Most politicians naturally assume public spending is good and more public spending is better. They implicitly assume that you can buy votes with other people’s money. This belief has underpinned the long upwards movement in public spending of the last hundred years, punctuated only by the odd financial crisis forcing retrenchment (e.g. 1976) or by the occasional political period of calculated “austerity†( e.g. 1981-3, 1997-2001) when spending has grown less fast than the economy.
It is strange politicians believe this, as there is plenty of evidence that big areas of public spending achieve the opposite effect to that desired by the politicians. The last few weeks have shown how spending or promising to spend huge sums to repair the damage of the 10p tax cut, to create jobs in Scottish ship yards, and to win votes in the Commons have not brought any joy or new support for the unpopular government writing the cheques.
There are fundamental reasons why a lot of public spending is unpopular. Public spending takes five main forms:
1. Granting money back to you.
2. Granting money to others.
3. Spending on the delivery of public services you might use.
4. Spending money on the delivery of public services you dont use.
5. Spending money on government itself.
Spending money on giving you money back is the most popular of these. It does ,however, lead some of us to ask why take the money off us in the first place? It means we are worse off than if the government did not take the money and then give it back, as two expensive lots of officials are involved in taxing us and giving us benefits. It also means our freedom is limited to some extent, as you usually have to live in a particular way to qualify for the money back.
Granting money to others can be very unpopular with those who have to pay the bills. Whilst most of us are happy to pay tax so that badly disabled people can receive an income and receive some comforts for their condition, many are not happy to subsidise the neighbour they think could as well get a job and pay tax as they are doing. MPs receive many emails and letters from people complaining that the benefit system is too generous to some. This phenomenon is even more common in the company sector. I remember as a Minister at BERR (DTI as it then was) how many letters we used to receive from companies complaining that we were subsidising their competitors with grant aid that seemed to them unfair. Only a minority of companies receive grants, leaving the majority cross that they have to pay more tax to pay for the grants to the others.
Spending on the delivery of services you use is usually popular. Most people want to know there are enough nurses and doctors in the local A and E in case they have an accident. Parents always want their local school to get plenty of money. It is not the same for services people never use. Some single people or people beyond the age of parenthood do complain about education spending, healthy people sometimes complain about health costs, and many people complain about the costs of quangos supplying services we could well live without. Who wants regional government in England, or more planning consultation documents where the replies will be ignored?
The most unpopular form of spending is spending on government itself. The fascination with the expenses regimes and salaries of Ministers, MPs, quango chiefs and local authority chief executives in recent months is a symptom of a growing frustration. People think the costs of government are out of control, and need to be cut.
This government has allowed people to become very sceptical of how much if any of the additional spending will get through to services they want to use, or will end up back in their pockets. People feel they are getting a rotten deal on public spending because they feel too much is going on government itself, or on transfer payments to people and companies that should not receive it, or on waste within public services that are needed.
People feel overtaxed because they are overtaxed. A government that still thinks all public spending is popular and that we need more of it understands neither the public nor the nature of public spending. Just as some people are jealous of high pay in the free enterprise sector, so many are now jealous of the winners from the government spending lottery, which favours those at the top of the bureaucracy and quangocracy.
July 27, 2008
I'm not as sanguine as you about human nature being sensible enough to notice the money taken by stealth taxes as much as that handed out with fanfare.
"If you rob Peter to Pay Paul you will always be guaranteed the vote of Paul" as Mencken said. Peter, being a decent middle class liberal minded fellow will probably not object to some of his money going to the poor.
Where there is space for complaint is in the amount consumed by the middleman & I would like to se some figures publicised of how much, in each pound of tax paid, actually reaches the hands of the recipients.
From the overall budget it seems that £189 billion goes to assorted social services (not health or education) which amounts to just over £3,000 for every man woman & child. I don't know what net benefits actually paid are but am sure it is considerably less than that. We are a very rich society & I think we can afford to pay for a very good safety net. Paying for the administration of that net, plus all the possible subsidies for state nannying, windmillery, the heritage racket etc on the other hand is feeding an insatiable maw.
July 27, 2008
You've missed one class of spending.
Spending money for which the bill will arive in the future.
1. Pensions
2. PFI
3. The current spend / tax mismatch
It's very bad, because people don't realise that the real bill is still to come, and might even perversely think they are getting some sort of value for money.
