How much of your income tax is spent on unemployment?

Correction: The multiplier is actually 0.375 not 0.851.*

I don’t want even more of my hard-earned money taken in tax and spent on the unemployed or work-shy. My wages aren’t a bottomless pit for the unemployed. That’s MY MONEY they’re spending.

We’ve all heard things like this being said, maybe we’ve even said something similar ourselves. So just how much of your income tax is spent on unemployment?

I set out to work out the answer.

Government Revenue, Expenditure & Borrowing

In 2012, the total revenue from all forms of taxation and incomes was £591 bn.
(Source: Institute for Fiscal Studies)

Of this, taxation from personal income is shown in the table:

 Revenue Source Amount £ bn % of total revenue Income Tax 154.8 25.2 National Insurance 105.6 17.9 Total 260.4 43.1

Total government expenditure for 2012 was £695 bn.
The government borrowing  for 2012 was £103.5 bn.

Borrowing makes up 14.9% of all expenditure, leaving 85.1% of government spending coming from revenue. 37.5% of total expenditure by government is made up of revenue from personal income taxation, which means the remaining income from other revenue is 47.6%

* This produces the personal tax multiplier $p$ of $0.375$

$p=(\frac{37.5}{100})$

Spending on ‘unemployment’ (which includes all costs associated with unemployment) for 2012 was £8.4 bn. This is 1.2% of all expenditure.

Adjusting for spending from only personal taxation income, just 0.45% from direct tax goes on unemployment.

How much of your income tax is spent on unemployment?

I will use the average salary for this calculation. In 2012, the average salary or income for working was £26,000 per annum.

 Taxable Income £17,895 Tax £3,578 National Insurance £2,208.96 Total Tax Paid £5786.96

So if 1% of the tax you pay goes on unemployment, that means that £26.04 of the average personal income tax paid to the government is spent on unemployment.

Or to put it another way: you spend 7p a day on unemployment.

Considering anyone of us could be made unemployed at any time for any reason, 7p a day for unemployment ‘insurance’ seems a very reasonable cost to pay.

In fact, one of the commenter below makes a very good point about how this also insures us against social unrest too.

Update: The Formula

I thought I would include the formula used in working out the final figures.

$x=(\frac{t}{100})(sp)$

t = total personal tax
s = percentage of government spending
p = government spending proportion from tax revenue multiplier = $0.375$
x = tax paid that goes towards s

So, if one third of government spending is spend on all welfare,  I calculate that this is £716.13 for a person on £26,000, or £1.96 per day.

$1625.15=(\frac{5786.96}{100})\times(33\times0.375)$

I once thought that the Conservative-led coalition was a good thing. Then I opened my eyes.

I apologise if this is a bit of a rambling torrent, but perhaps I need to say: I didn’t always think the way I do now.

I actually believed the Tories back in 2010. I thought the coalition was a good thing. I thought they were the green, socially aware, de-toxified tories. I believed all the stuff they said. Then I started to look in to the figures, and I started to question.

The Tories started using really odd metaphors likening the economy to an indebted family, saying the overdraft was at its limit, or the credit card was run up. I know economics, and these images didn’t make sense. The economy of a sovereign country that has its own central bank and its own currency cannot be likened to family finances. Our debt is mostly money we owe to each other; even more importantly, our income mostly comes from selling things to each other. Your spending is my income, and my spending is your income. We also have historically low interest rates, and I know it’s best to borrow to fix the roof now, than wait until it caves in next year.

I also couldn’t forget recent history. Until 2008, the Tories said they were going to match Labour’s spending plans. We never heard them say Labour were borrowing too much, nor did we even know about this deficit thingy either. I do remember the banks and financiers getting in to trouble with their bundled-debt ratings and Lehman Brother’s collapsing in the US. And then the banks starting to crumble over here and demanding that the tax payer prop them up; we duly did because they were “too big to fail.”

Labour didn’t ruin the economy, financiers / bankers did. These super rich elite pretty much run the economy by commodotising everything, including food and health. Then they create more and more complex derivatives, until they themselves don’t even understand them, and it leads to trillions of pounds worth of loses. They helped pushed wages low so that profits could climb high. They controlled the wealth and in order to for the finance driven version of capitalism to survive, pushed every one further in to debt. Then they took it away. Companies still cannot borrow to invest to grow.

“The boom, not the slump, is the right time for austerity,” declared John Maynard Keynes 75 years ago. The austerity drive in Britain isn’t really about debt and deficits at all; it’s about using deficit panic as an excuse to dismantle social programs. I looked at the countries in Europe that have weathered the economic storm best, and near the top of the list I found big-government nations like Sweden and Austria.

You cannot rely on a free market. The economic experiment of the last 30 years, starting with Thatcher, has been a failure. The bottom 50% of the UK own less than 6% of the wealth, while the top 1% own over 40% of the nations wealth. The link between GDP and wages was severed as long back as the late 80s, yet it took until 2008 to mirror the horrific crash of 1929. Back then the world took control of capitalism and the financiers, but now for the super rich it seems it is business as usual.

Until we take hold of capitalism and keep it under control again, like the post war period up to the mid 70s (read keynes) then we’re just going to get more inequality, which leads to this kind of thing, and a huge gulf between super rich, workers, poor … at present the labourers are increasing in productivity, but wages are being kept low, so profits can become higher, so executives can get richer, and take it all abroad.

The Tories keep saying they are reducing the debt, but the autumn budget we just had will see debt increase from 70% of GDP to near 80% over the next 3 years. They have already spent more than Labour had planned to under their proposals. Can’t people see that the Tories are bare faced liars? “We won’t reorganise the NHS,” resulted in reorganising the NHS! And on it goes.

So, I started to open my eyes to the language of divide-and-rule the Tories were using against the sick, disabled and poor; I saw their broken promises;

And I decided, they stink.

We’re appalled and out raged by any form of cheating that flouts the spirit of the rules in sports. Why not tax avoidance?

Public Banking – has it’s time come?

The banking system in the UK is broken. The tax payer had to bail it out to the tune of over £1.2 trillion since 2008, and the costs keep rising. With 80% of some of the major banks in public ownership and being run, albeit at arms length, by the Treasury, businesses are still finding it impossible to raise capital for expansion.

It’s time for a new model of banking in the UK. Take a look at Germany.

Germany isn’t in a banking crisis and has not had to bail out its banks. It’s GDP is growing at around 3% currently. It has a three pillar banking structure, each totally separate from each other. The Public Banking sector has a share of 40% of the country’s total banking assets. Germany clearly has something to teach us about how to structure our financial sector.

Why does our Governments all ways look to America or Far East for its ideas, and never to Germany or Scandinavia etc? I think we should follow!

For more information on the German public banking sector read:http://en.wikipedia.org/wiki/German_public_bank (click it) where it explains in more detail how the public banks work.

I think it’s time in the UK has come.