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21 June 2010

How cuts will hit the poorest hardest

New research shows how the poorest areas of the country will suffer the greatest loss of income.

By George Eaton

In recent weeks Nick Clegg has attempted to reassure voters about the coming cuts by promising to deliver what he describes as “progressive austerity” and to prevent the emergence of a new north-south divide.

But new research by the Financial Times shows just how unrealistic and disingenuous this promise is. The analysis looked at how different regions of the country would be affected if social security benefits were reduced by 10 per cent and if public-sector areas, excluding health, were cut by 20 per cent.

It found that the poorest areas would be disproportionately hit on both measures. For instance, benefit cuts would make household income in west Wales and the Welsh valleys fall by 3.6 per cent, compared to a drop of less than 0.5 per cent in inner London. Areas such as Northern Ireland, the north of England and the south-west would suffer the greatest fall in income, while regions such as the Home Counties and London would suffer the least.

Given that public spending follows need, it is the poorest areas of the country which are most reliant on the state. It therefore follows that across-the-board spending cuts will hit them hardest. The Tory minister who, in a rare moment of honesty from this government, recently admitted that “those in greatest need ultimately bear the burden of paying off the debt” was spot on.

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The danger to the poor is magnified by the coalition’s decision to rely on spending cuts, rather than tax rises, to plug the deficit. The government’s deficit reduction plan envisages a 4:1 ratio of spending cuts to tax rises, rather than the 2:1 split favoured by Labour. By comparison, during the last big fiscal tightening undertaken by a Conservative government, Ken Clarke split the pain 50:50 between tax rises and spending cuts.

Targeted tax increases on middle- and high-income earners offer a progressive alternative to spending cuts of a size not seen in the postwar era. But those hoping that Clegg will make this argument around the cabinet table will be disappointed. In an interview with the Spectator before the election, he pledged to reduce the deficit through cuts alone, a position that put him to the right of David Cameron.

So it’s not that Clegg has been “turned” by the Tories — he was never a progressive to begin with.

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