Nick Clegg has emailed party members and supporters about tomorrow’s budget (and it’s good to see him continuing to raise the point about Labour’s £44 billion of planned cuts which nearly everyone in Labour is acting as if never existed:
Tomorrow, the coalition government will deliver an emergency budget to bring order back to the public finances. It will be a difficult budget – but remember, as you hear it, why we have to do this.
Labour left our country with a mountain of debt. Every minute that goes by the government spends a staggering £80,000 on interest, that’s over £800 million a week. If we don’t take action now, the markets will force us into even more drastic measures as they have in Greece and Spain.
Without action on the deficit, we will carry on racking up unaffordable debts our children will have to pay off. We will carry on spending more money on debt interest than we do on our schools. And we will undermine the economic growth needed to create jobs and opportunities for all of us. There is nothing fair, liberal or progressive about any of that.
Of course, the Labour party will say that these decisions are not justified. They will say the budget creates risks for our economy and that Liberal Democrats have sold out to go along with Conservative cuts. They are wrong.
Every time you hear Labour say that, ask them why they covered up the details of the £44bn of cuts they themselves had planned. Ask them why they racked up so much debt that we could end up spending £70bn a year just on debt interest. And ask them why they created this fiscal bombshell in the first place by refusing to take action against the reckless banks even when Vince Cable warned of the risks they were taking.
Until Labour accepts the blame for the mess we are in and comes up with a plan for getting us out, they cannot be taken seriously.
We have always argued that cuts would be necessary, but the timing should be based on economic circumstances, not political dogma. The economic situation today means that time has come.
A lot has changed even in the last few months. The crisis in the Eurozone and the problems in Greece and Spain have put huge pressure on us. The new Office of Budget Responsibility has shown that the structural deficit is bigger than we thought. And in government, we have discovered billions of pounds of unfunded spending promises Labour had made, cynically raising people’s hopes when they knew the coffers were bare.
So cuts must come. We have taken the difficult decisions with care, and with fairness at their heart. You will see the stamp of our Liberal Democrat values in tomorrow’s Budget. But nonetheless, it will be controversial. This is one of the hardest things we will ever have to do, but I assure you, the alternative is worse: rising debts, higher interest rates, less growth and fewer opportunities.
Sorting out Labour’s mess will be difficult but it is the right thing to do.
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55 Comments
Our lib dem MEP has been on the phone looking for support from my partner and myself. Quite honestly, we don’t feel we can give it just now. What happened to Lib Dem principle of redistributing wealth? Where are the plans to tax the rich? Yet again, we see the gap between rich and poor widening. Disappointed and disillusioned.
Hang on, let’s wait until the Budget at least!
(Although I have to say that when I got the e-mail, my first thoughts were, ‘well, a VAT rise is pretty much guaranteed now, isn’t it?’)
Yeah, he’s trying to warn you that it’s not going to be pretty, but why judge it today when you could wait until you’ve read it tomorrow?
As a long-standing precedent, the actual content of all UK budgets is held closely confidential until their scheduled release date. That’s why you don’t see any hard facts from anybody.
I think Labour may have a point on this one…we should be raising taxes not attacking the most vulnerable in society. I hope tomorrow isn’t as bad as I think it will be.
You can’t really raise taxes very much. Even ignoring tax evasion, more than a few percent just reduces spending, so you have the same amount of tax revenue and less useful work being done by the economy.
What you forget is that there are always choices. Yes the deficit has to be reduced – but there are choices as to by how much and when. During the election campaign Vince the Keynesian told us that governemnt spending shouldn’t be reduced until we were sure that there was growth in the economy. Remember that the OBR forecast was for us not to have a double dip – so if it now happens (as some commenters here have told me is inevitable) then you will be responsible, unless that is you want to disown the OBR already!
There are also choices about the mix of tax increases and exepnditure cuts. The Tory manifesto said that they were aiming to cut expenditure by £4 for every £1 increase in taxes. The Coalition has not yet come clean on what their policy is on this – but all the suggestions are that the LibDems have had no impact on Tory policy in this regard whatsover.
And then of course there are a myriad of choices about who should bear the burden of the tax rises and expenditure cuts – remember that fairness and progressivebits in your manifesto. I look foward to the justifications for the fair and progressive nature of the VAT increases or the reasons as to how you are protecting the poor by giving concessions on the policy of taxing capital gains at the same rates as income.
When the Tories say there is no alternative, the lesson of history is never to believe them. Perhaps when the LibDems rouse themselves from their present supine state they will dicover their memories.
PS why do you think the Tory Press was full of stories about Huhne this weekend? A little clue they weren’t short of news what with budget leaks and the World Cup.
The Tory press was full of stories about Chris Huhne (including some on the front pages, which is pretty indefensible) because they want to destroy the party. To me that suggests that they are worried by our influence. If we were that much in the pockets of the Tories they would just ignore us.
How do Lib Dems feel about this?
http://timesonline.typepad.com/comment/2010/06/peter-hains-grasp-of-economics-cont.html
Do you mind that you campaigned on a manifesto that was never intended to be put into action?
“During the election campaign Vince the Keynesian told us that governemnt spending shouldn’t be reduced until we were sure that there was growth in the economy.”
It was in the Financial Times yesterday that, according to “Senior Lib Dems”, Vince Cable never actually believed it when he said that. Just playing mind games with the Tories in order to gain concessions during discussions, I think.
