David Gauke: It’s right that the civil service become more efficient, but I doubt that these plans to reform it will work

23 May

David Gauke is a former Justice Secretary, and was an independent candidate in South-West Hertfordshire at the 2019 general election.

Government Ministers want to reduce the size of the civil service. Jacob Rees-Mogg, the Minister for Government Efficiency, has let it be known that he wants to reduce the civil service headcount by approximately 90,000 which would be a fall of 20 per cent and return the numbers to the levels of 2016. Sky News reported on Friday that departments have been asked to model headcount reductions of 20, 30 and 40 per cent.

There is plenty of politics in these announcements and I will get to that in a moment. There are also a large number of practical challenges which are worth highlighting. Having served as Chief Secretary to the Treasury as well as being the Minister responsible or relevant for the three biggest employers of civil servants (at the Department of Work and Pensions, HMRC and the Ministry of Justice), I have a few thoughts on that.

Before turning to those issues, however, it is worth acknowledging that seeking to ensure that public money is spent wisely and that public services are delivered efficiently is a perfectly reasonable thing to do.

Indeed, it would be irresponsible not to seek to do this. We spend taxpayers’ money on public services in order to serve the public. This requires the employment of public servants, but the employment of public servants is incidental to the Government’s purposes, it is not an objective in itself. This is an obvious point, but I can remember at least one meeting with civil service staff where this point had been lost.

Governments should seek to achieve more for less and, if it is possible, to deliver satisfactory public services whilst employing fewer people. This can result in savings for the taxpayer and release workers to make a contribution elsewhere in the economy. Jobs are a cost not a benefit.

Some will argue that reducing headcount results in a deterioration in public services. That is not inevitably so. To take HMRC, for example, this is a department that has grown in confidence and capability over the last twelve years at a time when the number of employees has fallen.

The reason it has been able to do this is that it has embraced technology which means that many clerical tasks which once had to be undertaken manually have been automated, whilst its sophisticated use of data has enabled it to deploy its skilled workforce more efficiently, significantly reducing the tax gap.  But this does not mean that the plan to reduce numbers by 90,000 is realistic.

It is worth analysing why civil service numbers have increased over the last six years and well worth looking at a paper by the Institute for Government on the topic.

The principal reason is that we have wanted the civil service to do more things. The obvious example of this is Brexit. We have returned certain responsibilities to the UK Government from the European Union, and we need to employ people to fulfil those responsibilities. We previously did not have (or need) a Department for International Trade; now we have one employing 2,000 people. We have increased the number of policy staff in the Environment and Culture departments because there is now more policy that needs to be done here. We also have new operational requirements, such as operating a new customs border with the EU, which will require civil servants to operate.

The employment of a few thousand extra civil servants as a consequence of leaving the EU is not a killer argument against Brexit (there are better arguments, but let us leave that for another day).  However, it is an undeniable consequence and it cannot be dismissed, nor is it just temporary. If policy for some matters is permanently going to be located in the UK, then we permanently need to maintain policy capability here.

There are other policy objectives that have risen up the political agenda. Levelling-up – ensuring that prosperity is more equally shared across the country (I think that is what it roughly means) – will not be achieved without a vast effort. This will require people – civil servants – to be employed to make the vast effort.

In some cases, the Government has observed what civil servants are doing and concluded that we would like more of it. Let us take DWP’s work coaches who provide holistic support for those looking to get into employment. Successive Work & Pensions Secretaries have been impressed by the contribution they have made to turning people’s lives round, solving problems ‘upstream’ and contributing to low levels of unemployment. So the number of work coaches has been expanded. For a Government that believes that work is the best way out of poverty, it would be very odd to reverse this.

Of course, some of the additional tasks have been pandemic-related and there are saving to be made. But Covid also raises questions about our overall resilience to future public health emergencies which will have ongoing implications for staffing.

Looking at the public sector as a whole, the Government has clearly concluded that job cuts went too far in some areas over the ‘austerity years’, hence the pledge to recruit 20,000 more police officers. If our intention is to reduce crime, there are other (arguably better) examples of where numbers fell by too much after 2010. The Government is rightly committed to offender rehabilitation. This means we need more probation officers. Probation officers, like work coaches and customs officers, are civil servants. As are those who work in DVLA, the Passport Office and the Courts where there are backlogs and delays that need to be addressed.

There is also something odd about a process which requires departments to come forward now with proposals which in aggregate sees a 90,000 headcount reduction. It is right that spending departments, the Treasury and the Cabinet Office work together to ensure that strategic and bold thinking is undertaken to identify possible savings, including by deprioritising some activities and identifying opportunities for automation. The problem is that there is a time at which this should happen – at the point at which the Comprehensive Spending Review is being determined – and that happened only seven months ago alongside the 2021 Budget.

At the time of the CSR, the Government set out plans which implied a reduction to the civil service headcount of 28,500. This, presumably, was part of the discussions within Government and provided a key assumption in the departmental spending settlements. Now, we have new numbers and a new process is being commenced. Spending departments are entitled to ask what is going on. Is the CSR being reopened or not?

The suspicion is that this is driven by political considerations as part of a desire to be more ‘ideologically Conservative’, appealing to those who think that civil servants are lazy and useless and spend all their time watching daytime television whilst claiming to be working from home.

Putting aside the unfairness of this observation (most current and former ministers would, I suspect, speak highly of the professionalism of the civil service), it is not an attitude that is likely to bring out the best from those upon whom the Government depends to get things done. Nor is it coherent with the big state conservatism that contributed to the 2019 general election victory.

Squeezing greater efficiency from the civil service is to be welcomed but I fear that these proposals have all too familiar characteristics – unrealistically optimistic, politically motivated and ideologically incoherent.

Peter Lilley: Only the EU threatened to impose controls on the UK/Ireland land border

10 Feb

Lord Lilley is a former Secretary of State for Trade & Industy and for Social Security.

Critics assume that, but for the Protocol, the UK would introduce border controls and checks on trade with the Republic.

In fact, the only party threatening a hard border on the island of Ireland was the EU.

