Increasing the Tax Free Allowance to £12000

Raising the personal allowance to £12,000 would take 7 million low-paid workers out of the income tax net altogether. People working full time on or less than the minimum wage would pay no income tax at all. This tax cut would put at least £20bn per year back in people’s pockets (according to real life figures), allowing considerable additional spending and investment in the economy. This is the key to overcoming recession and restoring economic growth. As well as stimulating the economy by giving people more disposable income to spend and invest, raising the personal allowance to £12,000 would strengthen incentives to work, help to eliminate the ‘poverty trap’ and make low-paid jobs more economic – greatly increasing opportunities for the unemployed.

The cost in tax revenue to put this into place would be £20bn to £30bn. Cuts are avoided in areas that would otherwise adversely affect the poor in relation to the financial gains due to be made from the substantial increase of the Tax Free allowance.

Scrap the Bus Service Operators’ Grant.

Annual Saving: £451 million.

This figure is the Department for Transport’s budget projection for 2010-11. The Bus Service Operators’ Grant (BSOG), refunds bus operators the bulk of their fuel duty costs. It has been the subject of long-standing criticisms for its social and environmental impact.

As the Local Government Association put it last year: “BSOG is not well focused on the achievement of public policy objectives… it does not encourage efficient use of fuel or cleaner, greener vehicles, nor is it related to tackling congestion, driving up patronage, improved performance, better quality services or improved accessibility.”

It has not improved and should be abolished. This was also proposed by Oxera, the economics consultancy, in a recent report.

· Suspend further orders and upgrades for the Eurofighter.

Annual saving: £740 million.

This figure is based on the estimate produced by the think tank Reform, which found that the Eurofighter Tranche 3 and planned upgrades would cost a total of £8 billion over nine years, or £888 million annually. This reduces Reform’s annual savings figure to allow for the Government’s subsequent commitment to buy an additional 40 Eurofighters under the so-called 3a Tranche.

The Eurofighter was conceived during the Cold War to combat the Soviet air force. It is wholly unsuited to the demands of current conflicts such as that in Afghanistan. The US government is making similar decisions, with the Senate voting in July to cancel further orders for the F-22 fighter jet, which, like the Eurofighter, was designed in the late 1980s for cold-war operations. The UK already has 34 Eurofighter Typhoons in service, now with a further 40 on the way under Tranche 3a, and we cannot afford to buy 48 more and pay for further upgrades.

Reduce the government advertising and publicity budget by half.

Annual saving: £270 million.

This figure represents half of the 2008-09 (latest year available) spending of the Central Office of Information, which handles central government’s advertising, marketing and communications.

Whether Government advertising is effective at all is a legitimate question, but the principle reason for reductions in this area is that expenditure has grown massively over the past decade, from £108 million in 1997-98 to £540 million in 2008-09. According to recent reports the UK government is now the country’s biggest advertiser.

Cutting government advertising and publicity expenditure in half would still leave the Central Office of Information spending more than double the amount it spent in 1997, while realising a saving of £270 million.

· Halve public sector spending on consultants

Annual saving: £1,100 million.

This figure is half the amount spent by the public sector on consultants, excluding consultancy spending by the NHS. The public sector spent £2.8 billion on consultants in 2005-06 (latest year available), of which around £600 million was spent by the NHS.

In a downturn, external consultants are often the first item of expenditure to be reduced, and there is no reason why during the credit crunch it should be any different. Businesses have been greatly cutting back on their use of consultants over the past year, as would be expected. The most recent reports on central government’s use of consultancy, by the National Audit Office and the Public Accounts Committee, found enormous scope for efficiency savings.

As the National Audit Office concluded: “Public bodies should start with the presumption that their own staff are best fitted for their requirements. While it will often be the case that they need to purchase specific expertise from consulting firms, more generalist requirements can be met more cost-effectively by internal resources.”

Slim down the Department for Communities and Local Government (DCLG).

Annual saving: £1,317 million.

DCLG plans to spend £37.4 billion in 2010-11, £32.2 billion of which is earmarked for housing and support for local authorities.. A targeted 25 per cent of the remaining planned budget delivers a saving of £1,317 million. DCLG is responsible for the funding and regulating of local authorities, and some redevelopment. Demand for social housing has been increasing across the UK in recent years, and therefore central government spending on housing should therefore be maintained.

