Tuesday 29 June 2010

Socialism is the key to World Cup success

Or so says John Barnes anyway, in an Evening Standard interview with Mihir Bose.

"Football is a socialist sport," he explains. "Financially, some may receive more rewards than others but, from a footballing perspective, for 90 minutes, regardless of whether you are Lionel Messi or the substitute right-back for Argentina, you are all working to the same end.

"Players from other nations when they play for their country are once again a socialist entity, all pulling in the same direction," he tells me from a dressing room at Supersport's studios where he is an expert analyst on the World Cup. "The most important thing for every Brazilian player is to play for Brazil. "It doesn't matter if he plays for Milan or Manchester United. A Brazilian who puts on that yellow shirt feels the same as the man next to him in that yellow shirt. They have a humility to the shirt. It is not the same for those who wear the Three Lions."

Not everybody is going to agree with that. Though Barnes is quite close to Liverpool legend Bill Shankly's definition of socialism

“The socialism I believe in is everyone working for each other, everyone having a share of the rewards. It’s the way I see football, the way I see life".

But Barnes could claim an increasing amount of evidence from the field in South Africa too.

Nations with left-of-centre governments confirmed their dominance in Next Left's Political World Cup, converting nine places in the last sixteen to clinch a landslide with six out of eight quarter-final places. (Shouldn't 75% representation bring the right to make constitutional amendments, and introduce goalline technology).

In fact, the left had a perfect second round, winning all three of the left-right clashes as Uruguay beat South Korea, Argentina beat Mexico, and Brazil beat Chile.

The right's survivors - Germany and Holland - both defeated fellow centre-right nations, England and Slovakia, and must now take on Argentina and Brazil to prevent an all left-wing sweep of the semi-finals.

Meanwhile, Ghana defeated Obama's USA - who some leftists have been reluctant to embrace as now on our team - while Paraguay pipped Japan in another all-left clash, before the final tie saw Socialist Spain beat fellow leftists Portugal.

The left could perhaps stake a claim to six and a half teams if we were being greedy, though the political uncertainty in the Netherlands seems certain to outlast the football in South Africa. The Christian Democrats have indicated they will not participate in a right-of-centre government, which means that Geert Wilders is very unlikely to be part of the next Coalition. So it seems extremely likely that both Dutch Labour and the centre-right Liberals will have to be in the coalition, though who it will finally comprise still looks like anybody's guess.

Sunday 27 June 2010

So, what happens to fairness when you look at the spending cuts too?

Robert Chote of the Institute of Fiscal Studies speaking after the Budget:

The budget looks less progressive – indeed somewhat regressive – when you take out the effect of measures that were inherited from the previous government, when you look further into the future than 2012–13 and when you include some other measures that the Treasury has chosen not to model ... Perhaps the most important omission in any distributional analysis of this sort is the impact of the looming cuts to public services, which are likely to hit poorer households significantly harder than richer households.

Even before considering the spending cuts, the IFS concluded that the new measures announced in George Osborne's budget hit the poor harder than the rich.

But that is still only one half of the picture.

So what happens to the fairness claim when you analyse the spending cuts too?

The Observer today reports on Fabian Society research which does that, and which projects that spending cuts are likely to affect the poorest 10% six times as badly as the richest 10%.

And the TUC Touchstone blog has the graphic demonstrating the impact, and the Don't forget the spending cuts paper setting out the model's initial findings.

As The Observer summarises:

Now economists working in conjunction with the left-leaning Fabian Society have created a model that gives a quantitative account of cuts for the first time. The study assumes that health spending and international development spending will be protected, as stated in the budget, and that spending cuts will be equally distributed across the other government departments. It concludes that the poorest will be by far the biggest losers in the drive to move Britain back into a budget surplus by the end of this parliament.

According to the study the poorest 10% of households, earning under £14,200, will see a cut equivalent to more than one fifth of their income. By contrast the richest, those earning over £49,700, will suffer a cut of just 3.6%. The second poorest group in the country – households earning £14,200 to £16,900 – face cuts of 13.6%, with about 7% for those in the middle of the spectrum.

Howard Reed, the director of Landman Economics who co-designed the model, said: "A lot of public spending is 'pro-poor', with poorer households receiving a greater value of services to meet their extra welfare needs. Because of this, cuts in public spending tend to hit the poorest hardest."

Tim Horton and Howard Reed wrote for Next Left on the day of the budget about why it is important to model the distributional impact of public spending, and about the new model which they have developed to do this. Reed worked for the Institute of Fiscal Studies for a decade, including having primary responsibility for the IFS TAXBEN microsimulation model for several years, later being chief economist at ippr.

This research project is supported by the TUC and Unison. A full report will be published this summer, and we plan to produce more analysis of the distributional impact of public spending in particular areas of policy this Autumn and across the Parliament.

How should the Coalition government - and particularly Liberal Democrat or progressive Conservative supporters who want it to meet its "fairness test" - respond?

One option would be to say that the desire to have a progressive impact properly relies only to direct taxation and benefit changes - and not to the impact of the public spending cuts too. But there could little rationale for an attempt at "half a fairness test"; indeed perhaps that would be to proclaim an attempt at "fairness about one fifth of the time" as the government says its deficit reduction programme is 80% about changes to public spending.

The other would be to say that the government should try to ensure it does meet the fairness test it has set for itself. There are three or four major issues to consider about whether and how the government can attempt to do this.

(i) How far is the proposed scale of public spending cuts "unavoidable"?

That there is a need to reduce the budget deficit is widely agreed. The government's strategy is to therefore claim "there is no alternative" to its specific proposals as to what is needed how to do this.

The Coalition is right that Labour did not identify the specific cuts for its budget. It is a different argument to claim the deeper reduction programme is unavoidable, rather than a policy and political choice. As Left Foot Forward has summarised well:

In the March Budget, Labour set out plans to “halve the deficit over four years.” They announced costed plans to increase taxes by £18 billion by 2013-14 and set out a desire to cut spending by £39 billion over the same period. But they failed to detail where the money would come from allowing George Osborne to say in his Budget speech, “What we have not inherited from our predecessor is a credible plan to reduce their record deficit.” Osborne is right and yet this does not necessitate the additional £32 billion in pain by 2013-14, rising to £40 billion by 2104-15, and up to £55 billion in 2015-16.

(ii) Is the 80-20 ratio of spending cuts to tax rises sacrosanct? George Osborne is committed to an 80-20 ratio, where he seeks £4 of spending cuts for every £1 of tax rises. He told the Commons this would mean 25% cuts for most government departments which were not specifically protected. The budget measures suggested as 77-23 division. Labour has proposed this should be 2-1 (66-33) while previous Tory fiscal tightenings were on a 50-50 basis.

(iii) Given that spending cuts are very likely to impact the poorest more, how progressive do taxation changes need to be to make the overall impact progressive and not regressive?

The government could even stick to the scale of deficit reduction and spending/cuts ratio, but would then need to be proposing tax changes which provided a fair balance overall. Contributory proposals would mean, for example, putting ditched LibDem policies for higher taxation at the top, like the mansion tax, back on the table. It is indisputably a political choice as to which taxes to raise, and where the burden falls. (The VAT rise was "necessary" because of a range of discretionary tax cuts were introduced, and because it was preferred to other possible tax rises).

(iv) Which spending cuts? How should the fairness aspiration affect the way in which individual departments and the Treasury make spending cuts this Autumn? Will the government be show how and where that the distributional impact of spending cuts was a central driver in decisions about what spending to protect and what not to spend?

The political and policy choices on each of these areas will be contested. What we should all be able to agree on at the outset is that we will have an informed debate about these issues if the government itself is as transparent as possible about the distributional impact of its changes, and how these have influenced its decision-making process about public spending this Autumn.

Given the overall distributional pattern of public spending, it may be very difficult to stick to the timescale of deficit elimination, and the cuts/tax ratio, and still claim the "fairness test" is the central driver of deficit reduction thinking.

You could call that the "Clegg trilemma". Something's got to give at the level of political and economic strategy. Some on the right may think it is time to ditch the "fairness test", and will not trade-off the cuts/taxation ratio for it; Liberal Democrats would be expected to argue the opposite.

However, were the Coalition sticks to its approach on all three fronts, one would still expect it to acknowledge the importance of internal and external scrutiny of the overall spending review - and measures within it - on distributional grounds.

Friday 25 June 2010

Left clinches majority in World Cup first round

Six out of eight group winners in the group stages shows that left-of-centre countries have hit form as the World Cup enters the knock-out stages, reports Next Left as we continue our unique political guide to the world's greatest sporting event.

