The Chancellor's Budget; why bother?

In the lead up and the immediate aftermath, there was a lot of talk about whether the annual set-piece Budget statement by the Chancellor should be scrapped.  The argument is that it destabilises the economy, encourages speculation and is never the Government’s finest hour in terms of attempts to spin.

There would be something in this were it not for the fact that much of what was in the Budget this time had already been pre-announced in one form or another.  The main exception was the Help to Buy scheme, which was such a rabbit out of the hat that it seems to have surprised quite a few Government Ministers, including the Chancellor, who found themselves unable to explain it in detail.

If the rush to meet the deadline for the Budget has led to poor policy-making (a pasty, anyone?), then that is probably the best reason of all not to have it, but as far as the rest of the Budget Statement was concerned, one gets the impression that those commentators calling for its demise were probably speaking more out of ennui than anything else.

But there is a good reason to have a annual Budget Statement from the Chancellor and it is to do with a couple of things we seem not to give enough attention to these days; accountability and governance.  Our public finances are built on the back of an agreement between the Government and taxpayers and it is important that Government sets out, at least once a year, how it intends to change the terms of that contract.

Politicians of all stripes have had quite a lot to say recently about the moral issues in the tax system – it is our moral duty to pay our taxes and Government’s moral duty not to overtax.  With all that moral high ground being fought over, why then should the Chancellor not take a measured moment to set out clearly and simply for us all how he wants things to change?  The hoo-hah is the price we pay for getting this important policy debate out in the open and properly aired. 

As taxpayers we adopt a number of different relationships with Government, each of which is complex in its own right and overlaps and entwines within itself.      

The Taxpayer as Consumer is happy to pay his taxes as long as he gets something in return;  we want our bins collected and our streets cleaned, hospitals to be ready to receive us when we are ill and the police and fire service to turn up in an emergency.  It might not always be a pound for pound exchange of value, but the important part of the contract is that it is something for the money.

The Taxpayer as Benefactor recognises that there are people less fortunate than herself, and while we also get some comfort from living in a society in which we know we will be looked after if we fall on hard times ourselves, we don’t necessarily support care for people with physical or learning difficulties, or support overseas aid because we can see ourselves needing the same one day.  We do it because that is the kind of society we want to live in.

The Taxpayer as Citizen pays taxes to get the benefits of living in a free society, relatively safe from harm and to project the interests of the community or the nation state more generally outside its borders.  The benefits are less tangible, but this part of the contract is no less important; because it supports the rule of law it is probably the part that gives us confidence that the rest of the contract will be honoured.

The final relationship, the Taxpayer as Investor is perhaps the one that has tended to receive least attention over recent decades. In the Nineteenth Century, when our infrastructure was being built, there was constant tension between people who wanted sanitation and lighting in our cities and those who wanted cheap rates.  Recently things have been more ambiguous; the Private Finance Initiative usually seemed to be more about the Taxpayer as Consumer than the Taxpayer as Investor, although in fact it was about both.  

But it is to the Taxpayer as Investor that the Chancellor is seeking to appeal with the Help to Buy Scheme.  As he said during the budget statement;

“Because it’s a financial transaction, with the taxpayer making an investment and getting a return, it won’t hit our deficit”.

OK, so at one level perhaps this is a bit of political flummery designed to put across the message that the scheme has no whiff of Plan B about it, and to lance the accusation that it might actually make the deficit worse. The inference that there is no long-term cost to this scheme – in fact an implied benefit- may not be right. You have to ask if it’s such a great investment, why isn’t the private sector already doing it?

But more importantly it is asking the UK taxpayer to see things slightly differently in our relationship with the Government.  Given that the Budget also included announcements of further cuts and benefit changes, this is asking us all to see ourselves less as consumers and benefactors and more as investors in the UK's future, putting our money at risk to help boost the economy. Others better qualified have commented on the pros and cons of this particular approach, but there it is nevertheless, in the Chancellor’s own words.

The Government’s contract with the taxpayer is important if we want people to have faith in the public finance system and be more or less happy to keep paying.  We have seen what can happen in countries where a culture of tax avoidance is more prevalent than it is here.  If the Chancellor of the Exchequer in the UK has one role, it is to ensure that taxpayers can have ultimate faith in the way the public finances are governed. Is it not important that we get a chance once a year to hear from the Chancellor’s own lips and in summary his thoughts on such matters? 

Scotland the brave

I have spent the last few days in Scotland, where on Wednesday First Minister Alex Salmond announced the date of the independence referendum; 18^th September 2014.   The main reaction seems to have been a certain resignation and weariness at the idea of a 546 day campaign, which some seem to feel has been cynically designed by the SNP to bore those least fervent for separation  into a state of torpor. 

