This graph from the IFS on the impact of the budget by income decile is worth repeating:
I repeat it for a reason. Note that the second income decile is hardest hit, losing more than £1,200 a year.
That decile, according to most recent government data has income varying between £11,100 and £13,100 a year.
In other words, George Osborne imposed a 10% net pay cut on some of the hardest up people in the country in this budget.
No wonder that the Pope expects change to come from the demands of those least well off. Could you live with losing five weeks income when you were already at your financial limits? I doubt it. So why do we expect this whole group to do so?
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“They” want to provoke a backlash in order to justify the introduction of more tyrannical measures to strip away our rights as free individuals and replace them with more obligations.
The “Police State” response to the riots in 2011 was lukewarm demonstration of this – I’m sure the presence of the Lib Dems in Government did moderate the response to some degree. Nevertheless, individuals were still jailed for trivial crimes.
Also note the persecution of whistleblowers particularly those that have suffered child abuse.
We currently have thoroughly nasty and weak (demonstrated by their bullying behaviour).
Would they be in power, I wonder if they followed the same voting protocol as that applying to Unions?
Thanks for highlighting this Richard. It is a challenge of society to provide a ‘framework’ in which the weak can be supported and incentivised to work if they are able, and to provide means for education an employment and advancement for all.
The measures being introduced are divisive and damaging to society and shame all those who live in the UK.
Please.
When did tories care about the less well-off members of society?
Their motto should be: “If they have nothing they’re worth nothing”
Did I say should be?
The education the Cabinet members received was supplied at the start by our esteemed public schools. I wonder, in horror, what that entailed for their psyches.
In other news – the pope is still a catholic.
Richard
One of your problems is your narrow unimaginative thinking. Why think that those in the bottom deciles are going to stay there? Any more than those in the top? A study in the USA showed that one in nine USA citizens were at some point in their career in the top 1% of earners. Squawking about one in a hundred does your campaign some good, less so when it is realised that the truth is it’s one in 11.
Same with those in the lower deciles. I was in that when I first started working.
You patronise people by assuming they have no ability or capability of rising above that.
Tony
Tony
Just go and read about the collapse in social mobility and stop peddling lies
Richard
Tony
Let me tell you some stories about social mobility in Tory neo-lib Britain in the rural East Midlands.
Where I live the family across the road has turned their old garage into a one story flat to house their eldest son, his partner and their child because they cannot get a Council House. They both work – the whole family works – but the son and his partner are also trying to save for a house of their own but it is taking a long time to build up the capital to afford houses around here with a local connection. The couple are in their late twenties and employed locally.
My immediate neighbour next door has built a rather splendid wooden shed for his eldest son to live in at the back of his house but he has no choice. My neighbour donated a kidney to this son who suffered kidney failure recently from an affliction he was born with. All the family works and do voluntary work and the eldest son is getting back on his feet. But again he is waiting for a Council/affordable house to live in. Fat chance. Their is a second son and a younger daughter all of whom work locally, still living at home – all are in their early twenties.
Where is the mobility here? It looks pretty static to me Tony?
A close friend of ours returned from living in Australia after she contracted cancer just after she was carrying her first child. Her husband and herself were self employed, motivated people who upon their return to the UK had to live in a converted workshop her father had built. It did not help that Australia was also in the grip of a very expensive property boom which perists to this day and whatever income they had over there could not keep up. The husband now works on oil rigs in Abderdeen and they are planning to move to Wales. There is no social housing/affordable housing available for them here to help them get back on their feet quickly. The couple are in their mid to late 40’s.
My partner and I survive by not working in this area where wages are low but property prices are now high. I take a 44 mile commute to my better paying job five, sometimes six days a week; my partner is a teacher and is part time but still puts in a full working week and as public sector workers we face a 1% pay rise for the next five years or more that will effectively see our income drop as inflation destroys its value. Our hopes of getting our two kids through Uni are under threat. I hope to still be employed by the time I reach 55 where I will finish paying for my house.
The Council stock where I live was sold to a housing association. At the last budget, all social landlords will be hit by a measure that will result in a 1% drop in income a year for 4 years that will mean that their build programmes for affordaable housing will be reduced. Councils will be forced to sell parts of their stock to fund new RTB and we all know that losses to RTB are NOT replaced with like for like because the discount price reduces a contribution to the total cost of the new build leaving a short fall. So for the people who I describe above, not even moving to a larger neighbouring town in the Shire that still has Council housing will help their housing condition – nor their mobility. The recent budget changes to private renting WILL put up the cost of rents as landlords recover the taxes they will be charged. So please don’t tell me these folk have to rent privately at higher rates that will eat into their income already stretched by needing to eat of have a car and that will also retard their ability to save for their own house – the biggest mobility changer of all.