“Senior Lib Dems whisper that Vince Cable, the Lib Dem Business Secretary, never really believed his pre-election rhetoric that cuts should be delayed until 2011” is the quote I’m referring to.
I agree with Ellie. It’s very sad that the LibDems have ratted on the approach they promised in the election campaign.
I found the above e-mailI received from Nick to actually be very patronising .
This its ‘all Labours fault’ spin is becoming childish in the media but if that is all the depth of argument party members get , I start to really dispair. Hardly the end to yaa Boo politics that we promised now Nick !!!!
Tomorrow we will get I predict a rise in personal allowances paid for by a freezing of unemployment benafit. This helping the fairly poor by taking from the very poor is a regressive policy and a a mere shadow of the one we campaigned for . Lets see if i am right ??
Lots of people voted Liberal Democrats for fairer taxes, well, fairer everything. The Lib Dems have already shown they are capable of being in government, they have also got far more than the electorate gave them in terms of policies and Cabinet posts but they didn’t secure a PR option on a referendum on electoral reform- something that will cost them in the future. I believe in the Lib Dems, I support their values and idelogy but I will not stand by the Lib Dems if they allow unfair tax increases like a rise in VAT. VAT is a regressive tax that will affect the poorest in society the most. Cutting the deficit should not be at the expense of the poor, it is after all the bankers who got us in this mess. No, I think alot of the defict reduction should come from taxes on Banks. Through Quantitive easing the banks effectively had free money in which to lend, its about time they paid that back. The Liberal Democrats must stand up in government and show their voters they are worth the vote. If not I fear the Lib Dems have put themselves up for political sucide in the years to come.
“but they didn’t secure a PR option on a referendum on electoral reform”
Wouldn’t PR mean perpetual betrayal by all parties towards their members? As we’ve seen with the Lib Dems at this last election, if your only hope of forming a government is as part of a coalition then you build a manifesto with pre-coalition discussion in mind. Pretend to disagree with something so you can gain points by “conceding” it, as the Lib Dems did with cuts this time around. Stuff your manifesto full of policies you don’t really support and then let yourself be negotiated out of them to gain points.
Seats may be proportional to the vote, but the vote means less under PR- you can’t vote based on policies that you support.
Grammar Police
The Tories are just putting your lot in your place so that you don’t cause any problems in the future. If you think that you are so influential – perhaps you could point to a few areas where you have made a difference so far in terms of what has actually been implemented rather than proposed – I’m struggling somewhat, and I gues that after tomorrow I’ll be struggling even more.
Amanda
Good to see that some LibDems have redlines that they don’t want to cross. If VAT does go up as I expect this may be a good home for any real liberals
http://www.liberal.org.uk/
I am appalled at what the future will be. Where is the fairness from the lib dems. I will not forget the sheer joy that clegg, laws et al have shown at the cuts. 200 conncections staff where given notice today. This means there is no support for young people. No guaranteed times for cancer patients has just been announced today. How can lib dems stomach this –
The culture spawned by 24 hour news is ridiculous. Half the commenters here assume they know what is going to be in the budget: they don’t, and nothing that is said here is going to alter its contents an iota. Have the argument tomorrow when we know what is being proposed.
Vince Cable, in his paper “Tackling the fiscal crisis: A recovery plan for the UK” written in Sept 2009 acknowledged that action taken by the Labour Government to avoid a complete meltdown was correct although costly. His paper also predicted that by the end of 2010 net debt would be 70% of GDP (The OBR Forecasts 53% by end 2010) and yet concluded that “the [Labour] government is right to argue that any consolidation should be measured rather than sudden, since the latter could abort recovery;”.
Yet here we are on the eve of the budget with Nick Clegg still spreading apocalyptical warnings and still blaming Labour for all the country’s difficulties. Mr Clegg should hang his head in shame for his complete capitulation to the Tories.
tony hill it has already happened – massive cuts in the north – job losses – loss of programmes for the young unemployed – cancellation of many areas – wait until later and see the lib dems remembered as more vicious than the tories
Deeply troubled but reserving judgement until I see the details of this budget.
From the spin coming out (and sadly I class Nick’s e-mail as yet more spin given Vince’s considered and measured reactions to the Labour government’s plans), I’m assuming that this is going to be a budget which will be at total odds with everything which I believe and which I thought my party stood for. Just little things like social justice, like building a more equitable society and like ensuring that the needy and infirm are adequately provided for.
We’ll see. I may be pleasantly surprised. I hope so. It’s hard to muster any desire to support a party leadership which signs up to neo-Thatcherite horse and sparrow economic policies.
@ toryboysnevergrowup. If the Lib Dems have no power or influence whatsoever as you say, then why do you care? Why do you bother posting here? Are you really a Liberal Party activist? Heaven forfend; no wonder you’re not used to seeing it as a success when you can actually *exercise some power and influence*.
As of tomorrow –
– Increasing CGT towards income tax levels
– Raising the personal allowance, taking some of the lowest paid workers out of tax
– Banking levy
– Reduction in tax credits for higher earners
Already –
– A Queen’s speech including a bill restoring the earnings link on pensions; on increasing the powers of local government; on Parliamentary reform; etc.
