Liberal Hero of the Week #37: Ingrid Loyau-Kennett. Our Liberal Villains are John Reid & Alex Carlile

Liberal Hero of the Week (and occasional Villains) is chosen by Stephen Tall, Co-Editor of Liberal Democrat Voice, and Research Associate at CentreForum. The series showcases those who promote any of the four liberal tenets identified in The Orange Book — economic, personal, political and social liberalism — regardless of party affiliation and from beyond Westminster. If they stick up for liberalism in some way then they’re in contention. If they confound liberalism in some way they’re liable to be named Villains.

Lords (John) Reid and (Alex) Carlile

Former Labour home secretary, and former Lib Dem MP and independent reviewer of terrorism legislation
Reason: for wanting to sacrifice our liberties ‘for the greater good’

There’s a familiar pattern to a terrorist outrage. Immediately, there’s the shock at innocent life cruelly and calculatedly obliterated; followed by the grief on behalf of their family and friends, robbed of their fellowship. Then there are the sonorous statements from politicians, gravely intoning that we must remain steadfast, that the murderers will not win, that our lives must continue as normal; anything else would be to hand the terrorists their victory on a plate.

And then comes the next inevitability: politicians striking a pose as authoritarian strongmen by cravenly giving the jihadists the glory they seek. Two of the usual suspects this week displayed to the full their instinctive wish to do the terrorists’ job for them and concede defeat on our behalf: step forward Lords John Reid and Alex Carlile.

As the rest of the country watched in horror at the ritually savage attack so calmly executed in Woolwich this week, they ignored the Prime Minister’s sensible, sober words…

… one of the best ways of defeating terrorism is to go about our normal lives, and that is what we shall all do.

… and instead took the opportunity to urge crackdowns, resurrecting the ghost of the Data Communications Bill (aka Snoopers’ Charter) which sought to keep tabs on private citizens emails and internet activity ‘for the greater good’.

Here’s Lord Carlile speaking on Wednesday’s BBC2 Newsnight: “we must ensure that the police and the security services have for the future the tools they need that will enable them to prevent this kind of attack taking place. I hope that this will give the government pause for thought about their abandonment, for example, of the communications data bill.” His co-conspirator Lord Reid cheerily asserted, “some of the measures the Government has refused to implement, like data communication, is absolutely essential for effective fighting of terrorism.”

You might ask where their evidence is that giving into the terrorists as they desire will make any of us safer. The issue has already been examined in detail by a parliamentary Joint Committee who pointed out how flawed the Snoopers’ Charter was, giving the state powers well in excess of those needed to prevent atrocities such as Woolwich. As Lib Dem MP Julian Huppert pointed out at the time:

While the Home Secretary claimed in the Sun that ‘Only suspected terrorists, paedophiles or serious criminals will be investigated’, the truth is as that it could also be used for speeding offences, fly-tipping and things as vague as being in ‘the interests of the economic well-being of the United Kingdom’. We are all suspects under this bill.

This week’s killing was a tragic, symbolic attack on our democracy — on the freedom of individuals to live our lives as we want within just laws. It’s precisely at times like these we need to stand confidently in defence of our liberal democracy, not fearfully give up our hard-won liberties as Lords Reid and Carlile want us to do.

Ingrid Loyau-Kennett

Cub Scout leader from Helston, Cornwall
Reason: for composure in the face of terrorism

If Lords Reid and Carlile showed us how not to react to terrorist outrages, Ingrid Loyau-Kennett showed us how we should respond:

When the prime minister talked about Britain having a shared duty to confront extremism, the Cub Scout leader from Cornwall was the example he chose: “Told by the attacker he wanted to start a war in London, she replied, ‘you’re going to lose, it’s only you versus many’.”

With those few words, he said, Ingrid Loyau-Kennett had spoken “for us all”.

(Available to watch on YouTube here.)

