Spending Review – Fairness & Hope

Nick Clegg, the deputy prime minister, should have done better than just airily dismissing as nonsense, the conclusion of the independent Institute for Fiscal Studies (IFS) which contradicts the claim of the Treasury that overall the tax and benefit measures in the October Spending Review are progressive.
The first IFS analysis in August which took account of a wide set of benefit reforms already announced by the Coalition Government, concluded that the impact of all tax and benefit measures yet to come would reduce the incomes of lower income households more than that of higher income households, except for the richest 2% (see also Categories/Chairman?s Blog/Fairness in the right hand index column). Therefore, these tax and benefit changes were considered regressive rather than progressive across most of the income distribution.
Now, when the new measures announced in the October Spending Review are added to the original IFS study, its original finding is said to be reinforced. Its analysis continues to show that, with the notable exception of the richest 2%, the tax and benefit components of the fiscal consolidation are, overall, being implemented in a regressive way. The IFS considers this as not necessarily unfair as the perception of fairness depends on the individual concerned and their personal circumstances e.g. the level of income, whether in work or on benefits etc. However, there are already a lot of people, some seemingly desperate and at the bottom end of the income scale, who are already protesting via comments to blogs on the Internet in an ugly and often semi-literate, class war-orientated and confrontational manner.
There is a need for the prime minister and his deputy with their otherwise considerable communications skills, to move this debate on from the no-win Regressive versus Progressive stage towards how they will promote future growth in the economy, together with the associated development of the hoped for work opportunities, particularly in the poorest, de-industrialised and jobless regions.
There will be some mismatches between the skills of such job seekers and those required for new jobs e.g. in the Green energy sector which is being provided with extra development funds. The key technologies for e.g. wind, solar and nuclear power do not even create manufacturing jobs in the UK but currently have to be imported from the European Continent. (Although Siemens are said to be going to approve this week a plan to build a British factory for a new generation of offshore wind turbines after receiving government assurances on £60 million for port development. The factory will employ 700 workers.) Any job creation from exports requires products and services with a competitive edge with major deficit countries such as the US and the UK wanting to export to counter weak demand from their own consumers, in common with e.g. Germany and Japan (both with home consumers unwilling to spend), all addressing the same fast growing emerging economies such as China. In addition, there will be competition from sometimes better educated and /or skilled job seekers from the more eastern parts of the European Union and outside. Ex-public sector workers are also not necessarily a natural fit to the private sector unless e.g. they are included as an integral part of the private outsourcing of former public services. There is a need for an overhaul of training schemes to help reduce long-term joblessness.
A key difference between the proposed Labour austerity programme of cuts versus tax rises in the ratio of 60/40 compared with the 70/30 of the Coalition, is that the latter considers the more you tax, the more this acts as a disincentive to new business start-ups, investment, growth and associated job creation in the private sector. There has to be a more positive vision than the mantra of Labour that cuts too soon and too deep will harm a fragile recovery. Indeed, whether the economy has recovered or fallen into recession again will not be officially apparent until sometime after the event, when the appropriate statistics for growth are made available.

2 Responses to “Spending Review – Fairness & Hope”

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