Closing an enormous fiscal deficit hurts. But there are ways that the chancellor can mitigate the pain.
Ahead of the autumn statement on December 5th, we urge George Osborne to take a look at our £17 billion savings package containing progressive tax reforms and marginal welfare cuts targeted at those who don’t need handouts.
Seventeen billion pounds is a lot of money. Delivered in full, our package would allow the coalition to stick closer to its fiscal target of debt as a proportion of GDP falling in this parliament, whilst steering clear of the most vulnerable in society.
We accept the need to reduce the deficit through a mix of cuts and revenue raisers, but it must be done in the fairest manner possible. That means asking wealthier individuals to make an appropriate contribution.
The biggest savings we have identified would come from rebalancing the tax system. We call for a clampdown on outdated and unjustified tax exemptions and reliefs, and for the introduction of tax on items that are not currently – but should be – subject to tax.
At a time of fiscal consolidation, you have to ask why the richest pensioners with incomes well above the tax threshold should first enjoy a tax free lump sum of up to £375,000 and then be exempt from paying National Insurance like everybody else.
You also have to ask why capital gains are treated more generously by the taxman than wage income. And why business and agricultural property attracts inheritance tax relief of between 50 and 100 per cent. Addressing these four anomalies alone could raise more than £9 billion a year.
We agree with the director general of Saga that universal pensioner benefits should be taxable, and disagree with the Conservative policy enshrined by Gordon Brown that cars manufactured before 1973 should be exempt from vehicle excise duty. Indeed, we have previously argued vehicle excise duty should be replaced entirely with an upfront purchase tax on all new cars. The latter could result in a short term revenue boost of at least £3.4 billion.
Elsewhere, we call for red diesel to be phased out (realising £2.4 billion) and for the self employed to pay national insurance at rates closer to those of other workers (£1.4 billion).
Marginal savings would come from ending the council tax freeze for top band properties and introducing new bands I and J.
We also think it is right to place a cap on statutory maternity pay given a mother with an income of £150,000 currently gets the pro rata equivalent of £135,000 a year. Remember the coalition’s £26,000 benefits cap?
Our package of measures is by no means exhaustive, but we believe it highlights some of the absurdities of the current tax and benefits system. Asking more affluent sections of the population to pay their fair share is not only sensible given the amount of revenue that could be raised; it will also help to convince critics the coalition has not forgotten “we are all in this together”.