Sep 212012

The Austerity War and the impoverishment of disabled people

Chris Edwards[1], 3 September, 2012


 Executive summary

1. The aims of the study

2. Disabled people in the UK – who are they and what are their incomes?

3. The effects of the Austerity Package on income groups  

4. Are disabled people suffering greater losses than non-disabled people within each income group?

5.  The financial crisis of 2007/08 and ensuing depression

6. The public sector deficit, the 2010 General Election and the Coalition Government

7. The Austerity Package announcements

8. The components of the Austerity Package

9. The Austerity Package causes recession

10. The Austerity Package is not even cutting the deficit  

11. But there are alternatives    

12. Are we all in this together? The hypocrisy of the Coalition Government

13. The cuts are counter-productive

14. The Austerity War and the need for action

Appendix 1 The Austerity Package – the planned cuts

Appendix 2 The cuts in disability benefits and the job prospects for disabled people



But today we have involved ourselves in a colossal muddle, having blundered in the control of a delicate machine, the working of which we do not understand, The result is that our possibilities of wealth may run to waste for a time – perhaps for a long time”  (Keynes, 1930)

 Executive summary

Sections 1 and 2

  • This report studies the effects of the Austerity Package of the Coalition Government on disabled people
  • The government has refused to do such a study, that is to estimate the cumulative impact of the cuts on disabled people, claiming that it is too complex
  • This study has been carried out by me, an economist who was not initially familiar with the statistical sources. Imagine what a team of specialists from the Treasury or Department for Work and Pensions could have done!
  • But the fact that I have done such a study shows that the government was afraid that it would show that those households receiving disability benefits are suffering much greater losses in income and benefits-in-kind as a result of the Austerity Package than households in general
  • People with impairments should have a higher income to enable them to play an active and fulfilling role in society and to prevent them from being disabled. Instead the official statistics show that households where someone is disabled are poorer on average than households where no-one is disabled, and this 16% gap is greater in the UK than the 12% gap in the rich, OECD countries as a whole
  • More households where someone is disabled are living in poverty (with an income less than 60% of the social median) than households where no-one is disabled   

Sections 3 and 4 and appendices 1 and 2

  • The Austerity Package analysed here consists of  cuts in cash benefits, increases in taxes (most notably VAT) and cuts in benefits-in-kind (cuts in local government , education, health and other Departmental Expenditure) amounting tom £69 billion over the four years from 2011-12 through 2014-15. The government has announced further cuts of £25 billion in the two years 2015-16 and 2016-17 but has not yet given the details. And so this report looks at the £69 billion of cuts planned through to April 2015, the last month of the next General Election  
  • This has been a depressing study for me to carry out because the biggest burden by far of the Austerity Package falls on the poorest households. The estimated loss for the poorest fifth of households amounts to £2,600 over the four years which, as a percentage of their initial cash income plus benefits-in-kind is 10%. This percentage loss is two and a half times as big as the loss on the richest fifth of households. So to say, as the government has, that ‘we are all in this together’ is a lie   
  • Far from being all in it together, the government has not discouraged lies in the tabloid press about disabled people being fit to work but who avoid doing so. The result is that disability hate crimes have reported to a have reached a record high in England and Wales in recent months.
  • It is true that fewer disabled people of working age are working than non-disabled people. But survey after survey shows that disabled people want to work more but can’t get the jobs and it is the lack of jobs that cause disability rather than the reverse. And it needs to be repeated time and again that disability benefit fraud is tiny. Official errors and unclaimed benefits are both higher.     
  • Cuts in disability benefits were announced in 2010 and were reinforced by the Welfare Reform Act which the government forced through the House of Lords in 2012. The government is notoriously re-assessing disabled people for work through the Work Capability Assessment (WCA). This and the French company, ATOS, running it under a £500 million contract have been strongly criticised by independent experts. Two recent TV programmes both found that the WCA was declaring people fit to work who clearly were not fit to work and it has been reported that the appeals system is gridlocked with 40% of appeals by claimants succeeding.
  • The cuts to disability benefits are estimated to total £9 billion over the four years, about a third of the total paid in 2009-10. This means that the poorest  fifth of the 2.7 million households receiving disability benefits will lose 16% of their cash income plus benefits-in-kind over the four years. This percentage loss is four times as big as the loss for the richest fifth of households

