Three moments from today’s PMQs

I’ve taken to avoiding Prime Minister’s Questions. However today, I had no choice. At the moment it feels like a particularly angry and vindictive goat has stuffed my sinuses full of bits of cardboard box and is now kicking me in the head. I couldn’t even muster up the energy to get up from the sofa, where I was lying feeling sorry for myself, to find the remote control to switch it off.

The impending election doesn’t seem to have persuaded MPs to behave in a more grown-up fashion. I don’t think anything will change until Speaker John Bercow actually starts throwing people out. It’s nasty, shouty, brawly and hideously unpleasant and it’s all most people see of the work of the Mother of Parliaments. In fact, much goes on that is consensual, professional and pleasant from people of all parties.

Anyway, here are three moments in the half hour which were noteworthy.

Cameron takes credit for Liberal Democrat policy klaxon

Ed Miliband decided to go on tax avoidance, trying to make the case that the Coalition had been soft on the rich. He might want to have a closer look at the record of the government he was a part of. Labour left this labyrinthine list of loopholes which made it easy for the super rich not to pay a realistic amount of tax.

Cameron’s response was interesting:

Let me just remind the right hon. Gentleman that when we came into office foreigners did not pay stamp duty on the properties they bought, foreigners did not pay capital gains tax on the properties they bought, and because of his tax rates City hedge fund managers were paying lower tax rates than the people who cleaned their offices. That is what we had to sort out.

Now just hang on a wee minute here. Where have we heard that hedge fund manager and cleaner thing before? Ah yes, Nick Clegg said it, as I reported in January 2010.

Also on tax, he talked about taking 4 million people out of tax altogether by raising the tax threshold to £10,000 while closing down loopholes for the rich. He mentioned the case of the city banker who pays a lower rate of tax on his enormous capital gains than his cleaner pays on her wage, and, let’s face it, it’s probably the minimum wage.

Let’s just remind ourselves that the Tory tax policies in 2010 were to cut inheritance tax for rich, dead people and to introduce a marriage tax break. The Liberal Democrat tax policy is what the government actually did. So let’s not hear any nonsense from Cameron taking credit for the idea.

Adrian Sanders on Tory cuts

Adrian Sanders asked Cameron quite a barbed question about Tory spending plans should they be governing alone:

Given the success the Prime Minister claims for the coalition’s long-term economic plan, why, if allowed to govern alone, does he want to change it to bring in even deeper cuts to public services?

Cameron’s reply shows why he should not be allowed to govern alone. The country isn’t the same as a  business or family.

I believe that after seven years of economic growth, which is what we will have had by 2018, we should be starting to pay down the deficit by running a surplus. I think that is something that every business and every family in the country will understand. You need to fix the roof when the sun is shining, and as far as I can see, it is only the Conservative party that will offer that at the next election.

What was Nick Clegg doing?

There was a moment during the typically sterile exchange between Cameron and Miliband when Nick Cegg was seen to be digging in his pocket. I did wonder if he was going to bring out a “Bull***t Button” as seen on The Last Leg on Friday. Sadly he didn’t but I still dare him to. That would be worth being thrown out by Bercow.

* Caron Lindsay is Editor of Liberal Democrat Voice and blogs at Caron's Musings

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  • You are right Caron. But to be honest, Cameron’s hilarious line “Bill somebody is not a person. Bill somebody is Labour’s policy” is pretty much the only thing anyone will remember from that PMQ session.

  • jedibeeftrix 4th Feb '15 - 8:15pm

    “I believe that after seven years of economic growth, which is what we will have had by 2018, we should be starting to pay down the deficit by running a surplus.”

    Sorry, caron, is there something objectionable in this?

    Are subscribing to the Browne doctrine that awesome management has ended boom and bust?

    Do you recognise that without this we may enter the next recession with a deficit of circa 5% at the same time as we pay a debt interest bill of £50 per annum?

    There is an interesting 2010 paper from BIS showing that by 2040 Britain would have a debt of 400% of GDP, and be spending 25% of govt revenue on servicing the attendant debt interest. After election austerity promises were factored in!

    I believe you might be part of the problem.

  • “I believe that after seven years of economic growth, which is what we will have had by 2018, we should be starting to pay down the deficit by running a surplus.”

    Cameron now added to the long, long list of politicians who don’t know the difference between debt and a deficit.

