Another day, another Guardian headline about the wickedness and unfairness of the Coalition. Thus Saturday’s headlines “Coalition cuts will hit poor 10 times harder than rich, says TUC” will have made many Lib Dem hearts sink.
But as with so many Guardian headlines recently, the headlines, and the reports they are based on are not quite what they seem.
The TUC report attempts to take the value of public services and allocate them across different income groups with the aim of showing the cuts are unfairly distributed. They have done this by taking a figure for the cuts over the next 2 years (£34bn) and allocating it across different government depts, adjusting for the fact that some areas are ring fenced and others (like education) are partly protected. They then allocate these cuts across different income groups, based partly on estimates of how much different people use public services (for example education) and partly on a flat rate basis (e.g. defence)
The methodology that the TUC use is ingenious because it is bound to produce the results they want. Suppose the government decides to mothball the Trident submarines; the savings (called cuts) would be allocated on a flat rate basis of (inventing a number) £100 per person. As poor people have a lower income than rich (by definition) if you take this as a % of income it is bound to show that the poor person has been hit hardest. By the same logic if the Arts Council decides to take its share of the cuts by stopping subsidising my tickets to the Opera it will be shown as discriminating against the poor.
Even for those areas of public spending where they try to allocate expenditure by use their methodology is bound to show that cuts increase inequality. Take two families one of whom earns £15k a year and the other £60k, both with two children at the same state school. If spending on education is cut they would both be equally affected. But because they have different incomes the headline would be that one was affected four times as much as the other.
A logical corollary of the TUC approach is that any increase in Government spending automatically increases equality. The money spent on ID cards, the billions on failed IT systems in the NHS – all increased equality on this basis.
One of the interesting points about the TUC report is that it does actually recognise that the Labour Government had committed to £25bn of cuts compared with £42bn for the Coalition. They adjust the £42bn figure by deducting £5bn for what they claim are welfare cuts and £3bn for lower interest costs caused by decreased borrowing (yes the TUC really do think that paying less interest on Government debt is a cut) so the like for like cut in public spending is £34bn for the Coalition vs. £25bn for Labour.
Under their methodology Labour’s £25bn would have increased inequality in just the same way (although not to the same extent) as the Coalition’s £34bn.
The fundamental problem with the TUC approach is that they are not comparing like with like. They assume that the Coalition could have decided to make no further cuts and it would have had no effect on our exchanges rate, interest rates or our ability to borrow.
In the next few months we can expect many more Guardian headlines like this, the moral for Lib Dems is make sure you look at the data they are based on and the motives of those providing it.
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24 Comments
cracking article – the value of spending cuts is not just in terms of the amount we cut, but taking into account what it is that we cut.
Or, to be super-nerdy about it: government spending is a Euclidean vector – having both magnitude and direction – and a cut in magnitude is not necessarily (although it can be…) damaging, provided the direction remains progressive – it’s when the direction is off that we have to start getting worried.
I am very concerned that the effects of the cuts will hit the worst off the most, but I will wait to see what actually happens before making any judgements. Even then I will tryto remember that the alternative was not the perfect lib-dem government I may have wished for but rather either a Tory minority government which would have very little regard for the worst off, or an unstable labour alliance which would probably have lead to lots of problems caused by economic uncertainty, followed by an early election.
Just imagine what real Liberal government would have done.
This morning I was reading an article which was published March (dentist’s waiting room) in which Nick said that the way to beat crime was to put thousands more police on the beat.
The exigencies of today’s situation suggest that we cannot afford to do that, but at least Liberals need to remember that it is a very imperfect situation we are living. Let’s not have Liberals telling us that it is the best thing for us to have fewer police … or libraries or old people’s homes, or indeed that, as Cameron has said, once the crisis is over there will be no increases in public spending.
In short we are not just going to suffer for a short time… it will be forever. Or until, mr Cameron is toppled, whichever comes first.
This is the problem with some of the rhetoric about cuts. In reality useful government spending is only being cut by 13% over the next 5 years. The 25% figure bandied around comes from excluding the two largest items of government expenditure, health and Welfare, which are being cut by less than this (Welfare 7%, Health not at all). These are the most progressive areas of government spending, along with education, which is also being protected somewhat being cut 10-15%.
The 25% cuts fall on culture, transport, defence, police, the cost of politics etc. As you say, it’s rubbish to claim that cuts in opera subsidies, a smaller nuclear replacement, a freeze in police pay, a reduction in the number of UK law courts, impacts on the poor in some of 100% flat monetary way, as much as these may be useful and important areas of government spending. And this is the essential flaw in all these ridiculous simplistic lefty attempts to model the cuts.
In reality, the cut in the total combined budget across Health, Education, Welfare, the most progressive and important areas to the poor, is about 7% over the next 5 years. To refer to this, as some Union and Labour figures have, as the end of the welfare state, or a possibly fatal assault on the social fabric of our country, is just ridiculous deliberate scare-mongering.
