Thursday 23 April 2009

That Liberal Democrat budget

It was an immensely moving moment for all Liberal Democrats when Vince Cable rose to deliver the first Lib Dem budget in almost a century. Calmly scanning the Labour/Conservative MPs arrayed in front of him, he announced:

'In this year, the centenary of the great People's Budget of 1909, the Liberal Democrat government promises another round of radical, progressive tax reform.

'We will restrict tax relief for pension saving to the basic rate.

'We will align Capital Gains Tax rates with income tax rates to prevent the rich cutting their tax bill by paying themselves in share options rather than wages.

'We will make National Insurance payable on payments in kind.

'We will introduce new measures to reduce avoidance of Stamp Duty Land Tax and Corporation Tax.

'We will use the funds raised by these measures to raise the personal income tax allowance to £10,000.

'Taken together, these measures will provide those on low and middle incomes with a cut in tax of about £700, shifting the burden of tax further onto the shoulders of the wealthy who are most able to bear it.'

As the applause grew in the seats behind him, the Labour benches sat in confused silence. How could they object to any of this?

Gaining in confidence, Vince came to the tricky part of the speech.

'Unfortunately the gaping whole in the public finances means that we will have to take measures to reduce public spending. To this end, I am announcing a major review of the nation's military expenditure to see if we cannot make significant cuts. Its about time we got over the mentality of Empire and accepted a diminished military role for ourselves in the world. We must seek our security through better collaboration with our European partners rather than trying to go it alone.'

The Conservative MPs, who had been grumbling ever more loudly during Vince's announcement of the new tax measures, suddenly break into shouts of apoplectic fury, waving their papers in the air, screaming that the Liberals have betrayed the nation. The Lib Dem MPs cheer. It really is like 1909 all over again.

Labour MPs continue to sit in confused silence. Would they have dared to do this?

As the Speaker restores a modicum of order, Vince presses on.

'In the meantime, further, painful cuts will be necessary. It is, I am afraid, a time for hard choices, and this Liberal Democrat government will not flinch from making these choices.

'To restore the public finances we will, therefore, review the current tax credits system. At present, far too many people up the income scale benefit from tax credits. We will reform the tax credits system to focus help more squarely - and, I dare say, fairly - on those most in need.'

There is a ripple of activity on the Labour benches. Yvette Cooper shouts out: 'More means-testing!'

Undeterred, Vince continues:

'And we will scrap the Child Trust Fund. As some of my colleagues have said, many times in the past, this was always something of a gimmick of a Labour policy. We have no hesitation in finding better uses for the resources.'

The Labour benches cry: 'Shame on you! Shame on you!'

As Vince completes his speech, the Leader of the Labour party - it was hard to see just who it was (one of the Milibands? James Purnell? Jon Cruddas? Yvette Cooper?) - rises to give the Labour response.

'The Labour party finds much we can agree with in this budget. But there is also much we disagree with.

'Only a few months ago, Mr Clegg informed us that his party is committed to improving social mobility. We in the Labour party share this worthy aim. But we do not see how the cuts announced in this budget are consistent with it.

'Increased means-testing of tax credits? What effect will that have? It will increase the effective marginal tax rate on those on low-to-middle incomes. It will, therefore, act as a major disincentive to low-paid workers to invest in new skills and raise their earning power. It will, therefore, act as a brake on social mobility.

'Scrapping the Child Trust Fund? Far from being the 'gimmick' which some in the Chancellor's party claim, the Child Trust Fund is the first policy in our nation's history to make real the old Liberal slogan - yes, Liberal slogan - of 'Ownership for All'. Under this policy, every child - whether born into a rich or poor family - has the promise that she or he will start their adult life with some capital to call their own. What a platform for ambition! What a source of opportunity! And not just for those with the academic ability to go into Higher Education, but for every young person of this country. By abolishing the Child Trust Fund, the Liberal Democrats are pulling that platform of opportunity out from under future generations. It is, indeed, a cause for shame.

'And will the Liberals stop there? Will they also abolish the Saving Gateway which gives generous subsidies to the saving of low-income households? I find the Chancellor's silence on this issue most perplexing. And worrying.

