The middle classes, mansions and Mr Pickles

Last Friday’s Telegraph published a couple of brief pieces drawing on a wide ranging interview with Eric Pickles. The Communities Secretary had a few characteristically pithy observations to make in relation to the ongoing debate over the future of the 50p tax rate and the alternative mooted by the Liberal Democrats of moving to a tax on high value properties.

The Telegraph reports that Mr Pickles:

… is determined to face down Liberal Democrat sensitivities and reduce tax for the middle classes. New taxes on more expensive properties are definitely not on the agenda.

“We as a government have got to understand that middle-class families put a lot into this country and don’t take a lot out,” he says. “It would be a very big mistake to start imposing taxation on the back of changes in property values.”

Mr Pickles also goes further than some of his colleagues by insisting that the 50p higher rate of income tax should be scrapped for ideological reasons.

The Treasury is conducting a study to establish whether the new top rate actually raises much money, but the Liberal Democrats have said it is “cloud cuckoo land” to consider scrapping the tax at the moment. Mr Pickles expresses the views of many Conservatives when he says: “We always said it [the 50p rate] was temporary.

“We’ll get an assessment at the end of this financial year as to how much money we’ve got [from the tax]. But you know I’m a Conservative, I like the idea of lowering taxation.

“I believe you get more tax revenue by lowering taxation because people work harder. I like people to keep more in their pockets for their family.”

Elsewhere in the Telegraph he is reported as saying that:

“… a mansion tax on high-value homes could hit many ordinary middle-class families because of high property prices in some areas.”

“People will suddenly find themselves in a mansion and they hadn’t realised it was a mansion,” he says. “If it is only going to be mansions, the kind of thing you and I would regard as a mansion, it ain’t going to raise very much.”

It is important to put these comments in perspective. [Read more...]

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Cameron ploughs on with public sector reform

Today I posted my first piece over at Dale & Co.

You can find it here: Cameron ploughs on with public sector reform

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Failures to care for vulnerable people: what lessons to draw?

The practices exposed by Panorama last week at Castlebeck’s Winterbourne View care home were profoundly shocking. The case continues to develop – several further arrests were made this week. Ghandi said that “a nation’s greatness is measured by how it treats its weakest members”. What we witnessed at that particular care home suggests our claims to greatness are debateable. And, of course, rumbling in the background we also have the Southern Cross debacle. There are grave concerns over the future of the country’s biggest private provider of care homes for older people. There appears to be a government guarantee on the table to see that residents are provided for, but no promise of a bail out.

Searching questions are quite rightly being asked. How can we have got into this situation? It is maybe rather late to be waking up to the issues here. Nonetheless, it is welcome that they are getting their moment in the spotlight. Let’s hope some positive changes result. But are the right lessons likely to be drawn from current troubles? [Read more...]

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On bankruptcy constraints, soft and hard

One strand of the economic critique of government provision is that public providers face a soft bankruptcy constraint. If they operate inefficiently or extravagantly and run out of money then they can turn to government for a handout to cover any shortfall. If the government is short of money to bail them out they just put up taxes. Private providers, in contrast, operate in the face of a hard bankruptcy constraint. They must operate in the face of ever-present risk. If they don’t produce what consumers demand, and do so as efficiently as possible, then their continued existence is in doubt. Hence, the argument runs, a powerful incentive is missing from the sphere of public provision. This argument has been invoked as one component of the justification for shifting activities from public to private sector. [Read more...]

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Public service reform, zombie economics and the “Great Forgetting”

In his excellent recent book Zombie Economics: how dead ideas still walk among us John Quiggin, of the University of Queensland, provides an accessible account of some key economic ideas. These ideas provided the intellectual rationale for substantial social changes we have witnessed over the last 30 years. Many of these ideas boil down to theoretical justifications for the claim that markets are a better means of allocating resources than all available alternatives. Quiggin also summarises arguments against these theoretical rationalisations. The case against markets can be boiled down to the argument that whatever conventional economics might believe to be the case in theory, the real world just doesn’t follow the script. Working on the basis that it does is a recipe for disaster. This raises a crucial question: given that many of these ideas lack strong intellectual support – they are, or should be, ‘dead’ – why do they continue to exert such influence on policy? Societies are being subjected to “zombie economics”.

One of the topics with which Quiggin engages is privatisation. [Read more...]

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Economic liberalism and public service reform

[Originally posted on Liberal Democrat Voice, 22/02/11, and ranked most read post of the week]

Are the Liberal Democrats a party of untrammelled ideology – sorry,“principles” – or do ethics and evidence also play a role in thinking? This question struck me forcefully when reading David Cameron’s article on public service reform in the Telegraph. It appears that the imminent Open Public Services White Paper has been formulated with collaboration from the Chief Secretary to the Treasury and Nick Clegg is fully ‘on side’. We await the details, but if Cameron’s article gives us an accurate sense of what is to come then I think there is – or should be – a significant battle shaping up. Cameron’s position would appear to be “The answer is marketisation. Now what’s the question?”. Is it appropriate for Liberal Democrats to be complicit in this agenda? [Read more...]

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Who’s wrong? The Government or the Economists?

Where should we draw the boundaries of the state? When should Government take responsibility for providing or funding services? And when should it be left to the market to sort out? One characteristic of the current government is that it has destabilised well-established understandings of where the boundaries lie. Most prominently we have the debate over higher education funding. But there are a range of other fields – including social care, rail pricing, school sports, arts funding and library provision – where central or local government is stepping back from funding and/or provision. While the financial crisis is typically invoked as the trigger for this, there is more than a suspicion that this can act as a handy pretext for furthering an agenda of state retrenchment, leaving more to the market, the voluntary sector or informal provision.

From the point of view of economists interested in social policy and social problems this is intriguing. Many economists who concern themselves with such matters tend to operate from a social liberal or social democratic position – they tend to favour a mixed economy and acknowledge a significant role for the state, if only in funding rather than provision. This is in part because they are a self-selecting group. The dyed-in-the-wool market fundamentalists don’t tend to spend too much time thinking about the role of the state. Rather, they tend to assume that Milton and the Public Choice boys have put that particular question to bed – the state should keep well away from just about everything. [Read more...]

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