5 December 2014

10 reasons to cut public spending and keep cutting


Every centre right government redistributes money from the rich to the poor. Margaret Thatcher did. Ronald Reagan did. John Howard did. They all oversaw progressive tax systems. They all maintained a state-funded social safety-net. For pensioners. For the unemployed. For the young. For those in need of emergency medical care. Stephen Harper, Angela Merkel, Tony Abbott and David Cameron still do.  All centre right governments fund the police, armed services and key infrastructure assets.

In other words nearly every elected centre right government isn’t anti-government and conservatives who want to keep big government parties out of office should be weary of looking like they are. People want judicious redistribution. They want a safety-net for people who fall on hard times – but not ones that entangle people and create chronic dependency. They want a state strong enough to keep the streets safe and to police the nation’s borders. And it’s more than the duty of conservatives to do these things. It’s actually a privilege to go into public office to help ensure the public finances are on a sound enough footing to ensure essential services are sustainably funded.

But and it’s a big but. If there is one danger that conservatives forget these things and adopt anti-government language that frightens voters – and which means they don’t get credit for protecting the safety-net – there’s another danger. Some would argue that it’s a bigger danger. That’s the risk that conservatives get too comfortable with running the large state. That they find it easier to give in to the vested interest groups and lobbyists who will always want more taxpayers’ money spent on their pet causes. They find it easier to increase borrowing that falls on tomorrow’s taxpayers than decrease spending which is felt and protested immediately. So here are ten reminders of why conservatives should always be looking for opportunities to cut state spending and why, despite my disagreements with many of them, the more libertarian voices on the right are essential to keeping pro-capitalist political movements sound.

1.Government rarely does things better than private and voluntary organisations.

Communism taught us that when no one owns land we witness a “tragedy of the commons” and pollution of natural environments. The post-war period taught the West that the state wasn’t good at running industries. It also taught us that it’s not much good at running housing stocks. As soon as tenants owned their own homes after Margaret Thatcher issued the right-to-buy the new owners painted their house doors, they invested in their gardens and built extensions. Those battles over state power feel like they’ve largely been won. Battles over social policy are still in their infancy. No one, for example, cares as much as for children as their own parents but the contemporary state seeks to tax families so much that they have no choice but to work all hours that God sends. The welfare state competes with dads, in particular, to be the breadwinner for children. And look at children’s homes if you want to examine what happens when the state (sometimes unavoidably) becomes a child’s last resort carer and protector. Sadly, looked-after-children rarely prosper in life.

2.Much state spending doesn’t go to those who are in greatest need.

A limited, focused state has vital functions to perform but modern states are distorted by the reality of electoral politics and by powerful lobby groups. Much state spending doesn’t go to the poorest and most vulnerable but to those in battleground electoral districts whose votes decide elections. Scotland for example gets more money from the UK taxpayer than Wales – even though Wales is poorer. In the US the states at the start of the presidential election cycles are treated more generously than those that aren’t. State spending is more likely to go to the people most likely to vote (pensioners, for example, rather than the young, poor and ethnic minority voters who are more likely to stay at home on election days). And then there’s the money that goes to the sprawling bureaucracies that administer the welfare system and state schools. Look, for example, at the way America’s teacher unions pour money into campaigns to prevent school choice or to keep underperforming teachers in classrooms. Look at the way farmers fight hard to keep their subsidies – often against the interests of mums and dads struggling to afford the inflated weekly grocery bill. Look at the way that unionised public sector workers work shorter hours for more pay, perks and pensions than their private sector equivalents.

3. Forget the profit motive, there is no “loss motive” in the state sector.

People often say capitalists are obsessed with making profit but, importantly, they’re just as keen to avoid losses. When one of their enterprises goes wrong it’s not too long before it’s discontinued. They may try for a time to reform it and save it but small businesses in particular can’t afford sustained losses. Politicians don’t behave like capitalists. They rarely scrap initiatives that they’ve invested their reputations (and our money) in. If their pet projects fail to deliver what they were intended to deliver the politicians will pretend that they’re working and probably throw good money after bad to save them. They’re not motivated to save money but to avoid a loss of political face.

4. Too much of the modern state is about subsidising poverty rather than creating wealth.

In Britain George Osborne, Chancellor of the Exchequer, wants to cut spending on welfare in order to spend more on infrastructure. Good luck to him. Good roads, railways, airports, excellent universities and high speed broadband provide essential underpinnings to growth, job creation and future tax revenues. But investing in infrastructure only produces dividends in the longer-term. Short-termist politicians like Gordon Brown think about the immediate electoral cycle and that’s why the former Labour leader and chancellor was focused on increasing welfare benefits and public sector pay. The political rewards were more immediate than if the self-styled Mr Prudent had worried about ensuring a new generation of power stations were built.

5. Many taxpayers are in a daily struggle to make ends meet.

When government spends money it needs to realise how hard many people have worked for it. Not everyone has a job they enjoy. Some have to do two or even three jobs to keep the bailiffs at bay. Some work through the night at petrol stations or as security guards. Others don’t see their children off to school because they’re cleaning offices. Others stack supermarket shelves into the evening in order to pay the bills. If spending was lower, taxes would be lower and so, too, might be the working hours of millions of people. Every billion that a politician spends is paid for by a billion hours that a parent can’t spend with their kids.

