"The country can't afford"

There's one thing George Osborne said in his Conference speech this week which looks odd. It's this:

We simply can’t subsidise incomes with ever-higher welfare and tax credit bills the country can’t afford.

However, recipients of tax credits are part of the country too. The IFS estimates that the 8.4 million of these will on average lose £750 per year because of Osborne's cuts. For a lot of the country, it is not tax credits which are unaffordable, but the cuts in them.

What's going on here? Part of the answer is that Osborne is perpetuating an error which the Tories - and indeed journalists - have been committing for years: he is equating the government's finances with the nation's. Mr Cameron did just this when he justified the cuts to tax credits by speaking of a "need to get on top of our national finance."

Of course, any fool can see that this is wrong: the country and the government are not the same thing. For a large part of the country, tax credits improve their finances.

There's a related error - what I've called the cost bias. The cost of tax credits is NOT the £29.5bn which the government spends on them. This is a transfer. Instead, the costs are the deadweight costs associated with them: for example, the cost of administering a complex system (which is one reason why I prefer a basic income), or the disincentive effects they create - for example, the higher taxes levied on other people to pay tax credits. The latter are, however, moot (pdf): a big purpose of tax credits is to raise in-work income and so incentivize work. Whether tax credits are therefore a cost at all is thus questionable*.

I fear, though, that what we're seeing here isn't just a neutral intellectual error. In defining the country and the nation to exclude the low paid, the Tories can create the illusion that the interests of the worst-off are not part of the national interest. This is an old trick of the ruling class. Here's C.B. Macpherson describing 17th century attitudes:

The Puritan doctrine of the poor, treating poverty as a mark of moral shortcoming, added moral obloquy to the political disregard in which the poor had always been held...Objects of solicitude or pity or scorn and sometimes of fear, the poor were not full members of a moral community...But while the poor were, in this view, less than full members, they were certainly subject to the jurisdictions of the political community. They were in but not of civil society. (The Political Theory of Possessive Individualism, p226-27)

Jeremy Hunt's claim that tax credit recipients lack self-respect and dignity echoes this.

In this way, Osborne's rhetoric serves to create an illusion that the interests of the poor are antagonistic to the "national interest". You didn't think Theresa May's concern about a "cohesive society" was sincere, did you?

* Not least because of the question: cost relative to what?

Comments

[e]

Indeed, only who hasn’t noticed; only those who don’t vote? Granted the vast majority when hearing The Nation will assume that’s all of ‘us’ “in it together” government and the people; who would suspect otherwise? Certainly not our wise and well read journalist, too busy, toiling away, just as Starbucks workers do.

[BCFG]

..and yet we can afford a missile system we will never use of we can afford to send planes to drop bombs anywhere on the planet at a moments notice!

We have a priority problem rather than a lack of money problem.

He is also looking at the budget as something fixed in stone, so for example the whole history of the rich reducing their tax burden does not come into the argument.

[Phil]

The IFS graph showing the effect of the budget - including the higher minimum wage - on different household income deciles genuinely shocked me: deciles 1-4 and 10 lose, but 5-9 all gain. When Osborne says "We couldn't afford tax credits" he's talking to (and on behalf of) people who are better off for the budget. And look, the government stopped throwing all that money that they couldn't afford at poor people, and now they've got a bit more money! Just like when you decide you can't afford that standing order to Save the Children any more.

[Bob]

The cost of anything is the real resources it uses. The private sector then cannot use those resources.
Spending also influences distribution of resources, as the money is "respent."
"For a large part of the country, tax credits improve their finances."
In fact it is the opposite. The more "irresponsible" the government is running deficits, the net financial assets of the private sector increase by that much.
The government's deficit is the private sector's surplus. In the UK foreigners save a lot and much of the deficits flow goes to them.

[Bob]

http://www.3spoken.co.uk/2015/10/uk-sectoral-balances-q2-2015.html?m=0

[An Alien Visitor]

Just for Bob's benefit,

We should be acutely aware that those countries with more progressive tax policies are the best at reducing poverty and ensuring higher per capita standards of living.

If tax credits are not the answer some form of re-distributive tax system most certainly is, short of a full revolution!

We should also be aware that saving levels can be reactive to economic reality, so Ireland top the savings list because the economic crisis resulted in people saving more of their disposable income. Incidentally third on the list is the shattered economy of Spain!

[An Alien Visitor]

"The cost of anything is the real resources it uses. The private sector then cannot use those resources."

And of course the more of the useless shit that the private sector get to waste resources on the less we have for really useful things like decent health care, quality education and world class public services!

[Bob]

I meant opposite to what the Tories were saying! That we have to cut them and its for the good of workers.
My own personal view favours a Job Guarantee rather than basic income or tax credits.

[Chris Pepin]

It is great to see you quoting a (fellow) Canadian (CB Macpherson). Critics of spending public money on the poor ignore that free lunch arguments also apply to their position. There may be a deadweight loss to welfare; but there is also one without welfare (the US prison system anyone?)

[aragon]

The Tories are Intellectually, Economically and Morally bankrupt.

How does he propose to rid the country of the poor?

We can't afford the poor, but we can afford the rich, what kind of looking glass world is this?

George Osbournes economic policies will cause an economic crisis without external help. The country is not a household, and
what kind of household seeks to demonize it's members.

His analysis is superficial, his solutions, cosmetic, and his comprehension is missing.

Financial competence is treating the rich rent seekers as productive, and the poor as an externality. The poor are not an externality and the precariat is growing.

Reality will catch up with the rhetoric. But we expect more than economic Tory sycophants from the Labour Party.

[aragon]

For the record, reducing progressive taxation, income tax, while increasing regressive taxation, VAT, is regressive.

Giving people more of their money back while cutting services based on need, is also regressive.

Despite all the rhetoric from all political parties about the economic benefits of migration, it is now the top of public concerns.

Is it any surprise politicians are held in contempt?

[Luis Enrique]

i think (?) it's generally true that "can't afford" always has in the background decisions to spend what money you have on other priorities, so for instance if you want to buy a Trident you cannot afford a social safety net.

to the extent that it ever makes sense to say 'the country' cannot afford X, as a collective endeavour via government (and I don't think 'the country' is such a bad short hand for that) then we are always talking about those upon whom tax incidence falls, and in case of transfers that means 'country cannot afford' translates to 'net tax payers' cannot afford (read: don't wish to afford).

[Bob]

It's never about money. It's always about stuff.
All government spending pays for itself - if there is no saving in the spending chain all the spending comes back as tax.
If not the government issues Gilts or just leaves reserves where they are ("printing money.")
Trident and the City take up some of our cleverest people who should be curing cancer or making energy more efficient.

[nick ford]

Chris is wrong when he says ' any fool can see this is wrong'.
In fact the difference between transfers and 'expenditure', which uses real resources, is difficult for even clever people to grasp, particularly as the second order effects of transfers that Chris identifies blur the distinction between the two. Similarly, the difference between the government's finances and the nation's finances is not easy to understand. I suggest Chris uses a couple of blogs to spell these out more clearly.