Three tests for the Budget

22 March 2011

Green Party leader Caroline Lucas MP today set out the three major tests which George Osborne should address in his budget on Wednesday:

- It should be a budget fostering the development of a sustainable economy, not a budget relying on unsustainable growth

- It should crack-down on tax evasion and avoidance and ensure that banks and corporations pay their full share

- It should use this extra taxation to support, rather than cut, public services.

Lucas called on George Osborne to produce a balanced budget - one which brings our economy back into balance with our environment. The banking crisis should not be used as an excuse for more unsustainable, indiscriminate and destructive growth.

Caroline Lucas said: "We have to learn to live within the means of the planet. At present, we are consuming three planets worth of resources which, is not sustainable and leaves a horrendous legacy for future generations. We know that it is sensible to expand some sectors of the economy but there does need to be shrinkage in the conventional sense of resource throughput. Protecting the most vulnerable in society has to be our goal, whilst at the same time ensuring those that have most pay their fair share.

"Our budget puts the economy and the environment foremost at the very heart and our overall aim is to set out how to make Britain a greener and much fairer society."

A Sustainable Economy

The Green Investment Bank must be a real bank, not just a fund, sufficiently capitalised to be capable of leveraging significant private sector investment, and able to borrow and issue bonds and loans. If it is not able to raise additional capital until 2014 or later, it will be a massively lost opportunity to raise the necessary funds to invest in the Green energy infrastructure we so urgently need.

There must be a shift towards Green taxation. The fuel duty escalator should be used to send a clear signal that oil prices will continue to rise, not just because of geopolitical unrest in the Middle East, but because of geological realities: as easily accessible oil becomes more scarce, so its cost will rise. Between December 2009 and December 2010, the petrol price rose by 13p per litre. It has been estimated that a fuel stabiliser which cut fuel duty to fully compensate for this 13p rise would have cost nearly £6bn a year. By raising fuel duty by an average of 8% per year we could raise £10bn per year by the end of the Parliament. The recent rise in VAT from 15 - 17.5% should be reversed.

Instead of the free for all enterprise zones we expect to see in the budget - which only create short term jobs, and displace them from other places - we want to see incentives only for the new green industries of tomorrow. For example, increasing funding for wave and tidal could enable the UK to capitalise on the enormous potential for the oceans to supply safe, renewable energy, creating tens of thousands of new jobs in the process.

Banks and corporations to pay their fair share

Ordinary people are bearing the costs of the crisis, through lost jobs, declining incomes, gathering inflation and cuts in public services. But, as the IFS says, "The corporate sector is in much better shape than the household sector, enjoying strong profits growth and with healthy margins. Firms' balance sheets are in good shape too - leaving many cash-rich." [1] Since the 1970s the share of wages and salaries has dropped from a high point of 65% in 1975 to just above 50% now. By contrast the share of profits has risen to almost half.[2] We need a fairer balance between what households pay and what corporations pay.

Large companies can easily afford to pay a great deal more tax. It is mainly the obsession with growth which dissuades governments from taxing them more.

We would:

- reduce tax avoidance and evasion. £16bn could be raised from companies in a single year. In particular to collect this tax planned cuts of 15000 in HMRC staff and of 25% of staff at Companies House should be reversed, all companies not just 45% of them should submit tax returns and banks should be obliged to provide information on business accounts.

- tax bank bonuses properly. Last year's tax raised £3bn, there is no reason why this not be repeated since banks are once again paying outrageous bonuses.

- The government is planning to reduce corporation tax gradually from 28% in 2010-11 to 24% in 2014-15. This is lower than the current rate in most of the EU.[3] By contrast we would raise the main rate of corporation tax to 30%, but reduce the small firms rate to 20%. This would raise about £1.5bn.[4]

- introduce a Robin Hood Tax A tax of 0.005% on financial transactions could raise a net £13bn a year; a tax of 0.01%, £25bn.[5]

- A windfall tax on bank profits. The UK banks are expected to make £25Bn in profits this year[6]; Barclays paid just 1% in corporation tax. A 50% windfall tax would raise over £12Bn.