While Brazil, Argentina and Spain were favourites to win their group, strong performances from Uruguay, Paraguay and the USA left the political right trailing, with only Holland and Germany topping groups. There are nine left-of-centre nations in the last sixteen, as Japan's victory to knock out Denmark proved enough for an overall majority, with Ghana and Portugal also qualifying from the group stages. (But Australia's third game victory was not enough to put them through, with prime minister Kevin Rudd falling in a party putsch the same morning).

With the left's South American heartlands in top form, there is even a chance of a centre-left landslide at the World Cup - if Brazil meet Uruguay (or indeed underdogs Ghana or Obama's USA) in the semi-finals, and with Argentina and Spain current favourites to make the other semi-final.

The right, relying heavily on western Europe, has suffered the shock exit of Sarkozy's France and Berlusconi's Italy. England's second place means that either David Cameron or Angela Merkel will see their country suffer a second round exit.

But there was some consolation for the European right in the World Champion's shock defeat - since their Slovakian conquerors were swinging from the centre-left to the centre-right, as the game took place, with the governing Social Democrats unable to form a new administration despite finishing first in the elections a fortnight ago. Coalition talks were interrupted to watch the final minutes of the game.

Meanwhile, Berlusconi's Cabinet minister Umberto Bossi of the Lega Nord had to apologise for saying Italy would "buy the game" and bribe their way into the knock-out round with Serie A contracts for Slovakian players, a "joke" that was rather disproved by events.

Who to cheer for in the Round of 16

Here is a political summary of the democratic left's teams in the second round:

Uruguay to beat South Korea
USA or Ghana [both centre-left]

Brazil to beat Chile
Spain or Portugal [both centre-left]

Argentina to beat Mexico.
England or Germany
[both centre-right: our LibDems are supposed to be to the left of the FDP]

Paraguay or Japan [both centre-left]
Holland or Slovakia [both centre-right: Dutch Labour may join Dutch coalition]

So the centre-left will have at least three and the right at least two of the eight quarter-finalists. The three left-right matches will determine the balance of power.

First round summary

Here's a round-up of the political complexion of the first round. The top two teams from each group qualify, with the third and fourth places teams eliminated.

Group A

Uruguay - democratic left
Mexico - democratic right
South Africa - democratic left
France - democratic right

Group B

Argentina - democratic left
South Korea - democratic right
Greece - democratic left
Nigeria - partially-democratic right

Group C

United States - democratic left
England - democratic right
Slovenia - democratic left
Algeria - semi-democratic

Group D

Germany - democratic right
Ghana - democratic left
Australia - democratic left
Serbia - democratic left

Group E

Holland - democratic right
Japan - democratic left
Denmark - democratic right
Cameroon - semi/undemocratic

Group F

Paraguay - democratic left
Slovakia - change of government from left to right
New Zealand - democratic right
Italy - democratic right

Group G

Brazil - democratic left
Portugal - democratic left
Ivory Coast - semi/non-democratic
North Korea - left dictatorship

Group H

Spain - democratic left
Chile - democratic right
Switzerland - democratic centre
Honduras - semi-democratic right

My suggestion for the Simon Hughes amendment

The Guardian reports new LibDem deputy leader Simon Hughes' commitment to try to amend the Budget at Committee stage:

“If there are measures in the finance bill where we can improve fairness, and make for a fairer Britain, then we will come forward with amendments to do that because that is where we make the difference.”

Last night, the LibDem clarification was that this was a "hypothetical" comment, and that it was not a call to amend the budget, so the status of the intention is unclear.

Will Straw of Left Foot Forward is right to say that both LibDem supporters of the Coalition and external critics should try to identify future changes which would achieve this goal. And the Social Liberal Forum is calling on Labour voices to start making constructive suggestions too.

One important political barrier is that the biggest arguments here inevitably involve scrutiny and challenge to the overall strategy of the Coalition: whether the scale and speed of deficit elimination in a parliament is "unavoidable"; and whether the 4:1 cuts/taxes ratio is compatible with the commitment to distributional fairness. These concerns are certainly shared by some pro-Coalition LibDems, as well as most opponents of the Coalition, but Hughes is unlikely to anticipate reopening these issues on the Budget itself. (However, the central issue of whether 25% of departmental cuts are either feasible will be an important debate in Whitehall, Westminster and in the country ahead of the Autumn).

Even within those "Osborne constraints", a second legitimate strategy which can be adopted by both supporters and opponents of the Coalition is to examine specific proposals, and to ask whether those Conservatives (like IDS) as well as Liberal Democrats (like Hughes) who sincerely talk about their commitment to protecting the poorest could in conscience support them and defend them publicly.

Hughes and other LibDem allies have rather more prospect in the short-term of making challenges of this second 'micro' kind, though they are more likely to do so on not on the headline measures which have most impact (like the VAT increase) but perhaps on other smaller issues, but ones which could have a very significant impact on people's lives. (I would support a campaign to replace the VAT change with an income tax change, as the ippr have proposed, but I suspect that would be putting down a marker for the future rather than having any significant change of succeeding).

On that basis, here is my constructive proposal where the government should be challenged to back down - and where I would judge there should be at least some prospect of an effective campaign succeeding. I suspect that the key question may be less the Parliamentary arithmetic - I think the number of LibDem backbenchers prepared in the end to rebel in a Commons vote may be very small indeed - but whether a combination of cross-party Parliamentary pressure, combined with external advocacy from civic and media voices can make both LibDem and Tory frontbenches realise that they will be widely seen as defending the indefensible in claiming that a challenged policy meets the "fairness" test.

So my (fiscally modest) target would be the budget proposal to save £100 million from housing benefit from those on the jobseekers' allowance.

Alex Barker sets out the detail very clearly at the FT Westminster blog.

There are some real little horrors buried in the fine print of this Budget.

Just take the measure to cut housing benefit by 10 per cent for anyone on the dole for more than a year.

The crackdown on the workshy only raises around £100m a year. But it is as tough as nails. It basically delivers an ultimatum to hundreds of thousands of long term unemployed: find a job or move house. This is the Cameroon version of “on yer bike”.

The average local housing allowance claim is around £110 while the average for social housing benfit is around £90. So the measure will basically knock £10 a week, or £500 a year, off the income of a JSA claimant living on £67 a week.

For those without kids or the ability to rely on the income of a partner, this will mean they’ll struggle to stay in their homes. Being forced to move also raises all sorts of administrative complications (with waiting lists and benefit switches) that I’m sure the Treasury haven’t fully considered.

Working back from the Treasury figures, it looks like around 200,000 people will be affected for at least a year. The Treasury put the figure affected for at least a month even higher, saying one sixth of all housing benefit recipients will be hit.

It is difficult to think the proposal is motivated by the £100 million saving.

The public politics of the issue are to play to grievances among 'hard-working families' at anecdotal examples of lavish accomodation for those out-of-work. That will strike a chord with majorities of the public - in cases where they believe that people are not willing to make a contribution, and not trying to do so. That work should pay - with a decent minimum wage, growing interest in the living wage and support through tax credits for the low-paid in work - is strongly supported too, and for similar reasons.

There are several ways to look at reforming housing benefit which could command a broad consensus. But penalising those who are willing to work, but unable to find work in the jobs market, and putting the mother of a six year old on JSA and then threatening their existing homes if they don't find a job that fits, may not prove as popular as the Coalition may think.

There will be real world examples of who is affected. They will not fit the populist media's favourite "scrounger" stereotype.

Both LibDems and Tories who claim the "fairness" banner should help to join and lead a challenge to the Coalition to think again. That would be more effective if mounted by LibDem voices like the Social Liberal Forum - perhaps trying to engage progressive Conservative voices like Demos and ResPublica too - as well as by political opponents.

Iain Duncan Smith says:

“The purpose of my life here is to improve the quality of life of the worst off in society. If somebody tells me I have to do something different then I won’t be here any longer.”

That is not consistent with this change to housing benefit. And I would have thought that would be particularly clear to many Liberal Democrat MPs.

The key point to remember is that the fairness test is not some nefarious trap designed by the Coalition's opponents.

Perhaps that was the case with distributional analysis of the regressive 1980s: there was distributional analysis of the Lawson budgets and their impact on inequality and child poverty from Fabians, the LSE, the Child Poverty Action Group and others - but the government's position was that this was irrelevant. They were not trying to reduce inequality, and did not believe 'relative poverty' referred to anything real, being confident they had abolished poverty in Britain, as John Moore famously claimed in 1988.

