There are alternatives to the government’s slash and burn policies

There are alternative ways of managing public finances that aren't reliant on more savage cuts.

There are alternative ways of managing public finances that aren’t reliant on more savage cuts

Never-ending austerity is the dominant vision of the Conservative-led coalition government. Last week it promised further cuts of around £55 billion to public expenditure. However contrary to the government’s claims, there are alternative ways of addressing public finances. Here are just a few examples.

Mega rich

Britain’s 1,000 richest people are estimated to be worth £519 billion, an increase of 15.4 per cent on the previous year. The wealthy elites can’t spend or consume their entire fortune, often built with the blood, sweat, brain and brawn of other people. They could even voluntarily forego 10 per cent of their wealth and it will hardly make a difference to their lifestyle.

Alternatively, the government could levy a 10 per cent wealth tax on the super-rich.

Tax avoidance

An estimated £120 billion of tax revenues go uncollected each year because of organised tax avoidance, evasion and arrears. Even by just collecting 25 per cent of the tax lost each year, government can make a massive improvement to public finances.

Yet the political will is not there. Chasing tax avoiders is a labour-intensive task, but due to austerity programmes some 34000 jobs have disappeared at HMRC.

Rather than firm action, the government is engaged in gestures. A good example of this is the proposals for a Diverted Profit Tax, or what is popularly known as ‘Google Tax’, which might raise £1 billion over five years.

This is optimistic as in the absence of a fundamental reform corporations are adept at creating complex structures to shift profits. In any case, the legislation is unlikely to be enacted before the next general election.

Pension contributions tax relief

The UK’s richest 1 per cent own about the same as the poorest 55 per cent of population. Inequalities and the demands of public purse can be addressed through reform of tax relief given on contributions to pension schemes.

Currently, tax relief is based on the marginal rates of income tax applicable to each taxpayer. If someone liable to the basic tax rate of 20 per cent puts £1,000 in to an approved pension scheme, this results in a pension contribution of £1,250. The same £1,000 results in a pension contribution of £1,667 and £1,818 for those paying income tax at marginal rates of 40 per cent and 45 per cent.

The total tax relief on pension contributions is about £35 billion a year. Employers receive another £15.2 billion tax relief on pension related National Insurance payments, making a total tax relief of around £50 billion. The UK has 29.9 million income tax payers . Of this, 25 million individuals pay tax at the basic rate of income tax or less, and 4.9 pay tax at higher marginal rates.

The government admits that only one-third of the tax relief on pension contributions goes to basic rate tax payers and the remainder goes to higher rate taxpayers. Others say that only about 25 per cent relates to basic taxpayers.

This is a massive subsidy for the well-off. By fixing the tax relief at the basic rate of income tax government can generate revenues of about £25 billion each year.

Corporate welfare

The government wants to be tougher on welfare cuts but there is complete silence on rolling-back the rampant corporate welfare programme.

Private Finance Initiative (PFI) has been promoted as a panacea for providing schools, hospitals and a variety of public services. The 725 current PFI projects have a capital outlay of £54.2 billion, but the government is committed to repaying about £238 billion.

This is a massive drain on public funds, especially as the government itself could have borrowed the money cheaply. The government should renegotiate all PFI contracts.

Railways were privatised in 1996, but the UK train fares are almost the highest in the western world. Train companies have picked up nearly £60 billion in subsidies since privatisation and pay generous dividends to their shareholders. More subsidies are on the way for the Crossrail and HS2 projects. This gravy train should be halted.

 

The above list is by no means exhaustive but shows that there are alternative ways of managing public finances than more savage cuts.

Prem Sikka is Professor of accounting at the University of Essex

Like this article? Sign up to Left Foot Forward's weekday email for the latest progressive news and comment - and support campaigning journalism by making a donation today. 