The EU claimed that (unless the UK kept either Northern Ireland or the whole UK subject to EU internal market and customs law) it would need to apply along the border between Northern Ireland and the Republic of Ireland the full panoply of border checks and inspection posts normally specified in EU law.

These checks, it said, are necessary to protect its Internal Market from goods entering the EU which do not meet EU specifications and pay its tariffs – and might therefore either threaten the health of its consumers or compete with its producers.

By contrast, the UK has repeatedly said, in the words of Jon Thompson, the head of HMRC: “we do not … require any infrastructure at the border between Northern Ireland and Ireland under any circumstances [even if the UK left on WTO terms].”

HMRC (and DEFRA) are confident that they could enforce UK regulations and standards on goods entering the UK from the Republic without infrastructure and controls at the border. Pre-Brexit, they already policed differences in VAT, excise duties, red diesel, as well as trade in drugs and weapons without resort to controls at the border. Any checks needed were carried out by inspecting the company’s books or goods at the point of despatch or delivery.

Initially, Niall Cody, the Head of the Irish Revenue was “practically 100 per cent certain” that there will be no need for new customs facilities along the border. And the then Taoiseach, Leo Varadkar, said: “I’ve made it very clear to my counterpart in the UK and also to all the other EU Prime Ministers that under no circumstances will there be a border – full stop.” “In terms of a no deal scenario … we won’t be installing a border between Northern Ireland and Ireland, and everyone knows that.”

That changed once the EU insisted that its laws required border posts and checks – unless the UK applied EU laws and customs checks in Northern Ireland or the whole UK. Irish Republicans then realized this threat could be a stepping-stone to a united Ireland. And elements in the British Government were happy to use it as a lever to keep the UK within the EU Single Market and Customs Union.

Nonetheless, had the UK not bowed to the EU’s threat that it would build a hard border if the UK did not implement its laws the other side of the border, neither the UK nor the Irish Republic would themselves have created a hard border.

Ryan Bourne: For Sunak, cutting the basic rate of income tax shouldn’t be a political priority right now

15 Dec

Ryan Bourne is Chair in Public Understanding of Economics at the Cato Institute.

The tax-to-GDP burden might be rising to its highest level since 1950, but Rishi Sunak, the Chancellor, promises tax cuts soon. Reports say he is planning to cut both inheritance tax and VAT ahead of the next general election. The main “retail” ambition his team wants though is to trim the basic rate of income tax from 20 per cent to 19 per cent in 2023 and then to 18 per cent before polling day.

HM Treasury’s bully pulpit really can be used to set the field for spending or tax battles, but Labour evidently fancies its chances on this turf. Rachel Reeves, the Shadow Chancellor, has already called Sunak’s bluff, telling City AM that she “would like to see the chancellor do it” rather than “just talk, talk, talk” about it. Labour might have spent a decade moaning about underfunded public services due to “austerity,” but it senses backbench Tory unease on tax and will seek to exploit that weakness by ramping up this arms race.

But this raises the question: does the political consensus for a basic rate income tax cut represent good policy sense?

I broadly subscribe to Milton Friedman’s dictum to “favour…cutting taxes under any circumstances and for any excuse, for any reason, whenever it’s possible.” There are all sorts of weird asymmetries in the UK discourse that means it’s easier politically to raise spending rather than cut taxes, so small staters should usually grasp what they can. And yet, for both economic and political reasons, cutting the basic rate of income tax wouldn’t be high on my priority list of tax cuts right now.

First, because it’s a tax cut for over 31.6 million people, reducing the basic income tax rate from 20 to 18 per cent is a big chunk of foregone annual revenue: £11.5 billion, according to HMRC’s ready reckoners. That’s a lot of moola to tell the 27 million basic rate payers that their marginal rate will fall by just two percentage points, which not only doesn’t sound a lot but would not substantively change their incentive to work or earn more income.

And there’s a serious, serious opportunity cost here. For an equivalent revenue, the Chancellor could cancel his planned rise in the main rate of corporation tax to 25 per cent, instead keeping it at just 21 per cent. He could slash stamp duty land tax across the board en route to potentially eliminating the tax entirely. Alternatively, the Conservatives could achieve what their 2019 manifesto’s “ultimate ambition”: raising the employee starting threshold for National Insurance contributions to align it with the income tax personal allowance (perhaps as a step towards integrating the two taxes). That would be a tax cut better targeted at low earners, with bigger pro-work incentive effects across low levels of income.

That brings us to the second, more political, reason why a basic rate cut would be a weird priority in this Parliament. Sunak’s recently announced “health and social care levy” – a 1.25 percentage point increase in National Insurance taxes that will eventually become its own earnings tax – would raise very similar sums to that lost from these income tax cuts. Not only would the Government have used the need for better public services as justification to raise taxes substantially only to then cut them by around the same amount. But in doing so, it would fall prey to criticism of generating unfairness given the two different tax bases.

The IFS’s Paul Johnson, for example, has described raising National Insurance to fund the NHS while then cutting the basic rate of income tax as “indefensible.” Why? Well, because the health and social care levy would only squeeze workers, whereas the income tax cut would benefit many other people earning incomes from holding assets, such as landlords or recipients of occupational pensions. That makes the Tories vulnerable to the accusation that, combined, these measures redistribute from poorer labourers to the wealthy.

Now Sunak might not be too bothered by this attack. Polling data regularly shows the more salient income tax second only to inheritance tax in the list of levies the public hate. It’s clear that the creation of the health and social care levy was more about delivering a flowery sounding revenue stream that it would be politically easier to raise in the longer-term anyway. And left-wingers will always call every income tax cut regressive, dreaming up new dodgy statistics to prove it.

But even if the Chancellor is confident on the politics, there’s another reason for caution on the economics. For when you feel you have the political and economic space to actually engage in a major tax cut, you should seek to achieve the biggest bang for your buck. And I’ve always been struck by an old line from a ConHome piece by Matt Sinclair on this, which said “tax cuts without reform is a missed opportunity.”