As a visitor, Scotland certainly does not appear to be a country bursting with revolutionary fervour.  Admittedly the friends I spoke to may not be typical Scottish voters- as business people they are mainly concerned that they will still have access to the much bigger and more lucrative markets of England and the rest of Europe if the accident of independence should come to pass. It underlines how important it is for the SNP to be able to confirm that an independent Scotland would lose none of its economic leverage and would be, for example, a member of the EU.

Fortunately, the question of whether Scotland should be independent or not is not one in which I will have a say, which is lucky because if I was Scottish and living in Scotland, I am really not sure how I would vote.

As a local government man, I have great sympathy for any people wanting to make their own decisions locally.  In the case of Scotland, the political culture has always been distinctive and, if anything, has grown apart from the rest of the UK over recent years.  The Conservative Party, which has spent most of the last hundred years governing the UK, now barely exists in Scotland.  According to one theory, the long, slow death of Toryism in Scotland dates back to the formal merger of the Scottish Unionist party with the Conservative Party in 1965, which is seen as the moment when Scottish Conservatism lost its soul and became simply a branch of a tree with its roots in London.  It was an historic mistake, which the party might well want to dwell upon before it reacts to criticism from Conservative local government leaders on the subject of cuts.

One Scottish friend has a theory that David Cameron will deliberately undermine the unionist campaign because he realises that getting a Conservative majority in a UK without Scotland will be a lot easier than it is now.   Perhaps, but to me that under estimates the visceral adherence to the union that lurks in the hearts of many Tories, and also ignores the fact that Cameron himself is of Scottish descent.   For Machiavellians, you might equally argue that it would be in the interests of the SNP to undermine their own campaign, because who in an independent Scotland would need the SNP?

Indeed there is also a strong thread of Unionism in Scottish politics. Lots of Scots describe themselves as being British, which you might argue is simply a fact of geography for mainland Scots – they won’t ceased to live in Britain just be leaving the UK – but actually underlines the fact that in three hundred years of political union and four hundred years of a shared monarchy, the Scots, the English and the Welsh have been through a lot together.    

It is disappointing that in a country which should have a strong grip on the importance of devolution and subsidiarity, the draft constitution currently circulating does not have more to say about the importance of local government to a strong, independent Scotland.  Bearing in mind that the adoption of a final constitution will have to wait until independence is declared,  I suspect that if I was Scottish that would weigh heavily upon me.  Would I be voting for a transfer of some last remaining powers from Westminster to Holyrood and no further?

Scottish practicality might yet be the factor that saves the union.  As another friend put it to me, the scale of what would need to be done in order to set up an independent Scotland are an enormous challenge and have not really been thought through.  There would need to be a cast-iron case for doing it as far as many Scots are concerned, not just a romantic ideal of an independent nation. At this moment in the history, with so many ifs and buts to be resolved around the economy, the future of public services, security and Scotland’s role in the greater Europe,  this may be the time when Scots say that in regard to independence we’ll get back to you later on that question.

Ultimately the union potentially means much more to Scotland than it does to England. There is no Union Street in central London, but there is one in Aberdeen, which I joked with a friend would have to be renamed Alex Salmond Boulevard  in the event of independence, and there is also one in Glasgow,  which it easier to imagine being reborn as Donald Dewar Street.   A real son of Glasgow. Dewar’s image seems to be everywhere in that city, which, it must be remembered represents about half the nation’s population.  It might be significant in the end that Donald Dewar, currently regarded at least in Glasgow as the true father of the nation, apparently always opposed independence.

The case for central government

Next week the Chancellor George Osborne will stand once again before the House of Commons and tell us our national fortune.   For local government folk, it is rarely any use listening to the actual speech; the message will be buried in the thousands of pages of accompanying material which, fortunately, is readily available these days on the internet.   If the Chancellor follows recent practice, then deep amongst the numbers will be more bad news for local government – we will be asked once again to find more than our fair share of the deficit reduction.

Of course central government always behaves as if local government is a tool that is at its disposal.  Constitutionally that is indeed the position; local authorities exist at the behest of Parliament and the party that controls Parliament therefore controls local government. Constitutionally, local government people have been arguing for a long time, the UK hasn’t got it quite right. 

Draw back from the question of governmental structure and think about what local government is about.   Walk to the railway station or drive to the shops and the public services you encounter are almost all provided by local government.   On my fifteen minute walk to the shops I see roads, street lighting, traffic signage,  a library, a fire station, a civic theatre and what used to be called a bottle bank.   I also pass a GP’s surgery, which is nominally a service provided by central government, but only through carefully constructed local arrangements, and a few bus stops, which belong to a service ostensibly privatised in my part of the country but in fact quite generously subsidised by local government. 