* You can view our list of ‘Liberal Heroes of the Week’ (and occasional ‘Liberal Villains’) here. Nominations are welcome via email or Twitter.

Liberal Hero of the Week #36: Jo Swinson MP

Liberal Hero of the Week is chosen by Stephen Tall, Co-Editor of Liberal Democrat Voice, and Research Associate at CentreForum. The series showcases those who promote any of the four liberal tenets identified in The Orange Book — economic, personal, political and social liberalism — regardless of party affiliation and from beyond Westminster. If they stick up for liberalism in some way then they’re in contention.

Jo Swinson MP

Lib Dem business minister
Reason: for championing the rights of the consumer

HM The Queen read out a list of bills the Coalition Government intends to bring forward this week. It was the usual mix of the good, the bad and the indifferent.

The Conservative end of the Coalition promenaded their anti-immigration pose-striking measures. For a party that is supposed to believe in a small-state, regulation-light liberal market economy, I never cease to be amazed by their desire to impose new laws on private businesses in their desire to restrict the free movement of labour.

Meanwhile the Lib Dem end of the Coalition breathed a sigh of relief at the absence of the intrusive Communications Data Bill (aka ‘snoopers charter’) and trumpeted the diligent work of Steve Webb and Norman Lamb in proposing major reforms to simplify the pensions and social care systems. These subjects are considered by the news media to be boring (unlike the endless procrastinations of the Tory party’s inevitable march towards an EU exit) so their achievement has gained less coverage than they deserved.

But it’s a smaller bill, also largely ignored by Farage-fetishising journalists, that I want to celebrate: the Consumer Rights Bill to be introduced by Jo Swinson. Its aim is straightforward: to simplify, update and strengthen the laws intended to advise and protect consumers buying goods or services from businesses.

There are four key elements, as set out in the Bill:

1. Giving consumers greater confidence in knowing their rights when they purchase new products, switch suppliers or make purchases via the internet or phone.
2. Updating the law to take account of the modern marketplace and consumer rights with digital content like music and film downloads, online games or software. In the UK, more than £1bn was spent on downloaded films, music and games in 2012. In 2011, over 16 million people experience at least one problem with digital content
3. Introducing new protections for consumers and businesses making it easier access to compensation where there have been breaches of consumer or competition law. For example, new powers for enforcers, such as Trading Standards, to seek a court to require compensation to be paid to consumers where consumer law is breached.
4. Reducing burdens for businesses through consolidation of legislation. 60 pieces of enforcement legislation will be merged making it simpler for businesses to understand. This would allow for faster resolution of complaints as they would spend less time and money dealing with consumer complaints if the consumer knew where to turn to first.

What does this mean in reality? Jo Swinson’s department has come up with some specific examples. Here’ a couple:

Case Study 1: faulty laptop or microwave

• Your laptop has a series of minor faults and you keep sending it back for multiple repairs but the retailer won’t give you your money back. Currently the law is unclear how many repairs you have to accept. The measures would say you can insist on a refund after one failed repair or replacement.
• You buy a microwave and it stops working after three weeks. The changes would make it clearer that within a stated time limit you will have a clear right to a refund.

Case Study 2: inadequate service quality

• You get a decorator to paint a room in a specific brand of high quality paint and then find that the decorator has done the job in a cheaper paint. Under the new proposals you would be entitled to the job being re-done in the agreed brand of paint or, if that was impossible or could not be done for an unreasonably long time, you would be entitled to money off.
• You pay to stream a film over the internet but it keeps stopping in the same place and is unwatchable and the broadband is working fine. Under the new proposals you would be entitled to a replacement of the film or, if this failed as well, get some money back.

You can find more examples in this briefing note from the Department of Business, Innovation and Skills.

