Friday, 27 November 2009

I might be slow on the uptake, but ...

... here's a summary of Tory and Labour spending plans before the last general election in 2005, as reported reasonably accurately in The Torygraph at the time:

Labour was forced on the defensive yesterday over its attempt to claim the Conservatives were committed to £35 billion of "cuts" in public services"... Tony Blair and Gordon Brown claimed the "cuts" were equivalent to sacking "every nurse, every teacher and every doctor"...

Mr Darling claimed that, according to the Tories own figures, they envisaged total public spending in 2011-12 would be £663.5 billion - £35 billion lower than Labour's expenditure plans. He said that Tories were committed to further spending commitments totalling at least £15 billion. As these would have to be funded by cuts elsewhere in spending plans, the total size of the Tories' "cuts" was £50 billion.

Mr Darling said savings on this scale could not be achieved by a cash freeze. A Tory government would have to cut departmental budgets. "Far from being able to fund such huge cuts in 'bureaucracy', £35 billion is actually the equivalent of sacking every teacher, every GP and every nurse in the country - sacking 550,000 teachers, 81,000 GPs and 396,000 nurses," Mr Darling said.

I didn't bother getting involved in politics until early 2006, having hitherto seen it as a spectator sport, but looking back, that was a mushroom cloud rather than a smoking gun.

Interestingly enough, Labour have more or less hit the spending target of £700 billion in 2011-12* that they proposed back in 2005. But what's really interesting is that if you turn Alistair Darling's logic round, what he was saying was that out of £700 billion planned spending, barely five per cent was to be on we traditionally see as 'public services', i.e. teachers, doctors, nurses**. To be fair, he didn't mention law and order, but that cost about as much again.

As a cuddly liberal, I don't have a problem with a bit of spending on measures to alleviate poverty, preferably in the form of a Citizen's Income scheme, which I reckon would cost rather less than total current spending on measures to alleviate poverty - be they good (such as the tax-free personal allowance or Child Benefit), totally counter-productive (like Working Tax Credits) or downright wasteful (like tax-breaks for pension contributions), call it £200 billion per annum, tops.

So my small-ish state would cost about £270 billion, but that still leaves £430 billion out of current spending of £700 billion unaccounted for.

So let's not bicker and argue about whether refuse collection (which costs about £4 billion a year, if memory serves) is or is not a core function of the state, can we not try and work out where the £430 billion goes?

* That is a brilliant website, well worth a visit.

** Yes, we'd do far better to replace this with health or education vouchers, but that would be in order to improve the quality of services offered, and not a cost-saving measure as such.


Anonymous said...

I totally agree, except about tax breaks on pension contributions. If you are going to tax the contributions, you can't then go and tax the pensions.

Imagine if the government said, "You know that £1000 of taxed income you put in the building society and withdrew yesterday? Well, we're having £200 of it, thanks very much."

On your main point, don't forget to add in the amount we spend on debt interest too. It was £30 billion even in 2007/8, so I guess it's twice that now.

Mark Wadsworth said...

Adam: Imagine if the government said, "You know that £1,000 of taxed income you put in the building society and withdrew yesterday? Well, we're having £200 of it, thanks very much."

But they don't, do they? If you save post-tax income, what they say is "You know that £1000 of taxed income you put in the building society last year? You've been credited with £50 interest and we're having £10 of it, thanks very much."

Which seems fair enough to me. I'm a flat taxer, so to the extent we have to have income tax, all income should be taxed at the same rate.

If the govt. weren't so insane as to give tax-breaks for 'pension contributions' then nobody in their right mind would hand over vast sums to faceless bureaucrats, they'd stick it in the building society and we'd all be the better off for it.

Anonymous said...

Mark, you put untaxed contributions into a pension scheme and then take a pension from it - but the pension is TAXED. If the contributions were taxed as well, the money would be taxed TWICE.

You're right that the government don't do that with building society accounts. So why should they do it with pensions?

Really the only tax break with pensions is the "tax free lump sum". If you want to argure that should be abolished, I'd find it hard to argue.

Mark Wadsworth said...

Adam, please note that I have worked in tax for twenty years and advised people on this stuff.

1. I did not say that the taxation of existing pension income (or future income from existing pension funds that have benefited from past tax-breaks) should change. I said tax breaks for (future) contributions should be scrapped.

2. If the hugely expensive tax-breaks for handing over vast sums of money to faceless bureaucracies were scrapped, people would concentrate on more important things like paying off the mortgage, buying shares, sticking it in the building society.

3. To dot the i's and cross the t's, if you really insist, I ought to add that future pensions drawn from funds built up without the benefit of tax relief would of course be taxable at a very low rate that taxes only the investment income element, and not the capital element, of the pension payments.

4. Those with the inclination to save for their old age would continue to do so; the spendthrifts would continue to piss it away. Throwing £50 billion of tax-breaks away every year in the vague hope that you'll convert a few marginal pissers into a few marginal savers is [insert word for really stupid].

Pogo said...

Mind you, I guess that if you did remove the tax breaks from pension contributions it would go a long way towards destroying the entire "pensions industry"... Possibly no bad thing if my experience of its "expertise" is anything like representative.

There'd be no point in handing over your money to be "managed" when you could put it in the building society and probably do at least as well, plus keeping control of your pension pot.

Mark Wadsworth said...

Pogo, that's another bonus - direct shareholders are a lot more activist than pension fund mangers.

bayard said...

"where the £430 billion goes?"

Off the top of my head: - Quangoes, fakecharities and other non-jobs, fighting pointless wars in far-off countries, civil service bloat, bailing out banks, subsidising the "defence" industry.....