Orthodoxy was always the intention of the OBR

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Criticism from within the Labour Party about the remit and actions of the Office for Budget Responsibility and the slavish adherence to its conclusions by the Chancellor is long overdue. It’s a pity that it’s taken an accidental slide into an election for a new deputy leader to wake anybody up, but no sooner had Haigh launched the mission than she declared that she was not going to be a candidate. Whether it was never her intention or whether the campaign was halted before it got going by the stitch-up giving candidates just days to collect 80 supporters from among the party’s MPs is unclear. Paradoxically, the fact that the attack on financial orthodoxy is no longer associated with an internal leadership election might make it easier to take it seriously. Candidates for internal elections in the Labour Party have traditionally argued from the ‘left’ to attract the votes of the members, only to end up moving to the right once elected. Sir Starmer is a classic example of the genre.

I don’t agree with Haigh’s definition of the problem in terms of the OBR having been “Originally created to provide an independent check on economic forecasts and help policymaking” or that it “has morphed into a gatekeeper of orthodoxy”. It has always seemed to me that it was a deliberate trap set by George Osborne as some sort of insurance against a future Labour government, and that institutionalising (Tory) orthodoxy was its main aim from the outset. The enthusiasm with which Labour ran into the trap was astounding. Some have interpreted recent appointments by Sir Starmer as an attempt to undermine his Chancellor, but those he’s appointed seem almost to be even more steeped in orthodoxy than Reeves herself: more about keeping her on the narrow track and reinforcing her view of economics in 10 Downing Street than undermining her.

Other than that faulty analysis of how we got to where we are, Haigh makes some very good points. Her claim that “It is beyond comprehension” that the Bank of England is paying interest on central bank reserves to commercial lenders echoes a point that a number of economists have repeatedly made – and there are plenty of examples of other countries that do not make such payments. At a stroke, not making these payments (or even just reducing the entirely arbitrary interest rate paid) would ‘save’ up to £40 billion a year, and make a big difference to the government’s income and expenditure accounts. The only reason for not changing this is a Chancellor and PM who are utterly wedded to the ‘household analogy’ for government accounts and think that austerity and a small state are really good ideas.

Sadly, someone holding views such as those expressed by Haigh would be extremely unlikely to be elected as Labour’s deputy leader, even if she were to stand; and, either way, her influence on government policy from outside the cabinet (and there is little chance of Sir Starmer appointing the winner of the contest to his cabinet, with the position of deputy PM already neatly sewn up) will be small. Not enough to change the narrative and approach of her party’s leadership, most of whose MPs seem quite content to continue down the road of facilitating Farage. They are far too comfortable languishing in the trap which Osborne laid for them.

Is Reeves doomed?

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Starmer’s initial response yesterday to the question about whether Rachel Reeves will remain Chancellor for the whole term of his government was to say that she enjoyed his full confidence, a line which he repeated several times before, eventually, one of his spokespersons gave the requested confirmation. As promises go, it’s about as trustworthy as his manifesto for the last election, and the Chancellor could be forgiven for feeling a bit like a football manager who knows that the club’s owner only has to declare his complete confidence twice more before the inevitable sacking.

She may be able to defy the laws of political gravity for a while longer, but four years is a long time, and in any event defying the laws of basic arithmetic will inevitably prove to be beyond her capability. Her claim that she could repair and sustain public services, not increase taxes or borrowing, and at the same time reduce the government deficit (which is what her entirely arbitrary but ‘non-negotiable’ fiscal rules say must happen) always depended on the assumption that the UK economy would grow such that tax revenue increased without changing tax rates. And not just grow, but grow in a way which is unprecedented in recent history and for which there is no basis in policy to justify. Reality and wishful thinking aren’t the same thing, no matter how hard the spin doctors might try to convince us otherwise. Something will have to give, and the easiest thing to change, politically, is those fiscal rules. There’s nothing strange in that – they invariably change when the Chancellor changes; and even Starmer will eventually work out that that is the cost he will have to pay.

The question is about how much damage is done in the meantime, since it is becoming increasingly clear that her response will be to stick by the rules and cut spending instead. She will claim – indeed, the government is already claiming with its target of a 5% spending reduction – that this will be achieved by cutting out ‘waste’. But defining ‘waste’ isn’t as obvious as it sounds: for most politicians, ‘waste’ is any spending with which they disagree. Whether school breakfast clubs, keeping libraries and theatres open, or even implementing reduced speed limits are wasteful or not depends on your political perspective. About the only thing we can say with certainty is that an imposed budget cut – whether of 5% or any higher figure which Reeves will announce in the next month or two – is rarely effective at reducing what the average layman would call waste, and invariably ends up with cuts to services. Calling it ‘fiscal prudence’ rather than austerity is a bit like calling a hungry tiger a big cat. Big cat sounds more friendly, but it will still be happy to eat you.

Does Starmer need a new ruler?

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In the dim and distant past, I was a member of the drama group in a youth club in Penarth, and one of the pieces we had to perform in competition with other clubs was ‘an excerpt from Shakespeare’. I was cast in the title role of what we thespians can only ever refer to as ‘the Scottish play’. An unsavoury character, on the whole, but whatever others might think, I don’t think I was typecast. I remember speaking the line about “this blasted heath” with particular vehemence, on account of the fact that there actually was a blasted Heath in Downing Street at the time.

