Hard choices

The SNP should debate whether a separate Scotland should join the EU post-Brexit. But all their options are bad

We often forget the SNP campaigned against the Common Market in 1975. But ‘Independence in Europe’ has been an SNP rallying cry for quite some time now. The European Union creates an unusually benign home for small states. To the SNP, the EU also promised continued economic integration with the United Kingdom after secession. The SNP claim that Scotland could carry on in the EU automatically was almost certainly spurious, but that didn’t stop them.

Brexit changes that. It makes the SNP’s political case more appealing, but its practical case harder. It creates sharper dilemmas for a separate Scotland. So it makes sense that some in SNP ranks are raising the question of Scotland’s future EU relationship. Most still back EU membership, including Nicola Sturgeon herself. Some look to the European Economic Area — the so-called Norway model. Are there any good options?

A hard border in Great Britain?

Many Scottish nationalists use Northern Ireland as Brexit grievance fodder. It’s an ugly gambit: Scotland is a country which voted to stay in the UK very recently, not a post-conflict region with a contested land border. Nonetheless, Theresa May’s backstop and Boris Johnson’s frontstop for Northern Ireland show what you need to keep a border open.

Scotland wouldn’t just need to align with the UK on customs and rules of origin. Not joining the Schengen Agreement would avoid checks on people, but still wouldn’t suffice. Scotland would need to align on goods, VAT and sanitary and phytosanitary standards (SPS) too. Joining the EU prevents that, unless the UK aligns with the EU or the EU exempts Scotland from some EU rules.

In the EEA but outside the EU, Schengen, VAT and the EU Customs Union wouldn’t pose an obstacle. But goods regulation remains, as does SPS: EEA members don’t have free trade in agriculture, but apply plenty of EU food safety rules. And being outside the EU Customs Union doesn’t avoid the need for customs checks and rules of origin between Scotland and the UK. And a customs union with the UK is hard to square with joining the European Free Trade Association — required for a non-EU EEA member.

Liechtenstein manages, but Scotland is not a microstate

Granted, one EEA member has an open border with a non-EEA neighbour. Liechtenstein has had a customs union with Switzerland since 1923. It also applies Swiss VAT law. They planned to join the EEA together, but the Swiss rejected joining in a referendum. Switzerland pursued bilateral agreements with the EU instead.

This delayed Liechtenstein’s EEA entry until 1995, but it managed in the end. Both Swiss and EEA goods circulate via so-called ‘parallel marketability’. The authorities monitor goods ‘in the market’ to keep EEA-only products out of Switzerland. Where EEA goods attract tariffs in Switzerland but not Liechtenstein, Swiss customs reimburses importers to Liechtenstein. (This isn’t too far from the plans for Northern Ireland.)

This is much easier for Liechtenstein than it could ever be for Scotland. Switzerland aligns with the EEA for most goods and applies EU SPS rules. It’s in EFTA, along with Norway, Iceland and Liechtenstein. All but Switzerland joined the EEA, reducing the scope for friction due to other trade deals. Furthermore, Liechtenstein is tiny — and so permitted to be anomalous.

Scotland, by contrast, would have the EEA’s largest EFTA population. The UK plans to diverge from EU norms far more than Switzerland. We don’t know how its new trade deals will go, but it shows no interest in joining EFTA. Switzerland has a long history of cooperation with its small, sovereign neighbour. The UK would be asked to help Scotland carve a niche to advantage it against itself.

Cake from London, Brussels, Oslo, Reykjavik and Vaduz? No chance

Only EU membership could grant Scotland a proper vote on EU rules. Overall, though, being a giant Liechtenstein might well be better for an independent Scotland than EU membership. But it’s not going to happen. Neither EU nor EFTA countries will cut corners to keep the Scotland-UK border open. Doing so would mean 49% of the EEA’s non-EU population lived in an anomaly next door to a far trickier neighbour than Switzerland.

Yes, the EU bent some rules for Northern Ireland. Scotland will not get the same offer. It was required for Northern Ireland because Ireland, a continuing EU member, had a vital national interest at stake. Perhaps excepting a Schengen opt-out to preserve the Common Travel Area, Ireland has no such interest in helping Scotland.

Nor would the UK have much interest. It wants to be able to diverge from the EU. It will want to secure the integrity of its regulatory order. And Scotland would be an important trading partner, but not as important as the EU. The UK left the EU to avoid pooling sovereignty: it wouldn’t re-pool it with Scotland for much less economic gain. Any deal would mean Scottish rule-taking and UK decision-making.

