An extensive study commissioned by the TUC, which meets in Manchester this week, has found that the ConDems proposed spending cuts will hit the poorest 10 times harder than the richest. Pensioners and single parents will suffer the most, with all but the top 10% of earners losing more from cuts than from tax and benefits changes. So much for the ‘we’re all in this together’ nonsense, but there is still a huge job to be done convincing people, many of whom will be members of trades unions, that there is an alternative to the slash and burn policies. As 20 October gets closer, it is clear that the public is starting to worry about the cuts and how they will impact on unemployment. The press and other media reports more stories of groups saying don’t cut us – our service matters, but the big argument, that we can afford our public services still has to be won. After all the government, with their allies in the media have been laying it on the line that there is no alternative to the cuts, our job is to give people the alternative and to build confidence in it. So to help with the argument, the following briefing paper (We can afford a fairer society) from UNISON the public services union provides some useful ammunition.We can afford a fairer society
This is no time for cuts – we need to invest in jobs and services that will help our economy recover from recession and build a fairer society.
We can afford the services we need – if we cut out real waste and make the banks, big corporations and the super rich pay a fairer share in tax.
The real crisis in our economy
The financial crisis and recession were not caused by excessive public spending. They were the consequence of reckless borrowing and lending in the private sector, against a background of deregulation, low wage growth and insufficient public provision (1). Before the credit crunch public sector debt was less than 40% of national income – it was the private corporate sector that was out of control, with debt at almost 300% of national income.
The coalition government talks as if public borrowing was the main problem we face today. But economists say our expected debt levels are sustainable (2) – our priority must be to support employment and raise incomes. Since the credit crunch hit more than 100,000 homes have been repossessed, more than 1 million workers have lost their jobs, and more than 1 in 3 employees have had their pay, hours or benefits cut (3). The weakness of the “recovery‟ means this hardship is likely to continue. Former Bank of England economist Professor David Blanchflower has warned that cuts to public spending could send us back into recession and push unemployment to 5 million (4).
Even after the welcome increases of recent years, the UK still devotes a smaller share of its income to public services and social security than most other developed countries (5). Despite newspaper headlines suggesting that everyone now favours „cuts‟, polling data suggests that voters want to see public services protected, even if that means higher taxation (6). Voters are particularly keen to see financial institutions, large companies and the super-rich start paying a fairer share (7). 2 July 2010 / stock no. 2837
The false economy of cuts
Most spending cuts are a false economy – the redundancy costs and knock-on effects on employment, growth and tax revenue will make the situation worse.
on average every redundancy creates £16,000 additional costs to the public sector as well as undermining morale and productivity (8)
92% of the cost of employing a public service worker is recouped by the state through increased tax revenues and reduced benefit payments (9)
economic research shows that for every pound spent on local public services, 64 pence is re-spent in local economies, supporting jobs and businesses (10)
cutting or freezing public service pay is likely to result in recruitment and retention problems, high turnover and vacancies, weakening services and increasing reliance on expensive agency workers (11)
The services we need
We are already seeing cuts to budgets, pay and jobs in some areas (12). But we need to build these services to support our economic recovery. For example:
10,000 more planners are needed by 2012 to find sustainable ways of meeting new housing, infrastructure and development needs (13)
10,000 more social workers are needed to fill vacancies and deal with rising child protection caseloads (14)
50,000 more hospital cleaners would be needed to reverse cuts in staffing levels that led to big rises in MRSA and C Difficile (15)
100,000 additional education staff are needed by 2017 to ensure we have the skilled workforce our economy needs (16)
350,000 additional care workers will be needed by 2020 to look after our ageing population and minimise need for acute and residential care (17)
Everyone stands to lose from public service cuts – the average UK household relies on benefits and public services worth more than £10,000 every single year (18).
Making society fairer
Public spending is also needed to tackle deprivation and disadvantage. For example:
child benefits and tax credits need to be increased to ensure the 2010 target to halve child poverty is met
disability benefits need to take account of extra living and working costs, and should not be conditional upon taking unsuitable or exploitative work
pensioner poverty must be abolished by raising the Basic State Pension and re-linking it with average earnings when these outstrip inflation
the low paid should have their living standards raised by increasing the initial tax-free allowance, or restoring a 10% tax band for low incomes
people looking for work should be better supported by increasing Job Seeker’s Allowance above the inadequate £64.30 a week for over-25s
We can afford it
Until growth and employment have fully recovered, it is right that the government uses public debt to finance necessary spending. Rushing to „balance the books‟ as some are urging would be totally counterproductive as well as increasing hardship.
In the long run, however, deficits will need to be closed. The way to do this is not by cutting jobs, benefits and services – but by tackling real waste and making tax fairer.
