While canvassing in South Manchester I have met a number of people who do not accept that cuts are necessary on the scale suggested by the government. The common mantra is that the banks who caused the collapse should be made to pay, not the taxpayer, or, by implication, the poor who rely on the taxpayer.
Telling people on the doorstep about the Banking Levy meets with the response that this has not stopped bankers receiving enormous bonuses. Reminding them that 50% of these bonuses end up in the treasury is just as ineffective. The public seem to want more. They seem to want the banks to pay a lot more than they are currently paying, and there is the rub.
Gordon Brown’s two bank rescue packages effectively nationalised the banks most closely involved in the near-collapse of our banking system. The funds made available £500 billion in loans and guarantees, and the Bank Recapitalisation Fund, that saw the government buy an enormous combination of ordinary and preference shares in the affected banks, was touted as necessary to protect the banking system from imminent collapse. Brown argued that returning the banks to liquidity and eventual profitability would mean that the shares owned by the taxpayer would eventually be sold to recoup the money spent, with a profit for the taxpayer a real possibility. However, by tying the taxpayers investment to the future success of those banks Brown ensured that any measures taken against them could not be punitive, for fear of damaging the value of their shares, now largely owned by the taxpayer.
In effect, if we force the banks to pay more towards cleaning up the mess, their share value could plummet. Since we own the shares we would, in effect, lose billions of pounds belonging to the taxpayer.
Those canvassing on doorsteps in the coming months might do well to remind voters that limits in the amount of action we can take against the banks is yet another facet of Labours mismanagement of the economy, and not due to any reluctance on the part of the coalition. Indeed, even Labour has not (so far) been calling for punitive measures against the banks they nationalised.
If large-scale cuts are to be avoided, and the funds held by the banks are out of reach, what else can we do to reduce the 895 billion deficit, which is currently rising by about six thousand pounds a second!
The left suggest that it can be raised without cuts through the following measures;
§ Make the present, temporary, banker’s bonus windfall tax permanent, raising in excess of £500 million a year.
§ Extend the banker’s bonus windfall tax to other financial institutions – such as hedge funds and private equity houses. An extension to hedge funds alone would raise in excess of £700 million.
§ Introduce a short-term ceiling on total remuneration, given as both cash and share options, saving around £520 million from RSB bonus payments in this year alone.
§ Set a 50% income tax band for gross incomes over £100,000, raising £4.7 billion annually, or £2.3 billion more than the sum raised by setting the band at its present £150,000.
§ Uncap National Insurance Contributions, so that they are paid at 11% on all incomes, including investment income above £110 per week. The extra tax take would be £9.1 billion.
§ Introduce minimum tax rates of 40% and 50% on incomes above £100,000 and £150,000 respectively in order to mitigate the ability of higher earners to displace tax burdens. The tax rates set out above would raise an additional £14.9 billion annually.
§ Institute a 0.05% financial transaction tax on instant sterling transfers between UK financial institutions, raising some £38 billion a year.
§ Take concentrated action to bear down on tax lost within the existing system – the £25 billion which goes missing through tax avoidance; the £28 billion of tax bills which the Treasury Select Committee (November 2009) concluded were agreed but had not yet been paid; the £70 billion which the Public and Commercial Services Union has estimated to be lost through tax evasion, such as illegal non-declaration of income on which tax might be due, or fraudulent claims for unjustified tax relief.
§ Separate retail and investment banking, removing the ‘moral hazard’ in which recklessness within finance capitalism is bailed out by the taxpayer.
§ Establish a High Pay Commission to apply a permanent public interest test into the setting of senior salaries.
These suggestions may be worthy of further examination, but one doesn’t need a calculator to work out that it is still a long way short of the near one trillion pounds of debt we are storing up for our children to repay.
Which brings us back to the question; how else do we raise the money if we want to minimise the cuts? Option could include:
35% tax on incomes over £10,000, 40% on incomes over £100,000 and 50% on incomes over £150,000
£50 up-front payment for each doctors visit.
£250 for each visit to a casualty department.
£10 per child per day to attend a state school.
An additional council tax levied on the ground your home sits on.
A tax on the space where you park your car at work.