Sections 5 to 10

  • What is even worse is that the Austerity Package is not working. In the Great Depression of the 1930s, it took five years for national output to get back to pre-recession levels. The Coalition Government is mis-managing an economy where national output is likely to take eight years to get back to the level of 2007.
  • The Austerity Package is taking government consumption out of the economy at a time when personal consumption is flatlining as the private sector attempts to cut its accumulated debt. To cut government expenditure at such a time is the politics of the madhouse as Paul Krugman has argued in this recent book, End this Depression Now.
  • The government has been throwing money at the problem through Quantitative Easing (QE) but no-one is spending it on goods and services. It may have pushed up the prices of shares and bonds and property but it of little use in stimulating output. According to the Bank of England, 40% of the gains from QE have accrued to the richest 5% of households.
  • Since the financial crisis of 2007-08, the British government has channelled £1.2 trillion to the financial sector in the form of bailouts, loans and guarantees and yet the economy continues to stagnate. This is the madness of King (as Governor of the Bank of England) and George (Osborne, as Chancellor of the Exchequer)
  • It is clear that the Labour Governments of Blair and Brown were incompetent in not regulating the banking sector. But the accusation that Labour let spending run out of control before the recession to not stack up. The deficit grew rapidly because of the banking crash and expenditures undertaken to counter the recession.
  • The stated aim of the Coalition government when it came to power in 2010 was to eliminate the budget deficit (11% of GDP in 2009) by 2015. For from doing so, the underlying budget deficit was higher in the first half of 2012 than in the first half of 2011. In July 2012, David Cameron was reported as saying that “I don’t see a time when difficult spending choices are going to go away”
  • The annual cost of the Austerity Package in terms of lost output is running at about £250 billion or almost £10,000 per household  

Sections 11 to 14

  • But there are alternatives to the Austerity Package which are set out in section 11. Broadly these consist of taxing the rich more heavily and introducing a financial transactions tax and spending half the proceeds.  At present the richest fifth of households pay less tax than the poorest fifth so taxing the rich would be equitable. It would also be efficient since it would close the deficit while stimulating demand since at the margin the rich spend little on domestic goods and services.
  • The government says that ‘we are all in this together’. At present, this is clearly nonsense. The poorest sections of society and in particular disabled people are bearing the biggest burden of the cuts
  • This is a government of the rich (mostly men) serving the (short-term) interests of the rich. The fees for the private schools attended by many if not most members of the Cabinet are greater than the average annual income of UK households.
  • The Manifesto of the Conservative Party for the 2010 election promised no cut in the disability allowance. In 2002, Iain Duncan Smith, then then leader of the Conservative party sought to rebrand the Tories as the party for the vulnerable. He is now the Coalition’s Work and Pensions Secretary and it is under his watch that the cuts in disability benefits are taking place.      
  • The Austerity Package is an Austerity War and leading to the impoverishment of disabled people. All the advances that disabled people have made over the period since 1945 are being reversed. The Austerity Package must be opposed

1. The aims of the study

This report studies the effect of the Austerity Package of the Coalition Government on disabled people[2].  There are five ways in which the real incomes of people can be cut. One is by a cut in real wages; the second is by being sacked and becoming unemployed; the third is by a rise in taxes; the fourth by a cut in cash benefits; the fifth is by a cut in benefits-in-kind through cuts in government spending on health, education and other support services.

In this report I analyse the third, fourth and fifth of these. As far as I know, this is the only study carried out on the effects of the cuts on disabled people looking at the changes in taxes, the cuts in cash benefits and the cuts in benefits-in-kind through cuts in other government expenditure.

Certainly there is no government study of these effects on disabled people. In May 2012, I wrote to the Department for Work and Pensions (DWP) asking if the Government had estimated, or were planning to estimate the cumulative effect of planned reforms on disabled people. The reply was a quoted response to a Parliamentary Question on the issue. I was told that In Parliament, the Secretary of State had said;

“The government is limited in what cumulative analysis is possible because of the complexity of the modelling required and the amount of detailed information on individuals and families that is required to estimate the interactions of a number of different policy changes. In addition the Government’s programme of welfare reform will not be fully implemented until 2017/18 and many policy details are still to be worked through. Equality Impact Assessments are however carried out for individual policies where there is a requirement” (email to me from the DWP dated May 3 2012)   

And so, the government argues, the analysis is too difficult. As I write this report, a group of disability campaigners have launched a petition “to stop and review the cuts to benefits and services which are falling disproportionately on disabled people, their carers and families”. As of August 24 2012, more than 42,000 people had signed the petition[3]   

As I say, in this report I have analysed the effects on disabled people of changes in taxes, cuts in cash benefits and of cuts in benefits-in-kind.  There are three steps in this analysis.

