Over the last few days there has been a story whizzing around social media that our National Insurance contributions are being used to pay off the national debt. The Fund, as revealed by John Prescott in 2015, supposedly contained £30billion of spare money which at the time it was said could be used to save the NHS. Now it is being claimed, falsely, that the surplus fund is being used to pay down the national debt.

There is a fundamental public misunderstanding about how governments spend, the role of taxation (and after all National Insurance is just another tax) and even what the national debt is. The myth about government needing to tax or borrow in order to spend persists in the public mind. However, a government which issues its own currency, neither needs to tax nor to borrow in order to spend and shock, horror that big bad national debt burden is nothing but our savings and no threat at all for today or future generations.

In this excellent blog, originally published here, Public Matters tells the real story about NI from its history to the present day. With a better understanding of how National Insurance works, the questions about how public programmes will be paid for can move from it being dependent on prevailing financial conditions to a question of political choices and ideology.

There are pressing reasons for understanding a bit about how our tax system works and very specifically what National Insurance is. NI is used as successive governments’ tax increase of choice because of a widespread and mistaken belief that it is a direct payment to the NHS. The Liberal Democrats had it in their 2017 manifesto, Gordon Brown put 1p on NI to ‘pay for’ the NHS, Frank Field (Labour) gave evidence on NI to the Lords Committee on the long-term sustainability of the NHS and his website says he is working on this issue with Oliver Letwin (Conservative) and he wants to restore a ‘something for something’ society.

Frank Field’s website says:  ‘Polling last year found that while 42 per cent of the public would support an increase in tax to pay for a larger National Health Service budget, this figure climbs 11 points, to 53 per cent, once the public are asked about an increase in NI contributions.’

One of the most recent additions to this proposition was in an ‘exclusive’ from the Daily Telegraph (18 March 2018 paywalled):  “It is understood there is now broad agreement within the Cabinet that extra money must be provided for the health service. Some ministers have privately suggested an across-the-board rise in National Insurance to provide new ring-fenced funding for the NHS. However, The Telegraph understands that officials are drawing up plans for a more targeted tax rise on older workers as part of a new 10-year funding plan for the NHS championed by Jeremy Hunt, the Health Secretary. One idea under discussion is to make the 1.2 million pensioners who keep working past 65 to pay NI contributions. The move would raise £2 billion per year which could be spent on the health service. Scrapping universal free prescriptions for the over-60s is also under discussion.”

The Telegraph article incorporates many of the issues frequently raised when talking about how to pay for the NHS. These arguments have muddied the waters about how public funding is allocated giving rise to political decisions being made on the spurious grounds of ‘affordability’, ‘sustainability’ and ‘no money’. And it has led to campaigns and petitions calling for 1p in the £ tax or the hypothecation of NI to ‘pay for the NHS’.

Here we make the argument that this is not only misleading but it will undermine rather than support the NHS.

A political consensus – can we afford the NHS if the public won’t pay more?

Earlier this year, thousands of NHS campaigners marched and rallied across the country in protest at the de-funding, cuts and privatisation of the NHS. Anyone who isn’t an NHS campaigner could have been forgiven for missing it, it was given so little press attention.

In contrast, two days later the BBC gave headline space on its flagship news programme, Radio 4’s Today, and on BBC One’s Breakfast, to the Liberal Democrats’ perennial call for NI to be increased for the NHS. They are also calling for NI to be converted into National Health and Social Care Insurance – which they refer to as a hypothecated tax.

Simon Stevens has argued for different funding sources too:

“Would intergenerational fairness support a further increase in the share of public spending on retirees, at the expense of children and working-age people? Should it be easier for families to flexibly fund social care by drawing down resources tied up in housing, pension pots and other benefits?”

A little bit of history (but not too much)

Funding was a key issue in all the prototype versions of the health service that finally became the NHS. The debate about how to pay for the NHS was based around three elements, all of which are reflected to greater or lesser degrees in other healthcare systems around the world today.
These were (and are):

1. The Exchequer should pay a proportion via government run national insurance.
2. Local authorities should pay a proportion from the rates (council tax).
3. People should make a contribution from their own pockets -usually as some form of insurance.

Combinations of these are used across the world in a system known as the Bismarck Model.

