How George Osborne exploited our psychological biases to secure his cuts


The Chancellor still gets virtually all his previously targeted savings from the welfare bill by 2020.

How? Because the working age welfare system will still become much less generous in five years’ time. As research from the Institute for Fiscal Studies and the Resolution Foundation has shown, the typical low-income working family in 2020 will be hit just as hard as they were going to be before the Autumn Statement U-turn. The Chancellor seems to be calculating that the pain of future forgone gains will be less politically toxic than immediate cash losses.

He’s probably correct in his calculation. Mr Osborne’s July Budget proposed to save £4bn a year by 2020 by freezing all working age benefits in cash terms for the next four years, meaning a deep cut after inflation for recipients. And that was actually a bigger saving than the one generated from the cuts to tax credits. But unlike the tax credit cuts, the benefit freeze prompted no outcry. Why? Because the immediate cash losses loomed far larger than the forgone gains of benefits rising in line with inflation.

Experiments by Daniel Kahneman, Jack Knetsch and Richard Thaler also suggest that this stealth approach fits with people’s sense of fairness. They found that in a time of recession and high unemployment most people they surveyed thought a hypothetical company that cut pay in cash terms was acting unfairly, while one that merely raised it by less than inflation was behaving fairly.

Source: How George Osborne exploited our psychological biases to secure his cuts | Voices | The Independent

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1 thought on “How George Osborne exploited our psychological biases to secure his cuts

  1. openlinesuk

    Yes, a clever slight of hand by the chancellor, but it is true that cuts now hurt more than cuts later, due to the ability to plan, but also because the future is discounted. ALso if wages do rise, even a bit, then the impact of reductions is lessened. ALso there is time to campaign for changes. So, it is genuinely less draconian, the outrage and Labour leadership did force back down and a degree of real change.. but a leopard does not change his spots… we must heed and beware, stay alert and keep fighting for less inequality and more equity.

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