Tag Archives: public spending

Intergenerational equity and the perils of groupthink

As the implications of what it appears that the coalition is about to do in the upcoming budget sinks in, I have to admit to growing increasingly concerned. No-one – outside of the Labour leadership contest anyway – denies that the structural deficit needs to be tackled or that we don’t face some unpleasant spending cuts over the next few years. But I’m mystified by the economic strategy behind what the government apparently has planned.

If the government does have a game plan, thus far it has not been spelled out. Nick Clegg’s speech on Monday was remarkably void of much of an argument, resting as it did on two points:

1. There is no alternative: “to do anything else would not only be irresponsible, it would be a betrayal of our progressive values”.

2. It is a matter of intergenerational equity: “There is nothing progressive about condemning ourselves and our children to decades of debt, higher interest rates, fewer jobs.”

Nick Clegg and company keep emphasising how shocked they were by the state of the country’s finances, but thus far – despite all the welcome transparency – they have offered nothing to explain why they were quite as shocked as they were. The report of the Office of Budget Responsibility was mixed: it suggested that the structural deficit was worse than we’d thought but that public spending was actually under better control. Clegg himself keeps talking about this meeting he had with Mervyn King and how it made him see the light; it is almost as if he has come back from Mount Sinai carrying tablets of stone. But Mervyn King is just one man, and not one whose prognostications in the past have proven to be infallible. What is King saying in private that he can’t tell us in public? Why wasn’t it being said before the election? And how has it shattered Clegg’s and Cable’s own views of economic policy so irrevocably? I always knew that both of them were fiscally conservative, but this is radical neo-liberalism. It is the most spectacular policy volte-face I’ve ever seen.

More to the point, why does no-one else in the world appear to be pursuing a similar strategy. The UK is not in the mess that Greece is in, yet the coalition government is behaving as if it is. We know why the Tories want to do this: they’re Tories. I’ve yet to hear a single, coherent Liberal Democrat argument for why we should be going along with this.

The thing is, we do have choices here; lots of them. The government have made two fundamental choices which, on the face of it, contradict the advice of a very large number of economists and thus urgently need to be explained. Firstly, they are seeking to tackle the whole structural deficit within five years (something which the Lib Dems denounced during the election). Secondly, they are seeking to do this overwhelmingly by cutting rather than taxing (something which, to be brutally frank, the Lib Dems fudged during the election). I can see nothing in the OBR figures which suggest that such a strategy would be madness; quite the opposite. If the structural deficit is larger than we imagined, then surely there is a case for tackling it over the longer period of time, and an even greater scope for tax increases? To do otherwise would just risk damaging the economy, surely?

It is one thing to cut £6 billion this year: frankly I was pretty unfazed by that. But the numbers the government has started talking about really will risk – if not guarantee – a double dip recession. Withdraw the amount of money from the economy that we are talking about, and it is hard to see how the outcome will be anything other than negative growth. It actually looks as if, despite all the reassurances a few weeks ago, the government’s agenda is to actually engineer a new recession, seeing it as a necessary bit of pain with a view to long term benefits.

The last time that was done was the early 80s, under Thatcher. The result? In some parts of the country a whole generation was left on the scrapheap. Far from tackling the structural deficit, we’re still paying for it. That shocking welfare bill that Frank Field and Iain Duncan Smith have been given the task of slashing? A large proportion of it is due to the government plonking a large proportion of ex-miners onto incapacity benefit. The price has not just been financial; lives were shorn of value overnight; communities were destroyed; the following generation grew up with no hope and no aspiration. Social mobility fell. This is what shock doctrine economics does to a country and even the Tories pledged we would never return to it.

This brings into question the claims that such a hard and fast approach is progressive from an intergenerational perspective, and also causes us to consider some other worrying trends emerging from the government. Leaving aside David Willetts’ extraordinary views that higher education is an intolerable burden on the taxpayer, we have the fact that one of the main things the government has slashed over the past month has been youth employment schemes. Clegg’s argument that it is progressive to cut now to ensure that future generations don’t end up paying for our mistakes are only actually convincing if the future of those generations are not being curtailed by the same economic policies. Deny a graduate or teenager a chance of either employment or training now, and it won’t matter to them how high taxes are in the future because their own earning potential will go through the floor.

All of this flatly contradicts Clegg’s emphasis on social mobility, or does it? Because when he talks about social mobility, as he did on Thursday, Clegg’s emphasis is all on children. We can all agree that the most effective time in a person’s life to invest in is their early years, but this truism appears to have fallen victim to doctrinal reductionism. Simply put, it makes no sense whatsoever to invest in early years and schools while having nothing to offer people once they hit 16. What is the value in the government creating the most aspirational dole queue in history?

All of this adds up to an emerging picture of futures of the current crop of teenagers and young adults being sacrificed in the name of their younger and older generations. You’ve got to ask what they’ve done to deserve it? Equally, you’ve got to wonder if Clegg and Cameron would be quite as ready to do this if Antonio, Alberto, Miguel, Nancy and Arthur were a little older.