NI already existed for working people in the UK before the creation of the Welfare State. It gave an entitlement to unemployment benefit, seeing a doctor and some pension benefits. But Prime Minister Clement Attlee supported Aneurin Bevan’s desire to break the connection with insurance to bring in something quite different for the NHS – and unique in a Western democracy. The NHS was to be paid for in full by the Exchequer. It has caused complaint and consternation ever since about its affordability – ‘growing and ageing populations’ have always been seen as a threat to its survival. Yet it has been consistently one of the lowest cost universal healthcare systems in existence. And that has been largely as a result of this direct funding method.

In 1952 Bevan wrote ‘In Place of Fear’ a remarkably modern set of essays showing that the questions about funding, who gets access, what should be provided are perennial and instantly recognisable across the years. He writes one of the best explanations of why NI was not chosen as the method of payment:

“When I was engaged in formulating the main principles of the British Health Service, I had to give careful study to various proposals for financing it (…) what was to be its financial relationship with national insurance; should the health service be on an insurance basis? I decided against this. It had always seemed to me that a personal contributory basis was peculiarly inappropriate to a national health service. There is, for example, the question of the qualifying period. That is to say, so many contributions for this benefit, and so many more for additional benefits, until enough contributions are eventually paid to qualify the contributor for the full range of benefits.”

So, to answer Bevan’s question, what is the NHS’ “financial relationship with National Insurance” in 2018?

Given the number of people who respond on social media to questions about funding the NHS by saying, ‘I pay for it already with my National Insurance’ – it looks as though the question is answered in popular consciousness, if not in reality.

It might surprise people to learn that the National Insurance Fund (NIF) today is used to calculate employment related and pension benefits, as it did before 1948. It doesn’t include paying to see a doctor! This Fund supposedly contains £30 billion of spare money. You may have seen the petition to parliament asking for the release of the money to save the NHS. John Prescott, former Deputy Prime Minister, was the person who discovered this ‘secret’ in 2015. But, like many things which have an eternal life on social media, it isn’t quite true.

Bevan talks about ‘the qualifying period’ for NI. NI still has qualifying periods for the various benefits it covers.

According to the government website the list below is what NI is for. Each of the benefits listed have different numbers of contribution years needed to be able to claim them. For example, it takes a minimum of 10 years contributions to earn entitlement to any state pension at all and 35 years to earn full entitlement. State pensions aren’t like private pensions. There is no personal money pot built up. Instead your contribution to society through your earnings is a social contract. There is an expectation that, having contributed through your working life, the government of the day will honour the contract when you retire.

Benefit 
Class 1: employees 
Class 2: self-employed 
Class 3: voluntary contributions 

Basic State Pension 
Yes 
Yes 
Yes 

Additional State Pension 
Yes 
No 
No 

New State Pension 
Yes 
Yes 
Yes 

Contribution-based Jobseeker’s Allowance 
Yes 
No 
No 

Contribution-based Employment and Support Allowance 
Yes 
Yes 
No 

Maternity Allowance 
Yes 
Yes 
No 

Bereavement Payment 
Yes 
Yes 
Yes 

Bereavement Allowance 
Yes 
Yes 
Yes 

Widowed Parent’s Allowance 
Yes 
Yes 
Yes 

Bereavement Support Payment 
Yes 
Yes 
No 

The NHS is conspicuous by its absence from the list above.

In the late 1970s over 65% of all unemployment benefits were based on contributions from previous employment with 35% being means tested. Today it’s almost the mirror image and contributory benefits are now just over 42% of the total.

Why do people say that National Insurance pays for the NHS?

Most people will remember Gordon Brown, when he was Chancellor of the Exchequer, saying he would put 1p on NI to ‘pay for the NHS’. There is that claim from John Prescott that he had ‘found’ £30bn in the NIF ‘for the NHS’. And the Liberal Democrats – along with Labour’s MP Frank Field – insist that NI should be changed to fund the NHS and Social Care as a hypothecated tax.

Is it any wonder that people believe that’s how the NHS is paid for, with so many politicians saying it is, or should be?

There is, in fact, a difference between the NIF and the National Insurance Contributions (NICs) collected. And the difference illustrates the confusion that exists about the tax system. At this point it is worth pointing out that, despite any statements to the contrary, NI is just a tax.

