Recession, Austerity and the Dirty Politics of Welfare Reform


By Matthew Richmond






J. K. Galbraith once described modern conservatism as ‘the search for a superior moral justification for selfishness’. In the case of contemporary Britain we might update this to define it as the pursuit of pragmatic justifications for ideologically motivated neoliberal policies. This coalition government, consisting of a supposedly reformed, ‘compassionate’ Conservative Party and the supposedly centre-left Liberal Democrats, is outdoing even its New Labour and Thatcherite predecessors in its crusade to shrink and marketise the functions of the state. From health to education, from planning to taxation, the one constant is a drive to remove obstacles and buffers that impede the full penetration of market logic into public life.

What is as clear as this consensus at the top of the Conservative Party – not to mention, to a large degree, among Blairites, Brownites and ‘Orange Book’ Lib Dems – is the opposition of a majority of voters, not to mention many backbenchers within all three parties, to such free-market fundamentalism. The complex, market-friendly reorganisation of the NHS was pushed through parliament in the face of overwhelming opposition from the public and most NHS staff. The effective trebling of university tuition fees sparked the most violent political protests since the Poll Tax riots. An attempt to sell off England’s forests was defeated after a mutiny by Tory backbenchers and core Home Counties voters. In each case the zealots at the top of politics have been reminded that the ideology of perfect competition, and the belief in a superior caste of ‘wealth creators’ that fuels it, serves too few to ever be a popular faith.

In this sense the economic downturn has been a blessing for the Tory leadership. The public funding crisis, born out of the 2008 financial crash and subsequent bank bailouts, has created a political consensus around the need to reduce public indebtedness over at least the medium term. It thus provides them with a pragmatic argument for pursuing an ideologically driven agenda that they could not possibly sell to the electorate on its own merits. Polls, although inconsistent as polls tend to be, seem to show that the public would like to retain most of the current functions of the welfare state, but largely accept the government’s argument about deficit reduction. The ‘household budget’ fallacy, which Conservative governments since Thatcher’s have used to promote lower government spending – conveniently overlooking the many ways in which such spending pays off over the longer term, directly and indirectly, financially and socially – has taken hold. This ‘commonsense’ position, which overwhelmingly favours the interests of economic elites, but plausibly reflects the realities of a sufficient portion of the population to be electorally potent, would have looked familiar to Antonio Gramsci.

‘Difficult decisions’

Having accepted the need for deficit reduction, the main political parties are faced with three politically unattractive ways of achieving it. The first way – increasing taxation – is subject to a large degree of political consensus and, therefore, little room for manoeuvre. Large corporations and wealthy individuals – many of whom were directly involved in the financial mismanagement that caused the crisis – increased their incomes dramatically during the boom years and continue to thrive. They are the only segments with sufficient taxable wealth to make a serious contribution to deficit reduction. Despite this, corporation tax is at historically low levels and significantly lower than in comparable OECD countries. Afraid of appearing to be ‘anti-business’, Labour is unlikely to call for a significant increase. Meanwhile, 50p on earnings over £150,000 seems to be the accepted ceiling on top income tax rates. The opposition’s promise to reinstate this, following an unpopular lowering to 45p in last year’s budget, amounts to little more than political posturing. Potentially more effective taxes that target rent-seeking activities, like land taxes and a financial transaction tax, are not yet even part of the debate, and no serious efforts have yet been made to tackle systemic tax evasion and avoidance. The most commonly cited and politically powerful reason for not taxing the great mines of wealth more heavily is a largely untested theory of mass capital flight. In Westminster, however, there is certainly a more softly spoken assumption that such wealth is fully deserved by its owners, and, for economic reasons, best left in their hands.

In the absence of a dramatic shift in thinking on tax, the second and third ways of closing the gap will constitute the opposing positions in the lead up to a likely 2015 election. Labour’s stance is that more modest spending cuts must be balanced with measures to promote growth, although how balanced and over how long we don’t yet know. If the United States and France, the two major economies that have nominally rejected full-scale austerity, are examples of this approach, the difference between the government and the opposition is not as great as the rhetoric suggests. Nonetheless, Labour’s ‘growth agenda’ has been attacked by the coalition partners as ‘deficit denial’ and further evidence of its ‘irresponsibility’ on the economy. While this argument continues to reverberate with voters, economic stagnation and the consistent failure of the government to meet its own deficit reduction targets are lending credence to the argument. Comparisons with the US economy in particular, where a modest balance has led to more promising signs of recovery, do not reflect favourably on the coalition’s analysis or economic competence.

