The July Budget

On Wednesday the Chancellor presented the first budget from a Conservative majority Government in 19 years. Those on low and middle incomes have already been hit hard by Government policy in the last five years, and I was not expecting any sort of reprieve.

Now that the details of the budget are final, we see that this isn’t the budget that working people need.  There will be a squeeze on those least able to bear it, giveaways for the most privileged, and a disregard for the action on productivity and infrastructure investment that the British economy urgently needs.

Higher Education

Lower-income students will be punished by the abolition of maintenance grants (to be replaced by loans). Encouraging those from all backgrounds into higher education is vital for our economy. Education should not be treated as a luxury which people should be financially penalised for pursuing.

The Environment

In terms of the challenges we face regarding sustainability and climate change, the Chancellor has recklessly abolished a subsidy for renewable energy producers. This will cost the renewable energy industry £450m next year, rising to £1bn by 2020. Climate change is one of the most urgent challenges we face; to burden companies whose work is so vital to ensuring a sustainable future shows a worrying disregard on the part of the Government.

The “Living Wage”

The measure which attracted the most attention was the introduction of a so-called “national living wage” of £7.20 per hour next year, rising to £9 by 2020. There are two points to note here. Firstly a “living wage” of £7.20 is a living wage by nobody’s definition but the Chancellor’s. The last time the real living wage was £7.20 was in 2011. It now stands at £7.85. Although it rises to £9 per hour by 2020 – a big improvement on the current national minimum wage rate of £6.50 – it should be noted that the formula by which the living wage is calculated is based upon on the now-defunct regime of tax credits and other allowances. Because of the changes the Chancellor has made to tax credits, 13 million households on low and middle incomes will actually be worse off than they are now. To take one example, a lone parent working full time on the minimum wage for 37 hours a week with two young children would lose £1,200 per year.

The Benefit Cap

Other welfare reforms will exacerbate the issues facing the poor and vulnerable. The benefit cap will be reduced to £20,000 outside London. In the poorest part of my constituency, in which more than one in two children are living in poverty, median rent on a two bed property is £750 pcm. That's not for a luxury flat – it's often for poor-quality private rented sector accommodation.  Social housing is in critically short supply and the Government's plans to force Housing Associations to sell their properties to tenants will only intensify the problem.

Most people in the deprived areas of my constituency are indeed already in work, but often badly affected by temporary, part-time or zero-hours contracts. They often have to rely on working tax credits and some housing benefits to top up the difference and have little chance of saving for a rainy day. 

Under a reduced benefit cap, when people in these situations lose a job it will mean that just one or two months without work will inevitably lead to debt, hardship and even homelessness if they can't negotiate with their landlord about rent arrears. Their homes are often poorly maintained or not insulated, so their fuel bills are high, with prepayment key meters exacerbating the cost. Getting into debt means that they risk having no electricity to cook with or light their home.

Tax Credits

Given that the Government wants to cut tax credits at the same time as reduce the individual household benefit cap down to £385 per week, individual people and families are going to be staring disaster in the face. Children in those families face homelessness and poor nutrition, loss of education if they can't be rehoused near their school and many other consequences which will increase their deprivation and reduce their potential opportunities for improving their life-chances. 

This is a perfect storm of injustice. 

The political climate in Britain is becoming increasingly hostile to the disadvantaged and vulnerable in our society. We often hear about ‘scroungers’ vs. ‘strivers’; with the Government and elements of the media exploiting and encouraging these characterisations for their own agenda. In reality, people who will suffer as a result of the Government’s welfare reforms aren’t lazy or feckless; it’s not that they’ve planned badly or are exploiting tax-payers.

They are people trying to make a living out of increasingly impossible circumstances. Families who are working but on low-wages, with insecure conditions and poor futures. Families with unsympathetic landlords and poor quality accommodation. Families for whom tax credits are a lifeline, but now face losing them and risking slipping into debt and rent arrears whilst in work. Families who won’t be able to pay for rent, food or childcare if they lose that work even for just one week.

What kind of economic recovery is that?

The Alternatives

Here's what we could be doing instead: the Government could have chosen to reform the private rental market; they could have chosen to build, not sell off, social housing; they could have decided to invest in training, technical qualifications and the green economy; they could have decided to give tax incentives to employers who invest in machinery, research and development as well as training and good wages; they could have decided to invest in our rail infrastructure and allow publicly owned organisations to bid for the rail franchises so they could be run for the benefit of people.

The Tory Government could have done all that. 

The Tory Government decided not to. 

They have let down the people of Bristol West and they have let down the country.

Who gains from the budget?

Unsurprisingly, the wealthy and privileged were the winners from this Budget. The inheritance tax threshold will be raised so that couples can pass on £1 million tax-free. Corporation tax will be cut to a rate much lower than it is in many other developed countries. And while raising the income tax threshold is in itself a good thing, changes to tax credits mean that only those on more comfortable incomes will feel any real benefit.

The IFS has produced a graph which starkly illustrates the impact of the budget on people based on the level of their income:

ifs graph

What the graph shows is that those in the poorest 30% of the population suffer a staggering loss of annual income, whereas those who can bear the biggest burden are barely affected. That is totally unjust and not at all in the long-term interests of our society and economy.

We need to invest in high-quality training, research & development and infrastructure, tackle high housing costs by building more homes and capping rents, and truly make work pay for those on low and middle incomes. Only Labour has the economic plan that will make that a reality to bring down the deficit and ensure a strong economic foundation for future generations.

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