Ed Miliband’s tax break for living wage plan – an exercise in missing the point

Ed Miliband has proposed tax breaks to encourage employers to offer a living wage, according to reports in this morning’s Guardian.  Labour, it is argued, wants to reduce the benefits bill by encouraging employers to pay higher wages.  The shadow Treasury team is reported to be considering options.

The aims are laudible – better pay, a real multiplier effect (which somewhat contradicts Ed Balls’ austeritarian view of public finances, but we’ll leave that one aside for the moment), a boost to the economy and a smaller benefits bill.  Everyone would benefit – and there can be little doubt that lifting wage levels for the low-paid would both boost the economy and reduce the benefits bill.  We are clearly in virtuous circle territory, especially when one considers that real pay in the UK is falling – and falling faster than in any of the other top 10 world economies.

But the plan is deeply flawed – in ways that are revealing about Labour’s economic mindset. The obvious objection is that, as with any proposal that tops up low wages, it effectively subsidises employers for doing the right thing.  It’s a bit like reducing VED for drivers who obey the speed limit.  And it ignores the fact that even firms employing staff at less than the living wage will still employ staff who are paid more than it – who are indeed paid well.  How do you define both the level of, and the criteria for receipt of, the tax break, in such as way as to ensure that businesses do not receive subsidies for simply paying their staff what the market will take?  And as soon as you find yourself offering tax breaks to business that are significantly in competition with others elsewhere in the EU, how do you stop this from turning into an illegal State Aid?  And what of the cost of administering all of this, and assessing who is eligible for the tax break?

You do not have to dig too far below the surface to find that this proposal unworkable. The discipline of turning a bright idea into a workable legislative proposal is cruelly exposing (and I speak as someone who in my Civil Service days had plenty of experience of developing Finance Bill legislation).  Like so many ideas that form part of Labour’s “predistribution” package, the whole structure starts to fall apart once you start to ask the awkward questions that turning policy into workable practice must beg.

More significantly, it exposes a long-term issue for wages and working conditions.  The number of people working in the public sector has fallen substantially, not least through outsourcing, and is expected to continue to fall substantially.  The largest employer in the UK – the NHS – has just effectively been privatised, which will mean that the number will fall considerably further as many NHS functions are transferred to the private sector.  Previously, the public sector has been a benchmark for decent pay and conditions – including of course pensions.  Decent pay and conditions in the public sector has driven standards of pay in the private sector as employers compete for staff – which is of course one of the reasons why the right wants to reduce it in size, because its shrinkage is a factor driving falls in pay (along with an explicit policy of reducing public sector pay in real terms).  Moreover, a large public sector payroll has an inherently stabilising effect on economies.

But with an incoming Labour government committed to keeping the Coalition’s cuts and possibly making more of its own, that trend will continue; and in it adherence to austerity economics Labour is actually throwing away the best tool it has to bid up real wages; an expanding, dynamic and decently-paid public sector.

Obviously simply expanding the public sector won’t do the trick on its own.  It needs the courage to argue for decent public sector pay as a good thing, when public sector pay and pensions have always been an easy targets for Blairites as well as Condems.  And it does need supply-side adjustments – better education, better training, career development (all of which come at a price and might be a better target for tax breaks – it remains the case that a firm pays VAT when it sends an employee on a training course but a public school education is VAT-free and heavily subsidised) and a mentality that sees labour flexibility as a managed process of improvement rather than a driver of low pay.

The trouble for Ed Miliband is that dealing low pay in a coherent and intelligent way means dragging Labour off the neoliberal yellow brick road. And that appears as far away as ever.

Labour and the Ashcroft poll: winning the war as well as the battle

There has been a certain amount of excitement over a poll of marginal constituencies by Tory donor Lord Ashcroft, suggesting that Labour is on course for a thumping win at the 2015 General Election.  While it is no doubt encouraging for Labour and indeed for anyone who wants to see the end of the Coalition, it should be treated with much caution, and in some respects begs far more questions than it answers.

The first point, of course, is that this is a mid-term poll and should be treated as such.  Of course it focusses on marginal seats, which makes it more significant than polls that simply record voting intentions across the country as a whole; but with an election two years away, with the economy failing and with the omnishambles of the bedroom tax (a policy decision whose callousness shows every sign of  becoming an iconic symbol of Coalition inhumanity, not least because not even the DWP has been able to come up with a reasoned defence of it), it would be surprising if Labour were not ahead.

Hanging on to power is, after all, what the British (English?) Conservative Party does.  Following the scare at Eastleigh, and with the UKIP bubble clearly keeping Tory strategists awake at night, the Tories are already positioning themselves on the populist right on issues like immigration and human rights.  Expect more of this; the next election will be dirty, with a Lynton Crosby-inspired campaign designed to divert the undertow of anger in society against immigrants, Europe and above all into demonising the poor and vulnerable at home, with the populist Right claiming that failure in Government arising from being held back by the Liberal Democrats from doing what they want to do.  That’s one of the points about coalition – it allows populist politicians to by-pass the reality checks of reason and empirical evidence, by blaming failure on their partners.

But there is a deeper, more powerful problem.  It’s desperately important to distinguish between the battle and the war.  The 2015 election is the battle; the politics and economics of neoliberalism are the war.  By the time the 2015 election comes along, the neoliberals will have made enormous progress in the war.  Much of the NHS and nearly all schools, not to mention the provision of many policing services, will be in private hands.  The state will have been shrunk, real incomes of those who live by selling their labour rather than accumulating rent on assets will have fallen, and the balance of wealth and power will have shifted significantly.  And, above all, a mindset that economics – or to be more precise economic ideology – trumps democracy will have taken hold more powerfully; it is important to reflect that so much of Osborne’s Plan A is about taking economic policy out of the political sphere altogether, to a place where the language and practice of democratic accountability are no longer relevant.

And the big question remains – if the Tories lose the 2015 election, have they lost a battle or a war?  That depends on the will of a newly-elected Labour government to reverse the coalition’s changers.  It is heartening to hear Labour’s Andy Burnham commit Labour to reversing the NHS legislation on day one; less heartening to consider that on current plans – notwithstanding the reversal of Section 75 regulations – much of the former NHS will already be in the private sector by then.  And there is little comfort in Ed Balls’ commitment to keep Tory cuts, or in Liam Byrne’s “reinvention” of Beveridge which appears to combine an attack on universality with the appropriation of the language of Ian Duncan Smith.  Faced with the post-Eastleigh Tory rhetoric about immigration, Labour’s response was … triangulation, accepting the false premises of Tory rhetoric rather than challenging them..  And I have blogged before about how Labour’s One Nation language appears to skirt round the economic issues that define the battleground against neoliberalism.

