Cameron Tries To "Nudge" His Way Out Of Recession

The Tories have announced a plan today to give companies National Insurance breaks on employing people who have been unemployed for over 3 months. Detail on their website, but the gist is this:

It costs the government £8100 per annum in benefits payments and lost income tax receipts to support an unemployed person. So their proposal is as follows:

Private sector employers, who hire someone who has been claiming unemployment benefits for more than three months (13 weeks) and who has not previously worked for that company in the previous year, would receive a credit against Employers National Insurance Contributions. The credit would be worth £2,500 for full time jobs of 30 hours a week or more, or half that amount for part time work of 16 hours a week or more. It would be phased out beyond the higher rate tax threshold so that only basic rate taxpayers would be eligible for the full amount.
• To prevent companies making people redundant in order to replace them and claim the tax cut, the payment would only be available to companies that had made no redundancies in the previous three months, or for three months after claiming the credit.
• To limit the amount given in tax cuts to companies who are already growing rapidly, the tax cut would be limited to a maximum of 20 per cent of the workforce of any one company.
• The credit would be available for one year after the employee starts their new job.

David Cameron doesn’t believe you can borrow your way out of a recession, it seems. Instead, he seems to intend to Nudge his way out of one. It’s a pity, then, that in the words of Nick Clegg, “Cameron has drawn the fly on the floor”. This doesn’t help anyone who is already in a job. It doesn’t help businesses who are struggling to keep employing the people they already employ. It doesn’t seem likely to boost consumer spending all that much. It doesn’t even seem likely to genuinely get all that many people back into employment. All it really does is tip the scales in favour of people who have been unemployed for over 3 months.

Let’s look at this from the point of view of the people it’s aimed at: employers (and note, in passing, that the last two Tory tax announcements – VAT delay, and now this – have been aimed at helping business, not people in the most direct sense).

To employ someone on minimum wage full time costs them about £11,000 (depends what hours they’re on, so no point being too precise here). £5682 of that is above the Earnings Threshold, so National Insurance is paid on it, to the tune of 12.8%, or £727. So overall it costs the employer £11,727 to employ someone on the minimum wage. The Tory credit reduces that to £9227. Essentially, the Tories want to reduce the price of employing someone on minimum wage by 21%.

The significance of these credits only gets lower the higher the wage you’re talking about. Someone on £20,000 costs their employer £21,891 to employ. That becomes £19,391, a cut of 11%. Or if you’re on £30,000, it costs your employer £33,171, becoming £30,671, a cut of 8%. Much beyond that, the credits stop under the plan in question. So the jobs this is likely to have most impact on is those at the bottom end of the pay scale.

Fair enough. But now ask yourself this: Are you, a struggling company in the middle of a recession, going to set yourself back £9227 a year to employ someone who is currently unemployed out of the goodness of your own heart? I suggest that the answer is no. I suggest that most of the companies who are going to be taking people on in the next few years are the ones who had a pretty good chance of employing some extra people anyway: businesses who are just filling gaps left by employees leaving, or who are recruiting people they would have needed anyway. The Tories themselves admit that this would be true to some extent; the £2500 figure is based on an estimate that only ~31% of the jobs that would be created under this scheme wouldn’t have been created anyway. I suspect it would be rather less than that, depending on how bad the recession gets.

Is it too cynical of me to suspect that this isn’t really a Tory prescription for the recession at all? I reckon what this is is a bit of policy they had on the back burner as a remedy for long-term unemployment, which has been tweaked a bit and packed up in a shiny new box that says “Tax Cut!” on it, to cover up for the fact that the Tories, and specifically Gideon Osborne, don’t know anything about the economy, really, and it has only become obvious to them relatively recently that the “responsibility … sharing the proceeds of growth … no irresponsible tax cuts” line wasn’t going to cut it any more. Everyone else is talking tax cuts now, but they’ve got nothing much to announce, and the fiddly bits and pieces they’d come up with so far (Council Tax “freeze”, Marriage Bonus, Inheritance Tax threshold to millionaire-friendly level, etc) were looking a bit shabby and tight-fisted in comparison. Hence today’s policy.

