Low-wage economy is wrecking deficit-reduction

5 Dec 2014

The government is collecting £17bn less in income tax than was predicted by the Office for Budget Responsibility (OBR), the government’s independent forecaster.

The TUC said “If earnings growth had been in line with the forecast made in June 2010 by the Office for Budget Responsibility (OBR), income tax receipts this year would be £176bn. But the Treasury is now expected to collect just £159bn in 2014/15 – £17bn less than forecast”.

The proliferation of low-wage jobs, with most new jobs created being part-time or self-employed, is a major factor in the failure to deliver tax receipts to cut the deficit, along with feeble corporation tax. The employment market is forcing workers to be reliant on tax credits and housing benefit. This makes Osbourne’s target of reducing the deficit by 10% over the next year, announced in March, highly unlikely.

If wages had increased along pre-recession lines, income tax would now stand at £189bn, or £30bn more than is currently received.

TUC general secretary Frances O’Grady said, “He has failed his deficit reduction pledge as low-paid Britain is paying much less tax than expected. And businesses won’t find the customers they need if consumers do not have money in their pockets.

“Nothing in today’s Autumn Statement will give Britain a pay rise, and Conservative plans to effectively outlaw strikes will help make Britain permanently low-paid. Wrapping up last year’s infrastructure presents and giving them to us again will not give the economy the extra boost it now needs.”

“Today should have seen policies for growth, but the Chancellor has boxed himself in with a rigid and artificial deficit reduction timetable. If he continues in office that will mean eye-watering spending cuts straight after the election. These would knock the recovery sideways, deter investment and lead to great damage to our social fabric.