30 Comments

• Lucas Amos 20th Mar '13 - 7:19pm

  I am so proud that this has become a reality. People who say the LibDems aren’t making a difference for the better only need to look at this.

• Alex Wilcock 20th Mar '13 - 7:48pm

  It all started back in 2009?

  Wow. I didn’t know the Lib Dems had invented time travel.

  I’d asked what this was about on your earlier thread (comments 9-10), because I don’t know the whole history but I am at least aware of rather a lot of inconvenient facts:
  https://www.libdemvoice.org/devils-details-and-the-tax-threshold-beyond-2014-33773.html

  The fact is, raising thresholds was party policy in the 1990s, then put back on the agenda when Chris Huhne made it the central plank of his Leadership campaign in February 2006.

  Ordinary members can indeed make a difference, and a lot of our policies came that way. It’s partial at best to say this is one of them. I’m glad Elizabeth Jewkes supported this policy, as did many of us from many years before 2009, and I’m sure it was a morale-lifting example for her to be applauded by the Leadership when her speech coincided with policies that had been in movement for several years. They should do that with members taking a stand more often.

  But morale-boosting spin aside, I’d be interested for someone to actually delve into the full policy history and the facts, because pretending that it all began in 2009 is… Well, trying to keep within your moderation, I can’t see any way (without time travel) that it bears any positive relationship to the facts.

  Or is this part of a concerted effort to airbrush Chris Huhne, like Trotsky? Credit where it’s Huhne, I say.

• Caron Lindsay 20th Mar '13 - 8:11pm

  Ouch! That’s me told!

  You will be right about Chris Huhne’s policy platform because you remember everything. That as part of Chris’s policy platform had passed me by – I only remember the “let’s buy our nukes from Aldi” and the daft referendum idea that led me to support Nick. It’s interesting that Chris’s campaign manager Paul Holmes & Chris were at different sides of the Make it Hapen debate 2 years later when Paul & Evan Harris supported increased public spending over tax cuts.

  I think we can agree that Lizzie ensured the idea got into the manifesto in 2010 & that’s why we can be pleased today at a pledge delivered. And that ordinary members can influence policy. Politicians keep promise – there’s a novelty. And we’ve kept 3 of the 4 on the front of that manifesto.

• Tony Dawson 20th Mar '13 - 10:56pm

  This is an incredibly introspective self-obsessed and defensive piece of artwork. I trust that no one would dream of putting it on a leaflet.

  There is a message to be imparted to the key piece of the electorate about these tax cuts. If it is not properly-contextualised it will be laughed out of court and an opportunity will have been wasted.

• Tim13 20th Mar '13 - 11:35pm

  But as we all should know by now – it’s been posted on here enough times now – this policy helps the better off as much as it helps the moderately off, and it only helps very slightly, if at all, at the lowest income levels. So it is no wonder that the Tories have been at times enthusiastic proponents of such a policy. There is little doubt that the consequent cuts – and the other cuts in public spending caused by “deficit reduction” (that didn’t reduce the deficit) have caused more harm to the actual total “social incomes” and the life choices and quality of life of the less well off than of middle and higher income people.

• Paul Holmes 20th Mar '13 - 11:39pm

  Actually Caron we supported the previously existing Party policy of seeking savings in public spending in some areas so that we could use the money for other areas such as education or health or abolishing Tuition Fees (so not an increase in public spending but a better use of existing money).

  I always got myself into trouble by supporting existing, democratically decided, Party Policy instead of whatever whim the Leadership decided to impose without consultation instead!

• MatGB 21st Mar '13 - 1:29am

  It predates Huhne’s leadership bid-it was the stated objective of the Tax Policy Commission launched by CK in the post 2005 GE policy review (which Huhne was of course on and thus knew it was workable), the party website did have some puff pieces about the launch of that a few years back.

  That CK then basically attacked the policy when it cmae in as a “lurch to the right” says a lot about why I was never that keen on him as leader, but that’s another discussion.

  That it was supposed to be implemented in budget #1 when we were in office instead of slowly drifted in is of course a different thing, we didn’t get enough votes for that. & Tim13, it doesn’t help anyone over 110K per year at all, the threshold is phased out for those earning over 100K. And it definitely helps anyone working full time on minimum wage a lot.