The Government Actuary’s Department has estimated that NICs will raise just over £125 billion in 2017/18, of which £101.8 billion will go into the NIF and £23.7 billion will go to the NHS.

What is accounted for in the NIF, as explained above, is the estimated amount of contributions needed to pay for the contributory benefits including pensions. Any excess over that amount is supposed to ‘go’ to the NHS, but it isn’t equivalent to the amount of funding the NHS needs. It is simply accounted for in the Consolidated Fund at the Bank of England which is a record of all the Government’s spending and receipts.

This brings us to the central issue of why politicians insist on making the link between the NIF and the NHS. At its most basic it is because politicians believe that if the public think that the tax is being spent directly on something they want and have a direct interest in (working benefits, pensions, health) they are less likely to complain when that particular tax is increased. And why do they believe it? Because countless polls tell them so. They also like going to the polls saying that they will not increase income tax – that’s a huge vote loser. But a manifesto commitment on ‘income tax’ can be neatly circumvented by increasing the other income tax – NI.

Is National Insurance a hypothecated tax?

A true hypothecated tax is one in which the tax is ring-fenced for a named service and pays for all that service. This system effectively enforces a spending cap on the service being paid for as it limits spending to an equivalent of the tax levied. That’s very difficult to do when necessary spending is required before the taxes are received. It’s also difficult to define the ‘whole’ of a service.

The NIF appears to be hypothecated. Its rules say that the Fund must always contain enough contributions to meet all its obligations as listed above. To this end it must have a reserve in hand (John Prescott’s £30bn ‘secret’). But the Treasury also makes grants available to the NIF to make sure it keeps to its rules when it doesn’t have enough contributions coming in. A further adjustment is made between the balances in the England & Wales account and the Northern Ireland account to make sure they both represent the right amounts for their relative constituencies. Yet more adjustments are made because the Department of Work and Pensions and the Department of Business, Skills & Innovation both make payments out of their own budgets for the benefits accounted for under the NI scheme so transfers are made between them to equalise the accounts.

There is also an excess of receipts required to fulfil the contributory principle over the course of the accounting year and that doesn’t go into the Fund at all. It is not a genuine hypothecated tax. It is a bookkeeping exercise.

If NI is just a tax and it isn’t hypothecated, what’s the point of it?

Historically people had a direct link between their NI contributions and the benefits that accrued to them as a result. Pensions retain that historic link, with a defined minimum and maximum number of ‘contribution years’ required. In and out of work benefits for those covered by the NI scheme also have minimum contribution periods. It is the contributory principle that makes NI difficult to abolish. Income tax is simply recorded as an annual amount, no matter what the source of the earned or unearned income. NI, on the other hand, is recorded as the number of consecutive weekly contributions. It is the appropriate number of full years in a given period that defines eligibility for the benefits.

People who take breaks from paid employment for any reason and therefore have a break in their contributions may receive a letter asking if they wish to make a voluntary payment to cover the missing contribution period. That couldn’t happen with income tax. Getting rid of NI therefore leaves a problem of how to calculate eligibility for contributions-based benefits.

NI hides the true levels of income tax

The headline rates for income tax are currently set at 20%, 40% and 45%. This looks as if we have a very fair system where the lowest earners only pay half what higher earners pay. However, if NI is added to income tax the picture looks very different.
NI (tax!) starts below the personal allowance level.

Income bracket 
Income tax rate  
NI rate 
Total tax 

£8164 – £11,500 
0% 
12% 
12% 

£11,500-33,500 
20% 
12% 
32% 

£33,500-£150,00 
40% 
2% 
42% 

£150,000 + 
45% 
0% 
45% 

People often call NI a regressive tax because it doesn’t increase with higher earnings but what is far worse is that it masks the real differentials between the rates of taxation. The lowest rate is quoted at 20% and the higher rate at 40% which leads people to reasonably believe that lower earners are not carrying the burden of tax but as the real figures are 32% and 42% respectively then it is a far less fair system.

So, when campaign groups call for a penny on income tax to fund the NHS or that there should be further increases in NI they may not be aware of how serious the impact is on lower paid workers.  In 2016-17 a fraction over 31p in every £ of tax collected was income tax. NI accounted for just under 22p. The rest is accounted for by other taxes.

