50 Shades of Austerity: Poles Apart, or an Example of Economic Masochism?

I watched a summary of yesterday’s Sunday Scottish Politics half-hearted Leaders Debate this morning. It was not an entirely wasted experience, however – as much as the broadcast little resembled what I understand buy a ‘debate’, I am informed that the hectoring and interrupting that Murphy so frequently deploys is actually a debating technique, called ‘gish galloping’ (thank you, Patrick Roden…). The ‘technique’ involves lots of small simple questions or accusations regularly being hurled at your opponent while they are speaking, never giving them time to answer. This works particularly well if you know that the answers take time to give a proper answer to – because you can then deny the environment that such an answer can be given in…providing you have a moderator that is not going to switch off your microphone.

One SNP person, with 3 from the Westminster parties ganging up to shout her down and talk over her in a BBC studio, with one behaving like the playground bully – it was somewhat depressingly familiar to what one saw during the Referendum campaign, and highlights the difference when other parties (say, like the Scottish Greens, who are looking somewhat more relevant than the LibDems to Scottish politics right now…) are involved to break the onslaught of establishment dogma, and perhaps also explains why Nicola, Natalie and Leanne did so well during the Leaders’ Debate. But there is much that is different between the Referendum and this General Election, in terms of the coverage – for one thing we now have a newspaper!!! This makes my work very different, as it is less a role of collation of data and extemporising my own viewpoint, compared to largely passing information on to the comparatively few people not reading one or two key sites, or ‘The National’, rather than generating new copy myself.

Another difference is the interaction with polls: in ‘Yes’ we largely ignored the polls, except to look for signs of slow growth over time. By June/early July I know I was a little alarmed when we were not turning the corner of 50:50, as there was not going to be time to deflect counter-propaganda if we did it late, so hoped that we might sneak over that threshold on the day, without any polls to expose our rise. Of course, we had the worst possible scenario – a week to go, YouGov arrives, the propaganda lie of ‘The Vow’ was delivered in response, and we slumped at the last day.

But now the polls have a very different role. From the point of Johann Lamont’s resignation, the SNP has soared in the ratings, making this our General Election to lose. This means we are in the ‘No’ campaign’s starting position, three years ago, but once again with most media outlets turned against us…fortunately with Labour and the Conservatives taking some flak as well. YouGov, which always gave fairly low ratings of ‘Yes’ popularity, have now become our new Best Friends Forever as far as SNP versus Labour support goes. And also – even more unlikely as an ally – Conservative peer Lord Ashcroft’s extensive polling has indicated that dissatisfaction with Labour is greatest in those seats that they hold with the largest majorities.

But, within that, there was one weird statistic of his that made me do a double-take.

In a question on austerity, 57% of those that he polled did not want any more austerity – which does not seem so surprising – but 43% DID. Closer analysis shows that his 57% was made up of 36% yes austerity was needed but no more, and 21% that it was never needed, but, yes, 43% said that more austerity was needed. Say what? I mean, I could understand if it was a class thing, perhaps a poll done in Mayfair or the heart of Kent, but 43% based on national polling? What is, this some sort of inferiority complex, that the government in charge ‘must know better than me’? ‘Punish me – if it hurts, then it must be good for me’, is that it?

Well, let’s take a look and see how that is working out – first looking at the social impacts of austerity, and then at those all-important ‘economic benefits’ – shall we?

David Cameron was recently supported by a letter from 103 businesses in the Telegraph saying that if Labour got in, it would be a disaster. But would it really make such a difference, or is this simply a sign of traditional prejudices? Miliband has pledged to limit zero hours contracts to twelve weeks, rather than letting them run for a year, but (as those of us who have been on renewable contracts know, where employers will end them as the two year mark approached, when you would actually acquire some rights as an employee) that just means the turnover period is faster. Ed Balls, Labour’s Shadow Chancellor, knows all about zero hours contracts: he recently claimed that he would pass legislation to ban zero hours contracts – shortly before it emerged that that was how he employed four of his staff. Ed has committed to spending £800 million in Scotland, but that is somewhat offset by Scotland’s anticipated £2.4 billion share of the forthcoming cuts that he has pledged not to overturn if he gets into office. As one wag correspondent put it on April 1st: “Cracking April Fool’s story on the front page of The Herald today – Ed Balls pledging to ‘end Tory austerity’. Who makes these things up?”
Ed still cuts a more human figure than Ian Duncan Smith, the Secretary of State for Work and Pensions, though. He has planned £12 billion in welfare cuts for Scotland alone over three years of the next parliament, which he claims will be cut from the welfare budget without affecting the poorest in society.

