The Lib Dem leader has an article in today’s Independent making clear that the party policy of tax cuts is part of the solution to the current economic crisis. Here’s an excerpt:
These are extraordinary times. Dramatic, even heavy-handed, action is right. It is right to go far beyond what I, as a liberal politician, would dream of proposing in the ordinary course of events. This is a once-in-a-lifetime crisis. It needs once-in-a-lifetime action. …
But, outside the financial markets, British families still need the excesses of central government to be reined in. As every family tightens its belt, government must too. Now is the time for tax cuts for people and families on low and middle incomes, to help them pay their bills and mortgages.
Liberal Democrats are committed to lowering taxes for those who need help while raising them for the rich by closing the loopholes that benefit the wealthy. This is what families want and need: a simple, fair tax system that cripples no one. Some say our plans are no longer possible given the crisis. They are wrong – tax cuts are not just possible, they are vital.
During the 1980s recession, the chancellor, Geoffrey Howe, raised taxes and cut spending. Many imagine that such an approach is needed today, but times have changed and it would be madness to raise taxes now. In the short term, we have no choice but to run a deficit, and Liberal Democrat tax cuts will not change that. Tax cuts are affordable without additional borrowing if we trim spending and raise taxes for the wealthiest, as we propose. If we comply with the current fiscal rules over the next couple of years, we would have to decimate public spending or raise taxes to painful, punitive rates that would do far more harm than good.
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23 Comments
Bingo! Nickers is a Keynesian?
I predict a slew of “right wing betrayal” comments …
Tabman,
It depends what he means by ‘trim spending’…if as I have been told the savings are to be found on the abolition of the ID card scheme and things like that then I am fine with that…
If, however, he means cuts to frontline services then I am not…i would however say this…tax cuts would be much more viable without having just chucked 50bn down the drain on ‘preference shares’ which i’m well known to be hostile too….
Darrell – what do you mean by “cuts to frontline services”?
Tabman,
Essentially health, education, welfare…the scope for cutting welfare spending is going to be non-existent in any case because meltdown would mean a rising welfare bill…this is why i did have some reservations about tax cuts in the first place and was only really assuaged with assurances that the savings would come on things like ID cards…however, even that is problamatic because a hypothetical lib dem government would take power when major planks of the scheme would be bequeathed it by the outgoing government…
Obama is calling for exactly the same. Is Cable on board for this?
Darrell – the difficulty is that you can’t really use terms ike “cutting health, education, welfare” without differentiating. It is perfectly possible to cut all of the above budgets without causing immediate distress to anyone receiving services. The difficulty is that we get emotive about it.
For example, I saw recently that the Observer ran a story about schools being built without consultation with teachers. We can be almost certain that this led to wasted money, because there would need to be post-hoc adaptions made to correct the earlier mistakes.
Involving the users of the facility earlier would almost certainly have resulted in a better final outcome in terms of getting it right first time and spending to, or lower than, budget. This would also fit well with Liberal tenets about decentralisation and local decision-making.
Tabman,
I appreciate the point that you are making and can agree to some degree but I do feel that there has to be careful balancing act to ensure the point where it does start causing pain isn’t passed.
It’s easy to see why people do get emotive about it because cuts to services have been made to fund tax cuts in the past regardless of the pain they cause and thats why an unspecific word like ‘trim’ can cause at the very least unease.
The devil is always in the detail with these things….we can discuss the genralities all we like but until we know what ‘trimming’ would take place it’s hard for me to either scream betrayal or be wholehearted in my enthusiasm
You could get too hung up on specifics. What Nickers has outlined is a general approach. The devil will be in the detail but that is for the government to decide on. What he has done brilliantly is to pait a broad picutre of what is needed.
I’ve now read the full article and it is excellent. We really are marking out a clear territory for ourselves based around sound financial management. A few years ago this would have been beyond most party members’ wildest dreams.
This is damned good politics from our leadership.
I agree with redistributing the tax burden by, for example, raising the threshold & ending the culture of tax evasion. The former would entail reform/abolition of the tax credits system (though we need to bear in mind that many, working or not, receive child tax credit, which is harder to sort out without hitting people’s incomes than working tax credit for a single person would be).
While I agree that the wealthy should pay their fair share, I do believe that we should beware of descending into rich-bashing for its own sake, & such business as green taxes is more important.
Let it be arranged in such a way that the average person, especially those towards the bottom, will understand that the new green taxes benefit them as it enables their overall tax burden to be cut.
This should be part of an international emphasis on sustainability, for example the promotion of family planning & education across the world, without which foreign aid is often far worse than useless.
Also, this is as good a time as any to suggest that the ludicrous restrictions on asylum seekers’ work should be abolished. They should contribute, & are more than capable of so doing. It is a terrible sin to make people, many of whom are very intelligent & talented, live off benefits as a direct result of New Labour.
Funnily enough, I have a copy of The Independent with me, & am going to read it when I go on break 🙂
After the bail-out, we will be forced to run a massive government deficit. The conventional assumptions are that we will have to try to reduce that deficit, by raising taxes and/or cutting spending. There is an argument for adopting the opposite, ultra-Keynesian view, that we should actually make that deficit even larger, by cutting taxes and/or increasing spending. The ultra-Keynesian argument is that if the real-world economy is collapsing, we will need desperate measures to reverse the collapse.
Nobody can know for sure, in this unprecedented situation, whether the ultra-Keynesians are right. Politicians will have to work it out as they go along, and have the pragmatism to adapt to reality.
If the ultra-Keynesians are right, then it is an econmomic stimulus we will need. Cutting government activity, while handing out tax cuts to individuals, would merely be broadly neutral in this respect.
