Tuesday, 29 September 2015

Jeremy Corbyn vs The Taxpayers' Alliance - what if they are both right?

In the Red Corner, Jeremy Corbyn, suitably fired up by Richard Murphy and his ilk, wants to reduce corporate subsidies, which they claim amount to £93 billion a year.

I have a nasty feeling that they started at the wrong end when they calculated this, see e.g. here. In other words, they are looking at the extra tax which they think businesses ought to be paying; and that £93 billion figure is plucked out of the air.

But I do have some sympathy with the general approach and, as we will see, their £93 billion number is - probably by luck rather than judgment - actually not far off.

In the Blue Corner, we have the Taxpayers' Alliance, who know bugger all about 'tax' and deny there is an implicit subsidy to landownership, but do absolutely sterling work when it comes to identifying public sector waste and overspend see e.g. The Bumper Book of Waste.

I have a lot of sympathy with their approach as well.*

How do we reconcile the two? Always start with the facts.

According to HM Treasury's Public Expenditure Statistical Analyses 2014, Table 5.3, govt spending on goods and services acquired from the 'private sector', plus grants and subsidies are £258 billion a year (38% of total govt spending); public sector pay and pensions are £174 billion (26%) and welfare and pensions are £242 billion (36%); and out of that 36%, two-thirds is old age welfare and one-third is working age. (The other bits and pieces net off to nothing, ignore those).

How much of that £258 billion paid to the 'private' sector is waste and/or overspend? What does the TPA say? Think about Ministry of Defence, NHS IT projects, PFI projects, all this nonsense. The cost of over-employment in the public sector is small change in comparison, despite all the revolving door quangocrats on six-figure salaries.

If we conservatively assume a quarter of that £258 billion is pure waste/theft/overspend that's £65 billion straight off. Add to that most egregious tax break of all, tax relief for pension contributions of £30 - £40 billion, all of which is creamed off by 'the pensions industry' and none of which actually goes into higher pensions? Bung in third world aid and gross EU contributions (about £20 - 25 billion in total), which are largely recycled back to 'private' UK businesses, and £93 billion a year is not far off, and might well be an understatement.

That's how you plug deficits, not by twatting about persecuting welfare claimants to shave of a few billion a year at most.

* Where it gets tricky is because people draw an artificial distinction between cash spending, subsidies and overly generous tax breaks i.e. exemptions. The biggest single subsidy/tax exemption is the fact that the £200 billion a year implicit subsidy to residential land is not clawed back with a direct tax/user charges. Most households pay far more in taxes on income and spending than they get back in land freebies; it is only the top One Per Cent who cash in. But put that to one side for now.


Lola said...

I really cannot follow your sums here.

James Higham said...

Explain further, Mark.

Mark Wadsworth said...

L, I have emailed.

JH, what I mean is - in popular perception - Corbyn is a big spending, high tax, anti-austerity, anti-corporatist politician and the TPA are small government, low tax, parsimonious but also anti-corporatist campaigners.

In some ways, they are actually saying similar things (the anti-corporatist, anti-waste bit) and it is not too far off what I have always been saying, except I'd take it a whole lot further...

i.e. smallish government, low taxes on work and enterprise and high taxes on land etc to claw back the implicit subsidy thereto.

mombers said...

How much of public sector wages end up in higher rents/mortgages? Considering that public sector jobs get a 'London weighting' which is entirely due to higher housing and commercial property costs (goods and services in competitive markets are the same across the country), I'd say pretty much every penny of the London weighting is a landowner subsidy... The simple answer I suppose is every penny of public sector wages above the 'essentials in life' figure is trousered by landowners and their sidekicks, the banks