Sunday, May 16, 2010

The Coming Middle Class Rebellion

More tea vicar?

Honeymoon glow aside, Britain's middle class is about to get seriously whacked (see previous blogs eg here). Someone's got to pay to clear up Labour's gigantic mess, and there simply aren't enough rich people to go round.

Middle class? We mean those legendary Decent Hard Working Families (herinafter DHWFs) on incomes between £30k and £60k pa. Only 10% of the population get more than them, so they're fairly comfortable - although not comfortable enough to buy themselves out of state education and the NHS. They comprise 50% of the population, and pay getting on for two-thirds of all the taxes falling on UK households.

And boy, are they in for a nasty surprise. for one thing, their taxes are set to go through the roof, and their state benefits binned.

According to accountants Grant Thornton, just adding up the likely tax increases and tougher limits on Child Tax Credits we already know about will make a family on £50k pa £1250 worse off:

In terms of net disposable income, that's a cut of around 3%. But for many working families the pain will be compounded by the forthcoming increase in mortgage rates. Worse, these are just the tax increases and benefit cuts we already know about. They will yield nowhere near enough to fill Labour's huge fiscal crater, generally put at somewhere between 6% and 10% of GDP (£90-150bn pa).

Let's just remind ourselves of the basic options for filling that crater:
  1. Increase taxes on business - outside the counsels of Greenpeace and Will Hutton, this is universally viewed as A Bad Thing: our business taxes are already high compared to competitors, and at this point we really cannot afford to undermine our future prosperity any further - indeed George needs to cut biz taxes
  2. Increase taxes on the undeserving rich - sure... except that there aren't nearly enough of them to go round - the combined income of the top 10% is c£230bn pa (2007-08), of which over £80bn is already taken away in tax, leaving just £150bn to squeeze. Moreover, squeeze them too hard and they could upsticks and leave, taking their drive and entrepreneurial skills with them;
  3. Increase taxes on DHWFs - our middle-class 50% get a combined income of  c£450bn pa, of which about £100bn is already taxed away, leaving £350 bn to squeeze further. That's more than twice as much as the undeserving rich have.
  4. Cut welfare benefits - with the total benefits bill now nearly £200bn pa, this is a clear target for cuts and freezes. But since nobody wants to clobber the genuinely deserving poor, and since the undeserving rich hardly get anything anyway, much of the pain will have to be land on - yes, you guessed it - the DHWFs. At present they get around 40% of the total benefits spend, and they should expect to see a big squeeze.
  5. Cut spending on public services - total departmental spending excluding benefits is running at around £400bn pa, and that's going to see cuts of 10% or more. By rights, the cuts ought to be accompanied by massive public sector reform to squeeze out better value, but don't hold your breath. And who will suffer? Well, everyone to some extent, but remember that unlike the undeserving rich, the DHWFs can't afford to buy themselves out of underperforming state schools and the NHS.

If you spend a couple of minutes mulling over those options, it's pretty clear who's going to be making the biggest sacrifices over the next few years. It's none other than those Decent Hard Working Families our politicos spend so much time pontificating about and wooing.

And they ought to get very angry about it. Very angry indeed. After all, the essential reason we face this crisis is that our politicos have spent far too much of our money.

So how will the HWDFs react?

It's quite possible they'll just accept it. Under a barrage of soothing BBC/Grun/SDP propaganda it's quite possible they'll meekly accept their belt-tightening and just make the best of it.

But just possibly, they won't. Just possibly, they'll look at their rising tax bills, lost benefits, and collapsing services, and say enough is enough. It's time for some serious change.

And that's what Tyler hopes.

Tyler hopes we will finally see a middle class rebellion - the kind of rebellion that forces our metropolitan ruling elite to change tack. A British version of the Tea Party movement that has swept the US, where DHWFs from outside the elite come together to demand lower taxes and a smaller state. Where individual MPs who won't listen find themselves defrocked by constituency-based uprisings. And where before too long, the whole of Westminster gets the message.

Couldn't happen here?

Don't be so sure. It actually did happen once before in not very different circumstances.

Back in 1921 we also had a Lib-Con coalition, which was also wrestling with public spending that was way too high. But they failed to grip it, and the National Debt (aka the future burden on taxpayers) was soaring through the roof.

At which point, a group of disgruntled Tory activists backed by press baron Lord Rothermere (with Northcliffe soon jumping on the band wagon), set up the Anti-Waste League. It put up candidates in parliamentary by-elections and actually won - three by-elections in the first half of 1921.

Prime Minister Lloyd George and his inner circle panicked. While he'd squared off the Tory front bench with generous dollops of patronage and preferment, rattled Tory backbenchers were now threatening to bring him down (their actual rebellion came just a year later in 1922). He was forced to implement huge spending cuts (the Geddes Axe - see this blog and also here).

So we'll see. Right here today, our Lib-Con coalition basks in warm Spring sunshine with 64% approval. But once the Autumn leaves start falling and cold reality starts to bite, we'll find out what the DHWFs really think.


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