Osborne Unchained: Don't be fooled by the living wage announcement - social security still faces dire Conservative cuts

It is particularly telling that, despite the Coalition government having announced the UK's annual budget back in March, George Osborne has seen fit to alter course only three months later. With the Conservatives now holding a majority in the Commons, unshackled from the influence of the Liberal Democrats, they were presented with the chance to drastically change the British state.

In the run up there were a number of changes expected. In what has been considered Osborne's determination to stop workers being dependent upon the state and, instead, dependent upon their employers (Wintour, 2015), it was believed that cuts to housing benefit and tax credits would be large parts of delivering his promised £12bn of welfare cuts (BBC, 2015; ITV, 2015).

Alongside criticism for considering the cuts to tax credits - condemned as punishing working people (White, 2015) - Osborne was also under pressure from both Labour and voices in his own party, such as Boris Johnson, over the top rate of tax (Mason, 2015). Johnson in particular has argued to cut the top rate as an incentive to businesses to introduce the living wage (Syal, 2015).

The big question would be how Osborne would go about tackling the big challenges of low pay and the high costs of housing.

Osborne's budget

In Osborne's actual budget announcement, he claimed to be focussing on the Conservative mantra of turning a 'low wage, high tax, high welfare' economy into a 'higher wage, lower tax, lower welfare' economy, and his announcements contained some big surprises (BBC, 2015{2}).

The first part of the budget was ensuring the government had enough money. Osborne announced policies aimed at closing some tax 'loopholes', including borrowing Labour's plan to end non-dom status, and the introduction of an extra surcharge on banks. But at the front of his speech,  Osborne stressed that the financial situation was bettered by higher than expected tax receipts and public sector asset sell-offs.

That was followed by measures that were supposed pay for themselves. Conservative manifesto plans to raise the inheritance tax threshold to £1m was included, to be paid for by ending pension tax relief for the wealthy pensioners. Premiums are also to be reformed for drivers, to raise funds for investment in the roads infrastructure.

Add to these the reform of certain taxes and the ending of certain subsidies, like tax credits for those on middle incomes, and the cumulative effect is a lot of tax rises. Those moves made room for the Conservatives to continued with the Lib Dem policy priority of raising the personal income tax allowance - £11,000 from next year and rising.

Yet those moves should also be a indication of how excessively ambitious the scale of cuts planned by the Conservatives had been. In addition to the scaling back of tax credits and subsidies for the better off, there were more restrictions on rises in pay for public sector workers and student maintenance grants are to be replaced by more loans.

Osborne's headline £12bn cuts to welfare were also there, with more cuts for under-21s, working benefits frozen for 4 years, including housing benefits, and the benefits cap being lowered  per household. That was in addition to a cut to tax credits that at first will affect mostly those on middle incomes, and then later those on the universal credit,  by reducing the amount you earn before the credit will be taken away.

Then came the big finish. One big - and fairly obviously Conservative move - was the cut in corporation tax - to 19% and falling. That constitutes a significant reduction in what big business is expected to contribute to the costs of society. That policy could only be in this budget with something to offset it. That comes in the form of two key policies, that are the Conservative response to the two main problems facing ordinary people.

The first of those is the fulfilment of the party's manifesto promise to expand housing association right-to-buy - as the Conservative way to address the cost of housing and the low numbers available out on the market.

The second was Osborne's pomp and ceremony, saved for the last, announcement of the introduction of a national living wage - which serves as the response to low wages.

The reality

Osborne's original plan had been for deep cuts to both spending and taxes. The reality has been deep cuts met by a net total of tax rises - seemingly accepting the arguments of austerity 'lite' and to an extent anti-austerity parties. So the Chancellor has already turned toward a partially different course.

But the two big problems facing most people - low wages and high housing costs - that had to be addressed, still represent a big difference between the Conservatives and their opponents.

The Conservative solutions seem to involve twinning the policies tackling the two big problems with attacks on the safety nets. Conservative rent-to-buy in social housing increases housing in private markets by raiding the social reserve and Osborne's plans to shift the burden of maintaining people on low incomes to their employers, comes twinned with the reduction of welfare support.

The Conservative approach means is to, theoretically, drive down prices in private housing markets by an increase in competition achieved by converting more social housing into private. The second part is to increase personal incomes by reducing personal taxation, which in turn means reducing public spending on high spend areas like welfare.

In addition to that second point comes the big change in the Conservative narrative which was the introduction of a national living wage. However, Osborne's announcement covers up the fact that the Conservative version of a 'living wage' doesn't actually substantially increase wages above the projected rise in the minimum wage - estimated to be £8.23 by 2020 (Ashworth-Hayes, 2015).

That could be an indication that, after all of the cuts to welfare, the Conservatives may well have realised just how hard the burden would have fallen onto people on low incomes. After subsidies like tax credits have been subtracted, it may well be seen that what has been, in effect, a small increase in the minimum wage, may only be an offset for what has been taken away.

What was the alternative?

The big question is always going to be: what was the alternative?

On the two big issues - low pay and housing costs - both could have alternatively been tackled with positive government interventions.

On housing, most parties committed, in the run up to the 2015 election, to the building a large numbers of new houses. With a large social housing reserve, run with more efficiency and lower rents, supplemented by more housing available for rent and purchase - regulated by the kinds of proposals made by Labour and the Lib Dems to make rental more secure, such as help-to-rent tenancy loans and taking action on letting agent fees - there was room for a different approach. An alternative that still placed the burden to be fair on the private sector, while keeping positive, facilitating and liberating welfare safety nets strong.

On low pay, the Conservatives have confirmed the principle of a living wage by including it, and have certainly marked down a small increase over the minimum wage, but they have not matched the recommended levels, and Osborne has introduced it alongside cuts to supplemental welfare. Going further to tackle low pay by matching recommendations would have been a better start, but there would still be more to do. Work is too often, too short term and too uncertain, and getting more so as the economy turns towards labour 'flexibility', and the safety net is being worn too thin.

The effect of these two is compounded for under-21s, who face disproportionately heavy cuts to their access to working age and housing benefits, and students face even more debt as the student maintenance grants are replaced with more loans.

Even if the Conservatives succeed in building a 'stronger' economy in this way, they will have done so by making the society - that the economy works through and depends - more fractious, more uncertain and less secure. The Conservatives will have bought their economic success at the expense of social security.

References

Patrick Wintour's 'Osborne’s first budget without Lib Dems likely to hit welfare state hard'; in The Guardian; 2 July 2015.

'George Osborne: £12bn in welfare savings have been found'; on the BBC; 5 July 2015.

'George Osborne 'finds' £12bn in welfare cuts ahead of Budget'; on ITV; 5 July 2015.

Michael White's 'The Tory budget plan to cut tax credits – is it naive or just plain cynical?'; in The Guardian; 5 July 2015.

Rowena Mason's 'Labour ends call for 50p tax rate but warns chancellor against any further cut'; in The Guardian; 30 June 2015.

Rajeev Syal's 'Boris Johnson: cut top rate of income tax but only if firms pay living wage'; in The Guardian; 6 July 2015.

'Budget 2015: Osborne unveils 'national living wage''; on the BBC; 8 July 2015{2}.

Sam Ashworth-Hayes' '£8 minimum wage in 2020: a real terms cut?'; on Full Fact; 20 February 2015.