Sunday Times: A law to stop the splurge

Slug path

asi-in-the-news/asi-in-the-news/sunday-times-a-law-to-stop-the-splurge

Joomla-id

5192

Old Teaser

Written by Dr Eamonn Butler

16 May 2010

Our new prime minister and his deputy agree: our government has been spending and borrowing too much. Good, as Alcoholics Anonymous might say — admitting your problem is the first step towards dealing with it.

The new Treasury team might actually manage to re-cork the bottle. George Osborne, the chancellor, is blunt about wanting to balance the budget and David Laws, his Liberal Democrat deputy, is also known to be a hawk on economic matters. It bodes well, too, that Iain Duncan Smith, who knows how to get people off welfare and into work, is now installed at work and pensions.

The message they are all receiving is clear: we must spend less and work more. Intentions, however, are not enough because fiscal alcoholics have a habit of telling themselves that just one more little splurge can’t hurt.

Remember Gordon Brown’s “golden rules”, which stipulated that the government should borrow only to invest and it should keep its debts “prudently” down to about two-fifths of what the nation earns? Unfortunately, he fudged the first rule, showering us with treats on tick, and abandoned the second when the going got tough.

The world’s central bankers have warned us that if Britain carries on in this fashion, our debts will rocket to five times our earnings by 2040. Even with firm action they are expected to soar to three times earnings.

So we need new rules on the public finances that politicians can’t wriggle out of — if not constitutional restraints, then at least limits that cannot be brushed aside for the sake of political convenience.

That’s why I want to propose a new economic responsibility act, which would set in stone the spending and borrowing targets to be hit by the end of the coalition’s five-year term.

Here are my suggestions:

— Cap the budget at one-third of gross domestic product, so the government can’t spend more than £1 for every £3 that the nation earns. The experience of other countries tells us this is as much as the public can bear before it starts concealing income or voting out governments. This cap should be set on the basis of what we’ve actually earned, not on the jam-tomorrow budget forecasts of over-optimistic chancellors. And if the economy nosedives, it’s not just private sector workers who should suffer pay and job cuts — government programmes would have to share the pain, too.

— Cap the deficit at 3% of GDP — the limit that “prudent” Brown commendably foisted on his government and the European Union. Three per cent gives a bit of flexibility but keeps the total debt under control.

— Cap the national debt at 40% of GDP. Without strict limits, as recent times have shown, government debts spin quickly out of control. In 1997 the debt was £350 billion. Now it has more than doubled to £770 billion. It is expected to double again to £1,406 billion in five years’ time. Now I would love to be able to double my own borrowings whenever I liked — but that would just encourage me to live beyond my means; pretty soon, lenders would get nervous and want their money back. The same applies to governments. The international agencies that rate our creditworthiness think that a debt of 40% of GDP is sustainable. It’s a good target.

— No off-the-books fiddling. Brown claimed that his borrowings were scarcely more than those of other European countries. But many other commitments that he made, a dozen times larger, are conveniently unrecorded in the Treasury’s books. Why? The government requires companies to state their future commitments, such as staff pensions. But its own civil service pensions, not to mention future state pensions and contractual payments to school and hospital builders and countless other items are never accounted for. That must change.

— Borrow only to invest. It makes perfect sense, but Brown kept labelling his spending as “investments” for the future. In fact, most of his vast budget increases went on hiring more public workers and raising their wages.

— Limit tax rises. High taxes choke off investment and growth, which are our only way out of this slump. I suggest we hold public referendums before any tax rises and before any local government budget is approved. And the office of budget responsibility should be given full power to block counterproductive rises — such as the 50% envy tax that will drive high earners abroad.

Am I being too hard on a new and well intentioned government? Alas, even the most “prudent” politicians cannot always be trusted. So we need these strict rules to protect our personal and public finances. Only from that solid, restrained foundation can we build Britain’s future economic growth.

Dr Eamonn Butler is director of the Adam Smith Institute and author of The Rotten State of Britain

Published in the Sunday Times here.

Mail on Sunday: The Lib-Con make things worse tax

Slug path

asi-in-the-news/asi-in-the-news/mail-on-sunday-the-lib-con-make-things-worse-tax

Joomla-id

5191

Old Teaser

Written by Dr Madsen Pirie

16 May 2010

The new Conservative-led coalition is attracting much goodwill and support, and deservedly so.

