How to cut the deficit

Tomorrow, we’ll be told there is no alternative. In fact, there exist several spending alternatives

The mood of sour resignation before the nation shortly meets its Spending Review fate is palpable. Yet rarely have such momentous decisions been preceded by such misinformation and muffling of public debate. The sense of foreboding and inevitability is seriously misplaced.

Everyone agrees that the current deficit of £155bn is far too large and needs to be reduced. But there are four ways of doing this, not just one – cutting spending – and indeed, the latter is the least relevant because the deficit arose not from too much spending, but from a major collapse in tax revenues.

In the last fiscal year government spending rose 7 per cent, but government income, which had been forecast to reach £608bn, fell hugely short at £496bn. That £112bn gap, caused by the collapse of the banking sector, is the root of the problem. The solution, therefore, is to restore government revenues to fill the gap.

One way this shortfall will be met over the next four years (the timescale accepted by both government and opposition) is through economic growth. The government's own forecasts for GDP growth over that period average 2.7 per cent per year. As UK GDP is about £1.45trn, that suggests an increase in national income over the four-year period of some £157bn. Of this, the government take is about 40 per cent, or some £63bn. Thus nearly 41 per cent of the deficit will be met by the economic growth that the government is itself predicting over the next four years.

"Tighten your belt"

That still leaves roughly £92bn in debt outstanding. The second alternative way of meeting the deficit is through tax increases. The government is indeed proposing this itself in putting up VAT to 20 per cent in January. But this regressive tax will hit the poor hardest and may well choke off any fragile recovery there is.

Both these downsides would be avoided if the tax increases were directed at the very richest. That is entirely fair, when many of them were directly responsible themselves for the financial crash, and when their gain in wealth over the past decade and a half has been stupendous. The Sunday Times Rich List – a sort of X Factor for capitalists – recently showed that the richest thousand, just 1,000 persons, had almost quadrupled their wealth over this period to £370bn, and that in the past year alone, when most British people were having to tighten in their belt, their wealth expanded by a cool £77bn.

The most obvious way to ensure a fair contribution from this hyper-rich elite is by making them pay the due taxes they have been avoiding or evading in tax havens for decades. HMRC itself modestly estimates the UK tax shortfall at more than £50bn each year, meaning that one-third of the deficit is attributable to super-rich individuals and big businesses that cheat the tax system.

What is equally scandalous is that these same people have relentlessly lobbied the Treasury to go easy in its scrutiny of their tax liabilities, and as a result 26,000 jobs for tax inspectors have been axed since 2005. Since the average tax inspector generates 60-180 times his salary cost, that represents a loss to the Exchequer of up to £5bn a year. One highly cost-effective way to cut the deficit therefore would be to double the number of tax inspectors in this next year.

A real crackdown on tax havens and reform of residence rules to stop tax avoidance by corporations and "non-domiciled" residents would raise at least £10bn a year. In addition, several other measures would raise substantial revenue while leaving 98 per cent of the population untouched.

A tax rate of 50 per cent on incomes over £100,000 (not just over £150,000, as is being implemented at present) would raise £4.7bn each year. An empty property tax on vacant dwellings, which exacerbate housing shortages and harm neighbourhoods, would raise another £5bn. Ending tax breaks that disproportionately subsidise incomes of the richest 2 per cent would raise £14.9bn each year. Aligning capital gains tax with higher-rate income tax and uncapping National Insurance contributions so that they apply to all earned and unearned income would raise a further £9bn.

Room for manoeuvre

Introducing a financial activities tax (FAT), which would act as a brake on the kinds of excessive risk-taking and speculative transfers of derivatives that caused the crisis, would raise an extra £25bn a year. Ideally, the latter – a Tobin-type tax – should be applied internationally, but even a 0.01 per cent tax on UK financial trades alone would raise £20bn a year.

These tax measures would thus raise about £53bn a year. That still leaves residual debt of about £39bn. The third and most efficient way to cut the deficit is a major public-sector-driven job-creation programme that saves public money by switching the unemployed off benefits dependence and into tax-paying jobs. There is certainly a huge need for these extra jobs in infrastructure development, the new green digital economy and a large, sustained housebuilding drive.

But can that be paid for when the government and media have been constantly trumpeting austerity? Research released last month by the IMF sought to measure "fiscal space" – how much headroom countries have available to increase expenditure for jobs and growth before the markets lose confidence in them. The study concluded that there's a more than 75 per cent chance that the UK has room to increase its debt stock by another 50 per cent of GDP (yes, you read that right, the IMF thinks the UK's debt could rise to 140 per cent of GDP) before getting into a vicious debt spiral.

That puts the UK in better shape than the US, where there is only a 50 per cent chance they could sustainably raise their debt that much. Nobody is suggesting that need be put to the test, but it does show that the UK is far away from the doomsday scenarios painted in some quarters.

