Thursday, 7 August 2014

Neoliberalism and the public ownership of living standards


Andrew Fisher on how neoliberalism's failure to deliver decent wages has meant increasing public subsidy

Neoliberalism is currently at war with last remaining vestiges of social democracy. The tension arises from the disinterest of neoliberalism in providing decent incomes for people. Social democracy has systems to reduce poverty and inequality.

Neoliberalism is also deeply opposed to workers' rights and trade union power. We see this expressed in the recently announced policies of the Conservative Party (neoliberalism's preferred vassal) for further restricting trade union law, already the most restrictive in Europe. Likewise we see the Conservative-led government attacking workers' access to employment tribunals, cutting health and safety regulations and the resources to enforce them. This is all to remove the burdens on business.

At the same time public sector workers have been subject to a two year pay freeze, and now a seemingly unending 1% pay cap which will continue into the next Parliament.

Private sector employers are restricting wages too, with pay levels increasing below inflation across the economy. As we've written before, this means we all need a pay rise. Average household incomes are down 8.5% in real terms since 2009/10.

To the neoliberal, workers are a cost and costs should be reduced. In mainstream economic textbooks, the theory is that this is due to the pressure of competition to provide the best price to the consumer. The reality is a little more complicated, and is as much about maximising profit margins, rate of return to shareholders and executives' pay and bonuses.

To the capitalist workers' falling incomes - for over three decades as a share of national income, and in the last decade in real terms too - is an externality. An increasing share of their pay has been passed (externalised) to the state, to guarantee decent living standards.

Earlier this week, Labour's shadow work and pensions secretary Rachel Reeves highlighted how much low wages are being subsidised by housing benefit payments. As Joe Halewood points out the number of working households claiming housing benefit has risen from 430,162 in November 2008 to 1,036,816 in November 2013. Housing benefit payments to working households have increased from £2.2 billion in 2009/10 to £4.6 billion this year and to a projected £6 billion in 2018-19 - which Reeves points out amounts to an additional £12.9 billion between 2010-2018.

As the graph below (via Daily Mirror) shows this is part of a long term trend that has seen wages fail to keep up with housing costs, and housing benefit filling the widening gap.


But housing benefit is only part of the story (and one we've written about extensively, here and here). The rising bill for tax credits also testifies that wages are failing to meet living costs.

There are now 5 million workers in the UK earning less than the living wage (£7.65 per hour across the UK, £8.80 in London). This gap is filled by tax credits too. From the mid-2000s spending on tax credits has been rising at around 8% a year - way above inflation or GDP growth - and now stands at around £30 billion a year.
Data from Budget 2013 (forecast data for 2013/14 onwards)
The increases have tailed off in recent years due to reduced eligibility criteria imposed by the coalition government and the 1% cap on increases. The gap this has meant rising poverty and increased food bank use.

However Reeves claims with regard to tax credit expenditure, "over the next Parliament the cost is set to rise by an astonishing £2.5 billion", according to government figures (see full text of Reeves' speech here).

So is this a recovery based on the dynamism of the British economy, entrepreneurial spirit or ever increasing public subsidy?

This government demonises those on benefits - and under Iain Duncan Smith's over-budget and behind-schedule Universal Credit even working benefit claimants will be subject to conditionality to increase their incomes, or potentially face sanctions.

But this government can't have it both ways - it demonises those on benefits and laments rising welfare expenditure, yet has a policy of suppressing wages that directly fuels rising welfare spending.

Many people would argue its time to re-privatise wages, by setting the minimum wage at the level of the living wage or, as the BFAWU will put to this year's TUC Congress, at £10 per hour.

The battle is clear: rising poverty with a public subsidy only partially mitigating it, or you take on neoliberalism. That should be #TheChoice at the general election.

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