Will these new laws transform people’s lives? Not really. But do they help equalise the relationship between the consumer and business? Yes. As Jo Swinson, the minister who’ll pilot the legislation through parliament, put it:

“Stronger consumer protection and clearer consumer rights will help create a fairer and stronger marketplace. We are fully aware that this area of law over the years has become unnecessarily complicated and too confusing, with many people not sure where to turn if they have a problem. We are hoping to bring in a number of changes to improve consumer confidence and make sure the law is fit for the 21st century.”

The Government has this year, mostly wisely, fought shy of the hyper-kinetic legislative over-drive that Tony Blair and Gordon Brown specialised in. The Queen’s Speech was, as a result, a bit of a damp squib, which says much about the widening chasm between the two Coalition parties on many issues, including immigration, Europe and welfare reform.

But if the overall effect was underwhelming, that should not blind us to its modest but important successes. The Consumer Rights Bill is one such success and it deserves to be recognised.

* You can view our list of ‘Liberal Heroes of the Week’ (and occasional ‘Liberal Villains’) here. Nominations are welcome via email or Twitter.

CentreForum: Three headliners for an alternative Queen’s Speech

The Queen’s Speech today looks set to be a relatively sedate affair. As Stephen Tall observes, “the Coalition is now pretty much intellectually dead” when it comes to its legislative agenda. Enthusiasm for pushing new ideas has been replaced with a business like determination to deliver what is already underway.

The content of the Queen’s Speech is nonetheless important. It will shape what happens over the course of the next parliamentary session, and will therefore influence the outcome of the General Election. If CentreForum had the privilege of writing the Speech, we would focus on three headline issues in particular: planning, higher education and immigration.

Here, briefly, is what we have in mind. (Note to commenters: this list is not exhaustive!)

Planning Bill

The Communities Secretary Eric Pickles once described our community land auctions idea as “communist”. He must be wondering why so many capitalists, including the Financial Times and George Osborne, think it is a good idea.

When land in the South East is transferred from agricultural to residential use, it increases in value by as much as £45,000 per plot.

Under the current system, that money goes straight to developers, while much of the social cost is borne by neighbours. Under community land auctions, it would go to the community. A village of 45 houses which allowed just one extra house to be built would receive £1,000 for every house.

This is a significant incentive to accept housing development and we want the coalition to legislate for it by the end of the parliament. More house building will mean more homes, more jobs, a smaller housing benefit bill and a rising growth rate.

Higher Education Bill

The Government should continue to raise controls on undergraduate numbers and introduce an income contingent loans system for postgraduates. Expanding higher education will cost nothing as the government is in the unique position of being able to borrow at zero per cent real interest rates over a long period.

The policy will help to reduce youth unemployment immediately, and it will be good for long term growth – investment in human capital always is.

Immigration Bill

The immigration debate is currently dominated by the Left, which leans towards restricting immigration at times when domestic income inequality is on the rise, and the Right, which calls for restricting immigration to protect ‘British jobs’ and/or ‘British culture’. A big challenge for those in the liberal Centre is to work out how public confidence in the immigration system can be restored without having to sacrifice key liberal principles, such as freedom of movement.

Abolishing the hard ceiling on net immigration and removing students (who contribute £3.3 billion per annum to the UK economy) from the official immigration figures are two of the measures that should be contained in a liberal Immigration Bill. But so too is a commitment to tighten up border enforcement and visa administration. It is about balancing freedom of movement with personal responsibility – a liberal approach to immigration that CentreForum will be exploring in coming months.

Our Associate Director of Economic Policy, Tom Papworth, explained our thinking around the Queen’s Speech on BBC Radio 4 Today. You listen to it here.

This article was published by Liberal Democrat Voice on 8 May 2013.

Liberal Hero of the Week #36: The #LibelReform Campaign. (Our Liberal Villain is Sir Edward Garnier QC, MP)

Liberal Hero of the Week is chosen by Stephen Tall, Co-Editor of Liberal Democrat Voice, and Research Associate at CentreForum. The series showcases those who promote any of the four liberal tenets identified in The Orange Book — economic, personal, political and social liberalism — regardless of party affiliation and from beyond Westminster. If they stick up for liberalism in some way then they’re in contention.

