To avoid further cuts, Osborne should raise taxes and reduce benefits

Rather than cutting over-stretched public services, the Chancellor should raise more from the wealthy through tax rises and cuts to universal benefits.

In the build-up to the Budget, most of the debate has been on the here and now, with the Chancellor being urged to boost growth through capital investment or temporary tax cuts. But this will also be a critical Budget for the medium term as George Osborne sets the public spending envelope for 2015/16 ahead of June’s spending review. There’s still time for him to avert another historic public spending mistake.

As part of the Fabian Society Commission on Future Spending Choices we analysed the impact of Osborne’s existing plans as implied by the 2012 Autumn Statement. On the basis of his current commitments to protect spending on the NHS, schools and international development, in 2015/16 we can expect another cut to unprotected public services of £5bn. The services affected include defence, police, social care and local government. Across unprotected departmental spending this would be a real-terms cut of 3.8 per cent compared to 2014/15.

The public services at risk have already been the worst hit by austerity and a further year of reductions would bring the total real cut to these areas since 2011/12 to £36bn or 22 per cent. It is surely unwise to plan further cuts to those budgets that have been hit the most already. Indeed, many areas will face significant pressures even if their budgets stand still in real terms, while an aggregate freeze would still mean cuts to many budgets to make space for growth in other priority areas.

The £5bn pounds required to prevent these further cuts could be found in four ways: cutting the NHS, schools and international development; slowing the pace of deficit reduction and increasing the stock of debt; further cuts to social security; or raising taxes.

Cutting spending on the NHS and schools is not attractive given the rising demand both of these areas face as a result of our ageing population and the new baby-boom. International development spending plans, meanwhile, are part of a long-term international commitment which has cross-party support.

Increasing debt to pay for everyday public service spending is also unattractive. On the current economic outlook, more debt-financed spending is needed but to stimulate the economy today through temporary stimulus and capital investment, not for ordinary government activity. Extra borrowing may also be required in the medium-term if economic growth comes in below the OBR’s previous projections, which are likely to be downgraded this week. But this would merely be to achieve George Osborne’s existing spending plans. Since a future government may well need to push its deficit reduction programme beyond 2017/18 simply because of the state of the economy, it would be unwise to plan for extra discretionary debt-funded spending too.

Instead, the £5bn to prevent further public service cuts should be found through tax rises and social security cuts for 2015/16. These changes should be pre-announced but only implemented if the economy has returned to growth by then (and there is nothing to stop this policy sitting alongside temporary tax cuts in the meantime).

Choices regarding tax and welfare changes should be taken together, since they are both financial transfers between citizens and government. Decisions should be made from the perspective of who has the greatest capacity to absorb changes. This means that any reforms should target the top half of the income distribution, who both have the broadest shoulders and have escaped lightly from austerity until now. There is also a case for increasing the burden placed on older people. Relatively speaking, retired households are lightly taxed and have not suffered welfare cuts to the extent of younger families.

In isolation the idea of up to £5bn of tax rises may appear alarming (it is equivalent to 1 per cent on VAT or income tax). But at present the brunt of deficit reduction is being born by public spending, not tax rises. On current plans, the chancellor is expecting to close the deficit through a combination of 85 per cent spending cuts and 15 per cent tax rises, compared to his original 2010 plan for 27 per cent to come through tax rises and Alistair Darling’s plans of 30 per cent.

So it’s time to shift the balance of deficit reduction away from public service cuts. The good news is that another year of public service cuts can be prevented at the ‘low’ cost of £5bn. The Chancellor should announce 2015/16 tax and benefit plans to generate this money from those who can bear the burden best.

Chancellor of the Exchequer George Osborne leaves 11 Downing Street on March 18, 2013 in London. Photograph: Getty Images.

Andrew Harrop is general secretary of the Fabian Society.

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Who will win in Copeland? The Labour heartland hangs in the balance

The knife-edge by-election could end 82 years of Labour rule on the West Cumbrian coast.

Fine, relentless drizzle shrouds Whitehaven, a harbour town exposed on the outer edge of Copeland, West Cumbria. It is the most populous part of the coastal north-western constituency, which takes in everything from this old fishing port to Sellafield nuclear power station to England’s tallest mountain Scafell Pike. Sprawling and remote, it protrudes from the heart of the Lake District out into the Irish Sea.

Billy, a 72-year-old Whitehaven resident, is out for a morning walk along the marina with two friends, his woolly-hatted head held high against the whipping rain. He worked down the pit at the Haig Colliery for 27 years until it closed, and now works at Sellafield on contract, where he’s been since the age of 42.

“Whatever happens, a change has got to happen,” he says, hands stuffed into the pockets of his thick fleece. “If I do vote, the Bootle lass talks well for the Tories. They’re the favourites. If me mam heard me saying this now, she’d have battered us!” he laughs. “We were a big Labour family. But their vote has gone. Jeremy Corbyn – what is he?”

The Conservatives have their sights on traditional Labour voters like Billy, who have been returning Labour MPs for 82 years, to make the first government gain in a by-election since 1982.

