Nick Rushton: Council finance is broken. Allocations are made on a hopelessly outdated and complicated basis.


Cllr Nick Rushton is the Leader of Leicestershire County Council.

Local government funding is comprehensively broken. Allocations today are still linked back to historic spending levels – rewarding those who spent the most on services decades ago. This means that taxpayer funding is increasingly badly matched to demand and need, exacerbating existing imbalances between different places.

The Government has rightly said it wants to review the entire system, but the pandemic has postponed the difficult decisions. This is understandable but with every year that passes the distortions in the system get worse. An interim solution is desperately needed. That is why I am calling for a funding floor to be introduced for local government funding, to reduce the risk of collapse for some authorities, and make revenues more stable and secure for everyone until the Fair Funding Review comes into effect.

What’s gone wrong?

There are a lot of components of the current system that are woefully out of date. The most significant example of this is Council Tax bands, which are still based on 1991 property values. But this is just one element based on historic data that distorts funding today. For example, the funding allocation model used today dates back to 2006/07 where changes brought in reduced transparency and the link between assessed need and funding.

Up until 2013, some of the key data elements were updated annually. However, from 2013 no further updates have been incorporated and much of the data feeding into the 2013 model was much older. For example:

  • Traffic flow data was based on flows observed in 2009 to 2011.
  • Child Tax Credit information was based on amounts received between 2008 and 2011.
  • Unemployment data is based on claimant numbers between 2009 and 2012.

And there is a further raft of variables still based on 2001 census data. These include a whole range of indicators which feed into measuring relative deprivation and other measures of need, including:

  • Population density and sparsity
  • Number of rooms per household resident
  • Net inflow/outflow of persons working but not resident

These methodological holes in the system contribute directly to a flawed set of allocations to local authorities every year. The vast majority of the data is at least 10 years old and much of it is much older still. A lot can happen in an area in the space of ten years: just look at Stratford in London or Salford in Manchester. We have proper funding formulas for schools and the police – why not for local government?

The system has never been popular. The House of Commons Committee of Public Accounts described the system as “highly complex and not sufficiently transparent, making it virtually impossible to follow the link between calculated service needs and funding allocations.”

There are three further reasons for reforming local government finance.

The first is that Council Tax is highly regionally regressive, benefiting more prosperous regions and adding disproportionate cost in poorer regions. For example, average Council Tax per head in London is the lowest in England (£481), despite house prices being much higher in the capital than elsewhere. Looking at household income, total Council Tax receipts equal just 1.2 per cent of gross disposable household income (GDHI) in Camden but 3.8 per cent of GDHI in Redcar and Cleveland and 4.6 per cent of GDHI in East Devon. This cannot be right.

Add to this the fact that Council Tax incentives are all wrong. It should be the case that levels of Council Tax reflect how financially efficient the authority is, and the Treasury should be able to reward places that grow their economies. But the valuations are so out of date and tax rates have diverged so much between different areas, that it is even harder to press places to make efficiency savings and encourage well-run councils to go further. The baseline is simply wrong.

Second, funding allocations have been traditionally calculated based on regression analysis against previous spending levels. This means that those authorities who have spent the most historically will be rewarded with higher levels of funding going forward. And the less aligned the funding is to need, the more likely it is that local authorities will go under, because they can’t budget effectively or meet the demand in their area. Until we fix this, the “haves” will continue to benefit and the “have-nots” will continue to fall behind.

The third problem is the proliferation of small targeted grants, which weakens resilience in the system. According to the Local Government Association, of the approximately 250 grants issued to councils each year between 2016 and 2019, over one-in-three were discontinued from one year to the next. Of the 218 grants allocated to councils in 2017/18, over 90 per cent were listed as ending in that same year. This is no way for councils to plan for the long-term.

And the increased use of competitive bidding to central government pots, like the Levelling Up and Towns Funds for example, mean that councils can often end up diverting resources to a short-term application process rather than which means that under-resourced authorities have even less capacity to secure funds.

These smaller, very specific grants also limit what councils can deliver, restricting opportunities to innovate and change the way they work. Rather than flexible funding or funds designed to be used preventatively, these smaller grants are reactive, responding to crises that have already emerged and become entrenched.

