Leader: Far tougher choices are needed on tax and spend

Neither the tax rises proposed by Labour, nor the benefits cuts proposed by the Tories would make a significant dent in the deficit.

The 2010 general election was defined by a conspiracy of silence between the main parties. For fear of the electoral consequences, neither Labour nor the Conservatives spelled out to voters what austerity would entail in practice. While vowing to halve the deficit, Gordon Brown never acknowledged the scale of spending cuts that would be needed to meet this pledge. The Tories, who promised to eliminate the structural deficit in a single parliament, were no better. The weekend before the election, David Cameron declared that any future cabinet minister who proposed “front-line reductions” in services would be “sent straight back to their department to go away and think again”. During the campaign, he said that his party had “absolutely no plans” to raise VAT, that he “wouldn’t means-test” child benefit, that Sure Start centres would not be closed and that the Education Maintenance Allowance would remain in place. Each one of these promises was broken before the year was out.

This year has begun with both the Tories and Labour declaring that they are prepared to make the “tough choices” required to reduce the deficit – which the government forecasts will be £111bn this year – in the next parliament. George Osborne has promised to implement £25bn of further spending cuts, including £12bn from welfare, in the two years after the next general election. Ed Balls has announced that Labour will seek to achieve a current budget surplus by the end of the next parliament and will reintroduce the 50p income-tax rate to help with this task. Both men wish to be seen as fiscal disciplinarians, taking difficult but necessary decisions in the national interest. Yet neither can credibly claim this mantle.

There is little that is brave about cutting benefits for the poor or raising taxes on the rich, policies that have the overwhelming support of the public. Voters, unsurprisingly, are most in favour of austerity when it does not affect them. Just 1.5 per cent of taxpayers have earnings above the £150,000 threshold at which the 50p tax rate would be introduced and a similarly small proportion of households is affected by measures such as the benefit cap. For this reason, none of the policies recently announced by Mr Balls and Mr Osborne would make a significant dent in the deficit. Rather, their logic is almost entirely political. The Tories are seeking to frame Labour as the party of welfare, Labour to frame the Tories as the party of the wealthy. One can hardly blame politicians for playing politics but the danger is that this ideological skirmish denies the country the open debate it needs about its fiscal choices.

Despite the return of consistent growth, the scale of austerity required after 2015, owing to the persistence of the structural deficit (which stands at 3.6 per cent of GDP), has not lessened. The Institute for Fiscal Studies has estimated that £12bn of further tax rises or welfare cuts will be needed merely to maintain departmental spending cuts at their current level. While Mr Osborne has declared his willingness to make welfare reductions of this size, he has notably refused to specify any beyond the abolition of housing benefit for the under-25s, a measure that would raise at most £1.2bn, and likely less after exemptions for the disabled and other vulnerable groups. Beyond the tax rises announced by Labour, most of which are to fund new spending programmes, Mr Balls has offered to remove winter fuel payments from the wealthiest 5 per cent of pensioners, a cut that would save just £100m.

For the sake of democracy as well as good government, we need a far wider debate about the services the state should fund and the taxes it should levy to pay for them. Both parties should consider significantly deeper cuts to a defence budget that remains the fourth largest in the world. At a time when property values are rising far faster than incomes, they should also look to increase the taxation of high-value estates, including steeper rates of stamp duty and the imposition of capital gains tax on first properties. Other imaginative options include the introduction of a land value tax and a higher rate of VAT on luxury items. But given that it seems the limits of departmental cuts will soon be reached, the parties ultimately may need to discuss openly the possibility of raising the only taxes that reap reliably large revenues: the basic rate of income tax, National Insurance and VAT. That would be a properly “tough choice”.
 

Ed Balls and George Osborne attend the State Opening of Parliament on May 8, 2013. Photograph: Getty Images.

This article first appeared in the 29 January 2014 issue of the New Statesman, The seven per cent problem

Getty
Show Hide image

Air pollution: 5 steps to vanquishing an invisible killer

A new report looks at the economics of air pollution. 

