Tax credits: journalists' failure

It's not just George Osborne who has got some thinking to do after the Lords' vote against his plans to cut tax credits. So too has the media, including the BBC.

What I mean is that their immediate reaction to July's Budget was generally positive. Not many journalists flagged up the looming trouble over tax credits. This poses the question: why did they fail?

Part of the answer is simple pressures of time, exacerbated in some cases by spin doctors not going out of their way to paint a clear picture. But there were also three other things going on.

One was a failure of maths. Pretty much the first thing you should do after a Budget is to look at the Red Book's costings of the policy measures. These tell you which of the Chancellor's announcements involve serious money and which don't.An immediate look at these in the summer (table 2.1) would have told you that the cuts in tax credits were big - a cumulative £20bn between 2016 and 2020. That should have set some bells ringing. But what of Osborne's claim that the higher living wage would offset these losses? The natural reaction should have been: "what does the OBR say about this?" A quick look would reveal that they reckon this would add £4bn to wages by 2020; par 8.10 of this pdf. You don't need to be a maths genius to work out that that there's a big gap here. But this was beyond many political journalists.

A second problem, I suspect, was a framing effect. We have, said Adam Smith, "a disposition to admire, and almost to worship, the rich and the powerful." This predisposes even "neutral" journalists towards the Chancellor. And the fact that the election victory loomed larger in their memories than the "omnishambles" Budget of 2012 exacerbated this tendency to exaggerate Mr Osborne's talents.

Thirdly, there's the heuristic of social proof: if other people seem to believe something, we tend to at least sympathize with that view. It was perfectly natural to look at Tory MPs cheering the Budget - remember IDS's reaction? - and infer that it was, from their point of view, a good one. This too would have made it hard to see that there was a big problem with it.

My point here is that the favourable coverage of July's Budget was not merely because journalists were Tories - though of course many were. It's also because there were psychological mechanisms at work which led them to miss what, in retrospect, was the big story. I too - in the day job but not the blog - was guilty here. We should, therefore, question whether even non-partisan journalists are doing a sufficiently good job of scrutinizing the government.

Comments

[Ben]

Tax credits are letting employers keep more of the profit and allowing rents to stay above wages.

People who are about to lose them are in a bad spot but then so is the UK. It's failing.

We need a radical change from a rentier society but the political will for this will not come until there is near-collapse as the boomers are happy to take banker credits with "I owe you the labour of two young people" written on them.

[Metatone]

I think that bit at the end is most fascinating.
How did you miss it in the day job, but not at the blog?

[Carol]

What is it with the hate towards baby boomers? I have yet to see any of them living high on the hog...unless they were living high on the hog when they were young too. A very small percent of baby boomers are doing well, but resentful pseudo-populists keep trotting out the specter of the cannibalistic old folks eating their young. The reality is that everyone except the wealthy are getting shafted, and the politics of resentment is failing to look at what is really going on, preferring to pit one group of people against the other. Here in the US we call them the Pete Petersons of the media, always shrieking about how Social Security is going to beggar young folks, meanwhile undermining the public trust in government.

[chris]

@ Metatone - one reason is that space & deadlines are very tight in the IC on Budget day. Also, my audience is investors rather than the general public and tax credit recipients, so my focus isn't much upon the fate of the low-paid.

[Dave Timoney]

I think you're letting the media off lightly here by suggesting structural and cognitive failings. They weren't gulled so much as not bovvered.

I recall that many did note that the compensatory effects of the NLW etc would be inadequate to offset the tax credit cuts (the maths is pretty simple given that the net goal is reduced public spending), but seemed to be of the view that the Tories could get away with it a) because they had won the election and b) because the opposition was in disarray.

In other words, they failed to see how policies that dramatically affected people outside the Westminster bubble could quickly produce trenchant opposition beyond Parliament (The Sun, to give them their due, eventually twigged). The sight of IDS fist-pumping may not have caused consternation among the media, but it certainly turned a lot of stomachs among the wider population.

What's interesting about this is that the media's narrative of Labour chaos and ineffectiveness has led them to start acting as if there is no opposition. Witness the coverage of the Lords vote, which barely mentioned that this was a spectacular victory for Labour (whatever your views on the means), hence the distraction of the supposed consitituional crisis.

[Blissex]

«the cuts in tax credits were big - a cumulative £20bn between 2016 and 2020. [ ... ] the higher living wage would offset these losses? [ ... ] this would add £4bn to wages by 2020»

But let's look at the likely regional distribution of this.

Living costs in the North are rather lower, and massively lower as to property costs, than in the South, This means that low wage workers in the North can live off lower wages than low wage workers in the South, and this has two consequences:

* Tax credits will go disproportionately to low wage workers in the North, and will benefit them a lot more than better paid low wage workers in the South.

* Lower wages and property costs in the North will be an incentive to put plants that employ many low wage workers, like warehouses or packed-lunch ones, in the North.

Now cutting tax credits and boosting the minimum wage seems designed to push up house prices in the South by undermining employment and living standards in the North and boosting employment in the South:

* Lower tax credits mean lower deficits and thus lower interest rates and taxes and bigger better asset prices, plus it will push some Northern low wage workers to move to the South, pushing up rents and demand for property.

* A higher *national* mininum wage will considerably reduce the incentive to create plants employing many low wage workers in the North, and this will boost emplpyment and property prices in the South. On yer bike!

Look for example at the impact on immigrants, and not just from North to South: it greatly reduces their ability to find jobs in the North, where accomodation is far cheaper and more plentiful, and will increase their incentive to pack themselves 4-to-8 to a room paying amazingly profitable rents to property speculators in the South.

