Or A Rant: “Why The Tories Make Me Mad”
This morning David Cameron gave a speech on the Tory perception of, and reaction to, the riots of last week. On Sunday, George Osborne in an interview stated his intent to remove the 50p top rate of income tax. Cameron explicitly denied a link between the riots and issues of poverty and social deprivation. Therefore, his policy proposals fall short of the mark and fail to engage with the deeper underlying issues. Osborne’s interview confirms that the Tories have not got their head around the fact that economic policy must reflect equity, as well as efficiency. Neither have recognised that their positions are inconsistent. On the one hand, Cameron pushes the importance of work to the fore, while Osborne continues to pursue policies which are sure to intensify and prolong our unemployment problem. Neither of their contradictory positions adequately engages with the real problems in UK society and judging recovery by reference to bond yields rather than the employment prospects and living conditions of normal people reveals a lack of concern for, and understanding of, the problems faced by many social groups in Britain.
Since the rioting and looting died down toward the end of last week, we have seen a flurry of explanations put forward for the chaos. I argued that it is lazy to blame the riots on The Cuts. I stand by this but don’t think I made it clear why this position is ‘lazy’. Blaming the chaos on current austerity measures deflects attention from the bigger, deeper problems which need to be dealt with.
A multiplicity of problems were ignited by opportunism and mob psychology to bring about the riots. Yet many of these problems have deprivation and lack of opportunity as a root cause. Cameron explicitly denied a link between the riots and poverty, “these riots were not about poverty”, preferring instead to put the focus on moral degradation. Although the riots may not have been intentionally bought about to express grievances about one’s material position, deprivation and lack of access to opportunity, combined with a society which places excessive value on material goods and wealth cannot be ignored as a salient contributory factor.
Cameron argues that linking the riots to poverty “insults the millions of people who, whatever the hardship, would never dream of making people suffer like this”. To say poverty, deprivation and lack of social mobility are relevant causal factors does not have to imply a one-to-one correspondence between them and looting. It also does not justify violent behaviour or have to ascribe a lack of agency to disadvantaged socioeconomic groups. Rather, it provides a context for the behaviour we have witnessed.
By failing to engage with these deeper seated problems which require us to seriously challenge the distribution of opportunity in society, Cameron’s policies will not fundamentally change Britain. They are cheap sticky plasters: inevitable to come unstuck, without even doing a good job in the first place. I quote from his speech today: “First and foremost, we need a security fight-back”. This prescription does not tackle the underlying problems. Why is there a need for such prominent policing? Why the sense of frustration and alienation? One cannot ignore the resentment created by being marginalised from real opportunity or the issues which arise when a good assessment of your life prospects is “Nil/Poor” or “Going Nowhere”. Cameron asks: “Is it any wonder that many people don’t feel they have a stake in their community?” but then goes on to explain this phenomenon by referring to Big Government and Health and Safety. Are you serious?
Cameron’s focus on welfare reform and the community provides an opportunity to link his remarks to the remarks and economic policy pursued by his Chancellor. “I want us to look at toughening up the conditions for those who are out of work and receiving benefits and speeding up our efforts to get all those who can work, back to work. Work is at the heart of a responsible society.” I agree with him that work and employment are central. But the language used to describe those on benefits is patronising and demeaning. The majority of people who are unemployed and on benefits do not want to be. Most people want to work. A major problem we have at present is that of job creation. So, surely economic policy which promotes growth and reduces unemployment should be a no-brainer for the Tories at the moment? Wait, NO?
Our economic recovery continues to be underwhelming. The Bank of England and OBR have continued to downgrade predictions of growth and unemployment remains stubbornly high. A moderation of the current austerity strategy is needed and tightening needs to involve more tax rises and gentler, more targeted spending cuts as I have argued previously. Therefore, I was open-mouthed at the news that George Osborne described the government’s debt reduction plan as “on track” and also intends to abolish the 50p tax rate amid claims that charging this higher rate of tax is not raising much in revenue and “there’s not much point in having taxes which are economically inefficient”. The recovery is on track? A tax cut….for the most advantaged in society now …NOW?
Osborne describes the recovery as on track because in his eyes the UK is currently a haven for international finance. Really? This is not clear. Only today Bloomberg commented that “Britain’s allure as a haven is crumbling as global investors desert sterling amid the lowest inflation adjusted bond yields on record and a faltering economy.” Doesn’t sound too rosy to me. Secondly, his comments illuminate a larger problem. Why is the success of policy not being judged according to its impact on unemployment? On people? Sure, interest rates and financial stability are VERY important but not as ends in themselves. We should care about them because we care about people. Our recovery should be judged according to unemployment, job creation and living conditions. If concern with these figures was at the heart of current macroeconomic policy, the government would see the urgency of a policy rethink.
Not only do we need a more gradualist approach. We also need to reduce the reliance on spending cuts and shift the pain towards those who can bear it. For economic and equity reasons. The 50p tax may not bring in a whole lot of revenue but that doesn’t mean abolishing it should top the policy agenda. Just quickly, why does a higher tax rate not necessarily lead to higher revenues? A rise in tax rates will not lead to a large rise in tax revenue if they are associated with a large substitution effect. Raising tax rates reduces our incentive to work. We get less so taking time off in favour of sweet leisure time becomes less costly. With the 50p tax rate what we’re actually worried about is people leaving the country to tax havens. If these incentives are very strong then not much extra tax revenue will be raked in because people will be working so much less.
However, I do not believe that abolishing the 50p tax rate is going to lead us to take in more revenue and the fact that this is at the top of the policy agenda sends an awful message to the majority of the UK’s population. Research suggests that the amount people work once they are actually working is not very sensitive to changing tax rates and this seems to be especially true for those affected by the 50p rate, assuming they stay in the country, considering the kind of ‘service contracts’ that characterise employment relations at the top. For those that decided to leave the country in response to the change in rates, I would be extremely surprised if they decided to come back to the UK in vast swathes in response to the policy reversal especially given the poor growth prospects that lie ahead. Furthermore, the fact that the Chancellor is even talking about this serves to further distance him and the government’s economic strategy from the UK public and those who need to be re-engaged with society. Why the lack of focus on improving job prospects and income for the many at the bottom?
So there, my rant on Why The Tories Make Me Mad. An unwillingness to address wider issues which require a more concerted effort to open up channels of opportunity and address economic inequality. Judging policy success according to the welfare of financiers. Policy inflexibility that will contribute to a more protracted recession. Mad.