So it is not an encouraging picture. I sense that there is fertile ground for a reasoned, passionate, cogent crusade against the neoliberal value system – but that Labour are not remotely close (yet) to that ground, and still use language and  symbolism that ties them into that value system rather than establishing them in opposition to that.  On the weekend after the 1997 election, when I was still in the Labour Party, I attended a post-election gathering at which I remember a strange atmosphere; excitement at the huge victory tempered by a sort of post-hoc rationalisation of how, despite the Blairite rhetoric, Labour would really change things – it came back constantly to the fact that “our people” were now in Government.  It was, with retrospect, a discussion rooted in avoidance, with, two days after an electoral landslide, an air of fear and mistrust; six years later, many of those same decent people were marching through London against war in Iraq.  Real progress means delivering something that brings conviction, not post-hoc rationalisation.

Now, outside the Labour Party, for me the issue is so often how badly the Left in Britain needs Labour to be better; to grasp the moment. In many respects the neoliberal project is on its knees, with the consequences of economic failure being visited on those least able to bear them; but that reality simply isn’t reflected in mainstream political discourse.  The war is still being lost; and Labour remains a party in which many of its activists know and understand at first hand those realities, but whose leadership still appears lost in avoidance.  Until Labour – and the left generally – learns to reconnect, the tide is not going to turn.

Downgrading the UK’s credit rating: it’s about politics, not economics

The announcement that credit ratings agency Moody’s has downgraded the UK’s credit rating from AAA to AA1 has caused something of a political storm.  George Osborne has repeatedly described the UK’s AAA credit rating as totemic, a touchstone by which his performance as Chancellor should be measured.  It is difficult to avoid seeing it as the Gold Standard of our time; its loss is a major embarrassment for the Coalition, and some voices are arguing that for Osborne as Chancellor, it should be terminal. Even his traditional media supporters are after his blood.

Its economic significance is less clear.  Evidence that Coalition economic policy is failing on its own terms has not exactly been hard to find – an economy that remains in recession (the so-called triple dip really being a function of the fact that the once-in-a-lifetime Olympics gave a mild boost) and rising borrowing from a Government that rationalises taking vast quantities of demand out of the economy in the name of debt reduction.  At one level the downgrade is simply a statement of the bleeding obvious.

Moreover, one definition of a credit ratings agency might be an organisation that gave Lehmann Brothers an AAA rating on the eve of its collapse: I’ve blogged elsewhere about the catastrophic failures of ratings agencies.  In terms of the real economy, this downgrade seems  likely to make little difference – it was not exactly a surprise and markets are likely to have priced it in already.

Politically it is important because it exposes the real austerity agenda – which is ideological rather than economic.  It is about the transfer of wealth away from wage-earners to holders of assets – a process that has been under way for many years but, in the UK, is accelerating dramatically as real wages fall; about shrinking the state and reducing the “burden” of welfare.  Osborne has already claimed that this downgrade shows that the Government needs to continue on the same course; one conclusion from the downgrade – no doubt shared by many in the City and the Conservative Party and in economic think-tanks – is that the UK needs to cut harder and faster. The impact of this downgrade really lies not in the economics but in the political reaction; Osborne’s is to brush off his humiliation and to continue the project.

And where does this leave Ed Balls?  Labour remains deeply conflicted – on the one hand bemoaning the economic effects of austerity, but on the other wedded firmly to an austerity agenda, with Balls vowing to keep the Coalition cuts and – potentially – to add more of his own.  As I’ve argued before, Labour’s One Nation trope is strenuously avoiding engaging with economic issues at all.  Rationally, the Moody’s downgrade makes Labour’s precarious seat on the economic policy fence appear even less tenable.  The commentariat might want to reflect that the political fallout from this downgrade damages Balls as much as it does Osborne.

In other words, this is about politics.  It’s one more piece of evidence  - and in the context not a particularly significant one – that austerity is failing on its own terms; but the political agenda remains unchanged.

How to fight neoliberals: The New Zealand experiment revisited

The people behind the Think Left blog yesterday circulated a piece from the Independent about the way in which New Zealand has reacted to the imposition of an austerity agenda.  It’s an old piece, but the landscape is strikingly familiar – food banks, homelessness, benefit cuts, soaring crime.  The piece points out how New Zealand’s progressive traditions have been traduced.  The first country to give women the vote, the first country to introduce universal benefits, once held up by Aneurin Bevan as a model for the future.  Up until recently, if you wanted to sum up the New Zealand ethos in one phrase, it was the “Fair Go” – the belief that everyone had the right to share in the good things in society and make the best for themselves and their families.  Now, if you hear it at all, it’s likely to be a shallow justification for deregulating business.

The piece had me reaching for Jane Kelsey’s magnificent book on the neoliberal takeover of New Zealand, The New Zealand Experiment.  Not an easy book to find in the UK, I bought my copy in New Zealand back in the 1990s; it remains a vital and urgent book, because its themes resonate so powerfully with our experience of austerity in post-2010 Britain.

Two of Kelsey’s themes strike home particularly hard.  First, the use of crisis to undermine democracy.  Kelsey points out that neoliberalism does not win elections; crisis must be used to create the illusion of necessity and to invalidate alternatives.  She describes the proponents of neoliberalism as “technopols”, an uncanny prescience of the imposition of “technocratic” Governments in Greece and Italy to drive neoliberal reforms.  The spectacle of European governments lining up to join a neoliberal treaty that would effectively outlaw expansionary economic policy, the creation of secret trade agreements in which corporate tribunals will be empowered to overrule democratic governments, or the construction of the lie that austerity economics is the necessary antidote to profligate public spending; Kelsey foresaw all these.

Second, Kelsey points to the complicity of avowedly left-of-centre parties in bringing about the neoliberal coup.  Economic reform was instituted by a Labour government in New Zealand, and was generally known as “Rogernomics” after the then Labour finance minister, Roger Douglas.  Once again it’s a powerful reminder that, years later, British austerity economics was imposed because an apparently left-of-centre party was prepared to put into office a Conservative Party that had just failed to win an election (the Liberal Democrats being, of course, an example of a party that, having been captured for Neoliberalism by its Orange Book faction, sought to present a soft centrist image to the electorate).  But it’s also important to remember that many of the salient features of British austerity had their roots in Labour’s years in office.  NHS outsourcing, the introduction of private capital into education, workfare, university tuition fees, cutting benefits, asset sales; all of these are core Labour policies that the Coalition has simply taken to their logical conclusion.  Labour is committed to keeping the Coalition’s public spending cuts and considering more of its own; it offers no alternative to the austerity agenda.  It differs from the Coalition in degree and presentation rather than substance; Westminster remains a place of neoliberal consensus.

