The Impacts of Austerity Measures - Essay Example

Introduction

As the UK works on rebuilding its economy after the 2008 financial crisis, the fiscal austerity measures strategized by the coalition government will not be the cause for celebration for the majority of the country`s population. The reason behind the low-key of applause given to the measures is that there is high unemployment, rising levels of insecure work, and the destruction of mechanisms to lower inequality and reduce poverty. Far from a shift driven by economic prosperity and inclusive growth, austerity can increase gender and social inequality in a country that is already one of the most unequal developed nations. The current situation is characterised by a disregard of women as the richest men continue to gain additional wealth while the poorer communities continue to suffer (Levitas 2012; Onaran and Stockhammer 2016).

The current austerity programme of the UK threatens to solidify the country`s position as a state of growing poverty and inequality. The government`s emphasis on cutting public spending as opposed to the increase of taxes is slowly increasing the hardship faced by the poor and unfortunate people, most specifically disadvantaged women while allowing the richest faction of men to bear a rather small pain. As millions of people are still expected, live in poverty or at risk of poverty shortly, the richest among the community are more prepared to be richer. The impacts of austerity measures have a long-term effect on both poverty and gender inequality in the UK (Antonopoulos 2009; Barry, and Conroy 2013).

Position of the UK before the Financial Crisis

The United Kingdom has a diverse and extensive economy, and it is also the sixth richest country globally. Underpinned by the country`s socio-economic reforms encountered in the 1980s, the country saw a tremendous economic growth from1993 to 2008. The labour market deregulation, financial liberalisation, and the social security erosion formed the basis of the country`s move towards a market-based capitalism. Nonetheless, the reforms were accompanied by adverse effect as they caused a dramatic increase in the population living under the poverty line, which shot from 7.3 million to 13.5 million people from1979 to 2008. The inequality rates were at a recording level that was last observed before the 1930s, driven by an increase in the income of the top one percent richest population in the country. The income inequality of the working age group of the country has risen since 1975 at a rate that makes it top all the other OECD nations such as the United States. Consequently, the UK is ranked as one of the nations with increased poverty and inequality among OECD countries. Undeniably, the United States trails the UK when it comes to the pre-tax income as it rates at 0.49 while the UK is at 0.52. In 2008, the top 10 percent of UK`s population had an average annual income of £55,000 while the bottom 10 percent had £4,700. This revenue gap was higher than that of 1985, and than that of other developed nations (Barry, and Conroy 2013).

The Financial Crisis

In 2008, the financial crisis made the UK government to bail out the country`s banks at a cost of over £141bn. However, the liabilities were overwhelming, at around £1 trillion. The measure undertaken by the state to avoid a collapse of the British banks was followed by a £31bn stimulus effort that incorporated a reduction on VAT, forwarding capital spending on social housing and schools, and deferring of the corporation tax increase. The country`s stimulus program was in effect until 2010 when the austerity measures were developed by the coalition government. In the stimulus programme, the income of the poorest fifth section of the population grew rapidly while that of the richest two-fifths had a slow progress.

The UK Trends in Absolute Low Income

When looking at data from the ONS, it is clear that there is a change in the rate of poverty experienced in the UK after 2010. In this case, the incidence of poverty is characterised by the level of absolute low income of the country. The data shows those years before 2010/11, the percentage and number of individuals in total low-income BHC is highest under CPI inflation while being lower under RPI inflation other measures of inflation. The trend is because, under RPI, average income is higher and so fewer people are being considered in absolute low income. From 2012 to 2013, the percentage and number of individuals under RPI inflation in absolute low income are higher than under the other measures of inflation. This situation is so since the RPI inflation is greater than other measures of inflation, and thus the threshold of absolute low income which is at 60 per cent of 2010/11 median in 2012/13 prices under RPI inflation is higher. The high rate leads to the identification of more people in absolute low income (Antonopoulos 2009; Barry, and Conroy 2013).

However, the shift in the number and percentage of people in the different total low-income divisions between 2011/12 and 2012/13 under the various measures of inflation provided by the report were not statistically considerable, apart from the estimates of disability. In this case, the absolute low-income increase for people that live in families with at least a physically challenged member was statistically significant under RPI, compared to under CPI, CPIH or RPIJ. By looking at the results of individuals living in families with no disability, there was a significant decrease in the number and percentage in low total income, under all the other measures of inflation.