But if it goes ahead with one of its tax proposals, its support among its core supporters could ebb away very rapidly.

The proposal, which comes from the Liberal Democrat side of the coalition, is for Capital Gains Tax on non-business assets to be raised to the same level as income tax.

If it goes through, it means that people who have put savings into shares, second homes and other assets, or into funds which invest in these, will have the tax on any increase in their value raised from 18 to 40 or even 50 per cent for higher rate taxpayers.

The exact amount is yet to be decided. But, with the economy struggling, any significant rise will have serious consequences.

Worse still, it has been suggested that the tax-free allowance for capital gains could be reduced from £10,000 to possibly as little as £2,500.

In some ways this is a more dangerous move still, as it would draw thousands of small shareholders into this punitive net.

The demands for a rise in CGT has come from the Lib Dems in an attempt to raise as much as £4billion. It has sent shockwaves among those anticipating more sensible economic measures from a Conservative-led Government.

Traditional Tory voters certainly did not expect yet more punishment for productive members of the economy and there is likely to be a political backlash.

Anyone with investments in second properties, holiday homes or buy-to-let flats would probably be affected (although strictly defined business assets are exempt, along with first homes).

As a result, there will be what some observers have called ‘a fire sale’ of properties, as people rush to escape the tax. Others have said it could profoundly hit the attractiveness of the UK as a place to do business.

Moreover, it is scant reward for bewildered investors who have done as they were asked and made sacrifices now in order to provide for security and comfort in their old age.

It is far from clear how many people will be hit. Much depends on where the Government places the tax-free exemption.

But it is fair to say that the biggest losers will be the hard-working middle classes, particularly those who, after years of bringing up children, have finally acquired some surplus capital in middle age.

Savers already have a hard time. The new plan to hike CGT will make things considerably worse. Not only is the tax itself bad, even the reasoning behind it is flawed. The justification is that capital gains should be taxed the same as income to stop people switching their reward from salary into capital gains just to avoid taxation.

Yet hardly anyone in Britain has that option. Most are on salaries or wages and simply have no opportunity to switch from that.

Not so long ago saving was rightly esteemed. Parents taught their children the merits and the benefit of thrift. It was a way of putting together enough money to buy what you could afford, or of making provision for a rainy day. Most of all, it could provide security and independence in old age.

For more than a decade now, saving has been denigrated as if it were somehow selfish and spending has been encouraged instead, fuelling a consumer boom which has strengthened foreign manufacturers and weakened our domestic institutions.

Instead of saving up for what we can afford, we have been urged to buy now and pay later. The attack on savers has been long-running and remorseless.

What, you might ask, has turned us into a nation of reckless spendthrifts? Part of the answer lies with Government. Indeed, the process started on the very first day that Gordon Brown moved into the Treasury. He brought with him a mindset that derided saving.Spending was promoted instead because, we were told, it protected jobs. As long as people kept on buying, he told us, businesses would be safe.

Such a view is sadly deluded. If savers put their money in gold bars and buried them in the garden, there might be a case for such an argument.

But this is not what savers do. Instead, they put their money into banks and savings funds and it is invested on their behalf.

Traditionally, people who worked hard and lived sensibly would put money aside where it would earn interest to help to maintain their standard of living in retirement.

Their savings would be placed in building societies, where they would provide mortgages for younger people to buy homes, or High Street banks, where they would be reinvested to provide working capital for local entrepreneurs building up their businesses. Everyone benefited.

Now, thanks to the credit crunch, this is no longer happening. Savings accounts offer interest rates close to zero and what interest is paid is taxed at 40 per cent, so no money is going into banks and none is coming out to fund new homes or growing businesses.Instead, over the past 18 months, savers have put money into shares, which have risen steadily.

The stock market provides the capital for large-scale industry – it was by issuing new shares that Lloyds Banking Group raised the funds to restructure itself after the disastrous takeover of HBOS. Dividend income on shares is already taxed at 40 per cent. If capital gains are also taxed at up to 40 per cent there will be no more point in savers buying shares than in putting their money in bank accounts paying virtually no interest.

Those with money to save will come to the conclusion that if they can’t take it with them when they die, and they can’t invest for their children, they may as well blow it all on a world cruise.

But that is not the end of it. Under the new Con-Lib Dem proposal, the Government will take 40 per cent of any money you make, whether it’s income from your job or from your investments.

As a general rule, responsible individuals spend money wisely, Governments spend it foolishly.

