July 2015 Budget Response

After much speculation we now know the details of the first all-Tory budget for some time. It was always going to be bad for the less wealthy and anyone who depends on help from the state, but just how bad is it?

Benefits ‘Cap’

Firstly, let’s think about the purely ideological cuts that even the Tories don’t believe will achieve anything other than ‘good PR’ with a certain section of society. The most harmful is the ‘benefits cap’ - a hard limit of £20,000 in social security payments per household. This will apply whether or not anyone is in work, sick or disabled, and irrespective of how many children and dependents they have. As Green MP Caroline Lucas points out, it might not even be legal. And, as she says, the supposed ‘opposition’ Labour Party is not even opposing it.

Tax credits and Benefits Freeze

Even taking into account possible higher wages, people receiving tax credits will be significantly worse off. The independent Institute for Fiscal Studies has said that the group who will lose the most will be those who are in work but on low incomes.

Working people on lower incomes are hit with a bit of a ‘double whammy’ because not only are they going to lose their tax credits, but they are the group most likely to depend on other working-age benefits to supplement their income, and these benefits are going to be frozen from next year. This means a real-terms decrease in things like child benefit and most housing benefit - benefits have already faced a real-terms cut annually since 2013.

The Resolution Foundation is an organisation that campaigns for low and middle-income families. Their chief executive Gavin Kelly said “We shouldn’t think that a higher minimum wage will compensate all low income working families for their losses - many working households will be left significantly worse off”. They also warned that the changes will weaken the incentive both to enter work, and earn more.

The ‘National Living Wage’

While George Osborne is not an economist he is quite a canny PR man. He announced a reasonable increase in the minimum wage (although not by as much as we are calling for). The cunning trick however was to call it a ‘National Living Wage’, which has effectively ‘stolen’ the phrase from the progressive side of politics, and has got to have really irritated the Living Wage Foundation.

Their statement on the budget makes some good points, but the main one is that the ‘National Living Wage’ that Osborne wants for 2020 isn’t even up to the level of today’s Living Wage in London. By 2020 this is likely to be true outside London as well, and of course with the cuts to Tax Credits the amount required for a Living Wage will actually increase. It has been estimated that with the various cuts announced in the budget a realistic Living Wage is up to £12 today.

While any increase in the minimum wage is to be welcomed, this is not a Living Wage. And let’s remember, like many other Tory changes to benefits those under 25 won’t get this new increased minimum wage, for reasons which are largely inexplicable if you discount ‘because they don’t vote Tory’.

Public Sector and NHS

Teachers, nurses, doctors and other vital workers heard the unwelcome news that they are to face another four years of real-term pay cuts. That’s on top of the five years they have already suffered.

This just shows the contempt of the Conservatives for our vital public services. There is a recruitment crisis for many of these jobs, especially nurses. Just how the Tories think that cutting their pay is going to help is anyone’s guess. Let’s be honest - this is all about getting people to leave the public sector by making it increasingly unpleasant to work for.

“Britain needs a pay rise”, Osborne says. Yes it does, but the Tories don’t want that to apply to the public sector.

Students and Young People

Students have been hit with a couple of nasty shocks. Firstly we’ve seen the abolition of maintenance grants for poorer students, resulting in the increased burden of debt on the poorest in society. We’ve also seen the lifting of the cap on tuitions fees, meaning that universities will be able to charge more than £9,000. And they will.

It was interesting during the General Election campaign. I did a couple of hustings at Bath University which went well, and there were some very positive polls, with the Greens clearly in the lead. However, the Tories were in second place. For the life of me I can’t understand the mentality of a student who votes Conservative - nothing they offered students was attractive, and yet a considerable number vote for them. I can only imagine that it’s a misplaced aspiration assumption along the lines of ‘I’ll be rich one day, so I’ll vote for policies that favour the rich’ while at the same time ignoring the fact that they are definitely a student and will definitely have a student loan, and the Tories have the worst policies for those.

But we are where we are, and students are going to be hammered for five years. And it’s not just them of course - we’ve seen that people under 25 are going to lose out on vital benefits which will limit their personal development and ability to live independent lives.

Inheritance Tax

We knew before the budget that we’d see a cut in inheritance tax, so it was no surprise when it was announced. However, it is worth mentioning that at a time were we all have to apparently tighten our belts the people who don’t have to are those benefiting from an unearned income of up to a million pounds.

IHT of 40% is currently payable on estates over £325,000, and this is doubled to £650,000 for couples. To put this into perspective, only 3% of estates currently pay any IHT at all, so it is not a ‘burden’ that the vast majority of us will ever have to worry about. To increase the limit only helps the very richest. Not only that, but it will drive property prices up because there will be less reason for people to sell to pay the taxes due.

It’s worth noting that not everything that is inherited is subject to IHT anyway. Some exclusions are unquoted shares, business investment and heritage assets - exclusions that enable the very wealthiest to avoid a lot of tax in the first place. We need to ensure that the various schemes used to avoid IHT are stopped.

If the Tories genuinely want to reward ‘hard work’ then they would indeed reform IHT, but they certainly wouldn’t be raising the tax free limit. The Green policy of taxing individual inheritances instead of the estate would be a start (and I’ve never heard a decent argument against it), but if we really want a society where people ‘deserve’ their wealth and get on by their own efforts then we need to reduce inherited wealth, not increase it.

Climate and Environment

We’ve already seen the Tories halting expansion of our cheapest source of renewable energy, onshore wind. Renewables have now been hit with a new cost, and it’s ridiculous - they will now be subject to the Climate Change Levy. This is a charge made on carbon- emitting energy production as an incentive to move to renewables. Well, it was until now. There is no logic behind the decision to apply it to renewables, other than to make them less attractive to investors. One can only assume this was done to please Tory donors in the fossil fuel industry as I honestly can’t see any other reason for it.

We’ve also seen a redefining of the way vehicle duty works and an earmarking of funds for road-building programmes. We know that building roads simply generates more traffic. If we want a sustainable transport policy we need to be investing in other modes of transport and infrastructure changes that reduce road use, not increase it.

Conclusion

The government billed this budget as one for ‘working people’, but again we’ve seen that actually the people who have done best from Tory policies aren’t those that ‘work hard and get on’, but those who are already wealthy or who don’t work for their wealth at all. We’ve seen not only the increase in the tax free IHT allowance, but also a tax free allowance for dividends. Unearned income has consistently been treated favourably to earned income - what does this tell us about the society the Conservatives want?

To be fair there were a couple of positives - the end of relief on buy to let mortgage interest for one. But its not much, and it was massively offset by attacks on the poorest and most vulnerable.

However saddened we may be, we should not be surprised. Let’s ensure we use our anger as an energy for change.