The Government’s main jibe at the Opposition throughout this debate has been, “What is the alternative to the cuts?” I will spell out what I think that alternative should be. Of course the deficit has to be brought down —we all agree on that—but slashing public expenditure by £80 billion in four years is probably the most risky and counter-productive way of doing that. The Chancellor has largely ignored the other three ways.
First, there are the proceeds of economic growth. The estimate of the independent Office for Budget Responsibility for growth over the next five years, albeit recently scaled down, has growth at 1.7% this year, 2.5% next year, then 2.9%, 2.9%, and 2.8%. That means that, on the Government’s own estimates, there will be an increase in the national income of £185 billion. Governments always take about 40%. That means that there will be extra Government revenues over the next five years of £74 billion. That is half the current Government deficit of £146 billion, and nearly three quarters of the Government’s estimated structural deficit of £109 billion. Therefore—on their own estimates, I repeat—the Government would halve the budget deficit in five years without making a single public expenditure cut. I am not against such cuts, and I think there should be some, but I am simply pointing out that there are alternative and far better ways of dealing with the problem.
The reason why the Government have chosen to focus obsessively on benefit and public expenditure cuts is not because they are economically necessary on the scale that they say, but because of their overriding ideological objective of chopping back the welfare system and shrinking the state. That is what it is really about.
The second way to reduce the deficit is obviously through tax increases, but the Government have chosen to minimise that option and maximise the cuts option—the balance between the two is 77% and 23%. Thatcher never went beyond 50:50. The Chancellor has ostentatiously avoided any tax rises that might disturb the rich. The non-dom loophole has not been closed; it would bring in an extra £3 billion. The promised £2 billion to be saved in tax avoidance is really pretty small beer, given that even Her Majesty’s Revenue and Customs admits that avoidance will cost £16 billion this year and most independent experts think that the figure will be £50 billion. The tripling of the Government’s bank levy, which was recommended by the International Monetary Fund and would bring in another £6 billion, has simply been passed over.
Moreover, the Chancellor has simply turned his eyes away from any fiscal innovation that might produce a fairer Britain where all of us are in it together. A financial transaction tax at a modest rate of 0.05% would raise about £30 billion. An empty property tax would raise £5 billion, and a land value tax, which would be a great deal fairer than the council tax, which it could replace, would raise more than £30 billion. A minimum tax levy on high earners would put a cap on avoidance and raise more than £10 billion.
The Chancellor really ought to be less timid. The public want taxes that will hurt the rich, and particularly bankers. I do not think the Government realise that. Any permutation of the taxes that I have mentioned could raise at least £30 billion a year—probably rather more if the Chancellor chose, but of course he will not, because the Tory party gets half its funding from the bankers.
Then there is the third option for reducing the deficit, which is a jobs and growth strategy. The cost of putting a million people on the dole, which is what the Government are planning to do, is probably about £6 billion depending on the level of benefits involved. Instead of throwing a million people on the scrapheap, which will substantially worsen the deficit, the Government could invest in a million jobs to provide the social housing and transport infrastructure that are so desperately needed; to develop the green technologies that the green investment bank was supposed to fund if only the Government had not shrivelled its powers; to deal with the rising child protection case load; to train a more skilled work force; and to care for a growing ageing population, to mention just some of the service jobs that could be provided. There would be a significant net gain in deficit reduction for many reasons, not least because of instead of a million people being a drain on the Exchequer, they would contribute to it.
The real cause of the financial crash has not been addressed at all. It is astonishing that three years on, nothing has been done to address the massive flaws in the banking system’s structure and its use of derivatives, bonuses, lending practices, offshoring and speculation. The Budget sets out £80 billion-worth of spending cuts that are not economically necessary on such a scale, will do lasting damage to the social fabric and do not deal with the real—