Merryn's Blog

Spending cuts? What spending cuts?

Britain was meant to tackle its deficit by raising taxes and cutting spending. Taxes are certainly higher – but what happened to the cuts?

In my last blog, I pointed out that by many measures the tax burden in the UK is just too high. Top-rate tax payers end up handing over 70%-plus of every pound they earn to the tax man in one way or another. Basic rate tax payers should be working on the assumption that they are losing around 50% of their incomes in tax.

To my mind and that of the Treasury which is lobbying for a commitment from the government that the destructive 50% tax rate is only short term that is too much. And I think that if the general public stopped to think about the numbers, they would mostly agree. Taxes for them (if not for people who earn more then them) should be cut.

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However there is a problem with this: the annual deficit (the amount that the government already spends more each year than it gets from us in taxes) and the national debt (the accumulated total of all those deficits). So, as one commentator says below my blog, "we need to pay some debt off... where is the money coming from? Outer space?"

Would that it were. The general idea had been that the money to cut the gap between tax revenues and expenditure was to come from a mixture of raising the former and cutting the latter. So far only the first bit appears to be working. Taxes are certainly going up, as anyone either earning or shopping can easily testify. But spending? Far from going down, it's going up too.

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As John Redwood points out here, public spending has actually been growing very fast since the coalition government took power. It is up 7% in nominal terms and, depending on which inflation index you choose to use, 3-4% in real terms.

Sure there have been some cuts although they have been mainly in nominal rather than real terms but so far it is clear that, as Redwood says "the deficit reduction strategy relies on higher tax revenues, not on spending reductions overall". Under the circumstances, that really doesn't seem like the kind of strategy the few net tax payers left in the country should approve off.


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