Breaking up is hard to do

So Scottish secession means a hard Border unless Brexit softens or the UK rejoins the EU. Joining the EEA would allow fewer barriers with the UK in some areas (eg agricultural tariffs) if the UK agreed. Nonetheless, EEA membership would remain a choice to dealign from the UK.

Still, the scale of Scotland’s UK trade means even this flawed compromise might beat EU membership on economics. A separate Scotland would have two main trading partners: the UK and the EU. But those two partners are far from equal: UK trade dominates.

Data from the Scottish Government. Figures do not add to 100% due to rounding. Flag images from Wikipedia.

For now, Scotland sells to the rest of the UK within a far more integrated market too. There’s a reason the Commission keeps battling to complete the single market. From digital services to hairdressing, from the limits of EU mutual recognition to the UK monetary and fiscal union, sharing a state goes much deeper than joining the EU.

For both reasons, the shock of leaving the British home market — whether for the EU, the EEA or neither — would dwarf leaving the single market. This matters. UK fiscal transfers are crucial, but not the biggest economic question about Scottish secession. The bigger question is: how far would growth exceed or fall short of growth within the Union?

Nationalists make heroic assumptions here, cherrypicking small states and copying countries whose growth isn’t higher than the UK’s. Above all, they don’t factor in the true cost of their political project.

Secession will hurt. So tell Scots what you think they’re paying for

The economic arguments against Brexit apply in spades to breaking up Britain. Scotland’s biggest economic interest lies in its home market with most of its trade. Economic gravity, crucial in Europe according to the SNP (and they’re right), still applies within the UK. If Scotland secedes, the closest possible alignment with the UK would be its least damaging option.

But such close alignment with the UK isn’t realistic. It can’t be: the point of Scottish secession is rejecting the neighbours. Shared EU membership could have cushioned that shift, but not now. Unsure voters will back major pain for radical change, the SNP still wants to sell separation as safer than the Union. But that’s a worse lie than anything from Vote Leave. And the SNP leadership are far too intelligent not to know it.

Breaking up Britain is a far bigger leap of faith than Brexit. It would pull Scotland away from its main market and closest neighbours and the people with whom it shares most. Its rationale is ideological and nationalist, not practical or economic. The least the SNP could do is own its costs.

This post was originally published on Medium.com on 10 February 2020.

Cashing in on discontent? National gripes, public finances and a fractured Union

Nations are as liable as humans to squabble over money, and the four countries of the United Kingdom are no exception. Arguing over GERS in Scotland is one example; moaning about Barnett in England is another. Part of our problem is that these things are hard to measure. Another is that, as ever with money, all sides have an axe to grind.

So inevitably, our press loves stories implying that one country or another has its hand in the till. The Times ran a particularly good example a couple of weeks ago. The central claim was as follows:

Government efforts to reduce the budget deficit since the financial crisis have been delivered almost exclusively by England, which is on track to balance its books this year, while the devolved administrations continue to borrow heavily, according to official figures.

This is deeply misleading. For a start, devolved administrations mostly don’t control how much revenue is raised in their areas. With major exceptions in Scotland and moderate exceptions in Wales and Northern Ireland (mostly recent), they’re funded by block grant. They have very limited borrowing powers. The Times’ ‘borrowing’ is really the gap between UK and devolved spending and revenue. That gap has been mostly controlled at UK level throughout this period.

Still, it’s true that the gap in England has narrowed much faster (a 92.2% drop) than it has in Scotland (3.1%), Wales (16.6%) and Northern Ireland (9.9%). So have the four countries been getting radically different spending settlements since 2009/10? The figures for total public spending show they haven’t.

Chart derived from Office for National Statistics ‘Country and regional public sector finances’ data.

England has actually had the highest percentage rise in public spending, at 11.2%. Scotland came in at 11.0%, Northern Ireland went up by 10.6% and Wales rose by 9.6%. Leaving aside whether that’s fair for reasons of population growth or relative need — and differing spending among the regions of England — this is not where our ‘England is paying off the deficit’ story comes from.

The story seems very different when we look at government receipts. Here we do see some major differences. England’s revenue growth (36.4%) is somewhat higher than Wales’ (30.5%), quite a bit higher than Northern Ireland’s (26.7.%) and over double Scotland’s (15.2%). What’s going on here? The first clue comes from which regions of England’s receipts are growing fastest.

Chart derived from Office for National Statistics ‘Country and regional public sector finances’ data.

The wider south east of England is, as you’d expect, way out in front. Wales isn’t out of step with most of England; only Scotland seems vastly out of kilter. So the story isn’t one of Westminster largesse flowing to the devolved nations at all. Instead, it’s one of UK growth being greatest in London and the south east, as it usually (and worryingly) is. To paint this as the former rather than the latter is strikingly unhelpful.