No doubt Tony you will bleat about people making choices that were ‘wrong’ – just like many of you ‘I’m alright jack’ merchants do. What your lack of imagination does not allow you to see is that it is market driven change that has made people’s lives more difficult – not because people made wrong decisions. The choices to have children, live somewhere else etc., were all made when conditions were more favourable. We bought our first house in this area for £59K and the property boom was no where in site. When we sold it, 5 years later it was for £120K. It is now worth £145K!! And even though house price inflation is not roped into RPI/CPI figures (a big lie), we know that goods and service prices DO track asset prices (housing) because that’s how so called ‘efficient’ markets work – by getting their cut of the property boom. I shop in the Sainsburys of the major town I work in because it’s actually cheaper than the new store they opened here recently where I live (a high value area).
It is these market mechanisms that are often the problem – rolling inexorably over people’s lives and plans. And remember, real wages have been dropping, zero hours contracts have been growing, minimum wages are not rigourously enforced, benefits have been cut and now tax credits are in jeapordy. There will be another recession soon.
I am pleased that you are happy with your life and that your daughter is doing well Tony. I do not begrudge you any of it. But to see life through just your own experience will simply not do. You are obviously no Atticus Finch Tony!
So please, if you do not have the imagination to be here, please go back to checking your stocks and shares or dusting your picture of Maggie Thatcher or doing the crossword of the Telegraph, Times or Daily Mail (or do you read the Sun at all) and well…….just being self satisfied – which in itself is OK, but not when you want to use it as a basis to argue against what Richard and others are doing in this blog – all of whom (unlike yourself) who are connected to the real world and can look beyond their own lives to see what is really happening. So, be a mensch Tony otherwise, please go away and find some other self satisfied people to hang out with.
“The recent budget changes to private renting WILL put up the cost of rents as landlords recover the taxes they will be charged.” I have to correct you here, Pilgrim. Landlords are already charging as much as they can.
I agree on this one Carol
Prices are not cost driven as if there is perpetual monopoly in this sector
I think the issue will be reducing supply
I’m talking about the effect the cutting of tax relief will have on the cost of rent Carol. Initially rents will go up as landlords seek to recover money through an increased rent. A lot of the more unsophisticated ones will try this first believe you me. They have already stated as such in the media (go and find it).
Also I do not accept that landlords believe they are charging expensive rates as they are. Buy To Let is (or was) a license to print money – rents have been climbing up and up. Landlords will continue to raise rents and in some areas the market will bear those rates, especially where there is a lack of affordable housing or where ownership is too costly to enter. In those conditions (and it will not be the same everywhere) the market rent rates will be a monopoly.
Paradoxically, rents may also rise where BTL is no longer attractive and these properties are sold into ownership. Here the rent rise driver will be a shortage of properties to rent. But it will also depend on disposable incomes, how desirable the area is etc.
So as I see it no-one is actually wrong. The property market in this country is far from a rational environment. On an area by area basis, we will see all these permutations manifest themselves somehow.
And in between all of this are people who just want to be able to have a roof over their heads and be able to eat a square meal or two.
Actually, Pilgrim, I want to take that back (a bit). I am a land taxer. Under LVT the landowner pays the tax, not the occupier. The argument that the landowner would just put up the rent is always countered by what I said: landlords already charge as much as they can get. This is not true in the case of LVT because the demand side of the market would have changed as the tenants would have more disposable income to pay the rent. (Actually, under the implementation scheme that I advocate, the LVT paid by the landord would be much higher than the Council Tax paid by the tenant, so the landlord would take most of the hit. Richard, I hope you will take a look at our paper some time where we suggest that landlords should pay LVT at a similar rate paid by businesses at the moment through Business Rates.)
But it is also not true in the case of other tax rises for the landlord. Accommodation is an essential human need and if rents go up all round then people adjust their spending on less essential items. Just like cigarettes are a must for addicts, so they pay the extra cost when taxes increase. With other less essential goods, when the tax goes up the seller usually takes some, or all, of the hit.
Richard
The collapse in social mobility?
My dad was a bus conductor.
My daughter is a lawyer in a ‘magic circle’ law firm.
I am somewhere in the middle.
You might think this sort of thing is not possible. I know that it is. Don’t delude others with your negativity.
Tony
I am deluding no one
The stats confirm moving out of a person’s situation is very hard and getting rarer
You are the one peddling myths
Tony- projection from personal and limited experience doesn’t work because it’s based on an absurdity that everyone is the same and that we live in a mono-culture where ‘making it’ (dreadful term) is the only meaningful stimulus for humans.
