A burden that won’t pay
Bubble — By Ann Jones AM on September 2, 2010 7:00 am
The IFS's recent report laid open the injustice at the heart of the coalition's fiscal strategy
SINCE June’s Emergency Budget I have consistently called for a justification of the new VAT rate of 20%. After reacting to the obvious dent this will create in the budgets of low income families across the UK, I was further angered to discover that the Welsh NHS will have to foot a £20 million bill in the first year of the ConDems surprise tax bombshell.
The rebuttals to my comments were heavy on anger but light on substance. Welsh Liberal Democrats and Conservatives alike were irate as the VAT hike seemed stitched to newspaper headlines.
There is, however, more to it than a month or so of bad headlines. The questions that this single issue raises are symbolic and will not go away as the realities of the Budget and the forthcoming Comprehensive Spending Review unfold. What makes VAT symbolic – in the Coalition context – is its ability to attack so many personal and family budgets on so many levels.
This is a feature inherent to the Coalition’s plans to eradicate the deficit while undertaking the biggest retrenchment of the state since the Second World War. Whether the Liberal Democrats like it or not, it is this that will define the next five years of British politics – their first in power.
More importantly this will form the backdrop of the next five years of family life in the Vale of Clwyd. Tax credits will be denied for families earning less than £30,000, Child Trust Funds will be phased out by January 2011, housing benefit will be cut while over half a million older people on Pension Credit will lose £11 a week. The decision to link benefits to the Consumer Price Index (CPI) rather than the Retail Prices Index (RPI) will also reduce private pensions at the same as tightening family budgets further as mortgage interest payments and council tax are taken out of the equation. The choices this Government has made will become economic reality in the coming months with no compensatory measures for those carrying the greatest burden.
The stark image above is taken from last week’s Institute for Fiscal Studies (ISF) report represents with more clarity than ever before just how unfair the British tax and welfare regime will become in the months and years ahead.
Evidence like this makes the assertion that the Government has a genuine choice an irrefutable one. Independent analysis found that Labour’s deficit reduction plans would have more than achieved the target of halving the deficit over four years, from 11.1% in 2009/10 to 5% in 2013/14. This would have complimented support for growth and jobs to put the economy back on track rather than gambling in extreme measures that, as we can see, hit the poorest hardest.
We now face a scenario where there is a widespread lack of faith in the Coalition’s ability to get the economy moving again. The Treasury Select Committee, IMF and Office for Budget Responsibility (OBR) have all warned that this budget has made a period of negative growth more likely.
We know that recent estimates on UK borrowing are lower than those made by Alastair Darling earlier in the year, whilst growth forecasts have fallen since Labour’s plans were ripped up.
As a result, we are nowhere near certain what the new austerity approach has in store for the UK economy as the government attempts to eradicate a budget deficit of some £116 billion in just five years. However, we can be certain that as long as Osborne, Cameron and Clegg are at the helm, the same people will be first to pay the price of any failed gamble. It is for this reason that the former Chancellor was right to describe the coalition’s planned cuts as “ideology dressed as necessity”.
While coming to terms with the overhaul of their family budget, many people in constituencies like mine are questioning where the jobs will come from to fill the gap left by the public sector – its one of the most common issues raised during surgeries. From a UK wide perspective we must ask what affect this drastic, state imposed, change to the job market will have on tax receipts and our ability to repay the deficit thereafter.
During a budget scrutiny session of the Treasury Select Committee this July, one member of the OBR spoke of how many ex-public sector workers would now be “willing to price themselves into the private sector”. This seems to suggest that the workers – most of whom are on modest incomes – in question will be operating as freelance consultants in a market where demand far outstrips supply.
Even if we were to accept this bogus view of the current job market there is no getting away from the fact that public sector workers moving into private sector jobs with much lower salaries will result in a substantial reduction in income tax revenues. When the committee asked for estimates on the likely differential this will cause, the OBR said none had been made. Many who raise these concerns are shot down for promoting a “fake” public sector economy which lays bare the ideological background to this budget. Dogmatic accusations like this prove that there is no easy consensus on challenging the deficit – nor should there be.
An agenda that strips away our public services against a backdrop of unemployment, debt and low, or even negative, growth is a doomed one. It asks skilled people to go elsewhere under the moral banner of the small state while choking off support to major industries such as transport, engineering and construction. Thanks to the Emergency Budget, we will soon find ourselves in the ludicrous situation where skilled private sector workers in these fields find themselves taking unskilled jobs with half the salary leaving even less money in tax receipts, or worse, ending up without work at all.
This economic approach represents a punitive narrowing down that robs the UK economy of the skills it needs to grow. Taken together, these policies rightly anger genuine progressives and expose the hollow nature with which the term is used by Cameron and Clegg.
