George Osborne’s austerity package will have a savage impact. Of that almost everyone is agreed. But does it represent a brave and radical strategy to bring Britain back from the brink of economic ruin, as Osborne claimed? Or is Osborne, as his critics suggest, taking a reckless gamble that may well push Britain over the edge and into a second recession?
Osborne wants within five years to eliminate Britain’s historic £155bn budget deficit by axing £81bn of government spending. Inevitably it will be the poor that disproportionately feel the pain. According to the Institute of Fiscal Studies the richest 10 per cent in Brain will see its net income fall by 4.5 per cent, while the poorest 10% will lose more than 5.5 per cent of its net income.
Of the £81bn to be cut, almost a quarter - £18bn - will come from welfare claimants. That is the equivalent of 9 million of the nation’s poorest people losing £2000 each. To put that in context, the Jobs Seekers’ Allowance currently stands at £65.45, or £3,403 a year. Of course, claimants have access to other benefits – such as housing benefit – but the figures give a sense of how brutal the cuts will be on those who can least afford them.
Yet, for all the agony that the cuts will cause, public spending will continue to rise. By 2014, public expenditure will be an estimated 40.9 per cent of GDP – exactly as it was in 2007.
The fact that it takes the imposition of so much misery to make such little impact on the overall size of state expenditure reveals how indispensible the state has become to a modern society. One reason for this is that as people’s life-expectancy has increased, and as attitudes to well-being have changed, so expenditure on areas such as health and pensions has ballooned. Britain’s health spending, for instance, has climbed from 3.3 per cent of GDP in 1948, when the NHS was set up, to 6.3 per cent last year.
There is, however, another reason for the size of the state in a modern economy – the dependence of business upon government handouts. There has been much talk in recent years from politicians of all parties about the ‘culture of dependency’ – the belief that people are so attached to state benefits that they have lost all incentive to find work. In fact, the majority of people who are classified poor, and receiving benefit, are actually working. But their wages are so low that they are forced to look to the state for help. It takes 70 hours work on the minimum wage for a family to earn enough to cross the poverty threshold. By topping up the wages of low-paid workers, taxpayers are in effect subsidizing businesses.
The state provides more direct subsidies, too. Britain’s railway network was privatised more than a decade ago. Yet the taxpayer gives private rail companies (or at least did until this week's budget) an annual state handout of over £5bn – a greater amount than the total cost of the old nationalized network. It is a figure dwarfed, of course, by the £850bn that the taxpayer had to stump up to bail out collapsing banks in the wake of the financial meltdown of 2007-2008. If there is a culture of dependency, it is that of private capital upon public subsidies. But few of those who rage about the size of the welfare budget make much noise about state support for businesses.
At least half a million public sector workers will be thrown out of work thanks to Osborne’s austerity package. Osborne believes – or rather hopes - that the private sector will pick up the slack. But in areas such as Wales, Northern Ireland and the North East, it is the collapse of the private manufacturing sector that has transformed the state into the largest employer. Even today, before the cuts decimate public sector jobs, four people on average chase every vacancy. Anyone who truly believes that a Clark Kentish private sector can suddenly transform itself into the heroic saviour of the British economy has probably been watching one Superman film too many - particularly as not a single line in Osborne’s speech helped spell out how he aims to encourage economic growth.
The most striking aspect of Osborne’s budget, though, is how little reaction it has provoked. While French protestors were blocking oil refineries, tearing up paving stones and setting cars alight, the TUC was holding a polite meeting and its leaders making platitudinous speeches.
An opinion poll taken in the wake of the budget showed that 58% of people believed the cuts are unavoidable. Almost three times as many people blamed the previous Labour government for the crisis as blamed the current Coalition. And even though half the population thought the cuts were unfairly distributed, nevertheless more people trusted the Coalition than Labour to ‘cut spending in a fair and equal way’.
The British public has, in others words, bought into the narrative that there is no alternative to austerity. And it has done so largely because Labour has prepared the way. In government Labour pushed the argument that the best way to deliver change in services such as health and education was through the introduction of market forces. In opposition it accepts the case for austerity - seventy per cent of the cuts announced by Osborne were proposed by the Labour Party. Alistair Darling has observed that were he in charge now he would have introduced cuts deeper than those imposed by Margaret Thatcher in the 1980s.
George Osborne’s package, far from being radical or brave, simply picks up from where Labour left off. Whether or not it leads to a second recession remains to be seen. The real tragedy of Britain’s austerity policy, however, is not simply the pain the cuts will induce but also the lack of any true opposition to them.