Published on 21 Oct 2010

Spending review: a pot pourri of stealth cuts?

It is rather difficult to escape the notion that in an almost crazed desire to be seen as “fair”, the Coalition has made a bit of a dog’s dinner of the spending review.

Even if you support the extent and pace of deficit reduction mapped out by George Osborne (which it should be said has undoubtedly taken Britain out of credit rating danger zone), a litany of half-truths, dodgy claims, and policy inconsistencies was today exposed by the IFS.

And rarely can there have been such a direct Downing Street intervention in to the heart of the “post match” IFS briefing that has become a fixture of Budgets and Spending Reviews in the last decade.

Through the miracle of iPhone and Blackberry the words of Nick Clegg suggesting those like the IFS who question the fairness of yesterday’s announcements were “frightening people” were communicated to the Bambi-like boffins of our premier tax and spend watchdog. Carl Emmerson pointed out that they have never described anything as “fair or unfair”. They are making numerical statistical analyses of exactly whose shoulders really are bearing the biggest burden.

Regressive review
It’s worth mentioning that Nick Clegg has form with the IFS. On these pages I relayed in August that Nick Clegg, despite having quoted the IFS repeatedly in the hallowed TV election debates, turned on what he called their “partial” and “selective” analyses. Ironic, then, that the Treasury produced six such partially selective tables in yesterday’s document.

On that front there is no debate, that yesterday’s spending review was regressive. The new measures in the Emergency Budget were regressive too. Only if you include the total deficit reduction package, including the Labour tax rises on the rich can you even try to conclude that it is progressive. Though even that is highly debatable if you stretch the analysis out to 2014/15. But let’s park that.

The claim made by the Chancellor that his departmental spending cuts were less than Labour would have made was ripped to shreds by the IFS. It only holds if you ignore the impact of the £6.2bn of cuts made in the current financial year.

The Chancellor claims that his reforms will increase the incentive to work. The IFS revelation that the Treasury accept that they will lose £280m from higher rate taxpayers asking for a pay cut or making extra pensions contributions to avoid the child benefit cut is therefore very damaging.

Benefits
Oh, yes, did you know that the withdrawal of child benefit from higher rate payers will affect 1.8 million people, not 1.1m as we were told earlier this month? Epic error.

The idea of having a single all encompassing Universal Credit from 2013 is also undermined by the establishment of 100 or so localised versions of council Tax benefit reform. As the IFS’s Mike Brewer says “it is directly against ideas behind Universal Credit”.

The Government have made an awful lot of political capital from the notion that poor recipients of child benefit should not be subsidising the rich. But why do they then park that logic in every other area of their welfare cuts.

“On the same basis, low income pensioners have lost some pension credit to fund high income pensioners’ winter fuel payments,” point out the IFS.

Then there is the much heralded tabloid friendly Benefit Cap, which the IFS has branded as “a lazy way to make policy”. Why not make this adjustment through the child tax credit system or housing benefit system?

Stealth cuts?
Reading back through the green document one is left surveying a pot pourri of policies that are designed to try to make the public fail to notice the cuts. They are, if you like, stealth cuts.

And this may be a presentational complaint, and it is definitely true that Gordon Brown’s Treasury concocted a variety of statistical wheezes from double counting to the very serious charge of continually altering the fiscal goal posts every time his famous targets looked like being missed.

However, in my 10 years of attending every single IFS post Budget/SR briefing, I have never seen such an all-encompassing critique of as many aspects of one document.

Does it matter? Well, yes it does.

Even if George Osborne is doing unambiguously the right thing, he has not got the mandate to act in a variety of areas where his axe has fallen. I spent most of the election campaign following the minutiae of his policy announcements, and not one jot about housing benefit or train fares, for example, which have seen huge moves.

The mandate for cuts like this can not be assumed from the election result. It needs to be won. And more clarity, transparency, and honesty than we got yesterday, would help.

26 reader comments

  1. Jason says:

    You probably should be Shadow Chancellor on than form, Faisal.