• Alex Sabine 21st Mar '13 - 2:12am

  Paul: The problem was that talking about ‘existing money’ blithely assumed that it was appropriate and responsible to endorse Gordon Brown’s spending totals, even while Vince lectured everyone that the indefinite economic growth on which they were predicated was a mirage, built on the mother of all property and credit booms.

  In finally challenging those spending totals, and making a tentative step towards reducing spending below the levels planned by Labour, the party leadership was belatedly moving towards a more realistic policy. What was unrealistic was to assume that the money could be used for tax cuts rather than to reduce the structural deficit that Brown was running at the top of the cycle.

  Caron: I think Alex is talking about the first leadership election in which Huhne stood, against Ming Campbell. But as MatGB says and as I posted in the other thread, the policy of raising the personal allowance predates that in any case.

• Alex Sabine 21st Mar '13 - 2:52am

  Of course the Tory leadership were equally committed to Labour’s spending totals at that time (and indeed right up until the onset of the financial crisis), so they too were complicit in Brown’s policies which they now excoriate. They essentially bought into the underlying macroeconomic assumptions, and had also boxed themselves in politically because of their capitulation to Brown’s simplistic and misleading ‘cuts versus investment’ dividing line.

  However, Vince Cable’s reputation, burnished by the financial crisis that ensued, was based on his economic literacy and powers of prophesy. He rightly warned of the unsustainable rise in personal debt and asset prices, yet didn’t draw the logical conclusion that the tax revenue on which the government was basing its spending projections was equally unsustainable.

  I suspect this linkage did cross his mind, but he was unwilling to challenge the party orthodoxy on spending, which until 2005 had been to spend even more than Chancellor Brown… It was telling that he was at that stage regarded by the media as a ‘right-winger’ in Lib Dem terms and an ‘economic liberal’ merely for wanting to wean the party away from this position to one of matching Brown’s overall tax and spending envelope.

  (Lib Dems who now criticise Labour’s recklessness with the public finances should recognise that most of the deterioration happened in the 2001-05 Parliament, although it could still have been fixed if spending had been curbed as Treasury civil servants argued for after the 2005 general election. The overspending was not about what Labour did in its last year or two in office in response to the crisis: it was the pro-cyclical spending binge in 2000-08 that was the underlying problem, which caused debt to rise in real terms and as a percentage of GDP during a period of robust growth in tax receipts.)

• Caron 21st Mar '13 - 8:18am

  Paul, how I wish you were still around to vote for Party policy – I can’t really see you trooping through the lobby to badck secret courts when the party had emphatically rejected the measure so many times.

• Tim13 21st Mar '13 - 9:08am

  Thankyou Mat. I hadn’t heard Charles’s comment about it being a “lurch to the right”. I would agree. But then dropping Local Income Tax was also a lurch to the right, so we have had a number!

• Steve 21st Mar '13 - 9:50am

  Screaming about a tax cut without a description of where the money is coming from to pay for it and how it affects different income groups is shallow, populist and meaningless. Yes, it’s the kind of thing I’d expect from a very right-wing party. If, on the other hand, you had described it as a tax cut that proportionately gives a greater share of their income to those on low incomes then you would have a message that might appeal and would counter the idea that the government is creating a greater divide between the rich and poor.

  So, where does the money come from to pay for it? Presumably from people in the public sector losing their jobs or receiving a pay rise that is below the average of the private sector (so effectively a cut).

• Antony Hook 21st Mar '13 - 10:50am

  I remember when I was a PPC in 2001, raising the threshold to £10,000 was already our policy then.

• Steve Comer 21st Mar '13 - 11:21am

  Listening to Ed Balls (as usual talking his surname!) this morning illustrated a key difference between our belief’s and
  Labours. We have taken people out of tax altogether, so those on part-time low waged work, like my daughter, pay no tax, and those earning not much more than the living wage level (like my son-in -law) pay very little income tax. This policy has helped them move from a cramped rented flat , and get a mortgage on a small terraced house.
  Yes others paying tax will benefit too, but surely it is right to encourage people into work through the tax system? In time this policy will compliment the effort Steve Webb is putting in on Universal Credit, and help people into work..

