Those increasingly surreal Tories
This will be an old-fashioned, Old Labour tribal attack on the Conservative Party. (Hell, it’s election time.) If you can’t bear political tribalism, you don’t need to read any further. You may feel happier with Conservative Home. Others can safely read on.
It’s becoming increasingly difficult to take the Tory election campaign seriously. A new arrival from Mars would get the impression that the principal choice facing the voters is between a party that wants to increase National Insurance contributions by 1 per cent (1 per cent!) and a party that doesn’t. The party that doesn’t, i.e. the Conservatives, claim that not increasing them is ‘a tax cut’, even though National Insurance contributions haven’t actually been increased and probably won’t be. I’m reminded of the whiskery joke about the communication cord in old-time railway carriages which you pulled in an emergency to stop the train. The sign above it said “Penalty for Improper Use: £5”, which was a lot of money in those days. So on arrival at Paddington Station (or wherever), we congratulated ourselves on having saved £5 by not pulling the cord, and eagerly debated how to spend it.
Labour returns serve by demanding to know how the Tories propose to fund this ‘tax cut’. Easy, say the Tories: more ‘efficiency savings’ in the public sector. The good plain anglo-saxon word ‘cut’ is now taboo. Everyone is going to make efficiency savings instead — and they are to amount to billions of pounds in a single year. This, it’s believed, will bring down the deficit and the national debt so that the rest of the world will go on lending us money at derisory rates of interest.
This is all pure Alice in Wonderland. If the Tories, once elected next month, performed the miracle of finding and making ‘efficiency savings’ in public services on the colossal scale threatened, it would necessarily and unarguably entail vast numbers of job losses. The private sector is struggling to get up off the floor after the collapse of bank credit and consumer demand, and will continue for some time to rely on the state to provide the stimulus required to keep going at all. Reducing government spending by billions of pounds in such circumstances would pull the rug from under the current indispensable fiscal stimulus, deflating demand just as it begins to recover. Without a revival in demand, firms are not going to resume investment spending, re-stock, start trading again, or hire labour. Worse still, mass redundancies in the public sector with no private sector job vacancies to soak them up can only mean a huge addition to the bill for unemployment benefit and the many other social service costs of large-scale unemployment; at the same time, government loses the revenues previously raised from taxes paid by those now thrown out of work — the ‘automatic stabilisers’ combine in a double whammy to increase unavoidable government spending and simultaneously reduce government revenue. Thus the budget deficit widens further; government borrowing necessarily increases. The UK’s creditworthiness is called into question in the international bond markets: interest rates are forced up, to persuade lenders to buy UK government bonds; credit for domestic investment, already hard to get, becomes more expensive. The recession worsens. Unemployment rises still further. Recovery and growth are choked off.
Keynes is generally (if wrongly) believed to have recommended that in a recession people should if necessary be paid to dig holes in the ground and fill them in again, so that the spending of their incomes from this meaningless employment helps to revive demand in the economy and thus trigger fresh economic activity, recovery, and growth. The Tories see public servants apparently digging holes and filling them in again, cry “Waste!”, and sack them. (In fact it almost certainly turns out that the holes had an invaluable purpose: laying fibre-optic cable to expand the availability of broadband, perhaps, or repairing and modernising the sewers; but in the desperate search for WASTE!, any old state activity will do for cutting to reduce the wage bill. It’s called efficiency savings.)
There’s even more of this topsy-turvy economics on the Conservative Party’s stall. For months they have been obsessing all over the airwaves, the public prints and the blogosphere about the absolute priority to be given to paying off the national debt — not waiting until recovery from the recession is firmly established, but starting the day after the election. Never mind the threat of still higher unemployment, ordinary blameless people’s jobs and self-respect and often health wrecked, homes repossessed, families humiliated: all that matters is paying down the debt. Every other objective, we were told, must be subordinated to this supreme national goal. To achieve it, the war leaders Cameron and Osborne had nothing to offer us but blood, toil, tears and the pain of savagely slashed public services. All — well, most — must suffer in this noble cause.
