The election draws near and the battle lines are being set -but they are being laid down on the principles of old, whilst the country cries out for change. More than anything, voters yearn for responsive local Government and not authoritarian diktats from afar in London or Brussels. They want their voices heard. The two party system is broken but our democracy remains in the past.
We need leadership and a vision of a modern democracy that will give people a real say and the freedom to act.
Do Clegg and Milliband have the statesmanship to seize a unique opportunity this May? All the leaders know that in all probability they will have to do a deal after the election if they want to be in or share power. So why not do a deal now, before the election? If the Labour, Green and Liberal Democrats come together in an electoral pact there is every chance they will win a clear majority of MPs.
Can they agree an electoral pact based on emulating Gordon Brown? Can they make a vow to implement major constitutional reforms within a three year period to be followed by a new election in 2018? Can they agree a package of reforms to transform British politics? A package that ensures every voter’s vote counts equally, that power is devolved to the nations and regions of the UK and yet keeps Britain united and strong – such as:-
- The replacement of the House of Lords with elected representatives from the countries and regions within the UK as already used for European elections.
- The retention of the present parliamentary constituencies in England, the elections for which will use STV to ensure a majority of voters support the MP.
- The House of Commons to become an English Parliament.
- The other three countries to have equal powers to the English Parliament given to their national assemblies.
- The Upper Chamber to decide matters of UK national interest with the PM being the leader of the party with the support of the greatest number of voters in the UK.
A joint manifesto could also include a commitment to eliminate the deficit by 2018 and the pursuit of a three year programme to work for reforms within the EU. The National Parliaments would in due course decide if National Referenda would be held in any of the countries within the UK at the same time as the next or any future General Election.
The economy is on the mend. Now we need to fix our democracy. A large majority want to keep Britain united and in a reformed EU – A Strong Britain in a Strong EU. Only a Labour/ Lib Dem/ Green pact can deliver that outcome. Can our leaders even make the offer?
NB A pact would identify those seats e.g. Cambridge, where a Lib Dem/Labour contest will still go ahead so the voters, not party bosses, choose their local MP.
* Mike Biden is an Executive ordinary member in Winchester. A lifelong supporter of the Liberals, he has become an activist since his retirement. His career saw him in senior corporate positions in Sales & Marketing and as a Chief Executive.
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82 Comments
Ref. 2, Do you mean AV or STV? I hope the latter.
There is no way you can have a fair representative system with one-member constituencies.
If you mean STV, as in the system we proposed in Parliament in February 2010, I’m all for it. As well as for turning the H of L into a federal parliament.
But I fear this alliance is unlikely to happen, because opposition to constitutional reform is strong in the Labour Party, essentially because they do best under the present system.
We might do better to talk to UKIP, the Green Party, the SNP and other parties that might join to demand a fairer system
They seem likely to between them achieve more votes in May than either Conservatives or Labour, but will almost certainly get far fewer seats than either.
Constitutional reform of the voting system will destroy the Lib Dems. Thank god the electorate rejected AV, we would have about 5 MPs if that had come in..
Mike Biden
More than anything, voters yearn for responsive local Government and not authoritarian diktats from afar in London or Brussels. They want their voices heard.
Where is the evidence for that? People SAY they want things like that, but if you offer a chance to have their “voices heard” how many people tend to respond? In my experience, very few. If people were that interested, how come so few vote in local elections? If you say “because local councils have no power” my experience is that most people don’t know that, and assume local councils have much more power than they really do have.
Mostly what people want is high quality government services and not to have to pay for it. So much of what is said in politics these days is people supposing that there is some magic way this can be delivered. They fondly imagine that pulling out of the EU, pulling out of the UK, setting up some sort of devolved local government etc will do it. It won’t.
I’m not at all opposed to wider powers for local government, but I’m suspicious of the way it gets put forward as a panacea. To me, shuffling state responsibility around isn’t dealing with the real issue, which is that power and control of our society has shifted from government at whatever level to big business.
Do Clegg and Milliband have the statesmanship to seize a unique opportunity this May? All the leaders know that in all probability they will have to do a deal after the election if they want to be in or share power. So why not do a deal now, before the election?
Because Labour’s election campaign can be summarised as this: “Nah nah nah nah nah, dirty rotten Liberal Democrats, they run this government, they are responsible for all the horrible things it has done, so vote for us if you want to get rid of this government. Policies? – er, uhm, er – well, we’re not like those nasty rotten Liberal Democrats, nah nah nah nah, vote for us”.
” 2.The retention of the present parliamentary constituencies in England, the elections for which will use STV to ensure a majority of voters support the MP.”
STV , as opposed to AV (the ghastly system which was roundly rejected in 2011), will not work without multi-member constituencies. So you cannot have STV with the present parliamentary boundaries unless you are proposing to treble the number of English MPs. Good luck with winning public enthusiasm for that idea.
In many ways this is attractive to my instincts and those of many past and current LibDem voters, but I doubt this scenario is remotely near Nick and Ed’s thoughts, and the extremely precise details of your proposal even less so. It’s also not hugely democratic.
Theres a fundamental arrogance here, assuming that Parties own their voters & can deliver them. We cant construct pacts between millions of voters & we cant guarantee that voters will do what we advise them to do. All voting pacts would do is convince more voters that we are part of the Establishment.
Matthew Huntbach 26th Jan ’15 – 10:39am
Do Clegg and Milliband have the statesmanship to seize a unique opportunity this May?
My first preference would be for Liberal Democrats to be in no sort of coalition at all from May.
My second preference would be for any sort of government that gets Cameron out of Downig St and the Conservatives out of government.
So I could live with a Lib Lab, or Lib Lab Green, or a Lib Lab Green, SNP, SDLP, APNI, SF, PC government if that was the price to pay for getting rid of Cameron’s Conservatives.
I think we know from experience about the lack of statesmanship and the lack of ability of Clegg in government.
Milband is an unknown quantity as a party leader in Government.
Whatever the quality of either Liberal Democrat or Labour campaigns at the moment I sincerely hope that the coming Election 2015 will NOT give us more of the same.
It will all be done in 100 or so days.
Possibly our worst decline in numbers of MPs since the second world war?
Hopefully there will be a majority government whether Cons or Labour. Then we can quietly rebuild over 3 years.
Everyone seems to assume there will be a hung parliament requiring the small parties like the Lib Dems to be involved to get a majority. But that may not be, the mathematics may produce figures whereby the only majority would be a Cons/Labour coalition, similar to Germany.
Paul, my post script makes it clear that I do not think we do. But the present electoral system does give parties power, that is why both Labour and Conservatives wish to keep it. The proposal is to retain constituencies for the Lower House whilst using regional party list for the upper. The electoral advantages of a pre-election pact are great this May. We are likely to fail to win seats because of the loss of votes to the Greens – that is why Cameron has made such a fuss over the debates. With the current proposal for TV debates we are certainly at even greater risk of electoral disaster. But the Greens would probably settle for a clear run from the minor party in some of their target seats where Labour or ourselves are the incumbent. We thus give voters the choice locally where it matters whilst maximising our own prospects nationally. I am quite sure this is not on the radar – that is why I wrote it! If a deal after for a Governmect why not a n electoral pact before? It would not necessarily have be on a common platform .
Nick Collins correctly points out that STV requires multimember constituencies. In a UK context, would require a minimum four-into-one merging of constituencies to be reasonably proportional.
However there are forms of PR (such as New Zealand’s MMP) that would have no less potential for proportionality than STV and which could probably get away with merging constituencies three into two or two into one. So there are options to accommodate the aspiration for relatively small and/or relatively familiar constituencies.
While I realise that the five points Mike Biden provides are illustrative and not necessarily prescriptive, they demonstrate the massive gulf between agreeing a platform in principle and the thrashing out the detail.
In point 5, for example, the governing party is effectively elected by FPTP using the whole UK as a massive constituency. This opens the door to many of the flaws associated with FPTP, most notably the potential for a minority party to gain control of government.
If it were possible to get Labour, the Lib Dems and the Greens to find enough common ground to run on a coalition platform, these kind of complications would need to be gone over in detail. I believe this is partly the thrust of what Mandelson was saying earlier today, (and not a flight of fancy – surely he was laying the groundwork when he praised the Lib Dems preference for finely banded council tax).
Implementing point 5 would effectively mean a Lab-Lib-Green coalition government saying it would be perfectly happy to win 60% of the vote at the 2018 election (split 20-20-20, for example) and award government to a Conservative PM sitting on 30% of the vote. That, of course, would not be viable, and the value of the ‘in principle’ agreement would suddenly become quite elastic.
***
In his comment above, Mike emphasises that what he is looking at is an electoral pact (aimed at getting MPs elected, and perhaps not necessarily at nailing down a policy platform) and I find that quite intriguing. Lord Oakeshott seems to think this kind of cooperation could be effective even on a more ad-hoc, constituency-to-constituency basis.
Matthew.
I don’t think it is Labours campaign. Their campaign as far as I can tell is cost of living and NHS. The “nah, nah, nah” stuff mostly comes from ex voters who feel let down. The real problem for the Lib Dems is that not enough people are listening. plus a strategy based on the fantasy that the present coalition can continue with 7% -10%of the vote share and the right wing of the Tories eyeing UKIP. Personally. I would welcome a reform pact because I believe the reforms are needed and this seems the most viable way of getting them.
Mile Biden
“.,, I am quite sure this is not on the radar – that is why I wrote it! ”
Do you know what is on the radar at the moment?
John, Not a clue! I stick to the scripts and do what I’m told to help the local campaign, I can’t even tell you how well we are polling locally . But I have seen little sign of any reaching out to the other parties or consideration of acting before the election in order to give the voters a more realistic opportunity of actually electing a wider range of MPs. I want to see us ally with the Greens and be clearly against the Nationalists, be they Welsh , Scots or the English UKIP lot. We are in danger of the media squeezing us out despite the Ofcom ruling that gave a very fair and reasoned account for their decision. Personally I could not support another Conservative Government – five years of Cameron rejecting political reform, of ideological schools policy from Gove and destabilizing shenanigans from the Euroscptics is enough. Unusually I think Oakshott is on the right track on this one.
Hi Mike
There are a couple of problems I have with your analysis. The first is that the Lib Dems, Labour and Greens don’t all agree with your proposals. For example – 3 & 4 suggesting the Commons should be an English Parliament. Not even the Lib Dems are signed up to this one – yes we want devolution, but is this the right answer? And I can’t see Labour supporting it. Or 2 – STV, but retaining the present partliamentary constituencies – as others pointed out, this doesn’t work. You need multi-member constituencies for STV to work (but perhaps you mean combining existing constituencies?). But Labour are dead set against STV as it gives too much power to the voter. In fact they’re against PR altogether as it would end the bonus in seats they get under FPTP.
The second problem is more fundamental – electoral pacts. I just don’t agree with them as I think the voters should decide. Plus speaking personally I could never in good conscience stand aside in favour of a Green. I just have too much of a problem with them and most of what they stand for.
This is dreaming. It reminds me of all the sad Old Labourites who spent years, after Blair took over, attempting to convince Blair of the virtues of socialism. They might as well have tried to convince Bin Laden of the virtues of Christianity.
Once upon a time it was conceivable to argue that the Lib Dems might find common cause with parties on the Left. Those days are gone. They are as dead as the dodo. The Lib Dems are now cemented into the British Right. And it makes absolutely no difference that a band of sad Old Libdems are still hanging around trying to convince Clegg of the virtues of left-of-centrism.
I don’t think it is Labours campaign. Their campaign as far as I can tell is cost of living and NHS
Labour don’t really have a campaign, do they? Labour’s assumption from 2010 onwards has been that the British public made a massive mistake at the last election, that they wanted to give Gordon Brown a kicking but that they took it too far and accidentally ended up with a Tory government instead. So clearly next time, having learnt the lesson about carelessly voting the wrong way, they will return Labour to power like they always meant to do in the first place.
That’s the only way their actions over the last five years make any sense at all.
(What they fail to take into account is that maybe people actually did want a Tory government, and maybe there are plenty of ‘silent Tory’ types out there who still do…)
David Allen 26th Jan ’15 – 11:29pm
“……………it makes absolutely no difference that a band of sad Old Libdems are still hanging around trying to convince Clegg of the virtues of left-of-centrism.”
I am happy to own up to being a sad Old Lib Dem. Who would not be sad after ten years of almost fatal decline following the publication of that Marshall Laws book?
