How bare will government be if Osborne has to cut another £48bn in spending? Photo: Getty.
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Could we balance the budget by just increasing taxes?

It is difficult to make £48 billion in spending cuts and maintain a belief in a just society. Could we raise taxes instead?

This piece was originally published on our new elections site,

The next government has to make £48 billion in savings, the FT reported on Monday. Given Britain is now halfway through nine years of planned austerity, the paper is running a week-long series on the deficit.

But how, they ask, can the government do it? The paper lets you play Chancellor, offering you 26 things the government currently covers that you could cut. Together they add up to £55 billion in savings. You just have to choose enough of them to get to £48 billion. It seems simple enough.

If you’re struggling, and find yourself unable to wield the axe enough, they also suggest ten tax rises you could introduce. These add up to £13 billion. They are designed to get you over the line after you’ve slashed enough services.

Implicit in all of this is the idea you have to cut spending.

Implicit in all of this is the idea you have to cut spending. If you reject all the spending cuts, and only raise taxes, the FT’s options leave you with a 35 billion black hole.

But why do we have to cut spending? Why can’t we just all put more money into the pot?

First, try making £48 billion in cuts and maintaining a belief in a more just society. We’ve sorted the FT’s options into three levels of cuts: significant (£3bn+); mid-level (£1bn-3bn) and all but pointless (<£1bn).


• Scrap plans to build HS2 (save £8.1bn)
• Cut 5.75% from the NHS budget (£6.1bn)
• Abolish the department of Culture Media and Sport (£5.6bn)
• Cut resource spending on Scotland, Wales and N Ireland by 10 per cent (£5.3bn)
• Axe a third of transport spending for London (£3.6bn)
• Freeze benefits for working-age population for 2 years (£3.2bn)
• Scrap Trident successor (£3.2bn)
• Freeze the defence budget (£3.0bn)


• Cut 5 per cent from the school budget (£2.6bn)
• Cut 10 per cent from the housing benefit bill (£2.4bn)
• Scrap the winter fuel allowance (£2.1bn)
• Halve spending on NHS dentistry (£1.4bn)
• Charge £10 for GP consultations, excluding the most vulnerable (£1.2bn)
• Reduce the army by another quarter in size (£1.1bn)
• Scrap concessionary fares (£1.0bn)
• Slash £1bn in support for keeping 16 to 19 year-olds in education or training (£1.0bn)


• Increase the charge for prescriptions and the 12 month payment card, and reduce the percentage of drugs dispensed free of charge (£0.9bn)
• Halve spending on road maintenance and improvements (£0.9bn)
• Scrap free TV licenses for the over 75s (£0.6bn)
• Cut 10 per cent from the Border Force's budget (£0.6bn)
• Cut 5 per cent from international development (£0.5bn)
• Cut 25% from the criminal and civil legal aid fund (£0.4bn)
• Scrap the Christmas bonus for the poorly paid (£0.2bn)
• Lower the benefit cap from £26,000 to £23,000 (£0.1bn)
• Abolish the UK Statistical Authority (£0.1bn)
• Cut spending on law courts by 25% (£0.1bn)

If you decided to cut the last ten things on the list – which we term the “all-but-pointless” cuts – you would save just £4.4bn, less than 10 per cent of all the cuts you need to make.

So let’s forget those, because we would either be crippling the most vulnerable (pensioners, the poorly paid, those on benefits) or doing things like abolishing the Statistics Authority, which would be like getting rid of all the calculators in the Treasury.

If we’re going to get to £48 billion in cuts, we need to slash some big projects and budgets. We could get 80 per cent of the way there if we just made all the significant cuts that the FT offer us.

Abolishing the Statistics Authority would be like getting rid of all the calculators in the Treasury.

So who wants to scrap HS2? Or 6 per cent of the NHS budget? Abolishing the DCMS sounds plausible – the department is only twenty years old. But doing so would “withdraw most funding” from the country's cultural institutions as well as “400 arts organisations”, we’re told.

Saving £5 billion by handing devolved bodies less cash seems vaguely acceptable, but it’s unlikely to win back the 45 per cent of Scotland who tried to secede in September, or heal the divide between working-class Welsh communities and Westminster.

Scrapping Trident and freezing the defence budget offers a simple route, but doing so would demand a new approach to international relations. We would need to forget foreign interventions and possibly resign our seat on the UN Security Council.

That may be an acceptable price for the pacifist, but these measures would only save £6 billion – less than 15 per cent of the cuts we need.

In short, we need tax rises.

The FT offers us a route to £13 billion through tax – but £9 billion of that would come from two fairly regressive measures: increasing VAT and increasing the basic rate of income tax.

Scrapping Trident and freezing the defence budget offers a simple if inadequate route for the pacifist.

More progressive options to raise money, like reintroducing the 50p tax rate, are not options. In fairness to the FT, earlier this year the IFS estimated that doing so would likely raise very little, despite Labour’s claims to the contrary.

