Poorest feel the pain, but budget falls short on fair taxes…

The Chancellor is certainly to be commended for efforts he made to ensure a degree of fairness in the tax increases and spending cuts announced in the Budget.  Yet, whilst there is some welcome news, make no mistake: Many of the poorest members of society will still be hit hard by cuts in benefits and public services and the increase in VAT.

Whilst cuts and tax rises were clearly unavoidable, their scale and potential impact on some of the most vulnerable members of society should not be underestimated.

Firstly, the welfare budget was singled out for some of the harshest cuts.  What is particularly troubling is the way in which the welfare budget is routinely described as ‘out of control,’ creating ‘dependency’ or ‘investment in failure.’  These are easy judgements to make if you are a well paid MP or journalist – but far from the reality of those who struggle to make ends meet on Jobseekers Allowance of just £65.45 a week (less than £3,400 a year).  And the most vulnerable have not been spared, with cuts to maternity grants, Child Benefit, Housing Benefit – and a new medical assessment for everyone receiving Disability Living Allowance – with an expectation that at least one in five will lose their benefit as a result.

Secondly, the increase in VAT will hit those on low incomes hard.  Research by Save the Children has shown that whilst the richest tenth of families spend just 7% of their disposable income on VAT, the poorest tenth spend 13.7%. Increasing VAT hits poorest families twice as hard, especially disabled people who need to pay for equipment and bills subject to VAT.

And lastly, no one should be under any illusions about the impact of the spending cuts still to come.  George Osborne confirmed that most areas of government will be expected to make cuts of up to 25% over the next three to four years. This will have a profound impact on many of the frontline services provided locally: schools, libraries, social care and the like.  Already many local authorities are planning major cutbacks – and more are to come.

Some optimistically talk about the ‘rolling back of the state’ as a great opportunity for churches and charities to step in.  Yet many of the services currently provided by voluntary agencies – Citizens Advice Bureaux, youth projects, day centres and homeless projects – are also heavily reliant on Government funding. All will now face a huge fight to keep their grants – or cut back on the services they provide.

So was the Budget fair? How do the new Coalition Government’s priorities square with the biblical injunctions to protect the poorest and most vulnerable, to seek justice in the affairs of the nation? This is not a simple judgement to make, not least because it will be months or years before the full impact of the decisions announced last week are felt by families and communities across the country.

But what is clear is that aspects of our current taxation and benefits system are far from fair.  Under the current system the poorest pay around 46% of their income in taxes, compared to the 34% of income paid by the wealthiest. This is hardly surprising, when many of the wealthiest individuals and businesses are highly adept (or employ highly skilled accountants) to avoid paying taxes. Yet an equal sharing of this tax burden is the very least that fairness demands.

As Baptist Union General Secretary Jonathan Edwards said last week: “It is the duty of the government to levy taxes fairly on those who can afford to pay and it is the duty of those who can pay, to pay their fair share.  There are many legal ways to reduce a tax bill but we are asking, when public services are being cut and many are losing their jobs, is this ethical?  Are these measures legal? Yes, perfectly.  Is it fair? Absolutely not!”

Although notoriously difficult to measure, some estimate that the UK Government loses between £18 billion and £25 billion a year in tax avoidance and tax evasion. Or the equivalent of twice as much as the total cuts in the welfare spending announced last week.  

The Chancellor did announce a new ‘bank tax’ – expected to raise £2 billion a year.  This is to be welcomed, but falls some way short of the £20billion a year that the Robin Hood Tax campaign calculate could be raised through a ‘tiny tax’ (0.05% or less) on the billions of pounds that banks trade on the international money markets every day.

In the current situation there are clear moral choices to be made. Who bears the greatest burden? Should the poorest have to bear such a heavy cost, or should those who have done well from the past decade of economic success now be called upon to carry a fairer share of the load?

In the next few months Church Action on Poverty will be working with other groups in applying the Fairness Test to individual changes in tax and spending. This test will apply simple values of justice to spending cuts and tax rises:

• Are the people affected by cuts the ones who benefited from the boom?
• Can the people affected afford the cuts?
• Are the people contributing tax the people who benefited?
• Are people contributing tax proportionate to their ability to pay?

For Church Action on Poverty, the challenge is clear: raising fair taxes puts justice and morality at the heart of economic policy, not only protecting the essential services that the most vulnerable members of our society rely on, but also rectifying the inequalities built into our taxation system.

As the impact of tax rises and spending cuts start to bite, churches and individual Christians must have the courage to speak up and speak out to protect the poorest and most vulnerable through the tough times ahead.  

What you can do

1. Tell the Prime Minister what your priorities are for the Coalition Government.
2. Join the MP Accountability Network – hold your Member of Parliament accountable for what they say and do on your behalf in Westminster to help protect the poorest!
3. Make a donation to support Church Action on Poverty’s Close the Gap campaign – or better still take out a standing order to help ensure we have the funds to keep the pressure up over the months and years ahead!

Niall Cooper is National Coordinator of Church Action on Poverty and an elder of Trinity Community Church, Manchester.