But you misunderstand if you think I am hanging around trying to convince Clegg of anything.
Clegg is temporarily leader of a party that he clearly never really understood.
He seems to have thought it was a more polite, gay-friendly, pro-European wing of the Conservative and Unionists.
There is absolutely no point in trying to convince him of anything. I can recall no evidence of him ever conceding a point, acknowledging that he was wrong or demonstrating that he has been persuaded of anything by anybody in the party.
His natural affinity for the leading Conservatives of today and the helpful leg up given to his early career by the Grand Old Men of Thatcherism indicate where he is and where he is coming from. Even after his disastrous performance in the elections in May 2014 he was not listening to anybody in the party excet those who confirmed his prejudices.
He is not representative of the MPs and he is not representative of the membership of the party.
This temporary aberration will come to an end.
The party is definitely not “cemented into the right of politics”.
Possibilities are growing for enlightened and forward thinking people in this party working together with Greens, Labour party members, and various people in the SNP and other nationalist parties.
That might sound like heresy to some people but they might have to learn to live with it.
Glenn
I don’t think it is Labours campaign. Their campaign as far as I can tell is cost of living and NHS. The “nah, nah, nah” stuff mostly comes from ex voters who feel let down.
Oh, come on, Labour slagging off of the Liberal Democrats for “propping up the Tories” has been standard practice since May 2010. As I keep saying, if there really was an alternative government that could have been put into existence, it would have been Labour-led, so Labour needs to prove that by offering it, detailing the policies it would have agreed which are closer to those of the Liberal Democrats. Now THAT would have been decent opposition, because they could say “See, you could take that now, but you won’t, because you really are Tory allies”.
But Labour won’t do this because they know full well that a Labour-LibDem coalition was a non-starter, and they know full well that there aren’t easy-peasy answers and actually much of what they are slagging the Liberal Democrats off for over the NHS and cost of living would have been just the same had they been taking the lead in government.
Labour have said NOTHING realistic about how they are going to improve the NHS, apart from raising a little bit of money with a high-value property tax, which was a Liberal Democrat idea in the first place.. I’m afraid the usual line “our government will be so wonderful that the economy will boom and that will solve all our problems” won’t wash with me – ANY opposition party can say that, and of course it WAS the Tories’ line last time round.
That’s what I mean by a “nah nah nah nah nah” approach – a stand which criticises a party in government from an opposition party which knows that if it were in government it would be doing much the same. Of course it is much easy for Labour to do this, and push the idea that it’s all the LibDems’ fault that we have the government we have now, because that is easier than to actually win over support for a realistic alternative which needs to be honest and say that actually if you want a decent NHS, you are going to have to pay more taxes, if you want university tuition to be cost free to students, you are going to have to pay more taxes, and so on.
We need an honest debate which accepts the need for higher taxes if people want the things they say they want when they are angry with the current government for what it has done. The debate may then focus on what are the fairest taxes to do that, or it may be that when faced with this reality people think again and decide that actually they’d rather not pay the taxes and so face up to the reality that this means things like the tuition fees system and the gradual run-down of the NHS so it becomes only an emergency back-up system. By adopting a “nah nah nah nah nah” approach to opposition, Labour is preventing this debate from happening. It may win them votes and power, but then what? They are stuck because they have not been honest about what is required to change things. They’ll win all these votes from people who once would have voted LibDem and are angry about tuition fees, but they won’t be able to reverse the tuition fees system, or (as was they were talking about) cut the amount paid in tuition fees with the result in massive cuts in university spending.
Drowsy
However there are forms of PR (such as New Zealand’s MMP) that would have no less potential for proportionality than STV and which could probably get away with merging constituencies three into two or two into one. So there are options to accommodate the aspiration for relatively small and/or relatively familiar constituencies.
What would you rather have – a choice of MPs to represent your area, and deal with issues you might want to raise, or just one who could have completely different views to you and be hostile to issues you want your MPs to raise?
We have multi-member council wards, though the system used for election to them tends to negate the possibility of multi-party councillors, so generally you get three all of the same party. But I remember when I was a councillor and one of the councillors for the ward was from another party, people really liked it, they could play one of us off against the other, choose who to go for on casework issues, and I think that was good. So I think the idea that people in this country really love having a single constituency MP is over-rated. I rather suspect it’s more the MPs’ perception that they like it than it really being that way.
We must NEVER contemplate a pre-election pact as it says to the voters ‘we can’t make it on our own’ and thereby diminishes appeal. Far better to agree, across as many parties as possible, that post election there will be 1)an assessment of the results, which will doubtless show, yet again, the mis-match of seats with vote-share.. 2)that a constitutional convention will be set up to report in 18 months, put the case for reform to the people and introduce reforming legislation for introduction in 2020.
The parties that sign up to it will be then able to campaign collectively for reform, but separately for their other policies.
John Tilley: Well, I’m another sad Old Lib Dem. The question is what has been achieved over the past ten years by arguing against Marshall-Laws-Clegg, and what can be achieved now.
When Clegg won the leadership and then declared himself in favour of “big permanent tax cuts” in 2008, my reaction was outrage, and a belief that Cleggism would soon be rejected by the natural traditional majority for a return to centre-left politics. Sadly, the true nature of Cleggism was not widely recognised until some time after the 2010 election, and when that happened, Clegg’s endorsement of the Conservative alliance was a fait accompli. So, the natural left-of-centre majority in the Party didn’t, on the whole, fight back. Instead they accepted Clegg’s invitation to make a mass exodus in disgust.
Successive betrayals, and successive tactical incompetencies, successively encouraged me to believe that a majority could be reassembled to throw out the usurpers, if only that majority could be presented with rational argument and persuaded to drop the blinkers. On successive occasions, it failed. It wasn’t obvious that it was failing, I grant you. A growing army of like-minded commentators here on LDV and elsewhere created the illusion that things were moving in the right direction. But they weren’t. The grip of the “Prostitute State” on the levers of power, held by Clegg and his allies, was unmoveable. The Party goes into the election with a clear coalitionist stance which no candidates are challenging.
Certainly “Possibilities are growing for enlightened and forward thinking people in this party working together with Greens, Labour party members, and various people in the SNP and other nationalist parties.” But I think those people are working against their own interests if they continue to help the current Lib Dems. We need a new party!
Matthew,
And slagging of Labour, SNP and Greens as been pretty much been de rigueur for the Lib Dems since 2010. The coalition was a choice, IMO a very bad choice, because nothing in English law that forces one. You’re are absolutely right that any other coalition was not feasible, but this does not mean it had be formed especially when so many of the Lib Dems electoral reforms where dependant on Labour’s backing. So you end up with a Leader who blames a world banking crisis on the Labour Party and takes every opportunity to snipe at them, but somehow thinks they are going to help him out with electoral reforms yet absolutely accepts that the Party he is in coalition with will fight against those reforms. The result of this is the collapse of the Lip Dems and the rise of the Right, which leads to the other problem. One of the main arguments used to reassure left leaning Lib Dem voters was that the Lib Dems would temper the excesses of the Conservative Right. Well, it didn’t really happen did it and it didn’t happen mainly because the Cleggies as you like to call them are pretty much economic liberals and were looking to ditch a lot of the Lib Dem manifesto in the first place.! The bottom line is that the people who voted Lib Dem in 2010 are now voting with their feet and Labour, also not that popular either, had little to do with it, You credit it Labour with far more powers of persuasion than they have.
When Nick Clegg has gone in a hundred days, it is time for the Liberal Democrats to consider a much closer relationship to the Labour Party. There is a precedent. The Co-operative party does not independently put up candidates for UK elections, instead, Co-operative candidates stand jointly with the Labour Party as “Labour and Co-operative Party” candidates. I am confident that “Labour and Liberal Democrat Party” candidates would do very well indeed.
David Allen 27th Jan ’15 – 1:48pm
David, as usual I agree with much of what you have written in your comment.
Donnachadh’s analysis in his book ‘The Prostitute State ‘is being recognised and the messages taken on board even by some people who gave him no support when he was active in the Liberal Democrats. It is my view that his book andthe recent book by Owen Jones (The Establishment and how they get away with it) , the recent BBC documentary ‘The Super Rich’ are all signs that a change is coming.
Respected international economists are escaping from the Thatcherite straight jacket of the last forty years.
Politicians in various parties and individuals outside the party system are beginning to cotton on that there is an alternative.
You say we need a new party. Certainly I agree that we need a new way of making politics work for the voters instead of worng fornthe rich and the Westminster Public School Elite.
It would appear that a change is actually happening. Whatever happens within the Liberal Democrats after May there is a tide flowing internationally, not just in the UK. The time for Thatcherism and the Orange Book is past. For Liberal Democrats the choice in May will be either to stick with the wrong side of history and prop up the Conservatism or face the future with the change on the left. If people chose the former there will not be a viable Liberal Democrat Party by 2020. One might argue that being incapable of having more than 350 candidates ready for a General Election in 100 days is evidences that we do not have a viable party today.
Thanks for joining in the debate folks. I go back to my basic point. We all know there has to be a negotiation after the election. So why can’t there be one now that will give the voters a better deal? Last time around 118,000 votes per Lib Dem MP, 35,000 for Toory and about 32,000 for Lab if I remember correctly and we had the Tories getting into a huff about % gets us the 50% we should be entitled to? We didn’t invent the system, we have to use it and exploit it. What is the point in campaigning after the election when one of the major parties will be in the driving seat and refuse to do deal. Labour must, in the light of the threat from the SNP recognise that they will be better with a deal with Lib Dems and Greens under which we can all limit the loss of seats to the nationalists and maximise our own chances. The manifesto is not necessary – we can justify an electoral pact simply on the grounds of fairness to the voters and allowing them to elect who they want. Activists can be concentrated on those seats where they co an make a difference and voters in a particular constituency can decide if they really want to see the power of the big two diminished and or the Tories prevented from making an unholy alliance with UKIP after the election. Labours long term chances of brokering deals win the other parties is far greater than the Tories, and I say that from the orange right of the party.
John Tilley – yes there is no real disagreement between us, except on how best to move forward – and perhaps both of us have some thinking to do on that point!
The Party should be in a state of transition given the disastrous results of the past 4+ years. However, there seems to be a more immediate problem that is being overlooked [if we recall the Ryan Coetzee terms of reference] that NC’s primary objective is to stay in coalition government [any government – although it is clear he would prefer the Tories].
My recollection is that, under the rules, if this is the case – there would not be a leadership election unless NC chose to have one or one of the other mechanisms are triggered by the parliamentary party or local parties.
My reading of the situation is that above all else – NC wants to remain leader of the Party – not to achieve anything beyond being in the public eye [along with the attendant trappings of office]. So if the Party does manage to hold on to enough seats to cling on to a place in a coalition government – the likelihood is that there will be no change after the GE.
On what the necessary ‘transition’ should be – if the membership does get a chance to influence that decision – I see this is likely to be a vexed issue unless there is a clear objective to be achieved. For what it is worth, this seems to be the over-riding issue of our time [and at least for the next decade] for most political parties or politically motivated organizations:
Our bullying corporations are the new enemy within [George Monbiot]
http://www.theguardian.com/commentisfree/2014/oct/07/bullying-corporations-enemy-within-business-politicians
Mike Biden
Thanks for joining in the debate folks. I go back to my basic point. We all know there has to be a negotiation after the election. So why can’t there be one now that will give the voters a better deal?
One reason is that Labour have given no sign whatsoever that they are interested in this sort of thing. As I have already said, rather than building the sort of progressive alliance you are talking about, their game plan is to see the Liberal Democrats destroyed and the two-party system restored. That involves ignoring the sort of pragmatic support those of us on the left of the Liberal Democrats would need to shore up our support and challenge the Cleggies and be able to push more strongly our position ion the Coalition. I see the Cleggies and the Labour Party as allies in destroying the party for which I was once such a keen activist.
Glenn
And slagging of Labour, SNP and Greens as been pretty much been de rigueur for the Lib Dems since 2010.
So? I think if you look at my contributions to Liberal Democrat Voice since 2010, I have been rather critical of the public image put out by its leadership and ad-men.
The coalition was a choice, IMO a very bad choice, because nothing in English law that forces one.
