LIFE UK Budget

LIFE is committed to achieving a sustainable budget balance. Our plan gets receipts and spending to 40% of GDP within 5 years, and our commitment is to not run a budget deficit higher than our rate of growth thereafter.

This commitment means that we have to raise some more revenues from taxes and we have to be much more efficient on our spending. LIFE will achieve these objectives by asking everyone to pay income taxes on all their earnings, and by switching social support from cash distribution and tax credits to a universal services model.

The transition to a sustainable budget will have to be phased in over 5 years. The first 2 years will be largely fixed by the actions of the previous government, and WellFair services will replace cash welfare payment over the following 2 years. The new Paid Fair income tax regime will require 2 years preparation by HMRC and become active for all existing tax payers as soon as practical, with the inclusion of all earners targeted for 1 to 2 years after that.

The overall changes in the UK budget proposed by LIFE are incremental, and will be introduced to minimise disruption as much as possible. The most significant changes are in the distribution of spending control from central to local government, and those can only happen after effective local governments have been elected.

Summary

The following table represents the budget summary for the period 2016-2021. The budget assumes a modest 1% annual growth in incomes. and an aggressive 10% annual increase in debt interest burden.

7 Year Budget Summary

2015

2016

2017

2018

2019

2020

2021

Taxable Income (£Bn)

£940.0

£942.6

£952.0

£961.5

£971.2

£980.9

£990.7

Income Growth Rate

1%

1%

1%

1%

1%

Personal Allowance

£10,000

£10,000

£8,000

£6,000

£4,000

£2,000

£0

Tax Revenues (£Bn)

£288.3

£312.0

£283.97

£300.88

£318.10

£326.95

£335.94

Other Revenues (£Bn)

£368.7

£382.0

£385.8

£389.7

£393.6

£397.5

£401.5

WellFair Spending (£Bn)

£500.0

£538.4

£558.8

£529.8

£500.9

£505.9

£510.9

Other Spending (£Bn)

£170.0

£170.0

£171.7

£173.4

£175.2

£176.9

£178.7

Primary Budget Balance

-£13.0

-£14.4

-£60.7

-£12.7

£35.7

£41.7

£47.8

Increase in Interest Paid

10%

10%

10%

10%

10%

Debt Interest (£Bn)

£55.0

£55.0

£57.8

£60.6

£63.7

£66.9

£70.2

Net Budget

-£68.0

-£69.4

-£118.4

-£73.3

-£28.0

-£25.2

-£22.4

Highlighted numbers taken from OBR Report, March 2013; revenue numbers for 2016 use the OBR forecast. LIFE budget summary assumes growth will be lower than the current OBR forecast, hence the fall in income tax revenues in the above summary in 2017. Any increase in tax revenues compared to the LIFE assumptions will only improve the budget results.

LIFE will increase tax revenues through a combination of broader application and increased rates. The Personal Allowance will be removed for all tax payers earning more than the median wage, and the Personal Allowance will be tapered down by £2,000 a year for those earning below the median. Tax rates will unified across all income sources (capital gains, unearned, inheritance, etc.) and this will likely bring in additional revenues, but those potential increases in revenues are not included in the above budget summary. This budget is possible because the transition to WellFair enables both an increase in tax revenues, and a reduction in spending on social security.

Income Tax Revenues

With a basic Income Tax rate of 30% (including and replacing National Insurance payments), and a 5% step up rate for each factor of the median income. Without a Personal Allowance, this represents a 19% increase compared to currently budgeted revenues from IT + NI.
The budget summary table above shows the effect of tapering allowances for those earning less than the national median income over 5 years.

WellFair : Paid Fair Balance

Total WellFair spending is projected to be £501Bn in 2019, accounting for increased service levels and the universal nature of the services.
This will leave an annual “WellFair:PaidFair” deficit of £182Bn at the end of the first term of the government.

Pensions & Other Spending

The total of the 2013-2014 budget allocated to other government spending, including old age pensions (£107Bn), interest on debt, defence, industry, agriculture and other, is £222Bn (Other Spending + Debt Interest lines).

Other Revenues

2013-14 Other Receipts

Function

£Bn

Excise

47

Corporation Tax

39

VAT

103

Business rates

27

Council Tax

27

Other

107

350

Income from Corporation Tax is likely to rise with LIFE, as result of harmonisation of rates with Income Tax rates. This is not included in these budget calculations to reduce speculative comparisons.

We expect to raise £18Bn in additional revenues through tax reform.

Budget Balance

By 2020 the WellFair deficit of £182Bn, added to other spending (£244Bn including interest) leaves £426Bn to be financed from other receipts.

Other receipts (including £18Bn from tax reform, not in 7 Year Budget Summary table) come to £415Bn.

As can be seen from the 7 Year Budget Summary LIFE’s policies will move the UK to a primary budget surplus within the first parliamentary term. This will ensure that UK interest rates remain low and provides the opportunity to move into a surplus with either small levels of growth and/or greater levels of efficiency.

Given that global expectations are of a running deficit of under 3%, there is scope within the LIFE Budget to allocate $30-£45Bn in seed funds to the National Infrastructure Bank to kick start infrastructure builds (housing, national communications and smart grid).

Additional Revenues

Any additional revenues could be used in a number of ways; LIFE’s proposals for them will prioritise the following:

  • transfer of Council Tax and Business Rates revenues back to local Assemblies
  • reduction of VAT to 17%
  • investment in new energy, transport, communications and housing infrastructure (see also NIB)
  • repayment of the debt

Long Term Budget Strategy

Over a 10 year period the cost of WellFair and revenues from Income Tax (the WellFair:PaidFair balance) will need to be brought into line. The continuing downward pressure on labour rates caused by WellFair services will reduce the costs of delivering the services significantly. Reductions in the scope of the services available, notably in the healthcare service, will likely be necessary as well.  WellFair services must focus on delivering the most basic services well universally, before more complex services are included.

The liberation of labour markets and the growth of micro-economic activity will increase the breadth of the income base and increase the income tax pool over time, resulting in stronger revenues.

There remains a 30% WellFair:PaidFair budget gap that needs to be addressed over the long term, and it is anticipated that reductions in costs and increases in revenues will contribute equally to closing this gap.

4 Responses to LIFE UK Budget

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