“The Government’s assertion that we can’t afford to tackle poverty is a lie. There are a number of other areas where very large amounts of money are available to rebuild our broken society.”
By Jon Trickett MP
It is said that the country cannot afford to pay additional benefits to families with more than two children. And now they are planning to attack sickness benefits. It’s part of ministers’ battle to “reverse the rise in people falling out of the workforce because they are ill.”
But is it true that we can’t tackle poverty, sickness and low pay? It is often said that we live in the 6th richest country in the world. And yet the levels of poverty and declining pay levels are like a plague reaching into the furthest corners of the UK.
However, even the briefest analysis of the national finances show there are deep pools of wealth and income which can be exploited to relieve our problems.
How much would it cost to end the two child cap, and what effects would that have on the levels of child poverty? The government has said that it would cost £5 million. But it isn’t true.
The House of Commons have revealed to me that the true figure is not much more than a quarter of the Government’s misleading estimate. Ending the cap would cost £1.4 billion. And it would instantaneously lift 270,000 families out of poverty. That is families not individuals. Given that the average household size is 2.4 people then we can be sure that we would take well over half a million people out of poverty.
It may be that there are already voices whispering to themselves that £1.4 billion to end the two child cap is still a large amount of money. And it is. So,where might the money come from?
Several years ago I wrote a short pamphlet saying that we ought to have a wealth tax to help pay for services. Since then, many have made the same point. A wealth tax would make billions of pounds additional income for the Treasury. The rich in general, as well as the big corporations, can and should pay more money to the Treasury.
But there are other sources of funding we might turn to during the lengthy period that it would take to set up a wealth tax or to secure tax justice from the City Of London or the multinational corporations who seek to hide their true wealth.
Even with no real change at all to our tax system which a Democratic Socialist government would want to implement there are huge amounts of money available. Take the money we raise from VAT. Before Covid, the country had total VAT income of £113 billion in 2018-19. The current projections show we will raise £162+ billion.
Thus the government stands to see a rise of almost £50 billion in just one income source comparing the present with the pre-covid era.
This is not the only windfall which the government is going to receive. Take income tax for example. It is self-evident that at times when wages and salaries are rising that normally the government would raise the threshold at which we pay taxes. For example if incomes rise by 5% then the threshold at which you begin to pay tax or pay the higher rates might increase by 5%.
But this is not what the government has done. They have said that they won’t raise the rate of income tax but huge numbers are paying more tax because the thresholds are being held down whilst pay rises
According to the IFS only about one in thirty people paid the higher rate of tax now it has risen to one in seven of us as a consequence of this process. They comment “in the 1990s essentially no nurses and just 5–6% of teachers paid higher-rate tax, income tax thresholds failing to keep up with average wages means that by 2027–28 more than one in eight nurses and one in four teachers are set to be higher-rate taxpayers.”
The technical term for this process is ‘fiscal drag.’ It is a deliberate policy by the government to draw ever more middle income families into paying the higher rate of tax. Whether it is a good policy or not is another question, but it is raising very large sums of money. The OBR estimates that this tax year it will raise around £13 billion and rising to £25 billion in 2027/28. Even at the lower estimate the policy would raise £65 billion over a 5 year parliament.
Even taking just the income from VAT and from the freezing of tax thresholds we can see that the Government is simply not telling the truth when it ways we cannot afford to lift hundreds of thousands of children out of poverty by ending the two child cap.
The truth is that the Government’s assertion that we can’t afford to tackle poverty is a lie. There are a number of other areas where very large amounts of money are available to rebuild our broken society. I will return to them in the coming weeks.
- Jon Trickett is the MP for Hemsworth and a regular contributor to Labour Outlook. You can follow him on Facebook, Instagram and twitter.
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