Fun Online Polls: Means-testing & in-car entertainment

The results to last week's Fun Online Poll were as follows:

Which taxpayer-funded services or subsidies should be means tested?

State school places - 2%
NHS - 5%
Police and fire brigade - 2%
Child Benefit - 30%
Public libraries - 4%
None of the above - 54%
Other, please - 2%

With the benefit of hindsight, I should have set up the poll to allow multiple answers.

I am relieved that 54% agree "none" (in which case the argument is - how should the government spend or redistribute taxpayer's money) but why means-testing of Child Benefit is so popular is a mystery to me.

For lefties, fair enough, they like means-testing because it is taxation by stealth and means a larger state apparatus to administer. Fine, but why piddle about with shaving £1 bn off welfare spending when you could go for broke and means-test much more expensive things like 'free' state education?

Why so many Conservative or right/libertarian leaning people support it is a mystery to me. I am genuinely baffled.
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This week's Fun Online Poll is just out of personal interest.

"What do you usually listen to when you're driving your car?"

Vote here or use the widget in the sidebar.

Economic Myths: Means-testing means smaller government and lower tax rates.

The lefties love means testing, because they love having lots of rules on who is deserving and who isn't, and lots of public sector meddlers to administer it all. They don't care about higher tax rates on higher earners, in fact they welcome them, and refuse to accept the concept of the Laffer Curve. Fair enough, at least they are coherent.

What winds me up no end is when Conservative voters pretty much agree with them, ostensibly because means-testing means smaller government and lower tax rates.

This is clearly arrant nonsense. Just as I was drafting this post in my mind, MBK conveniently sent me an article from the FT which gives some illustrations.

Bearing in mind that we can view the income tax-free personal allowance as a kind of universal benefit or a tax rebate, what happens if this is withdrawn from people whose earnings are above an arbitrary threshold..?

Among higher earners, arguably the most egregious quirk in the tax system is the tapering of the tax-free personal allowance on annual income above £100,000. For every £2 earned above this threshold, £1 of relief is taken away. Income earned in 2015-16 between £100,000 and £121,200 will therefore effectively face an additional tax rate of 20 per cent.

Combined with the higher income tax rate of 40 per cent levied on income above £42,385, “it isn’t anything more or less than an effective marginal income tax rate of 60 per cent,” says Paul Johnson, director of the IFS.

Patricia Mock, a tax director at Deloitte, says the 60 per cent rate — which has never been officially recognised as such — affects ever more taxpayers as wage inflation takes a higher proportion of salaries above £100,000. Official figures show the number affected rose from 588,000 in 2010-11 to a projected 791,000 in 2014-15.

Yup, the end result is that more people are paying more tax and suffering higher marginal tax rates. A sensibly advised high earner will do his best to avoid the 60% band and will shuffle his income around to either remain just under it, or right through it and out the other side, so HMRC has to employ more inspectors to monitor compliance etc.

Why do Conservative voters go along with this?

I accept that some people will say "Come off it, people earning £100,000-plus are doing all right for themselves, they can afford it" (and clearly they can), but the general principle applies all the way down the income scale. As we well know, the marginal rate on the first £20,000 is effectively 80% - 90% if you take into account foregone benefits, they are the ones I really feel sorry for.

Fun Online Polls: Trump's travel ban & means-testing

The results to last week's Fun Online Poll were as follows:

Which general approach would you prefer for the UK..?

Trump-style travel ban for people from Islamist countries - 97%
Merkel-style welcoming all Arabs in, no questions asked - 3%

Even I, a trendy liberal metropolitan who dislikes everything about Trump, voted for the first option. Which just goes to show how out of the touch the most politicians and journalists are in this country.
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The meddlers are at it again. The Institute for Economic Affairs - of all people - has recommended means testing of nursery subsidies, as reported by the BBC:

The Institute of Economic Affairs study says the right to 15 hours free care a week has distorted the market price.

It probably has, subsidies always do.

It also argues regulations have made it more costly, with many families on average earnings spending more than a third of their income on childcare.