You statement is without compassionate, irrelevant to real human needs and utterly crass.
Social Mobility as a concept is vapid-especially at a time where deep-seated cultural change is needed in how we understand growth and viable human goals. You are a dinosaur mate.
Tony is arguing from personal anecdote. If such arguments had any value we could say there was nothing dangerous about smoking because we all know some octogenarian who smoked 40 a day all his life.
That doesn’t change the real statistics.
But he is extrapolating anecdote as if fact
And so he is peddling myths
Tony, I suspect that you’re about my age and, for that reason, I believe I might know the secret of your family’s success; that, when we left school or university, most probably school, it was remarkably easy for a 17 year old to get a job. But it’s not anything like that now, as the level of youth unemployment attests. That’s not to say that all young people are destined to struggle to find meaningful work in which they can excel, as your daughter demonstrates, but the very large majority of young people are not so fortunate.
Your background also sounds similar to mine because I came from a working class background, a background that prevented my parents from giving me much financial support (for which they substituted as much love, happiness and pride in my building a very different life to theirs as anyone could have wanted). But none of that seemed to be such a a problem then because, although snobbery very definitely existed, it wasn’t, in my experience, the obstacle to young peoples’ success that it is today and, most of all, I had an opportunity to achieve something through my own hard work. In today’s job market, what opportunities there are, particularly in the professions, go to the children of people “somewhere in the middle”, those who are deemed at least respectable, and can support their children financially, at least for a time. Of all this I am aware because my daughter will shortly enter the second year of her training contract after which she too will be a qualified lawyer.
Where you and I differ fundamentally is that I recognise how easy it was for me to find a job all those years ago and how far I managed to move to a different and better life was a function of how much I put in; in other words, I was not disadvantaged by my starting point. That is plainly not the case today where the opportunity to succeed is so predicated on the availability of parental financial backing, the very thing that the majority of the young unemployed simply do not enjoy.
Don’t delude yourself with your focus on only your and your daughter’s achievements and the consequentital blindness to what is happening around you. Social mobility, for the majoriy of young people in particular, is possible but highly unlikely under current circumstances.
Nick
I recognise much in that
Richard
It’s not just about social mobility. The inescapable fact still remains that in any economic system there is a need for people to do low skilled work. My argument is that it’s morally right that they deserve the basics in life, a roof over their heads and the chance to raise a family.
We need to encourage society to respect those at the bottom as well as those that climb the career ladder.
My sadness in modern life is the continuing erosion of manners and decency. I worry that my generation will not have the wherewithal to run the world as it requires, due to our greedy self interested rulers of today.
Richard
Did you catch the reduction in the ‘bite’ of Universal Credit from £6k to £3k. This cut means that the point at which benefits are cut off is reduced thus hitting people in WORK and making it HARDER for the unemployed to find work (because they will need higher wages to compensate).
Given that the IDS and the DWP have been banging on about UC getting more people into work I think this is possible the worse policy of the budget and shows the Tories at their two-faced worst. It has been condemned by the IFS as undermining the principle of UC.
Anyone still believe in Conservative economic competence ?
For the class they represent, yes. The ladders are being comprehensively withdrawn. The world still warms. What price the “narrative”/tale of 1970s sociology of “embourgeoisification”? Marx was on the nail. In 1848!
Thankyou Richard for sharing this. I just have a couple of questions; firstly, does the above graph take into account the higher minimum wage announced by George Osborne? Or is this based only on the impact of tax and benefit reforms (sorry if this appears to be a dull witted question but I am struggling to understand all this).
The other thing is that when I clicked on the link and looked at the slides by IFS, slide 13 suggested a modest reduction in income inequality between year 2010 and 2019 with the top decile seeing an average £6,000 reduction in income. That is likely to be coffee money to them – a tiny proportion of their income whereas a reduction of even a few hundred will form a significant proportion of the salary of the bottom decile.
Still, I thought the question worth asking since my MP insists that the gini coefficient shows a reduction in overall inequality (which appears to be the case when I looked at the gini graph for UK). Thanks
The move does not take living wage into account because a) timing is not certain b) it is definitely tail end of the period weighted c) it does not impact under 25s and they are significant d) it does not impact the self employed.
