Blast from the Past

The countdown to redundancy for everyone left in my office now stands at 8 working days. Accordingly, desks are being cleared out and many things unearthed. I have, for instance, found a copy of the FT from April 26th 2010 with an article about 'The Demolition Job that Awaits the Next Government'. With hindsight, it is rather striking.



Apologies for the poor quality cameraphone photo. The main point of the editorial on the left is that £37 billion of savings will need to be found from the public sector in order for the deficit to be halved by 2014. It is noted below the pie chart that all three political parties have failed to identify anything like that level of cuts in their announcements to date. Incredibly, of the three it was the Conservative party that had at that time announced the smallest level of cuts. £7 billion a year, to be precise.

The FT's modest proposals for cuts were as follows:

• Axe two aircraft carriers, which has not occurred.
  
  
• Reduce prison numbers by 25%, which has has not occurred, although Ian Duncan-Smith did entertain thoughts in this direction. Then came the wrath of the Daily Mail, and the riots. Thus the prison population has reached a record high.
  
  
• 5% cut in public sector pay for a year, which has not occurred, as the FT high-handed assumed that central government could just do this whenever they wanted. Which wouldn't be very localist, frankly. Public sector pay has been frozen, though, and with inflation running at 4.5%, that amounts to a cut in real terms. Moreover, there are now 240,000 fewer jobs in the public sector than there were last year.
  
  
• Means test child benefit, which is in progress.
  
  
• Scrap winter fuel payments and free TV licenses. Wow, the FT really cares about the elderly. This hasn't happened and there are no plans to do it. This government is far keener on withdrawing support from the young.
  
  
• Halve spending on NHS dentistry. Here is a rich irony for you, as this is presumably predictated on NHS dentistry being inefficient. It is one of the areas of the NHS run on more competitive, private sector lines. The government is now planning to bring that same ethos to the entire NHS in the health and welfare reform bill. Will the result be cost savings, chaos, worse health outcomes, or none of the above? Who knows - certainly not the government.
  
  
• Stop primary and secondary school building for three years. There is more irony to be found here. Building Schools for the Future was scrapped, and Local Authority budgets cut so that any new schools would need to be developer funded. However, the Free Schools policy will mean more schools coming into being. Is money being saved overall? The Department for Education took a smallish budget cut over the spending review period, so presumably that's the idea.
  
  
• Halve spending on Teaching Assistant salaries. Again, the FT is getting a bit high-handed if it thinks central government can just reach down into schools and fire half of their TAs. That said, many such jobs are probably looking less secure as schools look to absorb funding cuts.
  
  
• Cut funding to Scotland, Wales, and Northern Island by 10%. The government went for 7% overall.
  
  
• Halve spending on road maintenance and upgrades. This takes in two sets of cuts; to the Department for Transport (which is responsible for trunk roads) and to upper-tier local councils (which are responsible for local roads). The former took a 12.6% cut, the latter about 26% cut. A number of planned major motorway upgrades have been ditched and many local authorities have cut their pothole budgets. Whether this amounts to halving spending is hard to tell.
  
  
• Delay Crossrail for at least three years. This has not happened; Boris managed to save Crossrail from the axe.
  
  
• Withdraw concessionary fares for pensioners. The FT does seem to have something against the elderly. This has not happened and is unlikely to.

Abolishing the Child Trust Fund and Education Maintenance Allowance were also mentioned in the article - both of which are happening.

That amounted to £37.4 billion cuts over four years. In the Comprehensive Spending Review the government announced £83 billion cuts over four years, more than twice as many. Quoth the FT on April 26th 2010:

Spending cuts on the scale outlined in the Financial Times' analysis appear too politically risky to contemplate

Excuse me while I laugh bitterly. The FT proposed instead to raise income tax and VAT. The coalition have done the latter, but also cut or frozen the budgets of all government departments. Significantly, they have laid particularly hard into the welfare state, which the FT treated as sacrosanct.

