Who Pays Our Taxes?

MONDAY, OCTOBER 26, 2009

Who Pays Our Taxes?

Following our post on whacking the middle class, we've refreshed our memory on who actually pays our taxes.

We can get some idea from the latest ONS analysis of taxes paid directly by households. They account for around three-quarters of total taxes, the remainder mainly being paid by businesses of one kind or another.

In 2007 (the latest data available), of the government's £500bn total tax revenue, £360bn was paid directly by households (including income tax, national insurance, VAT, duties, and council tax).

And of that £360bn, getting on for a quarter (£81bn) was paid by the richest 10% of households (meaning household incomes over about £60 grand pa). Which just goes to prove once again how very grateful we should be to the rich.

In contrast, the poorest 40% of households paid "only" £54bn between them.

Which means that the 50% of households in the middle - the people who probably think of themselves as middle class - ended up paying 63% of all the taxes paid by households.

PS I know what you're thinking. You're thinking that companies don't actually end up paying taxes at all because companies are just legal constructs. Any taxes they pay are passed onto their customers in the form of higher prices, or passed onto their shareholders in the form of lower earnings. So really we need to attribute the £140bn taxes they paid back to their customers and their owners. And you're quite right. Unfortunately we don't have the information to do it.

Whacking The Middle Class

The middle class isn't so docile everywhere

To paraphrase Willie Sutton, the reason Chancellors rob the middle class is because that's where the money is.

Sure, politicos like to wave their arms and pledge to tax the undeserving rich, but in reality that never raises enough cash. For one thing, there aren't enough undeserving rich to go round, and for another, the rich have an anti-social tendency to move their cash out of harm's way. For example, the new 50p tax on incomes over £150 grand may show we're all in this together, but in reality it's likely to reduce tax revenue (see this blog).

So as Darling/Osborne run through the options for closing our £100bn fiscal gap, the middle class finds itself right back in the crosshairs.

Much of the action will be on tax. The middle class can expect to see income tax allowances and thresholds frozen (just like Howe did in his famous 1981 budget), and you certainly wouldn't rule out Darling extending his 50p tax rate further down the income scale (nicely stitching up Cam and Oz in the process).

The middle class will also be whacked by the forthcoming increase in VAT to 20% (watch this space). The VAT net may even be extended: the National Institute calculate that abolishing the reduced rate of VAT on fuel, and extending VAT to cover everything except food and childrens' clothing would raise £28bn pa by 2015. True, VAT is highly regressive, so proportionate to income, the poor willsuffer most. But it's the middle class who will pay most.

The same goes for the planned further increases in eco-taxes, which also tend to be highly regressive. However with a little hippy ingenuity, such taxes can be shaped to hit the middle class especially hard: today's proposal to impose a £3,300 tax on new cars (heavily promoted this morning on the good old BBC) shows the way.

And then there's the sharp hike in business rates facing many small business owners after the government's recent revaluation exercise.

But of course, it isn't just through higher taxes that the middle class can expect to see their incomes cut. There's also the thorny issue of cash benefits.

Last week Tyler attended an interesting session organised by the ever-excellent Reform to launch their new paper on welfare reform - The End of Entitlement. Its key proposals include handing benefit rules and operation to social enterprises and companies, flexible Personal Protection Accounts modelled on ISAs, and replacing social security benefits with private provision.

But the headline item was a further refinement of Reform's proposal to abolish middle class welfare.

According to Reform, £31bn pa is currently being spent on welfare benefits for people who are not in need. Which is a quarter of the entire cash welfare bill.

They define the need threshold on the basis of every adult having an income of £15,000 pa and every child £5,000 pa, so that for example, a two adult two child household needs an annual income of £40k. On that basis they identify the following benefits as being the least well targeted, with high percentages of the benefits spend going to those above the threshold:

As well as pushing up the state pension age to 68 more quickly than currently planned, they recommend eliminating a raft of benefits for those above the needs threshold, including:

• Scrap Child Benefit and streamline the Child Tax Credit - net saving £7.2bn pa after increase in means tested child support
• Scrap the Child Trust Fund, Employer Supported Childcare Schemes, Health in Pregnancy Grants, the Healthy Start Scheme and the Sure Start Maternity Grant - saving £1.3bn pa
• Abolish winter fuel allowance and free TV licences for pensioners - saving £3.2bn pa
• End concessionary bus fares - saving £1bn pa
• Charge student loan borrowers at the market rate - saving £1.2bn pa
• Abolish the Educational Maintenance Allowance - saving £0.5bn pa

In other words, Reform propose an end to Beveridge-style universal benefits, and a much greater reliance on means testing.

Now, whatever you think about more means testing - and several people in Reform's meeting were aghast at the idea - this proposal means a £31bn pa cut in middle class incomes.

As it happens we like Reform's idea. But that's because the state should not be in the business of churning money from tax to benefits for people who don't need the help. It should cut both benefits and taxes (eg see this blog where we estimated the deadweight cost of fiscal churn at £5-6bn pa). .

But unfortunately, that's not where we are today. We have a huge fiscal hole to fill, and while benefits will be cut, there is no immediate prospect of a corresponding tax cut. For the middle class, their benefits cut will come on top of all their tax increases.

So are they going to sit there and just pay up? Put country before themselves?

Or are they going to shout and scream and demand that government cuts its own spending first? Like our middle class American cousins have long done.

Your call.

But you can join the TaxPayers' Alliance here.

And unlike Big Government, it's free.

