A Letter to the Guardian - Part 94

A proper blog with my thoughts on Conservative Party Conference to follow shortly, but first more amusement in this week's Epsom Guardian, where my letter of last week seems to have struck a nerve with Dr. Ted Bailey of Larkspur Way:

I bashed out a vague reply on the train this morning. It will obviously be cut down extensively should I choose to actually send it in, but I thought I would post it here for posterity.

It would take too long to ‘fisk’ Dr. Bailey’s letter (‘Speed and depth of public cuts doom us’) in its entirety, but I do offer these brief points by way of reply.

I do not view my projections for the private sector as unduly optimistic. The private sector created more than 300,000 jobs over the Summer months. The lowering of business rates and cancellation of NI for the first ten employees of any new company point to this pattern continuing.

Dr. Bailey is also wrong to suggest that the UK has seen ‘already savage cuts’ since the election. I know of no Governmental cuts to Sure Start since May. As to the cancellation of the BSF, if he wishes to defend such a bureaucratic monstrosity good luck to him. He will have to explain the merits of a school building scheme where it can often take three years to negotiate the planning process before the first brick is laid on the building itself; a scheme that saw costs rocket from £45 to 55bn due to consultant spend and red tape; and a scheme that was already three years behind schedule in 2009.

The countries he mentions in his letter as currently heading toward ‘double-dip’ recessions make my point for me, in that they are examples of what can go wrong if high spending is not restrained over a prolonged period of time. Interestingly, I was going to use Ireland as an example of a country which successfully managed to heavily reduce its spending whilst increasing economic growth, in the 1980s, but was unable to do so for reasons of space. I welcome the chance to do so now!

A final note. Alistair Darling did not propose a slower cuts programme, merely a smaller reduction over the same time-scale; 40% structural deficit reduction in 4yrs, rather than total reduction as the current Government is planning for. However, with current interest rates on our debt coming in at over £100m per day, I believe cutting our debt completely in this time-frame is no longer an aspiration of an Opposition – it is a necessity of Government.

James Tarbit

Deputy Chair, Political

Epsom and Ewell Conservative Future

P.s. For the record, Conservative Future is the section of the Conservative Party for under-30 year olds. With a membership of approximately 20,000, it is the largest youth political organisation in the UK.

Council Houses - It's good to talk...

Seems I picked a good time to upgrade my Twitter to Journotwit! Being able to organize searches more effectively by subject has allowed me to enjoy a veritable torrent of ‘nasty’, ‘Thatcherite’, and ‘back to the 80s’ tweets today. It seems that David Cameron’s comments on council housing at a Cameron Direct meeting yesterday have whipped up a particularly virulent storm with the left-wing Tweeters. Reading some of the comments, you’d be mistaken for thinking that the Cabinet are spending their recess running up and down the country, busting in the doors and kicking out the disadvantaged. Oh please…

I fully understand that the concept of a ‘home’ can be a very emotive one, and Government comment on it raises the same hackles as, say, over the BBC or NHS. However, when we find ourselves in a situation where there is not enough affordable housing in this country, but where the economy does not allow us to build more, surely it is a bit much to greet the mention of a potential policy with quite such a howl of horror?

The idea that someone can be granted a Council house ‘for life’ is problematic. Surely it is better to take a look at how an individual’s personal circumstances change over time, and then assess whether they still require the same level of assistance? This is, after all, what happens in terms of employment, incapacity and other housing benefits. Why should council housing be treated any differently?

The Guardian has a story which takes Cameron’s comments in the context of plans for a national house-swap scheme outlined by Housing Minister Grant Shapps today. There are currently 250,000 people in this country living in houses that are too small for their families, and 400,000 living in houses that are too big. This is not good enough, and the Government is failing the quarter of a million people who do not have sufficient room to live.

According to Paul Waugh, sources say that Cameron’s answer was merely an answer to an ‘emotive’ question at the Cameron Direct event; a comment on the benefits of such an idea rather than ‘a set-in-stone policy’. Personally, I hope that this mean that we can finally have a reasoned debate about the state of Council housing in this country and, even better, find a sensible way to move forward with managing it better.

Balls to Keynes

One of the fascinating elements of the current Labour Leadership campaign has been watching the various candidates make their pitches for what the Coalition Government is doing wrong, and what they would do differently. Much has been made of the spending cuts that Cameron, Clegg et al. have instigated this year, and the risks it could cause in terms of a double-dip recession. None of the candidates, however, have gone quite as far as Ed Balls. In an article for the Guardian today, Balls continued to press forward with the notion that 'any' cuts are wrong. According to Ed, even Labour's plans to halve the deficit in 4 years were foolish.

Balls' article is founded solidly in the Keynesian economic mould with its (effective) critique of past recessionary spending constraints in the 1930s and 1980s. I would argue, though, that the whole-sale deployment of a Keynesian model which he seems to call for in his the final paragraphs of his article brings a risk equally as significant as the return to recession he sees as the danger with the Coalition's plans.

For a start, it is unclear as to whether Keynes ever envisaged his concepts being applied to public finances in quite such a parlous state as the UK currently faces. Pulling interest rates down and increasing government investment on infrastructure might bring about eventual economic recovery through Keynes' multiplier effect, but at what short and mid-term cost in the current climate? Previous fiscal stimuli deployed by the Brown Government created an anaemic recovery at best and the danger with advocating further spending, or markedly restrained cuts, is that the interest rates on leveraging current debt become unmanageable. It is all very well for Ed Balls to dismiss the UK falling prey to the same issues which affected Greece, but how can he know for sure? How can anyone in fact?

Indeed, the Keynesian spending multiplier only works when the additional liquidity placed in the market is spent on consumption goods. i.e. When individuals spend the money they have saved/gained, this drives demand and increases employment. Perhaps one of the reasons the recovery engendered by the recent fiscal stimulus was so weak is that in the current climate this simply isn’t something close to tax-payers’ hearts in the UK, particularly when the current financial crisis came out of individual debt caused by people living beyond their means. As President Bartlett had it in the West Wing, upon hearing that his own aide had spent an advance tax rebate on paying down debt:

"Would a trip to Banana Republic have killed you?"

It is also interesting to note that Labour's use of the Keynesian model has been imbalanced. Increased government investment in a down-turn is one half of the model. The other, however, is putting up taxes and cutting government outlay during a boom to suppress inflation. Tax rises there certainly were, but rather than constricting the rate of spending Gordon Brown as Chancellor seemed happy to continually increase it. Part of this can be explained by the political necessity of redressing years of Conservative prudence/underspend (call it what you will) on the NHS and Education, but it seems to have gone much further than that with the result that both the RPI and CPI rates of inflation have been on the up since 2001.

At the end of the day, it is clear that political ideology is at the heart of any economic argument, whether Keynesian or Classical/neo-classical. Labour prefer to advocate the Keynesian view of higher taxes during a boom and high government spending during a bust as it fits best with an economy largely controlled by the government itself. The Conservatives argue for a more Classical economic view, as this works best under the much smaller government they strive for. In his article, Balls side-steps the fact that Government spending is still set to rise during this Parliament. He merely points out that there are constraints being placed in areas that he finds unpalatable. Rooting his economic arguments in politics makes good sense where he has to differentiate himself from other senior Labour figures in the Leadership elections. It does, however, blunt the intellectual thrust of his argument and increases the likelihood that it can be dismissed as political points scoring.