What the UK does not need is a politician hysterically trying to claim that everything he said a month ago, before the world changed, is absolutely just as relevant now after the world has changed. It used to be only the Marxists who did that.
That’s pretty much where Nickers scores in this article. He has genuinely responded to events in his comments and accepted that orthodox positions have to change – while still being able to trumpet the party’s policy on tax cuts as part of this rescue package.
It is a shimmy worthy of the best Vince could perform on the dance floor. Even Arlene would give it a 10.
(I promise I don’t watch ‘Strictly’ but the rest of the family does so I know what happens…)
WAW, I can only say, Nickers!
“It is perfectly possible to cut …. budgets without causing .. distress… For example, I saw recently that the Observer ran a story about schools being built without consultation with teachers. We can be almost certain that this led to wasted money, because there would need to be post-hoc adaptions made to correct the earlier mistakes.”
Doesn’t prove a thing.
Yes, it’s very easy, in any walk of life, to identify people doing stupid things, on the micro level, which routinely cause horrendous waste.
But, if you give those people lower budgets to spend next year, will they suddenly and miraculously wise up?
Sadly not. Errors, mistakes and waste will just carry on happening, because to err is human. Real outputs will therefore suffer when budgets are cut.
When Tories peddle this “cuts are painless” con trick, they usually claim that they will get the market-red-in-tooth-and-claw, or else a Gershon-type efficiency drive, to make people smarten up and thereby make the cuts painless. Well now, we’re peddling the same old snake oil, so, we’re calling in aid different things, like local decision-making, as our smartening-up tools.
But it’s all snake oil, however it’s dressed up. If we are so damned good at improving efficiency, why don’t we advocate standstill budgets, and then plan for the cornucopia of extra services we can deliver just by being cleverer about everything? Because “I promise that my officials will all magically smarten up from now on, because the right people are now in Downing Street” is a ludicrous piece of self-delusion, that’s why.
I have spent my political life lampooning Tories for this silly con trick. It hurts to see my own party falling for it.
It is not harmless waffle. On the NHS, we have heard murmurings that it is fine to plan for cuts, because after all there is so much waste in the IT budget. OK, let’s fool ourselves and make the cuts. Then what happens? Well, the doctors will say, sorry, but we still do need some IT. Then we shall find that the geeks have not magically cut their costs just because the Liberal Democrats would rather have liked them to do it all cheaper. So we shall then find that there is less money for saving people’s lives. That is what cuts do.
Dave makes some worthwhile points I think. Like I said, I have been led to believe that our tax cuts would be funded by the abandonment of programms we dont agree with in any case.
We wait and see what the trimming entails….
“It is not harmless waffle. On the NHS, we have heard murmurings that it is fine to plan for cuts, because after all there is so much waste in the IT budget. OK, let’s fool ourselves and make the cuts. Then what happens? Well, the doctors will say, sorry, but we still do need some IT. Then we shall find that the geeks have not magically cut their costs just because the Liberal Democrats would rather have liked them to do it all cheaper. So we shall then find that there is less money for saving people’s lives. That is what cuts do.”
Oh dear, oh dear ….
Private consultancies of various sorts see the public sector as a milch cow to be bled whilst they rack up fat fees. And this is done because of poor specification, poor tender evaluation, poor contract design, poor performance management and poor enforcement.
Meanwhile, billions of pounds of public money go into the contractors’ pockets and the end user gets very little to see for it. But that’s OK, because Central Government Knows Best, and the Liberal Democrats collude with this and won’t try to change anything.
And the poor (and middle-income) tax payer sees their hard-earned money frittered away, whilst their mortgage payments, fuel bills, and commodity prices just keep getting higher.
But that’s OK – because “tax cuts are what the Tories do, not us”.
I agree with David/Darrell that “improved efficiency” is a hopeless cause. It’s not even good politics, as no-one believes it any more. The cult of best-practice managerialism is dead. I’d far rather we just, well, abolished stuff. Factoid of the week: of Labour’s current £600bn annual spend, only £82bn goes on education and £110bn on health. Makes you think, don’t it.
Trulib, you are rather proving Tabman’s point about being emotive. No need to be emotive when you can do sums instead. When (eventually) we’ve done sums, and if they don’t add up in a way you like, then you can get emotive.
I’m surprised not to see any comment (or am I missing it?) on this remarkable rumour about the possibility of Cable being appointed Chancellor of the Exchequer as part of a Lib Dem/Lab deal.
I would have said it sounded too silly for words, but seemingly the political betting market thinks there is something in it:
http://politicalbetting.com/index.php/archives/2008/10/09/how-seriously-should-we-take-this-2/
CCF – if you read the thread the betting markets don’t think that at all.
The key indicator is last price matched – ie where someone has actually taken a bet/lay. That is at 21/1 – and there is a grand total of £16 quid traded on that market. Ladbrokes have him as 16/1.
Hywel
I stand corrected. I had read only Mike Smithson’s original post (not the 444 comments!) and assumed – apparently wrongly – that he knew what he was talking about.
Usually he does (my bank balance is much more positive to prove it). I just thought this post was a bit off the wall 🙂
A posting on “Liberal England” links to a Telegraph report highlighting the warnings about Icelandic banks issued by credit rating agencies in the last few months.
http://www.telegraph.co.uk/finance/financetopics/financialcrisis/3166782/Banking-crisis-Councils-ignored-warnings-over-Icelandic-banks.html
Apparently a company called Sector Treasury Services is employed as a financial advisor by more than 250 local authorities, and “passed on” these warnings to them (that’s in case the council officers couldn’t be bothered to check the agencies’ websites for themselves, presumably).
What do people feel about this? Is the loss of nearly a billion pounds of public money quite acceptable, provided the responsibility is shared between the parties, so that none of them can make an issue of it?