Effects of Fiscal Austerity on Increase in Poverty

The goal behind the introduction of austerity measures by the coalition government was to reduce the country`s deficit while creating confidence in the market. However, the government`s outline of deep cuts in spending and rational tax increase has few strategies that would help to stimulate the economy by reducing poverty and gender inequality. As the measures have managed to reduce the deficit, they have had a devastating impact on the faction of the population that is poor. In 2010, the coalition government implemented massive state spending cuts that were never seen before the Second World War. The cuts affected social security and a loss of over 900,000 public workers in the period between 2011 and 2018 (MacLeavy 2011).

Consequently, the people that lived in poverty after the 2008 financial crisis had a worse situation while more other people were made vulnerable. The rising costs of living, economic stagnation, increasing unemployment and social security cuts have created a devastating state that increases the poverty level of the country. For instance, there has been an unprecedented rise in the need for aid programs in the country and 2013, more than half of the nation depended on food banks. Also, due to the welfare and tax changes implemented from 2010 to 2014, the poorest population has seen their net income going through greater cuts than the richest community. The Institute for Fiscal Studies established that the coalition government`s benefit and tax changes would increase both relative and absolute poverty. Thus, by 2020, more than 800,000 children will live in poverty and an additional 1.5 million working adults will be poor, making the poverty population to be at 17.5percent of the working group. The absolute poverty of the country has witnessed a drastic increase from a rise by 900,000 in 2012 when inflation is accounted for after assessing of incomes. This situation is taking place at a moment characterised by high levels of unemployment. The rate of unemployment reached 4.7 percent in 2004; however, the rate remained at 7 percent in 2012, a level that occurred in 1996. From April 2008 to May 2009, the number unemployed adults rose from 1.61 million to 2.38 million, a difference of 760,000, and it positioned at 2.51 million in August 2013. Besides, since the beginning of the financial crisis, there has been a long-term unemployment affecting both the youth and adults (Briskin 2014, pp.115-133).

Unemployed people experience a 7 percent income loss. The shift to a different increase mode of social security payments will automatically lead to adverse financial effects on the UK`s population. The results will tie the country`s payments to a declined inflation index of 3.3 percent. Hence, the income of the working class will not match the costs of living, and the poorest community will have the greatest burden of necessary costs of food, housing and energy have outpaced the rate of inflation. This associated impact is considered as the premium of poverty and the recent measures of the government to limit the expansion of payments associated with social security including Child Benefit, Housing Allowance, and jobseeker`s Allowance to 1 percent every year from 2013 to 2015 has a significant impact on the in-work poverty individuals.

For the locals that are employed, the average wages have also fallen from 2010 by 5.5 percent. Moreover, there has been a noteworthy change in the kind of work created by the entire process as about a half of the newly employed since 2010 working at temporary employment as the number of people involuntarily temporary employment has doubled. Implying that the individuals in need of permanent jobs are not able to find what they desire while the number of individuals assuming part-time employment since they cannot find permanent jobs has doubled. Furthermore, self-employment has seen increased dramatically since 2011 despite the fact that it may not provide workers with labour rights.

The crisis has mostly affected women as out of the £8.1 bn in the increase of net personal tax and benefit cuts; women will be impacted by about £5.8bn-corresponsing to 72 percent. Besides, women will highly suffer from public services cuts because of their higher representation in the sector (Alfama, Cruells, and De la Fuente 2015). The unemployment of women has increased from 678,000 to 1.08 million in 2008 and 2013 respectively since the financial crisis. By looking at the impact of all the measures of austerity, including changes to welfare and taxes and public service cuts, the poorest population of the UK (tenth) is the most affected individuals, relating to a 38 percent decline in their net income from 2010 to 2015. When the statistics are compared to a fraction of the richest (tenth), it is established that the most affluent population will lose less, moderately, relating to a 5 percent decline in their income rate. Moreover, there is continued evidence that the richest faction is doing better after the crisis. The trend is expected to increase to above 1.5 million in 2018 as the cuts in the remainder of the public sector take effect (Roberts and Soederberg 2012; Rubery 2015; Rummery 2016; Shaheen and Lupton 2015).

Civil Service employment; by responsibility level, region and gender

According to the ONS (2014), the percentage and numbers of the employed male and women differ significantly over the years from the period before the crisis to the period after the crisis. The number of female working in the civil service is more than that of the male. However, the percentage of women had a drastic decline after 2010 due to the austerity measures established by the coalition government (Barry and Conroy 2013). The ONS reports that there were fewer women in the civil service from 2010 compared to the years back. Consequently, the ratio of women to men working in the public service dropped from 2010 as the gap was widely getting closed. Thus, it seems that the austerity measures introduced by the government after 2010 had a higher impact in women than it did with men working in the civil service (ONS 2014).

