"We stand for subsidies for the rich" - Lib Dem Treasury spokesman

The Times reports a sensible observation by the Liberal Democrat Treasury spokesman David Laws:

Mr Laws said: "We need to carefully consider whether scarce financial resources are really best used in scrapping all user charges, even if that leaves us providing precisely the same services, while reducing the burdens on many of those who can already afford to pay."

So what does his party do, according to the same report?

Charles Kennedy faced being bounced into a £900 million health pledge yesterday after his conference voted to scrap charges for National Health Service prescriptions and dental treatment.

For the record, Liberal Democrats have been seriously discussing in Brighton this week their prospects of forming a government after the next two general elections. Their programme for government is, apparently, to say what individual items they wish to spend tax receipts on and then to add them all up.

I've mentioned once or twice in this blog the party's principal Treasury spokesman (or 'Shadow Chancellor', as he calls himself these days), Matthew Taylor. I knew Matthew quite well at Oxford. He has had the disadvantage of never having held a real job since we graduated: he was president of the Students' Union for a year, and then served as baggage carrier for the extrovert Liberal MP and professional Cornishman David Penhaligon. When Penhaligon was tragically killed in a road accident, Matthew was elected, at the age of 24, to succeed him, and has sat continuously as MP for Truro since then.

On one occasion at Oxford I was going into a restaurant as Matthew was coming out, and we stopped for a chat. Once I was inside, the waitress told me that my friend had left without settling the bill - so I ran out after him and caught up. Of course Matthew wasn't being dishonest (and he returned immediately with me): he'd simply forgotten to pay. During his tenure as Liberal Democrat 'Shadow Chancellor' I've occasionally thought of this incident as a metaphor for his pronouncements on fiscal policy.

It is the last refuge of a party that hasn't been near the Treasury in 70 years to believe spending commitments will be self-financing owing to efficiency savings. That's what the Liberal Democrats assert, however:

Dr [Evan] Harris [Liberal Democrat Health spokesman] told The Times that abolishing NHS prescription charges would cost £430 million and ending payments for dental checks and treatment a further £470 million, but said there would be savings from scrapping inefficient collection costs.

The concept Harris appears to be grasping for is what economists know as deadweight losses associated with the levying of taxes. But payments for services aren't taxes: among other things, they're a method (less inefficient than the alternative of queuing) of rationing demand by connecting the cost of a service with its provision to those well able to pay. This procedure by which the Liberal Democrats decide through a majority vote at conference to spend nearly £1,000,000,000 of taxpayers' money raises one or two questions.

The party claims that abolishing these health charges will be self-financing. At the same time it proposes an increase in the marginal rate of personal tax above £100,000 from 40% to 50% and the replacement of council tax by a 3.5% local income tax, and bases its spending projections on the assumed extra revenues. So it implicitly assumes that removing health charges will dispose of a 'dead-weight loss' associated with collection, while increasing tax rates - and therefore collecting the extra revenues - will not impose a 'dead-weight loss'. Its assumptions are, in short, flagrantly inconsistent. Its sums don't add up.

Math abuse is hardly surprising when you get fiscal policy decided by individual party spokesmen without being subject to a central budgetary discipline. That's why public spending in government is set by the Treasury and not by the aggregate of spending ministers. But of course the Liberal Democrats are different, because ... well, because they're a party not of government but of populist alliance with sectional interests such as the health and teaching unions. In a party of government the Treasury spokesman would insist on control of spending decisions.

So what on earth is Matthew Taylor doing ceding such responsibilities to his nominally more junior colleagues? What's he doing in his post at all? At least his abject failure and culpable incompetence will allow his party leader to sack him and appoint a 'Shadow Chancellor' who understands economics.

Well, not exactly. Here's how The Guardian summarises the position:

Talk of a major reshuffle of Mr Kennedy's frontbench team, now grandly dubbed a shadow cabinet, are being played down in Brighton. Matthew Taylor, the treasury spokesman now engaged in an old-fashioned left-right tussle with the neo-liberal banker MP, David Laws, is not being fired, as predicted.