Under our vast and ever-growing tax and benefit system, the Government takes money from people who live carefully and sensibly and hands it on to people who live foolishly.

Eleven million people voted Conservative at the General Election to put a break on this process. They will not like this new attack on savers.

Published in the Mail on Sunday here.

Daily Telegraph: The five priorities for David Cameron's new administration

Slug path

asi-in-the-news/asi-in-the-news/daily-telegraph-the-five-priorities-for-david-camerons-new-administration

Joomla-id

5176

Old Teaser

12 May 2010

Written by Dr Madsen Pirie

Tony Blair spoke of "education, education, education", but David Cameron's focus must remain economic, says Madsen Pirie, an advisor to the last Conservative administration.

Tony Blair left no doubt as to his top three priorities: “Education, education, education.” Given the current state of education in Britain, it could be argued that he failed to succeed with any of them.

The top five priorities of the new government are more clear and more urgent. They are the economy, five times over. Unless the economy is put right, everything else will fail. Unless Britain earns its keep, pays its way, and generates new wealth, there will be no funds to support any of the ambitious projects that the new partners want to achieve.

Despite Britain’s overhang of debt and the parlous state of public finances, there are promising signs that things can be done, not least because both coalition partners recognize the problems.

One of those economic priorities is taxation. Gordon Brown has left a shambles, with low earners paying so much tax that they have to be helped by credits and welfare payments. The good news is that one coalition policy already agreed is to lift the starting tax threshold to £10,000.

This would lift 3.6m low earners out of income tax altogether - making work more attractive than welfare for the low paid, and will considerably reduce welfare spending.

Another priority is the deficit. Both partners want spending cuts, and must now urgently identify their targets. Scrapping identity cards will be a good start, but then comes the painstaking process of identifying the needless spending and unproductive jobs and practices that permeate the public sector. The Lib Dem proposal for a value-for-money commission is one the Tories can embrace heartily. A trawl through the spending of local authorities will expose wasteful and unproductive spending.

Spending cuts alone will not do it, however. There must be a boost for business. Scrapping the National Insurance "jobs tax" increase will only be the start, and the Lib Dems must quietly bury the idea of raising capital gains tax from 18 per cent to 50 per cent - it must be kept low to boost new business and the jobs it creates.

The coalition should protect small and new businesses from many taxes and regulations until they grow large enough to cope with them. They should be protected and nurtured like greenhouse plants, because they represent Britain’s economic future.

Not least among the economic priorities must be the complete modernization of the way the Treasury manages our economy. It must be updated and streamlined, with clear principles replacing antiquated practices. The Treasury must be made to count the likely benefit of new policies, as well as their costs. It will be revolutionary, but this is a time for revolutions.

The final economic priority is pensions, which must be restored to their healthy pre-Brown state. It has to be worthwhile for people to save, without fear of those savings being taxed. And gold-plated public pensions far in excess of those available elsewhere have to be brought into line. Their unfunded liability simply cannot be afforded.

The other priorities include crime, immigration, educational standards, and welfare dependency, among others. But economic priorities are the top five. If the new Government gets those right, it will have the time and resources to tackle the others.

Published in the Telegraph here.

FT: Don’t let Downing Street call the shots, ma’am

Slug path

asi-in-the-news/asi-in-the-news/ft-dont-let-downing-street-call-the-shots-maam

Joomla-id

5140

Old Teaser

5 May 2010

Written by Dr Eamonn Butler

Just possibly, Friday could be the Queen’s big moment, her 15 minutes of tearful X Factor fame. All those years of training in diplomacy and public affairs and all that hob-nobbing with presidents and prime ministers could culminate in the most important constitutional decision of her reign – that of who should lead the next UK government. And my guess is that she will fluff it.

This constitutional arrangement leaves many people (especially Americans) baffled. They cannot believe that, after an election, the Queen “sends for” whoever she thinks best able to command a Commons majority, and so become prime minister.

Not that there’s usually much doubt. In almost every case, the leader of the majority party is summoned to Buckingham Palace, kisses hands, takes the limo back down the Mall and forms a government. Then the Queen goes back to her corgis.

This time, though, the choice could be very far from clear. Friday morning could give us a hung parliament, the Conservatives with most seats, but short of a majority. To govern, they would have to do deals with the unionists, or the Liberal Democrats, or even build a formal coalition. The Queen would have to decide who should be in charge.

