Wednesday 23 March 2022

Sunak's damp squib

 As per my comments at this time last year I continue to believe  that we British make far too much fuss about the annual budget (though we are told this isn't one, but just a Spring Statement.) In spite of the horrors of the war in Ukraine this year's "event" has received lots of discussion and publicity before it and will doubtless have generated a lot of comment in tomorrow's papers.

This year, for once, there was an opportunity to relieve the really serous distress on the horizon for a large part of our population, and Mr Sunak has not taken it.

Let us be clear: neither the country as a whole nor the economy as a whole, are suffering, or about to suffer, a crisis.  The people who are are the entire Ukrainian population, the members, largely young conscripts, of the Russian armed forces, the Uyghurs in China, the people of war-torn Libya, Syria, Ethiopia and Yemen, the starving in Afghanistan and the residents of Hong Kong and  the Jilin province of China where the COVID pandemic is spreading rapidly.

We do, however face a considerable rise in energy prices.  For the country and economy as a whole this is, compared with the above, a minor inconvenience.  But for about 20% of our population it will, when the price rise kicks in, mean being  unable to afford to heat their homes.  A uncomfortable  winter awaits for many families, who will be driven into serious misery and debt.

There is no need for this.

The UK, in spite of its problems, remains one of the richest economies in the world.  This Word Bank  site shows that if our Gross National Income were divided equally between every child, woman and man in the country, each individual would receive  $US45 870 a year, equivalent to £34 750 at the current rate of exchange.

That would make an income of a whopping £139 000 a year for the average family of four .

Of course, the national income is not equally divided and I'm not suggesting it should be.  Differentials reward different skills, unique gifts, extra effort and imaginative enterprise. Personally I tend to think that a ratio of 1:10 between the lowest and highest paid should be sufficient to recognise these criteria, but that is a discussion for another post

Most of us do not, of course , receive all our income: the government takes a chunk of it in tax, for most of us before we get it, and another chunk when we spend it.

The proportion taken by the government  in the UK is all together about 33%, below the G7 average of 36% which the governments of other developed countries take.

So, were we to move towards the G7 average, or even exceed it, (our current government likes to be "world -beating,") there would be plenty of money for the government to do its duty: namely:

  • protect poorer families from the rising energy prices by grants, not loans;
  • increase all social security payments by, say,  the anticipated rate of inflation (currently 8% instead of 3%);
  • restore the £20 Universal Credit uplift;
  • bring the NHS provision up to scratch;
  • finance social care;
  • prepare for climate change;
  • restore local government services to at leat their pre-2010 levels;
  • level up.

The manner in which this extra tax is collected  should be such as to do least damage to sustainable growth.  In other words  to tax those things which impact least on  current incomes, and to concentrate on taxing "bads" (eg pollution,) rather  than "goods (eg employment.)

 There is an eclectic mixture from which to choose: land, unearned wealth accumulation through such things a rising house prices, a wealth tax, a windfall tax on companies that have made excess profits during the COVID crisis and will make them during  the energy crisis; incomes greater that 10 time the minimum wage, and counting . . .

Instead, what have we got?

  • a rise in the threshold for paying NICs (which benefits higher earners more than lower earners, and doesn't benefit non-earners at all.  and in any case, it's a "bad" tax because it's a tax on employment, which is a "good"):
  • 5p of fuel duty, which should have been retained if not increased because fossil fuels are  a "bad", a source of global heating, pollution, and are non-renewable;
  • a promise of an income tax cut in two years, which helps the rich who don't need it more than the poor who do.
It doesn't even amount to tinkering at the edges.

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