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Austerity Isn’t Working.

‘What you call austerity is what I might call efficiency” – David Cameron MP, 2012

The double-dip recession was never meant to happen.  Austerity was supposed to be the tonic to the gratuitous wastage of the Labour years, a tightening of belts and a brisk wake-up call before a positive recovery.

What has emerged is an altogether bleaker picture.  Unemployment is up to 7.9%.  The deficit is double what it was in 2005.  Living standards have fallen 13% since the recession began.  The light, supposed to be at the end of the tunnel, is nowhere to be seen.

Austerity is inevitable, so the story goes.  The United Kingdom is hardly alone in being in financial dire straits.  Osborne has claimed that austerity measures will continue until at least 2018, while Cameron has gone on record to confirm that there will be no change to the current austerity plans, despite the International Monetary Fund’s assertion that it might lose the UK up to £76 billion by 2015.

Fiscal responsibility might be the order of the day but it has serious social repercussions.  Our current free market system is based upon the idea that it allows for a meritocracy, the ability for every person to reach their full potential, should they work hard enough.  This has never been a level playing field but, largely thanks to the recession, it has become more and more imbalanced.

There is a serious disparity in national wealth, which has become more accentuated in recent years.  Currently, the highest 10% of earners hold 31% of the national wealth, while the lowest 10% share just 1%.  What’s more, 65% of all households now take home an income below the national average.

Income inequality is inevitable within a capitalist, free market system, but the current figures are disturbing. The prevailing trend in the last twenty years is that the gap is widening:  the very lowest earners are losing out while the very rich have made inordinate profits and continue to make a killing despite the recession.

In 1992, the 1st percentile of earners (the very poorest) took home only £3,600, a figure that by 2010 had almost doubled to £6,740.  This seems reasonable until compared to the 99th percentile (the very richest), whose average incomes have soared from £45,300 to £105,000.  The message is abundantly clear.  The poorest are no better off in real terms, while the rich have made hay.

There are no easy solutions to resolving the economic divide.  It would be easy to take a populist stance like that of French President François Hollande, who made the implementation of a 75% tax rate on the highest earners one of his key electoral promises.  There are a couple of good reasons why this is a bad idea for the United Kingdom.  A large part of the UK’s appeal to investors is that London remains the pre-eminent financial and business capital in Europe.  Replacing the 50% tax with one much harsher would have a couple of disastrous effects on big businesses.

Firstly, it would weaken the capital’s attractiveness at a time when it is competing with the likes of Germany and the European markets; a bad move as far as the economy is concerned.  Secondly, those affected are likely to simply award themselves higher wages and bonuses to compensate for higher taxation.  We might get a little more into the Government coffers but a stagnation of wages elsewhere in companies is likely as a result.

There are some other changes that could be made that would be of inordinate benefit to low earners.  A rise of the minimum wage, taking into account the necessary ‘living wage’ based on the economic realities of a region, would help low earners struggling to make ends meet. Likewise, capped public transport fares would make taking the train or bus to work every day an affordable option once more for many.

Just as important is the question of wage imbalance within companies. The wage ratio between an executive board member and an average worker has gone from 10:1 in 1960 to 200:1 in 2012.  Labour MP Micheal Meacher has put forward a proposal for democratising corporate remuneration committees, which would see representatives from all levels of a company cross-examining wages across the board.  This would result in a much fairer distribution of wages, as well as improving transparency in an area of business in which it is long overdue.  That this is an idealist proposal that would be very difficult to implement in reality does not mean that it is not without merit.

When it comes to unemployment, what has become apparent during the recession is that geographical location has a huge effect on employment prospects.  In 2005 only parts of Birmingham and north London had unemployment rates over 6.5%.  Fast forward seven years and the picture starts to resemble something out of the 1980s: alongside Tottenham and Birmingham sit Leeds, Hull, Bradford, Middlesbrough, Liverpool and Nottingham, all of them with areas where unemployment has topped 8%.  Bar Tottenham, all of them are in the Midlands or the North.

With the predominance of London as the heart of the British economy, a position only exacerbated by the Olympic and Paralympic Games, there are simply not enough development opportunities in regional cities to provide enough jobs to go around.  There is unlikely to be another building boom in the near future, while Britain’s manufacturing years seem to be long behind us.  What is needed is more development outside of London; this simply isn’t happening at the moment.

High unemployment is something that cannot be solved overnight.  That said, there are things that could be addressed that could lead to a fairer deal.  Whether the Government would be prepared to sacrifice short-term gain for a ‘New Deal’ for the United Kingdom, looking to help the poorest get back on their feet at a time when they need it most, is unfortunately a question to which the answer is likely to be no.

Social welfare has never been high on the Conservative agenda and a sea change in opinion is simply not going to happen.  Cameron may call it efficiency; most people living below the poverty line in the UK at the moment would almost certainly disagree. 

Ben McCabe

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