This time, it is not just our test; it is theirs too. It is fundamentally the test Nick Clegg has told his party he will guarantee, and that Cameron has told the country they can meet.

And we all now know that the first budget failed this fairness test. Whether we support or oppose it, we should hold the government to live up to the assurances that they remain committed to meeting it in future.

That will become a central debate - both inside and outside the Coalition - in the spending review, and ahead of all future budgets.

And it is why Simon Hughes should stick to his argument that there should remain an opportunity for scrutiny of the detail of this budget too.

External campaigners need to flag up and effectively mobilise around specific issues where change should be possible, to show where external advocacy can make a difference.

The housing benefit changes look to me like one good place to begin.

Do this lot really count as German, asks the Mail

Next Left has followed in detail Paul Dacre's apparent ambivalence about whether the British-born children and grandchildren of immigrants should count as British.

Today, the Daily Mail looks at how that argument has been lost in Germany too, since the 1999 citizenship reforms.

Despite the Are you Poland - or Turkey, Ghana, Bosnia and Brazil - in disguise? headline on its graphic, the Mail's report suggests that the story of Germany's "new citizens" is in large part a positive story about integration.

Under strict citizenship laws dating back to 1913 and the reign of Kaiser Wilhelm II, only children born in Germany to parents who were both Germans themselves could be considered German

At the time Germany was in a frenzy of nationalism as it armed in preparation for the First World War.

They were not repealed until 1999 as Germany - mindful of having the most dramatically declining birthrate in the world - finally made it easier to become a citizen of the Fatherland.

The new-look German side is collectively known as 'Generation M' for 'multi-cultural'.

Observers say it the change has led to an influx of exciting new players for the German team.

By contrast, the England side has been regularly benefiting from players of immigrant backgrounds since the 1970s, and eight of the current squad are black or mixed-race.

(So the Mail - which was itself very pro-Dreadnought at the time - sounds glad to see the end of the legacy of that "frenzy of nationalism" under the Kaiser. Which is not, by the way, a Franz Beckenbauer reference for once!).

After all, Mesut Ozil is usually seen as the face of what Germans call the "multi-culti" team, being of Turkish ethnic origin. His grandparents were immigrants, while both he and his parents were German-born.

So called "third-generation immigrants" are not, in fact, immigrants at all - a point we were able to find consensus with the Daily Mail on. Many of this German team have come up through German youth football and the under-21 national side.

The Mail would not of course countenance the weakening of the England squad either.

Happily, we all on the same side as Mr Dacre this time.

PS: Those who do worry about even high-skilled immigration and emigration may be pleased to see that, with Italy out, Germany and England are the only two teams remaining where all of their players play football in their home domestic league - the Bundesliga and the Premiership respectively.


The Guardian recently looked at how the German Football Association focused on the challenge of integration, in terms of securing players eligible to play for Germany and other countries, through parentage or grandparents.

The German government oversaw a liberalisation of its eligibility laws in 1999, which made it easier for foreigners and the children of immigrants to gain citizenship. The stand-out case in Löw's squad is the striker Cacau, who came on as a substitute against Australia to score the fourth goal. The 29-year-old was born and raised in Brazil and came to Germany, initially, to play lower-league football. But as he has worked his way to the top, so he has passed the requisite tests to become a German national. One of his examination questions concerned the names of former German chancellors; Cacau has consequently earned the nickname of "Helmut" from his team‑mates.

The challenge that faced the German Football Association (DFB), though, was to make sure the likes of Khedira, Ozil and Boateng did not declare for the other countries for which that they were eligible. Boateng's brother, Kevin-Prince, the Portsmouth forward, has pledged himself to Ghana – in a quirk of fate, Germany face Ghana in the final group game, pitting the brothers against one and other.

Driven perhaps by their lack of young talent, the DFB made a conscious effort to court and groom players from the immigrant community, even employing a dedicated integration officer. They can now enjoy the fruits of those labours.

"We are aware that it's something new to have German national players with Turkish, Ghanaian, Nigerian or Tunisian roots but for our generation, it's very normal," said Khedira, who is the DFB's poster boy for the liberation generation. "We have some players called Khedira and some called Müller. We don't know any differently."

Thursday 24 June 2010

1966 and all that

So its England versus Germany next for our 90-minute nation.

Its only a game - but what a game. My reflections on the long history on the rivalry in our footballing and national culture can be read on the Staggers blog.

The fear is that England versus Germany brings out the worst in our footballing and media cultures. We should be more confident that this time may be different. There is no need to deny that there is something very special about England versus Germany.

Surely, all that we need to do is to embrace this football rivalry - alongside cricket's Ashes, and since the virtual disappearance of England-Scotland from the football calendar - as one of the great enduring contests in our sporting history.

On the football field, England and Germany have long been, in the title of David Downing's splendid history 'The best of enemies'. So we should embrace our obsession with 1966 and all that is an inevitable, and fairly harmless, feature of national sporting folk memory.

For those of you who think there has been rather a lot of budget fairness and not so much football here on Next Left over the last couple of days, here's my favourite pre-match factoid to impress with your friends with before Sunday:

Germany had never beaten England at football when they came to Wembley for the 1966 World Cup final; but England's famous victory that day was their last competitive victory over Germany for 34 years, until Euro 2000.

Truly a great sporting rivalry of two halves. May the best team win - but not, please, on penalties.

Has Clegg made the most creative challenge to the IFS ever?

Politicians have often got into an argument with the IFS, though a tactical retreat is usually be the better part of valour in such cases. Except that no politician has ever had the chutzpah of deputy Prime Minister Nick Clegg, who may finally have worked out how to outflank those pesky taxation pointy-heads when their objective analysis and distributional modelling doesn't fit the "narrative" you would like to talk about.

A recap of the story so far.

Deputy PM Nick Clegg was "obsessed" by the Treasury's distributional chart, confident it provided irrefutable proof that George Osborne had produced a "progessive" austerity budget.

Then the IFS refuted it, authoritatively, showing that the new measures were regressive, not progressive. "Budget will hit the poor harder than the rich" was not the front-page headline Clegg wanted to read in Britain's leading LibDem supporting broadsheet.

That's not fair, said Nick, on the Today programme this morning.

Sure, he prayed in aid Labour's policies. The new regressive decisions taken by the Coalition are better balanced when combined with tax reforms inherited from the previous government.

But Clegg's main point was much more brilliant than that. PoliticsHome reports the main reason he was able - with a perfectly straight face - to "reject" the IFS analysis of the budget.

Deputy prime minister Nick Clegg has rejected a budget analysis from the Institute for Fiscal Studies which said that the budget would impact the poor more than the rich. Clegg claimed that the IFS didn't include in their analysis possible future changes which the government may bring in.

Here's the quote:

Mr Clegg complained that the IFS analysis did not take into account what the government may do in future budgets, saying the budget could only be found to be regressive "if you exclude other measures, which we are including, and if you disregard what we're going to do in future budgets."

The IFS said the budget appeared more progressive when some Labour measures were included in the analysis.

He added: "Nothing has included, of course, future changes which we will make, which we will show, as we have done in this budget, that we're going to take very exceptional measures to ensure that fairness is instilled."

I've gone back and checked the claim.

And Clegg is right.

The IFS has entirely left out from its analysis of the government's budget all possible future measures which the government has not yet announced, even though some of these might turn out to be fairer than anything you might hope to see.

Let's quickly pass over a small logical wrinkle in the argument which claims that the proof that these future measures will be intended to be really, really fair - and so won't fail the progressive/regressive test next time - is just how fair the (regressive) budget measures were intended to be before they failed it this time.

The central point is that Nick Clegg's intentions are undoubtedly good. Is it not then reasonable to ask the pointy-heads to reflect the new spirit in the land? Can anybody seriously defend the IFS' old politics insistence on offering exactly the same statistical analysis as they would if these changes had been made by a nasty Clegg-less Tory government rather than this bold and even cuddly Cameron-Clegg progressive alliance?

So that leaves only one small methodological issue to sort out. To be fair to the IFS, Nick Clegg has yet to explain precisely how you might statistically model this "progressive premium", based on his heartfelt aspiration to be very fair in future, in budget analysis. Perhaps Danny Alexander may be able to suggest a workable formula.