Some may wonder why Scotland is so far behind. It isn’t usually the worst performer in the UK by any means, so what’s happening here? But again, the answer is mostly pretty clear. These figures include a geographical share of North Sea revenue — Treasury gains from oil and gas — most of which is allocated to Scotland. And, famously, oil and gas prices have plummeted in recent years. Strip out the oil and Scotland’s growth looks much more normal. That’s especially true when you remember England’s population is growing faster.

Chart derived from Office for National Statistics ‘Country and regional public sector finances’ data.

So The Times’ story of England tightening its belt while the rest of the UK lives high on the hog makes no sense at all. Public spending has gone up by fairly similar amounts in the four countries, southeast England’s economy has grown the most, and Scotland’s tax take was hit hard by a collapse in oil and gas prices. And anyway, the other three countries’ fiscal envelopes were mostly set by Westminster.

Does this matter beyond due concern for fair reporting? I think so. Were I to single out one thing which could unravel the UK, I might well choose competitive grievance. PG Wodehouse’s unkind quote is often echoed for English audiences, in varying levels of poor taste. The SNP’s opponents in Scotland regularly accuse it of hunting for grievances — sometimes fairly, sometimes less so. But if we diagnose a grievance culture in Scotland, we’ll have to diagnose one in England too. It’s often aimed at Scotland, but also at the rest of the UK more generally.

This is a serious problem for the UK. A multinational Union needs give and take and general reasonableness to work well. That’s especially true for a Union made up of one very large nation and three much smaller ones. Constant diatribes about how hard done by England or Scotland (or Wales or Northern Ireland) are do nothing to help and much to hinder that process.

Since 2014, Scotland’s public debate has demanded much of the rest of the UK while paying relatively little attention to its views. England’s public debate, such as it is, always seems to reduce in moderation as it gains in prominence. Wales and Northern Ireland struggle to be heard, and the latter often attracts ill-concealed irritation when it cuts through. It may or may not prove sustainable: it definitely isn’t healthy.

Not all the UK’s gripes focus on cash, but quite enough do to be going on with. We could improve our public discourse by at least giving a fair picture of the sums. As it stands, unionists may well live to regret letting our four countries regard each other as burdens rather than partners.

This post was originally published on Medium.com on 1 October 2018.

Sentiments and statistics: why CANZUK won’t fly

The idea that the United Kingdom should try and rebuild closer ties with Canada, Australia and New Zealand raises its head from time to time. Obviously we’re close friends, with ties of history, language and culture, and there’s nothing wrong with reinforcing old friendships.

But thanks to Brexit, we’re hearing a bit more about this kind of thing than usual — with a focus on some kind of economic and geopolitical partnership. So is there a business case for CANZUK as a primary relationship for any of these four countries? Let’s look at where our potential partners currently sell goods and services.

Data: World Bank statistics (I grouped CANZUK, EU-27 and GCC figures myself)

In the United Kingdom, nearly half of our exports go to the rest of the EU. When you add EFTA members in, a majority goes to countries in or partly in the single market. By far our largest non-European partner is the United States. China and the Gulf Co-operation Council states both come in ahead of CANZUK. You might try and argue that we’ve had a lot of trade diversion to the rest of Europe. But even if you doubled our trade with Canada, Australia and New Zealand, it’s never going to be anywhere near enough to make up. We are a Euro-Atlantic economy.

Data: World Bank statistics (I grouped CANZUK, EU-27 and GCC figures myself)

In Canada’s case, it’s quite obvious that nothing and no-one could match the scale of US trade. It’s next door, it’s huge and it’s economically fairly integrated. Again, China and the EU-27 both come in ahead of CANZUK. Again, there’s no way CANZUK could even come close to matching trade with the neighbours.

Data: World Bank statistics (I grouped CANZUK, EU-27 and GCC figures myself)

A clear majority of Australia’s exports go to east Asia, with the developed English-speaking world clocking in at about 10%. CANZUK would theoretically be the fourth-largest destination for exports, but over half of them go to New Zealand. (Let’s also note that Australia and New Zealand already have a free trade agreement.) Australia trades mostly with its neighbours and within its geographical region.

Data: World Bank statistics (I grouped CANZUK, EU-27 and GCC figures myself)

New Zealand is the only CANZUK country where CANZUK would be the top recipient of exports (or even in the top three). But that’s overwhelmingly down to Australia, where 17% of New Zealand’s exports go. The UK makes up 3.4%. (Incidentally, the EU-27 accounts for about twice that.) Again, New Zealand is mainly an Asia-Pacific economy.