– Banking reform announcements
– Release of lots of Government information
-Scrapping of ID cards
-Cancellation of third runway at Heathrow
-Scrapping of HIPs
-Back gardens re-zoned as greenfield land
– No public subsidies for nuclear industry (effectively means no new nuclear power stations in the UK)
– Not to mention the myriad of decisions that the 20 plus Lib Dem ministers will be making day in-day out, the secondary legislation that they’ll be creating etc.
Now, I’d prefer a majority Lib Dem Government, but a Lib Dem – Tory coalition is better than a Tory Government in fear of that its right-wing might bring it down.
As for Labour’s stuff about cuts and the Lib Dems lying to the electorate. Why would any genuine member or supporter of the Liberal Democrats choose to believe Labour party spin about something like this? We saw what Labour were capable of over the last 13 years. Do you honestly believe that’s changed? We saw it hadn’t the minute the coalition was announced and the national Labour party changed the text on their website to say it was down because of record numbers of people joining. Except of course, that’s not what happens when too many people are using your site; but it is what happens when someone just changes the text.
@ Pat Roche “Massive cuts in the North” – eh? You mean, the cancellation or suspension of a small number of programmes that Labour announced in the run up to an election, that we *can’t afford*? What about the £44 Billion that Labour wanted to cut, but actually have no idea of how to do?
Can you imagine what it would have been like WITHOUT the Lib Dem influence? I think a few people need to get real.
Put the basic rate of income tax back to the 23p in the£ it was when Labour came in in 1997. That will help eliminate the deficit and wont unfairly target the poorest which is what a VAT increase does!
Lib Dems are in danger of selling out completely and the sickening pillorying of public sector workers is an absolute, illiberal disgrace!
Cut the Public Sector and the Private Sector collapses because so much Private Sector profit comes from selling to the Public Sector!
@pat roche – Connexions is a hugely expensive, inefficient and ineffective organisation. It is one of a myriad of quangos that will not be missed and an excellent example of the failure of Labour’s top down approach.
Please can we stop this rewriting of history whereby we fought the election on a platform of opposition to cuts? That would have totally lacked credibility and we did no such thing; on the contrary, we were explicit that big cuts in public spending were necessary.
The only area where there has been a shift is on the question of the timing of cuts, which was always a judgement call and not some black-and-white ideological litmus test as so many seem to think.
It was always going to require weighing up the risk of withdrawing demand against the risk of an adverse reaction in the bond and currency markets if we did not take action. It is perfectly reasonable to argue that the balance of risks has changed in the past 2-3 months owing to growing market concerns about sovereign debt.
If you doubt how real these risks are, why not try listening to the Swedish Social Democrat (Goran Persson) who saw the danger all too clearly in the mid-1990s and decided to put his country on a different course, even if it inevitably meant short-term pain?
http://news.bbc.co.uk/1/hi/programmes/the_daily_politics/8730627.stm
Or why not listen to the economist who more than any other can claim to have predicted the global financial crisis, Nouriel Roubini, who said recently:
“We have to start to worry about the solvency of governments. What is happening today in Greece is the tip of the iceberg of rising sovereign debt problems in the eurozone, in the UK, in Japan and in the US. This… is going to be the next issue in the global financial crisis.
There are clearly risks in prematurely withdrawing demand from the economy, but remember that demand is a function not only of fiscal policy but also of monetary policy. Monetary policy is controlled by the independent Bank of England (as we rightly have argued it should be for decades).
The independent governor of the Bank has made it quite plain that he thinks early action to tackle the deficit is essential. The clear implication is that if such action were not to be taken, the Bank would not be able to keep interest rates at their current rock-bottom level. In other words, there would be a tightening of monetary policy which would offset any fiscal stimulus, and derail the nascent private sector recovery. At the same time the costs of debt servicing would rise, and swallow up a greater proportion of public budgets.
It is a complete fiction to pretend that there is a cost-free alternative to tightening fiscal policy. The costs would be very real, and would arguably do more to jeopardise the recovery than the modest fiscal tightening planned for this year.
But whatever the rights and wrongs of the timing question – and I accept that there are risks on both sides and there are economists and commentators I respect who do think we should defer the cuts – the big stuff in tomorrow’s budget is unlikely to be what happens this year, but rather in the 2011-12 financial year onwards.
In other words, how we deal with the £100bn + structural budget deficit over the rest of this Parliament (and possibly beyond). On this question there are no grounds for saying we have shifted our position, caved in or jettisoned our principles. We always knew the structural deficit was huge and needed to be sorted out, and that the measures required to do this would be controversial and indeed unpopular.
Bob was very selective in his choice of quotes from Cable’s Reform pamphlet. Even in the sentence he quoted from, which read:
“The conclusion is this: first, a substantial fiscal adjustment is required, more than existing Government proposals; second, the government is right to argue that any consolidation should be measured rather than sudden, since the latter could abort recovery; but, third, Britain is exposed to the risk of declining market confidence and market concerns over inflation leading to an increase in borrowing costs; and, therefore, fourth, it is necessary for any government to have a plausible plan to eliminate the structural element in the fiscal deficit.”
His judgement on what that entailed was as follows:
“…A fiscal tightening to the tune of around 8 per cent of GDP over 5 years may well be needed. The current Government’s plans for a correction of 6.4 per cent of GDP over 8 years are optimistic. They underestimate the size of the structural deficit, assuming a brisk economic growth rate of over 3 per cent per annum after
2011-12.
