The Politics of Tax and Spend 2

Most politicians are more comfortable with spending money than with raising it. Raising taxes hurts somebody. Spending money is supposedly all good.

If the government decides to build subsidised housing in a locality, that creates short term construction jobs there. Most construction materials are bought within the country, creating or sustaining jobs in those industries. And at the end of it we have social housing to rent out. In some countries these rentals are a form of patronage. In London it is necessary to provide accommodation for nurses police officers and teachers because otherwise they cannot afford to work in London. There is then income from rents which can be used either to repay the original capital cost or to pay to build more social housing. When the great council house sell – off happened under Mrs Thatcher many local authorities sold houses for much more than their original build cost.

 The Americans refer to “pork barrel” politics where Congressman X votes for something, and in return the Federal Government builds a dam or a road in his electoral district, or changes the taxation or subsidy on wheat or dairy produce or cabbages. Such things would not happen in England of course. Allegations that shipyards were kept open with huge injections of taxpayer’s money by the Labour Government because government ministers were local MPs are of course unfounded. The ending of this funding by the Conservative Liberal coalition is also purely unpolitical.

One amusing way the pork barrel acted in reverse was when the then Conservative opposition demanded that all asylum seekers be lodged in reception centres until their cases were resolved. Not locked up 24/7, but required to live in these centres for months, with the asylum seekers free to walk around in the day time. The then Labour Government published a short list of proposed reception centre sites – all of them in Conservative held constituencies. There was local uproar in each constituency about hundreds of foreigners going to live in the heart of their communities. The local Conservative MP had to oppose the proposal and eventually the Conservatives dropped their demand.

Defence expenditure is often unpopular, except when there is a war going on. The money could be spent on so many other things where there is some obvious benefit. The contractors and the civil servants play games around equipment, where a project is approved at one price and one delivery date, and is then delivered years late and massively over budget. If the true cost were set out at the beginning, the project would not have started. So they play games with our money. Britain currently has more admirals than ships.

One way round this is to have a small war. Northern Ireland, Iraq, and Afghanistan provide excellent training experiences for our troops, and public opinion will then support defence expenditure which is often quite unrelated to the war we are currently fighting. I am not belittling the losses suffered by our soldiers in these conflicts. To put the losses of hundreds of lives in some perspective though, in 1916 we had over 419,000 casualties in the 3 month Battle of the Somme. Many units had casualty rates in excess of 50%.

When my grandfather was decorated with the Mons Star in front of his battalion, about 2,000 men, in 1917, every soldier who had been in theatre from 23 November 1914 and was still there paraded with him. One other. Everyone else was a replacement or a replacement for a replacement. My grandfather had actually been wounded three times by then, and lightly gassed, and was back with the battalion.

Police actions in Kosovo or Sierra Leone are actually hugely important, but because there is not much fighting they do not attract the popularity that these activities deserve.

Labour announced proudly during the Wilson years that for the first time in history the government was spending more on Education than on Defence. A clear statement of the political objectives of the Labour Government? In part it was Wilson’s wisdom in refusing to commit troops to the Vietnam war, and the recognition that we could not now afford a war in the Far East – so bring our troops home. The only exception was a small force in Hong Kong – to keep order not to fight off the Chinese.

Sometimes these money saving ideas cause trouble. When the 1981 British Nationality Act was going through Parliament, the Falkland Islanders asked to become British Citizens as part of the legislation. Mrs Thatcher refused. Then as part of a naval cuts programme she withdrew from the South Atlantic the only British surface naval vessel. The Argentinians thought she was not interested in protecting the Falkland Islands and invaded. We lost 255 servicemen killed and hundreds more wounded. We lost 4 ships. We then spent billions beefing up defences in the Falklands.

Had the Argentinians waited only a year, we would have so reduced the Royal Navy that the Falklands expedition would have been very difficult. Ships sailed with dockyard workers still aboard who had their redundancy letters in their pockets. The Navy reduction programme had to be scrapped.

