War on the poorest

Media rumours about the death of austerity are premature says the Institute of Fiscal Studies as it and the Resolution Foundation highlight Osborne’s new attack on the poorest.

George Osborne is threatening 2.6m working families with an average loss of ÂŁ1,600 a year under the new Universal Credit (UC) system, according to the Institute of Fiscal Studies.

It warned that while the tax credit u-turn stopped immediate losses for poorer working families, the sting in the tail will arrive when the Universal Credit system is fully rolled out.

And if you are a non-working family the figures are even worse. Compared to now, 1.2m non-working families will lose an average of ÂŁ2,500 a year.

The Resolution Foundation said that some of the worst hit would lose up to ÂŁ3,000. Andrew Hood from the IFS said the new systems will still be much less generous than tax credits and benefits in the long term.

“In the long run, the system will be much less generous to low income households,” he said. “That’s the big headline…because other cuts are going ahead.”

The new sets of analyses fly in the face of Daily Mail and the Telegraph spin that austerity is over.

Paul Johnson, IFS director said, “This is not the end of austerity. This spending review is still one of the tightest in post-war history.”

The boost to NHS spending – much spun and over-played – was put into stark contrast by Johnson.

“The 3 per cent cumulative increase in health spending over the next five years is not far off the average annual increase in spending in the last 50 years.”

Politics

The politics of austerity were also put in focus by the IFS. The coalition November autumn statement had set out horrendous cuts, the pre-election follow up trimmed them back a bit, the Tory election manifesto trimmed a bit more, as did the July budget.

Though there remained deep cuts some of the abandoned plans sucked other political parties into broadly adopting each of the plans in turn. But each was abandoned in turn.

As Simon Wren-Lewis has previously written, under the Coalition Osborne’s first two years as Chancellor “did what [the government] had promised to do – and more – and as a result inflicted palpable harm on the economy. The recovery was delayed, costing the average household the equivalent of at least £4,000. In 2012 the government departed from its earlier plans and eased up on austerity, but pretended it had not.”

There was then an ‘easing off’ of the implementation of austerity to lead to higher rates of fragile economic growth – although as many commentators have noted the economy was not re-balanced, put on a more sustainable footing or attain a healthy rate of growth – and deep damage was still done to our public services.

Johnson continued, “There is no question that the cuts will be less severe than implied in July”. This is only possible because of an improvement in the economic forecast – partly based on modelling changes.

Johnson said the Chancellor would have to ‘be lucky’ for all the economic forecasts which underpin the next five years of spending to make the plans add up.

But Osborne’s luck hardly held out a day, with new figures already showing that growth has dropped, and the balance of payments – how much we import against how much we sell abroad – slumping badly.

Latest official figures from the Office of National Statistics show that construction and manufacturing activity have both dropped again. Both sectors – the makers and the builders – are well below where they were before the banking crisis, and dropping further.

What economic growth there is appears to be heavily reliant on consumer borrowing and spending which is taking off again. At some point, that will end in tears and problems.

Without economic growth Osborne’s tattered plan will fall apart at the seams. The spending plans also based on low interest rates with the Office for Budget Responsibility interpreting the Bank of England’s two years of warnings that interest rates rises are imminent, as meaning none will arrive until 2017.

Horrendous

But the cuts rolling in are horrendous. While the council by council detail will not be known until the next budget, local council funding from Whitehall – the Department Expenditure Limit – will be cut by 56 per cent and will disappear altogether by 2020.

Councils are getting new burdens placed on them at the time new vicious cuts are kicking in.

The IFS analysis of the last five years of central government grants to councils shows those cuts fell heaviest on councils with large urban areas and lightest on the “leafier” areas. That is the urban councils were being hit by cuts of up to 50 per cent while the shires were hit with as low as 15 per cent cuts.

While the IFS did not explicitly say, previous analysis has shown that Labour areas were hit far harder than Tory voters in the last five years.

But even those hit by the smaller end of the cuts have been forced to cut deep. Oxfordshire County Council’s Tory leader pointed out the impact of central government cuts on local services and took his local MP – Prime Minister David Cameron – to task.

But there are far more cuts to come. And while we don’t know the council by council impact, the overall picture is bleak.

Lord Porter, Tory chair of the Local Government Association was chillingly clear about the impact on local government services of the latest cuts.

The spending review “has handed down a difficult ÂŁ4.1bn funding cut over this spending review period for our residents and comes on top of almost ÂŁ10bn in further demand-led cost pressures facing councils by the end of the decade. The consequences for our local communities who will suffer as a result should not be underestimated.

Black hole

“Even if councils stopped filling in potholes, maintaining parks, closed all children’s centres, libraries, museums, leisure centres and turned off every street light they will not have saved enough money to plug the financial black hole they face by 2020.

“These local services which people cherish will have to be drastically scaled back or lost altogether as councils are increasingly forced to do more with less and protect life and death services, such as caring for the elderly and protecting children, already buckling under growing demand.”

And even the reverse turn on the planned police budget cuts could be a bit of financial jiggery pokery. In the small print of the spending review, Osborne announced he was handing most fire authorities over to local police and crime commissioners (PCCs).

In London, police and fire come under one single hand as well – that of the mayor. In the last spending round Boris Johnson stripped £50m out of the London fire service emergency reserve and handed it to the police.

The latest move with PCCs opens a whole range of possibilities for similar – and worse – things to happen. Osborne is flagging up the means to do this, and the temptation may well be beyond endurance.