All of this undermines the ability of councils like mine to plan long-term. And it harms the quality of service provision and value for money for taxpayers, as councils are forced to devise strategies for closing down services or projects in case their funding is arbitrarily discontinued.

What should we do about it?

These problems are so deep-rooted that a comprehensive rethink is needed, which the Government has already committed to through the Fair Funding review of local government finances. Understandably, this review has slipped due to the disruption caused by coronavirus. But as we emerge from the worst of the pandemic, it is imperative that the Government grasp the nettle once again.

For now, the Government could introduce an interim measure to level up local authority funding to a more sustainable level. Doing so would not only better reflect the needs of different communities, in the process helping struggling areas to level up, but also ensure that better resourced local authorities continue to innovate to deliver better services and value for money.

The biggest challenge to long-term funding reform is that, whatever changes are implemented to the system, there will be some local authorities who will lose out. So our suggestion is simply to make additional funding available to those authorities who have the double whammy of higher levels of Council Tax and lower levels of core spending power – levelling up their core spending power without redirecting funding from other places. By introducing a funding floor for councils, as was recently used for school funding, the Government could quickly bring the least well-resourced local authorities up to a respectable level without the considerable political risk and fiscal cost of revising the entire funding system in one go.

If a fixed sum of additional funding was made available, this could be directed at pulling up those authorities with low core spending power per head closer to the national average. Setting this floor at 90 per cent of the average core spending power of local authorities, we have estimated the costs of this to be £300 million a year. Around 30 of the poorest local authorities, mainly based in the Midlands and the North of England, would benefit from the change.

Plugging the gaps in this way would be a relatively straightforward way to level up local governance by reducing the imbalances in the system and making councils’ finances more stable. It would also be a step in the right direction making councils less dependent on central government decisions. A guaranteed funding floor would mitigate a lot of the issues around reliance on smaller, short-term, competitive grants. Future revenue would be more predictable and create not only more certainty but more flexibility.

Although this proposal for a funding floor would create more resilience in local government finances, again, this stop-gap measure should not replace the wholesale reform of the comprehensive Fair Funding review in due course.

 





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James Frayne: Johnson’s headroom to raise taxes, in the wake of the new levy, has been dramatically reduced


James Frayne is Director of Public First and author of Meet the People, a guide to moving public opinion.

A few weeks ago, opinion polls showed three to one support for a national insurance rise to pay for social care. It’s hard to say for sure where the numbers on this question are now, but the evidence is they’ve moved considerably against the Government (although not irretrievably).

Some suggest that the mess in the media flipped the polls against the Conservatives and put Labour ahead; I think there’s much more to it than this but it clearly didn’t help.

So what went wrong? What were the alternatives that the Government should have considered? And what are the medium-term implications for the Conservatives?

Admittedly, I haven’t tested my sense in detail yet, but it is that three reasons help explain the the shift against the national insurance announcement.

First, and most importantly, it became clear that revenue raised by this higher tax won’t be ringfenced for social care. After a day or two of briefing that higher taxes would pay for care, the Government clarified that revenue raised would also pay for the hole in the NHS finances created by Covid.

Ordinarily, adding the letters “NHS” to a political message adds several points to a political message (ask Vote Leave). Here, it simply made people think (rightly) that pretty much all revenue raised would go into the great bottomless pit of NHS finances. It’s not that people don’t love the NHS; nor that they want to change the way the NHS is funded. It’s just that they quickly realised the Government wasn’t making a social care announcement but a debt repayment announcement.

Second, people got out their calculators quicker than I can ever recall – with the extra they’d pay pushed around widely by the likes of the Taxpayers’ Alliance. Politicians have long liked using national insurance as a tax-raising device; not only does it have perfect branding for health and social care announcements, but even people on PAYE – who see the national insurance line on their payslip each week – inexplicably find it less offensive than income tax. This time, a combination of media and social media scrutiny showed people what they’d be paying, and its transparency felt like a council tax rise.

Third, the announcement was too detached from the policy conversation on social care. People care deeply about it, as the Conservatives discovered to their cost during the 2017 election; social care is regularly raised as an issue in focus groups without prompting.

