Thursday, 24 June 2010

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.


Mark Pack said...

Nicely written piece :-)

In amongst all this, isn't there a serious point about how judging the Budget on what it will do between now and the next Budget is fair, but if you then extrapolate beyond the next Budget into future years you do, at the very least, need a big caveat about that?

It seems reasonable to me to say, "before you judge us on 2011-12 wait to see what the next Budget brings".

And as you say at the end, politically the big issue here is how the coalition government is hanging so much politically on what happens on inequality. That's a very welcome shift in the terms of political debate. Indeed, it's another example of the rather topsy turvy nature of politics that it's a non-Labour government which is staking so much political capital on what it ends up achieving on inequality.

Sunder Katwala said...


Thanks for your generous response.

Yes, judge us over the Parliament is fair, though doesn't entail rejecting analysis of the story so far, even at this early stage. (I do think the government's advisers on all sides are a little surprised that their analysis fell apart so quickly, which may be an experience point). My reading is that policy choices were constrained by what was thought the (minimal) meeting of a 'progressive' outcome on the graphs,rather than driven by that, and that is why they ended overall trumped by other drivers from the Tories, on the speed and scale of deficit reduction/elimination.

I fear the ideological right is successfully framing important arguments on an account of what is "unavoidable" in terms of the speed of removing the entire structural deficit, and the balance of spending cuts to taxes. And once those arguments are gone, the fairness test looks really difficult.

But I still think the ideological left has won an important battle in that the fairness test and the distributional analysis become very important. So I hope LibDems will now push the importance of meeting the rhetoric in policy and outcomes: I think what the Social Liberal Forum has been doing around the budget is good, because it is trying to analyse issues, not just cheerlead for one team.

As for the Coalition staking so much on this, yes, up to a point, and I welcome that.
(I was generous about Osborne's use of equality rhetoric in the Chancellor's debate because it has this impact).

But my view is that only happened because of Labour's agenda - for example, the child poverty target, the use of tax credits, and then also the return of equality/inequality language after something of a nadir around 2001. This affected the form that Cameron's modernisation took, and the challenge was always whether it could be done by language and positioning alone, or meant meeting harder-edged tests if in power.

The fact that both the Tories and LibDems set "not meeting your equality objectives" as a key critique of us was significant, both for those of us arguing from within on these issues, and setting the terms of trade for scrutiny of this government.

Stuart White said...

Mark Pack's response rather overlooks the fact that Osborne's claim, which Clegg tried to endorse, was that this budget is progressive.

Not this budget plus a bunch of other yet-to-be-seen, hypothetical budgets: this budget.

Stuart White said...
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