    1. Saltaire Sam says:

      I’d be happier if he were chancellor

  2. W G Graceless says:

    I hate the use of ‘progressive’ and ‘regressive’. It seems to me that the IFS in particular use the words to determine whether people in the lowest quartile have had their benefits cut or not.

    Surely, as a non-partisan, financial think tank at some point the IFS should note that to actually ‘progress’ we need to ween people off the state and get them back to work?

    Ergo, the reduction of benefits (or how hard that quartile is hit) is no longer a measurement of ‘regression’.

    Still massively p***ed off about the train fare though!

    1. rogerh says:

      “Ergo, the reduction of benefits (or how hard that quartile is hit) is no longer a measurement of ‘regression’.”

      You don’t appear to understand the meaning of ‘progressive’ and ‘regressive’ in this context.

    2. Phill says:

      Getting people back to work is one thing but then there are benefit cuts to the people who actually need them, like the wheel chair bound lady who confronted Clegg and Cameron. Therefore cutting benefits in a reccesion where it is already difficult to find a job is causing a headache. Alternately hitting the poorest is rarely a good idea.

      Everybody hates the trains.

    3. Tom Wright says:

      Rogerh: ‘progressive’ and ‘regressive’ are meaningless terms. Cancer is progressive, as is leprosy. Labour’s spending on the welfare state got progressively larger and progressively unaffordable.

      WG Graceless’ is correct to criticise the IFS’ ‘regressive’ verdict as based largely on the removal of benefits: why should people on benefits frequently enjoy a standard of living greater than those who work?

      Do you think it is ‘progressive’ for the state to incentivise unemployment by ensuring it provides a better lifestyle than work? Thought not.

  3. Michael Mooney says:

    Am I reading this right? Do treasury documents INCLUDE a tax rise introduced under Labour, but EXCLUDE cuts made by the present government? Surely not.

  4. John Jameson says:

    I’m not super rich, but I will probably feel the effects of this review much less than most. I don’t have children, don’t get any benefits, paid off my student loan many years ago, work from home (no exorbitant train fares) and can afford private healthcare. But this isn’t just about finances, it’s about ideology. I don’t think that this is what people voted for… especially those of the Liberal Democrat persuasion. As Johann Hari said in The Independent, “Britain just became a colder, crueller country – and for nothing.” Ever since it became clear that Osborne would take over I have kept thinking of that great Kinnock speech, “I warn you not to be ordinary, I warn you not to be young, I warn you not to fall ill, and I warn you not to grow old.”

  5. ErF says:

    (Don’t blame me, I voted Labour)

  6. Anthony Martin says:

    I look forward to seeing the impending riots and protests.
    The result of all these measures will force people into positions of total poverty and, most importantly, have to commit ‘crimes’ just to survive.
    I know someone who’s been out of work for over 3 years and has been denied ANY government help for the last 18 months. I asked how he managed to pay for a trip abroad for three months without any income. His reply was very simple and understandable. He said he grew ‘weed’ with his pals and sold the contents for £5,000. I said this was wrong and illegal. He told me to go f**k off and asked how the heck he should survive when the there are no jobs and he’s denied benefits.
    I agreed with him.
    This is the state of the UK now and it’s only gonna get worse.
    Faisal, your blog only touches on the reality of the mess now and, the nightmare ahead.
    If I was a Magistrate, there is no way I would uphold laws that punish victims of such a disgusting country.

    1. Stuart says:

      “I know someone who’s been out of work for over 3 years and has been denied ANY government help for the last 18 months.”

      I have been out of work for over 6 years and never managed to get anything from the government. When first out of work I had adequate savings and felt I did not need to call on government help – BIG MISTAKE because when I did need to claim some time limit had expired and I get nothing. So much for being responsible, so much for not taking what you don’t need. I have learnt my lesson and in future will be claiming every penny regardless of my need. The government policy teaches you things like that.

  7. Paulo says:

    Never mind, we can still afford to spend £97 billion on replacing Trident nuclear weapons, so at least we can hold our heads up proudly as a nation.

