Sacrificing the young on the altar of austerity? - RSA

Blog: Sacrificing the young on the altar of austerity


  • Economics and Finance
  • Communities
  • Social justice

In the Chancellor’s latest budget, the programme of cuts implemented by the coalition government received a new impetus, with young people particularly affected by changes to tax credits, housing benefit, the benefits cap, and student maintenance grants. In pursuing this course, the government is mistakenly prioritising market confidence over the confidence of future generations in the social contract.

Reports on the damaging consequences of the cuts continue to abound, with most recently the FT describing a local government infrastructure ‘scrambling to cope with George Osborne’s austerity drive’. Local authority budgets have been cut by £18bn in real terms since 2010, equivalent to a fifth of their spending. While some of the reductions have been absorbed through cost-saving innovations and efficiency improvements, the magnitude of the cuts has forced many councils to reduce the quality and quantity of service provision.

The young are amongst the hardest hit. Child protection spending has been slashed by 8 per cent, so that children’s social work departments have seen their funds cut by an average of £600 per referred child as referrals increase in number. A law banning the lodging of children in bed-and breakfasts or hostels for over six weeks was broken 701 times in 2014, a sevenfold increase on 2009, as struggling councils attempted to improvise in their response to the UK’s housing crisis.

British austerity’s apparent targeting of young people is further confirmed by several of the measures introduced in the July budget, including the scrapping of student maintenance grants (adding to the US-style educational debt burden that began with the tripling of fees in 2010), the withdrawal of housing benefit for under-25s, and the loss of tax credits for families with more than two children. The announced plans to reduce the benefit cap are projected to affect up to 330,000 children in low-income families, while ‘59% of the caseload are estimated to be female lone parents’ according to an official government assessment.

The narrative used to justify such policies is by now well established; the mess caused by the irresponsible spending of previous governments needs to be cleaned up, lest Britain end up like Greece (never mind that current government debt is largely the result of an emergency bailout of the financial-sector). Furthermore, while the government is keen defend its tough choices with references to booming UK growth and employment, the facts suggest that the recovery would have started earlier and been stronger if fiscal stimulus rather than contraction had been the name of the game.

In truth, there is no real reason to believe that recent positive developments in UK economic growth and job creation are thanks to reductions in state spending. The Treasury has repeatedly justified its spending policies with reference to the markets that would take fright if the UK were to appear fiscally irresponsible – in other words we would become another Greece.

What this argument completely overlooks is the fact that the UK retains control over monetary policy via an independent central bank – a luxury not accorded to the Greeks. The sudden spikes in bond yields that contributed to Greece’s current insolvency are unlikely when a central bank can credibly commit to purchasing government bonds en masse – exactly what the Bank of England has been doing through Quantitative Easing.

Instead of markets reacting positively to the ‘consolidation’ of UK public finances – UK national debt has increased by 40 per cent since 2010, while the deficit at 4.8 per cent of GDP is six times that of Greece – UK growth is better explained by a strong recovery in the US, capital flight from an ailing Europe, and a sharp fall in the price of oil. While reducing the national debt and the interest payments that crowd out public spending is a prudent objective, the UK, with its own currency and central bank, and borrowing rates at historic lows, could reduce its debt at a much more gradual pace (and with less human suffering) without having to fear catastrophic consequences.

So government spending is being cut with far more urgency than is justified by economic logic - but unfortunately the consequences of such misguided policies go beyond mere theoretical disagreement. While (to use a term coined by Paul Krugman) the ‘confidence fairy’ of market expectations does not back up the austerity-growth narrative (indeed, business confidence declined rapidly until tightening was eased in 2013), austerity policies as they are being implemented threaten to erode a far more important type of confidence - that of confidence in the social contract, and in the state’s commitment to guaranteeing equal opportunity and providing support in hard times to all citizens.

Earlier I emphasised the austerity measures in the recent budget that will be borne by the youngest in British society. Whether by design or not, policies that make it more difficult to get ahead in life, such as making it more costly to attend university, or withdrawing housing benefit for those starting out on low salaries, put at risk the educational achievements and earnings capacity of future generations. Cuts to child protection, ceilings on tax credits for multiple children and increased benefit caps will be felt even earlier in the lives of underprivileged young people, setting them on a trajectory of poverty and underdevelopment that will severely hinder their long-term prospects.

These policies will make individual success even more dependent on family wealth than is currently the case, and create resentment amongst those not born into privileged circumstances. Later in their lives, having had to get by without public support in difficult circumstances, these (once young) people are less likely to support the idea of a welfare state and the taxes necessary to sustain it, having not benefited from it themselves. The potential here for a reinforcing spiral of weak civic commitment and continued reductions in state spending is clear to see.

If we are serious about providing the UK with a strong basis for high productivity, high skilled growth, we should be treating the country’s young as a precious resource to be cultivated, not withdrawing their support to satisfy flawed economic arguments.

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