We spend a lot of money subsidising poor working families and poor not working families. We pay for a National Health Service. We pay for Education. We pay to house old infirm people and we look after children in care. We build and maintain roads and bridges.

We have at last paid off the debt to the Americans under the lendlease agreement – which saved us. We service existing government borrowing – which has grown because of the banking crisis. At one point Labour had cleared the National Debt inherited from the Conservatives, only to end with a larger debt because of the banking crisis. There are bank shares owned by the Government which will one day help to reduce the debt.

Spending money is fun. Deciding priorities is important. Do we spend on physical infrastructure, education, and health which all help on the economic front? Do we encourage certain industries like Finance or dotcom?

Do we subsidise the deserving poor and the undeserving poor? If we hire the NEETs (persons in receipt of benefit Not in Employment Education or Training) to do community work we at least get them into habits of work through which they might become employable and break a cycle of unemployment which has lasted generations in some families. Some will accept part time education as a step to a paid job.

How do we fund our increasingly elderly population?

What do we do with prisons? President Reagan when Governor of California was prepared to pay for intervention programmes, rehabilitation programmes – almost anything that was cheaper than keeping people in prison. Drug rehabilitation programmes and some intervention programmes are proved to be cost effective. But we do not spend on them because nobody likes druggies and drunks.

Given the number of sex offenders in our country, should we give them an island to live on where the rest of us can forget about them?

Why is it that so many of our veterans end up in prison or living rough? The Veterans Administration in the USA is a possible model. We at least have an under minister for veterans.

Alexander Fraser Tytler (1747-1813) is quoted as saying (about America)

"A democracy cannot exist as a permanent form of government. It can only exist until the majority discovers it can vote itself largess out of the public treasury. After that, the majority always votes for the candidate promising the most benefits with the result the democracy collapses because of the loose fiscal policy ensuing, always to be followed by a dictatorship, then a monarchy."

The Americans have achieved a variant on this, where many large companies exist with the help of Government contracts. To keep the contracts they play an active part in funding politicians of all parties. It does not matter who wins – they funded the winner. President Eisenhower warned about the military-industrial complex as far back as 1956. The position in Britain is based on a different system, but there have been times when both political parties have given the impression of kowtowing to money.

The line between a proper regard for the legitimate needs of an important business and inappropriate involvement is not always easy to understand. Why should a large oil company like BP have any thoughts or views or lobby about a proposed prisoner transfer treaty between the sovereign states of Britain and Libya?

As a cynic, I am waiting to see what happens when hardline Conservative supporters find they are losing their jobs because of Conservative cuts!

One conspicuous absentee from this spending article is “reducing debt”. The kind of prudent careful people who want to reduce Government debt also frequently believe in low taxes. They will not generally make a budget for debt reduction, because they would rather reduce taxes by the same amount. How savings occur is that the Government has a contingency fund. If there are not enough emergencies and disasters and unexpected calls for money in a year, then the unspent contingency fund reduces debt. The economic crisis has required the parties to plan for cuts to reduce debt, but this is an exception to the way Governments normally behave.

The Conservatives are a true Marxist party, which is why they redistribute wealth from the poor to the rich. Labour tries to redistribute to the poor but is not very successful in doing it directly. Providing universal benefits, better quality schools, and the like does actually improve the condition of the poor together with everyone else. Creating equality of opportunity, and targeted interventions such as Sure Start can be effective. The hard core who really need this help still frequently don’t use it!

It is possible to spend to help your target group, but there are often unintended consequences which reduce the value of what you do. The sharp elbows of the middle class ensure that we and our kids get whatever is going.

The middle class and above get almost all the benefits from pension tax relief , insurance tax relief, and the incentives to save because we can afford to save and the poor can’t afford to save. If a state school gets good, the middle class parents buy their way into the school catchment area and the poor are frozen out.

So how do we help the working poor? How do we get the non working poor into work? It is not easy.