Does this make economic sense?
24 May 2010 George Osborne announced £6bn of budget cuts to this years’ budget. Overnight local councils lost over £1bn in grants from
central government. Sadly, some people have already lost their jobs. In the Spending Review on 20 October 2010 George
Osborne announced a real terms cut of 28 per cent in the Formula Grant to local councils in England by 2014/15.
Consider Gloria She worked for the council
and was paid £20,000 pa gross Gloria is one of the workers who has now
lost her job because George Osborne cut council grants on 24 May 2010.
Gloria’s council lost the grant that funds her job. The government benefits because she is working. Let’s look at the cost to the government of making her
redundant. She is a single parent with one child She pays £4,160 a year in rent (£80 a week) Her Council Tax is £700 a year
Gloria0.00
500.00
1000.00
1500.00
2000.00
2500.00
3000.00
3500.00
4000.00
4500.00
Employee NI
Income Tax£
Gloria pays £4,276 in Income Tax and National Insurance to the government
Gloria0.00
1000.00
2000.00
3000.00
4000.00
5000.00
6000.00
7000.00
Employer NI
Employee NI
Income Tax£
Gloria’s employer also pays £1,828 in Employers National Insurance so the government gets £6,104 from Gloria and her employer
Consider Gloria Gloria gets Child Benefit
– £1,056 a year And she gets Child Tax Credit
– another £2,161 After paying her rent (£4,160) and Council Tax
(£700) she has £14,081 left to spend Assume that she pays 15% of that in VAT,
petrol duty, alcohol duty, car tax etc – that is another £2,112 that is paid to the government
Overall the government gets £4,999 from Gloria.
Gloria
-4000
-2000
0
2000
4000
6000
8000
10000
Child Tax CreditChild BenefitVAT etcEmployer NIEmployee NIIncome Tax
£
£4,276 Income Tax and NI
Gross Pay £20,000
Council Tax £700
£3,216 Child Benefit and Child Tax Credit
Employers NI £1,828
VAT etc £2,112
HM Treasury Town Hall
£4,160 in rent
Therefore net income to central government Income tax
£2,705 Nat Ins
£1,571 Spending taxes (VAT, petrol duty etc)
£2,112 Employer’s Nat Insurance contribution
£1,828 Less money paid in tax credits
-£2,161 Less money paid in child benefit -
£1,056 Net income to central government
£4,999
What happens when Gloria is made redundant?We are in recession and she can’t find a job so the government has to pay her various benefits.
Let’s take a look at the costs……..
Gloria is out of work She gets Job Seekers Allowance (£64.30/week) -
£3,344/year She gets housing benefit to pay her rent
£4,160/year She gets council tax benefit £700/year She still gets child benefit £20.30/week -
£1,055.60/year She gets a Child Tax Credit of £2,851
Gloria0
2000
4000
6000
8000
10000
12000
14000
Housing BenefitCouncil Tax Be-nefitChild Tax CreditChild BenefitJSA
£
The Government pays Gloria £12,110 in various benefits
But the government still gets some money from Gloria……..
Her housing benefit is paid to the landlord and her council tax benefit is paid to the council so she has £7,250 left for herself and her child to live on
Assume that she pays 15 per cent of that in VAT, petrol duty, alcohol duty, car tax etc – so £1,087 is paid to the Government)
Check therefore net cost to government
Job seeker’s allowance £3,344
Child tax credits £2,851
Child benefit £1,056
Housing benefit £4,160
Council tax benefit £ 700
Less income from VAT etc -£1,087 Net cost to government £11,022
Gloria
-12000
-10000
-8000
-6000
-4000
-2000
0
2000
4000
6000
UnemployedEmployed
£
Instead of receiving £4,999 the government pays out £11,022
The government has cut the grant to the council The council cuts its budget and makes Gloria
redundant The government no longer gets £4,999 from
Gloria Instead it pays £11,022 to support Gloria and her
child The government might save £20,000 by cutting
£20,000 in grant to the council but the government loses £16,021 in the process
But it does not stop there….
£4,160 in Housing Benefit
£700 in Council tax benefit
£7,250 in JSA, Child benefit + child tax credit
£1,087 in VAT and other taxes
HM Treasury Town Hall
The impact of sacking Gloria Now Gloria is unemployed she does not spend as much as
she used to That means less demand in the private sector Less demand means private sector job cuts too The government then loses taxes from the private sector
workers made redundant and has to pay them benefits too Economists say that every 100 jobs lost in the public sector
leads to another 41 jobs lost in the private sector Making Gloria redundant makes no economic sense, does
it?
Presentation informed by blog written by tax accountant Richard Murphy.
For more info on Richard’s work go to his website: taxresearch.org.uk/
What can I do? If you work in the public sector, join UNISON:
unison.org.uk/join
Sign up to our Million Voices for Public Services campaign: unison.org.uk/million
Write to your MP – find your MP at: theyworkforyou.com
Picture of Gloria taken by Laura Brechtbert used under a Creative Commons license.The use of picture does not imply Laura Brechtbert endorses this presentation
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