Print Story Comprehensive Spending Review link roundup
By TheophileEscargot (Fri Oct 22, 2010 at 11:16:49 AM EST) Economics, politics (all tags)
Was getting a bit big to embed in a normal diary.

CSR Background
Sorry to have to repeat these old links, but the Myth of the Spending Splurge is important. There never was a massive rise in spending or borrowing, only a modest rise that the Tories supported at the time. The bulk of the debt is the result of the financial crisis, of which the banking crisis costs us a quarter of GDP. The Labour Spending Splurge is a useful myth, since otherwise people might start to resent the way the poor are forced to pay for the financiers' mistakes. Fortunately for the financiers, this myth has become widely accepted.

The usual ConDem line is There Is No Alternative, and it's true that some kind of cuts over some timescale are probably necessary. However, there are alternatives to the way this is done.

It's claimed that we have to do this at speed in case the Bond Vigilantes raise the price of borrowing. But in fact, there was no sign in the markets of this happening, and the US hasn't seen any rise, despite pursuing the opposite course.

Alternatives to this particular plan include.

  1. Spreading the payback over a longer period
  2. Paying back with a greater share of tax rises, and a lower share of spending cuts
  3. Raising the inflation target
  4. Distribute the cuts differently
  5. Default on the debt

The Institute of Fiscal Studies (IFS) now has a briefing including a distributional analysis PowerPoint.

  • Welfare cuts announced yesterday are regressive, less so once child benefit cut fully in place
  • Overall, richest tenth lose most, but because of Labour’s tax rises
  • HMT say that package of tax and benefit reforms to be introduced by 2012-13 is progressive (apart from bottom income decile)
  • We disagree. Having considered all welfare cuts:
  • Reforms by 2012-13 are slightly regressive or flat within bottom nine-tenths of households
  • Reforms by 2014-15 are more clearly regressive within bottom 90%
  • The regressive impact is the result of reforms announced by the current Government both in the June Budget and in SR
  • Families with children the biggest losers
  • HMT said that reforms will not increase relative child poverty over next two years. Maybe, but what about future years?
They've also produced this graph of how the cuts will affect various income groups. If it affected everyone equally, the line would be flat. If it was progressive, the line would slope downwards left-to-right, as the richer lost a greater percentage of their income. As you'd expect, it's mostly regressive. But there are some surprises there.

IFS on CSR distribution

There's actually a sharp dip for the richest percentile. This mostly comes from the Labour tax increases that have been put in place, in particular the 50% tax rate for those earning over £150,000. It'll be interesting to see if that stays.

Personally, I'm doing all right. I'm in the yellow childless/single line, near the top of the income group, who lose a mere 2%. The worst off are the families with children in the poorest decile (tenth), who lose 7%. In more detail, I escape the 50% tax rate by a while, I'm over 35 so I could still claim housing benefit if I lost my job and savings. So, the ConDem decision to hurt families and the poor most doesn't actually hurt me much.

A more predictable development is that now Labour are out and the ConDems in, the right-wing papers are deciding the IFS are now partisan leftists, rather than the majestically neutral body when they were criticizing Gordon Brown.

Politically, the CSR was pretty cunning in the way it's designed to wipe out the deficit and Labour at the same time.

In terms of presentation, Osborne has shown himself an heir to Brown. Selectively leaking worse ideas to make the budget look better, briefing the press against the Prime Minister, speeding through the difficult parts with complex jargon, attacking the opposition in the speech: it all looks quite familiar. Plus there were plenty of tricks.

In terms of policy, Osborne chose to cut most departments by slightly less than had been preannounced, by concentrating the cuts in two areas: local council funding and housing benefit, which is administered by councils.

This is clever, because most of the poorer people who will be affected live in Labour councils. KPMG warn that councils could go bankrupt.

Another nice touch is the combination of heavy cuts to the courts system, and compelling councils to chase tenants for 10% of their housing benefit. So Labour councils will have to chase thousands of tenants for a few pounds per month, though courts that are closing down.

Meanwhile early polling. suggests the cuts are not too unpopular. Tory support seems pretty steady, a little higher than the election's 36%: perhaps their voters are reassured the Cameron is a true Tory by the cuts. The Lib Dems are down to a mere 10% from 23% at the election though.