  8. Eileen Brown says:

    Pity us poor women in our late 50s wondering if we’ll ever see our pensions.

  9. Mrs Sissons says:

    I’m shivering with the fear of the future.These are not cuts for the middle classes at all – how can that even be put forward?We have been duped and in the most staggering way we have been told that it is not the coalition’s fault and that we must PAY for our past governments crimes.But the coalition did have the choice where to make the cuts and I really believed when they said higher earners, the middle classes would be most affected.Let me give 2 for instances of unfair benefits to high earners in the past – 1 of which has changes, the other hasn’t.I know a family with 4 children.She has a nanny.Her husband earns well over £350,000 a year.They got child allowance for each child and she told me that it was great for a good lunch.I know of another retired couple who have over £5 in assets-they get the winter fuel payments – each.Have I gone mad? I will never vote Conservative and will canvas all my friends not to ever again.

    1. Tom Wright says:

      Mrs Sissons, it is absurd to refer to £350,000 as a middle class income. Absolutely, frighteningly absurd.

      Your friend who used her Child Benefit to fund the odd lunch has had her benefit taken away, so what exactly is your point?

  10. Mike says:

    Given that the spending review is supposed to be about stimulating the private sector to create jobs and that to do that requires competing in a global market, please can you run a Channel 4 News piece on the ways in which the UK might compete with China. The reason I ask is because I can’t think of any.

  11. Perplexed 61 says:

    I will never vote for the Liberals again. I hope they rot in the wilderness in the next elections.
    How will the private sector create jobs for all those 490,000 being forced to leave the public sector – and how is the economy going to revive if people can’t spend because they have no jobs? If traders bring their prices down , then there is less profit and therefore less to invest or save – with lower interest rates – so again less money…

  12. Ken says:

    Its blatant robbery with LEGAL FRAUD DECEPTION and VIOLENCE by International Criminals called BANKERS and Politicians.It is the end to the LEGAL PONZI SCHEME called the MONETERY SYSTEM based on DEBT,designed to enslave the whole world,distroying the planet we live in all in the name of PROFIT and CONTROL. A System that is dying and it must.
    It simply cannot mathematically sustain itself anyway.It is self distructing as I speak. The side effect will be the end of all WARS, now that we know who were behind the previous WARS for profit. Channel 4 and all its reporters has a moral duty and responsibility to investigate and report the facts about any situation.However it is self evident that HONESTY have no VALUE in the ILLUSION you called SOCIETY.
    As far as I can see, all mainstream media is complicit in this IMMORAL system, with its defacto and BANKRUPT Government and will be held responsible by the universal laws of nature. A law that none of us can escape from. So, all I have to say to you,as a reporter,you can rationalise all you want about the facts,at the end of the day. The TRUTH will set the people free.Free from Fear. We are approaching a new age. Do the right thing.Get real

  13. Stuart says:

    “And more clarity, transparency, and honesty than we got yesterday, would help.”

    You have to remember who is doing this: The Bullingdon Boys”. They regard themselves as accountable to nobody. Of course the less well off are being hit hardest – did you ever expect those born with silver spoons in their mouths to hit “their types”, “their mates” harder than the absolute minimum.

    The underlying problem is with the way our politicians behave these days (of all parties). They say whatever sounds good during an election campaign, anything to get votes then once elected they regard their position as a limited term dictatorship. No accountability, no need to be straight because it will all be long forgotten when they restart the lies a few months before the next election.

    1. Tom Wright says:

      This Bullingdon bit really is a nonsense. The political elite are the political elite are the political elite.

      Do you really think Labour stands apart on this? Honestly, have you never heard the phrase ‘champagne socialist’? There are stacks of them, starting with Harriet Harman, who is not only from a ‘noble’ family, but the neice of another famous Labour figure from a different generation.

      Then there are those ridiculous Labour MPs who wanted to parachute their relatives into govt, like Michael Martin, Tony Benn, etc etc. Class war and equality, not.