Inter-generational Fairness – a concept designed to persuade people that you don’t get what you don’t pay for

Over recent years there has been a change in the general understanding of what the economy actually means. Politicians talk as if the economy consists of the private sector and its wealth creation with government wholly dependent on the taxes raised from that wealth creation. Government expenditure is framed as money lost or wasted or a drain on the economy. The tax ceiling is used as a whip to limit government who must be vigilant against overspending or allowing ‘debt’ to get out of hand. It also tends to focus on income tax and NI to the exclusion of other taxes.

This is the narrative that explains why services need to be reduced or more paid for them by the public. It creates an obligation on those who cost most to be asked to contribute more for the sake of ‘fairness’ and ‘not burdening the state’. It makes means testing into a harsh system of proving you really need state help before you can get it. It reflects Frank Field’s ‘something for something’ idea that you don’t get what you don’t pay for. It is the political and moral opposite of the NHS.

Far from ensuring intergenerational fairness, this system forces the burden of payment for the NHS on to people in paid employment who are paying NI as this tax is not paid on unearned income nor by various other income groups.

The idea of expanding NI to retirees and of extending its range, making it more progressive, also ignores the contributory element. The regressive nature of NI is directly attributable to its contributory nature. Once you have paid ‘enough’ to meet the contributions threshold there is no justification for levying any more, as there is no more additional benefit to be ‘earned’.

This is the landscape that gives rise to the NHS Five Year Forward View with its voucher scheme for maternity and personal budgets for disability and now for the Liberal Democrats arguing for a National Health and Social Care Insurance for older people. Asking pensioners to pay NI when they already made their contributions to earn the status of pensioners is clearly nonsense and anything but fair, but you can change that argument if you change the purpose of the tax.

An insurance-based health and social care system

The Liberal Democrats report says:

“we .. believe that an NHS funded by national taxation continues to be the best option for delivering our healthcare system, and so we decided early in our discussions that we would not explore options for an insurance-based health system as a means of raising additional revenue.
…. thanks to great strides made in tackling pensioner poverty, after housing costs pensioner households are far less likely to be in poverty than households of working age, particularly those with children.
For this reason, we suggest policy makers consider ending the exemption from paying NICs for people who continue working past the state pension age. NICs could either be equalised with the rates paid by the rest of the workforce, or introduced at a lower rate.
(…) this is the age group who are the biggest users of health and care services and, as described in the section on income tax above, on many measures this group of workers are proportionately better off than younger generations.”

Like many of the issues we have examined in this blog these statements appear to superficially make sense regardless of whether or not you agree with them. But health and social care now form part of a single government department and the NHS and local authorities are being brought together within integrated systems with combined budgets.

Despite saying they would not explore options for an insurance-based health system, the Liberal Democrats’ focus on paying some form of insurance for health and social care actually means converting NI to a state insurance scheme. They are calling for Theresa May to back their scheme. This would transform our Bevanite state-funded NHS into a Bismarckian system. Currently healthcare is free at the point of need and social care is means-tested, which brings an element of uncertainty to what exactly is to be covered by this insurance.

If this were simply an argument about tax there are, of course, many other forms of tax. It takes experts to calculate the changes in government receipts and the effect on households when tax thresholds are raised or lowered. That is what would be being considered if this was about changing our tax structures or raising taxes in general.

But this is not an argument about tax. This is an argument over the role of the government.

While it may appeal to many to call for increased taxes to ‘fund’ the NHS what we really need is to understand how public funding works. The root of the problem does not lie in our tax system. It lies in public policy decisions.

If you are asked to sign a petition or support calls for a hypothecated NHS & Social Care NI or for 1p in the £: just say ‘no’.

For further reading:
Post crash economics and ‘Professor’ George Osborne
Jeremy Hunt calls for increase in tax to pay for Trident

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The post The Myths and Legends of Hypothecated National Insurance appeared first on The Gower Initiative for Modern Money Studies.

Fuad Alakbarov (Azerbaijani-Scottish human rights activist, political commentator and humanitarian.)

