BUDGET 2011: the good, the bad, and the depressing

So let me start by looking at George Osborne’s budget through my moderate-libertarian right-of-centre orange-tinted spectacles. I see tax cuts: delicious tax cuts, for (almost) everyone! Tory tax cuts are all too often just a way to reward the better-off for being better-off, but this budget is different because, largely thanks to the Liberal Democrats, it should be noted, these tax cuts aren’t just a matter of doubling the drop in corporation tax (or lowering it further by no more than a measly 1%, depending on which paper you’re reading…), or sneaking an inheritance tax cut into the bargain despite it being dropped during the Coalition negotiations in May. The 2011 budget has lifted 10,000 people on low incomes right out of income tax, without passing go (or, once their VAT for the year stacks up, without collecting their £200, either). Because yes, it’s technically true to say that the VAT hike effectively cancels out the increased personal allowance – but just to give the Lib Dems a couple of seconds in the (increasingly orange-looking) sun, let’s put it like this instead: the Lib Dem adjustments to the personal allowance offset the Tory VAT hike.

Another policy that I find it hard to find fault with is the tax incentives via inheritance tax for people leaving charitable donations in their wills. Given his obsession with paying down the national debt almost entirely irregardless of human cost, it says an awful lot about our Chancellor that he chooses to make inheritance tax cuts a priority, but since George Osborne is apparently determined to make space in the budget for this beloved Conservative policy one way or another (incidentally, it always strikes me as mildly curious how many people claiming to believe passionately in ‘meritocracy’ are also against children of rich parents having to succeed entirely on their own merit), then this is a pretty decent way to do it. Anything encouraging more charitable donations is a good thing – and quite frankly I’d prefer to see money in the hands of Oxfam or the NSPCC than in the government’s greasy little paws.

In any case, George Osborne seems to be putting all his eggs in one basket – the basket being his ambitious hope that tax cuts will tempt foreign investment, and, coupled with the moratorium on regulations for businesses with less than ten people, will create a whole heap of jobs – but that’s not to say his plan is bound to fail. It’s just extremely risky. Tax cuts and a minor swipe at tax avoidance could stimulate the economy. It could also fail quite spectacularly. The danger, surely, is that if Osborne’s luck rings hallow and growth shrinks further, not only could we end up saddled with a thoroughly devastated economy, but we will also be facing the grit of a double-dip recession with a vastly pared-down welfare state as well.

So Ed Balls is not the only one calling for a ‘Plan B.’ It would be sensible, surely, in order to make the situation a tiny bit less of a mad hatter’s gamble, to – for example – make these job creation incentives available only on the condition that the businesses in question actually create some jobs? It’s hard to share George Osborne’s blind faith that most businesses, during such tough economic times, will automatically use this shot-in-the-arm tax cut to employ more people. How can he be certain they won’t just all use it to neaten up their balance sheets? Since when did extra money to sling around automatically mean more jobs and/or better wages?

And this is where, I’m afraid, my left eye takes a look at the budget and tells me I’m being more than a tiny bit naive: that what George Osborne means by ‘growth’ might not be quite the same as what, say, David Blanchflower means by ‘growth.’ Because David Blanchflower, a renowned economic expert, albeit a left-of-centre one, says the 2011 budget will cripple any growth before it starts. When Mr Blanchflower talks about ‘growth’, he means growth that the whole country shares in. Growing profits for shareholders, or growing falsely inflated property prices by lending sub-prime mortgage to the public (yes, you have heard of that being tried before, and yes, it didn’t exactly turn out great last time), or growing the amount of money hoarded by people who have lots of money; well, all of that is still ‘growth.’ It’s just not growth that necessarily trickles down to wages or jobs.