To enter into the spirit of Clegg-Cameronism, my proposal would be to try to model and incorporate a "progressive boost" to the distributional charts as an "effort prize" to reflect the Coalition's good intentions. For example, if the bottom decile were to gain a nominal £1 a week on average incomes, every time that the Prime Minister or his Deputy use the "progressive" word, they might quickly make rapid inroads into the gini coefficient by the time of their party conferences this Autumn. That might at least do something to mitigate the impact of George Osborne's welfare cuts in increasing inequality.

So there is work to do there. I am sure that the IFS will get their top technical team onto this challenge pronto.

But I suspect that the really good news is that the next budget might just have to meet the Coalition's own "fairness test" properly - and for more than 24 hours next time.

Why the fairness test matters - even when you fail it

"The overall impact of yesterday's measures was regressive", concluded the Institute of Fiscal Studies, in assessing what Robert Chote called George Osborne's "debatable" claim that "it is a progressive budget.”

As Left Foot Forward sets out, the IFS analysis shows that the progressive aspects of the overall fiscal tightening depend overwhelming on decisions inherited from the Labour government, not those made by Osborne (with Alexander, Cameron and Clegg), echoing a point made by Nick Pearce. The IFS also challenged Osborne's claim that his VAT rise was "unavoidable", in noting the range of discretionary tax changes he had made.

Nick Clegg was, as the FT reported, "obsessed with the [distributional] chart" because "The coalition have bet the ranch on “progressive austerity” and they think these statistics vindicate the claim that this is a tough but fair fiscal medicine. The trouble is that this chart showing the spread of pain from the tax rises and benefit cuts is just a snapshot of 2012. It won’t look as fair after that".

The IFS confirms a clear consensus that the budget failed Clegg's own fairness test. The Channel Four fact-check puts the point more colourfully that the IFS "breakdown makes the coalition look less like Robin Hood and more like Marie Antoinette".

That makes, yet also misses, an important point. The budget was not motivated by fairness. Yet that it was also constrained by fairness matters too, and points to the central contradiction in the Coalition's policy agenda and political strategy.

The Chancellor's claim that there was no alternative to the depth and nature of his fiscal tightening does not stand up. There were two central political choices, each very well described by James Graham of the Social Liberal Forum, the increasingly vocal progressive wing of the LibDems, in its budget preview.

# What is the timescale? If George Osborne announces a clear intention to clear the structural deficit over the lifetime of this parliament, that is a definite Tory victory. The Lib Dems’ argument was always for something closer to halving the deficit over five years.

# What is the proportion of cuts to tax rises? Again, the Tories were quite clear on this: £4 cuts for every £1 tax rise. Labour went into the election calling for £2 cuts for every £1 in extra taxes. The Lib Dems, it is fair to say, hedged it, but did include a clear commitment to raise taxes if spending cuts alone would lead to greater unfairness. It is hard to conceive how 80% cuts could possibly pass this fairness test – especially since the government appears to be working towards an even greater deficit reduction than even the Tories were pledging to do during the election.

The answers to these questions were not a function of the fiscal position. They were political choices - and the answers were ideologically driven.

Yes, deficit reduction is required. Labour's plans to halve the deficit over a Parliament would have meant deep cuts. The further depth of George Osborne's cuts - to eliminate the entire structural deficit within the Parliament - have nothing at all to do with the risk of sovereign default. And all of the Treasury and IFS analysis is looking only at the tax side of the equation. As Tim Horton and Howard Reed set out, a distributional analysis of the impact of both tax and spending changes is necessary to judge the Coalition's programme against its progressive aspirations and language.

These choices are built primarily on the ideological belief that the smallest possible state is always best, a rejection of arguments about the risk to economic growth of such a deep and rapid retrenchment. The Cameron-Osborne project began with an acceptance of Labour spending plans as a constraint on tax ambitions; their project now is to expunge any evidence of New Labour's public investment by shrinking the state to pre-1997 levels.

These are the big arguments which the right is winning - both within the Coalition - and perhaps to a large extent, though this is contested, in framing media and public political debate. Yet, at the same time, the right has lost one important 'framing' argument, which is why the Coalition's budget has been constrained by fairness rhetoric and aspirations, even as it fails to live up to the fairness test it has set for itself.

Here we have the paradox and confusion of this would-be progressive coalition. The "there is no alternative" approach to the depth of cuts is not just Thatcherite, it is Thatcher plus. The VAT rise - and commitment to indirect over direct taxes - speaks to David Cameron's public statement that he is basically a disciple of Nigel Lawson when it comes to the tax system.

And yet Osborne and Cameron's clear acknowledgement that inequality matters, the acceptance of relative poverty and child poverty as meaningful concepts, shows that the right at the same time accepts that Lawson-style tax changes, such as those in the 1988 budget, would have no public legitimacy at all.

As George Osborne put it in his budget speech:

Too often when countries undertake major consolidations of this kind, it is the poorest - those who had least to do with the cause of the economic misfortunes - who are hit hardest. Perhaps that has been a mistake that our country has made in the past. This Coalition Government will be different.

And so the government proclaims its commitment to meeting a distributional 'fairness' test, that the Tory governments of the 1980s would have condemned as Marxist mumbo-jumbo.

That is why £2 billion had to be found to invest in child tax credits, because the government wanted to claim it would at least have a neutral impact on child poverty.

That is also why higher rate-payers were excluded from the tax threshold change, to mitigate the regressive distributional impact of the LibDem manifesto proposal. (An argument vociferously rejected by LibDems when pointed out by the Fabians (and then the IFS), yet ironically now tacitly acknowledged by the government). This is not just about the Coalition, but reflects the broader Tory acceptance that inequality matters as part of the brand decontamination process (There are several areas - where to cut tax credits or the Child Trust Fund; whether to means-test child benefit - where the LibDems have been to the right of the Conservatives; the LibDems have much more progressive instincts on inequality at the top, but look increasingly politically neutralised on that within the government, which is why that isn't having much impact on the distributional outcomes chart).

So can this fairness circle be squared? That depends on the belief that Britain can have a much smaller state and signficantly reduce inequality at the same time.

Nick Clegg's increasingly close philosophical, political and personal convergence with David Cameron will now involve committed advocacy of this core proposition of Cameronite optimism. And Orange Bookers of the David Laws school want it to be true: it would enable the restoration of a more classical Gladstonian economic liberalism to be flourished in the name of fairness, escaping what Laws calls the LibDems' "soggy socialism and corporatism".

But LibDem centrists as well as social democrats and social liberals understand why it is a flawed prospectus. Indeed, the case was put most clearly by Clegg's new special adviser Richard Reeves, writing in Prospect last December with his co-author Phil Collins on a big, unequal society

it makes literally no sense to argue that inequality needs to be reduced and then to call for a reduction in state benefits. The issue is not ideology; its not politics; its just arithmetic ... Labour's record shows that cash transfers can work to reduce basic income inequality. It also shows that even a broadly centre-left government did not feel able to transfer money on the scale needed truly to make society more equal. So inequality has been checked, not reversed ...

At present, [Cameron] is signing himself up to Labour-style poverty and inequality measures, even as he rejects Labour-style redistribution. In other words, he is setting his own big trap and trotting gamely towards it"

The budget shows how that still cuts to the heart of the Coalition's contradictions over fairness and inequality.

They are pursuing social democratic ends by Thatcherite means - with their fingers crossed that the results will turn out differently this time around.

They have publicly committed to the primary test of their efforts being a 'fairness test' which they are certainly going to fail without a rethink of their central strategic approach.

That should provide an important opportunity for pressure, from LibDems inside the Coalition and from civic society, media and Labour opposition voices outside it. For example, David Cameron and George Osborne may well feel they must concede to Labour pressure, evident at Prime Minister's Questions yesterday, that every future budget should reduce child poverty. (No doubt IDS has a plan, but note that the Coalition decided it needed to draw on the Gordon Brown playbook to mitigate an increase in child poverty on Tuesday).

"David Cameron talks pleasantly about lowering inequality. But his ideas are a mess", wrote Reeves. The same can certainly now be said of the Cameron-Clegg Coalition, which has staked its progressive credentials very clearly on that proposition, and for whom the fairness dilemma looks if anything sharper.

At least Nick Clegg can not claim that he wasn't warned.

Wednesday 23 June 2010

Tory 'big beasts' show that Coalition Agreeement not sacrosanct

Paul Goodman on ConservativeHome has a significant piece on How Conservative backbenchers won the battle on the Capital Gains Tax rate.

Because of the scale of Tory backbench advocacy, the debate over the last few days had become where the compromise would be struck. As Goodman reports, the Tory right sees containing the increase to 28% as a job well done.