Photo – Peter Damian

In the week before Christmas, the Secretary of State for housing claimed that the sky rocketing levels of homelessness were down to social issues and had nothing to do with the government’s housing policy.  Then just a few days later George Osborne added his pennorth dismissing outright the link between his punitive austerity programme and Britain’s homelessness crisis saying, ‘It’s not a lack of money – that’s not a consequence of austerity – that’s just a consequence of bad policy”. When interviewed on BBC Radio 4’s Today programme he went on to argue that poverty would have been worse without austerity. He suggested that when the Tories had come to power in 2010 the country was close to bankruptcy and that the public spending cuts were necessary to get the country back on its feet.

Within these words lie two dishonest and harmful narratives which have pervaded the public consciousness for decades and form the basis for people’s understanding of the world they inhabit.  They have set us on the road to a divided and unequal society.

Firstly, the ideological narrative that competition defines the human race, and thus the individual is responsible for his or her own fortune. It applies the biological evolutionary language of Darwin to the functioning of the economy and society. It posits that the State has no role to play in delivering public purpose and well- being and that it should not interfere in what is conceived to be a natural process of the survival of the fittest whereby the most motivated, strongest and powerful win.  It rejects outright the concept of mutual aid and cooperation as being fundamental to human and planetary thriving.

The political elites and the Fourth Estate have consistently demonised poor people, the sick and those with disabilities by the use of inflammatory language to create division both across and within the social classes. The constant reference by politicians and journalists to strivers and hard-working families is an example.  Or the provocative words of George Osborne who said “Where is the fairness, we ask, for the shift-worker, leaving home in the dark hours of the early morning, who looks up at the closed blinds of their next-door neighbour sleeping off a life on benefits.” Such images perpetuate hate, encourage violence, justify selfishness and a sense of entitlement as well drive the notion that personal fulfilment trumps the interests of the collective.

Secondly, the narrative that austerity was necessary to get the government’s accounts back into balance and that its role was to be fiscally responsible so as to not burden future generations with debt.

In 2010 and following George Osborne’s spending review Will Hutton noted that ‘Never before has a country with such a large economy, carrying so much private debt, taken the experience of near financial collapse to squeeze its budget with such severity and speed”.  The tried and tested Keynsian economics of fiscal spending were abandoned in a frenzy of cuts to public services, local government and welfare. The notion that the state money system was one great big household budget was invoked by deficit hawk economists and politicians alike and reference made to Liam Byrne’s note left in the Treasury that there was no money left.  Repeated allusions were made to paying down the state credit cards, taking the nation back from bankruptcy and the wisdom of living within one’s means.

George Osborne’s cuts drove deep cutting £81bn from government spending on the NHS, welfare, higher education, social housing, policing and local government to lead to the loss of over 500,000 jobs.  He vowed to restore ‘sanity to our public finances and stability to our economy’.  Using these false analogies, the Conservatives were able to justify their cuts to public services, the selling off of public assets and privatisation of public services, the paring down of the welfare state to bare bones to kick away the foundation stones of civil society.   Not for any financial imperative but because they made a political choice to do so.

Contrary to George Osborne’s claim that austerity was vital for the health of the economy the consequences have proved calamitous.  Every day the evidence piles up from overstretched hospitals, failing social care, crumbling infrastructure, the tragic personal stories of those affected by changes to benefits which have led to suffering and death, increased homelessness and death on the streets of Britain, hunger and the growth of food banks, closures of high street shops and a deteriorating economy. And yet, every day, government ministers shamelessly deny responsibility for the harm they are causing claiming that their policies are successful and defending their economic record.

In 1845 Friedrich Engels coined the phrase ‘social murder ‘whereby the class which holds social and political control places citizens in such a position that they inevitably meet an early or unnatural death.  Murder committed not by one individual against another but by the political elite against the poorest in society. One hundred and seventy three years on Dr Chris Grover from Lancaster University in a recently published report accuses the political elites of the same as a direct consequence of austerity and cuts to benefits which he says can be viewed as a form of “structural violence that is built into society and is expressed in unequal power and unequal life chances as it deepens inequalities and injustices and creates even more poverty.” He suggests that “as a result of austerity working class people face harm to their physical and mental well-being and in some instances are ‘socially murdered.”