  • Caron Lindsay Caron Lindsay 4th Feb '15 - 8:54pm

    There is that, Stuart, but also we should point out the differences between our policy and the Tories. The Tories would reduce the deficit by public spending cuts where we see taxing or taking away some benefits from richer people as an essential part of the mix.

    If using the state to break down unfair barriers that people face is a problem, I’m happy to be part of it.

  • Caron Lindsay Caron Lindsay 4th Feb '15 - 8:58pm

    @mBoy – that was a very good line, although it does kind of confirm that Ed Balls is human like the rest of us. I don’t really like capitalising on moments like that because they really could happen to all of us.

  • Adrian Sanders on Tory cuts
    Adrian Sanders asked Cameron an excellent question about Tory plans for even deeper cuts in public services —

    ” Given the success the Prime Minister claims for the coalition’s long-term economic plan, why, if allowed to govern alone, does he want to change it to bring in even deeper cuts to public services? ”

    Cameron’s reply shows why he should not be allowed to govern AT ALL.

    Adrian Sanders’ question also shows why outside help going to Torbay would be a wise investment in the future.
    Send cash now !

  • Alex Sabine 5th Feb '15 - 3:49am

    @ jedi – Agreed. Though I assume you mean the Brown doctrine not the Browne doctrine! I doubt Jeremy would accept joint authorship of that 😉

    Caron – It’s one thing to say that the national economy isn’t just a scaled-up version of a household: that I agree with. There are some key differences. The circular flow of income in the macro-economy (one person’s spending is someone else’s income) means that different activities are interdependent, which has implications for policy.

    But while there are important differences between the micro level and the macro level, it does not follow that there are no similarities and no valid comparisons to be drawn. A government may be able to borrow on more favourable terms than an individual, and may be able to use inflation to erode the value of its debts (a form of soft default); but like any other borrower it has to retain the confidence of its creditors and concern itself with both its cash flow/liquidity and long-term solvency.

    Cameron and Osborne’s homespun metaphor of ‘fixing the roof while the sun is shining’ is actually a pretty good working description of what a responsible fiscal policy would look like. It allows government to use its borrowing capacity during recessions provided the public finances are set straight again and debt repaid when the economy recovers. Since we know that even well-managed economies are subject to cyclical fluctuations and external shocks, it is only prudent to build in a margin or contingency against the likely downturn. This is quite different from the sort of rigid balanced budget rule favoured by some American politicians that would prohibit borrowing except in an existential national emergency.

    Running a surplus during the good times (which many well-run countries were doing in 2007, including Australia, New Zealand, Canada, Germany, the Netherlands, Sweden, Denmark, Finland and Luxembourg) has several benefits.

    1. Debt dynamics. Running a surplus reduces the stock of national debt, which lowers the cost of servicing the debt and means a smaller chunk of the government’s budget is swallowed up in interest.

    This effect builds up over time. For example, if the next government were to achieve a small surplus of 1% of GDP by 2019-20 (as per the Autumn Statement) and then keep it at that level for a decade, the IFS estimates that public debt would fall by 27% of GDP. If instead it merely balanced the current budget (which I believe is the Lib Dem plan), debt would inch its way down by just 9 percentage points over the decade. The result would be significantly higher servicing costs than in the other scenario, particularly if interest rates were to rise towards their more typical historical levels.

    2. Going into a downturn with a surplus means the public finances are better placed to absorb shocks and the deficit and debt subsequently peak at a lower level. For example, let’s say a bad recession causes the budget balance to deteriorate by 6% of GDP. If you start with the budget already in deficit by (say) 2% of GDP, borrowing will swell to 8% of GDP during the recession – not including any stimulus measures that the government might want to undertake. If, instead, it goes into the recession with a surplus of 2% of GDP (a perfectly plausible figure – plenty of countries had surpluses of this size or larger in 2007), the ‘swing’ will take the deficit to a much more manageable 4% of GDP and there will be a much smaller increase in the accumulated debt that future taxpayers will have to service.

    3. Perhaps most importantly from a Keynesian point of view, running a surplus gives governments more scope (more leeway if you like) to fight any downturn with an aggressive fiscal stimulus. The last government had to recognise that it had given itself limited room for manoeuvre when the recession came and deployed a modest fiscal stimulus worth about 1% of GDP (mainly through a temporary cut in VAT). To the extent that a larger fiscal stimulus is effective in reducing depth and length of the recession, it offsets some (though probably not all) of the direct cost to the Exchequer.

