Nicky Morgan on Newsnight
Another graph for Nicky Morgan: Public service cuts make budget inequality even worse
The hapless performance of Education Minister Nicky Morgan on BBC’s Newsnight when confronted with evidence of the distributional impact of her government’s tax and benefit cuts made for cringeworthy TV.
Morgan seemed genuinely shocked at the disproportionate losses inflicted on lower earners that was so starkly demonstrated by the Institute of Fiscal Studies chart. And so she should be. A clearer depiction of the gap between David Cameron’s “compassionate Conservatism” rhetoric and the outcomes of Tory party policy would be hard to come by.
This, of course, is the really interesting story behind the resignation of Iain Duncan Smith. As his resignation letter pointed out, the juxtaposition of cuts to disability benefits within a budget that “benefits higher earning taxpayers” exposes the unfairness at the heart of the “self-imposed fiscal restraints” that are “distinctly political rather than in the national economic interest”.
But the IFS chart that appeared on Newsnight tells only part of the story. It is true that planned tax and benefit cuts will have a large and disproportionate impact on the incomes of medium and low earners, while benefiting the well off.
But cuts to public services have a similar effect. So we need to model that too.
Howard Reed of Landman Economics has done just that in his new TUC commissioned report. The Landman Economics public spending model combines departmental spending plans announced in the November 2015 Spending Review with a range of UK household-level datasets on the use of public services by individuals and families. By combining these two sources of data we can estimate the amount being spent on services delivered to households with different levels of income and therefore measure the impact on the living standards of those households.
The Landman study shows us that looking at spending plans, taking into account population growth, real funding per service user is falling across all public services – even in the ‘protected’ areas such as policing and health.
And as this graph shows, this means that the lowest-income families will suffer a drop of more than 5% in their living standards between 2015 and 2020. And most low- and middle-income families will see a fall of around 4.5%. By contrast, those with the highest incomes will see a fall of less than 1%.
Distributional impacts of cuts to spending on public services (excluding social security) over the 2015-20 Parliament: as percentage of net income plus value of services received, by household income decile
Cuts to social care and schools account for the bulk of the fall, with middle-income and poorer families far more reliant on these services than wealthier households. Cuts in social care and health mean that the impact is greatest for single pensioners, though lone parents and couples with children also face big falls in living standards due to cuts to early years and school-level education.
If we look at the combined picture of the impact of cuts to tax and benefits as well as cuts to public services, the picture looks even more troubling.
Combined impact of tax/benefit measures and cuts to other public services over the 2015-20 parliament, as percentage of net income plus the value of services received, by household income decile
It is crucial that we maintain a focus on both aspects of government policy. While tax and benefit changes may have immediate impact on cash in people’s pockets, cuts to departmental budgets mean the loss of services that we rely on day to day, as we have stressed before.
George Osborne may have rolled back on cuts to (some) disability benefits since last week but £5.5bn is still set to be taken out of public service budgets in 2019/20. And with a Chancellor wedded to the “self-imposed fiscal restraint” of achieving a budget surplus by the end of the parliament, on the basis of his arithmetic he needs to find another £4.4bn to plug the gap from the benefits u-turn (although as we have pointed out elsewhere, the impact of these cuts on the economy means that this arithmetic can be very misleading).
Heroic speeches in the House of Commons might reassure Tory backbenchers that we’re still “all in this together” but the chasm between rhetoric and reality that so bewildered the Education Minister is set to grow still further.