What the UK could look like if everyone actually paid their taxes

If the kind of tax avoidance revealed by the Panama Papers was stopped, would austerity cuts need to be quite so deep?

Adam Lusher
Tuesday 12 April 2016 14:41
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When asked in the wake of the Panama Papers leak whether he had personally benefited from offshore funds, George Osborne seemed to answer a different question.

“This Conservative government has done more than any Labour government or any previous government to tackle tax evasion, to tackle tax avoidance,” the Chancellor said.

On this point at least, some of the figures might initially seem impressive.

In his July 2015 budget, for example, Mr Osborne announced that by “tackling tax evasion, avoidance, planning and imbalances in the tax system” he was going to find annual savings of £5 billion. The possible problem, though, was that in the same breath he announced welfare cuts of £12 billion.

The National Audit Office recently estimated the UK loses £2.7 billion a year from tax avoidance - acting within the letter but not the spirit of the law – and an annual £4.4 billion from illegal tax evasion.

It could make some people wonder whether fully eliminating tax avoidance and evasion might render some of the Chancellor’s austerity cuts unnecessary.

Here are some of the most unpopular cuts that might not be needed if the Government could sort out its tax

Employment and Support Allowance Work Related Activity Group (Wrag) payments

When in his July 2015 budget, Mr Osborne said he would “align” Wrag payments with Job Seekers Allowance, what he meant was he was cutting a payment for sick and disabled people deemed fit for “work-related activity” by 28 per cent, from £102.15 a week to £73.10.

The Government estimates the cut will save £640 million a year by 2020.

Only new claimants would be affected, but the Government’s own impact assessment estimated that after the cut came into force in April 2017, the numbers hit by it would grow to half a million.

The Lords voted against reducing Wrag payments, but in February the Government won a vote that the cuts should go ahead anyway – despite one enraged Conservative MP, Heidi Allen, firing what she called a “warning shot to Government” and urging ministers to “look after the little man.”

When researchers at the Disability Benefits Consortium surveyed 500 people receiving Wrag in December, 28 per cent of them said that even with the uncut rate of payments they had been unable to afford to eat.

Thirty-eight per cent said they had been unable to heat their homes and 52 per cent reported that they struggled to stay healthy.

Ending housing benefits for jobless 18 to 21-year-olds

Announcing the end of automatic entitlement to housing benefit for 18 to 21-year-olds in his July 2015 budget, Mr Osborne said: “There will be exceptions made for vulnerable people and other hard cases, but young people in the benefit system should face the same choices as other young people who go out to work and cannot yet afford to leave home.

“It is not acceptable that in an economy moving towards full employment, some young people leave school and go straight on to a life on benefits.”

The homeless charities Shelter, Crisis and Centrepoint, however, have all lobbied against the removal of what they have called an “essential safety net” for young people facing possible homelessness.

Ahead of the cut, Campbell Robb, chief executive of housing charity Shelter, said taking away housing benefit for young people "would be a disaster".

What are The Panama Papers?

He said: "For the small number of young people who need help while they find work or get back on their feet, this part of the safety net is often the only thing that stands between them and the streets.”

Paul Noblet, Head of Public Affairs at Centrepoint, stressed that for the vulnerable young people being helped by his charity, housing benefit was a lifeline, not a lifestyle choice.

"They simply cannot return home because their families already live in overcrowded accommodation or because they have suffered violence or abuse. Removing more benefits from young people will only cause further misery and homelessness."

The Government estimates that the cut will save £25 million in 2017-18, and will be saving £40 million by 2020.

Benefits cap

Ahead of the General Election, David Cameron promised to reduce the annual benefits cap from £26,000 to £23,000 per household.

In the event, George Osborne went further in his July 2015 budget, setting the cap at £20,000 for all the country except London, where it would be £23,000.

The Government’s impact assessment estimated that 120,000 households could be affected by the measure in 2016/17, with those “not responding” by moving into work, having their benefits reduced by an average of £63 per week.

The Government estimated that in 2016/7 the benefits cap would save £95 million. By 2020, this would have risen to £435m.

When discussing plans for the new benefits cap in January 2015, Mr Cameron said the initial £26,000 limit, set in 2013, had encouraged people to get off benefits and into work, creating a “stampede to the job centre.”

“This,” he added, “Tells you everything you need to know about our values.”

The working age benefits freeze

In 2015 George Osborne announced a four-year freeze on working age benefits including tax credits and local housing allowance, but excluding maternity pay and disability benefits.

Keeping these benefits at their current level regardless of inflation would, he argued, mean “earnings growth will catch up and overtake the growth in benefits.” The Government estimated that the measure would be saving an annual £3.5 billion by 2020.

Paul Johnson, the director of the Institute for Fiscal Studies, (IFS), said: “That will affect 13 million families who will lose an average of £260 a year as a result of this one measure.

“The increase in the minimum wage simply cannot provide full compensation for the majority of losses that will be experienced by tax credit recipients. That is just arithmetically impossible.”

Personal Independence Payments (PIP)

In his March budget Mr Osborne proposed changes to PIP which would have meant the many new claimants who used aids like a handrail or a walking stick to get dressed or use the toilet would have received fewer benefits.

The Government said the measure would save £15 million in 2016-17 and an annual £1.3 billion by 2020.

The proposed change was described by Parkinson’s UK as “a devastating step backwards”. Disability Rights UK called it “another unwelcome blow to disabled people’s independence, [which] will impact on people’s ability to work, enjoy family life and take part in the communities they live in."

The IFS said that under the plans, 370,000 disabled people would lose an average of £3,500 a year.

It took the resignation of Work and Pensions Secretary Iain Duncan Smith before the Government decided on a U-turn. In his resignation letter Mr Duncan Smith told Mr Cameron, who has now admitted to benefiting from an offshore fund created by his father: “The latest changes to benefits to the disabled are a compromise too far. They are not defensible in the way they were placed within a budget that benefits higher earning taxpayers.”

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