George Osborne should come clean over who wins or loses in his budget
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Version 0 of 1. When thousands of poor American families saw the homes they had loved and saved for seized by the banks in the depths of the sub-prime mortgage crisis, it was scant comfort that they had only been able to afford to clamber on to the property ladder in the first place because of reckless lenders, toothless regulators and short-sighted politicians. Losing your home is losing your home. Yet when George Osborne contemplates the cuts many households will face as a result of his planned reductions in tax credits – three million will lose £1,000 a year, says the Institute for Fiscal Studies – he wants to kid us, and maybe himself, that it doesn’t matter because the state could ill afford such generosity to the needy in the first place. Keen-eyed Treasury-watchers thumbing through the budget red book last month quickly noticed a key chart was missing: the one showing the gains and losses of the chancellor’s spending decisions for households at different points on the income spectrum. This “distributional analysis” is a mainstay of the Institute for Fiscal Studies’ unmissable (no, really) post-budget event. It’s just a shorthand – the complex tax credit system means families will be affected in a wide variety of ways by the cuts; but as the IFS pointed out when it published its own version, the biggest losers are concentrated among poorer households. When Osborne made his post-budget appearance before MPs on the Treasury select committee, they asked him to explain why the chart had been dropped. He flannelled, but sent an extraordinary letter on 21 July. It’s worth quoting the relevant paragraphs in full. “The Treasury will not be producing analysis of this kind for future fiscal events, because it presents spending funded by additional borrowing as an unequivocal gain to households, and measures to reduce borrowing as an unequivocal loss. “That is plainly not a useful way to consider the distributional impact of economic policy, when we know that without sound public finances there is no economic security for working people, and that those who suffer when governments run unsustainable deficits are not the richest but the poorest.” So we can’t discuss how much better or worse off families will be each week as a direct result of the specific policy-changes announced in the budget because the cuts are part of a grand plan to put the public finances back in the black. Until that golden day, which Osborne fondly hopes will come before the end of the current parliament, payouts to the needy are pernicious, cuts benign. There’s a superficial logic to this: of course policymakers have to think about the wider implications of their spending decisions for the real economy, and of course we all pay when things go wrong. But precisely the same analysis could apply to Osborne’s announcement of a sharp rise in the minimum wage (which he badged as a “living wage”). The money will have to be found from somewhere to pay workers a bit extra: it may come from shareholders in reduced dividends, as companies’ profit margins are eroded; or customers may have to pay a few pence extra for a pint of beer or milk, to meet the costs. As Osborne rightly conceded, there may well also be job losses – about 60,000 according to the Office for Budget Responsibility’s calculations, a number he admirably quoted in his budget speech. But it’s still worth calculating the direct benefits to households of the pay rise. The same applies to the welfare cuts. For low-paid families hit by the benefits cap or the increased taper rates for tax credits, this is real money: “the pound in your pocket”, as Harold Wilson said in a very different context. Whether the state is on the brink of a debt crisis or not (which it isn’t anyway, but that’s a separate argument), the people hit will now have to struggle harder to afford food bills, school uniforms and rent. If Osborne thinks these are the households which should pay the heaviest price for balancing the nation’s finances, he should be willing to stand up and explain why. As Gavin Kelly, of the Resolution Foundation, puts it: “Deciding to ditch budget distributional analysis is a retrograde move for which there is no plausible good explanation. It contrasts with the transparency that accompanied the budget decision to raise the minimum wage which saw the OBR provide estimates not just for the boost to low wages but also of the potential (small) hit to employment.” The left is not blameless here. The intricate edifice of tax credits was created partly because it was a targeted way of propping up the income of those in the poorest households – through direct cash transfers – without having to answer more troubling questions about why the UK’s labour market relied so heavily on low-skilled workers whose wages were too meagre to afford them a decent standard of living. It also absolved New Labour from taking what might have looked like the statist approach of ramping up the minimum wage, something the pragmatic Osborne has placed at the centre of his redefined one-nation conservatism. It’s not a “living wage”, but the less-than-fulsome praise for the policy from many on the left was depressing. A generous rise in the minimum wage for millions of workers is surely welcome, even if it comes from a Tory who is also responsible for a slew of welfare cuts. “The level of ambition is impressive: make no mistake, it’s a big deal,” says Kelly. But Osborne weakened his case by overreaching himself and calling the policy a “living wage”, and his unwillingness to openly air the arguments about who wins and loses from his other budget policies suggests he is more touchy about their impact than polished delivery suggests. The creation of the OBR, an independent check on the Treasury’s forecasts, was a good, brave innovation. It showed Osborne’s determination to break with the dark days when Alistair Darling had to exile himself to the Isle of Lewis before he was far enough away from Gordon Brown to admit publicly that the economy was hurtling towards a deep recession. But with the LibDems chucked aside, Osborne seems increasingly willing to resort to “fiddling the figures” – for which he castigated Brown. Voters understand he wants to balance the books: they re-elected him knowing that . But politics is bout trade-offs – and people are entitled to know what they are. |