Making tax fair
Significant sums could be raised without affecting the incomes of the majority if we made sure the financial sector and the super-rich paid a fairer share. For example:
£4.7bn could be raised every year by introducing a 50% tax rate on incomes over £100,000 (19)
£5bn could be raised every year with an Empty Property Tax on vacant dwellings which exacerbate housing shortages and harm neighbourhoods (20)
£10bn could be raised every year by reforming tax havens and residence rules to reduce tax avoidance by corporations and “non-domiciled‟ residents (21)
£14.9bn could be raised every year by using minimum tax rates to stop reliefs being used to disproportionately subsidise incomes over £100,000 (22)
£20-30bn could be raised every year by introducing a Major Financial Transactions Tax (or „Robin Hood Tax‟) on UK financial institutions (23)
Estimates of the long-term net cost of the bank bailouts have been estimated at £20-50bn (HM Treasury) to £120bn (IMF) (24). This money must be paid back in full.
Cutting real waste
Contrary to recent media attacks, public service productivity has improved every year since 2003 (25). Trade unions play a key role in ensuring staff are treated fairly and involved in making improvements – research indicates that this already saves the taxpayer as much as £3.6bn a year in productivity gains (26).
There are other ways we make sure public money is used effectively. For example:
£500m could be saved every year by adopting measures to improve the health and well-being of NHS staff, thereby reducing sickness absence (27)
£1bn could be saved every year by halving the local government agency bill, as has been achieved by high performing councils (28)
£1bn could be saved every year by eradicating healthcare acquired infections from the NHS – the extra cleaners would cost half this (29)
£2.8bn could be saved every year by ending the central government use of private consultants who bring little discernable benefit (30)
£3bn could be saved in user fees and interest charges every year if PFI schemes were replaced with conventional public procurement (31)
£76bn could be saved over 40 years by cancelling Trident (32)
Sources
1. Jean-Paul Fitoussi and Joseph Stiglitz, The Ways Out of the Crisis and the Building of a More Cohesive World, Shadow Gn Chair‟s summary, July 2009.
2. Eg. Samuel Brittan, „A cool look at the current deficit hysteria‟, Financial Times, 1 October 2009.
3. Council of Mortgage Lenders; Keep Britain Working survey June 2009; ONS.
4. David Blanchflower, „Pity the lost generation‟, New Statesman, 24 September 2009.
5. UK public social spending stands at 23.3% of national income; Spain 25.5%; Italy 29.7%; Germany 31.1%; France 33.2%; Sweden 33.6%. OECD, Society at a glance 2009.
6. 53% say „spending on public services should be maintained, even if it means increasing the income tax I pay‟. Ipsos MORI Public Spending Index November 2009.
7. If taxes were to rise, most favoured are taxes on business (25%) and inheritance tax (24%) – Ipsos MORI poll for the RSA, September 2009. 78% would like to see a tax system whereby the richest 10% at least pay the same percentage of their income as the poorest 10% – YouGov poll for Compass, November 2009. 75% think „it is too easy for very rich people to get out of paying a fair level of tax‟ – YouGov poll for TUC, June 2008.
8. Chartered Institute for Personnel Development, A False Economy – The cost to employers of redundancy, January 2009; IRS, Dealing with the impact of redundancy, November 2009.
9. Richard Murphy, „The only way to cut government debt is to increase government spending‟, taxresearch.org.uk, 8 July 2009.
10. Association for Public Service Excellence, Exploring the economic footprint of public services, September 2008.
11. Institute for Fiscal Studies, Green Budget 2008, Chapter 8.
12. „“Savage” cuts hitting public services‟, www.publicservice.co.uk, 9 November 2009.
13. Academy for Sustainable Communities, Mind the Skills Gap, September 2007.
14. UK Commission on Employment and Skills, Working Futures 2007-17, 2008.
15. LGA, Respect, Recruitment and Retention in children’s social work, 2009.
16. Making the Connections: Contract cleaning and infection control, UNISON, 2009.
17. Audit Commission, Tomorrow’s People, June 2008.
18. ONS, ‘The effects of taxes and benefits on household income, 2007/08’, July 2009.
19. Irvin et al, In Place of Cuts, Compass, November 2009.
20. ippr, Financial Sector Taxes, June 2010; TUC, Pre-Budget Report submission, 2009.
21. Irvin et al, In Place of Cuts, Compass, November 2009.
22. Using minimum tax rates – see Irvin et al, In Place of Cuts, Compass, November 2009.
23. TUC, Pre-Budget Report submission, 2009.
24. HM Treasury, Budget 2009, April 2009; IMF, Global Financial Stability Report, April 2009.
25. ONS, Total public service output and productivity, June 2009.
26. Workplace Representatives: a review of their facilities and facility time, DTI, January 2007; see also The value of trade union involvement to service delivery, APSE, 2010.
27. NHS Health and Wellbeing, Final Report, November 2009; estimated set-up costs £6.5m.
28. UNISON analysis based on FOI requests covering England, Wales and Northern Ireland, presented in Local Government: An Employer of Choice?, National Joint Council for Local Government Services Pay Claim 2009-10; BBC Politics Show, “Millions “wasted” on consultants‟, 9 October 2009.
29. House of Commons Public Accounts Committee, Reducing Healthcare Associated Infection in England, November 2009.
30. National Audit Office, Central Government’s Use of Consultants, 2006.
31. UNISON estimate based on work by Jean Shaoul; see also Chris Edwards, Private Gain, Public Loss, University of East Anglia, 2009.
32. CND, No Trident Replacement Update, August 2009.