But wait! The captains of industry and business need have no fear after all. Did it look as if taxes would have to rise as well as public services being slashed if the debt was to be paid off? Not a bit of it! Taxes would actually be reduced under Chancellor Osborne: reductions in inheritance tax for the better-off, tax concessions to encourage people to get and stay married, no increase in National Insurance contributions (a ‘tax on jobs’!), strong hints that there’ll be no increase in VAT either, promises to abolish the new 50% top rate of income tax on the hyper-rich. At the same time spending on the National Health Service is to rise under the Tories year on year in real terms, front-line services in education are to be protected, parents given the ‘right’ to set up new state-funded schools outside local authority control whenever they wish, cancer patients to be given whatever drugs their specialists recommend, overseas development aid to go on rising. So that painful austerity decade that we heard so much about isn’t going to be so painful after all? But where’s the money coming from? All together, now: “Efficiency savings!” Efficiency savings will pay for all these rosy promises of delectable goodies handed out by Dave and George.
But what about the national debt? Will the famous efficiency savings be used to pay that off as well? Those five loaves and two small fishes will have to go an awfully long way.
Another small mystery: rich, successful businessmen are queueing up to endorse the Tories’ frenetic objections to that 1 per cent on National Insurance contributions — the single issue on which the whole election is apparently being fought. Cameron and Osborne, in their infinite wisdom, boast of this utterly predictable and shamelessly self-interested support by business as irrefutable evidence that they are right, and Labour is wrong. It’s a stealth tax! (Although rarely can stealth have been so public.) It’s a tax on jobs! (But all taxes paid by rich employers and financiers are taxes on jobs: it’s just that some are fairer, and bear less heavily on the poorest and most vulnerable, than others.) And if these business leaders are so concerned about jobs, why don’t they put on hold for a decade or two those colossal salaries, bonuses and share issues that they pay each other, and divert some of the money thus saved into job-creating new investment? Grotesque pay deals for the bosses are the most destructive possible tax on other people’s jobs. The mystery is that the media should report businessmen objecting to a minuscule tax increase as if it was news, and that Cameron and Osborne should think that it helps their case to exult about it, when in fact it simply confirms what we all already knew or suspected: nothing has changed. The Tories continue to represent the interests of the employers against the employed and the unemployed, the rich against the poor or less rich, the Institute of Directors against the trade unions, what’s left of them. What else is new? ‘Dog bites man’ is no story. Is the Pope a Roman Catholic?
Now we have Chris Grayling, the Tory shadow home secretary, defending discrimination against gays — the man who within a matter of weeks may well be the home secretary!; we have a Tory commitment to repeal the Human Rights Act; we have the surrender of the intelligent minority in the party to the Tory Europhobes with the desertion of the Conservatives in the European parliament from the mainstream centre-right grouping, defying the pleas of our principal partners in Europe; and now we have Cameron advocating — in an interview in the Catholic Herald! — a reduction in the period of pregnancy in which abortion is legal, a cowardly surrender to Roman Catholic and other obscurantism. And, worst of all, in the middle of the worst economic crisis the country has faced for generations, they don’t understand elementary economics. Cameron’s much vaunted claim to have changed the face of Toryism already lies in ruins, even before he has set foot insiode No. 10. At the first sign of pressure from the old familiar far-right interest groups who finance and control the Conservative Party, Dave caves in.
If these people do form the next government, as seems far more likely than not, it’s going to be a rough ride — for some of us. For most of us, actually. Say what you like about Labour….
Brian
All of politics is surreal. This is known in other countries but the UK is just discovering this fact. You simply get on with your life and leave the politicians in peace, poor dears. Of course, you have to send some of them to jail now and again pour encourager les autres, but they count that as an occupational hazard so there’s no harm done.
Brian writes: Thank you for this elegant observation, Peter. Alas, though: those who stand to lose their jobs and maybe their homes or to see their already modest standard of living sharply reduced as a direct result of the misguided or class-inspired policies of a Cameron government can’t afford the luxury of “getting on with their lives and leaving the politicians in peace.” There’s simply too much at stake. Unless of course you’re an investment banker, in which case you can safely get on with your life aboard your yacht, thanks to the bountiful money transferred to you in the great bail-out from indigent taxpayers by the politicians — who can indeed then safely be left in peace.