What an entertaining party the Liberal Democrats are.

Comments

[John Thacker]

I also sincerely hope that the LibDems aren't promising to reduce queues for the NHS as well. Since, as you point out, elimination of all fees will certainly increase demand and thus queues unless there is a massive increase in spending.

[Anthony C]

Simon Hughes was on This Week tonight, laying out his stall. Virtually everything he put forward revolved around tax and spend. In fairness, Hughes isn't a bad bloke, but it all stand of the worst sort of Keystone Kops outfit.

They're living in cloud cuckoo land if they think they are going to attract swathes of moderate Tory voters. I couldn't identify a single issue where they aren't careering off to the left of Labour.

Andrew Neil was suitably incredulous.

[Mark T]

I sense a conspiracy. The liberal democrats are deliberately goading you by parading their stupidity on you doorstep every night this week.

[Natalie Solent]

Oliver, you write: "It is the last refuge of a party that hasn't been near the Treasury in 70 years to believe spending commitments will be self-financing owing to efficiency savings." That delusion can also flower in parties and individuals much closer to power. I can't remember whether it was when he fought John Major for leadership of the Tories in 1995 or in the wider Tory leadership election two years later, but I knew John Redwood was not leadership material when he said he was going to save eight billion pounds by efficiency savings. It's like saying you are going to lose four stone by having one sugar instead of two in your coffee.

[Anthony C]

The problem is that the Tories are still, to my chagrin, playing that game.

I've lost count of the number of times over the past couple of years I've listened to interviews that have gone something like this:

INTERVIEWER: So you believe you can cut £X billion of tax?

TORY SPOKESMAN: We can't commit ourselves to a figure at this stage but we will lower the tax burden substantially, yes.

INTERVIEWER: And that will mean cutting back on spending on public services - health, education etc.

TORY: No, not at all. We will be able to maintain public service spending because we will save several billion pounds by cutting waste and trimming the bureaucratic fat.

Now, does ANYBODY think this is realistic anymore? Because I certainly don't. Billions of pounds worth of tax cuts and all paid for through trimming bureaucratic waste? It just isn't going to happen. I'm not saying that tax cuts are bad and I'm not saying that trimming the bureaucracy is bad - but to actively link the two together and tell the public that they can have sustained public service spending AND large tax cuts and that it will all be merrily paid for by trimming bureaucracy is wildly disingenuous and effectively just a way of getting around the fact that your sums don't add up.

[chris]

In many areas of the public sector, notably the core civil service and local government, "bureaucratic fat" is by now largely restricted to planning the implementation of government initiatives, monitoring their progress and maintaining financial control. If these functions were significantly degraded, governments of any party would be less able to control their outgoings and less able to assess the effects of their policies in the country at large.

Almost certainly this would have the effect over the life of a parliament that expenditure would actually increase, as it would be significantly more likely to be misdirected, potential overspends woulld be identified later and planned consilience, rare enough now, would become virtually impossible.

All this is glaringly obvious to anyone except front bench politicians, of whom the number who have ever had to do with the strategic direction of large organisations, public or private, can be counted on the fingers of one foot.

[David Gillies]

Reducing spending via efficiency savings falls in the 'necessary but not sufficient' bracket. One of the smartest tricks Gordon Brown has pulled is convincing voters that the increase in public spending will not go down the drain due to its being allocated in an efficient fashion (all those targets!). This have your cake and eat it approach is doomed in the long (medium?) run but as some of the commentators here have noted, the other parties are playing the same tune.

[Simon]

for the record, I agree with this post. Evan put forward a very bad policy- a subsidy for the middle classes and an argument the Bevanites in the Labour party lost in 1951. I think that you will find that it will not be in the manifesto and that Evan will lose his job soon...