New studies contradict Osborne’s claim the cuts can be “progressive”
9:05 am - August 23rd 2010
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A new study by John Hills shows that the last government’s spending held back rising inequality and that cutting it is likely to be regressive.
At the same time, an evaluation of the 1990s cuts in Sweden and Canada – often cited by the coalition as an inspiration – reveals that they led to significant increases in poverty and inequality.
The first is a report on new research by Prof John Hills of the LSE – so new that, as far as I can make out, it isn’t on the LSE website yet. It looks at the increase in public spending in the first decade of the last government’s existence.
Prof Hills found that this spending boosted the incomes of the poorest more than any other group. He added that a £1,000 a year cut in services would represent 10% of the income of the poorest and 1% of the income of the richest fifth.
Raising the same amount by tax increases, on the other hand, would reduce the final income of the poorest fifth by 3.4 per cent, compared to 3.7 per cent for the richest.
Possibly even more important is an article looking at the experience of cutting by Finland, Sweden and Canada. In all three countries cuts in the 1990s caused growing inequality.
Daniel Pimlott reports that:
Sweden – alongside Finland – suffered the sharpest rise in income inequality among developed countries in the late 1990s, a period when both were also carrying out the most aggressive programmes to improve the state of their public finances. In both countries, income inequality rose more than 12 per cent between the mid-1990s and 2000, according to Growing Unequal, a recent study by the Organisation for Economic Co-operation and Development.
…
Budget cuts were not the only factor to boost inequality. Tax changes benefited the rich, wage inequality rose, and much of the pain came through a squeeze on benefits, which hit poorer groups harder.
He produces evidence for a similar story in Canada, and says the aim of carrying out “progressive” cuts in public spending will be hard to achieve. If you don’t have a subscription to the F.T. website it’s worth getting a copy of the paper for these two articles alone.
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Richard is an regular contributor. He is the TUC’s Senior Policy Officer covering social security, tax credits and labour market issues.
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Reader comments
When is this organisation going to get to grips with the real problem blighting society:
Weak-kneed political administrations who continue to lack the back bone and moral fibre to rein in the excesses of the Financial Sector. They are, and continue to be, nothing more than a plague of social-blood-sucking-parasites who drain everyones hard-earned financial resources.
We bail them out for their mistakes and they thank us by putting up lending rates (in cases of Credit Companies like Mastercard who I hold an account with, I have seen my interest rate almost double in the last 4 years from 15.9% APR to 29.7% APR.)
At the same time they have slashed interest rates on savings account to virtually nothing.
All this while, when the world is still emerging from and coming to grips with a recession more costly than any in living memory, pay bonuses and 7 figure salaries that would make even the best paid celebrities blush.
The answer to curb the Bank excesses is to impose National Interest Rate Caps. This will force the Banks and financial institutions to offer and manage services within a socially and economically acceptable manner.
George Osborne should resign. He has no conception of how to control this Country’s money supply. If he did, then the banks would not be paying excessive bonuses at the expense of their customers.
Four things are needed
1 A range of interest rate caps against the various “lending” accounts
2 A permanent statute enforced index-link to the mean cost of living to control future interest rate movements
3 A minimum repayment schedule that ensures the underlying capital + interest, even if paid as a minimum amount, will clear the balance in an effective timescale (no more than ten years as opposed to the 30+ years as it is now).
4 Lending Accounts to incorporate fixed terms at the time of contact acceptance
IE. Variable terms regarding rates and charges outlawed.
If a customer wishes to have extended finance then it should be done by way of a new account with dedicated terms to that particular agreement.
If the George Osborne’s of this world cannot realise that poor economic growth is directly linked to the syphoning off of financial resources into the pockets of a few wealthy individuals and institutions then he is a fool that should not be in the job.
Taxing banks is not the answer, once people’s resources have been eaten away by excessive and unfair banking practice then that money is permanently lost from the economy.
It’s time this coalition and the European and other administrations of the world took a reality check.
Or are we to believe that Financial institutions are now so powerful that it is “they” who rule – and not “elected” governments?
I certainly agree about governments being spineless although I prefer a different descriptive adjective.
This was the headline in the FT on 28 June 2006 – a year before the financial crisis started:
“Fears over surge in high risk mortgages”
http://www.ft.com/cms/s/0/e8f9d3b2-060e-11db-9dde-0000779e2340.html
Nearly two years later, this was the headline when the crisis was already well underway:
“Lenders withdraw no-deposit mortgages” (8 April 2008)
http://www.ft.com/cms/s/0/dd76f4f2-04d6-11dd-a2f0-000077b07658.html
Selective reporting of the selected findings of a report that hasn’t been published yet – very rigorous
If you reduce public spending on everyone in such a way as to ensure that everyone loses £1,000 then, perfectly obviously, the impact is greater on those whose incomes are smaller – how could it be otherwise? But to compare that with a situation in which tax is increased to raise the same amount of revenue as the saving and imply that this is the policy choice on offer is silly.
First, there is no suggestion that the intention is to cut the services everyone receives by the same amount. It is to avoid precisely this outcome that the Coalition has been talking about ending universal entitlement. Perhaps Prof Hills could tell you what package of cuts would cost the poorest decile household exactly the same cash amount as the richest decile one, but neither this article, nor the FT one says what such package would be. Nor would it be worth anyone’s while to work out what it would be because nobody of any political stripe is advocating this as a policy objective.