A further problem for the government is that its favoured austerity model – the third possible approach to deficit reduction – has not even begun to bite yet. With most cuts still to come, and many arriving with the April 2013 budget, public opinion may be expected to shift over the coming years as the reality of austerity becomes clearer. We might summarise the current state of affairs by concluding that all three main parties find themselves in difficult positions, trumpeting narrowly (and for the most part only symbolically) differentiated policy agendas. The key issue that will determine their fortunes is whether the government can continue to sell the public the ‘household budget fallacy’ as the evidence that austerity is both unnecessarily harsh and deeply unfair continues to mount.

Playing politics with welfare

Enter the welfare debate: the final ‘get out of jail free’ card for a government that is failing miserably on its own terms. The advantage of focussing on welfare is that it is one of the few areas where the ideological motives of the Conservative leadership, the coalition’s ‘pragmatic’ arguments about deficit reduction, and wider public opinion all seem to be in alignment.

The Conservatives began to recalibrate their position on welfare when David Cameron assumed the leadership of the party. They dropped the punitive ‘get on your bike’ language of the Thatcher years, and reconceptualised poverty in modern Britain as a vicious cycle of welfare dependency, educational failure, crime and addiction, with the poor were now seen not as responsible, but as victims of perverse incentives constructed by a free-spending and morally bankrupt liberal elite (namely New Labour). Despite the shift in tone, the analysis and policy implications remained unchanged – remove the benefits that incentivise such dysfunctional behaviour and the cycle will be broken. John Lanchester recently summarised it as the view that ‘the trouble with the poor is that they have too much money’. It is interesting to note that over the last year even the rhetorical concessions of Compassionate Conservatism have given way to a recognisably ‘nasty party’ discourse of ‘strivers versus skivers’. This is because the Tories have discovered that such language does not alienate large segments of the voting population, and that in fact many respond favourably to it.

The latest British social attitudes survey showed that whereas in previous recessions sympathy for the poor and unemployed rose, this time the pattern has reversed, accelerating a twenty year trend towards greater animosity to those in receipt of state support. This decline in sympathy not only includes the usual tabloid villains – the long-term unemployed, single parent families, immigrants – but (from a much lower base) groups usually seen as ‘deserving’, like the elderly and the disabled. Such a collapse in compassion for the poor and vulnerable can be partly explained as the product of a persistent campaign in sections of the right-wing media over many years to stereotype and stigmatise those receiving state benefits. A recent study found that 29% of newspaper stories about welfare mentioned benefit fraud, despite the estimated rate of fraud on all benefits according to the DWP standing at just 0.7%. Furthermore, those who were less informed about welfare were more likely to support drastic welfare cuts.

However there is also a changing social reality behind these perceptions. The modern social security system was designed during a period of near full employment as a safety net for household earners experiencing temporary periods of unemployment or unexpected onset of illness or disability. Other benefits, meanwhile, like state pensions and child benefit, were universal and contributed significantly to the incomes of a large portion of the population. Since the 1980s, however, unemployment and new and expanded forms of economic inactivity (eg. retirement, caring) have become permanent features of the economy, falling unevenly across Britain’s regions and demographic groups. A rise in means-testing to target benefits towards the most needy began to loosen the connection that those on modest or middle incomes felt towards the welfare state, and the sympathy they felt towards those who received them. It is in the context of such transformations that tabloid myths about welfare have been able to take hold.

Mixed with the household budget fallacy, growing public hostility to welfare recipients is a powerful and toxic concoction for the Conservatives. It provides just the populist justification they need for a raid on the social security system – easy prey compared to still celebrated public goods like the NHS, universities or the forests. Furthermore, by placing this issue at the centre of their campaign for re-election they can both deflect attention from their own economic failures and continue to paint Labour as ‘not serious’ about reducing the deficit, and more interested in bankrolling ‘feckless scroungers’ than supporting ‘hard-working families’.