No-one else seems to be taking as much of a hit. Wealth taxes have been almost entirely ruled out, despite the fact that taxes on property values (or, better yet, land values) would have the least negative economic impact. And yet, far from being an economic burden, it is the 14-22 generation that we will largely depend on to make our economic recovery over the next decade a swift one. I am completely mystified; it makes no sense to me whatsoever. It seems to have been concocted by a bunch of people more concerned with sounding tough and being seen to make grown up decisions than actually steering the country down a fair and economically sustainable path. In short, it screams of groupthink; I pray that I’m wrong.

Late last week I spoke to someone on the “inside” and painted them a rosy picture. I speculated that all this doom and gloom that had been coming out of the Treasury and Downing Street over the past fortnight was a shadow play designed to placate the Tory headbangers and that what would emerge would be something surprisingly progressive and far-sighted; people like me all breathe a collective sigh of relief.

I still like to think that is a distinct possibility, but my source didn’t seem to find my theory anything more than charmingly off the ball. If they would at least offer us an actual economic argument, it would be something. Instead we just get echoes of Thatcher’s There Is No Alternative.

Reporting back from the Fabians: What not to spend

The Fabian Society kindly gave me a media registration for their new year conference and I spent last Saturday at Imperial College mingling with the Labour Party faithful. I sadly missed Gordon Brown’s morning address but sat in on two discussions: “What not to spend” – a discussion on what public spending cuts the government should make; and “Tribes or causes: Can we campaign across party boundaries?” Both featured Lib Dem speakers, and I attended the former to keep an eye on Vince Cable and the latter to support Evan Harris (or should that be the other way around?).

What not to spend was, of the two sessions, the most frustrating. This was partially because there was no Labour Minister there to give us their perspective, partially because the Nigel Stanley and Janet Daley failed spectacularly to stay on topic and partially because Vince himself was being incredibly cautious. My hope that Vince might give us a tantalising glimpse of what he thought needed cutting, beyond that which the party has announced and reannounced over the past few months ended up dashed (despite his tantalising flash of leg in Parliament the preceeding week). And because the Cult of Vince seems to have extended as far as both the audience and the other speakers (I don’t think anyone breathed a word of criticism of him during the entire 90 minutes), he wasn’t even pressed on the kite flying list of spending cuts he flagged up in his Reform pamphlet last September. A man suggests means-testing child benefit and doesn’t elicit even a single squeak from a Fabian audience; what is going on? Indeed, the one area there did seem to be some tentative agreement on was the rolling back of middle class welfare.

Instead of talking about the current economic situation, Stanley and Daley preferred to continue a traditional left-right ding-dong which you might have heard in any political meeting at any point over the last twenty years. Both, I have to say, were much more nuanced and less dogmatic than they might have been, but neither seemed interested in really addressing what savings government needed to make. To be fair on Stanley, as a TUC staffer, it wasn’t really his job on the panel to do that, but I did expect to hear something substantial from Daley. She made a dig at the start about “not defending David Cameron’s economic policy because I don’t know what it is” yet pretty much the alpha and omega of her own economic policy seemed to consist of one word: “vouchers”.

“Vouchers” – whether they are vouchers for education, healthcare or whatever – have been a real rallying cry for the right in recent years. The aforementioned Reform think tank was for a while obsessed with them. Speaking personally, I’ve always felt it is a bit of a cop out of an argument. We’re constantly invited to believe that the key to the success of the Swedish education system lies in the voucher system, not in the amount of cash each of those vouchers represents, and to believe that, somehow, a voucher based on UK spending levels would have the same effect. I don’t buy it. I can see how they could be made to work in, say, an inner city area where the population density is sufficiently high enough to create a genuine market, but how it would work in a rural area is something I still haven’t found a satisfactory answer to.

Furthermore, while they might be a suitable topic for discussion in a debate about getting value for money from public services, I just can’t see how introducing them during an economic period where we are having to make cuts makes much sense at all. It won’t address any problems in the short term, and indeed the cost and bureaucracy that would be involved to establish the system would make it harder to introduce cuts.

The other area that troubled me was the aforementioned apparent consensus around the idea of scaling back the “middle class welfare state”. Some of this, I have very little trouble with. Creating a shorter taper for tax credits so that people earning £50,000 aren’t entitled to some tiny amount which is eclipsed by its own administration costs makes perfect sense. But that is the trouble with means-tested benefits. By contrast, there is a real danger in means-testing what few universal benefits we have left in the name of cutting costs. Partially, this is because you end up having to establish a whole new bureaucracy to administer the scheme, partially because it means that those most in need often end up failing to claim for it precisely because of that bureacracy, but also because it helps create a sense of solidarity between the comfortably off and the poor. As Sunder Katwala himself said at the Lib Dem conference last September “services for the poor will always be poor services“.

I hope that my concern about the comfort with this rhetoric proves to be unfounded and that things like child tax benefit won’t be regarded as low hanging fruit after the general election. But the way this idea seemed to be supported in the generality at the session did cause me some discomfort. It was the elephant in the room.