Cutting Options – why Honesty is the Best Policy

The secret of life is honesty and fair dealing. If you can fake that, you’ve got it made.

Grouch Marx.

Honesty is important. It affects many aspects of our lives. For example, the people we elect to govern us expect us to be honest. Not to claim benefits fraudulently. Not to evade paying tax. It is reasonable that in turn, we might expect them to be honest with us (although popular opinion might say ‘don’t hold your breath’).

Whatever the anomalies of our electoral system, we have an elected government which can claim to have a mandate as a result of its success at the General Election. Perhaps the biggest challenge it faces is how it will meet its commitment to cut the budget deficit. It has pledged to reduce income tax and inheritance tax and to increase spending on the Health Service above inflation and to protect spending on pensions, schools and oversees aid. This means that other government departments will face cuts which the Financial Times has predicted will be ‘brutal’.

The welfare budget is considered to be a prime candidate. As the Chancellor evaluates his options he might feel that squeezing benefits will be popular (at least with those people not claiming benefits) because it will also be directed at a group which is definitely not honest – the benefits scroungers. In 2013, an Ipsos Mori survey found the general public believed that almost a quarter of all benefits were claimed fraudulently – or one pound in every four.  The survey went on to point out that according to government figures, public perception over estimated the extent of benefit fraud by a factor of 34.


According to figures published this month by the Department of Work and Pension the preliminary estimate of fraudulently claimed benefits in 2014-15 is still 0.7%.  Although it is quite a small percentage the amount involved still comes to £1.1 billion which is obviously a lot of money. The DWP figures also estimate that £1.3 billion of overpaid benefits is as a result of errors made in claims. This is evidence of the complexity of the benefit system which we see at Citizens Advice all too often.

So how honest are we when it comes to paying tax? The Tax Gap is an estimate of the difference between the amount of money collected by HM Revenue and Customs and what it estimates it should receive based on various factors. It was £34 billion (or 6.8% of total theoretical tax liabilities) in 2012-13. Some of the figures make interesting reading, especially when compared with the benefit fraud estimate (£1.1 billion).


Tobacco duties£1.6 billion.
Alcohol duties£0.9 billion
VAT£12.4 billion
Avoidance of Income Tax, National InsuranceContributions, Capital Gains Tax)£1.4 billion


The report emphasises that the figures are inexact.  However, they must have some basis in fact.

Avoiding tax, e.g., paying the builder in cash to avoid VAT is probably generally regarded as considerably less offensive than fraudulently claiming benefits.  This selective view of acceptable dishonesty is itself dishonest.

This blog started with honesty.  No analysis of the significance of honesty would be complete without mentioning the banks and financial services. Mis-sold Payment Protection Insurance claims running at £12 billion over two years ago, the establishment of a pressure group called Bully Banks to represent businesses mis-sold complex interest rate hedging products (pay out to date £1.8 billion) and the manipulation of LIBOR are just a few examples where honesty was clearly absent.


So, Mr Osborne, as you continue with your deliberations, think about rewarding honesty by penalising dishonesty


Share this article