On the tax side (presumably the side that Mr Excell and Mr Hills favour), we are told that raising the same amount of tax as the above cut would raise would cost the richest and poorest decile a much more equal share of their income. This has been calculated to the nearest 0.1% – which given the level of the lowest decile income implied above is £10per annum. This degree of accuracy is surely spurious and, of itself, invites scepticism.
Even leaving that aside, the statement is meaningless in the OP’s summary because we aren’t told which taxes are being raised and by how much in order to achieve this. For example, if you raised the money by increasing only VAT, booze duty and Council Tax, the relative impact on different income groups would be very different from that caused by raising the same amount through a super income tax, death duties and CGT. With such a huge unknown, implying that the effect on the incomes of the poor can be calculated to within 20p/week is just misleading.
I’m sure Professor Hills’ study sets all the assumptions out but, without them, it is difficult to draw conclusions from these brief summaries.
For Excell, I meant Exell. Obviously.
And, for richest decile, I meant quintile.
Sorry about that.
Must proof read before commenting
To remove uncertainty, I quote the Telegraph on its assessment of Osborne’s emergency budget on 22 June:
“Pensioners came out as one of its biggest losers in George Osborne’s emergency Budget”
http://www.telegraph.co.uk/finance/personalfinance/how-budget-affect-me/7847875/Budget-2010-Pensioners-are-the-biggest-losers.html
Reactions: Twitter, blogs
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James whetlor
RT @libcon: New studies contradict Osborne's claim the cuts can be "progressive" http://bit.ly/bNLU8T
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diana smith
RT @libcon: New studies contradict Osborne's claim the cuts can be "progressive" http://bit.ly/bNLU8T
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sajj
RT @sunny_hundal: New studies contradict Osborne’s claim the cuts can be "progressive" http://bit.ly/bNLU8T – what now Tories?
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thabet
RT @libcon: New studies contradict Osborne's claim the cuts can be "progressive" http://bit.ly/bNLU8T
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Oxford Kevin
RT @libcon New studies contradict Osborne's claim the cuts can be "progressive" http://bit.ly/bNLU8T These cuts are ideological war.
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Jon Foster
RT @libcon: New studies contradict Osborne's claim the cuts can be "progressive" http://bit.ly/bNLU8T
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Pen
RT @sunny_hundal: New studies contradict Osborne’s claim the cuts can be "progressive" http://bit.ly/bNLU8T – what now Tories?
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Karl Wilding
RT @Chris_Goulden: RT @libcon New studies contradict Osborne's claim the cuts can be "progressive" http://bit.ly/bNLU8T #cuts
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diana smith
RT @libcon: New studies contradict Osborne's claim the cuts can be "progressive" http://bit.ly/bNLU8T
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David Baines
“@libcon: New studies contradict Osborne's claim cuts are "progressive" http://bit.ly/bNLU8T” > So not economically OR socially defensible
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Kate B
TUC's Richard Excelll continues to output good info re: coalition's cuts rhetoric http://bit.ly/cSNRD5
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Tweetminster
"New studies contradict Osborne’s claim the cuts can be progressive" http://goo.gl/cJtg – Liberal Conspiracy
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mariekeguy
RT @tweetminster: "New studies contradict Osborne’s claim the cuts can be progressive" http://goo.gl/cJtg – Liberal Conspiracy
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Max
RT @tweetminster: "New studies contradict Osborne’s claim the cuts can be progressive" http://goo.gl/cJtg – Liberal Conspiracy
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Paul Burgin
RT @sunny_hundal: New studies contradict Osborne’s claim the cuts can be "progressive" http://bit.ly/bNLU8T – what now Tories?
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Alice Pilia
RT @tweetminster: "New studies contradict Osborne’s claim the cuts can be progressive" http://goo.gl/cJtg – Liberal Conspiracy
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Stuart Carter
New studies contradict Osborne’s claim the cuts can be “progressive” | Liberal Conspiracy http://t.co/jhSU9e2 via @libcon
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Natalie White
RT @tweetminster: "New studies contradict Osborne’s claim the cuts can be progressive" http://goo.gl/cJtg – Liberal Conspiracy
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Chris Horner
RT @tweetminster: "New studies contradict Osborne’s claim the cuts can be progressive" http://goo.gl/cJtg – Liberal Conspiracy
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Samuel Tarry
RT @hangbitch: TUC's Richard Excelll continues to output good info re: coalition's cuts rhetoric http://bit.ly/cSNRD5
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ambir
New studies contradict Osborne’s claim the cuts can be “progressive” http://ff.im/-pyFqI
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Sherlika
RT @tweetminster: "New studies contradict Osborne’s claim the cuts can be progressive" http://goo.gl/cJtg – Liberal Conspiracy
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Pucci Dellanno
RT @libcon: New studies contradict Osborne's claim the cuts can be "progressive" http://bit.ly/bNLU8T
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Kevin Dykes
New studies contradict Osborne’s claim the cuts can be “progressive” | Liberal Conspiracy http://goo.gl/cJtg
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