Full steam ahead on infrastructure

Tim Farron Social Liberal Forum conference Jul 19 2014 Photo by Paul WalterOne thing that struck me about Tim Farron’s Beveridge lecture last Saturday was the scale of his ambition for investment in infrastructure.

Conservatives have often talked about their admiration of Victorian values – if only they really did admire those values, because Victorian values included ambition to build an infrastructure, to create a transport, communications and logistics backbone to our economy, to make a difference, to see a problem and not worry about whether fixing it would fit with your ideology, but to just get on and fix it.


Tim goes on to demand 3 million homes, 5 new garden cities, HS3,4,5 and 6, more airport capacity and universal high-speed broadband. This is all very welcome, and with the party proposing a balanced budget, excluding capital items that will enhance economic growth, we are better placed than the other parties to deliver it. (Labour’s exclusion of all capital spending from budgetary balance will inevitably mean that some non-growth capital will crowd out growth capital.)

Despite a slight dig at Jeremy Browne and his book Race Plan, I thought Tim echoed Jeremy’s demands very closely. The chapter on infrastructure calls for:

  • A global hub airport (in London; Tim wants regional capacity)/li>
  • A big investment in roads
  • High Speed rail beyond HS2
  • More water supply and flood defences
  • More superfast broadband
  • Less restriction of house building

So when Tim says

Jeremy’s position is intellectually coherent, honourable … but I don’t think he’s right. We should not accept that passive, neutral government creates a strong liberal framework.

I’m not convinced that is fair. Jeremy identifies a sweet spot for strong growth and good social outcomes that involves government spending of around 35 to 38% of GDP. Within that envelope, Jeremy is calling for ambitious active government and not just on infrastructure. Passivity and neutrality are not the kind of words to describe Race Plan, or indeed any of the reactions to it.

So what we are seeing here is that two figures on opposite wings of the party, agree on a radical and ambitious policy to end the decades of underinvestment in infrastructure in our country.

The Social Liberal, Economic Liberal axis is flawed. We must be both. We must be comprehensive Liberals. Let’s say no to passive, neutral government that allows the evils of our day to grow unchecked; let’s say no to authoritarian, intrusive government that becomes an evil in itself by subjugating its citizens; instead let’s say a huge yes to active, ambitious, liberal government.

What Britain needs instead is liberalism, but with the handbrake released: an ambitious, confident, authentic liberalism. We must make the case for open markets, trade, migration, free enterprise and wealth creation. We need to eliminate the deficit, pay down our debts, encourage work, raise education standards, release the full potential of our population and invest in essential infrastructure.

Which is which?

* Joe Otten is the candidate for Sheffield Heeley, a councillor in Sheffield and Tuesday editor of Liberal Democrat Voice.

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34 Comments

  • Matt (Bristol) 23rd Jul '14 - 1:52pm

    OK, so Jeremy Brown and Tim Farron agree in principle on this point.
    What would interest me would be what processes they and our party in general feel are appropriate for delivering this infrastructure spending. Is it PFI / Private-public partnership? Or what?
    Would they agree then?
    Liberalism is about process as well as outcome.

  • “Jeremy identifies a sweet spot for strong growth and good social outcomes that involves government spending of around 35 to 38% of GDP. ”

    I’ve never understood how someone can come up with a figure like that. It seems entirely arbitrary to me. Certainly there are some societies that are well run (e.g. Denmark) with higher percentages (52%), while others (most developing countries) have much lower figures but are grossly unequal socially and have major economic problems. As I always say, its what you spend the money on that matters. We should look at how we spend it now and propose how we will change the mix, rather than being fixated on a particular “magic number” of percentage of GDP.

  • Right wingers getting worried that Jeremy Browne will be buried in next year’s leadership election?

  • Matthew Huntbach 23rd Jul '14 - 3:02pm

    Joe Otten

    Jeremy identifies a sweet spot for strong growth and good social outcomes that involves government spending of around 35 to 38% of GDP.

    If we believe that education should be provided free of charge to those receiving it, paid for by government, then it is inevitable that as the growing complexity of society means people spend more of their lives in education, keeping to that belief means a higher proportion of GDP goes through the government.

    If we believe that there is a level of health care that should be provided free of charge, paid for by the government, then it is inevitable that as we discover more ways of keeping people alive for longer, that belief means a higher proportion of GDP goes through the government.