What a change in just over a year. I suspect that the 'political risk' the FT mention was simply steamrollered by shock and awe tactics. The public sector must be cut immediately or the country will run out of money and citizens will have to start eating one another! (Only a slight exaggeration of the Spending Review rhetoric.) I think the FT underestimated people's apathy and lack of awareness of what the public sector does. Few protest when told that a government department's funding is being cut by 20%; it just seems like a number. When that means a fall in income or the closure of a local service, complaints start. By then, it is probably too late.

FAO Ed Milliband

An especially dispiriting feature of current public life is the combination of low government approval ratings and a lack of credible alternate narrative from the opposition. Labour's dossier on the NHS reforms might be a sign of greater feistiness, but I've yet to notice any real headway on economic matters. The government's economic messages are dominating the media. Their basic framework seems to be:

• The country is dangerously in debt. ("...the whole world is concerned about high deficits, and our economic stability depends on allaying those concerns [...] We will not take Britain back to the brink of bankruptcy [...] the country has run out of money")
  
  
• Labour spent too much. The debt is their fault. ("...we have inherited from the previous Government plans – if you can call them that [...] Not a single penny of savings had been identified [...] The debts we were left threatened every job and public service in the country")
  
  
• Too much was spent on public services and, in particular, welfare. We can't afford to spend so much on these things. ("We have chosen to cut the waste and reform the welfare system that our country can no longer afford...")
  
  
• Therefore public spending must be cut as fast as possible. ("...eliminate the structural deficit by balancing the cyclically-adjusted current budget over five years, by 2015-16. And we set a target of national debt falling as a proportion of national income by that same year [...] for reasons of caution, we will achieve both these objectives a year earlier in 2014-15">
  
  
• Cutting spending will, in and of itself, provide a stimulus to economic growth. ("The crisis in the Eurozone shows that unless we deal with our debts there will be no growth. And these forecasts demonstrate that a credible plan to cut our budget deficit goes hand in hand with a steady and sustained economic recovery.")

Labour is having trouble countering this story, which makes a certain amount of simplistic sense when repeated often enough with firm hand gestures. Nothing is that simple, however, and the government's story is based on ideology and fallacy. Labour, here is a suggested economic story that you could be telling.

Let us go back to the very basics. An economy is a system for allocating resources. Economies came into being as a method for humans to allocate resources more effectively. They do not exist in order to grow endlessly. An economy that does not improve the wellbeing of those who participate in it is a failure, whether or not it is growing according to measures of Gross Domestic Product (GDP). An economy that inflates on paper but has no impact on quality of life is wasting resources.

It is becoming increasingly clear that increases in national GDP have little or no impact on wellbeing in developed countries. Indeed, a rash of recent books (I recommend Happiness by Richard Layard) point out that measured wellbeing has flatlined in recent decades. The government has even acknowledged this, but without accepting that they might need to do something about it. Politicians are elected with a responsibility to improve the wellbeing of their electorate. The economy is not the electorate, and a narrow focus on promoting economic growth is an abrogation of responsibility.

When you approach the government narrative from that perspective, it looks much less credible.

"The country is dangerously in debt." Government debt has previously been at higher levels and the country has survived . What makes the current situation specifically worse is that credit ratings agencies, financial markets, and the International Monetary Fund say it is worse. All three have strongly vested interests in taking that view. Credit ratings agencies make assessments of how well national governments and companies can repay debt, but are not held accountable for the accuracy or impact of their assessments. They are profit-seeking companies, not independent agencies. Credit ratings agencies are in fact part of the financial markets that make their profits from betting on whether debt can be repaid. The IMF is an organisation driven by flawed free-market ideology. Reducing public spending is its policy prescription for any economic downturn, an approach which contributed disastrously to the 1997 Asian financial crisis.

