Fiscal rules are magical
things which, apparently, every party needs to have. Parties can and do,
however, invent their own rules. And change them, if ever they become ‘inconvenient’.
It’s easy to see why the Tories, particularly late in a parliament facing an
election which they are all but certain to lose, would want to lay down rules
which would constrain an incoming Labour government. It’s a lot less easy to
understand why the Labour Party would be stupid enough to let them get away
with that.
Whatever, the Tory
rule is, in essence, a very simple one: it must show that government debt
overall is reducing by the end of the current five year period. Effectively, it
doesn’t matter what happens in years 1 to 4, as long as the numbers show the
right answer by the end of year 5. Although it might sound very difficult, it’s
actually quite easy to achieve, all they have to do is make up the numbers. And
that, in effect, is exactly what the Office of Budget Responsibility accused
them of doing last week. As their head honcho put it, it’s not that the
government figures are a work of fiction, because there was no work involved.
They are simply invented numbers, with no plan for achieving them and no
evidence to justify them, yet statute requires the OBR to pretend they are
serious.
But that isn’t the
end of it; the rule is even more magical than that. When one year ends, what
was year 5 becomes year 4 and a new year 5 gets added on to the end. The rule
now only requires a reduction in debt by the end of the new year 5. If they
want to, the government can put off debt reduction almost indefinitely and
still claim to be meeting the rule which says it’s reducing. By definition, the
figures for year 1 will always be firmer and more accurate (or rather, less inaccurate)
than the figures for later years, and they become the basis on which the
government manages the books for the year. So, if income increases for whatever
reason (such as more people being brought into payment of income tax through
frozen limits) or expenditure reduces (such as lower interest rates leading to
reductions in the cost of debt servicing), the government finds itself with
what it and the media like to call ‘fiscal headroom’. Without borrowing any
more than they’ve already planned to do, there is suddenly cash available with
which they can do one of three things.
They could reduce
the planned borrowing for the year, they could increase spending on failing
public services – or they could cut taxes. And all the talk at the moment is
that the Chancellor will use this apparent windfall to reduce taxes in next
month’s budget, in the belief that doing so will be a big enough bribe for
people to vote for the Tories. They will still be borrowing the same amount as
they’d already planned to borrow (for all their talk about needing to cut
borrowing, that’s a task which they’re more than happy to put off until the
mythical year 5 and thus leave to an incoming government). They’ll just use
some of that borrowing to reduce taxes. That’s right – the policy is
effectively the same as that promoted by the previous worst PM on record, Liz Truss,
namely borrow money to cut taxes. The only difference is that she alarmed
people by planning to exceed the budgeted amount of borrowing without providing
a good enough set of fictitious figures for the future, whilst Hunt is
promising to stick within the already agreed fiction.
Here are two facts
we know. Firstly, cuts in income tax always help higher earners more than low
earners. And secondly, when the government borrows money and pays interest
thereon, it necessarily borrows from those who have money available to lend,
whether that’s directly through NS&I investments or indirectly through
pension pots. Heads the better-off win, tails the less well-off lose. Doubly
so, in a sense – the less well-off are also more dependent on the failing
services in which the government is deliberately choosing not to invest. It’s
easy to see why such policies appeal to those who have money: who wouldn’t
prefer to pay less tax and then lend money to the government and receive
interest on it instead? It’s a lot less obvious why this ploy will appeal to
the majority who neither have the money available to lend to the government nor
are likely to benefit greatly from any tax cuts. But then, sleight of hand is
the secret of a good magician; most people aren’t seeing the full picture.
Posts
No comments:
Post a Comment