She has faced this situation only once before, in 1974, after Edward Heath asked the electorate “Who governs Britain?” and was answered “Not you, Ted”. Labour got more seats, but Heath hung on, trying to woo Liberals and Unionists, until at last he gave up and the removal vans took him and his grand piano out of Downing Street and brought Harold Wilson in. So the issue resolved itself.

Friday could be much messier. Labour might poll far fewer votes than the Tories but win more seats. Or they may still be able to limp by through deals with the Lib Dems and other parties. Royal flunkies say that the Queen would then have to send for Gordon Brown, even though voters had rejected his Labour party. If so, she might want to double the guard around Buckingham Palace.

Her father, George VI, knew that while monarchs cannot get involved in party politics, they have to be hands-on with politicians. When Clement Attlee presented his 1945 cabinet list, the King allegedly told him: “I think Bevin’s a good man.” Attlee took the King’s advice, and the former barrow boy Ernest Bevin became a very successful foreign secretary.

You won’t see the Queen doing anything so positive.

Our forebears fought for rights such as habeas corpus, trial by jury, the right to silence and the double jeopardy rule to spare us the terror of arbitrary power. We are happy to make our monarchs head of the state, the army and the judiciary, because it prevents politicians usurping those powers and using them against us.

But the Queen has let the executive erode those rights and acquire truly frightening powers, standing by as it has cast aside all restraints. Ministers, the civil service, even the courts have been bullied or sidelined. About 120 MPs owe their official jobs, chauffeur cars, salaries and pensions to Downing Street patronage, so they are pussycats too. The Queen has failed us.

We have moved to a presidential style of government. We talk about “David Cameron” or “Gordon Brown” winning the election when we are supposed to be electing an entire House of Commons. The Americans have a constitution that was designed to accommodate – and restrain – presidential power. We do not. In the past, we have been saved by monarchs reminding politicians that they are mortal. The Queen has not done that.

Some, such as the historian David Starkey, say we need a new constitution with US-style separation of powers, so that the executive no longer sits in the House of Commons. Parliament would then resume its role of representing us and protecting us from the executive. Yet when I see the dog’s breakfast of interest-group special pleading that came out of the European Union’s constitution-writing process, I shudder at the idea.

No, the only solution is to make our current constitution work. That might mean fewer ministers and less Downing Street control over parliament. But it certainly means having a monarch who is prepared to intervene on behalf of the people. One prepared to tell politicians that they cannot ride roughshod over our rights. On this score, the Queen would not win any talent contests.

Published in the FT here.

Sunday Post: A hung parliament will only worsen the economic crisis

Slug path

asi-in-the-news/asi-in-the-news/sunday-post-a-hung-parliament-will-only-worsen-the-economic-crisis

Joomla-id

5136

Old Teaser

2 May 2010

Written by Dr Madsen Pirie

Some people hope that no party will have an overall majority after Thursday's General Election. Those who want to change our voting system think that a 'hung' parliament will make it more likely to happen. Some commentators think that a hung parliament will be more interesting because it will be less predictable, and they look forward to the excitement that uncertainty will bring.

More widespread is a general feeling that the existing parties have not handled things very well, and maybe they should work together instead of attacking each other all the time.

The expenses scandal has tainted all parties, and left the country with less respect for Members of Parliament than anyone can remember.

Some people are tempted by the idea of a coalition government simply because it would mean things being done differently, making an abrupt change from the existing practices that have been so discredited.

A hung parliament is a distinct possibility. The televised debates have given us a three-way race for the first time in decades, and no-one knows how it might turn out. If either the Conservatives of Labour won most seats, but not enough for a majority, they would need support from outside to form a government.

Great Depression

The thought causes fear and uncertainty among those who look at Britain's economic prospects. They see the county facing its most serious economic crisis since the Great Depression of the 1930s, and shudder at the thought that we might have only a weak and indecisive government at the helm, trying to steer us through the storms.

The figures are certainly mind-bogglingly large. The yearly deficit, estimated this year at £170bn is merely the amount our indebtedness will increase.

That debt is officially put at £850bn, but everyone knows that this is a gross under-estimate that excludes those huge public sector pension liabilities, public commitments to bodies such as Network Rail, the private-public partnership commitments, and anything else that can be conveniently left off the books. The real figure is well over £1,000bn.

Economic analysts know that only tough decisive action can save us from following Greece down the plug-hole that country's economy is rapidly approaching.

