The consequences of the government’s insane, counter-productive, self-defeating orgy of endless cutting are now beginning to be evaluated with some clarity for a decade hence. The Resolution Foundation, which specialises in income analysis, has calculated that on present plans families on low or average incomes will be no better off in 2017 than in 1997, and that it may well be 2023 before their earnings return to 2008 pre-crash levels. Moreover the Institute of Fiscal Studies (IFS) has estimated that job losses in the public sector, already 300,000 since 2010, will quadruple to about 1.2 million by 2017-8, a third more even than that predicted by the OBR.
The IFS has also shown that continuing with cuts of this magnitude for such an extended period, which is hostorically unprecedented, will very dramatically change the shape of the State. Since despite these horrendous cuts the deficit is not decreasing but still actually growing because the fall in tax receipts due to economic stagnation exceeds the public spending cutbacks, it seems as if the Tory aim of all this fiscal agony isn’t reduction of the deficit at all, but rather the downgrading of the State once-and-for-all to one gigantic privatised market-place.
The implications of this contagion have yet to be fully realised. With the Eurozone now voluntarily imposing upon itself similar contraction to that adopted by the UK Cameron government, a desert of unemployment stretches forward at least till the middle 2020s. The vision of home ownership, the dream of the ‘squeezed middle’, recedes out of sight, with the 2011 census already showing a drop of 0.8 million homebuyers with mortgages compared with a decade previously. University education, the preferred career route to upward mobility, is being closed down for those families on lower incomes by the sharp rise in tuition fees and the fear of unpayable residual debt.
The issue is how long this can continue without an explosion. Hammond is now trying to head off any further defence cuts by loading even bigger cuts of to the welfare system. That could mean that tax credits and housing and other benefits for people of working age, already capped at a maximum increase of 1% for the next 3 years, could be frozen altogether and/or more disability and carers’ benefits which at present cost £20.8bn annually could be means-tested.
What is not on the government’s radar screen is taxing the rich, even though that is eminently deserved and the least painful way to raise significant extra cash. More than half of the £3.7bn raised from capital gains tax last year was paid by just 3,000 people realising capital gains of more than £1 million. Why not raise the rate of CGT from its present incongruous 28% to the 40% rate which prevailed throughout the Thatcher era?