62 Responses to “There are alternatives to the government’s slash and burn policies”

  1. Selohesra

    Nowithstanding the fact that chasing tax avoiders (as opposed to evaders) is a pointless task the real gains in tax raising come not from having thousands on relatively junior staff at HMRC chasing the little people – what is needed is a few top quality senior tax professionals on compensation to rival the consultants at the big tax and accountancy practices. With them on board and a bit of co-operation between the parties to simplify tax law we might then be able to go after the bigger fish.

  2. madasafish

    Of course the Government can collect more: in the first year.

    And in the seconds year, what happens? The rich – who are mobile – sell their UK assets and move abroad to avoid high taxation. Not all of them (and certainly not the Queen ) will move but I would imagine at least 50% would as many are not UK citizens – (see the list referred to)..

    I see the Professor does not mention this when France proves it WILL happen..

    So again another article which is hardly worth writing as it is unrealistic..

  3. Premsikka

    Not if the corporate tax system is reformed and a system of unitary taxation is introduced. Under this, corporations are taxed at the place of their economic actiivty. all royalty payments, offshore games, etc. become irrelevant.

  4. Premsikka

    Savings from ending corporate welfare are recurring, as well the revenuees from tax avoidance and pension tax relief.

  5. madasafish

    Yes: I agree. Abolish working tax credits which are corporate welfare…

  6. madasafish

    Well that will result in lots of unintended consequences…

    Please list some of them to show us you have thought it through.

  7. Premsikka

    There are always alternatives

  8. madasafish

    That is not a reply. That is a wishlist which will take decades to agree internationally.

    And good luck getting the more corrupt countries – Russia for a start – to implement it honestly.

  9. Gwyn Tull

    Surely a 1% Financial Transaction Tax on every transaction would provide more than enough revenue for the treasury without taking huge amounts of money from anyone. It would be fair because everyone would have to pay.
    How many transactions take place every day in this country.The more transactions you make the more you pay in tax, no ideological austerity, and no cuts.

  10. Premsikka

    Agreed.

  11. madasafish

    The French introduced it .Transactions fell by 30% and it raised 1/3rd of teh revenues expected…

    Good luck when Financial Services are the only thing keeping the UK Government afloat.

  12. Riversideboy

    Well said no doubt the greedy defenders will be on saying everyone will leave Britain but who cares? People are living in abject poverty now so who gives a damn if the rich go. Those who believe trickle down works have been proved wrong. The void in what these people do to earn their fortunes here can be filled by government ran companies and
    co-operatives. Europe needs to act and quickly on the lines you take.
    A new start just what is needed.

  13. Premsikka

    Things like health and safety laws, the national minimum wage, gender equality and much more had to be imposed in the teeth of opposition. the same will be necessary again. And this has hardly destroyed business, has it. The grassroots anger provides possibilities of emancipatory change.

  14. Riversideboy

    Sent your article to my European MEP’s and asked that they take the points seriously and try and act on them and encourage others there to do so.

  15. LB

    For a professor of account you are dangerously ignorant. How you ever got past accounting 101 is beyond me.

    A liability or debt is a transaction where you receive assets, goods or services in the past, and as a consequence have to pay assets, goods or services in the future.

    So you clearly are an idiot since you should know that You then go and ignore the pensions debts that the state has run up. 50 years plus of spending 100% of pension contributions means no assets, but massive liabilities.

    You then go and ignore it.

    If you don’t know that you should not be allowed any where near the teaching of people. You belong with the Bernie Maddoff school of accounting.

  16. LB

    1 pound on every 100 you take out of your bank account. It’s a financial transaction charge.

    If a median wage earner had put their NI in the FTSE all share they would have had 838K in a fund.

    Stamp Duty, a FTT takes over 10K off that person. You must be rich if you think that’s not a lot of cash

    Brown’s tax on dividends takes even more. Over 100K taken off them by a FTT

    But what the heck, the state has taken everything off them. A 100% FTT on all state pension contributions.

  17. LB

    It’s over. Freedom of movement of capital goes with freedom of movement of people.

    The money has gone to the lowest tax region.

    You have to do a Luxembourg. Highest per capita income in Europe and the lowest corporate tax rates

    But you’re engaging in class war not pragmatics. So people will be screwed.

