Osborne’s Britain: poverty, insecurity and cuts

"This year will be harder than last year. On the other hand, it will be easier than next year." (Photo Andy Worthington)
“This year will be harder than last year. On the other hand, it will be easier than next year.”
(Photo Andy Worthington)

Alan Thornett debunks the Tory lies about the “recovery”.

Few people, other than the rich and the ruling elites, celebrated when some faltering growth crept back into the economy in the latter part of last year. This was because few could feel any benefit from it in any part of their lives. As the growth was talked up wages and living standards continued to decline along with job security and employment conditions.

The Tory press has been crowing this week over a fall in the January unemployment figures (for the three months until November) by 167,000 to 2.32 million (or from 7.4% to 7.1%) as if 2.32 million unemployed people is something to gloat about—particularly since the official figures are deeply flawed and the real figure very much higher. Even on the official figures both long-term and youth unemployment remains very high.

Not that some fall in unemployment was particularly surprising given the steep decline in wage levels and the cheap labour now available to British employers. Wage rises were less than half of the rate of inflation in the three months concerned. As benefits are cut people are driven to take ever-lower paid and more precarious jobs or resort to equally precarious self-employment.

George Osborne’s new-year message, however, was bleak and to the point. If the national books were to be balanced by the end of the next Parliament, and the Tories win the election, there will have to an additional £25 billion of cuts—on top of those already in place—for the period 2016 – 2018. This means that the cuts Osborne has in mind are not even half way through.

The crisis, he said, was not over, in fact it was ‘not even half over’ and ‘difficult sacrifices’ would have to continue. 2014, he said, would be ‘the year of hard truths’.

In other words he intends to launch bigger and more sustained attacks on the poorest in society whilst protecting the rich and the powerful. Tax increases (particularly for the rich) would be ruled out and all economies would have to be achieved through spending cuts. No wonder The Times named him ‘2013 Briton of the year’.

Osborne’s vision is of a society based on high levels of exploitation of labour, hugely diminished welfare, and an energy system based on a new generation of fossil fuels obtained through fracking for shale gas. A society based on low wages and flexible (i.e. appalling) working conditions with lower pensions paid later and the employers having the unfettered right of hire and fire.

He is right that the crisis is not over, of course. To the extent that there is a recovery it is based on increased household spending and rising house prices – mainly in the South East. People are spending money that they don’t or have borrowed from loan sharks. The economy, we are told, is growing but spending power is declining. It is a ‘recovery’ based on falling living standards, poverty pay, depleted welfare, precarious employment, and personal debt. Women and disabled people in particular are at the sharp end of it.

In Osborne’s Britain public debt is still rising by £100m a year and personal debt has reached  £2 trillion.

His original plan—now long gone—had been to balance the books by the general election in 2015. This has now sunk without trace—though whether he really believed this could be done, or was using it as a lever for forcing through cuts, is another matter.

Transfer from the poor to the rich

Half of this new £25 billion of cuts, he said, would come off of the welfare budget with pensions excluded. This means a further £12 billion reduction in working age benefits. With Tory voters defecting to UKIP he clearly sees the grey vote as too politically sensitive to touch. For him young people are an easier target and has suggested withdrawing housing benefit to the under 25s as one useful way of raising money.

The importance of the grey vote for the Tories can hardly be over-estimated. The pollster Ipsos Mori estimate that only 44% of 18–24 year olds and 55% of 25–30 year olds voted in the last election whilst 73% of 55–64 year olds and 76% of 65 and over cast their vote. UKIP supporters are overwhelmingly in the oldest bracket.

The real hard truth Osborne had in mind, of course, was that draconian cuts are not, as he has been arguing for the past three years, designed to ‘clear up the mess left by Labour’ but are a permanent feature of political life with the Tories in office. They are an ideological commitment. A part of a long-term strategy designed to bring about a much smaller welfare budget, a permanently smaller state, and a major transfer of wealth from the poor to the rich.

His speech was a sharp change from the rhetoric at the end of last year when we were told that that the worst of the crisis is over, that a corner had been turned, that the ‘recovery’ would increasingly take hold as long as austerity was not ended too soon, and we were heading back towards some kind of pre-crash normality. His new-year message was designed to puncture such illusions.

In fact Osborne has two contradictory lines of argument depending on the immediate political requirements. He has the cynical/opportunist option that allows him to make minor concessions for electoral purposes—if possible without allowing the Lib Dems to claim the credit.

The latest example of this is his call for an above inflation rise in the minimum wage. This is because the Tories are vulnerable to Labour on the falling standard of living—at least if Labour were to play a half decent hand on the issue. (In fact the minimum wage has been declining since the coalition has been in office and it would take a rise to £7.00 an hour to take it back to where it was).

