Monday, June 21, 2010


It Doesn't Have to be so Brutal

As we await the assault of Osborne and Cameron tomorrow I flag up the opinion of LSE's professor John Hills as quoted in Polly Toynbee's article of a few days back. According to this the richest 10% in the country owned more than 100 times more wealth than the poorest 10%. Meanwhile, faced with our debt crisis, the government seeks to reduce the debt by saving four pounds for every one pound raised in taxes.

The problem with this is that it is the poor who consume most public spending, as Hills explains:

The bottom half of the population are heavy users of services and benefits, with more children and elderly than the top half. To raise £30bn, half the sum Cameron pledges to cut from the deficit, means raising on average £1,000 from every household. Hills calculates that if the money is raised by spending cuts, then the bottom fifth loses 12% while the top fifth would lose less than 1% – a startling difference.

However, a tax based approach would be different and arguably far fairer. Raising £30bn in this way would produce a:

'bottom fifth paying another 3.4% of their income and the top fifth paying 3.7%. "That shows starkly how different the impact will be depending on whether the money is raised in spending cuts or in taxes. Public service cuts fall disproportionately on the bottom half."

To raise £60bn through tax would entail a return of the basic income tax rate to 23 pence in the £: a rate I can remember from 1997. As Toynbee asks:

It would certainly be hard for many – but would that still be better than throwing 750,000 people out of work while cutting schools, social care, children's services, transport, arts, benefits and almost everything by a brutal 25%?

Check out Larry Elliott today and you feel a stomach churning sense that Osborne might be about make a judgement call destined to plunge us into a situation far worse than the dire one he claims to have inherited.

Perhaps Osbourne has an incentive based economy in mind, where people who work hard and create wealth actually get to spend it. A novel concept, but one that seems to deliver results whenever its tried.

Polly can hang herself(now that would be better than a tax cut) if she thinks we are going to tax our way out of this one. Her breed lost the election and they would be as well to shut their mouths in case the public remembers that it was the likes of her who put us in this mess.

This crisis offers the UK the best(and perhaps last) chance to wean itself off welfare dependency and state solutions. Tomorrow will be tough for a lot of people(though I doubt Polly), but rather like the strong effective medicine that they are now going to have to wait longer to get from the NHS.
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