2016 04 – Ian Duncan Smith resigned as Work and Pensions Secretary

Second Editorial: Beware The IDS Of March

Ian Duncan Smith’s resignation as Work and Pensions Secretary poured oil on a blazing fire. The Tories were already divided on the EU. By resigning, IDS made that division deeper still. His stated reason for resigning, that the cuts to benefits for the disabled were ‘deeply unfair’ while raising the tax allowance for middle income earners and slashing capital gains tax, rings hollow against his record as a serial benefits cutter. It was said, although denied by IDS and his supporters, that his resignation was intended primarily to damage Cameron and Osborne and thus undermine the campaign for an ‘In’ vote in the EU referendum. But whatever the reason, it greatly weakens the Government.

IDS said something that many of us have believed all along: that the Government are indifferent to the impact of cuts on the working poor and disabled because they are ‘not our voters’. A point also made by the Liberal Democrat David Laws in his memoir, ‘Coalition: The Inside Story of the Conservative-Liberal Democrat Coalition Government’. IDS and Laws were government insiders so they ought to know better than the rest of us. Given this, Osborne’s mantra ‘We are all in this together’ is even less convincing than when it was first uttered. One is reminded that David Cameron was a special adviser to Chancellor Norman Lamont during the early 1990s recession when he said, ‘If it’s not hurting, it’s not working’. Now, as then, it is hurting but the pain is felt mainly by the working poor and the disabled.

Osborne’s budget statement included cuts of £4.4 billion to disabled benefits. On BBC’s Question Time on 17 March, Education Secretary Nicky Morgan said the cuts were simply a proposal, a mere suggestion, and that consultations were being held with appropriate bodies. This must be the first time that a budget has included a mere suggestion. But even a ‘suggestion’ of cuts of such magnitude to disabled benefits was too much for some Tory backbenchers. Their opposition and cries of outrage from disabled groups forced a climbdown by George Osborne, who will now have to find savings of £4.4 billion elsewhere if he is to meet his aim of a budget surplus in 2019-20 and in subsequent years. Predictably, he has said that the details of these alternative savings will not be announced until after the EU referendum. However, by ruling out any planned cuts to the welfare budget before 2020 he has narrowed his options. He will therefore either have to abandon altogether the cap on welfare spending introduced in 2014 or look for savings in other areas.

Some commentators have said that Osborne’s aim of a budget surplus by 2019-20 has a less than 50:50 chance of being met unless he targets the benefits of well-off pensioners. But these and the state pension have been declared off-limits by Cameron and Osborne. There was certainly scope for savings from a pensions budget of around £108 billion of a total welfare bill of £211 billion. But the over 65s have a high propensity to vote and many vote Tory. So we can discount any move to remove the benefits of well-off pensioners. Osborne could have increased fuel duty now that oil and petrol prices are low but he is clearly afraid of the car lobby. Instead fuel duty is to be frozen for the sixth consecutive year and there is to be no increase in road tax. He could have saved money by leaving corporation tax at 20% but businesses like HSBC, who pay their CEOs astronomical salaries, will benefit from the new 17% levy. He could also have imposed a windfall capital gains tax on house sales.

Osborne’s reputation as a canny Chancellor is collapsing before our eyes. He has failed to meet almost every target he set himself, while claiming he is building a strong economy. The national debt for example will be £150 billion higher in this parliament reaching a total of £1.75 trillion. And his forecast of a budget surplus by 2020 is predicated on higher tax revenue and lower spending. A case of wishful thinking. Productivity and investment continue to be low which London’s Crossrail and HS2 will do little to address. Employment at 31.2 million is at a record high but most jobs created over the past six years, although full-time, are insecure and low paid. One of the reasons for this is the failure to invest in a more productive workforce because this is a long-term objective for CEOs who are motivated by short-term movements in share price. And the so-called National Living Wage, (actually an increase in the Minimum Wage), currently at £7.20 an hour rising to £9.20 by 2020, will not make up for losses elsewhere.

Osborne boasts that wages are rising and that the employed are better off than they were six years ago. But statistics show that over the last six years the top half of income earners are the winners while those in the bottom half are the losers. There is gross income inequality in the UK which Osborne ignores and which the OECD highlighted in a report published in February 2015. The report showed that the average income of the richest 10% was almost ten times as large as the poorest 10% and said that the level of income inequality among the total population in the UK has been well above the OECD average in the last three decades.

Local government budgets are being slashed resulting in cuts in services, with care for the elderly a notable victim. Councils are able to implement a 2% levy to pay for care services but how many will actually use the income for that purpose? Some councils are selling public assets to make up the shortfall in revenue. At a national level, last year Osborne sold government shares in RBS and this year shares in Lloyd’s Bank Group will go the same way. Other public assets earmarked for sale include the Green Investment Bank and the Land Registry. By 2020 it is expected that £5 billion of corporate and financial assets will be sold, as part of a £20 billion sale of public assets.

Labour’s response to all this has been fairly muted. Corbyn and McDonnell have aired their grievances but press coverage has been mostly negative. Their responses to the budget were credible but received little support from colleagues. This has been the pattern throughout the current parliament and is being repeated in some constituencies where apparently, anti-Corbyn members are refusing to work for the party. Whatever the result of the EU referendum the Tories will continue to be a divided party. Voters dislike a divided party. Labour now has a golden opportunity to present a united front to the electorate. It should begin to speak with one voice against the government’s damaging policies.  But to do that three areas in particular need to be addressed: economic/industrial policy, defence and welfare. Harold Wilson once said that Labour is the natural party of government. The petulant performance of many of Corbyn’s colleagues since his election as leader has handed that mantle to the Tories. It is time to take it back.