A volunteers sorts through donations of food at the Hammersmith and Fulham food bank run by the Trussell Trust. Photograph: Getty Images.
Show Hide image

Leader: The wealth and poverty of our nation

Social ills that were thought to have been eradicated by modern capitalism are returning. But none of this is inevitable. 

By at least one measure, the United Kingdom has never been better off. GDP is 3.4 per cent above its pre-recession peak, owing to statistical revisions and a year in which the economy grew faster than that of any other G7 country. But rarely has the disparity between the wealth of the nation and the wealth of its citizens been greater.

Social ills that were thought to have been eradicated by modern capitalism are recrudescing. The number of people reliant on food banks to avoid hunger has reached more than a million. There are 60,940 households living in temporary accommodation because of homelessness. And, for the first time, the number of working families living in poverty has outstripped the number of workless and retired ones doing so.

In a 1933 radio debate on the austerity that followed the Great Depression, John Maynard Keynes declared: “Look after unemployment and the Budget will look after itself.” By this, the great economist meant that the government would be wiser to stimulate job creation – and reap the tax receipts that result – than to cut spending in an attempt to reduce debt. Unemployment fell faster in 2014 than any major forecaster expected (from 7.6 per cent to 6.0 per cent) and employment rose to a near-record level of 73 per cent. But the Budget has not looked after itself. The deficit so far this financial year is 6 per cent higher than in 2013-14. Borrowing has failed to fall because work is no longer a guarantee of an adequate standard of living and, therefore, of rising tax revenues.

Rather than the mass unemployment of the 1930s, the UK today faces a crisis of mass underemployment. There are over 1.3 million people working part-time because they cannot find full-time work, with many of the 4.52 million classified as self-employed also lacking the hours they need. In his 1930 essay “Economic Possibilities for Our Grandchildren”, Keynes sought to counter the pessimism of the time by predicting that rising living standards and technological advancements would enable individuals to devote ever less time to their labour. “For the first time since his creation,” he wrote, “man will be faced with his real, his permanent problem – how to use his freedom from pressing economic cares, how to occupy the leisure, which science and compound interest will have won for him, to live wisely and agreeably and well.”

Many are indeed working the short hours that Keynes prophesied but are never free from “pressing economic cares”. Others can meet their needs only by working longer than almost any of their western counterparts. Too many have time for leisure but no money for it, while others have money but no time.

These are some of the defining economic problems confronting Britain. For George Osborne, however, it is the deficit that demands attention above all. The Chancellor has made it his mission, if the Conservatives win the general election, to achieve an overall Budget surplus by the end of the next parliament. He has pledged to do so without further tax rises, including on the wealthiest, a commitment that entails what the Institute for Fiscal Studies has described as “colossal” cuts to public spending. Reductions of this size would shrink the state to its lowest level as a share of GDP since the 1930s, resulting in a profound shift in its duties and responsibilities. The safety net for the poorest would be eroded as welfare benefits were frozen in real terms, offering those on low incomes no protection against inflation. Britain would become a less just and an even more unequal society.

However, there is nothing inevitable about this path. The deficit can be reduced over time through a combination of judicious spending cuts, progressive tax rises and economic growth. Rather than ideologically pursuing a Budget surplus, the state should borrow to invest in pro-growth areas that support lasting prosperity, such as infrastructure, skills, job creation and childcare. It should focus on prevention rather than cure, by switching spending from housing benefit to housebuilding and by incentivising the use of the living wage, rather than subsidising poverty wages. If the short-term costs are higher, so are the long-term savings. To end the avoidable misery of poverty and to create the conditions for human flourishing, Britain must follow this alternative path.

We wish all our readers the very best for 2015. 

This article first appeared in the 19 December 2014 issue of the New Statesman, Christmas Issue 2014

Photo: Getty
Show Hide image

Cabinet audit: what does the appointment of Liam Fox as International Trade Secretary mean for policy?

The political and policy-based implications of the new Secretary of State for International Trade.

Only Nixon, it is said, could have gone to China. Only a politician with the impeccable Commie-bashing credentials of the 37th President had the political capital necessary to strike a deal with the People’s Republic of China.

Theresa May’s great hope is that only Liam Fox, the newly-installed Secretary of State for International Trade, has the Euro-bashing credentials to break the news to the Brexiteers that a deal between a post-Leave United Kingdom and China might be somewhat harder to negotiate than Vote Leave suggested.

The biggest item on the agenda: striking a deal that allows Britain to stay in the single market. Elsewhere, Fox should use his political capital with the Conservative right to wait longer to sign deals than a Remainer would have to, to avoid the United Kingdom being caught in a series of bad deals. 

Stephen Bush is special correspondent at the New Statesman. He usually writes about politics.