“…The risk of declining market confidence and market concerns over inflation leading to an increase in borrowing
costs, means a plausible plan to eliminate the structural deficit is critical.”
He added: “Whichever convention we adopt no one now seriously believes that the budget deficit will correct itself when (or if) the economy recovers. A large fiscal correction is needed. A reasonable assumption is that a correction of around 8 per cent of GDP is required.
Vince’s judgement that Labour had underestimated the size of the structural deficit by overestimating the potential growth rate turned out to be quite right, as did his estimate of the size of the fiscal tightening needed (the OBR put the structural deficit at 8% of GDP).
The reality of that is that Vince foreshadowed that big spending cuts of the kind the coalition seems to be contemplating. Of course there is a choice to be made on the balance between cuts and tax rises, but on that issue we gave little impression before the election that we thought there ought to be more reliance on tax rises – quite the reverse.
Vince wrote that: “The emphasis for fiscal consolidation must fall on controlling public spending, not higher taxes: to commit to additional tax revenue raising from the outset undermines any commitment to setting priorities in spending.
“In the UK public spending has been allowed to grow very rapidly on the back of what was a windfall in tax revenue. Tax revenue depended to an unhealthy degree on a “bubble” economy in financial and housing markets. Much of that revenue has now been lost and, though it may return in part and at some stage, it would be foolish to base future spending commitments upon it.
“The sudden deluge of funding (in relation to comparable OECD countries) has been likened by Reform to a “flash flood” and there is a strong argument for focussing on how resources can be better spent rather than validating current spending levels with higher taxes.
“In addition, direct taxes create disincentives to save, work and take risks while indirect taxes are generally regressive… So the emphasis should be on spending control; though the magnitude of the fiscal adjustment required is such that taxation cannot be ruled out.
“But to commit to additional tax revenue raising from the outset undermines any commitment to setting priorities in spending.”
Now I accept that Vince’s Reform paper was not party policy, but it did happen to provide the best roadmap for dealing with the deficit of any major politician before the election. Bob quoted it from it when it suited his argument, but if you read the whole thing you would be in no doubt that major spending cuts were on the table – many of which may well be pursued by the coalition but others of which may be put in the “too difficult” drawer. For example, Vince said that in principle he favoured means-testing child benefits for those on above-average earnings.
Moreover, even if this was a “freelance” operation from Cable, he and Nick Clegg consistently took the line before the election that tax rises should be kept to a minimum and that the vast majority of deficit reduction should fall on spending cuts. Bear in mind that public spending is currently running at around 50% of GDP – vying for the peacetime record in the UK – while tax revenues have recovered more strongly than expected and are at around the long-term average level. The international evidence also suggests that fiscal consolidations based predominantly on spending restraint are more successful (do less economic damage) and sustainable (last longer) than the converse.
If there is a legitimate criticism to be made on the question of ‘U-turns’, it is one that should be directed not at the Lib Dems in particular but at our whole political class: As the IFS complained, none of the parties came clean before the election about what the fiscal contraction would entail in terms of policies and real-world consequences, instead discussing it only at the level of slogans and abstractions.
This meant the debate about how the deficit should be tackled was largely a phoney war, and the public is ill-prepared for what lies ahead. But the “betrayal” does not lie in what the Lib Dem ministers have said since the election; that has been a welcome reality check. The betrayal lies in the reticence/cowardice of all three parties in the run-up to the election, and above all in Labour’s decision to duck the spending review last autumn for nakedly political reasons.
@Ellie: ” What happened to Lib Dem principle of redistributing wealth? Where are the plans to tax the rich? ”
So a first step towards the £10K tax threshold, bank levy, rise in CGT aren’t enough for you? Whose manifesto have you been voting for, exactly?
“The betrayal lies in the reticence/cowardice of all three parties in the run-up to the election, and above all in Labour’s decision to duck the spending review last autumn for nakedly political reasons.”
I agree that the betrayal lay in the cowardice of all three parties, which denied the electorate any meaningful choice and effectively made a nonsense of democracy.
But I’m afraid your dogmatic pronouncements based on the notion that there’s a “right” level of government spending – with the additional implication that the right level is some kind of universal constant that doesn’t change with time – are just as bad in their own way. These are matters of choice, and whatever choices we make will have both advantages and disadvantages.
An honest politician – supposing such a thing existed – would set out the choices, and argue the case for the one s/he supported. S/He wouldn’t say “we have to do this (even though we were arguing something quite different only last month)”, and he certainly wouldn’t say “there is no alternative”.
There are always alternatives, and the people have a right to expect real arguments, real evidence and a real choice to be put before them.
I also agree with Ellie. I have tried to be optimistic and still support our party but cannot do it anymore.
The only interests that Nick Clegg serves are his own.
Excellent points Alex, but there in lies the rpoblem, the ticking time bomb under UK politics. Because non of the Parties told anywhere near the full truth about the scale of public sector retrenchment needed to reduce the deficit the whole process is simply going to be deemed illegitimate. Rather than be expected to set out an alternative economic path opponents of the coalition will simply ride a wave of “We wos robbed” ” You never told us “.
Because the coalition agreement will install a 55% dissolution threshold the government won’t be able to “devalue” and hold another election to gain legitimacy and face the electorate with the painful choices post stimulus when the pain can be avoided no more.
