Squeezy does it – families are facing a six per cent cut on average
The child benefit cut, saving for an evaporating pension while paying for parents in long-term care, not to mention helping the children pay for university. Is this the end of being comfortably off, asks Michael Blastland in his regular column.
Put it this way: every £1bn is the equivalent of taking away services or money worth £1,000 from one million people, every year.
“Do you cut your standard of living or dip into the house that you hoped would bolster your pension?”
Michael Blastland
Which one million people would you have in mind?
And that’s just the first billion. There are another 84-ish to go. Which is why the politics of cuts grows nasty. The Chancellor says we are all in it together, invoking a sense of collective sacrifice. Your country needs you, says David Cameron, pointing our way.
But I see no volunteers. Instead, the one collective effort on view is to duck – and point elsewhere. The “middle” points at the “scroungers” at the “bottom”. The “bottom” points to the broader shoulders higher up. Both point to the “top”. And the “top” says it pays for everything already and should get something back.
Well, it could be worse. Actually, it will be worse. There are bills not yet fully in the equation, like that for long-term care as the population ages.
Everyone points out that life is expensive enough already. If you are in the middle or perhaps above, do you save for the children’s university fees, or your mother’s long-term care, or maybe your own? If you lose universal benefits, like child benefit – worth £1,750 a year for two children – that adds up over 18 years to about another £35,000 gone.
Do you cut your standard of living or dip into the house that you hoped would bolster your pension, a pension that might be looking less healthy than it once did.
The squeeze seems to come from every side. Where will the money come from?
Meanwhile, many look over their shoulders at those who, by some anomaly, manage to escape the cut in child benefit despite being well off, for example. It is as if we’re all in the workhouse, green eyed, comparing portions.
At the root, though, is a simple problem: arithmetic. Eliminating what’s known as the structural deficit in the next few years, as the government aims to do, requires cuts or tax rises worth about 12% of total government spending in today’s terms, though some departmental budgets will be hit harder than others. Twelve per cent of government spending is equal to about six per cent of national spending (see box, below, for explanation).
It sounds manageable, until you remember that spread in equal proportion across the population, six per cent – for someone on £40,000 – is the equivalent of lost money or services worth nearly £2,400 every year.
Why 12% of govt spending is 6% of national spendingIf the whole country produces £100 of goods and services……and the government takes about 50% in taxes to spendSo, a 12% cut in government spending equals six per cent, or £6Spread that £6 (six per cent) across every equally to feel the pain
In that context, an extra £3 – 4,000 for university fees, for typically just three years, is only a beginning, while the idea that most of this could be found from efficiency seems to have evaporated faster than the sweat of the general election.
There’s a well-known saying: “a billion here, a billion there and pretty soon it adds up to real money”.
Let me to adapt it to the national finances: “a billion here, a billion there and still it adds up to not nearly enough”.
Are there any calculations that offer grounds for optimism? Here’s one. Economic growth of 2.5% – roughly the long-term trend – equals about £36bn in one year. About 28 months of that – remember that we’re looking for about £85bn – and the economy is richer to the tune of everything we’re about to lose. So growth is – potentially – big money.
With caveats: some economic growth – or rather the increased tax receipts that it yields – has already been factored into the calculation about closing the deficit in this Parliament. It will take a few years until growth repairs our sense of prosperity.
And some think that the prospects for growth are permanently damaged, as if the recession changed the game; others that the recession is a normal part of the game and that too many people are in the bad habit of extrapolating into the future from bad years, just as they once extrapolated from the good.
So there are three possible – and perhaps obvious – answers to the question: “where will the money come from?”
Either it won’t, and there’ll be lower standards of living for everyoneIt will come from a decline in services people receiveIt will come by waiting, and hoping for increased national prosperity in the future will give us back what we’ve now lost, and we will all share in itSorry, did I not mention a fourth option? Option four is the most likely – a scenario which combines options one, two and three
A few months ago, I interviewed Howard Glennerster, a professor of social policy, who said that the numbers were unachievable unless the government also took aim at the middle classes.
He predicted precisely the current confrontation: “The challenge is to threaten the interests of the median middle class voter on whom the Conservative party and the Liberal Democrats depend. Only by challenging their core vote, it seems to me, can they deliver.”
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