Britain’s tax code remains a complete mess, with extremely high marginal tax rates littered through the code for income. We have business rates, investment incentives, vehicle taxation, and the VAT system all in need of a complete rethink, or at the very least being rationalised to eliminate absurd anomalies. Add to this the slow economic growth we’ve experienced since the Great Recession and Britain is crying out for meaningful tax reform to improve incentives to work, save, and invest, and to remove tax-induced distortions to economic activity.

With all these challenges, it would seem short-sighted not to use a large tax cut to at least aid the process of some lasting, meaningful pro-growth reform. Big tax cuts of 10s of billions of pounds can play a crucial role in greasing the wheels for controversial tax changes, in fact, because any losers from a revenue-neutral reform can then be bought off through a lower overall burden.

If the Chancellor is really determined to do a large, broad-based pre-election tax cut, his ambitions should therefore not be limited to a simple rate reduction. He might prioritise a big rise in the starting national insurance threshold or to cut the headline VAT rate while phasing out many zero- or reduced ratings. Both would still be large tax cuts for most households, buy they’d bring a double dividend: either substantively improving work incentives for those on very low incomes, or improving the coherence of the code too.

With an ageing population raising demand for government spending, political opportunities for major tax cuts seem to be getting scarcer. That increases the importance of using them prudently. Sunak’s aim should be to use any cuts to improve our lasting economic potential and not just put more cash in pockets before elections.

Ryan Bourne: Cut immigration to raise wages? If only it were all so simple.

20 Oct

Ryan Bourne is Chair in Public Understanding of Economics at the Cato Institute.

Will reducing the immigrant labour flow raise living standards for low-paid workers? Boris Johnson thinks so. In his Conservative Party Conference speech, the Prime Minister claimed: “We are not going back to the same old broken model with low wages, low growth, low skills and low productivity, all of it enabled and assisted by uncontrolled immigration.”

Worker shortages in hospitality, farming, and for HGV drivers have bumped pay for some workers already. This has been held up as reflecting the seeds of a new economic model. Restricting immigration is now even seen by some Conservatives as a key tool to force businesses into investments in automation that will make British workers more productive.

It’s difficult to overstate the shift in thinking necessary for Tories who grew up under Thatcher to believe that “supply-side restrictions are good for the economy, actually.” But whether out of genuine conviction or just putting a positive spin on events, Conservatives should beware of using today’s disruption as signalling a desirable paradigm shift in wage-setting.

Not just because the pandemic is driving many current labour market problems, with little indication these trends will deliver lasting real wage gains. But because there is scant evidence that restricting the flow of EU workers will result in rising pay overall.

First of all, labour markets are largely out-of-whack because Covid-19 and lockdowns have severely shaken up consumer demands, work locations, and people’s career goals. Activity is gradually migrating to reflect these new trends.

In the U.S, we’ve seen high vacancies and spiking wages in industries such as hospitality, farming, and trucking for months too. So, clearly, what’s happening today is not primarily about Brexit or immigration policy.

I called this Covid-19-related process “the reallocation economy” in my book. The shock of the pandemic has altered many households’ decisions on when to retire, whether to go into higher education, or the desirability of staying in their current commuter jobs.

Yes, there has been an exodus of EU-origin workers due to this turbulence and to Brexit, too, which has heaped pressure on certain sectors with large immigrant workforces. Wages and prices, though, were always going to be volatile as these supply and demand mismatches played out across the economy.

“Simply raise pay and invest in workers to solve shortages!” say keyboard economists to industries struggling to hire. A shortage of labour (other things the same) will indeed raise compensation within affected markets, as we’ve seen on chicken farms and for HGV drivers.

But wages are a business cost, not just something employers can adjust without consequence. In reaction, profit-seeking firms will raise prices, cut worker benefits, slash services, or leave the sector entirely if profits are squeezed tightly by a higher price for labour. This is capitalism: there is no free lunch.

This is the crucial mistake made by those who believe cutting off access to workers for certain industries will somehow be “good” for the economy. It’s a half-baked examination of the effects.

A policy-induced shortage of HGV drivers may raise pay rates for HGV drivers. But more expensive HGV drivers means increased transport costs, resulting in higher consumer prices of goods, fewer deliveries, or substitutions away to other transportation methods. The HGV drivers employed may well end up better off in real terms. But others in the economy will be worse off, facing higher prices or less reliable services. The very poorest could well end up subsidising these higher driver wages if they result in, say, higher food prices.

In response to this argument, some claim that only migration restrictions will induce companies to invest to deliver future productivity growth that ultimately benefits everyone. But encouraging otherwise uneconomic investments by creating shortages of workers clearly makes us worse off overall, not better off. Profits drive the adoption of efficiency-enhancing technologies. Forcing businesses to cope with a lack of inputs by tilting the deck against the most profitable business practices cannot be “good” at an aggregate level, or else businesses would have changed in that direction already.

In suggesting otherwise, Conservatives risk falling for the sort of supply-side fairytales of the left, who talk of regulation as a source of innovation. It’s the thought process that says that the minimum wage can be raised to £15 per hour, and that this will somehow be a boon for productivity growth (something yet to be observed after over a decade of minimum wage hikes).

To be clear: migration restrictions may well raise real pay rates in some sectors. This is more likely to occur in industries where EU labourers directly competed with British workers and where the presence of more EU nationals did not significantly raise demand for the goods or services in question.

But there’s not a fixed amount of work, nor reason to believe EU migration reduced wages meaningfully in aggregate. Where foreign workers complement existing skills, fill shortages, or create new products or demand, they can also boost productivity and wages. That’s why, overall, studies regularly found little effect of EU migrant flows on native wages.

Even the famous Bank of England study that broke down the impact by skill group implied that immigration over a decade may have lowered real pay for low-skilled service workers by around one per cent percent. That’s against benefits from the free-flow of people, including cheaper produce and enhanced productivity from the entrepreneurship brought by other migrants.

Immigration’s static effects on wages simply pale by comparison to other supply and demand factors. Median cash pay across the whole economy has grown by 9.8 per cent between September 2019 and 2021. For all the talk of the effects of shortages, there is scant indication of a broad wage boom in low-skilled sectors yet. HMRC’s PAYE data shows a much lower 5.9 per cent growth in median “transportation and storage” pay and a mere two per cent increase in “accommodation and food services” during the last two years, the latter of which is a decline in real terms. Yes, the labour supply obviously affects pay levels, but this shows the power of demand shifts too.