Anyway, it was the three witches which came to mind yesterday as Heath’s latest successor spoke in the garden at number 10; and most particularly the bit about “double, double, toil and trouble”. Whether the witches were actively evil, deliberately guiding the path of frail and gullible humans towards murder and treachery, or whether they were simply using their supernatural powers to prophesy what was going to happen anyway is one of those unresolvable literary debates about the correct interpretation of words written by a long-dead author. Similarly, turning to yesterday, those of a kinder disposition might think that Starmer was simply using his less-than-supernatural powers to predict the inevitable; others might instead choose to think that he is actively setting out to cause misery and poverty for many, as some sort of object lesson to deter people from ever voting Tory again. But then again, perhaps I’m making it too complex: the explanation doesn’t lie with the English bard – it lies instead with Frankie Howerd’s line about “woe, woe and thrice woe” which seems more apt to describe Starmer’s dismal and depressing performance.

SirKeith did set out to emphasise that it was those with the broadest shoulders who should take the most pain in the forthcoming budget. There is, though, a mismatch between words and actions here – to date it is some of the poorest pensioners and the hundreds of thousand of children officially living in poverty who have borne the brunt of his actions, or in some cases his inactions. It led me to wonder how, exactly, he is measuring shoulder width. Reading a ruler is a simple enough task, even for a non-mathematician, so is he merely reading the ruler from the wrong end, or is his ruler in some way defective? For the ruler to possess a defective ruler isn’t the best of starts.

Top priorities

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One of the mantras often used in management training courses and business schools is that anyone who has more than three priorities effectively has no priorities at all. Whether ‘three’ is the right number, rather than, say, two or four, is a matter of opinion, but the key message is that setting too many priorities means that each of them gets insufficient attention to be meaningful. It’s one of the reasons for the problems in a large organisation like the NHS – management and staff have so many priority targets that it’s impossible to give appropriate focus to all of them. It’s a mistake that Starmer and Labour are apparently keen not to make, by being clear about their top priority.

Whether they’ve chosen the right priority to make number one for this week is another question, as is whether they’ve thought through the implications. Starmer told us on Friday that his absolute top priority is to increase spending on armaments and military personnel, including especially the renewal of the UK’s weapons of mass destruction. His words left little room for misinterpretation as to the meaning and their implication. If one policy is the number one priority, all other policies must, by definition, have a lower priority. If push comes to shove, weapons will have priority over the NHS (where we’ve already been told that there will be no new money without further use of the private sector reform), education, housing and reducing poverty and inequality. And threatening to massacre millions of citizens elsewhere (and although there are conflicting views on the matter, there are considerable doubts as to whether the UK even has the ability to use the weapons without US say-so) is more important than ensuring the wellbeing of citizens in the UK. Despite the fact that even some in the military have long doubted whether the possession of nuclear weapons is the most effective use of resources. Perhaps Starmer genuinely believes that having the means to incinerate millions of foreigners is more important than eliminating poverty at home. Perhaps he doesn’t believe that, but believes that he has to say that he does in order to win an election. It’s hard to decide which of those two possibilities is the most depressing.

Starmer’s statement has aroused the ire of many in his party who still cling forlornly to the notion that Labour is an internationalist party supporting solidarity amongst workers of all nations rather than an English nationalist party harking back to the days of empire and ruling the waves. It’s just wishful thinking. Starmer has made his choice, and been clear about it.

Or has he?

In February 2021, Labour’s top priority was ‘financial responsibility’, code for more austerity. In October 2023, there were five priorities, none of which related to defence or the military. In November 2023 Labour’s top priority in foreign policy (and defence is surely at least partly about foreign policy) was closer ties with the EU. In December 2023, the top priority was economic growth. Or maybe Wealth Creation. In January 2024, it was knife crime. I’m sure that I can half-remember other examples over the last couple of years as well. You pays your money and you takes your choice, as the saying goes: every audience will find that Labour has a number one priority tailored to its own desires. But if an organisation with more than three priorities effectively has none at all, where does that leave a man and a party with at least 10, and counting?

A plague of Hunts

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Poor old Jeremy Hunt. This kind, compassionate Conservative, who set out determined to look after the interests of the poorest, didn’t really want to introduce a lot of the measures he announced yesterday, but he was, sadly, compelled to do so in order to comply with the new fiscal rules introduced by, er, Jeremy Hunt, the cold, uncaring Conservative who is bound by rigid dogma and ideology to look after the interests of the richest in society. New chancellor, new fiscal rules; but the problem with setting a fiscal rule which requires “that underlying debt must fall as a percentage of GDP by the fifth year of a rolling five-year period … [and] that public sector borrowing, over the same period, must be below 3% of GDP” is that the Hunt who set the rules left the Hunt charged with following them with little choice but to introduce measures which will increase taxation, cut public services, and reduce the standard of living of most people by around 7%. (Although, curiously, and I’m sure this is entirely unintentional, it seems that the wealthiest 10% will actually find themselves better off. Who would ever have expected that from a Tory Hunt?)

Whilst the self-styled nice Hunt can only follow the rules, the nasty Hunt didn’t have to set the rules in the way he did. He could, for instance, have set a target that debt must not rise by more than x% of GDP; or that public sector borrowing must not go above 5% of GDP. Either of those would have left him able to properly fund public services and protect the vulnerable. The so-called ‘black hole’ exists only because the fiscal rules have been applied to forecasts; applying different rules to those forecasts could have increased or reduced the size of the so-called hole – or even turned it into a surplus. Setting the rules in such a way as to oblige the Chancellor to impose a new version of austerity tells us only that the rules are doing exactly what the not-so-nice-after-all Chancellor wants them to do – austerity is a political choice, not a necessity.