It’s a good job we’ve got an economic team who were able to beat the rest of the parties to it, despite the slowing effect of the Lib Dem policy ratification process, isn’t it? We’ve had a revenue neutral package to really help people on low and middle incomes for over a year now. The way to create job growth is to give everyone a significant amount of their own money back. Spending goes up, jobs are really created, etc. Today’s Tory plan does next to nothing to mitigate the recession.

Go back to your drawing board and try again, Gideon and Dave.

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Osborne’s Council Tax Freeze: A Few Questions

This morning, immediately before the speech by George Osborne, there was a bit of a buzz around the rolling news channels and on the Daily Politics that Osborne might be about to pull a bit of an inheritance-tax style rabbit out of his rhetorical hat. “Something to do with local taxation”, hinted Andrew Neil. Then I went out for lunch. Intrigued to see what it was when I returned, I flipped on the news channels, only to find that nobody was talking about it, preferring instead to keep up the constant general rumble about the US bail-out plan. Nothing very interesting, then, I guessed.

Turning to the internet to find out, this was confirmed: Osborne has promised a council tax freeze. Except he doesn’t have the ability to enforce it. All he’s doing is offering councils money from central government worth up to a 2.5% increase in council tax in their area (as I understand it). So, instead of raising the money locally, they are being encouraged to increase the centralisation of their funding stream (nicely localist, George). I wonder if any other strings will be attached to the money?And would the money be withdrawn if a council stepped over the 2.5% threshold, or would it effectively just be a bit of extra money for councils. (That might explain Osborne’s projection of 100% take-up for his scheme.)

The real test on this is whether the Tory government would reverse the Labour trend of demanding that local councils provide certain services or fund certain projects, without providing them with sufficient money to pay for them, thus forcing them to take the political hit for raising the taxes necessary to fund them, while central government basks in the glory of simply having mandated the fruits of said spending. If not, then all that this will mean is an escalation in huffing and puffing by the national Tory party, whilst local councils put up council tax because they have to.

Of course, a genuinely localist party who genuinely wanted to do something about council tax might… oh, never mind.

Make It Happen: A Note of Caution

The Lib Dem blogosphere is buzzing with excitement about Make It Happen (pdf), which has indeed attracted some press reaction to it, as Stephen discusses. To this I just want to add my own paranoia. Here goes…

Lib Dem bashers frequently claim that we try to out-Tory the Tories in Tory seats, and that we try to out-Labour Labour in Labour seats (thus giving away their own belief in the natural order of things, and the specific tenet that there are only such things as Tory Voters and Labour Voters, “really, you know, deep down…”). Which is one of those analyses that’s so half arsed, it’s a good job nobody spends too much time thinking about it, or it’d fall apart. Because a moment’s thought reveals that the way to take a seat from a Tory is to bleed them of a few voters (if they happen to actually have more than 50% of the vote), and then persuade Labour voters, Green voters, etc. that to get rid of the Tory, they could do worse than vote for you. Now, I hate that idea, to be honest, but needs must as the Devil’s Very Own Voting System drives.

FPTP requires that you build a coalition. Every government which has gotten itself elected successfully has understood this. Every now and then, you can build a groundswell around a genuine point of ideology (eg. Thatcher?), but mostly you win by being moderate and sounding competent. The question for Nick Clegg here is, is this a time when a genuine feeling in favour of low tax is going to be big enough to drive voters his way. And, two years out from an election, there’s no point in me or anyone else making predictions about that.

But the point for Dave Cameron on this is that he long ago committed himself to the de-toxifying of the Tory brand, and he knows he couldn’t say what Nick has anyway, for exactly that reason. So if I was a Tory who subscribes to the idea that the Tories will win the next election on moderate-ness, not on hard Toryness – like, say, Iain Dale – then what would I try and do right now? I might start shouting long and hard about how Nick Clegg is leading his party into “a radical tax-cutting platform [that] has left the other two parties gasping”. I would say that it “marks the triumph of the so-called “Orange Booker” tendency”, and I might write something like:

He hasn’t just pledged a reduction in taxes; he has promised a cut in public spending, too. Admittedly, it is only £20 billion, a mere three per cent of total government spending, but it’s a start. And it’s a damn sight more than any other politician has had the guts to do.