  Labour on the other hand are talking about a one-year cut in VAT. All this will do is discourage saving and reduce UK tax revenues, and any retail boom will be short-lived. Last time they had this policy I saved money on second-hand car, and plasma screen TVs, and in the process did my little bit for the Japanese economy. Yet most lower paid people did not have the spending power for the 2.5% reduction to be of any help at all, and the impact on jobs was difficult to see.

  And by the way – who restored the earnings link for state pensioner?

• Steve 21st Mar '13 - 11:32am

  “Labour on the other hand are talking about a one-year cut in VAT. All this will do is discourage saving and reduce UK tax revenues”

  So, how does increasing the tax threshold not reduce UK tax revenues? Perhaps this is my fault for not doing enough reading on yesterday’s budget, but how is the increase in the threshold being paid for? Can someone explain?

• Paul Holmes 21st Mar '13 - 12:22pm

  Alex Sabine – I always ‘love’ the way people throw in that phrase about someone ‘making blithe assumptions’ as if no one but the commentator has ever applied rational thought to anything in their life.

  The fact that Gordon Brown claimed he had abolished boom and bust and tried to fuel everything with reckless borrowing even at the height of the boom does not invalidate the rational, logical policies that our Party had held for decades.

  Public spending as a % of GDP has, give or take a point or two, averaged around 40% for much of post war history and regardless of who is in power at any given time. That puts us generally in the lower 40% of Western Economies. When politicians and journalists praise childcare etc in other countries they rarely bother to note the higher rates of tax that goes with this. As Charles Kennedy used to say “you don’t get owt for nowt” -and running on policies of a Penny on Income Tax for education and a 50p top rate to abolish Tuition Fees actually saw us achieve record breaking election outcomes in 1997, 2001 and 2005. The later shift to reallocating money from further tranches of Cold War fighter planes, or £100 Billion Trident renewals or half a Billion pounds a year of ‘Baby Bonds’ was another way of achieving the same thing.

  Should we cut public spending to 35% of GDP as David Laws has suggested ? No -that’s no blithe assumption, its a lifelong belief based on studying and arguing and debating and holding elected political office for 21 years. It’s is (or certainly was) the belief of the Party I have given my adult life over to for 30 years.

• Matthew Huntbach 21st Mar '13 - 1:48pm

  Hmm, suppose I say to my (hypothetical) children “I promise I will give you more pocket money, which I will pay for by stopping smoking”. When pocket money day comes round, I hand the children their increased allowance from one hand, cigarette in the other. They look round and see the television that was in the corner of the room has gone. “Well”, I say, “actually I sold the TV and stopped paying the licence to pay for your extra pocket money, but at least I kept to my promise about giving you extra pocket money”.

  The promise of an increased tax allowance was surely part of package of shifting taxes away from income. If people see it is being paid for by cuts in government services – which it is – are we REALLY fulfilling our pledge?

  I’ve always said I like the idea of shifting taxes away from income, but the problem is the Tories are fundamentally opposed to where I would want them to be shifted, because at the core of the Tories’ being, what is most fundamentally what they are about, is a belief that unearned money is noble and that therefore any tax on the idle rich is the worst form of tax. They may disguise it by talking about it somehow being against “aspiration”, but underneath they haven’t changed in this since their origin as the party of the aristocracy. That is why the taxes they are most keen on cutting are inheritance tax and capital gains tax, and they foam at the mouth at the hint of any sort of property or wealth tax.

• Alex Sabine 21st Mar '13 - 8:14pm

  Paul: Is ‘blithe assumption’ really an unfair description of a position which, on the one hand, warned that the prosperity then being enjoyed was artificial and illusory, and yet on the other hand endorsed spending totals conceived by a man who thought the economy would grow in perpetuity because he had abolished the business cycle?

  The ‘existing money’ (in terms of tax revenue) unsurprisingly was found NOT to exist any more once the tide of the financial crisis came in… Instead the existing commitments had to be met by borrowing from the central bank and the gilt market on a colossal scale.

  You say that Brown indulged in ‘reckless borrowing even at the height of the boom’. I agree. This must mean either that he was spending too much or taxing too little. If (like me, and like most Lib Dem spokespeople even on the left of the party like Simon Hughes now claim) you think it was the former, then I’m afraid it does ‘invalidate’ policies that proposed to spend the same amount, just in different ways. (Whether or not they were democratically decided by Lib Dem conference is neither here nor there.)

