Thursday, December 10, 2009


The first thing I imagined when I read the headlines of the pre-budget review was the scene in Cabinet, where New Labour ministers convinced themselves that they'd finally found their radical roots. You can imagine the self-congratulatory scene at No 10: this is real redistribution, this is real socialism, this is the sort of thing we've banned ourselves doing all these years! Ah yes, this'll bring all those old Labour supporters back into the fold.

The one-off tax is nothing of the sort - it is a feeble, cynical sop to all those underpaid people who will have to suffer real-term salary cuts in order to save a system that screws them over. And make no mistake: pay freezes mean increases in the cost of living, whatever the Retail Price Index says. In June of this year, the OECD found that food price inflation in the UK was 8.6% last year, four times higher than any other country in Europe. The RPI masks the real cost of living by including within its basket of goods luxury items which the poorest in the society could never afford in the first place. The prices of these luxury goods (restaurant meals, hotels, leisure products) have actually gone down, while the prices of basics have gone up. And as I wrote a couple of months ago, the cost of rent went up by 2.9% last year, while the cost of mortgages went down by 39.9%. Life has got much more expensive for the poorest 10%, and much cheaper for the richest 10% and this will be compounded by Darling's pre-budget review.

Compass have devised an alternative set of tax reforms which would raise enough money to reduce the government's deficit and fund a green investment programme. Compass's proposals would make the richest 10% worse off, but would benefit the other 90%. You can read Compass's pamphlet In Place of Cuts here, but here are the headlines (usefully cribbed from my local UNISON magazine - see, you do at least get something out of being a UNISON member...):

There are nine key proposals for 2011-14 which would raise $45.8 billion a year:

- Introduce a 50% Income Tax band for gross incomes above £100,000. This raises £4.7 billion compared with the current (2009/10) tax system, or an extra £2.3 billion compared with introducing this band at £150,000 as proposed by the Chancellor.

- Uncap National Insurance Contributions (NICs) such that they are paid at 11% all the way up the income scale (although pensioners would continue to be exempt); make NICs payable on investment income. This results in further revenue of £9.1 billion.

- In addition to the 50% Income Tax band above, introduce minimum tax rates of 40% and 50% on incomes of above £100,000 and £150,000 respectively; these raise an additional £14.9 billion.

- Introduce a special lower tax band of 10% below the poverty line (below £13,500 per annum), while restoring the 'basic rate' to 22%. This costs £11.5 billion.

- Increase the tax payable (higher multipliers) for houses in Council Tax bands E through H, raising a further £1.7 billion.

- Minimise personal and corporate tax avoidance by requiring tax havens to disclose information fully and changing the definition of 'tax residence'; these two reforms are estimated minimally to yield £10 billion.

- Introduce a Financial Transactions Tax (FTT) at a rate of 0.1%, applicable to all transactions. This would raise a further £4.2 billion.

- Immediately scrap a number of government spending programmes (including ID cards, Trident, new aircraft carriers, PFI schemes), reforms totalling £15.1 billion.

- Urge that all current small limited companies be re-registered as limited liability partnerships to simplify their administration and reduce opportunities for tax avoidance.

Hardly radical stuff, is it - but it might have stopped half a million public sector workers going on the dole, and it might have stopped the recession getting any deeper. It would have been fairer than the PBR we got, both by making those at the top pay for the crisis they created and by introducing a system which benefits the vast majority. You never know, it might even have got Labour re-elected.


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