The change at top end of the scale is pension tax relief restriction to pay for inheritance tax relief
increase in minimum wage would be great if the government actually bothered enforcing it. many low payed jobs are now ‘self-employed’ and so your average courier, for example, will be on about £3ph. then there’s the scam where low-skilled jobs are advertised as ‘apprenticeships’, thus reducing minimum wage to £2.73ph (rising to a whopping £3.30ph from October). then there’s the loophole allowing firms to duck paying minimum wage when employing EU migrants. add to that the fact that school leavers start out with a minimum wage of £3.79ph.
the government turns a blind eye to all of the above whilst forcing people to accept said crappy jobs with the threat of benefit sanctions/welfare cuts. the rise in minimum wage amounts to little more than a PR exercise and as the IFS point out, the very few that do benefit will lose vastly more in Tax Credits.
Agreed
Hi Richard
I am a lone parent, working 22hours a week with a salary around £10.5k. I put my details in a budget calculator and it estimated I would lose about £1400 a year in tax credits. I was shocked.Do these changes start in 2016 and apply to people already claiming tax credits? I earn above minimum hourly wage and have no childcare costs, as my child is at school.
I’d appreciate any clarification as I know many people are in similar circumstances to mine who can little afford to have such a massive amount cut from their tax credits.
April 2016 is start date
It does apply to existing claimants
I am not a tax credit specialist, I admit, but it looks like your calculation accords with the IFS projection and I fear it may be right
This is a subject where I’ve worked a lot. Your calculation is right Mrs B. From April 2016 someone in your circumstances will get about 27/week or 1400/year less tax credits.
I’d like to give advice ( going to 30 hrs maximises the value you will get from tax credits and the future income tax allowance, consider claiming HB, or take advantage of the rent a room scheme if circumstances allow ), but there are other places for that.
Thanks for your replies. There really doesn’t seem to be a lot about this in the media. I think it is going to hit a lot of lone parents hard and most don’t realise it yet.
I agree
I am sorry it is you
I read on Facebook (but can’t now find it) that by April next year working tax credits will not in fact exist. This is because the minimum hours to be worked (16) times the ‘living’ hourly minimum wage is more than the threshold for paying tax credits.
Hello Mr Murphy I have been searching far and wide for answers to my question, if you could please answer them, as they are asked, I would be so very happy
It is about Greece
If you can please answer each of the three, and if you do not know the answer it is perfectly fine to write, I do not know
And please answer them as they are asked, please 🙂
1 IF Greece could collect 100% of the taxes that the law demands each year, would Greece have a balanced total budget including interest payment of its loans and all other yearly government expenditures? Would the budget be balanced?
2 IF Greece could collect 100% of the taxes that the law demands each year, PLUS cut down its military from 4.5 billion Euros per year to 0.5 billion Euros per year, and sell 95% of its military hardware, would Greece have a balanced total budget including interest payment of its loans and all other yearly government expenditures? Would the budget be balanced?
3 IF Greece could collect 100% of the taxes that the law demands each year, PLUS cut down its military from 4.5 billion Euros per year to 0.5 billion Euros per year, and sell 95% of its military hardware, PLUS get rid of 90% of the corruption in Greece, would Greece have a balanced total budget including interest payment of its loans and all other yearly government expenditures? Would the budget be balanced?
Respectfully, no one knows the answer to those questions because no country collects 100% of its tax so I very strongly suspect you are wasting my time
You may have noticed I have little tolerance for pedants who seek to do that
No I am not trying to waste your time, I really want to know, you might not be able to give an exact answer but you can guesstimate(guess + estimate)
I really just want to know
Because
Each of the questions answer if it is possible for the Greeks themselves to fix their own problems and how much work would be required
If the answer to nr 1 is yes, then “all” Greece needs to do is get its tax collecting agency up to shape and increase the fines and punishment for tax avoidance
If nr 1 is NO but 2 is yes then then “all” Greece needs to do is get its tax collecting agency up to shape and increase the fines and punishment for tax avoidance, AND get written promises from the USA that IF Turkey attacks then the USA will help Greece no matter what even if Greece is thrown out of the EU
IF nr 1 and nr 2 are no but 3 is yes then “all” Greece needs to do is get its tax collecting agency up to shape and increase the fines and punishment for tax avoidance AND get written promises from the USA that IF Turkey attacks then the USA will help Greece no matter what even if Greece is thrown out of the EU, PLUS Greece would need to chip all of its citizens with both id tags and gps markers and demand that each “medium” or larger business deal be fully recorded in front of several cameras and stored digitally, and that these recordings should be used for all negotiations, so that if there is a secret clause or some form of corruption, well since that was no recorded, there will be a fine, and the “losing party” the one who got “promised” something extra but the supplier didnt deliver, that losing side would get nothing because it was not part of the recording thereby discouraging leaveing anything out of the recording
Your hypothesis is wrong
As I said, no country collects 100% tax but you require I assume that they will
They won’t
But you also assume that debt must be paid
That’s also wrong
Debt is written off day in, day out
So all your assumptions are false
The solution to Greece is not Greece’s alone. I have explained. To pretend this is all about finance is just so naive it’s a hypothesis not worth engaging with
It’s a view of life I do not share
Nor should Germany
I found it!