Effects of Fiscal Austerity on Gender Inequality

In general, the coalition government`s austerity measures do not present an individual gender order as the approach does not show equality between the sexes. The approach to the reduction of the deficit through emphasises on rapid cuts rather than a boost in the revenue is not beneficial to women. In the UK, women rely more than men on the welfare state as an income source, for employment and public services. On average, tax credits and benefits consist of one-fifth of the income of women and less than a tenth of the income of men. Also, women use public services more frequently than men for many reasons, and thus the impact is greater to them as principal carers and in their right. Also, women comprise the majority of the welfare state employees, and as the independent Office for Budget Responsibility explains, there would be over 710,000 lost jobs in the public sector before 2017, due to the spending cuts of the public sector. 40% of the women workforce in the UK is employed in this area, and about 64% of the overall workforce in the public sector is women. Thus, women are on the losing side when compared to their men counterparts as about twice as many women workers than men workers will lose their work, totalling to more than half a million women facing redundancy. A series of organisations have analysed the austerity measures and their impact on both men and females, including a cumulative impact across the state of welfare over time. The emerging trend is that the economic approach of the austerity is unfair to women regarding services, income, and jobs. The studies also indicate that single female pensioners and lone mothers are mostly affected by the fiscal measures (Ebbinghaus 2012; Finnoff, and Jayadev 2014; Griffith-Jones and Jolly 2013; Jones and Novak 2014).

In examining the impacts of each austerity measure on the income of both men and women, it can be established that more than three-quarters of the revenue of the Treasury is generated from women. This situation is in spite of the fact that in most cases, the income of women is lower than that of men. It was also established that since about £11,454m was raised by women while men raised £2,956m. The number of women represented 79% of the total Treasury income, and that of men was 21% of the income (André, Garcia, Giupponi, and Pareliussen 2013).

When looking at the effects of the coalition`s changes to indirect taxation, an analysis of incomes from different households illustrates that there is regressive of making the VAT be 20%. The impact of the VAT rate is seen to be high in homes that are on the bottom of the income distribution, particularly on female families with small revenue and an expected tax incidence increase of 3%. The chancellor`s fuel duty tax benefits more single men and houses that have men who earn than single female pensioners and women lone parents. Besides, the effort by the coalition government to bring people out of direct income tax by raising the threshold of tax is not beneficial to the poor. There are about 4 million poor people in the UK, and the percentage of women is 73 percent (Dethlefsen et al. 2014).

In addition to the fact that the austerity had a direct impact on the income of women, particularly in low-income families, and most often, women manage the day-to-day budgeting and bear all the costs when their income is not sufficient enough to meet their household's needs. Hence, women are more likely to absorb the full impact of the cuts introduced by the measures, whoever it directly affects; and the Universal Credit lump sum payment is likely to worsen these difficulties (Karamessini and Rubery 2014). There is little knowledge on the support being given to struggling women by the extended family members, but this it is often likely to entail grandmothers and mothers that help out their adult grandchildren/children. The bedroom tax and benefit cap could mean that families with children would have to shift to different places, and disrupting the informal support from friends and relatives of whom are being relied on by many, principally lone parents. Social care cuts could also entail women making up the difference in income by increasing the unpaid care at home (Briskin 2014; Butterworth and Burton 2013, pp. 26-45; Campbell-Barr and Coakley 2014).

Conclusion

The United Kingdom has an extensive and diverse economy while being the sixth richest country in the world. Underpinned by the region`s reforms in socio-economics that took place in the 1980s, the UK experienced an incredible economic growth in the period between 1993 and 2008. However, the 2008 financial crisis causes a significant shift in the country`s economy as it had to bail its banks at a cost of around £141bn. In 2010, the austerity measures introduced by the coalition government was intended to reduce the UK`s deficit as well as create confidence in the market. Nevertheless, the country`s outline of deep spending cuts and rational tax increase lacked enough strategies to help in the stimulation of the economy by reducing gender inequality and poverty levels of the country. The data from ONS displays clearly how the financial levels of the population changed. Moreover, the shift in policy implementation brought about gender inequality. The people of the country that were poor after the impact of the 2008 financial crisis became poorer, and the rich became richer. Also, women are the most affected group as the reforms made them more vulnerable.