Nick
July 27, 2008
Here are some totally disorganised thoughts:
1. When I was standing for the (Lib Dem) Council in Harrogate in the 1990s, the boss said that next year taxes would have to go up. Someone asked, rather too loudly, "Why?" The whole room went quiet and then I realised that the voice was mine! They just looked at me as if I was completely bonkers.
2. In Wisbech we have a disfunctional Comprehensive. The amounts of new buildings that have been lavished on it are simply unbelievable. But the new Head has just walked out.
3. In Wisbech we have a new centre in the middle of town for teenage drug addicts (government). It is a state of the art buiding taking up a lot of prime real estate. Just along from there is the new Marina which is going to be the new Yacht Club and office space (government). Have you ever seen a Fenland river? not a pretty sight…. Meanwhile, the people who actually know what they are doing have bought up the old dog track and are about to turn it into a Multiplex Cinema.
I cannot see, myself, that all this government money is going to get any votes at all.
4. If you could buy people, then, surely Govern and Glasgow ought to have increased the labour majority?
5. With hand-outs, if too many people get them, they don't work for those who really need an injection of positive help.
Money demands risk and that demands research and that demands investment with a hope of getting something back at the end of the process. Votes somehow don't enter into all this.
July 27, 2008
As all well educated economists know, spending other people's money on other people is the least efficient way of allocating resources. The most efficient is spending your own money on yourself. What your thoughtful post is searching for is a way of spending other people's money on common goods. Eg. few would dispute that a healthy, well educated population is in all our interests and so we should all pay something towards this, even if we are healthy and childless. Similar arguments apply to the physical protection of the realm, ie the armed forces. The difficulties arise at the margins, as usual. How much health care, what level of education, defence and so on. These are the questions that politicians must address in debate with the electorate. These are not easy questions, but I regret to say that too often in recent years they have been shirked. The collectivists in the Labour Party get round this by arguing that the State should take all the decisions. But this is simply a way of ducking the issues at the tax payers' expense. Hard choices have to be put to the electorate, but as others have hinted at, are they mature enough to handle them. Also, the electorate are not always the same set of people as taxpayers, thanks to years of misguided welfarism. Put in a nutshell, when does a safety net become a feather- bed? I think this question goes to the heart of what modern mass democracies can achieve. My instincts tell me that a simpler approach to that of the collectivists would be more effective, but it is going to be a tricky political task to achieve in today's circumstances.
July 27, 2008
Perhaps a future piece of legislation to the effect that public spending cannot exceed 25% of GDP unless explicitly authorised by annual referendum (except in times of war), and that said legislation must itself, to be repealed be set aside by referendum?
I regret, with three line whips and many, many self serving MP's (a category from which I specifically exclude you), parliament does not seem up to the job of running a balanced budget, so why not let the people try?
July 27, 2008
Surely the justification of paying tax is that it saves you doing things yourself . Although I am not keen on a Standing Army,( a not uncommon belief two centuries ago), and resent paying for expensive aeroplanes and officers drinking too much in the Mess, I sure as hell don't want to defend myself: for reasons of cowardice naturally,but also because you'd have to drill regularly and spend a week every summer on manoeuvres.Street-cleaning may be expensive but I don't want to clean the streets near me or put up with the crap other people pile up in them.Neither would I want to educate my own children: they deserve better. As for the law,settling your own disputes would be a nightmare.
You could pay private sector providers but they are no cheaper than the public sector.
Bureaucracy is a problem (in the private sector as well), but there are some advantages to having so much information on people .Disaster areas where everybody is self-supporting and unrecorded are next to impossible to administer.
July 28, 2008
Actually your idea isn't as crazy as it seems. So long as any pretence of the ability to project armed forces abroad was abandoned, a citizen militia, armed and trained in light infantry methods (anti-tank rockets and anti-aircraft missiles etc) could happily defend the UK or make it more or less unoccupiable. We would still need a standing navy and you can't be a part time jet pilot, but one wonders whether say half a million militia might not be better at defending blightly than a much smaller full-time army? This is one of the reasons that the Nazis left Switzerland alone in WW2 ~ they didn't fancy going into a mountainous country with a fiercely independant population that could put hundreds of thousands of snipers in the field.
July 28, 2008
If the underlying activity needs to be performed by the state then voters should happily accept paying the taxes to finance it (assuming the spending is suitably frugal). Somebody needs to write the laws and police them, maintain prisons to protect us from dangerous offenders. We need a defence force to protect the country and its allies. These are all examples of “spending money on government itself†which should be popular to anyone who pauses to think for a second how it would be to live in an anarchic society in which these functions were not performed at all.