With an experiment of this scale, it's hard to know exactly what's going to happen. Cuts of this scale are rare in the private sector. Councils will certainly be hit hard. Housing will be a problem.

Estimates for job losses vary. The ConDems claim only half a million; CIPD estimate 750,000; PricewaterhouseCoopers a million. In truth nobody really knows.

Johann Hari sums it up as well as anyone.

More links
TUC spending analysis spreadsheet and report. Bank levy is soft. Murdoch is happy about the BBC. Steve Bell cartoon. China Mieville addresses Lib Dems. Real spending cuts could be more or less than announced. Full BBC report. Lenin's Tomb rounds up austerity arguments.

Buried on the day
Since the CSR dominated the news agenda, a couple of unpopular things were announced on the same day to bury the news.

The government is to revive a £2bn plan to store every email, webpage visit and phone call made in the UK.

A £1bn Green tax was somehow omitted from the speech.

Also Tube fares are to rise.

< Imagine there's no Islam | ipod solitaire >
Comprehensive Spending Review link roundup | 8 comments (8 topical, 0 hidden) | Trackback
(Comment Deleted) by aggressive cyclist (4.00 / 3) #1 Fri Oct 22, 2010 at 07:54:11 PM EST

This comment has been deleted by aggressive cyclist

Argh. They are junior partners. by Tonatiuh (4.00 / 2) #2 Fri Oct 22, 2010 at 08:23:15 PM EST
They have little leverage.

Just imagine how the Tories would behave.

Think what would you do if having to get into agreement with 4 of 5 people that disagree about most things with you.

It would be a miracle if your opinions would matter at all.

The LibDems did the responsible thing: just imagine if they have not agreed to form a government, we would have an even more fragile left wing coalition, with no democratic mandate, that would crumble if Caroline Lucas (the Green Party MP) was in a bad mood, all this during one of the most dire economic situations this country has ever seen.

But Churchill was kicked out of office after the war, the electorate is feeble and vanal.

[ Parent ]
(Comment Deleted) by aggressive cyclist (4.00 / 1) #5 Sat Oct 23, 2010 at 07:30:43 AM EST

This comment has been deleted by aggressive cyclist

[ Parent ]
Quite by Herring (4.00 / 2) #4 Sat Oct 23, 2010 at 06:33:35 AM EST
I remember after the election, feeling almost OK about the whole situation. Labour had fucked up badly with policy being driven by tabloid headlines and their mates at big consultancies and outfits like United Healthcare. Foolishly I thought the Lib Dems could temper the Tories' more mad tendencies and bring back some integrity.

Oh well.

/me goes to tear up his poster of St. Vince

christ, we're all old now - StackyMcRacky

[ Parent ]
Oi! by Breaker (2.00 / 0) #6 Tue Oct 26, 2010 at 10:42:52 AM EST
Lager, not Kool Aid.

the areas who don't vote for them get punished.
Of course, Labour would never flood their loyal voter areas with taxpayer cash, would they?

[ Parent ]
(Comment Deleted) by aggressive cyclist (2.00 / 0) #7 Tue Oct 26, 2010 at 10:48:37 AM EST

This comment has been deleted by aggressive cyclist

[ Parent ]
That makes me "non U" by Breaker (2.00 / 0) #8 Tue Oct 26, 2010 at 11:34:45 AM EST

But still, Labour would never flood their client regions with taxpayers cash over the last 13 years, would they? 
It's only those wicked ConDems who're punishing these voters for voting against them.

[ Parent ]
So wait... by Metatone (4.00 / 1) #3 Sat Oct 23, 2010 at 04:15:54 AM EST
we have to cut back on vital services... but we can afford £2 billion on creating a surveillance system the Stasi/KGB would have loved?

I hope all those who rejoiced at election time, proclaiming the ConDems as freedom loving restorers of our civil liberties start to campaign about this.
I'm not holding my breath though...

On the economics, I think you make all the important points.
Especially about the randomised fear of bond vigilantes.
Good rant from Johann Hari too.

I'd just add this, from DeLong and others:

Economics is not a morality play.
The virtues of thrift for individuals translate badly to company policy,
and what's virtuous for company cashflow translates really badly to the country level.

Comprehensive Spending Review link roundup | 8 comments (8 topical, 0 hidden) | Trackback