Later today you will hear George Osborne say there is no alternative to his plan to slash a further £20bn from lean public services by 2020-21. He will also say that there is no alternative to £9bn of cuts to tax credits, cuts that will hit the poorest hardest, cuts of thousands of pounds per annum to the incomes of millions of households.
But there is.
As I outlined here the Conservatives plan future tax cuts which benefit, disproportionately or exclusively, the wealthy. Suspending those future tax cuts for the wealthy would save, by 2020-21, £9.3bn per annum.
I also explained here that a mere 50 of our 1,156 tax reliefs cost us over £100bn per annum. We don’t know how much the other 1,106 reliefs cost us – because Government doesn’t monitor them. And we don’t know what public benefit they deliver – because Government doesn’t check.
What we do know, as I explained here, is that they disproportionately and regressively benefit the wealthy: an average of £190,400 per annum for the wealthiest.
And we know, too, that they include (amongst the more than 1,000 uncosted reliefs) the £1bn plus ‘Rights for Shares Scheme’ – badged by the Chancellor as for workers but identified by a leading law firm as designed for the wealthiest.
Simply by asking a question that the Chancellor chooses to ignore – do these 1,156 reliefs deliver value for money – it is entirely possible that £10bn or more extra in taxes could be collected without any loss of public benefit.
To this £19bn, we might add the indiscriminate provision – both direct and indirect – of public money to wealthy pensioners.
Those above basic state pension age enjoy a tax subsidy of up to 12% on earned income.
Moreover, this Office for National Statistics data (see Table 18) reveals that the 10% of wealthiest retired households – some 714,000 households – have gross pre-tax and pre-benefit private income of on average £43,983. Yet still they enjoy average cash benefits from Government of £11,500 per annum.
Means testing benefits to exclude that top 10% of retired households would save £8.2bn per annum. And why, you might wonder aloud, should means testing be thought by the Government appropriate for the working age population, yet a heresy for retired households?
Add in abolition of that unprincipled tax subsidy and you’ll save even more.
So there are alternatives. Clear alternatives. Good alternatives. Alternatives that enable those with the broadest shoulders to bear some share of the pain. Don’t allow yourself to be persuaded otherwise.Follow @jolyonmaugham
Of course there are alternatives. Which alternative to choose is a political decision. For good or for ill, this government won the general election just 6 months ago, and the electorate will reap what it sowed. That said, we might get a different result at the next general election – can we expect to see you standing?
On the details, just to remind people, about £90 billion of the oft-repeated £100 billion figure for the 50 tax reliefs you have picked out relates to contributions to or income in pension schemes (£30 billion), ISAs (£2.6 billion), capital gains tax relief on sales of principal private residences (£13 billion), and VAT zero-rates (£41 billion, including £17.5 billion for food and £8.3 billion for new houses), plus £4.8 billion for the 5% VAT rate on domestic power. Unless you are willing to change these, you are left with only £10 billion to play with.
In addition to the famous 50 tax reliefs, HMRC’s table of “principal tax expenditure and structural reliefs” lists another 40 are so-called structural items such as income tax and NICs thresholds, capital allowances, the IHT nil rate band, and exemption of dwellings from VAT, amounting to some £260 billion on top of the £100 billion you mention above.
HMRC also publishes a list of “minor tax allowances and reliefs” which costs another 43 reliefs, none individually over £45 million and many negligible, for a total of under £1 billion, and a third list of about 250 other reliefs with “cost not known” (from exemption of agricultural societies on profits of shows, to landfill tax relief on backfilling of quarries). Query what happened to the other 750 or so reliefs, but I suspect most of these have negligible impact too.
As to your £1 billion figure for “shares for rights”, the “cost” only arises when disposals are made. How much do you think it has cost so far? (I expect we will see some sort of cap before too long, perhaps aligned with the £10 million lifetime limit for entrepreneur’s relief.)
So there is some data for around one in ten of the thousand or so tax reliefs. You are right: this is not good enough really, and post-implementation review and checking against impact assessments is sorely lacking. But you still haven’t explained what “value” or “benefit” means, and how we can measure it.
Hmm. Clearly there is an alternative: an additional payroll tax of 0.5% – effectively a hike in employer NICs, but soothingly called an “apprentice levy”, which will be much comfort to the employers paying it. Over 5 years, it raises more than abandoned tax credits changes would have cost!
Clearly the Govt has room to move in this area. But we need to broaden it out. You mention NIC and those past retirement age. But logically we should look at unearned income, or simply abolish NIC and raise basic rate.
We could end the VAT zero rate and 5% rate, and use part of the proceeds to raise benefits, or cut basic rate. (I haven’t done the maths on possible levels.)
On a small point. You mention the £11,500 cash benefits for the top decile of retired household and how means testing could raise £8.2bn.
From Table 18 I see £10,241 is state pension, and another £214 is war/windows pension. Two quick thoughts. Presumably this is not capable of being means tested but it is taxed?
And would that mean the bulk of the £82bn was not attainable?
Post-implementation review, a year after abolishing the tax disc – http://www.bbc.co.uk/news/business-34933962
Efficiency savings of £10m, going from paper to digital, but the number of untaxed vehicles doubles so unpaid duty goes from around £35m to about £80m, notwithstanding enforcement through automatic numberplate recognition. Perhaps these are early teething problems – the so-called “implementation hump”, when things get worse before they get better. It will be interesting to see if compliance gets any better next year.
Let us hope the project to move all other taxes from periodic paper returns to on-going digital compliance works. They will be collating data about millions of taxpayers from thousands of sources. What could possibly go wrong with a massive government IT project?