Labour in virtual opposition

Unusually for a government minister, Tom Harris has a good idea. He says:

If we were in opposition right now, and the country were facing exactly the same challenges as it is now, and we were determined to form the next, new, government, what would be in our manifesto?

This is a good question for two reasons. First, it’s a way for the party to avoid two common cognitive biases. One is ego-involvement; we all tend to defend decisions not because they are good ones, but simply because they are ours. The other is Bayesian conservatism; we stick to our prejudices too much in the face of contrary evidence.
Secondly, it allows the party to ditch some policies which were, at best, only temporary expedients. There are four I have in mind:
1. Targets in public services. Julian Le Grand called this well in this fine book. Targets, he said, can work as a remedial measure, to redress serious problems - such as long hospital waiting lists or illiteracy. But they’re a bad long-term policy, as people learn to game the system by fiddling the figures and become demotivated by endless top-down diktats.
Labour in virtual opposition would, like the Tories, want an end to targets.
2. PFI. The credit crunch has revealed what has always been the case - that there’s one thing government can do better than the private sector; borrow money. Whilst credit is tight for private firms, government can borrow at a real rate of less than 1 per cent. Infrastructure spending should therefore be funded by government; if there’s a case for private sector involvement, it’s in project management, not finance.
And we can forget that pish about fiscal prudence. This was only ever a 1990s rhetorical device intended to show that New Labour wouldn’t frighten the City. That battle’s been won. If people are prepared to lend to government at such low rates, let’s bleed them dry, because cheap money won’t last forever; infrastructure spending should be undertaken now, whilst it's cheap.
3. A low top tax rate. Again, this was a 1990s policy intended to show that Labour was safe for the middle class. Since then, though, we’ve learned that the rich don’t have special indispensable skills but are, to a larger extent than previously thought, just rent-seekers and chancers; another lesson of the credit crunch, surely, is that traders and bank bosses weren’t skilful risk-assessors but just mug punters. And if the state is going to help bail out banks, why shouldn’t it get a bigger slice of the action in good times? Risks shouldn’t be pooled only in hard times.
4. Tax credits. Again, these are a legacy of the 1990s, when Labour was desperate to show that it would only redistribute to the deserving (ie working) poor. Since then, though, we’ve learned that the cost of complex tax credits is high, and in a downturn the distinction between deserving workers and undeserving unemployed is even more meaningless than usual. It’s time, then, for a simpler system - a basic income?

Comments

[Neil Harding]

Can't disagree with any of that.

[William]

Actually, let's put 3 & 4 together and say a simple tax system. The current one, which you'd be hard pressed to fit inside a truck, is a license for lawyers to fiddle the system. A simple tax code of no more than about 10-20 pages would yield far better results. (No I'm not an advocate of flat tax, just simple tax.)

[QuestionThat]

Point 4 in particular is one we can definitely agree on - tax is way too complicated. A basic income is one way of improving matters, but much more straightforward would be to raise the personal tax allowance to something nearer £12,000.

This is something the left and right who butt heads all the time over other things should find some common ground on.

To a lesser extent, as is Point 3. We're getting into Polly Toynbee territory here admittedly. Her problem is that she never acknowledges that money given to the state isn't necessarily well-spent; she just assumes that pouring money into problems like social exclusion solves them, and dismisses the counter-arguments of e.g. the Taxpayers' Alliance with a wave of the hand. She does have a point, but she doesn't make it very well!

[tolkein]

You don't need targets if you have (reasonable) choice and ways of exercising it. I'm fine with that, but many of those who oppose targets also oppose choice. They also tend to be on the Left. I do find that hard to understand.

As far as complicated credits for the deserving poor are concerned, there is a trade off between simplicity and equity and it's a bit more complicated than you suggest.

[Jonathan]

Let's see if I've understood this? Relatively low tax rates for higher income earners should be reversed as a good deal of their high income is rent-seeking and/or luck (FWIW no problem with this here). But the other day it was wrong to put a windfall tax on energy companies, whose currently high profits surely reflect rents and luck. Admittedly using windfall taxes to prop up the housing market was a poor idea - but if it were used instead to promote council or social housing projects?

[Tomrat]

Point 2 is misleading; when government "borrows" money it has no intention of ever repaying it - this entails raising the rate of inflation which leads to more money beng printed which decreases the value attached to the initial amount, additionally it decreases the value of the money pool in existence thus driving inflation, not growth.

This has occured through the abandonment of the "gold standard" which placed value against tangible assets - the equivalent the UK had to tangible assets was sold by Gordon Brown to pay for...more paper money! in the form of euros...

Say that we were to leave the job of creating money in the hands of the government for a minute; wouldn't we want the lending of it to do more work for us? This would be recognised by a moderately high interest rate (I would argue for a very high one to curb inflation effects caused as I mentioned in the first paragraph); the individual borrowing it would then have an indicator for performance - the ability to reward the lender for their investment; government has no such compulsion for this reason (and a whole host of other reasons) to behave efficiently or cost-effectively.

[Richard Mann]

Bayesian conservatism? Please don't smear perfectly sound probability theory with the poor decision making displayed by the gov't. Bayesian analysis provides a theorectically perfect means of updating beliefs in the face of new evidence, it is the ignoring and misrepresentation of evidence that it the problem. If I could guarantee Bayes' rule were applied I'm gov't decisions I'd sleep far better.

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