Winner of the New Statesman SPERI Prize in Political Economy 2016

Wednesday, 1 October 2014

Why uncosted tax cuts are apparently a problem for Labour

Just a short addition to today’s post. I had assumed that the Conservatives’ macroeconomic pitch for the next election was going to be based on prudence and ‘responsibility’. Only we will achieve a budget surplus by 2020, because only we recognise how dangerously high the current level of government debt is. We will achieve this, because unlike the other parties we do not go around making unfunded spending commitments. Of course the Conservatives would plan targeted tax breaks for the (very) well off, like the one on pensions announced earlier this week and well described by the Economist here, but these would be sufficiently specialised that they would not dent the public image.

I was wrong, as Cameron revealed today with commitments to large tax cuts mainly for middle and high income earners by 2020 whatever. These commitments are totally unfunded, in the sense that we are not told how they would be paid for (except that it will not be by additional borrowing). So the pretence that government spending had to be cut to get debt down has gone - we now have lower government spending (which, given existing commitments, has to mean additional money from the working poor and disabled) in order to cut taxes.

I mentioned last week the drubbing the supposedly left leaning Channel 4 news gave Ed Miliband because he forgot to mention the deficit. As anticipated, John Snow’s interview with Cameron was an altogether more friendly affair. But today their economics editor Paul Mason, whose journalism can be very good, was forced to acknowledge that this unfunded tax give away broke from the recent tradition where particular fiscal pledges were fully costed. But no fear, even Mr. Mason lives in mediamacro land. His final thought on this unfunded tax pledge - it puts Labour in a very difficult position!?! Unbelievable.

  

12 comments:

  1. Might it now be accurate and appropriate to describe large section of the UK media as "captured agencies"?
    OK, I know the media are not regulatory agencies, but hopefully you get the gist...so many media outlets and journalists (with the ability and opportunity to hold the government to account in the public interest) now appear to have been 'captured' by the present ruling political party, and so acting against the public interest (via political bias, inconsistency, misrepresentation and general misinformation).

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    1. Simon; "Might it now be accurate and appropriate to describe large section of the UK media as "captured agencies"?

      Yes. Completely. What took you so long? :)

      We've all sniggered over the last ten years over the research information from the States that shows those who consume a diet of Fox news have their view of reality deeply skewed to the point of ignorance; it's about time we recognised that on this side of the pond, a consumption of the mainstream media (both print and tv) produces equally ill-informed and ignorant people.

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  2. I think you are being unfair to Paul Mason - whether or not it puts Labour in a difficult position depends on the preferences of swing voters who may vote Conservative (either Lab-Con or UKIP-Con swings). If you agree that it is likely that this policy - whatever the rights and wrongs of it - will appeal to both of these groups then it is a problem for Labour.

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    1. His comment was very much linked to the fact that Labour has, since John Smith, costed its pledges. So in a normal world the fact that the Conservatives are not doing this would be seen as a problem for the Conservatives. But in a media world where different rules apply to different parties ...

      The FT, in their editorial
      http://www.ft.com/cms/s/0/2585d674-4953-11e4-8d68-00144feab7de.html?siteedition=uk#axzz3EvbV6mIX
      get it right, to their credit.

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    2. To their credit, Newsnight and Evan Davis explained and emphasised the unfunded issue, and tried to press a clueless Conservative MP on the matter. She simply stared at him vacantly when asked about it, before regurgitating the offical Tory version of recent UK fiscal history - in a manner to suggest that her patient interviewer had never asked the question at all!

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    3. @Anonymous. Isn't this the problem, though. The media reports the politics rather than the economics. So rather than reveal the economic lie, they report on how people will react to the (unrealised) economic lie.

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    4. The media says that Labour is in a tough position because the media doesn't expect the media to inform the public on how these tax cuts will be paid for.

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  3. Will anyone in the media clarify Cameron's shameless boast regarding falling inequality, which he indicated was thanks to his government?
    Yes, inequality has fallen, but the uncomfortable truth is how and why. Basically, it is due to the recession, his policy driven (austerity) economic stagnation between 2010-2012/13 and the slump in productivity growth which has supressed real wage growth (and therefore living standards) for millions of people. As the IFS 2014 report explains:
    "The primary reason for the fall in inequality was that real earnings fell sharply
    while benefit entitlements remained relatively stable."
    Is this really something a Prime Minister should boast about??!!
    The IFS then add:
    "There is good reason to think that the falls in income inequality since 2007–08 are
    *currently being reversed*. As earnings growth catches up with inflation, primarily
    boosting incomes for middle- and higher-income households, *cuts to benefits and
    tax credits are reducing incomes primarily towards the bottom*.
    No doubt this will be pointed out in the Daily Mail, or perhaps the Telegraph...but then again....

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    1. Simon; "Yes, inequality has fallen .."

      I don't think enough proper journalism has countered this pernicious falsehood so far. You are quite right to go on to state that this is merely a blip in a long term trend.

      Read Chapter 3 of the IFS report you mention here;

      http://www.ifs.org.uk/comms/r81.pdf

      Conclusion? For a very short period around 2010/2011 the social safety net managed to provide some relief to some sections of the population from the long term and consistent trends in worsening inequality up to that point. At the expense of a deficit increase and borrowings increases that have shot Gidiots' projections to hell.

      The continuation of that worsening inequality continues now after a brief blip as real wages continue to fall, joblessness is still at high levels and the output gap remains a widening chasm.

      http://www.nakedcapitalism.com/2014/09/contra-jared-bernstein-stagnation-spending-velocity-wealth.html

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  4. I found so many interesting in your blog especially its discussion. keep up the good work.

    Pic Grant By Iras

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  5. My post a couple of weeks ago about Thatcher and Cameron being united in Victorian Values, namely the return to interwar levels of state spending, seems rather accurate.

    Historians have long known this about the Powell-Joseph-Thatcher Party (see James Walvin 'Victorian Values' or Stefan Collini 'English Pasts' chapter 5).

    This is why most journalists in the right-wing press and in that lazy-minded place whence Paul Mason and Gillian Tett abode, the centre-ground - the left-wing is hardly better - are swept along in their self-made Zeitgeist.

    "In the morning, read an article in one of these sombre and solid journals; in the evening, in company, bring the conversation around to the subject, and shine." (Flaubert, 'Newspapers', Dictionary of Accepted Ideas)

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  6. Bill Mitchell has an excellent explanation and history of Central Bank debt purchasing and the neo-liberal attempts to hobble fiscal expansion. The ultimate neo-liberal ruse witch only MMT can cure. http://bilbo.economicoutlook.net/blog/?p=29140
    All the best
    Acorn.

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