He claimed yesterday that the alternative was to heap debt on our children and grandchildren, and that this was something that Conservatives don’t do. But in truth, it is exactly what Conservatives (and other governments for that matter) do do, and always have done. The UK has had a national debt since 1692 and has never repaid it all. Individual debts have, of course, been repaid, but only by raising new ones. If we treat a generation as being around 20 years, then in the terms in which Hunts (both of them) describe debt, today’s taxpayers are effectively still repaying the debts of their 14 times great grandparents. And the thing is – it really doesn’t matter; it’s entirely normal. Nobody, as far as I’m aware, is arguing that debt can or should be allowed to rise indefinitely – but neither does anyone, for all their profound statements, know precisely what amount of debt is impossible, and the UK’s public debt as a percentage of GDP is lower than a lot of other countries across the world – including both the US and Japan. The idea that the UK – one of the wealthiest countries in the world – is uniquely unable to provide basic services and standard of living for all its citizens owes nothing to any laws of economics; it is based on a dogmatic view that public spending is always inherently bad. And that’s a view shared by both Hunts, as well as all the other ones in the cabinet. Worst of all is that the Labour Party seems to be hooked on the same dogma, and seem determined to follow a similar set of rules. It seems that nasty Hunts aren't confined to a single party, even if they go under different names.

Controlling the parameters

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One of the great successes of the Tories in recent years – since the days of Thatcher, effectively – is that they’ve managed to persuade people that the government’s finances should be treated in exactly the same way as a household’s finances. It’s absolute nonsense, of course, but it has established the perimeters of political debate for other parties.  They feel obliged to follow the Tories’ example of setting a ‘fiscal rule’ for government spending, and Labour is this week reiterating its own commitment to that ideological viewpoint.

In practice, I don’t think that the Tories have ever stuck to any rule that they’ve laid down. The rule is for show, not for obeying. In economic terms, they don’t need to abide by the rule, and they know it. For them, aided and abetted by their friends in the media, the main purpose of the rule they so carefully lay out isn’t to constrain their own actions so much as to put limits on the ambitions of any opposition parties. And that’s where we see the real extent of their success: they’ve managed to hamstring the main opposition party into declaring it will follow a set of rules which the Tories themselves never follow, and thereby make it harder to propose radical alternatives. 

The Tories have effectively seized control of the parameters of the Overton window of political debate. An opposition party which was serious about wanting change would never allow itself to be suckered in such a way; fortunately for the Tories, their main opposition party doesn’t meet that criterion. The result is a Labour Party which is, without spelling it out, more committed to following the fiscal policy which led to austerity than the government itself.

Labour propose more austerity

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The Labour leader’s lengthy essay has been widely attacked in Wales and Scotland for barely bothering to mention either country at all. It makes for good knock-about politics in Wales and Scotland, but it’s entirely to be expected from a politician who is increasingly turning into an English nationalist and wrapping himself in the union flag in an attempt to out-UKIP the Tory Party. Why wouldn’t someone like that instinctively believe that what’s good for England is good for England’s possessions as well?

The document has also been widely panned for being the vacuous cliché-ridden series of slogans which it undoubtedly is, but that unfairly gives the impression that it is somehow innocuous. It is not: in just a few choice phrases about ‘repairing the UK’s finances’, it reveals a continuing commitment to the misguided belief that the government’s finances are like those of a household, a commitment which necessarily implies both tax increases and spending cuts. It is, in short, a recipe for further austerity. As this article in yesterday’s Sunday Times makes clear (paywall), the Shadow Chancellor intends to set a wholly unnecessary ‘fiscal rule’ in order to deliver a balanced budget, something which only a combination of tax increases and spending cuts can deliver.

The problem with a slogan such as ‘repair the public finances’ is that it implies that those finances are currently ‘broken’ – after all, something which is working never needs repair. It might, though, need improvement so that it works better. And in the case of the public finances, there is certainly room for improvement in a tax/benefits/spending system which benefits the haves and punishes the have nots. Some of Labour’s more detailed proposals make sense in that context – for example, taxing extreme wealth in order to pursue a more distributive economic policy has a great deal to be said for it. It’s a proposal which can be justified on its own merits, however; it’s got nothing to do with repairing the public finances, and does not require a balanced budget.

The problem with Labour’s proposals the way they are currently being framed is that they effectively invite us to believe that Labour austerity is somehow better than Tory austerity, or that Labour will be better at delivering austerity. Those who seriously believe that austerity is necessary are unlikely to swallow either of those propositions; why wouldn’t they simply continue to vote for the real thing? The rest of us are left looking for an alternative view of how the economy should work and for whose benefit. Labour are very clearly telling us that, if that’s what we want, we shouldn’t be looking in their direction. That’s one thing at least that they’ve got right, albeit unintentionally.

Maintaining the fiction

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Discerning any sense of strategy behind the Chancellor’s increasingly bizarre policy choices is at times a difficult task. Imposing salary constraints on public sector workers in the midst of a pandemic which has shown the value and popularity of those workers is a strangely unpopular thing for a supposedly ‘populist’ government to be doing. It doesn’t even save significant amounts of money  – with inflation likely to be below the 2% target for at least the next 4 years (according to the OBR figures released yesterday), increasing those salaries in line with inflation would cost very little and be much easier to sell as a policy. It would also help to maintain the confidence of some consumers, and hence demand in the economy.