But it’s a complex area, and the Government would have done well to have reheated the policy conversation on social care for several weeks before springing this announcement on the public. Ordinarily, for a policy announcement of this magnitude, you’d expect (some) cross-party support, endorsements by experts from the sector, a formal announcement with the Health Secretary flanked by care workers and all the rest. This time, there was nothing.

Two alternatives would have been better.

The Government could have announced that the country was going to have to cope with a few years of financial pain via higher taxes to pay off Covid debts – and not to have beamed in on social care at all.

I don’t understand why they didn’t do this. Polls have consistently showed the public supported the massive crisis payments to the NHS and furloughed workers. They’re well aware this led to massive debt and they’re also aware debt must be paid off – at least in part with higher taxes.

They would have completely accepted a straightforward explanation that taxes were going to rise – for everyone – to deal with this. Sunset clauses would have made this all go down better, but there’s something in the English psychology that revels in harsh, shared sacrifice. It was a huge, missed opportunity; it’s possible that the Government would even have secured a bounce from it (assuming they said they were going to tackle waste at the same time).

The alternative option would have simply been to have announced a smaller national insurance rise and explained it was going to be strictly ringfenced for social care. This would have given them the option to raise taxes again later. Wrapping social care, the NHS and Covid debt repayment looked shifty and ill-thought-through.

What are the implications for the Conservatives? It’s been said all this undermines the Party’s reputation as a low-tax party. I don’t think this is quite right; most of the public have rightly not viewed the Conservatives as a low-tax party for many, many years, but rather as a lower tax party than Labour.

There are worse things to be: in 2019, this contrast certainly made lower middle voters even more wary of Jeremy Corbyn. But it means that the sort of messages the Conservatives pump out at the annual party conference – around low tax, free enterprise, a small state etc – have zero traction with the public. (It’s weird to think that until a few years ago the party’s logo was a torch of freedom; the rainbow associated with the NHS would be more appropriate.)

If Corbyn were still Labour leader, it’s possible that the Conservatives would have retained this lower-tax advantage regardless of national insurance. Under Starmer, I think it’s reasonable to assume this advantage will no longer be there.

In turn, all there will be to choose between the Conservatives and Labour on the economy will be competence and stability – in the Conservatives’ case, because they’re in Government, this will be defined entirely by delivery. In other words, if the economy appears stable and grows, they’ll be fine; if not, they’ll be in a mess.

It also means that the party’s freedom on other issues is dramatically reduced. There’s no way now the Government can introduce any new tax rises; at that point, their polling numbers really would go off a cliff; everything now needs to be revenue neutral, with taxes raised balanced out by taxes cut. Most obviously, this somewhat complicates their Net Zero strategy; you would have expected fiscal policy increasingly to have rebalanced towards green taxes.





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Andrew Griffith: If public services aren’t radically reformed, the new healthcare levy may be in vain


Andrew Griffith is MP for Arundel, founder of the Campaign for Economic Growth, and the former Chief Operating Officer of Sky plc.

Like most Conservatives, I support today’s Health and Social Care Levy Bill with some reluctance. Personal contact with the care system as well as that of my constituents made clear to me that more funding is part – but only one part – of any long-term fix. In particular, my heart goes out to the millions of unpaid caregivers who stoically provide cover for (when not actually falling through) the cracks in the system as it stands today.

Nor should we get carried away. The UK remains one of the lowest tax countries in the G7, and the choice at the next election will still be between a Conservative Government which raises taxes as a last resort out of necessity, and opposition parties who never see a question to which the answer is not to spend more of other people’s money. Margaret Thatcher increased taxes when required, before going on to reduce taxes and instigate reforms that unleashed Britain’s growth for decades to come.

Conservatives’ real concern – and my own greatest fear – should be if the new Levy turns out to be in vain. So far, it has to be said, the omens are not good. Rather than a ‘long march’ towards a radically overhauled, streamlined modern state, we have the ‘slow shuffle’ of public sector employees back to their desks.

Publicly funded salaries and pension are a privilege, not a right, and a growing pile of my correspondents are making the link between their own personal experience of the state – the delayed driving licence, slow motion planning application or a growing waiting list for a continuing healthcare or childs educational assessment – and the relative responsiveness of the private and public sectors. It was a different era but, the last time the UK tried to reconcile growth and prosperity with a three-day working week in 1974, things did not end well.