'Much of the burden of these two cuts will fall on the least advantaged in our society. It is they who will suffer from reduced incentives to invest in skills thanks to the greater means-testing of tax credits. It is the children of poor families who will most likely end up with no capital at 18 because the Child Trust Fund has been scrapped.

'So what the Liberal Chancellor gives to the poor with one hand - tax cuts - he takes back with the other.

'Well, it was a Labour politician who once said that 'socialism is the language of priorities.' We in the Labour party know what our priorities are. And now the country can see plainly where those of the Liberal party lie. And they do not include social mobility.'

Labour cheers....


Alex said...

Hasn't the Sutton trust published results which say that social mobility has fallen since 1997?

Stuart White said...

Alex: I take it that the gist of your point is: 'Labour isn't in a position to criticise because social mobility has risen on its watch'?

Even if this were the case, the point does not address the specific criticisms made in my post about Lib Dem policy. Labour's having a bad record would not refute the argument that Lib Dem policies would have a bad effect on social mobility, which is the main point of the post.

On the substance of your claim: the Sutton Trust did publish a study in March on access to higher professional positions. The study showed the following:

(1) People in top professional jobs tend to come disproprionately from Independent school and Oxbridge backgrounds.

(2) In all professions, except journalism and medicine, the proportion coming from Independent Schools and Oxbridge has fallen since the late 1980s (or from some earlier point in time). In medicine the proportion from Independent schools has remained constant; in journalism it has risen from 49% to 54%.

(3) In the case of 'magic circle law firms', the proportion of young partners coming from the Independent school sector was higher in 2004 than in 1988 (71% as against 59%).

It would be a foolhardy sociologist who claimed on the basis of this evidence alone that social mobility in general has declined since 1997. Why? Partly because the baseline of comparison is the late 1980s (or before) with 2004/7, not between the situation in 1997 and 2004/7. And partly because one cannot infer directly from trends in one profession, e.g., magic circle law firms, what is happening in society at large. Recall that the Sutton Trust study shows that Independent school/Oxbridge dominance has declined since the late 1980s in most professions. (And there is, anyway, a lot more to overall social mobility than access to high professions, e.g., whether the children of unskilled manual working-class parents move up into non-elite, but nevertheless better jobs.)

There is, of course, a widely cited study by Jo Blanden and associates at the LSE which shows that income mobility for the 1970 birth cohort was lower than for a cohort born in the late 1950s. But that tells us little about the impact of post-1997 policies as the main formative effects of policy on the 1970 cohort occured in the 1970s/80s.

Unknown said...

Wouldn't the extra £700 (each, if both parents work) per year more than outweigh the occasional £250 inputs from the government? Isn't it more valuable to give the parents the means of making their own payments into a savings account, which could be given to the child if the parents decide to?

Reduction in tax credits for the better-off would mean more means testing, which is true. But, again, against a backdrop of tax cuts there would simply be less need for the credit. It hardly makes sense to argue that we should keep tax where it is, then have another system devoted to handing that money back out again to the same people.

Stuart White said...


the beauty of the CTF is that it ensures that something is put aside for children so that they have some capital at 18. A general tax cut doesn't do that.

On your second point: yes, but it still means that the net gain to these families from Lib Dem policies is much lower than the headline £700. If you want that fugure as a net gain, you'll either have to cut the tax by even more, or go easy on the increased means-testing.

Unknown said...

And then what? Labour save the day? Does the Labour government ever come down from it's glass house and have a good look at people in council estates who make a living from having more kids to more government money??

Labour with all the right intentions has created this depressing mess that we now have of children having children and proffessional mothers! And guess what? No one is happy! Least of all the public who have to put up with agressive behaviour from kids who've not been taught right from wrong and brought up through abuse.

I wish they would answer to this.

Labour is not about social mobility anymore. It's out of touch. It's all reports and figures.

As an alleged social government maybe they need to actually see how effective these policies are.

It seems to me that they are hanging on to this dream like notion of effective social mobility because it is the only thing that now links them to what it meant to a leftist party. And in doing that, they are making things worse by ignoring were they have failed.

Maybe we need to give the Libs a chance to mess up eh? Seems to be the only party that is pragmatic and realistic enough to present a budget model that reflects the 21st century society we live in. Not 1966... like the Labour party...or the 19th century like the Tories