These are not of themselves startling insights in 2013 (although the prescience of a book written in 1994 is startling). What makes Kelsey’s book really compelling twenty years on is a four-page appendix entitled A Manual for Counter-Technopols.  It sets out a checklist of strategies for resistance: it seems to me to be just as important and apposite now as when it was written.

It’s obviously written from a New Zealand perspective, and recognises that in New Zealand in the 1990s, as in Britain and Europe in the 2010s, much of the pass had already been sold.  But the important thing is the conceptual framework, and the pointers it gives towards developing an effective critique of neoliberalism – especially when faced with parties of the centre-left that have thrown in the towel, but also perhaps to more radical groupings who find themselves going native once they’ve arrived in political office.

A quick Google search suggests that although excerpts have been reproduced on line, nobody has done so in its entirety.  So here it is: it’s a formidable piece of work.

Appendix: A Manual for Counter-technopols

If the architects of structural adjustment are pooling their experiences in a manual for technopols to help them impose their agenda on the rest of the world, those who want to stop them should do the same. A preliminary checklist of potential pitfalls and strategies for resistance, drawn from New Zealand’s experience, might include the following:

- Take economic fundamentalism seriously – what initially appears like extremism, if not effectively challenged and discredited, may in a short time be considered orthodox.

- Nip it in the bud – early changes can be the most fundamental and deliberately difficult to undo; once the structural adjustment agenda is under way, its internal logic has a domino effect on all policies and programmes.

- Be sceptical about ‘crises’ – anticipate a ‘crisis’ in the making, and move quickly to examine the real nature of the problem, who defines it as a crisis, and who stands to gain. Demand to know the range of possible solutions, and the costs and benefits of each to whom. If the answers are not forthcoming, burn the midnight oil to produce the answers for yourselves.

- Watch for the blitzkrieg  - constantly monitor, document and expose what is going on behind the scenes. Act on instinct and anticipate the logical next step. Waitng until all the facts can be documented will probably be too late.

- Remember the Tories are not always the worst – social democratic parties  and governments can neutralise potential opponents and initiate vital changes which provide the thin end of the wedge. Fighting to prevent  a party’s capture by zealots is important. But once the party has been taken over, maintaining solidarity on the outside while seeking change from within merely gives them more time. When the spirit of the party is dead, shed the old skin and create something new

- Take economics seriously – economic fundamentalism pervades everything.  There is no boundary between economic, indigenous, social, foreign, environmental or other policies. Those who focus on narrow sectoral concern and ignore the pervasive economic agenda will lose their own battles and weaken the collective ability to resist. Leaving economics to economists is fatal.

- Expose the illogic of their theory - neo-liberal theories are riddled with bogus assumptions and internal inconsistencies, and often lack empirical support. Agency and public choice theories in particular need to exposed as self-serving rationalisations which operate in the interests of elites whom the policies empower.

- Evaluate the argument carefully – acknowledge the valid aspects of arguments for change and meet them with alternatives which address the substance of the concern.

- Challenge hypocrisy – ask who is promoting a strategy as being in the ‘national interest’, and who stands to benefit most. Document cases where self-interest is disguised as public good.

- Expose ‘stacking of the deck’ – name the key players behind the scenes, document their interlocking roles and allegiances, and expose the personal and corporate benefits they receive.

- Maximise every political obstacle – federal systems of government, written constitutions, bicameral parliaments, complex voting systems, supra-national institutions and strong local governments provide barriers which can neutralise the blitzkrieg approach and slow the pace of, if not prevent, undesirable change.

- Maintain a strong civil society and popular sector – extra-parliamentary politics are essential to complement resistance through traditional party channels, and may become the front line once institutional politics fall captive.

- Work hard to maintain solidarity – avoid the trap of divide and rule; sectoral in-fighting is self-indulgent and everyone risks losing in the end.

- Do not compromise the labour movement – build awareness of the structural adjustment agenda at union branch and workplace level, so union members can demand accountability from their leadership. Openly debate the pros and cons of political party ties, and the costs and benefits of compromise. Concessions intended to forestall more radical change tend to deepen co-option and weaken the ability to resist the next step. Publicly challenge the failure of union bureaucrats to defend the interests of workers and the unemployed. If the leadership doesn’t listen, disobey.

- Employ the politics of international embarrassment – if the forums of institutional politics have been taken and local resistance neutralised, marginalised or suppressed, the most potent political arena may be the inremational stage. Neo-liberal governments and free market economies depend on foreign investment and international approval. Image is everything. The international sphere is one arena they cannot effectively control.

- Reinforce the concept of an independent public service – undercut attempts to discredit, sideline and colonise the public service by acknowledging deficiencies and promoting pro-active models for change. Create a constituency of support among client groups and the public which stresses the need for independence and professionalism, the obligations of public service, and the risks of the managerial approach

- Encourage community leaders to speak out - public criticism from civic and church leaders, folk heroes and other prominent ‘names’ makes governments uncomfortable and people think. The fewer public critics there are, the easier they are to discredit, harass and intimidate. Remind community leaders of their social Obligations, and the need to look themselves in the mirror in the morning.

- Avoid anti-intellectualism – a pool of critical academics and other intellectuals who can document and expose the fallacies and failures of a structural adjustment programme, and develop viable alternatives in partnership with community and sectoral groups, is absolutely vital. They need to be supported when they come under attack, and challenged when they fail to speak out or are co-opted or seduced.

- Establish well-resourced critical think-tanks – neo-liberal and libertarian think-tanks have shown the importance of Well-resourced and internationally connected institutes which can develop an integrated analysis and foster climates favourable to change. Unco-ordinated research by isolated critics can never compete.

- Develop alternative media outlets – once mainstream media are captured it is difficult for critics to enter the debate, and impossible to lead it. Alternative media and innovative strategies must be in place before people and financial resources come under stress. Effective communication and exchange of information between sectoral groups and activists are essential, despite the time and resources involved.

- Raise the level of popular economic literacy – familiarise people with the basic themes, assumptions and goals of economic fundamentalism. Insist that economic policy affects everyone, that everyone has a right to participate in the debate, and that alternatives do exist.

- Educate popular and sectoral groups in advance – draw on international experience, networks, publications, speakers and examples to put people on the alert. Identify the likely strategies, policies and effects of structural adjustment for sectors like labour, education, health, local government, community work, public service and the media. Encourage sectors to workshop counter-strategies in advance. There will be little time for this when people are struggling just to survive.

- Resist marketspeak – maintain control of the language, challenge its capture, and refuse to convert your discourse to theirs. Insist on using hard terms that convey the hard realities of what is going on.

