Last week Nick Clegg and the Institute of Fiscal studies squared up over the issue of whether the cuts proposed in the Comprehensive Spending Review are fair.
It is a debate which strikes at the heart of Lib Dems in the coalition government and it will determine the shape of politics in this country for next decade.
For the first time ever the Treasury included an impact analysis of the announced changes within the CSR, the effect of pressure from Lib Dems. These were calculated according to the sections of society that will bear the burden of the changes (ie how ‘progressive’ it is).
But it is a question subsequent events show it has singularly failed to settle.
It came after years of urging from left-wing think-tanks (such as the Fabian Society) that the Office of National Statistics annual evaluation of the effects of taxes and benefits on household income [pdf report June2010] was insufficient.
The controversy begs two questions:
1) why didn’t Labour force the Treasury to include an impact assessment in 13 years of government under Brown or Blair?
2) if the established measures didn’t enjoy support, why wasn’t a review of the impact analysis methodology introduced earlier?
After the election the IFS attempted to do just that with a report timed to coincide with the coalition’s post-election emergency budget. The IFS argued that “assessing the impact of government activity on the distribution of household living standards is essential to the evaluation of public service provision,” but offered the warning that this “raises challenging conceptual issues” and cited sources claiming that the then current methodology provided by the ONS was too simplistic [pdf report July2010].
The IFS were then charged with developing new criteria to determine a more accurate impact analysis. Their new calculations informed the basis of Chancellor George Osbourne’s speeches to the House of Commons on the spending cuts which the Government could recommend on the basis that the cuts were indeed ‘progressive’.
Following the Chancellor’s speeches on the Budget and CSR, the IFS gave their widely reported counter-briefings arguing a diametrically opposed conclusion [pdf press release August2010, pdf opening remarks October2010].
This is the graph presented by the Treasury during the CSR:
This is the corresponding graph presented by the IFS:
Can you spot the difference?
The former shows a representation of the impact measured as a percentage of net income by decile. The latter includes a representation measured as a percentage of net expenditure, using projections from two years later to exaggerate the effect. The former explains that the cuts are generally progressive, but the latter that the cuts are massively regressive.
So when Nick Clegg intervened to denounce the IFS briefing as ‘distorted nonsense’, besides the attack the more astute reader would notice that this supported the July review of the need for more accurate assessment of fairness, as written by none other than the IFS.
Clegg stated that he “fundamentally disagreed” with this month’s IFS analysis of the biggest losers in the welfare spending cuts, arguing for a more accurate analysis including welfare spending inputs from services such as childcare and social care which are targetted and taken up by more the most vulnerable lower-income groups and families with children, but who the IFS said would be hit hardest in cash-only terms by the changes to tax and benefits.
As it was the IFS had effectively rewitten the sums devised by the ONS without challenging the ‘conceptual issues’ they had identified – and the standard bearers of the left (Labour, Trade Unions, Fabian Society et al) have swallowed their conclusions whole!
So why the turnaround by the IFS on the issue of fairness?
At last December’s pre-budget report the IFS recommended 13% cuts to departmental budgets to deal with the budget deficit problems, a view which was subsequently taken up as Labour policy on the grounds that deeper cuts risked a double-dip recession. This which was followed by 25% cuts proposed in the budget and angrily rejected by the IFS.
Advocates of a smaller-state might argue that a respected, impartial and independent think-tank actively tendering for projects formerly undertaken by a government quango is a good example of encouragement the private sector needs to make the desired productivity gains and fill the gap left by government cuts.
A sceptic, however, might point out that the IFS report was funded by the Economic and Social Research Council, which is staffed by appointments made under the previous government, is itself dealing with cuts and agreed to ‘strongly communicate’ the implications of any changes to its financial allocation which it recieves from the Department of Business, Innovation and Skills. Consequently ESRC board members decided it would “quickly respond to questions raised by rapid changes of events” and this may have mitigated against deeper investigation into measures of fairness, possibly causing the IFS to rely too heavily on the previous sums devised by the ONS and which critics had deemed ‘insufficient’.
The coalition has now revised the cuts to departmental budgets down by a quarter to 19%. It has done this by making additional savings elsewhere, such as by postponing capital spending, and it has done it in order to reach its stated aim of reaching budget stability by bringing nominal growth in budget growth back into line with longer trends in 4-5 years. Yet the vehemence of the IFS opposition is undiminished and appears to be growing as they get drawn into the political arena.
It should be no surprise that this timescale coincides precisely with the period Nick Clegg and David Cameron have promised to remain in coalition before going to the country for the next general election.
Were the total cuts to be smaller this would take longer and therefore require a new mandate to complete the programme, but for the governing coalition to survive until a point after the next election it would demand some form of electoral pact between LibDems and tories – something activists in both parties see as poison – and especially with the prospect of a positive referendum on proportional votes looming, which should be a given as Ed Miliband has stated his support for AV on the grounds of fairness (what else!) and must back to the hilt the item in the coalition agreement LibDems have described as a ‘deal-breaker’ and a ‘game-changer’.
So Labour strategy to attack LibDems over fairness in cuts is three-fold.
The easy solution for them is to undermine LibDems sufficiently to break the coalition and force an early election before government by coalition is effectively locked in by an AV referendum.
Labour’s second option is to weaken resolution within the coalition in order to delay the point at which it can be dissolved amicably in preparation for an AV election where an electoral pact would paint LibDems as ‘tories in disguise’.
And thirdly it deflects from Labour’s own cuts agenda which it needs to maintain any economic credibility.
Maybe this explains why Labour must stoke an argument over fairness to stand any chance of returning to power within the foreseeable future.
But if anyone is in any doubt about Labour’s commitment to fairness, we only need to consider their track record and how growth in economic inequality under Labour carried over from the 1980s and 90s throughout their 13 years in office, according to the Equalities Office [pdf report Jan2010] (this is particularly important here as continuing growth in inequality suggests any calculation of the impact of tax and welfare changes on income or expenditure by decile becomes less relevant over time as the effect of spending on services increases in relevance).
Maybe we should ask, “where were you in the Labour government, Mr Miliband?”
And therefore maybe we should also question the emphasis given to the opinion of the ‘respected’ IFS regarding the progressiveness of cuts when it is only the most well-known of a range of equally respected bodies producing reports into fairness.
A balanced and pluralist perspective undoubtedly gives a fuller picture than a single independent view, however impartial the people giving it – and surely you can’t say fairer than that!