Wednesday, November 19, 2008

Clear Blue Water

Needs to be clearer still

Well, it certainly looks like clear blue water. Labour will repay the fiscal splurge from higher taxes, and the Tories will repay from lower spending. Butskellism has been re-interred and we voters once again have a real choice. At long last, Dave and George have summoned up the nerve to claim their rightful Tory inheritance.

You’ve got to cheer.

And we do.

But we’ll cheer even louder if they now take the next step, and bolt their new policy into a comprehensive medium term fiscal strategy - including that third fiscal rule creating space for tax cuts by limiting the growth of public spending over time. Maybe they could call it… ooh, I don’t know… the MTFS.

As we’ve blogged many times, the great economic attraction of fiscal rules is that they commit our backsliding politicos upfront. And in current circumstances, that’s particularly important in order to reassure financial markets that there is a coherent plan to bring our ballooning debt back under control.

(Yes, we know the appalling Gordo drove a coach and horses through his rules, but a), he failed to establish an independent monitor, b), his rules were incomplete, and c), he was operating during the fat years of easy money).

We think there’d also be political advantage in announcing an upfront strategy. Ever since the current leg of the crisis broke, the Tories have looked well behind that Curve everyone goes on about. Skewered on their "sharing the proceeds of growth" slogan, they were completely unprepared for the recessionary world we’ve now entered. There was no real plan, and it showed.

A medium term fiscal strategy would get them back on the front foot. Suddenly, they’d be the ones with the serious plan, and Brown/Darling would be the ones thrashing around making it up as they go along. (And Tyler is going to scream if he has to listen again to ministers being allowed to claim unchallenged that their upcoming splurge is part of some coordinated global plan for fiscal reflation – as we blogged here, there is no global plan – Brown/Darling are making it up all by themselves).

But, I hear you ask, how would such fiscal rules possibly cope with the current recession?

First – as we’ve always said – the rules have to be cyclically adjusted. Clearly, you wouldn’t keep the budget balanced in a recession – the so-called automatic stabilisers (higher social security spending, lower tax take, etc) would be allowed to operate as now.

Second, the rules could easily accommodate some modest fiscal boost in a crisis as big as this one. Accelerating already planned capital projects would be one possibility, and another would be to bring forward planned tax cuts (remembering that a key element of our plan is to make room for tax cuts over the medium term). And any fiscal boost today would be clawed back against the stated plans for later years in an open and transparent way. We wouldn’t just be plucking figures out of the air.

Having taken the first and most difficult step, Dave and George now have a great chance to consolidate the Tories on this vital high ground. They can set out a clear medium term plan under which our bloated public sector would be brought back into earth orbit, our debt would be paid down, and best of all, our taxes would be cut.

PS Don't know how to cut spending without closing all our schools 'n' hospitals and chucking all our poor widows and orphans out into the snow? We suggest you spend a couple of days scrolling through the near four years of entries on this blog. It should give you one or two ideas.

No comments:

Post a Comment