Economic dishonesty, political irrationality

Ahead of the Autumn Statement the Financial Times quoted former Chancellor Philip Hammond as saying: ‘the politician who is honest about the situation probably gets voted out.’ Jeremy Hunt was less dishonest than the irrational right-wingers on the benches behind him who called for substantial tax cuts, but he gestured towards them in the ‘cuts’ he offered, his reiteration that ‘Britain is a low tax country’ and his claim that cuts in taxes (and therefore in public investment and services) is the surest path to economic recovery.

There’s a remarkably wide gap between our partisan debate and what expert economists and think tanks (apart from the Tufton Street standard-bearers of economic liberalism) are saying about the UK’s economic and political priorities. The Institute for Government Public Service ‘Tracker’ for 2023, just published, states bleakly that we risk spiralling down a ‘doom loop’ of cuts, unable to reverse ‘the consequences of successive governments’ short-term policy making, with decades of under-investment in capital having a serious impact on the productivity of public services… and many services are experiencing a full-blown workforce crisis.’ The Institute for Fiscal Studies and the Resolution Foundation have pointed out that Hunt’s future ‘headroom’ on which he rests his case for some tax cuts now implies future cuts in public services that no government would be likely to approve. On the business pages CEOs insist that an increase in public investment is needed before businesses will increase their domestic investment rate: the private sector needs better public infrastructure to invest, particularly in our poorer regions.

Nevertheless the political debate continues to tolerate statements that insist that ‘we are a consumer economy’ and a low-tax country. The right-wing press hailed the November tax cuts without any reference to the consequent spending cuts in future years. The Financial Times has offered one explanation for the illusory quality of Britain’s economic debate: that our political structure for running our economy is ‘weird’, with changes every six months, presented to Parliament without a chance for preliminary debate on the choices or consequences or effective scrutiny of the implications, building in short-termism and political opportunism as against cross-party dialogue and continuity. No other democratic government makes fiscal policy like this. Rishi Sunak loves to claim that he is taking ‘long-term decisions for a brighter future’; in reality he is taking short-term decisions to get him past the next election, and to leave a trap for whichever government then takes office.

The absence of strategic thinking is evident in the contradictory decisions the government is making. It’s largely agreed that one of the biggest obstacles to growth is the poor quality of the UK’s labour force. But the government is cutting spending on education, starving FE colleges of funds, yet not tackling the failure of the apprenticeship scheme it introduced a few years ago. Tories seem not to have noticed that a better-trained and motivated domestic labour force would also diminish immigration, since shortages here force employers to recruit skilled workers from abroad. The link between a healthy workforce and productivity is at least beginning to be recognised; though the links between employers, public health officers, GPs and hospital trusts at local level continues to be weakened by central interference and further cuts in local authority budgets.

The UK is going to have to adjust to higher taxation. In a world economy in which the USA, China and the EU are competing to subsidise innovation and the climate transition, greater public support is unavoidable. The government is handing out massive grants to Nissan and other foreign investors, without any coherent rationale or industrial strategy. It proclaims that it will make the UK ‘a science super-power’; but is leaving funding for research and development well below the OECD average, and imposing massive visa and health charges on the foreign researchers it says it wants to attract.

Neither Labour nor the Liberal Democrats dare to spell out how absurd all this is – for good reason. The right-wing media are poised to attack anyone who suggests that higher taxation is here to stay. Debate within Parliament struggles to rise above mutual abuse, with ministers jumping from one post to another before they have learned what problems they are facing and with Liberal Democrats struggling to get a hearing.

We have to admit that the combination of rapid technical change, Brexit, the climate emergency and the changing demography of our population make it essential to invest more and consume less. But the structure of Westminster, the adversarial battle of two-party politics, blocks any such admission. Emma Duncan in The Times last week came to an honest conclusion. ‘The solution to this depressing pattern is simple. We need a system of government that stops the country ricocheting from right to left, which tends towards coalition and thus continuity rather than pendulum politics. It’s called proportional representation. Most northern European countries practise it.’

* William Wallace is Liberal Democrat spokesman on constitutional issues in the Lords.

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10 Comments

  • Martin Gray 3rd Dec '23 - 12:33pm

    “We need a system of government that stops the country ricocheting from right to left, which tends towards coalition and thus continuity rather than pendulum politics. It’s called proportional”…..
    Not sure when this left wing government actually occured – but if it reference to NL many would question it’s credentials …As regards coalition – we piggy backed a Tory government into power & in doing so impoverished the already poor with the austerity agenda – a political choice – we are all in it together etc…Some were in it far deeper than others..Having Nick justify the Bedroom tax to a seriously ill woman on LBC radio that had already racked up a load of debt as her HB was reduced just about summed it up ….As for PR it ain’t coming anytime soon – if at all….

