The principle of taxation is fairly simple. The Government take money from the people (and business etc.) and redistribute to provide the services the country requires.
Of course deciding what the country requires is subjective, but ultimately the amount of money available is limited by what is paid in. While countries can borrow money, just like for individuals this results in additional costs (i.e. interest) and in theory at least should be paid back at some point.
Indeed the UK is spending about the same on debt interest as we do on defence according to the FY 2015 data from UK Public Spending Website. Indeed this data shows we pay more on interest than we do on education. It is therefore no surprise that many Politian’s (if not most) are supportive of reducing the deficit (to stop us borrowing more each year) and some who want to see both the deficit cleared and to begin repayment of the debt.
I personally support clearing the debt. We currently spend ten’s of millions every day of the year paying interest and this money could do so much more if it could be sent on essential services. The catch though, in order to repay the debt and wipe out the deficit we have to cut spending elsewhere.
Many important services already struggling to deliver the services the public expect especially Local Councils (on a range of services but Social Care must be the local council area most in the headlines at the moment) and the NHS. This begs the question, ‘Should we pour more money in, or should we change our expectations?’
Clearly no one wants to wait for an ambulance in an emergency or queue for months waiting for operations, but should other areas of the NHS be reduced? I think there may be some small areas where the services are ‘nice to have’ rather than essential. For example the NHS is reported to spends millions on ‘cosmetic’ surgery. While I understand for some people this may be very important, when life saving services are struggling it is hard to justify these elective procedures.
In the main however, I don’t think the NHS is wasting huge sums of money and therefore we either have to accept a reduced NHS, or find the money elsewhere. Ultimately with the UK having a growing population and with treatments being more expensive, especially for illnesses like cancer, our health has the potential to be an ever growing drain on the government purse strings.
Social Care is a similar story. Due in part to better healthcare we are living longer. As a result people are likely to be spending more of their life in care, and there is lots of data showing an increase in the number of people diagnosed with illnesses like dementia which is likely to increase those needing care.
So if everything needs more money let’s raise taxes to pay for it right? This is a complex area best left to economists to talk about. However, in an oversimplified view, increasing taxes, reduces the money in the economy, which in turn reduces the money people have to spend, which reduces business profits, which result in lower business tax receipts and businesses who might then need to cut jobs which further reduces tax and increases welfare payments.
Even targeting tax on the rich has limited effect. Those with the most wealth are also most able to legally avoid taxes. Often the wealthiest individuals can choose what country they choose to live in, and even if they choose to remain in the UK they can manage income from abroad to reduce the UK taxes if not keep the outside the UK entirely.
So to answer the original question, Yes – as a society we are probably asking to much from our Government. Until our debt interest is gone we will not have significant sums of money to spend elsewhere. Therefore we are almost certainly looking at another decade of hard choices before we see balanced books, failing debt and a start to redirecting these funds into the services that need it.
So is there anything we can do now? Maybe – much depends on your political stance. Looking to the longer term I think the state pension is one area that is almost certainly going to need reforms. All employers now are required to provide workplace pensions and therefore everyone starting work now should have a pension pot when they retire. As such dependency on the state pension should decrease, although these potential savings are not likely to be seen for a few years as people need time to pay in to their pension before the government can start to reduce state support.
As for shorter terms goals that is more difficult. Benefits are likely to be targeted, maybe by freezing benefits rather than cutting them – although this results in a real terms cut if not a cash one. Other choices are much harder to predict, although perhaps more will be known after the 2017 Budget in a couple of weeks time.
How would you balance the books? Let us know in the comments.