Putting Lead In George's Pencil

SUNDAY, SEPTEMBER 06, 2009

Putting Lead In George's Pencil

A bit thin and droopy, but at least he's got one

George was interviewed by Mr Marr this morning (watch again here), and although most of the interview all too predictably got stuck on bankers' bonuses, he did give us a quick flash of his pencil, and how he's been wielding it to pencil in his list of spending cuts.

He mentioned the following headings:

• "Public sector pay restraint" - could mean a freeze, maybe for two years (George and Cam will doubtless share the pain with a ministerial pay freeze)


• "Transfer payments" (aka welfare benefits) - he mentioned abolishing tax credits for those on £50k, but could easily encompass the abolition of non-means tested child benefits, and other "middle class welfare" (universal benefits as they used to be known)


• "Procurement and the like" - presumably cuts in defence equipment, certainly scrapping whacky IT projects like the NHS supercomputer, and probably sharp across the board reductions in all capital procurement (aka"investment")


• "Public sector pensions" - George focused on the usual suspect "fat cats",especially those who take their pension and then get rehired as consultants, but presumably he also plans to scrap the current expensive final salary arrangements across the board.
  

Unfortunately, instead of quizzing George on the details of his list, Marr was much more interested in the politics-of-envy sideshow of bankers bonuses (see previous posts here and here, and Guido's spot on comment here).

Still, if followed through as we surmise, these cuts would deliver some real savings. Freezing public sector pay for two years would save around £10bn pa (egsee this blog), and truncating "middle class welfare" could save another £10bn pa. Add in another £10bn from procurement/investment cuts, and suddenly you're looking at a total £30bn pa. Cutting public sector pensions benefits would also generate savings running into many billions, although not in the short-term: like all pension arrangements, changes in benefit accrual rules take years to work through.

So hurrah! George has shown us he does have a pencil, even if it looks like it needs sharpening, and may not yet be quite up to the job.

Now, as we all know, the reason George and other politicos are so unwilling to be specific about spending cuts, is that all cuts involve losers. And losers have a horrible tendency not to vote for you.

So how do we counterbalance that? How do we make sure that the winners know who they are and understand how they benefit from the spending cuts?

In theory it shouldn't be too hard - the winners are taxpayers, and they benefit by having to pay less tax. But in practice, whereas the losers from a spending cut tend to lose A Lot (like, maybe their jobs), the winners from a tax cut are generally spread across millions of taxpayers, each of whom only benefits by a relatively small amount.

On the other hand, many a mickle makes a muckle, and when you add up all thoserelatively small amounts across all the spending cuts our politicos shy away from, the total burden on taxpayers is huge. The fundamental problem is that most people have no idea just how much tax they are paying.

And that's bad. Because it means that taxpayers in general are not nearly angryenough with our high spending politicos, even though it's costing them getting on for half their income. And by the same token, they give far too little credit to politicos who promise to cut back. It is an imbalance that virtually ensures government spends too much.

Now, a small businessman has come up with a great way to redress that imbalance. He's begun presenting his customers with a bill that breaks down the total between what goes to him and his workers, and what goes to the government. And the latter includes not just VAT, but also his business rates, employers' national insurance, the estimated tax and national insurance paid by his workers, insurance tax, climate levy, landfill tax, etc etc etc.

Michael Van Clarke runs a hairdressing salon, and is the brother of fellow hairdresser Nicky Clarke (the most excellent non-people's-peer - see this blog). It would seem he charges a breathtaking £374 for a haircut, which would keep Tyler in haircuts for several decades. But no matter: the important point is that when the customer gets the bill they see that virtually half the cost goes straight to the government. Or to put it another way, without all the taxes, the haircut would only cost half as much:

Van Clarke says:

“People just don’t understand how much tax they are actually paying; it’s at least twice what they think.

In most businesses, about half of your bill is made up of various taxes and I think there should be far more awareness of that.

We have a high-value clientele — movers and shakers from all walks of life — and they have no idea of the amazing amount of tax that is built into their bills. There has been a very positive reaction from our clients, who now see that what we are charging is not as expensive as it seems.”

This is a brilliant idea. An idea that could transform public perceptions, and get taxpayers demanding some serious spending cuts.

It's an idea that could put some real lead in George's pencil.

So how can we help it spread?