Where Does It End?

George Osbourne's announcement about the 2012 budget must surely blow a final, fatal hole in the notion that 'we are all in this together'. In the same breath as cutting the 50p tax rate so that those who incomes are already excessively high can keep yet more of their undeservedly vast wage, he has torpedoed public sector workers in low-income areas of the country by announcing that he intends to do away with the national pay structure.

If you are Welsh, or living in counties more northerly than Oxfordshire, this is a grim two-pronged attack on your way of life. Not only are you as a public sector worker going to see your pay reduced to bring it in line with an amount that a millionaire in a distant city-state deems appropriate, those same social workers, doctors, nurses and so on will reflect that they can earn more in London, so you will gradually see your services disappearing. Nick Clegg must be looking at his Sheffield constituency and reflecting that it was nice while it lasted.

One of the most significant aspects of this government is the way in which they are using a stick at a time of hardship to force the hand of workers. The disabled have been forced to work, even when they are not capable of doing so. Public sector workers have been forced onto the dole despite having skills and being willing to work, vastly increasing the national benefit bill (and in turn, the debt.) Those living in London in houses partly funded by council tax benefit have been told that they are no longer welcome and should live elsewhere.

Every day I reflect upon the government's public-sector blitzkrieg and look at the society that will result. Some services may improve, but the overwhelming majority of those will only be accessible to the wealthy. Private sector companies will become far more involved in healthcare (for comparison's sake, under Gordon Brown's government, it was capped at 2%, while under this government it could rise as high as 49%) and hence the costs of administering these systems could increase to twenty-five times as much as they are at present. This is millions that could be spent on healthcare and will instead be paid to - you guessed it - private sector admin companies, who are vastly inefficient, but don't really care as long as the profits come in. (For an example of this sort of company, type 'Capita failure' into Google and have a look through the first dozen or so of the 20,000,000 results.)

So in the not too distant future, if you want efficient or emergency healthcare, it's likely that you will have to pay a premium for it. We can expect see a move away from free healthcare and a move towards a system like the US one, which is inefficient, wasteful and vastly expensive, without actually generating better outcomes. What it does do is generate vast incomes for those shareholders in the House of Lords and the House of Commons - the same masters that we appoint to rule us.

There are some distinct inequalities in the way that this government treats people. The notion that 'entrepreneurs' (fast becoming a euphemism for anyone who earns a high sum, regardless of whether they are active investors or not) need to have tax cuts and more money so that they can create jobs for the rest of us is a fallacy that needs to be shot out of the water sooner rather than later. The profits made by businesses in Britain are vast, and the only ones whose profits have fallen during the financial crisis are the ones that are inefficient and treat their staff badly. Business has plenty of money to invest - it is about time they started to do so.

The continual pressure on public sector pay means that if current trends continue, it will not be longer before public sector workers are on minimum wage. Then, logical continuation suggests that we will see a gradual reduction or even abolition of that minimum wage, and that will be the coup de grace that sees a return to the days of workhouses and cap doffing. Perhaps we'll even do away with the word 'chav' and start using the word 'serf' again.

The message from this government of bankers and millionaires is clear. Move to London, get a job as one of us, and you'll be well looked after. Choose to live elsewhere, or try to get a job that actually improves society rather than creating wealth for its own sake, and you truly are on your own.

Why 50% isn't half the story

There was some predictable left-wing anger this week about the hints by Chancellor George Osborne that he plans to abolish the 50% top rate tax band for high earners. Brendan Barber, General Secretary of the Trades Union Congress, described the plans as "monstrously unfair" and Labour Shadow Chancellor Ed Balls has come out firmly against the idea.


In addition to those notable figures, senior Liberal Democrat figures including Danny Alexander and Vince Cable have received the idea with a certain degree of sulky reluctance, though prominent LibDem bloggers are firmly behind the idea and see it as an opportunity to exhibit the party's pro-entrepreneurial stance.

This may surprise a few people, but I'm not against the idea on principle. The top-band tax rate only ever brought in amounts in the region of £2bn a year - not the kind of money to be sneezed at in a crisis, admittedly, but still a drop in the ocean in the context of total tax revenues annually of £550bn in the UK.

However, there is still a reason why the planned change is a bad one - and it is not an ideological reason.

Critics of the 50% tax rate say that it quashes self-advancement and makes the UK uncompetitive internationally. There are figures that suggest that the UK is certainly becoming less attractive for international investors, though there could be a host of reasons why this is the case, such as skills shortages or an overpriced currency. The argument in favour of cancelling the 50% rate is that the extra money earned by the richest will be spent, reinvigorating the economy and promoting growth.

The flaw in this particular theory is that poor people have a greater propensity to spend their disposable income than rich ones. The old adage is that rich people plan for three generations, where poor ones plan for Saturday night - and even in these times of ridiculously low interest rates, it still holds true. Figures bear out that low-earners are less likely to save or invest in pension plans.

In short, this suggests that if you really wanted to stimulate the economy by cutting taxes, you would get more bang for your buck by doing so at the low-income end of the equation. Also, tax cuts for low earners could be particularly good news for local traders in key geographical areas. In the short-term, the UK has to do something to stimulate domestic demand, or soon there will be no high streets left to shop on.

Every economic action comes with an attached opportunity cost - that is, the cost of not doing something else. You might be making a healthy 3% return on your savings, but you incur an opportunity cost by not taking advantage of a 4% offer elsewhere. Government continually incurs those opportunity costs on our behalf, in this instance doing so by cutting jobs at the low end and reducing taxes at the high end when there is evidence to suggest that spending on subsidies and infrastructure would do more to boost growth in the long run.

Ultimately, it is UK citizens that stand to suffer economic hardship and more pertinently, the poorest that experience the worst affects of social breakdown. Unemployment is at its highest level for three years and continuing to climb as the private sector fails to fill the gap left by grossly unnecessary public sector cuts that threaten to destabilise the economy further and wreak havoc on the health and social fabric of our nation.