The first step is to look at the income distribution of households in the UK in five groups or quintiles. In other words, the 26 million households are divided into five income groups or quintiles, each of just over 5 million.  This step distinguishes between households in which someone is disabled and households in which no-one is disabled. The households in which someone is disabled are further split into those receiving disability benefits and those not receiving disability benefits. The information for this step comes from the annual survey published by the DWP and entitled “Households Below Average Incomes”.

The second step is to analyse the effects of the Austerity Package on the five income groups of households. As far as the changes in taxes and benefits are concerned, I have used the studies published by the Institute for Fiscal Studies (IFS). In most of their studies, the IFS looks at the effects of changes in taxes and benefits on different income groups. The IFS groups households into ten income groups or deciles and examines the effects of the changes in taxes and benefits on these deciles. However because I have income distribution data for disabled people only by quintiles, I have collapsed the IFS data into quintiles of households.

Occasionally the IFS carries out a study on particular groups of households across the income groups, an example being a study entitled “The Impact of Austerity Measures on Households with Children”. The report’s author was James Browne and it was published in January 2012 (Browne, January 2012). But the IFS has not carried out a specific study of the effects of changes in taxes and cuts in cash benefits on disabled people.

Nor has the IFS carried out a study of cuts in benefits-in-kind and so it does not include all the changes in public expenditure in its analysis. This is a major omission given that just under 70% of the planned austerity package (to be implemented up to 2014-15) consists of cuts in spending on public services. About 26% is planned to be cuts in cash benefits and a little over 4% consists of net changes in direct and indirect taxes.

The next question is; How do we allocate the spending on public services (such as local government, health, education, etc) between income groups?  Here public service spending is allocated across income groups according to the size of the household and the households’ relative use of the services, the latter derived from various surveys.  O’Dea and Preston of the IFS have warned of the dangers of this approach arguing that cost is not the same as the value to the user (see O’Dea and Preston, October 2010). However my answer to this is; given the importance of public expenditure to the welfare of households and given the importance of changes in spending on services compared to changes in taxes and cash benefits, it is surely a mistake not to attempt to measure the impact of the cuts in benefits-in-kind.  Otherwise we are looking at only a few trees in the forest.

Fortunately for me an analysis of the distribution of, and cuts in government service expenditure has been carried out by Howard Reed of Landman Economics and he has kindly provided me with the figures on the distribution of benefits-in-kind and the cuts in these services by quintile group.    

The third step is to measure the effects of the cuts in benefits and increase in taxes on those households receiving disability benefits. The source for this is the annual analysis of the Office of National Statistics entitled “Effects of Taxes and Benefits on Household Income”.

I do not pretend that the analysis is precise. It could doubtless be improved. It has been a difficult study to carry out. But the fact that I have achieved as much as I have reveals the dishonesty of the Government when it says that a cumulative impact assessment of the cuts on disabled people is ‘too difficult’. It is clear to me that the Government is afraid of revealing the vicious effects of the cuts on those households receiving disability benefits. I have carried out this study alone. Imagine what could have been done by a team of people from the Treasury or  from the Department for Work and Pensions.  

As I say, it has been a very difficult study to carry out. It has also been depressing – for two reasons. First because digging out the information has been difficult since I was not, initially, familiar with all the surveys and sources. The second reason for getting depressed was because as I began to collect the information, it painted such a harsh picture.  The cuts are hitting disabled people (arguably the most vulnerable section of society) very hard indeed. Indeed this is probably the hardest hit of any group in society.

But not only has the exercise been depressing. It has also made me angry since the whole Austerity Package exercise is so stupid and unnecessary. I feel the same anger as is reflected in End this Depression Now, the book published earlier this year and written by Paul Krugman, the Nobel prize-winner (Krugman 2012).   

The next few sections of this report look at who the disabled people are, how many of them there are and how the Austerity Package (the cuts in benefits, rise in taxes and cuts in benefits-in-kind) is affecting those households receiving disability benefits. Then I set out the historical context of the Austerity Package, its component parts and why the policy is not only vicious but also counter-productive. The final sections look at the hypocrisy of the Coalition Government, sets out alternative policies and the need for action to implement alternative policies.   

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