By Terry McCarthy, Unite member, Hastings.
The government is trumpeting both the cuts in income tax and a rise in the minimum wage from £7.50 to £7.83, as sure signs that austerity is over.
However, if you calculate the fall in purchasing power over the last decade you see that workers and the marginalised are seeing their living standards are falling at an increasing rate.
If we use the methodology used both by Beveridge and John Maynard Keynes, to measure real inflation e.g. purchasing power in relation to basic essentials like food, housing, clothing, etc, we see that the lowest paid and the marginalised have suffered real inflation three times the amount published by the government which puts it just over 9 per cent.
The government’s own published figures show there will be further cuts in benefits and other services. The tax cuts announced will help those on £45,000 to £47,000 the most, saving them £336 a year. But like the rest of us, they will be paying much higher council tax bills and will suffer greatly when bank rate rises, so if you take out of the calculation a rise in bank rate they will still be worse off in 2019. Even the Institute for Fiscal Studies has commented these rises are smaller than the rises since 2010.
Over 9 million workers will see their pension contributions rise with the further cuts announced. Families on benefits will be £310 worse off in the coming year and 9 million workers will see their pension contributions triple. Workers in auto-enrolment pensions will see minimum contributions rise from 1% of their income to 3%. Someone earning an average salary of £27,000 – and currently paying in 1% – will have to pay an extra £350 or so this year after contribution rates rise – that means an extra £540 in the following year.
Someone earning the minimum amount to qualify for an auto-enrolment pension – £10,000 a year – will pay an extra £78, according to the Institute for Fiscal Studies (IFS). The worry is that workers will either opt out of the pension scheme altogether or will continue to pay at the old rate which will lead to a much-reduced pension. Far from coming to an end austerity is in fact increasing in severity.
Yet more attacks on the marginalised
The Tories have announced yet another blow to the poorest in our society with the announcement that Households with mortgages who are in receipt of Income-based Jobseeker’s Allowance, Income-related Employment and Support Allowance Universal Credit, or Pension Credit are to have their Support for Mortgage Interest benefit (SMI) changed. SMI basically helps people with the cost of their mortgage if they aren’t working and it has been paid as a benefit since 1948. But on 6 April 2018 this changed and now it will only be given as a loan that is secured on the house. The change will affect over 90,000 people who have been in receipt of this benefit. The Council of Mortgage Lenders described them as the most significant changes for mortgages in the budget.
Under the new scheme any loan will be secured against the property and interest will be added each month and repaid when the property is sold or transferred. A government survey shows over 50% of those contacted said they would not take up the loan.
Without SMI the poorest in society will have to pay an even heavier burden. One of the most worrying aspects of this is that the government use a standard interest rate to calculate the amount to be paid. This, however, is not a fixed rate and with the inevitability of a higher bank rate interest on the loans will rise accordingly. There is no help available to help repay the capital (the amount you originally borrowed) on the mortgage.
The government’s response is that it is reasonable to ask someone who has received help with their mortgage to repay it as their home is likely to increase in value. Note the cautionary word “likely”. Financial experts are predicting that with the overall decrease in purchasing power and with bank rate rises imminent, house prices could nose-dive at the same level of the housing crash in the 1990s.
The government, for obvious reasons, doesn’t bring into the equation the difference between bank rate and interest charged on mortgages and there has been a sharp rise in interest charges since the demise of the old mutual building societies.
A Labour government could end this injustice simply by taking the Bank of England back into public ownership and setting the rates that banks can charge for mortgages to a level where no SMI type scheme was needed.
April 10, 2018