Motorway tolls (£1 per mile for the first 10 miles of any journey, 50p per mile thereafter)
Car tax at £1000 per vehicle, rising to £3000 for vehicles over 2 litres
VAT at 30%
Tax on household waste based on weight, paid to privatised refuse collection businesses.
Domestic water supply charged at 20p per litre.
Cigarettes at £15 per packet of twenty.
Alcohol at £5 per unit.
High fat foods taxed an additional 5p per gramme of fat content.
£100 to dispose of household appliances.
Double the cost of electricity used between 11pm and 7am
£10 entry tax to visit nightclubs.
£10 per month tax to use the internet.
£1000 fixed penalty for speeding or failing to comply with automatic traffic signals.
£200 for an MOT. £1000 fixed fine for not having an MOT.
A freeze on assets whenever benefits are claimed, with a demand for repayment if assets are subsequently realised.
The estate of all recipients of benefits to be subject to government audit on death, with the state reserving the right to seize some or all of the estate before bequests are made.
A 10% tax on all foreign holidays, in addition to the current levy on air travel.
A 2% tax on all credit card transactions.
A 5% tax on all mobile phone use
VAT on newspapers and magazines.
An entrance fee for museums and art galleries
A charge to use libraries.
A 10% tax on taxi use.
Congestion charge for every major city.
Those who will protest about the coming cuts should be careful what they wish for. These are just some of the ways additional income could be raised to meet the deficit if enough members of the public decide they can’t stomach the cuts. Those howling at the Lib Dems for their role in the measures being taken to cut the deficit may do well to remember that the alternatives are just as unpalatable. It will inevitably be the public’s choice. Cuts, with the poor and vulnerable protected as far as possible, or no cuts, and everyone stumping up, poor included.
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32 Comments
Interesting perspective. A rather random set of potential taxes. Clearly in part designed for rhetorical impact.You might as well say everything that moves or doesn’t move is potentially taxable.
Some of the suggestions would clearly be undesirable and regressive. But some of them are not unreasonable. There are sound reasons for taxing some of those things more heavily if you are seeking to apply environmental/externality type arguments. But the point then would be to alter behaviour rather than raise revenue. Some of the things on the list are highly price elastic so aren’t going to raise much revenue anyway. Taxing some of the others would, indeed, in my view be preferable to some of the cuts apparently being considered. But clearly it isn’t me you need to convince on the doorstep!
You might find more sympathy on the doorstep if you raised taxes for those that can afford to pay them rather than making life harsher for those already on low incomes. It’s a simple idea.
A very high tax rate on incomes of over, say, £150,000 would find great favour among the vast majority of people who earn nothing like that. Whereas raising tuition fees for people on low or average incomes tends not to go down well.
Depends what kind of country you want really, one that idolises the well-off, lets them pay as little tax as they can get away with while lambasts the poor and insisting they find non-existant jobs or one that sees the bigger picture for the greater good. There is such as thing as society. Although it’s disappearing fast. And we’re all in it together apparently.
Why on earth are you trying to pay so much off in one year??
@Norfolk By. You create a false dichotomy I’m afraid when you say:
Sorry – html screw up. Not all the quote above is a quote. Here is my bit:
How about one that provides a safety net for those that need it, a helping hand for those that want to be trained/set up a business, and freedom for people to live their lives beyond that. Penalising high earnings is, in the end, regressive and a disincentive to achieve. If you want socialism, go and join the labour party. If you want liberalism, then argue for it.
And here is the quote I was responding to:
People are angry that the bankers levy is set so low at 3 billion and does not get collected till NEXT year .That gives the banks plenty of time to pass on the charges to the public.Why was the levy set so low and not collected straight away
andy edinburgh
tim leunig
Why on earth are you trying to pay so much off in one year??Of course, nothing is being paid off.
All the discussion is about the national debt rising a little faster or a little slower.
The deficit in 2010/11 is likely to be around £150,000,000,000, and around £120,000,000,000 in 2011/12.
That’s not the national debt; it’s the increase in the already massive national debt, inherited from Labour.
I take all that to mean that the fabled “£22,000 of debt for every man, woman and child” will rise to around £24,500 by March 2011 and to around £26,500 by March 2012.
