Saturday, 19 July 2008

Tax cuts? You must be joking!

We have known for some time that the Liberal Democrats have advocated tax cuts for those on low incomes. The idea was that there would be a shift in the burden of taxation towards those on higher incomes and those who pollute (ie green taxes).
As a progressive I am OK with that, although I am not sure that tax cuts are the most efficient way to help the poor. Many pay little or no tax to begin with.
The holding position of the party on the overall tax take was to keep it at the current level, until we are closer to the next general election and we can then make a judgement on what level we can set.
As the big day gets closer we see that the state of the public finances is dire, and the economy is tipping into a recession.
It is surely clear by now that this is a particularly bad time to advocate a reduction in the overall tax burden? How can this be possibly be acheived without painful cuts?
As I understand it, this is what the Liberal Democrats are now proposing.
Of course there is the familier list of pet projects that can be stopped. National ID cards for a start. Nuclear energy is suggested by some, although I suspect the economic argument might not be so clear cut after the rise in commodity prices. Our troops will leave Iraq (although not Afghanistan). I would like to helpfully suggest not replacing Trident, but the party decided differently.
On the other hand, the flagship "pupil premium" policy that incentivises children from poor backgrounds to go to good schools will cost money, and there is some concern that to be effective we need to pay more than we are currently committed to do so.
On balance we are not looking at huge sums compared to the national budget.
At the last general election, the party came up with an odd looking list of public spending cuts, simply to stand still. Economic conditions were far better then. Some of those suggestons have been implemented. Now we have to find another £20Billion!
If it is obvious that we can cut £20Billion now, why did we not suggest it before? And why have the Conservative party not done so? If anything, they are concerned that they might have to increase taxes according to some reports.
I get a horrible feeling of deja vue. I remember the Tories in the 1980s telling us that public spending cuts would not make public services worse, even though they did. It prompted Roy Jenkins to remark that they wanted European level public services with American level public spending.
The "solution" to this conumdrum is to say it can be done by "restructuring" and getting the private sector more involved in public services. We are told we should look to Holland and Sweden to find out how.
Yet in the case of Sweden, whatever you think of their public sector model in terms of how it is organised, it is also the case that Sweden is a country of very high taxation, and the the higher level of finance that goes into the public sector is an important part of the equation as to how their model works. Do we really believe that their model would work well with less finance? If it could, then they would spend less on their own volition.
Another mistake in my opinion is how the party is going about this. We appear to be looking at the existing figures and then making reductions from that. However a lot of the existing figures are inadequate. Our public services are worse than those of comparable countries such as France, Holland or Germany.
Health service costs are likely to go up because we have an aging population.
What about the effects of global warming? James Lovelock predicted we will have a greater frequency of Extreme Weather Events (EWEs), and that is what has happened. There are still some people homeless today after the floodings of last year. In the 5th richest economy in the world.
Surely we can do better than that? Well not if we are not anticipating these EWEs in the future. I think the party should do a proper audit of the likely costs of global warming, and the tax implications of that. I suspect it will be huge.
We need to consider the political implications. Historically the party has built up a level of support that wanted an anti-establishment political party that actually proposed tax increases as a way of being honest about improving public services (and education in particular).
As the party reaches out to new supporters on the Right, might it not also lose it's existing supporters on the way? Those same people who supoprted tax increase before are surely the least likely to support public spending cuts today. Personally I look around and I do not see anywhere else to go with my politics. However out of our supporters, a massive 30% give the Green party as their second choice party. I would strongly urge Lib Dem supporters not to go down that route, because our first priority is to change the electoral system. A resurgent Green party at Lib Dem expense will scupper that prospect to the detriment of both parties. Under the existing system, like it or not, only the Lib Dems can deliver on this.
Since the 911 bombings one of the remarkable chracteristics of the global economy is the level of growth, and that it is relatively evenly spread around the world. Neoliberalism has continued to be fashionable, probably for that reason, and that applies to all 3 UK political parties. Supporters of Neoliberalism have always been reluctant environmentalists, or even anti-environmentalist. Ideas that we should conserve resources and limit economic growth are routinely derided by such people. The Liberal Democrats generally have good policies on the environment thanks largely to a section within the party that predated this modern trend. The long term costs of what Schumaker called the economics of the "Forward Stampede" are now being seen as food and commodity prices spiral out of control. The social cost of this could be very high.
The propects are that Neoliberalism may not be fashionable for much longer, and the Liberal Democrats will hopefully soon decide to shift away from this deadend. However I suspect not before the next general election, which is a shame.