People are not suffering and dying because of their own personal failings they are dying as victims of an ideology which has promoted austerity as a financial necessity when, in fact, it is the worst prescription of all. Umair Haque describes it as a force that is ripping the world apart, slashing through democracy, the future and society reducing the planet to a smoking wreck.

George Osborne boasted that austerity was necessary to save the economy by driving down deficits and the ‘national debt’ (never mind the fact it is our savings or that the government as the currency issuer can always settle its pound denominated liabilities).  This deliberate deception disguised its real purpose which was always about demolishing public services to shift the public narrative to acceptance of privatisation.  In this respect, it was shameful that Manchester University appointed the architect of Tory austerity as an Honorary Professor of Economics. In so doing it thoroughly insults all those who have suffered as a result of his unnecessary and harmful economic policies as well as discredits even further those subscribing to economic orthodoxy within the teaching profession.  Its decision to legitimise a man who has caused so much pain and suffering should have been called into question. Such servile behaviour in a seat of supposed learning was distasteful and has proved to be an odious appointment as his austerity chickens come home to roost.

It’s now time for the people to contest the lies and the cruel deception practised by ideologically driven politicians. Firstly, by recognising that nothing is set in stone and that there is an alternative to austerity. Secondly, by opening our eyes to the painful realities of cuts to public services and social security whereby people are suffering and dying as a result.  And thirdly, by getting to grips with how money works and the currency issuing nature of sovereign governments. Governments which need neither to tax nor to borrow to spend and whose limitations are not money but the real resources available to it to deliver its policies.

The truth is that government spending into the economy injects money into the purses and bank accounts of public sector workers who then take their earnings and spend them directly into the real economy, pay down their debts or save. In fact, a healthy economy depends on people spending, it depends on sales of goods and services. To give an example every £1 spent by government on the NHS will generate around £4.30 of spending as wages circulate around the economy. By cutting public spending, austerity has had the reverse effect which has led to soaring of unsustainable private debt and a downward economic spiral for all but the rich.

Once we grasp the essential truths of monetary realities we will be able to see the wood for the trees and recognise that the role of government is not to balance the budget but to balance the economy. Only in this way can we create a fairer, equitable and more sustainable world.

References

How Austerity Ripped the World Apart – Umair Haque

Austerity results in ‘social murder’ according to new research – Lancaster University

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The post “Austerity is theft, the greatest transfer of wealth from poor to the rich since the enclosures.” appeared first on The Gower Initiative for Modern Money Studies.

As reported in last week’s MMT Lens Philip Alston’s report on extreme poverty and human rights is truly shocking. Far from austerity being based on the need for financial prudence, as claimed by the government, it is a deliberate assault on some of the poorest and most vulnerable citizens in the country driven by a pernicious ideology which divides people and tears down communities. Such ideology values the individual over cooperation and places personal responsibility for an individual’s fate in their own hands.  

One of the areas where Philip Alston expressed considerable concern was the cuts to local authority budgets. In  his interviews with local authority leaders, he reported that they are increasingly reduced to emergency provision. Such cuts to central funding have been destroying the fabric of public infrastructure and services across the UK, ripping the heart out of local communities. As his report so brutally revealed it has brought about unnecessary hardship and suffering and lives blighted or cut short by unnecessary austerity.

Alston’s criticism comes after several councils in England including Northamptonshire, East Sussex, Somerset and Surrey have reported financial difficulties. Councils are being forced to plunder their reserves to keep essential services going and make cuts to spending to other essential services.  Staff have been sacked, pay frozen and libraries and other services closed or reduced to voluntary manning. Some councils are even facing the prospect of defaulting on their statutory duties to public health and social care or restricting services to the most vulnerable citizens.  David Cameron’s ‘Big Society’ is increasingly being expected to take responsibility for supporting its elders and vulnerablefriends and neighbours, paid for with goodwill.

The figures from the National Audit Office 2018 Report on Financial Sustainability of local authorities make for stark reading. There has been a:

49.1% real-terms reduction in government funding for local authorities between 2010-11 and 2017-18

28.6% real-terms reduction in local authorities’ spending power (government funding plus council tax) between 2010-11 and 2017-18

66.2% percentage of local authorities with social care responsibilities that drew down their financial reserves in 2016-17

Alongside reductions in funding local authorities have had to deal with growth in demand for key services as cuts to public spending have kicked in. Dealing with growing homelessness and coping with the extra demand for adult and children’s social care have all put huge pressures on local government. Eight years of austerity have increased demand for local government services associated with precarious employment, poverty, homelessness and rising crime.

