Half a Cheer for George Osborne

 

George Osborne 0486am
Image by altogetherfool via Flickr

 

George Osborne is apparently going to send every taxpayer a breakdown of what their money is spent on.

The move, which will come into force in 2014, is expected to help ministers persuade voters of the need for public spending cuts, including welfare payments, the biggest source of government expenditure and which accounts for about a third of all tax revenues.

Maybe it will do that. And maybe the Government ought to be concentrating on cutting itself rather than cutting payments to its citizens.

But one thing’s for sure. The breakdown will be incredibly misleading.

Imagine your tax bill comes to say £15,000, and one third of government spending is spent on welfare.

Your statement will therefore tell you that the cost of the welfare system to you is £5,000.

Wow! Shock for people … except that the real cost is double that.

Why? Income tax brings in around 29% of government revenue, and national insurance another 19%, total 48% (figures from 2008/9). The total tax take is roughly double what is raised in income tax and national insurance. (The rest comes from VAT, employer’s national insurance, capital gains tax and a whole raft of other taxes.)

What this means is that the actual cost to each taxpayer of those government services will be roughly double what it says on Mr Osborne’s new statements.

The other issue, of course, is that the usefulness of the statements will depend on how the spending is broken down, and on the agenda of the people producing the figures.

The BBC, for example, has a breakdown that is says comes from HM Treasury.

That breakdown says that 0.5% goes on “European Union”. With total public spending at £697 billion (figure from the 2010 budget), that would imply EU contributions of £3.5 billion.

The true figure for our total EU contributions is about £13 billion (2007 figure). So where did that £3.5 billion come from? In 2007 our net contributions (i.e. what we pay minus what the EU spends in Britain) were about that, so most likely that “European Union” figure on the breakdown is the figure for our net contributions.

I would argue that is misleading, because the other £10 billion is spent on the priorities of the EU, not British priorities. Some of it is even spent within the UK on administering collection of the EU contributions! Therefore if I were doing the breakdown, I would have a figure of 1.9% for EU rather than 0.5%.

No doubt the Treasury would argue that the net figure is the appropriate one to use. The point is not which figure is right, but that there could be a huge disagreement here – and the decision you take on that has the potential to multiply that particular figure by four.

In general, there are lies, damned lies and statistics, and the civil service are past masters at misleading use of statistics to justify their empires. I suspect this will be no different.

So Mr Osborne’s breakdown is a tiny step in the direction of explaining to taxpayers the vast cost of the bloated British State, but only a tiny step.

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2 thoughts on “Half a Cheer for George Osborne

  1. It’s a start.

    What’s important to understand is that there are many people on the right (including in organisations like the TPA and some wings of the Conservative Party) who understand that there is a culture war to be fought in this country, that there are numerous organisations like the education system, the BBC and local authorities that are naturally pro-large state, and that before you can get a real political shift in this country, you have to reach people and get them to understand that the state is not their friend.

    The TPA has been very successful in this regard by finding some of the most insane spending. People might not be able to think in billions about the state, might be swayed by arguments about how health is really important and that premature babies will die if we don’t spend billions and cough up, but tell them that a million quid is being spent on an opera involving 4 helicopters and keep repeating stories like that and the “message” sinks in:. If the state is so short of cash, how can it afford to do this stuff, and frankly, why is my money being spent on this?

    • I completely agree. The Taxpayers’ Alliance has been very effective in getting the debate started on all of this.

      You are right about “some wings of the Conservative Party”. My belief is though that unfortunately those wings of the Tory Party are both small and despised by the party leadership. Except under Margaret Thatcher, the Tories have a record of delivering “big government” and really Lady Thatcher’s “small government” agenda was a bit of an aberration in Tory Party terms. The Tory establishment hated her for it, and eventually they got rid of her.

      I do think though that the message is beginning to get across to the people. Recent polls show a big increase in the numbers wanting the State cut back significantly. And as “Antisthenes” never tires of pointing out on this site, our rulers will anyway be forced to cut back eventually as reality collides with them.

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