OK. so here’s my theory…
Our country is in a fiscal mess because there is not enough coming in through taxes to cover the amount going out via government spending.
Cutting the number of people claiming benefits from the state and telling them to get jobs will, theoretically, save a large part of our ‘overdraft’. The only problem is: there are not enough jobs available for everyone who is currently out of work, let alone those who will come off benefits to seek work.
A recent survey by the Federation of Small Businesses revealed that almost 11% of business owners expect to decrease employment over the next few months, due to weak business confidence in future prospects and revenue growth. Even more workers will, therefore, become unemployed, stop paying tax and start claiming benefits. Result: the country slips into an even worse mess.
For business owners to regain confidence in the economy, we all have to spend money buying their products which in turn allows them to take on more staff, who then pay more tax and increase the government’s revenue, thereby reducing the deficit. Simple isn’t it? Errr well not really!
An alternative option is to increase the rate of tax paid by those who are in work and in indirect taxation like VAT. But then, we will all have less disposable income to buy the goods which in turn create the jobs. Companies then collapse, more people are unemployed and the taxes raised decrease yet again
Of course, the experts would tell you it is more complicated than my simple view.
Our coalition government is about to announce a blanket ‘cuts all round’ programme to immediately claw back some of its losses. For the reasons given above, though, it is likely to be a lose, lose situation.
Whatever the Chancellor decides to do tomorrow, it is certain to cause massive hardship for those who are already struggling.
I am becoming increasingly convinced, we are in danger of causing more problems than we are ever going to solve.
But then…..what the heck do I know?