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The real national economic debate

14 June 2013

It is the rich, not the poor, who are the problem, says Alan Storkey

OUR present economic debate is stale. The Government states that the crisis in the economy arose from the previous Government's overspending, especially on benefits. Labour says that more government expenditure would lead to greater tax income. Who is correct?

Public-sector net debt was 36 per cent of GDP in April 2008, and then doubledafter the banking and other crises. It is still climbing. The banks were and are a big part of the problem, and the Conservatives pushed for deregulated banking. Second, the Government claims to have had a greater impact on debt than is the case. It still climbs by about £100 billion a year, and will not decrease soon.

Yet, on the other side, Labour would have cut back nearly as much as the Conservatives, and could not have kept the economy from what the Archbishop of Canterbury has rightly called "a depression".

The budget deficit requires the Chancellor, George Osborne, to save perhaps £80 billion a year. Supposedly, it is the poor on benefits who are the problem. But the underlying issue is that, over several decades, the rich have been milking the state of hundreds of billions of pounds.

The problem is not benefits to the poor. Total benefit expenditures are about £155 billion a year - a large figure, but this is misleading, because we all receive benefits. As the document The Effects of Taxes and Benefits on Household Income (2012), from the Office for National Statistics (ONS), shows, the bottom 20 per cent, based on income, receive about £2000 more in benefits per year than the overall average of UK households (£14,789, compared with £12,735). This is a small amount extra. It could not be changed by more than a few billion.

In contrast, the rich big handouts. The first is tax, where, as the ONS document suggests, the poor are subsidising the rich. The bottom 20 per cent pay proportionately 5.8 per cent more tax than the top 20 per cent (38.2 per cent rather than 33.6). If the rich paid the same proportion of their income in tax as the poor, it would bring another £100 billion a year.

But that is not all. Higher-income groups have benefited from public-sector contracts, high public-sector incomes, and bonuses. For example, GPs received a new contract in 2004, giving them them an increase in pay from less than £80,000 to more than £100,000 a year for doing less work. It cost the NHS more than £2 billion annually.

There has been no revaluation of house prices for council tax since 1993. Over the past two decades, house-price increases have mushroomed, but they are not reflected in council tax, which gives another bonus of tens of billions to the wealthy.

The big corporations avoid much VAT, evading tax to the tune of tens of billions. The personal income of some of the top ten per cent exceeds that of the whole of the bottom 50 per cent, but some of this moves to tax havens, removing more billions from tax revenue. Tax avoidance and evasion is estimated by the Tax Justice Network overall at £70 billion a year.

In addition, the banks have received profits through seigniorage, the windfall that comes through creating electronic money, amounting to £20-30 billion a year, besides receiving government support while they run tax havens and give dud payment-protection insurance.

These losses of revenue are an overwhelming explanation of the Chancellor's woes, and their solution. Moreover, the way these funds are hoarded, moved, and have created debt explains why the economy is depressed, and will remain so. It is time the Church opened up this real debate, because it is clear that the political establishment and the rich will not. 

Dr Alan Storkey is the author of Jesus and Politics (Baker Book House, 2005).

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