So all four of our prospective partners show the usual truth in trade: countries tend to sell to their neighbours. The UK, Canada, Australia and New Zealand are already mature, developed economies, so any idea that their vast growth potential could make up for diversion from elsewhere doesn’t stack up. There is no sensible case for CANZUK as a main economic bloc for any of its members.

But CANZUK has been sold as a geopolitical partnership, not just (or even mainly) an economic one. Do the defence and security arguments stack up any better? Clearly the four countries spend a large amount on defence between them — over $96 billion, though nearly 60% of that is spent by the UK. We have served together in many conflicts. Australia and New Zealand are committed to each other through ANZUS. Canada and the UK are allied through NATO.

But again, look at members’ defence strategies. The four countries share two main things: a predominant focus on their own regions and a critical dependence on the US. Our most important joint defence endeavour is the Five Eyes, where the US is the most powerful member. Only the UK even aspires to have a global reach in its own right. Our Strategic Defence and Security Review cited our military and intelligence’s ability to ‘project our power globally, and … fight and work alongside our close allies, including the US and France, to deter or defeat our adversaries.’ Note the US and France are the two main allies cited. It is abundantly clear that the UK’s main defence commitment lies in NATO.

Australia’s Defence White Paper from last year is clear. Its priority is to ensure an independent ability ‘to defend Australia and protect our interests in our immediate region,’ and then to ‘enhance Australia’s ability to contribute to global coalition operations.’ Its two principal allies are the United States and New Zealand. Canada’s key roles are ‘defending Canada,’ ‘defending North America — in partnership with the United States’ and then ‘contributing to international peace and security.’ New Zealand’s focus includes the need to ‘defend New Zealand’s sovereign territory’, ‘meet New Zealand’s commitment as an ally of Australia’ and ‘contribute to, and where necessary lead, operations in the South Pacific’.

Granted, the UK, Australia, New Zealand, Malaysia and Singapore have one joint security commitment. They have agreed to consult on responding to a threat to the latter two countries. But the Five Power Defence Arrangements aren’t a collective security agreement. They stem from a UK withdrawal from commitments east of Suez in 1968–71, not a willingness to take on new ones.

The FPDAs are generally agreed to contribute to security. But does anyone believe the UK and Canada could possibly defend states in the Pacific in an existential crisis without the US? Would Australia and New Zealand be in a position to assist in Europe if the roles were reversed? That may be a remote prospect, but a true collective security commitment requires the answer to be ‘yes’. I don’t think anyone actually believes that would be the answer without the Americans. So what, meaningfully, are we going to do together in the field of security and defence on our own?

There’s no decent case for making an economic priority of CANZUK. There’s no real defence or security case for it either. We’re all liberal democracies with similar positions on global issues, but we can already co-ordinate our foreign policy as and when we want. No doubt we could bring in freedom of movement between our countries if we particularly wanted, though it’s hard to see that as practically transformative. But in the end, this is about sentiment.

If ever the UK needed to be frank about its role in the world, the time is now. Brexit is going to be damaging anyway: if we get it wrong, it could be catastrophic. Our priorities are to minimise the damage to our relations with our nearest neighbours, try to keep the transatlantic alliance in one piece and develop economic ties where they will do most good.

Whether we’re ‘more like’ continental Europe or mainly-anglophone-developed-democracies-but-not-the-US is subjective and highly politicised. Much of the argument boils down to rival sentiments. But our trading patterns, principal threats and security priorities aren’t sentimental. And an economic, foreign or defence policy governed by sentiment would be doomed to failure.

This post was originally published on Medium.com on 8 April 2017.

Slipping behind: with benefit reform, keep an eye on the index

Historians generally agree that cutting back public spending is difficult in a modern democracy. Losers shout louder than winners; the most expensive programmes are generally the ones with the most interests behind them; radical cuts are more likely to provoke strong reactions. (Similar objections apply to tax rises, of course.) The current cuts are striking, not just in their sheer unprecedented scale, but in the extent to which they cut back on services on which a lot of people rely in a very visible way.

So governments have always tended to fiddle with the small print of tax and spending rules – it’s hard to twig exactly what’s going on, the consequences aren’t immediately clear and by the time the full impact is clear the deed will already be done. Freezing the basic-rate limit (or, in days gone by, the personal allowance) for income tax is a classic example. So, too, with changing the rules for calculating benefit increases.