- Be realistic and avoid nostalgia—recognise that the world has changed, in some ways irreversibly, and the past was far from perfect. Avoid being trapped solely into reaction and critique. Many neo-liberal criticisms of the status quo are justified and will strike a chord with people. Defending the past for its own sake adds credibility to their arguments and wastes opportunities to work for genuine change.

- Be proactive and develop real altematives – start rethinking visions, strategies and models of development for the future. Show that there are workable, preferable alternatives from the start. This becomes progressively more difficult once the programme takes hold.

- Rethink identity and alliances – combine a critical analysis of economic, political, cultural and social models of the past with a forward-thinking vision of what a socially just future might look like. Recognise that the legitimate expectations, insights and vision of indigenous peoples are no just a matter of social justice, but offer the foundation for an alliance which can forge a new way ahead.

It is impossible to tell in retrospect how far these strategies would have hindered, let alone prevented, the onset of economic fundamentalism inNew Zealand. They most certainly would have made the ‘successful’ implementation of the structural adjustment programme more difficult, and given time for opponents to rethink, regroup and resist

Sadly, the time for many of these strategies has passed. It is going to be enormously difficult and costly to bring about changes which genuinely empower people in Aotearoa New Zealand to take control of their lives, within communities where they can play an active, equal and valued part. Yet the potential is still there for alternative forms of economics, politics and identity to emerge, and there are strategies which can exploit the soft underbelly of the new regime to bring them into effect. The beginnings of a manual for counter-technopols in this post-structural adjustment phase might include the following:

- Challenge the TINA svndrome – convince people individually and collectively that there are alternatives. Carefully analyse present barriers and future trends to produce options that combine realism with the prospect of meaningful change. Actively promote them and have them ready to be implemented when the market fails.

- Promote informed debate and critique – build a constituency for change through alternative information networks and media; use tribal, community, workplace, women’s, church, creche, union and similar outlets, and harness technology where available, to balance the good-news machine with critical analysis of the economic and social costs.

- Promote participatory democracy – encourage people to take back control; empower them with knowledge to understand the forces affecting them and the points at which they can intervene. Stress that no one has a fail-safe recipe for change, and that everyone has a contribution to make. Recognise the skills, resources and insights of tribes, individuals, communities, sectoral groups and civil society, and the right to act both separately and in concert.

- Embrace the Treaty of Waitangi as a liberating force—moving forward means facing up to the past. Healing the wounds from over 155 years means restoring to Maori their economic and political power. Constructive debate on a treaty-based republican constitution can provide a liberating framework within which Maori and Pakeha can co-exist.

- Encourage progressive counter-nationalism – celebrate diversity rather than uniformity; Work to build identities and values which replace xenophobia, racism and nostalgia with multiple identities and progressive visions for the future.

- Develop multi-level strategies – take action at local, sectoral, regional, national and international levels, and co-ordinate those activities through informal networks and formal linkages.

- Hold the line – the structural adjustment programme is not yet complete; the state still plays an active role in providing social services and public goods. Sustained and co-ordinated action in communities, sectors and national politics can effectively hold the line.

- Localise politics – recognise the power held by regional and local authorities and the ability to secure information and influence decisions at that level. Encourage accountability of local officials and participation in local politics. Continue local struggles to maintain services which provide for local needs; build solidarity, political awareness and a belief in the possibility of change.

- Ginger up party politics – maintain pressure on political parties through popular mobilisation and public education campaigns, document failed policies and unacceptable practices, and use the politics of embarrassment at home and overseas to complement the work of party activists within.

- Invest in the future – provide financial, human and moral support to sustain alternative analysis, publications, think-tanks, training programmes and people‘s projects that are working actively for change. Create alternatives to state dependency by providing financial, personal and moral support for alternative economic developments.

- Support those who speak out – intimidation and harassment of social critics works only if the targets lack personal, popular and institutional support. Withdrawing from public debate leaves those who remain more exposed.

- Promote ethical investment – support overseas and local investors who genuinely respond to indigenous, ecological and social concerns. Expose and attack unethical investors who don’t. Boycotts have proved a powerful force internationally and in New Zealand, including anti-apartheid, anti-nuclear, environmental and safe product campaigns. ‘New Zealand’ companies can be most easily embarrassed and called to account. ‘Foreign’ companies are often targets of co-ordinated campaigns overseas that welcome information, participation and support.

- Think global, act local – develop an understanding of the global nature of economic, political and cultural power, and those forces which drive current trends. Draw the links between global forces and local events. Target local representatives, meetings and activities which feed into and on the global economic and political machine.

- Think local, act global – actively support intemational strategies for change such as people’s tribunals, non-state codes of conduct, non-governmental forums, and action campaigns against unethical companies, practices and governments. Recognise that international action is essential to counter the collaboration of states and corporations, and to empower civil society to take back control.

Tea Party at the DWP: why the Coalition is desperate to redefine child poverty

The DWP has recently consulted on changing the way in which child poverty is defined, seeking – quite consciously – to broaden the definition away from that of relative poverty.  It’s a move that has attracted controversy among those working in the field, who argue that it is right to consider factors other than income in defining poverty, but that the current DWP proposals go too far (here, for example, is Save the Children’s eloquent and tightly-argued case for retaining relative poverty as a key indicator of child poverty)

But it seems clear that there is a fundamental, ideological reason why this redefinition is being pushed through now.  The DWP remains the Coalition’s Ideology Central, the home of the Coalition’s Tea Party tendency; and it seems obvious to me that there is a clear and fundamental ideological aim behind this proposal.

First, there is the obvious factor: under coalition proposals – and in particular the unprecedented range of benefit cuts due to be implemented in April – many thousands of families are being pushed further into poverty.  A recent Parliamentary Answer from Steve Webb MP – the token Orange Booker inside the Coalition’s Ministry of Love – indicated that of the 200,000 children who would be pushed into poverty by the 1% cap on benefits, 100,000 would come from families where at least one person was in work.  For a Government – or for that matter a Parliamentary consensus – that speaks the language of strivers and shirkers, that is a desperately embarrassing admission.  But it comes as no surprise – the creation, inadvertant or not, of a low-wage economy that matches falling pay with increasing living costs – especially housing costs – has meant that Government has been obliged to top-up low pay with tax credits; an effective subsidy for low-paying employers.

But there is far more than this.  The recently-closed Government consultation proposes a measure of child poverty based on eight variables:

Income and material deprivation

Worklessness

Unmanagable debt

Poor housing

Parental skill level

Access to quality education

Family stability

Parental health

Obviously, income and material deprivation is only one of these; and of the others, only two are obviously and directly linked to income.  The important issue here is the way in which the others have become part of the rhetoric of the Right, which talks in terms of low aspiration, of self-inflicted health issues, of generations of unemployment (the latter being effectively skewered by the Joseph Rowntree trust) and the language of workfare programmes.