The significance surely goes beyond the merits of the CGT issue itself. The "big beasts" on the Tory backbenches have already shown - after little more than a month of government - that even commitments in the Coalition Agreement are susceptible to backbench pressure.

As Next Left noted, as this debate began, in looking at the competitive politics of coalition rebellion

Presumably the central organising principle of the Coalition government must be that the two frontbenches will make every effort to protect significant and politically sensitive commitments hammered out in the Coalition Agreement itself against pressure from their backbench MPs.

But perhaps not. There have been earlier retreats - notably on rape anonymity - but on that issue both parties tacitly acknowledge that they misjudged the issue.

This was the first time that there was a more politically salient and contentious clash over something set down in the deal. It seems very significant that the Coalition Agreeement did not hold without very significant concessions to the right.

Recall how Vince Cable seemed confident of the outcome as the first protests were raised, as he said: ""It's very important that we have wealth taxed in the same way as income ... It's not actually an argument between the coalition partners, as I understand it, it's an argument between a few Conservative backbenchers and others", while Chris Huhne warned that the parties could not pick and choose without the Coalition deal unravelling:

“One of the things people might say is: I don’t like that. So they pull at that little piece of string and you find that all the rest of the woolly jumper is unravelling,” he said. “You have to be very, very careful. If you move something, everything else changes.”

Yet the LibDem frontbench seems to have been outmanouvered by the Tory backbench, smartly aligned to its media allies.

It was always likely that the Coalition Agreement itself would mark the point of maximum Liberal Democrat influence within the Coalition.

They were able to get the inheritance tax policy ditched, though trading in their mansion tax, and (quietly) to scupper the Tory policy on a referendum lock in return for allowing the Tories to enjoy saying there would be no preparations to join the euro! They had to swallow major marriage tax break, nuclear power and university funding concesssions, sometimes with symbolic abstentions to let the Tory policy pass under formal protest.

It will be much harder for the LibDems to exert as significant a counterweight to the Conservatives as new decisions emerge, as they could when the question was whether the government would be formed or not. And they now have a significant self-interest in the success of the joint enterprise, especially as most believe the junior partner would suffer most if it broke up.

The successful Tory rebellion on CGT could see some LibDems consider making at least a symbolic protest over a high-profile issue - most obviously university funding.

But it is a dangerous road to go down. The Conservative backbenches might then threaten the delicate concordat over the voting reform referendum.

So perhaps the LibDems will mainly be looking for assurances from their Coalition colleagues that the next rebellion from the Tory right will be faced down.

But have the 'big beasts' been emboldened by their success?

How Theresa May's tax credits lie backfired ... and how David Cameron misled Mumsnet

As Left Foot Forward sets out, George Osborne's budget reforms mean that "By 2012-13, no family with one child over the age of one and income over £30,000 will get a penny in tax credits." Families with one child on £25,000 will also have their entitlement cut.

Yet Theresa May gave a categorical pledge that Conservative tax credit cuts would not affect any family with earnings under £40,0000, in an aggressive and angry article headlined Labour lies on tax credits which accused Labour of a "scaremongering lie" over Tory plans to cut tax credits beyond that.

In the last couple of days the Labour Party briefly paid for a misleading advert on the popular MumsNet site about our plans for tax credits. I think it’s important that people know the truth.

They say our policy will take away tax credits from families with incomes of £31,000 or more. That is a lie, and it is irresponsible for Labour to be scaremongering in this way and worrying families needlessly ...

“No families with a combined household income of £40,000 or less will be affected by our [tax credit] policy.”

That commitment could not have been clearer - yet the government appears unwilling to acknowledge that it has now been broken, with Osborne telling the Commons he was cutting tax credits for those on £40,000, and failing to acknowledge the losses to those on lower incomes.


David Cameron could also face charges of having misled Mumsnet users over tax credits, when he wrote:

Here's a straight, non-waffle answer. As a part time worker and a lone parent, you should not lose out. We recognise that tax credits help families, that's why we introduced the first one way back in the 1990s. We would stop the payment of tested tax credits to families of incomes of more than £50,000. We've got a massive debt crisis in this country, and so I think that those payments aren't really affordable any more. We would also reform the whole administration of tax credits to make the system simpler, fairer, and stop the painful problems we've got at the moment where people are getting the wrong payments and then the Government has to claw the money back.

Beyond Cameron's claim to be cutting for those on over £50,000, Osborne's reforms would seem to have done the opposite to what Cameron promised Mumsnet users. The much tighter rules on income change rules are likely to bring back the problem of over-payments very sharply, as Robin Williamson technical director for the Low Incomes Tax Reform Group, explains to This is Money,

'The amount by which claimants' income can increase without it affecting their award is to be reduced from £25,000 to £10,000 from April 2011, which should not make too much difference. But when it decreases to £5,000 from April 2013, we are concerned that, if not carefully managed, it may signal a return of the income-related overpayments that caused considerable distress in the early years of tax credits.


This is Money has more on the stealth cut to tax credits, glossed over in Osborne's spech.

Osborne didn't mention this in the announcement, instead focusing on the new £40,000 cap ...But detailed figures hidden away in Budget documents show that from 2012, those with joint incomes worth more than £23,275 will lose their tax credits.

Treasury sources have admitted that 5.7m families will not be able to claim a penny of the credit from 2012, leaving just 1.3m of the country's poorest households benefiting from the payment.

At present, child tax credit is made up of a family element worth up to £545 a year, and a child element of up to £2,300. On top of this, those who have a baby get an extra £545 credit in the first year.

Families with incomes above £16,190 get their child element whittled away at a rate of 39p for every £1 they earn. And those earning above £50,000 lose their family element until at £58,000 they get nothing. From next April, the rate at which the child element would be taken away would increased to 41p for every £1. And those earning above £40,000 would start to have their family element removed at a much quicker rate until they lose everything at £41,329.

In a move not announced by the Chancellor but buried in the Budget documents, from 2012 this £40,000 income limit will be withdrawn. It means that families with one child would receive no tax credits once they earn above £23,275.

Whose fairness is it anyway?

Nick Pearce, who was ippr director before being head of the Downing Street policy unit, makes some telling points for the OurKingdom blog about the budget's distributional impact, arguing that "it is simply incredible to call this “fair”.

In fact, if you look at the widely touted distributional impact tables in the Red Book. (Annex A, page 63), you see that all the heavy lifting on progressive taxation is done by reforms introduced by the previous Labour government, not by yesterday’s Budget (the black bar in chart A2, for the top decile). The poor lose primarily by the increase in VAT. The middle classes lose tax credits and pay more VAT. And the better off lose from direct tax and National Insurance changes inherited from Labour – almost nothing at all from anything agreed by the Coalition. Moreover, as Alex Barker points out in the FT, these tables do not include the full impact of benefit cuts, since these are not felt until after 2012/13.

Pearce anatomises how much and how little of the LibDem tax fairness manifesto has survived:

Tellingly, the central Liberal Democrat election commitment to fairness in taxes and benefits has been abandoned. A few facts illustrate this simply enough. In their Manifesto, the Liberal Democrats promised to raise nearly £2 billion from Capital Gains Tax reform. The Budget secures less than half that (£925 million). In addition, they pledged to raise £5,455 billion by restricting tax relief on pension contributions to the basic rate. This highly progressive measure has now been completely dropped. Ditto the Mansion Tax on properties worth over £2 million, due to have raised £1.7 billion. And there was barely a mention of the green taxes they had pencilled in to raise over £3 billion in the Budget. On almost every score, their pre-election tax package has been stripped of its progressive content ...

He also suggests the most progressive Tory voice has not got his message across to colleagues:

And the overall story of this Budget is one of generational injustice, with cuts falling on working age families and those with children, but not the asset rich pensioner population. David Willetts’ warnings have been not been heeded.

There are some important future policy and political challenges for Labour in the piece - "Retreating to occupy the space of defender of the public sector and its staff is political suicide in the long run" - in staking out the argument for what Pearce calls a "social democratic majoritarianism", which sounds as though it has a familial resemblance to the reciprocity-based universalism set out by Tim Horton and James Gregory in the Solidarity Society.

Read the full piece here.

Tuesday 22 June 2010

Bank shares rise as City 'counts itself lucky' at modesty of levy

George Osborne could see the symbolic political value in putting a tax on the banks, but has squared the circle of pleasing City opinion by producing a smaller levy than many had anticipated.

The Wall Street Journal reports that the UK banking sector "can count itself lucky".