However there are discretionary schemes managed by the department that are not so essential, and the department itself is a substantial organisation. Housing and local authority funding aside, a 25 per cent cut from the department’s budget would be possible.

Cuts should fall first on the programmes and target setting devices which manage local authorities. More emphasis should be put on improving local democracy and accountability instead. Users of local services are the best judges of their quality, and ensuring that local authorities are fully transparent to local residents is a much more effective way of prioritising and assessing councils’ actions.

Rationalise the framework of regional business support.

Annual saving: £940 million.

The figure represents a 50 per cent reduction of the projected annual budgets in 2010-11 of the Regional Development Agencies (including Business Link spending), and the Government Offices of the Regions. Regional Development Agency (RDA) budgets in 2010-11 are projected to total £1,762 million and Government Offices of the Regions 2010-11 budgets are projected to total £118.5 million. UK Trade and Investment funding would remain untouched.

The present system of regional business support is ineffective in a number of ways. There are two regional bodies – RDAs and Government Offices of the Regions – which is unnecessary. Business Link, the business support and advice service, is delivered at both the regional and the national level, which risks creating confusion and duplication. Efforts to attract FDI into the UK are made at both the national level (UKTI) and the regional level (overseas offices of the RDAs). It would make far more sense for these efforts to be made at the national level only, making the picture clearer for foreign investors. The system lacks focus on vital infrastructure development which is crucial for business needs.

The IoD is currently developing a detailed policy in this area, and the TPA has previously taken a strong position on regional governance. It is estimated that a clearer and more focused system could deliver savings in the order of 50 per cent of the current cost, or £940 million. It is possible to deliver a better package than currently on offer at a lower cost.

Cut 25 per cent from the budget of the Department for Culture, Media and Sport (DCMS).

Annual Saving: £725 million.

The 2009-10 departmental expenditure limit (DEL), for current and capital spending combined, for the DCMS is £2.1 billion. A 25 per cent reduction in 2010-11 would leave the total DEL at £1.575 billion. This would realise a saving of £725 million relative to the planned DEL in 2010-11 of £2.3 billion.

The DCMS must not remain immune from the necessary reductions in public spending, and it is clearly not as important an area as hospitals and schools. The 25 per cent cut will still leave the bulk of the department’s programmes intact.

This reduction would not affect spending on the 2012 Olympics. In 2008-09, the Olympic Delivery Authority was funded by a grant-in-aid of £958 million from the DCMS, but much of this was paid for by the Department for Communities and Local Government and the Department of Transport. In 2008-09, the DCMS spent a net £557 million on its Departmental Strategic Objective of “Olympics and sport for young people”. The suggested reduction in the DCMS budget to £1.575 billion would therefore leave ample funds to cover Olympic spending.

Abolish the NHS National Programme for IT (NPfIT).

Annual saving: £1,181 million.

The most recent Public Accounts Committee report on the NPfIT puts its total cost at £12.7 billion in 2004-05 prices. Estimated the equivalent cash figure at £14.6 billion (the increase in the RPI since April 2004). Of that, £3.6 billion had been spent by March 2008, leaving around £11 billion to be spent over the next seven years, which is £1.6 billion per annum. This remaining spending will be split between the core IT contracts and local NHS implementation costs. Of course, not all of that would be saved because the IT contractors would charge cancellation fees which would be no more than one-third of the remaining £900 million annual value of the contracts, or £300 million a year. Cancellation would also entail some offsetting NHS spending on alternative local systems. But since the Department of Heath estimates NHS savings from the NPfIT itself to be only £119 million per annum, cancellation should not entail much additional spending on alternatives. Overall, on a cautious basis, there are net savings at £1,181 million per annum.

The NPfIT should be abolished for four reasons: first, it was never wanted by most NHS clinicians, and they remain opposed; second, it is running way behind schedule, and what has been delivered so far on patient care records doesn’t work properly; third, there are major and unresolved issues over patient confidentiality; and fourth, it is far too expensive.

The centrepiece of the NPfIT, the Detailed Care Record, raises particularly serious questions: “First, there is a safety problem: if many different health professionals can write to a record, but none of them is responsible for curating it and maintaining its quality, it can rapidly become a mess. This is the wikipedia model of uncontrolled collective authorship, and it appears reckless for the NHS to embrace it for medical records just as wikipedia is moving to a more controlled model. Second, there are serious privacy issues: it has been reported that making GP records available to social workers has eroded trust in GPs and made low-income single mothers less likely to seek treatment for post-natal depression. Putting everything into one pot not only makes privacy compromises more likely (more users have access to a larger set of data) but also precludes careful consideration of context-specific information flows. It also becomes less clear who is the ‘controller’ of the data.”