The bonus point of selling the idea that the Lib Dems have now become the party of the government spending cut enthusiast (which Iain tries to do whilst not quite sounding like he’s actually saying he’s agreeing with us), is that part two of that narrative is to be used in debates:

“The Lib Dems now want to cut taxes, before they wanted to raise them. YOU CAN’T TRUST THEM!”

The amateurs are trying to jump to this step before they’ve done the groundwork of establishing that we are now a party of rabid taxcutters. But the professionals are letting this sink in for now, and just chipping in with their usual chippy bollocks about “yes, well, the Lib Dems can say what they like, etc….”

Can we not run headlong towards the idea that we’re now the party of a radical tax-cutting agenda unless we really are? Because as far as I’m aware, conference hasn’t passed anything other than the policy of cutting income tax at the low end so we can introduce LIT and implement the Great Green Tax Shift.

I hate to be a buzzkill and that, and I understand the imperative to get media coverage, I’m sure it’ll be good for the poll numbers and thereby for Nick’s narrative, and I’m not knocking that, really I’m not. But let’s not get carried away with all the media and start letting people put words in our mouths.

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The Vexed Question of Green Car Taxation

Nick Clegg has got a piece up on CiF today. It’s nothing very new to anyone who pays attention to Nick’s every utterance, as will be true of many Lib Dem bloggers. What I found notable about it was the comments thread it has sparked. Like all dicussion of this issue, it is full of people arguing for some system or other, who talk past each another, not to each other.

What I mean by this is that they proudly proclaim the benefits of the tax instrument they favour and the shortcomings of the those proposed by others, but they don’t address the shortcomings that others raise about their own preferred tax instrument.

Essentially, what we have on offer here are three alternative forms of taxation, all imperfect:

1. Vehicle Excise Duty – “we tax people on the car they own”

Pros:
-Allows the annual check on insurance and MOT to be bundled in with its administration; these things are Good Ideas for other, obvious, non-environmental reasons.
-Allows us to incentivise people to buy fuel efficient cars.

Cons:
-Penalises the owner of a car for simply having it, not for using it, which is the polluting part.
-Doesn’t distinguish between people’s reasons for owning a car. Those who need a car because they live in a rural area pay as much as those who live on a perfectly usable bus route for owning the same car.

2. Fuel Duty – “we tax the petrol”

Pros:
-Is the best green tax; it allows us to straightforwardly penalise the polluter in proportion to the amount of fossil fuel they burn.

Cons:
-Doesn’t allow us to make value judgments on the “worth” of the journey being made. Someone who lives in a rural area and has little choice but to use their car if they want to get into town to do some shopping pays just as much as someone who lives five minutes’ walk from the newsagents but is too lazy to walk there to buy a paper (say).

3. Road User Charging – “we charge people for each journey they make” (includes congestion charges, motorway charges, etc.)

Pros:
-Allows more specific targeting of “the wrong sort of journey” – as long as we can all agree on what that is.

Cons:
-May involve the use of some fairly intrusive technology if we want to do anything more clever than making motorways into toll roads (for instance).

The only thing we know for certain about this choice is that, unless we want to see some other taxes go up significantly, we have to choose one of them, and it is right that we do so, because discouraging car use is an important part of any effort to meet our CO2 reduction targets. So which way should we as a country jump? Nick Clegg is making a pitch in his piece for option 3, Road User Charging:

So the real solution we should be focusing on to cut driving is to abolish VED altogether and cut fuel tax, replacing them with revenue-neutral road user charging on motorways and trunk roads only.

