The government claims that it’s interested in cutting the deficit, yet this change is expected to save only around £1.5 billion in spending, which is a drop in the bucket compared to the overall deficit – which in reality continues to grow under the coalition, in spite of some sly tricks in terms of interest from money ‘invented’ via quantitative easing (QE) and offsetting the proceeds of a telecom licence sale against the current deficit even though the sale hasn’t taken place yet and doesn’t have a guaranteed value.
To put this ‘saving’ into context, when George Osborne announced early last year that he was cutting the top rate of tax paid by the wealthiest, he and his party colleagues argued that the top rate added ‘next to nothing’ to the amount of tax actually collected. But the HMRC official report estimates that the revenue lost by cutting the top rate from 50% to 45% will be around £3 billion.
So, if £3bn is ‘next to nothing’, what does the government think a £1.5bn saving is? Or are the standards of ‘nothing’ and ‘something’ different depending whether you’re taking money from poor people or from rich people?
More context: last year, George Osborne announced an additional loan of £10 billion to the International Monetary Fund – the same amount that he said needed to be cut urgently from the social security budget, and an amount that dwarfs the child benefit saving.
By taking this money out of the pockets of parents, the government is sucking yet more money out of the economy. Parents will have less cash to spend and the economy will suffer – by much more than the amount saved.
This is because of what is referred to as the ‘multiplier effect‘. A popular illustration by John Lanchester in an LRB article makes this easier to understand:
Imagine for a moment that you come across an unexpected ten pounds. After making a mental note not to spend it all at once, you go out and spend it all at once, on, say, two pairs of woolly socks. The person from the sock shop then takes your tenner and spends it on wine, and the wine merchant spends it on tickets to see The Bitter Tears of Petra von Kant, and the owner of the cinema spends it on chocolate, and the sweet-shop owner spends it on a bus ticket, and the owner of the bus company deposits it in the bank. That initial ten pounds has been spent six times, and has generated £60 of economic activity. In a sense, no one is any better off; and yet, that movement of money makes everyone better off. To put it another way, that first tenner has contributed £60 to Britain’s GDP.But if you find the £10 and just put it in your pocket, it causes no economic activity at all until you spend it. You’ve saved £10 but the economy has lost £40 (and more as time goes on). So government cuts have a much bigger impact than their face value.
George Osborne, with incredible naivety or cynicism, uses a multiplier of 0.5. In other words, for every £1 cut, the impact on the economy will be only £0.50. But even the very right-wing IMF estimates the multiplier is as high as 1.7,so that £1bn of cuts has an impact of £1.7bn on GDP. Commonsense dictates that the real figure is more likely to be 2 or 3, or perhaps even higher – with a commensurate effect on tax revenues, employment, the cost of unemployment & income support benefits etc.
Putting money into the pockets of those who need it and will therefore spend it is the fastest – and quite possibly the only – way to turn around our ailing economy. But the government’s child-benefit measure will do the opposite, and will cost us far more than it saves, by taking money out of the pockets of some 1 million families and putting it – well, nowhere, really.
And don’t forget, this change is only the beginning of the government’s plans for child benefit. The government is also looking to limit eligibility to only the first 2 children. This measure, which shows the government’s fear as well as its idiocy, will damage the economy even further, and shows that the government either doesn’t understand, or doesn’t care about, the immediate economic effects of its policies.
But that’s not all.
The move is also a perfect example of the short-termist way in which this government operates, and betrays either a complete lack of thought about the long-term consequences, or else (more likely) a complete lack of interest in those consequences.
Why? Well, when this Tory-led government wants to cut social security spending, it inevitably appeals to demographic change – the fact that we are ‘an ageing society‘, which is becoming more and more expensive because of the cost of pensions and care, with fewer and fewer people of working age to pay the cost relative to the number of pensioners.
Yet its moves on child benefit, as well as its ludicrously misguided caps on benefit rises that are essential for millions of working people (at least 60% of benefit claimants are working but poorly paid) and its failure to cap rents and build affordable housing, will all force people to wait longer to start families and to have fewer children when they do. This can only exacerbate the ‘ageing society’ problem.
The government and its supporters are fond of justifying their ever-increasing cuts by talking of ‘fairness to our children’ – the idea that we’re somehow recklessly running up debts that will burden future generations.
But at the same time, those very measures, along with increased student fees, failure to provide reasonable mortgage lending while shovelling money toward the banks for them to sit on, caps on pay rises and wilful ignorance of basic, obvious economic consequences are contributing massively toward the very future burdens that they claim they want to alleviate.
Clearly, the government is being cynically deceptive about its reasons for the change to child benefit rules – and about everything else it is doing. The obvious logic that it is wilfully ignoring means that the reasons they claim for their actions are self-evidently nonsensical.
So if those reasons are red herrings, you have to ask what the real reasons are.
The government is not serious about cutting the deficit and the debt. It doesn’t – cannot – really believe that saving relative peanuts on child-benefit spending will help cut the deficit when the multiplier effects will more than wipe out any savings.
No, today’s change is the first in a ‘death by 1000 cuts’ move – and not just on child benefit. Child benefit was a ‘universal’ benefit – everyone with children was eligible, with the aim of encouraging people to have children and maintain the birth-rate by providing them with a small helping hand toward the cost of doing so.
Make no mistake: the ultimate aim of this government is the elimination of the welfare state, and the child benefit change is just one small, harmless-seeming step toward the goal.
Taking a step that many people will be fooled into thinking is acceptable because it only targets those on relatively high salaries allows the government to break that expectation of universality with minimal resistance. But it’s really just the first step onto a slippery slope toward its complete abolition – and toward the idea that no benefit should be universal.
Then the 2-child cap comes in; winter fuel allowance becomes means-tested, and so on – our social safety net being incrementally, constantly eroded until there’s barely enough left to be worth a fight – and then ‘oops!’, it’s gone.
This government has cut incomes for ordinary people who would spend the money and promote growth while cutting taxes for the richest and for huge corporations. Can anyone really think this child benefit measure has anything to do with necessity, or savings, or fairness?
No, I don’t think so either.