It would be far better to allow local healthcare providers to use and develop the IT they have already purchased, and ensure that data can be passed from one provider to another when appropriate. With firms such as Google and Microsoft developing personal health records, this approach would cost the taxpayer very little.

Cut 10 per cent from the budgets of selected non-ministerial departments.

Annual Saving: £1,700 million based on Annual Report and Resource Accounts 2008-09 for the following non-ministerial departments: Charity Commission; Crown Estate; Crown Prosecution Service; Food Standard Agency; Forestry Commission; Government Actuary’s Department; HMRC; National School of Government; Ofsted; Office of Fair Trading; Ofgem; Office of Rail Regulation; Office of Water Services; Postal Services Commission; Revenue and Customs Prosecution Office; Serious Fraud Office.

By reducing the parliamentary voted funds of all non-ministerial departments (apart from UKTI and the UK Statistics Authority) by 10 per cent from their 2008-09 level, a saving of £1,700 million could be accrued. Non-ministerial departments (NMDs) are a ubiquitous – if little understood – feature of the UK Government. Operating under the political shadow of a ministerial department (but structurally and financially independent of them) these mega-agencies are responsible for a wide range of government functions, from tax collection (HMRC) to charity regulation (Charity Commission).

Most NMDs carry out crucial work, and many do so well. However the state of the public finances demands some painful choices. As such, expenditure within the NMDs must be pared back by 10 per cent. Budgets for communications and advertising are obvious starting points. While a lot of NMDs do important work, some do not. For example, the National School for Government and the Food Standards Agency are two NMDs that must be subject to tighter budgets.

However the recession necessitates a different approach with UK Trade and Investment (UKTI). It is vital that as much foreign direct investment as possible is encouraged into the UK, to boost trade and create jobs. UKTI plays a crucial role in attracting this investment, and hence it should be protected from cuts. Similarly we do not wish to see the quality of official statistics undermined.

· Pay freeze across the public sector

Annual saving: £6,203 million.

The pay freeze would run in 2010-11, and would then affect the baseline for future years. The calculation is based on the 2008-09 (the latest year available) level of spending on public sector pay of £157,695 million being frozen for one year rather than increasing at an annual rate of 4 per cent, which is the current rate of increase.

This would, in practice, mean that public sector employees would not move up pay bands during the year, in addition to not receiving any pay increases within their existing band. To avoid double-counting, this figure has been reduced by 1.66 per cent to take account of the reductions in back-office staff already suggested. Furthermore, the pay freeze will exclude members of the armed forces serving in or returning from conflict zones, which is not only just but, will have a negligible effect on the overall saving.

Since 2000, median gross hourly pay has increased by 40 per cent in the public sector, compared with 31 per cent in the private sector. Median gross hourly pay is now 25 per cent higher in the public sector. The public sector has now overtaken the private sector in the pay stakes for the vast majority of jobs – gross hourly pay is higher in the public sector for all but the top 10 per cent of employees. Gross annual pay tells a similar story – median gross annual pay has increased by 37 per cent in the public sector since 2000, compared with 31 per cent in the private sector.

Employees in the private sector have also been harder hit by the recession. Private sector employment has fallen by almost 700,000 over the past year, while there has been a 40 per cent increase in the number of part-time workers who cannot find a full-time job. Pay cuts and 4-day weeks are now common features. In the public sector, by contrast, employment has increased by almost 300,000 over the past year, and pay is now increasing at an annual rate of 4 per cent.

A recent survey of IoD members also found that business executives across the country are cutting back, with around half experiencing pay freezes or pay holidays, and 40 per cent seeing their bonuses fall. A public sector pay freeze has been suggested by, among others, the Chief Executive of the National Audit Office, who wrote that “as public sector workers have done well over the past decade, they will tolerate some modest real reduction in earnings”. We should not pretend that this will be without some pain. But generosity over recent years must now be balanced by wage restraint. The far more painful alternative would be widespread public sector job losses in the future, as the structural deficit (or the IMF) would force us to make harder choices.

Increase employee contributions to all unfunded public sector pension schemes by a third.