  If you think he was taxing too little, then logically you should have been arguing for an increase in overall taxation without increasing spending, which certainly wasn’t Lib Dem policy or the position of those opposing the leadership’s position in 2007.

  But simultaneously to lambast Brown for fuelling an unsustainable boom, while assuming his existing and future spending plans were affordable, was a pretty quixotic position.

  On your point about public spending as a percentage of GDP, I actually agree with you that it has been pretty stable around the 40% mark in the UK under governments of various colours. But what tended to happen previously was that it would fall as a % of GDP during periods of strong economic growth, and rise during downturns or recessions as a result of the automatic stabilisers. So it would fluctuate by a couple of percentage points around this long-term average.

  What happened during Gordon Brown’s period as Chancellor and then PM is interesting. Initially he followed this trend, controlling spending quite tightly in his first 3 years (more or less freezing it during his first 2 when he was keeping to Ken Clarke’s spending plans). This brought public spending below 37% of GDP by 1999-2000, well within tax revenues so that there was a budget surplus. A modest loosening could then have been justified to boost public investment, which was at quite a low level by historical standards.

  Instead of doing his, however, Brown literally turned the taps to full blast, more or less unremittingly for the whole of the period from 2000 to the eve of the financial crisis. This took the budget into heavy deficit by 2002-03, where it stayed throughout the long period of economic growth that followed. Spending rose by almost 5 percentage points during a period of strong GDP growth, so this was a structural shift to a bigger state. It also outstripped the growth in revenues, so annual pro-cyclical deficits and rising debt:GDP was the complacent ‘new normal’.

  On paper public spending was still ‘only’ around 41% of GDP; but as we now know, that level of GDP was a fleeting phenomenon sustained by asset bubbles that were soon to burst. The economy had in reality been overheating and the level of tax receipts boosted by the rampant financiaan arrest and housing booms.

  So it was no surprise that once those sources of growth and revenue dried up, existing commitments (not principally the emergency fiscal policy response to the crisis) represented almost 50% – in fact more than 50% on the OECD measure – of our new, lower and more realistic national income.

  Right now spending is at about 45% of GDP (again, higher on the OECD measure) and it is not forecast to reach the historical benchmark you refer to – 40% – until after the end of the forecast horizon, ie 2018. So whether or not David Laws is right to float a 35% target, that isn’t likely to be reached any time soon, and very unlikely to happen on George Osborne’s watch – so I don’t think you should be too concerned on that score!

  In fact, if we are looking at historical precedents for guidance, I don’t think it is the level of spending we should focus on but the level of tax receipts. That gives us a better idea of what the British government has typically been able to raise from its people without recourse to borrowing, which given the huge rise in our debt ratio should be something we aim to avoid for some considerable time once the budget is eventually balanced.

  The average over the past 30 years or so has been around 37% or 38%. In principle there is nothing magic about this sort of figure, of course; but it just happens to be the case that no government has been able to push revenue much higher than that.

  So in that context, there is something to be said for David Laws’s 35% figure for spending: it is the kind of level that would enable the government to finance itself comfortably through tax revenue and run a persistent small structural surplus, which in turn would enable a gradual reduction in our debt ratio towards safer levels (thus providing the scope to absorb future economic shocks) while reducing the drain on the public finances of debt service costs and freeing up money to be spent on actual services. Alternatively (and I suspect this is what he envisages) it would enable merely a balanced budget but with a reduction in overall taxation – which, of course, is apolitical as well as an economic choice. But in any case, this scenario is a heck of a long way off given the current fiscal position!

  Finally, given the state of the European economy in general (including ours), and also the rise of the BRICs and other emerging regions, I don’t think we can simply compare ourselves any longer with the western European economies that you make reference to. (As it happens we are now one of the higher spending European economies anyway, and were spending a bigger share of our GDP than Germany even before the crisis.)

  Although I’m not particularly keen on the phrase ‘the global race’, the underlying point that we need to consider the rapidly changing global context – and avoid economic parochialism – is quite right.

• Stuart Mitchell 21st Mar '13 - 8:41pm

  @Alex Sabine
  “Of course the Tory leadership were equally committed to Labour’s spending totals at that time (and indeed right up until the onset of the financial crisis)”

  Whereas the Lib Dems pledged to tax and spend more than Labour in both their 2001 and 2005 manifestoes. Something Lib Dems nowadays like to pretend never happened.

