The Liberal Democrats: an apology

Since starting this blog last summer I have endeavoured to be a fair-minded commentator on British politics, among other subjects. While I cannot claim necessarily always to have fulfilled this aim, I was till today confident that I had succeeded in it at least so far as one party, the Liberal Democrats, was concerned. While my own view of that party is that consistent liberals ought wherever possible to vote tactically to defeat it, I have never failed to give credit where appropriate to its parliamentary representatives. Nowhere has this been more obvious than in my regard for the intellect and abilities of the party’s Treasury spokesman, Vincent Cable.

I now see that my confidence was misplaced. My judgements on the Liberal Democrats have not been fair-minded at all: they have been far too complimentary. The party’s inadvertent leaking of its own draft manifesto (a party functionary apparently sent it by accident to all Labour members of the Welsh Assembly) discloses a central disconcerting fact: the party’s proposals are uncosted. The BBC notes diffidently:

The proposals include scrapping Labour's New Deal and having more drivers' congestion charges. Cutting the number of spin doctors in Whitehall and having an elected Senate are also in the pre-manifesto, which lays the ground for the Lib Dem general election campaign.

But among the sections listed as missing from the e-mail are plans to simplify the tax system, environmentally-friendly tax proposals and pensions plans.

Well might The Scotsman observe:

Charles Kennedy is facing the prospect of a mauling in the Commons today at the hands of Tony Blair after a draft of the Liberal Democrats’ manifesto was leaked yesterday by accident.

The Prime Minister will be able to seize on the lack of financial costings contained in the document to ratchet up his campaign to discredit Lib Dem spending promises.

But it would be a mistake to regard criticism of the Liberal Democrats’ disinclination to venture estimates of costs as mere partisan politicking. It’s more serious than that.

All advanced industrial economies contend with upward pressure on public spending as a proportion of national income. The reason is that it's difficult to achieve gains in measured productivity in the public sector (and hence prices rise faster than in the rest of the economy – a phenomenon known as the relative price effect). In order to cope with those pressures, and particularly since the experience of high inflation combined with low growth in the 1970s, almost all those economies set themselves some form of budget target (either a ratio, or a rate of change, or occasionally an absolute level) before formulating their budgets.

There is no obviously right level of public spending, debt, revenues or deficits, but there is a strong case that getting value for money in public spending is assisted by having an overall constraint on spending and taxation. Those constraints may not be met – and financial markets may then impose a penalty, in the form of demanding a higher yield (equivalent to a lower price) on government debt – but the very fact that a target or rule is there will increase the transparency of public finances and the pressure on finance ministries to budget responsibly. The Chancellor has been widely accused, for example – not least by Vincent Cable on behalf of the Liberal Democrats - of fudging his ‘Golden Rule’ of budgetary balance over the course of the business cycle, by arbitrarily determining a favourable starting point of the cycle.

It’s apparent from their draft manifesto that the Liberal Democrat approach is different: instead of starting with a set of constraints, the party starts with a list of desirable things to spend taxpayers’ money on. How much these things cost is a second-order question. There are many things that can be said about this procedure, but one that strikes me immediately is that it’s inconsistent with the Liberal Democrats’ wish to join the euro: the Growth and Stability Pact requires a commitment to:

... respect the medium-term budgetary objective of close to balance or in surplus set out in [member-states'] stability or convergence programmes.

It might be objected that the Liberal Democrats are of course not a government but a minor political party. And indeed that is my point. Individual Liberal Democrats are undoubtedly capable and intelligent, but the party collectively does not merit serious consideration in its contributions to public policy debates.

In light of this information I can but apologise to my readers. There has been too little material on this site that has been critical of the Liberal Democrats, and I undertake now to rectify that deficiency.

Comments

[Peter Cuthbertson]

Leave it to the Lib Dems to take a principle as prudent and commonsensical as "Income should determine expenditure" and then do the polar opposite.

[Matthew]

Yet this is the budgetary policy of the Republican President and Congress, which you support?