    If we believe there is a level of pension that should be provided by the state to all who are past a certain age, it is inevitable that as lifespans grow longer – as they are doing, quite rapidly – that belief means a higher proportion of GDP goes through the government.

    So how does this idea that there is a limited “sweet spot” of state spending as a proportion of GDP fit in with the pressure pushing it upwards? We sometimes hear from the likes of Jeremy Browne the claim that there has been no reduction in public spending because the proportion of GDP spent by the state has remained the same. But the pressures I have noted above means the standard provided MUST drop, it will not remain the same.

    This is often countered by the argument that we cannot have the proportion of GDP spent by the state rising forever. Fair enough, but that ignores the fact that unless we have less education, less health care, or we just start killing people off when they get old, the proportion of GDP spent on education, health care and pensions will STILL rise. Whether it’s done through the state or not is a red herring. The growing complexity of society means the proportion of GDP spent on various things will change. In a society where most people are peasants living a subsistence income on a little bit of land, there is little interaction with the state, so the proportion of GDP which goes through the state is low. We aren’t in such a society. It is similar to private business where the growing complexity of society means that far more of a company’s turnover is spent on various administrative and infrastructure aspects than would have been the case in the past.

    So, if we are to follow Jeremy Browne’s ideas, we need to be honest. We were not honest when it came to education, with the consequences we now see. If more people go on to university, either we must raise more taxes to pay for them, or we must make them pay for it in other ways. Our failure to balance our “pledge” to continue with subsidy of universities with coalition with a party whose first principle is to keep taxes low has cost us big time. If we had made it more clear that the “pledge” would need to be balanced by more taxation and given some idea what that taxation might be, we would then be able to blame the Tories if they wouldn’t agree to it. Instead, we are faced with angry ex-supporters who really thought keeping to the “pledge” was cost free.

    The cost of keeping the proportion of state spending to Jeremy Browne’s “sweet spot” will be that the NHS becomes a back-up service which can no longer fulfil the idea that no-one need die or suffer illness due to being unable to afford to pay for health care. Or, we will have to have some system which is really disguised taxation, but managed in some other way so it doesn’t get counted as state spending. Like we did with student loans, which went down like … Similarly with pensions, what we save on tax, we spend on pension schemes, and all the bureaucracy of pension administrators and salesmen and the like which that involves, plus that deep, deep worry that if you get it wrong, your life is ruined. I don’t think all that is really offering more “freedom” in a deep sense. This idea that we all want to play wheeler-dealer with our lives, forever shuffling our money round, playing off one salesman against another as we try and find the best deal, and that’s “freedom” seems to me to be all wrong. I think most people would feel more free with a stronger state taking away all that hassle.

  • Farron also supports the building of a dam across the Severn to harness Hydroelectric power. A big infrastructure project with obvious benefits.

  • Antony Hook Antony Hook 23rd Jul '14 - 5:11pm

    Big vision. Ideas. A sense of missions.

    It’s exciting.

  • Simon McGrath 23rd Jul '14 - 6:07pm

    “Farron also supports the building of a dam across the Severn to harness Hydroelectric power. A big infrastructure project with obvious benefits.”

    A worrying example given that repeated study have failed to produce a financial case for it

  • Stephen Hesketh 23rd Jul '14 - 6:56pm

    Simon McGrath 23rd Jul ’14 – 6:07pm
    “Farron also supports the building of a dam across the Severn to harness Hydroelectric power. A big infrastructure project with obvious benefits.” A worrying example given that repeated study have failed to produce a financial case for it.

    Odd, we seem not to have a problem in building potentially unsafe, hugely expensive nuclear with no idea where the waste is going to go. If I lived in the Hinkley/somerset/Bristol area, I know which I would prefer on my doorstep.

  • Tony Greaves 23rd Jul '14 - 7:13pm

    I wonder if Tim would want a massive barrage across Morecambe Bay. The Severn barrage as such is a non-starter for environmental reasons as well as probably not adding up.

    How come that housing has suddenly become infrastructure? Housing is housing but it’s not infrastructure and we should stop pretending it is. (Or are factories and offices infrastructure as well?)

    Tony

  • Matthew Huntbach 24th Jul '14 - 10:21am

    Joe Otten

    Matthew, well that’s the argument isn’t it. To be fair to Jeremy’s plan, it would lead to higher economic growth

    That’s an opinion rather than a fact.