Of course, the Government’s already played this game. Nearly £6bn of its £18bn of planned welfare savings come from changing the measure of inflation used in uprating benefits from RPI/the Rossi Index, depending on the benefit, to CPI (see p40 of the Emergency Budget). This is simply because small changes, repeated each year, add up. If you look at the chart here, the impact over a long period becomes very clear. Whether Gordon Brown specialised in stealth taxes or not, George Osborne certainly has a fondness for stealth cuts.

The exception to the rule is the Coalition’s ‘triple guarantee’ on state pensions, guaranteeing annual increases of the highest of an increase in earnings, prices or 2%. Of course, this will start undoing the work of the last Conservative Government, when it broke the link between pensions and earnings. The (clearly documented) consequence was that the basic state pension fell further and further as a share of earnings – from 20% in 1978 to under 15% by 1998; it has carried on falling ever since. That trend will now reverse over time; but note how differently a large, vocal, Conservative-inclined group is being treated from people on low incomes, with disabilities or in need of housing.

We need to spell it out: the decision to uprate benefits by CPI rather than RPI is a straightforward decision to make the very poorest people in Britain poorer. It hits people on Income Support, on Jobseeker’s Allowance, on Incapacity Benefit or ESA. As the Government are even cutting the link between Local Housing Allowance and rent levels, it will drive more and more people out of their homes: eventually, given long enough, it will make people out and out homeless. (This holds even if we ignore the effect of all the other LHA cuts.) The single biggest policy change, fiscally speaking, in the Emergency Budget and the Spending Review combined is a plain and simple cut to the incomes of Britain’s most disadvantaged inhabitants – one which will be repeated every year, until it changes.

That’s quite bad enough as it is, and it makes the Government’s claim that it’s determined “not [to] balance the books on the backs of the poor” look pretty hollow already. This September, the difference between CPI (5.2%) and RPI (5.6%) was fairly small, but the long-term effect will be dramatic. So for the Government to even consider ways of reducing the annual rise again, even for one year only, is a particularly nasty attack on the living standards of a lot of very vulnerable people. The reason inflation is high is that the cost of living is going up: a lot of that is to do with global food prices, which (as a relatively fixed cost) will bear especially hard on the poorest. When the IFS says that £1.4bn (out of £1.8bn) could be saved by averaging out six months’ worth of inflation figures, they mean that most of a badly needed boost to incomes for the very poorest people in the country could be removed.

If the Government want to argue that that’s justified, then I’d disagree, but it’s a point for debate. But they cannot then claim that they’re not “balancing the books on the backs of the poor”. As a matter of cold, hard, statistical fact – whether they go ahead with this one-off change or not – they already are.

Organise and divide? Belated musings after the J30 strike

One of the current Government’s core tactics, when it comes to steering through cuts, is defining different groups against each other. Whether it’s pitting private sector workers against the public sector, justifying cuts to housing benefit on the basis of unfairness to people in work or distinguishing deserving from undeserving social tenants, the Coalition understands the political gain of identifying a particular group, claiming that they’re gaining unfairly and then cutting in the name of fairness.

One nation social democrats?

Left-wingers have tended to argue against this kind of narrative, for obvious reasons. They reply that, even if ‘divide and rule’ sounds effective, it doesn’t cut much ice in a two-earner household where the only reliable pension is from the public sector employee, the family whose 20-something son or daughter is on ESA but whose parents are in full-time work or the low earner in London who relies on Housing Benefit to pay the rent. There is, of course, a lot of truth to this: the lives of people in different jobs, different housing tenures and different personal circumstances are often deeply intertwined.

Note, though, how much these examples rely on people’s own specific lives being intertwined. Not every public sector worker lives with, marries or relies on someone in the private sector; most families don’t have a member on ESA. In fact, assortive mating means that people are often likely to end up with people like them than not. (The overwhelming majority of people I know work outside the for-profit world – the state, political parties, universities, charities, NGOs … almost anything, in fact, but a private company.)

Partly as a result, many of these divides are more real than social democrats like to admit. In my own family, some of our most visceral differences come from the fact that I don’t work for the private sector, but my father does. Left-wingers’ own attitudes often contribute to those divides: in my heart of hearts, I know that I tend to place the public sector, its values and its ethos higher on my priority list and to treat it as an ethically better option. I’m not saying I should: I’m saying I recognise my own prejudice – and that it makes it harder, not easier, to win over people who do work in the profit-making economy.