Annual saving: £2,508 million.

This calculation is based on a 33 per cent increase to the 2007 (latest year available) level of employee contributions to unfunded pension schemes (all the major public sector pension schemes, except for the Local Government Pension Scheme). The £2.5 billion in extra employee contributions would go towards reducing the “contribution to TME” of unfunded public sector pensions, which is projected to be £4.6 billion in 2010-11

An increase in employee pension contributions of a third is not as large an increase as it sounds – it would raise the typical employee contribution rate from 6 per cent to 8 per cent of salary. It is no substitute for long-term reforms to public sector pensions, such as raising the public sector normal pension age to the level of the state pension age for all new accrual, but has the advantage of yielding the full saving in the first year, rather than after several decades. The pensions divide between the public and private sectors has been much discussed. In brief, the main points are as follows.

In the context of a rapidly ageing population, pension reforms will be unavoidable. In the private sector, a combination of demographic pressures, tax increases and more onerous regulation has led to a 41 per cent fall in the active membership of defined benefit (DB) schemes. At the same time, the state pension age will increase to 68 by 2046. By contrast, existing scheme members in the unfunded public sector schemes will still retire at 60. 90 per cent of public sector employees are members of DB pensions, compared with just 12 per cent in the private sector. According to a recent survey of 1,000 IoD members, only 12 per cent of company directors are enrolled in an occupational DB pension, the same proportion as for the private sector as whole, while 45 per cent have no occupational or employersponsored pension at all. Excluding member contributions, a public sector pension for a typical employee is worth over 40 per cent of salary, compared with just 7 per cent for a typical private sector defined contribution (DC) scheme.

The Institute for Fiscal Studies has calculated that relatively generous pensions add around 12 per cent to the salary of public sector employees, over and above private sector employee. Unfunded public sector pension liabilities are now as much as £1.1 trillion, while the IoD has estimated that the total bailout of public sector pensions (in addition to the already high employer contributions) could reach £335 billion, over £13,000 per household, over the next 50 years. Given that public sector pay is now higher than in the private sector for all but those at the very top, there is no longer any justification for people to pay, through taxes, for pensions they can no longer afford for themselves. It is fair for public sector employees to contribute more towards the very high cost of their pensions.

Reform children benefits to address child poverty concerns.

Annual saving: £8,447 million.

Reforms would include abolishing Child Benefit and the Child Trust Fund, but to increase the Child Element of the Child Tax Credit. This saving from abolishing Child Benefit and the Child Trust Fund is HMRC’s projection of the resource and capital costs of Child Benefit and Child Trust Fund payments in 2010-11, which total £12,447 million.

The extra spending on increasing the Child Element of the Child Tax Credit, which reduces the saving from this suggestion by £4,000 million, is a calculation by the Institute for Fiscal Studies (IFS) of the costs in 2008-09 of increasing considerably the Child Element of the Child TaxCredit to reduce child poverty by around 600,000.175 In 2010-11, the cost would be correspondingly higher, but in the absence of a precise estimate for 2010-11 2008-09 figure has been taken. Considering that the IFS’s 2008-09 estimate for the savings from tapering the Family Element of the Child Tax Credit (see next item), it’s not under-cautious overall. The think tank Reform has also costed a very similar proposal.

Both Child Benefit and the Child Trust Fund are available to all households with children, no matter how well off. While the administration of Child Benefit is simple and inexpensive, as there is no means-test, paying benefits to millionaires, or even to households with income of £50,000 a year, is a luxury we cannot afford. They should both be abolished. When abolishing a universal benefit, however, it is important that lower-income households are not unduly affected. Hence I reluctantly support this extension of means-testing in the short-term, which reduces the saving from abolishing Child Benefit by £4 billion. This is a necessarily short-term suggestion, and does not lessen the urgency of more comprehensive welfare reform.

· Taper away the Family Element of the Child Tax Credit.

Annual saving £1,350 million.

This figure is a calculation made by the Institute for Fiscal Studies of the savings in 2008-09 from such a policy. In 2010-11, the savings would be correspondingly higher, but in the absence of a precise estimate for 2010-11 take the 2008-09 figure as a cautious estimate.

The main element of the Child Tax Credit is the Child Element, which is tapered away at 39 per cent once household income reaches £6,420 a year, or £16,040 for those only entitled to Child Tax Credit. But the Family Element, which includes a “Baby Addition” if the child is under 12 months, is tapered away at 6.67 per cent once household income reaches £50,000.

