All in it together?

Poorer groups have been worst affected by changes to direct taxes, benefits and tax credits despite the Coalition’s promise that the rich would carry the burden of austerity, a group of major new reports from LSE suggests. As a result, poverty has been increasing and will get worse in the next five years.

Picture Credit: Number 10

 The coalition faced a high level of debt and current budget deficit following the global financial crisis. I made reducing the UK’s debts its most urgent task; but at the same time was determined to deliver radical reforms and to achieve a ‘a stronger society, a smaller state and responsibility in the hands of every citizen’. Rapid and far reaching reforms were enacted to re-shape the welfare state.

These included re-structuring the NHS, while “protecting” its funding (in real terms, though not in terms of meeting growing needs); protecting schools funding while expanding the number of academies and introducing free schools; introducing Universal Credit; widening non-state provision, increasing local autonomy and reducing eligibility for services and benefits; increasing spending on pensions; and raising the income tax threshold while also cutting the top rate of tax.

But this meant that some groups and services suffered more than others. Families with young children have been hit harder than any other household type under the coalition’s cuts, despite early rhetoric highlighting the importance of their “foundation years.” Real spending per child on early education, childcare and Sure Start services fell by a quarter between 2009-10 and 2012-13 and tax-benefit reforms hit families with children under five harder than any other household type. Similarly, cuts made to benefits hit low income families, including working families, but were matched by equivalent reductions to the amount of tax paid by better-off households – making no impact on the deficit.

Meanwhile the coalition’s decision to protect very large areas of public spending meant that its austerity programme was more limited in practice than its rhetoric suggested. Although year-on-year public spending dropped less than 3 per cent, the “protection” of the large budgets for health, schools and other services meant that the smaller “unprotected” areas had cuts of around a third of their provision.

This meant that despite a 10 per cent rise in the population aged 65-plus during the coalition period, following cuts to local authority budgets the number of adult social care users fell by a quarter. Care at home and other community-based services were hit especially hard.

Similarly, following cuts to the housing ministry (DCLG) budgets, UK government housing expenditure was cut by 35 per cent and spending on new homes by 44 per cent in real terms between 2009/10 and 2013/14. In contrast, and despite welfare reforms, housing benefit expenditure ( driven by rising rents, but not supporting new house building) continued to rise. In parallel, steps were taken to stimulate home ownership through Help to Buy, considered by some to inflate house prices rather than to stimulate house building.

And in the employment market, growth in self-employment drove the recovery in the labour market but dramatic falls in average real earnings for all types of workers affected households’ living standards, consumption and government tax receipts. The outcome is that household budgets have been squeezed and the government’s deficit reduction plans have been affected.

In fact “protected” and “unprotected” services are seamlessly linked in the real world in a way that does not reflect the funding silos of Whitehall departments. People with health and care needs often rely on support services in the community to keep them from needing hospital care; and children’s educational journeys from pre-school to university take them across many boundaries between protected and unprotected services. But it is also too early to assess the full effects of many of the Coalition’s reforms. Promising signs include a reduction in the ‘NEET’ rate and widening participation at university, despite a trebling of fees.

Nevertheless this has been less a picture of general austerity than of selective cuts. We have certainly not all been in it together. Poverty has been increasing even as the economy has returned to growth – although initial protection of the value of benefits meant that those at the bottom – and important services -were initially shielded from the worst effects of the recession. But in the second part of the coalition’s period, selective cuts to benefits and to unprotected services began to take their toll.

This leaves the next government, of whatever kind, with much greater social policy challenges than the coalition inherited. These include child poverty, unaffordable housing, an NHS under pressure from an ageing population, a regionally unbalanced economy and insufficient affordable childcare, in the context of exceptionally high public sector debt and a high deficit.

These overall conclusions are based on a comprehensive and authoritative analysis of policy, spending, outcomes, and trends across nine different areas of social policy. Separate reports are available for each, covering reforms as well as spending and highlighting challenges for an incoming government.

The reports are from the London School of Economics and the universities of York and Manchester, and are authored by Ruth Lupton, Tania Burchardt, Amanda Fitzgerald, John Hills, Abigail McKnight, Polina Obolenskaya, Kitty Stewart, Stephanie Thomson, Rebecca Tunstall, and Polly Vizard. Copies can be found at: http://sticerd.lse.ac.uk/case/_new/publications/series.asp?prog=SPCCWP