Where's the ideological response to Tory nonsense?

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Accusing the ‘Welsh’ Tories of possessing principles of any sort would be a foul calumny, but lacking any basic principles isn’t the same as lacking certain fundamental ideological beliefs. One of those is that tax cuts are axiomatically a good thing, and they are at it again today in the Senedd, calling for a cut in income tax and the abolition of business rates for small businesses. These changes, they claim, will put more money in peoples’ pockets and boost economic growth.

The Welsh government (and the Welsh budget) are fundamentally different creatures from the UK versions, and don’t have the same freedoms. It’s a consequence of the difference between devolution and independence: an independent government in control of its own currency and with debt mostly denominated in that currency can spend as much as it wants to as long as the physical resources are available, and that spending isn’t constrained by the availability of money through taxation. The Welsh government has no such freedom: it’s budget, and its ability to borrow or transfer money between financial years are limited by external dictat, and over a period, it must balance the books. It means, in essence, that whilst it’s not true that a UK tax cut must be balanced by spending cuts, it is very definitely the case that a Welsh tax cut must be balanced by spending cuts. And the Tories know it, even if they didn’t spell it out.

What that translates to in practice is that, whilst the tax cuts proposed by the Tories may make individuals and small businesses feel better off initially, they will either have fewer (or worse) services delivered by the Welsh government (and by the local authorities who receive large transfers from the government in Cardiff), or find that they have to pay more for the same services out of the ‘extra’ money they gained from the tax cuts. More people will end up paying for private health care, or private tuition, for example. There will be those who argue that that is a ‘good’ thing, and that those services can be provided better or more cheaply by private providers. Whether that is true or not (and I’m not at all convinced by the arguments) is irrelevant to the economics here – a subject for another day. The point is that those who gain most from the tax cuts will be better able to afford such things than those who gain least – and that is especially so for those who earn so little that they pay little or no income tax already.

Whenever a tax cut is proposed which leads to cuts in what the government can do, it necessarily promotes a further disparity between those who can afford to bridge some or all of the gap and those who cannot. Some won’t be able to do so at all and will suffer as a result; others will see all the gains from their tax cuts swallowed up by extra costs; and the luckiest few will end up banking the difference. It goes to the heart of the argument for funding some basic services in society collectively, through taxation and public bodies, as opposed to leaving individuals to find the money to pay themselves or go without. Concentrating primarily on the financial effect on the Welsh government and its budget – which seems to be Labour’s response – is to miss the underlying ideological point. For too long, the argument about collective provision rather than individual provision has gone largely unmade, an omission from the debate which helps only the Tories.

Cutting pensions to repay imaginary debt?

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The media have been busy this week pointing to what they describe in terms such as ‘record levels of borrowing’, following the announcement that the UK Treasury deficit hit £36bn for the month of September, and is now estimated to be around £300bn for the year. The figures for the deficit (£36bn and £300bn) are right enough, but the straight line from those to an increase in borrowing is utter tosh. In fact, the UK has borrowed precisely nothing extra this year, not a single penny. It’s even more stark than that – the total UK debt so far this year has actually reduced by £50bn, as Prof Richard Murphy points out here. All the additional expenditure has been financed not by borrowing but by the creation of new money, otherwise known as Quantitative Easing. The idea that this money – created by the Bank of England, a wholly owned subsidiary of the government, and acting on government instruction – is somehow ‘owed’ by the government to the BoE is a convenient book-keeping fiction. This part of the debt is wholly notional because the government, in effect, owes it to itself.

It follows that the stories of doom about needing huge tax rises going forward to ‘pay for’ the response to the pandemic are also nonsense. The government has already ‘paid for’ that response; any decision that tax rises will be necessary (tax adjustments for other purposes such as incentivising some actions and deterring others are a separate matter) at some future date depends not on the costs of the pandemic but primarily on whether the government needs to act to control any inflation which might result – an outcome which looks to be several years in the future at present. So why are these think tanks and pressure groups calling for action to cut spending and/or increase taxation, including once again the old perennial about abolishing the triple lock on pensions?

The answer is not about economics at all; it’s about ideology. Cutting pensions, cutting benefits, and cutting spending are about putting the burden onto the neediest in society, in order to protect the personal wealth of the richest few. They’re about dividing the many against each other by focusing the debate on which services should be cut, which benefits should be cut, and whose pensions should be cut (those with large occupational or personal pensions certainly won’t be greatly affected by the abolition of the triple lock) rather than debating the level of inequality and the means by which wealth has been siphoned away from the many to the few. They’re about trying to create an intergenerational divide by arguing that the interests of the young and the old clash in order to prevent people noticing that the real clash of interests is between the few and the many.

The problem is that it works; that’s why they keep saying it. The idea that a government must balance its books is so seductively ‘obvious’ that people are easily led to believe it; the think tanks promote it, the media support it, and politicians are cowed by it. But one thing that life has taught me is that that which is ‘obvious’ isn’t always true and that which is true isn’t always obvious. In this case, the obvious is most definitely not true; most government run deficits most of the time and debt is rarely repaid. Indeed, the consequences were the government ever to repay all ‘debt’ would be economically disastrous. A widespread recognition of those simple truths would turn debate about government finances in a wholly different direction. That, of course, is something those behind these, often mysteriously funded, think tanks want to avoid at all costs. People need to ask themselves why that would be.