PS Talking of the TPA, their latest research report is published this morning. Snappily entitled ACA-to-YJB: A Guide to the UK Semi-Autonomous Public Bodies, it's a comprehensive guide to what you and I know as Britain's 1,152 quangos. Here are the key facts:

• Direct cost to taxpayers - £90bn pa (2007-08)
• Additional fees and charges levied by quangos - £32bn pa
• Staff - 534,000, which is more than the entire civil service

It is a fantastically useful survey - everything you ever wanted to know about the cost of these unaccountable, crony-stuffed excrescences. Well done to Ben, John, Katherine, and James for wrestling the facts to the ground. We'll be keeping a copy at our bedside for easy reference.

SUNDAY, OCTOBER 25, 2009

More Cost Ineffective Justice

Violent crime now even worse than unthinkably thought in 2000*

Returning from a couple of days sans broadband, we've been catching up with theVillage Postmaster.

He and his family have suffered what's officially categorised as a high trauma crime - robbery in their own home. But we're pleased to see they're back up and running, and they've clearly had huge support from their customers and the local community. After 50 years of soft criminal justice and corrosive welfare dependency, it's reassuring to know some bits of Britain remain unbroken.

At least the police do seem to be taking it seriously. They told the VP that the raid on his store was one of many - the night after his own raid, three more retailers in the county suffered the same fate, quite likely at the hands of the same gang. They really do need to hunt down these scum before somebody gets hurt.

But then what? We return to the same question we asked initially - why do we have to tolerate people like this among us? Why can't we just lock them away for good?

As we've blogged many times, the Home Office has previously estimated* that half of all serious crime is committed by around 100,000 persistent offenders. Each one commits an average of 90 serious crimes every year. Yes, that's right - 90 (see here).

But of those 100,000, only 20,000 are in prison at any one time. The rest are out among us, free to crack on - robbing the VP in his own home, raping, pillaging, whatever takes their fancy.

The obvious solution is to build another 80,000 prison places (doubling the current number) and keep these persistent offenders inside. Permanently.

At the current average £40 grand per place, that would cost us £3.2bn pa, £1bn of which we could get by abolishing the useless probation service (eg see this blog). And by using a little imagination, we could substantially reduce the cost (Tyler Senior favours doing a deal with the Russians for some of their underutilised correctional facilities).

It all seems so obvious to Tyler, the Major, and a host of ordinary people out here in the real world. So why don't we do it?

We know why: our wibbly Prog Con elite - who rarely experience serious high trauma crime themselves - persistently block any such moves. People like Aaronovitch, Finkelstein, and Easton, are forever telling us we are Daily Mail moral panickers, and we are in denial about the true facts (eg see here and here). For is it not the case that the government's official crime statistics show a continuing fall in serious crime?

To which our response has always been that the published official crime stats are so massaged and manipulated that they're not worth the eco-friendly recycled paper they're printed on. And in the last couple of days we've had yet more proof.

First, Denis O’Connor, Her Majesty’s Chief Inspector of Constabulary, has confirmed something we've blogged before - namely that the police are systematically under-recording crimes of violence:

"The plight of battered wives and other incidences of violence are being ignored by police. A third of the violent offences which were not recorded as crimes should have been...

Among the cases was that of one force which recorded that “no crime” had taken place when a woman’s partner slapped her, grabbed her by the neck and threw her on the floor, leaving her battered and bruised. The officers wrote that the victim would say that she had injured herself and that her partner’s account was “more accurate”...

In another incident, a man was knocked to the ground by a blow behind his ear. He was then kicked in the body. He needed six stitches in his head. The officer said he found the circumstances unusual and that the man might have been under the influence of alcohol when he fell. Mr O’Connor’s report said the incident should have been recorded as grievous bodily harm."

According to O’Connor, "the drive to meet government targets could be one reason why officers were failing to record offences".

You don't say.

Second, Policy Exchange have unearthed some unpublished Home Office researchshowing that the number of hardened offenders has increased alarmingly since the data summarised above:

This new study identifies 350,000 high-rate persistent criminals, who each commit around 260 crimes a year on average. That compares to the 155,000 identified in the earlier Home Office report* - a massive increase. And the number of active offenders overall now stands at an estimated 1.6 million (compared to 1.2 million earlier).

Alarmingly, it is in crimes of violence that the situation has deteriorated most.

The chart above is taken from a confidential crime report produced by Lord Birt for Tony Bliar in 2000. It shows what Birt thought would happen to violent crime by 2010 if the historic trend continued.

But although the chart was designed to shock, Birt was too optimistic. Even though we haven't yet reached 2010, according to the latest HO stats, recorded offences of violence against the person are already running well above the three-quarters of a million extrapolated by Birt. And that's despite the police fiddling the numbers.

But forget hopeless Labour - despite their neat slogans, they've always beenuseless on crime, and surely we all knew that really. The key question now is what is hug-a-hoodie Cam going to do about it?

I'm afraid I know. And it's not good news.

He's going to say, yes all this crime is a terrible indictment of 13 years of Labour misrule. Yes, indeed. And I'd like to help - I really would. But unfortunately there's no money. Cuh! What can you do?

Which is simply not good enough.

Because quite apart from the high trauma regularly inflicted on innocent hard-working families like the VP's, the Home Office itself reckons the loss and damage to property is now running at well over £100bn pa. Which makes the prison bill look like peanuts.

It's time. Broken Britain or not, we demand some proper cost effective justice.

*Footnote The earlier Home Office research was summarised in Lord Birt'sthinking the unthinkable 2000 report for Bliar's Strategy Unit "A new vision for the Criminal Justice System" (see here). Including those 100,000 active persistent offenders who commit 50% of all serious crime, it said there were 1.2 million "active offenders". 155,000 of them were "high rate" offenders each carrying out an average of 250 - yes, 250 - crimes a year.