It’s true that spending on the most popular service, the NHS, is to increase, but whether it will increase by enough is another question. It’s almost as though they believe that bandying very large numbers around will impress people and deter them from asking about the detail. Indeed, it’s noticeable that most government announcements start with how much money is being spent as their headline, and tell us little about what we will be getting for the money. For former hedge fund managers, large sums of money may indeed be impressive; for most of us, anything with more than a few zeroes on the end is just a number. The difference between 6 zeroes and 9 is probably meaningless to most voters.

The announcement of a boost to schemes to help people find jobs is one of the most revealing of the policies announced – it underlines the ideological belief that the problem is that people are unwilling or unable to find jobs, rather than that there are no jobs available. Simply investing that same money in retaining existing jobs, or creating new ones, would give a much better and earlier return on investment than training people how to find jobs which don’t currently exist and the supply of which is being deliberately reduced  by government policy.

Perhaps there is, after all, a discernible strategy here. It is about ideology, not economics. In particular it's about maintaining the fiction that governments must balance the books and that ‘someone’ must suffer to achieve that. Not the hedge fund managers or the bankers, of course, however popular that might be. Public sector workers and people dependent on benefits (to say nothing of people living in the poorest countries of the world as a result of cuts to overseas aid) – these are the ones who will have to pay. And they will be paying largely in order to sustain the fiction that there is no alternative. It’s quite a neat trick when you think about it – they will be paying so that the government can convince them that there is no alternative to them paying. Many of them will indeed be convinced as a result, and will continue to vote for those who are making them pay. The government being blessed with an ‘opposition’ whose main disagreement is over the timescale over which the books must be balanced is just a bonus. Maintaining the budgetary fiction means that the long-term trend for wealth to accumulate in greater and greater sums in fewer and fewer hands will continue; and that, ultimately, is the objective of government policy.

Austerity and ideology haven't gone away

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Yesterday’s decision by the Chancellor to extend the furlough scheme was ultimately inevitable – the only alternative was to accept that most of the 7.5 million people being supported by it are, effectively, unemployed and that the companies employing them are, effectively, insolvent. There was a statement that companies would be expected to contribute to the costs from August onwards, caveated by something along the lines of ‘when businesses are open again’, a caveat which gives him enough wiggle room to simply carry the scheme forward until the end of October if – or perhaps when – it becomes as obvious to him as it is to others that the English government’s timeline for re-opening the economy is from the same fantasy world as a pain-free Brexit, and that the companies concerned will be in no position to make any such contribution. And even a caveated, almost grudging, extension of a scheme which is still far from perfect is to be welcomed as better than the alternative.

More worrying are the rumours about his views on how the government will pay for the costs associated with the pandemic. The Telegraph this morning (paywall) is reporting ‘exclusively’ that a leaked report talks about an increase in income tax, the abolition of the pensions triple lock (something the Tories have never liked anyway), and a two year pay freeze for public sector workers (like the ones they’ve been hypocritically clapping every Thursday). There is also talk of other tax rises and cuts to public spending – the Tories may avoid the word ‘austerity’, but it seems that they just can’t abandon the ideology behind it. When Sunak talked a few weeks ago about this ‘not being a time for ideology’, it seems that he merely wanted a postponement, not a change.

Because many people, and the media from which they get their news, adhere to the crazy notion that government finances are just like a household which can’t spend money it hasn’t got, there is a danger that this sort of talk gains traction, and that people will see it as inevitable that the money borrowed has to be repaid. But this is a complete fallacy – we need to think a bit more about who owes what to whom, and what the effect of repaying it is. It’s true, of course, that the government is borrowing vast sums of money at the moment, both on the bond market and from the Bank of England. The two need to be considered separately.

·        The Bank of England is owned by the government – all money ‘borrowed’ from the BoE is money that the government is actually borrowing from itself. Where does it come from? At it’s simplest, it comes from a computer – the governor of the bank (acting on the instructions of the bank’s owners) deposits a few hundred billions in the government’s account and then creates a matching asset in its own accounts. The money is, in short, created out of thin air, into which it will disappear again if it is ever ‘repaid’. Any ‘interest’ paid becomes a ‘profit’ of the BoE which gets paid to its owners – the government. The government is paying the interest to itself in effect. It can borrow as much as it wants or needs in this way, limited only by any inflationary effect if there is ever ‘too much’ money in circulation, although nobody knows how much is ‘too much’.

·        Money borrowed on the bond markets is mostly borrowed from the UK financial sector – much of it from pension funds. From their perspective, what the government sees as a ‘debt’ to be repaid looks like a valuable (and extremely safe) ‘asset’, which is why they are so willing to ‘invest’ the money which they manage. Their ‘investment’ is government ‘borrowing’. Nominally, all those debts need to be repaid at some point, but those to whom they are repaid are likely to want to simply re-invest (i.e. lend the money back to the government).

So, we (through the government) are borrowing money from ourselves (through our pension funds or the BoE) and in due course we will repay it to ourselves and then lend it back to ourselves in an ever-continuing circle. Does it matter? Well there’s a sting in the tail here – ‘we’ are not all equal in this process. The ‘we’ to whom the money is owed tend to be the more well-off – those with the larger pension funds, especially. But the ‘we’ who will do the repaying under the sort of proposals being considered by the Treasury are the low paid (who depend disproportionately on public sector services), the poorest pensioners (those for whom the state pension is their only or main source of income), and public sector workers. Austerity, in short, is a process by which the wealth of the wealthy is preserved by transferring resources from the least well-off. The PM may not want to use the word but that, like most of what he does and says, is about presentation not substance. Anyone who thinks that the virus has driven out Tory ideology hasn’t been paying attention.