And what will it be if cutting too soon and too deeply puts the country back into recession? Or even just lowers growth? If tax receipts fall? If further stimulus becomes necessary?
Perhaps we should learn from the Icelandic approach.
http://news.bbc.co.uk/1/hi/8551673.stm
It’s not 50% of the banker bonus that ends up in the Treasury it’s is 50% plus 12.8% emplyers NI plus 1% emplyee NI. So of a bonus of £1m the treasury gets £638,000.
The effect of higher taxes will be to drive financial services away from London. Just 2 hedge fund mzmgers going to Geneva has cost 500m and there are many other leaving.
Actually that one’s a pretty good idea in its own right – basically, it’s a higher road tax for overloaded roads, simultaneously covering their higher cost in upkeep, pollution, and accidents, and cutting down on the overloading.
Yeah that’ll go down a treat at the door of any postal, local council or NHS admin worker.Or a driver who’s job depends on public service contracts or a street sweeper who’s job is bieng done for gratis by a school leaver in the name of big society.Or that school leaver’s parents who had hoped paid employment would await him after school.A school starved of funds in favour of the local posh acadmy which generousley allows a few underclass kids in.
And people in general worried sick about their local bus service,elderly relatives, disabled children,mortgage payments and sickness benefits (some claims are genuine you know).worst of all for you will be the informed ones on to your Tory masters plan to use the deficit to take us back to a 1930s society.They will want to know if you are dupes or willing collaberators.And of course there are the poor souls who voted for you in fear of the Tory onslaught and got them anyway.Certainley we cant bury our heads in the sand regurding the financial crisis but people really do not understand why they should suffer so greatly for the crimes/incompetence of investment bankers such as err David Laws remember him.
The first and immediate thing we need to do is secure international agreement to do everything possible to ensure the “markets” are forcibly kept quiet for the period needed to rectify the situation. Then decide by consensus how serious it is, and how / how long to take doing it without putting people’s lives at risk. All this bearing in mind we have to tackle the nexus of environmental problems coming down the track, which will be much, much more difficult. If we can’t get agreement and find the political will to tackle this crisis fairly, how on earth are we going to deal with climate change and associated problems in the wings?
Oh no!
the people in the investment banks who have bankrupted us might leave and take their ‘skills’ with them.
what would we do without them.
It is rather pointless to suggest ideas that noone is making (ie £50 to see a doctor).
Also what is missing from the article is any analysis of the impact on economic growth that these policy options are likely to have.
Alternatively, amend the 1844 Banking Act and make it illegal for commercial banks to create digital debt-based credit from nothing.
Billion pound bonuses are mere froth atop the crucible of banking alchemy. To be satisfied with a 50% skimming of this surface scum [sic] is to be in ignorance – or denial – of the true size of the potential pot. Our national currency should be reclaimed and 100% created by the nation-state, with ‘interest’ accruing to the public purse in the first instance.
A load of new transactional taxes on goods, services and productive endeavour are needed like a hole in the head.
Some of these ideas are worth considering. Congestion charges in major cities to fund dramatic expansions of public transport for one. But generally massively raising taxes is a really bad idea. Tax rises in general depress growth more than spending cuts due to their general dispersed depressionary effect.
More particularly talking about taking the recession out on “bankers” is stupid. Banks and bankers are not some monolithic entity. Not all banks or bankers got us into this mess, just a number at certain banks. And the worst of those banks have been taken into (effective) nationalisation, and so for the reasons given above we can’t really hammer them for the cost of the recession. Not to mention the fact they already lost all their money. Now if we’re talking about a windfall tax on fred the shred, say, 50% of all his wealth, then I would be behind that. But targetting him and similar guilty individuals just won’t raise enough money. Wider taxes on the “bankers” have little moral basis rather than an attempt to scapegoat. We may as well just scapegoat the idiots at the bank of England / Labour who kept interest rates lower than they should have been and encouraged the ridiculous credit bubble.
On the practical side there is a really good reason why the coalition didn’t set the banking levy higher. The more money we extract from banks in tax the less money they are going to lend to consumers and businesses. We can’t try to encourage liquidity while also taxing away bank’s assets at a punitive rate. The small fiscal benefit of the tax would be massively outweighed by the reduction in liquidity sucking the banks dry will cause, now, when we need liquidity most. Once the economy recovers fully there may be an argument for raising teh bank levy as a method of cooling off any future growing credit bubble, but certainly not now.