We are heading not just for another economic crisis as the morphine drip is pulled or even god forbib if this retrenchment does trigger a double dip. We are also heading towards another political crisis that will make expenses look like a tea party because ” Nobody told us” will not only be a useful psychological crutch for opponents it will also in some measure be true.
Andrea: I think a few of the posters on here are Labour trolls…
“Because the coalition agreement will install a 55% dissolution threshold the government won’t be able to “devalue” and hold another election to gain legitimacy …”
Don’t follow that. The Tories and the Lib Dems have more than 55% between them, so they could hold another election to gain legitimacy if they wished. But I’m sure they won’t wish.
@David Morton
Rather than be expected to set out an alternative economic path opponents of the coalition will simply ride a wave of “We wos robbed” ” You never told us “.
I bloody hope not, I’m already sick of Labour’s cheerleaders whinging endlessly without any alternative plan, and we’re only 6 weeks into the coalition! A Labour friend of mine told me with all seriousness today that Nick Clegg is in government with the Tories because he’s a public schoolboy who hates poor people. Most of his pronouncements these days are along those lines. No alternative plan, you notice, just complaint and class warfare.
Can I make an appeal to the people who are poised to tear up their membership cards (as a few of you obviously are)? I respect that you might feel that the strength of your conventions might require you to leave the Party, but please, please, PLEASE don’t jump over to Labour. Don’t think that they’re any better – they don’t have any real answers to any of these difficult questions, they are just as ghastly and authoritarian as they ever were, and you will regret it.
Yes, I should have said the party ( ie the Lib Dems ) can’t devalue because of the 55%.
The other interesting thing about all of this is the way the narrative arc will play out. The bombs under the last 3 governments all went off while they were in office. The negative legacies might well has reached past there terms but they took the blame. Labour will always have the screams of the dead children of Iraq as part of its record however economically…… If the Iconography of this age of austerity, the 3 Million unemployed, the rolling back of public services, Nick Cleg’s predicted public disorder , the gap between rich and poor widening again. If these happen they will now happen under the coalition. The political legacy of the stimulus may be to delay the detonation till after Labour have left office making the blame narrative much more ambigious.
My suspicion is that history will not be kinder than his contempories to Gordon Browns premiership however he may yet be judged a better leader of the Labour party than many think now.
Anthony, I thought I was pretty measured in my comments – for example, I specifically said that the question of when to start tightening was a judgement call, that it involved weighing up real risks on both sides and that I respected those who came to a different conclusion to me. And whatever the rhetoric from Nick, George Osborne and co, they know there is a balance of risks which is why the fiscal tightening planned for this year is pretty modest in relation to the size of public spending, GDP and the deficit. In essence it’s an earnest of the government’s commitment, a case of slowly turning the ship of state around.
Most of my other comments were devoted to showing that – despite the impression some seem to have gained – the Lib Dems as a party, or at least its two leading figures, had consistently argued that a course of action similar to that the coalition is embarking on would have to happen, whether in 2010 or in 2011.
I agree with you that there are always choices to be made, which is why I’m uncomfortable with language like “there is no alternative” (maybe I’m pedantic!). There are alternatives to what the coalition is doing, but unfortunately most of them are worse, and none of them are costless. If you are saying that we need to be more rigorous about recognising the costs and benefits of public policy, I wholeheartedly agree with you!
I don’t take a dogmatic view about the “right” level of public spending from an economic standpoint. Clearly there are successful economies that have state spending of 20-30% of GDP and others (the Scandinavians for example) that manage perfectly well with spending at close to 50%. They have different strengths and weaknesses.
How – and how effectively – that money is spent (centralised/decentralised; monopoly/competitive provision; accountability mechanisms), how it is raised (central v local taxation; taxes on income/wealth/consumption; direct or indirect etc) and – crucially, for this is often overlooked – the other characteristics of the economy and society are at least as important factors. Improving tax system design (so that taxes aren’t hellishly complex and don’t unnecessarily distort economic decision-making) and labour market flexibility (to minimise unemployment) are at least as important as the size of the state per se.
But in this instance we were discussing the deficit, so size does matter I’m afraid! And for reasons I’ve gone into at length in previous comments, it is sensible to look at the structural deficit and the OBR reckons this is about 8% of GDP.
It also makes sense to look at both historical and international evidence, don’t you think?
On the UK history angle, my point was that we need to put the current levels of spending and taxation in some kind of historical perspective to understand where we are now, and that happens to show that spending is historically high (not just because of the recession) while tax revenues are close to the average of the past 40 years.
That certainly doesn’t mean we’ve always got the level of tax-and-spend right in the past, or that there is a “right” level that is unchanging over time; but I do think that if we are spending more than at any point in our peacetime history that might tell us something about how to proceed with deficit reduction, don’t you think?
Likewise, the fact that UK governments have consistently run structural deficits once spending moved significantly above 40% of GDP might not be a coincidence? And the fact that when tax:GDP has risen much above 38% the tax rises have usually been reversed subsequently, under both Labour and Tory governments…
The international evidence about the composition of fiscal consolidations – as opposed to optimal spending:GDP ratios – is also quite persuasive, although there are of course exceptions and we could of course choose a different course if we wanted to.
I happen to think we should heed the historical and international evidence, but economics (like politics) is about choices and there are no absolutes, only judgements about better or worse trade-offs between competing objectives. Is that nuanced and non-dogmatic enough for you?