Agreed, but the regulations (i.e. barriers to entry) are a completely separate topic. As to the "more than a third" figure, see below.

The government says it is investing £6bn a year on the facility.

"Spending".

The report argues that despite this investment, families are still paying huge sums for people to look after their children.

Yes they are, that's not really the point. Mum simply compares the net cost of a nursery place with potential earnings after tax, travel costs. Nursery costs quite possibly swallow half or two-thirds of the extra earnings, but the household is still better off overall (plus most kids like being at nursery).

By and large, the tax deducted from Mum's earnings (and the wages of the nursery staff) and the subsidies net off to plus/minus nothing either way, so the final clearing price is probably not that far off a true tax-free market price.

The way early years care is funded means that those who need help the most do not receive it, while many affluent families are generously subsidised, the report found.

This is lefty jealousy bollocks through and through. It's the "affluent families" who are paying most of the £6 bn cost. They are losing out overall. How many extra bureaucrats do we need to decide who "needs help" etc?

As explained above, when Mum is thinking about going back to work, the upper limit on she is prepared to pay for nurseries is two-thirds of her net earnings.
So let's assume that nurseries set their charges at about two-thirds of local average net earnings. Clearly, there is no point for Mum to take a low-paying job, and if that is all that she is offered, then there is simply no point taking it. Does this Mum deserve extra subsidies to bridge the gap? That would surely be economic nonsense.

All of which reminds me of the stupid Killer Argument Against Citizen's Income we looked at yesterday.

It's tempting to means-test stuff in the vague hope it leads to smaller government and lower taxes. Clearly, it does neither. You need much larger government to police these things, and the effective tax rates on those whose subsidies are tapered away becomes penal.

For example, let's take a family with three kids at state school, cost to the taxpayer about £24,000. It would be tempting to say that any household with income over £100,000 should pay the cost in full (or send them private). That is an effective tax rate of 24%, on top of normal effective tax rate on higher earners of overall 50% = 74%. If we also means test NHS access, the right to call police and fire brigade, use of subsidised public transport etc, that effective tax rate ends up close to 100% and there is simply no point earning anything more than whatever arbitrary threshold they dream up.

Therefore, if the government, in its infinite wisdom, decides that something is worth doing, everybody should have the same entitlement, end of. The real discussion is, should the government be doing it at all, yes or no. With nurseries I think very much yes, but I can see there are arguments against.

So that's this week's Fun Online Poll, which things ought to be means tested?

Vote here or use the widget in the sidebar.

The Tories show us how to "reward marriage"

From The Daily Mail:

Thousands of people earning more than £50,000 will lose some of their pay if they move in with a new partner who has children, accountants have warned. Tax experts at Deloitte said the ‘bizarre’ anomaly was the result of government plans to claw back child benefit from homes where at least one resident is a higher earner.

The changes are due to come into force in just 10 weeks, and the Treasury has been forced to insist they remain on track despite hundreds of thousands of families affected being in the dark that they will lose money from January 1. Letters are due to be sent to those affected by HM Revenue and Customs next week...

Under the changes, if one person in the home earns £50,000 or more, the entitlement to child benefit will be gradually cut. If anyone earns more than £60,000, they will lose child benefit all together [sic].

So they're preening themselves for having reduced the (spiteful) 50p tax rate to a marginally less spiteful 45p, but as a quid pro, they are increasing the marginal tax rate on above-average earners by another twenty or thirty per cent (the maths is tricky); bringing in a whole new raft of bureacracy; and as a bonus penalising people who try and make a second attempt at marriage.

Something else which really pisses me off.

Janet Daley in The Telegraph highlights typical Tory muddled thinking:

In around six months’ time, £200 of unearned cash will plop into my bank account: an unsolicited gift from HM Treasury because, in spite of being a highly paid journalist, I am over 60 years old and therefore must be in need of a Winter Fuel Payment. This is clearly ridiculous. I would happily hand over my rights to this sum – as well as the value of my free prescriptions, eye tests and (unclaimed) bus pass – to those who actually need them. Perhaps more to the point, I would be particularly delighted to give them up in return for my daughters being allowed to keep the Child Benefit which the Chancellor has decided they can do without.