  • Matthew Huntbach 24th Jul '14 - 3:23pm

    Joe Otten

    so at some point his 37% of GDP will be more than your 47% or whatever the number is

    As I’ve said, the things the state would be spending on would be spent on in some other way anyway. We have already seen this with universities – the money that was spent on them directly through the state now comes through this loans system. But it is still spent. We could do similarly by abolishing the NHS. Then the money that would be spent by the state through the NHS is spent privately through various insurance schemes and the like. The result is that the proportion of the GDP spent by the state is lower. We can cut state pensions, and so people put more money into private pension schemes.

    You are saying (unless you come back and clarify that you were just explaining Jeremy Browne’s views and that they are not necessarily your own) that in some magic way this will make us all richer. Could you explain how that works? Just how does paying for health care through private schemes rather than through the NHS make us all so much richer that we can afford not to abolish the NHS? Does the fact that the state no longer directly subsidise universities make us magically richer? Well, no, because what is saved on taxation has to be spent on paying back the student loans. Where does the wealth creation come from? Or are you saying that if we magically all became richer, we could pay for the NHS through a lower share of GDP? Well, yes, but so what? If my income doubled, then the proportion of it I spend on health care would half assuming my health care spending remains constant. But then how do I get my income to double?

  • If we believe that there is a level of health care that should be provided free of charge, paid for by the government, then it is inevitable that as we discover more ways of keeping people alive for longer, that belief means a higher proportion of GDP goes through the government.

    No it isn’t, at least if we keep the level the same. It only means increasing the spend if you increase the level provided as new, more expensive treatments become available.

    If, on the other hand, you simply don’t provide any new very-expensive treatments on the NHS, then the level of care provided stays the same and so does the amount it costs.

    Indeed the amount it costs might well drop as technological advancement makes the treatments you do provide cheaper.

    The NHS already provides a level of care that would have been unimaginably high to those who set it up. Just the idea of heart transplants was science fiction in the ’40s. There’s no reason that that level needs to keep increasing.

  • Matthew Huntbach 25th Jul '14 - 11:52am

    I note that Joe Otten has posted elsewhere today. So I would be grateful if he could answer the questions I’ve posed.

    To recapitulate, I was pointing out that there are many factors which would cause proportion of GDP spent by the state to rise if we carry on assuming the state will provide what it does at present. The biggest one is advances in what can be done to keep people alive, which will push up spending on the NHS and state pensions even if the standard of service the NHS provides and the value of the state pension remains static. We are already seeing this, there is a growing crisis in the NHS because of it, it is a big factor in the government being unable to balance the budget.

    Joe is claiming (or he may be just saying Jeremy Browne is claiming) that if we persist in keeping the level of state spending as a proportion of GDP at a particular level, that will cause the country to become so much richer that the problem will be resolved. I am pointing out that if you cut the level of service provided by the NHS, and cut the level of pension provided by the state – as you must if Jeremy Browne’s “sweet spot” is to be kept to – people will feel they have to spend more of their money on private health plans and private pensions, indeed we are seeing just this. We also saw this with university funding, a switch from it being provided as part of the state’s proportion of GDP to it being provided by the students paying for it themselves, albeit through a personal loan scheme.

    Now, as I’ve argued myself with the tuition fees issue, the net effect on people’s expenditure will not be so great as many imagine. What is saved through not being taxed so keeping the proportion of GDP spent by the state down is lost by the consequent need for more private spending. In particular, if some sort of safety net support system is provided, as is done with student loans, and surely would be done with health care unless we really would sit back and see poor people die due to not being able to afford costs of routine treatment, the overall net effect on people’s pockets may be quite small. The biggest difference might be that in the place of people being bombarded by politicians each claiming they will manage better health care etc, they are bombarded by salesmen for health care insurance plans etc, each claiming their product is the best. To some extent, we are already seeing this.

    So, and I am asking Joe this directly now – what is this magic factor that means being bombarded by insurance salesmen rather than by politicians will make the country so much richer, so that 37% of GDP in this richer country would be equivalent to 47% of GDP if he had not gone down the route of pushing things that way?

    Please Joe, could you answer this question, either from what you yourself think, or from what you understand Jeremy Browne is saying even if it’s not what you believe yourself?

