Regression

Recently the Institute for Fiscal Studies has confirmed the intuitively obvious: the 2010 budget will be regressive. In other words, it will have a stronger negative impact on the poorer inhabitants of the UK.

As the IFS analysis points out, the government's budget impact assessments completely missed out £4.1 billion of the £11 billion cuts to welfare budgets, including the significant changes to Housing Benefit. Claims of a 'progressive' budget have been based on ignoring a large proportion of the policies within it. The coalition's defense of this claim continues to be based on the idea that cutting the deficit is progressive in and of itself, even if the effect of those cuts falls disproportionately on the poorest. I for one would query whether this is what 'progressive' actually means.

What particularly struck me in the IFS report is the contrast between pre-announced and budget policies. According to the IFS analysis, the coalition policies announced before the budget were geuinely progressive, taking most from the richest. These polices were basically tax-based; raising the income tax threshold, changes to national insurance, etc.



Compare that to the policies announced within the budget, including significant cuts to welfare budgets and an increase in the biggest regressive tax: VAT.



Look at that reversal. The implication is depressing but not surprising - all the nice policies were touted during the election and when the coalition was formed. Once the government was entrenched, they laid into the poor.

But is the effect regressive when all of the policies are taken into account - do they balance out?



In a manner of speaking they do. However, if you aren't a pensioner and don't have children, yes, the total effect of coalition tax and benefit policies is regressive. The largest proportional impact will fall on the poorest of this group. For families with children, the greatest impacts are shared between the richest and poorest. Pensioners at all income levels are effected relatively equally, as most of the changes pass them by.

Take a look at more detail of the impacts by household type.



The greatest negative impacts will fall on households reliant on benefits. This is consistent with the government's fuzzily-articulated aim to get people off benefits and into work. However the simplistic 'take away benefits and they'll work' approach is based on any number of fallacies, for instance that work is available, that claimants have the suitable skills for work that is available, and that it's appropriate for everyone to work. Why should a single parent work full-time? They'll just have to employ someone to care for their child(ren), which seems like a waste of money and time. Plus of course there are many with disabilities or illnesses that prevent them working.

You will note that the greatest loss of proportional income falls on households with no earners and children. I'd emphasise the word proportional; such households aren't going to have much of an income to start with. Losing 7% of it will be significant, not least in its effect on the children. It's ironic that a government claiming to be pro-family are in fact penalising people for breeding through the tax and welfare systems.

No-one gains from this budget, but to lose out least you'll need to be in a childless household of working age in the upper half of the income distribution. Which I am lucky enough to be, for the moment. (In case you're wondering where in the income distribution you are, try this tool.)

The IFS analysis is very useful, but what's more alarming is that it only models tax and benefit policies. This is reasonable, as modelling the effects of wider cuts to departmental budgets is nigh-impossible. It's important not to forget, though, that departmental budget cuts will also have a disproportionate impact on poorer households. Many don't have the option to 'go private' when public services reduce or disappear.

The 25% cuts apply to much that we take completely for granted: the police, fire service, environmental health, justice system, scientific research, flood defense, road maintenance, and public parks & nature reserves, for example. These are the kind of things people assume will be there when needed. That won't necessarily be the case.

Go Your Own Way

Every cloud has a silver lining, even at a time of austerity, and my current area of optimism is road transport. The great thing about transport policy is that low carbon solutions are vastly cheaper than business as usual. In my opinion, too much has been spent on roads in the past few decades, whilst policy has been characterised by a complete lack of strategy or innovation. Although public transport would undoubtedly benefit from investment, I would be more inclined get everyone able onto feet and bikes. The latter is helpfully compatible with massive budget cuts, as well as offering much wider social, health and environmental benefits.

There is a wonderfully ironic paradox at work here. We now have a transport minister who wants to 'end the war on motorists' (which is utterly laughable), but cannot afford to build roads. Cycling infrastructure, meanwhile, costs a fraction of motorway upgrades. Moreover, badly maintained roads encourage motorists (the sane ones, anyway) to slow down and drive more carefully. The cheapest cycling infrastructure of the paint-a-white-line-and-call-it-a-cycle-path variety may be pretty ineffectual, but I'd still greatly prefer it to billions being spent on road widening that creates more traffic, more pollution, and wastes more resources.

I am also very happy about the fact that road-pricing is back on the table suddenly. Those who previously considered it an affront to the freedom and dignity of the motorist have suddenly realised that paying to use a road might be better than not having a road at all. Step forward and take a bow, RAC. Currently the Department for Transport is ruling out charging for existing roads, but given the new world of localism, what's to stop particular cities from implementing their own systems? Road pricing forces drivers to think about how much they use their vehicle, encouraging walking or cycling for short journeys. This in turn gets more vehicles off the roads, further encouraging walking and cycling. A recent survey found that 39% of non-cyclists said they didn't bike because it was too dangerous to cycle on the road.

For those who consider that taxing motorists constitutes unfair persecution, here is a graph of relative transport costs, from the DfT's Transport Trends report:



It is a source of perpetual exasperation to me that so many people are willing to accept road pricing and similar taxes on economic grounds, but not environmental ones. Nonetheless, whatever the purpose of the tax, if it has environmental benefits the justification doesn't matter so much.