  18. LB

    Branson’s left. He had an income of over 20 million a year. No tax there. Lost forever. Ditto for any capital gains.

    Since the top 6,000 pay the same amount of tax as the bottom 12.5 million, losing the big tax payers like Branson screws the poor.

    As for government run business. Railways are still crap run by the state. Major losses. Coops. Hmmm hows the coop bank doing again.

    Nothing stopping you from getting together with your mates, and starting a coop, and paying the losses when it goes tits up. Just leave others out.

  19. LB

    They sell there UK assets, and move their assets offshore into a foreign company. You can’t tax that any more than you can tax BMW on their world wide income.

    They then stay, pay tax on what they spend and no more.

    Meanwhile we’ve an idiot professor of accounting who clearly doesn’t even understand how much the state owes for pensions, and that is the first lesson of accounting. What’s an asset, a liability and capital.

  20. Riversideboy

    Tory tosser

  21. Riversideboy

    Get your facts right if your going to defend try and defend the greedy.
    Fact, private railways in Britain have had 4 billion in subsidies since Cameron and his right wing mob took over and payed out millions to shareholders-straight out of the pockets of tax payers while East Coast railways owned by the public payed £1billion back to the public purse. Tell me Mr Defender of the rich why should a plumber pay tax on every pound he makes while Branson and co don’t have to because they can cheat at will. Go on lets hear your defence

  22. LB

    Well said no doubt the greedy defenders will be on saying everyone will leave Britain but who cares?

    ===========

    You don’t care because you don’t care about the poor. Branson has gone. Why are you worried? See your post above. I’ve quoted you word for word.

    =======
    Fact, private railways in Britain have had 4 billion in subsidies since Cameron

    =======

    Yep. They’ve actually had more in subsidies. The state is make a loss on the deal. Particularly stupid if you ask me.

    So lets look at your plan

    ======

    The void in what these people do to earn their fortunes here can be filled by government ran companies and
    co-operatives

    ======

    So how’s your government run company going to make that fortune? It’s got to somehow turn that subsidy into a profit. There’s only one way it can do that, which is screw the public. It will have to increase ticket prices by around 30% overnight without loss of sales, just to prevent the loss. More because that will drive people off the railways.

    Branson’s not cheating. He’s got your message loud and clear that you’re out to take his money. He’s just not playing your game so the poor suffer.

    But since you’re an anticapitalist, what have you got to worry about? Poor people have no capital, and your against them having it. You’ve succeeded. At least be honest about your aims.

  23. Riversideboy

    You have the brass neck to talk about the Coop bank when private banks crashed the economy of Europe and America….dear me talk about blind right wing dogma, unbelievable

  24. LB

    So you want to double tax pensioners?

    Tax them on their contributions and tax them when they take the money out.

    Why not be honest and say, pensioners we’re going to tax you 65%?

  25. LB

    To what?

    The bit the left doesn’t get is the pension mess and that makes everything else look like dandruff.

    100% of contributions taken and spent – gone for good.

    Liabilities are still there but so large the accountants have hidden them off the books.

    So those debts fall due and the poor get shafted even more.

    Pure socialism, so you’re going to get the blame.

    It’s not neoliberalism, Beveridge started it.

    It’s not capitalism – there’s no capital

    It’s not the bankers – they aren’t involved.

    It’s not the Jews – not PC to blame them is it.

    It is socialism, You redistributed the poors money. It’s gone.

    There’s no alternative but to start defaulting, and that causes huge pain.

    The rich are immune.

    The middle class will be screwed, but then you might find that having paid the most in, they decide, rightly that the left is a bunch of complete crooks for doing it. Then they engage in class warfare and the poor are really shafted.

  26. Riversideboy

    your rambling mate, paying a fair tax is not “taking everything he has” truly ridiculous right wing argument. Branson went because he is a greedy man. Capitalism has been destroyed by capitalists no one else……read about the crash in 2008. So you defend tax havens do you and are against fair taxation? Thats ok but after May 2015 you will not have a government to play all the cards for your greedy few. Between Labour and the SNP your doctrine will be destroyed, well and truly.

