Sunday, September 17, 2006

Gripping Big Government: Rules vs Discretion


Arrrgh! I thought I saw the Growth Rule!


It doesn't do to dwell on past horrors, but some of us still wake up sweating at the nightmarish mauling Paxo gave to David Davis during the Tory leadership campaign. Setting aside the charming intro ("why are you a shit?") the real killer was the grilling over DD's so-called "Growth Rule".

For those who've forgotten, the Growth Rule was actually devised by Reform and calls for the growth of public spending to be set below that of trend GDP, thus creating fiscal room for the tax cuts essential to lift the trend economic growth rate. It is an additional Golden Fiscal Rule, and plugs the yawning gap in Gordo's version (under which he can increase spending as much as he likes, just so long as he increases taxes to finance it).

Specifically, Davis promised to limit public expenditure growth to a quite do-able 1% pa below the rate of trend GDP growth, which on then current economic projections would have released £38bn for tax cuts during the life of the next Parliament.

Paxo had great fun with it. Is it a guarantee or a promise? Oh, it's a strategy, is it? But you can't promise it? And can we trust a shit anyway? Etc.

Gaaa.

The truth that didn't get out was that Davis was offering a bankable pledge to Britain's increasingly taxed and increasingly cynical electorate: in binding himself to a clear and measurable Rule, he was promising to surrender some more of the unfettered governmental discretion that has proved so very damaging to us all.

And why do we need a spending rule? As we said at the time:

"Quite simply, because all of our experience tells us that politicians and money- our money- are not a safe mix. We need rules because political discretion can't be trusted. Politicians of all persuasions find it much, much easier to increase spending rather than cut it, so we get a tax and spend ratchet. With a rule, they will be forced to actually find and implement those notorious "efficiency savings", rather than just commissioning another report or ten which merely rearrange the deckchairs.

Just as the seventies showed political discretion was hopeless at "fiscal fine tuning" (hence the abandonment of Keynesianism), and the eighties and nineties showed it was hopeless at monetary management (hence Bank independence), now the noughties are showing (er...reshowing) it's hopeless at managing public spending. If we can't get the politicians removed completely, we need clear simple rules to rein in their excesses."

Davis' message was that of the anti-establishment outsider, an explicit rejection of the cosy ruling consensus that reckons it's perfectly OK if government takes up over two-fifths of our GDP (as promoted once again in this week's Economist- see this TPA blog for response).

But that was then, and this is now. It's one year on, and with Cameron having delivered a consistent poll lead, we true believers have being trying ever so hard not to rock the boat by replaying tricky debates from last year.

But reading the full text of Alan Milburn's individual choice and freedom speech (here), has brought it all flooding back:

"A new assumption should guide policy. The state should be running less not more. And to give this new political assumption bite it will need to be given institutional form. After all nobody ever willingly gave away power. So Whitehall should be capped in its scale and its scope. Where one new regulation is proposed two old ones will have to go. Where one new form is issued two old ones will be replaced. Where one new standard or target is introduced two old ones will be withdrawn. Where one new job is created two old ones will be lost."

This is from a Labour man, right? Having been inside the biggest expansion of Big Government since... well, since the last Labour government, he's realised not only was it all a terrible mistake, but that to roll it back we cannot depend on politicians to use their discretion to somehow do the right thing.

The only way of gripping Big Government is to give our rulers clear and explicit rules. Everything else- be it best endeavours, or "trust us", or even "sharing the proceeds of growth", - is doomed to end in the sort of disappointment and disaster we document every day on BOM.

PS For an excellent commentary on Milburn's speech, see this TPA blog. Matthew D'Ancona also highlights it here, arguing its radicalism is "enough to chill the blood of anyone who wants the Tories to win the next election".

1 comment:

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