Deep down, most Conservatives know this. The Government has already relented on poultry workers and HGV drivers, taking steps to liberalise at least some visas in recognition of the ongoing disruption. But they are setting a rod for their own backs in implying that ending free movement is key for rising low-skilled wages. Not only will any restrictions that deliver higher pay in some sectors lead to offsetting price rises for others, but the short and long-term evidence gives no indication that migration changes will meaningfully boost compensation for the low-paid as a cohort.

David Gauke: Sunak’s options for a Budget windfall. Lower debt, tax cuts and higher spending. Which will he choose?

27 Sep

David Gauke is a former Justice Secretary, and was an independent candidate in South-West Hertfordshire at the recent general election.

In a month’s time, Rishi Sunak will have some good news to deliver in his Budget. He will have more money to play with than was forecast at the time of the last as forecast by the Office for Budget Responsibility. How he uses these additional resources will tell us a great deal about his priorities and the priorities of the Government.

Before turning to his options, it is worth setting out some context. The overall state of the public finances cannot be described as being particularly cheery, even if they are significantly improved since March.

The debt to GDP ratio will still be nearly 100 per cent, higher than at any point since the early 1960s, and not forecast to fall fast. The Government still has substantial spending pressures in the short and medium term – Covid catch-up, levelling up, net zero and social care – as well as long term demographic pressures that will bite in the 2030s. In response, the Government has this year announced substantial tax increases with the Corporation Tax rise, a freeze on thresholds and allowances in the personal tax system and the National Insurance increase announced earlier in the month. We now have the highest tax burden in our peacetime history.

The tax rises have not taken effect yet, but many people are already facing a squeeze in living standards. Inflation is set to hit four per cent, with energy prices rising much faster than that and six million people are about to see the end of the £20 per week Universal Credit uplift.

So at a time of high debt, high taxes, falling living standards and unfunded spending commitments, a bit of good news does not come amiss.

The good news is that the OBR’s March assessments of GDP growth in 2021 (4 per cent) and of the long term scarring effect of Covid on the economy (or, to put it another away, the capacity for the UK economy to grow in future) of three per cent looks to be pessimistic. With GDP growth this year likely to be approximately seven per cent (although the current supply chain uncertainties may bring it down a little) and scarring as little as one per cent, the difference to the public finances could be low tens of billions – a very handy sum.

Assuming that this is the case, what are Rishi Sunak’s options?

First, he can strengthen the public finances by bringing debt down faster than originally planned. We are getting our debt away cheaply at the moment which, some argue, suggests that there is not an imperative to do make a further reduction. But our debt levels are uncomfortably high in the event of another recession, and even small increases in interest rates could result in us paying a lot more to service our debt. Maintaining market credibility is always important to the Treasury and, by all accounts, the Chancellor of the Exchequer. We can assume that he will be keen to ensure that a significant proportion of the improvement in the public finances is put to this purpose. It also means that the Government may have more choices available nearer the time of the general election.

Second, taxes could be cut. This seems very unlikely to be announced in October ,given that the Prime Minister has just announced some tax rises, there remain outstanding spending pressures and it is still relatively early in the electoral cycle. Many Conservative MPs are not happy with the historically high level of taxes, but that is not going to change any time soon.

Third, he could increase departmental spending. The Treasury is downplaying the chances of this option by stating that the spending envelope has been set and is not going to be re-opened, but I am somewhat sceptical that this is quite so hard and fast a position.

There are two conflicting views on the pressures on departmental spending. One view is that the current spending plans assume no Covid costs after 2021-22 which is unrealistic; that generous spending plans for health, education and defence mean that there is precious little left for other departments – to the extent that unprotected departments face a real terms reduction and, if you compare the departmental spending numbers with what was announced in March 2020, there has been a cut.

The alternative argument put forward by the Treasury spending hawks is to point out the extent to which March 2020 signalled a turning-on of the spending taps. The long term trend growth of our economy is forecast to be 1.5 per cent. If departmental spending is to remain constant as a share of GDP, it would also grow at 1.5 per cent but, instead, the plans involved increases of four per cent a year and the capital spending element by seveb per cent a year.

The Treasury gets very annoyed at any suggestion made by the good people at the Institute of Fiscal Studies that there are departmental ‘cuts’ because the current spending plans are lower than those announced in March 2020. It is reminiscent of the trick Gordon Brown used to pull of setting out steep increases in public spending and, when the Conservatives set out slightly shallower increases in spending but increases nonetheless, describing the differences in spending as ‘Tory cuts’.

The bigger point the Treasury will be making is that, for those departments that have much more to spend, they really should absorb the short-term Covid recovery costs because spending is going up fast enough as it is, thank you very much.

(And, by the way, given that we are giving you this extra money, how about some proper efficiency reforms in return? Spending reviews should be the moment when the Treasury and spending departments make some big strategic decisions as to how taxpayer value for money is achieved but, since the Prime Minister has just reshuffled many spending ministers and the Chief Secretary to the Treasury, such a development does not seem likely on this occasion.)

The real issue is the position with the unprotected departments. There is a political vulnerability if departments do, in fact, see real term cuts (“the return to austerity”). With regard to two departments of which I have experience, the Ministry of Justice clearly needs more resources to function effectively and, in terms of protecting the public finances, penny-pinching with HMRC is counter-productive. My guess is that, with the exception of overseas aid, the Chancellor at the very least will find the resources to ensure no department faces real term cuts.

The final choice is on welfare. The £20 per week Universal Credit uplift will have gone by the time we get to 27 October and, particularly at a time of rising prices, this is going to be painful for many. Lowering the taper rate will not help the poorest claimants, but it is consistent with the Government’s emphasis on incentivising work by essentially lowering the marginal tax rate. It would also provide a reasonably good answer to what the Government is doing to help people with the squeeze on living standards. Taken in the round, a reduction in the taper rate ticks so many boxes that I would be surprised if it does not happen.

