From the TUC

The cuts are biting hard and increasing poverty

21 Nov 2011, by in Economics

The cuts are no longer just announcements, appearing in press releases and union reactions. The reality of lost jobs and disappearing services was illuminated by three reports that appeared over the weekend.

  • The Royal College of Nursing reports that the NHS is “heading for a crisis point”, with 56,000 jobs due to go – or already gone. This figure has resien nearly twenty thousand in seven months.
  • A new report from Mind indicates that a combination of rising demand and the cuts is stretching acute and crisis mental health services, with discussions about frozen posts and bed reductions starting as early as Autumn 2010.
  • An investigation by Channel 4 News found that the welfare reforms are already leading to claimants being “bouncedbetween being told at assessment that they are fit for work, to being found unfit at appeal then sent straight back in for a new assessment where – you’ve guessed it – they’re found fit for work again.” This is putting huge pressure on GPs, advice agencies and the appeals system.

And where is this leading us? Well, for one thing, the impact on poverty and inequality is unavoidable. Yesterday, the four Children’s Commissioners from the nations of the UK marked the International Day of the Child by publishing their midterm report on the UK’s progress on implementing the UN Convention on the Rights of the Child. You don’t often read such hard-hitting language in a semi-official report; after noting that their last report (in 2008) said it was unacceptable for the UK to have one child in three in relative poverty they add:

this figure has not changed. In fact, there is now a very real danger that this figure will increase. The changes being implemented as a result of the Welfare Reform Bill … have the potential to drive more vulnerable children, young people and their families into poverty. We therefore strongly urge the UK Government to reconsider the impact of these reforms.

Restrictions in eligibility for benefits and cuts in benefit rates will inevitably hit the poorest. It’s common to hear politicians repeat that you can’t deal with problems just by “throwing money” at them and if that’s all that is done that’s may be true. But spending money on benefits and tax credits has to be part of the answer to poverty and inequality, as work we have commissioned from Stewart Lansley and Tim Horton and Howard Reed have shown.

Another report published today, When does economic growth benefit people on low to middle incomes – and why? by Prof. Lane Kenworthy for the Resolution Foundation looks at the differences between those countries where improvements in GDP benefit people on low and moderate incomes and those countries where this doesn’t happen. For people on low incomes, the key factor for “transfers” (such as benefits and tax credits) to grow in line with GDP. For people on ‘moderate’ incomes, improvements in wage income are more important, but transfers still matter. Prof Kenworthy worries that, although the UK has been quite successful,

That said, recent years have seen some worrying developments, in particular the current government’s plan to substantially reduce spend on the UK’s tax credit system. Tax credits have been a key component of the UK’s success in improving employment and incomes of low-to-middle households. If they are not to play the same role in future, the government ought to identify a component of household income it believes will grow substantially faster in the coming years than it has previously.

As they haven’t done that yet it’s reasonable to infer that falling incomes for the poor and growing inequality are a likely consequence. And, sure enough, today’s Markit Household Finance Index shows a “widening disparity between highest and lowest income groups” – the poor are being hit harder than the rich In the lowest income households, 51 per cent said their finances were getting worse, with just 2 per cent saying they were getting better. In the richest households, however, 19 per cent reported deterioration, 14 per cent and improvement. Poorer groups were also much less likely to be optimistic about the future.

The Markit figures show household finance deteriorating “at a far steeper pace than the overall trends seen in 2009 and 2010” and continuing pessmism – 48 per cent of households expect their financial situation to worsen over the next 12 months, compared with 24 per cent who expect an improvement. This is feeding through to “close to record low” figures for willingness to make major purchases, more people increasing their debts than making savings – all of which is bound to continue the slump in household demand.

2 Responses to The cuts are biting hard and increasing poverty

  1. The cuts are biting hard and increasing poverty « Act of Defiance
    Nov 22nd 2011, 9:15 am

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  2. Coastliner
    Nov 23rd 2011, 2:39 pm

    The poor have always and will always be with us. Ensuring benefits do not exceed what can be earned by a full time working person is imperative to get this country away from the dreadful benefits culture fostered over the last decade and more. It is starting to hit home at last to long term claimants that there are no free rides any more. If this is what it takes to get the feckless off the sofa so be it.