To avoid further cuts, Osborne should raise taxes and reduce benefits

Rather than cutting over-stretched public services, the Chancellor should raise more from the wealthy through tax rises and cuts to universal benefits.

In the build-up to the Budget, most of the debate has been on the here and now, with the Chancellor being urged to boost growth through capital investment or temporary tax cuts. But this will also be a critical Budget for the medium term as George Osborne sets the public spending envelope for 2015/16 ahead of June’s spending review. There’s still time for him to avert another historic public spending mistake.

As part of the Fabian Society Commission on Future Spending Choices we analysed the impact of Osborne’s existing plans as implied by the 2012 Autumn Statement. On the basis of his current commitments to protect spending on the NHS, schools and international development, in 2015/16 we can expect another cut to unprotected public services of £5bn. The services affected include defence, police, social care and local government. Across unprotected departmental spending this would be a real-terms cut of 3.8 per cent compared to 2014/15.

The public services at risk have already been the worst hit by austerity and a further year of reductions would bring the total real cut to these areas since 2011/12 to £36bn or 22 per cent. It is surely unwise to plan further cuts to those budgets that have been hit the most already. Indeed, many areas will face significant pressures even if their budgets stand still in real terms, while an aggregate freeze would still mean cuts to many budgets to make space for growth in other priority areas.

The £5bn pounds required to prevent these further cuts could be found in four ways: cutting the NHS, schools and international development; slowing the pace of deficit reduction and increasing the stock of debt; further cuts to social security; or raising taxes.

Cutting spending on the NHS and schools is not attractive given the rising demand both of these areas face as a result of our ageing population and the new baby-boom. International development spending plans, meanwhile, are part of a long-term international commitment which has cross-party support.

Increasing debt to pay for everyday public service spending is also unattractive. On the current economic outlook, more debt-financed spending is needed but to stimulate the economy today through temporary stimulus and capital investment, not for ordinary government activity. Extra borrowing may also be required in the medium-term if economic growth comes in below the OBR’s previous projections, which are likely to be downgraded this week. But this would merely be to achieve George Osborne’s existing spending plans. Since a future government may well need to push its deficit reduction programme beyond 2017/18 simply because of the state of the economy, it would be unwise to plan for extra discretionary debt-funded spending too.

Instead, the £5bn to prevent further public service cuts should be found through tax rises and social security cuts for 2015/16. These changes should be pre-announced but only implemented if the economy has returned to growth by then (and there is nothing to stop this policy sitting alongside temporary tax cuts in the meantime).

Choices regarding tax and welfare changes should be taken together, since they are both financial transfers between citizens and government. Decisions should be made from the perspective of who has the greatest capacity to absorb changes. This means that any reforms should target the top half of the income distribution, who both have the broadest shoulders and have escaped lightly from austerity until now. There is also a case for increasing the burden placed on older people. Relatively speaking, retired households are lightly taxed and have not suffered welfare cuts to the extent of younger families.

In isolation the idea of up to £5bn of tax rises may appear alarming (it is equivalent to 1 per cent on VAT or income tax). But at present the brunt of deficit reduction is being born by public spending, not tax rises. On current plans, the chancellor is expecting to close the deficit through a combination of 85 per cent spending cuts and 15 per cent tax rises, compared to his original 2010 plan for 27 per cent to come through tax rises and Alistair Darling’s plans of 30 per cent.

So it’s time to shift the balance of deficit reduction away from public service cuts. The good news is that another year of public service cuts can be prevented at the ‘low’ cost of £5bn. The Chancellor should announce 2015/16 tax and benefit plans to generate this money from those who can bear the burden best.

Chancellor of the Exchequer George Osborne leaves 11 Downing Street on March 18, 2013 in London. Photograph: Getty Images.

Andrew Harrop is general secretary of the Fabian Society.

Photo: André Spicer
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“It’s scary to do it again”: the five-year-old fined £150 for running a lemonade stand

Enforcement officers penalised a child selling home-made lemonade in the street. Her father tells the full story. 

It was a lively Saturday afternoon in east London’s Mile End. Groups of people streamed through residential streets on their way to a music festival in the local park; booming bass could be heard from the surrounding houses.

One five-year-old girl who lived in the area had an idea. She had been to her school’s summer fête recently and looked longingly at the stalls. She loved the idea of setting up her own stall, and today was a good day for it.

“She eventually came round to the idea of selling lemonade,” her father André Spicer tells me. So he and his daughter went to their local shop to buy some lemons. They mixed a few jugs of lemonade, the girl made a fetching A4 sign with some lemons drawn on it – 50p for a small cup, £1 for a large – and they carried a table from home to the end of their road. 

“People suddenly started coming up and buying stuff, pretty quickly, and they were very happy,” Spicer recalls. “People looked overjoyed at this cute little girl on the side of the road – community feel and all that sort of stuff.”

But the heart-warming scene was soon interrupted. After about half an hour of what Spicer describes as “brisk” trade – his daughter’s recipe secret was some mint and a little bit of cucumber, for a “bit of a British touch” – four enforcement officers came striding up to the stand.

Three were in uniform, and one was in plain clothes. One uniformed officer turned the camera on his vest on, and began reciting a legal script at the weeping five-year-old.

“You’re trading without a licence, pursuant to x, y, z act and blah dah dah dah, really going through a script,” Spicer tells me, saying they showed no compassion for his daughter. “This is my job, I’m doing it and that’s it, basically.”

The girl burst into tears the moment they arrived.

“Officials have some degree of intimidation. I’m a grown adult, so I wasn’t super intimidated, but I was a bit shocked,” says Spicer. “But my daughter was intimidated. She started crying straight away.”

As they continued to recite their legalese, her father picked her up to try to comfort her – but that didn’t stop the officers giving her stall a £150 fine and handing them a penalty notice. “TRADING WITHOUT LICENCE,” it screamed.


Picture: André Spicer

“She was crying and repeating, ‘I’ve done a bad thing’,” says Spicer. “As we walked home, I had to try and convince her that it wasn’t her, it wasn’t her fault. It wasn’t her who had done something bad.”

She cried all the way home, and it wasn’t until she watched her favourite film, Brave, that she calmed down. It was then that Spicer suggested next time they would “do it all correctly”, get a permit, and set up another stand.

“No, I don’t want to, it’s a bit scary to do it again,” she replied. Her father hopes that “she’ll be able to get over it”, and that her enterprising spirit will return.

The Council has since apologised and cancelled the fine, and called on its officials to “show common sense and to use their powers sensibly”.

But Spicer felt “there’s a bigger principle here”, and wrote a piece for the Telegraph arguing that children in modern Britain are too restricted.

He would “absolutely” encourage his daughter to set up another stall, and “I’d encourage other people to go and do it as well. It’s a great way to spend a bit of time with the kids in the holidays, and they might learn something.”

A fitting reminder of the great life lesson: when life gives you a fixed penalty notice, make lemonade.

Anoosh Chakelian is senior writer at the New Statesman.