Tag: deficit reduction

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.