    Thank you in advance for this. I should just like it clarified, because I feel I am missing something somewhere.

  • Matthew Huntbach 25th Jul '14 - 12:17pm

    Dav

    No it isn’t, at least if we keep the level the same. It only means increasing the spend if you increase the level provided as new, more expensive treatments become available.

    No, not necessarily. Technological and scientific developments mean there are many new techniques coming in which prolong life, they are often more effective than previous technique no more expensive.

    However, if people live longer, first of all there will be many more claiming state pensions than was the case in the past, second, there will be more people with the sort of chronic conditions requiring maintenance care that develop as people get older. This is not conjecture, it is already the case, it is a major factor in what is happening in this country, it OUGHT to be a major topic of political debate.

    Let us take the example you give, heart transplants. Yes, at one point considered an amazing thing, but now fairly routine. The more they are done, the more experience is built up in how to do them, the more they become normal treatment. However, someone kept alive until pension age thanks to a heart transplant will expect a state pension they would not otherwise have had, due to them being dead. They may also have many other health conditions that develop as one gets older and need care, which would not have had to have been supplied to them in the days before heart transplants were done, because they would have died before needing them.

    So, in order to keep spending on the NHS down, do you propose that we should not do heart transplants? Or we should charge people for them, and to those who could not afford it, we say “Sorry, we know how to keep you alive, but as you can’t pay up for it, you must die”? And does this apply to any new health care developments that come along – we will refuse to make them available on the NHS, and say to those who would be kept alive and more healthy through them “Sorry, either you pay for them, or you stay sick, or you die”?

    As I’ve suggested, in practice if this were the case I suspect most people would go for some sort of insurance policy to pay for the new care techniques should they need them. Or perhaps there could be some sort of loans system, as with students, maybe people could mortgage their homes to pay for the heart transplant, payment from their estate when eventually they do die. Whatever, underneath the money would still be spent. So how does spending it in the ways I’ve outlined in this paragraph rather than through taxation cause this big increase in the country’s wealth that’s been claimed in Joe Otten’s account of Jeremy Browne’s views?

    Now, so long as there was a reasonable safety net, I think an argument could be developed that would say provision of these services in the commercial way would mean better services. I don’t necessarily agree with that argument, but I can at least see its logic, with the usual “competition drives up quality” and “people are more careful when it’s their own money” lines being used. OK, but even if we accept those lines, how does this also cause the big increase in national wealth that it’s been claimed it would? If Joe Otten can’t or won’t answer that question, can you, Dav?

  • However, if people live longer, first of all there will be many more claiming state pensions than was the case in the past, second, there will be more people with the sort of chronic conditions requiring maintenance care that develop as people get older

    Your first part is true but not relevant: I was specifically picking up on the question of increased spending to maintain a level of health care.

    Your second part is true and relevant and I did miss it.

    And does this apply to any new health care developments that come along – we will refuse to make them available on the NHS, and say to those who would be kept alive and more healthy through them “Sorry, either you pay for them, or you stay sick, or you die”?

    Yes.

    Or more specifically, we look at each new treatment that comes along and decide whether or not it is too expensive.

    There is no reason why there should be a presumption that every new treatment that is developed should be available on the NHS.

    As I’ve suggested, in practice if this were the case I suspect most people would go for some sort of insurance policy to pay for the new care techniques should they need them

    Some will, some won’t. Just like some people insure their bicycles in case they get stolen, and some don’t and just accept the risk.

    Whatever, underneath the money would still be spent

    Given that not 100% of the population will opt to get the insurance (or take out the loan, or whatever) then less money will be spent than if 100% of the country were covered.

  • Matthew Huntbach 26th Jul '14 - 8:23am

    Dav

    There is no reason why there should be a presumption that every new treatment that is developed should be available on the NHS.

    Well, there is a reason, which is that is what the NHS was set up for: to provide all reasonable care that can be given, to ensure that no-one stays sick or dies because they cannot afford the treatment that would help them.

    The word “reasonable” there is a recognition of what you are suggesting, that there may be cases where a form of treatment is so expensive or of so limited effect that it is not given. We know already that when this happens a lot of people get angry about it. However, yes, I think you are quite right to point out that if people are unwilling to pay the taxes it costs to take up every new treatment going, they must instead accept that a point will be reached where they could be sick and the NHS wouldn’t give them the treatment that would help them. It is a key point, it is something that should be central to political debate on the NHS. Because it isn’t, because right-wing politicians go on and on about any problems in the NHS due to it being state controlled and so easily resolved by putting aspect of it out to competition, and also about how bad tax is, people continue to believe they can have all health care possible form the NHS without being willing to pay the taxes that would be needed to provide it.

