

With the Coalition Government cutting over £7,545 from direct support to children (through cuts to child tax credits, maternity allowance and the child trust fund), it is increasingly more difficult for mothers to work.

We need to stop this slide, not just for women, but for the whole economy. We need a plan to stop women being held back from work.

Less ideology and more common sense

The change to working tax credits means that couples with children, who earn less than £17,700, will need to increase their working hours from 16 to 24, otherwise they will lose their entitlement to £3,870 in tax credits.

In practice, this means that in a period of recession, with businesses forcing their employees to cut back on their working hours, people will have to convince their employers to increase their working hours by 50%. How realistic is this?

The reality is that this measure will, inevitably, push out of the workforce many of those employees who will not obtain the increase in their working hours that they need, to retain their working tax credits.

We must consider the long-term effect of a measure that will cause up to 200,000 working parents to lose almost £4,000 a year in working tax credits, and make parents on the minimum wage, working 16 hours a week, better off out of work, if they are unable to increase their working hours. In fact, I believe, in times of recession, it is crucial that people are supported in keeping the jobs they already have, as this will make it easier to return to full employment when the economic downturn ceases.

This is another example of the Conservative-led lack of long-term vision. Will George Osborne see the light and cancel the change to tax credits?

Women’s safety

Globally, women aged 15–44 years die more frequently as the result of gender-based violence than from cancer, malaria, traffic accidents and war. Violence against women should never be underestimated.

Massive cuts to police budgets are affecting women, and making them more vulnerable.

16,000 staff and 1,800 Police Community Officers are being cut. Everywoman Safe Everywhere, Labour’s Commission on Women’s Safety, launched by Yvette Cooper MP and led by Vera Baird QC, has found evidence that specialist domestic abuse officers have also been cut. The Commission’s report also shows how the Government is considering the closure of 675 ticket offices in train stations, which will make women even more vulnerable.

All of the above, together with cuts to local authorities having a dramatic impact on street lighting, as well as on support services for victims of rape and abuse, need to be addressed. Women’s safety needs to be a priority as its long-term consequences are crucial for the well-being of women, their children and their communities. 


Two weeks ago, on International Women’s Day, the Prime Minister had positive words with regard to women. He claimed that he wants equality in boardrooms, and even takes Nordic countries as an inspiration.

The facts, however, reveal a complete different picture. Women don't not need a cuddle on Wednesday, but a vision for the economy, with women at its heart.