Trade unions suffer badly from this – and it’s very hard for them to get out of the bind. It’s worth noting that, since May 2010, unions have been keen to ‘speak for society’ and to emphasise their role in defending public services. Unions 21’s new report highlights some of the problems they face presentationally, both through their own failings and through hostile reporting; but at least part of the problem is intrinsic. Trying to articulate the national voice is, by its very nature, going to be in tension with action on behalf of members’ specific interests: not necessarily in conflict, but in tension. When considering responses like the 30 June strikes, this is worth bearing in mind. The unions’ great opportunity is to be seen as on the side of the public; their great danger is convincing the public, again, that their powers need to be curbed.

Justice versus envy?

Left-wingers can also risk playing to the Coalition gallery in the way they talk about justice. Much of what we consider to be justice is, of course, decried by the right as the ‘politics of envy’ – when complaining about the super-rich, for instance. Now, of course, this is spurious: there is a distinction between saying ‘the wealthy in our society have too great a share of the wealth, while millions of people are in poverty’ and saying ‘I haven’t worked my way up the ladder, so I want to pull you down to my level’ – and if we can’t make that distinction, the debate about fair shares is effectively over. But, rhetorically and in the eyes of people less committed to our own values, the line is a hard one to police. Arguments about ‘reverse class war’ may make it more difficult, rather than less – though it’s important to remember that defining a privileged minority working against the interests of most people is a long tradition of the left, as well as the right (People’s Budget, anyone?).

This is part of the reason why, when dealing with tax paid by the wealthy, issues like tax avoidance are so useful. They tap into a very widely held view that the rules should be the same for all of us – providing a way of arguing for the wealthy to pay their share and binding us together, as a society. (Even Ted Heath talked about ‘the unacceptable face of capitalism’, after all.)  In particular, this argument helps to explain why focussing on paying due rates of tax, rather than just raising the rates, tends to have a wider political appeal.

All in all, I have more of a sense that there’s a problem than I have of the answers. But for what it’s worth, people on the left need to be aware that they too have prejudices in favour of particular social groups (maybe even vested interests … sometimes). We need to ask ourselves whether we make enough effort to engage with others – private sector workers in particular, who do after all provide much of the revenue for social programmes. We need to do more to connect campaigns to the wider good – where union campaigning can be linked to the interests of patients, pupils, parents and families, it should be. And we may even have something to learn from the language of one nation conservatism: it was, after all, Benjamin Disraeli who first talked of ‘two nations’!

The March for the Alternative, and why it’s OK for the marchers to want different things

Like many (probably most) of my friends in London, I spent my Saturday marching in protest against the Coalition’s planned spending cuts. Like everyone else on the march, I don’t believe that £81bn of spending cuts by 2015 and only £29bn of tax rises represents a plan in any way compatible with social justice: and I do believe that it will do terrible social damage and wreck lives.

I’d have to concede, though, that the alternatives put forward by the marchers were many and various. People miles to my political left and my right were there – from those who were much more concerned by the speed than the composition of the fiscal tightening through to those who ‘opposed every cut and fought for every job’ (except Trident, usually!). The Coalition’s response has been, in essence: ‘You have no alternative; we have a plan; we’re carrying on with the plan’.

The trouble is, their plan bears no relationship to anything the public could reasonably be said to have endorsed. Forget the fact, for the moment, that all three parties fudged and dodged a real accounting of what would have to happen in this parliament. Even on the points which did come up – should we cut over five years or over eight? – the current plan is at odds with the votes. During the campaign, the public displayed a preference for the more gradual approach. 52% of people voted for parties who (at the time) agreed. Whatever you think about the balance of taxes and cuts, this is not a mandate for shock therapy in Britain. But that is what we’re getting: the sheer depth of austerity we now face parallels the 1920s.

And a large part of the reason for this is that, in the coalition negotiations, the Liberal Democrats didn’t prioritise economic policy when they chose their sticking points. In fact, they may well have decided to reverse their policy before they even entered the room; according to Nick Clegg, at least some of them changed their minds before they went to the ballot box themselves. The result is that the basic process of discussion, of splitting the difference – of negotiation – which a hung parliament might have been expected to require has been short-circuited. Instead, we’ve got a deficit reduction plan written in outline by one party alone and occasionally coloured in slightly different tones by another. Perhaps that’s not so different from the norm in British politics: but then, a hung parliament was supposed to change all that.

The marchers wanted a range of different things, granted. A march for any other alternative, if you will. But what they were trying to start, in a way, was that very negotiating process which our Parliament so signally failed to carry through. That’s why it was a March for the Alternative: Saturday’s protesters all agree that there are alternatives, even if they don’t agree which ones should be chosen. And that’s why, rather than saying ‘what’s your alternative?’, the powers that be ought to look at the range of alternatives we do have.