The bonus tax is a different matter. I see little reason why we shouldn’t seek to discourage excessive bonuses with a tax the same way are discouraging crazy borrowing with the banking levy. But it’s not going to close the fiscal hole, and must be assessed for practicality or it may just not work. Same with a financial transaction tax. There are significant issues about getting it imposed internationally and enforceably, and even then it’s not going raise vast amounts, nor should it, as again, this is all money and liquidity that must come out of the world financial system at the moment. And liquidity is desperately needed there at the moment.
Matt, if you are out on the doorstop you might want to re-examine the figures and assertions in your article because some are misleading:
‘what else can we do to reduce the 895 billion deficit…?’
Apologies for being a nerd but I think you are referring to the Public Sector Net Debt (PSND) here – this is all the debt accumulated throughout history that is yet to be repaid. The ‘deficit’ is the public sector net borrowing requirement – the difference between what the government receives in tax revenue and what it spends on goods, services, social transfers and debt interest. The last time I checked it was running at around £150bn a year – but since a chunk of that rolls over the existing debt it doesn’t follow that the PSND will rise proportionately with it.
I might be wrong but your list of ‘alternative’ measures to address the deficit appears to lump structural and cyclical deficits together: the vast bulk of the deficit is cyclical and should disappear as the economy recovers. Estimates of the structural deficit usually put it at around 3% of GDP (much less than £150bn) – roughly what the overall deficit was before Northern Rock in 2007.
‘One doesn’t need a calculator to work out that it is still a long way short of the near one trillion pounds of debt we are storing up for our children to repay.’
Our children inherit not only our debts but the rest of our economy too – wage rates, unemployment rates and our savings. You could argue that any set of policies that impedes growth or tips us back into recession (like a major fiscal contraction) so our future economy is smaller than it would otherwise be isn’t acting in the interests of their ‘inheritance’.
As Tim points out, there is no need to find the money to pay off the entire national debt in one go! Even a deficit hawk like me would limit the task to eliminating the £100bn+ structural hole in the annual budget, in the process slowing the rate of increase in debt, then stabilising it, and then starting to reduce it as a share of GDP from 2013 onwards. That is a daunting enough task, given our current starting point…
As for the specific ideas floated in the article, most of them are highly undesirable, which I’m sure is the point Matt is making.
To take a few:
§ Set a 50% income tax band for gross incomes over £100,000, raising £4.7 billion annually, or £2.3 billion more than the sum raised by setting the band at its present £150,000.
This would be unlikely to raise nearly as much as £4.7bn. Indeed, the IFS reckons top marginal tax rates in the UK are already well beyond the revenue-maximising point, and that the 50p rate introduced this year is likely to raise “approximately nothing”. Lowering the threshold to £100,000 might raise a bit, since it would hit some of the less mobile high earners, but the sums involved would probably be in the hundreds of millions rather than billions.
§ Uncap National Insurance Contributions, so that they are paid at 11% on all incomes, including investment income above £110 per week. The extra tax take would be £9.1 billion.
Merging NI with income tax – which this proposal would amount to – is a sensible long-term simplification measure. But simply lifting the UEL ceiling would amount to a tax rise of 11p in the £ for earnings above £44,000, taking the marginal tax rate for people at this level of earnings to 51% and to 61% for top earners. This would probably be the highest level of direct taxation in the free world.
§ Institute a 0.05% financial transaction tax on instant sterling transfers between UK financial institutions, raising some £38 billion a year.
A financial transactions tax like that proposed by the “Robin Hood” campaign is a thoroughly misguided idea. It would do nothing to reduce financial instability since it does not target the key attributes – institution size, interconnectedness etc – that give rise to systemic risk. It is hard to see how a Robin Hood tax would have made the financial system of 2003-07 any safer – although it would have made it less efficient in various ways.
Moreover, transactions taxes tend to hit end users. Rather than curbing earnings in the financial sector, a large chunk of the burden would be passed on to the users of financial services (both businesses and individuals) in the form of lower returns to saving, higher costs of borrowing and/or increases in final commodity prices. As the IMF concluded when rejecting the case for a financial transactions tax, “it is far from obvious that the incidence would fall mainly on either the better-off or financial sector rents”.