Robert Peston of the BBC says the Tories won the argument with the Liberal Democrats over the size of a bank levy, with their coalition partner proposing a £5 billion a year tax.

That £2.5bn is a fraction of what the Tories' coalition partners, the Liberal Democrats, wanted to extract from the banks.

And the tax rate - 0.04 per cent next year, rising to 0.07 in 2012/13 - is well short of the 0.15 per cent rate proposed by President Obama (although his tax would die after a bit more than $100bn has been raised).

Which probably explains why banks' share prices didn't move much today (Lloyds up, RBS up less, Barclays down a bit).

The head of equities at City Index said that UK retail banks also rallied after the headline grabbing bank levy came in lighter than perhaps anticipated."

Another analyst, off the record, said that, any levy set at less than £5 billion might be regarded by some as a "rounding error".

City voices are taking care not to publicly sound too relieved. The British Bankers Association offered a measured response, understanding the reasons for the tax while going through the motions of warning about competitiveness.

However, Peston suggests that Lloyds, Royal Bank of Scotland and Barclays may face a significant bill, while most other banks and building societies may well escape paying much, or anything, towards the levy at all.

The proof: VAT hike + income tax cut = regressive

There is an excellent Left Foot Forward post from Tim Horton and Howard Reed, which shows the impact of George Osborne's changes to the income tax threshold and of his increase in VAT.

They write:

Incredibly, some of the briefing around the budget today suggested that the coalition saw the income tax cut as some kind of compensation for the VAT rise. But, as the graph shows, that isn’t the case at all.

Their graph provides the evidence to clinch Next Left's earlier point that cutting income tax and raising VAT isn't progressive.

But we should raise a small cheer for the tax threshold changes now excluding higher-rate payers. This is a change from the LibDem manifesto pledge, and has been advocated by the Social Liberal Forum, offering the party one partial response to challenges about the policy's claim to tax fairness.

The tax threshold changes now accrue mainly to the middle of the income distribution. It does exemplify the point that those who see increasing tax thresholds as the route to tax fairness then end up having to make changes to mitigate the inequality impact.

The Social Liberal Forum also produced a useful checklist from a progressive LibDem perspective of the tests a genuinely progressive budget ought to have met; it is difficult to see that George Osborne passed. Author James Graham has since marked the budget scorecard at two out of seven.

Another significant contribution to the policy challenge to the coalition government's austerity budget from inside the centre party came in a punchy piece from Richard Grayson, who is vice-chair of the party's federal policy committee, arguing that the budget should lead "Liberal Democrats may soon realise that a centre-left party is being led from the centre-right".

Why Osborne's biggest "stealth cut" will increase inequality

Commenting on the budget, Fabian Society Research Director Tim Horton noted that what sounds a relatively technical change in how benefits were uprated - using Consumer Price Inflation rather than Retail Price Index - would be a major "stealth cut", saving £6 billion on benefits but significantly increasing income inequality, as those on benefits fall further behind average earnings. It has the potential to be the the most significant welfare change in the budget in the long-term.

On the changes to benefit uprating

“Over the long term, perhaps the most significant welfare change in the budget is the announcement that in future benefits and tax credits will be uprated annually only in line with Consumer Price Inflation rather than Retail Price Inflation.

“The impact from one year to the next won’t be huge, but played out over many years this will have a dramatic effect in increasing inequality in society – just as it did in the 1980s, when Margaret Thatcher broke the earnings link for many benefits.

“Many low-income households are reliant on benefits and tax credits for a significant proportion of their income. Reducing the rate at which these benefits increase means the income of the poorest households will fall further and further behind everyone else.”

On the tax changes

“The increase in the income tax threshold will do nothing for the millions who don’t earn enough to pay income tax. Three million households in the poorest quarter of the population will see no gain at all from this tax cut – including pensioners, the sick, the unemployed and parents in low-paid part-time work. Yet all these groups will be hammered by the VAT increase.

“To cut income tax, a progressive tax, while increasing VAT, a regressive tax, is unjustifiable. It runs completely counter to the Lib Dems’ stated ambition of a fairer tax system.”

On asset-based welfare

“In two months, the coalition government have dealt a killer blow to the agenda of spreading assets to more people in society, scrapping the Child Trust Fund and now scrapping the extension of the Savings Gateway – a scheme that incentivises low-income households to build up more savings.

“The government say they want people on low incomes to take responsibility and build up savings, but at the same time are scrapping the measures to encourage them to do this.”

Comments from Tim Horton, research director of the Fabian Society.

Osborne's dishonesty as history repeats itself on VAT

"Tories 'can reduce the deficit without a rise in VAT'"

That was the Daily Telegraph headline on April 6th as the election campaign began, reporting George Osborne's commitment that he had deficit reduction plans which did not require any VAT increase.

Osborne said:

“The plans we set out involved around 80 per cent of the work coming from spending restraint and about 20 per cent from tax increases... The tax increases are already in place, the plans do not include an increase in VAT.”

Nothing significant has changed in Osborne's knowledge of the public finances (though he has made a significant number of discretionary tax cuts today).

Tim Montgomerie of ConservativeHome told us that it was a significant commitment.

This is a significant commitment from the Shadow Chancellor. Labour hope to scare voters with the threat of a large VAT increase if the Tories win. Cameron and Osborne have attempted to strangle this attack at birth.

In fact, history was repeating itself with this dishonest campaign pledge, as George Osborne showed that he was a student of the 'legendary Geoffrey Howe dodge on VAT.

The former Chancellor rejected the idea that it was misleading to state that “we have absolutely no intention of doubling VAT” during the 1979 campaign.

Howe wrote in his memoirs, somehow keeping a straight face, that:

"We had no difficulty denying it. For there was no prospect, on even the most gloomy of expectations, of our having to go beyond a rate of 15 per cent. Some critics afterwards thought it pedantically misleading to rest our case on the fact that twice 8 per cent (the then basic rate) was 16 and not 15 per cent ..."

Fair cuts? How could we know?

This guest post from Tim Horton and Howard Reed identify an urgent gap in public knowledge which we need to know whether the Coalition is meeting its own "fairness test".


George Osborne's emergency budget statement is based on the argument - must stressed by deputy Prime Minister Nick Clegg and other coalition ministers - that the deep cuts in public spending that lie ahead will be ‘fair’ and ‘progressive’.

But the question is: how we will know?

George Osborne’s aides tell today’s Guardian that the Treasury will be publishing graphs alongside the budget to show that the ‘distributional impact’ of tax and benefit changes – how they affect households at different points in the income spectrum – claiming this shows that the budget will meet the fairness test of hitting those on higher incomes more than lower incomes.

But the Treasury analysis published today will ignore the impact of cuts in public spending on households. What really counts for fairness is not how families are affected by tax and benefit changes in isolation, but how they are affected by the whole package – spending cuts included.

The trouble is, while organisations like the Treasury and Institute for Fiscal Studies have long had the capability to calculate the distributional impact of tax and benefit changes, up until now we haven’t really been able to do this for spending on public services, not least because it’s much harder to work out who uses different services and how much they use them.

So there’s a gap in our understanding here: often we just don’t know what the impact of spending reductions will be.

This gap is reflected in public attitudes too. There is currently little public understanding of how households benefit from spending on public services. While people are well aware of the scale of their tax burden (some of which they see directly on their pay-slips), research shows they are relatively unaware of the scale of the benefits they get from public services in return for the taxes they pay.

Indeed, people tend to underestimate the value of public services.

In focus groups last year, when we showed people the thousands of pounds spent on their NHS treatment each year, it had a transformative effect. They reacted with surprise and amazement.

For progressives, this ‘knowledge gap’ is an urgent political problem. For surely a common understanding of how households benefit from spending on public services – and how they would be affected by cuts in spending – is central to any vision of collective welfare provision.

And an ignorance of this certainly jeopardises popular support for public services.

You can see it reflected in our depressingly shallow tax and spending debates in the UK. The Tories, the tabloids and the Taxpayers Alliance all talk about tax revenues as if they were taken and thrown into the sea. Anti-tax campaigners are able to tout tax cuts as if they have no consequences for public services (knowing those consequences won’t become apparent until further down the line). This is one reason why narratives about ‘waste’ are so important for right-wing critics of public services – helping to break the connection between taxes paid and services received, and making it harder for people to weigh up the overall effects of tax and spending cuts.

The importance of understanding the value of public spending to households is why the Fabian Society and Landman Economics are producing a model – to be launched later this summer, ahead of this Autumn's spending review – of how public spending falls across different households in the population.