    However, the bigger issue is the one of treatments which are no more expensive but are more effective, and other things leading to longer lifespans. The reduction in the number of people who smoke is a major factor here, it doesn’t involve the government having to raise more money (well, actually it does, to replace the tax revenue from tobacco sales), but it does mean many more people live longer and reach the point where they need more health care over the sort of routine things that older people need.

    We cannot escape from this. If we accept the “sweet spot” argument, then there has to be cuts in the NHS, real cuts in expectation of what it can deliver. The argument “but it will cause the economy to improve, so we will be able to pay for it anyway” is one all politicians can make. The state socialist is just as convinced as Joe Otten and Jeremy Browne that his way of doing things will lead to a better and more productive society, and so that will be the solution. At one tine it did indeed seem this might be true, with state socialism where it was put in place almost meaning rapid industrialisation under state control. We know it didn’t work, we know the hand-waving “it will all turn out wonderful, and the state will wither away” line was nonsense. How do we know the Browne/Otten line is any better?

  • Matthew Huntbach 26th Jul '14 - 8:34am

    Joe Otten

    Do you think that he has the sweet spot in the wrong place, or that it is a mistake to think there is one? I think there is such a sweet spot and I’m open to arguments on exactly where it is.

    I think the line with the fixed global sweet spot is very naive. Also we know it is being very heavily pushed by people who have a vested interest in pushing it. There have been HUGE amounts of money pumped into pushing this idea from big businesses and wealthy people into think tanks and pressure groups and political parties, and those pumping the money in have an interest in doing so because it is their luxurious lives at the expense of everyone else that are under threat if we go for the idea of higher taxation to fund a state which more actively gives freedom to poorer people by guaranteeing them certain standard on things like health care, education and housing. So I don’t think we have a fair argument here. You have all the resources of those pushing for your line, all the researchers they can find to develop evidence for it, all the newspapers the wealthy own pushing for it. I have not much more than my own intuition to argue against.

    Now, in some ways I don’t entirely reject what you are saying. But I am naturally cautious, and also have this streak in me which means on any issue I like to see the other side, the more something gets pushed as “what everyone accepts”, the more I want to see the counter-argument pushed. I am concerned that a lot of what you are pushing as if it is fact is at most assumption. A lot of your arguments do seem to me to be little more than hand-waving.

  • Matthew Huntbach 26th Jul '14 - 8:42am

    OK, so in further response to Joe, one of the points I was making was that I don’t see this big divide between state spending and other spending which he sees and which is central to the “sweet spot” argument. I’ve pointed this out using the tuition fees and student loan example – we’ve seen this big shift of what was done directly through state spending towards it being done in a way that is not, at least not directly, state spending. If the “sweet spot” argument is right, this will have a big positive effect – somehow people will be much more motivated to work if they aren’t paying taxes to fund universities. But, come on, as we in our party have ourselves been arguing, the pay-back system for the loans is almost a graduate tax, there is not such a big difference in how it works in practice between what we have now and what the opponents of tuition fees wanted.

    As I’ve said, the same could apply to much else. We could abolish or wind-down the NHS so it becomes just a safety-net mechanism, and have most people fund their health care through various insurance schemes. That would result in a big drop in state spending as a proportion of GDP, which according to the “sweet spot” notion would have a big positive effect on the economy. But what I was asking was “how”? If instead of paying taxes, I’m paying subscriptions to a health care insurance system, it doesn’t make much difference underneath. How is it supposed to motivate me to make the economy better?

  • Matthew Huntbach 26th Jul '14 - 8:55am

    Joe Otten

    Jeremy is suggesting 35% to 38%, on the basis of some comparisons with other countries. China/India too low; France too high, etc. Austrialia, UK 1997-2001 OK.

    Again, very naive.

    As I’ve pointed out, in peasant societies where most people get by farming their own little bit of land, there is not a big role for the state, so one would expect state spending as a proportion of GDP to be low. In more complex societies there is a bigger role for the state in co-ordinating and providing necessary infrastructure, and for dealing with the problem of dependency that comes when people are no longer peasant who can fall back on subsistence farming, and when people no longer have an illiberal family structure which deals with care issues.