Well, it’s a matter of opinion. The arguments against what you say here have been made many times – a minority Conservative government would have been put in place, it would have put through a few unsustainable but vote-winning policies, blamed any resultant economic concern on “we can’t govern properly due to not having a majority”, and collaborated with Labour in an election in May 2011 if not earlier fought on the lines “get rid of the Liberal Democrats so we can have a proper government”. See the Labour-Tory collaboration on “No to AV” for just a taste of what it would have been like. Then we’d have a majority Tory government, and anyone who thinks what we have now is bad hasn’t seen anything – just look at all the moaning about the LibDems stopping them doing what they really want to do that takes place anywhere where Tories get together and talk politics.
You may disagree, but at least give me the courtesy of accepting my view on this is honestly arrived at and held, and not because I’m a Cleggie who secretly wanted to push the Liberal Democrats way to the right and is just pretending when he argues about the reality of compromise.
theakes
Constitutional reform of the voting system will destroy the Lib Dems. Thank god the electorate rejected AV, we would have about 5 MPs if that had come in..
How come? Are you suggesting most Labour voters would give 2nd preference to the Tories or vice versa? Please justify your remarks with some suggested figures of votes and transfers in individual constituencies.
John Roffey
However, there seems to be a more immediate problem that is being overlooked [if we recall the Ryan Coetzee terms of reference] that NC’s primary objective is to stay in coalition government [any government – although it is clear he would prefer the Tories].
Yes, and that will destroy the party. If there’s another coalition with the Tories, any chance of bringing the Liberal Democrats back to where they were will be lost, it means we WILL be seen as permanent allies of the Tories. If it happens, I will have no choice but to switch from the John Tilley position to the David Allen one.
Matthew,
the arguments about what could have happened had the coalition not been formed in 2010 are little pointless. My view is that the Tories had peaked and would not have gained any votes which is why they agreed to form a coalition so quickly. They’ve been an electoral fighting machine at least since Disraeli times. Cameron was basically scared of becoming the new Ted Heath. In truth they began losing support as soon as they were in office. So the evidence that they had vote winning policies up their sleeve is pretty thin and the economy would have looked shakier, which Labour would have exploited by pointing out that it was out of recession under Darling. The Tories were out of office for a very long time and didn’t use it to put their house in order. They would have been squabbling about Europe within weeks. This is why I think the Coalition was a costly mistake. As you’ve said elsewhere a lot of the assumption made by a lot of Conservatives and some Lib Dems is Labour would crack as they did in the 80s. They couldn’t beat Brown or Blair during an economic crisis and unpopular war, The thing is that the Conservatives are simply not that popular anymore. A second round of elections would IMO have strengthened the Lib Dems and the argument for electoral reform because there was a good chance it would have delivered another hung parliament or only a very slim majority that made it hard to push policies through parliament.
I was not trying to imply that you were in shape or form a secret Cleggite.
@ Matthew Huntbach
Yes – a new party does seem the answer if NC manages to retain the leadership after the GE – although that is no mean task without a clearly defined aim.
To reinforce my comment regarding “Our bullying corporations are the new enemy within [George Monbiot]”:
Apple posts biggest ever quarterly profit by a public company of $18BILLION – with revenue outstripping GDP of Israel – as it breaks sales records with iPhone 6
• Tech giant sold 34,000 iPhones an hour during the quarter to December 31
• Record revenue of $74.6bn – up 30% – more than quarterly GDP of Israel
• Its cash pile of $178bn is now the equivalent to $556 for every American
http://www.dailymail.co.uk/sciencetech/article-2928981/Record-iPhone-sales-drive-blowout-quarter-Apple.html
“Our bullying corporations are the new enemy within”
Absolutely, my word yes.
Do you have an iPhone or Ipad perchance? Does anyone else on this site have these wicked products from the enemy within?
If so I do hope you are consigning them to the fire forthwith as a gesture of contempt for this wicked wicked company…
“We need an honest debate which accepts the need for higher taxes ”
Are you for real Matthew?
Have that debate if you want to it will make you even less electable than you are already. People may say they will, but in the privacy of the ballot box they are NOT going to vote for higher taxes.
It is simple human nature. As I have said on this site till I am blue in the face, if Lib Dem supporters really want to increase the tax take of Her Majesty’s Customs and Excise nothing is stopping them whipping out their cheque books.
I don’t see many takers on here.
Whatever nonsense people spout, no-one wants to pay more tax, and any party that tries to openly argue for it is destined for electoral oblivion. End of.
simon
“Whatever nonsense people spout, no-one wants to pay more tax, and any party that tries to openly argue for it is destined for electoral oblivion. End of.”
The words “End of” are usually a pretty good sign that a commenter is spouting a preconceived idea, in the form of an eternal truth, rather than advancing a reasoned argument, and this is clearly no exception.
Think back to the elections of 2001 and 2005. Labour argued explicitly for an increase in NI to pay for improved funding for the NHS — and was re-elected. Lib Dems (oh remember the days!) argued explicitly for an increase income tax to pay for education spending — and increased its vote and its representation.
So — provided you get the messaging right — you clearly can argue openly for increased tax and prosper electorally.
QED
Matthew Huntbach said,
“If there’s another coalition with the Tories, any chance of bringing the Liberal Democrats back to where they were will be lost, it means we WILL be seen as permanent allies of the Tories. If it happens, I will have no choice but to switch from the John Tilley position to the David Allen one.”
Well, those in control of the Party – and I mean the alliance of donors, hedge funders, lobbyists, “senior” staff, grandees and leading MPs, of whom Clegg is presently the leader – clearly seek to be permanent allies of the Tories. Whilst they haven’t entirely ruled out an expedient switch to working with Labour, that seems to be only because in an uncertain situation, one never says never. Realistically, it isn’t what they want (and nor is it at all likely to be what Labour want).
I admit that the David Allen position, which at the moment amounts to sitting on my hands and hoping that left-of-centre Lib Dems soon see the need to start again and form a new party, is not terribly heroic or positive. However, I think it is better than putting in work for the Lib Dems, and thereby giving help and succour to the Conservative Alliance.
Perhaps none of this will matter, if the Greens follow Syriza and surge ahead, while the Lib Dems follow PASOK toward oblivion.
Monbiot today describes the revolutionary change the Greens envisage, with Ministers replaced by “convenors” to be elected by the whole of Parliament, thus forcing all Parties to collaborate in a sovereign Parliament. My first reaction was “This is the sort of impractical idealistic stuff which reminds me why I’m not a Green”. My second reaction was “Well, it’s real change that is needed to overthrow the “Prostitute State”, so, perhaps it’s seemingly far-fetched ideas like this that we do need to start taking seriously”.
http://www.theguardian.com/commentisfree/2015/jan/28/convictions-politics-fear-syriza-podemos-snp-green
Simon.
It’s irrelevant whether anyone as an IPad. It’s no more hypocritical than driving a taxed car down one of our state built and maintained roads whilst decrying governments as the Metropolitan elite and arguing for a smaller state. I say unto you form a supply-side commune free from the interference of the state. Let us learn from your example rather than take your word for it.
@ David Allen
“This is the sort of impractical idealistic stuff which reminds me why I’m not a Green”. My second reaction was “Well, it’s real change that is needed to overthrow the “Prostitute State”, so, perhaps it’s seemingly far-fetched ideas like this that we do need to start taking seriously”
I am inclined to believe that the Greens are actually proposing Marxism – which does appear to be the route Syriza is going. Now, objectively, Marxism does aim to equalise wealth and we know with certainty that the usual defence of capitalism ‘the trickle down effect’ does not work in a free global market [not that it ever worked that well when applied to nation states] – however, I am not confident that the UK electorate are prepared to make such a change.
If we reduce the issue to its lowest level, virtually all of the problems we are facing in the UK [from a left of centre prospective] is a lack of revenue for the Treasury as a result of so much of our business activity being undertaken by giant global corporations – who do not pay anything like the rate of tax that would be paid by a UK business operating solely in the UK. If this problem were solved – we would not need austerity measures – or at least not nearly so severe.
As far as I am aware no political party is offering a solution to this root problem.
Malcolm
Think back to the elctions of 2001 and 2005. Labour argued explicitly for an increase in NI to pay for improved funding of the NHS…”
This is rewriting history. In point of fact, Labour went to considerable lengths to avoid acknowledging that its planned ramp-up in NHS spending would have to be paid for by higher taxation. The 2001 manifesto made no reference to raising NI, though it did pledge not to raise the basic or higher rates of income tax. Presumably this reflected Labour nervousness about the reception that higher general taxation might get – though given the state of the Tory party at that time, I think they might have got away with it.
(As an interesting aside, given Labour’s current contortions over the role of the private sector in the NHS, the 2001 manifesto stated that “the NHS needs radical reform if it is to be designed around the needs of patients” and pledged to “work with the private sector to use spare capacity” and “allow successful NHS hospitals to take over failing ones”. People can draw their own conclusions about the motivation for their change of heart in opposition.)
Just before the election Labour commissioned a report by Derek Wanless on the NHS, which was published to coincide with Gordon Brown’s budget in April 2002. Armed with the conclusion of the Wanless report that the NHS was suffering from a legacy of under-investment (though the Thatcher government had increased NHS spending by 3% a year in real terms, no amount of funding is ever ‘sufficient’ in a system with potentially infinite demand), Brown was able to make, and win, the argument for an increase in NI.
For some years, that argument held sway, though the limits to public acceptance of higher taxation can be seen in the fact that – despite buoyant revenues – Brown found it necessary to borrow heavily throughout the rest of his Chancellorship, when his rhetoric about ‘prudence’ and the state of the economy would have suggested that surpluses were in order. There seems little reason to doubt that Brown would have raised taxes further if he believed either that it would raise more revenue or that the public would wear it.
Indeed, if you go through the historical series of public finance figures, it is striking that no British government has been able to raise more than about 38% of GDP in total revenue (general taxation plus royalties, receipts from North Sea oil etc) over the past 25-30 years. (In the 1980s receipts were somewhat higher, boosted much more strongly by North Sea oil revenues and asset sales.) Whenever governments have spent more than this they have had to rely on borrowing to make up the difference. So there would appear to be a ‘tax constraint’ exerted by British public opinion as well as by any (contestable) economic considerations.
In the 2005 election Labour justified its previous decision to raise NI for the NHS, but argued that no further increase was needed (without making a firm commitment on NI rates either way) and repeated its pledge not to raise either the basic or higher rate of income tax. According to a Guardian report from the manifesto launch: “Asked if the party would have to raise taxes if re-elected, Mr Blair insisted that all its programmes could be paid for at existing levels of taxation. ‘Can we pay for our plans?’ Mr Blair asked rhetorically, ‘the answer is an unhesitating yes’.”
As is now quite clear, and as the IFS and numerous other bodies pointed out at the time (though they understated the problem), this was a spurious claim given that there was already a structural budget deficit of at least 3% of GDP and only the most timid plans to close the gap – a point Tony Blair has since conceded in his memoirs.
Vince Cable argued that a rise in taxation would probably be needed in the next few years, but since the Lib Dem manifesto was a shopping list of spending pledges this would not have been of much help in reducing the deficit. Indeed in 2004 Cable argued that public borrowing was nothing to worry about, and that the real problem was the debt-financed housing boom. In this he was half-right, but the position was fundamentally illogical: for if the economy was as fragile as he claimed, the prosperity “illusory”, then it surely followed that the tax base was equally fragile, the booming receipts from the property and financial sectors equally “illusory” – in which case public borrowing was not merely a problem but would soon become a very big problem. People can judge for themselves whether he deserves credit for the warnings about the fragile foundations of the economy, or whether the accuracy of those insights makes his complacency about the state of the public finances all the more lamentable. Either way, his reputation as an oracle is grossly inflated.
Simon (re my “We need an honest debate which accepts the need for higher taxes ”)
Have that debate if you want to it will make you even less electable than you are already. People may say they will, but in the privacy of the ballot box they are NOT going to vote for higher taxes.
Yes, that is why we need an honest debate. If people in the privacy of the ballot box won’t pay for it, then they will have to accept not having what it is needed to pay for. I.e. scrapping the NHS in its current form.
As I have said on this site till I am blue in the face, if Lib Dem supporters really want to increase the tax take of Her Majesty’s Customs and Excise nothing is stopping them whipping out their cheque books.
Er, no, rather obviously taxation works on a “I’ll do it if you do it” basis. Otherwise, if it’s a voluntary payment system, it’s only right that only those who pay get the benefits. Well, we have that sort of thing already. So, you really are in favour of scrapping the NHS and replacing it by private funded services.
David Allen
However, I think it is better than putting in work for the Lib Dems, and thereby giving help and succour to the Conservative Alliance.