110, 150, 520... These chilling statistics are the number of deaths attributable to particulate air pollution for the cities of Southampton, Nottingham and Birmingham in 2010 respectively. Or how about 40,000 - that is the total number of UK deaths per year that are attributable the combined effects of particulate matter (PM2.5) and Nitrogen Oxides (NOx).

This situation sucks, to say the very least. But while there are no dramatic images to stir up action, these deaths are preventable and we know their cause. Road traffic is the worst culprit. Traffic is responsible for 80 per cent of NOx on high pollution roads, with diesel engines contributing the bulk of the problem.

Now a new report by ResPublica has compiled a list of ways that city councils around the UK can help. The report argues that: “The onus is on cities to create plans that can meet the health and economic challenge within a short time-frame, and identify what they need from national government to do so.”

This is a diplomatic way of saying that current government action on the subject does not go far enough – and that cities must help prod them into gear. That includes poking holes in the government’s proposed plans for new “Clean Air Zones”.

Here are just five of the ways the report suggests letting the light in and the pollution out:

1. Clean up the draft Clean Air Zones framework

Last October, the government set out its draft plans for new Clean Air Zones in the UK’s five most polluted cities, Birmingham, Derby, Leeds, Nottingham and Southampton (excluding London - where other plans are afoot). These zones will charge “polluting” vehicles to enter and can be implemented with varying levels of intensity, with three options that include cars and one that does not.

But the report argues that there is still too much potential for polluters to play dirty with the rules. Car-charging zones must be mandatory for all cities that breach the current EU standards, the report argues (not just the suggested five). Otherwise national operators who own fleets of vehicles could simply relocate outdated buses or taxis to places where they don’t have to pay.  

Different vehicles should fall under the same rules, the report added. Otherwise, taking your car rather than the bus could suddenly seem like the cost-saving option.

2. Vouchers to vouch-safe the project’s success

The government is exploring a scrappage scheme for diesel cars, to help get the worst and oldest polluting vehicles off the road. But as the report points out, blanket scrappage could simply put a whole load of new fossil-fuel cars on the road.

Instead, ResPublica suggests using the revenue from the Clean Air Zone charges, plus hiked vehicle registration fees, to create “Pollution Reduction Vouchers”.

Low-income households with older cars, that would be liable to charging, could then use the vouchers to help secure alternative transport, buy a new and compliant car, or retrofit their existing vehicle with new technology.

3. Extend Vehicle Excise Duty

Vehicle Excise Duty is currently only tiered by how much CO2 pollution a car creates for the first year. After that it becomes a flat rate for all cars under £40,000. The report suggests changing this so that the most polluting vehicles for CO2, NOx and PM2.5 continue to pay higher rates throughout their life span.

For ClientEarth CEO James Thornton, changes to vehicle excise duty are key to moving people onto cleaner modes of transport: “We need a network of clean air zones to keep the most polluting diesel vehicles from the most polluted parts of our towns and cities and incentives such as a targeted scrappage scheme and changes to vehicle excise duty to move people onto cleaner modes of transport.”

4. Repurposed car parks

You would think city bosses would want less cars in the centre of town. But while less cars is good news for oxygen-breathers, it is bad news for city budgets reliant on parking charges. But using car parks to tap into new revenue from property development and joint ventures could help cities reverse this thinking.

5. Prioritise public awareness

Charge zones can be understandably unpopular. In 2008, a referendum in Manchester defeated the idea of congestion charging. So a big effort is needed to raise public awareness of the health crisis our roads have caused. Metro mayors should outline pollution plans in their manifestos, the report suggests. And cities can take advantage of their existing assets. For example in London there are plans to use electronics in the Underground to update travellers on the air pollution levels.

***

Change is already in the air. Southampton has used money from the Local Sustainable Travel Fund to run a successful messaging campaign. And in 2011 Nottingham City Council became the first city to implement a Workplace Parking levy – a scheme which has raised £35.3m to help extend its tram system, upgrade the station and purchase electric buses.

But many more “air necessities” are needed before we can forget about pollution’s worry and its strife.  

 

India Bourke is an environment writer and editorial assistant at the New Statesman.