The proposed tax rate is deceptively small, but remember that a tax levied on transactions at one stage ‘cascades’ into prices at all further stages of production. (This is why most countries have found VAT – which effectively excludes transactions between businesses – to be a more efficient way of raising revenue than turnover taxes).
For those interested in the technicalities, Giles Wilkes has explained why the seemingly infinitesimal tax is actually huge here: http://freethinkingeconomist.com/2010/02/14/the-robin-hood-tax/
§ Establish a High Pay Commission to apply a permanent public interest test into the setting of senior salaries.
I’m not convinced of the case for a High Pay Commission, but if there is one it is based on the role that transparency might play in forcing high executive salaries to be justified. The idea that they should be determined by a “public interest test” – presumably adjudicated by a politician seeking votes or a highly-paid quango chief – is a populist gimmick with no economic merit. Anyhow, it would do nothing to reduce the deficit and to the extent that it reduced salaries would also reduce tax revenue. So it is not an alternative to cuts but would necessitate bigger cuts.
35% tax on incomes over £10,000, 40% on incomes over £100,000 and 50% on incomes over £150,000.
Since the basic rate of tax is currently 31% including employee NI, and above £44K the rate rises to 41%, this proposal would have the distinctly regressive effect of raising the tax burden sharply on low and middle earners while reducing it sharply between £44K and £150K.
Other than that, they are great ideas… Submit them to George Osborne without delay!
@ Mike S: …the vast bulk of the deficit is cyclical and should disappear as the economy recovers. Estimates of the structural deficit usually put it at around 3% of GDP (much less than £150bn) – roughly what the overall deficit was before Northern Rock in 2007.
Afraid not. The bulk of our £150bn deficit is reckoned to be structural, not cyclical. Hence the need for large discretionary tax rises and spending cuts.
The OBR put the underlying or “cyclically adjusted” deficit in 2009-10 8.7% of GDP, compared to the total deficit of 11% of GDP. In 2010-11 the corresponding figures are 7.4% of GDP and 10.1% of GDP.
Of course, determining where the economy is in relation to its trend – and thus how much of the deficit is structural – is an inexact science. But most independent estimates are that the structural ‘hole’ is of the order of £100bn.
@ Alex Sabine
Yes, Tim does give a clear idea of how difficult the problem is – I would suggest an impossible problem to resolve by standard political techniques.
Even if the Star Chamber are able to come up with the ‘best possible’ solution, few if any of the spending departments will be prepared to accept the outcome and will predict dreadful consequences if the proposed cuts go ahead – we have already seen this from Liam Fox for the Armed Services, supported by the Service Chiefs [and Clinton & Obama] – and also by the Police. The budget cuts will be agreed and announced, but I do not believe that those who consist of the Star Chamber will be able to withstand the pressures placed upon them and stick to their guns.
Continual re-adjustments will be made and the resulting ‘pigs breakfast’ will not provide a satisfactory solution to the problem, this is why I suggested [above] an Icelandic approach to the problem – that is involving the electorate as far as is possible. If it is their clear choice that we lower our military defences or reduce the effort to prevent terrorism or allow the standard of education to fall – then so it be it. In this way those pressing for the cuts to be reduced will be effectively silenced if they know it is the ‘will of the people’ – those they are supposed to be serving.
Involving the public in a systematic way is what the Canadians did through their Program Review in the mid-1990s.
Rather than just inviting the public to suggest individual wheezes for spending reductions, more effort should have been put into explaining the broad nature of the choices available within the overall spending envelope the government has committed to, and what the implications of a whole host of different measures would be so that they could be compared and evaluated.
That would have been a good way to re-examine everything – including election promises – from first principles, acknowledging the possibility and indeed likelihood that election pledges would have to be dropped.
But it would probably have necessitated a big admission – that all 3 parties conducted a sham debate at the last election and that we as a nation now had to face up to the true situation and choices available.
You don’t seem to include scrapping trident in your list of possible alternatives to cuts.
I personally don’t think LibDems should ever accept ‘the common mantra’ that punative action against bankers or other demonised groups is required. That’s just cutting your nose off to spite your face and building up conflicts for a later date.
