The contents of the emergency budget have been a bitter pill for many Lib Dem activists to swallow. I have to admit that my support for the Liberal Democrats has been mostly on the basis of their commitment to civil liberties, their scientific literacy (Evan Harris is greatly missed!) and their hard work in my local area. I can make no claims about being educated in economics but I like to think my Maths degree qualifies me as basically numerate.
Recently I read The Observer story on the briefing from Tim Horton (of Fabian Society, not doughnut, fame) and Howard Reed from Landman Economics. Chris White described this as a ‘study in intellectual dishonesty’ in an earlier post. It certainly is, but the details of the model described (and, more importantly, those left out) deserve greater scrutiny.
The premise of the results is that, as a proportion of income, the cut in public services spending represents a higher fraction of income for the poorest decile than it does for the richest. According to the report, funding for the lowest decile will be cut by £1,344 per annum whereas the cut in funding for the highest decile will be cut by £1,135 per annum. This is based on a survey of welfare usage (lower-income households use public services more than higher-income households) as well as some kind of distributional model (I hope – this reasoning step is omitted) of how much money given to departments actually reaches the front line. But then the authors depict this as a percentage of income, implying that the poorest decile are losing over 20% of their notional wealth whereas the richest are losing only 1.6%.
This comparison is, frankly, ridiculous. While I can see the argument that, if welfare is cut across the board, the poorest may have more to lose; to give it monetary value as though it is a component of income is shaky at best. Richer people don’t use public services in proportion to their income, so it’s unavoidable that any cut in spending will constitute a fairly small proportion of it.
Consider road maintenance. A local budget is cut and some potholes take longer to fill in than usual. Has a low-income resident living in this area suffered financially over twelve times more than a high-income resident because of the same pothole?
The report presents cuts as a loss for a household, rather than a loss for services which a household accesses. It makes an attempt to justify its monetarisation of the value of services by asking readers to ‘imagine’ that households replace the value of these lost services by spending the same amount. They propose that, if road maintenance were to lose funding, privately operated toll booths would spring up instead. Do the authors think that the housing estates of Britain would club together to pay for a private gardening company if their local park lost a share of their funding? Or pay for a private security guard if they lose one local policeman?
The missing data in the report is the scale of current public spending per household. A useful, and more honest, measurement would be of the cut in welfare in each decile as a proportion of the spending under the previous government. In the lowest income households, welfare spending may be many times the income of the household, which is why any decrement sounds shockingly high when expressed as a percentage of income. In reality, however, it may not represent a great difference in the value of services provided. Indeed many of these cuts may not represent loss of services at all, but loss in the salary of those providing the services (did I mention that the TUC and UNISON commissioned the briefing paper?).
Before I get accused of denialism, the budget cuts do discomfort me and I would have liked to have seen a slower deficit reduction, but criticism must be rational and honest. This report from the Fabian Society and a supposed economic expert is neither. It performs a numerical magic trick in order to draw a graph that can be superficially labelled ‘regressive’. Real questions can and should be asked about welfare reforms when the exact breakdown of the cuts is revealed. If there are cuts to social housing, for example, then the poorest families will face a very real financial loss, but trying to argue that all spending can be valued at the point of delivery and then subtracting this value from income is merely a smoke and mirrors game to justify spending at the status quo.