As we put the crisis stage of the pandemic behind us, it is therefore critical that we do not lose sight of, or the zeal for, the radical reform of government that is required. Only by changing the machine itself can we change what it delivers for the people of Britain. The normal clock speed of government is far too slow; memorably likened to the dream where you try to run but your feet will not move.

During the pandemic a heroic effort by all concerned overcame this. The epic recent Afghanistan evacuation was another similar example. But you can’t run the British state by constant exception management. Delivering our popular and bold programme will require better instrumentation, clearer goals and new ways of working.

Without near real time data, Ministers are forced to drive not just in the rear-view mirror but using a backwards-pointing telescope. One example, the latest NHS workforce statistics are only available for April: whilst we may shortly be dealing with the impact of a difficult winter, the NHS will be telling us how many staff it had back in the midst of summer.

The excellent Commission for Smart Government recently published actionable proposals for reform. It also identified the risk that the scale of the task might encourage leaders to put the intricacies of systemic reform to one side. Tired Ministers heading towards mid-political cycle and with busy in-trays may not have the energy or the freshness for the challenge.

One lens on a future reshuffle could be to inject a little more grit into the oyster. The current Spending Review is an opportunity that should not be missed, but such exercises rarely end up in the true zero-based scrutiny of departments and their operating model that real reform requires.

This Government has everything going for it. Clear leadership, an ambitious programme and political fuel in the tank in the form of a large majority. But the yardstick of long-term political success is real action impacting the real lives of citizens across the UK. To achieve this, reform is a necessity not a luxury.





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David Gauke: Johnson’s health and social care plan. A betrayal of Conservative principles? No – because, at one level, there aren’t any.


David Gauke is a former Justice Secretary, and was an independent candidate in South-West Hertfordshire in the 2019 general election.

The Government’s plan for increases in National Insurance (NI) contributions to fund higher health spending and increased health spending has provoked a furious response from some on the right.

It “sounded the death knell to Conservatism” and drove “a coach and horses not only through the Tory Party manifesto, but Toryism itself”  according to Camilla Tominey in the Daily Telegraph.  In the same paper, Allister Heath fumed “shame on Boris Johnson, and shame on the Conservative Party…they have disgraced themselves, lied to their voters, repudiated their principles and treated millions of their supporters with utter contempt” and that “an entire intellectual tradition now lies trashed”.

In the Times, Iain Martin declared that “at this rate, the Conservative Party might as well rename itself the Labour Party”  and in the Spectator, Fraser Nelson questioned whether the “Boris Johnson” definition of conservatism as “a protection racket, where the tools of the state are used to extract money from minimum-wage workers and pass it on to the better-off?”

Meanwhile, Dominic Cummings has argued that “if you think you’re ‘conservative’, and you give those speeches about ‘enterprise’ and ‘responsibility’, why would you support making many more dependent on state money and bureaucracy?”

It’s all jolly strong stuff. And there are elements of the criticisms with which I have sympathy. I share the scepticism about prioritising a tax-funded social care cap, in that those who will gain most are those who have the most (thanks to rising house prices) and that is the wrong priority for public money.

There is a need for risk-pooling, but I think Peter Lilley’s proposal on this site is worth close examination (I suggested something similar when in Government). I also dislike NI as the choice of tax because of the narrowness of its base – and the distortions that this causes – and the dishonesty of employers NICs (no, Prime Minister, it is not a tax on business: it is a tax on jobs and employees’ wages).

In fairness to the Government, raising taxes is difficult, NI is less unpopular than income tax (largely because much of the public misunderstand it) and, being cynical, it is not surprising that Ministers exploit that misunderstanding.

Having said all that, is it a fair criticism to state that Johnson’s Health and Social Care plan undermines everything for which the Conservative Party stands? For a number of reasons (some of which reflect better on the Party than others), I think not.

First, the Conservative Party has an honourable record of fiscal responsibility. When the public finances are in trouble, Conservative governments have been willing to raise taxes in order to put the public finances on a sound footing – not least Margaret Thatcher’s, when Geoffrey Howe raised taxes in 1979 and 1981. The advocates of Reaganomics always find this disappointing, but responsible Conservatives do not believe that lower taxes will pay for themselves (as they did not for Reagan).

