Red briefcases at dawn? How to respond to the budget

by Sam Bright

Ed Miliband must have woken up with with a sense of foreboding today. It is a challenging task for any Leader of the Opposition: to respond to a highly-detailed, hour-long speech by a Chancellor who has been in possession of all the facts and figures for many weeks – and has long since decided what he is going to announce. The man opposite, on the other hand, has merely moments, following that speech, in which to compose his thoughts and decide how to respond to what he has heard.

Admittedly, that might be overstating it. Mr Miliband will have known for some time the thrust of the majority of the featured measures, as evidenced by his reading out of a largely pre-prepared response. One advantage of coalition government is that laundry tends to be aired in public, providing entertainment (and information) for journalists, commentators, and the Official Opposition. But in essence, Mr Miliband faces the same challenge as any with a political interest in the budget: how to respond.

It is doubtless the role of the Government to govern, and the Opposition to oppose. Hence the support given by both Liberal Democrats and backbench Conservatives to a budget about which they most surely have some qualms. Similarly, the Labour leader’s impassioned offensive against ‘the Same Old Tories’ – in response to the reduction of the highest band of income tax from 50% to 45% – was both predictable and a necessary feature of our oppositional parliamentary system.

What, however, of the rest of us?

Those of us who find ourselves on the left of the spectrum, natural supporters perhaps of the Labour Party or the ‘pre-coalition’ Lib Dems, may well start from the assumption that a Conservative Chancellor will deliver a budget that is pro-rich, anti-poor, and destined to increase inequality whilst lining the pockets of those featuring on his Christmas card list (as Mr Miliband so eloquently put it today). We see the absence of fuel duty concessions, abolition of tax credits, and ‘simplification’ of age-related income tax tapers as measures that will hit those most in need of a bit of extra cash, whilst the lowering of the higher rate of income tax puts millions of pounds back into the pockets of the tiny proportion of people fortunate enough to be earning more than £150,000 per year.

Those on the right, however, may assume that this budget provides the necessary stimulus for an economy struggling to grow in a difficult global environment, through cutting red tape, incentivising business with reduced corporation tax, and newly announced infrastructural investments. They will point to the greatly increased income tax threshold as evidence that the Chancellor is in fact giving to the poor, and to the closing of Stamp Duty Land Tax avoidance loopholes as evidence that this is indeed a ‘Robin Hood Budget’.

The truth of the matter is that the game of ‘left vs right’ is for chumps. Blindly held ideological positions belong in the 20th Century. What matters is not which party announces a policy, nor whether taxes increase or decrease at the margins, nor whether a budget can be fairly given a folkloric label. The important question, the litmus test that we hold up to any budget, and any policy within that budget, is: does this budget, or this policy, contribute to or detract from our broader political aims?

Take the changes to the higher rate of income tax. There is a great deal of confusion over exactly how much the 50p rate has raised, but it seems clear that it is less than predicted. The reason? Apparently, the wealthy have avoided it by transferring many billions of pounds offshore. The question, as framed, is whether in light of this our political aims are better realized by maintaining that tax band or by removing it.

Mr Osborne’s argument is that this tax has raised very little money and is scaring away the wealthy (or at least, leading them to register their income elsewhere) and so reducing the overall tax intake. Indeed, he appears to believe that reducing the top rate to 45p will actually increase the overall take from income tax.

Mr Miliband’s response, and the uniform response of the Opposition, is to question why at a time when ‘the squeezed middle’ and the poor are feeling the cosh, the Government’s priority in this budget was to reduce income tax for the wealthiest. The knee-jerk nature of this reaction precisely highlights my point.

Political posturing and soaring rhetoric are a lot of fun. In university debating chambers, late-night, whiskey-fuelled discussions, and the West Wing they can be thoroughly entertaining, and a catalyst for engaging people who might otherwise be disconnected from the political process.

But in the realm of serious journalism, commentary and decision-making such instinctive reactions are thoroughly counterproductive. Particularly in the current climate of economic apprehension and financial uncertainty, the role of those involved in the policy and opinion-making processes must be to thoroughly and scientifically test proposals for the soundness of their contributions to our political aims (whatever they might be).

The Opposition, the media, and thinkers at all points on the political spectrum, instead of adopting preconceived, ideological positions on the detailed and technical array of announcements contained in the budget should take a step back, and take a good long look at the facts. This is not an easy task; it requires far more effort than the cheering and booing that we all love so much. I will not pretend for a moment to be sufficiently expert to pronounce on the value of any given budgetary measure – that is a job for others. But that, precisely, is their job: to assess and educate us about the real value of a given measure, not to tell us what we (or they) want or expect to hear.

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10 comments
  1. Is it true that we love the “cheering and booing” so much? Doesn’t it just make MPs look like schoolchildren (apologies to all our schoolchildren readers)?