Then he has his real line, his strategic line, which ultimately overrides such temporary electoral considerations. This is to take full advantage of the opportunities opened up by the recession to bring about radical and permanent change in the form of a small state with minimal welfare provision. It is the drive for this which has led to the ditching of all of Cameron’s early posturing around ecological issues and his lies about the government being the greenest ever.

If anyone doubts that we are facing a dual crisis of the economy and of the ecology they only have to look at the recent floods in Britain and other extreme weather events around the world.

Back to 1948

It is this strategic line which brings Osborne ever closer to the Tea Party Republicans in the USA and the ideology of Milton Friedman whose mantra was that a recession is not a problem but an opportunity. That it is a chance for capital to drive up the rate of profit and impose higher levels of exploitation on the working class that would not be  impossible in ‘normal’ times: i.e. outside of a period of recession and crisis. Naomi Kline describes all this very well in her book ‘shock tactics’.

The Lib Dems strongly objected to Osborne’s New Year speech, having backed his austerity programme to the hilt for three years. Clegg described it as a ‘monumental mistake’. If you can ignore the sheer hypocrisy involved in this, however, it was stronger than anything Labour were prepared to say about it.

Not that Clegg has suddenly discovered some principles, of course. The Lib Dems are facing possible electoral meltdown next year and they have to start putting some distance between themselves and the Tories if they are to avoid it. They would like people to forget that they have not only enthusiastically embraced Osborne’s whole approach from the outset but that none of it would have been possible without them.

This, and the absence of any sustained resistance, has allowed Osborne to chalk up some important successes in this regard. Already (and remarkably) by 2018, according to the Office for Budge Responsibility, and taking Osborne’s Autumn Statement into account, government day-to-day spending as a proportion of the total economy is set to fall below pre-1948 levels: i.e. before the welfare state existed.

It is a landmark moment. Public services from heath, education, transport, welfare and many more are to be slashed in an unprecedented way over the next 5 years if the Tories win the election and Osborne has his way.

Already we have seen the biggest fall in living standards for over 100 years and a new generation that is set to be worse off than its parents for the first time since the second WW. The average household in Britain has lost £1,500 a year in real terms since the coalition came to office. The gap between rich and poor has been growing even faster. In the OECD Britain now ranks 28 out of 34 in the equality league table. The top 1% enjoy 14% of total income.

Low wage Britain

Poverty wages are now endemic in Britain. Although real wages have been falling for many years—since trade union strength was broken in the name of a flexible labour market—this has accelerated since the banking crash. In fact wage levels have fallen by 6% since 2008, which is the biggest five-year drop since 1921-26.

By 2013, according to the low wage think tank the Resolution Foundation, 4.8 million Britons, or 20 per cent of workers (25 per cent of women and 15 per cent of men), were paid below the rate deemed necessary for a basic standard of living: i.e. the living wage of £8.80 in London and £7.65 elsewhere. This was an increase of 1.4 million since 2009. In addition 77% of young workers under 20 earned less than the living wage.

Almost 1.5 million workers are on the minimum wage of £6.31 an hour. Many more—the official figure is 350,000 but the reality is certain to be higher—are paid illegally below the minimum wage. There are virtually no prosecutions for this taking place.

Increasing numbers work for nothing in the hope of getting a job ate the end of it – meanwhile the employers cash in.

At the same time the cost of living for the poor is rising faster than for any other section of society. Growing numbers of the working poor are trapped between rising rents and mortgages, and essentials such as food gas and electricity, and falling wages and benefits. Even households with two jobs often cannot make ends meet. Tax credits, though essential to the working poor, subsidise the employers and institutionalise low wages.

The Institute for Fiscal Studies has concluded that living standards are set to be lower by the time of the general election than they were when the coalition came to office. This is a big problem for the Tories since governments are rarely re-elected if they have presided over this kind of decline.

A Tory victory in next year’s election, however, is far from impossible whilst Labour remains compromised over the cuts agenda and is not prepared to mount a radical and sustained challenge to the coalition.

An important part of Tory election preparation is a revival of the housing market through their Mortgage Guarantee Scheme that underpins private mortgages from taxation. They hope that this alongside a large dose of racism, xenophobia, anti-immigrant, anti-foreigner rhetoric between now and the election alongside plus bashing the poor and branding claimants as scroungers will be enough to win them a majority.

Such high-risk state intervention into the mortgages market has indeed stimulated the housing market. House prices are now rising 5 times faster than wages. Even the Royal Institute of Chartered Surveyors has called on the Bank of England to impose a cap on house price inflation in order to avoid what it called a ‘dangerous debt bubble’—the same kind of bubble that caused the crisis in the first place.