Well, I certainly cannot put in work for the party while it continues spewing out the right-wing economic lines it is doing so. I remain a member of the party, but passive in terms of activity. I might be motivated to give some support to individual candidates who can convince me that they repudiate the Cleggy line.
“I.e. scrapping the NHS in its current form.”
The NHS is not going to survive in its “present form”. It is only a matter of time, although none of the political parties will tell the electorate this truth. Not even UKIp has the balls sadly. 🙁
As for higher taxation I trust you are writing your cheque to help the NHS as we speak Matthew. What with the self assessment deadline and everything.
Or is politics for your everyone richer than you paying more tax?
Thought so.
If we take a longer historical perspective than just the 2001 and 2005 elections, there are clearer tests of the British electorate’s enthusiasm for higher taxes (as distinct from higher spending – which tends to go down well, especially when offered with lower taxes simultaneously).
The most obvious example when the Labour party honestly and openly argued for higher taxation to finance higher public spending was the 1992 general election. Its proposals were to introduce a new 50p top rate of income tax on earnings above £40,000, but also – crucially – to scrap the ‘upper earnings limit’ on National Insurance contributions, applying the full rate (then 9% for employees) above the upper threshold of £21,060. (Average earnings were then in the £15k range.) Labour’s shadow chancellor John Smith presented these proposals in a ‘shadow budget’ shortly before the election.
It was the NI increase, not the higher top income tax rate, that was to provide the bulk of the revenue for Labour’s proposals to increase pensions, child benefit and other social spending – since the NI hike would affect many more people. This package therefore represented a substantial rise in taxation on people in the upper/middle of the income distribution (through the NI rise) and an additional hike at the top end, to an effective marginal rate for employees of 59% (just below where it had been until 1988, when the top rate of income tax was lowered from 60% to 40%).
On the face of it, most families would be unaffected by the tax and NI rises, and in any case opinion polls suggested that the electorate was prepared to accept some rise in the tax burden in exchange for better-funded public services. But as things turned out, they weren’t: John Major led the Conservatives to an unexpected and clear-cut victory, and most psephological analysis indicates that the reason was not Neil Kinnock or his ghastly Sheffield rally but concern about the implications of Labour’s tax and wider economic policies, especially as the economy (throttled by the high interest rates required to keep sterling within the ERM) was in the doldrums.
In the privacy of the polling booths, voters evidently decided that the substantial tax hikes proposed by Labour risked prolonging the recession and jeopardising any recovery. And either they didn’t believe assurances that the tax rises wouldn’t hit them, or they thought they would be the thin end of the wedge: if the revenue fell short of Labour’s spending ambitions, average earners would be soon be tapped to make up the shortfall. Labour also misjudged the extent to which average earners aspired to earn more, and didn’t resent those who did so or believe that they should be tapped for more revenue.
This episode, and its contribution to the loss of a fourth successive general election, undoubtedly haunted Labour politicians for a generation. Little wonder that New Labour was extremely suspicious of polls that purported to show that voters were willing to pay more tax; nor that, in office, Gordon Brown had to resort to more stealthy methods to raise the bulk of his extra revenue.
The 1992 election had a strong echo of the 1959 campaign – when, at the height of postwar ‘Butskellism’, under the moderate Labour leader Hugh Gaitskell, the party proposed to increase social spending but denied that its plans required higher general taxation. Instead the revenue would come from ‘planned expansion’ that would deliver higher economic growth – then, as now, they believed they had special insights as to how to achieve that, even though Labour’s growth record in office had been inferior to the Tories’ and would be again in the 1960s and 1970s. The other source would be clamping down on tax dodgers and closing tax loopholes (sound familiar?). Voters were not reassured that they wouldn’t end up paying more, and the Tories were returned with an increased majority.
(Interestingly, Jo Grimond’s verdict on the Butskellite consensus of that era, expressed – appropriately enough! – at Taunton in June 1958, was caustic: “A socialist way of life embalmed under a Tory government.”)
I will end this rather lengthy detour into the dusty annals of history (I apologise for its length, I didn’t have time to make it briefer) by making one final observation. You might think that a reasonable barometer of the general public’s willingness to pay higher taxes would be the basic rate of income tax. After all, income tax is the most well-known and high-profile tax and is generally perceived to be among the fairest, since higher earners pay more than lower earners on a progressive scale and taxes on flows (income tax, NI, VAT) seem to be less unpopular than taxes on stocks of wealth (witness the relative unpopularity of inheritance tax, for instance, despite the fairly small proportion of estates affected). Moreover, the fact that for most people it is deducted from their wages through PAYE means it is much less ‘visible’ and seen as less of an onerous burden than council tax.
Yet no government has dared to increase basic rate of income tax since Denis Healey raised it from 30% to 33% in 1974 and then to 35% in 1975. Under pressure from the Liberals within the Lib-Lab pact as well as from public opinion, Healey would later trim this back to 33% before Labour were ejected from office in 1979. All the subsequent movement has been in one direction, steadily taking the basic rate down to its present level of 20%. There has been a partially offsetting increase in NI, but it has been higher VAT and ‘sin taxes’ that have filled the gap, and no increase in the overall tax burden beyond 37-38% of national income has been sustained.
Past trends are not an infallible guide to the future, of course. Were that the case then the prospects for the root-and-branch tax reform that I advocate would be bleak indeed. But we should at least recognise the historical realities rather than perpetuating myths. There is scant evidence so far to suggest an actual, rather than rhetorical or hypothetical, public appetite for higher taxes. That leaves higher taxes on the very rich, or higher borrowing, as the only avenues open to would-be high spenders. And, as Labour recognised in 1992 – and paid the price for it – higher taxes on the very rich don’t get you very far along the road to a social democratic commonwealth…
Apologies, I did indeed rewrite history, but inadvertently. I see that the NI rise to pay for NHS spending was announced in 2002, a year after the election. I remembered it differently, and didn’t double-check. 😳
Malcolm: No worries, easily done, it’s a while ago now! My other point, though, was that by 2005 Labour was claiming that they had raised enough revenue to cover their forward spending plans, so in fact there was only a brief period (2002-03, the period between when the NI increase was announced and when it came in) when they argued openly for higher taxes.
Matthew: I admire your honesty and realism on this subject – unlike lot of others on the centre-left, you recognise that significantly higher public spending requires average earners as well as the rich to be willing to pay higher taxes.
Denis Healey acknowledged this point in his (compulsively readable) memoirs. One of the lessons he drew from his experience as Chancellor was that, because there weren’t enough rich people to raise the revenue required for a step change in social spending, “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”.
Perhaps paradoxically, he also judged that “in a prosperous society the balance between direct and indirect taxation is likely to continue shifting towards indirect taxation, providing that the most essential goods, like food and clothing, are not taxed.” This conclusion is problematic for those on the left who see even our system of VAT, with its many exemptions, as highly regressive (they define pro/regressiveness with reference to a snaphot of income rather than, as economists prefer to gauge the impact of VAT, in relation to expenditure or ‘permanent’/lifetime income).
Overall, the implication is a need to persuade the public to forego some of their personal income in exchange for what Barbara Castle used to call the ‘social wage’. The problem she found was that even Labour voters and (especially) trade unionists tended – when push came to shove – to prefer higher take-home pay.
Labour governments usually finessed the need for a choice by borrowing heavily, especially from foreigners, then insulting and blaming those foreigners when they wanted their money back (calling them the “gnomes of Zurich” and, in the case of Tony Crosland at the time of the negotiations with the IMF in 1976, demeaningly threatening Britain’s NATO allies with import deposits and the withdrawal of British troops from Germany).
I don’t expect that at this election either Labour or the Liberal Democrats will argue for an increase in any of the broad-based taxes that raise serious amounts of revenue: income tax, NI or VAT. (Indeed, the Lib Dems will press the metits of continuing to reduce income tax for low, average and above-average earners.)
Instead it looks like they will propagate the fiction that gimmicks like the mansion tax, and reheated announcements about tax avoidance crackdowns, will be the gifts that keep on giving. But we shall see…
Alex Sabine
But we should at least recognise the historical realities rather than perpetuating myths. There is scant evidence so far to suggest an actual, rather than rhetorical or hypothetical, public appetite for higher taxes.
There is scant evidence that people want to see the NHS run down. But if we don’t have higher taxes, we have no choice – it WILL be run down. It is ALREADY being run down. Attempts to save money aren’t working. Cuts are just having knock-on effects that cause more expenditure elsewhere. The magic fairy dust of private sector know-how that the Tories still think can be scattered around to make everything wonderful and better quite obviously is NOT doing its job. Indeed, we are ending up having to spend more thanks to Labour’s scattering around with PFI. The big growth in people living longer means if we are just to keep the NHS offering the sort of services it offers, spending on it has to rise way above the rate of growth in the economy. So if spending doesn’t rise like that, we have no choice, we have to accept the NHS can no longer do what it was set up to do.
Now, sure, if you ask people “Do you want a tax rise?” they will say “No”. But it doesn’t help that we have fantasy political debate where somehow tax rises and government spending are treated as separate things. Suppose it was put to people honestly “What would you rather have – tax rises, or the NHS reduced to a safety net system rather than a free health care for all system?”. What would they say then?
I honestly don’t know, perhaps people would say “OK, put it that way, and I’d rather see the NHS go than have to pay more tax”. Fine, if that’s what people want, let them have it. But I think they need to be given a proper choice over it, not just told the bad side (“it means higher taxes”) without the good side (“you’ll still have an NHS which provides you with all reasonable health care without charging you a direct personal bill”).
Or, you can put it another way – if all people REALLY cared about was lower taxes, wouldn’t they be cheering us on for giving it to them by cutting out that big taxpayers’ expense of subsidising universities?
Alex Sabine
Indeed, the Lib Dems will press the merits of continuing to reduce income tax for low, average and above-average earners
Yes, such a fundamentally DISHONEST position, I would be ashamed to have any association with it, that alone is enough to stop me from giving any of my time or money to the Liberal Democrats in the coming general election.
Alex Sabine
In the privacy of the polling booths, voters evidently decided that the substantial tax hikes proposed by Labour risked prolonging the recession and jeopardising any recovery.
Er, how is that supposed to happen? Look at all those people sitting at home now because they can’t get job thanks to the cuts. How are they helping the economy? My wife, a skilled public sector worker, was out of work for three years, and could only get a part time job for two years, so we had to make big cuts in our spending, cuts on things that would provide others with jobs? How do you suppose that helped the economy? Look, I’d far rather have paid a bit more tax and my wife had a job, and others I know suffering from unemployment had jobs.
Where are all these jobs that the rich are supposed to be creating by not paying so much tax? I don’t see any signs of them. Oh, there’s posh restaurants in central London maybe they go to, but all they employ are people imported from other countries, similar all those other service-to-the-rich jobs. Sorry, it seems to me the rich have HAD their chance to show that taxing them less creates jobs and they have FAILED. They’ve frittered the money away in luxuries for themselves, pushing up house prices, fancy holidays and what not.
Glenn
Matthew,
the arguments about what could have happened had the coalition not been formed in 2010 are little pointless. My view is that the Tories had peaked and would not have gained any votes which is why they agreed to form a coalition so quickly.
And my view is that this is complete and utter nonsense.
The real loser of the 2010 general election were the Liberal Democrats. They had that big boost at the start of the campaign put down to “Cleggmania”, but when the votes were counted the LibDem share was no higher than it was before Cleggmania started. It was clear the LibDems were on the way down, and no big secret that they had no money left to fight an early general election anyway.
Do you HONESTLY think that had there been another general election in 2011, people would have said to Labour “OK, you’re forgiven, please come back and govern us?”. All the evidence is that, as in 1951 and 1966 and October 1974, when there’s an early general election because the previous one did not lead to a clear majority, there’s a tendency for people to think it’s only fair that the governing party is given a proper chance, so there’s a small shift their way.
Now, you need to put that in the context of what it would have been like had the Liberal Democrats refused to join a Coalition in 2010, had they said “Oh no, you have to give in to us, and we are going to leave Britain without a stable government if you don’t”. Do you HONESTLY think the British people would have cheered them on while doing that? The Tory minority government would have been in a win-win situation – the economy gets worse and they say “That’s all the fault of the Liberal Democrats for denying us the majority we need to govern properly”, the economy improves and they say “See what a good job we’re doing, give us a majority so we an do it better”.
