Having It Both Ways



Camilla Cavendish is not the first political commentator to suggest that Ed Miliband's programme for government has been tried before by no less a figure than his old boss, Gordon Brown.

John Rentoul said it first, I think, though Camilla Cavendish does have a point when she points out that the welfare state was originally intended to be a contributory system, one in which citizens don't take out more than they've paid in.

Yet for all there's no doubt that we are increasingly becoming a nation of takers.   

We can take out without paying in — that’s the Miliband illusion


By Camilla Cavendish - The Sunday Times

ELECTIONS are great for nosy writers like me. Everyone is a potential voter. What surprises me is how much intimate information I can elicit just by uttering the word “election”. Total strangers launch into detailed descriptions of their personal finances. How much they earn, what they pay in rent or mortgage, what they are getting in benefits. Many people have seen their benefits fall (not pensioners, whose entitlements have been cherished and embellished by the coalition). Even with inflation down, they remember that they felt better off under Labour.

People are not immune to the argument that there is no money left. Most understand that we can’t spend beyond our means for ever. And they are quick to accuse other people of taking too much from the state: the lazy neighbour; the divorcĂ©e on legal aid; the family who inherited their council house. Yet decent, hard-working people feel strongly about any threat to their own entitlements. No one is particularly grateful that the coalition has allowed them to keep more of their own money before they start paying tax — the policy that Tories and Lib Dems boast about. Nor do they thank the government for a recovery they have either not yet felt or have already banked.

This is human. Social psychologists such as Robert Cialdini have extensively documented the ways in which we feel losses more deeply than gains. Heartfelt proofs of Cialdini’s thesis flooded my inbox in 2013, when the government decided to remove child benefit from households where one parent was earning more than £50,000 a year. Many high earners were furious. A Church of England vicar wrote to me complaining that his daughter, who had five children, could not possibly manage without it. It didn’t seem to occur to him that she could have chosen to have fewer babies. Or that it was not fair for a household earning at least twice the national average income to expect other taxpayers to chip in.

We all want someone else to take the pain. The rich dread the mansion tax. The poor dislike the benefit cap. Frontline public sector workers loathe wage freezes. The salariat who have worked long hours to get promoted into good jobs resent the landed gentry and the super-rich who, as The Sunday Times Rich List shows today, are continuing blithely on an upward trajectory while others struggle.

No democracy finds it easy to tolerate cuts in public spending. Our politicians have been brought up to spend, not cut. Since the financial crisis, indebted western governments in hock to international lenders have struggled with electorates that do not want to face the harsh new reality, especially when average wages have been falling. Low interest rates have inflicted terrible damage on savers, especially the elderly, in Europe and America. But the “easy money” of zero interest rates has inspired less protest against governments than spending cuts.

As the world becomes ever less secure, and so do our livelihoods, we seek comfort in illusions. One is the mantra that “I’ve paid in, so I’m entitled to take out”. We pay seemingly endless taxes — income tax, council tax, national insurance, VAT — but more of us than we imagine may actually be net recipients of state largesse.

Three years ago the Centre for Policy Studies think tank tried to work out how many people were receiving more in state aid, health and education than they were paying in taxes. It calculated that 53% of households received more in benefits than they paid in tax in 2010. Even the middle fifth of earners were getting more on average than they put in, according to this thesis. Only the top two-fifths of households were paying their way.

You can quibble with the exact figures, for various reasons. What is more important is how they have changed over time. Even if you exclude pensioners, who have been increasing in number and so inflating the recent figures for net recipients, the proportion of working-age households that seem to have “taken out” more than they “paid in” has jumped from 29% in 2000 to 40% in 2010.

This is a dramatic change however you cut the numbers (which the Office for National Statistics provides on its website). It was partly a consequence of Labour’s higher spending on public services, funded by borrowing. It was also a result of Gordon Brown’s determination to expand the scope of the welfare state. As chancellor, he increased the number of households in receipt of tax credit from about 700,000 in 1997 to something approaching 4.7m by 2010. By creating a whole new class of benefit recipient, he gave more middle earners a stake in the status quo. This made it even harder to tell voters the truth when the money ran out.

For all the huffing and puffing about austerity, the coalition has only begun to slow public spending. This has inflicted real pain, particularly on social care budgets, because the government has had to spend so much on debt interest. But with an ageing population, if so many working people are net recipients rather than contributors to the state, public spending levels are unsustainable.

There are only two alternatives to cutting spending: borrow more or raise taxes. There is a limit to both, though. Borrowing sounds nice and distant — unless you’re Greek, or Spanish, even French. And the limits to how much the government can soak the rich were demonstrated by Friday’s announcement that HSBC, fed up with paying the bank levy that George Osborne has just hiked again, is thinking of quitting London.

Osborne has managed to extract unprecedented wads of money from the wallets of the rich. What Ed Miliband likes to call “Cameron’s tax cut for millionaires” — the reduction of tax rate on those earning over £150,000 a year from 50% to 45% — has resulted in the top 1% of earners paying 28% of all income tax. The richest 0.5% now pay almost three times the total tax paid by the bottom half of all taxpayers. Infuriating though some of the super-rich may be, living in their bubbles of bling, this makes it rather important that they do not leave the country.

What, then, is the real choice at the election? On Thursday the Institute for Fiscal Studies (IFS) predicted that a Conservative-led government would cut spending by about 18% in unprotected departments, if it sticks to its deficit goal; and that a Labour-led government would increase national debt by about £90bn, despite its claim to be “relentlessly focused on the deficit”.

The IFS accused Labour of being “considerably more vague” about its plans. That’s saying something, given the Tories’ reluctance to detail their spending cuts.

Secretly, we voters want it both ways. Despite it being impossible, we’d like fiscal responsibility without pain. That is what Ed Miliband is selling. The fact that so many people would like to believe this illusion is, I guess, a victory for Gordon Brown.

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