This is a completely senseless system, wasting £1.35 billion a year on households that do not need to receive state benefits and adding an unnecessary layer of complexity. Tapering the Family Element once the Child Element has been exhausted would have no impact at all on lower-income households.

One year freeze of the grants given to Scotland, Northern Ireland and Wales.

Annual saving: £1,400 million.

This figure is the saving from freezing the Treasury current DEL grants to Scotland, Wales and the Northern Ireland Executive at their 2009-10 level for one year, relative to the Treasury’s current plans for 2010-11. Capital grants are unaffected by this suggestion.

This purposely targets savings and reductions across the whole of Government so as to obtain as balanced a range of savings as possible. Many of the items in this report cover England only, and so it seems fair for the other nations of the UK to take their share of the burden. Freezing the current grants to Scotland, Wales and Northern Ireland for one year offers a substantial saving, and also means that no services are necessarily subject to cuts. Instead, budgets received will have to be handled more carefully, with any unnecessary spending eradicated.

Considering the differing levels of spending autonomy enjoyed by the devolved assemblies, a general freeze will allow each nation to make its own decision over what is priority and what is not. In practice, if spending in England is scaled back, whether through the suggestions in this report or other items, a level of saving of this order of magnitude would happen automatically, given the methodology of the Barnett Formula.

Reduce gross annual pay by 5 per cent for the richest 10 per cent in the public sector.

Annual saving: £1,218 million.

Median gross annual pay for the 90th percentile in the public sector is £41,172 of which a 5 per cent cut equals £2,059, which is then multiplied by 10 per cent of the public sector workforce, comprising 602,000 employees.

This figure is clearly an underestimate of the saving that would be realised, but as individual percentile earnings are not available, it is prudent to take a cautious approach. Adjustments would need to be made to ensure that there is no “cliff-edge”, and to ensure that pay-grade differentials would be maintained. There is clearly no double-counting between this item and the public sector pay freeze suggestion, but this figure has been reduced by 1.66 per cent to take
account of other documented reductions.

The highest-earning 10 per cent – effectively all higher rate taxpayers in the public sector, from those on £45,000 to those earning more than the Prime Minister – are the most able to afford a loss of gross income, and we expect to see falls in gross pay for private sector executives this year. While there is no systematic data on executive pay in the public sector, there is strong evidence that it has increased rapidly in recent years. For example, the number of employees earning more than £50,000 across local government has increased eleven-fold since 1996, compared with a three-fold increase in the economy as a whole over the same period. Across government departments and a number of public bodies, there are now more than 200 people earning more than the Prime Minister.

It is of course true that executive pay has also increased in the private sector, but given that the risk of dismissal for poor performance is also higher, a straightforward comparison between the two sectors is misleading. For most private sector directors, pay is not excessive: basic pay for an IoD member who is a managing director of a small company (up to £5 million turnover)averaged £65,000 last year. Additionally, a recent survey of IoD members also found that business executives across the country are cutting back, with around half experiencing pay freezes or pay holidays, and 40 per cent seeing their bonuses fall.

One year freeze of the resource and capital budgets of the Department for International Development.

Annual saving: £862 million.

Planned spending by the Department for International Development (DfID) for 2010-11 is £7.8 billion. Freezing both the resource and capital departmental expenditure limits at the 2009-10 level (£6.9 billion) will realise a saving of £862 million.

Despite the alarming fiscal deterioration, the current Government has committed themselves to increasing the international development budget over coming years. A target to spend 0.7 per cent of GDP by 2013 has been set, which – if IMF forecasts prove correct – would equate to at least £10 billion in annual spending.

The UN’s target of 0.7 per cent of GDP, however, is not only arbitrary, it is also careless. At 0.5 per cent of UK GDP, the £6.5 billion that will be spent by DfID this year will ensure the UK remains one of the most generous countries in the developed world. In addition, the practical application of this expenditure is not uncontroversial, as too much continues to be lost in inter-government transfers and too little achieved by charitable ventures. This is not to say that all DfID spending is wasted, but until the efficiency and effectiveness of UK aid can be improved, the level of spending should not be increased. The poor in the developing world and taxpayers in the UK deserve to see more return from the UK’s investment.

TOTAL SAVING £30.142 billion.