The #LibelReform Campaign

The campaign to reform the UK’s libel laws
Reason: for ensuring through the Defamation Bill 2013 that free speech isn’t silenced by those with big bank accounts

Libel reform: it’s hardly a sexy campaigning topic, is it? So a lot of kudos is due to a lot of people for ensuring that the Defamation Bill cleared the final parliamentary hurdles this week and is now set to become the Defamation Act 2013.

The ability of an individual to defend their reputation in court is of course a fundamental freedom. But this country’s libel laws, largely unreformed since 1843, had reached the point where they could be used by the rich and powerful to silence views they didn’t like. Many threatened libel cases didn’t even reach the courts: the mere threat of financial ruin was often enough to deter individuals from arguing their case.

The new law will still mean it’s possible to sue and to be sued, but it has raised the threshold:

1. It now needs to be shown that a statement has caused or is likely to cause serious harm to reputation.
2. A public interest defence has been introduced to ensure doctors, human rights NGOs and consumer groups can speak out on matters they reasonably believe to be of wider public interest.
3. Corporations (usually those with the deepest pockets) will have to show that any statements they want to sue about were likely to cause serious financial loss.
4. The author is held primarily responsible now rather than the publisher, giving greater protection to publishers to offer a platform to controversial voices.
5. An end to ‘libel tourism’ with the clear statement that you can only be sued in this country if it can be shown England is the appropriate place.

(You can read more about the details of the Bill in this briefing on the Sense about Science website.)

Usually this Liberal Heroes series highlights a single individual to exemplify a wider point. But Nick Cohen has already written that article — Simon Singh: Let us now praise a bloody-minded hero — about the doctor who took on the British Chiropractic Association when it sued him for criticising the therapy it promotes as ‘bogus’ in an attempt to shut down the debate about alternative medicine.

So instead I want simply to highlight this heroic campaign, Libel Reform, which has succeeded in taking a dry-as-dust area of law and transformed it into a campaign uniting so many — campaigning organisations, politicians, writers, comedians, academics, scientists, broadcasters, and many, many more — all in the defence of free speech which belongs to us all.

Sir Edward Garnier QC

Libel lawyer and Conservative MP
Reason: for trying to protect companies from the Defamation Bill

While it seems invidious to highlight one individual as heroic for securing reform I’ve no such compunction in singling out Sir Edward Garnier for his last-ditch attempt to protect the interests of companies and those in public office. Here’s the Daily Mail report from a couple of weeks ago:

Libel lawyer and Tory MP Sir Edward Garnier has put down amendments to the Government’s Defamation Bill that would remove key sections designed to boost freedom of speech. The legislation currently states that companies must show that financial damage was caused by something written by a journalist, academic or blogger, before they can sue for libel. Campaigners say the clause is vital to protect the interests of scientists and writers who have been muzzled by big business and drug firms under the threat that they might face ruinous damages.

Sir Edward, a former Solicitor General, wants to strip that protection out of the Bill. He has also put down an amendment to remove a clause that prevents anybody performing ‘a public function’ from suing. That is seen by libel reform campaigners as a vital protection enshrining in law the freedom to criticise town hall chiefs. Sir Edward’s move, if successful, could allow councillors to bully cash-strapped local newspapers and deter negative coverage of their activities and use of public money.

But even after his earlier attempts failed, even this week he was trying to re-introduce amendments into the House of Commons to un-do the reforms. His efforts were blocked, but they cannot go unrecognised: which is why he’s my choice as Liberal Villain.

* You can view our list of ‘Liberal Heroes of the Week’ (and occasional ‘Liberal Villains’) here. Nominations are welcome via email or Twitter.

