Anglo-Irish retrenchment

Ireland, having shown budgetary surpluses until 2008 and a level of public debt among the lowest in the eurozone, suddenly experienced a debt explosion resulting from a severe banking crisis, followed by a deep recession. The collapse of the housing bubble in 2007 led the government to underwrite the entire banking system and thereby greatly increased its own indebtedness. Self-imposed spending cuts contributed to an estimated 9 per cent annual fall in GDP in 2009. A new bank rescue plan announced in October 2010 provided another cash injection to the banks of around €50 billion from public funds, thus raising the public deficit for 2010 from 12 to 32 per cent of GDP. Stringent bail-out conditions imposed by the EFSF rescue package required this figure to fall to 2.9 per cent by 2015. To this end, Ireland pledged to make €15 billion worth of savings by 2014 of which €6 billion in cuts are frontloaded (Irish Government, 2010). Meanwhile unemployment soared to 14 per cent in 2009.

The expansion of social security over the 1990s, though modest by international standards, became a justification for retrenchment (Considine and

Dukelow, 2011: 196). Under the National Recovery Plan (2011-14) (Irish Government, 2010), social security programmes were targeted to yield €2.8 billion of savings. Initially, in the 2009 budget, prior to the full onslaught of the economic crisis, benefit rates were increased by 3-4 per cent. In 2009, eligibility conditions for jobseeker and sickness benefits were tightened, while maximum duration of entitlement was reduced from 15 to 12 months. After 2009, welfare retrenchments focused more on direct cuts. Public servants had their salaries lowered by at least 5 per cent, social welfare was reduced, tax bands were lowered, tax credits repealed, social insurance contributions raised, and nearly 25,000 public sector jobs were being cut. Some €1.9billion will come from raising income tax, reducing the minimum wage, and increasing VAT from 21 to 23 per cent in 2013 and to 24 per cent in 2014. Cuts in social insurance have included an 8 per cent reduction in social benefits for adults, a 30 per cent reduction for new claimants aged 22-5, a 51 per cent reduction for new claimants aged 18-21, together with a limit on sickness benefits to two years for new claimants. Furthermore, a single social assistance payment is to replace the different means-tested working-age, including some secondary and supplementary, payments as part of a more vigorous labour activation strategy that will involve work placement programmes, skill development, and internship programmes to ensure that unemployed people can make a rapid return to work. Finally, students were to contribute more from private funds to the costs of tertiary education. Universally provided child benefits have been continuously retrenched since 2009 in terms of lowered age thresholds, diminished coverage, and curtailed benefits (Considine and Dukelow, 2011). The Early Childcare Supplement (2007) (€83 per month for the child's first five years) was replaced by a new, non-cash scheme of subsidization of places in early childcare for 3-year-olds. The National Childcare Investment programme (2006), aimed at expanding the childcare infrastructure, was curtailed in 2010. The government also cut the unemployment assistance rate for young unemployed people unless they undertake training and education. In addition, the minimum wage was reduced by €1 to €7.65. The Irish government has decided to raise the minimum pension age to 66 years in 2014, 67 in 2021, and 68 in 2028. By 2011, some important new reform initiatives took hold. These concern (1) making the welfare system more active by linking income benefits and supportive services; and (2) a major overhaul of the system of training and further education. Irish policymakers believe that training and education are the primary routes back to work (NESC, 2011: 4).

In Britain, the public deficit stood at over 11 per cent of GDP in 2010 and public sector net debt (excluding financial interventions) was equivalent to only 58 per cent of GDP. Under the last New Labour government of Gordon Brown (2007-10), a 50 per cent tax band on incomes over ?150,000 was introduced for 2011, while working tax credits were frozen and the family element of the child tax credit from higher-income families was withdrawn. The coalition government (Conservatives and Liberal Democrats) led by David Cameron, that came to power after the elections of May 2010, a significant turn to the right after three consecutive (New) Labour governments, adopted a plan for ?20.3 billion spending cuts with significant regressive effects, as compared to the more progressive austerity measures taken by the outgoing New Labour government (Farnsworth, 2011). Proposed measures included an increase in the VAT tax of 2.5 per cent (to 20%) and a spending reduction of 25 per cent over the following four years for all civil service departments except health and overseas aid. Welfare spending was to be cut by ?11 billion (about €13 billion) over the following five years. Child benefits would be frozen, family tax credit reduced, housing benefits capped, medicals for disability benefits made stricter, and the increase of the state pension age from 65 to 66 accelerated (European Institute, 2010; United Kingdom Government, 2010). Savings of about ?100 billion were to be made over four years, which amounted to the largest public expenditure cut in the United Kingdom since World War II. Close to 500,000 public sector jobs are to be lost. It was predicted that a similar number of jobs will disappear in the private sector. Ministries face budget retrenchments of the order of 20 per cent on average, exempting the defence budget which is to be cut by 8 per cent. The largest cuts were to be imposed on local governments and much of the regional support measures to poor areas, introduced under Labour, were to be abolished. In terms of the composition of retrenchment, social protection and education were among the sectors hardest hit, profoundly altering the British welfare system. The cuts in social policies amount to over 30 per cent of the total, more than ?22 billion in the period 2010-14, with a particular effect on lower- income families, including unemployed and retired people. The UK Government cuts affected incapacity benefits, housing support, child benefits and tax credits, tax subsidies, and rebates to low-income households. The coalition was bent on introducing a Universal Credit to replace all other out-of-work benefits, thus merging in-work and means-tested out-of-work support, premised on much tougher rules on claimants, to reinforce work incentives (much like the RSA which replaced the RMI in France in 2009, but for much bigger numbers of claimants). New Labour already supported the principle of this reform, which it had itself been edging towards prior to the 2008 elections. Incapacity benefit claimants now face much stronger activation requirements. The new coalition government did hope to extend childcare for disadvantaged 2 year olds to support children from the lowest income households, also to facilitate women's access to employment opportunities. Access to the British higher-level education was confronted with an average increase in university fees of around 143 per cent. Going against the European trend of a greater role for taxation, the Cameron coalition decided to reduce corporate taxes from 28 per cent to 24 per cent.

The political reasoning behind welfare retrenchment of the Cameron cabinet in many ways harks back to the neoliberal critique of the welfare state of the Thatcher era. The argument is that the coalition has inherited a welfare system that has trapped the poorest families and children in welfare dependency cultures over three terms of Labour governments. The banner under which austerity has been justified is the 'Big Society' concept, encouraging individuals and families to rely less on the state and more on self-help and communal voluntarism (Farnsworth, 2011). Cuts in welfare services, public sector pay, and benefits are thus meant to 'free up' the Big Society in Britain. In distributive terms, it is estimated that poorest 10 per cent of the British will lose 5 per cent of their incomes between 2010 and 2015, compared with a loss of less than 1 per cent for the richest 10 per cent. Under the consolidation programmes of Labour, the richest 10 per cent of the population were to bear the bigger burden of adjustment. Where New Labour enacted real improvements in lessening child poverty through incremental social investment policies in childcare and ALMPs, the gap between rich and poor families, already among the highest across the European Union, is probably set to widen further as result of Cameron's austerity politics.