  • Michael Cole & Co 3rd Dec '23 - 12:34pm

    It bears repeating: “The solution to this depressing pattern is simple. We need a system of government that stops the country ricocheting from right to left, which tends towards coalition and thus continuity rather than pendulum politics. It’s called proportional representation. Most northern European countries practise it.”

    Some LD members commenting on this site mistakenly take the view, encouraged by those who wish to perpetuate the current corrupt voting system, that PR is of very low interest to the public, being merely an academic issue.

    As a political party, we have a duty to explain to the electorate how FPTP has been a major reason why we have been so badly governed for so long.

  • Peter Wrigley 3rd Dec '23 - 12:45pm

    A very pertinent post.

    Conservatives like to claim that our tax take today is at its highest level since the War. This is true. What they do not say is that, compared with other similar countries, our tax take is modest
    Figures from the impartial OBR, for the most recent year available (2021) show the UK’s percentage of GDP taken in tax is 33.5%. This is 3.3% BELOW the G7 average, and 6.4% BELOW the average for the EU14 (similarly advanced developed countries)
    There is plenty of scope to repair the neglect of the last 13 years and make this a decent society for all to live in
    Labour is too scared to make this point, so it’s up to us. Someone has to tell the truth

  • Graham Jeffs 3rd Dec '23 - 1:32pm

    Yes, all very much to the point – and my thanks to Peter Wrigley for those comparison numbers.

    The electorate in this country has been groomed to believe that somehow we can in effect have ‘something for nothing’. It simply does not make sense and we should have the courage to say so.

    Central government expenditure apart, much nearer home people will, I believe, understand that if local councils are constantly saddled with greater cost responsibilities without the ability to finance them the resulting situation is simply untenable.

    But they are not going to get that message unless it is delivered clearly and regularly. People must see this as the absurdity that it is. We have a duty to speak up and speak out. We can show honesty and rationality – there is no point in being timid.

  • Steve Trevethan 3rd Dec '23 - 7:04pm

    Might being sufficiently frightened of the main stream media, to the extent that a political party does not tell reasonable approximations of (socio-economic) truths to the electorate, be a gross failure of responsibility and duty?

    Might accurately informing the public, which the BBC fails to do, be more worthwhile, honourable and even patriotic, than trying to grift our way to a few more seats by being nice and inoffensive?

    P.S. What does “headroom” mean in practice.

  • Completely agree with the approach of everyone. We can also consider the money being taken abroad, including Jersey, the Isle of Man, other British dependencies and so on. The sale of houses to people from other countries how do not intend to live in them is another issue to be considered. Of course high growth would be helpful, but only if it results in better lives for people rather than increasing the profits of multinational companies.

  • The US really out shines Europe when it comes to economic growth so I guess the logic is to adopt the US politics system 😉

    I would argue what is really driving low growth is living in an ageing society and this is a tough issue to deal with. Not only does a lot of old people act as an economic burden but they also encourage politicians to be “anti growth”. A pensioner that owns their home and is retired is probably going to prioritise protection the local green path rather than support a housing development etc… I would argue the Lib Dems could occupy space as a small radically pro growth party making the case for pro growth policies even when that annoys some middle class older folk. But the Lib Dems often like to court those very same voters!

  • We’ve had 44 years of all-party Thatcherism and it’s comprehensively failed – economically, socially, environmentally etc. It’s time we understood why it’s failed and what the alternative is.

    A big part of the problem is that the Tories have promoted a false idea of how the real economy works and all other parties have followed their lead. Doh! Different ideas about running the economy used to be central to party identity.

    What passes for economics is largely junk that bears little connection to reality. It survives because it provides a (pseudo) intellectual justification for policies that ‘just happen’ to enrich financiers and the already well off. Steve Keen demolishes it.

    http://www.debtdeflation.com/blogs/2023/03/05/how-does-jk-galbraiths-the-new-industrial-estate-hold-up-after-6-decades/

    A related issue are the epic levels of malinvestment – investment that is largely or totally wasted. A recent Sunday Times investigation reported that HS2 will cost around £400 million/mile, 15 times the most recent French TGV. Meanwhile all PFIs are a scam and utility privatisations like Thames Water have enabled asset stripping by financiers. No wonder money is short.

    Similarly, importing care staff benefits care-home operators by keeping costs down but only at the expanse of loading them onto others. Some are felt directly like poverty wages, others are indirect like greater congestion and sky-high housing costs.

    Government has lost the ability (or perhaps, desire) to put such thoughts together. The result is political dynamite and lots of low-hanging fruit but where is the desire or ability to harvest it?

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