Austerity with no end in sight

Families and communities already facing an unprecedented collapse in living standards are now faced with further grim news of increasing unemployment, a deteriorating economy and a further two years of pain:  It truly is a picture of austerity with no end in sight.

Today’s announcements from the Chancellor and Office of Budget Responsibility show yet again the real cost of the economic crisis is being born by those who are already struggling to make ends meet.

Unprecedented collapse in living standards

Even before today’s announcements, the Institute for Fiscal Studies has been forecasting that real average household incomes would be 7% lower in 2012-13 than it was in 2009-10, and to remain below its 2009-10 level until at least 2015-16. This “unprecedented collapse in living standards” is chiefly due to high inflation and weak earnings growth over this period.

The consequence of this, according to the IFS, was predicted to be an increase of 300,000 in child poverty by 2015, with a further 700,000 adults also slipping below the poverty line.

A price worth paying? Two more years of pain; more cuts, more unemployment and more child poverty…

Today’s announcements from the Chancellor and the Office of Budget Responsibility make for grim reading, and serve only to matters far worse:

  • Unemployment will rise from 8.1% this year, to 8.7% next year:  The ‘Claimant count’ (the narrowest definition of unemployment) will go up by 300,000 to 1.8 million.
  • 710,000 public-sector jobs lost by 2017 – over 300,000 more than previously forecast
  • Public sector pay rises will be capped at 1% for a further two years, on top of the current two year pay freeze:  Public sector workers – whose wages for the most part are already very low – are now facing real terms cuts in their incomes for four years in a row.
  • A further £2.3 billion is to be cut from child and working tax credits and from public sector pay by 2015.  More than three quarters of the cuts to tax credits will fall on those in the poorest half of the population.
  • In addition, the Chancellor has reversed a £110 above inflation rise in the child element of the child tax credit which he announced last year, explicitly in order to stop child poverty rising for at least two years. The clear message: Rising child poverty is a price worth paying for fiscal rectitude.
  • Overall £30billion further cuts in public spending, with the pain extended by at least a further two years, until after the next election (2015).

According to James Plunkett of the Resolution Foundation, we are now well on our way to ‘two lost decades: The new OBR forecasts mean typical wages will be no higher in real terms in 2016 than they were in 2001.

On the plus side (if there is a plus side):

If there is a ‘postive side’ to today’s announcements, it is largely that threatened cuts to benefits and pensions have failed to materialise:  Benefits and pensions will not fall in real terms next year

  • Working age benefits will be uprated by 5.2% in line with September’s inflation rate
  • The basic state pension to rise in line with inflation by £5.30 a week

In recognition of the damaging impact of escalating unemployment amongst the more than 1 million young people now not in work, education or training – and of the fact that childcare costs are a real barrier to work , two welcome (and well trailed) measures were also included in the Chancellor’s package:

  • A £1bn scheme to subsidise work placements for the young unemployed (as well trailed in the press over the past few days)
  • The doubling of free childcare places for two-year-olds in low income families to 260,000 in England.

The landscape is fundamentally transformed.

Welcome as these measures are, they cannot conceal the overall message. As James Landale, BBC Deputy Political Editor: “The landscape is fundamentally transformed. A government that promised to eliminate the budget deficit by the next election has admitted that it will fail. It now says it needs another two years to meet its deficit target. And what’s more, to do that, it needs to inflict yet more pain – a squeeze on tax credits and further pay restraint for the public sector. There will be more spending cuts in the years after the election.”

Or as Sally Copley, Save the Children’s Head of Poverty, commented: “Today’s announcements are dire news for the poorest families – both in and out of work – who have seen core benefits they depend on cut in real terms. For many families the scrapped £110 increase in Child Tax Credit could mean the difference between putting food on the table for their children or having them go hungry. Children from low income families, whose parents rely on working tax credits to make work pay will be worse off as a result of the Chancellor’s announcements. Child poverty in the UK is predicted to escalate in the coming years and the Chancellor ‘s decisions today will only exacerbate the situation.”

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