So as much as I have no ideological problem with businesses (big and small) getting offered carrots to revitalise their accounts and get some cash circulating again, I can’t help but lament the glaring absence of stick in this equation. What are the rest of us getting in return for the cuts we’re having to swallow in welfare, public services, and affordable living standards? Well, the Chartered Institute of Taxation says that one potentially progressive element to the budget is that by simplifying the tax system, (in particular, by integrating National Insurance and Income Tax), tax avoidance will become much more unlikely. (The Spectator says, and they are probably being truthful, that the integration of National Insurance and Income Tax is, for the main part, designed to make people realise “how much tax they pay,” and as a result, start voting Tory en masse again.) Either way, Osborne predicts that with all his tax avoidance measures taken into account, he will save as much as £1bn of the money currently ‘lost’ in tax avoidance. That sounds like a lot – until we consider that the total lost to the economy due to tax avoidance is actually estimated at around £30bn. In fact, Mark Serwotka, (an admittedly biased source as the General Secretary of the Public and Commercial Services Union), says this new clamp down on tax avoidance will recoup only 0.8% of the total lost to economy.

But tax avoidance isn’t necessarily the goldmine cash cow that everyone from the Social Workers Party to George Osborne have come to see it as. Surely it’s difficult, if not morally ambiguous, for the state to ‘clamp down’ on perfectly legal activity? And tax avoidance is entirely legal. What is more significant is that the Chartered Institute for Taxation (who, broadly speaking, supported Osborne’s budget), pointed out that the Chancellor has so far taken no real steps to tackle the much more serious crime of tax evasion.

Tax avoidance ‘costs’ the UK £30bn a year, yet it is perfectly legal, and is often done by ordinary working people; usually self-employed, but not necessarily rich. It could even be argued that the problem indeed lies not in a private citizen ‘avoiding’ tax, but rather, HMRC wilfully misleading people about how much tax they actually owe in the first place. Tax evasion, on the other hand, is thought to cost the UK half as much at £15bn a year, but it is a serious criminal activity – no ifs, no buts.

It’s not as though the amount of money up for grabs isn’t large enough to warrant political attention. Benefit fraud – often given as the justification for Iain Duncan-Smith’s risky and expensive welfare reform plans – costs us no more than £1bn a year, and quite possibly less. The total savings being made from reforming Disability Living Allowance, a policy likely to penalise many genuinely disabled people, (in particular, the blind, and the mentally ill; two extremely vulnerable groups already being disproportionately hurt by other cuts and reforms, in areas like housing, legal aid and advice, social care, and transport) only come to £1.5bn. Plans to make Incapacity Benefit more difficult to claim are far from cheap and will harm many seriously unwell people, yet even if IDS booted one million law-abiding people off Incapacity Benefit tomorrow, the total net saving would still be less than £2bn – less than one seventh of the total lost in the illegal practice of tax evasion.

Would a crackdown on tax evasion ‘harm’ the criminals who do it? Perhaps it would. When people break the law, there should be consequences; especially when their law-breaking is so much to the detriment of their fellow citizens as tax evasion is.

Some experts are worried about higher taxes stifling productivity and scaring away foreign investment from the UK. But a crackdown on tax evasion is not a tax increase. It’s a matter of enforcing the law, and making people pay the taxes they are already supposed to be paying. It’s perfectly possible to be in favour of tax cuts for the law-abiding, and in favour a tough approach to those who think themselves above the law. In many ways it’s contradictory to support the latter without supporting the former: every penny illegally evaded is another penny on your tax bill – or cut from your public services. The government seem to be ‘brave’ enough to chase after the less-than-2%-of-benefit-claimants-who-are-fraudulent for a comparatively measly amount of lost revenue, and that comes at the very serious risk of destroying real people’s lives, too. If they’re not brave enough to tackle tax evasion – something you’d think they’d be keen to do, as it seems like a great way to pay off this enormous national debt they’re all in such a panic about – perhaps it’s time to acknowledge that a large chunk of our domestic policy decisions are dictated by people who are simply too rich and powerful to be held accountable to the laws that bind the rest of us? People who are, to use the phrase so often levied at trade unions, “holding the country to ransom.”


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