I thought the 25% figure came from the fact that the previous government were said to be spending £4 for every £3 they raised in tax. We would therefore have to cut 25% just to stop the national debt growing.
“In reality useful government spending is only being cut by 13% over the next 5 years. The 25% figure bandied around comes from excluding the two largest items of government expenditure, health and Welfare, which are being cut by less than this (Welfare 7%, Health not at all). These are the most progressive areas of government spending, along with education, which is also being protected somewhat being cut 10-15%.”
That’s a much rosier picture than the BBC is painting:
http://www.bbc.co.uk/news/business-10810962
That page says that the _average_ cuts for all areas except health and international development will be 25%, that education and defence will be cut by 10-20% and that – according to the IFS – the cuts for unprotected departments may be 30%.
And even if the figure of 7% for welfare is correct, that alone is still a huge cut. Of course it’s possible to cut public spending in different ways, which affects how regressive the effects will be, but the omens are hardly encouraging. Osborne chose to freeze child benefit rather than taxing it or means-testing it. That – especially considering the tenor of his more recent comments – doesn’t make me hopeful that the government will try particularly hard to protect the poor. Not that that would be easy in any case, given the magnitude of the cuts.
Yes, the average cut among unprotected departmental spending.
They simply don’t include the £200 billion spent on welfare every year that is being cut at a much lower level. Also Health is the 2nd largest area of government spending and that is not being cut at all. Education is the 3rd largest and that is being partially protected. This is why the headline figure for other unprotected departments is so high. More than 60% of useful government spending is being shielded from the level of cuts in some way. So the percentage slice for what’s left is high. This just doesn’t accurately represent the impact of these cuts though. Quite simply, the most important areas of the poor are being cut the least (compared to the rest).
It’s still reasonable to argue that the sheer amount the government is attempting to cut means that unnecessary cuts are being made to important services. But to bandy this 25% figure around as though Health, Welfare and Education will lose 25% of their funding is just wrong and misleading and a deliberate attempt to scaremonger.
I think we’re dealing with two possible definitions of “unprotected” – health and international development will be totally protected, and education and defence will be partially protected.
So it seems the average percentage of cuts for departments not _totally_ protected will be 25%, and the average for those not even partially protected will be higher – perhaps 30%.
Fundamentally, the TUC report was economic nonsense and pure politicking because it claims to measure the distribution of the impact of cuts that haven’t even been detailed yet. As others have noticed above, they’ve just assumed that all spending is progressive because the money to spend is raised by broadly progressive taxation. Does anyone seriously doubt that the rich get more benefit in cash terms from police, courts, and defence than the poor?
It’s a bit rich to accuse the TUC of “pure politicking”. If the Lib Dems were not currently in the coalition, this site and its commenters would be lapping up the report and using it to expose the unfairness of the minority Conservative administration’s cuts agenda. At least that would be more consistent with the Lib Dem position during the election.
Excellent article!
It’s a shame that the TUC report seems to have such poor methodology. Understanding how public consumption (i.e. public services like education and healthcare) is distributed is vital to understanding economic inequality – what matters is inequality of total consumption. Private consumption (funded by income from wages and government transfers like the state pension) has to be added to public consumption, which as the TUC argues can be unevenly distributed across the population.
But the choice to allocated defence and culture cuts flatly is very dodgy – it’s absurd to describe cuts to Trident replacement as hitting the poor the hardest. Likewise, as Jim Hacker argued in the memorable Yes Minister episode “The Middle-Class Rip-Off” (series 3), a lot of cultural subsidy (e.g. to opera) benefits the already well off middle class. (I say this as an opera fan! That said, some subsidies like free entry to museums might well be used more or less equally across the income distribution.)
It’s an important debate so it is a shame that the TUC report doesn’t do it properly.
Apparently, according to the Guardian, Bob Crow didn’t watch Mervyn King this morning, but switched to Cbeebies instead.
This is the kind of imbecilic, egotistical, afraid of real debate clown that the TUC calls it membership (not all of them, I hasten to add) and why any report from that organization should be taken with a dustbin full of salt.
If the methodology has been correctly identified you have given the TUC survey some weaknesses . You have to be careful with the education scenario though as a modern well run school can be a godsend to a poor kid in bed and brakfast accomodation. Compared with the rich kid who can take his hoework to his spanking new PC the effect of losing out on this can be relatively greater . The 12 or 13 times the impact that the TUC are cliaming the cuts will have on the poor is almost certainly incorect . that does not diminish the fact that the poor will almost certianly be hit disproportinatly (just not be 12 or 13 times ) .
An important liberal principle is that everyone who is able and wants to work should be able to do so.This is so important for 18-24 year olds where currently there is much wasted talent and potential.Also if older persons are now seeking work until age 67 or 70 years then Employment policy must reflect this with the focus on the help required.
