Budgetary Politics in 2014 and beyond…

By Martin Lodge (London School of Economics) and Will Jennings (University of Southampton)

Cross-posted at the UK Political Studies Association blog.

Beyond the substantial shakeup of the pension system, increases in ISA allowances and the tax threshold, tax-free childcare, as well as reductions in beer, bingo, whisky duties, what else can be said about the recent budget?

Budgetary politics are inherently about politics and ‘the margin’: it is about creating specific winners and losers, as well as seeking to minimize the unintended electorally damaging effects. Chancellor George Osborne’s 2014 budget has been no different. The cap on welfare spending was one of those traps that governments like to lay for their opponents, the appeal to the ‘grey’ vote may please the most Conservative-leaning part of the electorate and the capping of the carbon price floor responds to calls from manufacturers. However, once the headlines regarding the immediate winners and losers are forgotten, the budget has long-term implications for executive politics and governance in the UK. In particular, it marks a further move towards postponing bad news and hard choices to future generations.

First of all, the announced changes to pension rules, allowing people to cash in their pension pots on retirement, makes an optimistic assumption about human behaviour, namely the ability to plan for the long-term (precisely the sort of  short-term bias pensions were designed to mitigate). Existing annuity arrangements may have been problematic, but it is not clear how much input the newly privatised Behavioural Insights Team had on this decision given uncertainties about how wisely people will behave when a lump sum becomes available to them. Will the state establish a default ‘choice architecture’ so as to guide behaviours? Or will it be required to step in for those who run out of money? Similarly, the extension of the Help to Buy Scheme ignores the risk of fuelling a house price bubble. These examples illustrate the sorts of unintended effects that budgetary politics can generate – and the potential clash between the long-standing world of distributive politics – handing out giveaways to swing and core voters – and the supposedly new world of nudging (‘evidence based’) behaviour. Furthermore, they also illustrate the usual optimism-bias in terms of estimating future level of tax receipts.

Secondly, the budget confirmed that tightening in public spending will continue long into the future. It offers benefits to certain parts of society today at the expense of further public spending cuts that will start to bite in the middle of the next parliament. The Institute for Fiscal Studies has warned that long-run public finances have been weakened, with permanent tax giveaways being paid for “by unspecified spending cuts and temporary increases in tax revenues”. This budget marks another episode in the attempts of the coalition government to redraw the boundaries of the state. It has drawn cover from the trend of hardening public opinion against redistribution and against government provision of a social safety net. However, whether a seismic redrawing of the state is possible, let alone desirable, in an age in which the population is ageing, the national infrastructure is creaking, the economy remains in need of structural and geographic rebalancing, and climate change likely to entail growing costs, is questionable.

Most of all, this latest budget reveals the defining fault line of contemporary politics. The politics of tax and spend continues to be a central and highly visible part of the toolbox of British government. The temptation to generate uncertainty over the stability of tax incentives (green taxes), to provide ‘good news’ in a pre-election year at the expense of future generations, and the disregard for long-term engagement with the challenges facing modern societies and states, has been reinforced by this highly political budget. This budget may have addressed some of the potholes of contemporary electioneering ahead of the 2015 general election, but it has not even started to address inherent, long-term problems faced by the state.

Martin Lodge is Professor of Political Science and Public Policy, Department of Government & Centre for Analysis of Risk and Regulation, London School of Economics

Will Jennings is Reader in Politics and Director of the Centre for Citizenship, Globalisation and Governance, University of Southampton

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