does this make economic sense?

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Does this make economic sense?. 24 May 2010 . George Osborne announced £6bn of budget cuts to this years’ budget. Overnight local councils lost over £1bn in grants from central government. Sadly, some people have already lost their jobs. - PowerPoint PPT Presentation



Does this make economic sense?24 May 2010 George Osborne announced 6bn of budget cuts to this years budget.Overnight local councils lost over 1bn in grants from central government.Sadly, some people have already lost their jobs.In the Spending Review on 20 October 2010 George Osborne announced a real terms cut of 28 per cent in the Formula Grant to local councils in England by 2014/15.

Consider GloriaShe worked for the council and was paid 20,000 pa gross Gloria is one of the workers who has now lost her job because George Osborne cut council grants on 24 May 2010.Glorias council lost the grant that funds her job.The government benefits because she is working.Lets look at the cost to the government of making her redundant.She is a single parent with one child She pays 4,160 a year in rent (80 a week) Her Council Tax is 700 a year

Gloria pays 4,276 in Income Tax and National Insurance to the governmentGlorias employer also pays 1,828 in Employers National Insurance so the government gets 6,104 from Gloria and her employer

Consider GloriaGloria gets Child Benefit 1,056 a yearAnd she gets Child Tax Credit another 2,161After paying her rent (4,160) and Council Tax (700) she has 14,081 left to spendAssume that she pays 15% of that in VAT, petrol duty, alcohol duty, car tax etc that is another 2,112 that is paid to the government

Overall the government gets 4,999 from Gloria.

4,276 Income Tax and NIGross Pay 20,000Council Tax 700 3,216 Child Benefit and Child Tax Credit

Employers NI 1,828 VAT etc 2,112HM TreasuryTown Hall

4,160 in rent

Therefore net income to central governmentIncome tax2,705Nat Ins1,571Spending taxes (VAT, petrol duty etc) 2,112Employers Nat Insurance contribution 1,828Less money paid in tax credits-2,161Less money paid in child benefit-1,056Net income to central government 4,999What happens when Gloria is made redundant?We are in recession and she cant find a job so the government has to pay her various benefits.Lets take a look at the costs..Gloria is out of workShe gets Job Seekers Allowance (64.30/week) - 3,344/yearShe gets housing benefit to pay her rent 4,160/yearShe gets council tax benefit 700/yearShe still gets child benefit 20.30/week - 1,055.60/yearShe gets a Child Tax Credit of 2,851

The Government pays Gloria 12,110 in various benefitsBut the government still gets some money from Gloria..Her housing benefit is paid to the landlord and her council tax benefit is paid to the council so she has 7,250 left for herself and her child to live onAssume that she pays 15 per cent of that in VAT, petrol duty, alcohol duty, car tax etc so 1,087 is paid to the Government)

Check therefore net cost to governmentJob seekers allowance 3,344Child tax credits 2,851Child benefit 1,056Housing benefit 4,160Council tax benefit 700Less income from VAT etc-1,087Net cost to government11,022

Instead of receiving 4,999 the government pays out 11,022The government has cut the grant to the councilThe council cuts its budget and makes Gloria redundantThe government no longer gets 4,999 from GloriaInstead it pays 11,022 to support Gloria and her childThe government might save 20,000 by cutting 20,000 in grant to the council but the government loses 16,021 in the processBut it does not stop there.

4,160 in Housing Benefit700 in Council tax benefit7,250 in JSA, Child benefit + child tax credit1,087 in VAT and other taxes

HM TreasuryTown HallThe impact of sacking GloriaNow Gloria is unemployed she does not spend as much as she used toThat means less demand in the private sectorLess demand means private sector job cuts tooThe government then loses taxes from the private sector workers made redundant and has to pay them benefits tooEconomists say that every 100 jobs lost in the public sector leads to another 41 jobs lost in the private sectorMaking Gloria redundant makes no economic sense, does it?Presentation informed by blog written by tax accountant Richard Murphy. For more info on Richards work go to his website: can I do?If you work in the public sector, join UNISON: Sign up to our Million Voices for Public Services campaign: to your MP find your MP at:

Picture of Gloria taken by Laura Brechtbert used under a Creative Commons license.The use of picture does not imply Laura Brechtbert endorses this presentationUNISON campaigning for a fairer societyPublic ServicesDont wait till theyve gone to defend them