It is fair to say at this time that no one is pointing out the positive aspects of welfare in terms of benefits to the economy, not just for ameliorating inequality, but also through business promotion. A recent US study, demonstrating the impact of welfare dimensions to business development and success, recently showed a dimension that we are missing in the UK. Looking into expanded foodstamps, they found that it provided new businesses with a safety net to fall back on: if business is about risk, or managed risk, then knowing that you will not compromise the security of yourself or any dependents is a key consideration. The research showed that there was an increase of 16%, in other words a greater likelihood for people to start up their own business, if they knew that they could rely on this welfare availability…although most of them never used the facility – that was not the point, it was the idea of managed risk. Similarly, US Government healthcare means people at retirement age are more likely to start their own businesses, as they no longer have to worry about relying on an employer providing health insurance. Those families in the US that qualified for Children’s Health Insurance were 31% more likely to start their own business, than those in the slightly higher income bracket that failed to qualify. Similarly, France continues to pay benefits to long-term unemployed people starting a business, finding that they are 25% more likely to start a business than without.

But the ideological changes driving these Conservative cuts, under the veneer of ‘necessary austerity’ do not allow for that perspective. They do not believe in the state’s role in providing support, and come what may they will try to remove as much of that structure as possible, while they have the pretext of the deficit.

And Scotland will still have limited ability to protect itself from those welfare cuts – again, thanks to Ian Duncan Smith’s last minute intervention before the Smith Commission report was finalised. Only 14% of the total welfare budget is to be devolved, including benefits for disabled people and carers. In 2017, under the Smith proposals (if they ever see the light of an Act of Parliament), the Scottish Government will take over responsibility for the successor to the Disability Living Allowance, called the Personal Independence Payment (PIP), with a 20% cut in the relevant budget. This means that 100,000 working age disabled people will see their benefits reduced, the equivalent of cuts of £300 million a year, a loss of around £1,120 per person affected. Across the UK, this will see a million people affected by 2017/2018.

The policy of ‘sanctioning’ welfare claimants has been a particularly dark ‘costcutter’, with documented cases of suicide resulting: from October 2012 until September 2014, 81,980 Scots experienced 143,671 sanctions (meaning no state benefit for at least 4 weeks), equivalent to £32 million in Scotland in 2014. Over the whole UK it was 355 million, up from a mere 11 million sanctioned in 2009-2010. Former senior Scottish Medical Officer Sir Harry Burns (see NHS Scotland: Always independent, now at the TTIPing Point of Privatisation ) has been highly critical of coalition policies on welfare, chillingly talking about the legacy of the seventies and eighties unameliorated industry cuts in Scotland, which destroyed communities, boosted problems of violence and substance abuse, until Scotland has the worst drugs problem in Europe. He is well worth listening to in conversation on Bateman Broadcasting online as he talks about the causes of ill health from this political legacy, and noting the statistically significant connections between percentages of ‘Yes’ votes and low life expectancy in a given area: these were people who knew the Westminster system is not working, with the evidence of their everyday lives. Burns describes sanctions as “a judgment on the poor”, and those sanctions are only due to increase with the rollout of the Department of Work and Pensions’ new Universal Credit system, which reaches Glasgow just after the General Election.

A pilot scheme for the new Universal Credit system was introduced in Inverness last year, leaving families with only beans on toast for their Xmas dinner, as there was a 5 week gap transferring from JobSeekers Allowance to Universal Credit, with no money in between. The transition of the system – never mind the smaller level of support offered to fewer people – seems to be deliberately creating gaps for people to fall through. Certainly, jobseekers in the UK receive very little help in finding work. compared with other European countries. Alex Neil, Cabinet Secretary for Health and Wellbeing, has argued in the wake of the Smith Commission for immediate legislation to abolish bedroom tax so that the Scottish Government can redirect the £50 million being spent on mitigating the effects of that tax.

