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‘The Government’s Punishment of the Poor is Only Just Beginning’

Liz Truss’ regime has already picked its losers, says Thomas Perrett

Prime Minister Liz Truss chairs a Cabinet meeting in the Cabinet Room of 10 Downing Street. Photo: Andrew Parsons / 10 Downing Street

‘The Government’s Punishment of the Poor is Only Just Beginning’

Liz Truss’ regime has already picked its losers, says Thomas Perrett

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The Government’s mini budget announced last week has already plunged the country into economic chaos. The rapid depreciation of the pound, which recently fell to a record low against the US dollar, threatens to raise import costs and exacerbate already crippling inflation, prompting investors to doubt whether Britain can repay its debts.

Truss’ Government, dominated by the influence of opaquely-funded free market lobbying groups, is looking for a way to shrink the size of the state. Having already proposed axing its legally-binding net zero commitments, ministers are reportedly considering “efficiency savings”, threatening a renewed age of austerity.

Levelling Up Secretary Simon Clarke has argued that supply side reform is necessary to boost productivity. He told The Times that “my big concern in politics is that Western Europe is just living in a fool’s paradise whereby we can be ever-less productive relative to our peers, and yet still enjoy a very large welfare state and persist in thinking that the two are somehow compatible over the medium to long term. They’re not.”

Clarke appeared to endorse further tax cuts to boost sluggish productivity, suggesting that they could be paid for by “[trimming] the fat” from departmental budgets.

The Prime Minister refused to rule out a real-terms benefit cut at Conservative Conference last week, stating that she “had not made a decision” on whether to uprate benefits in line with inflation. Claimants have already received a real-terms cut this year, as benefits were uprated by just 3.1%, rather than the actual inflation figure of 7%. The Government has cut benefits in real terms for seven of the last 10 years, according to the Joseph Rowntree Foundation (JRF), and an individual over 25 can expect a standard Universal Credit rate of just £77-per-week – a seventh of average weekly earnings.

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The JRF has argued that the proposed benefit increase of just 5.4% would “amount to the biggest permanent real-terms cut to the basic rate of benefits ever made in a single year”. Under these changes, the value of benefits would decline by 15% relative to April 2016 levels, meaning that an adult over 25 would lose £470 per year, and a couple aged 25 or over would lose £740 more per year than if benefits had been uprated normally. A a typical working couple with two children on Universal Credit would be £1,000 worse off.

“Reneging on the promise to raise benefits in line with inflation as usual would be a hostile and harmful act of historic proportions,” Katie Schmuecker, the principal policy advisor at the JRF, has argued. “It is morally indefensible for a Government which has chosen to target tax cuts at the richest, to target spending cuts at those on the lowest incomes who are not responsible for this crisis,” she added.

This would further deepen in-work poverty at a time of chronic wage stagnation. The Trades Union Congress (TUC) recently found that British workers are on the verge of experiencing the worst squeeze in real wages in the G7 – the world’s largest advanced economies – as average pay is set to fall by £1,750 between 2022 and 2023.

Indeed, many low-waged and part-time workers depend on Universal Credit to supplement poverty wages, contrary to recent comments made by Home Secretary Suella Braverman, who told The Telegraph that “we have far too many people in this country who are fit to work, who are able to work and who should be working, and who choose to top up their salaries with tax credits,” adding: “the benefit street culture is a feature of modern Britain”. An estimated 2.2 million people claiming Universal Credit are working (40% of those claiming), and a further 1.4 million are expected to be looking for work.

The callous demonisation of welfare recipients is likely to become a prominent aspect of Truss’ Government, as it seeks to justify its spending cuts and laissez-faire economic policies.

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The Inequality Economy

The proposed benefits cuts are the latest in a series of policies that will widen regional inequalities, indicating a further abandonment of the ‘levelling up’ programme central to the 2019 Conservative manifesto.

The mini budget will culminate in households in London and the south east of England gaining £1,600 on average, according to the Resolution Foundation, while those in Wales, the north east and Yorkshire will gain just £500. The poorest fifth of households will gain just £90 from the government’s policies, with the top 5% of earners gaining £2,520.

Overall, the incomes of the richest 5% of the population are expected to grow by 2% during the next financial year, while the remaining 95% of the population are likely be made even poorer by the budget’s combination of tax cuts for the wealthy and benefits reform. It is estimated that an additional 2.3 million people, including 700,000 children, will fall below the poverty line as a result.

This is only the beginning. The cost of living crisis, which has been made worse by the depreciation of the currency, is likely to give rise to further punitive measures aimed at curtailing inflation by reducing demand. Dave Ramsden, the deputy governor of the Bank of England, suggested last week that raising interest rates may be the only way to reduce inflation to a 2% target. The use of tight monetary policy to control inflation, a centrepiece in Thatcherite economics, can often diminish workers’ bargaining power by increasing unemployment rates.

The Government’s benefit reforms are a central element in a wider strategy based on tax cuts for the wealthy and reduced public spending. They will worsen in-work poverty, intensifying the damage already caused by years of austerity, and compound the effects of the cost of living crisis. When the Government should be delivering targeted support to the most vulnerable, it has chosen to fund tax cuts for the rich on the backs of ordinary working people. 

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