What appals me is that no current political pronouncements suggest that any politician dares, or is able, to look more than a couple of years ahead. Britain is not self-sufficient in either food or renewable energy and no longer has the manufacturing base from which to export goods to pay for imported oil and food. The national income from international financial services (pushing numbers representing sums of money from computer to computer) has been exposed for a smoke-and-mirrors fraud. The population is much greater than it was in 1917 and 1943, when we nearly starved. What will happen when the next crisis hits and international trade collapses? We can live without a lot of things, but we have to cook and eat and keep warmand have electric light to survive. If there is a long-term plan to revive farming (preferably more grain and veg and less meat) and to develop tidal energy, I have yet to hear of it.
Brian writes: Thank you for this, Tim. What you say is a good illustration of the lamentable reluctance of the parties competing for the keys to No. 10 to encourage debate on the great long-term issues facing the country: not only because the two parties agree on most of them, so there’s no serious challenge to the conventional wisdom, but also because they fear that by exposing their views to general debate, they may be called into question. This applies, I believe, not only to the nature of Britain’s economic structure a few years hence and the problems over that which you describe, but also to such questions as Britain’s place in international affairs, the rationale for continuing to insist on taking a prominent part in military adventures far from home which we can’t afford and which are unrelated to UK interests, why we continue to spend billions on a nuclear deterrent when there’s no plausible enemy to deter and when it locks us in to an unhealthy dependence on Washington, why we continue to be semi-detached from our natural partners and friends in Europe, whether it’s too late to reduce the size and weight of the financial services sector in the economy, and indeed why we continue to act as if state intervention to regulate the market and to intervene to prevent its malign effects on society is inherently undesirable and something to be abandoned as soon as possible. What are we doing about the gross inequality in our society? And so on. And here we are watching the great party leaders passionately abusing each other over a 1% increase in National Insurance contributions.
A nicely constructed piece. The Labour Party leadership would do well spending some time airing these points. The Tories are out to slash and burn and I can see unemployment rising to 1980’s levels if they get in. I also expect a VAT rise (‘the bluntest instrument of all’) after one of the businessmen backing the tories let it slip on the news that it was alright by him. Of course it’s alright for someone whose disposable income runs to hundreds of thousands of pounds a year; those on minimum wage might not feel so good though. Speaking of the minimum wage, if it rises above inflation then there will savings in benefits and tax credits. I can not see the Tories going for that as the outrageously paid business leaders will not like that either. And finally someone else takes to task the frankly absurd notion that the NIC increase is a ‘stealth tax’. A bloke phoned in to 5live the other day saying it. I was decorating at the time and nearly dropped my paint pot. The chancellor got up in front of the House of Commons, the assembled media and a live TV audience and annouced the increase: not very stealthy, was it?
Brian writes: Thank you for this, Alun. It’s sad to see the Tories reverting to form, as the party determined to reduce taxes on their rich friends and backers, while enthusiastically cutting back on the public services on which the most vulnerable people in society depend. It’s even sadder that a Labour government — a Labour government! — continued the quintessentially Thatcherite policies of selling off slabs of public services and national assets to private sector profiteers, thus disqualifying itself from exposing this Tory malpractice and paving the way for a Cameron government to resume it on a greater scale than ever before.
Brian, Alun lloyd’s mention of VAT prompts me to ask: can you tell me whether Britain is obliged, as an EEC member, to maintain a Value-Added Tax? Whatever the original purpose of VAT, it is in fact a tax on necessary expenditure. If I call in a plasterer or buy an new washing machine, it’s not to demonstrate my wealth or riotous life-style to the admiring and envious neighbourhood, it’s because there’s a bloody great hole in the bedroom ceiling or the old machine has clapped out. I don’t see why I should be morally and financially indebted to the Government for the right to spend some of my hard-earned income on just keeping going. To my mind, the only taxes should be direct taxes on income: you put back into the circulating pool of money, for the purpose of keeping the nation running, proportionately to what you take out.
