SISJ Lecture 5 PDF

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SISJ Lecture 5-The Welfare State in an age of Austerity...

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SISJ Lecture 5-The Welfare State in an age of Austerity 25/10/17

The Thatcher Legacy Economic priorities over social goals Affordability of collective/ universal provision No resort to income tax to fund public services Welfare state= last resort Welfare dependency= morally weakening Promotion of the market and private provision New Labour Government from 1997- the influence of the Thatcher legacy 18 years in opposition-fitness to govern Parliamentary majority of 179 “The Third Way”- capitalism can be managed Public services inefficient& need “modernisation & reform” Promote competition between providers Deregulation of financial sector “A transformation of social democracy into a variant of free market neo-liberalism” The New Labour Government from 1997-different policies The inheritance of the Thatcher era Policy objective of full employment Reduce youth unemployment= priority National minimum wage Commit to get rid of child poverty

Then…the crisis in 2008 Causes: Roots in the deregulation of the financial markets in 70’s & 80’s Demutualisation of many building societies Credit liberalised-easier to borrow, massive expansion of debt especially mortgage debt Property values rose Loans more than the face value of the property & 6/7 times borrower’s income Banks then started to sell off their debt to make more money and export risk Oil prices rose Rising unemployment began to lead to mortgage defaults Banks got nervous and stopped lending to each other Impact on business: Large fall in house building & sales-allied businesses went bust- e.g. Estate Agents/construction Collapse of retail sales related to house buying Many big retail names go out of business e.g Woolworths Growth & investment grind to a halt with loss of ability to borrow

Impact on jobs: Unemployment rose to 3 million Life time earning losses for graduates Long term damage to future job prospects Impact on people’s lives: Average household income fell Living standards for low income earners lowered Increase in health and wellbeing problems More social problems e.g divorce Fall in real value of benefits Decline in ability to buy houses Inequality in the impact of people of the recession: Greater impact on low income groups Greater impact on women, ethnic minorities, younger & older workers, and disabled people People in poverty (20% of population) bear 36% of the total cuts-twice as much as average Impact on Government: Firms make less profit, therefore government receive lower corporation tax Workers receive lower income, therefore government receive lower income tax Lower house prices, and fewer housing transactions – lower income especially from stamp duty Lower consumer spend, leads to lower VAT payments Massive drop in tax income- creating large gap between income & spend-the start of “the deficit”! Policy responses by gov, 2007-2010: Massive bailout of the banks Many banks in the UK bailed out or fully or partly nationalised Interest rates cut to 5% to encourage investment & consumption Temporary cut in VAT to encourage consumption Keynesian economics at work: Recessions a function of low demand Discourage saving and encourage spending Governments should borrow to stimulate demand Government manages the economy to re-start growth & get tax income going again General election 2010: Conservative/Liberal Democrat coalition Significant change of policy Financial crisis redefined as a problem about spending and debt A return to Neo-Liberal economics A return to Neo-Liberal solutions: Cuts in public spending Reduction of public debt Public sector pay freeze Increase in indirect taxation e.g VAT Privatisation of the Royal Mail Group

Are there alternatives to cutting public spending? Tackle personal & corporate tax avoidance Introduce a 50% basic rate of income tax for incomes above £100,000 Uncap National Insurance contributions to be paid at 11% all the way up the income scale Introduce a Financial transaction tax applicable to all financial transactions (@ 0.1%) Restructure the 8 bands of council tax to increase the ratio between the poorest & richest...