      The critical difference in ideology between the parties boils down to this: teach a man to fish, and he will eat for a lifetime. Give a man a fish and he’ll eat for a mealtime. Labour are in the latter camp, believing the state can and should be responsible for cradle to grave care.

  14. Saltaire Sam says:

    I’m confused. Perhaps Faisal or fellow bloggers could put me straight.

    On one hand I keep hearing that GB is one of if not the leading country in banking, that banks are vital to our economy. Yet by their own admission they have had a difficult couple of years and are finding it hard to lend money for mortgages and to small businesses.

    On the other hand one of Osborne’s reasons for the draconian cuts is that we are paying a fortune in interest ‘to foreign bankers’

    So,

    1 Who are these foreign bankers and do they have more money than the UK bankers?

    2 If yes, is our banking really a world leader and so important?

    3 If no, why didn’t we borrow from UK banks, many of which we own, and via which we could have negotiated ourselves better terms?

    I’m serious, folks. I don’t understand how the world can be in an economic crisis, the fourth richest country in the world (us) is billions in debt but someone out there has trillions of pounds to lend.

    Who really owns the world?

    I’ve cross posted this to Jon’s blog in case he has different bloggers

  15. Kate says:

    “Surely, as a non-partisan, financial think tank at some point the IFS should note that to actually ‘progress’ we need to ween people off the state and get them back to work?
    Ergo, the reduction of benefits (or how hard that quartile is hit) is no longer a measurement of ‘regression’”

    It IS a measure of regression if the other condition – “and get them back to work” is not implemented. We have yet to hear from where these, so far,elusive jobs will come.

  16. GS says:

    How much can we expect to get back when the publicly-owned banks are eventually sold? The point at which the bankers really will run off with the money will be if those banks are sold at a knock-down rate. In much the same way as some of the public utilities were under Margaret Thatcher.

    If house prices fall then the mortgages people have with those government-owned banks won’t be worth their face value.

    The Tories have said there will be no property boom under them. On one hand that’s good. But on the other it reduces the return the government could get from selling those banks and then we will all end up paying for the defaults and negative equity.

    I just wonder how much money has already disappeared for good (on sub-prime properties in the US for example) and how much we could claw back eventually? Or am I wildly off-track with this thinking?

    1. Tom Wright says:

      GS are you seriously arguing for another property bubble? Are you mad?

  17. Paul Begley says:

    “Nick Clegg suggesting those like the IFS who question the fairness of yesterday’s announcements were “frightening people” ”

    Judging by the reactions I’ve heard, the aspect of this which is most frightening people is the prospect facing sufferers of MS, ME, Parkinson’s and the like, who face, yet again, months of anxiety while they await another ill-informed assessment of their illnesses. They’ve heard all the mood music about “getting scroungers back to work”, they know just how arbitrary the process has been in the past, and they’re only too aware of the pitiful quality of life they will endure if they lose the benefits they currently receive.

    Just how reliable is a safety net, if every time you look down at it, someone is wielding a knife near the ropes?

  18. Pigsy says:

    Let’s see how the quality of life relates to the quality of self preservation, in the quality of survival, in relation to the meaning of ethics, over a 30 year period past and assess the quality and inequality of earnings between different people and groups…then we can have a democracy and justice in terms of responsibility, fairness and transparency.

    Also let’s deploy bounty hunters to eliminate or reclaim from those criminals using tax evasion in tax free criminal institutions, the ones Thatcher removed the policing of and see which groups have been criminally involved with evasion over the same period.

    Master race system of ownership, utilized to dominate the social landscape to support the breeding programs of hedonistic dictators of the murder club, utilizing the nations legacy as a convenient symbol of their own righteous defined credentials…all legal dead tree writers are murdering scum thieving scoundrels, burn the lot the them and the ones they define as valuable.

    The private dictatorship is a Nazi race breeding program styled campaign to dehumanize the credentials of ownership through class assignation and abuse. Chop all their heads off and start again…

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