Tuesday, May 04, 2010


It’s hard to disagree with commentators who say that this has been the worst general election campaign ever. At first, it seemed to be about whether the government should introduce £6bn of public service cuts during this financial year or next. Against a backdrop of a £170bn deficit, this was trifling stuff indeed. Praise be, then, to Nick Clegg and Vincent Clegg (has more praise been heaped by so many onto two such minor men?), who gave people the illusion of choice by offering a series of negligibly different policies, and to Gillian Duffy, who asked Gordon Brown where Eastern European immigrants were coming from.

From SamCam to Bigotgate, from parochial debates about tax credits to silly ones about amnesties for “illegal immigrants”, from Gary Barlow to Ross Kemp, this campaign has got to grips with everything – everything apart from the fact that we are in the worst economic crisis since the Great Depression, and that nobody really has any idea about how – or whether – we might get out of it.

In a less politically dysfunctional country, we might have participated in an election campaign that addressed this question. We might have been presented with the facts about the extent of our indebtedness. We might have been offered some real choices about how we reduce the deficit. We might have been invited to ask politicians to justify these choices, and we might even have been allowed to have a debate with them.

A general election is, after all, a rare opportunity to hear what political parties would do during the proceeding five years, and to choose the policies that we think are best for the country. The winning party can then claim a mandate for government.

But we have been denied this opportunity. We have not been told about the deficit; we have not been told what cuts the parties have planned (just some vague talk about “ringfencing,” as if the public finances are awash with cash); we have not been told that there are alternatives to drastic cuts.

This is what we should have been told. The gap between what the government receives and what it spends has widened because of a massive reduction in income, not expenditure. We are in debt because the government is receiving much less tax revenue than it did at the beginning of 2007. The rate of government spending has barely increased since the start of the last decade.

The Conservatives, Labour and Liberal Democrats want to cut public expenditure to reduce the deficit. This will mean sacking people – lots of people. As there are few jobs in the private sector, these people will be unemployed. They will no longer pay tax, and will be forced to pay benefits. The new economics foundation has calculated that for every public sector worker earning £25,000 per year who is made redundant, the government will save less than £2,000 per year, after taking lost tax revenues and unemployment benefit into account. Each of these unemployed workers will also have less money to spend, which could in turn threaten private sector jobs and businesses.

This is an economic argument, and perhaps a rather dry one. But each of these redundancies is also a private misery. If you are unemployed, your mental and physical health is likely to suffer. If you are a vulnerable person, the public services which you rely on will disappear. Millions of people will become isolated, depressed and angry. In other words, there is surely a personal side to this story which politicians could have wielded to their advantage.

So if cutting public services is bad for the economy and bad for people’s wellbeing, what is the alternative? We must look at the other side of equation: government income. Treasury data shows that around £123 billion per year is currently lost in uncollected taxes. The wealthiest in society – the 1% who own 21% of the country’s wealth – hire lawyers to find legal loopholes to avoid paying tax. Or, by failing to declare their income, they illegally evade paying tax. Or their tax simply goes uncollected. Tax avoidance costs the government £25 billion per year; tax evasion costs £70 billion per year; unpaid tax costs £28 billion per year.

How could the government collect these taxes more successfully? It could stop making Revenues and Customs staff redundant (at a cost of £10 million per year, which would raise £3 billion a year in revenue). It could lift 20,000 out of unemployment by recruiting them to new positions at Revenue and Customs (at a net cost of just £100,000 per year after tax and benefits are taken into account, which would raise another £20 billion a year). And it could implement policies which would ensure that much less tax is avoided, evaded or not collected.

None of this would involve implementing new taxes, and it may not recoup every penny of the £123 billion per year that we are owed – after all, no tax system is perfect. But there are a couple of other new tax policies which could also be introduced. Firstly, the poorest in society have to pay 11% National Insurance on their basic pay, yet the richest do not have to pay a penny on each pound they earn over £844 per week. Making the rich pay what the poor have to pay would raise £8.5 billion a year. Secondly, the top rate of income tax is currently 40%. If it was increased to 60%, as it was under Thatcher, a further £19 billion per year would be raised.

The most cautious economist would estimate that the government could earn an extra £100 billion per year if these policies were implemented. If implemented properly, they may raise nearer to £150 billion per year.

The Conservatives, Labour and Liberal Democrats have preferred not to talk about this. They have talked vaguely about cuts, but have refused to tell us what they are. They have not cared to talk about tax, either because they fear that their millionaire backers would desert them, or because they are ideologically opposed to making the rich pay what the poor have to pay. Either way, they think talking about tax is a recipe for losing the election.

I don’t think so. I think any large party with the machinery, the funding and the wherewithal to spell these policy measures out to the electorate would win a handsome mandate to put the British economy’s house in order, and to address the inequality that is the terrible legacy of the last 30 years.


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