The point is that, when it comes down to the services that affect people’s everyday lives, all government is local. In fact the existence of national and global regional government comes from a recognition that there are some things communities cannot readily do locally rather than the other way around.  Back in the days when nation states were being founded, we needed a bunch of rich guys on horses to defend us from attack.  The one in charge- the guy with the biggest horse and the shiniest helmet-  had the money to pay lots of soldiers and raise an army, and what he couldn’t pay for himself he bullied others into paying for instead.   We called him king.

In the meantime, most of us peasants went about our lives without ever clapping eyes on the king, unless it was as a vague shiny presence that day he turned up and told us all to take our pitchfork off down the road and stick it into the first Scotsman or Frenchman we came across.  We were familiar with the courts leet and the hundred, which sorted out little local difficulties and we met amongst ourselves to deal with issues concerning the commons. We got on with it, as we continue to do to this day. 

All government began local, and at the end of the time, when George Osborne’s successors have finished with us, the last vestiges of government will also be local.  In the meantime, we let central government live on in that hazy misconception that somehow they are in charge.

Nevertheless, I think we can let central government carry on for a bit; there are still useful things it can do. 

Central government is in a good place to put frameworks in place to tackle wicked issues across a range of different interventions and involving a lot of agencies. Local government, however, is vital because it can hold the ring at local level for a great deal of the actually delivery and it can oversee how agencies work together in localities to make a difference to individuals, families and local communities.

There is no need for central government to try and reach down into every local detail in order to deliver policy, because local government is already in place to do that.   Central government needs to see local government as partners in delivering outcomes and as a valuable resource in the battle for public service reform and service improvement.

If central government is accountable to populations in a ‘top-down’ way, local government is accountable ‘bottom-up’.  The trick, which we have never quite mastered is to make sure these two forms of accountability mesh satisfactorily in the middle.

It remains to be seen whether the government continues its renovation of the economy next week by continuing to hack away at its local foundations.  If it does, it will be because central government does not understand what it would lose if it lost strong, accountable, innovative local government.  It's up to us, local government people, to make the case. 

When is an incentive not an incentive?

The Council Tax Freeze Grant is simple as Government grants go; agree not to increase Council Tax and the Government gives an authority the equivalent of a 2% increase in cash.   What could be easier?

Why then is it reported that at least 40% of authorities in England and Wales are not taking up the offer this year?   There are probably a number of reasons.

The first and most obvious is that the grant offer is time-limited but the Council Tax Freeze has an ongoing effect, so the deal has never been a ‘no-brainer’  as far as authorities are concerned.   But that has always been the case with this grant scheme. In spite of the obvious flaw, in the first year of the grant virtually every authority took advantage and last year around 90% did so.  

Secondly, you can point to the difference between this year’s scheme and last year’s much more popular offer.   In 2012, the Government gave a one year grant equivalent to a 2% rise in Council Tax and was criticised for not making it more permanent.   This year they appear to have tried a psychological trick.  The grant is equivalent to a 1% rise but lasts for two years.  In other words, exactly the same amount of grant but spread over a longer period.   The trick hasn’t worked.

The reason is that there are two ways of looking at this year’s offer, neither of which make it look attractive. 

One way to look at it is as a 2% offer spread over two years. The problem is that we all know it can be better to have a smaller sum of money now than a larger one in the future.  Something very like this is embedded in human psychology;  every child knows that a bird in the hand is worth two in the bush.   Any offer that looks likes pain today and jam tomorrow is therefore peddling uphill.  

To many, though, the second year’s grant is not a big enough incentive to keep the Council Tax down this year because next year there will be another Council Tax setting process and another decision.   The second year’s grant is factored into the 2014/15 forecast and therefore relates to next year’s decision, not this year’s.    

Thirdly, and most interestingly, as the financial climate for local authorities gets increasingly difficult and savings become harder to find,  more authorities seem to be making the choice in favour of tax increases rather than further cuts.. Authorities are probably also thinking about the Chancellor’s announcement that austerity will continue on the same trajectory until 2018 and considering the need not to close off too many financial options,  educating their communities (and the Government) that tax rises might be necessary if services are to be preserved.

This is something that George Osborne might want to note.  Local authority members are pretty close to their communities, and the growing failure of Council Tax Freeze Grant may be an early sign that the public’s views about tax increases as against spending cuts may be starting to change.