Brian writes: Thanks, Tim. I don’t know the answer to your question whether EU membership entails an obligation to maintain a VAT tax — perhaps someone can supply it? My guess is that VAT is required as part of the harmonisation of policies under the Single Market and to ensure a roughly level playing field. I agree that VAT is in principle a bad tax, as was Purchase Tax that preceded it, mainly because it’s deeply regressive: since the poor spend a far higher proportion of their total incomes than the rich (who save more and spend less as proportions of income), the poor wind up paying proportionately more in VAT than those who can afford to pay more. But even if under EU rules we could abolish VAT, it raises so much revenue that replacing it with much higher rates of income tax would be politically impossible, however inherently desirable! At any rate, National Insurance contributions are less regressive and more flexible than VAT, which is why Labour is right to prefer it to any increase in VAT (which I strongly suspect the Tories will resort to if they win the election).
EU countries have to apply VAT but member states set their own rates. There is a standard rate and a reduced rate. There can be a zero rate. The UK applies zero-rate to a wide range of things such as books, newspapers (no prizes for guessing why British newspapers are zero-rated), pharmaceutical drugs, food, and clothes for small people like my mother-in-law. The UK standard rate is not particularly high compared with other countries. Because of the relatively low take from VAT the UK has an extraordinarily wide range of what are known as stealth taxes — the extortionate cost of a passport for example (I paid 100 euros 6 years ago), which is about as regressive as you can get.
VAT is paid at all stages of the economic process and makes far more sense than purchase tax.
Brian writes: Thank you for this confirmation of my guess, Peter. I’m interested, though, that you regard the fee for getting a passport as a stealth tax and describe it as extortionate. It hardly seems to qualify for the epithet ‘stealthy’, since passport charges are public knowledge. By calling it a tax, you presumably imply that the passport agency makes a profit, perhaps by stealth?, which is paid into the Consolidated Fund like other taxes. I would be interested to know if there’s evidence to support that: as I understand it, the passport agency, like many other services provided by government, is required to set its charges at a level which covers its costs. If, as you seem to advocate, it sets its charges at a lower level than break-even, those with passports are being subsidised by taxpayers generally, including those who don’t have passports. I can’t see any very obvious justification for such a subsidy, especially since in very general terms those who travel abroad are probably somewhat better off than those who don’t. But all this is somewhat beside the point of my post.
If you believe that only well-to-do British people can afford to travel, I suggest you visit Salou, Magalluf, Benidorm or Ibiza.
British policy is that its citizens must have passports to travel abroad anywhere, even within the EU. This is a result of the country’s constant refusal to join the Schengen area. It may also be a reason for it. Let us suppose that there are 40 million UK passports in circulation. Four million of them will be renewed every year. That alone represents income of around half a billion pounds a year for the British state.
In other countries the feeling is that people should be able to travel without paying a fee to the state to do so.
Brian writes: I don’t know whether your misrepesentation of what I said is conscious or accidental. I note that you refrain from commenting on my points that the charge for a UK passport represents the real cost of issuing it, that only if the charge is greater than that can you call it a tax, and that if the charge is lower than that, you are making those without passports subsidise those who have them, which would be hard to justify.
However, this is becoming a bad case of mission creep, and a distraction from the issues raised in my post. Accordingly, this correspondence (about passports) is now closed, as editors used to say. By all means start a new discussion of the subject on your own excellent blog, if you want to continue it.
Tribal attacks are about all the British public get from any of these parties. More is the pity since we need honest debate about so many things. In no particular order of importance we need to:
1] reduce Britain’s international role – we can no longer afford to be a “big power” with all that pretending to be entails
2] become a non-nuclear power militarily
3] enhance Britain’s food production so that we could be more self-sufficient even if not entirely
4] Secure power supplies for the foreseeable future
5] improve education – still too many “failing schools”
6] get a grip on health provision
7] stop tinkering with the criminal justice system
8] stop fiddling around with the constitution
9] get control over immigration
10] work to direct young people into worthwhile activities.
Each of those points could be amplified in many ways but I am not writing a “manifesto” and I am not standing for election! However, I fail to see from ANY party even an acknowledgment that items 1 to 3 are problems for the UK and politicians generally want to play “big” even if we cannot afford it. Item 4 – the present government has been far too slow to act to secure future power supplies. Items 5 and 6 – I do not doubt that huge amounts of public money have been poured into education and the NHS but the return from that investment is generally poor. Item 7 – criminal law is a party political football – who will be seen to be toughest on crime. Hence, legislation pours out and Labour have passed more criminal justice legislation than any predecessor in office. We need an embargo on any further changes for about 3 years. Let what we have settle down. Item 8 – the constitution has become a plaything for the present government which is always tinkering with it. Labour promise a “Cross Party Commission” to chart a way to a written constitution. My problem with that it is likely that only the voice of the politicians will be heard. Item 9 – immigration is a major issue and there is no honest debate between politicians about it. Just how will the nation support more and more people? Item 10 – better investment in activities which give young people worthwhile things to do is urgently necessary.