• Stuart Mitchell 21st Mar '13 - 8:50pm

  It’s nonsense to claim that the £10K threshold represents a fulfillment of the “Fair Taxes” pledge on the front of the 2010 manifesto. The threshold was only a part of that. Once again the Lib Dems are focussing on one small part of the taxation picture while ignoring all the other bits.

  What the 2010 manifesto actually offered in its “Fair Taxes” section was a £10K threshold financed entirely by increased taxes on the wealthy (including a mansion tax) and increased taxes on air travel. It most certainly did NOT define “fair taxes” as a £10K threshold paid for by higher VAT and benefit cuts!

• Steve 21st Mar '13 - 9:37pm

  Not one of you could answer my question about who was going to pay for these tax-cuts. The IFS appear to have answered the question by stating that taxes will need to be raised by 9bn after the election to maintain public services.:

  http://www.guardian.co.uk/uk/2013/mar/21/budget-2013-ifs-9bn-tax-rises-election

  That is, unless the Tories get in again and we see huge public spending cuts to pay for the tax give-away. So there we have it – unfunded tax-cuts and an attempt to get house prices to go up. Must be an election coming up in the next year or two.

• Miranda Whitehead 21st Mar '13 - 10:24pm

  Lizzie Jewkes is an executive member of Women Liberal Democrats. She ran one of the policy tables for WLD at the LSE Manifesto Day in 2009 and together they came up with this idea. She then took the idea away and worked it up with the help of Jo Swinson’s office . It was accepted as a policy motion for Autumn 2009 conference ( proposed by Women Liberal Democrats. )
  WLD are delighted that Lizzie’s work on this has been given some recognition at last , and pleased that as a party we still debate and listen to our members , and offer them the opportunity to work on ideas which may end up as government policy.

• Alex Sabine 22nd Mar '13 - 12:19am

  Stuart: Yes you are right, I was just pointing out that the Tories also backed the later phase of Brown’s spending and the 2007 Spending Review settlement. But as I mentioned, the over-spending began much earlier, indeed the biggest increases were in the 2001-05 Parliament. The structural deficit was highest in 2005.

  During this period the Lib Dems were, as you say, pushing for increases in both spending and taxation, and Vince argued that public borrowing was nothing to worry about.

  On your second point, note that except for a variation of the bank levy, all of the tax rises proposed by the Lib Dems were earmarked for tax cuts, not for deficit reduction. The steer the party was giving was that there would be no net tax rises and that deficit reduction would be delivered through spending cuts. The manifesto said tax rises would be ‘a last resort’ to be held in reserve if spending cuts alone proved insufficient to clear the deficit.

  The coalition, by contrast, relied heavily on tax rises in its early measures, notably the VAT rise. So some of the tax rises have financed deficit reduction, others tax cuts like the rise in the personal allowance.

  On the point about fulfilling the £10k PA policy, strictly speaking the Lib Dem manifesto commitment was to meet it in the first budget. The coalition, on the other hand, has phased it in thus reducing the Exchequer cost and the real value of the higher allowance. £10,000 in 2014-15 values represents about £9,000 in 2010-11 money. Nonetheless it has been a major commitment, some £10.7 billion per year eventually, and it will be worth an inflation-adjusted £509 per basic rate taxpayer (therefore up to £1,018 for two-earner couples).

• Steve 22nd Mar '13 - 7:39am

  If the increase in the tax threshold was funded by the rise in VAT then what was the point, given:

  1. We needed higher taxes from 2010 because of the deficit. You lose all credibility about deficit reduction when you start handing out tax-cuts mid-term.
  2. VAT is unarguably regressive across all income deciles according the the ONS data. The lowest paid get hit proportionately harder. The increase in the tax threshold proportionately benefits those in the middle income deciles the most (according to an analysis from left-foot forward).
  3. VAT is a tax on consumption, so it’s not a great idea to increase it when there’s a lack of confidence in the economy (indeed, it could well have been responsible for the last recession). Switching taxation from income to consumption at such times encourages excessive saving.

