How the Tories chose to hit the poor

Originally posted in The Guardian Wednesday 2 July 2014
by Tom Clark.

George Osborne claims to have cut inequality. But look behind the figures and it’s clear the Conservatives can’t take any credit.

‘Frightening signs of hardship emerge, tied closely to the early cuts to incapacity payments and housing benefits.’ Photograph: Neil Hall/Reuters
Have you heard the one about inequality falling? Top-tax-cutting baronet-to-be George Osborne boasted in his budget that “under this government, income inequality is at its lowest level for 28 years”. It’s a line we can expect to hear recycled between now and May 2015, after this week’s official figures – the last that will see daylight before polling day – recorded a decline on some measures of relative poverty, and again failed to register any widening in the overall income gap.

In a land where Barclays’ bonuses and bedroom taxes compete for column inches, many will suspect the books are being cooked. But having once been employed to run independent checks on these figures, I can vouch for their integrity. There’s nothing wrong with the numbers – and the smallprint contains ample evidence of coalition-induced hardship. The shortcoming is that the data only appears deep in the rear-view mirror, and so the consequences of a government that has lurched to the right remain disguised.

What the data demonstrates beyond doubt is the importance of social security in addressing inequality. It confirms the depth of the recent recession, with family incomes now down around 10% since Lehman Brothers’ implosion in 2008. Wages tumbled across the range, but at the bottom end this was often compounded by enforced reductions in hours, so the poor could easily have suffered most. But things did not initially turn out that way. Instead, for a time, those with the broadest shoulders really did bear the burden.

Why? Because the Labour government of the day protected the safety net, even nudging benefits payments up slightly when inflation turned negative during the crisis. And this, as Robert Joyce of the Institute for Fiscal Studies explains, is “the chief reason why inequality declined with the recession: as wages dipped sharply, benefits were more stable, and benefits go mostly to those on lower incomes”.

“Frightening signs of hardship emerge, tied closely to the early cuts to incapacity payments and housing benefits”
Regime change in 2010 did not immediately unravel this progressive pattern, because – for a time – the coalition also showed some regard for the poor. After all, on these very pages in opposition, Oliver Letwin had made the Tory embrace of Labour’s child poverty promises a plank of Cameronian modernisation.

In Osborne’s first budget, even as he began to cut, the chancellor found the money to raise family tax credits so he could guarantee that his austerity would “not increase measured child poverty”. The next year he reneged, and cancelled some of his own ameliorative measures – but the Liberal Democrats were not yet ready to fold. With the cost of living rocketing in autumn 2011, Nick Clegg fought to ensure that families relying on benefits would be fully compensated, and benefits (or at least those not already being cut) rose by 5.2% the following spring.

This week’s data only takes us up to this point, the financial year that began in April 2012. Even so, frightening signs of hardship emerge, tied closely to the early benefit cuts. In line with the first restrictions on incapacity payments, there’s a sharp rise in poverty for disabled people. As the first housing benefit restrictions bit, on the breadline that adjusts for rising rent, 600,000 people sank into absolute poverty. Among children, so-called material deprivation – that is, families who can’t afford things such as birthday parties and warm winter coats – also edges up, as does the coalition’s new measure of “severe poverty”. And overall, the incomes of the poorest fifth are already faring worst.

But the true statistical picture of foodbank Britain will have to wait. For it was not until April 2013, at the very same time the 50p tax rate was chopped for the richest, that the poor were landed with a new household benefit cap which could leave children in London being raised on 62p a day. Poor families nationwide were then also faced with the reinvention of something very like the poll tax, as the national council tax rebate scheme was axed, and a three-year programme of holding benefits below inflation began. Clegg was just as craven in accepting this as he had been brave over indexing for living costs the year before.

Joyce says: “Just as benefits that outpaced wages led to reduced inequality immediately after the slump, government plans to reduce welfare spending in the next few years – while workers’ pay stabilises – are likely to push inequality back up.” The links between the coalition’s direct decisions and prospects for poverty are clear. There is no rise at all in hardship among pensioners, which fits with a whole series of special exemptions from the cuts. But a separate official survey revealed how overall taxation was rising for the poorest, even as it fell for others.

So when the truth finally outs, what will be the response? One option is to plead inevitability. This, however, is a hard sell. The vast total of around £25bn in benefit cuts already set in train by the chancellor brings in less than he has freely given away in personal tax allowances, petrol duties and corporation tax cuts. To govern is to choose.

The alternative, which seems to be Iain Duncan Smith’s preference, is denial. His administrative overhaul of benefits has descended into a shambles: he wastes court time trying to keep papers documenting the mess secret. Even if it had all worked smoothly, it would still have been a sideshow next to such historic cuts. But last week Duncan Smith published an anti-poverty “strategy” claiming that his welfare reforms would transform “the lives of the most vulnerable”. In the IDS war on poverty, the first casualty is not hardship, but truth.