THE BLOG

George Osborne Has Lost £33Billion in Taxes Because of Wage Stagnation

16/02/2015 14:49 GMT | Updated 18/04/2015 10:59 BST

Low pay and wage stagnation have left a gaping hole in the UK's public finances.

New research published by the TUC for Fair Pay Fortnight shows that the government is collecting £33.4billion less in income tax and national insurance than had been forecast by the Office of Budget Responsbility, following the longest squeeze on wages since Victorian times.

Had earnings grown in line with the OBR's predictions, income tax and national insurance receipts this year would total £308.4billion. But the Treasury is now expected to collect just £275billion.

What's more, the government's decision to introduce unfunded tax cuts (which have provided far less support to low income workers than they would have received from wage rises), mean that Treasury coffers will be an additional £9.7billion out of pocket.

The OBR now expects the government to have borrowed £91billion in the year to March 2014/15, which is £54billion higher than the Chancellor had originally planned.

This economic mismanagement will have chilling consequences for our public services if the Conservatives are re-elected. The Institute for Fiscal Studies (IFS) suggest that an additional £50billion of either revenue or spending cuts will be needed to close the deficit by 2020.

However, had wages had grown as the OBR originally expected them to - and if the government had not pursued an agenda of unfunded tax cuts - there would have been no need. There would be enough revenue already for the deficit to be almost completely gone.

The Chancellor's failure to get wages growing has cost us all dearly. He spent the last five years shrinking our pay packets and as a result he plans to spend the next five shrinking the state to a level not seen since the 1930s - before we had the NHS and welfare state safety net.

When wages go up, consumers spend more, businesses can grow, more income tax and national insurance rolls in and the deficit shrinks. We need a new plan for the economy that gets wages growing and keeps them growing.

We can't cut our way to a strong economy any more than we can dig ourselves out of a hole. More austerity will keep us stuck in a downward spiral. It's time for a new long-term plan based on fair pay settlements and investment in the skills, infrastructure and innovation that creates decent jobs with decent wages.

In short, it's time Britain got a pay rise.