In any case, my point was that a greater reliance on spending cuts compared to tax rises was exactly what Nick and Vince recommended before the election, and cannot meaningfully be portrayed as a U-turn.
The problem before the election was not that we didn’t appreciate the scale of deficit reduction or have views about how it should be divided between spending cuts and tax rises; we did, and what we said then wasn’t very different from what we’re saying now.
The problem was that neither we nor the other parties went anywhere near far enough in suggesting where the cuts should fall, and spent far too much time talking about what we would ring-fence and protect. So there wasn’t a proper debate in which the various options could be aired and the public could start to understand the nature of the choices.
In my view (and that of the IFS) the root cause of that – what allowed it to happen – was Labour’s cowardly decision to duck the spending review on the specious grounds of ‘uncertainty’.
“I happen to think we should heed the historical and international evidence, but economics (like politics) is about choices and there are no absolutes, only judgements about better or worse trade-offs between competing objectives. Is that nuanced and non-dogmatic enough for you?”
Yes – that’s better.
I am sure this comment will be as welcome as, well, a VAT increase, but a number of you need to start considering what ‘fair taxes’ actually means. ‘Fair taxes’ as espoused by most of the people on this forum seem to simply indicate that the ‘rich’ should pay for the cost of cutting the deficit whilst the ‘average’ person and the ‘less well off’ should not. With respect, this is exactly the issue that got us into this mess. The harsh truth is that a family on average earnings in the UK contribute net virtually nothing in direct taxes, after all the rebates, tax credit and assorted benefits. The entire burden is being met by those on ‘above average’ incomes already.
The fact that those on ‘average’ and lower incomes can (and, largely, do) vote with impunity for increased spending, knowing that they will personally be spared any of the costs of paying for it or the debt that follows, is surely what encouraged Labour to go on such an irresponsible spending spree in the first place. Frankly, a far better strategy for ‘fairness’ would be to reduce the tax-free threshold to ZERO and then make up the financial loss in a once and for all increase in benefits. At least that way, everyone would be paying tax and therefore be responsible for the consequences of their vote. I suspect in this scenario the chances of a government running up a huge deficit would decrease considerably.
‘Fairness’ does not in any way involve taxing those on above average incomes. They already pay for the entire burden of public spending in the UK so it is hardly ‘fair’ that they should be the only ones paying for the massive spending increases which, frankly, did not benefit them. A rise in VAT may be regressive, but if it puts out the message that everyone has to take responsibility for the government actions then it far ‘fairer’ than the alternative.
Am I the only Lib Dem who doesn’t believe that all the Government spending over the last few years has been a good thing and that Government and Councils should not be a job creation scheme for middle and upper mangers while workers on average wages are privatised.And the banks should be broken up.
No it is small business that has to be supported and wealth creation as no 1 priority.Then we will get jobs and companies which create wealth again.Too many of us keep talking about good ideas on how to spend money but too few on how to create the wealth to spend.Perhaps its because we have a political class who in no way reflect society and those trying to create wealth.I thought Liberal democracy was about handing back power to individuals and empowering not keeping the sate as the sole provider of everything .
Peter – you’re spot on. The problem is that the policies being proposed have never worked for countries with a sovereign currency without causing a further retraction in the private sector. If the global economy as a whole is doing ok, the ensuing recession passes fairly swiftly (in historic terms). If the global economy is tanking, then you may well end up in a vicious circle and a depression (case studies – seven major attempts to run a budget surplus in the USA followed by six depressions and we’re waiting to see if the seventh will now follow, Britain from 1929 – albeit if you want to argue that being tied to gold standard means that Britain didn’t have a sovereign currency then that’s a fair point although I think the example of the impact of the emergency deficit reducing budget of 1931 remains salutary).
Current received wisdom on whether a sovereign country with sovereign debt really does have to pander to international money markets is taken for granted so it’s not worth delving into the full range of options available. I voted for sane and sensible cuts to government spending at a time when such cuts (to reduce the bloat Labour most definitely did introduce) would not jeopardise an economic recovery. That’s not what is happening. Everything so far said has been to hype up just how necessary drastic cuts are right now when we’re very clearly nowhere near out of the danger of another recession or even a depression.
Some of the proposals which have been leaked sound fantastic. Capital Gains tax rising to help the poorest workers in society have more money in their pockets. Of course, whether that’s a net gain or not for them remains to be seen. The small NI tax holiday for small businesses outside of the SE would be a fantastic thing if there were any incentive or market for small businesses which provide meaningful employment to take advantage of it.
Still only a few hours more before we start to see at least the outline of where we’re headed.
OK Kehaar, MacK, Anthony Aloysius, Pat Roche and all the rest of you Labour trolls: get to the starting block, your big day of LibDem bashing is about to start!
@Peter “Am I the only Lib Dem who doesn’t believe that all the Government spending over the last few years has been a good thing and that Government and Councils should not be a job creation scheme for middle and upper mangers while workers on average wages are privatised”
Sot on!
Can someone please call me a UKIP troll? Then I think I’ll have the full set.
“Sot on!”
Please bear in mind the “polite comments only” policy!
I thought you were probably too clever to fall for that, Anthony!