Liberal Hero of the Week #35: Rick Perry, Republican Governor of Texas

Liberal Hero of the Week is chosen by Stephen Tall, Co-Editor of Liberal Democrat Voice, and Research Associate at CentreForum. The series showcases those who promote any of the four liberal tenets identified in The Orange Book — economic, personal, political and social liberalism — regardless of party affiliation and from beyond Westminster. If they stick up for liberalism in some way then they’re in contention.

Rick Perry

Republican Governor of Texas
Reason: for promoting a liberal approach to crime reduction

“I believe we can take an approach to crime that is both tough and smart… [T]here are thousands of non-violent offenders in the system whose future we cannot ignore. Let’s focus more resources on rehabilitating those offenders so we can ultimately spend less money locking them up again.”

What kinda liberal commie-loving talk is this? Actually it’s Rick Perry — yes, that Rick Perry: the tea-partying Republican Governor of Texas — quoted on the US website, Right on Crime. The site details the policies pursued in 27 US states which aim to use smart, effective public policy to combat crime.

To be honest, it’s a disconcerting read for a UK citizen: because the policies advocated, while cloaked in the robust language of the American right, are frequently liberal in intent. Here, for instance, are Right on Crime’s crime-reducing principles: “protecting the public, lowering crime rates, reducing re-offending, collecting victim restitution and conserving taxpayers’ money”.

Talk’s easy, you might say. Fair enough, but US Republicans are not afraid to walk the talk on this issue. Texas has, in its own words, “strengthened alternatives to incarceration”:

In 2003, the state legislature required that all drug possession offenders with less than a gram of drugs be sentenced to probation instead of state jail time. In 2005, probation departments began receiving additional funds with the goal of implementing evidence-based supervision practices and treatment programs to reduce unnecessary revocations to prison both by preventing new offenses and reducing technical revocations.

This liberal policy has continued, as Rick Muir of the left-leaning IPPR think-tank noted in the New Statesman yesterday:

The Republican Governor of Texas has scrapped plans to build three new prisons, saving $2bn. This money has instead been reinvested in treating offenders with mental health and addiction problems. The state has reduced its prison population by 6,000, while keeping crime at historic lows.

Credit is (over-)due to the US right on this issue. It may have been their libertarian recoil from the spiralling costs of ever-rising prison numbers which sparked their interest, but the result has been to re-focus attention on the ultimate purpose of prison: the rehabilitation of the offender to become a contributing member of society. They have eschewed the intellectually vacuous ‘prison works’ mantra that too many Conservatives (often mimicked by Labour) have adopted in the last 20 years in favour of policies that are shown to be effective.

There is hope, though, that some British politicians are beginning to wake up to the reality that simply locking up every miscreant to strike a ‘tough on crime’ pose is self-defeating. For instance, Conservative MP Ben Gummer wrote recently in the Telegraph:

We are spending more on crime and justice than ever before, as more and more people have been sent to prison. There are twice as many men and women incarcerated in England and Wales as there were in the mid-1990s. Elsewhere in Europe, the prison population has followed crime rates down. Yet back here in Blighty we are ramming our prisons full, spending a fortune in the process and doing very little to turn criminals’ lives around. The result is that reoffending is roughly where it was five, ten, fifteen and twenty years ago. We are at the top of the European league tables for reoffending rates; for some groups, reoffending has actually increased. In sum, we are spending far more to achieve less and less. That is lunacy.

He went on to praise Intelligent Justice (Feb 2013), the Howard League for Penal Reform’s publication which debunks ‘prison works’:

1. demolishing the idea it deters (“The key factor which prevents most people from offending is how likely they are to be punished, rather than how severe the punishment is.”),
2. arguing it simply displaces the problem (“evidence suggests that, in some cases, imprisoning one person creates a ‘job vacancy’ for another to take their place and commit offences.”) and
3. exploding the claim it actually reduces crime (“imprisoning a large number of people for longer periods of time results in short-run declines in crime but long-run increases in crime when they are eventually released”).

