WELCOME back to the office: today is the first working day you actually get to keep the money you earn, rather than hand it all over to the state to pay for public spending. It’s Tax Freedom Day – a date which keeps moving later into the year as taxes keep going up. You may feel that the government spends too much, as I do – or you may actually want it to do even more. But it is essential to remember that government has a cost and that somebody has to generate wealth to pay for all the spending – and to think that every single penny earned by every single person working in the UK so far this year has all been spent on paying for the public sector does put matters into perspective.
Tax Freedom Day, compiled in the UK by the Adam Smith Institute, measures all tax revenues – direct and indirect taxes, local taxes and national insurance contributions – as a percentage of net national income at market prices. This year taxes come to 40.8 per cent of the economy on that metric; this is then converted into days of the year, starting from 1 January. After working for the state for 149 days, the first day of the year that Britons work for themselves rather than the taxman is Tax Freedom Day – this year this fell on 30 May. In 2010, Tax Freedom Day fell three days earlier – the delay is due to the government’s decision to push through severe tax increases to start plugging the budget deficit.
There are other interesting findings. If we had to fully fund our 2011 expenditure through taxes, and not borrow from global investors via the gilts markets, we would be unable to celebrate Tax Freedom Day until 1 July. The tax burden also varies by region, depending largely on incomes and employment in the different parts of the UK. Taking just income tax, it takes Londoners 51 days to pay their income tax bills, against just 35 days for the Welsh.
Taxes are needed to pay for spending. But constantly hiking taxes, especially those that damage incentives to work or invest, grinds the economy down and reduces growth. One key reason why the economy has been sluggish in recent months is that so far the bulk of George Osborne’s fiscal tightening has come from tax hikes. Total public spending hit a record high in April – yet Vat and national insurance has gone up, the top rate of income tax is now 52 per cent (including NICs) and everybody is being clobbered. We can’t borrow ourselves out of debt – but taxing ourselves to oblivion isn’t the answer either.
BUILD MORE HOMES
GENERATION rent – that is the latest buzzword to describe the plight of younger Britons. Last week I wrote about the retirement crisis befalling millions of asset-less Brits; today’s front page describes an entire generation squeezed out of the housing market by high prices and vast deposits.
At the height of the bubble, too many people were led to believe that they were entitled to own a home, regardless of income, savings or ability to repay. Down that road lay sub-prime lending, 110 per cent mortgages and total disaster.
But the dream of a sustainable property-owning democracy can still be rescued. The answer is to allow vastly more homes of the kind that people actually need to be built. That will push prices down and eventually allow young people back into the market. Anybody for a New Town, somewhere close to London?
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