But what seems patently outrageous about these arrangements is precisely the fact that they are cash handouts: one is (and I am) receiving other people’s money. And ironically, it is money that has been mostly contributed by people like me – possibly even the same age as me – through tax. We are all paying in, and then we are all receiving dollops of money, or freebies. This is crazy. As Mr Duncan Smith has put it, "It’s rather daft to take tax off the middle classes and pay them a little bit back."

I do wonder how thick these people are. This sort of thing is actually very sensible. What is the point of taking away universal entitlements from the better off (as defined) if merely to fund tax cuts for the better off (as defined)?

Agreed, people don't like paying tax; but people do like claiming benefits. There are indeed some better off pensioners who genuinely say that they don't need the £200 Winter Fuel Allowance and would be happy to go without it, but I bet that most of these would gladly accept a £200 tax cut in lieu.

So let's imagine that the £200 Winter Fuel allowance were all-or-nothing. If your gross income is less than an arbitrary figure like £20,000, then you get it; and if your income is over £20,000 then you don't - but you can tick a box on your tax return to say that you'd like a £200 tax reduction instead.

Why is this system any different from just giving everybody the £200? Why do people think that the £200 tax reduction is "their" money but a £200 cash handout is "other people's money"? Doesn't Ms Daley herself [almost] say that she is getting her own money back? Would she really not tick that box and reduce her own tax bill by £200?

Or you could means-test the £200, so that for every £100 gross income a pensioner has in excess of an arbitrary figure like £15,000, the £200 cash allowance is reduced by £4. In which case, this just pushes up the marginal tax rate on pensioners with an income of between £15,000 and £20,000 to 24%, leading to a regressive tax system; pensioners with gross income above £20,000 would only pay 20% marginal.

Where people trip up is seeing the tax system (where the government takes money off you) and the welfare system (where the government gives you money) as two entirely separate things. They are not. They are quite clearly exactly the same thing, and yes, nearly everybody pays something and nearly everybody gets something but for most people there are transfers in each direction.

It would of course be much better, and would throw the issue into focus, if there were one single bureaucracy which dealt with the whole thing, then they could net off your entitlements and liabilities to give one single net figure to be either paid in tax or to be received in benefits or public-sector salary, and have done with it, in which case it would be perfectly clear that the £200 Winter Fuel Allowance is conceptually no different to the personal allowance for tax purposes, and I don't think anybody would complain if personal allowances were increased (even though higher earners would be better off if these were scrapped and tax rates reduced accordingly).

Welfare Reform

1. People clearly have different levels of income and assets and the welfare system is an attempt to redistribute this somewhat, or to alleviate poverty:
2. For some reason, people like 'contributory benefits', where those who have earned most and paid most taxes are paid higher old age pensions or seen as more deserving recipients of unemployment benefit, despite this is just like a belated tax rebate and it would have been better to simply not collect the tax in the first place. Most pernicious of all are subsidies to certain assets, in particular land ownership (manifested with things like cash subsidies for buying a home; Housing Benefit payments which only benefit landlords in the long run and the fact that land ownership generally is nothing more than a state-sanctioned transfer of wealth, i.e. a subsidy):
3. Then there is a strange coalition of a) Socialists who think that people with low or no incomes deserve more than those who have (or have had) higher incomes and have built up some savings; and b) right wingers who like means-testing because they think it saves money (what they don't realise is that means testing is like a stealth tax on incomes and non-land assets which are taken into account for means testing):
4. So as things stand in the UK, we have a mish mash of subsidies to land ownership, means tested and contributory benefits, so the Socialists, right wingers, authoritarians, bureaucrats and land owners are all happy. The effect of having two overlapping and parallel systems means that people actually receive pretty much the same whatever their level of income or assets (ignoring the net subsidies to land ownership which are lightly taxed and not taken into account for most means-testing):
5. So why not merge the two systems with all the huge administration costs, fraud and error and traps and loopholes with a flat rate Citizen's Income, payable in cash. The cost of which can be largely funded by clawing back the subsidies to land ownership, i.e. by imposing a land value tax such as Domestic Rates, which would mean that the Citizen's Income received by a median household in a median home would be equal and opposite to the Domestic Rates due on that home?