    So the point I was making was that the growing complexity in society is bound to push up the proportion of GDP that goes on state spending, that is counter to the “sweet spot” argument. But it is just the same as we observe in private companies – as private companies grow bigger and more complex and have to deal with complex things, the private equivalent of “the state”, i.e. management and admin grows as a proportion of company staff and turnover. Our ancestors would be very surprised to see how much companies now do not consist as they did in the past of a boss and then most staff as shop-floor workers.

    So, to those who argue “but we cannot have state spending as a proportion of GDP increasing forever”, I’d say “well, companies have turnover spent on human resources and accountancy and public relations and so on increasing and increasing, will that go on forever?”.

    The other issue that isn’t considered by the “sweet spot” line is that of land. The USA has a huge amount of land, most European countries do not. The USA still has this pioneer attitude that anyone squeezed out can go and make a living beyond the western frontier. Maybe there is some of this in Australia as well. We in England can’t have that attitude, as all our land was shared out to the ruling class in 1066.

  • Jeremy is suggesting 35% to 38%, on the basis of some comparisons with other countries. China/India too low; France too high, etc. Austrialia, UK 1997-2001 OK.

    Growth rates in high taxing Scandinavian countries over the last 30 years have been consistently higher than the low-taxing US. An honest look at at the data shows that the idea of a global sweet spot, an optimal balance between tax and growth, is baloney. You might plausibly argue that given the nature of our economy or culture or whatever there is a particular sweet spot for the UK but any such argument would be inherently speculative and contestable.

  • @Jedi
    For a full analysis of this issue see here.
    Taxation, productivity and prosperity
    I don’t really understand why this sweet spot argument has become such a touchstone of the right. As as theory it’s rather implausible – economic systems are far too variable and complex for there to be such a simple relationship between tax and growth – and when matched against economic history it melts to nothing.

  • I think fundamentally Matthew (and several others have noted this, as well) is right. Jeremy’s position is flawed and his ‘studies’ are disingenuous at best. There is no ‘sweet spot’ because each country is different and much depends on how you spend your money, as well as what is spent.

    Also, as Matthew said, the costs will go up whichever way you do this, so this whole private / public debate is a red herring because neither actually saves any money when the base costs are the same because any savings on one side are eaten up by the adminstrative costs required for it.

    Finally, I think the key problem here (As Matthew noted) is that politics is simply not honest about this issue – people want much spending on infrastructure… etc, they do not want to pay for it. Politicians see this and distort everything in a way to present it that this much gain, but no spend system could be a reality. (I suspect this is the reason MPs, such as Jeremy, love their ‘approach’ so much because it at least allows them to hide the costs.)

  • Matthew Huntbach 29th Jul '14 - 10:29am

    Joe Otten

    It is an individual judgement that will vary from person to person whether their needs in column A are greater than those in column B, and therefore whether it is worth raising taxes to have more B and less A.

    No, that’s not just what it’s about. The things in column A are paid for by each of us at their cost price. The things in column B are received equally by everyone, with the consequence that the rich pay more than their cost price for them and the poor pay less because the rich pay more tax than the poor. That is why the rich have a vested interest in moving things from B to A.

    Your argument, Joe, is that if too much is in B, I won’t have an incentive to work. Well, so long as I can get nicer food, nicer clothes, nicer housing, nicer leisure activities if I earn more money, I’m going to want to earn more money. I can see if we started moving things from your A to B the point would be reached where I might say “why bother working?”, but I think that would require a substantially bigger shift than to the “sweet spot” levels you’ve put forward here.

    I’ve made my point clear, and you have not responded to it. There are big factors pushing up what needs to be spent on state provided pensions and health care if they are to be kept at the level they are now. So, if we argue there is a “sweet spot” limit, then we are pushing aspects of these things from B to A. Dav has got the point and been honest about it, you have not – keeping to the “sweet spot” line does mean saying to people “We can cure you, but we won’t unless you can pay for it yourself”.

