The Future of Britain

ECONOMICS
the economy recovers.” Such criticism is
not unexpected from the leader of the
opposition, especially when Cameron’s
plan appears to be working: in May
2014 CPI inflation fell to 1.5% - its
lowest level in five years. In the same
month it was announced there were two
million more private sector jobs than
in 2010 and the EEF reported that UK
manufacturers are more confident about
growth than at any time since 2007.
These figures suggest that Britain is
finally on the right track to recovery.
But could Miliband actually be
pointing out an unnoticed flaw in the
Conservative policy? Will the whole of
Britain really benefit from their plan?
It must be remembered that the facts
given above are generalisations about
the whole UK, which run the risk of
leaving some groups with a lack of
representation.
The Resolution Foundation’s report on
Living Standards supports Miliband’s
concerns. If Cameron’s plan is creating
jobs and encouraging investment, then
surely incomes should be higher than
in the 2007-2010 period, the very
pitfall of the crisis? Not only have
they not improved for low-to-middle
income earners, but they have made
a significant decrease of £1400 per
person from 2009 to 2013. Given that
real national income actually increased
in this period, it is clear that those two
million extra private sector jobs, which
the Prime Minister boasted about,
mainly benefitted the wealthier Brits.
Decreases in income still have no
significance until we consider how
prices have changed. Unfortunately,
the stats reveal no silver lining. During
this decrease in incomes of £1400 for
working class people, CPI inflation rose
as high as 3.7% and never dropped below
1.3%. Additionally, from April 2010 to
April 2014 fuel prices have collectively
gone up an average of 11.9%. Surges in
energy costs disproportionately hurt the
working class - as energy bills take up a
higher percentage of their income than
richer citizens.
Moreover, The Resolution Foundation’s
report revealed something even more
worrying: goods and services mainly
bought by the poor have inflated more
than products which the rich spend
money on. So not only have living costs
risen for the whole of society, but they
have gone up more for those who can
afford them least. How does a low income
earner deal with a decrease in salary and
more expensive bills at the same time?
Surely the government will intervene
and relieve some of the damages?
This hope is optimistic at best.
Government debt was roughly £1.3
trillion as of 2014 and Cameron has
stated that his plan is to reduce that in
the coming years. The BBC predicts us
to have no budget deficit by 2018 due to
the forthcoming cuts. There can be no
doubting that a Tory government who
wants to give people as much incentive
to work as possible is going to have little
remorse in shredding the Job Seeker’s
Allowance. With UKIP winning the
European Election and an underlying
concern among their supporters that
immigrants are off the system rather
than adding to it, this policy may
even win the Conservative party votes.
All we can be sure of is that, unless
Cameron’s long-term economic recovery
starts paying its dividends to the poor
of Britain, Miliband’s fears of a deep
cost of living crisis seem frighteningly
realistic. ƒ
The sinfulness
of ‘sin taxes’
Oliver Northover Smith
Textbook economic theory
tells us that the market has
a tendency to fail and that
explains government action
to combat it.
Without doubt, some behaviours so
rife in our society could really do with
being cut back. Smoking, Alcoholism,
Gambling – all are direct causes of
serious strife and social upheaval.
On the face of it, the government has
had, traditionally, a very small policy
toolkit. The failure of outright bans, as
seen by illegal gambling in the US or
the failure of the Prohibition, has led
most governments to the consensus that
indirect taxation is the best solution
to the problem. However, as with all
government actions, there was a serious
cost which overshadows the benefits
in terms of reduced consumption of
dangerous goods.
A shocking statistic which truly shows
the shocking extent to which these taxes
are a scourge is this: for low-income
smokers, according to the Institute of
Economic Affairs, a staggering 20% of
one’s disposable income goes straight to
the Exchequer in the form of sin taxes
on tobacco. Moreover, as The Economist
has pointed out, tobacco is an inferior
good. Not only are low income earners
poor, but they are much, much more
likely to smoke than their richer, better
educated counterparts. This is a crime
for all to see, and a serious tool for
deception.
The effect is that for these people, the
government smiles and gives with one
hand in the form of benefits payments,
while silently stealing back that money
through hidden indirect taxation.
Moreover, it’s not just the true ‘sins’ that
are taxed at such a heavy rate. Any of
this group that own a car also contribute
to this figure, with astronomical taxes
on petrol. James Delingpole, a climatechange
sceptic, points to such taxes as
serious constraints on growth and points
it out as a specifically regressive tax.
The disingenuous nature of taking to
give back places an enormous weight on
people – most of whom pay little to no
income tax – means they are indirectly
feeling the squeeze.
The Labour party, bolstered by the
spin-doctor that led Barack Obama into
office in 2008, will place the majority
of their emphasis on the ‘cost of living
crisis’ that the party sees taking place in
the country. The real driver of poverty
is the overburden of taxes. For the very
poor, who are overwhelmingly more
likely to consume ‘sin’ products, these
are the taxes that hit hardest.
More generally, we need a bonfire
for taxes in the UK. But in a political
system in which social justice and
equality are taglines trumped out by
party leaders, we need to recognise
that real impoverishment does not
come from direct taxes or a lack of
welfare benefits. The horrific effects of
regressive taxation deprive poor families
of £1,286 per year on these taxes.
This is in addition to the £1,165 they
pay in VAT. All this despite massively
lower rates of car ownership or alcohol
consumption among the poor. This is
the sign of a regressive taxes if ever they
existed – for some poor families (those
with a car, who smoke and drink heavily)
spend an eye-watering 37% of their
income on sin taxes. This is compared
to just 15% for the top quintile. We are
putting an unnecessary burden on those
who cannot afford it. It’s time to take a
hatchet to regressive taxation. We need
to stop being aggressively regressive. ƒ
Is this economic
recovery too
driven by the
South?
Samuel Lewis
The UK’s post-recession
recovery is now in full
swing.
In the first three months of 2014, the
economy expanded at its fastest annual
rate since 2007, with estimates now
suggesting that it has finally surpassed
its pre-recession peak. The recovery
has even been blamed for the current
backlog at the Passport Office, which
has seen more applications for new or
renewed passports between March and
May than at any other stage in the past
twelve years.
Recent figures also indicate that the
economy is diversifying, which will help
to ease fears that a sudden end to what
some believe is a house price bubble
could ruin the entire recovery. Whilst
consumer spending is still one of the
main contributors to economic growth in
the UK, business investment is picking
up rapidly. This has now increased for
five consecutive quarters (the longest
run since 1998), at a rate of 8.7% on an
annual basis. In addition, manufacturing
levels have risen by 4.4% in the year to
April 2014. With business optimism
close to a fifteen-year high, these areas
are likely to continue improving, along
with other areas such as exports, once
the Eurozone recovery takes hold. As a
result, barring a dramatic short-term
crash in house prices, the recovery looks
set to continue at a relatively sustainable
level.
However, in the North of the country, the
argument that the recovery is well under
way seems extremely questionable. A
major driver of the economy has been
house price growth. In the year to
March 2014, house prices in London
rose by a huge seventten percent. The
corresponding figures for the North-
West of England, Scotland and Northern
Ireland were 3.1%, 0.8% and 0.3%
respectively. These figures show an
alarming differential between the states
of the economy across the UK. Not only
does it make it even harder for people to
move from the North of the UK to the
South, but as some of these figures are
lower than inflation rates, home-owners
in certain regions are actually becoming
poorer in real terms. Becoming poorer
is certainly not something generally
associated with an economic recovery.
The disparity of house-price growth in
the UK means that consumer spending
levels have hardly changed in large
swathes of the country. In Scotland,
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