Chancellor admits independence affordable

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Amongst the political responses to yesterday’s budget announcements, the leader of the Tory group in the Senedd described it as being “exactly what the country needs”.  This would have been more credible if we didn’t all know that (a) he would have said exactly the same thing if the Chancellor had stood up and doubled down on austerity, and (b) he would have been apoplectic with rage had the same budget been announced by a Labour Chancellor.  He’s not really expressing an opinion on the content of the budget at all – merely reaffirming his desire that it should always be delivered by a Tory.

Labour were inevitably wrong-footed to a degree – a massive increase in spending is exactly what they have been arguing for, and that is what we are going to get (although there is always scope to argue about the detail – and I suspect, given the Chancellor’s assertion that it meets his own unnecessary and irrelevant fiscal rules, that there is a sting in the tail to come, perhaps in the ‘proper’ budget in the autumn, or even in the ‘emergency’ budget which is likely to be presented in a few months’ time).  Corbyn’s claim that the budget is an admission that austerity has failed is fair comment, but it doesn’t go nearly far enough.  It’s much more than that – it’s also an admission that austerity was also both unnecessary and inappropriate as a policy choice.  I suppose, though, that it would be difficult for Labour to make that point, given that, at the time austerity was introduced in 2010, Labour’s own policy was also for austerity, just a little less and a little slower.

We should also note that a budget which deliberately increases the budget deficit year on year, and which abandons any pretence that the UK needs to have a plan to return to a balanced budget at some foreseeable future date, blows a massive hole in the main, repeated, argument of unionists against Welsh independence.  If the UK can run a more-or-less permanent budget deficit, then so could an independent Wales.  An argument of principle (“You can’t run a permanent deficit”) becomes an argument of degree (“There is a limit to the size of the deficit you can sustain”), which is a much easier argument to have, not least because most independentistas would agree with it.  Of course there are limits; but the factors governing those limits are complex and there are no hard and fast rules.

Some reports yesterday suggested that bond markets were ‘unfazed’ by the planned increase in borrowing – and, indeed, that what surprised them most was that the figure for planned new debt is lower than they were expecting.  But why would they be fazed by this – new government debt is exactly what the markets need.  What is debt for the government is a safe haven for funds, even at effectively negative interest rates.  The funds being released by the stock market sell-off have to go somewhere and lending the money to the government is far and away the safest option.  Not only are they ‘unfazed’, they are delighted that the government is going to borrow more.  Indeed, Professor Richard Murphy argued a few days ago that, as the borrower of last resort, the government had a duty to issue more bonds (i.e. borrow money).  It all underlines what some have been saying for a long time – one person’s debt is another person’s asset.  Most of the debt which the government accrues on behalf of the population is owed to the same population (much of it through pension funds), and if the government repays ‘our’ debt, it is a case of us repaying ourselves.  (Yes, there is a question of distribution of assets and debt which needs to be addressed, but I’m just considering accounting principles here.)  If we can only get that understanding clear, the debate about how much ‘debt’ governments can ‘afford’ becomes a lot clearer.  If independence was ‘unaffordable’ on the basis of deficit budgets, then the UK would have to declare itself un unviable state on the same basis.  Neither is true.

It's about politics, not finance

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The news of a huge boost to NHS spending is something to be welcomed for two reasons.  The first is that it is clearly badly-needed.  The NHS has been struggling for years, and at least part of the problem has been caused by government spending restrictions.  It’s not just a question of money, though, and simply diverting an arbitrarily-agreed extra lump of cash won’t necessarily be any sort of panacea, given that the sum has been arrived at more through political calculation than from any assessment of actual need.

But in some ways, the second reason for welcoming the extra cash is the more important, because it is the implicit recognition that so-called ‘austerity’ is – and always was – a political choice, not a financial necessity.  Nothing fundamental has changed in the UK economy – indeed, if anything, the economy has weakened since ‘austerity’ was introduced; yet suddenly the government declares that it can somehow find an extra £20bn a year for England with corresponding increases for the devolved administrations.  The simple truth is that if they can do this now they could have done it last year, or the year before – or indeed at any time since being elected.

The Prime Minister claims, of course, that this is the redirection of what she calls the ‘Brexit dividend’.  The idea that any such dividend exists has been well and truly debunked many times, including by an MP from her own party who described the claim, quite rightly, as ‘tosh’; and even if there were any such dividend, it would not become available until after the period in which the spending is to be increased.  She was, unsurprisingly, vague about where the money will actually come from, not because she doesn’t know, but because she doesn’t want to admit it.  It will inevitably come from a combination which involves taxation, borrowing and, of course, the ‘magic money tree’ which she knows exists but whose existence she continues to deny.  The same methods used for all government spending, in fact.

It’s not yet an explicit admission, but it’s certainly an implicit one – the government are publicly recognising that we can have the health service that we need; it’s solely a matter of political will.  Or, perhaps, in the Tory case, of political fear of the consequences of not doing something.

A means to an end

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The idea of a ‘progressive alliance’ has raised its ugly head again recently, both during Plaid’s annual conference and in relation to the pending by-election in Richmond Park.  It’s an issue which I’ve discussed in the past, because it raises a number of problems.  Glyn Morris referred to it yesterday as well, pointing out that, to be meaningful, it needs to be about more than an anti-Tory electoral alliance.

My first problem is with the concept: I’m not sure what the word ‘progressive’ means.  It’s a word often used by politicians and parties who see themselves as the good guys and the ‘non-progressives’ as the bad guys, but that is, in essence, a definition which starts from a subjective viewpoint.  Taking it as its lowest common denominator in recent discussions, the desired outcome would appear to be that Labour, the Lib Dems, Plaid, the SNP, and the Greens agree amongst themselves that only one candidate should stand in any given constituency, in order that the best-placed ‘progressive’ should be able to defeat the baby-eaters.  But what does that mean in practice?