    Your argument relies on the idea that a person who could achieve much productively will lie in bed and feel “Why should I bother?” if his or her taxation reached, let’s say 60%. OK, do you know anyone like that? If my taxation rose to 60%, I’d still need to go out and earn more money to get nicer food, nicer clothes, nicer housing, nicer leisure activities. Would I not bother? Or would the higher tax actually make me work harder as I would have to earn more to get what I would have got if I weren’t taxed so high?

    In my experience, people who have good ideas to offer, who want to make things, do things that help others are motivated primarily by the excitement of doing things, making things. If it bring in a good income, that’s a side issue. So the very skilled person with lots of good idea who lies in bed or watches television because “If I tried out my ideas, I’d just get taxed so much on them”, isn’t a common sort. Actually, I rather suspect someone who did have that mentality wouldn’t have the best ideas anyway.

  • Malcolm Todd 29th Jul '14 - 12:09pm

    Joe Otten
    “What I’m not seeing here is what you would reasonably expect in theory: some big demand from the right/rich to move some major sector from B to A, and the opposite from the left/poor. Have I missed it?”

    Now, that’s an interesting point, and I think you’re right. Funnily enough, there is a tendency for both sides in any argument about public spending/taxation to talk as if the other side was making just such an argument, whether because that’s the language of political dispute that we’re all used to or because it avoids trickier questions. And I think (though he will no doubt speak for himself, and at much greater length) that that is the point Matthew Huntbach is making.

    So for example, on health the left-wing argument goes “you’re privatising the health service, so you must want poor people to die because they can’t afford to pay for their health care”, while the right-wing response is “you just want everything to be run by a monolithic Stalinist state, and anyway what about GPs, they’re already private sector aren’t they”? Neither side wants to admit that all they’re really arguing about is how much we (through the state) spend on health and how the hell we raise the money to pay for it.

  • Matthew Huntbach 31st Jul '14 - 12:44pm

    Joe Otten

    What I’m not seeing here is what you would reasonably expect in theory: some big demand from the right/rich to move some major sector from B to A, and the opposite from the left/poor. Have I missed it?

    You still haven’t got my point. So, ONCE AGAIN, here it is.

    There are aspects of society, the biggest one being growing lifespans, which mean that if we keep the A/B division in terms of subjects covered, the A/B division in terms of proportion of GDP spent on each will shift towards B. So if we insist on a strict “sweet spot” proportion in A/B spending, the consequence must be that the subjects covered by B get cut.

    You are suggesting this won’t happen because somehow standing firm on the proportion will mean the economy grows so fast that any such problem is temporary. But we just AREN’T seeing this, we’re seeing the opposite NOW. The rapidly rising average life-span IS causing NHS spending to rise rapidly. So to keep to your “sweet spot” we would have to cut what the NHS can provide. Do you suppose these cuts are temporary, and that somehow the consequential forcing of people into taking private health plans will have such a beneficial effect that they could soon be reversed?

  • Matthew Huntbach 1st Aug '14 - 10:39am

    Malcolm Todd

    Neither side wants to admit that all they’re really arguing about is how much we (through the state) spend on health and how the hell we raise the money to pay for it.

    Yes, that’s the problem. The point I’m making is that if things we assume are paid for by the state through taxation continue to be paid that way, the share of GDP taken by state spending will go up. That destroys the Browne/Otten “sweet spot” line. But politicians on both sides just don’t seem to be willing to make that point. On the right we have people like Joe Otten and Jeremy Browne utterly failing to see the reasons why state spending as a proportion of GDP will go up, and so claiming that if they keep it fixed there are no real cuts in services, instead what everyone perceives must just be due to some remaining nasty socialist “red tape” or “bureaucracy” or the like, which could be cured by yet more cuts and/or privatisation. On the left we have lazy “Waah, the cuts are bad, the right are bad people for making them”, without any honesty on admitting that if you don’t have them, you must instead have tax rises – and accepting also the concern about the impact of such tax rises on motivation which Joe has raised.

    The tuition fees thing demonstrates this so well. If we are to expand the number of university places, which needs to be done in a more complex and technological society, that DOES mean the proportion of the GDP spend by the state goes up if also we hold that the state must pay for all university places. It’s not an A/B shift in terms of subjects covered, but it is in terms of proportions. I see plenty of protestors attacking the Liberal Democrats on this issue, and making out that the Liberal Democrats could just have voted against tuition fee increases. But I see none of these protestors making the balancing point of saying where they would like the extra taxation to pay for the subsidy of universities they want to come from.

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