Sunday, 24 October 2010

Fair enough?

George Osborne informed me on Friday, via my radio, that the cuts are in fact going to be fair, because (I quote, though not verbatim) 'richer people will pay a higher percentage of their income than poorer people'.

OK, let's do a worked example.  All the following numbers are, of course, entirely made up (you don't expect me to do proper research, do you?  For goodness sake!), but the principles hold.  So, take two people, P and R.  P earns £10,000 per annum, R earns £100,000.  Now assume that the cuts affect P to the tune of two per cent, and R by three per cent.  This is what George is calling fair.

So,  my calculator informs me that P will take a hit of just £200, while R will be stung for £3,000.  What could be fairer than that?

Quite a lot, actually.  The problem is that this balance sheet doesn't balance.  To make it do so, we need to consider the impact on each of these people.  So let's introduce the idea that there's a minimum subsistence level - a breadline, if you like - that applies equally to everyone (the basket of commodities used to calculate the Consumer Price Index, for example), and purely for convenience let's set this at £10,000.  To be completely fair, let's give R some credit for achievement and add in an extra bit: three per cent for example.  So P's breadline is £10,000 and R's is £13,000. 

You can see where I'm going, can't you?  When you deduct George's cuts, P is left with £9,800, and R with £97,000, of net income.  P is now living £200 below the breadline, while R has £84,000 of discretionary income above the breadline, as opposed to the previous £87,000.  Hardship if not penury for P.  Slight inconvenience for R.

Fair enough?

3 comments :

  1. That's what I thought as well, though I didn't do the math to prove it (nor the paynesteaking research).
    And another thing:
    You know they said it was all the bankers fault, this deficit thing? Then they said it wasn't all the bankers fault, some of it was Labour's profligacy (is that the word?). But the deficit was steady at just under 3% of GDP from 2006-2008. It's now 11.4%
    see here
    So I guess quite a lot was caused by bailing out the banks in early 2009? But didn't we get a hefty share of the banks (us public I mean, via HM Government)? So when the banks share value recovers & I believe we bought them at around 27 pence & they now hover around 70 pence, doesn't that mean we can sell them at a bit of a profit? So the money we borrowed to buy the banks should see a profit when they are sold & get rid of a big chunk of the deficit buying them created. Does this ever figure in the numbers the government produce? I've never spotted it.
    Tim, you have an economics degree & knew the real inside story of the banking world for much of the last century - tell me where I'm going wrong on this.

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  2. I'd thought that too, was going to do another post about it - thanks for saving me the trouble. (Gawd, the first time I typed that word it came out as 'troblem'. Not bad, actually, as typographic neologisms go.)

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  3. No please do take the trobble to provide a more substantive assessment. Why do none of the commentators even allude to this stash?

    On a more serious note, you can occasionally get some interesting results by having inadvertently moved your keyboard half an inch to the left, if you watch the screen instead of the lrunpstf (though that isn't one of the interesting ones). Of course if you watch the keyboard instead of the screen you can find something stopped the letters appearing & you just wasted the past 30 seconds & worse still have forgotten what you were t

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