Author: Richard Grassick

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Who Pays When Spending Cuts Come First?


How Reform UK’s shift from tax cuts to spending cuts affects different age groups

Reform UK has quietly but significantly altered the emphasis of its economic message. During the 2024 general election campaign, the party foregrounded large and immediate tax cuts. More recently, senior figures have argued that public spending must be reduced first, with tax cuts following only once the state’s finances are stabilised. That shift raises a fundamental question: if spending cuts are prioritised, who is most likely to feel their effects?

Public spending in the UK is not evenly distributed across the population. Instead, it varies strongly by age. When spending per person is plotted against age, it follows a pronounced U-shape: high for children, lower for working-age adults, and very high for older people. This structure is not ideological but arithmetic, and it places tight constraints on what any government can realistically cut.

Children and young people account for a substantial share of public spending, largely through education and healthcare. Schooling, further education, child benefit, and early-years health services together make spending per child relatively high. However, despite this headline figure, children’s spending is not where the largest fiscal savings lie. Cuts in education or children’s services are immediately visible to families, politically sensitive, and often counterproductive in the long run. In practice, reductions tend to appear indirectly, through larger class sizes, underfunded special educational needs provision, or shrinking youth services delivered by local authorities. These measures save money at the margins but cannot close large fiscal gaps.

Working-age adults, broadly those between 19 and 64, are the least expensive age group on average. Most people in this cohort are net contributors to the public finances rather than recipients. That said, a significant minority rely heavily on state support through Universal Credit, disability benefits, housing assistance, and local authority services. Historically, this group has borne the brunt of austerity, because cuts can be framed as efficiency, reform, or incentives to work. Politically, these reductions are easier to sustain, and their effects are often dispersed and delayed.

However, the scope for further savings here is limited. The decade following 2010 already saw substantial reductions in working-age welfare and local government funding. Further cuts risk increasing poverty, worsening health outcomes, and placing additional pressure on the NHS and emergency services. While this group remains exposed, it cannot alone deliver the scale of savings required to underpin large tax reductions.

The picture changes sharply once people reach retirement age. Those aged roughly 65 to 74 receive significant public support through the State Pension, NHS care, and a range of universal benefits. This age group is also the most politically engaged, with the highest voter turnout of any cohort. From a fiscal perspective, spending here matters greatly. The State Pension is one of the largest items in the public finances, costing around £130 billion a year. Even small changes to its uprating mechanism would generate substantial savings.

Yet this is also where political resistance is strongest. Proposals to weaken the triple lock, means-test pensioner benefits, or raise the pension age provoke intense opposition. As a result, governments often talk about reform in this area while deferring action.

Spending rises further among those aged over 75, driven largely by healthcare and social care costs. NHS usage increases steeply with age, and social care, where it exists, is expensive and labour-intensive. Cuts here rarely appear as explicit budget lines. Instead, they tend to manifest as longer waiting times, tighter eligibility, and growing reliance on unpaid family carers. Apparent savings may simply shift costs to other parts of the system or to households themselves.

When the spending landscape is viewed as a whole, the largest potential savings are concentrated in a small number of areas. Slowing the growth of the State Pension would save billions, as would reducing or means-testing universal pensioner benefits. Restricting working-age welfare eligibility and cutting local government budgets also save money, but on a smaller scale. The first two options are fiscally powerful but politically dangerous; the latter two are politically easier but fiscally insufficient on their own.

This creates a fundamental tension for Reform UK. Large tax cuts require large and sustained spending reductions. Large spending reductions inevitably point towards pensions and healthcare. But pensions and healthcare are the core spending areas that service Reform’s main electoral base.  How can they square this electoral reality? Or to put it another way, can Reform UK con its pensioner voters?

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Some Rynelrich Photos

We visited Rynetrick in 2006. It took a while before we found the ruin – it’s not marked on modern maps. But here it is, a one-bedroom stone ruin set in a small dip in the valley. There was a small stream nearby which would have provided fresh water. I would imagine that the family would have attempted to grow some hardy crops, and keep a few chickens. Beyond this, details are thin.

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GERS

Well this is interesting. For a long time now, I’ve been skeptical about the voracity of the Government Expenditure and Revenue Scotland figures, despite the Scottish government’s own adherence to them. Scotland’s supposed deficit was a major issue during the 2014 independence referendum, and continues to be a major driver in “Scotland is too poor” narrative today.

Back in 2017, the fullfact.org fact-checking site produced a short, concise, statement that Scotland’s deficit was “three times that of the UK as a whole”. It noted that:

The deficit in Scotland was 8% including the North Sea, and excluding it was 9%. This compares to a deficit of 2.3% for the UK as a whole….In monetary terms Scotland had a deficit of around £13 billion in 2016/17. That’s whether or not revenue and spending from the North Sea is included. The UK deficit was larger, at £46 billion.