One-nil to my Welfare Reform Minister

A couple of weeks ago, Adam Collyer summarised thusly:

You will remember that George Osborne announced some time ago that child benefit would be scrapped for higher rate taxpayers. That was later clarified to mean that any family with at least one higher rate taxpayer would lose the benefit. And that means all of the benefit. If you go over the higher rate tax threshold by a single pound you lose all your child benefit – which for a family with three children is £2,500 per year. In other words, this would create a massive benefit trap with a huge spike in effective marginal tax rates to 2500%...

... my especial contempt on this is reserved for George Osborne. This is, as I said, a ridiculous proposal in the first place. But even if you accept what he wants to do, there is a much better way to do it. The tax credit system is an appalling mess. But it exists. So if Mr Osborne wants to means test child benefit, all he has to do is scrap it and add the same amount to the child tax credit.

Tax credits are already means tested, so no new bureaucracy to add. In fact, it would remove the small amount of bureaucracy that is currently needed to administer the child benefit system. Tax credits are already based on household income rather than individual income, so no anomalies about two-earner versus one-earner households. Tax credits are not cut off bang when you go above some arbitrary threshold. They are tapered, so as you earn more, the credits are gradually removed. So no benefit trap.

From the BBC today:

The IFS criticises the government's plans to withdraw child benefit from households with a higher-rate taxpayer from 2013, on the grounds that it would create a "cliff-edge" that would mean 170,000 families could increase their income by earning less. The think tank suggests that the government should instead gradually reduce child benefit as household income rises, using the existing means-testing system that is used to pay child tax credit.

She should have bought a bigger caravan.

Let's take this story in The Daily Mail at face value:

A frugal woman who saved more than £22,000 out of her benefits has been left penniless because she did not tell officials about her nest egg.

Pauline Ford, aged 58, lived in a rusty mobile home, never went out, smoked or drank, and only spent the bare minimum she needed to feed herself and her 15-year-old dog. She wanted to build up her savings for her old age but fell foul of the law by failing to declare her assets when she applied for means tested benefits.

There would have been no problem if she had spent all the money but now she has been forced to repay more than she saved and has been left with nothing at all. Ford, of Valley Walk, Plymouth, who is unmarried, had admitted three counts of benefit fraud and was jailed for four months, suspended for two years by Recorder Mr Jeremy Wright at Plymouth Crown Court...

I don't like means-testing for lots of reasons, not least because it is savage taxation of the income and assets of poor people, but what sickens most is the fact that housing 'wealth' is completely ignored. If this woman had used the £22,000 to pay off a mortgage on a house worth considerably more, then she would not have lost a penny in benefits, and if she played her cards right, the DWP might have stepped in to 'help' her pay off the mortgage as well.

Reader's Letter Of The Day, Sort Of...

From the FT:

Sir, There are a couple of additional points worth making in the face of the evidence deficit behind the assertions of DeAnne Julius and others regarding the 50 per cent tax rate. First, it is more than likely that entrepreneurs will own their own company – in which case it is also more than likely that they will be paid through dividends taxed at corporation tax rates of either 20 per cent or 25 per cent (1). That everyone on PAYE was able to use the tax system to their advantage!

As for marginal tax rates, whose is the highest: 50 per cent taxpayers or those coming off state benefits? (2) It’s a rhetorical question – but one that I somehow doubt DeAnne Julius will bother answering.

Anthony Dunn, London Business School, London.

1) Corporation tax rates are currently between 20% and 26%, and the owner can only take advantage of these rates to the extent that the dividends paid to himself or family members fall within their basic rate bands. The effective rate on a higher rate taxpayer-recipient is 42% (assuming 23% corp tax) and on a top-rate taxpayer-recipient is 51%.