Let’s take the issue of Trident, for a start.  Labour are in favour of renewing it, the Lib Dems want to replace it with an alternative form of nuclear deterrent (they don’t seem entirely sure what, only that it should be less accurate and less immediately available; a position the logic of which escapes me).  So, if there were to be a ‘progressive’ alliance, would someone like me, who is utterly opposed to the possession of nuclear weapons, be expected to vote for a Labour pro-Trident candidate in order to defeat a Tory pro-Trident candidate?  Why would anyone do that?  It’s a point which highlights the dodgy assumption being made by too many politicians that their electoral supporters would vote for a different party if only their normal party told them to.  It’s a position which owes more to abstract mathematical analysis than to serious political thought.

Or take the question of an ‘anti-austerity’ programme.  Labour’s pitch at the last general election may have been presented in that light, but the actual policy put forward was more about a disagreement about the extent and speed of austerity.  The basic Tory position was accepted; the difference was about the detail and timing.  Again, why would any serious opponent of austerity, who wants an alternative economic strategy, compromise and support austerity-lite just because his or her usual party told them to?

This article highlights some of the issues in arriving at a consensus platform, as seen from a Labour viewpoint.  Seen from that perspective, one of the conditions would be that “... the nationalist parties would have to accept a federal or ‘devo-max’ model of governance in exchange for using power to pursue progressive politics and give up hopes of independence.”  I think that neatly brings us to one of the key points: from a Labour perspective, the whole concept is not about what such an alliance actually achieves, it’s about getting Labour back into power and making other views subordinate to those of the big boys.  Just think about the constituencies across the UK, and which parties would be standing down for which other parties.  In the vast majority of constituencies in England (and in Wales), the simple reality is that such an alliance would mean other parties standing down to give Labour a free run.  It is, for Labour, a route back to two-party politics, marginalising other views in the process.

I can think of one, and only one, reason to back an alliance between disparate parties on a once-off basis, and that is an agreement to change the electoral system to one based on proportional representation.  (My own preference would be for STV, but there are other possible alternatives.)  Imagine electing a government which had that as its one and only priority, and which agreed in advance that it would resign and call new elections under the new system after passing the legislation.  I believe that would do more for the advancement of whatever progressive politics actually is than any political manoeuvring based solely on not being the Tories.

That’s something that Plaid, the SNP, the Green Party, and the Lib Dems could probably all agree on.  There’s a problem with Labour, though.  That particular ‘progressive’ party is wedded to the current system, and seems unlikely to change as long as they believe that they can win an outright majority under such a system.  In that context, talk of other parties standing down in favour of Labour hardly encourages them to shift their position.

Oh, and there’s another problem with PR as well.  Labour might not support it, but my understanding is that UKIP do.  I know that ‘official’ wisdom is that they eat even more babies than the Tories, but if we were serious about seeing a change in the electoral system as the number one priority for building an alternative approach to politics, one could make a good argument that, on a one-off basis, a UKIP MP might be a better bet than a Labour one.  That’s not a serious proposal, by the way; but it highlights a problem with the logic of much of what is being proposed, namely that the sort of alliance being proposed would not deliver real long term political change, only a short term change of government.

None of the above is intended to suggest that parties cannot or should not work together in relation to specific policy issues where there is common ground, but an electoral alliance which merely serves to reinforce Labour’s hegemony as the ‘main’ non-Tory party looks more like a regressive step to me than a progressive one.  Too many people who should know better are confusing ends with means.

Assisting the enemy

Tweet There will be as many theories about what caused the election result last Thursday as there are people analysing it.  Most of us will see those things which confirm our own preconceptions, and give rather less weight to those which suggest the opposite.  In reality, there will have been almost as many causes as there were people casting their votes.  Voting is in essence an individual action, prompted by a range of factors including image and emotion as well as policy, tradition and self interest.

Personally, one of my own preconceptions is that elections ought to be about different views of the world, and making a choice between them – first and foremost about policies and programmes rather than personalities and image.  I’m realistic enough to recognise, however, that detailed analysis of policies and programmes is something that only a minority of voters do.  And many voters discount all promises on the basis that they have little expectation that they’ll be honoured anyway.

With that caveat – i.e. that policies are only one small factor in the outcome – I’ll return to last Wednesday’s post about deficit elimination.  In this election, we were faced with a range of parties, all telling us that it was essential to eliminate the deficit, but with only one of them arguing that it needed to be done rapidly and resolutely.  I can’t help wondering whether the fact that the other parties all conceded the basic case for a balanced budget, and then tried to argue for doing it differently or more slowly, didn’t end up helping the Tories overall (except in Scotland, which was obviously a special case). 

When they’re all saying that ‘x’ needs to be done, why wouldn’t people who are convinced by that argument back the one party that says it really is going to do ‘x’?  The case for not needing to do it was never really put at all.

Conceding the narrative

Tweet Amongst the more useful things that I’ve learned over the years are that that which is obvious isn’t necessarily true, and that that which is true isn’t necessarily obvious.  Assuming the obvious to be true is a common mistake, but in this election the failure to challenge the ‘truth’ of the obvious has allowed the Tories to frame the debate and win the argument on economic narratives.  To describe that as disappointing is an understatement.