If we’re looking at compromises from the Coalition, they might involve more capital spending, combined with a reduction of the structural deficit at the planned rate; they could involve a greater emphasis on taxes. I appreciate that a Conservative government is not going to give me the deficit reduction programme I actually want – but then the voters didn’t elect a pure Conservative government, even if the deficit reduction programme makes it look as if they did. It’s high time the government acknowledged this reality in its economic policy.

And by the way, they should remember that mass demonstrations don’t always have an effect on the government’s policy … but if that policy goes wrong, the demonstration has a habit of making the government look a whole lot worse later on.

Taxes, taxes, taxes

I realise very few people see it as an interesting exercise to sit down and work out how the plans for £29 billion of net tax rises break down. But if you’re going to think about better ways to close the gap between what we spend and what we raise, then it’s not a bad idea to look at what we’re doing at the moment. And in rough and ready fashion, based on the Emergency Budget* figures, the planned breakdown of net tax rises in 2014-15 is about as follows:

Tax Net revenue raised (£ billion) Tax Net revenue raised (£ billion)
VAT and IPT 13.9 Green taxes 0.7
Pension contribution relief 4.6 Stamp Duty 0.3
National Insurance 3.3 Inheritance Tax 0.3
Income tax 2.5 Other tax rises 0.2
Bank levy 2.4 Other tax cuts -0.2
Other pension tax breaks 2.1 Council Tax -0.6
Capital Gains Tax 0.9 Various business taxes -0.8
Sin taxes 0.8 Corporation Tax -1.3

Those figures conceal significant tax cuts in terms of income tax (£3.9 billion goes to raising the personal allowance by £1,000) and National Insurance (£3.7 billion spent on raising the threshold for employers’ NI to offset some of the increased costs), as well as a number of tax hikes in Corporation Tax to help pay for a headline rate cut. But in terms of where the main burden is falling, you’ll get a fair idea here.

It shouldn’t take too much to work out that any attempt to raise another £26 billion, say, is going to be very politically difficult. Labour have argued for keeping the bankers’ bonus tax (£3.5 billion or so – assuming revenues don’t fall if the tax stops being a one-off), and they’ve pointed to their National Insurance plans too (£3.7 billion more). If you were to argue for, say, 5p on the higher rate of income tax (taking a very brave example), the Treasury’s Ready Reckoner suggests you’d raise about £4.6 billion. Lowering the starting point for the 50p rate to, say, £100,000 might raise £1.3 billion (or about half that, if you raise the 40p rate to 45p – otherwise you’re double-counting). The Liberal Democrats’ famous ‘mansion tax’ was intended to raise about £1.7 billion. If, in another act of extreme bravery, you were to raise Inheritance Tax to 60%, you might net about £1.4 billion. The exact amount of money you could get from tackling avoidance may very well be substantial – but it’s difficult to bank on, and I wouldn’t envy the Chancellor who tried to rely on it as a main tool for tackling the deficit.

This clearly doesn’t, even in terms of orders of magnitude, add up to a £26 billion alternative to the Coalition’s plans. So in the end, substantially higher taxes will mean that people on moderate incomes will also end up paying more – not just the wealthy and the banks. In saying that, I’m not arguing against the idea: in almost all cases, tax rises are more progressive than cuts to services – and of course, it’s quite possible to use some revenue to compensate the poor too. It’s no accident that Scandinavian social democracies pay substantially more VAT than the UK – if you’re serious about social justice, the volume of money for benefits and services will make much more of a difference than the exact degree of redistribution managed through taxes on their own, and the tax burden has to be fairly widely spread in order to be politically accepted.

So not only would a centre-left government almost certainly end up raising VAT at some point, for instance; it would probably be right to do so, though probably not right now. It makes sense that, in an economy which needs to move towards more saving over time, we might increase taxes on consumption. The debate over how progressive/regressive VAT is has run and run, but it’s certainly more progressive than even more service cuts – and if it’s difficult enough to find £26 billion extra, try finding £40 billion instead. In the same way, further income tax/NI rises would be pretty hard to avoid. Property taxes would be politically very difficult, but probably sensible as policy. And if the centre-left want to reduce the damage done to public services, welfare benefits and public investment more generally, then we’d better start learning how to argue it’s worthwhile for all of us to pay more taxes in a good cause.

