It felt like a long time to go when, in 2012, then-Chancellor George Osborne meekly warned that the economy was “healing” more slowly than anticipated and that austerity may last until 2018.
Now 2018 is around the corner and instead of Britain seeing light at the end of the long and painful austerity tunnel, it’s clear following the Conservative government’s Autumn Budget that the age of austerity is far from over — and that the inequality gap in the world’s sixth richest country is widening.
Far from achieving Prime Minister Theresa May’s promises to tackle Britain’s “burning injustices”, several key members of her Social Mobility Commission (SMC) recently resigned in protest over the lack of progress towards “making Britain fairer”. Alan Milburn, a Labour politician and chair of the SMC, which monitors the progress of improving social mobility in the UK, quit the Commission earlier this month along with his whole team, citing months of “indecision, dysfunctionality and lack of leadership” and stating there was “little hope” that May’s administration would deliver a more equal society.
The humiliating SMC resignations came just days after the release of Chancellor Hammond’s Autumn Budget, which led multiple reports and organizations to warn that amid a gloomy economic forecast, Britain would maintain devastating cuts to public spending while, in typical Tory fashion, hitting the poorest households the hardest.
The Resolution Foundation, an independent think tank aimed at improving living standards for low- and middle-income families, is one organization that has voiced such warnings. In its aptly titled post-Budget report, “Freshly Squeezed”, the Foundation warns that Britain is on course for its longest fall in living standards since records began in the 1950s.
The report describes the unprecedented scale of today’s economic downturn and its likely impacts on public and household finances. It states that on a 10-year rolling basis, productivity growth in Britain is set to fall to 0.1% by the end of 2017, marking it as the “worst decade for productivity growth since 1812 — when Napoleon was busy invading Russia.”
As a result of the economic downgrade, the British economy is predicted to be £42 billion worse off in 2022. Faced with such a foreboding forecast, the Chancellor has been forced to abandon the Tories’ principle financial objective to reach a budget surplus for public sector borrowing by 2025, and accept that borrowing will increase by an additional £15 billion.
The Foundation notes that this grim economic outlook will put more pressure on family budgets, with real household disposable incomes predicted to fall for an unprecedented 19 successive quarters between 2015 and 2020.
Widening the Inequality Gap
In concrete terms, changes made to tax and welfare benefits mean that the poorest third of UK households will lose an average of £715 a year by the end of Parliament, while the richest third will gain an average of £185 a year, according to the Foundation.
The Institute for Fiscal Studies shares the Resolution Foundation’s concerns, warning that the uncertainty over Brexit combined with a steady loss in productivity means Britain may ultimately suffer two decades of zero earnings.
The IFS referred to Hammond’s Autumn Budget as “pretty grim reading”, estimating that due to a fall in productivity, earnings and growth through 2022, the UK’s public finances will still be in the red by the middle of next decade.
According to the IFS’s Budget analysis, average earnings in Britain are on course to be £1,400 a year lower in 2021 than what was forecast in 2016. IFS Director Paul Johnson told The Guardian, “We are in danger of losing not just one but getting on for two decades of earnings growth. We will all have to get used to the idea that steadily rising living standards may be a thing of the increasingly distant past.”
A “Nothing-Has-Changed” Budget
The Shadow Chancellor, John McDonnell, was quick to condemn Hammond’s Budget, referring to it as a “nothing-has-changed budget” from an “out-of-touch” government. In response to the IFS analysis, McDonnell said it “exposed the appalling failure of seven years of this government’s austerity economics and its grim consequences for working people.”
During his Budget speech, Hammond briefly touched on the controversial roll-out of Universal Credit, the Tories’ “one-payment-for-all-benefits” system. While some hoped Hammond might announce a U-turn on Universal Credit in the Budget, the Chancellor merely promised that the long wait that claimants are forced to make before they receive their first Universal Credit payment would be shortened from six weeks to five. It was hardly a move that will help those struggling financially to avoid falling into rent arrears and getting mired more deeply in poverty as they wait for benefit payments.
Child Poverty on the Rise
The introduction of Universal Credit has been implicated with the surge in child poverty Britain has seen in recent months. Prior to the Autumn Budget, the IFS published a report predicting that the number of children living in poverty will increase to an unprecedented 2.5 million over the next five years, as government welfare cuts continue to hit poorest households the hardest.
The IFS said the arrival of Universal Credit, alongside the freezing of benefits and the reigning in of tax credits, would see child poverty surge, particularly in the most deprived areas of the country. It also predicted that the gap between the rich and poor will definitively widen, putting a question mark over Theresa May’s earliest pledge to help “just about managing” families across the UK
In fact, research shows that rising inflation in Britain is making life harder for those families, while cuts to benefits is putting additional pressure on low-income earners. A report by the Child Poverty Action Group found that a couple, in which both members work full-time jobs at the National Living Wage in 2017, will generate income that will meets only 87 percent of basic living costs. For a single parent working full-time on the National Living Wage, the figure drops to 83 percent.
Amid this toxic concoction of rising inflation and benefit freezes, the Chancellor was urged to use the Autumn Budget to help ease the plight of families on low-incomes. But instead of stamping out socially and economically failing austerity policies, and helping to ease the relentless battle facing so many low-income households, Hammond opted to continue a program of welfare freezes that by 2022 will see child poverty rise to record levels.
Living National Wage Not In-Line With Inflation
Instead of raising the National Living Wage to a realistic amount in line with rising inflation, the Chancellor increased it from £7.50 an hour to jut £7.83 an hour. As the Living Wage Organisation reports, the government’s National Living Wage is calculated on a target to reach 60 percent of median earnings by 2020 — not what employees and their families actually need to live on, with the price of everything from petrol to pharmaceutical prescriptions rising.
A case in point is Emma, from Sheffield in the north of England, who is a single mother of two young children. Emma, who has a part-time job and has her earnings topped up with welfare benefits, admits she is worried about the cost of living and the government’s ongoing attack on the benefits system.
“I work hard to bring up my children on my own and work as many hours as I possibly can,” she said. “The price of food and bills are going up but my wages or my benefits aren’t moving. Things are getting tighter and I worry that the government is trying to penalize people like me.”