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Socialist Review Index (1993–1996) | Socialist Review 171 Contents

Socialist Review, January 1994

What’s in store for ’94?

From Socialist Review, No. 171, January 1994.
Copyright © Socialist Review.
Copied with thanks from the Socialist Review Archive.
Marked up by Einde O’Callaghan for ETOL.

Cuts in unemployment benefit from a year to six months, forcing the unemployed onto means testing much earlier than previously. A 30 percent reduction in student grants over three years. Public spending slashed with fewer schools and hospitals built and repaired. A pay freeze on public sector workers meaning a real pay cut of at least 10 percent over three years. More stringent tests for those on invalidity benefit, pushing many onto the lower social security. The highest tax increases since 1945.

This budget has rightly been compared with those of the 1930s, when benefits and public sector wages were cut to solve the problems of an ailing British capitalism. Now, as then, it has provoked jubilation from Tory MPs and the stock markets, while ordinary people recoil in horror and anger as its implications sink in.

Hit the poorest and weakest appears to be Kenneth Clarke’s motto. Even the government estimates 90,000 of the unemployed will lose all benefit entitlement after six months. The package of VAT compensation will, it is estimated, only account for 50 percent of heating and lighting costs caused by the new tax, so pensioners and those on benefit will still be worse off.

But the vast majority of working people will also be hit in their pockets as they pay more taxes, both direct and indirect. Clarke claims the budget proposals are accepted by most people. He must be dreaming. Outside parliament few people regard these increases as reasonable, as the most recent polls have demonstrated with Tory popularity falling even further.

They think they can get away with these measures. But Tory MPs thought they could get away with the Lamont budget last year, when VAT was imposed on fuel. They realised their mistake when pensioners protested up and down the country and forced them to up their compensation package.

All the signs are that there are stirrings of anger at these attacks. They can be rolled back if we fight together to force the government onto the retreat. They want 1994 to be a year when we suffer for their system. We have to make sure that doesn’t happen.
 

Paying the price

‘A hidden bombshell’ was how the Financial Times described the public sector pay freeze. After a year of pay restraint in the public sector down to 1.5 percent, it is proposed to hold down wages at today’s levels for the next three years. The paper went on:

‘Few MPs on either side of the House appeared to grasp the chancellor’s meaning while he was speaking and most were still in the dark several hours later.’

So much for our elected representatives, who recently awarded themselves a two-year deal well above the rate of inflation. But few workers can be in any doubt about what this freeze will mean.

Either wages will stay at 1993 levels as inflation, already creeping upwards from its recent low levels, is fuelled by tax rises and other government decisions, or jobs in local government, the civil service, health, education and other public services will be cut even more savagely.

Workers will be squeezed in a vice of worsening public services, frozen wages and higher taxation. The mass of workers in work will become poorer. In April a married male worker on £10,000 a year will be around £5 a week worse off.

Half of all the extra £6 billion Clark plans to raise by 1996-97 will come from income tax. Because he has frozen the thresholds for the second year running many of the lowest earners will be pulled into tax for the first time. The Low Pay Unit estimates that 200,000 more of the poorest will be drawn into income tax. Many middle class earners will be pulled into paying the top 40 percent rate of tax. Meanwhile, the rich will still pay the lowest taxes in Europe. Next year 140,000 top taxpayers on incomes over £80,000 will have gained tax cuts since 1979 of £9 billion – an average income tax cut of £47,300 a year each. Britain already has a much smaller tax free allowance than any other economy.

The low-wage economy in Britain today means that poverty is a reality for millions more than those on benefits. The working poor are very much an integral part of the system. A total of 36.7 million live on incomes of £250 a week or less. The vast majority of these people will get no compensation for VAT on fuel, and will be faced with an extra £2 to £3 a week payment by 1995.

In such a situation government plans to hold down wages in the public sector look dangerous in the extreme for them. Already the postal workers’ UCW union members have rejected the 1.5 percent offer and are balloting for industrial action. Despite widespread acceptance of the 1.5 percent in recent months, the closer April 1994 with its ‘biggest fiscal squeeze since the Second World War’ comes, the more likely groups of workers are to calculate that their miserly wage rise will be more than eaten up in extra taxation.

