As the public are told by all the main political parties that large spending cuts are inevitable, the Green New Deal Group shows in a new briefing paper that real alternatives exist. It reveals, for the first time, that the public deficit could, in fact, be substantially offset by a range of progressive measures on tax.
In the short term, government spending is needed to keep people in work as the only guaranteed way to reduce a deficit in a time of unemployment. When the immediate crisis has passed and the government needs to balance its books again, there are two options: to cut government spending or to raise revenue. As the Green New Deal Group’s briefing, The Great Tax Parachute: How to save the public finances and give the economy a soft landing shows, the first of these, does not need to be an option.
- Taken together, the Green New Deal Group estimate that more than £100 billion a year is lost because of abuse of loopholes in the tax system, tax bills remaining unpaid and from illegal non-payment of tax. Of course not all these abuses can be stopped. No tax system is perfect. But, while some of this revenue would be absorbed by the modest additional resources needed to implement the measures, by taking action to tackle these issues substantial amounts could still be made available to the public purse.
This is not about new taxes, simply collecting taxes that are due, closing loopholes in the tax system and clamping down on illegal non-payment of taxes. In addition, as the Green New Deal group show, there is an enormous range of additional taxes available that would make the UK’s tax system fairer. Those with the greatest capacity to pay tax could carry more of the burden of addressing the economic crisis whilst the taxes of those who simply cannot afford to pay more could be eased. Such an approach also stands to reduce the high social costs of inequality borne by the taxpayer.
Action on tax avoidance, collection and evasion is needed immediately, and should be followed, when the economy is ready, by changes to the tax system to make the UK tax system fairer.
In The Great Tax Parachute, the Green New Deal Group show that:
- there is an alternative to cuts in public spending – a credible programme for raising more public funds through tackling flaws in the current system and increasing tax revenue through other progressive measures.
- no politician can argue there isn’t a tax-raising alternative to cuts in public spending.
This revenue could be raised in four ways:
- First, the tax that is avoided through loopholes in tax law could be collected. This, quite extraordinarily, is the easiest solution to the problem we face. Tax avoidance – getting round tax law in a way that the Government thinks contravenes the spirit of the law – might cost £25 billion a year at present.
- Secondly, unpaid tax (bills that have been agreed, but not settled), come to even more. In November 2009 the Treasury Select Committee of the UK’s parliament reported that HM Revenue & Customs was sitting on £28 billion of unpaid tax debt.
- Thirdly, evasion (or illegal non-payment of tax) is worse still. A report by Green New Deal Group member Richard Murphy on behalf of the Public and Commercial Services Union (PCS), which represents about 80 per cent of the staff of H M Revenue & Customs (HMRC), has shown that tax evasion in the UK – that is illegal non-declaration of income on which tax might be due or fraudulent claims for tax relief for which relief is not justified – might cost HMRC £70 billion a year. The total loss is at least 15 per cent of all tax that should be paid.
- New taxes are also available to address the unfairness in our tax system – whilst taking the lowest out of tax altogether.
The briefing also reveals the unintended consequences of the HMRC’s redundancy programme. The immediate cost of cancelling the programme would be less than £10 million a year, at marginal cost to HM Treasury of keeping staff in employment. The revenue raised through taxes collected, would be likely to exceed £3 billion per annum.
As The Great Tax Parachute shows, if the political will existed, the means needed to fund the fiscal deficit without any cuts in public spending in the UK could be found.
Alongside, the range of tax measures presented here, the Group has also recommended:
- A £50 billion programme in ‘green quantitative easing’ in the short term to rebuild the economy. This is the amount of annual spending recommended by some of the most comprehensive analyses to date of the amounts needed to re-engineer the UK economy to meet the challenges of a low carbon future;
New savings mechanisms that support the greening of the economy now, create thousands of new jobs and guarantee stable returns into the future:
- Green bonds, which will be issued by the government with the explicit guarantee that the funds raised will be invested in new green infrastructure for the UK. The bonds will carry conventional rates of return for bonds.
- Local authority bonds, to invest in energy efficiency and provide renewable energy for each of the country’s three million council tenants, as well as for all other local-authority-owned or -controlled buildings, such as town halls, schools, hospitals and transport infrastructure.
- Carbon linked bonds, to align investment returns with carbon saving and create a significant body of investors who will take the risk on there being carbon savings that can be secured.
A new publicly owned ‘Green New Deal Investment Bank’ to allocate the capital provided by green quantitative easing, and new bank lending to government:
- Green New Deal Investment Bank, a publicly owned bank to hold and disburse capital provided by ‘green quantitative easing’. It will be used exclusively to fund companies and projects designed to accelerate the transition towards a low carbon economy.
- Treasury Deposit Receipts, like those issued during the Second World War, a mechanism whereby banks were forced to use their ability to create credit to lend to government.