Child benefit is now at its lowest point (0.6% of GDP) since 1977 (it reached a high of 1.3% in 1980). In some areas in Glasgow 1 in 3 children are living in poverty, and by the end of the coalition government’s term of office, the value of Child benefit will have fallen by 14%, against a backdrop of increasing costs. Accompanying this, the Scottish Trades Unions Congress highlights that this is the fifth consecutive year of a drop in the median wage in Scotland. Women working part-time have experienced the biggest losses (down 11.6%), but financial sector directors’ salaries went up 23% in last year alone.

This has seen the rise in the phenomenon of ‘the working poor’: Professor Steve Fothergill of Sheffield’s Hallam University recently noted that Scots in work have lost £730 million a year as a result of the coalition’s welfare reforms. 48% of the £1.5 billion (or £440 for every working adult) losses would be met by households with at least one working member, with £960 million of the cuts going on families with young children as well as disabilities and health problems. So, for example, a couple with 2 children on average would be £1480 worse off, single parents with one child £1770 poorer, single parents with 2 or 3 children £1850. Sick and disabled households are losing £600 million a year in total. Although many of the effects of the cuts have been mitigated by the Scottish Government refusing to pass on the 10% cut in council tax benefit payments, and non-implementation of the bedroom tax, the impact is still severe and it drives people further into poverty: 43% of people in poverty live in working households, although the low-paid are better qualified than ever. The UK’s minimum wage level lags behind the level in Luxembourg, Ireland, Belgium, Germany, France, Netherlands, and the Trades Unions’ Congress has highlighted the problems of ‘living wage blackspots’, e.g. Birmingham Northfield, where 53.4% of people earn less than £7.85 per hour, blighting entire areas. This led to the STUC calling on all Scottish parties in the run-up to the General Election, to restore trade union freedoms and collective bargaining, the lack of which prevented them from defending those who suffer most from low pay and insecure work.

Foodbanks first appeared in the UK under the 13 year Labour government, and the disability benefit scheme of Work Capability Assessment was introduced, with its notorious implementation by ATOS to remove as many disabled claimants as possible from benefits. 71,000 people in the oil-rich nation of Scotland now depend on foodbanks (the figure stood at 7,500 four years ago). In December, 10,500 people visited the Trussell Trust’s Scottish foodbanks, a 13% increase on the previous year, and a third of them were on low incomes.

80,000 people in Scotland are working on zero hours contracts, 180,000 on council waiting lists, 820,000 Scots in poverty. The least wealthy 30% of households (half of whom are headed by someone employed) in Scotland have no savings or pensions, and own only 2% of the wealth of the country, property and personal belongings – they are most likely to be single adults or lone parents. But the most wealthy 2% own 17% of the wealth in Scotland.

At the same time, although Scottish rents are rising at their slowest for over two years (1.1%, with inflation becoming zero for the first time since records began in February 2015), the numbers of late rent payments are still increasing. This has all resulted in a predictable rise in personal debt. A PricewaterhouseCoopers report (24/3/2015) states that the average UK household is set to owe close to £10K in debts of personal loans/credit cards/overdrafts by the end of 2016.

The evidence from this blizzard of statistics (which is testament in itself to how endemic the problem is, with the ever-mounting numbers of studies being carried out) is that this is an ‘economic recovery’ based on low wages, rising insecurity for those in and out of work, rising household debt, and a failure to ‘rebalance’ the economy away from the financial sector. Any recovery in living standards is still to be seen, with shockingly weak reforms to the cause of the current crisis, namely the banking sector, and a lack of preparation or actions to prevent a similar crisis in the future.