I’m very disappointed that Clegg went for the misleading comparisons with Greece…
@Anthony “Please bear in mind the “polite comments only” policy!”
LOL, I blame hayfever making both my eyes red and itchy, can’t see properly… Mr Osborne, tax on pollen, PLEASE?
Tonyhill. maybe the trolls are uncomfortable as they hold the mirror up towards the behaviour of the lib-dems embrace of slash and burn and the derision of those public sector freeloaders..
“Few love to hear the sins they love to act.”
“For vice repeated is like the wandering wind.
Blows dust in other’s eyes, to spread itself;
And yet the end of all is bought thus dear,
The breath is gone, and the sore eyes see clear:
(Pericles, act 1, sc 1)
Are you aware that the Lib-dems are becoming the most hated party amongst those at the bottom.
The conservatives are doing exactly what you would expect them to do.
But to prop them up with no influence on any policy whatsoever is indefensible.
‘Free schools’ anyone ?
Bob
@ Ryan
“‘Fair taxes’ as espoused by most of the people on this forum seem to simply indicate that the ‘rich’ should pay for the cost of cutting the deficit whilst the ‘average’ person and the ‘less well off’ should not. With respect, this is exactly the issue that got us into this mess.”
I agree that is sometimes the impression given, and, as the former Labour Chancellor Denis Healey – hardly a right-wing firebrand – came to realise after attempting to squeeze the rich dry with an 83% tax rate (and 98% on investment income) in the 1970s, the idea that public spending largesse can be financed by punitive taxes on the rich is a chimera. He wrote in his memoirs in 1989:
“Any substantial attempt to improve the lot of the poorest section of the population must now be at the expense of the average man and woman, since the very rich do not collectively earn enough to make much difference, and the average man does not nowadays want to punish those who who earn a little more than he, since he ultimately hopes to join them.”
Too many people who regard themselves as being on the centre-left refuse to heed that lesson. If you want the state to remain close to its current size, then you have to accept that means average earners paying a lot more, not just the rich – and probably those on below average earnings paying more too.
Remember, the tax system as a whole does not redistribute income from rich to poor, because the weight of indirect taxes falls on the less well-off (the worst offender is tobacco duty, by the way, not VAT). But the income tax system is already highly progressive, with the better-off contributing much more to the pot than the less well-off, not just in cash terms but as a proportion of their incomes.
There are limits to how far you can push direct taxes at the top (we are already straining at them with the 50p income tax rate, now almost the highest in the developed world), while further indirect tax rises are likely to be regressive.
To be fair, it certainly would be possible to raise more revenue in a progressive way, by raising the basic rate of income tax substantially, say by 5p in the £ – but let’s be clear that this would affect a broad swath of the population, not just the well-off (that’s why it would raise a lot of money).
Then you get into the problem Healey describes above: “the average man does not nowadays want to punish those who who earn a little more than he, since he ultimately hopes to join them”. This was one of the key problems with Labour’s plan to hike NI sharply in its 1992 shadow budget – it would have hit people earning more than £21K at a time when average earnings were about £15K.
@Ryan: “The harsh truth is that a family on average earnings in the UK contribute net virtually nothing in direct taxes, after all the rebates, tax credit and assorted benefits. The entire burden is being met by those on ‘above average’ incomes already.”
That’s true of families on average earnings with children, although most of them will be contributing plenty in indirect taxes. (And single people on average earnings without children obviously aren’t entitled to many of the tax credits and benefits, so they do pay a fair amount in direct taxes too.)
The key word in your sentence is “net” – that is, they do pay a lot of income tax and NI, but they also receive Child Benefit, child tax credit and some other benefits, more so than they did a decade ago.
What Brown has done is created a money-go-round where a large amount of the tax raised is recycled to the same people after going through a cumbersome and costly bureaucracy.
@Ryan: “Frankly, a far better strategy for ‘fairness’ would be to reduce the tax-free threshold to ZERO and then make up the financial loss in a once and for all increase in benefits. At least that way, everyone would be paying tax and therefore be responsible for the consequences of their vote.”
As I say, I partly agree with your diagnosis of the problem, but I can’t support your solution. Getting rid of the personal allowance would increase the tax burden on the low-paid and below-average earners sharply, when they already pay a lot in indirect taxes.
Giving them more benefits to comepnsate is no solution to this, since it would increase welfare dependency when we want to be encouraging independence. It would raise the already high marginal tax rates – the tax on each extra £ of earnings – faced by the low-paid when they move to better-paid work and their in-work benefits and housing benefit are tapered away.
I’d say a better solution would be to stop spraying out middle-class benefits in the first place so that we don’t need to raise such a large amount in tax, and try to reduce the huge amount of fiscal “churn” that goes on in our current system.
Of all the parties in the General Ellection the Lib Dems and Nick Clegg in particular stood out as the person who spoke the most sense and was by far the closest to the issues in the ‘Real World’, it would be a shame to see these ideals suffercated by old fashioned self serving, underhand Tory values. The eyes of the country are not only set on David Cameron as Prime Minister but on Nick Clegg as Deputy, what cuts I would like to see are, the doing away of the bureaucratic middle men, I see my doctor because I’m sick but DWP cant accept my Doctors report they have to commission another Doctor/Healthcare Worker for their opinion….. and an opinion it is…….. with a vested interest and targets to reach a 30 minute interview can contradict weeks, months or even years of my own doctors findings.