It’s very clear, because it has already happened when they’ve tried it in a much more limited way in the Coalition, that if the LibDems were to have stuck to their guns and denied Britain a stable government in 2010-11, the political establishment, Labour and Tory, would have denounced them, painted them as people who put narrow party interest and silly policy obsessions of their own before the interest of the country. Because innumeracy is regarded as a virtue in this country, no-one would have bought the argument that the LibDems with over a fifth of the vote had a right to insist on more. No, they would be painted as a tiny force, less than 10% of the MPs, wrecking the country because of their unreasonable demands.
Quite obviously, the Tories running a minority government, would be planning for the next general election to be held shortly, and so would have indulged in give-away policies in order to sweeten the general public to them, big tax cuts, but no government spending cuts, knowing this would win them the majority they needed, and THEN would come the fundamental shift to 1930s level of state spending that they really want, then would come the abolition of inheritance tax, higher rate income tax reduced to 35%, full privatisation of the NHS, tuition fees but without the generous loans and write-offs the LibDems insisted on, and all the other rob-the-poor-to-help-the-rich stuff the Tories want in their hearts.
Oh, you carry on insisting that the only reason the LibDems joined the coalition was cosy jobs, and selfishness and all would have been wonderful, with a lovely left-wing government formed had only they not done so. If you can perhaps see it might not have worked out that way, perhaps you can just accept that those of us who reluctantly agreed to this coalition weren’t all closet Tories and don’t deserve the mud you’ve been throwing at us ever since on those grounds.
Alex Sabine,
Tell us what root and branch reforms you advocate. You’ve contributed huge post on what you think of tax policies from nearly half a century ago, So why not actually outline what you believe so we can run it up the flag pole and see if anyone salutes it.
Matthew – I agree that tax and spending proposals and decisions are often seen – wrongly – as isolated, separate things rather than intrinsically linked. For that reason I would prefer to see tax and spending decisions presented together in a unified budget rather than in separate budgets/autumn statements and spending reviews. I would also like to see local government raising most of its own revenue rather than relying on a central government grant, which severs the vital link between money spent and money raised, and muddies the accountability of local councils for their decisions.
However, the way you frame the nature of the choice – pay more tax or lose the NHS – is too stark.
For one thing, there is an ‘aggregation’ issue which an inescapable feature of democratic politics: political parties offer menus of policies, but voters would prefer to select a la carte. The British government spends upwards of £700 billion per year. The NHS budget takes up a large (and growing) chunk of that, approximately £120 billion on a UK-wide basis. But that still leaves an awful lot of other spending, not all of which voters might want or agree with.
Purely hypothetically, suppose voter X wants to increase the NHS and schools budgets and boost the state pension; but also thinks we should cut elements of the welfare budget, halve the overseas aid budget, scrap Trident and pull out of the EU, thus ending our annual net contribution. This voter would not accept the choice as you have framed it: he sees no reason why he should pay more tax to pay for the additional items of spending he supports, when there are plenty of other areas where he thinks the government could cut back. I suspect there are few voters who support all of the spending the government currently undertakes, but also few who don’t think more should be spent in other areas.
One response to this is to offer the electorate ‘hypothecated’ taxes: in a sense, this is what Gordon Brown did in 2002 by linking the NI rise to the report about NHS funding. But since that was not an actual hypothecated tax, voters realised that it went into the general pot, and by 2005 they were showing no signs of being prepared to vote for further increases, which is why Labour didn’t propose any come election time. Some voters fondly imagine that NI is a hypothecated tax that pays for their pensions, but in fact this connection (which was always weak in actuarial terms: pensions were paid right from the start by the working age population) has been largely severed – hence the case for abandoning the fiction and merging income tax and NI.
As things stand, we have few hypothecated taxes and they have always been strongly resisted by the Treasury, which jealously guards its freedom of manoeuvre. In principle a greater element of hypothecation could help to ensure money is spent on the things voters want, but realistically it couldn’t overcome the aggregation problem I described.
I am not offering a solution to this; I am merely pointing out that what it means is that voters don’t necessarily accept the menus as presented to them by parties. To an extent, therefore, their desire for lower taxes and higher spending simultaneously may reflect not so much financial naivety as frustration at the way parties have framed the choices they have to make. It conveys a message that they want their priorities to be reconciled differently.
The problem, of course, is that everyone will have different ideas about how to reorder the menus – which is why ultimately they have to decide which ‘dishes’ are important enough to sway their decision. But parties that are attuned to what the electorate is saying, and are therefore successful in elections, have consistently come to the view that voters don’t want their preferences to be reconciled by means of either higher taxes or scrapping the NHS; they want some other combination which may, in itself, be perfectly viable.
As one final example on this point, the coalition has dramatically increased the overseas aid budget at a time of domestic austerity. That might or might not be the right decision, but the polling evidence suggests voters disagree with it. Since all the main parties in Parliament support it, it is not likely to change who they vote for, and they probably don’t feel strongly enough about it to switch to UKIP purely over this issue. The foreign aid budget is not huge, but it has shot up to £12 billion. It would be perfectly viable (though I am not advocating this, this is not about the merits of foreign aid) to cut this budget right back and plug the NHS ‘funding gap’ that way. Voters may sense this, but they also know the next government won’t do that kind of switch. So they still want the higher NHS spending, reluctantly accept it won’t come from foreign aid, but don’t want their taxes to be raised instead: in effect, they hand the puzzle back to the politicians to sort out.
This is why borrowing is such an attractive option for politicians: it makes it easier for them to accommodate both their priorities and the priorities of the people who voted them into power, which may be quite different. It pushes the costs and the need to reconcile conflicting objectives into the future, handing the puzzle to future politicians and future taxpayers.
The other reason I say the way you frame the choice is too stark is hopefully easier for me to explain! It boils down to the level of spending, and the rate of spending growth, that parties want to go for.
As a matter of arithmetic, it is perfectly possible to fund higher public expenditure without the need to raise taxes or borrow more. The magic ingredient is economic growth, which boosts tax receipts and (to a much lesser extent) reduces some ‘demand-led’ items of public spending such as unemployment benefit. The majority of spending increases that most governments introduce – and contrary to left-wing mythology, most Tory governments as well as Labour governments do increase spending – is financed through the proceeds of economic growth.
Suppose there is no recession and the economy grows at an average of 2.5% per year, roughly its long-term trend rate. A government could increase public spending at that same rate and not have to raise taxes. The result would be to keep spending constant as a share of GDP, but rising significantly in real terms, enabling a greater quantity of services to be provided (quality is, of course, another matter).
Alternatively, the government might decide to increase public spending at a slower rate than the economy as a whole, say 1.5% per year, giving it scope to reduce taxes alongside the higher spending. That is the sort of approach that the Tory governments of the 1950s took, for example. Not surprisingly, the combination of higher take-home pay (from economic growth and lower income tax) and a steady increase in spending on public services proved popular.
Where Labour governments have come unstuck, either with the markets or the electorate or both, is that they have usually sought to increase spending on a much bigger scale, turning the taps on at full blast. Occasionally they have acknowledged the need for higher taxes to pay for their spending ambitions, but more typically they have predicated their plans on an assumed rate of economic growth that did not then materialise. The result was that spending increased much faster than the economy, swallowing up a bigger share of GDP, and the existing tax base has not been able to keep up the pace. (In Gordon Brown’s case this was partly disguised by the bumper receipts from the property and finance booms, but when the asset bubbles burst the underlying picture became clear.)
So, in ‘normal’ times – that is, if we did not have a large residual budget deficit and huge legacy debt problem – a government can quite plausibly increase spending (modestly) while also cutting taxes (modestly) should it wish to do so.
But if a party wants to increase not merely the level of public spending, but the share of the economy taken up by public spending (ie spending as a percentage of GDP), then it needs to set out specific tax-raising measures. It should not duck this reality by banking on higher GDP growth (or tax receipts) than is justified by historical experience; indeed, it should err on the side of caution where growth is concerned, and certainly not make the hubristic assumption that it will be able to banish the business cycle to the history books.
It is this prospectus – an explicitly funded move to a bigger state – which I was pointing out that parties have rarely, if ever, managed to ‘sell’ to the British public.
The other, more modest, profile of rising spending that I cited is rarely what is meant by ‘higher spending’ in political discussion or election campaigning: it is just hardwired into the Treasury baseline projections, and proposals to ‘spend more’ or ‘spend less’ are relative to the benchmark set by the government in power, not to the actual volume of spending in cash or real terms.
The difference in the current context is that, owing to the still parlous state of the public finances, the Treasury default setting is for no more than ‘flat real’ overall spending through to the end of the next parliament – and thus spending declining as a share of GDP – rather than spending increasing at the same rate as GDP growth and the ratio remaining constant.
Matthew,
Then why did the Tories form a coalition and why with an improving economy are they not miles a head in the polls.
I say the evidence is that they were to quote Thatcher “frit”. By 2011 the poles showed labour gaining ground and over taking them. I don’t think it’s a case of Labour being forgiven, just that the Tories simply are not that popular. Plus if the first thing you do in officer is announce there’s no money left and have already committed to an emergency budget with drastic cuts where are the giveaways going to come from? The point is that the Tories were commited to radical right wing economic reforms. They would have hiked VAT, cut public sector jobs and increased tuition fees Labour no matter what. The evidence is that they were more interested in spooking people with wild claims of a Greek Style meltdown than in launching a charm offensive. Any attempt at a giveaway budget would have undermined their attack on Labour for not “fixing the roof” when the Sun was shining. Labour had suffered its second worst vote and I don’t think were going to collapse any further. while the Tories needed to gain more of a swing with the boundaries working against them and the Brown factor eliminated. You think I’m talking nonsense. I think cognitive dissidence in your case. If you go back and look at the polls Labour WERE recovering quickly. Five years on and we’re looking at another hung parliament because the Tory vote never picked up enough momentum.
“The foreign aid budget is not huge, but it has shot up to £12 billion. It would be perfectly viable (though I am not advocating this, this is not about the merits of foreign aid) to cut this budget right back and plug the NHS ‘funding gap’ that way. Voters may sense this, but they also know the next government won’t do that kind of switch. So they still want the higher NHS spending, reluctantly accept it won’t come from foreign aid, but don’t want their taxes to be raised instead: in effect, they hand the puzzle back to the politicians to sort out.”
The choice is simple and stark. Do we want an ever increasing state, and do we trust it to manage our money better than we do ourselves? Your side of the debate, (everyone on this website) predicates all you think and say on the assumption that we need to maintain the current level of state expenditure at the least, or in the case of the NHS increase it in real terms.
The question is, do enough of the electorate really share that assumption, this core value of the left and centre left to ensure continuing consent? Or is the size of the state itself now becoming a matter of legitimate public debate?
You don’t read the Sun, I imagine. Today’s front page has a story in which a benefit claimant, termed the “Wadfather” admits he receives £46K a year, including a five bedroom house, after having 26 kids by 15 women and not working for 20 years. You have to admit it is a fabulous story!
The foreign aid policy is attacked in their “leader” : “Yet again a mountain of taxpayer’s cash is hastily splurged on risky Third World aid scheme s to meet a crazy annual target. With the deadline nearing, officials scramble to find worthy causes even if they cannot check exactly where the money ends up. For all they now it is already in criminals’ pockets.”
I would suggest to all of you that those pieces in the Sun are likely to have significantly impact electorally than the comments on this thread. Elegantly argued and lucid though they are.
And that if the choice is between higher taxes and a smaller state it is not at all certain that your side of the debate will win.
Opinion poll after opinion poll indicates that the majority want welfare and foreign aid capped or cut. Yet you and Labour want to maintain it by increasing taxation.
Except for yourselves as I keep on pointing out!! 🙂
Nope it isn’t sustainable, continue along this route and you won’t maintain the consent of the taxed. Most people outside the hifalutin world of LDV have had enough of being squeezed to fund the Wadfather.
Glenn:
1. My comments about tax policy referred primarily to the 2001 and 2005 elections (prompted by Malcolm’s characterisation of Labour’s pitch to the voters) and also to the 1992 election, since this seemed to me to be the most recent example of a potential governing party campaigning explicitly for substantially higher overall taxation to pay for substantially higher social spending, and threfore a reasonable test of the theory that the electorate would back that sort of agenda.
I also said the way the ’92 election panned out in some ways echoed Labour’s 1959 defeat; since (as you allude to) this was a very long time ago, I explained what Labour’s stance on tax was in that election and how it came unstuck – but that election was not the focus of my comments. In addition I pointed out that the last time the basic rate of income tax had been increased was 1975, which at the very least suggests that governments (of various stripes politically) have not felt as confident as left-wing commentators about the public appetite for higher taxes of a visible nature.