The UK Government’s budget deficit (the difference between expenditure and revenue raised) peaked at £150 billion, and now stands at £80 billion. The Institute for Fiscal Studies says that eliminating the annual deficit will require departmental cuts of 14% and 750,000 job losses. UK national debt has now trebled since 2008 to £1.4 trillion, because tax receipts plummeted with the collapse of the economy in 2009. This was compounded by the Thatcher-style cuts policy of the 2010 coalition, which increased the downturn of the economy, and thus the welfare bills. The only economic growth is coming from £130 billion of subsidised mortgages, triggering another property market bubble (particularly in London – although the Centre for Economics and Business Research is predicting a fall in London’s house prices this year of 3.6%, after “years of overperformance”), with rising house prices encouraging consumers to borrow again. This, of course, creates a mini consumer boom…which only lasts until interest rates start to go up.

Thus, the coalition government’s economic strategy is short-term, as it is based on a housing bubble, and transferring state debt to households (by 2020, the household debt to income ratio is forecast to be more than 10% above pre-recession levels, according to the Office of Budget Responsibility), and undermining sustainable long-term growth. The Coalition has overseen the weakest recovery for 200 years, where indeed the only factor exerting a positive influence on living standards across the UK is the falling oil price – which is nothing to do with government policy (although their response to it is).
Paul Krugman, 2008 Nobel Prize winning economist, noted recently in the New York Times that although growth resumed in 2013, the income per head of the population is only now reaching pre-crisis level, giving Britain a worse track record than during the Great Depression. He went further, in terms of the evidence that political response by the public to the economy is only based on very short-term perceptions.

In brief, he suggested that for politicians (NOT for the economy) the best strategy would be kind of similar to one that I used to employ in games of SimCity. Your popularity as the leader of your City was dependent on taxation, but your ability to build your City and keep the people happy, was dependent on taxes. So you could keep taxes incredibly low throughout the year, and then just before it came to the end of the financial year, you kicked taxes into the stratosphere to get a massive amount of revenue to compensate for the rest of the year – then dropped taxes way down again straight afterwards. In the game, the public had long-term, rather than short-term, memories, so would ignore the recent pain of the high taxes. What Paul suggested as the best route for political success was an inversion of that approach: as voter memories are only interested in the last couple of quarters, not the longer term picture, a successful strategy to stay in power would be to deliberately impose “a pointless depression on your country for much of your time in office, solely to leave room for a roaring recovery just before voters go to the polls. That’s a pretty good description of what the current British government has done, although it’s not clear it was deliberate.”

He is far from alone in this analysis, as noted by George Kerevan. Foreign investors hold £400 billion (a quarter of the total market), and are selling off their holdings of British Government debt at a rate of knots – a massive £14 billion went in January and February, far faster than during the credit crunch. The usual buyers are refusing to pick it up, as it has become toxic, because Britiain’s current account deficit (borrowing required to pay for imports, when a state does not export enough) reached 5.5% of GDP last year, heading for a record 6% in 2015. Productivity has been falling for many years (which even the International Monetary Fund has raised concern about, as a ‘major risk to growth’), and the only reason the City of London stays afloat is because of its low regulation tax haven status, which allows foreign investors cheap access to the EU market of 500 million customers (usually providing a convenient 2.5% of the UK’s GDP in the process). Except, of course, that this is threatened by the EU exit referendum, which will render London of no interest, next to Paris and Frankfurt, as choices for basing your trade. Uncertainty on the financial markets for a Scottish Referendum? You ain’t seen nothing yet…

And for those of you – evidently into masochism, if you have stuck with me so far – who are still wondering, this is why I am shocked that 43% across the UK could still be saying ‘more austerity is needed’.

Really? Inequality is rising, poverty increasing, which means crime rises too, society becomes less safe – and all because of a strategy that is failing to work, but generating an inflatable model of a recovered economy, relying on a housing bubble. In the age of Christian Grey, this appears to be a population that truly wants to be punished.

Austerity is not a way forward – it never was, and certainly isn’t now, with the reams of stats above. Austerity is an ideological transformation of the British state, while failing to address the economy it purports to be helping, and destroying social cohesion and the fabric of society along the way.

It is time for something different.

 

“Very few British academics (as opposed to economists employed by the financial industry) accept the proposition that austerity has been vindicated. This media orthodoxy has become entrenched despite, not because of, what serious economists had to say.” (Paul Krugman, 2008 Nobel Prize winning economist)

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