But how, then, can we get to £48 billion? There are three main sources of tax for the Treasury: income tax, National Insurance and VAT. Together they account for nearly two-thirds of all taxes.

Fuel, tobacco and alcohol duties – so often leant up by successive Chancellors in need of cash – together bring in £48 billion: as much as we need to raise. We need to increase these duties by 100 per cent rather than 1 per cent, but doubling fuel duties would increase the cost of driving by nearly 50 per cent (fuel duty is 45 per cent of the cost of petrol).

Doubling the duty on tobacco and alcohol would scarcely be popular either.

Instead, the government could try and make more out of capital gains, inheritance and stamp duty – taxes predominantly paid by the richer part of society. But again, these progressive measures bring in only £16 billion; they would need to triple to plug the deficit.

We can’t save spending by just relying on the rich. Britain has to make a choice.

Corporation tax offers another route, but at £44 billion, it would need to double. Some combination of these measures – higher duties, more aggressive taxes on wealth, corporation taxes – could get us close to £48 billion, but there is no guarantee higher rates will mean higher revenues.

If rates become punitive, multinational companies and the wealthy could leave the UK and work elsewhere.

We could nevertheless go this route, but we may have to make a bolder, bigger choice. If voters don’t want to make the swingeing cuts required to keep the debt in check, we need to raise the tax rates that most people pay: income tax, national insurance and VAT. We can’t save spending by just relying on the rich.

Britain has to make a choice. The demands of the deficit could make us a meaner, smaller state, or be an opportunity to prove a just society sacrifices its extra pounds to sustain a more generous one.


Harry Lambert is a staff writer and editor of May2015, the New Statesman's election website.

Photo: Getty Images
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How can Britain become a nation of homeowners?

David Cameron must unlock the spirit of his postwar predecessors to get the housing market back on track. 

In the 1955 election, Anthony Eden described turning Britain into a “property-owning democracy” as his – and by extension, the Conservative Party’s – overarching mission.

60 years later, what’s changed? Then, as now, an Old Etonian sits in Downing Street. Then, as now, Labour are badly riven between left and right, with their last stay in government widely believed – by their activists at least – to have been a disappointment. Then as now, few commentators seriously believe the Tories will be out of power any time soon.

But as for a property-owning democracy? That’s going less well.

When Eden won in 1955, around a third of people owned their own homes. By the time the Conservative government gave way to Harold Wilson in 1964, 42 per cent of households were owner-occupiers.

That kicked off a long period – from the mid-50s right until the fall of the Berlin Wall – in which home ownership increased, before staying roughly flat at 70 per cent of the population from 1991 to 2001.

But over the course of the next decade, for the first time in over a hundred years, the proportion of owner-occupiers went to into reverse. Just 64 percent of households were owner-occupier in 2011. No-one seriously believes that number will have gone anywhere other than down by the time of the next census in 2021. Most troublingly, in London – which, for the most part, gives us a fairly accurate idea of what the demographics of Britain as a whole will be in 30 years’ time – more than half of households are now renters.

What’s gone wrong?

In short, property prices have shot out of reach of increasing numbers of people. The British housing market increasingly gets a failing grade at “Social Contract 101”: could someone, without a backstop of parental or family capital, entering the workforce today, working full-time, seriously hope to retire in 50 years in their own home with their mortgage paid off?

It’s useful to compare and contrast the policy levers of those two Old Etonians, Eden and Cameron. Cameron, so far, has favoured demand-side solutions: Help to Buy and the new Help to Buy ISA.

To take the second, newer of those two policy innovations first: the Help to Buy ISA. Does it work?

Well, if you are a pre-existing saver – you can’t use the Help to Buy ISA for another tax year. And you have to stop putting money into any existing ISAs. So anyone putting a little aside at the moment – not going to feel the benefit of a Help to Buy ISA.

And anyone solely reliant on a Help to Buy ISA – the most you can benefit from, if you are single, it is an extra three grand from the government. This is not going to shift any houses any time soon.

What it is is a bung for the only working-age demographic to have done well out of the Coalition: dual-earner couples with no children earning above average income.

What about Help to Buy itself? At the margins, Help to Buy is helping some people achieve completions – while driving up the big disincentive to home ownership in the shape of prices – and creating sub-prime style risks for the taxpayer in future.

Eden, in contrast, preferred supply-side policies: his government, like every peacetime government from Baldwin until Thatcher’s it was a housebuilding government.

Why are house prices so high? Because there aren’t enough of them. The sector is over-regulated, underprovided, there isn’t enough housing either for social lets or for buyers. And until today’s Conservatives rediscover the spirit of Eden, that is unlikely to change.

I was at a Conservative party fringe (I was on the far left, both in terms of seating and politics).This is what I said, minus the ums, the ahs, and the moment my screensaver kicked in.

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.