But he doesn’t even mention the concerns people have about Road User Charging in his piece (the intrusive road use tracking that may be involved). By neglecting to pre-emptively rebut this point, he makes the fundamental error of leaving space for a glib response in a CiF piece – give these people an inch… But never mind that, reforming CiFers is better done by those with the stamina for endless perseverance in the face of fuckwittery, such as Citizen Alix.

Now, we over here in the more civilised domain of Lib Dem Blogs may have read James Graham’s post exploring why RUC needn’t be as intrusive as some suggest, but why there’s plenty of other reasons to dislike it as a policy:

My main objections are threefold: it would take bloody ages to introduce, it is an IT disaster waiting to happen and it falls foul of the unintended consequences law.

By that last comment, by the way, James means that it doesn’t penalise “60-something retirees living the life of Riley out in the sticks and driving a Mercedes”.

And that’s the problem with this whole argument, really: everyone can think of some unutterable git who they would like to punish for living in the wrong place, or having the wrong job or the wrong lifestyle, or making the wrong choices, who gets off lightly under a given policy. Or if they can’t manage that, they can think of some poor unfortunate who is being driven out of house and home by being taxed as highly as they would be under said policy.

Meanwhile, the problem I have with Nick’s suggestion is the idea that motorway journeys around the country, when one could go by train, are in any way a more pernicious form of pollution than journeys into town from home, when one could take the bus. If we want to make a serious dent in greenhouse emissions, surely we need to tackle both? The journeys that can justifiably be discouraged are those with truly viable public transport alternatives, regardless of the distance of the journey. So what constitutes a viable alternative?

To me, there is a distinction to be made between a journey by car whenever you feel like it, and a journey by bus or train that you have to plan in advance because they only run every so often. What makes the London tube such a great public transport system (at least compared to the rest of the country) is that it runs regularly enough (most of the time) that you don’t bother to plan a time in advance, you just walk into a station and get the next train to where you want to go. To me, public transport has to have that kind of convenience before it can be considered a truly comparable alternative, as well as simply not taking an inordinately longer time to travel. Of course, exactly how regular something needs to be before you consider it viable will vary from person to person, so this is not the reliable deciding factor it might look like.

And of course, we still want to gently suggest to people that they might take public transport even when it does notably inconvenience them. After all, it would reduce emissions if people took a bus from their suburban home into town which runs every half an hour, even if that is a pain in the arse.

Once we get into the business of deciding how worthwhile or defensible everyone’s decisions to take a car are, we run the risk of an overbearing state intrusion to make the whole system workable. If we don’t want to go down that route, then we are going to end up with a piecemeal system of toll plazas on motorways and congestion zones in town centres, with unintended consequences of encouraging people to drive on B roads and thus increase their emissions.

So can we please stop these silly games? Can we instead focus the argument on what it is we are trying to achieve here? In the end, we are trying to achieve a greener Britain. To do this, we must discourage all usage of fossil fuels. Ultimately, the best way to do that is to make it really jolly expensive to burn fossil fuels. Full stop. Then we can start having an argument about giving certain people special dispensation if we want: hauliers, for instance, or people who live in rural areas (though I’m with James on that one; unless you’re a farmer, you don’t have to live out in the middle of nowhere, and anyone choosing to do so knew that they stood to be dependent on car travel when they bought the house. It’s swings and roundabouts; they get the lower house prices, they can also take the costs of driving about the place.) Ultimately, the best way to lower emissions is for the cost of polluting to be reflected in the price of the journey.

So my conclusions here are as follows:

– A VED regime which simply covers the cost of administration of checks that each car is insured and has passed its MOT.

– A fairly punitive fuel duty, to be poured into increasing bus services and making train tickets cheaper.

– Renationalise the railways! Maybe unpopular with the liberal wing of the party, but frankly, the record of the private railway franchises in Britain doesn’t seem great as far as ticket prices are concerned. We now subsidise the railways around four times as much as we did under British Rail, and all we have to show for it is rocketing ticket prices despite services which are in more demand than ever.

Alright then, tell me why I’m wrong!

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