2) As any fule kno and as the DWP's sadly discontinued Tax Benefit Model Tables confirm, the overall average marginal rate of PAYE + benefit withdrawal is about 80% (and that's ignoring VAT and Employer's NIC, which push it up to about 84%) on the first £... of income as follows:

Single earner, no kids - 79% clawed back on first £18,500 per annum.
Single earner, two kids - 77% clawed back on first £38,800 per annum.
Couple, two kids - 82% clawed back on first £40,500 per annum.

The percentages are slightly different under IDS' botched 'Universal Credit/Single Unified Taper' system, some are a bit worse, others a bit better, but they are all still well over 70%.

Outbreak Of Commonsense...

... in Southwark:

Council chiefs implementing the largest budget cuts in London are to spend almost £8million on free school meals for every primary pupil to stop poorer children feeling "stigmatised". Labour-led Southwark council claims the scheme - which will also include middle-class children - will reduce obesity by giving pupils one healthy meal a day. (1)

But today the authority was accused of "strange and illogical" behaviour as it revealed it is also slashing £34 million from its budget as part of coalition cuts. (2) Ten day care centres for the elderly are under threat and £5.7 million has already been cut from social care and safeguarding children services. (3)

Tory Stephen Hammond called on the council to "see sense". He said: "This will cost them more money and would not appear to be good value-for-money." (4)

London Assembly health chairman James Cleverly [sic] said: "There are easier ways to prevent the stigmatisation of free school meals than this... (5) Universal benefits are inherently wasteful."(6)

1) Their motivation may be unsound, but it is better to do the right thing for the wrong reasons than to do the wrong thing.

2) Those are 'coalition cuts' not council cuts (for sure, council quangocrats are protecting themselves and sacrificing 'front line services', see post of earlier today, separate topic).

3) Again, there is worthwhile spending and wasted spending. Don't make the best the enemy of the good.

4) It's fantastic value-for-money. Those "middle class parents" will end up paying for those lunches anyway, whether out of their taxes or out of their net incomes - and then there are more economies of scale if every child gets it and a huge reduction in bureaucracy in administering who's entitled and who isn't. Plus it makes life easier for parents whose children bicker about getting a packed lunch - the long suffering parent can tell them they are getting a school dinner because it's "free" and that's the end of that.

5) He 'cleverly' avoids explaining exactly how he would achieve this. So he's lying, basically.

6) Twat. Universal benefits - either everybody gets it or nobody does - are the best benefits and inherently cheap. I am (for example) in favour of universal education vouchers, as are proper Tories (i.e. UKIP), and being in favour of one but not the other is incoherent to the point of stupidity. That's not to mention the fact that means-testing is a particularly spiteful for of taxation and leads to incredibly high marginal tax rates etc.

Added bonus: we won't get these dreary statistics saying what percentage of children eligible for free school lunches attend which school, get into higher education etc.

What's not to like?

It's good to see that they read each other's press releases

There's an article in the FT explaining that Lord Hutton is going to lift more ideas from UKIP's pensions manifesto and curtail the generosity of public sector pension schemes a bit (lower salary increases, higher contributions and career-average rather than final-salary etc) all good stuff, but what troubles me is Hutton recycling the old canard:

... it is in no one’s interest for large numbers of staff to opt out and end up on means-tested benefits.

1) So what? If means-tested old age benefits cost the taxpayer less than final salary pension schemes, that's not an issue.

2) As it happens, IDS took another leaf from UKIP's book and proposed merging the State Pension and the Pensions Credit into a flat-rate Citizen's Pension of £140 a week anyway, so in theory there won't be any means-tested benefits*.

Whether public sector employees should get their public sector pension in addition to the £140 is a separate debate (I would argue not, of course).

* Means-testing (being a brutal form of taxation) is as much anathema to me as 'contributory benefits' (which is an excuse for higher taxes while you're working), and in any event the two are more-or-less opposites so we can rule them out. This leaves us with the sensible middle-ground of universal flat-rate benefits (we can argue about the rate in £ per week, whereby £nil is an option worth considering, if only for the fun of ruling it out again).