6. Government isn’t good at knowing what people really need.

When I buy myself a new tie or a book I know exactly what I want. I don’t waste money. Not often anyhow. I’m not sure Aunt Edna knows me quite so well. That woolly jumper bought a few Christmases ago still sits in the attic unworn. There are similar dangers with government spending. Does centralised government in Westminster really know what Manchester wants or needs? Does the government in Manchester really know what people in its inner city district of Hulme really want? Most government is remote from the people it spends money on – even more remote from me than dear ol’ Aunt Edna. Milton Friedman drew up a four tiered hierarchy for how money is best spent. Top of his tree was spending your own money on yourself. In the runner up slot was spending your own money on somebody else. Aunt Edna may not be brilliant at knowing my taste in sweaters but she certainly is careful with the price of things. Third in Friedman’s list came spending somebody else’s money on myself. “If I spend somebody else’s money on myself,” he wrote “then I’m sure going to have a good lunch!” The least effective way of spending money comes from spending somebody else’s money on somebody else.” Politicians spending other people’s money on other people should be minimised. Wherever possible people should be able to keep their hard-earned money to spend it on themselves, their families, their communities – reinvesting their money in their businesses and causes.

7. Taxes can’t keep going up forever and the tax ceiling may be falling.

Mark Littlewood of the Institute of Economic Affairs has noted that the UK tax burden has struggled to get much above 36% of GDP in any of the last fifty years. In one year it got up to 37.6% but not for long. There seems to be a maximum tax take before people start moving abroad, reducing their hours or moving economic activity underground – into the black economy. This maximum may also be falling as individuals and companies enjoy increasing opportunities to transfer their activities overseas. Those who think today’s western governments can escape from today’s deficits by taxing more should reflect on the Littlewood analysis. Helpfully, that bastion of tax avoidance, The Guardian, has listed UK tax receipts since 1963 for such truth-seekers here.

8. Voters know that families, teachers and job creators – not an ever bigger state – add up to the best way of defeating poverty.

Conservatives shouldn’t be afraid of challenging the idea that government welfare is the best way of building a good society. A YouGov survey for The Times found that more people believe that the good society is built by parents, teachers and job creators than by increasing state-financed social programmes. So long as the centre right avoids looking like it is against all government activity it has a chance of winning the moral high ground in the war on poverty. It maximises its chances of victory if it acknowledges the role that public policy has in keeping families together, guaranteeing access to lifelong education and providing entrepreneurs with the business environment and infrastructure that they need. The middle way between a big state and a hands off state is the enabling state. It has the potential to be very popular.

9. There is something totalitarian about a society where most people get more money out of the system than they put in.

Mitt Romney was not at his most sensitive when he divided America into “givers and takers”. Presidential candidates rarely win by offending 47% of voters. Moreover, people give into the public purse at some points in their lives but “take” from it at others. Our need for help and capacity to give can be a lottery. Luck as well as desert plays its part. But there is something dangerous when fewer and fewer people pay for more and more public services. In Britain today only the richest fifth of households contribute a lot more to the Treasury’s coffers than they receive back in the way of public spending. If a higher and higher proportion of voters either don’t pay much tax or are net “takers” democracies can start on a conveyor belt towards ever higher taxes. Regardless of the morality of a majority exploiting a minority in this way there is always danger that the golden goose will one day decide enough is enough and stop laying eggs.

10. More and more spending ultimately leads to more and more borrowing and no indebted nation is in true control of its own destiny.

People, businesses and governments can live in debt for a long time without serious consequence but with every passing day freedom is in decline and risks grow. People in dangerous levels of debt are not masters of their own destiny. They are vulnerable to the whims of bankers and investors. They are vulnerable to downturns in local and global market sentiments. Debt, ultimately, kills civilisations. This short video isn’t just a warning to indebted America but to every state that spends too much, taxes too much and borrows too much.

We are fortunate in Britain to have a good number of organisations who campaign for the taxpayer. The Centre for Policy Studies has consistently warned about the costs of government for four decades – and with particularly significant success in the 1980s. The Adam Smith Institute’s Tax Freedom Day spotlights the large portion of every year during which we work for the government. It was 28th May in Britain this year. The Institute for Economic Affairs examines the inefficiencies of state bureaucracies and educates the next generation about the benefits of smaller government. And there is, of course, the TaxPayers’ Alliance and its relentless pursuit of public sector fat cats who enrich themselves at our expense.

But these organisations’ budgets are small compared to the unions and organisations that receive money from the state. 27,000 so-called voluntary organisations receive more than 75 per cent of their income from the state, for example. The representatives of taxpayers fight – not against government – but for a limited, focused and efficient state. For a stronger society, bigger citizens and a smaller state. They need and deserve our help.

Tim Montgomerie is a leader writer for the The Times and founder of the Centre for Social Justice.