The local charity sector has always played a significant role in supporting the needs of local communities and grants from local government have been its lifeblood. When David Cameron launched his big society drive to empower communities, he was less clear about how such work would be funded. Over the last eight years of central government-imposed austerity the charitable sector, which relied on local government grants for part of its funding flow, has been hard hit too.

One of the hardest hit services have been Sure Start Centres, a flagship New Labour policy, which was a local area–based programme delivering services and support to families with young children. Its aim was to reduce inequality whilst acting also as a gateway to more specialised service provision. Figures suggest that more than 1000 centres might have closed nationally in response to local authority funding pressures with a change of focus moving from a universal service to one targeting high need families.

Philip Alston referred in his press conference to the ‘mechanical economic analysis’ by government officials that ignores the damage being done to the fabric of British Society. Political choices are cloaked in the idea that there is no alternative to financial prudence. ‘Prudence’ in this context is seen simply in terms of the money-in, money-out of tax and spend and whether it ‘balances the books’. 

This is not just about our libraries or other local services closing. This is an attack on the fundamental belief in the value of public service and public services to deliver public and social purpose for the health and well-being of the nation. The increasing focus on individual consumer desires instead of cooperation to bring about vital social cohesion is fracturing society. The government’s digital strategy will also disenfranchise many people whilst at the same time removing their access to IT by closing public libraries which also often provide safe meeting places for local organisations and charities such as Home Start and Sure Start.

The government, whilst claiming that there is no money, is the only entity able to secure funding for our public services.  It has the currency issuing powers to ensure that funds are available to purchase the goods and services required to meet the needs of our local communities. By not investing today we are storing up, not a financial burden, but the burden of decaying infrastructure and the knowledge capital and know–how built up over decades at local level.  The government is denying the power of the public purse to support a network of ready to go services with staff skilled and experienced in tailoring services to meet their own community needs.

Our local communities, high streets and businesses are the backbone of the economy they provide the glue that holds the nation together. As local government struggles to provide even its statutory duties, cuts ever more vital services and slashes staffing levels the consequences for local economies become ever clearer both in financial and social terms. Furthermore, the Big Society dream that the voluntary sector can fill the gaps left by lack of local government provision is an ideologically inspired Conservative fantasy.

Alston’s report is a wake-up call to the real alternative to cutting public spending. Failure to do so will cause further privation and distress which will have long term effects on the health and well-being of citizens and the economy.

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The post The UN report appeared first on The Gower Initiative for Modern Money Studies.

Image: © Chrisharvey – Dreamstime

The Chancellor of the Exchequer, Philip Hammond, delivered his Autumn Budget on Monday. Hammond took an upbeat tone, congratulating the public for its hard work and sacrifice which were now paying off, he said, allowing the economy to recover. Reassuring the House that austerity had always been about necessity and never ideology, ‘Spreadsheet Phil’ indulged himself at length in his introductory words in the classic but false framing of household budget economics focusing on tax windfalls, borrowing, deficit and debt narratives.

It was a budget that had no connection with the real world. Conveniently, the targets to eliminate the deficit (which have faded repeatedly into the distance and national debt has ballooned) were set aside. After eight years of punishing cuts and service closures which has caused economic and social distress to so many, the narrative is stuck in the myth where money for investment in the common wealth of the nation is still limited. It must be cautiously doled out, as gifts or rewards for good behaviour, not as the necessary spending of a government taking proper responsibility for the nation’s security and wellbeing.

Austerity is not over by any means.

Tax and Pay

Wealthy earners have benefited disproportionately from the income tax threshold increase. Hidden in the small print and left unmentioned in the Chancellor’s speech was an increase in National Insurance which diminished the income tax gains. Nonetheless, The Resolution Foundation has calculated that 84% of the gains related to the income tax cut will still flow to the top half of the income distribution and 37% to the top 10%.
There is substantial evidence that inequalities in income distribution have a direct relationship with inequalities to access essential services. There is a wealth of evidence that Universal Credit is having a seriously damaging impact on people’s lives and that people with disabilities are suffering disproportionately in cuts to their income and from cuts in services.
This budget does nothing at a time when wealth disparities are at their highest and people with low incomes and employment insecurity are already struggling to make ends meet. It would make far better economic and business sense to improve living standards of the lowest income section of society as they are the people who spend their additional income, unlike the richer sections of society who have a greater tendency to save.