In other words, the whole thrust of Coalition policy is to move towards a definition of poverty based on blame; a list that can be spun as things that people get themselves into, rather than things beyond their control that they cannot get out of.  In other words, it is essentially an ideological shift – an attempt to bring the definition of policy in line with neoliberal politics rather than empirical reality.

And it is an important reminder that for neoliberals and austerity economists – not least for the maintenance of the neoliberal consensus among the main Westminster political parties – it is absolutely essential to redefine poverty as something that arises from the failures and fecklessness of the indvidual, rather than something that results from capitalist economics.  It’s a rhetoric that is as old as capitalism itself- the belief that you can work your way out of poverty, and that application and effort bring riches (a proposition that can be disproved by walking into any NHS hospital ward and counting the millionaires among the nurses and ancillary staff).

Ian Duncan Smith was at it again yesterday, declaring that outrage about workfare programmes was essentially the result of middle-class and educated people whingeing that shelf-stacking was too good for them.  Duncan Smith’s comments ignored the reality of big business being subsidised by using free forced labour of people – who had often paid National Insurance for decades – under threat of using their benefits; he was free, unchallenged as ever by the mainstream media, to develop this disgraceful narrative (the most eloquent response to which is perhaps not the deluge of outrage that followed but the silence of the Labour leadership).

And this is all of a piece with narratives of scrounging and fecklessness, the demonisation of the poor and hate-speech towards the disabled that sits at the heart of modern British political discourse.  In the USA, the wealthy managed to create the Tea Party movement, which mobilised the poor and insecure against the big government that, in fact, remains the bulwark between waged individuals and exploitation.  In Britain we have our own Tea Party mentality, in which successive Governments have sought to demonise the poor and insecure as creators of their own misfortune.  It is now the Coalition, but Labour, with their talk of strivers, are equally guilty; workfare is of course core New Labour policy.

Austerity is a state of mind; defeating it means rejecting it as a default economics.  And to do so, resisting the recasting of poverty as something people do to themselves is absolutely fundamental.

10p tax: one-and-a-half cheers for Ed Miliband

I’ve been pretty scathing about the Labour Party on this blog, so a bit of credit where it’s due: Ed Miliband’s eye-catching announcements today committing Labour to a 10p lowest tax rate, funded by a so-called mansion tax, are a step in the right direction.  It’s some way from the New Jerusalem that some enthusiastic Tweeters, for example, appear to be claiming, but it’s significant.  It’s also tactically adroit; it responds to claims that Labour is light on policy, and the poaching of the Liberal Democrats’ cherished mansion tax policy is a clever sideswipe, a reminder that  Liberal Democrats in Government have failed to achieve even their more modest aims.  It’s also good to see Labour apologising for the politically bizarre decision to abolish the 10p tax rate; Tories have been crowing that this shows inconsistency but in fact most people know that acknowledging your mistakes and learning from them is what grown-up people do.  It’s a powerful contrast to George Osborne’s credo: never apologise, never explain.

Encouraging things include:

• A clear commitment to redistribution – Labour spent a lot of time talking about “predistribution”, a chimerical idea that appeared to have less substance the more one examined it.  Labour is clearly talking the language of redistribution, in the recognition that it is fundamentally popular.  It’s a commitment that sits a little uneasily with the One Nation Labour rhetoric (more of which in a moment) but it is certainly welcome to see Labour shifting the debate in this direction
• Shifting the balance from taxes on income to taxes on wealth – again, an important development; recent evidence that wages have fallen back to 2003 levels have masked a much bigger, long-term change: that the proportion of national income taking the form of wages has, in recent decades, fallen dramatically in relation to profits and rent.  Nearly all the benefits of growth (such as they are) have been realised as rents and profits; to the extent that Labour is addressing this issue, this is in my view a positive development.
• Getting to grips with the economics of housing – one of the most dangerous fallacies of our time is that rising house prices are a good thing.  A tax on house values challenges this assumption.  Labour has been saying some encouraging things about housing lately – especially on the subject of reforming the rented sector; again, this is a sign that Labour may have moved on from its obsession with promoting home ownership.

But  Miliband’s comments are also, in my view, an indication of how far Labour has to go before it can claim to offer a really credible radical alternative to the Coalition.  In particular:

• The big questions of tax and spending are still not being addressed – none of Miliband’s announcements break out of the austerity mindset.  Of course Labour is wary of making uncosted tax proposals; but Labour remains committed to keeping Coalition cuts and potentially making more.  These announcements do not move that debate on in any way.
• The mansion tax remains a highly risky option – the principle of taxing large houses has a lot going for it; mansions cannot be squirrelled away in the Cayman Islands.  But you have to have a bureaucracy to value the properties and administer the tax, and it seems to me that this is far from straightforward; and a tax that cannot be administered cost-effectively and consistently is inevitably going to be brought into disrepute.  Moreover, it means that tax revenues are at least in part contingent on the state of the housing market; speculation and rising housing prices, which are socially damaging, would be perversely beneficial to the tax base.
• The 10p tax rate benefits the well-off too – it’s fiscally a pretty blunt instrument (which perhaps is why Labour – in what would have been a rare triumph for macroeconomic theorising over political expediency – dropped it).  There are other ways of raising living standards for the lowest earners, like the tax credit system that the Coalition has decimated; Danny Alexander is actually right (even a broken clock is right twice a day) when he argues that taking the low-paid out of tax altoghether can be more progressive, although doing so without offsetting increases at higher level denudes the tax base.  Ultimately there is a larger problem of low pay, with low-paying employers in effect being subsidised by the state (and in the case of workfare participants, being given a workforce for free) that Labour is not addressing here.  And of course the very poorest people in society pay no tax at all (including some elderly people living on very low incomes in homes that could be caught by the mansion tax).  It is difficult to see how the 10p tax rate can be effective other than as a package of changes to benefits and tax credits – and possibly some real increases in the minimum wage; but these are nettles that Labour remains deeply reluctant to grasp.  Liam Byrne is still talking the language of reinventing Beveridge, abandoning universal benefits and cutting further – it’s a frivolous response to the situation we face.

In other words, Labour still has a long way to go.  The real issue is that the economic logic requires a willingness to increase public expenditure, and that restoring public expenditure cuts – most particularly benefit cuts – remains an essential step that Labour remains reluctant to take.  And it needs to stop hiding behind the One Nation Labour banner.  The rationality of One Nation is that as the rich get richer, we all benefit – it’s basically trickle-down Toryism.  Labour needs to realise that there are real conflicts between the interests of wage-earners and asset-owners, and needs to get off the One Nation fence, if it’s going to offer a radical answer to austerity.  The logic of Miliband’s announcement points that way.  But far, far more is needed.

