The Spending Review

 In a recent article on Liberal Democrat Voice (What Rachel is Doing Right, 9^th June) Sir Vince Cable, who was Business Secretary in the Coalition Government, describes  the present Chancellor of the Exchequer, Rachel Reeves, as  “competent, decent and economically literate.”  He itemises three reason for praising her.

1.    1. She has succeeded in persuading the Treasury to regard government expenditure for investment purposes as separate from current expenditure.  This it has been traditionally reluctant to do.  Gordon Brown circumvented the prohibition by the expensive PFI scheme, for which we are still paying dearly.  Serious proposals for public investment during the Coalition were blocked by Treasury resistance, but, on this, M/s Reeves has broken the mould – and “the markets” (as we can see today) have not cried “foul.”

2.    2. She has insisted on balancing current expenditure with current tax revenues.  This has been difficult for a Labour Chancellor since there are obvious Labour priorities  (eg the two child limit, among many others) which ought to be scrapped.  However, Cable recognises that,  after the Truss experience, confidence in the UK’s economic probity  is no longer sufficiently great to risk flouting conventions.  As pointed out above, “the markets” have recognised this.

3.   33.  She has recognised the unfairness of the present distribution of income and wealth in the British economy, with the elderly and established  more than comfortable while the young struggle to achieve the normal necessities of life (a home and a secure job).  She has tried to move the balance  in a more equitable direction by abolishing the universal Winter Fuel Allowance (WFA) for pensioners and the farmland  exemption from inheritance tax. Cable does not go into detail on these two measures so the following justifications are my own:

a)    The WFA for all pensioners was largely a waste of money.  There are about 10 million pensions and 8 million of us are very comfortably off.  When  the “bung” was introduced by Gordon Brown in the late 1990s the Liberal Democrats criticised it as “badly targeted”  Labour’s exemption from the abolition for those pensioners receiving pension credit covered only the bottom 1 million and the next million still needed help, so it was still badly targetted  However the new limit of “annual income less than  £35 000" is absurdly high. Labour got the sums wrong in the abolition and is now being over-profligate in compensation.

b)    The purpose of the exemption from inheritance tax on farmland was to avoid rich people buying land in order to ring-fence their wealth.  This should have been emphasised, and some method of exempting genuine farmers (eg an “active farmer” test as suggested  by Tim Farron) included.  Again, not thought through, and public relations.

Reactions to the spending review have been fairly predictable.  The Tories ignore the distinction between current  expenditure and investment and bleat about the increased borrowing costs (forgetting that most of the payments on government debt come to ourselves, some of it even to me in my modest holdings of National Savings Certificates, and to many in the form of their pension funds).  Conservative  Shadow Chancellor,  Mel Stride, thunders that taxes will rise in October to fund this profligacy.  Well, of course they will, and about time too, not to compensate for profligacy but to repair fourteen years of neglect.

The Liberal Democrats, more constructively, point out that much of the welcome increase in funding for the NHS will continue to be wasted on bed blockers who no longer need hospital treatment but for whom no places in the inadequate care system can be found.  We really cannot continue to ignore this gap in our social provision (and somehow the money has to be found, be the provision private or public.)

 The Labour Government has had a bad first year because it has been hemmed in by the promises of no tax rises it felt were necessary to win the election. In my view they have missed two golden opportunities to break the promise: the “discovery” of the £22bn black hole and, even more credibly, the withdrawal of the USA as the guarantor of the defence of Europe.  The latter in particular was an ideal opportunity  to declare the need for extra taxation, and the right wing would hardly have been in a position to make credible protest.  

 Having missed these two opportunities I hope labour will manage to confect some excuse to enable us to pay for the level of public services we deserve.  Be that as it may, I believe the review shows  they are now steering closer to the right track.