In other words (and this was not considered by fullfact.org at the time), Scotland (population 5 million) “owned” 28% of the total UK (population 67 million) deficit. These figures apply to 2016/17, and clearly suggested that a small country like Scotland producing such a huge share of the UK deficit was an economic basket case. So much so, that you would think that perhaps there would be more anecdotal evidence around.

But hey, some people (including the Scottish government) accepted that the figures were a reasonable description of Scotland’s economic well-being or otherwise. Jump forward a few years to the latest figures for 2018/19, and it seems Scotland’s economy has all but collapsed:

 

Scotland’s Deficit excluding North Sea oil: £14billion

UK Deficit:  £23.5billion

In other words, wee Scotland managed to produce 60% of the UK’s deficit in 2018/19. Even when oil is included, the figure is 54%. The claim was ripped apart when the figures were released, by Richard Murphy. He pointed to three failures in the GERS’s methodology:

  1. The way financial services extracts value from the UK and allocates it to London.
  2. The massive wealth inequalities between UK regions, generating unequal incomes.
  3. The methodology’s failings regarding corporate profit allocation.

Now a new study of the GERS methodology has been published, focusing on the way in which the funding of the interest on the UK’s debt has been allocated, and accumulated, by the GERS methodology. Scotland the Brief is produced by Business in Scotland, the pro-indy business organisation. In it, it demonstrates how what would have been a massive surplus in an independent Scotland has been used to fund the UK’s burgeoning deficit. Here’s a talk that explains much of the content:

 

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A Resilient Society?

Months into the worst health crisis the world has known for a century, much of the focus is rightly on finding medical solutions for the pandemic, whether a vaccine, improved medical treatments for people with life-threatening symptoms, or reliable forms of testing for infection or resistant anti-bodies. But parallel to these issues, there is widespread concern that the effect of governments’ efforts to contain the spread of the virus will be the worst economic crisis this century.

The world’s stock markets have collapsed by some 25%, unemployment claims in the USA alone have risen to over 6 million, and economic growth forecasts for 2020 range from 1% in Asia to -6.5% in the UK and -7.5% in the Euro Area. Whilst lockdown measures in many countries are being slowly eased, no one is able to predict when the worst-hit sectors of the world’s economies – hospitality, tourism, events and travel – will be able to return to anything resembling normality. Instead there is talk of a “new normal” that will follow the health crisis.

Yet before COVID-19 struck, Greens around the world were already searching for solutions to many of these economic problems. Greens in Scotland advocate leaving oil in the ground and supporting “a fair transition of skills and investment (from the oil industry) to renewable energies and sustainable industries“. A range of political parties and politicians around the world advocate a Universal Basic Income, for example the Green Party of England and Wales. And a number of ecologically-minded economists have argued since 1972 for a no-growth economic model that operates within the limits of the earth’s finite resources.

The COVID-19 pandemic has placed the following conundrums of full-square in front of us all.

  • How can we manage a decline in overall consumption?
  • How can we survive without industries and activities that pollute and generate high greenhouse gas emissions?
  • How can we ensure that we can all survive as the economy throttles down?

These three effects of the pandemic are regarded in our current economic world as problems that need to be reversed. Yet in every case, from the point of view of the earth’s resources, they are actually desirable. The major difference is that greens and others advocate a managed transition, whilst the pandemic has hit us with these economic consequences without any forward planning or anticipation.

A recent article on the steady-state economy website argues that there is a silver lining to the COVID-19 pandemic. What has been termed “wealth” by growth advocates can actually be better characterised as “illth”, activities doing harm to ourselves and the environment – noise and congestion, landscape destruction, environmental catastrophe and light pollution. Indeed the pandemic itself is now being partly blamed on our “excessive intrusion into nature..The solution is to have a much more respectful approach to nature, which includes dealing with climate change and all the rest”.

Intriguingly, a key tool in a planned move to a low-consumption, no-growth, and no-fossil fuel economy is localism. Analysts of greenhouse gas emissions, and governments around the world currently engaged in an all too slow transition to no-carbon economies, see transport as the top problem sector, the one area that is currently not achieving reductions in emissions. For example, Samual Alexander, research fellow at the Sustainable Society Institute at the University of Melbourne, argues that a de-growth economy will involve reduced working hours, a lot of growing of our own food (so-called edible suburbs), and much much less global trade.

Will COVID-19 force us into a more sustainable lifestyle? Probably not. As things stand today, owners of bars, cafés, restaurants, hotels, logistics companies, airlines, sports organisations, public transport and many more are looking for a way back to their previous existence. And governments are focussed on aid that simply bridges a gap rather than offers a transition. But many of these sectors will not see a way out of the crisis until a reliable vaccine is found. Perhaps in months to come, with a vaccine still a year away, the thinking will change. The irony is that the no-growth society, in the face of a COVID-19 pandemic that in such circumstances would probably not have happened anyway, would have been a much more resilient society.