The impact of George Osborne\’s emergency budget on the poor has been revealed in a study that finds the country\’s least well-off families face cuts equivalent to 21.7% of their household income. That means they will be hit six times harder than the very richest by the coalition\’s deficit-cutting measures.
The study, the first to fully account for the impact of deep future cuts in public spending, comes as world leaders meet in Toronto to discuss the global economy. Treasury figures have only considered tax and benefits because the impact of spending cuts had not been modelled. The Institute for Fiscal Studies said that this was \”perhaps the most important omission in any distributional analysis\” of government austerity plans.
Now economists working in conjunction with the left-leaning Fabian Society have created a model that gives a quantitative account of cuts for the first time. The study assumes that health spending and international development spending will be protected, as stated in the budget, and that spending cuts will be equally distributed across the other government departments. It concludes that the poorest will be by far the biggest losers in the drive to move Britain back into a budget surplus by the end of this parliament.
According to the study the poorest 10% of households, earning under £14,200, will see a cut equivalent to more than one fifth of their income.
Unfortunately, I can\’t see the report online. However, I can see a slight logical problem with what they\’re doing here.
Yes, I accept that \”the poor\” get more use out of public spending than the rich. Similarly, that a cut in public spending will affect the services enjoyed by the poor more than those enjoyed by the rich. So I\’ve no problem with the basic idea that a cut in spending will impact upon the consumption of the poor more than it will upon the consumption of the rich.
For that is what they\’re saying.
OK….but we don\’t normally talk about the inequality of consumption between the poor and the rich. We normally talk about the inequality of incomes between the poor and the rich (post tax and post benefit of course).
If we do start to talk about the inequality of consumption then we have to acknowledge the value provided to the poor by the NHS, free at the point of consumption education, social housing and so on. Which, as Matthew Taylor points out at the RAS blog (somewhere) actually doubles the \”income\” of the poor if we measure by consumption rather than just straight income.
And this is indeed what the Fabian Society is talking about: the effect the cuts in public spending will have upon the consumption of the poor. Which is absolutely fine, except that in doing so you have to actually lay out what is that consumption of the poor: for example, using the Taylor rule of thumb, the bottom 10% do not have an income of £14,200, they have consumption of £28,400.
Think, just for a moment, of a household on either housing benefit or social housing in the centre of London. That\’s £20k at least of consumption right there.
It is this consumption that is being cut, not the income. So it isn\’t a 20% cut in income of £14,200, it\’s a cut of 20% in consumption of £28,400…..
Which is at one point simply a logical problem that the report has to overcome and I wonder if it does.
However, if this point is properly laid out then it becomes more of a political problem. For let us carry on and say that consumption inequality is measured properly: the level of inequality in the country has now fallen rather a lot, has it not?
Similarly, if we now all agree that the poorest 10% have consumption of £28,400….umm, actually, that\’s more than median household income, isn\’t it?* Umm, no, but it is around and about it.
So, now let us rephrase the question to be asked of Johnny Q Public.
\”Do you think that chav scum benefit scroungers should get the average living standard for the country for doing fuck all?\”
I think we\’d get a righteous mob determined on pulling down the welfare state if it were asked that way. Which is really why I think the Fabians are on dangerous ground trying to assess figures in this manner: they would make clear to the people who actually have to pay for all of this quite how much they are paying for.
I\’ve said before that I\’ve no doubt my fellow Britons are quite happy to cough up for a welfare system, for a safety net. But the more they hear about quite how much is lavished upon those who do nothing to earn it, quite how generous that welfare state can be, the less public support the current system is going to have.
Seriously? Someone doing nothing gets the same standard of living as someone working hard full time?
Nah, fuck off mate.
*Didj\’a see what I did there? I did they same thing they do: compare consumption to income but the other way around. If they can why can\’t I?
As in the comments, here\’s the paper.They don\’t lay out their model but they give us a hint of how it works.
Basically, they\’ve looked at govt spending and seen who actually uses of gets it then mapped this over the income distribution. Yes, of course, the poor get more consumption out of that spending than the rich do. Obviously.
They then go on to say that the cuts are £34 billion but the NHS and foreign aid are ringfenced. Umm, current spending is about £700 billion isn\’t it? NHS £120 billion, aid £7…..so we can say that the spending not ringfenced is £570 billion? Roughly?
So a £34 billion cut in that spending of £570 billion they say leads to a £1,344 cut in consumption by those bottom 10% households. That\’s what they lose in public services.
Seems reasonable enough: there are 25 million or so households in the country so the 10% at the bottom are losing 2.5 million times £1344 each which is £3.36 billion….close enough to 10% of the cuts given the level of accuracy of numbers that I\’m using. (Umm, given that we would expect these cuts in services to impact upon the bottom 10% the most heavily, I\’m wondering how they make their sums add up. Because on the top 10% of households the cut in services is only £1,135….so how does the sum of the ten deciles lead to the full amount if the most losses to a decile is only 10% and the loss in every other decile is less than 10%?)
Right. However, we shouldn\’t stop there. What they\’re also saying is that the rest of the spending (they used a flat line approach as no one knows what the actual departmental cuts will be yet) is also distributed in the same manner. So, the poorest 120% of households also get £570 billion minus £34 billion times 10% divided by 2.5 million.
That\’s the value of public services that each household in the bottom 10% gets each year. Add this to the £7,000 in income they get (if £1,344 is 20%, then income is £7,000….although that looks like an extremely low number indeed for household income. Benefits alone will be more than that.) And the bottom 10% of households are on a consumption package of £28,000 a year.
At which point it\’s very difficult indeed to say that we have any poor people at all in the UK.
Which is, as I say above, something of a problem for those like the Fabians who would insist that we do.
More thoughts: shouldn\’t have taken NHS out of the above, so consumption of public services is in fact £26,000 a year in the poorest 10% of households.
Bottom line to take away: Everyone\’s consumption basket is now higher than household median income.
We have no poverty left in the UK.