In reality, even putting aside any new commitments on social care spending, the prospects for the public finances are not great. Not only do we face some immediate challenges (Covid catch up, net zero and levelling up), but demography and rising health expectations will mean a tax-funded healthcare system will require higher taxes.

Some on the Right will argue for further cuts in spending or an alternative health model, but the political feasibility of such an approach is highly dubious. If we are going to spend more (and we are), taxes will need to rise to pay for it.

Second, the idea that a Conservative government prioritising homeowners is a complete break from the past does not bear scrutiny. Look at the arguments that Thatcher made in resisting the removal of mortgage interest tax relief (although the Treasury rightly prevailed in the end), or the general dislike of inheritance tax from the wider Conservative world. The reaction to Theresa May’s social care policy in 2017 suggests that the instinct to ‘defend our people’ (and their inheritances) amongst Conservatives is a formidable one.

Third, complaints about the Conservative Party not being the party of business are (how can I put this?) a little rich from some quarters. Imposing higher taxes, whether on employment or profits, is not great for business – but making it substantially harder to trade with our largest trading partner is a bigger problem.

It is all very well complaining about the anti-business instincts of this Conservative government, but hard to do if you have been a cheerleader for anti-business policies or, for that matter, Boris “f*** business” Johnson. If your expectation is that the Conservative Party would automatically be on the pro-business side of the argument, you have not been paying much attention in recent years.

The reason why the Conservative Party moved in the direction of an anti-business Brexit is that was where the votes were. And this brings me to the fourth and most important observation about the Conservative Party.

It has one purpose: to be in power. At one level, it is not possible for it to repudiate its principles because it does not have any. This can give it a tremendous advantage in a democracy because the public, as a whole, does not have political principles either – opinions and political alignments shift over time.

The Conservatives have been protectionists and free traders, the party of Empire and the party that facilitated the retreat from Empire, Keynesians and monetarists, the party of price controls and wages policies and the party of market economics, the party of Europe and the party of Brexit. It never stays on the wrong side of public opinion for long.

What is happening to our politics at the moment is that party support is realigning along cultural lines and, as a consequence, much more along generational lines. This has worked to the advantage of the Conservatives, so it is no surprise that it pursues policies that prioritises health spending over lower taxes for people of working age.

Polling suggests that the new, Red Wall voters who switched to the Conservatives at the last election are notably more left-wing on economic issues than traditional Conservative voters who are, in turn, to the left of Conservative MPs. The decision was made to pursue those voters and, if the Conservative Party wants to keep them, it cannot risk the NHS collapsing under financial pressure – which means higher spending and, ultimately, higher taxes.

Johnson’s critics are right to think that this will not be the end of it. Last week’s package was supposed to be an answer to how we fund social care. The reality is that it was a package to boost spending on the NHS. As Damian Green has argued on ConHome, it is hard to see how resources will be taken out of the NHS and switched to social care in three years’ time – and that, at that point, some expensive social care commitments will come into effect.

here will another funding gap and, on the basis of last week’s revealed preference, a further increase in the Health and Social Care Levy. Those who see the purpose of the Conservative Party as delivering low taxes are right to be glum.





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WATCH: Javid insists that tax rises “should always be a last resort”






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Health and Social Care 3) Ryan Bourne: The battle for spending control and lower taxes appears to be lost


Ryan Bourne is Chair in Public Understanding of Economics at the Cato Institute.

The Prime Minister sold his health and social care plan yesterday as one delivering “tough decisions” that previous governments have shirked. It certainly constituted major policy change, the scale of which is rarely seen outside of budgets. But Conservative MPs who study it carefully will realise it does not “sort” the social care issue in a meaningful sense.

Consequential reform required ascertaining what people want and need from social care, what barriers exist to delivering it, and then determining what taxpayers should provide. It needed to create better incentives for providers and councils to serve our needs, to consider the challenges of aging, weak productivity, aggressive minimum wage hikes, and poor quality care. It needed to acknowledge that most people want to live at home, not in a home. A durable framework meant avoiding social care going the NHS-route of becoming a political football.

