Ask most people their opinion of a welfare claimant and it conjures up a vision of a minority of people who abuse the welfare state. To deny that this has been possible – and of course extreme cases make good headlines – is to deny the facts. However as Mark Twain said ‘whenever you find yourself on the side of the majority, it is time to pause and reflect' so it was good to see two newspapers attempt to unravel the bigger picture.
The Daily Telegraph’s ‘How much we give the state in tax – and how much we get back?’ appointed number-crunchers at Smith & Williamson, the accountancy and investment group to analyse the taxes and other forms of “paying in”. The calculations included direct taxes such as income tax and included National Insurance and council tax, as well as more than 15 “indirect” forms of tax covering everything from VAT, alcohol duties, stamp duty on housing transactions and television and vehicle licensing. The figures are derived from government data about household spending habits, collated by the Office for National Statistics.
The forms of receiving benefits or “taking out” of the system are similarly wide, including “benefits in kind” such as housing and travel subsidies and average usage of state education and the NHS.
The point at which a household switches from being an overall “taker” to a “giver” is where disposable income, after all taxes and benefits are taken into account, passes a threshold of about £27,000 a year, Smith & Williamson found. This would be where a household’s gross income fell somewhere between £35,000 and £38,000. The average mean household income (after tax) in Teignbridge, according to a Devon County Council study, is £27,500. We hold our head above water - just - nothing a wage increase wouldn’t put right!
The Institute for Fiscal Studies (IFS) recently pointed out that just 300,000 very high earners, out of about 30 million income tax payers, paid 30% of all income tax. They mainly live in the South East and London. In the South West the vast majority of income tax payers pay the standard rate. Our main concern is maintaining the quality of public services for the contributions we do make.
The Financial Times analysed the cuts in funding to councils. Since 2010, £18bn of funding has been stripped from council budgets (20%) and a further £9.5bn will be cut by 2020. Whilst some of this is visible to everyone – local minor roads in disrepair, verge cutting – the majority of cuts have been in the realm of adult social care and children’s services which, the FT states, swallow up by far the biggest chunk of council funding. This money is spent on the least fortunate people in society, less than 2% of the population. There is general consensus that the national budget has to be balanced - cutting the deficit – but this is not the same as a ‘high wage, low tax, low welfare’ society that is the current Conservative slogan. Many feel uneasy about these welfare cuts, wheel chair users at anti-austerity marches do not sit easy on most people’s conscience.
Jeremy Bentham the historical philosopher in his theory of assessing dilemmas of ethics states “the greatest happiness, to the greatest number of people, is the measure of right and wrong’. If he was right, how do we balance the budget, protect the less fortunate in society and maintain quality public services; and keep most people happy? Where will the money come from if not from the £12bn welfare budget?
Some can come from welfare reform to eradicate exploitation by the few as previously mentioned. Responsible welfare. More effectively we can try to grow our economy in a balanced way to produce higher tax receipts. To do this we have to be more flexible in our attitudes towards some contentious issues like fracking, which is transforming the US economy through providing cheaper energy. Longer term borrowing for Capital Expenditure is critical, because as every business knows, if you stagnate and lose turnover – you can’t cut costs fast enough. Here in Teignbridge our biggest growth is forecast to come from the construction sector. We need investment for that, whilst interest rates are still low. Economists can judge whether an area is growing or dying by the number of tower cranes which can be seen from a train passing through. More building – more business – more jobs – more tax receipts – better public services. There is no proof that economies with higher taxation grow more slowly, but that is another debate.
We can focus on providing quality front-line services through improving productivity in our public services. Already £1.9bn (19%) has been cut through merging services and painful staff reductions. Comparing the cost and efficiency benefits of Cornwall’s unitary system against Devon’s three tier system of local government is a further option. The Channel 4 Dispatches programme ‘How Councils Blow Your Millions’ exposed the high rates of interest councils are paying on their borrowing. Taxpayers are not happy with their council paying at near car loan interest rates. This needs refinancing with government weight behind it, before rates rise again.
From a Labour Party perspective there are other sources of taxation to help cut the deficit. George Osborne reduced the tax breaks for BTL landlords in his recent budget and this was a step in the right direction. Liz Kendall the Labour Party leadership candidate has taken this a further step. She has appointed Margaret Hodge the former Chairman of the Public Accounts Committee to review all current tax breaks. Whilst recognising many help business to grow, there is chaff here too. The total cost is estimated to be as much as £100bn – a more ethical way to reduce the deficit? More economically responsible?
We are not proud Mr Osborne, if you want to adopt our better ideas again – feel free.