When it comes to the budget deficit, all three of the main UK parties are committed to the view that it needs to be eliminated; any disagreement is solely about the method by which that is achieved and the timing.  Even the self-styled ‘anti-austerity’ parties, despite calling for an increase in borrowing to fund infrastructure in the short term, seem to have bought into the ‘truth’ of the ‘obvious’ need to eliminate the deficit.  In her piece for the Western Mail on Saturday, Plaid’s leader said “The Party of Wales wants to see the fiscal deficit eliminated”, going on to argue that it just doesn’t have to be done so quickly.

Deficit elimination as a necessity is a narrative which the Tories, aided by their friends in the media, have set, and which has gone unchallenged.  It is, after all ‘obvious’ that a government cannot run a deficit forever.  But is it true?

As the chart on this page shows, deficits have been the norm over a very lengthy period.  Where there have been surpluses, they’ve been short-lived and very much smaller than the deficits.  The simple conclusion is that countries are not like households; the budget really doesn’t have to be balanced, even over the long term.  Governments really can run deficits more or less indefinitely if they choose, however counter-intuitive that may seem.  And because it’s so counter-intuitive, it’s a point which simply hasn’t been made effectively during the election campaign.

The extent to which it’s possible to run a deficit indefinitely depends on a number of factors, most notable perhaps inflation and the level of economic growth, although it’s important to remember the importance of international comparisons as well – relative security of funds is more relevant than absolute security.  That’s why a more useful measure than the existence of a deficit per se is the relationship between that deficit and the overall size of the economy over time. 

If they’d all talked about ‘reducing’ the deficit, rather than eliminating it, I’d be a good deal less critical, because there probably is an upper limit to the size of the deficit.  However, I don’t know what that limit is, even if I suspect that the UK got closer to it than was wise.  But here’s the thing – neither does anyone else know what that limit is. 

For sure, any number of different economists will tell you with apparent certitude what the limit is, and justify setting it at that level by reference to all sorts of economic theories based on what’s happened in the past.  But none of them can be, whatever they may say, certain.  In effect, governments can go on borrowing until people won’t lend them money any more – not a sensible thing to do, but the only way anyone will ever know what the limit is.  Everything else said about the deficit is simply opinion, not fact.

One of the few things which are certain is that the existence of a deficit per se is not a problem – which is precisely the opposite of what all the politicians are telling us.  It’s clear enough why the Tories are telling us the reverse of the truth.  Using the ‘obvious’ comparisons with household debt or ‘maxing out the credit card’ provides them with the cover they need for an ideologically based desire to shrink the state and further redistribute power and wealth from the many to the few.  What’s a good deal less clear is why the rest of them have allowed the Tories to get away with this unchallenged.

An outbreak of reality

Tweet There is, of course, still enough time before the election in May for the SNP surge to falter, or for the Tories to benefit from the ‘traditional’ recovery of government parties in the final period of a campaign.  But as poll after poll shows little or no movement, it is looking increasingly unlikely.  As things stand, the likeliest outcome is a very close result between Labour and the Tories, a large block of SNP MPs (with a few friends from Plaid and the Green Party) and a rump of Lib Dems licking their wounds.

In those circumstances, the SNP-led bloc has a choice of strategies which it can follow; the two most obvious being that it an either take a principled and uncompromising stand in favour of a radical alternative or else it can try to influence government policy in exchange for support in a few key votes.  There are pros and cons to both – neither is entirely without its problems.

Until this week, though, it has sometimes seemed that they were trying to do both.  The idea that a group of 50-odd MPs could ‘force’ a Labour government to abandon Trident was always just plain unrealistic.  On any foreseeable election result, there will be 500+ MPs committed to retaining Trident.  Making it a ‘red line’ issue would simply exclude the SNP-led bloc from any influence over the next government.  I very much wish that it were otherwise, but with Labour as committed to nuclear weapons as the Tories, it was never going to happen.  We’re stuck with overwhelming parliamentary support for Trident; our best hope for scrapping Trident at the moment is the second independence referendum in Scotland.

So the announcements this week by Nicola Sturgeon and Leanne Wood that Trident would not be a red line issue for their parties in negotiating with Labour is nothing more than an acceptance of the sad reality.  And it shows that both parties have now come down firmly on the side of seeking to negotiate the best deal possible rather than taking an uncompromising stance after the election.

Whether it’s the ‘right’ decision is another question.  There are certainly those in the Green Party who are publicly questioning it.  And I suspect that there will be those inside both Plaid and the SNP who will be having less public doubts as well.  Personally, I believe that the influence that the parties will have on the policies of any future Labour government is rather less than they are claiming, and a good deal less than many of us might like.  And at the risk of repeating myself, the decision to negotiate with only one party is itself likely to reduce the extent to which that party feels the need to make concessions.

Given the very limited nature of what’s likely to be achievable, I’m more concerned about whether they’re asking for the ‘right’ things.  The agenda is inevitably being set by events in Scotland, and whilst I wish the SNP every success, I can’t help feeling that the needs of Wales are very much a secondary consideration.  Indeed, at times it seems as though changing economic policy at UK level is being given a higher priority than progressing the national project in Wales.

The SNP-led bloc is no more likely to ‘stop’ austerity than it was to stop Trident; all it can achieve is to add a little water to dilute the mix ever so slightly.  The test of ‘success’ from a Welsh perspective in those circumstances is about the more long term changes which are put in place.  And at the moment, it’s not at all clear to me that there’s a thought-out position on that.