OK – I’ve no doubt set myself up as an aunt sally. However, the sad fact is that present British politicians offer no good answers to any of those 10 points.
VAT law and the EU is a complex business. The present day law is in Directive 2006/112/EC. “Yawning already”? We have to have a standard rate of at least 15% (until the end of 2010). [Note yet sure what occurs after 2010]. Some items are allowed a reduced rate of at least 5% and some may be “zero rated”.
I have never really liked VAT since it does hit the poorer hardest. VAT registered businesses complained about being tax collectors but, in reality, they get to hold large sums of money and have to account only for the net VAT (i.e. VAT paid out less VAT paid to them). Also, a it is rather amazing just how may household items are bought for businesses!
If I amy return to a few points in the tribal attack! The Tories are by no means the only ones with rich friends. Many people out here see little difference between Labour and the Tories on that one and recent Labour governments have pandered to some of their friends. Also, please note that Labour plan to sell off a further £20 bn of national assets. It’s in their manifesto!
Essentially then, a plague on all their houses. ALL parties need to start taking a more realistic approach to Britain’s position in the modern world.
Brian writes: Thank you for this. I agree with most of it, including the charge against both the major parties that they avoid engaging with some of the most important of these issues (partly because there is no disagreement between them on those issues, partly because they are afraid of opening a Pandora’s Box of public dissent). On two points I particularly venture to disagree, though:
(1) The present constitution is a terrible mess, and plainly unsustainable in its present form. There’s very little point, as you rightly say, in “tinkering” with it at the margins. What’s needed, and will eventually have to happen, is the extension of devolution to England and the extension of devolved powers to all four nations of the UK to include all internal affairs — leaving the federal government and parliament at Westminster with little more than foreign affairs and defence; and
(2) I don’t conclude from all these strictures “a plague on all their houses”, which is the ultimate cop-out. There’s no excuse for failing to engage actively with one or more of the political parties, nagging it or them unmercifully to wake up and concentrate on the fundamental issues which they currently neglect so irresponsibly and spinelessly.
Brian, Alun lloyd’s mention of VAT prompts me to ask: can you tell me whether Britain is obliged, as an EEC member, to maintain a Value-Added Tax? Whatever the original purpose of VAT, it is in fact a tax on necessary expenditure. If I call in a plasterer or buy an new washing machine, it’s not to demonstrate my wealth or riotous life-style to the admiring and envious neighbourhood, it’s because there’s a bloody great hole in the bedroom ceiling or the old machine has clapped out. I don’t see why I should be morally and financially indebted to the Government for the right to spend some of my hard-earned income on just keeping going. To my mind, the only taxes should be direct taxes on income: you put back into the circulating pool of money, for the purpose of keeping the nation running, proportionately to what you take out.
Brian writes: Thanks, Emily. I don’t know the answer to your question whether EU membership entails an obligation to maintain a VAT tax — perhaps someone can supply it? My guess is that VAT is required as part of the harmonisation of policies under the Single Market and to ensure a roughly level playing field. I agree that VAT is in principle a bad tax, as was Purchase Tax that preceded it, mainly because it’s deeply regressive: since the poor spend a far higher proportion of their total incomes than the rich (who save more and spend less as proportions of income), the poor wind up paying proportionately more in VAT than those who can afford to pay more. But even if under EU rules we could abolish VAT, it raises so much revenue that replacing it with much higher rates of income tax would be politically impossible, however inherently desirable! At any rate, National Insurance contributions are less regressive and more flexible than VAT, which is why Labour is right to prefer it to any increase in VAT (which I strongly suspect the Tories will resort to if they win the election).
PS: Apologies for addressing you in my original response as ‘Tim’. I think it was too late at night.