When is a blatant attack on the poor fair? The obvious answer is when the upper classes say that it is fair. Though the measures include:

• a massive £11 billion in spending cuts to benefits and services which will of course have a disproportional effect on the poor and working poor;
• an increase in VAT that again affects the income and expenditure of the poor, working poor and working class;
• state worker wage freezes and job cuts, it is estimated that 1.3 million workers in the public and private sectors will lose their jobs; and
• attacks on the principle that the poor have the right to support independent of ability to work and availability of employment,

we are nevertheless told that this budget, composed of the harshest spending cuts since World War II, is “fair”.

In their “emergency budget”, the Con-Dem government has demonstrated that its economic policies are primarily determined by ideology and the delusion that private enterprise can and will provide sufficient growth to cover the needs of the whole population. These ideological blinkers have given us a return to the economics of pre-Keynesianism, which has consistently demonstrated its inability to mitigate systemic economic crises, persistent unemployment and commensurate disparities in income and wealth that are part and parcel of the capitalist economic system. Rather than attempt to secure economic growth with the proven methods used in the Great Depression, the Con-Dems have chosen the private sector to bail us out of the economic crisis that the private sector itself created.

Budget cuts do not stimulate economic growth in a downturn or at the beginning of a recovery. In a capitalist economy, where economic growth is demand driven, the way to increase economic growth is to increase effective demand. To do this, we need to increase fiscal spending, raise benefits and lower sales taxes, in the hope of increasing demand. Increased employment, production, output, and investment occur if/when employers envisage increased expected demand following sustained rising effective demand in earlier periods. While the Con-Dems claim that this budget will stimulate economic growth what it actually will do is rein in growth. Job cuts, decreases in benefits and tax increases will actually cut people’s spending. This will lead to employers deciding not to increase employment and production; why invest if there is no increased demand (and expected demand) for your product? The Con-Dems seem be living in a delusion where employers will take up the slack left by government cutbacks for no other reason than the government says that they should do so; as such, they seem completely in the dark as to the reasons behind employers decision-making with respect to increases in output, employment and investment. There is also no reason why the banks should increase lending to ensure investment, as again, increases in output are justified looking at demand and expected demand for goods and services.

One might think that, given their emphasis on the importance of work and rewarding people that work, the government would at least consider the causes of unemployment both systemically (as a tendency within the capitalist economic system) and cyclically (arising from capitalist crises) before linking benefits to willingness to work.  Instead, employing the distinction between the deserving and undeserving poor most closely associated with the Victorian era (but which in fact was first proposed by Jeremy Bentham in the late eighteenth century), and a focus on punitive responses to poverty such as the criteria of lesser eligibility (the poor should live in worse conditions than those that work), their responses will invariably cause additional hardship for the victims of the economic system rather than address the causes of poverty. This unwillingness to examine the causes of unemployment, combined with an incoherent employment policy that seems to be strongly dependent on the willingness of the private sector to create jobs, will have a disastrous impact on the poor and the working poor in the UK and may also create further difficulties for the working and middle classes as unemployment increases in the face of cutbacks to the state sector.

In reality, the only way in which employment could increase along the lines the Con-Dems envisage (apart from an incredibly unwarranted increase in growth) is if they were to open up privately owned and operated workhouses in which the poor would be forced to work at below the minimum wage.

Characterised by cuts in social services and government spending as opposed to attempts to increase revenue, this is a budget that will not only increase unemployment and rein in growth, but also will relatively and absolutely affect the poor, working poor and working class more strongly than the wealthiest due to the increase in VAT from 17.5-20%. VAT is essentially a regressive tax; while it appears as though it will affect the wealthiest due to their purchase of expensive items, actually it is felt more strongly by those on lower and fixed incomes as they get less for every pound spent and every pound spent matters more in terms of fulfilment of basic needs (http://www.ifs.org.uk/budgets/budgetjune2010/browne.pdf). Moreover, one Human Resources recruiter Ortus has warned “the increase in VAT from 17.5% to 20% next year will cost the country approximately 201,000 jobs.” (http://www.personneltoday.com/articles/2010/06/22/56032/emergency-budget-feedback-from-employment-experts.html) Elsewhere, the freeze on council taxes will negatively affect local service provision at a time when central government services are being cut. Again, this favours the wealthy as council taxes are paid on the value of the property.

Cutbacks to services and benefits will only serve to heighten the impact of the crisis on the most vulnerable of society. Caps on housing benefit without consideration of local rents will undoubtedly force the poor to cover the difference from their benefits or to move out of city centres.  The linkage of benefit to work will force the poor to compete with the working poor with no legal guarantees of a wage linked to cost of living.

On top of this, there are cuts to disability living allowances, cuts to tax credits and benefits for families with children, and the indexing of tax credits, benefits, and state pensions using an index that does not take into account housing costs and that will mean already inadequate benefits (which the Con-Dems seem to think are already too generous) do not keep pace with the costs of living.

Then there is the almost Malthusian punishment for single parents, from April 2011 the government will restrict eligibility to the Sure Start Maternity Grant to the first child only and abolish the Health in Pregnancy Grant from January 2011. All these measures will undercut the safety net that has at least provided some measure of protection and place more people at the mercy of a market that has shown time and again its lack of interest in social welfare.

While there are £8 billion pounds of tax increases such as a bank tax and an insufficient rise in capital-gains taxes, there are also decreases in corporate taxation which offer the strongest benefits to those with low capital investment, high profits (short term turnover) like banks and supermarkets, rather than to manufacturing, which require high capital investments and smaller profits with a longer turnover of capital. Needless to say, the former have a lower multiplier effect in terms of employment and will continue to direct investment away from infrastructure and manufacturing.

There is a small payback to the Liberal Democrats for joining the coalition: the Income Tax personal allowance will be increased by £1,000 to £7,475 in April 2011, which will result in 800,000 people no longer having to pay income tax, though this is lower than the £10,000 personal allowance demanded by the Lib Dems during the election campaign.

Rather than stimulate effective demand though direct government jobs creation, increased investment to ensure indirect jobs creation and protecting the incomes of the poor and working poor to ensure economic growth, this government is actually increasing the cost of purchasing goods and services and relying on corporate tax cuts to get businesses to employ people.

The economic policies of this government rely on faith in the market and private sector and a half-hearted good luck rather than an understanding of the reasons that employers choose to increase employment and output, what enables economic growth in a capitalist economy, and an historic analysis of the failures of the system to provide for all members of society. It will undoubtedly create greater hardship, inequality in income and wealth in a country in which these inequalities are the worst in Western Europe.  In the context of the spread of austerity programmes throughout Europe, this is one more budget where the poor, working poor and working class are bearing the brunt of the payback for the excesses of the system that caused this crisis.

Susan Pashkoff is an independent researcher and political activist. She was formerly Senior Lecturer in Economics at De Montford University