CESRAN Blog, Europe, International Economics, Michael Roberts

Austerity, the Hardworking and the Feckless

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About two years ago, the current UK finance minister George Osborne commented that ‘hard-working people’ left for work every morning while ‘behind the blinds’ of the house opposite people on benefits were sleeping in. The ‘hard-working’ person was paying for the feckless “to stay at home and not work”.

At the time, I wrote a post that attempted to analyse just how many of these feckless layabouts there were that we ‘hard-working’ people were paying for (http://thenextrecession.wordpress.com/2012/10/08/who-are-behind-the-blinds-george/). Apart from the official unemployed, nearly all of those not working were disabled, lone parents without childcare, retired or students. Indeed, after excluding students, there were only about 250,000 adults out of a potential workforce of 41m who were ‘refusing’ to work for ‘no good reason’, or just 0.6% of the workforce.

Well, the latest work survey has been released (http://www.ons.gov.uk/ons/rel/lmac/working-and-workless-households/2014/stb-working-and-workless-households-2014.html). In June this year, there were 3.3 million UK households with at least one member aged 16 to 64 where no-one was currently working. This represented 15.9% of households and was a fall of 1.4 percentage points, or 271,000 households on a year earlier. This ratio is down to its lowest rate since 1996. In 2014, there were only 226,000 households (excluding students) in which no adult has ever worked, or less than 1% of all households.

workless households

That is the extent of the feckless hiding behind their blinds each morning.

The number of workless households has fallen as employment has increased since the Great Recession. But we now know that most of these new jobs are either part-time, temporary (zero hours contracts) or created by people themselves through self-employment. And these jobs pay much less that full-time employment. Indeed, in 2014, for the first time, of the 13 million Britons officially living in poverty, there are more working households than non-working ones – according to the Joseph Rowntree Trust.

While the government boasts that it is getting people back to work at record levels, it fails to mention that this work is badly paid, precarious and often created by people themselves trying to scramble together a ‘business’.

As a result, tax revenues are just not rising anywhere near enough to enable to this ‘austerity’ government to meet its targets for reducing the annual government deficit and the overall debt burden.

In March, the government predicted that the budget deficit would shrink by about £12bn in the current fiscal year. Instead, it’s widening. Government spending exceeded revenue by £10bn in September. This leaves the shortfall in the first six months of the current fiscal year at £55bn, 5% more than in the same period of 2013.

The reason is much weaker tax revenue than expected because the extra employment is in low-paying jobs, part-time work replacing some full-time jobs and above all in self-employment. Self-employment accounts for one-third of the 1.75 million jobs created since early 2010 as people hit by the recession turned to working for themselves in jobs from taxi driving to carpentry. And the proportion of self-employed workers reporting incomes below the tax-free threshold has jumped to 35% from 21% before the financial crisis.

The benefits bill is staying stubbornly high because, while people may be coming off unemployment benefits if they go into low wage work, they are likely to continue claiming some form of welfare (tax credits, child benefit, housing benefit, etc).

As nominal wages are barely growing, fewer people are moving into higher-rate tax bands. In March, the independent OBR forecast average incomes would grow 2.4% this year. Instead they rose just 0.7% in the latest quarter. Together, taxes on income and social security contributions account for almost half of government revenue. Osborne had been predicting about 7% more income tax this year. Between April and August, it fell 0.8%!

The coalition government is way short of its target to ‘balance the books’ by the end of 2018, a target that has been slipping back anyway. Meanwhile, the gross government debt ratio inexorably rises towards 100% of GDP, a level not seen since the war debt levels of 1945.

UK govt deficits

What this means that the government’s drive to reduce welfare spending on the ‘feckless’ is not even achieving the government’s own professed aim of reducing the public sector deficit – although it is reducing real wages and the cost of labour for business to make more profit.  The House of Commons briefing on social security expenditure forecasts a rise in benefit costs in real terms through the whole period of the next parliament 2015-20.

SS spending

And it’s only going to get worse, whoever wins the UK general election next May, as all three main parties are pledged to ‘balance the books’ of the government as a priority.  And yet the Conservatives have announced more tax cuts for the rich if they win the election next year. But they cannot square the circle of cutting taxes and maintaining public services, even if they reduce welfare spending to zero! Austerity is not working, except to lower real wages and keep the poor even poorer. But then that is part of the reason for austerity buy jumpers.

This article was originally published on Michael Roberts’s Blog.
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