'Raising' taxes

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It’s unfortunate that the English language uses the same word – raise – to mean two different things in relation to taxation.  The first meaning is simply the imposition and collection of taxes; the second is to increase the level of those taxes.  The confusion between the two has inevitably coloured discussion about devolving taxation powers, and those who are opposed to the idea in principle are more than happy to exploit that linguistic confusion by encouraging the idea that devolving the power is equivalent to increasing the level of taxation.

In that context, it is in one sense encouraging that the leader of the Conservative group in the Assembly has taken to pledging that, in the inconceivable scenario that he is ever in power, his party will not use any of the new powers to increase the level of income tax.  Such a clear pronouncement should help to clarify the difference between the two meanings of the one word.

I’m far from certain though that it is really sensible or credible of them to promise, apparently in relation to any and every proposed taxation power for Wales, that they will use the powers to cut taxes.  It looks like a knee-jerk reaction.  But it also reveals that they understand that they will never have to deliver on any promises they make.  

I fear that the proportion of the population of Wales driven primarily by selfish motives when it comes to taxation is higher than many of us might wish to believe, but I’m fairly certain that it’s a long way short of a majority.  The number of people who care at least as much about what the government does with taxes – health, education etc. - seems to me to be significantly higher.  That’s what one would probably expect in a comparatively low income economy like Wales.

An electoral strategy based on criticising the Welsh Government for the poor standards of services such as health and education whilst at the same time promising to reduce significantly the total amount of money available to spend on services is a strategy which will no doubt appeal to the Tories’ core voters, and may help to reinforce their vote.  But it’s a strategy which they must surely realise will never take them anywhere close to electoral victory.

Cut somewhere else

Tweet I can't remember the exact detail, but there was a Spitting Image scene where the budget deficit was being explained to Ronald Reagan.  It went something like, "Mr President, suppose you have ten apples, and you take away three trillion; how many do you have left?", to which Reagan replied, "Oh, I don't know, but there must be a few at least".

It came to mind when I read this report, or more precisely the comments of Paul Davies AM, on rural transport this morning.  Transport is a major issue in rural areas, of course.  And I agree with him that we need to increase the frequency of train services to Fishguard in particular and West Wales in general - although I still think that his repeated calls for dualling the A40 are a completely inappropriate response.  The point is, though, that rural transport issues will never be resolved by the private sector; they require a large dose of investment from public funds.  I recognise that, and am prepared to argue for the sort of public sector spending regime which can deliver that.

Mr Davies, though, does not.  Only yesterday, he and his party were arguing that health spending - note, spending, not delivery - should be protected from any cuts at all, which means larger cuts elsewhere.  He and his party have argued consistently that the public sector needs to be cut by a large amount and in a short timescale to rectify the deficit.  I disagree with him and his party on both of those; but there's nothing at all wrong with him putting those arguments.  There's something more than a little dishonest, though, about then calling for significant extra government expenditure in his own constituency.

It smacks of the all-too-common refrain of people who support cutting public expenditure, as long as the cuts happen somewhere else, and to somebody else.

Sharing out the rewards

Tweet I’m not sure that I’m really terribly worried about the fact that there are thousands of people in the public sector paid more than the Prime Minister. Superficially it may seem odd that there should be any, but it’s nothing new; senior civil servants have long been paid more than their political bosses.

It’s very often the people working in our public services, rather than the politicians, who have the real expertise. Although there are politicians who have detailed knowledge and expertise in a range of fields, the only formal ‘qualification’ that they need is the ability to persuade people to vote for them. Or perhaps more accurately, get themselves selected where people are going to vote for their party anyway.

I don’t see anything intrinsically wrong with paying experts more than politicians; so the real question for me isn’t how many people are being paid more than the PM, it’s whether they have the relevant expertise and skill to justify their rewards.

The element of the story which interested me more was the comments by Francis Maude. He said that it should not be necessary to offer "stupendous amounts" of money in the public sector, and went on to add:

"You can square the circle of having really good people not on telephone number salaries and massive built-in bonuses. That public service ethos is very important. People will come and work in a public sector for salaries that aren't competitive in a private sector sense."

Up to a point, I agree with him. People who are committed to the ethos of the organisations for which they work, or the services which they are providing, will not necessarily be forever seeking the highest possible level of personal rewards. But what does that say about the private sector?

Are the high rewards of some therefore correspondingly justified by their lack of commitment to what they are doing? Is it right that the highest rewards go to those who place their own personal acquisitiveness above the wider needs of society?

Maude seems to be saying that the most selfless amongst the most able should reap the lowest rewards, whilst the highest rewards go to the most selfish, even if, in pursuit of their own interests, their actions are directly detrimental to the interests of the majority.

At its heart, it's a statement of an ideological position about the nature of human society, where resources are distributed on the basis of competition, but it doesn’t fit my own view of what attributes ought to attract reward. And it is certainly not an approach based on any evaluation of the contribution people make.