But how, they ask, can you get tough, decisive action from a weak government patched together from parties who disagree about fundamentals? Precisely. You can't.

Imagine a new government laying out a programme to cut spending, only to find its coalition partner insisting that the real priority is changing the voting system to guarantee it more seats in future parliaments.

Imagine one party trying to get the economy moving with tax cuts calculated to get businesses investing, only to have one of its partners demanding tax increases to punish bankers and have business paying what they call "a fairer share" of the total.

These are real differences that would emerge in a hung parliament.

The Liberal-Democrats call for capital gains tax to be increased from 18 percent to 50 percent, to bring it into line with top rate income tax, whereas the Conservatives want to encourage more start-up businesses to be attracted by low tax rates on capital gains.

The Conservatives similarly want to cut back the National Insurance increases that are in the pipeline, but the other parties want that money to form part of government spending instead.

In a hung parliament, it would be difficult to get budget agreement between Conservatives backing cost-effective energy from new generation nuclear plants, and green-tinged parties committed to much more expensive generation from wind power, bio-fuels, and costly exotic alternatives.

Conservatives want to restore the tax dividend credit on pensions, whose abolition did so much to wreck the industry, whereas Liberal-Democrats want to end higher rate tax relief on pension contributions.

How could a budget ever be agreed between such opposing views?

These are not minor differences of detail; they are fundamental disagreements about how to seek economic recovery.

The businessmen and economists who sign letters to newspapers show how deep those disagreements go.

The analysts who fear a hung parliament know the importance of having a coherent programme to tackle the crisis Britain faces, and they also know that if there is no majority, the programme will be decided by horse-trading between parties, and end up as a patchwork quilt of proposals sewn together.

In place of a carefully thought-out and planned approach, we could end up with the bits and pieces of each partner's programme, none of which make sense unless they form part of an overall strategy.

Deeply in Debt

Two things are clear — Britain has been spending too much and is too deeply in debt.

It has to do what any business must do when it faces that situation. It is what any sensible household does. It cuts spending, starting with the wastage and the luxuries. It tightens its belt and starts to live within its means. It looks for ways to boost its income even as it cuts its expenditure. It is no different for a country, just on a bigger scale.

Britain has to cut the cost of government. Some of this will involve cutting out obvious fripperies, but some of it will be painful and will need resolve. That is where firm government comes in.

Britain also has to boost growth. That means clearing the space for businesses to invest and expand, and paying more attention to immediate opportunities for business than to long-term redistribution.

We have to create the wealth first, then worry about how to spend it fairly. This also calls for a government strong enough to resist the clamour of interest groups, all fighting for more spending in their corner, and none looking at the big picture of the national interest.

Hung parliaments do not produce decisive governments. They produce half-hearted deals and compromises that fall short.

Britain's problems are as big as any ever faced by this nation in peacetime. If ever we needed clear government with vision and purpose, it is now.

Let us hope that at the finish line, Thursday will give us that, instead of the muddle, drift and uncertainty of a hung parliament.

Daily Mail: We're working three more days for the taxman: It takes 149 days of earning in a year before our income is our own

Slug path

asi-in-the-news/asi-in-the-news/daily-mail-were-working-three-more-days-for-the-taxman-it-takes-149-days-of-earning-in-a-year-before-our-income-is-our-own

Joomla-id

5134

Old Teaser

1 May 2010

Britons will have to work three days longer this year before they start earning money for themselves rather than the government.

Tax Freedom Day will fall on May 30 - 149 days into 2010 - according to the free-market think tank the Adam Smith Institute.

It said the three-day increase on 2009 was largely because of the rise in VAT from 15 per cent back up to 17.5 per cent at the beginning of the year.

If the budget deficit was all funded from tax - rather than with the help of loans --then Tax Freedom Day would shift back to July 8, pointing to Britain's worst fiscal position since 1976.

Tom Clougherty, executive director of the institute, said: 'Our Government relies so much on debt to fund spending that our traditional Tax Freedom Day measure makes them look more virtuous than they actually are.'

Of the 149 days, 41 is taken up by income tax, followed by National Insurance at 27 days.

It takes a further 21 days to cover all of the VAT the average Briton will pay this year, while the various different excise duties account for 13 days.

Council tax costs the equivalent of seven days' pay, with stamp duty accounting for three days' worth, and a further 18 days to cover a range of miscellaneous taxes.

