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Spend and Tax – to close the fiscal gap

There’s an issue that all the talk of coalitions, deals and prime ministerial resignations has pushed still further to the sidelines whilst the issue of cuts remains firmly in the limelight. That is the issue of tax.

As I have shown, UK tax revenues tailed along behind UK state spending from 2002 to 2008 with a one year time lag between the two. Allow for the fact that the revenue is received up to a year after the income which gave rise to it has been enjoyed in many cases and if the accruals accounting methods used by business had been in use (where income is recognised when the event giving rise to it happens, not when its settled in cash) the books would almost certainly have been in balance throughout this period.

And then in 2009, for reasons we all know, government income fell off a cliff and spending rose a little faster than usual, again for reasons well known.

But as the graph makes clear: spending did not cause our current fiscal crisis. A lack of income caused it. There just weren’t enough tax receipts.

That reality makes the refusal of all parties – including those from the Labour front bench – now taking part in talks on the future of our economy and how to handle this crisis deeply worrying. Because imposing cuts will spiral us into mass employment – I predict a 10% cut in government spending will send unemployment above 4 million – without in any way solving the debt problem. Indeed – all those cuts might, after allowing for increased benefits, save just £4 billion in all in a year, or just 2.5% of the current annual budget.

The truth is cuts won’t work – as I’ve argued in a Compass report, with others.

That means they when others talk cuts the Left should be talking tax. And if we do the opportunities are easy to find.

First, there’s a whole raft of methods for creating a more progressive tax system.

As important, we need to collect that tax already owing, and that means stopping the ludicrous programme of cuts in staff at HM Revenue & Customs. The target is the £70 billion of tax evasion I estimate occurs each year in the UK. That’s fifty times more than the cost of so-called benefit fraud. And it’s more than enough to close the fiscal deficit, by itself.

This is the progressive agenda.

This is the topic on which the Left can build a platform for real change resonating with real people as the reality of Tory and Lib Dem cuts start to strike home soon.

There are three ways, we should point out to close the fiscal gap. We start with state stimulated growth. Then we have two options left. One is cuts that hit the majority hard. The other is tax increases that hit a minority hard.

It’s a no-brainer, surely?

4 Comments

  1. Georges says:

    That’s our Richard. He has never met a tax hike he didn’t love.

    Georges

  2. Roland Rance says:

    Tony hey Tony do I have to finish high school to serve as Commissar of the Revolution?

    — Roland Rance, Stalinizing each day

  3. PB says:

    Great article. Galbraith, in “The Great Crash” also pointed out that not only would more progressive taxes create a more equitable society, they also help stabilise the economy.

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