Opinion: TUC inequality study not all it seems

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

  • Andrew Wimble 15th Sep '10 - 12:36pm

    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.

  • Colin Green 15th Sep '10 - 1:08pm

    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.

  • Anthony Aloysius St 15th Sep '10 - 1:16pm

    “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%.

  • Anthony Aloysius St 15th Sep '10 - 1:24pm

    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.

  • Anthony Aloysius St 15th Sep '10 - 3:07pm

    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%.

  • Malcolm Todd 15th Sep '10 - 4:37pm

    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?

  • 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.

  • John Fraser 15th Sep '10 - 9:01pm

    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 ) .

  • Patrick Smith 15th Sep '10 - 9:50pm

    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.

  • Simon McGrath 15th Sep '10 - 10:30pm

    @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.

  • Simon McGrath 15th Sep '10 - 10:33pm

    @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

  • Can we apply the TUC’s methodology to Cuba, where there is to be nearly a 10% cut in public sector jobs.

  • Anthony Aloysius St 16th Sep '10 - 12:21am

    “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.

  • Simon McGrath 16th Sep '10 - 3:41pm

    @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.

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