So the Chancellor should have some positive announcements on borrowing, departmental spending and Universal Credit. In what may prove to be a difficult autumn for the Government, Sunak’s October Budget looks likely to be one of its better moments.

John O’Connell: Lobbying, and an unacknowledged problem – namely, groups funded by the taxpayer that lobby for even more

16 Apr

John O’Connell is Chief Executive of the Taxpayer’s Alliance.

Whenever a new lobbying scandal emerges, the forgotten victim tends to be the taxpayer. A well-heeled special interest is usually after a subsidy, higher government spending or a bespoke tax break. The current episode is no different: at its heart lies a proposed solution to late payments within the NHS that could have cost taxpayers’ money.

Alongside taxpayers, small business loses out. Most can barely get hold of their local councillors, but taxpayer-funded groups and large companies can meet ministers and senior civil servants. Think of the business rates bill for the publican who served you your first post-lockdown pint on Monday; then think of the big companies that can secure meetings with HMRC to discuss their tax bills.

So lobbying has become synonymous with pleas from the well-connected for politicians and bureaucrats to reach even further into taxpayers’ pockets. Matt Ridley wrote about this in a column for The Times way back in 2013: “In Westminster the interests of spenders are represented by phalanxes of ministers, MPs, peers, lobbyists and journalists. The interest of the taxpayers is represented by a couple of lonely Treasury ministers and a few small voices such as the Taxpayers’ Alliance: it is an unequal battle.”

Indeed, we at the TPA spend pretty much every day attempting to fend off endless demands for more public cash. And while the requests of big business rightly get a lot of attention, there is a pretty broad spectrum of groups working hard to have more of your money. Many of the most prolific offenders are funded by taxpayers’ money themselves, using cash given to them by the Government (or councils, quangos etc) and access to senior people to lobby for even more money to be spent on their cause.

Many from the “social justice” wing of the campaigning world evidence this. The Runnymede Trust received significant amounts of cash from UK Research & Innovation over the five years up to 2020. At the same time, it has regularly made political interventions. The left-wing think tank the New Economics Foundation, which has actively campaigned for more public spending, received £127,715 the following year. Public sector organisations themselves lobby for even more cash, such as HS2 Ltd.

You’ll hear less about these groups in the noisy debate on lobbying. Prosaically, it’s because many groups engaging in lobbying are seen as “acceptable” or “nice” – allowed to lobby freely and openly because of the causes they champion. This probably also explains why their pleas for more cash are given relatively unchallenged platforms on broadcast media. If someone dares to point out that we spend too much money already, and that we ought to show restraint in order to keep taxes low, the Twitter mob descends.

Policy-making benefits from external contributions. Politicians and mandarins should of course be encouraged to learn from practitioners and hear from those who may be adversely impacted by their decisions. So there is a very real danger that a knee-jerk reaction to the Greensill affair will miss the mark. For instance, the focus on David Cameron is entirely understandable and reasonable – he’s the former prime minister – but solutions concocted with him too sharply in focus could tie up politicians and miss out mandarins, as pointed out by this site.

Badly thought out rules could see chats with companies registered, but not – for example – those with Fleet Street hacks. And if we let permanently offended and perennially angry Twitter mobs guide the proposals – which unfortunately happens all too often – we could end up cracking down on whomever they deem are “bad” lobbyists but not the (publicly-funded) “good” ones.

Let’s not forget, groups raging a guerrilla war against the taxpayer – dragging the public discourse towards more spending always being the only answer (a view not shared by most voters) – are far more powerful than they like to let on. It suits them just fine to undeservedly perch on the moral high ground and watch the private sector firms take the heat in the battle below, before resuming their taxpayer-funded lobbying unaffected.

So taxpayers need a system which tackles the root cause of the problem; one that says enough is enough to evermore spending pledges. That means fewer grants, streamlined quangos with stricter operational remits, ditching pointless schemes that waste time and money, better and more transparent contracts and ending programmes that have run their course or achieved their objective. Stop giving anyone or any organisation a reason to constantly ask for more cash. After all, we spend our own money better than bureaucrats and politicians.

David Gauke: Cameron’s values in government may be out of favour, but they are not wrong

13 Apr

David Gauke is a former Justice Secretary, and was an independent candidate in South-West Hertfordshire at the recent general election.

The Government’s announcement that it is undertaking an independent enquiry of the Greensill Capital affair is unlikely to bring much cheer to David Cameron. He has endured weeks of bad publicity, and there is little chance that the story is imminently going to ‘move on’.

Whatever the rights and wrongs of the former Prime Minister’s actions – and he has acknowledged making mistakes – the furore is all the more painful because his reputation as Prime Minister was already at a low ebb. Critics of his economic policy accuse him of inflicting austerity which, they argue, were unnecessary, stunted growth and damaged public services; he is castigated by Remainers for calling and losing the Brexit referendum and by Leavers for being a Remainer; some on both sides accuse him of deserting his post by resigning the morning after the poll; his electoral successes have been surpassed by Boris Johnson’s thumping majority in 2019. Not unrelated to this, neither the man nor his political values appears to have much influence on the modern Conservative Party.

Defending Cameron’s record in office is deeply unfashionable. So I will do so.

Let us start with the economy. There are few defenders of ‘austerity’ in today’s public debate. Labour still want to argue that the electorate got it wrong in 2010 and 2015, just as they tried to do in 2017 and 2019 (which, incidentally, suggests that this might not be a guaranteed route to success). Johnson, meanwhile, is not temperamentally an austerian and enjoys the opportunity to demonstrate that he is new and different from recent Conservative history.

The economic debate has also moved on. Governments have been able to borrow vast sums of money in the last year without much of a risk of a sovereign debt crisis. Central banks have played a more active role, debt servicing costs have fallen and international organisations have advocated expansionary fiscal policies. This may all go wrong at some point – there is more reason to worry about inflation than for many years – but it hasn’t gone wrong yet.

None of this means, however, that the concerns of fiscal conservatives back in 2010 should be dismissed. The global financial crisis had resulted in substantially higher spending and permanent damage to tax revenues. The risks of a sovereign debt crisis – with consequences for inflation, debt interest costs and consumer and business confidence – were not imaginary. The IMF and the OECD advocated that countries needed to have credible plans to put the public finances on a sound footing, and many countries did just that. In short, the balance of risks and the expectations of the markets in the years after 2010 were very different to where we are now.

