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Growth is the answer

Submitted by on 15 Feb 2011 – 10:55

The unions are deeply concerned by the announcements made in the Government’s Spending Review, says Brendan Barber, TUC General Secretary

Unions were not impressed with the Spending Review or with the emergency Budget; they commit this country to a deflationary strategy that will put the recovery at risk and make Britain a more unequal society. The Spending Review in particular makes the very poorest pay the most for the government’s plans.

The March Budget planned for £72.4 billion of fiscal tightening by 2014-5, 70 per cent coming from spending cuts, nearly all them cuts in Departmental spending – just £0.3 billion of the cuts were to come from benefits.

The new government’s plans increase overall tightening to £110.3 billion, 73 per cent from cuts. Over the four years of the Spending Review period, Departmental spending will come down by £35.7 billion and cuts in benefits and tax credits will now reach £17.7 billion by 2015. In addition, £1.8 billion will come from public sector workers whose pension contributions will increase by, on average, more than 3% of their salaries.

The cuts in services may not be as severe as was planned last June, but they are still very tough – roughly equal to those that were demanded by the IMF in the 1970s. Service cuts do hurt everyone, but they hurt the poor far more than they hurt the rich. The TUC commissioned economists Howard Reed and Tim Horton to calculate how different groups will be affected by the Spending Review cuts. Using official figures, they found that the poorest ten per cent of households, with incomes below £10,200, will suffer reductions in spending on services equivalent to 29.5 per cent of their annual income on average, or £1,913 a year. The richest ten per cent will lose services worth just two per cent of their net income, the equivalent of £1,506 a year.

This is inequitable, but the impact of the benefit cuts will be even worse. Taking the emergency Budget and the Spending Review together, these will include:

• Indexing benefits by the Consumer Price Index instead of the Retail Price Index, making recipients £5 billion a year worse off by 2015.

• A tougher test for Disability Living Allowance, disqualifying 20 per cent of claimants.

• Cuts to Housing Benefit, such as the arbitrary 10 per cent cut for people unemployed over a year.

• Time limiting contributory Employment and Support Allowance for most recipients.

• A three year freeze in Child Benefit.

• A ten per cent cut in Council Tax Benefit.

As the IFS has pointed out, the planned benefit cuts will especially hit families with young children and people of working age on low incomes. They will be the biggest losers from the cuts.

Unions believe that the cuts are unnecessary as well as unfair. The answer to the deficit is growth – a growing economy provides higher tax revenues and has less need for spending on benefits and the other costs of economic decline.

But cuts on the scale planned under the Spending Review will slow down the economy, and reduce the tax take. The deficit will certainly be harder to eliminate, it might even be impossible – that is what is happening in Ireland.

Even organisations that agree with the government’s strategy accept that the cuts will slow down the recovery. Europe is embarked on a remarkable exercise in co-ordinated fiscal tightening; this could slow down the recovery worldwide and leave countries like ours in a very exposed position.

These cuts are at best a risky route to recovery. At worst, they could kill that recovery before it is properly establishe