Thursday, October 17, 2013

Unemployment Down - Now Cut Taxes

The continuing improvement on employment figures is something that we can all agree is positive - even though there's widespread disagreement about why this should be happening. Whether it's more accident than design (which is normally the case when it comes to the economy), the falling number of claimants and rising number of people in paid work is positive for the economy. But that's scant reward for those of us who are in work and haven't had significant pay increases for years now, while at the same time inflation has continued to strip away at our standards of living. Our pathetic pay 'increases' are in reality pay decreases as inflation is running at a higher rate. This doesn't look to be changing any time soon.

While economists can argue that this is a necessary rebalancing of the economy, what we're seeing seems to be that we're keeping employment high by taking pay cuts. Maybe it is as simple as basic supply and demand - the demand for labour has increased as the price has gone down, and there's been a steady supply of unemployed to fill that increased demand for labour. Those of us in work normally pay for unemployment because our taxes and national insurance contributions go towards paying benefits to the unemployed. This time round we're paying for unemployment through lower wages. From the point of view of society as a whole that's probably the better way to do it - it's healthier for society if we're all that little bit poorer than if we've got a large pool of unemployed who want to work and can't.

Whatever the explanation, it's clear that the state is saving money by paying less on unemployment benefits, while taking in more from new workers who are starting to pay tax and national insurance. It's a double win for the government. So perhaps it's time to put the pressure on for the state to give something back in the form of tax cuts. Increasing our tax allowances so that we get to keep more of what we earn would give us back some of what we're losing to inflation. It also means that many of those who are newly employed and on low wages (a significant portion of the newly employed in fact) get to spend more of what they earn rather than handing it to the state.

The net effect is to give us all a bit more money. At the very least it can make all this talk of 'recovery' something that we can feel directly rather than viewing it as an abstract thing that others benefit from and that doesn't touch us in the least. Because the sad fact is, that despite all the postive talk about recovery, for most of us it doesn't feel like it's happening - in fact it's the reverse.

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