The plan did not achieve those objectives. Instead, the Prime Minister, Chancellor, and Health Secretary agreed a proposal to breach their manifesto tax pledge, but in the service of providing funds to patch up our inadequate current model. The majority of money was flung, once again, at the NHS. The major social care innovation, in fact, was to pay more of some care receivers’ bills, by implementing the 2011 Dilnot Commission’s recommendation to protect inheritances from being as eaten up by care costs.

The vast majority of the initial £12 billion per year in spending would firefight the NHS’s backlog. Just £5.4 billion would go to social care over three years, of which £2.5 billion is for protecting inheritances (the costs of which will grow in time). Under this component, no individual would pay more than £86,000 in eligible lifetime social care costs. Those with assets below £100,000 will get means-tested assistance, and those with less than £20,000 will likewise have eligible costs financed. In essence, a major new age-related social insurance entitlement would be tacked on to a welfare state creaking in anticipation of a demographic tidal wave.

This would all be paid for, we are told, by a 2.5 per cent tax rise on employees (1.25 each on employee and employers’ NICs, both ultimately borne by workers). But, combined with a dividend tax rise and an equivalent levy on pensioners’ work income, these will be bundled up and spun off to become a brand new tax from 2023/24 – the so-called “health and social care levy.”

Why, then, will this plan not settle the issue?

Well, no plan failing to address productivity growth, ageing, minimum wage hikes, tailoring care to individual needs, or councils’ incentives to build more homes is going to provide a lasting settlement on social care. And this one explicitly avoids all that, saying “We expect demographic and unit cost pressures will be met through Council Tax, social care precept, and long-term efficiencies,” determined at the Spending Review. Already the sector is bemoaning that the non-Dilnot funding aspects don’t go far enough. In other words: expect more government spending and tax rise battles in the very near future.

In fact, there are plenty of reasons to expect that this plan’s approach will result in even more spending. Will the Government really allow NHS budgets to fall after backlogs are cleared to fund social care, or will this mean a permanent NHS baseline increase, with social care scrambling for funds later? To ask the question, I think, answers it.

It would be tempting for Tory MPs to consider that a problem for another day. At least this provides some relief, and gets the Daily Mail off your back, right? I’m not sure. Governments raising broad-based taxes to pump money in will create the expectation of improving social care quality. By making a big song and dance about “sorting” social care, in fact, the Conservatives will take ownership of its many failures, as James Frayne warns.

Then there’s the disappointment that will come once the contours of the “cap” become clear. Under Dilnot’s proposal (which I assume is the Government’s position too) you would still pay room and board costs throughout your care. As importantly: only the means-tested local authority rate would accumulate annually towards your ceiling.

In other words, if you want a nicer or more expensive care home, you’ll pay a top up that’s not counted eligible towards the cap, which you’d still continue paying even after the cap is reached. The practical consequence is wealth will still drain significantly for many, requiring either deferred home sales or people downgrading on their care.

This is what might, ultimately, undermine this plan politically, creating new demands for more subsidies in time. In a few years, it’s easy to imagine the Mail running stories about people still having to pay £150,000 on total care costs “despite Boris’s promise.’

In fact, there’s downside public finance risks across the board. Employee taxes are a shrinking relative tax base, while social care costs tend to be inflation-busting given weak productivity growth. Even before these inheritance subsidies, remember, social care costs were forecast to nearly double from 1.2 to 2.2 per cent GDP over the next 50 years due to aging.

In that regard, ask yourself: why might a government introduce a whole new earnings tax which, stood alone, gives the impression of having a very low rate? The answer: to create a new revenue stream which, with its fluffy connotations, makes it easier to raise taxes in future. Manifestos can return to pledging no income tax, NICs, or VAT rises again once the levy is in. In approving this tax, Tory MPs would therefore be facilitating a reform that will make the growth of government easier. They should reflect on who that helps most.

Much of the pre-announcement chatter was about their being more “progressive” ways to raise the funds. But this concedes too much—implying the spending is all good and welcome. Commentators who usually witter about distributional consequences are silent on the fact the cost cap benefits most those very wealthy care receivers, who live longer in care and have more assets to protect. While the desire to protect assets is netural, it’s not clear why protecting them is an imperative of Government policy. But that philosophical battle appears lost and will only result in spending going one way.