  As noted by others, if the increase in the tax threshold had been paid for by an increase in wealth taxes then it would be a distinctive, liberal policy. Paying for it with the VAT rise shows you don’t understand the lack of confidence in the economy and, if it is revenue neutral, that you’re not serious about reducing the deficit (unless your plan is to have severe cuts in public spending later on – is that what your voters wanted?).

• Alex Sabine 22nd Mar '13 - 2:40pm

  Steve: You make some valid points. I am not unreservedly defending Lib Dem or indeed coalition policy. However on your specific points:

  1. No significant NET tax cuts are being ‘handed out mid-term’. However a lot of money has been, and is continuing to be, shifted around over the Parliament reflecting coalition priorities. The government has committed £24 billion to cutting three taxes in particular (income tax, corporation tax and fuel duty) while raising more than that through a raft of tax rises (the VAT rise, cutting pension tax relief, keeping some of Labour’s NI increase, stamp duty increases, raising CGT).

  This week’s budget is entirely consistent with that and doesn’t change the big picture on fiscal policy, as the IFS confirmed yesterday. To all intents and purposes, it was fiscally neutral. The small net tax cuts over the next two years are clawed back through higher NI revenues as a result of the end of contracting-out in the subsequent years.

  2. Ask the IFS whether they regard VAT as ‘unarguably regressive’. They persist in arguing that, as a tax on expenditure, it should be looked at in relation to household expenditure not income; and on that basis VAT as currently structured is broadly flat in distributional terms. However, this is a technical point about methodology. What it is fair to say is that VAT is more regressive (or less progressive) than income tax, so – other things being equal – a shift from income tax to VAT will tend to be regressive. But let’s not exaggerate the case.

  You are right that the increased personal allowance benefits the middle deciles of the household income distribution the most in percentage terms. This is because two-earner couples benefit twice over from a higher personal allowance, and two-earner households on average tend to be higher up the income distribution. However a higher PA clearly benefits the lowest income taxpaying individuals the most. A single earner on the minimum wage gains a lot more as a % of his/her income than a single earner on the median wage.

  3. You may be right that 2010 was a bad time to switch taxes from income to consumption. However if we think about the incidence of these taxes, they both have a similar effect, namely they reduce disposable income. After all, the reason we work is to be able to buy things, and if either our income goes down (due to higher income tax) or the price level goes up (due to higher VAT) we can afford to buy less. So I’m not convinced that macroeconomically there is a huge effect from raising VAT by 2.5 percentage points with broadly offsetting cuts in income tax.

  There are specific circumstances in which there could be a macroeconomically significant effect (eg at a time of high and rising inflation, a step increase in VAT could fuel a price-wage spiral, as in 1979 for example) but as nominal wages have been growing so slowly, there is no evidence of a similar effect in this case.

  On the demand side, it seems to me the more significant factor is the rise in overall taxation since 2010, rather than the choice of VAT as the instrument. There would have been a similar effect on demand from Labour’s planned rise in NI or from an increase in income tax.

  The significance of switching from income tax to VAT is more on the supply side (although even here it may be overstated, for the reason I gave above, that there are offsetting effects on the returns to work).

  The reason an increase in the income tax personal allowance might make a more significant difference to work incentives is that, across the lowest income range, it cuts the marginal rate of tax by 20 percentage points (even though the overall cash gains are spread thinly across the much broader working population). And secondly, it increases the returns to work rather than to other activities (or inactivity), ie to benefit you have to be earning or generating an income. Some argue against it for this reason (since, say, the unemployed don’t gain whereas thy would from a VAT cut), but it does mean there is likely to be a stronger positive effect on work incentives than a VAT cut of the same magnitude.

• Paul Holmes 22nd Mar '13 - 3:21pm

  Alex, I know that Economic Liberals prefer a smaller state, lower taxes, Tuition Fees, personal Health Insurance etc etc. I don’t. I have never argued any differently at any time in my life.

• Alex Sabine 22nd Mar '13 - 5:19pm

  Paul: My criticism was not about ideology, but about the lack of internal logic in the position of those who supported Brown’s spending while simultaneously warning that the economic growth that underpinned it was built on sand.

  As I said, given your views it was perfectly open to you to have advocated higher taxation to plug the gap, while keeping spending at the level set by Brown. My point is that the reference to ‘existing money’ is misleading because, as critics of Brown’s housing and finance boom must have known at the time, and as seemingly everyone now acknowledges, it was a mirage.

