Loss, Cost, and Effort Involved in This Squeeze

As in previous chapters, Table 10.1 summarizes our assessment of the loss, cost, and effort associated with this squeeze episode. In this case we have not included the Brown Labour Government in the analysis since (unlike the Lloyd George coalition in 1922) it had not proceeded to implement any of its planned squeeze during its tenure; and we have also scored political costs separately for the Conservatives and Liberal Democrats since (again unlike the Lloyd George coalition) the two parties had campaigned on different manifestos in the preceding general election.

As we have seen, imposed losses in this episode were variable, hitting some non-median voters hard (such as the welfare benefit changes and the freeze on higher rate income tax thresholds), but much of those losses seem to fall into the 'moderate' category of Table 1.2 in Chapter One, as 'stealth taxes' outside the headline rates of income tax, or 'stealth' benefit changes such as the change in indexation of benefit payments. Moreover, far from non-fiscal austerity being added to the mix, monetary policy was far from restrained over this episode, with interest rates approaching zero, benefiting voters with mortgages while hitting savers.

There was much debate over who faced the greatest losses from this squeeze episode. Many of the government's opponents claimed the squeeze bore down hardest on the poor.17 Some, including Ed Miliband, the Labour leader,

Table 10.1. A qualitative classification of imposed loss, political cost, and state effort associated with 2010-15 fiscal squeeze

Low

Moderate

High

Overall classification

Conservatives/Liberal Democrats

Loss [3]

[1], [2]

[1]

Moderate

Cost (Cons) [4]

[1], [2], [3]

Moderate

Cost (Lib Dems) [4]

[2], [3]

[1]

High

Effort

[2], [3]

[1], [2]

High/Moderate

Note: Numbers in square brackets refer to categories in Table 1.2, ChapterOne.

'We are... punishing the poor for the bankers' errors... cuts are hitting the poor hardest' (Geraint Davies), HC Deb 20 March 2013, c.1017.

also argued that those in the middle of the income scale were squeezed, by measures such as extra means-testing of benefits and the freezing of the higher tax threshold. The incumbents claimed that after five years of squeeze, officially reported levels of inequality,[1] child poverty, and youth unemployment all showed decreases, while the share of income tax paid by the top 1 per cent of taxpayers rose from 25 per cent in 2010 to 27 per cent in 2015 (a higher proportion than had been achieved by the previous Labour Government in thirteen years), and by 2015 the lower-paid 50 per cent of taxpayers likewise paid a smaller proportion of income tax than they had done under the previous government.[2] Those asserting that fiscal squeeze had increased inequality tended to focus on pre- rather than post-tax inequality and on the relative share of total income taken by the top 1 per cent (rather than the top 10 or 20 per cent) which did increase after a sharp drop at the start of the recession, but had also done so since the 1970s, both in times of fiscal expansion and fiscal squeeze (Chu 2015).

As for political cost to incumbents, we have already noted that this case differs from the Liberal-Conservative coalition of the early 1920s in that, whereas the Lloyd George coalition campaigned on a common programme in the 1918 election, the Conservatives and Liberal Democrats campaigned under separate and different manifestos in 2010 and therefore the squeeze involved different political costs to them as incumbents, shown in separate entries in Table 10.1. Whereas for the Liberal Democrats the squeeze involved ditching black-letter manifesto promises, notably on student tuition fees (a high-cost move in our analysis in Chapter One), for the Conservatives it was more a case of unpopular measures not mentioned in their 2010 manifesto, notably the VAT hike and welfare cuts such as the 'bedroom tax'.

As for state effort, more was certainly required of the state machine in fiscal policy over this period than minor adaptation of established routines (for example, in wholesale changes to the benefit system and restructuring public sector pensions, something not undertaken even in the crises of 1931 or 1976). While the effort arguably fell well short of that involved in measures such as the development of a new system of mass income taxation in World War II, it seems to be at the upper levels, and so we class it as High to Moderate here.

  • [1] The UK's GINI index of post-tax inequality fell slightly over this episode (from 34.2 per cent in2008/09 to 32 per cent in 2014/15) and other official measures of inequality (such as the ratio of theincomes of the top 10 per cent as against the bottom 10 per cent) pointed to inequality flatliningrather than soaring.
  • [2] (George Osborne) HC Deb 18 March 2015, c.771.
 
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