    You’re right that politics can be entertaining, but PMQs must be the most frustrating half hour for everyone involved: the PM worries about tough questions, the Opposition (mainly its leader) knows it has to find weak spots or look impotent, and the listeners don’t ever get to hear a proper answer!

  2. Alex SW said:

    Hi Sam. Hope you’re well. I’ve been enjoying this blog and meaning to stick my oar in for a while now.

    First of all – Babak, you highbrow son of a bitch, yes we love cheering and booing. Don’t tell me you never heckle from the sofa. We all do. Right? Oh.

    Right then…

    Broadly, I agree with the sentiment of this piece, Sam. The budget should of course be interrogated for its impact as new policy, regardless of partisan allegiance, and embraced/dismissed for how that impact squares with our vision of society. When party loyalty or prejudice interferes with that very personal judgment, politics becomes nonsense. (I hope this was the sentiment, and I’m not off on one.)

    That said, in the case of the budget, economic policy can’t be reviewed purely for its fiscal benefit. And nor should it be. There’s a broader context to the announcement. One that crucially affects its reception, and one the Tories must appear particularly sensitive to. Whether a reduced top rate of tax might actually yield higher revenue for the state is important, undoubtedly. But so too is how people feel about the change in policy; the effect on utility of simply knowing top rate taxpayers will profit most. Yes, one could argue that it really is just the money that matters, and because, assuming the OBR’s prediction is a dead cert, the reduced tax will bring in more of it, no one, least of all head-in-the-sand liberals, can have any complaints. Tax, though, doesn’t exist only as the revenue stream of governments. Nor is it, as David Davis mentioned yesterday on QT, a fist with which to ‘punch the rich’. It should, however, embody an ideal of fairness (that’s what moves us to redistribute wealth in the first place, after all) – and this, when many feel ‘squeezed’, is what Wednesday’s budget might have overlooked.

    What you call a knee-jerk reaction, I’d consider a half-decent – if not completely unoriginal – strategy for inflaming the sense of unfairness in the electorate. Ultimately of course, as elected public servants, it’s how what you do is perceived that matters most. Poor old Ed’s just trying his best to manipulate that perception so he can a have stab.

    Or not. Whatever.

    Alex

    • Haha, Alex, perhaps I only like the heckling and booing when Cameron receives a direct hit. Which is rare, given his chief opponent’s relative inferiority at the game. So I don’t like it… most of the time, anyway. Is that logical…?

      I agree with you about fairness. To be sure, the budget is not just about ‘the numbers’ – everyone needs to feel that they’re receiving a proportional amount of pain and pleasure, and that no-one is getting off lightly without pulling their weight. If we’re “all in this together” then we all need to be pulling in the same direction together, and expending a proportional amount of effort based on our relative material situations. That seems a basic human instinct, and is behind the concept of the welfare state.

      And yet, how can we know if the budget is ‘fair’ if we don’t have the numbers? Our intuition might tell us one thing, but ‘the facts’ might say another. I guess Sam’s point is that we shouldn’t shoot from the hip, but take the time to make a proper assessment. Only then can we see what’s really fair.

  3. Thanks Alex.

    I partly agree with you on the specific example of tax: it does not exist simply to raise income for the government to spend. But that is the dominant aspect of its raison d’être. If the government did not have to spend money, there would be no tax. The more money the government wants to spend, generally speaking, the more tax it must raise.

    In considering who to tax, and how much, of course social factors are key. I’m obviously all in favour of progressive taxation, working to reduce inequality and ensuring that those who earn the most pay the most. That’s all very logical.

    My point however is this. I think very few people would want a 50% rate of tax if it was indeed the case that imposing that tax caused the rich to pay less money, due to tax avoidance etc. I really don’t. And yet, Messers Miliband and Balls keep harping on about the change being inherently unfair, the wrong priority, and so on. They’re missing the point. If they put evidence on the table that keeping the tax was good for the ordinary man, then they would have a strong argument in favour of keeping it.

    But no. Even when Labour introduced the tax, it was intended to be a short-term, temporary measure. Balls has historically argued against increasing tax above 40% on the grounds that this tends to bring in very little additional revenue and discourages certain types of investment/labour.

    So on their own logic, it was only a question of when to remove the tax, not whether it should be removed.

    Which demonstrates that the borderline hysterical reaction of Mr Miliband in his response to the budget was merely political.

    And I disagree with you that is justified for politicians to inflame the public sense of unfairness just to be elected next time round. That is the modern conception of what politicians should do: everything they can to remain in power. But that’s a sad distortion of what democracy should be. In a representative democracy, our representatives should be focussing on making the decisions that they consider are most in the interest of the electorate (though there is room to argue exactly how this should work). They should not be primarily focussed on gaining power. That means that there should be cross-party agreement on good policies, and opposition to policies that are genuinely considered to be detrimental.

