Sunday, September 20, 2009

Vince right and wrong

The big issue facing the party is how we deal with the crisis in the public sector finances and balance the undoubted need to cut the structural deficit with our commitment to a fairer and greener society.

Vince Cable MP last week published a pamphlet setting out his thinking on the issue.

As one would expect Dr Cable takes the issue seriously and argues that we should too. He believes that we may need to reduce Government spend by as much as 8% of GDP over five years and that we need to set out very specific plans about how we will do this.

This would inevitably mean massive cuts in Government spending which would have a major impact on the country.

He rightly argues that Labour's plans undersetimate the scale of the problem, that they rely too much on reducing capital spending rather than current spending, and that they are over optimistic about likely growth levels.

So far, so good.

He then moves on to argue
The emphasis for fiscal consolidation must fall on controlling public spending, not higher taxes: to commit to additional tax revenue raising from the outset undermines any commitment to setting priorities in spending.

This doesn't make sense to me. Reducing the deficit can be done by reducing spending, increasing taxes, or a combination of the two.

In no way does a decision that some taxes might have to be raised 'undermine' equally clear decisions to cut areas of spending.

Dr Cable then goes on to argue that 'salami-slicing' public spending will not work, and that we have to go back to square one and examine all publci spending.

In this I also agree with him. The only way we will find the savings we need to balance the budget is by going through the entirity of Government spend and check that it is well-directed expenditure. Effectively we need to be absolutely clear about what our priorities are and be willing to stop spending money on things that are low priority or ineffective.

Most of his suggestions in this regard (and they are only suggestions) make sense.

A lot of money can be saved by doing Government differently and by decentralising power. Money spent locally tends to provide better value, encourage innovation and garner higher public support. There is massive Government expenditure on advertising, agencies, quangos, unaccountable regional government etc. etc. We should take a slash and burn approach to the lot.

Similarly we know that much of the increased expenditure on several big services such as the NHS and education has not produced the improvements it should have. This surely means there will be savings to be found.

I am a little less happy at the lack of detail about some of the suggestions. I don't think it is helpful to suggest that there are major savings to be had from freezing the overall pay bill or in public sector pensions without a clear idea of how we acheive it without hitting the lower paid staff who our tax policies are, with the other hand, meant to help.

But at this stage I go back to the question of tax.

We have to look at savings, and prioritise what we think Government should do, but at some point some of the potential cuts may be worse than increasing some taxes. What we should do is balance the two. We should identify areas where some taxes could rise and compare the pros and cons with some of the cuts we might have to make.

Doing this does not in any way reduce the seriousness of our approach to pruning spending.

Areas we should look at include strengtheing green taxes, taxing very high incomes (a popular policy during the last two elections when the financial position was much sounder) taxing the bonuses that bankers continue to pay themselves despite everything etc.

We should also look at whether there are any specific taxes that might be used to fund some key spending commitments that might otherwise be dropped. (Graduate Tax anyone?).

In terms of how this plays with the public, well I think we will be given credit if we have a clear plan that adds up. I think the public knows that the Labour Government have got us into a VERY DEEP HOLE and will expect to see parties responding in a serious way that adds up.

However I do not think that there is any future for the Lib Dems if we present ourselves as being determined to slash public spending without even considering raising taxes to protect some services as part of the package.

Nick Clegg's rhetoric is rightly starting to mirror Obama in arguing that, despite the hole we are in, we can still be optimistic and still build a fairer, greener and freer society. This is key to our message. We have to have figures that stack up, but we have to do it for a purpose and we have to provide our potential supporters with hope for the future.

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