I think 😛
According to this
http://ec.europa.eu/eurostat/documents/2995521/6796757/2-21042015-AP-EN.pdf/2a3922ae-2976-4aef-b6ce-af19bde6a236
Greece deficit is “only” 6.3 Billion
So lets say that each year there is at least 10 billion in tax avoidance
Then if Greece could fix that, that would give Greece a surplus of 4 billion
Cut the military down to 0.5 Billion and Greece has a surplus of 8 billion
So to answer my own original questions, if the document is correct
1 yes, 4 Billion
2 very yes, 8 Billion
3 very very yes, 20 Billion per year Surplus
There €19 bn of tax evasion according to my work
Kevin Farnsworth at the University of sheffield has done some very interesting research on ‘Corporate Welfare’ that is subsidies, grants, tax breaks etc received by corporations ans the sums involved are stagggering . Here is a link to his paper
http://www.social-policy.org.uk/lincoln2012/Farnsworth%20P2.pdf ‘
When you looka the sums involved and then compare them with the ‘ savings ‘ made to the other part of the welfare budget it is hard to escape the conclusion that the recent budget measures are anything other than political designed to keep the poor in their place and accede to the demands of the government’s corporate masters.
Agreed
This research is completely flawed. I’m sure Richard will agree that calling a capital allowance a subsidy means the author doesn’t have a great grasp on how tax or accounting works.
A capital allowance is a subsidy. Why not? The general rule is capital spending is not tax allowable
A capital allowance is no more a subsidy to the taxpayer than taxation is a subsidy from taxpayer to government.
Stating that the general rule that capital spending is not tax allowable is meaningless without stating that capital allowances are the sanctioned alternative. Firms clearly incur economic cost in incurring capital expenditure and so the only real question is how to give relief for that expenditure. Either you allow depreciation on a GAAP-compliant accounts basis or you allow capital allowances. We choose the latter.
There is no obligation to provide capital allowances: they are always choice
To pretend otherwise is to show as little knowledge of tax as you do when you suggest it is a subsidy
Tax is the property of the state, that belongs to it and it alone, and is created, like other property rights, by the state
I assume we agree that companies are taxed on profit. So I buy some raw materials for 20, buy a machine for 50 and make 100 in sales my taxable profit is 30? (assuming the machine is “consumed” during the process)? Why on earth would people bother with business if they can’t offset reasonable costs? This treatment (add back depreciation and deduct capital allowances) is the most logical way of arriving at taxable profit. Otherwise we might as well say that any money the State allows the company to keep is a subsidy as it could tax at 100% in theory and not allow any costs to be offset against turnover.
Even if we assume the absurd position that you can’t deduct the machine cost then this guy is claiming the subsidy is 50. Obviously the “subsidy” is 50 multiplied by the corporation tax rate.
There are a great many expenses that are not offset for tax
And that’s entirely appropriate
“There are a great many expenses that are not offset for tax And that’s entirely appropriate”
Clearly that is the case, no one is arguing against that. But it seems to me that allowing a write off of the cost of an asset over its economic life is so plainly appropriate that calling it a subsidy is a nonsense.
We disagree
I guess we have a difference of opinion. I think companies should be taxed on profit. If we don’t allow them to offset machinery cost against profit without calling it corporate welfare then we might as well all go home. You’ll get profitable companies shutting down due to perverse tax demands.
I come on, let’s get real here
Capital allowances have never been related to profit
Depreciation is invariably disallowed and somewhat arbitrary allowances substituted, but they are in that case subsidy, albeit one I would continue
It’s amazing the degree of intellectual dishonesty arising from the simple act of putting the words ‘ corporate ‘ and ‘ welfare ‘ together . I think this stems from the ‘ I did it all by myself ‘ or the ‘ self-made man ‘ fictions that those who indulge in them like to imagine that ‘ welfare ‘ is for losers and not winners.
John Hope – can you tell me why you think people suggesting a company should be taxed on profit and not turnover is “intellectual dishonesty”?
If a company gets 100 in sales, and pays 20 in raw materials and pays 30 for a truck to deliver its goods assuming that the truck has zero resale value I think it would be fair to tax this company on profits of 100 minus 20 minus 30 = 50.
What number do you think would be reasonable?
I think this is becoming a little meaingless
I’m inclined to agree with you. Differences of opinion are fine it was the “intellectual dishonesty” part from another poster which wasn’t reasonable.