Copeland has become increasingly marginal, held with just 2,564 votes by former frontbencher Jamie Reed, who resigned from Parliament last December to take a job at the nuclear plant. He triggered a by-election now regarded by all sides as too close to call. “I wouldn’t put a penny on it,” is how one local activist sums up the mood.

There are 10,000 people employed at the Sellafield site, and 21,000 jobs are promised for nearby Moorside – a project to build Europe’s largest nuclear power station now thrown into doubt, with Japanese company Toshiba likely to pull out.

Tories believe Jeremy Corbyn’s stance on nuclear power (he limply conceded it could be part of the “energy mix” recently, but his long prevarication betrayed his scepticism) and opposition to Trident, which is hosted in the neighbouring constituency of Barrow-in-Furness, could put off local employees who usually stick to Labour.

But it’s not that simple. The constituency may rely on nuclear for jobs, but I found a notable lack of affection for the industry. While most see the employment benefits, there is less enthusiasm for Sellafield being part of their home’s identity – particularly in Whitehaven, which houses the majority of employees in the constituency. Also, unions representing Sellafield workers have been in a dispute for months with ministers over pension cut plans.

“I worked at Sellafield for 30 years, and I’m against it,” growls Fred, Billy’s friend, a retiree of the same age who also used to work at the colliery. “Can you see nuclear power as safer than coal?” he asks, wild wiry eyebrows raised. “I’m a pit man; there was just nowhere else to work [when the colliery closed]. The pension scheme used to be second-to-none, now they’re trying to cut it, changing the terms.”

Derek Bone, a 51-year-old who has been a storeman at the plant for 15 years, is equally unconvinced. I meet him walking his dog along the seafront. “This county, Cumbria, Copeland, has always been a nuclear area – whether we like it or don’t,” he says, over the impatient barks of his Yorkshire terrier Milo. “But people say it’s only to do with Copeland. It ain’t. It employs a lot of people in the UK, outside the county – then they’re spending the money back where they’re from, not here.”

Such views might be just enough of a buffer against the damage caused by Corbyn’s nuclear reluctance. But the problem for Labour is that neither Fred nor Derek are particularly bothered about the result. While awareness of the by-election is high, many tell me that they won’t be voting this time. “Jeremy Corbyn says he’s against it [nuclear], now he’s not, and he could change his mind – I don’t believe any of them,” says Malcolm Campbell, a 55-year-old lorry driver who is part of the nuclear supply chain.

Also worrying for Labour is the deprivation in Copeland. Everyone I speak to complains about poor infrastructure, shoddy roads, derelict buildings, and lack of investment. This could punish the party that has been in power locally for so long.

The Tory candidate Trudy Harrison, who grew up in the coastal village of Seascale and now lives in Bootle, at the southern end of the constituency, claims local Labour rule has been ineffective. “We’re isolated, we’re remote, we’ve been forgotten and ignored by Labour for far too long,” she says.

I meet her in the town of Millom, at the southern tip of the constituency – the opposite end to Whitehaven. It centres on a small market square dominated by a smart 19th-century town hall with a mint-green domed clock tower. This is good Tory door-knocking territory; Millom has a Conservative-led town council.

While Harrison’s Labour opponents are relying on their legacy vote to turn out, Harrison is hoping that the same people think it’s time for a change, and can be combined with the existing Tory vote in places like Millom. “After 82 years of Labour rule, this is a huge ask,” she admits.

Another challenge for Harrison is the threat to services at Whitehaven’s West Cumberland Hospital. It has been proposed for a downgrade, which would mean those seeking urgent care – including children, stroke sufferers, and those in need of major trauma treatment and maternity care beyond midwifery – would have to travel the 40-mile journey to Carlisle on the notoriously bad A595 road.

Labour is blaming this on Conservative cuts to health spending, and indeed, Theresa May dodged calls to rescue the hospital in her campaign visit last week. “The Lady’s Not For Talking,” was one local paper front page. It also helps that Labour’s candidate, Gillian Troughton, is a St John Ambulance driver, who has driven the dangerous journey on a blue light.

“Seeing the health service having services taken away in the name of centralisation and saving money is just heart-breaking,” she tells me. “People are genuinely frightened . . . If we have a Tory MP, that essentially gives them the green light to say ‘this is OK’.”

But Harrison believes she would be best-placed to reverse the hospital downgrade. “[I] will have the ear of government,” she insists. “I stand the very best chance of making sure we save those essential services.”

Voters are concerned about the hospital, but divided on the idea that a Tory MP would have more power to save it.

“What the Conservatives are doing with the hospitals is disgusting,” a 44-year-old carer from Copeland’s second most-populated town of Egremont tells me. Her partner, Shaun Grant, who works as a labourer, agrees. “You have to travel to Carlisle – it could take one hour 40 minutes; the road is unpredictable.” They will both vote Labour.

Ken, a Conservative voter, counters: “People will lose their lives over it – we need someone in the circle, who can influence the government, to change it. I think the government would reward us for voting Tory.”

Fog engulfs the jagged coastline and rolling hills of Copeland as the sun begins to set on Sunday evening. But for most voters and campaigners here, the dense grey horizon is far clearer than what the result will be after going to the polls on Thursday.

Anoosh Chakelian is senior writer at the New Statesman.