Did fiscal consolidation significantly hamper our economic recovery? It is true that economic growth in 2011 and 2012 was disappointing (although not as bad as it appeared at the time when the ONS early estimates suggested that we had had a double dip recession), but it is worth remembering that the independent Office for Budget Responsibility put this down to the lasting effects of the banking crisis, higher commodity prices and the Eurozone – not fiscal consolidation.

Looked at in the round, over the 2010-2016 period, the UK had the joint highest growth for a G7 economy, level with the US. It was also a period of rapid jobs growth, with the highest employment rate in our history and income inequality falling. Had the Brexit referendum gone the other way, there is every reason to believe that the post-2016 UK economy would have been characterised by high economic growth, rapidly rising living standards and strong public finances, as opposed to us falling to the bottom of the G7 league table.

Were public services were unduly damaged? Difficult decisions had to be made, but many of them were unavoidable given that the spending plans that we inherited were based on an over-optimistic, pre-crash assessment of what was affordable. It was possible to drive greater efficiencies and find ways of getting more for less. The British state has been placed under enormous strain in the last year by Covid but there have been some real successes. Just looking at two areas where I have some familiarity through Ministerial experience, HMRC was able to introduce the furloughing system in a matter of weeks, and the Department for Work and Pensions was able to cope with an extraordinary surge in benefit claimants. Neither would have been possible without reforms undertaken by the Cameron Government.

Having said all that, we relied too heavily on spending cuts over tax rises. It was politically easier at the time to cut spending rather than raise taxes and, as time went on, we got the balance wrong. Some areas of government spending – justice, for example, or social care – were squeezed too hard. But a period of spending restraint was necessary and inevitable and too many of Cameron’s critics fail to acknowledge that.

It was the decision to hold a referendum on the UK’s membership of the EU and then lose it that hangs most heavily over Cameron’s reputation. It will, unfortunately, always be for what he is remembered and, for many Remainers, this will never be forgiven. The referendum result created huge uncertainty and will, in my view, inflict lasting damage to the UK. But we should not kid ourselves that had he adopted a different approach our membership of the EU would currently be assured.

The Conservative Party was moving in the direction of being a Vote Leave Party – in part because of the fear of UKIP peeling off Tory votes – and the decision to offer a referendum was motivated both by a desire to win the 2015 general election by winning back UKIP voters but also by a recognition that a post-Cameron Conservative opposition would, in all likelihood, favour Brexit.

The best chance of staying in the EU, Cameron concluded, was to settle the issue early with a decisive Remain victory – the longer the issue was left, the greater the chance we would leave the EU. As it turned out, he was wrong to believe that he could deliver a Remain victory but he may have been right that this was the best chance of defeating Brexit.

As for the criticism that he should not have resigned following the poll, one lesson of the last five years is that the referendum did not tell us what exactly ‘Leave’ meant. I do not believe it is plausible to think that the European Research Group would have allowed the leader of the Remain campaign to define the answer.

More broadly, much of his political approach has stood the test of time. In wanting more women and ethnic minority MPs, caring about climate change and the environment and introducing equal marriage he took positions that were controversial at the time but have aged well.

Yes, Johnson’s majority in 2019 – and continued strength in the polls – exceeds anything achieved by Cameron, but it is not clear that a political strategy based on white voters without post-16 academic qualifications is the right long-term strategy for an electorate that is becoming more diverse and better educated.

Cameron represented fiscal conservativism, social liberalism and internationalism. These values may be out of favour but they are not wrong. It is too early to say to what extent his personal reputation will – in time – recover but the dismissal of the achievements of his Government is undeserved.

Iain Dale: Forget the theories around Frost’s appointment. What does it mean for Gove?

19 Feb

Iain Dale presents the evening show on LBC Radio and the For the Many podcast with Jacqui Smith.

There are so many theories about Lord Frost’s appointment to the Cabinet that it’s almost worth dismissing them all.

It’s a real “what did Boris mean by that” moment, one which Metternich might have been scratching his head at.

Having replaced Frost as National Security Adviser, a job he had precious few qualifications for, Johnson certainly owed him one.

And given the number of post-Brexit deal bumps in the road there have been, there’s certainly a need to up our game in unpicking some of the more outrageous consequences of what we signed up to.

For instance, one paper reported that it’s now impossible to export trees from Great Britain to Northern Ireland if they have soil on their roots. Yet it’s perfectly OK for Northern Ireland to take trees from Spain or Sicily. Work that one out if you can.

This is but one example of UK industries which have had to take a hit as a consequence of loose drafting or things which the UK side in the talks clearly didn’t understand.

Michael Gove has been trying to unpick this sort of thing with his European Commission counterpart, but now Frost will be taking over.

So what does this mean for Gove?

People are reading this two ways. Some see it as a humiliation for the Minister for the Cabinet Office and that he’s sliding down the greasy pole to be summarily despatched at the next reshuffle. For many that is wishful thinking.

I suspect the opposite is true and that the Cabinet’s only real transformational minister is heading back to run a department, and bring his powers of reform and regeneration to either the Department of Health or the Home Office.

However, any reshuffle isn’t likely to take place before the late Spring, or even late Autumn. So the jockeying for position will continue for a good few months yet.

– – – – – – – – –

On Sunday I read that Suzanne Heywood’s biography of her husband Jeremy had entered The Sunday Times top ten non-fiction bestsellers.

Jeremy Heywood was at the centre of UK government for 30 years, and was a fascinating character, rising through the ranks to become Cabinet Secretary under David Cameron and Theresa May. He very sadly died of cancer in November 2018.

I started reading the book on Saturday afternoon, as I was due to interview Suzanne on Monday morning.

I had little expectation of being able to finish it by then, as it is a massive 540 pages in length. However, I couldn’t put it down.

Far from being a dry civil service style memoir, it’s a real page turner. I eventually got to the last page at 2.15am on Monday morning, and then experienced that slight feeling of grief I always get when I finish a book I didn’t want to end.