Austerity and the redefinition of citizenship

The imposition of austerity economics – often in conflict with democratic mandates – has obviously had profound economic effects; but it has also at heart a democratic issue.  Austerity has in many cases been imposed in the face of democratic mandates or by the installation of “technocratic” governments; but I believe that at heart it is redefining the way we think about citizenship and the status of the individual in a market society.

Thanks to a recent tweet from David Graeber, I’ve just become aware of this article by G M Tamas, published in 2000 in the Boston Review.  Tamas writes with reference to nationality and citizenship, responding specifically to the rise of Jorg Haider in Austria; but it seems to me that his arguments are profoundly relevant to the way in which, quietly but surely, austerity economics – and in particular the way in which benefits have been cut – have redefined concepts of what it is to be a citizen; and in turn that has profound implications for democracy.

Tamas and post-Fascism

In summary, Tamas writes about how a resurgence of nationalism and a deep hostility to immigration has been reflected in policies that lead to the exclusion of citizen rights and the creation of classes of citizenship.  Tamas – writing at a time when the End of History was being widely touted – writes about how the triumph of capitalism has led to a breakdown of narratives about class and economic power, with the left focussing instead on issues of civil rights; and Tamas, quoting Lipset, describes a “fascism of the centre” in which hostility to the state combines with a belief that rights are not universal, but are the preserve of a particular group, usually based around national or ethnic identity. For the first time in history, popular ire about unfairness in society is being directed not at those wielding wealth and power, but at the dispossessed.

For me, what makes this article so fertile and important is the way in which it points to how Western market societies increasingly treat those who are unable to work – whether through unemployment or disability.  It seems to me that part of the process of austerity is to deny the citizen rights of those who cannot support themselves through paid work, through processes similar or identical to those pointed out by Tamas.  And I believe that this process has a fundamental effect on our conceptions of citizenship and democracy.

Universal benefits: the Beveridge legacy

I’ve written elsewhere about the case for universal benefits – as well as the costs advantages, pioneers like Beveridge saw universality as a means of social cohesion – a recognition that all had a stake in society, whether rich or poor.  Writing in the aftermath of European Fascism and the struggle of total war (a war in which victory was intimately bound-up with the mobilisation of state power) Beveridge was keen to see benefits as a route to stability and an expression of citizenship; all were to have rights, including the right to a basic minimum standard of living.

Citizenship and austerity

It is obvious to anyone who follows politics that in the UK, as in the rest of Europe, Beveridge’s vision is being abandoned – we are being told, in an age of austerity, that we simply cannot afford it (there’s an obvious point to be made about the difference between level and scope of benefits, but both are under attack).  Drawing on some of the issues Tamas raises, it’s possible to define some important themes in the way that the austerity consensus – in Britain at least – is seeking to redefine the concept of citizenship in, I’d argue, destructive and dangerous ways.

It is obvious that the debate around benefits in the UK has moved to a place where austerity is being used to justify a change in the conception of citizenship.  At a time when living standards continue to fall across the piece for all apart from the wealthy, those who rely on the support of the state have been recast into the role of the oppressor – an unproductive burden, a charge on the productive.  Citizenship increasingly appears to be contingent on conformity to a capitalist model of monetized income (so for example a carer, whose daily unpaid work not only brings real and tangible benefit to the person who they care for, but is also – potentially – saving the state money, falls on the wrong side of the citizen divide, because their contribution is not monetized and does not generate profit).  We are in a society in which your citizenship is increasingly defined by your ability to obtain and hold down paid work, and to consume accordingly.  The Big Society, to the extent to which it means anything at all, replaces entitlement with largesse doled out on a whim; it means that the privileged retain the right to decide whether those in need receive the essentials of life or not.  It’s the antithesis of citizenship.

This is made all the clearer by aspects of the debate around how benefits are received.  Market economics places choice at the heart of its rhetoric; increasingly, approaches to benefits assume that choice should be taken away – through workfare or through the growing advocacy of (expensive and insecure) payment cards for those receiving benefits. This has nothing to do with efficiency, or the operation of the market.  If you are receiving benefits, your participation in one of the defining rituals of market capitalism is to be denied; you do not deserve the benefits of citizenship.

To me, one of the nastiest and most insidious pieces of contemporary political rhetoric is the cult of the “hard working family” – used across the mainstream political spectrum in the UK but particularly associated with New Labour.  It’s not just that for this reader it conjures up images of a sort of Betjeman-esque domestic nightmare of white-shirted middle-manager paterfamilias, company car in drive, with wife and children in consuming subservience; it’s the way the phrase, consciously or not, is designed to exclude.  In defining whose side we are on, we also – inevitably – identify those who fall outside the scope of our politics. Like so much ideological rhetoric, it defines as much as it describes – and I for one find it both profoundly obnoxious but deeply revealing of the assumptions of our increasingly homogenised political class.

One can only conclude that underlying all this is a new definition of citizenship – one that is dependent on a property qualification.  If you have a job, or private wealth, and have the power to consume, you are a full citizen.  If you are unemployed, or disabled, or ill, you are not.  You have forfeited your citizen rights in favour of the largesse of the comfortable, and the whim of those who bear far more responsibility for the current economic crisis than you do, but for which you are being called on to pay a disproportionate price.  Your citizen status is not defined by your humanity, but by the casual Poujadist thuggery of the tabloid press and a political class – increasingly drawn from those enjoying extreme privilege – that is happy to ride that thuggery.

And we need to place this in a wider European context: there is a big movement – encompassing the imposition of “technocratic” governments in Greece and Italy, to the creation of a new treaty in the EU to entrench austerity in European law, to the increasingly frequent pronouncements by senior bankers and officials that economic policy should be taken out of political hands – to take economic policy out of politics and away from democratic scrutiny.  As David Harvey has argued eloquently in his book Neoliberalism,  this remains the ultimate neoliberal dream; to claim the kudos of being a democratic state while ensuring that the distribution of wealth is a matter over which electors have no real control.  It depends, of course, on economics being seen as an objective science and its practitioners being seen as expert manipulators, rather than – more realistically – being seen as a set of more-or-less empirically-derived  generalisations based on largely subjective psychological assumptions.

