The impossible sell.

"Strip OAPs of free bus passes and winter fuel allowance to save £3bn a year, says leading think tank" Daily Mail, 20th Feb.

The publication of the SMF paper "Osborne's Choice" is important, because the paper advocates an approach to growth and deficit reduction which takes us away from the current debate about total spending into the much trickier area of national priorities. 

Because it is so admirably clear, it exposes the political challenge for parties in an austere era.

Ian Mulheirn argues that even after the current government has completed their term there will need to be a further squeeze on the public finances of some fifteen billion a year, even as achieving their current targets carries a significant risk to the overall economy. To counter these twin risks, Ian suggests that the Government bring forward these £15bn of savings to today, three years before they are "needed", and use the money saved in those three years to fund programmes that will more directly stimulate the economy.

What Ian is effectively suggesting is making deeper current spending cuts now, using the money generated from these cuts to fund capital spend today, then stopping the capital spend when budget targets need to be met. He's saying Medium term deficit target > Securing growth to 2015 > Immediate deficit reduction > Particular tax breaks and universal benefits.

In other words, he's setting priorities.

I instinctively agree with those priorities, but any politician would take a sharp intake of breath when confronted by the list of immediate cuts proposed. The programmes to be sacrificed are: Halving higher rate tax relief on pension contributions,(the cornerstone,  at £6.7bn), capping maximum ISA holdings at £15,000, (£1bn) Rolling Child Benefit into the existing tax credits system (£2.4bn) Cutting Winter Fuel Payments and free TV licenses to better-off pensioners, (£1.7bn), free bus travel for the over 60s (£1bn) and all that still leaves him a bit short!

Making these cuts will pay for a multi-billion pound capital expenditure fund. These capital expenditures, having a higher multiplier effect than the programmes they replace, will therefore have a directly stimulative impact on the economy.

There are some technical issues with this approach. Do we have £45-60 billion of capital programmes to pour money into now, and would they be wise programmes to support anyway?

But even if you decided to go for a portfolio of temporary goodies instead- a time limited £100 tax rebate voucher, more capital spend or a higher personal allowance, the principle would be the same. Shift resources to higher multiplier spend now, so economy is in a stronger position when you squeeze further.

It's a bit like a dieter deciding to do more exercise and switch their calorific intake from fats to proteins as they gradually reduce their overall food consumption. Just like a diet, it might be good for you, but it's unlikely to fill anyone with joy.

Here lies the real problem. The SMF paper may be sound economics, but it's damn hard politics. Just look how the Daily Mail reported the pamphlet, complete with disingenuous quote from Ros Altman (Nothing new there, at least).

Any politician who embraces this agenda is going to be facing some pretty significant head winds (I can see it now : "Let pensioners freeze to pay for wind farms, says Labour's Sen", accompanied by a picture of me at my most porcine.)

So how do you sell such a mission?

I think the first step is to recognise that the age of popular politics is dead for a while. It's not a question of who has the most popular policy agenda. It's who has the least unpopular plan that deals with the problems we face.

The choice the electorate is going to have is not between milk and honey and strychnine, but between various types of brackish water. Once you accept that, you can begin to see that if pain is inevitable, then the winner is the person whose pain makes most sense. At least my brackish water is wheatgrass, yours is just pointlessly unpleasant.

This suggests politicians should not hide from the pain you cause, but use it as proof of your commitment to the straight and narrow, which in turn allows you to talk credibly about the future and what can be built.

National sacrifice and renewal become important words. Be straight with people that pain is inevitable, and the question becomes not pain or not, but what pain, for what purpose. 

Second, there then needs to be credibility that the remedies you suggest are effective, and will make a difference.

If you're going to be ripping winter fuel allowance out of the hands of pensioners, you need to be able to argue convincingly that the scheme you favour isn't a state boondoggle of wasted cash.

That means a focus on spending discipline throughout government (Rachel Reeves' speech today is interesting on that subject), but it also means that every programme of investment needs some sort of external benchmark.

If you're going to reduce the standard of living of pensioners and those saving for pensions, you should go the extra mile to prove that you will make good use of the money.  This would also suggest, by the way, that you should use you capital budget more as a lever than a direct grant..

If your capital schemes can't demonstrate, to an independent adjudicator, their their multiplier is above a certain level, then the state should pledge to keep the money for a tax rebate fund for low income families and pensioners, so they can spend it. It's all about priorities remember, so a half cocked scheme shouldn't get cash.

I don't pretend this is going to be popular. I just contend that given a choice between fiscal fantasy, fiscal pain, and fiscal pain with ambition, calibrated pain with ambition at least has a fighting chance.

7 Responses to “The impossible sell.”

  1. Haro Yousofian

    Any idiot can think of savings! The country needs to make money and that is where everyone seems to have fuck all of an idea as to how to do!

  2. Paul Newman

    For a family with three children  the marginal tax rate is effectively about 70% between  £42 and £50 k. That cuts off any hope of ever getting  anything beyond  the bare minimum  for an ordinary family, in the South at least . They  seem to be closing down your  ways around it as well IS A, pension etc. just to make sure you get nothing .This is  a terrible idea  and  it is not over by a long shot yet
    Why are we shelling out for stupid windfarms, good point, and why why why …(oh why) are politicians genrously giving mone to foreigners when a  rattling box not a threat of imprisonment is the way charity works . Can you imagine how angry you feel to see some sanctimonious git waffling about Aftica when you don`t get a  holiday and the self righteous  git in question does.Why do the Public Sector not see the  sort of downward presurre on wages the Private sector suffer.
    This is going to come down to a fight between  the left and its power base in the Public Sector Unions and  the rest of us . Either now or later and capital projects  and  are peripheral  tricks  are just a side show , you cannot screw us all and keep throwing money at the Unionised loafers on the government payroll.
    That why Labour cannot win the next election btw

  3. Paul Newman

    ..and while   this is going on the Guardian carries adverts for jobs that we couild , quite obviously , do without .

  4. mark007

    This Coalition Government doesn't listen to people (although the like to project the image that they do), they just plough on and have no interest in growth measures in the short term.
    My analogy of them resembles a football team time wasting playing the ball into the corners to waste time and hope they will win and things will improve next time around.
    In contrast, strong social partnership between the Wales TUC, the business sector, public sector employers and the Welsh Government is actually saving jobs and services in the face of UK Government cuts. This reason this is successful is people will accept less pay at the expense of keeping their jobs.

  5. Alan Ji

    I have better set of ideas in relation to fuel poverty and retired people. They incorporate the good socialist themes of "Investing to Save" and "A hand up, not a hand out".
    Invest public money in making retired people's homes easier and cheaper to keep warm, before (later instead) of paying them money to waft up the chimney and through draughty windows.
    The schemes already on oiffer for insulation and central heating should be drawn to the attention of people about to retire before any grants are paid to them.
    Don't refuse Council Tax benefit to any retired person, but before long they should have to supply an energy certifcate for their home and show that they applied for up to date loft insulation and cavity wall insulation before CTaxB is actually paid.
    After a few years of that it will be possible to incorporate Winter Fuel payments into the same package and then phase out the cash benefit element.

  6. Alan Ji

    Paul Newman
    February 23, 2012

    "For a family with three children  the marginal tax rate is effectively about 70% between  £42 and £50 k. That cuts off any hope of ever getting  anything beyond  the bare minimum  for an ordinary family, in the South at least ."
    Welcome to the squeezed middle.


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