I can’t imagine a single reader of this column not enjoying it. I highly recommend it.

My interview with Suzanne will be on my Book Club podcast next Friday.

– – – – – – – – –

It comes to something when a government agency stands accused of “misleading” a parliamentary committee, but this is just what HMRC is facing this week.

It’s over evidence it gave on the controversial loan charge, which has affected thousands of innocent independent contractors.

HMRC was more interested in saving its own reputation than telling the truth, the All Party Parliamentary Committee on the Loan Charge told The Guardian this week.

It has emerged that HMRC is using the very same contractors that it is attempting to penalise. Hypocrisy of the highest order.

The committee concluded that HMRC had “put management of their reputation and public relations ahead of telling the truth, including to the point of providing statements designed to give a misleading impression and withholding the truth when they discovered it. This is simply not acceptable for any governmental body and may… represent a breach of the civil service code”.

In addition to this the Government is implementing its IR35 legislation in April, which will further penalise independent contractors by ruining their cashflow and forcing them to be paid as employees but with none of the benefits of being employees.

Philip Hammond is entirely to blame for this attack on entrepreneurial people, most of whom are natural Conservative voters.

It is a scandal that a Conservative government should use Corbynista type anti-business prejudice in this way. Were I a Conservative party member I would have resigned over it long ago.

If Rishi Sunak wishes to ingratiate himself with small business people he would get a lot more than three cheers if he stood up on March 3 and announced in his budget that he was scrapping both the loan charge and IR35.

It’s what any proper Conservative chancellor would do.

Ryan Bourne: A message for Johnson and Sunak on tax rises. Not now. And not these.

2 Sep

Ryan Bourne holds the R Evan Scharf Chair in Public Understanding of Economics at the Cato Institute. 

How’s this for a false dichotomy? Last Saturday, Prospect asked: “Post-Covid, are taxes hikes essential to fund the future? Or should we abandon “deficit fetishism” and spend our way to prosperity?” [i.e. through borrowing]. I shouldn’t need to tell ConservativeHome readers that “spend to grow” and “spend to grow”—the only difference being how to finance it—are not an exhaustive set of fiscal policy options post-pandemic.

But that tweet, sadly, reflects conventional wisdom. You should take the pre-Budget briefing in the Sunday papers about Treasury desires for £20-30 billion in tax hikes through capital gains tax, corporation tax, fuel duty, an online sales tax and restrictions on pensions tax relief with a pinch of salt. Before every recent budget such stories have emerged, perhaps due to kite-flying or overexcited journalistic coverage of illustrative exercises in how one could raise revenues. One suspects the briefings may even be a political ploy—raising fears in the Tory base before Number Ten saves the day.

Yet there’s undoubtedly an unnerving regularity to them. Alongside a steady drumbeat from “One Nation” Tories and such organisations as the Resolution Foundation, the idea that large tax hikes will be desirable and necessary is taking hold, with Covid-19 apparently making this agenda more urgent.

We are told, as the kitchen sink of argumentation is thrown, that the pandemic itself proves the false economy of a “hollowed out” state after a decade of austerity. Or that the “levelling up” and the “inevitable” higher spending we will now want on health, welfare benefits, and higher public sector pay means tax hikes are needed. Or that the crisis necessitates urgent repair to the public finances, and that there’s simply nowhere left to cut spending.

None of these arguments, however, stand the test of reason. Countries that have dealt with the Coronavirus better include those (South Korea, Taiwan, Australia) with much lower tax-to-GDP ratios than the UK and much lower health spending too. Many with higher tax-to-GDP ratios (France, Belgium, Italy) have seen similarly shocking death tolls to us.

At best, any failure to deliver resources where needed reflects bad state priorities, not an impoverished public realm. Indeed, the story of a hollowed-out state at a time of the highest tax burden since the early 1980s, coupled with this international evidence, suggests ascribing blame to austerity for poor performance is both ahistorical and parochial.

The wisdom or otherwise of  the “levelling up” agenda, and how best to pay for it, is largely unrelated to the pandemic too. Actually, to the extent that Covid-19 affects the desirability of infrastructure and public service spending in the regions, it throws substantial doubt on the benefits of projects such as HS2 and other city and town revival plans.

Who knows what lasting impact the crisis will have on remote working, the location of activity, and favoured transport modes? One Nationers arguing that the virus proves the need to level up would have us believe that the pandemic’s effects are significant enough for a tax revolution, but insignificant enough to alter the desirability of any of their proposed spending. One might almost suggest motivated reasoning here.

In macroeconomic terms, the case for significant tax rises now is weaker still. The point of bridging support through furlough was to shelter businesses and workers from this unexpected shock. To pass the bill to the private sector now as it struggles back to life would strangle the recovery. And for what? Borrowing costs are low, and we have no idea yet whether and how much this crisis will leave a permanent budget hole once emergency spending stops and private sector activity revives. In fact, even borrowing to date has not been as high as initially feared.

Of course, the extra debt to deal with the crisis has to be paid somehow, eventually. But, as I argued here before, unusual shocks such as pandemics and wars primarily result in step-level debt-to-GDP increases rather than ongoing budget holes, because you stop spending on the immediate threat afterwards.

The implication is that modest consolidation over decades is optimal to account for the extra incurred debt, rather than adopting large tax increases to compensate over a Parliament. Economists call it “tax smoothing”—debt provides a safety valve to allow us to only modestly change spending or taxation over long periods to maintain incentives. Of course, if the Government thinks that, for political reasons, it must expand welfare benefits or health spending permanently, this would be a normative choice: there is nothing inevitable about sharp tax hikes.

Even if you think permanent scarring will occur, those taxes suggested to raise revenue seem bizarre choices today. The Government presumably wants us to be Covid-cautious still. Two ways of reducing risks would be to drive more rather than use public transport and to shop more online.

Aside from all the other downsides of raising fuel duty and introducing an online sales tax, to use the tax system to incentivise worsening virus transmission right now by making driving and online shopping more expensive seems bizarre.

