Wednesday, 8 February 2012

Who Should Pay For The Deficit?

On 19th January, Ed Balls wrote to George Osborne, asking him 'to deliver the 1% average settlement cap in a fair way – being tougher to those at the top in order to offer more protection to those at the bottom'.
But what is 'fair' when it comes to setting a just progession of pay-cuts, or benefit-cuts or tax-increases?
This article argues that MPs on both sides do not adequately understand how incomes work, and that a 'fair' progression would take account, not of income, but of the concept of 'surplus ' income.

I have never, genuinely thank God, been at the bottom of the heap, but I do know what it is like to live long-term with insufficient money, and I will tell you what it’s like, and what it means for the government’s current austerity policies.

It’s about Disposable Income
The first thing you have to realise about income is that absolute income does not matter; it’s all about disposable income – the money you have in your pocket to spend on food and living AFTER you’ve met all your ‘unavoidables’ (the things wealthier people put on direct debit – rent/mortgage, gas, electricity, water, council tax, TV licence, insurance etc.).
Indeed, I have lived in a situation where there was barely enough to feed and clothe my family after deducting the ‘unavoidables’.
What MPs – none of whom are even close to being in such a situation – need to understand about living like that is that, for a while, it looks perfectly achieveable. I know how to feed a family of five nutritiously for four days on a decent-sized chicken. I know how to make viable logs from junk-mail and friends’ newspapers. You CAN cope (in my case with a lot of help from Fine Fare Yellow Pack).

The problems of not having enough
But the problems come long term. Because what you do is ‘make-things-do’. You keep wearing the same clothes, using the old washing machine. Particularly, living hand-to-mouth does not allow you to build any buffer against the unexpected. So when your shoes eventually go into a hole or the washing machine breaks down, you are scuppered – there is nowhere to draw sufficient funds for a replacement.
For this reason, living hand-to-mouth is MORE expensive than living with a sufficient income. Old boilers, old gas fires, run inefficiently and costly. The old car (where you cannot do without one – a situation faced by ANYONE who lives outside a town) needs repairing more often. And, since you have to buy all new white goods on the never-never, you’re continually paying off loans-with-interest.

Moreover, life hand-to-mouth is desperately depressing. You end up never going on holiday, cancelling the indulgences, always saying ‘No’. And those occasions when you do fall soft on yourself and buy in a takeaway or go to the seaside, carry a dreadful cost of weeks of penury, when you really do not have enough even to cover the basics.

The Tories – perhaps justifiably – say that ‘we’re all in this together’, and expect the poor to pay their part along with the rich. Doncaster Council recently proposed an across-the-board pay-cut of 4% to stave off job-cuts.
But what the (well-heeled) ‘high-ups’ who talk like this do not understand – because they have never lived hand-to-mouth – is that the people at the lower end of the income-scale DO NOT HAVE ANY disposable income to spare to meet that 4%, however small it is against their small income. They need every penny just for basic living.

As things get a little easier
As you grow older, as your career progresses, when you get a better job, it is true that your income does rise.
So is it perhaps fair to suggest that these people on slightly more should make a contribution towards paying off the deficit?

Well … you’ve got to be careful.
There are YEARS where, despite the increased income, there is still no increase in practical disposable income, still no space for ‘indulgences’.
Some of the extra goes in increased quality – e.g. you buy ice cream for the children’s desserts instead of multipack mousses, you buy a car that’s ‘up-to-the-job’ instead of the cheapest-on-the-market which is always breaking down.
You go through a long process of replacing things that had been allowed to slip – getting rid of the thin anorak for a decent fleece, replacing the carpet, buying a washing machine with an economy setting and a decent spin cycle etc.

‘Coming out’ of poverty is a different thing to being in poverty, but for a long time it doesn’t seem any different.
And what this means for our revenue-seeking politicians is that this class of people, also, need to be left alone, since any depredations upon their income will halt their slow haul out of poverty, and push them right back in.

The turning-point
There comes a point, however, when rising income means that ‘disposable’ income starts to include what I would term ‘surplus’ income.

To a degree, this happens automatically. That decent washing machine you have managed to buy lasts long enough for you to pay off the HP. You have enough in your pocket for groceries to buy economy packs, and to take advantage of special deals.
The bible was correct when it said that the rich get richer and the poor have the little even that they have taken from them.
Thus a major turning point in your life occurs when you have enough saved to be able to borrow from yourself when you need a new boiler, a new shower etc. – because then you do not need to pay any interest.

And the basic truth is that the underlying basics only cost so much. Yes you can buy a posher house with a bigger mortgage, run a flashier car, eat out, shop at M&S … but, ultimately, there is a finite amount you can spend on yourself. A rich person on £100,000 a year does not have their heating set to 100° where a person on £10,000 a year has it set at 10°; and his heating bill is not ten times as much.

And thus there comes a point where you begin, on a regular basis, to have money that you do not NEED to spend … you begin in your personal budget to run a surplus.
I am utterly unable to put a figure on that income, because it depends on your personal circumstances – how big your mortgage, how many children you have (and how old they are) etc.
All I can say is that, if you have passed the turning-point, you will know it, because life suddenly ceases to be a worry.

And the thing about that surplus is that, above that certain income, it is ALL surplus.
So – if for the sake of argument you find that for you the ‘turning-point’ is at £30,000, which suddenly gives you £100 a month surplus, to save, or spend on yourself, or give away if you want – any increase in income beyond that merely increases your surplus … to £500 a month at £35,000 and £2,600 a month at £60,000.
You suddenly feel very much richer, very quickly.

Can you see how – since we ALL need to meet the same-ish ‘unavoidables’ – a person living on £60,000 is not (for practical purposes) twice as wealthy as a person living on £30,000? In terms of ‘money-to-spare’ that person might be (to take our example) TWENTY-SIX times as wealthy.

Developing a ‘Fair’ cuts policy
The current annual salary for an MP is £65,738 – in addition to their allowances to cover the costs and travel. This puts them firmly in the ‘comfortable’ bracket, cocooned against all the limitations of living under the ‘turning-point’.
This applies to Labour MPs as well as Tory ones – in addition to the fact that very few of them come from a background where they have EVER known what it is like to live beneath the ‘turning point’.

If they had any idea of what life is really like ‘under the turning-point’, they would be proposing VERY different policies:
- on where we start the public sector pay freeze.
- on where we set the tax-thresholds.
- on the sectors of the population to which we look to pay the deficit.

It would be my opinion that – if we were to pay proper regard to ‘surplus’ income and the reality of ordinary people’s costs of life – we would be setting these various thresholds in very different places … and implementing a much steeper progression of charges above that.

To be fair to Doncaster Council, when
Mayor Peter Davies heard that Councillors were proposing a 4% across-the-board pay-cut, he stepped in and cancelled the proposal, which was revised instead to a 1% reduction for staff earning £14,733 to £14,999, 2% between £15,000 and £20,799 and 2.5% above £20,800.

My only comment would be that I would be very surprised if ANY of these people were above the ‘turning point’ and that even this – admittedly more progressive proposal – fails to take into account that, when it comes to your ability to withstand a cut, it is not your absolute income, nor even your ‘disposable’ income, but your SURPLUS income which determines how easily you can ‘ride’ the setback.

For, when they impose benefit cuts and a pay freeze on people with lower incomes, this government is asking for money from people who do not have surplus enough to give them any.
And – by contrast – they are asking far too little from people who have many multiple-times the ability to pay.

1 comment:

  1. Imagine what it's like to be at the bottom and be told your going to basically have to crawl, I'm losing more and more each year as I get poorer and poorer, boy it's hard to be disabled these days