The poorest will be hardest hit
As the facts and forecasts show, the deep, multifaceted policy of cuts and regressive tax reforms chosen by this Government will centre on those who can afford it least with deliberate disregard for outcomes. The Treasury’s decision to ignore its statutory duty to carry out equality assessments when compiling the budget is as symbolic as the secret VAT hike and easily could be covered in another wide ranging article.
The new regime is true to the old Conservative ideals that the heavily prescribed group perceived as “wealth creators” should be left alone whilst the others dig the trenches. This is a narrow, archaic view of growth which pays no regard to unlocking the skills and talent of everyone in the UK.
The potential this budget has to cause division in the UK is real and the flimsy pretence that these measures are unavoidable can only serve to cause further resentment. Furthermore, no credible defence of the emergency budget and the wider policies of the coalition Government can overlook the extraordinary circumstances of a financial crisis that will define the first decades of the 21st Century. Conservative and Lib Dem politicians have become increasingly quiet on this piece of modern history while international bestsellers are informing thousands of the true scale of the events. The coalition parties offered no alternative then and are now offering no hope to some of the most vulnerable in our society.
In contrast, Labour will relentlessly argue for an alternative to the steamroller economics of Cameron and Clegg as the true progressive force in British politics.
Tags: Ann Jones AM, budget, coalition, taxation
Tweet This
Share on Facebook
Digg This
Bookmark
Stumble
15 Comments
I can’t understand why no one in the Labour Party Leadership contest is not arguing that there is a need to tackle the tax gap . This is the gap between what the government should legally take in tax and what is actually collected. The figure involved is at least £40 billion and could be as high as £95 billion if you throw in tax evasion. The government argues that it has less money to spend because it has less income. In these circumstances any sensible person would argue that the government should therefore ensure that it maximises the income take it is legally entitled to. Instead HMRC is being cut in line with other government departments.What did Keynes once say about tax being the entrance fee to a civilised society? A more rigorous tax collecting regime wouldn’t affect anyone on the average wage because their tax is deducted via the PAYE system. It might mean fewer flights between Monaco and London on a Monday morning but nobody on the left in politics should be concerned about that.
“JUNE’S Emergency Budget famously increased VAT to 20%, but without any apparent justification” ……other than trying to repay the biggest structural deficit since WW2 maybe?
Jeff Jones is spot on about making sure the rich pay for their own mess – but being lectured by a Labour politician like Ann Jones about growing inequalities in Britain is a bit rich (if you’ll pardon the pun). Labour had the opportunity to implement a fairer UK tax regime and blew it. The rich grew richer and were invited to join Labour’s “Government of All the Talents” (ha) while Brown got rid of tax inspectors who might just have closed the loopholes.
Meanwhile the working poor became more dependent on tax credits as hidden subsidies for poor employers.
And I question Labour’s commitment to maintaining VAT at 17.5%. Labour MPs had the chance to vote against the new VAT increase and abstained – probably because that would have meant backing a Plaid motion.
About 700,000 children born in the UK each year, so 500 pounds of public money for the CTF in the 1st seven years, doing the sums that in the region of 350 millon pounds a year, much of which goes to children of families like mine who don’t need it. At 18 what would you have done with 500 quid adjusted for inflation, investment performance and charges (so lets say 350 quid)? I would have spent it furthering my rock climbing habit. Many of my peers would have spent it on slow cars and fast girls, today WKD may be a popular choice.
Putting that money to work by funding university places for less well off, or doing things that make a real difference to specific children with a bleak future such as getting their addict mum into rehab or having a smaller share of the national debt to repay when they start work or ……
The CTF is just one example of many of how Labour wasted a huge pile of money, with good intent I expect, but divorced from economic and social reality(no doubt it made perfect sense in the New Labour political reality). That the UK has any *long term* deficit while having serious social problems should shame our political class into a long and deep examination of their values and underlying ideology and to consider if they really are cut out for the role given the track record to date. As Marc points out, Labour are not in a position at this time to deliver a lecture.
I was thinking about buying “The Journey” in Waterstone’s yesterday, but decided that Tony and Gordon have had enough of my money over the last 15 years and I was not going to waste any more.
I have to concur with what both Marc and Clive have said.
Clive’s point is especially important. Previously I had been supportive of the CTF, for I felt it might begin to promote a savings culture in a cohort of society that often does not.
But having had three kids during the availibility of the CTF, I am utterly unconvinced it is worth the noisy defence by New Labour.
The CTF is not a help to a child in poverty, because it cannot be accessed for 18 years. To argue that the CTF is linked to the issue of child poverty, at least in the here and now, is merely Labour spin designed to paint the ConDems as taking away from the poor.