It concludes by pointing out that “it is usually more effective – and cheaper – to get people to ‘buy into’ behaviour rather than compel or cajole or supervise them into it … punishment needs to have broader ambitions than simply to contain risk by warehousing those whose offending is serious and persistent”. Practical proposals include those who have successfully completed intervention programmes (such as drug treatment) returning to the court where they were sentenced so the magistrates can “formally recognise the changes made and congratulate them”.

One final point: crime reduction isn’t the only policy area where the US right is currently showing itself to be more progressive than most British politicians have the courage to be.

The Lib Dem proposal of ‘an earned route to citizenship’ for those illegal immigrants who’ve been settled in the country for many years was decried by Conservative and Labour politicians at the last election (to the point where Nick Clegg now wants to ditch it as a vote-losing liability).

In the US, it’s becoming political orthodoxy on both right and left, with former Republican presidential contender John McCain asking the bluntly effective question: “Why should millions of illegal immigrants have to continue to live and work in the shadows?” Quite so. It’s enough to invite another blunt question: why are US Republicans proving themselves, at least in these two areas, to be more liberal than liberal leaders in this country?

* You can view our list of ‘Liberal Heroes of the Week’ (and occasional ‘Liberal Villains’) here. Nominations are welcome via email or Twitter.

Liberal Hero of the Week #34: Margaret Thatcher. (She’s also a Liberal Villain, too.)

Liberal Hero of the Week is chosen by Stephen Tall, Co-Editor of Liberal Democrat Voice, and Research Associate at CentreForum. The series showcases those who promote any of the four liberal tenets identified in The Orange Book — economic, personal, political and social liberalism — regardless of party affiliation and from beyond Westminster. If they stick up for liberalism in some way then they’re in contention.

Margaret Thatcher

Conservative Prime Minister, 1979-1990
Reason: for her liberalising trade union reforms

There hasn’t been much room for nuance this week. Margaret Thatcher was either the finest Prime Minister this country has ever been graced by, saving a nation from destruction; or she was the worst thing that ever happened to Britain, laying it to waste in obsessive pursuit of her dogma.

That gross over-simplification suits those of left and right who want to self-define either as her disciples or her enemies. But it bears little relation to the messy reality: the staunch monetarist who retreated from the experiment even while she declared she wasn’t for turning; the doughty patriot who ignored warnings about Argentinian intentions towards the Falklands until it was almost too late; the champion of competition who converted public monopolies into private monopolies; the believer in thrift who gave away the profits from North Sea oil without thought to future investment; the convinced supply-sider who sold council houses at a discount but didn’t replenish the stock, leaving renters high and dry; the free marketeer who tried her utmost to limit free movement of labour through immigration controls.

There are many things Margaret Thatcher did which I agree with (though less frequently with the way she went about doing them, such as privatisation); and a good few things she did I disagree with. It is two specific trade union reforms implemented by Margaret Thatcher which make her this week’s Liberal Hero:

1) Ending the closed shop. I remember when studying A-level economics in the mid-1990s how extraordinary I found it that workers had once been forced to join a trade union or else potentially face the sack. Margaret Thatcher started getting rid of this infringement of individual rights of association in 1982, completing the process in 1988. As a result, individuals are now free to choose if they want to join a union.

2) Introducing secret ballots for strike action. Again, it seemed remarkable to me, a child of Thatcher, to realise that strikes could be called as a result of a show of hands in front of union bosses who, with their closed-shop privileges, had the de facto power to sack those who dissented. Initially the government made ballots voluntary, even funded the costs; in 1984 they were made compulsory, and workers finally had the right to be formally consulted.

Margaret Thatcher

Conservative Prime Minister, 1979-1990
Reason: for her centralisation of power

If Margaret Thatcher’s great triumph was liberalising the economy, her greatest liberal failure was her centralisation of power.

Liberalism is about trusting people to make their own decisions, believing they will more often make the right choice than the wrong one (and even when they do make the wrong choice individuals are more nimble than the state at learning the lessons of their mistake).