The chances of holding a pay freeze for another three years are very thin. Andrew Dilnot, director of the Institute for Fiscal Studies, said, ‘You can hold it down for one year, but there is always a bounce-back.’ The Economist calculates that if he is right then every 1 percent rise in public sector wages will cost £750 million – money not accounted for in the budget.

The entire Tory strategy for cutting their deficit depends on major attacks on working class living standards. They have tried to hide this in the short term, by drawing on the ‘contingency reserve’ – otherwise known as raiding the piggy bank. Hey presto, another £3,500 million appears as if by magic. In addition, they are basing their calculations on growth in the economy by no means a certainty.

So, as the table shows, in 18 months time we will be paying out an extra £16,000 million in tax.

The pay freeze announcement was framed to avoid any hint of a formal limit on settlements. Instead, any increases ‘have to be paid for by greater efficiency or saving in the cost of running government’. As the pay analysts Income Data Services argue, this is

‘designed to blunt any generalised response across the public sector and in the longer-term to weaken the ability of individual unions to organise any campaign for across-the-board increases.’

By effectively tying any rises to cuts in jobs or services, the Tories are relying on the sectionalism of the union officials who, they rightly believe, will grab at any chance to secure a deal if they can avoid a fight. In the process they hope to carve up bargaining further.

The pay policy for next year leaves an important loophole open. The civil service ‘will be expected next year to cover pay and running costs from ‘efficiency savings of at least 2 percent and other economies.’

The Tories are leaving themselves a margin of flexibility. In reality they expect to be able to cover a 2 percent pay rise by cutting jobs and putting the boot in on sickness.

Union leaders’ response is to call for a protest next April. Even this suggestion has been opposed on the grounds that it is ‘too close to the local elections’. What is required is a unified response, linking public sector workers in a campaign both locally and nationally to fight the freeze and expose it for what it is: an attack on jobs, services and pay. Far from ‘alienating the public’ this would link the resistance to welfare cuts with the fight to defend the public sector.

All the past history of pay policy demonstrates that it can be held by employers and government for one year, possibly two – but that after that different groups break through followed by much wider sections of workers.

This is the most likely scenario in the coming year. Pay freeze while inflation is beginning to gather pace, especially after April’s tax rises, will lead to anger.

Already there are signs of protest and struggle among London teachers and civil servants, who find their London weighting allowance (the extra for working in the capital) under attack.

Groups like council workers in Sheffield, who accepted wage cuts last year on the basis that this would be a ‘once and for all’ attack, are now being told they must do so again and have reacted angrily.

Changes in working practices, attacks on the idea of ‘a job for life’, cuts in the numbers of nurses while the number of managers in the Health Service mushrooms, can all help fuel a fight over pay.

Compiled by Dave Beecham, Dave Firebrook, Lindsey German and Lee Humber

The retirement nightmare

The government has tried to stave off anger against VAT on fuel by offering an extra 50p a week to single pensioners and 70p a week for couples. This will rise to £1 and £1.40 respectively the following year. Research carried out In 1992 showed that some 750,000 old people are at risk from hypothermia each year. Before the budget, one study estimated the VAT increase would cause an extra 5,000 deaths in 1994, rising to 10,000 the following year. The Tories’ sop to the pensioners will only save a fraction of that number.

For millions of pensioners retirement is a nightmare. Older people occupy almost two-thirds of properties without basic amenities such as inside toilets or bathrooms. Two out of five homes that are unfit to live in are occupied by pensioners.

Increasingly, the small but important layers of support once provided by lunch clubs, meals on wheels, free travel and other social services, are being whittled away, as councils are forced to cut their budgets. Even in April, the combined state pension and income support – which many are not told they can claim – will only be £63.75 for single people and £99.25 for couples.

The Tories have slashed the real value of pensions. In 1979, state pensions were worth 25 percent of average pay. By abolishing its link with wage rises in the early 1980s, the Tories have cut pensions to 19 percent of average pay.

The Tories’ plan to raise pension ages for women from 60 to 65 makes matters worse. It will mean that entitlement to even the smallest state pension is delayed for five years for any woman under the age of 34. The state will save some £5 billion – about half the cost of its Trident nuclear missile programme.