The real focus now is on the immediate consequences of tax-and-spend without reform. While Johnson might sell this plan as a grand solution, I suspect it will resolve little. In fact, the paradox is that the more the Prime Minister builds this up as “sorting” social care, the greater the political risks to the Government if quality doesn’t improve, the NHS eats all the money, or people realise the limited scope of the sop to inheritees.





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Social care reform – and why we can’t simply tax our way to better public services


Congratulations to the Government.  That’s a sentence written less on ConservativeHome than you might imagine – and, when it comes to public service reform, scarcely at all.

For while the last Conservative Manifesto promised more nurses, GP appointments and police, it provided little explanation, if any, of how these new nurses would provide better care, doctors’ appointments would become quicker to book and extra police would catch more criminals.

And now that Dominic Cummings has left Downing Street, no reforming “hard rain” will drive down on the civil service.  Meanwhile, Tory backbenchers have left the government’s flagship housing plan holed below the waterline.

So it’s to Boris Johnson’s credit that he wants to overhaul social care, even if he hasn’t had a “prepared plan” for it since entering Downing Street, as he claimed at the time.  However, we fear that this is almost as far as the good news goes – because, of all the services in need of change, social care is among the most difficult to tackle.

Here’s why. For a start, many voters don’t understand the difference between how healthcare and social care is provided in in England and Wales.

Health care is funded free at the point of use but social care usually isn’t.  This confusion played a major part in the Conservative general election disaster of 2017.  Many voters hadn’t grasped that the value of their homes is taken into account for residential but not domiciliary care, and revolted when the Tory manifesto proposed to level the playing field.

The source of the muddle is doubtless what Tim Bale, in an agonising blog about the fate of his parents, rightly categorised as optimism bias: namely, the belief that disability and dementia, say, “won’t happen to you – I mean, what are the chances?”

Next comes the question of which problem the Government is trying to solve.  For not all social care goes on elderly people: half of the spending on it is consumed by working age adults.  Demand is rising; more people want social care but fewer are receiving it; council budgets have fared less well than the NHS’s, and local government is responsible for delivery.

And “there is a basic concern among the public about quality,” according to the Kings’ Fund, perhaps especially in care homes.  Then there’s the separate-though-related issue of selling one’s home to help meet the costs.

Penultimately in our list of problems, we turn to manifesto commitments.  The Tory manifesto not only promised more spending for public services; it also ruled out raising certain taxes to pay for it.  “We will not raise the rate of income tax, VAT or national insurance,” it said baldly.  Finally, there is the matter of intergenerational justice.

Questionmarks over trust and fairness haunt the Government’s plan, which is concentrated on the final social care issue that we raise above – selling the family home to help meet costs.  (There will also be a big rise in the means-testing threshold for care homes.)

That means a floor beneath and a ceiling above which no-one will pay.  The higher the floor is, the more poorer people will be protected.  The lower the ceiling is, the less richer ones will pay. So there is an obvious north/south trade-off, broadly speaking, between the interests of, say, Batley & Spen, and those of, for example, Chesham and Amersham over where the ceiling and floor are set.

The Government’s plans are still being finalised, but it seems to be planning to raise national insurance to fund its plan.  Younger and poorer people would thus fork out to meet costs more often incurred by older and richer ones.  This would be unfair – especially in a country in which the latter hold an effective monopoly on capital.  Not to mention a breach of the manifesto.

How might Ministers respond to this formidable list of objections to their plan?  They might say one shouldn’t make the best the enemy of the good, and that even if only one of the main social care problems can be solved, the effort will be worthwhile.

And add that, since their proposals are based on the Dilnot Report, they at least command a degree of consensus.  They would doubtless say that older people tend to vote Conservative, and that it’s bad politics to alienate one’s base.  If Johnson also announces that the triple lock will be abandoned this year, they will claim that he has presented a package that “strikes the right balance”.

The Government’s model is the then Labour Government’s tax rise of the early 2000s to fund higher NHS spending.  Tony Blair got away with it, and the Prime Minister will hope that he does too.

Maybe Tory MPs will vote through a national insurance rise if Johnson, with his majority of 83, puts it to Parliament with the support of his Chancellor.  Downing Street will hope that the prospect of a reshuffle will keep Ministers in order – and that Labour opposition to the NI rise will minimise the Tory revolt.