So the $16b losses over 4-5 years will mostly hit Northern workers, and the benefits will mostly boost Southern property speculators. Surprised?

These maps of the impact of previous "welfare reforms" on various counties shows how carefully they are targeted (and the civil service experts can tell governments the same information at planning stage), for example the summaries at pages 17-19, and the details on pages 27-28 (the "fuck the old miners reform"), and for tax credits (the first round) page 30:

http://www.cpes.org.uk/dev/wp-content/uploads/2013/08/5-fothergill-Welfare-reform-Cambridge-talk.pdf

So true to form, but the idea of boosting the national minimum wage so to discourage job creation in the North and boosting rents and house prices in the South is quite admirably cunning.

[An Alien Visitor]

Tory policy is based on a very objectionable calculation, how much can we hammer the weak and disabled and drive people into destitution and how much will polite society allow us to do it.

It is akin to the euthanasia programs developed by the Nazi's, which were calculated to divide society between good and bad apples. So their categories for Aryan were calculated to ensure a sizable majority fell into it and a minority could be pursued.

Tory policy has a similar balance sheet calculation.

So even though 60% oppose cuts to tax credits Osbourne knows enough people won't give too much of a shit to make it doable.

The reason IDS cheered is that he is a very very horrible and evil human being, who gains satisfaction from the misery of others, it is a sort of sexual stimulant to him I suspect. It is kinda what the Tory party are.

They say they are making the cuts because we have run out of money, well the news reported that a local council were switching on streets lights by charging residents. So, erm, there is enough money after all!

Pure and simple ideology at play. And a very evil one at that.

[Blissex]

«Witness the coverage of the Lords vote, which barely mentioned that this was a spectacular victory for Labour»

That is completely ridiculous: Labour plus Liberals have a majority of the seats there, in large part because of relatively large Liberal numbers, and the crossbenchers are not all tories:

http://www.parliament.uk/mps-lords-and-offices/lords/composition-of-the-lords/

Also there were three divisions, and the first and most extreme was hugely won by the government (lotsd of Labour and Liberals not voting):

http://www.parliament.uk/business/publications/business-papers/lords/lords-divisions/?date=2015-Oct-26&itemId=1&session=2015-May-18

The others were on party lines, with crossbenchers somewhat equally split.

So was it a huge *Liberal* victory?

Since when a victory in the Lords of all places should make Labour proud? :-(

[Bob]

There is always enough money AAV. It is about stuff.

[An Alien Visitor]

"It is about stuff."

Yep, and if they can provide the lighting as well as find the money then I guess there isn't a stuff problem either.

[Bob]

Specifically government spending funds itself. Government spends from HM Treasury's Cash Buffer. It generates an amount of tax and savings:
https://m.reddit.com/r/mmt_economics/comments/3p9y79/uk_proof_of_mmt/
How will you pay for it? By spending the money. By spending from the Cash Buffer.

[Blissex]

«It is akin to the euthanasia programs developed by the Nazi's,»

That's a ridiculous violation of Godwin's Law, typical of resolutionary socialists and other "bien-pensants"...

If cutting the tax credits to the working poor in the UK is similar in some way to «euthanasia programs developed by the Nazi's», what about the poverty of fellow EU citizen in Bulgaria that have 1/4 the income per head of those UK working poor?
What about the desperate poverty of people in Togo whose income per head is a small fraction (even at PPP) of that of the UK working poor? Shouldn't all the UK voters that don't send most of their income to Togo be tried and executed for crimes against humanity? :-)

«which were calculated to divide society between good and bad apples. [ ... ] ensure a sizable majority fell into it and a minority could be pursued.»

In the general case that's called democracy: the majority wins, the minority loses.

Already 200 years ago de Tocqueville worried about the dictatorship of the majority in democracies.

It is up to the culture of the country how much majority voters respect minorities. Consider the USA before the 1960s.

[Dave Timoney]

@Blissex,

Re "Labour's victory", my point was not about the means by which this government defeat came about (the use of LibDem and crossbench peers), or the legitimacy of Labour employing the Lords to this end, but the reaction of the media. Chris's post is about journalist's failure, not the anomaly of the second chamber.

If the government is defeated on any of its parliamentary business, the chief benificary by definition is the opposition in the Commons. The amendment that did the damage was tabled by a Labour peer in coordination with the Labour Party leadership, hence John McDonnell's emollient stance ahead of the vote ("we won't rub it in if you u-turn") and his attempt in the aftermath to broaden the discussion on amelioration to include reversing tax cuts for corporations and the wealthy.

McDonnell has clearly out-manoeuvred Osborne on this occasion, but there has been a determination by most of the media to avoid looking to closely at this, even to the extent of wasting airtime on possible constitutional changes, even though we all know the Tories would never dare sponsor such an initiative for fear of losing control of the process and producing an undesirable outcome.

[ejh]

"It was perfectly natural to look at Tory MPs cheering the Budget - remember IDS's reaction? - and infer that it was, from their point of view, a good one."

Alternatively one could have looked at IDS and concluded that if he was cheering something it was likely to be both malicious and stupid.

[An Alien Visitor]

"what about the poverty of fellow EU citizen in Bulgaria that have 1/4 the income per head of those UK working poor?"

Irrelevant to my analogy Blissex.

My point is that the Tories are making a political calculation, they are subjecting the worst of the cuts to that fraction of the population that is the poorest. They do this for 2 reasons:

They want to win the next election
They would never attack the rich

So they keep hammering the poorest in hope of pushing through their ideology and still winning the next election.

The poverty of the Bulgarians is beside the point entirely.