Millions of working people try to avoid the prospect of penury in old age by contributing to work-based pension schemes. Occupational schemes, as they are called, vary in generosity. In the public sector, you get two thirds of your final wage after 40 years’ service. This is supposed to rise in line with inflation,

With private schemes, benefits are almost always less good. Indexation is either 5 percent or less, not much use if inflation roars ahead as it did In the 1970s. Nor can people have much confidence that they are not being ripped off after Robert Maxwell’s £400 million plunder of 30,000 of his pensioners’ funds.

Not surprisingly, millions of desperate people have fallen for the promises of high-pressure sales tactics by insurance companies. In December, it was revealed that up to 400,000 people, including many teachers, redundant miners and nurses, may have been conned into taking out personal pensions at a cost to them of thousands of pounds each.

The pensions issue, already a source of real fear to millions of people near or over retirement age, is likely to explode in the next few years. It will also play a major role in the battles waged by public sector workers against privatisation.

The Tories’ latest proposal to push almost 430,000 civil servants into the private sector will have a profound effect on their final pension payouts. Plans to end the civil service’s London weighting allowances of up to £1,800 a year, and detach them from final salary assessments for pension purposes, will also hit tens of thousands.

In the private sector before the budget, when bosses thought their pension funds were likely to be taxed, they let it be known that were that to happen they would make their workers pay the price.

Among the contingency plans several large employers had in place was that of either cutting retirement benefits or stopping any new workers from joining company pension schemes. Luckily pensioners have demonstrated their willingness to fight in the past year – they will certainly need to do so in future.

Boiling over

The attack on students is staggering. Grants will be cut by 10 percent each year for the next three years, while tuition fees paid to all higher education institutions have been devastated with a massive 45 percent cut. This makes ‘top up’ tuition fees, charged by the universities and payable by students themselves, almost certain.

Education secretary John Patten claimed the cuts could be made because he was expecting a drop of 3.5 percent in student numbers over the next year. But over the last five years the number of 18-year-olds entering education has gone up from 18 percent to over 30 percent. Already applications for full time places for the 1994–5 year are 5 percent up on the same time last year. More students will be crammed into the same university space with less money and provision. Last year the traditional university sector alone estimated it needed £600 million just to repair old buildings.

The cuts in grants will exacerbate the already appalling poverty and huge debts that nearly all students face. Grants have been frozen for the last three years, so more students have been forced to take out student loans. Nearly half of the 700,000 students eligible took out loans in 1992–93 and the number is bound to be higher for this year. By the end of 1993 a Commons report showed that half of the 200,000 students due to make repayments were deferring because they earned less than 85 percent of the average wage or they were unemployed.

The recession and high unemployment have made the situation worse, both for students and for the banks and loan companies trying to chase up debts. In the summer of 1993 one in two students were unable to find work, while the government boasts that it has been able to save £30 million by withdrawing students’ right to income support and £70 million by stopping housing benefit. The result in 1993 was that over 80 percent of third year students were badly in debt.

One reason the government feels at liberty to attack education Is that the official opposition to the introduction of market methods into universities has been a disgrace. Lecturers’ union leaders have let their members down as conditions have been attacked.

Student union leadership has been criminal. The Introduction of student loans went through with barely a whimper from the national union, opposition being organised from below. Attempts to destroy the independence of students’ unions have been opposed only halfheartedly.

At the end of last year NUS executive member and Socialist Worker supporter Andrew Brammer was suspended from the executive for visiting and campaigning for one of the occupations which swept the colleges in the week after Clarke’s attack on grants. Meanwhile members of the executive have vainly chosen to court Tory support.

Despite this, however, the mood in the colleges is at boiling point. Tens of thousands demonstrated against the grants cuts in December. Occupations and demos have to be on the agenda for the new term If the attacks are to be defeated. Students are beginning to link their problems with the attacks on welfare benefits, the NHS, the coal industry and the whole collection of other items that has alienated the majority of the population from this vicious government. Strikers and protesters inevitably get a good reception from ordinary students when they go looking for support – and workers will support students.

 
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