21 Oct 2010

Spending review: a pot pourri of stealth cuts?

It is rather difficult to escape the notion that in an almost crazed desire to be seen as “fair”, the Coalition has made a bit of a dog’s dinner of the spending review.

Even if you support the extent and pace of deficit reduction mapped out by George Osborne (which it should be said has undoubtedly taken Britain out of credit rating danger zone), a litany of half-truths, dodgy claims, and policy inconsistencies was today exposed by the IFS.

And rarely can there have been such a direct Downing Street intervention in to the heart of the “post match” IFS briefing that has become a fixture of Budgets and Spending Reviews in the last decade.

Through the miracle of iPhone and Blackberry the words of Nick Clegg suggesting those like the IFS who question the fairness of yesterday’s announcements were “frightening people” were communicated to the Bambi-like boffins of our premier tax and spend watchdog. Carl Emmerson pointed out that they have never described anything as “fair or unfair”. They are making numerical statistical analyses of exactly whose shoulders really are bearing the biggest burden.

Regressive review
It’s worth mentioning that Nick Clegg has form with the IFS. On these pages I relayed in August that Nick Clegg, despite having quoted the IFS repeatedly in the hallowed TV election debates, turned on what he called their “partial” and “selective” analyses. Ironic, then, that the Treasury produced six such partially selective tables in yesterday’s document.

On that front there is no debate, that yesterday’s spending review was regressive. The new measures in the Emergency Budget were regressive too. Only if you include the total deficit reduction package, including the Labour tax rises on the rich can you even try to conclude that it is progressive. Though even that is highly debatable if you stretch the analysis out to 2014/15. But let’s park that.

The claim made by the Chancellor that his departmental spending cuts were less than Labour would have made was ripped to shreds by the IFS. It only holds if you ignore the impact of the £6.2bn of cuts made in the current financial year.

The Chancellor claims that his reforms will increase the incentive to work. The IFS revelation that the Treasury accept that they will lose £280m from higher rate taxpayers asking for a pay cut or making extra pensions contributions to avoid the child benefit cut is therefore very damaging.

Oh, yes, did you know that the withdrawal of child benefit from higher rate payers will affect 1.8 million people, not 1.1m as we were told earlier this month? Epic error.

The idea of having a single all encompassing Universal Credit from 2013 is also undermined by the establishment of 100 or so localised versions of council Tax benefit reform. As the IFS’s Mike Brewer says “it is directly against ideas behind Universal Credit”.

The Government have made an awful lot of political capital from the notion that poor recipients of child benefit should not be subsidising the rich. But why do they then park that logic in every other area of their welfare cuts.

“On the same basis, low income pensioners have lost some pension credit to fund high income pensioners’ winter fuel payments,” point out the IFS.

Then there is the much heralded tabloid friendly Benefit Cap, which the IFS has branded as “a lazy way to make policy”. Why not make this adjustment through the child tax credit system or housing benefit system?

Stealth cuts?
Reading back through the green document one is left surveying a pot pourri of policies that are designed to try to make the public fail to notice the cuts. They are, if you like, stealth cuts.

And this may be a presentational complaint, and it is definitely true that Gordon Brown’s Treasury concocted a variety of statistical wheezes from double counting to the very serious charge of continually altering the fiscal goal posts every time his famous targets looked like being missed.

However, in my 10 years of attending every single IFS post Budget/SR briefing, I have never seen such an all-encompassing critique of as many aspects of one document.

Does it matter? Well, yes it does.

Even if George Osborne is doing unambiguously the right thing, he has not got the mandate to act in a variety of areas where his axe has fallen. I spent most of the election campaign following the minutiae of his policy announcements, and not one jot about housing benefit or train fares, for example, which have seen huge moves.

The mandate for cuts like this can not be assumed from the election result. It needs to be won. And more clarity, transparency, and honesty than we got yesterday, would help.