The Observer view on the budget

http://www.theguardian.com/commentisfree/2015/mar/22/observer-view-on-the-budget

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The red box George Osborne brandished on the steps of the Treasury for the last time before the general election did not just contain a budget. Nestled underneath the figures and projections lay a manifesto: a manifesto for a more divided and less humane Britain.

When Osborne made his first autumn statement as chancellor five years ago, he declared “those with the broadest shoulders should bear the greatest burden” of the deep fiscal consolidation he set out. His speech was awash with rhetoric: the poorest would be protected from the worst of the cuts. Instead, there would be tax cuts for the lowest paid and the ring-fencing of budgets for local schools and hospitals.

Today, the rhetoric is as strong as ever. Last Tuesday, the chancellor baldly asserted his success: living standards higher in 2015 than in 2010, and more low earners taken out of paying tax altogether.

Yet independent analysis after independent analysis has exposed these claims for the political spin they are. To make his claim on living standards, he used a measure of household income that includes university and trade union income. On the measure of average household income used by the independent thinktank the Resolution Foundation, household incomes are still some way below what they were in 2010. And as Paul Johnson, the director of the Institute for Fiscal Studies, has pointed out, “having household incomes crawl back up above pre-recession levels six or seven years after the recession hit is no cause for celebration”. Beneath the rhetoric lies a stark truth: it is parents in low-wage jobs and young people who have suffered the most in this crisis.

This is partly as a result of the coalition’s tax and benefit reforms. On tax, both the Conservatives and the Liberal Democrats have argued that increases in the personal allowance have been good for low earners. The truth, however, is a hugely expensive tax cut – to the tune of £14bn a year – that benefits the more affluent the most. Three-quarters of the benefits of the latest increase announced on Tuesday will go to better-off families on above-average incomes. More than 5 million workers won’t benefit at all because they don’t earn enough to pay tax in the first place.

Taken with other changes – the increase in VAT to 20% and deep cuts to in-work benefits for families with children – the tax and benefit system has become less progressive under the coalition government. Three-quarters of welfare cuts have been borne by low-income families in work. Yes, the working tax credits introduced by Gordon Brown as chancellor may have been complex and inelegant. But they are a necessary evil in a Britain where it is impossible to support a family on a minimum wage job. Cleaners and care assistants will hardly feel the benefits of the increase in the personal allowance, if at all. But they will feel the bitter pinch of cuts to the in-work benefits that make the difference in that awful calculation so familiar to low-earning parents: how can my wages stretch to cover the costs of food on the table and a warm home once I’ve taken into account the cost of childcare and the bus fare to work? Is it really right to prioritise a sweeping tax cut for all but the very wealthiest, over tax credits that are the difference between people in minimum wage jobs being able to just about afford their weekly shop and having to rely on food banks to feed their children? And if re-elected, the Conservatives would be seeking to find another £12bn of welfare cuts in the next parliament, which cannot mean anything other than a further raid on benefits for the disabled, tax credits for low-income parents and childcare support.

There is also a divided story on stagnant wages. The pay of FTSE 100 chief executives has risen over a quarter over the last decade. But for young people, Resolution Foundation analysis shows hourly pay for 22 to 29-year-olds is now lower than it has been at any time since 1998. Stagnant wages are not just bad for families, they are bad for growth: according to the OBR, the UK is the only country in the G7 in which income tax receipts have not helped to close the deficit.

On public spending, Osborne rowed back from his position in last year’s autumn statement, which would have left spending on public services at their lowest levels since the 1930s by the end of the next parliament. His position still, however, implies deep spending cuts in the first two years of the next parliament. Local government will already have experienced a 40% slash to its funding in the five years since 2010, with councils in the poorest areas taking the biggest hit. This has meant cuts to critical services such as parenting support, child mental health and educational psychology services, and care for disabled adults and the elderly. This has left schools in deprived areas struggling to cope with children with severe behavioural and mental health issues. It has left hospitals having to find beds for elderly people who need care, not medical treatment, but for whom cuts in care services mean hospital is the only viable option.

A government really interested in protecting low-earning families would be pursuing a different strategy: a decent minimum wage; tax breaks for companies paying the living wage, rather than a corporation tax cut; protecting in-work benefits by relaxing the triple lock on pensions; building many more houses and reforming council tax, instead of creating another futile demand-side policy that will make little difference to first-time buyers; and protecting public services in the poorest areas by making wealthier councils take a bigger hit.

Debates about budgets are too often conducted in the dry currency of figures, rather than people’s lives. But read between the numbers and the projections, and a clear message emerges from the Conservatives. It is this: if you are a care worker paid below minimum wage on a zero-hours contract and you can’t earn enough to support your children, you’re on your own. If you’ve got a child with behavioural problems on the point of being excluded from school, you’ll need to deal with that yourself. If you’re old and frail, we’ll expect you to wait until you’ve broken your hip before you get any help.

This is what Cameron and Osborne must be judged on going into the election: not a glossy manifesto filled with rhetoric about hard-working families and giving young people a step up. But the reality of the harsher, meaner Britain their budget would produce.