I’m sorry if the history was a bit dense for you, but it was intended as a way of addressing the question with some experience and empirical evidence.
2. I’ve set out many of my own ideas on tax reform in many other threads over the years. I am not hiding anything, nor do I claim to have all the answers. This post was about electoral strategy, not the economics of tax reform.
But since you ask, the main thing I mean by ‘root-and-branch’ reform is the need to look at the tax system as a whole rather than (as has unfortunately been the norm) formulating policies that create a constant stream of piecemeal, ad-hoc changes pursuing often conflicting objectives in contradictory ways. The result is that we now have a tax code that now runs to more than 8,000 pages and is full of incentives, exemptions, anomalies, distortions and (as a direct result) loopholes that invite avoidance.
As a general rule, I want taxes to be low, simple and compulsory not high but with numerous exemptions which distort the economy and breed avoidance. As a liberal I also believe the tax system should be as ‘neutral’ as possible in the way it raises a given amount of revenue, allowing people to decide unbribed how they want to earn, spend and invest their own money; or at least, there should be a default position of neutrality and a high hurdle for departures from it. I’m afraid I look with a pretty jaundiced eye at proposals to favour this sector or that sector, incentivise this and discourage that, direct investment to politically favoured places, provide tax breaks for some industries or subsidies for others. There often isn’t a good economic rationale, and even where there is the cumulative effect of the accumulation of ever more complex provisions has a stultifying effect.
As for what we should do about it, I think the general approach set out in the IFS Mirrlees review is the right one. I don’t agree with all their specific proposals, and they deliberately sidestep the important (and most politically contentious) question about the overall level of taxation; but it is a rich quarry for any party that is serious about tax reform. As a package it would be vastly superior to the status quo – yet none of the parties seems to have engaged with it, preferring to blunder on as before.
One useful lesson which politicians might at least have learned from reading the Mirrlees report is the need for humility. It might have prompted them to press the ‘pause’ button on the constant tinkering and seek a better understanding of the leviathan that they have created, so that they might eventually tame it and redesign it on better foundations. Fat chance. Unlike Socrates, they are not “strongly convinced that I am ignorant of what I do not know”.
Alex Sabine
For one thing, there is an ‘aggregation’ issue which an inescapable feature of democratic politics: political parties offer menus of policies, but voters would prefer to select a la carte. The British government spends upwards of £700 billion per year. The NHS budget takes up a large (and growing) chunk of that, approximately £120 billion on a UK-wide basis.
Sure, but there’s the nub of the problem – they tend to think that government services and the taxes that will pay for them are separate things on the menu, so a la carte means they can choose one but not the other. Dishonest campaign techniques used by all the parties tend to encourage this.
We have long, long ago run out of things that are easy to cut in order to safeguard the NHS. Again, there’s so much dishonest hand-waving political campaigning which suggests there’s easy-peasy cuts that can be made elsewhere, “bureaucracy”, “red tape” and the like. There isn’t. My own experience, and what I’ve heard from many directions all says the same thing – almost everywhere the point has been reached where when the politicians at the top pass down the order “there must be something you can cut, so we’ve reduced your budget, now it’s up to you”, what gets cut is things that those actually working on the ground KNOW will result in knock-on further expenses later on, or elsewhere. An obvious example we’re seeing now is cuts to local government resulting in cuts to care services, resulting in nowhere for the sick and elderly stuck in hospital to go to, resulting in more expense to the NHS due to “bed blockers”. There is SO MUCH more like this now. That’s why public spending stubbornly refuses to go down – it isn’t because the politicians are secret socialists as the free-market head-bangers like to tell us, it’s because there are NO EASY CUTS LEFT TO MAKE!
You mention Trident – sure, sure – but while trendies and old CND types might fondly imagine we can easily get rid of it, the reality is there’d be public uproar if we tried. Pulling out of the EU? The EU isn’t that huge a budget item, and anyone who thinks there’ll be no knock-on effects that damage the economy and so lose us money is .. well, let’s say, rather optimistic.
Anyway, we know what the big cost-cutting thing that was done last time was – abolish subsidy of university education. Remind me, how did THAT go down with the electorate?
Alex Sabine
As a matter of arithmetic, it is perfectly possible to fund higher public expenditure without the need to raise taxes or borrow more. The magic ingredient is economic growth, which boosts tax receipts and (to a much lesser extent) reduces some ‘demand-led’ items of public spending such as unemployment benefit.
Oh, yes – well of course ALL politicians say things like that “Our policies are so marvellous and wonderful, that they’ll result in a big economic boom, and that’ll solve all our problems”. That’s what I call a hand-waving solution. Personally when I plan my household budget, I start off assuming the worst, not assuming the best. One thing I am absolutely certain of is that the line “Tax the rich less, and they’ll make so much more money and we’ll all benefit”, which is the byword of the political right has turned out to be complete nonsense. It’s as much biased nonsense as the equivalent on the left which might be “nationalise everything and make people more equal, and the resulting happiness means everyone will feel better and the economy will improve, and planning business centrally will make it so much more efficient, so that’ll make it even better”.
simon
I would suggest to all of you that those pieces in the Sun are likely to have significantly impact electorally than the comments on this thread. Elegantly argued and lucid though they are.
Yes, I do read THE Sun if I happen to come across a copy. Much of it relies on people’s innumeracy, so you can point to a few thousands spent here, and suppose not spending it would fill a hole in the budget running into millions there. I read the Daily Mail when I come across a copy as well – half of it is “Why or why?” articles, to which the answer is generally “Because you’d be the first to moan about the tax it would cost and the ‘red tape’ it would involve” which is what the other half of it is about.
simon
You don’t read the Sun, I imagine. Today’s front page has a story in which a benefit claimant, termed the “Wadfather” admits he receives £46K a year, including a five bedroom house, after having 26 kids by 15 women and not working for 20 years. You have to admit it is a fabulous story!
And do they ever point out that the big housing benefit bills they are forever going on about are all thanks to Margaret Thatcher and her “right to buy”?
John Roffey – sorry for late reply but:
In response to my post advocating root-and-branch reform of “The Prostitute State”, you argue that much could be achieved by a single policy solution – making multinational companies pay their fair share of tax.
Well, you’re right of course, in a sense. But then again, isn’t it a bit like saying that the French Revolution could easily have been avoided, if only people like Marie Antoinette had had better advice on social justice? Or that Stalin might have been a great industrial moderniser, if only he hadn’t got so paranoid?
The reason why we aren’t getting multinational companies to pay their fair share of tax is because they control all the levers of power. They have bought up all three party leaderships and most of the media. They have seen to it that tax havens are embedded within the political power structure in the UK (Guernsey, Cayman Islands etc) and Europe (Luxembourg). Making the intellectual argument against tax havens gets us nowhere, because those in power are determined that it shall not be listened to.
Once upon a time we had a Party – Attlee’s Labour – which for all its many faults, had one great virtue. By and large, they just couldn’t be bought. By and large, a devout and even blinkered loyalty to class interest ensured that Old Labour would not do what big business wanted. As a result, they made some bad mistakes, but they also made some real advances against tyrannical inequality. Out of desperation, the Greeks have now similarly elected a government who are going to be hard to corrupt. That is the character of government that we need.
Simon:
First of all I am asking for precision in what we mean by saying things like a “smaller/larger state”, and an understanding of how government budgeting works. If we don’t have that then the debate isn’t grounded in reality.
For example, when people talk about a smaller state they might mean:
1. Total public spending being reduced in cash (‘nominal’) terms
2. Total public spending being reduced in real (inflation-adjusted) terms but not cash terms
3. Total public spending increasing more slowly than the economy over time, so that government takes up a smaller slice of the national cake
4. Tax revenues falling in cash terms, real terms or as a percentage of GDP
5. Tax rates being reduced but revenues rising in real terms (as happened in the late 1980s)
6. The functions and role of government being streamlined and reduced – for instance closing the Business Department, stopping much of its activity and transferring the residual functions to other departments (which Vince Cable favoured not so long ago, but is less keen on now); or privatising state-owned industries
7. Reducing public sector employment or the public sector pay bill
8. Reducing government consumption and/or investment but not transfer payments, or indeed vice-versa
Some of these options are more desirable in my view – and more acceptable to the electorate – than others. You could do the same exercise in reverse to get different working definitions of a larger state.
As a shorthand, I think the most sensible way of gauging of the size of the state for most purposes is to express it in relation to the size of the economy, ie public spending as a proportion of GDP. The same goes for deficits, debt etc. Otherwise you end up concluding that Greece is less indebted than the UK or that the US has a much bigger state than we do, which is a bit silly.
My comments in this thread haven’t primarily been about my own preferences, since the topic of the post was about electoral strategy. I pointed out that there was little evidence from the history of the past 40+ years to suggest that British voters were willing to pay higher taxes in return for increases in public spending beyond what could be financed from economic growth.
In fact, sometimes to the frustration of ideologically committed commentators and political activists on both the left and the right, voters have been remarkably reluctant to redraw the boundaries of the state – in either direction. Indeed, what is striking if you study the actual figures for tax receipts (this is a better proxy for public consent than the level of spending, because it shows what governments have been able to fund without recourse to borrowing), is that they have fluctuated by only a few percentage points in the 35-40% range.
For all the hyperbolic rhetoric about Thatcher’s ‘cuts’, she increased public spending substantially in real terms and only modestly reduced it as a share of GDP – and she actually increased the tax ratio as she turned the deficit inherited from Labour in 1979 into a surplus (though this surplus was soon dissipated).
As far as my own views are concerned, I would prefer to see a smaller state as a proportion of GDP, with public spending eventually taking more like a third of national income rather than 40-45%. But I don’t think that is achievable overnight, or certainly not in a way that would maintain a decent level of public service provision and social support. So it has to be done gradually, and requires the reforms that will reduce the long-term drivers of public spending not ‘slash and burn’.
It does not require absolute cuts to the cash level of public spending irrespective of inflation, economic growth or the state of the public finances; but rather controlling spending tightly and simultaneously reappraising what we expect the state to do, and what it shouldn’t be doing. For example, I agree with the Vince Cable of 2005 rather than the Vince of 2015 about the ‘industrial support’ functions of the state, embodied in his department; the welfare system should go on a ‘progressive diet’ (the universal pensioner benefits are an obvious place to start); there is a debate to be had about Trident – and much else besides. But doing all this, which is ambitious enough, will be required simply to keep spending pressures in check; it will not magically pare back the state to Victorian levels, as left-wing propagandists allege and Ayn Rand disciples dream. And nor should it in my view. There is a difference between tackling over-large and inefficient and bossy public sector bureaucracy and the will-o’-the-wisp of a 19th century ‘nightwatchman’ state. So, in summary I say: a limited and smaller state, yes; a minimal state, no.
But I don’t claim the electorate as a whole shares that view. I suspect voters demand change in general while disliking its specific implications, so there is a natural inertia and stasis while politicians do lots of grandstanding and shouting and thrashing around like beached whales. What I do argue is that the idea, cherished by Labour and Lib Dem activists, that voters will endorse and pay for a bigger state is a triumph of (left-wing) hope over experience.
@ Matthew
Oh yes – well of course ALL politicians say things like that “Our policies are so marvellous and wonderful, that they’ll result in a big economic boom, and that’ll solve our problems”. That’s what I call a hand-waving solution.”
Indeed, all parties do say those things. The particular problem for Labour is that, in so far as their spending plans are more ambitious, the shortfall in the economic growth (and therefore in tax receipts) typically forces them to raise taxes by much more than they are willing to admit in advance, or else to borrow heavily and/or cut back their plans. The Wilson government in the 1960s was a classic example of this. Whereas, for instance in the 1950s and the late 1980s, the tax cuts the Tory governments enacted did not result in revenues falling short of their projections, but the reverse.
“Personally when I plan my household budget, I start off assuming the worst, not assuming the best.”
I thought the self-styled Keynesians on this site were always telling us that a national budget was not analogous to a household one (which most of us with some economic knowledge do actually realise, strangely enough). Anyway, we’ll let that one slide.
I agree that it is only sensible for governments to err on the side of caution when drawing up budgets. I said as much in my comment above: they should not predicate their spending plans on rosier forecasts for growth or tax receipts than is justified by experience. That is why I prefer them to budget for a small surplus over the medium term, not perennial deficits. Sadly, left-wing governments in the UK (unlike, say, in Scandinavia) have never observed these strictures or learned anything from their experience.
