Never mind the 50p top rate: these five cuts really are a false economy

Five self-defeating cuts which are not only unfair, but fail on the coalition’s own criteria of deficit-reduction.

George Osbornej

Treasury minister David Gauke recently criticised the 50p top rate of tax because it raises “little, if anything”. Tory politicians and right-wing commentators commonly go further and claim that “a 50p tax rate means the rich pay less”.

Everyone would agree with the general principle of the argument: politicians should not be driven by ideological dogma, against overwhelming evidence, to implement policies which may appear sensible but are actually a false economy.

Evidence that the 50p top rate costs more than it raises is flimsy, but this principle applies far more clearly to a range of coalition cuts that will ultimately cost the taxpayer more in the long-run.

Next time the unwavering supporters of austerity criticises Labour’s 50p tax rate pledge as counter-productive, remember these five self-defeating cuts that are not only unfair, but probably fail on the coalition’s own criteria of  deficit-reduction too:

1) Flood Defences

Despite the government’s contortion of statistics, real spending on flood defences has fallen since 2010.

The Committee on Climate Change, the government’s official independent advisor, suggests that every £1 cut from flood defence will, on average, result in £8 worth of flood damage. The £3billion worth of damage they estimate will result from recent cuts is one of the most spectacular cases of a false economy.

2) Tax collection

Slashing funding to HMRC cuts government expenditure, but by making tax evasion easier and placing extra administrative burdens on small businesses, it probably cuts government revenue even more.

The Public Accounts Committee estimate that reducing the number of staff working in compliance and enforcement by 3,387 cost £1.1billion in lost revenue, “around £10 for every £1 of running costs saved.”

3) Homelessness projects

The Conservative chair of the Local Government Association, Sir Merrick Cockell, says councils have “run out of money and the system is bust”. Councils are therefore under immense pressure to cut services in order to balance the books this financial year, despite the long-run impact on council budgets and the immediate knock-on effects on other public bodies.

Cuts to homelessness projects, hostels and ‘second stage’ accommodation create costs – increased rough sleeping, anti-social behaviour, and street drinking – which cascade through other public bodies such as the NHS and emergency services, leading to a costly reactive approach which harms individuals, society and the public purse. As Homeless Link succinctly argue, “Cut Now, Pay Tomorrow”.

4) Legal Aid

The government’s plans to exclude vast areas of law from the legal aid system mean 500,000 fewer people will receive legal advice and 45,000 fewer people will receive legal representation

A range of unintended consequences mean the cuts will “end up generating more costs than they save”, according to chair of the Bar Council Nicholas Lavender QC. The Law Society estimates, for example, that each extra case of self-representation as a result of the change will have a knock-on cost of £273.50 (mainly because cases last longer), and even this is “more likely to be an underestimate than an overestimate of the true cost”.

A key pillar of the welfare state, introduced by the Attlee government in 1949, is being eroded for little, if any, financial benefit.

5) Bedroom Tax

Forcing tenants out of two-bedroom social homes into more expensive one-bedroom flats in the private sector, subsidised by Housing Benefit, costs the taxpayer more money. Wigan and Leigh Housing estimate that the amount spent on welfare in Wigan will rise by £500,000 as a result of the bedroom tax, typical of areas with a shortage of one-bedroom social housing.

The bedroom tax should be abolished because it is unfair, but its dubious fiscal benefit makes it indefensible.

Leave a Reply