Nor is that so surprising, given the much longer maturity of UK debt – nearly twice as long as the OECD average and nearly three times as long as the US. Crucially, this gives the UK much greater leeway over the next few years for funding a moderate jobs and growth programme than the government has admitted to.

None of this is to propose that there shouldn't be cuts in public expenditure. Over £2.8bn could be saved every year by ending the use of private consultants, and another £3bn a year in user fees and interest charges if PFI schemes were replaced by public procurement.

Other options include cancelling Trident replacement (£76bn saving over 40 years), identity cards (£12bn) and wasteful government databases that keep leaking confidential information (at least £10bn). All these, of course, will be settled on grounds of policy, not just money. But the real point is that public spending cuts are not the sole means to deal with the Budget deficit, not even the necessary means, and certainly not the best means.

It's TESSA (there exist several spending alternatives), not TINA (there is no alternative).

Michael Meacher is MP (Labour) for Oldham West and Royton.

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The dog at the end of the lead may be small, but in fact what I’m walking is a hound of love

There is a new, hairy face in the Hovel.

There is a new, hairy face in the Hovel. I seem to have become a temporary co-owner of an enthusiastic Chorkie. A Chorkie, in case you’re not quite up to speed with your canine crossbreeds, is a mixture of a chihuahua and a Yorkshire Terrier, and while my friend K— busies herself elsewhere I am looking after this hound.

This falls squarely into the category of Things I Never Thought I’d Do. I’m a cat person, taking my cue from their idleness, cruelty and beauty. Dogs, with their loyalty, their enthusiasm and their barking, are all a little too much for me, even after the first drink of the day. But the dog is here, and I am in loco parentis, and it is up to me to make sure that she is looked after and entertained, and that there is no repetition of the unfortunate accident that occurred outside my housemate’s room, and which needed several tissues and a little poo baggie to make good.

As it is, the dog thinks I am the bee’s knees. To give you an idea of how beeskneesian it finds me, it is licking my feet as I write. “All right,” I feel like saying to her, “you don’t have to go that far.”

But it’s quite nice to be worshipped like this, I have decided. She has also fallen in love with the Hovel, and literally writhes with delight at the stinky cushions on the sofa. Named after Trude Fleischmann, the lesbian erotic photographer of the Twenties, Thirties and Forties, she has decided, with admirable open-mindedness, that I am the Leader of the Pack. When I take the lead, K— gets a little vexed.

“She’s walking on a loose lead, with you,” K— says. “She never does that when I’m walking her.” I don’t even know what that means, until I have a think and work it out.

“She’s also walking to heel with you,” K— adds, and once again I have to join a couple of mental dots before the mists part. It would appear that when it comes to dogs, I have a natural competence and authority, qualities I had never, not even in my most deranged flights of self-love, considered myself to possess in any measurable quantity at all.

And golly, does having a dog change the relationship the British urban flâneur has with the rest of society. The British, especially those living south of Watford, and above all those in London, do not recognise other people’s existence unless they want to buy something off them or stop them standing on the left of the sodding escalator, you idiot. This all changes when you have a dog with you. You are now fair game for any dog-fancier to come up to you and ask the most personal questions about the dog’s history and genealogy. They don’t even have to have a dog of their own; but if you do, you are obliged by law to stop and exchange dog facts.

My knowledge of dog facts is scant, extending not much further beyond them having a leg at each corner and chasing squirrels, so I leave the talking to K—, who, being a friendly sort who could probably talk dog all day long if pressed, is quite happy to do that. I look meanwhile in a kind of blank wonder at whichever brand of dog we’ve just encountered, and marvel not only at the incredible diversity of dog that abounds in the world, but at a realisation that had hitherto escaped me: almost half of London seems to have one.

And here’s the really interesting thing. When I have the leash, the city looks at me another way. And, specifically, the young women of the city. Having reached the age when one ceases to be visible to any member of the opposite sex under 30, I find, all of a sudden, that I exist again. Women of improbable beauty look at Trude, who looks far more Yorkie than chihuahua, apart from when she does that thing with the ears, and then look at me, and smile unguardedly and unironically, signalling to me that they have decided I am a Good Thing and would, were their schedules not preventing them, like to chat and get to know me and the dog a bit better.

I wonder at first if I am imagining this. I mention it to K—.

“Oh yes,” she says, “it’s a thing. My friend P-J regularly borrows her when he wants to get laid. He reckons he’s had about 12 shags thanks to her in the last six months. The problems only arise when they come back again and notice the dog isn’t there.”

I do the maths. Twelve in six months! That’s one a fortnight. An idea begins to form in my mind. I suppose you don’t have to be a rocket scientist to work out what it is. But no. I couldn’t. Could I?

Nicholas Lezard is a literary critic for the Guardian and also writes for the Independent. He writes the Down and Out in London column for the New Statesman.

This article first appeared in the 28 April 2016 issue of the New Statesman, The new fascism