There's an app for that

There were two similar articles in The Metro this week, Tenants face being thrown out of their homes if they get richer and Council tenants could lose their homes if they get a job under new reforms.

From the first link:

New renters will be offered fixed-tenancy agreements of as little as two years and could be evicted after that period if they become better off, housing minister Grant Shapps said.

He insisted the reforms would be fairer than the existing system, which sees 5million people on the housing waiting list while others have homes for life which they can pass to their children without means testing. ‘When a tenant goes to renew their contract, they will have to let their local authority know if their financial circumstances have changed,’ Mr Shapps said.

[runs out of room screaming, calms down, returns to keyboard]

This can all be dealt with much more simply. Once we have adopted the MW patented system that welfare claimants and lower earners are paid their Citizen's Income in full, but are given a PAYE code without a personal allowance (i.e. a BR or 'emergency' tax code), so if they earn as much as the personal allowance, the extra tax paid and the CI received net off to nothing in cash terms, it would be a doddle to simply scrap the entire system of trying to collect rents, council tax and then overlayering those with means-tested Housing Benefit and Council Tax Benefit.

Because of the way the numbers work, it would be fiscally neutral to give social tenants who are low earners (or potentially low earners) a PAYE code saying that an extra 20% income tax has to be deducted (i.e. a K-code), which would then be channelled via HMRC back to local councils (this can't be rocket science, it's like Student Loan Deductions, only without any need for particular precision).

So non-earners pay nothing, low earners pay a bit, median earners pay a market rent and above-median earners would actually be paying more than a market rent.

It's up to these people themselves to decide whether they are happy to overpay in the good years as insurance against possible future bad years, or whether their income is so secure that they could save money by renting privately or buying their own place to live. Local councils in turn will have every incentive* to attract more employers to the area and instead of giving priority to the needocracy, they'll have every incentive to allocate social housing to people doing low-to-middle paid jobs.

* Assuming that the Tories really do implement the plans to allow local councils to keep the rents that they collect, rather than them being pooled in Whitehall and then dished out again.

PS, I know for a fact that all policy wonks read each others' manifestos, all this was explained in the UKIP Welfare Paper of earlier this year so they can't pretend they're not aware of the idea.

Shadow Banking Fun

I've been busy until midnight for the past few days doing bits and pieces for my 'second job', so I am slightly behind with posting. I am busily drafting posts, in my mind and on bits of paper, on the vaguely related topics of:

1. The Laffer Curve (and why even a flat tax on incomes is still heading slightly in the wrong direction).

2. Ireland's corporation tax revenues (yes, they collect more in corporation tax than they would with a rate of 25% - 30%, but that is not really a 'Laffer' effect, they are merely collecting corporation tax that would otherwise be paid in other countries).

3. The fact that people on low incomes with some savings appear to be able to earn 20% interest per annum on their savings.

4. A final pop at the DWP's Universal Credit document, the bit about maternity pay (bottom of page 23, pdf).

5. About three more 'Killer arguments against LVT, not'.

5. The Debt Generation, which is like a left-wing book-end to David Craig's Squandered, both of them lay out the facts and talk a lot of sense so the truth, as ever, lies somewhere in the middle (or where the two overlap).

5. Tim Worstall's wildly overstated estimate that the total subsidy to social housing (i.e. by adding in the value of the exemption from location rents) is in the range of £40 - £60 billion. If that were true, then the potential receipts from Land Value Tax - even without cutting other taxes - would be in the order of £300 billion.

6. An article in this morning's City AM, in which the OBR reckon that increasing VAT from 17.5% to 20% will reduce GDP by 0.3%.

7. A tasty bit of Home-Owner-Ist subsidies covered by the BBC: "Lord Freud, one of the ministers for welfare reform... argues that the government was being too generous He now wants to persuade the banks to give people [receiving Support for Mortgage Interest] a cheaper loan rate. "After all, they're being paid by an organisation with a triple-A rating," he says."
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But here's a quick win:

The world's financial regulatory bodies will shift their attention to the shadow banking market in the near future, the chairman of the Financial Services Authority (FSA) Lord Turner has said...

