Blog – Austerity, austerity, austerity

Universal credit began its roll out in Cambridge on 17th October, gradually to start off with, just new claims or people whose circumstances change. The full-scale transfer of all those on the relevant unemployment and in work benefits will come later.

A few days later the government used their autumn budget to declare the beginning of the end of austerity. Income tax thresholds were increased ahead of schedule and well above what was required by inflation. It was announced that the minimum wage will go up by 4.9% from £7.83 an hour to £8.21. Concessions on universal credit were also forthcoming, including a two-week buffer payment for those moving across and an increase of £1,000 in the work allowance – the amount that can be earned before the benefit starts to be withdrawn – a key justification for the design of Universal Credit being that it makes work pay.

Universal Credit has been heavily criticised for being less generous than the benefits it replaces. More particularly, the long waiting period between making a claim and receiving the first payment – initially 6 weeks, later reduced to 5 weeks, creates significant hardship. Areas where UC has already rolled out have seen big increases in food bank use, a rise in rent arrears, evictions and debt. Frank Field, Chair of the Work and Pensions Select Committee, recently spoke in parliament about women in his Birkenhead constituency who were being forced to take to the streets to be able to feed themselves and their families – leading the Secretary of State for Work and Pensions, Esther McVey, to respond with the helpful advice that they should get themselves a job.  Maybe she needs to complete her education by watching Ken Loach’s excellent 2016 film I, Daniel Blake.

Cambridge, as we know, is an extremely prosperous city, with high property prices and innovative businesses operating at the cutting edge of technology and science. It has also been named as the most unequal city in the UK, with pockets of deep poverty and deprivation existing alongside the high earners. It is estimated that, after taking account of housing costs, around 4,500 children in Cambridge live in poverty (defined as less than 60% of median income) nearly a quarter of all households with children. In Abbey, Kings Hedges, Trumpington and East Chesterton, child poverty rates after housing costs are closer to a third.

For all the smoke and mirrors of announcements such as the one that “no-one will be worse off” as a result of moving to Universal Credit, or that “hard-working families will be able to keep more of their earnings” in the future, the reality is that austerity and lower real incomes are here to stay for those already reeling from years of belt-tightening.

Let’s just shine some light on the hype about the end of austerity:

  • Earnings are rising at an annual rate of 3.1%, the highest for nearly ten years.

Real earnings (after adjusting for inflation) are still £31 a week below the level they were when the financial crisis began, representing the biggest squeeze on wages since the end of the Napoleonic wars.

 

  • Universal credit claimants with children can now earn £1,000 a year more before benefit is clawed back – giving them an extra £630 a year at the new taper rate of 63p per £1 earned.

George Osborne made deep cuts to this same work allowance in 2016 with the average loss to working families exceeding the amount now being restored. Claimants without children had their entitlement to the work allowance withdrawn completely in 2016.

 

  • 32 million people will be able to keep more of the money they earn – £155 a year for the typical basic rate tax payer – thanks to the rise in the income tax thresholds and changes to national insurance.

 If you earn below £12,500 a year, you won’t benefit at all from the rise in income tax thresholds, unlike those earning £50,000 who will be £521 a year better off.

 If you are in full-time work and paid the national minimum wage the increase in your earnings and reduction in income tax will be at least in part offset by increased national insurance contributions, where thresholds hardly rose.

 

  • No-one will be made worse off by the move to universal credit – trick or treat?

 Trick, I’m afraid. No-one will be made worse off by the move because they were made worse off, much worse off, before it happened.

 

This is the real tragedy of the budget to end austerity. At no point was it even mentioned that April 2019 will mark the third consecutive year (out of four) in which benefits for working age adults have not been increased in line with inflation – being instead frozen as part of the explicit drive after the 2015 election to pare back the welfare budget. Reputable organisations such as the Institute for Fiscal Studies have calculated the cumulative impact of benefit cuts on family income and poverty – estimating that those affected will lose more than £500 per year compared to the position had benefits been increased in line with inflation. The limiting of tax credits and universal credit to two children will mean that some families will receive over £2,500 less in benefits than they otherwise would have.

In 2017 the IFS estimated in the same report that the planned roll out of cuts to working age benefits would mean that around 400,000 more children will now be brought up in households living in absolute poverty. This represents an increase of 4 percentage points. We won’t know for sure, of course, because, following Mr Osborne’s cuts to welfare payments, the government also decided to stop collecting statistics on poverty.

If the national pattern is repeated in Cambridge then we can expect not just increased food bank use, housing and fuel poverty but many hundreds more of our children’s lives blighted by relative poverty and absolute hardship. A couple of weeks ago I was shocked to receive a circular via one of the main secondary schools in Cambridge advising parents who might experience “difficulty adjusting to increased food costs in school holidays” of schemes set up to provide children with a free midday meal while school was out. Laudable of course, but have we really come to this in one the most prosperous cities in one of the wealthiest countries in the world?

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