Local government is one, often imperfect, expression of that devolution of trust. For Margaret Thatcher it was a rival for power and had to be squashed. It was not good enough for her to allow local Conservative councils to lead by example by keeping rates low through competitive tendering of services: instead she introduced rate-capping and compulsory competitive tendering to force her will on local councils.

On the afternoon of her death (I assume by coincidence) the LSE Politics & Policy blog carried this assessment by George Jones and John Stewart:

In the 1980s it all went wrong. For the first time ever central government sought to control the spending and taxing decisions of individual local authorities, ending their right to determine their own levels of expenditure when financed by their own taxation. … Central controls escalated, legislation became ever more prescriptive, regulations increased in number and in detail, and statutory guidance largely replaced the softer influence of circulars. Hostility to local government or at least certain local authorities intensified.

The process continued, intensified, under Labour. But the illiberalisation of people power started under Margaret Thatcher.

* You can view our list of ‘Liberal Heroes of the Week’ (and occasional ‘Liberal Villains’) here. Nominations are welcome via email or Twitter.

Adam Corlett: How to close the deficit by 2014, and its causes

Budget 2013 (reviewed here) shows that the UK’s ‘headline’ deficit was around £121 billion last year, will be £121 billion again in 2012/13, and will be a predicted £120 billion in 2013/14. There has been much commentary about the robustness of this year’s figure in particular. But this is not the measure on which the government is aiming to close the deficit, and mistakenly emphasising the overall deficit may even be harmful.

The graph below shows four measures of the deficit using Table 1.5 of Budget 2013*. Our choice of measure clearly makes a big difference in determining the size of the deficit and when it will (in theory) be closed. Looking at each can also help break down the causes of the deficit. It may even be that the government is emphasising the wrong measure.

 

1: Public Sector Net Borrowing (blue)

The blue line is the simplest, most obvious measure of the deficit: the difference between what the government spends and what it raises in taxes. It has increased from around 2-3% of GDP a decade ago, and was 7.9% last year. This is the £121 billion deficit.

But – for the reasons discussed below – we should not be aiming to close this through spending cuts and tax increases, and indeed this is not the government’s aim.

2: Cyclical-adjustment (red)

During an economic downturn, tax receipts fall and social security spending goes up. These automatic stabilisers are a good thing for the economy, but to get an underlying view of the deficit we should try to exclude such temporary changes. This is what the red line tries to do. The difference between the red and blue lines is the part of the deficit that’s down to the economy temporarily running below its full potential.

This has big policy implications. If the deficit is all down to an economic slump, the solution must be growth rather than cuts; if the economy is judged to be already operating at full capacity, we can’t expect to close the deficit through growth. The UK finds itself somewhere in between, having run an overall deficit (rightly or wrongly) for 37 of the past 43 years – regardless of economic conditions.

The Office for Budget Responsibility (OBR) estimates how much of the overall deficit is down to economic weakness, and this has a huge impact in determining austerity plans. But, unlike net borrowing, estimating the potential size of the economy and what the public finances would then look like, is far from an objective measurement. Amongst independent forecasters, estimates for the economy’s ‘output gap’ range from -0.8% to -6% of GDP, with the OBR’s figure “roughly in the middle” (IFS Green Budget, Chapter 5). As Gavin Kelly has written, a small gap is “bad news for our economy, as we’ve had a bigger permanent loss in productive capacity than many realise. And it’s bad news for austerity: the return to growth won’t fill the fiscal gap”. But if the OBR has been too pessimistic, “the structural deficit is far smaller than we are being led to believe – and Osborne may be planning to tighten fiscal policy by way too much.” If we wish to close the cyclically-adjusted deficit, the difference between the most optimistic and pessimistic forecasts represents a staggering £57 billion of spending cuts and tax increases (IFS).