Published in the Daily Mail here.

Sunday Telegraph: Annual earnings for first five months go in tax

Slug path

asi-in-the-news/asi-in-the-news/sunday-telegraph-annual-earnings-for-first-five-months-go-in-tax

Joomla-id

5135

Old Teaser

1 May 2010

Written by Myra Butterworth

Every penny earned by Britons during the first five months of this year will be used to pay their taxes, according to a leading think-tank.

Tax Freedom Day is the day when Britons begin working for themselves rather than the taxman and it is on May 30 this year compared to three days earlier on May 27 last year, figures compiled by the Adam Smith Institute suggested.

The institute said the date could have been weeks later on July 8 had the Government used tax receipts to pay for its spending rather than loans.

It said the gap between the tax receipts and the Government spending is the widest since 1976 when Britain had to be bailed out by the IMF and it suggested workers face “savage” tax rises unless public spending is urgently brought under control by the next government.

Tom Clougherty, executive director of the Adam Smith Institute, said: “Since all budget deficits eventually have to be financed, borrowing should be viewed as deferred taxation.

“Our government relies so much on debt to fund their spending, that our traditional Tax Freedom Day measure makes them look more virtuous than they actually are. In reality, all they are doing is piling up obligations on future taxpayers.”

The biggest part of Britain’s tax burden is income tax, which people will have to work 41 days to pay in 2010. They will work another 27 days to pay National Insurance Contributions, and 21 days to pay VAT.

Various excise duties account for 13 days, corporation tax for 12, and council tax and business rates for another seven days each.

Britons will work for three days to pay stamp duties, and 18 more days to pay a range of miscellaneous taxes. This includes inheritance tax, which takes 15 hours to pay.

Tax Freedom Day is later than last year primarily due to the rise in VAT which came into force on January 1, according to the institute.

Published in the Telegraph here.

FT: Deficit axe poised over welfare state

Slug path

asi-in-the-news/asi-in-the-news/ft-deficit-axe-poised-over-welfare-state

Joomla-id

5113

Old Teaser

28 April 2010

Written by Nicholas Timmins

“Two parliaments of pain” is the phrase used by the independent Institute for Fiscal Studies to describe what is in store for Britain in the years ahead.

With the next government, of whichever stripe, needing to cut nearly £37bn a year from public expenditure by 2014 just to halve the deficit, can the welfare state survive?

“Not as we know it,” says Eamonn Butler, director of the rightwing think-tank, the Adam Smith Institute. In the 1980s at the height of Thatcherism, it promoted – with limited success – vouchers for health and education, drastic cuts to child benefit and big reductions in state pension spending, along with tax breaks to help people provide privately services that are currently publicly funded, from health to unemployment insurance.

Andew Haldenby, director of Reform, another right-of-centre think-tank, agrees the fiscal deficit will force a reappraisal of the relationship between citizen and state. “The idea that the state can do everything, or even as much as it is doing, is just not tenable,” he says.

Yet, far from using the election campaign as a forum in which to debate the hard choices ahead, politicians’ chosen battleground is the degree to which they will preserve the current entitlements – free bus passes, winter fuel payments, free TV licences and child benefit in the case of the Conservatives, in addition to the health and overseas aid spending that all parties say will be protected.

With the exception of Reform, which has outlined big cuts to middle-class welfare, the think-tanks have been almost equally silent.

Mr Butler notes: “No politician wants to talk about these things before an election. Whoever wins, however, will have to tell us about them afterwards”.

The political promises of protection are greeted with scepticism by many closest to policy and politics. Gail Adams, head of nursing at the biggest health service union, Unison, says: “We know that, despite assurances from all sides of the political divide, the NHS cannot escape from funding cuts in the very near future.”

So, aside from a future in which public services inexorably worsen year after year, what could happen?

Ruth Lister, professor of social policy at Loughborough University and a member of the government’s National Equality Panel, says key pillars of the welfare state could crumble. Child benefit could be removed from the better off. All benefits could be subject to a far greater degree of means testing so as to concentrate help on the poor. Education vouchers could provide a basic schooling that parents could top up if they had the means. New charges could be introduced for NHS services, or its spending could be frozen.

“But that would produce a radically different society,” she says. “It would be one with much higher levels of inequality and much less of the equality of opportunity that all parties say they support. In health and education it would produce a second-class service for the less well off . . . And it would risk creating a downward spiral in which the middle classes don’t get much out of the welfare state and so become ever more resentful about having to pay in.”