How much public money is being saved by the abolition of the pointless and costly ID Card project invented by the previous Government?
It may be time to cut universal child benefits to the better off with a possible tapering as this `Coalition Government’ is confronted with a national debt legacy of £156M and all that interest repayments incur,unless paid down.
The `National Deficit’ will require a cross board analysis but the worst off and reduction in income tax on first £10K and keeping the pledge on Winter Fuel Payments and free public transport for over 60`s must be honoured and protected for the worst off.
Fiddling with figures while Rome burns.
The public knows that the cuts will hit the poorer far harder than the rich. You know it. I know it. Everyone knows it.
Desperately trying to spin that it won’t is not only futile but cements in the publics mind the damning image that the Liberal Democrats are nothing more than apologists for the worst excesses of Osborne and Camerons right wing agenda. It is electoral madness.
The public are turning against the Liberal Democrats for this very reason.
If signing up to the coalition truly means that absolutely everything Cameron and Osborne does is not merely to be meekly accepted, but actively pushed as Liberal Democrat doctrine, then there is no point even having the Liberals as a separate and distinct political Party and Clegg might as well just put on a blue rosette and be done with it.
@Prateeek – thanks and you defintely get the nerd of the day award!
@Colin – no I don’t think the 25% is connected with the one pound in four the Govt spends being borowed- i think it is coincidence.
@Adam – I dont agree
@John – I agree that in the circis you describe the child from the poorer home would be more affected, although not by the amounts the TUC suggest. That is why the pupil premium is such a good idea.
@Bob – I don’t see anything which suggest that ‘ absolutely everything Cameron and Osborne does is not merely to be meekly accepted, but actively pushed as Liberal Democrat doctrine’
I do think that we should respond to attacks which are based on misleading data.
rather than going in for wordy generalities could you give us your view on the TUC’s methodology
Thanks for opening my eyes to the TUC’s methodology. It is reminiscent of the way service chiefs America persuaded successive presidents during the cold war that the USSR had larger armed forces than the US. 😉
Can we apply the TUC’s methodology to Cuba, where there is to be nearly a 10% cut in public sector jobs.
“It may be time to cut universal child benefits to the better off with a possible tapering as this `Coalition Government’ is confronted with a national debt legacy of £156M and all that interest repayments incur,unless paid down.”
I think it may indeed. I know there are arguments against means-testing/taxation, but given that we are in a far from ideal world, it would probably be a more progressive option than most.
The unfortunate thing is that – as I mentioned above – Osborne has already decided not to do this, but instead to freeze child benefits. And of course, that’s a regressive measure that really will hit the poor hardest. That’s why I’m not hopeful that these cuts will be done in such a way as to protect the vulnerable.
@Simon Mcgrath
I suggest you look at the front page of today’s Times to see Nicks latest jawdropping Thatcherite outburst.
“Poor must accept cuts in benefit, says Clegg.”
Were that authored by Cameron or Osborne no-one would raise an eyebrow and anyone who says otherwise is lying to themselves. That it was authored by a Leader of the Liberal Democrats is astonishing
So Nick is now utterly indistinguishable from the Conservative right wing.
And if you think the grasroots or the public will accept that with equanimity you are sorely mistaken. To wrench the Party from the centre left to the rhetoric of the rabid right in record time is remarkable for all the wrong reasons.
The polls do not make happy reading tomorrow either.
And to arrogantly dismiss the polls with next years important elections a reality is also sheer folly.
You are missing the bigger picture with the cuts.
That the methodology may be flawed doesn not make the central point any less stark or true.
The poor will suffer more under the cuts whether that metric is 3,5 or 10 times more than the richer.
At best, arguing the minutia of methodolgy can be seen as mere partisan attacking of the messenger when the central point of the cuts hurting the poor more then the rich is almost universally accepted no matter the scale.
At worst it reinforces the narrative that the Liberal Democrats are only too happy to be the bag carriers and fall guys for the worst excessess of Osborne and Cameron.
It is almost painful to watch the damage being done to the Liberals previously good name for the sake of a few makework cabinet jobs and a miserable little reform. Some are not merely disapointed but furious with the way things are going but are keeping silent for fear of damaging the Party even further. But that silence will not last forever.
I say again, Clegg might as well just put on a blue rosette and be done with it.
@Bob – I have read the Times article and I don’t think the headline reflects the article . Nick point that labour was happy to let millions rot welfare whereas actually want to help them is not something i think many LD will have a problem with.
Hi Simon. Just wanted to let you know that the report’s authors Howard Reed and Tim Horton have written a response to your critique, as a post on the TUC policy blog ToUChstone. If you’d like to read it, you can find it here: http://www.touchstoneblog.org.uk/2010/09/why-lib-dem-criticisms-of-where-the-money-goes-are-wide-of-the-mark