Thursday, March 07, 2013

Walking Out With Tina

"One of the best ways to help hard working families is to cut their taxes. As a low tax conservative I absolutely believe in doing this. That is why we’re already cutting fuel duty and freezing council tax. And from this April, we are delivering the biggest ever increase in the income tax threshold... 
Now, of course, there is a case for going even further – and making even more tax cuts. But the key point is this: you have to be able to fund them... Margaret Thatcher understood that a tax cut paid for by borrowed money is no tax cut at all… …when she said: ‘I’ve not been prepared, ever, to go on with tax reductions if it meant unsound finance’  
Getting taxes down to help hard working people can only be done by taking tough decisions on spending. That is what we are doing in our plan. And this month’s Budget will be about sticking to the course. Because there is no alternative that will secure our country’s future."

Well, she's been away quite a while, but we all remember Tina as a no-nonsense kind of a gal, and if Mr Cam is now walking out with her that's excellent news.

The public finances must add up, and to get sustainably low taxes, public spending needs to be a lot lower than it's been over the last decade. Tina loves that kind of talk. But she'll also be asking how the economy's supposed to get motoring without some serious tax cuts. Monetary policy could hardly be looser, with the currency down 20% over the last five years, but it hasn't done the trick. We surely need more tax cuts.

OK, we'll come back another day to the issue of whether unfunded tax cuts can pay for themselves. At least Tina will agree with Mr Cam that he needs to take those tough decisions on spending. The problem though, is that he hasn't taken enough of them.

As we blogged a few days ago, the cuts so far announced have done little more than scratch the surface of Labour's huge spending surge. Spending continues to grow year by year, and government debt continues to mount, leaving serious tax cuts as jam tomorrow. Even when we adjust for inflation, total spending is only planned to fall by 5% from the level inherited by the Coalition. A big chunk of that reflects the fall in emergency capital spending, and for the rest, much of the detail has yet to be agreed (hence the public arguments between cabinet "colleagues").

Yes, spending cuts are fiendishly difficult to make: wherever the cut falls, somebody will suffer, and sufferers rarely accept their fate quietly. But that's where Tina comes in. Had she been around last year, she'd have insisted on a continued and more effective public pay freeze, and maybe imposed an across-the-board freeze on benefits as well. She'd probably have abolished universal benefits, replacing them with means-tested help for the poorest only. She'd certainly have cut foreign aid, focusing it much more on humanitarian relief rather than all those development projects of dubious use. And then... and then... well, and then what? Cut the NHS budget? Oooh, perhaps not. Cut schools spending? Hmmm... Cut the police and the military even more? Ahhhh....

Difficult, even for Tina. And last time she was around back in the 80s, she didn't get it right.

What happened back then was that our key public services like health and education were starved of funds for over a decade. Public spending wasn't actually cut overall, but budgets failed to keep pace with the growth of demand, most obviously in the health service. The NHS fell ever further behind its European counterparts in the acquisition of new drugs and technology, and the condition of its hospitals. Many tens of thousands of us died from conditions that should have been treatable. Balancing the fiscal books resulted in public services that failed to deliver what we wanted.

Which is why this time Tina must think more radically than just cutting or even starving. She needs to think about restructuring the public sector and the way our public services are delivered.

Because as a recent book has argued, the public sector currently wastes many tens of billions of our cash. If we could make inroads into that, we'd stand a realistic chance of balancing the books without crippling our public services or leaving the poor to starve in the gutter. But to do so we're going to have to take some really tough decisions, decisions that will change the entire public sector landscape. And here are the four key-words for Tina to memorise (in ascending order of ugliness):

  • Downsize - small governments are the most efficient
  • Decentralise - decentralised governments work best
  • Demonopolise - break up public sector monopolies in health and education
  • Deuniversalise - confine welfare to the poor

We hope Tina is reading this, and we'll be giving her more detail on each of them in blogs to come.

PS Last night the TaxPayers' Alliance hosted a launch event for Burning Our Money, the book. It was great to meet some BOM readers, and I hope that those who bought copies of the book find it interesting and useful. Here's a pic of some grey haired old bloke autographing a copy (a sure-fire collector's item):


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  4. Mike, it seems like you're easily impressed by Mr Cameron. As you should know by now, he talks a good game but is rather lacking in the deeds department.

    I want to ask a question; why don't you talk about the Right To Buy? Imagine a council owns a council house, maybe a 3 bed semi-detached up north, value £125,000. The tenant's paying a typical, below market rate rent for it, say £320/month, it's not as much as the council could get but it's a reasonable source of income. The Government from April 1st are going to force the council to sell that asset off to their long-term tenant for £50,000. It's going to be very hard for the council to invest that £50,000 to make up for the lost rental income. Is it not madness when we have a huge public debt to reduce the state's income in order to profit the private sector?

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