How much of this does Labour need to spell out? Some of it, at least – at least as an indication. The Conservatives didn’t give much away on their plans in 2010, but they did highlight plans to raise the retirement age faster and taper tax credits more aggressively. Not an obvious route to electoral success, in a way, but a manifesto which made no mention at all of any difficult tax/spending changes wouldn’t have been more popular: it would just have made people think they either weren’t being given the full story (even more than they already did!) or that the party in question shouldn’t be trusted with the public finances. And in reverse, the same applies to any party of the left.

* Figures weren’t provided for revenue raised by the 50p rate, the restriction of the personal allowance from £100,000 or revenue raised from Labour’s changes to ‘sin taxes’ (alcohol, tobacco etc.) – I did find a Treasury figure for 2014-15 for the first, but the other two had to be extrapolated a bit from previous Budgets. But the broad outline stands.

Deficits: paying for credibility

In a way, it’s easy to be a leftie just now. £81bn of spending cuts and only £29bn of tax rises fill most social democrats’ hearts with dread – and as the scale of what’s in store becomes clearer, the public are likely to be pretty horrified too. So unless you’re a left-wing Lib Dem, the line to take is less complicated than at any time since … well, since the last time the Tories were in power.

I think, though, that this could present a very real trap. It’s refreshing for the left to be able to rail against the enemy’s Budgets; even more refreshing when the public is quite possibly on its side. But Labour’s problem now isn’t just (or even mainly) about popularity per se; it’s about credibility. And that’s exactly where just railing won’t get them very far.

This isn’t just a case of it being unclear what share of the deficit Labour should tackle through tax rises (40%? 50%? 60%?); that’s a cause for concern, but you could argue the party needs some time to redefine itself and that Ed Miliband hasn’t even been leader for four months yet. More worryingly, though, I don’t see any real evidence of Labour engaging with what any of these options actually mean. I understand the difficulties: a party which still remembers what tax plans did to their chances in 1992 is obviously going to have its worries about talking about tax rises too much. But like it or not, Labour’s economic and fiscal record did a great deal to lose them the last election. It may very well be (mostly) unfair, but it’s also a fact of political life with which Labour needs to come to terms.

That means that, even though Labour thinks the deficit should be reduced at a more measured pace, it needs to show it has an idea how it might go about doing so eventually. Bankers’ bonuses, tax avoidance and going for growth by postponing cuts won’t cut it as an economic policy for the next two parliaments. Of course Miliband and Johnson don’t need a detailed Shadow Budget – opposition is not government and the Tories never presented one when they were out of power. But some sense of where the pain would be felt by the public themselves may be important – because it would help to provide some credibility for the Opposition. It’s worth bearing in mind that, if the UK wanted to cut the deficit at the current speed but do half of that through taxes, we would need to raise an extra £26 billion per year by 2014-15.* When the fiscal challenge is that big, ‘no pain (for almost all of you)’ is a deeply implausible message – even if it’s only implied. ‘Pain fairly shared’ sounds less appealing, but has a better chance of being believed.

The need to have alternatives in mind will get more pressing, because the arguments over the speed of deficit reduction will be overtaken by events. I think the Coalition were very wrong to pin their colours to the mast in the way that they have: but they’ve now made it critical to their political, and quite possibly market, credibility. That means that, unless the economy really does go into reverse as a result (in which case all bets are off) or the Government falls (which would have its own problems in terms of market panic and thus the required speed of the tightening), we’re stuck with this pace. By 2013, if the economy hasn’t gone into a double-dip recession (even if growth is sluggish), ‘don’t do this so fast’ may very well seem like yesterday’s news.

So there needs to be a better sense of what Labour would do, not just when it would(n’t) do it. But that also needs to be informed by a clear sense of why Labour wants to do it in a given way. When Alan Johnson talked about shifting the balance of tightening towards taxes enough to roughly halve the size of cuts to capital expenditure, we had a hint. The consistent focus on ‘who pays’ is another. These need to be more explicit. If Labour’s attack is consistently based on ‘what will a particular cut do to our ability to grow the economy?’ and ‘will this cut mean that the poorest are hit hardest?’, then you have the beginnings of a consistent approach to the deficit.

Of course, there is an obvious next question: what sort of tax rises could you go for to cut the deficit, if you’re going to argue that taxes should take more of the load?  Again, Labour doesn’t have to have a fully worked-out Shadow Budget; but it needs to understand the magnitude of the shift it might end up arguing for. But that’s for another post.

* According to the Emergency Budget, £83 billion of spending cuts and £29 billion of tax rises. The Spending Review set more money aside for capital investment, reducing the scale of cuts to £81 billion. A 50/50 split would amount to £55 billion in net tax rises and £55 billion in cuts – an extra £26 billion of taxes on top of the planned £29 billion.