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

Past UK welfare cuts and austerity led to rising crime. Will we count the same costs this time?

Cross-posted at the LSE Politics & Policy Blog

The Thatcher governments are widely accepted to have influenced many areas of modern life in Britain. Stephen Farrall and Will Jennings explore the link between Thatcherite macroeconomic policies and crime, arguing that if the ever-growing evidence base of the economy-crime link is true, political decisions about austerity cannot be separated from their consequences in the domain of law and order.

Was one of the unanticipated side-effects of social and economic changes associated with the adoption of neoliberal and monetarist economics during the 1970s/1980s rising crime rates?

In a recent study, we explored the relationship between the economy and property crime in England and Wales, focusing on those aspects of macroeconomics and the distribution of wealth which were associated with adoption of neoliberal and monetarist policies first under the Callaghan government, as a condition of the IMF loan, and prominently under the Thatcher governments. Our findings suggest that changes in the unemployment rate are an important factor in explaining change in property crime rates. They also demonstrate that the link between the economy and crime changed in the period from the 1960s to the mid-2000s, with the effect of the unemployment rate on crime becoming stronger over time.

Using time series analysis we develop a model of the effect of changes in socio-economic variables (unemployment, inequality, welfare spending and incarceration) on the national rate of property crime. We find that while increases in unemployment led to increases in the property crime rate (dampened by effects of welfare spending and incarceration), there is no evidence that rising income inequality was linked to the rising crime rate.

The radical agendas of the Thatcher governments between 1979 and 1990 are widely accepted to have had a great influence on many areas of modern life in Britain – both at the time and in the period since Thatcher left office. Such influence has been identified in housing, education policies, social security and, of course, the economy. In particular, macroeconomic policies were associated – at least in the short-term – with rising unemployment and economic inequalities.

Studies of the economy-crime link suggest higher rates of offending are associated with higher levels of unemployment and economic inequality. Both these conditions are consistent with the broad trends observed in Britain during the 1970s and 1980s, leading us to explore whether one of the unanticipated side-effects of neoliberal and monetarist economics during the period was growth in crime. Our study is based on time series analysis of the per capita rate of recorded property crime in England and Wales and the effects of changes in unemployment, income inequality and the rate of incarceration. (For further technical details of the data and modelling, see the paper here).

As has been observed in studies conducted in other countries, we find a significant relationship between the national rate of unemployment and official recorded crime; a one-point increase in the rate of unemployment is associated with an increase of two crimes per thousand head of population (for a population of around 50 million people this would constitute an increase of around 100,000 property crimes). More interestingly, we discover that this effect has strengthened over time – indicating there has been a hardening of the economic underpinnings of offending. Whether or not this trend will be sustained or reversed in the future remains to be seen .The unavoidable conclusion, then, is that the growing effect of unemployment during the 1970s and 1980s coincided with the monetarist revolution and sharp increases in the unemployment rate in Britain (as well as in other countries such as the US). While monetarist policies succeeded in bringing inflation under control, subsequent upturns in unemployment were associated with rising crime and a strengthening link between economic conditions and offending. Meanwhile, the rising level of crime gave rise to rightward shifts in criminal and policing policies.

The steady growth of crime throughout the 1980s reached alarming rates between 1991 and 1995, forcing the Conservative governments of the time to address the issue of crime ‘head-on’ during the early-1990s. In light of this, we argue the criminal justice policies of the Major and Blair governments were a lagged response to rising crime, and the economic policies that had underpinned this trend (in particular, the political view of unemployment as an acceptable price for getting inflation under control). During this later period, the Labour opposition provided little resistance to the punitive criminal justice policies under Major’s Conservative government, narrowing the range of policies that were ‘imaginable’ for all political parties.

As a consequence, the unanticipated legacies of the social and economic policies of Thatcherism might be seen as:

  1. The foregrounding of crime as a political issue.
  2. The creation of a series of social and economic circumstances (in particular mass unemployment, the geographical concentration of the socially and economically disadvantaged through implementation of housing policies and growth of inequalities coupled with real term reductions in social benefits) which were conducive to the production of crime at the aggregate level.
  3. The strengthening of the effect of unemployment on the national rate of property crime.
  4. Widespread dominance of an issue definition of the problem of crime which flowed from the new social and economic circumstances. This emphasised punitive policies and social control in place of the social welfare model adopted by successive governments since 1945.

In this sense, the outcomes of macroeconomic policies can spill-over into seemingly unrelated domains, such as crime. Political choices of targets for economic growth, public spending and inflation as well as decisions about the tolerable (or politically “acceptable”) level of unemployment and income inequality contribute to patterns of offending, and subsequent calls for crack downs. If the ever-growing evidence base of the economy-crime link is true (and holds amidst the social and economic distress of the post-crisis era), political decisions about austerity cannot be separated from their behaviour consequences in the domain of law and order.

Stephen Farrall, Will Jennings, Colin Hay, and Emily Gray are currently working on an ESRC-funded project on ‘Long-term Trajectories of Crime in the UK’.