  And in any case, even on the contemporaneous data, flattered as it was by the receipts from said housing and finance booms, spending was outstripping revenue routinely throughout the ‘good’ years – yet I don’t remember the self-styled Keynesians complaining.

  At least Labour’s City minister Lord Myners was honest enough to admit, soon after the general election, that ‘there is nothing progressive about a government that consistently spends more than it can raise in taxation’.

• Paul Holmes 22nd Mar '13 - 10:25pm

  Alex, I did. Do your homework before you accuse people of something.

• Alex Sabine 22nd Mar '13 - 11:35pm

  Paul: So you are saying that you called for higher overall taxation so as to reduce the deficit in 2008? Or indeed during the previous 6 years when Labour was running a structural deficit, when classic Keynesian stabilisation policy called for a surplus?

  This is not what I remembered from either the 2001-07 period or the 2008 Lib Dem conference debate on ‘Make It Happen’. At the time the party leadership was arguing for trimming Brown’s spending plans so as to provide scope for tax cuts as well as alternative spending priorities. (Note that the proposal was relative to Brown’s rising profile of spending: it was never a case of actually cutting spending, but reducing the planned increase.)

  As I recall, you and Evan Harris and others argued for the existing party policy, which was to match (but not exceed) Brown’s levels of tax-and-spend but reallocate some money on both sides of the ledger. It was not to increase overall taxation, and certainly not to do so in order to reduce the deficit.

  If you can point me to evidence to the contrary, ie that you argud the deficit should be restrained, and objected to Clegg’s proposal specifically on the grounds that it was fiscally irresponsible, I will happily retract my remarks. If not, please don’t patronise me with comments like ‘do your homework’.

  Incidentally, I am not remotely questioning your sincerity. I actually think that, as well as coming across as a nice down-to-earth guy and good MP, you were a sincere and consistent proponent of the type of tax-and-spend economics which were at one stage mainstream Lib Dem policy, and which have a perfectly respectable heritage in the social-democratic tradition of British politics. I am instead arguing 2 things:

  1. The Lib Dems (and often the Tories too) defined themselves excessively in relation to Gordon Brown, allowed him to frame the debate and dictate the terms of trade, and bought into the myth of ‘Prudence’. So, for example, the Lib Dems argued for a penny on income tax and one or two other tax rises to fund specific spending commitments, and persisted in calling for that irrespective of what Brown did. So when he increased spending far in excess of anything the Lib Dems ever proposed, still the party called for a bit more and criticised him for parsimony on numerous fronts. Party policy had long been overtaken by reality. This was a point that I recall Chris Huhne in particular making during the 2008 Make It Happen debate, when he pointed out that the huge real-terms increases in public spending during the previous 5 years or so far outstripped what the Lib Dems had originally proposed. To insist on matching Brown’s spending in that context raised the question of whether the party thought there should be any kind of upper limit, or whether it was just a question of political positioning.

  2. The Lib Dems pride themselves on being Keynesians. Keynesianism prescribes counter-cyclical fiscal policy to offset the natural fluctuations of the business cycle. This entails running surpluses during periods of above-trend growth and deficits during downturns. The British economy grew fairly robustly from 2000 to 2007, yet from 2002 onwards the budget was in substantial deficit, even on the hopelessly optimistic assumptions that then prevailed about the underlying size of the economy (what economists call ‘potential GDP’).

  In that situation a faithful Keynesian would be calling for a reduction in spending, or a rise in taxation, or both. Calling for a reallocation of the existing level of taxes and spending would do nothing to alter the overall fiscal stance in a counter-cyclical direction. Given the very large increase in spending, and the fact that public resistance to further tax rises was mounting, a Keynesian policy would have been likely to involve trimming spending. But it turned out that, as so often in British postwar history, ‘Keynesianism’ was a wonderfully flexible policy. Deficits weren’t just for recessions but for boom times too…

• David Evershed 23rd Mar '13 - 6:31pm

  The quality of comment on this thread is very impressive.

  For an excellent academic opinion about why the incresaed personal alloance benefits the poor most see the economist John Kays’ web site at

  http://www.johnkay.com/2013/02/20/labour%e2%80%99s-new-tax-policy-is-an-old-mistake