Rishi Sunak will arrive in Downing Street this morning with a promise of austerity implicit in his appointment.
Also this morning, the Office for National Statistics published a report on the cost of living crisis. Their main findings are:
The experiences of different groups of the population in having difficulty affording or being behind on their energy, rent or mortgage payments, in the period 22 June to 11 September 2022, have been examined using the Opinions and Lifestyle Survey (OPN).
- The proportion of all adults finding it difficult (very or somewhat) to afford their energy bills, rent or mortgage payments has increased through the year, almost half of adults (45%) who paid energy bills (40% in March to June 2022) and 30% paying rent or mortgages reported these being difficult to afford (26% March to June 2022).
- Over half (55%) of disabled adults reported finding it difficult to afford their energy bills, and around a third (36%) found it difficult to afford their rent or mortgage payments compared with 40% and 27% of non-disabled people, respectively.
- Around 4 in 10 (44%) White adults reported finding it difficult to afford their energy bills, compared with around two-thirds (69%) for Black or Black British adults and around 6 in 10 (59%) Asian or Asian British adults.
- Around 6 in 10 (60%) renters reported finding it difficult to afford their energy bills, and around 4 in 10 (39%) found it difficult to afford their rent payments compared with 43% and 23% of those with a mortgage, respectively.
- Around half of those with a personal income of less than £20,000 per year said they found it difficult to afford their energy bills; this proportion decreased as personal income increased, with around a quarter (23%) of those earning £50,000 or more reporting this.
- In the period 29 September to 9 October 2022, adults who paid their gas or electricity by prepayment (72%) more frequently reported difficulty affording energy than those who pay for gas and electricity using either direct debit or one-off payments (42%).
The findings reveal a country already at breaking point.
They also reveal profound inequality.
And they reveal that the inequality in question is exacerbated by discrimination on the basis of race and disability.
Austerity can only make every aspect of this crisis very much worse. And it will do nothing to solve any problem that this country actually faces, whether that be real (inflation) or imagined (the need to balance the books).
Sunak has a job to do. It is to make life better for those living in the bottom half of our society, for whom life is becoming intolerable (if it wasn't already).
His success in doing that should be the principle indicator on which he should be appraised. That, alongside tackling climate change, should be the principle against which every proposal by every political party should be tested.
Forget GDP.
Forget book balancing.
Forget the selfish appeals of bankers.
What matters is making the lives of most people in this country better.
The test for success or failure is easy to establish. Right now those earning less than average command 9% of the resources of the UK. That has to increase or policy has failed.
Which political party is willing to make that its stated goal?
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That difference between mortgage payers and renters struggling is interesting.
It’s ugly the number of mentions you see from supposedly numerate people (Rishi being one) for the struggles of mortgage payers vastly exceeds those speaking for renters, completely ignorant of how real negative interest rates benefits the credit worthy rich more so than the poor.
Oh! reading that made me go to the website of my local foodbank and make a donation. I can’t remove the dreadful worries some have in these times, but enabling them to feel less hungry is, well – something.
Thanks
In 1960 my university room-mate, who was studying economics, could make no sense of Laffer curves and asked me, studying Maths and Physics, to explain them. They made no sense to me either – but eventually my friend was awarded a good degree.
In a post three months ago you wrote, (https://www.taxresearch.org.uk/Blog/2022/07/10/tory-leadership-hopefuls-bare-playing-a-game-of-fantasy-tax-cuts-and-well-all-pay-a-heavy-price-for-that/): Laffer claimed that “if you cut corporation tax rates then tax yields increase because more profits are made.” You added, Richard, “Laffer talks twaddle.”
Mervyn King, former governor of the Bank of England, was awarded a Baronetcy yet this week, with great self-assurance, he was talking twaddle. So many others also forget that, during their studies, they could not understand the nonsense of Laffer and his kind. They seek to justify their ill-gotten wealth by proclaiming his gospel and are often rewarded with honours for impoverishing nations of people who are fundamentally honest.
The simple point Laffer was making on the back of his paper napkin in 1974 (and known for literally centuries before that) is that tax revenue is a product of tax rate and tax base.
If the government adds a small tax to something with a wide base, it can raise a lot of tax revenue. That revenue should increase if the small tax is increased a little bit. But if the tax rate is high enough there will be downwards pressure on the tax base, and at some point raising taxes too far reduces the overall revenue.
Or to put it another way, if the tax rate is 0%, there is no revenue. If the rate is 100%, then (if people act rationally – sometimes they don’t, of course, or they may have no other choice) there should also be little to no revenue as people stop doing the thing that triggers the tax. If that is right, the curve connecting the two ends goes up, and then must reach at least one maximum point in the middle where it turns over and goes down again.
That might be a good thing. If a packet of 20 cigarettes costs £8.50, and £7 of that amount is tax, there will be downwards pressure on the sale of cigarettes. There may be spillovers – smuggling, or sales of alternatives such as vaping products instead, for example.