But despite these problems, and the need to reconsider fiscal targets at the next election, cyclical adjustment should and will remain a key part of how the deficit is assessed.

3: Also excluding investment (yellow – the cyclically-adjusted current budget balance)

The Chancellor’s ‘fiscal mandate’ includes cyclical adjustment but also excludes public sector net investment. This is money spent on building schools, roads, railways and other infrastructure that benefits future taxpayers and gives a high return on investment.

As a key part of Labour’s ‘golden rule’, and now Osborne’s too, I will take it as given that excluding investment spending from the deficit target is appropriate.

Note that this makes even more puzzling the Chancellor’s decision to follow the previous government’s plans to cut investment (a choice which is being gradually reversed). As he introduced a target that deliberately excluded investment, capital spending could even have been increased without negatively affecting his principal target.

4: Also excluding debt interest (green – what could be called the cyclically-adjusted current budget primary balance!)

The budget also lists the UK’s ‘primary balance’. This simply subtracts from the deficit what the government spends (net) in debt interest. The green line does the same in relation to the Chancellor’s measure. This debt interest is a remarkable chunk of GDP, having risen from around 2% (historically quite low) to 3% following financial crisis. This is despite Quantitative Easing and the government’s record low cost of borrowing. The cost will certainly increase further, and may be £70 billion per year by 2017 (though consider that much of this goes to UK pension and insurance funds).

One may question how useful the primary balance is in practice, as the cost of debt interest must be met like any other spending (it has even been suggested that this cost would make for a more meaningful fiscal target). However, excluding this cost helps shine a light on whether the state is unsustainably large (aside from whether any given size is desirable). If we had a primary balance surplus but overall deficit, that would not be an argument that our current level of public services and taxes were fundamentally unsustainable; only that the state had previously overspent. That situation could be resolved, in theory, by explicitly temporary measures to reduce the national debt (per cent of GDP): in the longer-term, spending cuts or tax increases could then be reversed.

One can almost imagine the Chancellor saying in 2014/15, “Excluding debt interest, the tough decisions we’ve taken have balanced the (cyclically-adjusted) current budget. The deficit still remains, but OBR figures show this is due only to the headwinds still facing our economy and the cost of debts caused by the previous government. Britain must temporarily tighten its belt further to reduce this debt burden.” When the only thing standing in the way of the government’s deficit target is debt interest, the Bank of England’s government bond actions might be considered even more important and novel one-off ways to reduce the national debt burden may become more attractive (the cost of borrowing is clearly important too but only applies to new debt, and is largely out of the Treasury’s hands).

I would be interested to hear from others as to whether it’s reasonable to exclude both debt interest and net investment (as well as making cyclical adjustment), and whether balancing the books by this measure would indeed mean that further spending cuts or tax increases – including some of what is already scheduled – could be considered (relatively) temporary.

 

Summary

Looking at these measures shown on the graph, and the differences between them, we could roughly say that the deficit of around 8% of GDP in 2011/12 and 2012/13 was made up of four components: ¼ was down to a continuing recession; ¼ down to capital investment; ¼ down to the cost of debt interest; and ¼ down to a fundamental disparity between public spending and taxation. These proportions will change over the next few years, with poor growth becoming the dominant driver of the deficit. Indeed, if these projections – against all expectations – prove accurate then by 2014/15 the current budget would be in surplus were it not for the state of the economy and the national debt (see green line, as described above). While not as visible as the overall deficit, that achievement will deserve a little fanfare and more than a little thought as to what should follow.

 

* For consistency and ease, these figures all exclude the Royal Mail Pension Plan transfer and include the Asset Purchase Facility transfers. While there’s another whole debate about the APF transfers, attempting to exclude them does not change the overall messages and only shifts the graphs 6 months to the right.

Adam Corlett is a researcher at CentreForum and co-author of the CentreForum reports ‘The path to IPO: funding SME jobs and growth’ and ‘Tax justice: whatever your age’.