The Conservatives plan to reduce government spending by £47 billion. That’s taking money out of the economy. The chances of Mel Stride ever being in government are pretty slim, but were he to be able to do it, he would be taking money away from the poorest and most vulnerable people: they can’t replace it by working. They get that benefit because they can’t work. They’re not able to do so. They have a real need. It is incredibly difficult to get most of the benefits to which Mel Stride is now referring. You have to go through endless interviews, appeals and everything else to be paid. And yet he thinks that somehow people are free-riding the system. They aren’t. They can’t work. They won’t work.
So, the consequence of taking that money out of the economy is not to force people back into work, which they can’t do, and for which there aren’t employers who want these people anyway. It means that there will be meals not bought. There will be rent not paid. There won’t be jobs created. The money will go.
A hit to local economies
And in fact, it’s worse than just having the first order impact, because if meals aren’t bought and rent isn’t paid and other goods and services aren’t acquired, then the local economies of the UK will be hit, because that’s where people on benefits spend their money.
Stride might think that he’s being clever, following the household analogy and believing that just because he cuts the money out of his Treasury spreadsheet, it’s gone for good and the problem is solved, but it isn’t.
The fact is that when he cuts spending, it has knock-on multiplier effects.
It’s not the City that will feel those multiplier effects. It’s small towns. People will not be spending money in local shops. There won’t be people who can afford to buy care. There won’t be money to pay for youth centres because there won’t be people paying council tax. For every £1 lost, it costs several more in local activity once you begin to cut benefits for the poorest.
The fact is, it is this multiplier effect that Mel Stride appears totally unable to understand, and he still hasn’t understood after 14 years of Tory mismanagement that austerity isn’t prudence, it’s managed decline, which is exactly why this country is in the mess that it is.
The reality is that state spending creates income, and cuts destroy it.
Once you understand the local multiplier effect and that the poorest have the highest multiplier effect of all with regard to their income – because literally every penny they get in benefits is pumped straight into the economies where they live – then you begin to understand why austerity is madness.
If you want growth, you invest locally.
Fuelling discontent
If he cuts £47 million from benefits, incomes will fall. Demand will collapse. Businesses will close. Jobs will go. Local tax bases will be eroded, and perhaps most particularly, resentment will grow, fuelling further division in the UK and more support for Reform, the one thing that he claims he really wants to defeat, but which would be directly fuelling it.
If £47 billion can be removed from the UK economy, the fact is, if we understand economics, we also know that £47 billion can be added to the UK economy, because, of course, no government is constrained by its capacity to tax, which is why the cruelty that is promoting this cut is callous in the extreme.
But what this means is that other parties should be saying, “We won’t follow the path down which the Tories are going.”
We would expect Labour to say that, although of course they probably won’t, because these days all they try to do is ape the far-right parties, whether they be Reform or Tory, and so they’ll probably be offering this very soon.
But the fact is, other parties, those who have some sense left: the Greens, the SNP, Plaid Cymru or whoever it might be, they should be saying, “We are going to fund local councils and communities. We are not going to be racist about this. We are going to help people who can’t work. The real issue isn’t affordability. It’s all about priorities, and the priority in this country is action to help those who need it and not to impose more austerity.”
Mel Stride has got everything – and I mean everything – wrong, including the fact that he’s playing straight into the hands of Nigel Farage.
This article first appeared on Richard Murphy’s blog, which you can find here.
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