There’s no point arguing about detailed financial facts and figures on doorsteps – that’s the place to talk about legislation and regulation.
What new reforms can be introduced to constrain the excesses and irresponsibility of recent years presided over by Labour?
Oranje whatever
I think the people I described in my above posting will be very keen to descuss cuts and the excessive school building and irresponcible job creation schemes of recent years.
Question what do you know the price of ansver everything.Question what do you know the value of nothing…congratulations you are in the coalition.
@r patey
whilst the system incentivises selfish and short-term thinking the same problems will crop up time and time again whoever fingers of blame are wagged at.
And although it’s easy to accept many people enjoy wagging their fingers and there is a short-term political advantage to be gained by pandering to their opinion the next general election is still sufficiently far enough away for the real work of constructing a fairer society to bear electoral fruit.
So I’m happy to agree that discussion of these points is important – precisely in order to win the argument that we need deeper reforms.
In the 80’s thatcherites were all ‘blame the unions’, now it’s labourites saying ‘blame the bankers’. But the underlying political problem is governments which play favorites and who try to curry favour with one side or the other and in doing so squeeze out the general mass of opinion between the two extremes of the spectrum.
The roots of this are constitutional, not economic.
If the tone of debate continues to descend to the lowest common denominator of who to blame and the dollar-value of specific proposals then political parties will be continuing to fail society. So it must be shown how each practical measure is linked to the general principle of making society fairer with increased accountability – otherwise the discourse is simply over an incoherent shopping list of ideologically motivated possibilities (as this article successfully points out).
The country still suffers from the fallout of the ideological battle of the 80s. I just hope the current situation doesn’t cause political polarisation to drag on with a similar bitterness which can only cause equally lasting harm.
But that means ensuring that, and then emphasising ad nauseum how, every reform promotes fairness for all – quibbling over the details of each in isolation from the opposition benches just doesn’t do that.
Orangina
Good reply must be nice to view the problems real people face as mearley an interesting intelectual paradigam but I ask once again what do you have to tell people on the doorstep about issues effecting their daily lives?.
thanks, that’s kind of you to say.
as a general plan I think honesty is the best course of action and the line of our frontbenchers is the most honest available – we don’t live in an ideal world, and we must deal with the realities which face us.
So if it’s education, employment, housing, health, crime or whatever the same principles remain true today as they were back in the day – the only difference is the change in current circumstances which affects how we approach making things closer to the ideal.
I’m also a real person who struggles with various real issues of my own so I tend to draw on experience as a means to empathise, but if you want a more specific answer you’ll need to ask a more specific question.
However I think the first thing to remember is that we all need to participate in the political process to be able to influence for the better the options served up by it – people must vote and people must pay their taxes. If a person is still unhappy then I’d encourage them to campaign, organise, join a party and possibly stand for election themself.
Orangiboom
No answer then.
r patey
yep, no specific answer to no specific question – and nope, a general answer to a general question.
There was a time when I thought it possible to please all of the people all of the time, but now I resign myself to the knowledge that there are people who positively prefer to please themselves.
Frankly, you’re insulting tone gives a direct indication that you don’t aim to be constructive here, so if you’d like me to do better then perhaps you’ll allow me to challenge you to do better too.
BTW Oranjepan is a fanstastic destination, you should visit sometime.
In what way is wishing a few fair breaks for my children mearley pleasing myself my concern streches to the children of all working famalies who have none of the advantages of the educated professional classes and wealthy.If you dont want an offencive tone from people take a less offencive one yourself.
it seems you flit from general to specific and personal to public at will – all of which makes it difficult to see any coherent sense in your comments.
And since when was wealth or status necessarily an advantage in life?
Does using exotic ingredients make it more likely you’ll make a tasty meal? Does using more ingredients mean you can feed more people? Does using a fancy knife mean you won’t burn the dish?
The answer is that it doesn’t. It’s not about what you’ve got, but what you do with it that counts.
Coming from a modest background is no impediment to learning or professionalism or prosperity.
I’m not bothered by your tone (though others might), I’m only concerned by your intentions – if there is any offense it’s because you harm yourself by carrying that chip around on your shoulder.