Extremism of the centre

Following Lipset, Tamas uses the phrase “extremism of the centre”, and it’s a formulation I find extremely compelling. In the absence of the big narratives about class conflict and economic power, it offers an understanding of how political and economic elites can rationalise and legitimise prejudice against the poor, vulnerable and especially the disabled into something that they appear to have little difficulty in reconciling with liberal democracy.  The way in which the collective view of disability in particular appears to have swung away from a belief in support (even if only to bring disabled people into the workforce) to outright hostility is, in my view, one of the defining phenomena of modern Britain.  We are a society that apparently provides a willing audience for Government press officers who see their work as the spreading of unattributable lies about the benefits enjoyed by disabled people; that apparently cannot understand that a 20% cut in benefits “justified” by a less than one percent rate of fraud is an act of collective punishment that moves our political class firmly into moral equivalence with those who, seventy years ago, were decrying disabled people as “useless eaters”.

In conclusion, Tamas’ piece seems to me to offer a way into understanding the mindset that underpins the kind of society we are becoming.  We neglect issues of citizenship and democracy at our peril – and we need to understand that the implications of austerity go well beyond economics, leading to fundamental questions of what society is and how we relate to one another.

Ed Balls and workfare – still following Osborne’s agenda?

Ed Balls has announced that Labour plans to introduce a compulsory work scheme for those  over 25 who have been out of work for more than two years – in addition to its existing plans for the under-25s.  The proposal is being spun in two ways – both as giving “opportunities” but also as a demonstration that Labour is not “soft on benefits”.  Balls is quoted as saying:

“A one nation approach to welfare reform means government has a responsibility to help people into work and support for those who cannot, but those who can work must be required to take up jobs or lose benefits as a result – no ifs or buts.

“Britain needs welfare reform that is tough, fair and that works, not divisive, nasty and misleading smears from an out of touch and failing government.

“Day after day, we see Tory and Lib Dem ministers claim they are targeting the workshy and benefit ‘scroungers’. But it’s no wonder even cabinet ministers have told the newspapers they are uncomfortable with these smears. Because the truth is very different.”

And he goes on to argue:

“Of course we need spending cuts and tax rises to get the deficit down but, with the flatlining economy sending borrowing up by 10% so far this financial year, it’s clearer than ever that you cannot get the deficit down without a plan for jobs and growth which works.”

There’s some nice triangulation there.  Balls is trying to play both sides of the street on welfare and benefits, and manages to get in a bit of One Nation rhetoric as well.  But the point is that his underlying assumptions are both wrong and, in my view, counter-productive.

The problem with Ed Balls really lies in that second quote, where he continues to use the rhetoric of austerity.  Austerity is failing, and there is an increasing body of evidence to show why that is the case – I’ve referred to the IMF’s evidence about the multiplier before.  The evidence is increasingly showing that we need precisely the opposite of spending cuts, and that any tax increases should fall overwhelmingly on the wealthier, for reasons of both equity and to ensure that they do not damage demand (Balls’ argument that his scheme should be paid for by reducing the pension tax advantages of those on the highest incomes is very welcome, but misses the point – more spending and an end to austerity would increase tax revenues across the economy as a whole).

And Balls remains mired in the idea that you can create subsidised jobs without reducing pay for others, and that it is is somehow acceptable to subsidise big businesses willing to participate in such schemes without damaging smaller, more local businesses.  Workfare is not just a form of exploitation of those involved in the schemes; insofar as it is dominated by big businesses like chain retailers, it is sucking money away from local businesses and local economies, which is where sustainable recovery will be generated.  And the effect of these measures, by subsidising pay budgets of big businesses and providing them with what is in effect a flow of free or cut-price labour, is to bid down wages – in sectors in which low pay, often below the living wage, is already endemic. There are far more efficient and equitable ways of creating jobs; Balls seems intent on taking the low-pay, low-productivity route, at a time when austerity is ensuring that the productivity of the UK workforce is actually falling far and fast.

But most of all, he continues to allow the neoliberals in Government to set the terms of the debate.  He remains caught in the rhetoric of an economic theory that is visibly, palpably failing.  And it seems to me that not only does this illustrate a desperate lack of ambition; it fatally constrains Labour’s ability to offer a real alternative at the next election, and leaves the political initiative in the hands of the more explicitly neoliberal Coalition parties.  It not only means that Cameron and Osborne are setting the terms of debate, with all that implies for Labour’s electoral prospects; it begs the questions – what is Labour for? What real difference would electing a Labour government in 2015 make?   To be fair to Labour, there have been some encouraging signs lately – the clear opposition to the 1% cap on benefits (in reality a 4% cut) being one.  There are indications that the rhetoric is changing.  But Labour continues to give the impression of a party that is running scared of the Daily Mail, and that lacks the confidence to capture the growing intellectual and evidential swing against austerity economics.

If Labour is serious about looking like a credible alternative government there comes a time when triangulation has to stop – and when the deployment of vague and ultimately pretty meaningless slogans like “One Nation” and “predistribution” – the latter a classic piece of market defeatism which starts from the distinctly neoliberal assumption that the state can’t make a difference –  don’t cut it any more.  There is an evidenced alternative to the politics of austerity that is gaining ground by the day. When will that alternative break into the Westminster mainstream?

In praise of universal benefits

Among Nick Clegg’s various pronouncements yesterday was his repeated claim that benefits for the elderly should not be universal, and should not be available to the better-off.  It’s not  a new theme, of course – Clegg was making the same arguments at this year’s Liberal Democrat conference, with Vince Cable weighing in to claim, in effect, that rich old buffers like him should not be a burden on the state.

It’s an argument that has its attractions at a time when austerity politics is biting hard and when real living standards are falling faster and further than at any time in the last century.  Why should those who are well off continue to receive what Clegg and other coalition Ministers would no doubt describe as the largesse of the state?

There are some very good arguments, actually.  One of them is that universal benefits are cheap to administer and eliminate the risk of fraud; as soon as you means-test benefits you have to set up complex bureaucracies to administer the tests, to monitor and manage changes in circumstances, and to deal with fraud.  You end up adding to the nightmare complexity that already haunts the UK’s benefits system, for very little savings.

And what do you measure – wealth or income?  And how do you do it?  There are many older people who have very low incomes, but who own their own homes and therefore, in the crazy world of house price inflation, are sitting on a pile of unrealisable wealth.  It’s all very well for Vince Cable – he’s an MP and Cabinet Minister, drawing a substantial salary on which he pays significant amounts of tax.  It’s disingenuous to use himself as an example. And of course old age brings with it the risk of additional expense.  However you means-test these benefits you will create a back-wash of hard cases, in which a minority – normally those who can affford a good accountant – play the system and a larger minority lose out: amplifying, in other words, the failings of the tax and benefit system elsewhere.  And you will create a bureaucratic monster that cannot adapt to changing circumstances, and you will turn entitlement as of right into something that looks like largesse, when the people concerned have paid their taxes and National Insurance over decades in the expectation of a decent sufficiency in old age.