By looking at surveys from the Office for National Statistics of who actually uses services and how much they use them, and by matching this up with government spending data, we can work out who benefits from public services, and how they would be hit by cuts.

Crucially, our model will also allow us to weigh up the real impact of tax changes. At the moment, when, say, income tax is cut, we hear a lot about who ‘gains’ from this, while conveniently ignoring the fact that cutting taxes means reducing public spending by the corresponding amount.

Our analysis will look at who really wins from tax cuts, by balancing any gains against the losses from the fall in public spending. The reality is that the numbers who gain from most tax cuts are far fewer and richer than current analyses suggest. A significant majority of the population are ‘net losers’ from many tax cuts when the corresponding reductions in public spending are taken into account.

Left now winning World Cup

All of the teams have now played twice, so here is a quick update on our political World Cup guide. The right edged the opening games, but the left is now in a stronger position.

We are now confident that the democratic left will win at least four of the eight groups - with Uruguay, Argentina, Paraguay, and Brazil (or Portugal) looking very likely group winners. Beyond that centre-left chances remain for USA or Slovenia, perhaps for Spain and (less plausibly) for Ghana/Serbia to give us a clear majority of group winners in the first round. Holland and Germany, along with chances for Switzerland and still perhaps England are the centre-right's likeliest group winners.

The global political story set out by the World Cup draw is of a fairly even balance between the right's dominance in Europe, contrasted to the democratic left's strength in Latin America and the Anglosphere outside the UK. So the South American flavour of the World Cup's opening stages have boosted the left's chances, with only Chile representing the democratic right from that continent.

So we believe the left should claim at least two semi-final spots. I am now predicting a Uruguay v Brazil semi-final; there could even be some chance of a clean sweep were Argentina and Spain to also make it to the last four, while the in-form outsiders from Paraguay could also see the draw open up for them.

The right needs Chile to knock out Spain on Friday, or Mexico to cause an upset. Otherwise it is looking to Holland and a return to form from the rest of old Europe - Germany, Italy and even England - to get back into World Cup contention.

We could never compete for World Cup pointy-headedness with 538.com who have a very helpful crib sheet of the knock-out stages.

Would it be "progressive" to cut income tax while hiking VAT?

VAT is a tax which hits the poorest hardest. As Tim Horton has noted:

The richest 10% pay one in every 25 pounds of their income in VAT; the poorest 10% pay one in every seven pounds as VAT

(Source: Office of National Statistics, References here).

Yet raising the income tax threshold does nothing for the poorest households.

As the Institute of Fiscal Studies pointed out in its manifesto analysis:

Those individuals with incomes too low to pay tax will not gain at all from this. In 2009-10, only 62% of the adult population had a high enough income to pay income tax ... in any given year around one in four families contains no income tax-payer. But these figures are a reminder that income tax cuts are not well targetted to help the poorest in society.

It is being reported that George Osborne plans in today's budget to begin to increase the income tax threshold, but will exclude higher rate tax-payers from gaining alongside basic rate taxpayers. But seeking to mitigate the impact in that way does not change the fact that the government appears to be able to find £3.7 billion to spend on tax cuts despite claiming we are on the "road to ruin", yet has structured the giveaway in a way which excludes most of the poorest quarter of households, , who pay a very high proportion of their income in indirect taxes.

So, in its election analysis, the non-partisan IFS was very puzzled as to why the LibDem party which talked so much about the proportion of income paid by the poor in tax would focus so heavily on income tax threshold changes, even claiming to have "taken the poorest out of tax" on this basis.


Those with the lowest incomes would not benefit from this reform. And families with two taxpayers will benefit more than families with one taxpayer, who tend to be worse off.

Thus, overall, better off families (although not the very richest) would tend to gain most in cash terms from this reform.

But clearly £705 would be less valuable to those on higher incomes than to those on lower incomes as a percentage of income: the largest gains are around the upper-middle of the income distribution rather than at the top.

In isolation, this giveaway could not be described as progressive, but to consider the distributional impact of the Liberal Democrats' package as a whole we must also consider who would lose from the tax rises they would introduce to pay for this tax cut ...

Broadly speaking, the Liberal Democrat package would redistribute from the well-off to middle-income families – augmenting the progressive pattern of Labour’s pre-announced measures but doing little for the poorest households. This latter feature might appear odd given the Liberal Democrats’ often-expressed anger at the relatively high rate of tax paid on the gross income of the poorest households."

The IFS analysis on who gains from raising income tax thresholds was very similar to the earlier critique published by Left Foot Forward and the Fabians.

Though this critique was vigorously contested by LibDems, nobody made any serious attempt to contest the evidence about where the gains of raising the tax threshold went.

Rather LibDems pointed to the progressive tax-raising policies, like the Mansion Tax, which were (then) going to pay for it, but which are mostly (now) no longer part of the picture.

Monday 21 June 2010

The case for Ralph's Milibandism

Is there room for a third Miliband in the Labour leadership contest? In this guest post for Next Left, Harry Barnes, Labour MP for North-East Derbyshire from 1987 to 2005, reports from a Dronfield Labour Party discussion on 'Who are the Milibands' which focused on the ideas of Ralph Miliband, Marxist theorist and father of two candidates in the 2010 contest.

Barnes also asks party members and affiliates to support a call on candidates to issue manifestoes of intent to help to open up debate about the party's values and direction.


Many people think that having two Milibands in the Labour leadership contest is at least one too many. I think that it is not enough.

It would be rather good to have the ideas of Ralph Miliband their late father, emerging at the hustings.

He was a leading Marxist intellectual who had a firm analysis of the class nature of society and argued for the need for serious moves to build socialism. Increasingly he came to stress that the means to socialism needed to be fully democratic - as did its eventual operations. He saw the need for democracy to seep into the very bones of society and not just to be confined to the parliamentary game.

His views were encapsulated in his final book “Socialism for a Sceptical Age” (Polity Press, 1994) when he wrote “(t)here are in effect three core propositions or themes which define socialism, all three equally important, and each related to, and dependent upon, the others. These are democracy, egalitarianism, and socialization of a predominant part of the economy.”

Admittedly as early as the mid 1950’s Ralph had became disillusioned with the Labour Party. In his first book “Parliamentary Socialism” (Merlin Press, 1961) he opened by claiming that “(o)f political parties claiming socialism to be their aim, the Labour Party has always been the most dogmatic - not about socialism, but about the parliamentary system. Empirical and flexible about all else, its leaders have always made devotion to that system their fixed point of reference and the conditioning factor of their political behaviour”. None of this was good enough for Ralph and I doubt whether he would have shifted his ground if he had known that half a century later one of his sons might be one of those leaders.

Yet Ralph’s rejection of the Labour Party did not mean that he turned instead to the Communist Party or to Trotskyist Groups. His approach was to seek build an alternative to Labourism in the shape of a genuine Democratic Socialist Party, based on the principles of the society it attempted to prefigure. He pursued this line even when he was limited to mainly keeping the intellectual vision alive with like-minded people via his talks, discussions, writings and his politicking. This was reflected in the work he did with John Saville in setting up, jointly editing and contributing to the annual publication “Socialist Register”.

Ralph did, however, still canvas for left-wing Labour candidates and developed links with Bennites. He took his two sons with him on many such activities. In fact David and Ed were so steeped in his political life-style that when he wrote a long political letter to the young Ed he added “(i)f anyone else read this and did not know the way we talk, or you talk, they would think I was crazy to be writing this to a twelve year old boy; but I know better, and find it very nice”.

Given the active interests of both Ralph and his wife Marion Kozak, politics was natural to David and Ed wherever it would lead them. When they were children, Ralph dedicated his book “Marxism and Politics” (Oxford University Press, 1977) to them. By the time they were 20 and 24, the acknowledgement in his “Divided Societies” (Oxford University Press, 1989) recognised their contributions through his “many discussions” with them. When they reached 25 and 29, their contributions had seemingly turned to criticisms. For in “Socialism for a Sceptical Age” published in 1994, Ralph stated that it gave him “great pleasure to acknowledge the very helpful (and stringent) criticisms I have received from David and Edward Miliband. The book owes much to the advice I have received, even if I have not always followed it”.


But how can we now get Ralph’s democratic socialist values into the leadership debates, when the sons have clearly moved outside of his frame of reference?

Some of us have already had a dry run at doing this. On a Sunday evening kicking off at 8pm, thirty turned up for a Dronfield Labour Party Discussion Group meeting to consider “Who are the Milibands?” The meeting mainly dealt with Ralph’s ideas.