- We would welcome Air Passenger Duty being put on a per aircraft basis, but we would introduce VAT and fuel duty on aviation, raising £10bn a year.

- And we need to get tough with the banks. In particular we would keep in the public sector the parts of the banking sector so expensively brought into public ownership. We would create a permanent and genuinely national bank out of one or more of the currently ‘nationalised' banks. Most citizens seek safety for their money, not a risky high rate of return, and this People's Bank would offer this in perpetuity. The People's Bank would offer current accounts and all other basic banking services, thus complementing National Savings and Investments. In terms of its lending and other policies, it would act as a non-profit bank.

Elsewhere in the banking sector, we would separate retail and investment banking, and ensure that support is conditional upon banks lending at low rates to small businesses.

Protecting long term wealth creation in the public sector

The taxation changes in the last section, combined with higher income tax and National Insurance for the wealthiest individuals (for example introducing the 50p rate at £100,000 not £150,000 and abolishing the upper limit for National Insurance contributions, which would raise around £12Bn[7]) would raise £77bn. Combined with savings from cancelling Trident (£4bn per year), and savings on Tax Credits from raising the minimum wage to a living wage (£6bn) this is more than enough to meet the government's planned £83bn cuts in public services.[8] See Annex 1 for details.

We reject the view that public services are some sort of drain on the economy that we cannot afford. The strength of an economy depends on its people and natural resources. Public infrastructure like effective public transport and sustainable electricity generation support the whole economy. Public investment is needed to protect and sustain natural resources. We need to maintain the balance between public and private sources of wealth.

We would avoid cuts that make no long term economic sense. Abolition of funding for organisations like the Film Council are not simply acts of cultural vandalism, they lose money. And as Unison points out, 92% of the cost of employing a public service worker is recouped by the state, because it raises tax revenues while reducing benefit payments.[9] If we increase the level of the minimum wage to a living wage of £8.10 per hour, we could save £6bn a year on Tax Credits by refusing to continue subsidising employers who want to pay poverty wages.[10] And we'd boost government spending on research and development to 1% of GDP - long term spending that will bring a return.

Moreover, we'd halt the break-up of public services: we've gone from ‘creeping privatisation' to ‘sprinting privatisation'. The Green Party calls for the money being spent on destroying our public services - such as the estimated £3 billion that the NHS break up will cost[11] - to be invested in the long term health of our communities. On preventative medicine, air quality controls and community fitness programmes encouraging cycling, walking and eating well.

Finally pensions. We'd replace the state pension with a Citizen's Pension paid to all pensioners regardless of contribution record of £170 pw. We'd pay for this from the existing funds dedicated to the state pension and pension credits, and by abolishing the tax relief and National Insurance concessions on private pension contributions.[12] The state's job is to provide a decent basic pension for everyone, not to subsidise higher pensions for those on higher incomes.


Annex 1

Table of proposed tax increases and public expenditure savings by 2015

Tax increases

Tax evasion etc 16

Bonuses 3

Corporation tax 1.5

Robin Hood tax 25

Bank profits 12

Aviation taxes 10

Fuel duty 10

Income tax and NI 12

offset by VAT cut

add expenditure savings

Trident 4

Savings on tax credits 6

minus additional R&D




compared with Government cuts target of £83 bn



[1] IFS Green Budget, pg 3.

[2] See for example TUC, 2009, Unfair to Middling, p.7. Available at

[3] IFS, Green budget, pg 7.

[4] Calculation based on HMRC Tax ready reckoner at

[5] UK share of the £250bn it is anticipated such a tax would raise globally. See

[6] Estimate of total bank profits from

[7] See for example Compass 2009, In Place of Cuts, pg 5.

[8] The government say they will be seeking spending that is £83bn lower in 4-5 years compared to what that spending would have been had it been frozen in real terms at 2010 levels. See the ‘Introduction to the Spending Review' at, accessed 21/09/10.

[9] See pg 2.

[10] Green Party calculation by Anne Gray.


[12] This calculation is set out in detail in the Green Party General Election Manifesto 2010, p13.


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