Playing the percentages
Commenting on the benefit changes today (2 April 2013) a number of politicians seem to be saying that if you are poor / unemployed it is fair if you get a lower percentage increase in your income than the “strivers”. When that increase is less than inflation you are faced with taking a cut – and that hits the poorest regressively – something many Tories either won’t or can’t recognise.
Looking at some examples surely illustrates this:
If you are earning £100,000 a week (£5,200,000 p.a., see recent comments about footballers), what is the effect of a 10% cut in your income? Well you don’t turn the heating off, you don’t eat out less, you don’t take fewer holidays – you probably just save a “little less”. No real hardship
If you are earning £10,000 a week (£520,000 p.a., what I believe some directors of moderate sized companies may “earn”) a 10% cut may mean that you don’t take that third holiday, you may defer replacing your spouse’s car (your car is probably supplied by your company – your spouse’s may be as well). You probably also cut the amount you save. Not exactly hardship, but probably noticeable – did-dums.
If you are earning £1,000 a week (£52,000 p.a. – what a successful production engineer may earn), a 10% cut will probably mean that you don’t take the second holiday, you do defer capital expenditure (such as a new car), less eating out, you may shop more often at a cheaper supermarket and you may not drink wine every evening. Saving, other than pension, is possibly out of the window depending on your choice of save or consume. Definitely cutting back – “making your contribution” – but no real hardship.
If you have an income of £100 a week (£5,200 p.a. – what an in/out of work struggler may achieve), a 10% cut (which may arise from a cut in pay, a cut in hours, an increase in council tax, a reduction in benefits etc.) has more drastic effects. You won’t be saving (not even for a pension – how feckless!), you are already shopping at the cheapest shops looking for food that is nearly date expired. Clothes may come from second-hand shops (or outlets for products made in eastern sweatshops). You don’t take holidays; there is no car whose renewal can be deferred. So what gives? “Heat or Eat” is the probable choice – and a prolonged period of cold weather may force you to consider both.
Do our two posh boys understand? I doubt it.
When looking to share out “cuts” shouldn’t we be looking to force people to make equal percentage cuts in “discretionary spending”? Or might the rich actually realise that they might take a greater relative cut?