Sack Jobsworth Council Workers, Social Workers who have been in the job for far too long and now work only for an undeserved wage or the next holiday in Spain and have no interest in the job or the people they are meant to serve or to help.
Prison rehab courses, believe me they dont work, they are extremely badly run with no value to either the offender or society, indeed some courses are an education in prison which produce tomorrows killers, Nobody but nobody uses ETS (Enhanced Thinking Skills) when contemplating or committing a criminal offence. And anyone over 40 years old is not going to listen to a snot nosed 19 year old uni psychology graduate who hasnt lived life so has no right to preach about it. In general if money is going to be wasted in the penal system scrap the targets (All of them) invest in humanity and dignity if people are treated like animals they respond in that manner.
Kill the Nanny State stone dead there was never anything wrong with common sense and people still tend to do what is best for them regardless of the million pound campains to force the minorities beliefs on the majority of the publc it is my choice to smoke cigarettes it is other peoples choice to kill themselves with alcohol but that is the choice I ask no-one to share my weakness and this country at present is far beyong scare mongering opinions from Jobsworth Government Departments.
Policing for too long now the idea of presumed guilty has been both offensive and very often in error its complicated but it seems a law is added to the statute books and then a target is attached to that offence making it necessary for the police to manipulate or create ficticious circumstances to meet the offending rate of the given law, create the law then create the circumstances which break that law. e.g. a black diagonal line on a white circular background roadsign means National Speed Limit (70) on the roads of the UK except where they mean 60 or 50, NATIONAL speed limits, speed limits applied throughout the UK. The Police are not trusted by the public simply because they are aggressive and devious and far too eager to to jump to conclusions and investigate alleged offences based on the best possible chance of getting a conviction to improve their target demands. Burgulars do less damage than Police Searches the whole Policing system is in need of review and the law needs to be simplified for both the Police and the Public. First things first though, scrap the Compensation Incentive it is a culture that promotes unfairness and injustice and people who carry tape measures around to measure the height of a paving stone, BEFORE they trip over it.
Finally the welfare state, if there is no work in a given area of the country how is it that voluntary or temporary work can be found by Government Departments for unemployed people, the words ‘CHEAP’ or ‘SLAVE LABOUR’ springs to mind, if theres no work theres NO WORK but if there is voluntary work or temporary work there IS work the only difference is someone else wants something for nothing and they probably getting a Government Grant for providing the unpaid work, now that is just wrong. I cant get a job brushing the streets but I can if its voluntary and unpaid ????
NICK….., you know what is right, you hold the key to the power that governs this country, a coallition is not ideal but like me the rest of the country are, like I say ‘Watching the Lib Dems’, make your voice heard for all of us and together we can put the Great back into Great Britain and confidence back into Politics and those who allegedly represent us..
I started voting Liberal and Lib Dem when they joined with the SDP. I will now go back to Labour. Nick Clegg may have a new fancy title of Deputy PM but he will lose his job at the next election. WHERE ARE THE LIB DEM’S PRINCIPLES?
John Rentoul has written a rather good ‘read between the lines’ piece @ http://www.independent.co.uk/news/uk/politics/the-true-meaning-of-the-chancellors-emergency-budget-2007806.html
NSFCS – Not Safe For Clegg Supporters 🙂
my view is that a double dip reccession is now inevatable, fear is the motivator here, fear of lossing out in the 25% cuts, in pensions, in reduced consumption, in increased taxation.
It can’t be stopped now, the die is cast.
I’ve not much to add, but I voted Lib Dem in the general election this May and I recognise that the cuts have to happen and that they are happening in the fairest way possible.
I feel that some of the people commenting above just aren’t being realistic – the UK is in a massive mess, but still they think that we can somehow easily get out of it. We just can’t.
Labour did leave a mess – something which they are trying to get us all to forget, as Clegg said above. And that they would STILL be instigating a programme of cuts.
Not as much as this budget proposes, true – but the UK would’ve probably just have had it’s credit rating downgraded – and then where would we be?
“… the cuts have to happen and that they are happening in the fairest way possible.”
I simply don’t understand how people can keep saying this.
Even on the narrow basis of the specific changes to tax and benefits announced on Tuesday, the 10% of households with the lowest incomes will be the third worst hit income group by 2012-13, and the _worst_ hit group by 2014-15, judged by the percentage reduction in their incomes.
Adopting the alternative suggestion of grouping households by expenditure instead of income tells a similar story. The 10% of households with the lowest expenditures will be the worst hit group by 2012-13, and the second worst by 2014-15.
And that’s before taking into account the more general effects of the huge public spending cuts that are planned, which are practically guaranteed to have a worse effect on the poor than on the wealthy.
However much _overall_ spending may have to be cut, and however much _overall_ taxation may have to rise, the point is that the Lib Dems promised us time and time again that they believed in fairness – that they would protect the most vulnerable from the consequences. That’s the basis on which people voted for them. Now we find them supporting a budget in which the most vulnerable are not being protected at all. However the figures are packaged, the vulnerable are, at the very least, among the hardest hit.
I don’t think betrayal is too strong a word for that.
At the same time as cuts the UK Taxpayer is funding a holiday for the Pope to the tune of £12 million. Perhaps he should pay for his own trips from the extensive coffers of the Vatican and that 12 million should go to the disabled, pensioners etc