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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"We repealed, then forgot": the long shadow of Section 28 homophobia

Why are deeply conservative views about the "promotion" of homosexuality still being reiterated to Scottish school pupils? 

Grim stories of LGBTI children being bullied in school are all too common. But one which emerged over the weekend garnered particular attention - because of the echoes of the infamous Section 28, nearly two decades after it was scrapped.

A 16-year-old pupil of a West Lothian school, who does not wish to be named, told Pink News that staff asked him to remove his small rainbow pride badge because, though they had "no problem" with his sexuality, it was not appropriate to "promote it" in school. It's a blast from the past - the rules against "promoting" homosexuality were repealed in 2000 in Scotland, but the long legacy of Section 28 seems hard to shake off. 

The local authority responsible said in a statement that non-school related badges are not permitted on uniforms, and says it is "committed to equal rights for LGBT people". 

The small badge depicted a rainbow-striped heart, which the pupil said he had brought back from the Edinburgh Pride march the previous weekend. He reportedly "no longer feels comfortable going to school", and said homophobia from staff members felt "much more scar[y] than when I encountered the same from other pupils". 

At a time when four Scottish party leaders are gay, and the new Westminster parliament included a record number of LGBTQ MPs, the political world is making progress in promoting equality. But education, it seems, has not kept up. According to research from LGBT rights campaigners Stonewall, 40 per cent of LGBT pupils across the UK reported being taught nothing about LGBT issues at school. Among trans students, 44 per cent said school staff didn’t know what "trans" even means.

The need for teacher training and curriculum reform is at the top of campaigners' agendas. "We're disappointed but not surprised by this example," says Jordan Daly, the co-founder of Time for Inclusive Education [TIE]. His grassroots campaign focuses on making politicians and wider society aware of the reality LGBTI school students in Scotland face. "We're in schools on a monthly basis, so we know this is by no means an isolated incident." 

Studies have repeatedly shown a startling level of self-harm and mental illness reported by LGBTI school students. Trans students are particularly at risk. In 2015, Daly and colleagues began a tour of schools. Shocking stories included one in which a teacher singled out a trans pupils for ridicule in front of the class. More commonly, though, staff told them the same story: we just don't know what we're allowed to say about gay relationships. 

This is the point, according to Daly - retraining, or rather the lack of it. For some of those teachers trained during the 1980s and 1990s, when Section 28 prevented local authorities from "promoting homosexuality", confusion still reigns about what they can and cannot teach - or even mention in front of their pupils. 

The infamous clause was specific in its homophobia: the "acceptability of homosexuality as a pretended family relationship" could not be mentioned in schools. But it's been 17 years since the clause was repealed in Scotland - indeed, it was one of the very first acts of the new Scottish Parliament (the rest of the UK followed suit three years later). Why are we still hearing this archaic language? 

"We repealed, we clapped and cheered, and then we just forgot," Daly says. After the bitter campaign in Scotland, in which an alliance of churches led by millionaire businessman Brian Souter poured money into "Keeping the Clause", the government was pleased with its victory, which seemed to establish Holyrood as a progressive political space early on in the life of the parliament. But without updating the curriculum or retraining teaching staff, Daly argues, it left a "massive vacuum" of uncertainty. 

The Stonewall research suggests a similar confusion is likely across the UK. Daly doesn't believe the situation in Scotland is notably worse than in England, and disputes the oft-cited allegation that the issue is somehow worse in Scotland's denominational schools. Homophobia may be "wrapped up in the language of religious belief" in certain schools, he says, but it's "just as much of a problem elsewhere. The TIE campaign doesn't have different strategies for different schools." 

After initial disappointments - their thousands-strong petition to change the curriculum was thrown out by parliament in 2016 - the campaign has won the support of leaders such as Nicola Sturgeon and Kezia Dugdale, and recently, the backing of a majority of MSPs. The Scottish government has set up a working group, and promised a national strategy. 

But for Daly, who himself struggled at a young age with his sexuality and society's failure to accept it, the matter remains an urgent one.  At just 21, he can reel off countless painful stories of young LGBTI students - some of which end in tragedy. One of the saddest elements of the story from St Kentigern's is that the pupil claimed his school was the safest place he had to express his identity, because he was not out at home. Perhaps for a gay pupil in ten years time, that will be a guarantee. 

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