The War on Wages Spreads to Social Protection Payments

Francis Byrne of OPEN made an excellent point in a tweet regarding the previous post on the war on wages:

‘Which will also of course inevitably provide a rationale for reducing weekly SW (social welfare) payments.’

This is a crucial point.  Cutting wages hits social protection recipients – unemployed, old age, single parents, the invalid and sick – in two ways.

First, there is a reduction in tax revenue.  In the private sector when pay is cut by €100, the state loses nearly €42 ((nearly €63 if the employee is in top tax rate).  In the public sector the loss to the state is even higher given the pension levy and pension contributions.  This leaves the Government with less revenue and, so, puts pressure on spending.

Second, wage cuts can drive down workers income towards social protection levels.   Using the ‘incentive-to-work‘ argument, some will argue that social protection must be cut so that work ‘pays’.

In short, driving down people’s incomes impacts on everyone in society – and not just those in work.

We are seeing this at work already, albeit below the radar.  Social Protection rates are being cut in real terms; that is, after inflation.

War on Wages 2

Despite the Government’s claims that they are ‘protecting social protection’, the fact is that social protection rates are being cut in real terms.  A single person will have found their payments cut by €375 after Budgets 2012 and 2013 while a couple with no children will have suffered a €624 cut.  For households with children, they have taken a double hit – from inflation and cuts in Child Benefit; for a couple with two children their income has been cut by over €1,100.

If social protection payments were ‘protected’, there would need to be a 3.8 percent increase (more for households with children to make up the Child Benefit cut) – just to keep pace with inflation.

These real cuts explain why deprivation levels are so high – nearly one-in-four of the total population suffer multiple deprivation experiences; and that was in 2011.  We should expect this dismal statistic to rise in 2012 and, again, in 2013 as the real cuts impact on living standards.

This war on wages – or more properly, the war on incomes – is taking its toll on everyone; in particular, those in society with the lowest incomes.  Another round of pay cuts – staring with Croke Park 2 but extending throughout the economy – will result in more reductions in living standards.

And when the economy, which is already back in recession, takes another turn for the worse, why should anyone be surprised?  Living standards are the first casualty of austerity.

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