UK Poverty Post

Keep remembering that we have a choice in how we get out of this mess

Writing in Saturday’s Guardian, Polly Toynbee threw an interesting perspective on what promises to be the biggest debate in politics over the next few years – deficit reduction. So far, the arguments have largely been about the ‘when’ – which is a question of profound economic importance and disagreement. But this article engages with another crucial issue: the ‘how’. In particular, she emphasises that there really is a political choice to be made between raising taxes and cutting spending. The coalition government has made that choice already: the Conservatives campaigned in the election to reduce the deficit on the basis of ‘80% cuts; 20% tax rises’, and now the government is committed to saving ‘most’ of the money with cuts. But what do the alternatives look like?

Our analysis is quite clear: cuts in public spending hit poor people hardest – particularly women, who make up the majority of both public sector employees and public service users. What Toynbee does is put some figures on this. She asked Professor John Hills, Chair of the National Equality Panel, which produced the authoritative report An Anatomy of Economic Inequality in the UK, to calculate how the burden of deficit reduction would fall in two different scenarios. And the figures are stark: if the deficit were reduced through spending cuts alone, the bottom fifth of society would lose 12%, while the richest fifth would lose less than 1%. If the money were instead raised by increasing all existing taxes, the figures would be a far more equitable 3.4% and 3.7%.

What I take from this is an important reminder that cutting the deficit is not a cold, managerial activity. There are some profound political and moral choices to be made in how it is done. The new government’s commitment to slashing spending and raising a little through taxes (predicted to come in large part through increasing VAT – one of the most regressive taxes) would have negative consequences across society, but in particular upon the poorest and most vulnerable. But it is not inevitable. We have a deeply unfair tax system, in which the poorest tenth pay 46% of their earnings in tax, while the richest tenth pay only 34%. Rebalancing those inequities is one way in which we can cut the deficit while making our society a little bit fairer.

On a similar note, in its haste to balance the budget in the shortest time possible, the government must not lose sight of the need to keep investing in people. Short-term savings can be illusory, and miss the opportunity to make much bigger gains in the future. For example, for a relatively modest up-front investment in welfare reform, the system could be transformed to allow people to build on their potential, and ultimately make us all better off.

There are myriad options for getting out of the fiscal hole we’re in. We mustn’t let ourselves be told that making our society still less fair is the only way.

Moussa Haddad is Oxfam’s policy officer for sustainable livelihoods in its UK Poverty Programme.