The real housing problem, of course, is that prices are being kept high by a deliberately created shortage. Fewer than half the new homes needed are being built every year. Public money that is thrown at the Mortgage Guarantee Scheme is therefore finding its way to developers and landlords rather than to people who need housing.

Boom time for rip off landlords

The result of all this is a new wave of Rackmanism has emerged as private landlords cash in and put up the rents. The Guardian recently exposed Fergus Wilson, a landlord renting out over a 1,000 homes, who is in the process of evicting 200 of his tenants who are on housing benefit on the basis that they will be unreliable once universal benefit takes effect and the rent is paid directly to them and not to him. Adding to the misery for tenants is the bedroom tax and the cap on housing benefit.

This leaves young people, in particular, in a desperate situation. They no longer have access to the kind of secure jobs or the pay rates which would allow them to raise a deposit or get a mortgage under normal market conditions. Even if they can get on to the Mortgage Guarantee Scheme they might end up with a house which they cannot afford if they loose their job or get a pay cut.

According to the Office of National Statistics, 3.3 million 20 to 34-year-olds were still living with their parents last year 25% more than in 1996 when records of this began. Between 1997 and 2007 the numbers increased to 2.6 million but after the banking crisis it leaped by a further 700,000.

One thing which has prevented the cost of living rising even higher has been the historically low interest rates which have kept down mortgage payments—though this has hit the incomes of those who were relying on interest on savings.

The question is how and when can interest rates start to rise again and what will be the consequences when they do? It is a huge unresolved and unprecedented problem. People who could pay their mortgages at the old rates, before the crisis, may well find it impossible to pay such rates today with declining incomes and bigger bills. Even a small rise in interest rates could result in large numbers of defaults.

The Governor of the Bank of England Mark Carney – the best central banker in the world according to Osborne – had said that the rate may have to go up once unemployment reaches 7%. Since the latest figure 7.1%, however, this could happen quite soon, and since it would be politically unacceptable to the government to raise it before the election there had to be a rapid rethink. He is now suggesting that 7% could be revised to 6.5%.

UKIP setting the agenda

There will be heavy political pressure on him to stick to this since even a small rise in interest rates can have a very big effect on monthly mortgage repayments.

On the face of it Labour could hardly be better placed for the election next. The Lib Dems have gone from crisis to crisis and are now reeling from their inability to deal with the Rennard sexual harassment allegations.

UKIP has not gone away either, despite some of their vilest politics leaking (or bursting) into the public domain. In fact their vote is still going up and they are likely to do very well in the European elections this year. If this is the case they will take some votes from Labour but the bulk will come from the Tories. Recent figures have shown that Labour would win if UKIP hold on to the 5 or 6 per cent of Tory voters they have recently won over—and the UKIP effects is particularly strong in the marginal seats.

None of this means that Labour can coast to a victory next year on the basis of the fall in the standard of living. If they try to do that they will loose. The Tories have a powerful media operation and a powerful media behind them. They also have a lot of populist (and reactionary) policies designed to frighten voters into their camp.

If Labour are to win they are going to have to do it from a positive position. They have to start making a serious critique of Tory policy rather going along with large parts of it and they are going to have to have some attractive policies of their own designed to defend the working class against the Tory onslaught. Raising the issue of the falling standard of living and promising to freeze the price of oil and gas was a start but it is not enough to win them the next election.


23rd January 2014


  1. Excellent article Alan. Why do I ever bother reading the broadsheets when you can put it in context like this?

    Just one thought:

    What will the effect of interest rate increases be?

    You can’t have any interest rate hikes for the foreseeable future for the simple reason that interest payments on public debt ramp up and can result in a slump quickly outstripping tax take in a vicious spiral. Expect political manouverings from George Clooney at the BoE with reasons here and reasons there, but expect also a full scale financial crises in due course too. They’re in a financial corner. That is obvious.

    Maybe this a bit crystal ballish etc but pity the poor who will not be best placed to weather that storm or any other after this savagery. A storm is coming. That much we all know.

  2. Another shocking bit of information is that breaks in the working day only kick in after 6 hours at work and working longer than 6 hours merits a 20 minute break! From the UK Gov website.

    Gone are the days when you could expect a 15 minute break morning and afternoon as well as 60 minute lunch break.

  3. It may as well go here, I find it surprising that the website doesn’t have an announcement of the livestreaming (with translation) of a three-day political economy event starting 0800 GMT today hosted by IIRE, the European centre of the Fourth International of which Socialist Resistance is a part.

    The info was in an email I just got as I subscribe to Michael Roberts’ blog:

    Links, the day-by-day programme (‘Final Program’), & papers:

    Covers causes, euro-exit, anti-capitalist programme, ecology, country & industry studies, & scenarios of post-crisis capitalism.

    Speakers include Roberts, Chesnais, Katz, Husson, Tanuro, & Toussaint.

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