The tricky question, for income tax and corporation tax, is “how much is too much”. At what point does tax create such a disincentive to people and companies earning more income and profits that the tax base declines so far that the overall tax revenues fall, even if the rates increase further.
Would you do more work to earn another £100, if you only kept £10? Perhaps you would, if you needed the extra £10 to buy food or heat your home. But you might be less inclined than if you kept £40 or £60.
That revenue-maximising rate is certainly above 19 or 25%. Probably somewhere north of 40%. Perhaps 60%, or more.
Research has suggested well over 50% in the U.K. – rates only paid by those moving from benefits to work
Logically, there is a Laffer curve. But the shape MUST vary for every different type of tax-paying activity. Establishing the correct shape for every activity before applying the principle is fundamental. The simplicity of lowering tax rates to increase take is a complete and utter nonsense.
The research has been doine
One income taxes the tipping point is over 60%
‘with great self-assurance, he was talking twaddle’
That, my friend, could aptly fit any number of the cabinet.
Indeed what we see and hear now is filibustering on a grand scale. Indeed the widespread ‘media training’ of MPs is believed to teach filibustering to those of lower IQs.
From wikipedia;
The modern English form “filibuster” was borrowed in the early 1850s from the Spanish filibustero (lawless plunderer).
I can’t see how this fits though……….
“Forget book balancing.”
Quite.
But it seems to me that we have reached a critical juncture in some of the Tories view of book balancing. Truss removed the head of the Treasury civil service (Tom Scholar), allegedly for “orthodox thinking” regarding balancing books.
That does not stack up for me. Was he not also there when Sunak went on his Covid QE spending splurge? I also read that he was specifically blamed for the blunders over the Covid business loans “fiasco”. So it still appears that the traditional bookkeepers won out on that score.
Have you any opinion on Scholar’s removal here? Something does not fit. And he cannot say either.
It appear3d exceptionally poor political judgement and a dangerous precedent to me
Thanks, it did seem a watershed event. It certainly was a portent of the dangers to come very shortly thereafter. Using only fiscal policy is clearly not going to work, neither is trusting the private sector to get us out of the problem.
It’s a constant source of amazement and irritation to me that politicians talk about looking after the health of the economy as if it were a person whilst making the lives of real persons economically harder.
You can tell that they don’t really know what they are talking about from that fact alone.
Exactly!! The Economy is some important person who needs to be coddled. Needs to have their whims seen to. Needs constant puffing up and appeasing. But “people” can go rot, “people” can go die. As long as the Economy is fat and healthy and GDP going up. Doesn’t matter what happens to increase that GDP. In fact disasters help it, all sorts of horrible things push up GDP. makes no sense ethically.
I saw your tweet (sorry, I don’t) “The media’s now saying Sunak’s job is to prevent grandchildren having to pay off the national debt.”
My question is as to what extent is that down to paying it off now, and to what by ensuring there aren’t any, by starving them all in the process?
To quote F. D. Roosevelt, “The sign of our progress is not whether we add more to the abundance of those who have much; it is whether we provide enough for those who have too little.”.
Owen Jones put an excellent video on his channel on 25/10, “Don’t Let the BBC Get Away With It” pointing out (as you would) that governments use the ‘there is no alternative’ to block people realising that they are making a political choice. He mentions the 2020 Wealth Tax Commission report. I may have the number a bit wrong, but it said a small extra tax on those with high income could raise £250 billion over 5 years. The MSM do not mention this. The BBC now plays the same role as Pravda in the USSR.
I am dubious as to their findings: not that money could not be raised, but as an actual accountant there are better ways to do it than they suggest
Wealth tax will take forever to introduce
It can do nothing for us now
Thank you for clarification. But the optics are still there and there are a variety of political options.
You can get their report here: https://www.ukwealth.tax/
What they said in December 2020 was: “A one-off wealth tax can raise substantial revenue. After accounting for non-compliance and administration costs, a one-off wealth tax payable on all individual wealth above £500,000 and charged at 1% a year for five years would raise £260 billion; at a threshold of £2 million it would raise £80 billion.”
They say this might be worthwhile as a one-off measure if there is a political need for short term measure – like a windfall tax – to raise substantial revenue, in the context of strained public finances during or after COVID.
They expressly counselled against a permanent annual wealth tax, saying it would be difficult to deliver, and effort would be better spent on reforming existing taxes on wealth, particularly IHT (“despite a headline marginal rate of 40%, on average effective rates of IHT peak at around 20% and decline to 10% for estates valued at over £10 million” mainly due to APR and BPR), income tax on investment income (taxed at lower rates than earned income), CGT (a second large annual exemption, lower rates, and many reliefs) and council tax (stuck at 1991 valuations, with insufficient weighting at the upper end).
My point about a wealth tax applies as much to a one-off as any other form. of wealth tax
There are many much easier options., already tested, readily available