Labour in the benefits trap?

This was exactly what Cameron and his Chancellor George Osborne had in mind when they unveiled the Welfare Uprating Bill in the autumn budget statement. By pegging increases in most benefits to 1% per year rather than the higher level of inflation, it represents the first time since 1931 that a government is deliberately making the poorest poorer in real terms. The Labour leadership, haunted by the living ghosts of New Labour, are all too aware of the risks of confronting such rhetoric and still suspect that the only way to defeat the Conservatives is from the centre right. They voted, unsuccessfully, against the bill, but did so primarily on the grounds that 60% of those affected were shown to be members of the tax credit-dependent ‘working poor’, compared to 40% who are out of work. The signs are ominous that by accepting the government’s terms of debate on welfare, while remaining within a relatively narrow consensus about taxation and deficit reduction, Labour may end up triangulating themselves into oblivion.

But there are glimpses of an alternative. The Tories may have found fertile ground in their attacks on ‘scroungers’, but they are not supported by the facts. In the latest DWP annual report, by far the largest portion of the welfare budget was spent on state pensions (47%), distantly followed by housing benefit (11%), while the main out-of-work benefits, like Job Seekers Allowance and Incapacity Benefit, each lay in the region of 3-5%. Meanwhile tax credits, introduced by New Labour to supplement the low incomes of the ‘working poor’, took almost two thirds out of HMRC’s £47 billion budget. That is to say the problem of long-term unemployment is negligible compared to the problems of an aging population and a model of capitalism that is failing to pay its workers a living wage.

New Labour’s acceptance of free market orthodoxy led it to the conclusion that it could only pursue its limited ambitions for redistribution downstream, using the tax credit system. As the model pushed down incomes at the bottom, welfare spending was forced to rise and Labour became exposed to political attack as the ‘party for unlimited welfare’ – the fact that this mostly went to pensioners and workers is conveniently neglected. Labour’s instinctive response has been to join the populist chorus of imposing harsher conditionality on the unemployed, fuelling the myth that this would have any meaningful impact on reducing the welfare budget. Instead it should reassess the two central assumptions that it held when in power – that taxes on wealth cannot be increased and that governments cannot influence the economy upstream, at the point where the glaring inequalities that plague our society are created.

By giving land and financial speculation their real name of rent-seeking, there would be greater political scope for pushing far more effective taxation of the wealthy than the one-off levies on banks and the gesture politics of income tax that we have seen to date. There would be fierce resistance of course, but the debate would lead to greater scrutiny of the rich for once, rather than the poor, with their far greater and more costly excesses. Popular indignation about tax evasion and bankers bonuses have so far only been used to score cheap points and not to develop a policy agenda that actually challenges the gains made by predatory capitalists.

Secondly, by questioning the logic of a corporate culture that depresses workers’ salaries while extracting huge profits (and plugs the shortfall in consumption with unsustainable debt) an angry but confused electorate may begin to see more clearly the true source of its plight. There are signs that Ed Miliband is interested in such ideas, but will face resistance from many in his party who remain deeply attached to the dogmas of their years in power and the ‘focus group politics’ that accompanied them. His talk of ‘pre-distribution’ is promising, but if it is limited to requiring government contractors to pay their staff a living wage it will fail to have much impact. By contrast, wide-ranging measures to promote economic diversification and workplace equality – for example, incentivising co-operative and social enterprise business models through taxation, and promoting employee representation or strengthening collective bargaining through the regulatory system – could go a great deal further.

All those who oppose the government’s ideological raid on the state face a choice. The first option is to fight the battle on a favourable new terrain, with the possibility of having a genuinely transformative impact on our failing economy and strained society. The second is to continue to engage in a hopelessly confused debate about welfare, struggling to deny, despite all evidence, that by making unemployment even more miserable than working poverty we will somehow all be better off.











Matthew Richmond is a PhD student in Human Geography at King's College London, researching the topic of social inequality and urban segregation in Rio de Janeiro. He is interested in the relationship between economic development, public policy, and socio-spatial transformation in different urban and national contexts.




























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