  27. Premsikka

    Gosh, If you had coherent question I would engage, but abuse does not do you any good.

  28. Premsikka

    Who said anything about taxing pensioners twice? A;; that I have said is level playing fields and the same tax relief on pension contributions for everyone.

  29. Premsikka

    This rant does not really deserve a reply.

  30. LB

    Let me translate for you.

    Bugger we’ve been rumbled.

  31. LB

    If you abolish tax deferral you are taxing pensioners twice.

    Which bit do you not understand about that?

  32. LB

    1. How much does the welfare state owe for pensions?

    2. For a professor of accounting to ignore the state’s debts is worrying in the extreme. For him to do so for political reasons is far worse.

  33. LB

    The retail banks went under because lots of people didn’t pay their debts.

  34. LB

    that I have said is level playing fields and the same tax relief on pension contributions

    ===========

    So you’re proposing a flat rate tax. How unsocialist. After all flat rate tax is a level playing field. The tax still remains.

    You earn 100 pounds, pay 20 pounds in tax, claim back 20 so you end up putting 100 into the pension. When you take it out you pay 20%.

    Unlike what you propose where you want to apply tax twice.

  35. Douglas Andrew Town

    Sorry to mention this, since the private finance initiative (PFI) was originally a Labour initiative, but in October 2007 the total capital value of PFI contracts signed throughout the UK was £68bn, committing the British taxpayer to future spending of £215bn over the life of the contracts. http://en.wikipedia.org/wiki/Private_finance_initiative

    Some PFI contracts are clearly abusive. In 2011 The Telegraph claimed that some PFI hospitals – built and operated by the private sector, and effectively rented back to the taxpayer – will eventually cost more than 10 times their capital value.
    http://www.telegraph.co.uk/health/healthnews/8285150/Casualty-units-shut-to-pay-for-private-finance-hospital-contracts.html

    These contracts should be reviewed and PFI companies should be charged a windfall tax every year.

  36. Premsikka

    Great point. Some PFI companies have also moved their contracts to offshore entities and thus avoid paying UK taxes.

  37. Riversideboy

    Incredible denial of the truth

  38. Kevin Leonard

    HS2 cancel saving £80 billion Trident cancel saving £110 billion get out of Europe saving £120 billion over ten years or 2 terms of parliament.

  39. Leon Wolfeson

    So they sell their assets, meaning other people now own them, and remove their leeching selves? Nice, let them go.

    There’s no substantial loss, and the UK will be fine if you leave, Mr. “unrealistic”.

  40. Leon Wolfeson

    You’re claiming to be a professor of accounting now, I see.

  41. Leon Wolfeson

    Your plan, not his!

  42. Leon Wolfeson

    Sure. As soon as the living wage or basic income makes them obsolete.

  43. Leon Wolfeson

    You. Not “we’ve”. You, singular.

  44. Leon Wolfeson

    Nope, you do it and then tell companies to comply if they want to do business here.

    You’d might be severely hurt financially by it, but watch me cry. Or not.

  45. Leon Wolfeson

    So you support the current bubble. Right.

  46. Leon Wolfeson

    So after we have no UNSC seat, are kicked out of NATO, lose trillions over those years due to isolation…who’s going to provide the food aid?

  47. Leon Wolfeson

    Thanks for your plans again, that’s the latest one in your quest to end pensions.

    As you again say that negative cash after paying for unemployment insurance becomes magical amounts of cash.

  48. Leon Wolfeson

    Of course you demand he stands with you, as you try and censor teaching to your instance that there are no workers paying in.

  49. Leon Wolfeson

    He wasn’t paying any substantial personal tax. The tax comes from the companies he owns here, of course.

    And keep making up nonsense about railways, the Coop Bank is NOT a coorperative, etc. – and you’re wrong as ever, since Cooperatives can be limited liability but the current rules mean establishing a mutual bank is basically impossible.

Leave a Reply