Gordon Brown not only borrowed heavily throughout Labour’s second and third terms, but also based his spending plans on shaky foundations in the form of tax receipts from asset bubbles which he helped to incubate. Fundamentally he believed his own hubristic rhetoric about abolishing the business cycle, which is why we went into the crisis with a structural budget deficit of more than 5% of GDP, the highest in the G7 (according to the IMF) – an appalling position and a big contributor to the fiscal mess we’re still in.
But if you are arguing that governments should budget on the basis of assuming no economic growth at all in perpetuity, then I shudder to think what scale of tax rises would be necessary to fulfil your ambitions for state spending… Clearly that approach would be masochistic. There is a balance to be struck between that and politically-motivated optimistic forecasting, wishful thinking and and evasion of choices. At least we now have independent forecasting, even if the OBR’s remit and the fiscal targets themselves are politically dictated and malleable.
Alex Sabine
But if you are arguing that governments should budget on the basis of assuming no economic growth at all in perpetuity, then I shudder to think what scale of tax rises would be necessary to fulfil your ambitions for state spending
What “ambitions”? All I am talking about is keeping things as they are. I.e. on health care the principle that a reasonable standard of care is provided without that being personally billed for. It is a fact that average lifespan has grown quite rapidly in recent years, and that older people have more need for health care. Therefore, if we keep to that principle, we are bound to have to spend more on the NHS, just to keep the level of service the same. Growing complexity of society means similar applies in other areas, for example people need to spend longer in education, so obviously if there’s no personal billing there, state expenditure is going to go up from what it was when most people left school at 14. Now, on that we have SEEN what happens when people in the secrecy of the ballot box won’t vote for the tax rises necessary to pay for it – something had to give, and we HAVE had to introduce personal billing for higher education.
If people don’t want to pay the tax to keep the NHS, well, fine, we’ll end up having to bill them for routine health care, and they’ll still end up paying for it. Like higher education, it has to be paid for one way or the other. The choice is there and I think we should be honest about it, rather than promise tax cuts without talking about the impact in terms of what can no longer be provided by the state, or pretending we can carry on providing what is provided by the state without taking into account all those demographic changes which mean doing so costs more.
Of course, if one budgets on pessimistic assumptions, one may be pleasantly surprised by the surplus at the end, and one may then use that surplus. One may then reconsider one’s future budget on that basis. Isn’t that rather obvious? Just because I am suggesting caution doesn’t mean I am suggesting what you seem to be saying – setting my annual budget at what I was paid 20 years ago and taking no account ever of any increase in salary I might have had since.
Alex Sabine
Gordon Brown not only borrowed heavily throughout Labour’s second and third terms, but also based his spending plans on shaky foundations in the form of tax receipts from asset bubbles which he helped to incubate. Fundamentally he believed his own hubristic rhetoric about abolishing the business cycle,
Er, you’ve missed one important bit. He and Tony Blair previously adopted Tory economic policies which said so long as the rich were kept happy, the economy would boom and we’d all benefit. They presided over a house price boom – which cost the average young person far MORE in terms of debts than student tuition fees, using the Tory argument that supposed we could all make money selling houses to each other. As Peter Mandelson put it, they were intensely relaxed about people getting filthy rich, and didn’t bother to think about whether they were doing that in a productive way.
@ Alex Sabine – “As far as my own views are concerned, I would prefer to see a smaller state as a proportion of GDP, with public spending eventually taking more like a third of national income rather than 40-45%. But I don’t think that is achievable overnight, or certainly not in a way that would maintain a decent level of public service provision and social support. ”
This is where is sit.
Alex fair due,
I was being a little facetious , but I did read your entire posts. The upper rate of Tax in the late 80s was around 60% and I seem to recall it was lowered under John Major in the early 90s and then again under Blair in the late 90s. The surplus in the economy I believe was also achieved by Majors government in the mid 1990s after another economic crisis which saw interest rates hitting the close to 20%.
Glenn,
I would say the basic rate of income tax is a better indicator of public willingness to pay – and governments’ interpretation of that – than the top rate, since it obviously affects far more people (and a given increase in the basic rate raises a lot more revenue). The basic rate was hiked to 35% in 1975 before being steadily reduced under both Labour and Tory governments to 20% in 2007, where it has stayed.
The upper rate of tax in the late 80s was around 60% and I seem to recall it was lowered under John Major in the early 90s and then again under Blair in the late 90s.”
You’re right that the top rate was 60% for most of the Thatcher years, until Nigel Lawson reduced it to 40% (while also increasing capital gains tax and improving the indexation) in his reforming 1988 budget. In 1992 Labour tried the argument that their plans for a combined top marginal rate of income tax and NI of 59% in effect only amounted to restoring the old rate – apparently failing to notice that the world had moved on and marginal tax rates were coming down from the old punitive levels throughout the developed world. And anyway the big snag in their plans as far as the electorate was concerned was that lifting the NI ceiling would hit those on only about 1.4 times the average wage. Yet, as I pointed out, the NI rise of 9 percentage points (rather than the increase of 10pp in the top rate) was the key to making their sums add up.
The top rate was not lowered under either John Major or Tony Blair. It stayed at 40% until the last month of the Labour government.
“The surplus in the economy I believe was also achieved by Major’s government in the mid 1990s after anotther economic crisis which saw interest rates hitting close to 20%.
No, the budget went into surplus in the late the 1980s, despite (or, as some supply-siders would have it) despite the substantial income tax cuts (both basic and higher rates) in Lawson’s 1987 and 1988 budgets. The recession was triggered, in the first place, by the unwinding of the ‘Lawson boom’ when interest rates had to be jacked up to tame inflation.
It was greatly deepened and prolonged by our membership of the ERM, supported by all the main parties and the economic establishment, but opposed by Thatcher until she was eventually forced to back down. Sterling was unable to hack it inside a currency arrangement dominated by the deutschmark, the £ was overvalued and monetary policy had to be set not according to domestic economic conditions but to an artificial external anchor. Interest rates in fact peaked at 15% as the Bank tried in vain to defend the currency against a wave of selling. Once the £ was ejected from the ERM – a humiliating episode, but also a liberating one – interest rates were immediately slashed, the currency found its own level, inflation remain subdued and there was a textbook, export-led recovery.
The length of the recession, and a loss of public expenditure control prior to the 1992 election, took the budget from surplus to an eventual deficit of more than 7% of GDP or around £50 billion, then considered a shocking sum. It took the combination of the economic growth, substantial tax rises and scaling back public spending plans to bring this deficit down, but borrowing was just over 3% of GDP and falling fast by the 1997 election. The tax rises dramatically broke the (rash) promises made by the Tories before the 1992 election and, along with the ERM episode, helped to seal their downfall five years later despite a rather impressive economic recovery. The political rewards for fiscal virtue are not always great – though Bill Clinton would say he proved the opposite, that “good economics is good politics”.
So the irony is that big tax rises were in fact implemented in 1993-94 – in fact among the biggest in peacetime history (though they were later partially unwound as the fiscal numbers improved). But raising taxes to reduce a deficit is one thing; raising taxes in order to spend more another. And the Lamont/Clarke tax rises were unpopular to say the least, which is why Tony Blair was adamant that Labour could no longer position itself as a tax-and-spend party and risk a fifth election defeat on the trot.
@ Matthew
“Er, you ‘ve missed one important bit…”
The discussion centred on tax and budgetary policy. If I had to cover all the failings of Gordon Brown’s wider economic policies I fear my already over-long comments would run to a length that would test the mods’ forbearance to breaking point 😉
I am well aware of the house price boom. I doubt this had much to do with tax rates on the rich or the fact that Labour kept the top rate at 40%. It may have had something to do with the tax structure and the favourable treatment of homes in terms of capital gains tax – though this can be exaggerated given that mortgage interest tax relief (MIRAS) was abolished in 2000 (a Gordon Brown decision I approved of), well before house prices took off; and that CGT is chargeable on any properties that are not someone’s primary residence (just like other assets).
House price inflation surely had more to do with supply constraints imposed by the planning system and errors in monetary policy – the fact that interest rates were lower than they should have been, and credit cheaper, because central banks were mistakenly equated low consumer price inflation (primarily the result of globalisation and cheaper imports) with financial stability. In reality inflation had not been tamed, but had morphed from a retail phenomenon into a house price bubble.
Brown was not responsible for this, though his lax fiscal policy arguably made matters worse by stoking demand and certainly meant the public finances were in no shape to weather the storm when it came. Moreover, his decision to change the inflation index from RPIX to CPI at the end of 2003 stripped out housing costs from the measure of inflation targeted by the Bank. His decision to strip the Bank of its longstanding prudential oversight/supervision role, and to hand this task to the FSA, led to worse rather than better financial regulation. There were also an intellectual failure not about the role of markets in general in allocating resources, but about the unique features of financial markets.
But these failings do not conform to the simplistic cartoon account of the crisis, which is why the much anticipated ‘paradigm shift’ and ‘economic counter-revolution’ is mainly a figment of the imagination of displaced and rudderless former socialist intellectuals rather than an imminent political reality.
@ David Allan
“Out of desperation, the Greeks have now similarly elected a government who are going to be hard to corrupt. That is the character of government that we need.”
Without doubt it is the lack of integrity of politicians in the UK that has led to the multinational companies not paying their fair share of tax – because they are governing for the benefit of this ‘enemy within’ rather than the people.
It was interesting to see Jon Snow interviewing some of the leading Syriza politicians and having to check his usual ‘your lying’ style, appropriate when interviewing UK politicians, after realizing the interviewees where genuinely trying to help the Greek people, not themselves – it was refreshing. However, it is important to keep in mind this root problem – which might be ameliorated by the Syriza approach in the coming weeks and months – will remain.
History shows that the rich and powerful always abuse the poor and week in society. The development of civilization has been seen as one of moderating the extremes so that the gap between the two groups is narrowed [to think that Plato believed there would be revolution if the richest received more than four times the poorest in ancient Greece!] and the NHS and welfare state was a highlight in this development in the UK.
That said, it has to be acknowledged that the multinationals will be looking for any weaknesses within the coalition to see if any of the key players can be bribed or corrupted with their almost unlimited funds – and it is clear that Merkle intends to play hardball from the off. Even if Syriza do succeed initially it seems unlikely that the changes agreed will hold in the mid to longer term as the crowning glory of the current crop of meglomaniacs [T.TIP] is unlikely to be prevented from coming into force by the end of our next parliamentary term or soon after.
It seems to me that the installation of a system whereby voters can interrupt the actions of their MPs between general elections [through True Recall] and a means by which constituents are able to debate what their MP is up to provides the foundations of a longer-term remedy.
Alex Sabine
But these failings do not conform to the simplistic cartoon account of the crisis, which is why the much anticipated ‘paradigm shift’ and ‘economic counter-revolution’ is mainly a figment of the imagination of displaced and rudderless former socialist intellectuals rather than an imminent political reality.
My point is that the failings of the 1997-2010 Labour governments were more to do with them continuing the policy direction of the previous 1979-1997 Conservative governments than to them being any sort of doctrinaire socialists. The sort of criticism we now hearing about the 1997-2010 governments being too socialist is very much in retrospect. The classic example is the attacks made on them by the political right over PFI now – which ignore the fact that the political right back then were cheering on Labour for having agreed with the Conservatives about “free-market know-how” being the answer to everything. Those who spoke out against PFI back then were denounced as old-fashioned socialist dinosaurs who were out of touch with the real world.
The house price boom was all about continuing Margaret Thatcher’s fake feel of economic progress and wealth while in reality it was just private borrowing created money circulating unproductively, with the millionaires at the end of the housing chain most definitely NOT investing it into things which would secure the long term financial future of this country. Again, to speak out against this then was to get oneself labelled a socialist dinosaur.
You put the planning system as the factor pushing up house prices, the usual right-wing line. It ignores the way that if unproductive putting money into holding onto housing gives a better investment return than anything else, OF COURSE house prices are going to be pushed up – and the economy otherwise slumps. All of this was hidden under the 1997-2010 governments who were doing the equivalent of borrowing from one credit card to pay off another and saying “Look how well we’re doing”. Now the reality, which the free-market headbangers avoid, is that housing demand and housing need are two separate things. You’ll never satisfy need so long as everything that gets built instead goes to satisfying demand – which is what results from running down the council house system.