"Labour spent too much. The debt is their fault." The last government spent a lot of money bailing out the banks. I don't know whether that was the right decision, but it should at least be seen in a wider context. Most European countries were also bailing out their banks in late 2008, as was America. Blaming the Labour government specifically is ridiculous, as this was the same approach taken, for good or ill, by the rest of the Western world. Until the bailouts, UK debt levels were stable.

"Too much was spent on public services and, in particular, welfare. We can't afford to spend so much on these things." This is manifestly ideological. There is no specific level of public spending that an economy can afford. Different countries choose to tax and spend to different degrees, according to political persuasion. To say that basic public services cannot be afforded presupposes that the economy is more important than people's wellbeing. If the economy is growing but wellbeing decreasing, the government has the wrong priorities and policies. Whilst it isn't inevitable that lowering public spending will reduce wellbeing, in the case of the coalition's cuts it seems inevitable. Security is an immensely important aspect of wellbeing. Reducing the welfare safety net, the quality of healthcare, the accessibility of education, the affordability of public transport, and the availability of the emergency service, whilst unemployment rises and prices inflate; that's a recipe for insecurity and anxiety.

"Therefore public spending must be cut as fast as possible." The speed at which cuts take place is likewise ideological. Spending time carefully considering the evidence and evaluating the risks of withdrawing and reducing public services assumes you value them in the first place. The government simply does not. Their debt deadline is entirely arbitrary; there will not be bailiffs banging on the door of the Treasury if we still have a deficit in 2015.

"Cutting spending will, in and of itself, provide a stimulus to economic growth." This is a delusion. Spending cuts have only just started and the economy is already contracting, with growth forecasts repeatedly cut. Even if economic growth was an aim worth pursuing in itself, rapidly cutting public spending would not make it happen.

The government is cutting public spending quickly, with no understanding or interest in how it will hurt the vulnerable. Not only is this damaging the wellbeing of millions, it is not even going to achieve the stated aim. These are the messages that Labour should be emphasising more clearly. When the challenge comes back, "But you didn't have a plan to deal with the deficit!", the obvious response is that rebuilding and reforming the economy in order to avoid a repeat of this kind of banking collapse takes time and evidence. A considered approach is clearly preferable to rushing into dramatic contraction of the whole public sector, with only discredited ideology to support you. The coalition government threw together an emergency budget in less than a month, cutting millions without considering the unintended consequences. Labour need to say clearly what this means: that the government does not care how the cuts blight people's lives. Labour should position itself as the party that puts people before economic ideology, whereas the government does the opposite. Perhaps they might even consider supporting the claim with some policies.

I should mention that I've never actually voted for Labour in a general election. It isn't that I'm a staunch Millibandit (or whatever you'd call it), I just yearn for a strong opposition in Westminster. Hopefully Labour are currently formulating an approach that will lift the level of debate above the present no-cuts-versus-all-the-cuts doldrums. I enjoyed the friendly atmosphere whilst marching for the alternative on March 26th, but demonstrations like that aren't nearly enough. The government's economic policies must be challenged more strongly by politicians. The coalition's narrative is not just slightly misleading, it is entirely wrong. It's time that the opposition stood up and said that.

If they already have and the media has failed to inform me of the fact, please be so kind as to provide a link.

Across the Pond

Spending has been Comprehensively Reviewed, and I've been following it as best I can despite being on a first aid course. In theory I now know how to resuscitate people, so might end up as a Big Society paramedic in a few years when we can't afford real ones. (Public sector humour: I'm not sure it can get much blacker at this point.)

Whilst attempting to absorb the scale and implications of the spending review cuts, something kept nagging at the back of my head. I've just realised what it is. The coalition constantly treats public services as inherently wasteful, unnecessary, autocratic, and staffed by faceless hoards whose only aim is to spend taxpayers' money as quickly as possible. These attitudes sound familiar; they are shared by the American Tea Party movement. Although the Tea Party's political mores are somewhat incoherent, they heavily emphasise cutting government spending and taxes. They agitate for minimal government and greater freedom of individual and/or community action. They object to the public sector providing basic services, like healthcare and welfare.