Raising top capital gains tax rates to 40 or 45 per cent would simply be self-defeating from a revenue-raising perspective. Capital Gains Tax on many investments represents a double tax. The justification for having it at all is to deter people hiding income as capital gains.

But there’s a revenue-maximizing balance between this effect and deterring people from selling assets. The Coalition government introduced a top 28 per cent CGT rate precisely because HMRC research suggested this raised most revenue. Though it was then lowered to 20 per cent under George Osborne, raising it to 40 per cent plus would reduce revenue relative to a lower rate. We’d get less investment and entrepreneurship when we need it most too.

And then there’s the mooted corporation tax rise from 19 back to 24 per cent. Taxes on mobile capital will deter foreign investment just as Brexit is set to happen, as well as reducing the after-tax return on new domestic projects. Who will bear the costs? Not just “the wealthy,” as commonly asserted, but workers too: evidence suggests that they bear between 30 and 70 percent of the burden of taxes on corporations.

Not only is the tax rise call premature then, but the specific proposals don’t conform to the pandemic’s needs or Boris’s Johnson’s ambitions to create a high-wage economy. Covid-19 may permanently scar the public finances, sure. But as yet its full effects are unknown and there’s little cost to pausing to see. Anything else at this stage is using the crisis as a pretext for raising funds for hobby horses.

If the Prime Minister truly objects to this rationale as reported and understands the threat to the nascent recovery of sharp tax rises today, he should take this message to his Chancellor: on tax rises, not now and not these.

Tony Smith: In over 40 years of Home Office experience, I can’t recall a time when our borders have been under so much pressure

17 Jul

Tony Smith is a former Head of the UK Border Force and Director of Ports and Borders in both the UK and Canada. He is now Managing Director of Fortinus Global Ltd, an international border security company, and Chairman on the International Border Management and Technologies Association.

In 2017, Charlie Elphicke, then MP for Dover and Deal, posted in these pages about how Britain needed to be Ready on Day One to meet the Brexit borders challenge.

At that time, he expected Day One to fall in March 2019 – allowing us around 18 months to commence work on the biggest border transformation programme ever seen in this country. He advocated a range of measures, particularly in the port of Dover and the Channel Tunnel, which account for 40 per cent of our trade with the EU.

Many of Elphicke’s proposals for new investment in roads, lorry parks, port infrastructure and IT upgrades in Kent were foreseeable from the day Britain voted to leave the EU in June 2016. I worked closely with him and others to develop a workable border transformation proposal at that time, which we submitted to Ministers and presented to an APPG in Parliament.

Yet four years have elapsed – and only now are we seeing any real commitment from government to invest to upgrade our ports and borders to cope with the huge challenges ahead. This week, Michael Gove announced a £705 million spending package to help manage Britain’s borders to prepare for Brexit as the transition period (and free movement) ends on 31 December this year.

It has been criticised by Labour as being “too little too late”. In response to industry concerns and COVID-19 delays, the Government has also announced that “full import controls” will be “phased in”, and not fully implemented until July 2021; prompting claims from Liz Truss that the UK could be left open to legal challenge and smuggling.

Meanwhile, we have seen a record daily total of irregular migrants crossing the channel from France, and Priti Patel has announced a new “points based” immigration system, which is set to commence on 1 January next year, requiring EU citizens to get permission to enter and remain in the UK for the first time in 40 years.

In over 40 years’ experience in the Home Office, I cannot recall a time when the UK Border has been under this degree of pressure on all fronts at the same time – immigration policy, customs infrastructure, and border security.

The only saving grace for the Border Force is the fact that the Covid-19 pandemic has reduced traffic at our ports to a trickle, at a time when we would simultaneously be facing up to new record volumes and the usual criticisms from ports and airports about queues and delays at the UK Border.

Even so, the hasty implementation of a quarantine measure at the UK Border – and the rapid relaxation of it to cater for the holiday season – has not inspired confidence, either from the transportation industry or from the Border Force officers themselves.

Brexit and the ending of free movement provides the Government with unparalleled opportunities to build the “world class” border that it aspires to. But border transformation programmes take time and require careful handling. We do not have a great track record of delivering major IT and infrastructure changes at the UK border.

Key factors identified in the past that have led to programme failures include a lack of clear vision and direction, inconsistent leadership, ineffective public/private sector engagement, and governance. It is vital that we learn these lessons now.

Of course, this commitment to fund new infrastructure at our major ports of entry is welcome; and better late than never. The opportunities available for turning our major ports into global trading hubs, building freeports, implementing “drive through” and “walk through” borders based on advanced data analytics and risk assessments are all within reach. But it would be wrong to underestimate the enormity of the challenge ahead.

Setting out a vision is one thing; turning it into an operational reality is another thing entirely. Having been Senior Responsible Owner for the UK Border Agency’s London 2012 Programme for over three years, I know that this will only work if the government can build a cross Whitehall Programme that actively engages with the myriad of Departments and Agencies with a stake in the UK Border, ranging from the Home Office and HMRC through to Transport, Health, DEFRA and the like.

Of course, there will be the familiar tensions between facilitation and control; people and goods; compliance and regulation. These were always there. But taking a narrow view that HMRC “does goods” and Home Office “does people” no longer works, especially in the UK where we have a joint Border Force doing both.

There are some encouraging signs that the Cabinet Office is taking greater control over border-related projects, rather than simply acting as a co-ordinator between departments. But the fact that HMRC has issued a “Border Operating Model” claiming to cover “all of the processes and systems, across all government departments, that will be used at the border”, without any cross reference to an announcement from the Home Office on the same day setting out the “Border of the Future” “with new processes, biometrics and technology” as part of the new points- based immigration system is a case in point.

If we are to retain a single UK Border Force to operate the new rules, then we need to consolidate the strategic, policy and programme arms behind them.

To succeed, Whitehall will need to galvanise the very best people, systems, and processes into a fully functional Border Transformation Programme. This means bringing the key contributors to economic revival including the ports, transportation companies, traders and the world class technology suppliers to the table; and uniting them behind a common purpose to end free movement and implement to build the world class border we all want.

And to expect to deliver all this against a specific “Day One” deadline set by politicians – be it in January or June 2021 – is prone to failure, as history has shown us.