Mathew,
Pretty much agree. I think the economic Right in Britain just flings the word socialist about in much the same was as their American counterparts link liberalism to communism or the old Left used to accuse their opponents of being fascists. It’s also the same sort of “no that’s not what we mean. there was too much red tape, the government go in the way” argument. Quite a few of them were bemoaning the inconvenience of democracy in the aftermath of 2008 and pointing to the economic miracle of China. I find it interesting that there’s still basically a cold war with Russia after communism was defeated and yet China is seen as an awesome example of economic power-housing.
Matthew: I’m afraid that, not for the first time, you are tilting at windmills so far as my own views are concerned.
– I would not characterise the Labour government of 1997-2010 as ‘doctrinaire socialist’ – except in so far as their faith in the use of the state as the prime instrument of social change was undiminished. This found its expression not in old-style nationalisation, but in more subtle industrial intervention via the tax system; in the creation of a client state whereby people were taxed at low incomes and then had to jump through hoops to claim (often miscalculated and maladministered) tax credits, and means-tested support was extended much further up the income scale; in increasing the share of government spending in the economy by 5 percentage points between 1999 and 2007; and in a trigger-happy reflex to ban things and curb civil liberties.
With these considerable caveats, the Labour government supported a largely free enterprise economy and indeed relied on the wealth thus created (including the ‘candyfloss’ aspects) to help fund its public sector expansion – which is why it was able to sustain this for much longer than previous Labour governments that throttled the economy through high taxes and state controls.
– You’re right to say that much of the criticism of Labour’s economic policies was ex post. Far too many people took Gordon Brown at his own estimation and were taken in by his rhetoric of ‘prudence’ and abolishing boom and bust. All too few commentators and politicians seem to actually read budget red books or study the figures. The Tories cravenly allowed Brown to frame the political and economic debate on the basis of his own chosen ‘dividing lines’.
For my part, I was initially impressed by Brown as chancellor – leaving aside things like his damaging and short-sighted tax raid on occupational pensions – but around 1999-2000 I realised what he meant by ‘prudence for a purpose’ as he turned the spending taps on at full blast. The ‘iron Chancellor’ image was increasingly at odds with the profligate reality. I criticised him for running a substantial budget deficit for year after year to pay for his enlarged state sector. I also wondered whether it was sensible to take housing hosts out of the inflation target, and whether this might be a means of encouraging a credit boom to gloss over mounting problems with productivity in the economy.
– You’re right that there was continuity in some aspects of economic policy from the Tories to Labour, but I pointed out a number of key differences that were relevant to financial regulation and the conduct of monetary policy. There was the decision to strip the Bank of England of its prudential supervision role and hand it to an FSA that was ill-equipped to carry it out. There was the switch in the inflation measure that stripped out housing costs, thus giving the Bank no basis on which to rein in housing market inflation. And there was a fiscal policy that involved the government borrowing heavily and stimulating demand at the same time as excessive private borrowing.
@ Matthew
“You put the planning system as the factor pushing up house prices, the usual right-wing line. It ignores the way that if putting unproductive money into holding on to housing gives a better investment return than anything else, OF COURSE house prices are going to be pushed up…”
The connection between a restrictive planning system and high house prices is not a ‘right-wing line’ but a matter of elementary economic logic, based on a recognition of the forces of supply and demand. There is a serious deficiency of logic in those (including on the political right) who complain about high house prices while supporting strict land-use planning controls.
Incidentally, I’m not so sure investment in housing does give a better return than anything else, at least not over the medium to long term. According to a book called ‘Safe as Houses? A Hidtorical Analysis of Property Prices’ by Neil Monnery, which looks at house price trends in detail, between 1952 and 2010 real UK house prices rose 2.4% per year, very much in line with the rate of real GDP growth. The real take-off came in the 1996-2007 period, but in a longer historical perspective this looks like an aberration.
In so far as the tax system favours leveraged investment in housing rather than investment in other assets, this was true to a greater extent in earlier decades, when mortgage interest costs were fully deductible. Credit availability and cost (a function of interest rates), the relaxation of deposit requirements and the decline in housing supply relative to household formation would seem to have been bigger factors in fuelling demand than changes to the tax system.
Alex Sabine
The connection between a restrictive planning system and high house prices is not a ‘right-wing line’ but a matter of elementary economic logic, based on a recognition of the forces of supply and demand.
Yes, that is why I put some effort – which you have completely ignored – into suggesting that’s an over-simplistic view.
Matthew: Nowhere have I argued that the planning regime is the sole reason for the UK’s high house prices. There are myriad factors that influence house prices; I outlined some of the others in my comments.
I am open to the suggestion that the tax system might have something to do with it, though I don’t see the top rate of income tax as particularly relevant, and I find it curious that the most rapid period of real house price growth (2000-07) doesn’t coincide with additional tax incentives but with tax privileges for housing being scaled back. As I said, I think loose monetary policy, greater availability of credit and the relaxation of deposit requirements are more plausible explanations.
But the bottom line is that house price inflation is caused by a widening divergence between the the rate of new household formation (demand), which has been going up for a number of reasons, and the rate of new house-building (supply), which has been going down.
The fact that the planning system is the key factor is evidenced by the strong correlation between the price of housing and the price of land zoned for development. It’s instructive to reflect that in the 1940s, before the government nationalised land-use planning, the average cost of housing was just one-tenth of household income (despite there being many fewer dual-earner households). Creating a planning regime that incentivises development rather than blocks it (starting with the repeal of the Town and Country Planning Act 1947) is one of the most important changes that is required if housing costs are to be stabilised, let alone reduced.
Alternatively, as a society we might decide that the amenity preserved by the current planning system is so valuable that we are willing to see properties become ever more unaffordable for people on average incomes, while increasing the windfall gains for existing homeowners. Personally I don’t find that an attractive option from the standpoint of inter-generational justice, but that will be the consequence of continuing with the current Nimby approach. We can talk about Land Value Tax until we are blue in the face, but unless we address the planning system itself we are fiddling while Rome burns…
Since you clearly disagree with me about the role of planning constraints and the rate of housebuilding, please explain to me what are the spcific features of the tax system or other economic incentives (as opposed to vague rhetoric about the culture supposedly created by Margaret Thatcher) that have privileged investment in housing over other assets during the period when house price inflation has become a really big problem (predominantly the last decade).
Alex#
The correlation between planning and housing is not that simple. In my area they bang loads of housing up all the time. House prices have not dropped. Houses are built and exchanged with the expectation that their value will always rise. The over evaluation of their financial worth, leads to further over evaluation. So you end up with the asset value on a spread sheet constantly going up when fewer people are buying and when they are at too high a price, The price dropped in 2008 because this bubble burst, but because neither individuals or the government can really afford to take a hit the market was cushioned from the full impact of devaluation. When the similar thing happened in the late 80s-early 90s there were lots of repossessions because the response was interest hikes. If you had the right amount of leverage you could pick property up at knock down prices, which then begins to drive the value up again thus re-inflating the bubble. If there was really a shortage of housing people would be living in shanty towns. Instead they are living in properties their wages don’t really cover. So as far as I can tell the problem is speculation rather than demand. Building more homes would only lead to a short term boost before the expectation of increased asset value started to reassert itself. This is because people are not just buying places to live in, like they buy food to eat. They are buying an investment, pension plans and equity etc. Most things loose value with age. Property rises because of its connection to the financial markets that our economies are dependent on. Buying a house is more like investing in gold or bonds or a company than like buying a car or a TV, so the logic of supply and demand doesn’t really apply in a simple way.
Glenn: Few economic phenomena are simple, which is why I acknowledged that a number of factors, not only planning controls, explain house price inflation. It seems to me that monetary policy and credit availability are particularly important, yet these get little attention from commenters on this site who rail against spivs and speculators.
I agree with some of your analysis. But if you doubt the potency of the role played by the planning system, consider the huge disparity between the value of a plot of land with and without planning permission. As a rule of thumb, granting planning permission increases the value of land tenfold, a much higher multiple than in most other countries. The most important factor in determining land value is whether it has planning permission or not, and in turn land value is a large component of property prices.
The awkward reality is that there are inescapable trade-offs between (on the one hand) promoting housing affordability and maximising the productivity of the economy, and (on the other) preserving the countryside. These trade-offs are bound to be starker in a country with a relatively high population density like the UK (particularly in crowded southern England) than they are in a country with a low population density like, say, Canada.
This reflects the fact that population density carries an inherent economic cost, which can be borne either through a productivity or environmental penalty. Economic analysis can help by giving us an idea of orders of magnitude, and suggest ways in which we can seek to get the best of both worlds; but ultimately it is a matter of social choice how these priorities are reconciled.
The strongest argument for easing the restrictions on housing development in southeast England is that those who already live there have no right to prevent others moving there. Other people, including countryside campaigners and those who already live there, will feel that preserving every last acre of rural land – and coincidentally pushing their house prices up – is a higher priority.
In a crowded country or region where land is not as abundant as elsewhere and there are strict planning constraints, housing is an inherently ‘positional’, locationally specific good: in economic jargon, it is highly ‘contested’. For that reason, in any densely populated country which restricts new housing through planning laws, housing will tend to go up in price faster than average earnings.
We have seen this underlying upward trend accelerate in the UK not because of tax advantages, but in spite of their progressive removal between 1974 (when mortgage-interest tax relief was available on the full value of a homes, and was all the more valuable given the prevailing high income tax rates) and 2000 (when MIRAS, having been scaled back in a series of steps, was finally abolished). During this period the rate of housebuilding has declined while the rate of household formation has increased.
So I don’t think we can escape the conclusion that rising prices reflect supply constraints, especially in the southeast of England where constraints are most severe; in regions like the northeast, existing supply is higher relative to demand and new development constraints (which are in any case less stringent) have less bite, so price growth tends to be correspondingly lower.
As I say, there is a social choice to be made regarding how we reconcile physical development and the productivity of the economy on the one hand with rural preservation on the other. Opinions differ considerably about the appropriate weight to be given to each. But it is intellectually lazy to deny that choosing one over the other imposes costs as well as benefits; the question is whether we as a nation – or, more appropriately, as local communities – believe that these costs are outweighed by the benefits of a stricter or looser planning regime. Among the costs of strict land-use controls are higher land prices and consequently higher house prices, and lower productivity than would otherwise be the case. If housing affordability is the key criterion, then this will almost certainly require an increase in housebuilding and a more liberal planning regime especially in the more densely populated parts of the country.
Alex fair point.
But I would atgue that planning permission increases the value because of the expectation of huge profits rather than because the demand for housing is so great. If you look at the housing market you will find that it’s being driven by people up scaling rather than first time buyers and that in general the pace of construction is slowing because the cost as outstripped the ability of people to pay and so to me it looks like they are charging more than the market can bear rather than meeting a demand. The point is even in London people are being driven out by cost rather than by shortage. It was pretty common pre 2008 for anyone looking at the property market to conclude that the price of a home was inflated by anything between 30% and in some cases up to 50%. I would argue that QE was largely an attempt to mask over evaluation of assets and to stem inevitable deflation when the actual value was exposed to market forces. When this kind of thing happens with food or fuel the price drops and market has to adjust. For the last umpteen years we were told demand would keep pushing fuel costs up. They have dropped to the point that it’s spooking some investors. A similar thing happened with rice. Rice was going to be so expensive it would drastically effect the population of India. The claim was that the growing prosperity of China meant that demand was out stripping production and land was being lost to bio-fuel production. It turned out to be wildly inaccurate. I suspect the same thing has happened with property. The real problem may be that demand is less rather than greater than anyone cares to admit and that housing is being treated as more of financial product than anything else.
I’m sure there is something in what you say. At the risk of our debate becoming rather circular, I would just point out that a key reason there is an expectation of huge profits from land that has planning permission is that planning permission is hard to get and therefore highly valuable. Naturally if something that is highly desired is strictly rationed then obtaining it will provide profit opportunities.
I certainly agree that at least one of the purposes of QE was to cushion the inflated housing market and prevent the bubble bursting in a way that would have had big spillover effects for the wider economy. The aim was partly to protect homeowners from big paper and actual losses but also (like the bank bailout and also the fiscal stimulus) an attempt to achieve more of a ‘soft landing’ rather than an all-out crash.
This may have been the right judgement in macroeconomic terms – but one of the costs of this approach is that it prevented the market from correcting the overvaluation of property, particularly in London. Subsequent demand-side interventions like Help to Buy, far from making housing in general more affordable, have only made this problem worse.