Moreover, the current generation of older people have already been let down by politicians – people who in the 1980s were sold the idea that private provision would secure them a prosperous old age, but are now facing the reality of a pension pot diminished by the swingeing fees of pension managers, the destruction wrought on their capital in 2007-8 by bankers speculating against their pension funds, and by quantitative easing decimating the returns on their investments.

Beveridge’s arguments in favour of universal benefits – ease of access, fairness, and the sense that a decent sufficiency is a matter of right, with state support as an expression of people’s membership of an inclusive civil society – have not changed.  We just appear to live in a society that no longer values those things; and appear no longer to be repelled by the use of cuts in living standards for the most vulnerable as an economic strategy.

I recently happened across this blog piece which, in the US context of medicare, argues that means testing plays to the prejudices of well-meaning liberals:

 Means testing as a cut strategy exploits liberals’ good intentions.  This works at two levels.  First is the belief (correct in my view) that the rich already are getting way too many of the rewards in our society, that inequality is a serious problem, and therefore it would be better to place a slightly greater burden on the rich, rather than people at the bottom if pain is going to be dished out. (It’s also standard for liberal thinking to not ask if pain needs to be dished out at all, but that is a separate matter.)

The second level is more personal.  The good liberal says ‘I’m privileged, I can pay more, better that then cutting benefits for others’.  It’s an understandable sentiment.  But disastrous.

Aside from what I’ve already said, it is based on the notion that the problem is actually about the deficit and that the politicians who are pushing schemes like means testing or raising the retirement age or whatever are seriously concerned about it.  But they aren’t. If they were, we’d be talking about raising the cap on the Social Security payroll tax, or adding a Tobin tax that would contribute to the trust funds.  There are plenty of ways to save money in Medicare that don’t involve benefit cuts.  And of course, if we had full employment and less inequality, it would mean more money going into these programs.

It’s an important argument – means testing not as a way of saving money, or making the benefits system more equable, but as a way of assuaging the conscience of a certain type of affluent liberal.  It’s a mindset that owes everything to privilege, and very little to real concern for the vulnerable.

Fuel prices: why Labour has got it wrong on indexation

Finding oneself potentially in agreement with George Osborne is disconcerting.  But, watching the debate over the indexation of fuel duty, it’s difficult to avoid the conclusion that Labour, in calling for a further delay in the proposed 3p per litre indexation of duty, are calling this one badly wrong.

Labour’s concern is that people will be hit by increases in fuel duty at a time when household costs are already rising.  It would be wrong to deny that they have a point. The recent announcement of a 10% increase in domestic energy costs has hit people hard.  More generally, living standards for all but the wealthiest in society are falling; a significant increase in household expenditure on motoring – especially for those who have to use their cars – has the potential to be painful for many middle and lower income families.

Economic issues

However, I’d argue the overall economic effect of a freeze is likely to be regressive, for a number of reasons.

First, it is overwhelmingly the case that expenditure on motoring, and on fuel in particular, is closely linked to income.  Essentially, the more people earn, the more they spend on fuel.  Fuel duty is, by its nature, a progressive tax.  (It’s also very cheap to collect and, apart from around the Northern Ireland land border, very difficult to evade – reasons why the Treasury under Governments of all colours is keen on it). And – in a media world that is overwhelmingly geared towards the views of what might be described as the aspirational middle – it’s often forgotten that a third of the population have no access to a car at all.  And these are very often the poorest and most vulnerable people of all. The 2011 ONS report on the effect of fuel duties on household income shows that while those in the lowest income groups pay more in terms of proportion in income in fuel duty – where they have a car – they pay less in cash terms than those in the higher income groups who are far more likely to have a car. (I’d argue that rather than holding down tax rates for the better-off, the impact on lower-income motorists should be offset through general tax rates and benefits).

According to the RAC Foundation, in 2008 approximately 14% of average household expenditure goes on transport – 88% of that on motoring costs.  The average household expenditure on fuel is about 4%.  Clearly that will vary widely – that figure will be higher in rural areas, and traditional family units have higher expenditure.  But over the long term, the real cost of motoring has fallen enormously – by 17% between 1997 and 2008, at a time when public transport costs rose steadily.  As I’ve argued here before, the so-called War on the Motorist is a pernicious fiction; and it’s important to remember that the external costs of motoring – in terms of pollution, safety and community severance – fall overwhelmingly on the poorest in society.

Moreover, the pump price of petrol has fallen by 10p per litre since the spring; and crude oil prices fell by nearly 5% in one day last week.  If there is ever a good time to index fuel taxes, this is it; in a competitive forecourt market it is quite likely that much of the duty increase will be absorbed, meaning that the hit is taken by oil companies rather than motorists.  None of this is to trivialise the impact of even small increases in prices on people who are on the financial edge; but there are much bigger issues in play here, like domestic energy prices and benefit cuts.

And recent thinking from the IMF and others is that the multiplier – the multiple by which public expenditure is more stimulating than tax cuts – is higher than Government has assumed.  In other words, the economic cost of cutting taxes is higher than has been recently assumed.  If the failure to index fuel duty is offset by additional cuts in expenditure, the effect will be to suck more demand out of the economy.

The political consequences

Labour’s decision may be dodgy economics, but looks like quite good politics; it looks like a party standing up for that politically iconic section of society, the squeezed middle.  But is it? The problem for Ed Balls is that, in overall terms, the effect on household spending is likely to be relatively small and unpredictable (especially if oil prices continue to fall): but that, in the longer term, the failure to index taxation effectively undermines the tax base.  Failure to index fuel tax (and remember, this is about maintaining the tax level in real terms, not increasing it) means that as an incoming Chancellor, Balls would have less revenue to play with.

It also binds Labour further into the rhetoric of low taxation and – by implication – more cuts.  Ed Balls is no stranger to that rhetoric; and I’d guess that George Osborne – a Chancellor who appears to see his role as political activism rather than keeper of the public finances – is quietly satisfied at the way that Balls is reducing his room for political manoeuvre as we pass the mid-point of the political cycle.  One of the interesting aspects of the ONS report I cited earlier is that the proportion of the fuel price accounted for by duty is in decline – and that it itself an indicator that the fuel tax base is declining and that indexation is needed.

In conclusion, it looks as if Labour could be boxing itself further into a tax-cutting and expediture-cutting agenda when all the economic evidence is pointing the other way, in pursuit of a measure that is likely to benefit the 4×4 owner on the school run far more than the poorest and most vulnerable society. It reinforces the impression that Labour has bound itself into the same economic assumptions as the coalition.  And it makes it far easier for Tories and Liberal Democrats to attack Labour’s economic position as inconsistent.