I'm hoping that austerity will encourage people to realise that:

- Ownership of a car is not a necessity of life for everyone.
- A parking space is not a fundamental right.
- Free use of a motorway is not a fundamental right either.
- If you live in an urban area, a car can be a costly liability.

I definitely don't think that the government would dare to say any of those things, but as cuts bite they shouldn't need to. In case you have yet to notice, my personal views are resolutely anti-car. Just as former smokers can be the most enthusiastically anti-smoking, I am a recovering car owner.

When I lived in Kent I learned to drive, bought a car, and commuted to work daily on the M20. I absolutely hated this enforced commute and deeply resented the bad location of the office that I worked in. I felt constantly, crushingly guilty that I was wasting petrol, adding to congestion, and not getting any exercise. I found it depressing how aggressive driving in traffic made me, and that I caught myself overtaking and zooming too fast along motorways on the odd weekend when they were unclogged.

Upon moving to Cambridge, I realised how unnecessary a car was in a compact urban area. I had to go out of my way to use the thing in summer, and eventually decided I'd be better off with a bike. Problem was, I'd never cycled before. A wonderful, patient friend taught me, and as soon as I was confident enought to commute by cycling, the car became utterly useless. I got rid of it a year ago and have never regretted it. I've saved serious amounts of money - bikes don't need an MOT, insurance, tax, or petrol. When something goes wrong with my bike that I can't fix myself, a repair costs £20 rather than £200. Cycling has also made me fitter & healthier than I've ever been before. Since getting rid of my car, I feel better in mind, body and soul.

People associate cars with freedom, and in rural areas I can see why. But in urban centres, they offer the very opposite. In a city you are so much freer with a bike, your feet, and the odd bus and train. The anxieties of where to park, what if traffic is bad, what the hell does that guy in the van think he's doing, and so forth are vastly reduced. Average traffic speeds in most city centres mean is cycling quicker, too. I think that driving is a useful skill and one I'm happy to have, but why own a car if you don't need to? If in need of one for a specific trip, there are plenty of options. For work journeys, a pool car. Otherwise, Streetcar, hiring, or putting myself on parental car insurance for a short while.

Despite our unreconstructed Minister for Transport, who has unsurprisingly worked in the oil industry, I think that now is a great time for a change of mindset on roads. Given the department's budget cuts, anything but critical maintenance to motorways will become increasingly irrelevant. At a local level, County and Unitary Councils make the decisions, and their budgets are also being severely compressed. New infrastructure projects aren't affordable, so we must use what assets we have to the best effect, getting revenue out of them where possible. That's what the DfT are saying, but they won't spell out what this actually means. Drivers will pay more of the social costs they impose (pollution, congestion, accidents, etc) through parking charges, road pricing, and congestion charging. Making such projects local to a district or county is sensible, as accountability is then clearer. When revenues from road pricing can be seen to pay for local transport improvements, paying such a levy will seem reasonable.

Given its strong existing cycle culture, Cambridge is ahead of the game. It isn't Copenhagen quite yet, but I think it could get there. Transport is one of the few areas in which austerity measures could genuinely improve quality of life, if people try and think beyond cars. Which, trust me, is definitely possible.

Striking A Balance

In the spirit of austerity, I've been on staycation for a week. I spent half the time with my family in the wilds of East Anglia. Although I was deliberately trying to keep my brain off matters political (I virtually stopped checking the Guardian website, even), the change of scene did make me consider how localism and the Big Society might operate differently in rural and urban areas.

But that post hasn't quite formed in my head yet. At the moment it's the holiday season, so the office is quiet and edicts from politicians have slowed to a trickle. This provides a helpful opportunitity to consider the implications of what's been announced so far. To this end, I've discovered a fun new toy, the Essex County Council Budget Maker.

This webpage sets out the fact that to keep up the 2009/10 level of service for the county, Council Tax would have to rise by 14.1% to balance out the government's cuts in grants. Apart from being somewhat politically contentious, this would be impossible. The June Budget froze council tax for next year. So, what to cut? My approach was to go through the service headings and shave what I'd consider a reasonable amount off each. I tried to protect care for young & old people, as well as skills budgets (vital given current levels of unemployment), but didn't increase spend on anything.

My budget was completely unaffordable; it would have required a 6% rise in council tax. Somewhat depressed, I then systematically shaved a percentage point off every sector until I got it in balance. I was harshest to Olympic Legacy (22% cut), Essex Championed (17% cut - these functions strikes me as something that could be integrated into other services) and transport infrastructure (12% - no major investments for a while). Despite those high cuts, schools took a 4% hit, as they're by far the biggest cost in the whole budget.

In my view, Essex County Council have hit on a very useful communication tool here. Recent research shows that most of the population still don't realise how deep cuts will bite. Their widget lets you play with a large council budget, bringing home just how difficult the prioritisation decisions of local councillors and senior officers are going to be. I wonder if Cambridgeshire County Council would consider creating one of these?

In the meantime, I suggest that you have a go yourself.