What bitter irony that in the US a vocal but widely derided minority are espousing these policies, whilst in the UK they're suddenly the mainstream. But the UK never had anything even vaguely analogous to the Tea Party movement, and the coalition definitely didn't sweep to power on a dismantle-the-state ticket. How did we end up with government in the style of the crazy American right wing? Weren't the Liberal Democrats once a left wing political party? What the hell happened?

Make no mistake, this spending review can talk efficiency savings and streamlining procurement all it likes, but cuts like this are an unequivocal ideological statement. The government is saying that the state is far too big. There are too many people working in the public sector. There shouldn't be so many public services. It costs too much to provide everyone with a basic standard of living.

There are many, including plenty of public sector employees, who would agree with those statements in principle. Then they would protest vociferously about the high cost of train tickets, about class sizes at their child's school, about cancer drugs not being provided on the NHS, about the local community centre closing, about potholes in the road, about the lack of police on the streets, about their elderly relatives having to pay for care, about the costliness of being a student, about the wait for their local council to answer the phone, about inadequate flood defences, about the lack of NHS dentists, about every little thing that public sector does which we all take for granted. It might seem blindingly obvious, but still needs to be said: none of these services are going to improve when a lot of their money is taken away from them. Get used to being put on hold, to being told that there's now a charge, or just that no, we don't do that any longer.

There have been times when I thought perhaps I was being unduly paranoid to assume the government had an explicitly anti-state agenda. But then I came across this paragraph in the spending review document:

The Government will pay and tender for more services by results rather than be the default provider; look to set proportions of specific services that should be delivered by non-state providers including voluntary groups; and introduce new rights for communities to run services, own assets and for public service workers to form cooperatives. [...] Areas of focus for this approach: This approach will be explored in adult social care, early years, community health services, pathology services, youth services, court and tribunal services, and early interventions for the neediest families.

In other words, targets for privatisation and outsourcing, from a rabidly anti-targets regime no less. The mentions of voluntary groups and co-operatives are all very well and fluffy, but who is going to put in a cheaper bid to provide the service? The big private company with rock-bottom costs, or the local community group relying on grants? Faced with 30% cut in budget, local councils will have to pick the lowest cost option. Notice also that first to be sold off will be some of the most sensitive services required by the most vulnerable people, the kind of services with truly awful consequences when they fail.

I'm not going to go into everything that's depressing in the spending review, because I want to finish writing this within the decade. But briefly, the department that funds my job and almost everything I work on, Communities and Local Government, got the worst settlement of all. Over the next three years, their administration and programme budget will fall by 51%. Their capital budget will fall by 74%. That's tantamount to saying that most of what the department does is totally unnecessary. In case you wondered, these extraneous functions include providing affordable housing, planning, regeneration, and infrastructure.

But I am an optimist as well as a cynic, and have managed to find some vestiges of silver lining to the spending review. For one, the Carbon Reduction Commitment has been fiddled with to make it into a £1 billion stealth carbon tax on large businesses. It won't be hypothecated back into climate change mitigation, but it's still more of a carbon tax than I'd dared to hope for. In addition, the Department for Transport can no longer afford the £1.3 billion project to turn the A14 North of Cambridge into a vast motorway. In my personal view, the scheme was totally inappropriate and appallingly carbon-heavy, as well as a perpetual political flashpoint. I won't miss it, although the A14 needs fixing somehow (tolls?) as there are continually accidents on it.

Little rays of sunshine aside, the title of my blog has never seemed more appropriate: welcome to age of austerity. If the Tea Party have any sense (although frankly I doubt it), they'll be watching the UK with interest over the next few years. What happens when you suddenly and radically roll back all public services in an economically fragile country with high unemployment? Stay tuned to find out!

Particularly good spending review commentary that I've come across: the wonderful Joseph Stiglitz on why the cuts won't work and more on how local government got the worst of the spending review.

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.