Our speaker was John Halstead who many years ago had been supervised by Ralph when studying at the London School of Economics and whose contribution I have raided for what I wrote above. No formal decisions arose from our meeting, which has been described as one in our series of “blathers”. But some important ideas were floated.

In response to the debate John himself suggested that clear “Manifestos of Intent” needed to be published by all candidates for the leadership to assist a serious debate within the wider Labour Movement. Ideas were also aired on how to seek to attach the Manifestos to those socialist principles which still survive within the Constitution of the Labour Party.

As with all good debates, the thinking and talk does not end when the Chair had to end the meeting - especially when we moved to the lounge bar afterwards. So Ken Curran, a regular at our meetings, went on to produce the initial draft of the following statement which is now drawing in rank-and-file support and has been submitted to the five leadership candidates. David Miliband’s copy was handed to him at his Sheffield meeting on Friday.

We are looking for a debate within the movement about Labour’s values and direction of the kind which Ralph Miliband would have wanted. He certainly would not himself have missed such an opportunity to further his cause.


To the Candidates in the Labour Leadership Election

The supporters of this letter are members of either the Labour Party and/or members of organisations affiliated to the Labour Party who pay their political levy or its equivalent.

Immediately after the election we felt that Labour needed a period of reflection and serious internal debate to assess the reasons for our defeat and to think through the direction we needed to move into.

Instead we have been confronted with an imperfect leadership contest in which the Party’s wider membership and its affiliated bodies have been excluded from the nominating procedure. This has restricted both the range of the political viewpoints and the background links of the candidates who have emerged.

What we feel now needs to be done is to seek to use the current imperfect leadership contest as a means by which we can acquire something like the form of assessment and internal debate which we feel is necessary.

This means that there is a need to divert the current contest away from being just another ’X factor’ game show, towards being a serious debate related to the principles contained in the Labour Party Constitution which state - “The Labour Party is a democratic socialist party. It believes that by the strength of our common endeavour we achieve more than we achieve alone, so as to create for each of us the means to realise our true potential and for all of us a community in which power, wealth and opportunity are in the hands of the many not the few, where the rights we enjoy reflect the duties we owe, and where we live together, freely, in a spirit of solidarity, tolerance and respect”.

To help achieve the depth and nature of the debate that we are seeking, we call upon each of the candidates to publish a Manifesto of Intent to make clear to everyone the direction in which they would seek to lead the Labour Party, based on their assessment of the reasons behind the electoral defeat and their interpretation of the direction where the principles quoted above should now lead us.

We ask that these Manifestos of Intent should be distributed widely in order to generate extensive discussion across the Party and beyond, so that this will assist those voting in the leadership contest to reach balanced and principled understandings.

* Party members and those in affiliated organisations are invited to add their support to this letter to candidates, by adding their names via the comment box on the Dronfield Labour blogpost.

* Guest post by Harry Barnes, who blogs at Three score years and ten. The Dronfield Blather blog reports on Dronfield Labour Party's discussion group.

Why we're (secretly) supporting Slovenia

Regular readers might think that even the Next Left blog may have risked being distracted by the World Cup. This guest post from Elizabeth FitzGerald and Sophie Bisson, who have nothing against the beautiful game, argues that putting England out of their World Cup misery on Wednesday would at least get football off the front pages and the budget's spending cuts on them.


Don't get us wrong we are football mad; our credentials include a season ticket at Manchester City (the only 'blues' we can support!) a cassette version of 'World in Motion', and working at Bury FC whilst at college serving pies and bovril to grumpy old men. However, England really needed to win last Friday night, so we would now be looking at comfortably progressing to the next stage.

On Tuesday George Osbourne will present the Emergency Budget to Parliament. The two sets of cuts announced so far have included measures to end the Child Trust Fund, cut employment support and university places, and the cessation of a series of projects that were designed to improve public services or support the private sector. Current rumours include a rise in VAT and the end of the universal nature of some benefits; the latter another step towards class tension and a further erosion of support for the welfare state.

It is hard enough that all of this is happening with the usual summer distractions but for a public suffering political fatigue following an extended election the World Cup could prove a convenient distraction for the Coalition. The electorate did not vote for the Conservative agenda and are now expecting the Coalition to act in the national interest they promised. However, if we are not careful the country could awake from a World Cup summer to an unexpected hangover in the autumn. Children could return to schools without classroom support or school meals. Young adults visiting the jobcentre for the first time will not find the promised helping hand for those who needed it the most. The list will go on.

Unfortunately the people who are likely to be impacted most are unlikely to be glued to the left wing blogoshere or the comment sections of The Guardian following the budget so the rest of the media need to play their part.

In an article in The Guardian by Helen Pidd this weekend an unemployed father was interviewed who did not know the free swimming benefit for children was going to be withdrawn. Even in The Guardian, this was buried in the paper after the football. Whilst left-wing concerns have been marginalised by the media over the last year it is at least the media's job to report the news; left wing is not 'left field'!

Unfortunately with a BBC being 'man marked' by a government that wants to clip its wings and the Murdoch empire 'onside' for the same reasons, there is a strong chance that neither will be critical. And Wednesday's match may quickly overshadow the post-budget discussion of the budget on Tuesday night and Wednesday morning.

The World Cup is a brilliant spectacle that enriches our lives; it is a truly global event that removes us from our day-to-day concerns and replaces them with a thrilling drama that Hollywood would love to bottle.

However, we should lose sleep over the impending threat to our economy and our public services and not the football: criticising the millionaires making the cuts not the millionaires on the pitch.

If we are disappointed and proved right on Wednesday we won't apologise for secretly hoping England lose and the country quickly returns to reality. Bill Shankly said football was more than a matter of life and death; we would argue that our public services and fairness across society are more important than that.

Against the cuts: let a thousand stories bloom...

Across the left the question coming into focus is: How do we campaign against the cuts?

Labour is not in a good place to lead a campaign, if only because until a couple of months ago the Labour government itself was pledging substantial cuts.

The unions will obviously have a central role in any campaign against the cuts. But there is a strong narrative circulating out there in British society which sees unions as conservative, obstructive and reactionary entities. A campaign that relies too much on the unions, and on stressing the interests of public sector workers, will be very vulnerable to this narrative.

As some commentators at Liberal Conspiracy have pointed out (see comments by Richard Blogger and Cath Elliott responding to a constructive post by Sunny Hundal), it is vitally important that instead of just focusing on the interests of public sector workers, the campaign against cuts focus on the interests of public service users.

At present, politicians - of all parties - find it unthinkable to handle the deficit primarily through tax increases. But draconian cuts to public spending, putting many vulnerable groups at risk, are, apparently, eminently thinkable.

But this is at least in part because 'the cuts' are abstract. People hear of huge sums being lopped off budgets. They might hear that something called the 'Future Jobs Fund' or some quango called BECTA has been cut. But none of this necessarily means very much unless you are directly affected.

The challenge, then, is to make the abstract more concrete, to render the impact of the cuts on the wider citizenry vivid.

As some readers will know, I have a son with a serious medical condition (Duchenne muscular dystrophy). My wife, Kathy, placed an article last week in our local paper, The Oxford Mail, which explained what the condition is and how important it is that the government continue to support research and work to equalize standards of care for children with Duchenne across the country. Since then we've had numerous people - neighbours, parents of our son's school friends - come up to us and say how much they appreciated the article and to ask how, in a modest way, they can help.

These people might be for or against 'cuts' but they are pretty sure they do want to maintain services for children with Duchenne muscular dystrophy. The concrete need, rendered vivid, is something that resonates.

So perhaps there is a lesson here for the campaign against the cuts: the power of testimony.

The campaign against the cuts should be led by users of public services. And we public service users should use testimony and story to get our message across.

So, for example, what about setting up a website at which people can post their stories? Perhaps people could post short films - 2, 3, or 5 minutes - in which they explain how the cuts affect them. This website could become a testimony bank, a resource for campaigners, something to direct journalists to if they are looking for a story or for that awkward question to ask a Coalition politician. (I don't currently have the technical expertise to do this by myself, but I'm happy to discuss the idea with anyone who has and wants to help - or for anyone out there to just go and do it!)

Testimony matters both because it can be an effective way of engaging people who aren't directly affected by a cut, but also because in itself it is a kind of empowerment. Testimony is a way of making onself visible, of refusing to be the silent, invisible victim. It is an assertion of dignity.

There are many ways to fight the cuts. But high up among them is: let a thousand stories bloom....