That famous omnishambles budget was full of booby-traps on pasties, grannies and caravans. After the collapse of George Osborne’s tax credit policy, the question now is whether his latest budget and this month’s spending review will explode in a far more fundamental way. Are his extreme spending cuts politically impossible?
“Low tax, low welfare, high pay” is his slogan. The first two he is doing and the third is fantasy. This week, the Living Wage Foundation and accountants KPMG show that 23% of the population, six million workers, earn below the living wage, a number rising in each of the last three years. Since Osborne’s illusory “national living wage”, at £7.20 next April, is lower than the real one at £8.25, these numbers will go on rising. Meanwhile, the High Pay Centre reports top chief executive pay up 40% since 2009 to an average of £5m, or 183 times the average salary.
What about “low tax”? There’s certainly been little tax paid by the likes of Facebook, just £4,327 last year. Britain’s permissively opaque accounting means that no one knows if that’s fair. The Guardian revealed this weekend that the UK expects to lose millions to VAT avoidance and evasion from an army of overseas sellers on Amazon and eBay: Amazon says it won’t police users’ tax payments. The booming Uber, Airbnb and other services sold in the ether make bypassing tax authorities easy. How much goes missing? Few believe the official £35bn estimate: some put it as high as 17%. Does “low tax” mean lax collection? HMRC staff have been cut by a fifth since 2010: just 300 chase £70bn of evasion. Compare that to DWP staff, who prosecute 10 times more benefit cheats, worth a fraction of that tax loss.
Tax is at the beating heart of the great political divide. On one side are those who know tax is the price we pay for civilisation; up against them are those like Osborne and Cameron who essentially regard tax as theft, the less the better. Margaret Thatcher said you always spend the pound in your pocket better than the state will, but the counter-argument says that the things we buy together – health, education, security, beautiful public buildings, parks, museums, sports grounds, clean air and water – are precious beyond anything sold in a shop. Migrants flock from failed and corrupt states – low tax, no tax, little spending – towards the civilisations of Germany and northern Europe, not to draw benefits, but drawn to higher tax, and societies with a better way of life.
Osborne is dragging us across the Atlantic, away from the European social and Christian democrat model, to turn us into a tax-and-spend nation even lower than the wild west, sink-or-swim United States. Where about 42% to 45% of GDP is the European norm, Osborne will plunge us permanently to just 35%, a place he has never described, a country Britain will not recognise.
British Social Attitudes surveys have always found most people saying “taxes are too high”, so Osborne’s “low tax” should be a winner. Voters in May, even Labour voters, supported his £12bn welfare cut – and yet when it meant taking £1,300 from three million low-paid families, most were appalled. Voters are not to be trusted: we are contrary, demanding Scandinavian services on American tax rates, the “free lunch” that dishonest politicians offer at election time.
“Efficiency” and “reform” are their charlatan promises to bridge the impossible funding gap between tax and spend. But watch the result as the NHS erupts with debt and growing waiting times expose Osborne’s promised £22bn “efficiency saving” as a fraud. To be sure, the price of good public services is eternal vigilance on value for money – but that rarely produces big savings. Voters deserve to be told what they know already: you get what you pay for, in public services as in shops.
Dust is thrown in voters’ eyes by the right constantly pointing to public waste or the over-complex tax system. True, Tolley’s Tax Guide, the tax collector’s bible, has 17,000 pages and has tripled in size since 1997, mainly due to the law trying to keep up with cunning loopholes devised by accountancy firms. There are 1,228 tax reliefs, dotty excrescences added by governments – such as the marriage tax allowance, costing £820m, giving just £210 to mainly pensioner couples. Or Gordon Brown’s 2003 R&D relief, well-intentioned for business innovation, but accountants cottoned on and its take-up tripled to a £9.5bn few think genuine – cash that would have been better spent in well-aimed grants.
The UK has more erratic VAT reductions than other EU countries: books but not ebooks, food but not takeaways, now tampons but not shaving kits, though every 1% uncollected in VAT forfeits £5.2bn. The tax system is riddled with reliefs whose benefits flow to the best off, from ISAs to pensions. What of “entrepreneurs relief”, capital gains taxed at just 10% for company directors, taking away £4.6bn? Tax sleuth Richard Murphy unearthed this – and it happens to match the amount Osborne tried taking in tax credits.
Britain not only protects an archipelago of tax havens, but is itself a haven. Osborne is today in Berlin demanding lesser financial regulation, after easing our bank restrictions, though a crash may loom. For £25 and no red tape it’s easy to set up companies here, so easy that a bank scam robbing Moldova of an eighth of its GDP was conducted from the UK.
Osborne is increasing the lifetime tax-take from the bottom 20%, while dropping tax for the top 20% – and that’s according to the right-wing TaxPayers’ Alliance who want tax flattened and lowered, especially for the rich.
Cameron’s party conference speech last month crudely mocked Murphy’s new book, The Joy of Tax. Oh, how the Tory party laughed! Tax is always a burden for Tories to cut and for the well-off to avoid, a drag on initiative, never the rock on which all enterprise relies.
People may never love tax, but they are about to find out what a low-tax, low-spend country feels like. Osborne will be cutting police, social care, child protection, schools, health, local government and much else at a rate not seen in our lifetime. Or he may fail in the face of protest from many on his side, including the old who voted him in. The tax credit fiasco may be just a foretaste of the omnishambles to come.