Not talking to the baby eaters

Tweet I probably don’t need to say this, but there isn’t a great deal of love lost between myself and the Conservative Party.  I’m not, never have been, and am confident that I never will be, a Conservative (although one member of that party did once, many years ago, make a vain attempt to recruit me).  There is little with which I agree with that party.

On the other hand, I feel much the same about the Labour Party.  The chief difference between them is not what they will do once in government, it is what they will say in order to achieve that.  Labour in opposition almost always (the Blair era being an honest if unattractive exception) sound more radical – until they get their hands on power.

I can understand why Plaid, the SNP, and the Green Party would want to work together in parliament wherever their policies overlap.  A lot could change between now and May, but on the basis of current predictions, it makes a great deal of sense for Plaid and the Greens to try and take advantage of the probable success of the SNP to increase their leverage in the Commons.

Opposition to austerity is the obvious place to start, of course, even if, when set against the formal aims of the nationalist parties, it can end up looking like something of a lowest common denominator.  Furthermore, given the commitment of Labour and Tory alike to essentially similar spending plans, any concessions are likely to be small in the grand scheme of things.

Whilst opposition to Trident is a core issue for all three parties, given the overwhelming pro-Trident majority which exists in the Commons now and which will continue to exist after May, I’m not at all convinced that making it a red line issue does more than encourage the largest party – whichever that turns out to be – to avoid coming to any arrangement of any sort.

I’m even less convinced about the commitment in advance to talk to only one party about any sort of deal, and to exclude axiomatically the Tory party from any consideration.  Whilst I can understand the electoral driver for that position – the idea that the Tories are still toxic in some places – it seems to me to weaken the bargaining position post-election.  After all, if they all know that there’s only one game in town, they hardly have an incentive to put their best offers on the table.

(And, as an aside, I’m not convinced that the Tories are as toxic in Wales as is claimed, let alone as many of us would like to believe.  That is, though, another subject entirely.

There also seems to be some confusion coming from Plaid as to what the narrative is in relation to Labour and the Tories.  One day, the Tories are so evil that they can’t even be talked to but it's possible to build a 'progressive alliance' with Labour, and the next day, Labour and the Tories are like peas in a pod, they’re so similar.  In the rational world, both positions can’t be true at the same time.)

However, I digress.  If the main aim of a party is to protect the position of Wales, and to advance the constitutional position in Wales, what would happen if the Tories were to offer more than Labour?  It’s hypothetical, of course, but given the splits within Labour over devolution to Wales, it’s far from inconceivable that the Tories could offer a more coherent and far-reaching next-step settlement than would be forthcoming from Labour.  But if they know in advance that whatever they say will be rejected, they’re unlikely to bother.  One doesn’t need to be a Tory sympathiser to wonder whether it’s just possible that Wales will be the loser as a result.

Not much different

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Apparently, Cameron is worried that the election of Hollande in France might give people the impression that ‘growth’ is an alternative to ‘austerity’.  I can see why that might worry him – an alternative narrative is clearly proving attractive, and that attraction is not limited to France. 

Whether Hollande’s actions will live up to his rhetoric is yet to be seen; it’s not only in the UK that politicians exaggerate the differences between them at election times in order to do exactly the same once safely in office.  And whilst the rhetoric of the Labour Party in the UK might at times sound as though they are going to follow a similar narrative to that espoused by Hollande, the policy differences between the UK Government and Her Majesty’s Loyal Opposition are a great deal less significant than the rhetoric might suggest.

As I understand the Labour Party’s policy, it is that the cuts should be slightly smaller and made slightly more slowly – that’s a long way short of a positing growth as an alternative to austerity.  The real difference between government and opposition amounts to little more than tinkering on the fringes.  So Cameron is right to be worried electorally, but if he sincerely believes that the policies being followed are the right ones, then he probably has little to fear in economic terms from a change of government.

A question of class

Tweet In times of austerity, it’s not surprising that politicians should start trying to compete with each other to see who is the most parsimonious – or at least, who can give the best impression of parsimony.  Today’s story in the Western Mail returns to the subject of our elected representatives’ use of first class rail travel.

I don’t always – or even often – agree with Tory MP Simon Hart, but there is one telling comment in his robust defence of his habit of travelling first class.  He said that “This is a hair-shirt competition”.  His comment helps to confirm the basic message of the report – that MPs still just don’t get it – but it’s also a fair summary of where the debate about the travel arrangements of public servants, elected and unelected, has got to.

Perhaps there is a deeper question here which is going unasked in the rush to criticise any public servant who dares to travel first class, and that is whether there is still any justification in this day and age for there to be a distinction between travel classes anyway.  Why should there be a distinction between two ‘classes’ of people travelling on the same train?

I used to travel extensively by train on business – sometimes standard class and sometimes first class.  I certainly understand the point made by some that it’s easier to work in a first class seat, but the main reason for that is basically the extra room and guaranteed table seat due to the smaller number of seats in a given space. 

The argument about discussing matters with constituents on the phone is surely a red herring – I would no more hold a private conversation in first class than I would do so in second.  It may seem quieter, and people may be seated marginally further away from you, but it is no more possible to have a confidential conversation.  Perhaps some of them just believe that having a better class of people overhearing you is OK.

But back to the main point.  Most local services, in Wales certainly, manage perfectly well with only one class of ticket and seat.  And the biggest challenge to the rail system at the moment seems to be providing enough capacity for everyone who wants to travel to be able to do so and to be guaranteed a seat of some sort.  Having two classes of seat – and traveller – doesn’t look to me like the best way of doing that.  A single class - less crowded that standard, but less privileged than first - might be a better and more flexible way of providing the necessary capacity.