    4. Keynesians advocate the use of fiscal policy as a counter-cyclical tool to manage aggregate demand. If the economy is overheating, a surplus acts to dampen demand and thus helps to stabilise the economy. Lib Dems who regarded themselves as Keynesians didn’t seem to appreciate this basic tenet of his teaching when in 1999-2000 they called for Gordon Brown to spend the ‘war chest’ he had built up through earlier tax rises. At that time – though not for much longer – Brown was a faithful Keynesian and his Lib Dem critics were the heretics!

    The other point you make – that the Lib Dems want fiscal tightening in the next parliament to include tax rises as well as spending cuts – is a different argument concerning the composition of deficit reduction and of course is a perfectly valid position.

    But there is a big disconnect between this aspiration and the policies the party has announced so far. According to analysis by the IFS, the tax and benefit commitments the Lib Dems have made thus far amount to a small net ‘giveaway’ and actually increase the scale of cuts to public service spending required. This is mainly because raising the income tax personal allowance to £12,500 is an ‘expensive’ pledge and reduces revenues by more than what you would claw back from all of the tax rises taken together (mansion tax, higher capital gains tax, increasing the dividend tax rate and scaling back pension tax relief). So you’ve already ‘spent’ all of the projected revenue – and more – from a slew of tax increases on the wealthy on the personal allowance commitment.

    The clear implication is that if you want to raise significant revenue you will have to put up one of the broad-based taxes that are paid by many millions of people (income tax, National Insurance, VAT). These are the ones that bring in the big money; the mansion tax is a sideshow by comparison.

    As an illustration of this, the IFS has published a ‘ready reckoner’ which models the revenue yield from various different tax increases. This shows that a 1p rise in the basic rate of income tax would raise £4.2 billion, whereas a 1p rise in the 40p rate would raise £1.2 billion and a 1p rise in the top rate a mere £100 million. (The IFS’s long-held view is that raising the top rate beyond 40-45p raises ‘approximately nothing’.) A 1p rise in the main rate of VAT would yield £5.2 billion.

    To increase tax by 1% of GDP (roughly £18 billion) a plausible package might be increasing all rates of income tax, all classes of NICs and VAT by 1 percentage point. Alternatively you could raise all rates of income tax by 3 percentage points and you’d get to about £16 billion. Raising VAT (main and lower rates) by 3 percentage points would yield about the same.

    It’s easy to see why both Labour and the Lib Dems have not announced anything like these measures. For Labour, doing so would torpedo their ‘cost of living’ narrative, and they are still haunted by John Smith’s 1992 shadow budget with its election-losing sharp NI rise (which would have kicked in at about 1.5 times the average wage). But pretty soon cards are going to have to be placed on the table, or else talk of raising additional revenue to mitigate spending cuts will ring hollow…

  • Bill Le Breton 5th Feb '15 - 9:26am

    That really was a superb question by Adrian Sanders. Witness the careful and actually respectful if economically illiterate answer from the Prime Minister.

    I’m sending money monthly to his campaign which is probably the most marginal seat in the country (according to Ashcroft polling).

    Let’s keep a special Liberal Democrat in Parliament.

  • Julian Tisi 5th Feb '15 - 10:40am

    Agree that Adrian Sanders did very well with his question. Trouble is, there’s a more public narrative which is getting ingrained. The Labour party essentially peddle the opposite of the truth and claim that tax on the rich has gone down and tax on the poor has gone up. The Tories counter by taking credit for Lib Dem achievements in government knowing full well that Labour would be right had they been allowed to govern alone. The Lib Dems get ignored. We need to shout and we need to be heard.

  • Neil Sandison 5th Feb '15 - 10:47am

    i learnt some time ago as a campaigner that the more you talk about the other guy the more free publicity you are giving them the less likely people are to vote for you .Why are we not trumpeting our successes like the Green Investment Bank .There were 2 annoucements this week worth reporting a massive investment into a commercial anaerobic digester to reduce organic waste in London and a recovered wood CHP plant both funded by the Green Investment Bank .i am sure all of you have put Liberal Democrats in action on a Focus why are we not the first out of the traps to highlight our successes .We should turn Camerons words back on him and welcome his conversion to Liberal Democrat policies.

  • Neil Sandison
    “..Why are we not trumpeting our successes like the Green Investment Bank”

    Probably because nobody, even our MPs and candidates, nobody can explain in simple terms why it is a success.

    This is either because someone has been a complete failure in communicating the message, or it is because it is not really that much of a success.

    My instinct tells me that if it had been a great success then Cameron and Osbourne would be claiming it as their own.

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