Back in the 1970s and 1980s, when the fiscal arithmetic was bad, though not as dire as it is now, and when the welfare state was under ideological as well as fiscal attack, “it did survive”, she says. “Somewhat ragged, but it did survive.”

Some believe the problem is overstated. Julian Le Grand, professor of social policy at the London School of Economics, says: “I am not convinced about the need for massive spending cuts. As soon as economic growth resumes, a lot of the red ink will disappear. I suspect both the political and the economic reality is that after the election, somehow the really big cuts won’t happen.”

Mr Butler sees this as “Micawberish – just hoping that something will turn up”. But focus group research undertaken for the 2020 Public Services Trust shows the public are deeply unwilling to contemplate big changes to the boundaries of the welfare state.

Even Mr Haldenby acknowledges the next parliament is unlikely to dismantle great swathes of the welfare state given the political pledges currently being made. But pressures, including that of an ageing population and the need to eventually eliminate the deficit, mean this state of affairs cannot last, he says.

Published in the FT here.

Daily Mail: Tories have exposed the scale of Government waste - now they must tackle it

Slug path

asi-in-the-news/asi-in-the-news/daily-mail-tories-have-exposed-the-scale-of-government-waste-now-they-must-tackle-it-

Joomla-id

5108

Old Teaser

28 April 2010

Written by Harry Phibbs

The Adam Smith Institute dubbed May 14 ‘Tax Freedom Day’ - but if taxes were put up to pay for the Government borrowing then we would all have to keep working until June 25 - the Cost of Government Day. It is a formula for paralysis.

Published in The Daily Mail here.

The Spectator: The British constitution is in dire need of reform

Slug path

asi-in-the-news/asi-in-the-news/the-spectator-the-british-constitution-is-in-dire-need-of-reform

Joomla-id

5104

Old Teaser

27 April 2010

Written by Dr Eamonn Butler

The UK Conservative leader David Cameron says that any Prime Minister not 'directly elected' by the public should be forced to hold a general election within six months. He has in mind his Labour opponent Gordon Brown, who in June 2007 was catapulted into the position by a secret ballot in his own party, rather than by an open election of the people. And if, after the forthcoming general election on May 6, Labour chose to ditch Brown and catapult that gap-year kid...ah, yes, David Miliband...into the top job in order to stitch up a coalition deal with Nick Clegg's Liberal Democrats, well, Cameron would give him only six months to get a public mandate too.

On the surface, this looks like a good idea. Gordon Brown is Prime Minister only because the Labour Party's constitution makes it almost impossible to unseat a leader who doesn't want to go, and since Brown was the real éminance grise behind Blair, no ministerial colleagues wanted to cross him. Those chauffer-driven limos exert a powerful discipline on ministers and would-be ministers.

Look deeper, though, and Cameron's remark reveals how unfit for purpose our constitution has become. Whom Brits elect at a general election is their local MP, not a Prime Minister. The Prime Minister is simply the leader who can then command a majority in the House of Commons. It may not even be the leader of the largest party: if there were a hung parliament, it might be whoever who can mollify different factions and stitch together a workable agreement between them.

But, as with the debates, Britain's political system has now become presidential. Millions of people honestly report that they will be voting for David Cameron, or Nick Clegg, or Gordon Brown – even though only the electors in their own particular constituencies will actually get the chance. The rest of us vote for them by proxy, by choosing one of their party colleagues as our MP. None of our Prime Ministers is 'elected' by the general public.

In the US, the public explicitly choose a President – along with Representatives and Senators. Sure, after deaths and resignations, a Vice President can step into the office, but at least the public knows who to expect. When a UK party leader resigns (or indeed dies), consulting the public is the last thing on the deal-makers' minds. The UK has become a Presidential system with a Parliamentary constitution, and it doesn't work. There is simply nothing to restrain those who take office in Downing Street – who have powers pretty much as wide as George III had.

Making a step-into-the-dead-person's-shoes Prime Minister face an election after six months does not solve the problem. The problem is that if we are to have a presidential system, with all the TV debates and all the power concentrated in Downing Street, we need a constitution designed to elect – and, much more important, to restrain – that president. What we don't want is what we have now – a stream of elected dictators who the vast majority of us don't even get to elect.

Published in the Spectator here.