Meagre tax cuts could cost us all dear

This comment article is written by Paul Smith

Last week I received my annual tax summary for 2013-14. It’s not something I ever remember having been sent before. All the tax details I get in an annual statement, I think it’s called a P60 from my employer. And although the new universal credit system is digital by default, this document is posted not emailed to me. Despite the age of austerity, the Government has found money to start posting a pointless document to all tax payers.

The document helpfully includes a page breaking down the money I have paid to the Government (through income tax and national insurance only, I think I also pay quite a lot of money in VAT). There is both a list and a multi-coloured doughnut. I won’t go through the breakdown but I’m not sure if this analysis is supposed to give me a warm feel about the contribution to living in a civilised society or whether I am supposed to be outraged.

Being more than a little suspicious of the Government I think it’s the latter, the biggest sum is for something strangely described as welfare. There is no explanation what welfare is but I think the implication is that this is benefits and I should be angry about how much of my pay for working is used to support those who don’t. In reality, an increasing proportion of the benefits bill actually goes to other people who are working on pathetically low wages and living in homes with unaffordable rents.

Unaffordable housing

Recent analysis by the Institute of Fiscal Studies shows that the benefit system costs are already £12.5bn higher than the Government was originally projecting. Half of this is due to pensioner benefits. £3bn is due to housing benefit which is now propping up a large number of low-paid households. The Government has encouraged rents to rise in both the private and social sectors. In the social sector new higher ‘affordable rents’ have been forced upon housing associations and councils to pay for the 63 per cent cut in Government capital subsidy for new housing.

We have seen the continued decline of home ownership, the unaffordable price of housing for most people and the continued rise of the private rented sector all leading to increased benefits for those in work. Those in work claiming housing benefit has risen under this Government from 650,000 to more than one million. Tax credits have also risen in an attempt to plug the gap between wage increases and inflation.  

The Conservatives are aware that their attacks on people on benefits are popular in the country, possibly their most popular policy fuelled by the distorting perspective of programmes like ‘Benefit Street’ and the ranting of the print media. Increasingly our benefit system is propping up low-paying employers and high-renting landlords.

Economic miracle?

The economic miracle we are being sold by the Government is failing to significantly close the gap between tax income and government spending. The problem appears to be that in creating a low pay, no pay, self-employed (or self-unemployed as some people seem to be) economy, the tax benefit of rising employment has failed to materialise. Although employment has risen dramatically since the crash the number of full-time employees is still below the pre-recession figures.

To pile more gloom in the run up to the Chancellor’s statement and next year’s general election, Deloitte act as cheerleaders for the Government’s debt reduction strategy and cheerfully point out that half of the cuts are yet to come. They also make it clear that the ‘easy’ cuts, the efficiency savings, the delayering, stopping nice to haves has already happened.

The next half will need to involve the closing of services, cuts which will be much more visible and which will create far more victims than what has already happened.

Final election sprint

On top of this we are entering the final sprint for May’s general election. The Chancellor will want to appear that he is putting more money in people’s pockets in April. This December’s autumn statement will include at least the appearance of tax cuts. This tax statement is a warm up to that event. The government is hoping that we will look at the money disappearing from our pay packets and be urging the figures to shrink.

I for one would rather live in a society where we want to look after each other and where we might hope to be looked after ourselves if we fall on hard times or illness. It scares me when I see the projections showing us moving towards having the lowest level of public spending in the developed world. The cost of a having a few extra pounds in my pay packet next year could be a decaying health service, increased homelessness, greater poverty and crime and a growing sense of social disintegration. It really isn’t worth it.