"Although a lot of the problems came from the shadow banking system, most of our response so far has been focused on the banking institutions," he told the news provider.

He said that regulators have got to "really think" what processes could be put in place to keep track of the shadow banking market "so that we don't, in five or ten years time, see a new shadow banking system emerging with new risks".

Pray tell, at which demonic windmills is he tilting? Ah...

In an interview with the Financial Times, [Lord Turner] said that a failure to scrutinise shadow banks, which include money market funds and non-bank investment vehicles, had played a significant role in the run-up to the financial crisis.

So they are not 'shadow banks' at all; they do not take deposits, give out mortgages or loans or run ATMs, they are not doorstep lenders or pawnbrokers, or pay-day loan shops; they are quite simply "money market funds and non-bank investment vehicles".

If you are the Bank of England and are sent monthly returns by all commercial banks operating in the UK - and even if you only work from publicly available accounts, you already know 99% of what you need to know, because the amounts they have lent to banks show up under 'other liabilities' or 'bonds' rather than under 'deposits'.

So these people are in fact the mysterious bondholders which David Malone spent hours tracking down. And these are exactly the same people that our governments are busily bailing out, because strictly speaking they weren't bailing out banks, banks are just middlemen and have little money of their own, they were in fact bailing out bond holders, money market funds and 'non bank investment vehicles'.

So if they really want to find out who these mysterious shadowy people are, our governments could just stop hurling hundreds of billions of pounds at the banks and sit back and wait for them to contact HM Treasury or the FSA asking why the hell has their lovely flow of taxpayers' money stopped rolling in.

Simples!

More tax'n'spend tomfoolery

Wherein we observe that people on right and left of political spectrum don't have a clue about logic or maths:

Allister Heath in CityAM: There is no way that the welfare state, as presently structured, can continue: the middle class will no longer be able to rely on free public services for ever; European-style co-payments are inevitable. Osborne will come of age tonight; he mustn't blow it.

*sigh*

Public services are not 'free' and certainly not to the 'middle classes'. They pay their taxes into a big pot and then the state pays for more-or-less universal public services which are free at point of use.

There is an insane idea doing the rounds that we can reduce the deficit, and hence reduce future tax bills, by reducing 'middle class benefits'. How's that going to work? Let's say we tell parents that in future the 'free' state education place for their children will be means tested - for example, for every £5,000 income the parents have (over and above the subsistence level), the parents have to pay an additional ten per cent towards their child's education, and that this enables us to cut income tax by ten per cent. So a household earning £50,000 saves (say) £4,400 tax a year; but they have to pay sixty per cent of the cost of their child's state school place, call it, er, £4,400 a year.

How does that make them any better off? Is that not exactly the same thing as funding education out of general taxation, except with extra layers of form filling, means testing and opportunities for fraud and error?

*/sigh*

(It is of course an entirely separate debate as to whether the state should be involved in the provision of education in the first place; and if we were to shut it down, whether we'd replace it with education vouchers or tax cuts.)

From the BBC: Brendan Barber, general secretary of the Trades Union Congress (TUC) union, said the cuts [in public spending] would cause more longer term problems and would not reduce the deficit. He said: "What happens is when more people become unemployed, they're paying less tax into the exchequer and they're a drag on the public purse rather than contributing to the public purse. These kinds of cuts will make the deficit worse."

*sigh*

IF we can identify unproductive public sector workers THEN they ought to be sacked. IF (their current net salary + pension accruals) > (the redundancy pay + unemployment benefit they will receive) THEN this reduces the deficit. In fact, even if this calculation showed a nominal loss, it might still be worth doing because they can then get a job in the productive sector and become proper, net taxpayers

In any event Public sector employees do not really pay income tax, as it is the government who gives them the gross salary; the government who takes away some of that gross salary in tax; and the government who promises them future pensions (the value of the pension accruals is roughly equal to the tax that is nominally deducted); and Timmy Taxpayer picks up the net cost.

*/sigh*