Universal Credit and Social Security

The Conservative flagship policy Universal Credit has been coming under increasing pressure over recent months because of the suffering and hardship that has been caused. In 2017 The Resolution Foundation called the current design of Universal Credit ‘not fit for purpose’ in 21st century Britain. The UN rapporteur on extreme poverty and human rights is due to come to Britain in November to examine the impact of austerity, including Universal Credit.
The Chancellor has responded by allocating an additional £1bn to ‘smooth’ its roll out. He has made it clear, however, that Universal Credit won’t be slowed or stopped, and the cash injection will do little to deal with the inherent structural problems causing suffering and hardship often rendering people homeless and hungry.
The Treasury purse may have opened a crack but it will do nothing to make up or restore the losses of the last eight years of austerity. This is window dressing of the worst kind.

Environment

Three weeks on from the publication of the IPPC report the Chancellor did not mention climate change once in the budget. Caroline Lucas has challenged this inadequacy pointing out that it is in complete denial of the reality facing the country in our immediate future. Compare this to the Spanish Government’s recent announcement that they are closing coal mines and retraining the miners to develop sustainable energy.
Philip Hammond, by contrast, tinkered around the edges announcing a new tax on the manufacture of plastic packaging. For the ninth year running there is no increase in fuel duty but an allocation of £30bn for roads. This demonstrates a preference for cars over a strategic plan for developing an ecologically sound public transport system. Fossil fuel subsidies will continue. The Chancellor has allocated £60bn for tree planting, but environmentalists have questioned the value of this in the face of government support for environmentally damaging fracking over renewable energy.

Health

The NHS continues to suffer as it not only faces the continued real squeeze on its finances but also on-going privatisation. The Chancellor’s award of extra money for mental health services by 2023-24 is not extra funding and will come from the £20.5bn announced by the government in June this year. This is too little and too late. The crisis in mental health is happening now.
Furthermore, funding for public health services, training doctors and nurses, buying equipment and building new infrastructure will be cut by £1bn next year. The NHS is under increasing pressure in real terms as it tries to cope with picking up the slack after eight years of cuts to social care. The £650m increase to the budget for social care is only a sticking plaster.
There is an extraordinary piece of double-speak in the budget as the Chancellor announced he would abolish the Private Finance Initiative. However, he pledged that existing PFI contracts would continue to be honoured thus locking the hospitals into repaying their substantial debts until 2050. The future direction of who runs public services is also sealed as he indicated that he was firmly ‘committed to the [continued] use of public-private partnership.’ PFI is dead, long live PFI.

Conclusion

The Institute for Fiscal Studies has warned that as a result of the Budget the public finances could deteriorate and that an increase in spending could push the national debt higher.
The current reality in the UK is that we have both unmet need in terms of provision of services and unused resources in the number of people who are currently in low paid work which does not sustain them, or have given up looking in despair. A respectable and responsible budget should address those needs first and foremost if we are to have a successful economy.
This budget continues to frame government debt as a burden which must be dealt with. What is more it makes it the overriding concern well ahead of any real life public purpose such as addressing human suffering or the urgent need to combat the effects of climate breakdown.
A political illusion has been created that government has to finance its spending through borrowing or that it needs tax before it can spend. On the contrary it is the government’s duty as an elected body to assess the real resources that it requires to deliver its public and social purpose policy.
The Chancellor prefers to couch his budget in the narrative of fiscal discipline because it enables him to present spending as a kindly act and careful budgeting as a prudent one. This enables the continued dismantling of the NHS and the welfare state. Indeed, it reframes spending as an act of Victorian philanthropy rather than as the creation of common wealth for the benefit of people and a sustainable planet.

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The post Put the Planet and the People First and the Fiscal Deficit Will Look After Itself appeared first on The Gower Initiative for Modern Money Studies.