I am not saying the principle of the CTF is redundant or not without merit. But I do take umbrage and the defence of it as if it will make people poorer today and that it represents something sacred.
Whilst back to this side of the pond! It is predicted that the Republicans will win the mid term elections in November.
Their economic plan is to restore the Bush tax cuts, deregulate banking, and of course abolish the current (weak) health care act.
Just remember why we (and that includes you) are in this mess, tax cuts and a war that was never paid for.
Soak the poor. If memory serves me right Thatcher cut the income tax from 80% to 60 then raised VAT.
Just waiting for the them to lower income tax to 40%.
They’re just falling into line with the EU. It was a Labour minister who failed to veto this last December. Aside from this modelling of a nasty Brownite Eurotechnocratic VAT hike (and it is only a model: there’s no evidence to show that people won’t spend their money on zero-rated goods instead), George Osborne’s budget actually reduced the tax burden on people on lower incomes.
Pond Life
The wording you have highlighted was mis-edited (by me). The correct version is now up.
New Labour had 13 years and a huge electoral mandate to get radical, but didn’t come close. If the current public sector cuts are carried through at the levels suggested, then the implications on the most vulnerable who rely do heavily on Councils, will be enormous.
Unions are being asked to accept changes we would have choked on 12 months ago, in a battle to keep people in jobs and subsequently their homes. What no-one is talking about is the hit on the private sector from the public sector cuts, where hundreds of samll firms across Wales will go bust overnight, once next year’s budgets are finalised.
I realise that this is drifting away a little from the main article, but the VAT issue will hit hard the individuals already taking a hammering from the cuts and I am not sure how banks or building societies may react, when faced with such a potential tidal wave of unmanageable debt coming their way. I thought that I would chuck that little thought into the mix.
@Clive King
‘Many of my peers would have spent it on slow cars and fast girls, today WKD may be a popular choice’.
Although I don’t agree with everything you say in your comment, commendation for the accurate analysis of how the average 18 year old bloke may spend 500 quid, should it fall in to their lap. This would obviously be the reverse for the married men amongst us. I’d blame Cameron and his tax breaks for those fast cars and slow women.
!
Typical Labour rhetoric, always the attack dog, never offering any answers.
What would Labour have done if they (God forbid) had won the last election?
Probably nothing, they’d just have let the situation drift and get worse and worse, Government spending would have risen, yet further increasing the deficit, making the future even worse.
The new Government in Westminster has found it’s feet quickly and is doing what all good strong governments do – making touch decisions quickly, to restore trust and stability to the nations finances, whilst Labour argue amongst themselves over which Oxbridge educated public school boy is the most socialist and progressive (if such things still exist in Labour’s dictionary – pathetic.
Probably because of the same reason that Obama’s healthcare and financial bills have been such a disappointment to progressives, the fear that you do not want to scare the big business interests. I am sure that New Labour aint dead yet!
“I can’t understand why no one in the Labour Party Leadership contest is not arguing that there is a need to tackle the tax gap”
Probably because of the same reason that Obama’s healthcare and financial bills have been such a disappointment to progressives, the fear that you do not want to scare the big business interests. I am sure that New Labour aint dead yet!
@Paul
As opposed to the Conservative Government arguing over who achieved the highest mark in Latin at Eton?
Jeff Jones is absolutely right to bemoan the fact that “no-one in the Labour Party Leadership contest is … arguing that there is a need to tackle the tax gap. This is the gap between what the government should legally take in tax and what is actually collected.” This is certainly regrettable. But the PCS Union IS making this argument loud and clear – http://www.pcs.org.uk/en/campaigns/tax-justice/index.cfm
Fair play, it’s very brave of Paul to speak up on behalf of the ConDem government. He asks “What would Labour have done if they (God forbid) had won the last election?” Umm – see Labour’s manifesto?
The shallowness of Paul’s analysis, though, emerges in his final sniping sentence -”whilst Labour argue amongst themselves over which Oxbridge educated public school boy is the most socialist and progressive (if such things still exist in Labour’s dictionary – pathetic”. It does seem pathetic that Paul thinks Labour’s arguing amongst themselves – rather, five leadership candidates are seeking a chance to lead Labour in opposition to the Condems’ disastrous project. (Which of these candidates do you think is public school-educated, Paul? How many of the ConDem cabinet were public school-educated?)
Nothing in Paul’s flimsy defence of the Condems – “doing what all good strong governments do – making touch [sic] decisions quickly, to restore trust and stability to the nations finances” – actually responds to or refutes Ann Jones’s devastating critique of this Government’s economic approach.