I also believe the state should provide essential public infrastructure and services, that private individuals or the market is unwilling to provide. This could be anything from cleaning the streets, to educating the young and caring for the sick, right up to a space program. Different people will take different views about the desirability of each of these activities, but the majority opinion in society should prevail. You make distinctions between the state granting money to me or to others, and public services used by me or by others. Public services should always be about others or there is nothing public about them. There is no reason for the state to take my taxes and give some of it back to me unless some public good is achieved in the process.
Some people might say that we should all act on individual self-interest and reject public services we do not use ourselves. Other people would like the public purse to pay for things they desire for themselves. The 1st group is turning a blind eye to social ills; the 2nd group should pay the market price to satisfy their self-indulgence. In a democracy there are no doubt votes to be garnered from either of these short-sighted groups, but the state should, in my opinion, only provide public services that society demands be performed (i.e. is unwilling to accept the consequences of not performing them) for individuals who are personally incapable of paying for them.
July 28, 2008
"People feel they are getting a rotten deal on public spending because they feel too much is going on government itself …"
Yes.
Smaller government, lower taxes. Libertarianism – you know it makes sense.
July 28, 2008
It's not just taxpayers' money that they using to bribe people. Labour simply copied to perfection the Tories' old trick of having a house price boom (see Barber, Lawson) to trick people into thinking they were getting wealthier.
I think that bribing a random group of people (those who happened to own property) with other people's debt millstones is just as bad (morally) and as we are seeing now, a lot worse economically (government spending can always be cut back – recent homebuyers are stuck with horrendous debts).
July 29, 2008
It used to be called "redistribution of wealth" didn't it?
According to a piece in the Guardian in 2000, on the report of the Joseph Rowntree foundation "Thousands of people die prematurely each year as a direct result of government policies in the late 1970s and 1980s that increased unemployment, child poverty and inequality of income and wealth". It concluded "If the government achieved a modest redistribution of wealth and eliminated child poverty and long-term unemployment, .. deaths could be avoided".
It is generally held that Labour have addressed this, making the poor better off. In the run up to the 2005 election the BBC asserted:
"During the years when the Conservatives were in power, inequality rose sharply and taxes increased faster for the poor than the rich"
The BBC article continues:
"The result of Labour's changes to the tax and benefit system, particularly after 2001, have been strongly redistributive.
On average, people in the bottom 20% of the income distribution have gained over 11% per year more from the government, and are £1,430 per year better off.
Those in the top 10% of the income distribution have received about 4% less from the government, an average loss of £2,243."
Tucked away near the bottom is this:
"..but a two-earner couple with no children is over £1,000 worse off"
The upshot is this;
"One in four children were in poverty in 1997/8, and more than one in five were still in poverty in 2003/4.
Poverty rates among pensioners have fallen even more slowly, and they have not fallen at all among people of working age without children.
Many experts believe that Labour will have to spend even more to reach its target of reducing child poverty by half by 2010, and much of initial gains from poverty reduction have come as more people returned to the workforce."
(Sorry about the cutting and pasting.)
By the end of 2005, even the Tories were singing from th same hymn sheet:
"We do redistribute money and we should redistribute money" said Oliver Letwin.
My reaction to this information is as someone who is caught in the very unfortunate position of being someone dependent upon an average income. It is that this is all very well, but we are bearing the brunt of all this worthiness. We have been taxed and taxed and taxed again. Our income is taxed and we work for that. In travelling to work we are taxed again. When we get home we are taxed locally on income that was taxed.
I do not believe it is my sole role in life to support an underclass. Mrs Thatcher was clear that redistribution of wealth had gone far enough, in 1975. So what changed?
July 29, 2008
This Rowntree quote shows exactly how blinkered the anti-poverty industry is. If alleged cutting backm of the welfare state in the late 1970s-early 80s is to be counted towards present welfare levels then the, relatively slight, increase in growth under the Thatcher"economic miracle" must be counted too. Assuming growth was 1% a year higher than it would have been under redistributive policies then we are all, rich & poor, about 40% better off than we would have been.
Had we achieved the 7% growth Ireland managed we would, thanks to the miracle of compound growth, be nearly 4 times better off than in reality.
By comparison even the most extreme redistributive "anti-poverty" policies can do little significant to help even the poorest, though they do keep anti-poverty campaigners in jobs.
It is also worth pointing out that fuel poverty kills 24,000 a year, according to Help the Aged, yet the "anti-poverty" lobby has nothing to say in support of nuclear which they know could cut electricity prices by more than half.