    I’m fed up of the ‘oppose everything’ approach that is most evident in the debate over compulsory health insurance in the States. Originally championed by Republicans, it is now demonised as socialist nonsense by the same….

    • I do wonder how ‘rich people’ would pay more under a 45% tax rate if the 50% rate was curtailed through tax avoidance. If the methods used for avoidance are known, and the government intends to clamp down on them (as it says it will now do), presumably this is independent from the rate of tax – ie it could do that without lowering the tax bracket. But if the rate comes down, why would people start paying taxes again, if they already know the ways around it? What did I miss?

      Also, relating to your last point, I guess that’s why some constitutions have stricter term limits, as then he who is in power cannot act like a populist simply in order to win popularity and be voted back in (although in places with weaker institutions, it just means the guy in power has his one shot at plundering the country before retiring…). I read that the radical Steve Hilton, Mr Cameron’s former guru, wanted Cameron to use these five years as though he was not up for re-election, in order to work to push through the radical agenda that he ideally sought. Coalition politics probably would have made that difficult, but so did Mr Osborne, who doubles as Tory strategist, and is the man most likely to replace Cameron as PM if they win the next term. Personal ambition seems to go a long way in explaining the appeal of populism that you rightly deplore…

  4. Alex SW said:

    Lovely stuff.

    I should make clear – I wasn’t justifying some sort of blind antagonism. Making argument for argument’s sake isn’t the least bit constructive. (*Unless it’s me making the argument.) I just meant, regarding this budget, that I don’t see the response as ‘merely political’ because there is a very real & emotive political context.

    On the modern conception of politics: It’s very true that the job of a politician is not just to get and keep power. Although maybe, considering policy-changing influence relies on election, their pursuit of power is not only necessary, it’s dutiful. The opposition wants to make the right decisions for Britain (that’s their true agenda), but only unseating the government will put them in a position to make them. And it’s then undermining that government’s support and attacking their policies that does the job. What I’m long-windedly getting at is: does the end justify the means? (I’m not sure if I actually agree with that, but it’s maybe an explanation if not a justification.)

    Bobby, I’ve also found myself headachy thinking over the logic of the budget. If the 45p tax makes more money, the top-bracket of taxpayer will be keeping less. So despite cutting taxes, the richest will be poorer… They’re not going to carry on dodging the tax because a. now they won’t bother, and b. if they do they’ll get caught. Oh how wonderfully simple. I wonder why not just do b.? Hmm.

    And on top of all this, the IFS thinks this great change will come at the all too reasonable cost of £100m. (This I imagine, Sam, is exactly the sort of evidence-based analysis you have time for.) Either way, an unprecedented success in my book.

    PS – Steve Hilton was most definitely a radical. Chilling round No10 in shorts and bare feet? Brilliant.

    • With regards to the point about gaining power, well in an ideal world, it would be the strength of the arguments and policies that wins the day, rather than things such as image, charisma and name-recognition… We’re quite far from that ideal of course. In principle though, I think we should be very wary of endorsing the notion that ends justify means: if the history of 20th Century taught us anything, it’s that this is often and very easily subjected to ultimate abuse.

      Glad I’m not the only one who’s confused about the ‘tax cut-rise’. Osborne’s proposition that the revenue lost from decreasing the top-rate of tax would be more than made up for by a clamp-down on tax avoidance struck me as an admission that the government wasn’t collecting taxes properly in the first place… oh.

      People walk around barefoot in Indian MPs’ residences/offices all the time (and – boy – do they stink the place out…). Plus, (state) governments rarely last more than a term here anyway. Steve Hilton may have found a home.

  5. Alex SW said:

    Far from arguments and policies winning the day? Ha! Don’t you remember the televised debates? The truth is, I couldn’t vote Labour not because of their problems mismanaging sovereign debt, not because of immigration or the burgeoning welfare state, but because I didn’t like that thing Gordon Brown does with his face when he speaks. Y’know, where he looks like one of those weird fish/lizard things you see gasping for breath when you drain a pond.

    Modern politics.

    • Which is why I spoke about an ‘ideal world’. I’m allowed to dream, ok!

      Continuing with the dreaming theme, I hope they cancel the tv debates next time round… politics shouldn’t be just about the wonderful acting skills of the party leader. If we want our political entertainment on tv we don’t need the leaders spouting inane slogans and rehearsed lines. Political entertainment can come by simply putting Adam Boulton and Alastair Campbell together to ‘discuss’ politics. (Actually, let’s relive that epic moment: http://www.youtube.com/watch?v=1gkHwU4DRA8)

      Didn’t notice the fish/lizard face. It sounds like I missed something special.

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