None the less, we warn the Government that the cat of Conservative tax rises has fewer than nine lives.  Tory MPs won’t indefinitely nod hikes through.

Nor is the Blair precedent encouraging.  His national insurance rise failed to deliver the improvements he wanted.  Hence his later decision to support Alan Milburn as Health Secretary in delivering market-based reform.  Above all, governments can’t expect to break manifesto promises made in one election, and have those it makes at the next taken seriously.

It may be that Johnson will dress up any national insurance rise to pay for social care as a special levy, thus enabling him to claim that he’s not in breach of the pledge he made two years ago – technically, anyway.

But doing so wouldn’t ease this site’s wider concern: that just as government can’t tax its way to a more prosperous economy, it can’t tax its way to better public services.  And that once Ministers start reaching for tax increases to solve a problem, the reflex can become automatic.

At the heart of social care reform for any Conservative Government, two fundamentals conflict.  The first is: there’s no such thing as a free lunch.  The second is: wealth must cascade down the generations.

In other words, someone must pay for social care – be it the user, the taxpayer, or someone else.  If so, wealth risks not so much cascading as trickling down, especially if the main form of saving, the family home, is sold off to meet social care bills.  At the one of the policy spectrum, Policy Exchange proposes rolling social care into the NHS, which would certainly require new taxpayer funding.

At the other end are a long succession of Tory plans for insurance-based schemes.  Peter Lilley’s set out a variant recently on this site, supporting a state-backed voluntary system.

There is no shortage of objections to such a plan – not least potential voter resistance to any Conservative health-related insurance scheme.  But if the aim of government is to protect homeowners from Bale’s “Russian roulette”, this type of proposal has merit.

It would be consistent with the Conservative manifesto, avoid tax rises and a backbench revolt, be generationally fairer, and represent evolutionary rather than revolutionary change, since no-one would be forced to join the scheme.  Instead, the Prime Minister is rushing in where angels, or at least politicians, have feared to tread.

He isn’t always associated with prizing courage over guile, or attempting today what can be put off until tomorrow.  Not for the first time, we’re learning something about Johnson that we didn’t know before.





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Rishi Thorneycroft? Or Rishi Selwyn Lloyd? (Or neither?)


No Prime Minister in modern times has consistently wanted lower – and some have occasionally wanted higher – public spending than their Chancellors of the Exchequer.

Tony Blair had a three figure majority, and this gave him the platform to announce, during his second term, a tax rise to fund more NHS spending.

Theresa May had none at all which, during her first manifestation as Prime Minister with the spending-friendly Nick Timothy as her guide, helped to soothe the prospect of any clash with her more conventional Chancellor, Phillip Hammond.

We can only think of one post-war Prime Minister who unfailingly wanted higher levels of public spending than some of his Chancellors were willing to provide.

Harold Macmillan got through four Chancellors in six years – a brisk rate of one every eighteen months.  One went voluntarily: Derick Heathcoat-Amory.  Another outlasted Macmillan: Reggie Maudling.

Another resigned (Peter Thorneycroft) and the last was fired (Selwyn Lloyd).  This rapid turnover was driven by Macmillan’s expansionist instincts.

These appear to be have formed by experience – the consequence of his experience as MP for Stockton during the 1930s, during which he saw mass unemployment as a constituency MP.

Thorneycroft quit, together with his ministerial lieutenants Nigel Birch and Enoch Powell, because they were unwilling to settle for a state spending plan supported by the rest of the Cabinet: they had held out for a figure £50 million lower.

This was not a large proportion of public spending even during the late 1950s, but the three men insisted that it was the principle that counted: in their view, Macmillan was taking risks with inflation.  He dismissed their resignations as “a little local difficulty”.

Selwyn Lloyd was fired partly because he had lost support within the Cabinet, but largely because his instincts were less expansionary than Macmillan’s own.

The latter wanted a less hidebound Chancellor, and duly found one in Reggie Maudling.  “Good luck, old cock!” Maudling wrote two years later in a private note for his Labour successor, Jim Callaghan. “Sorry to leave it in such a mess.”

If Macmillan became a Keynesian by experience, Boris Johnson is a boosterist by instinct.  Like a theatrical impresario, he wants lights, music and action – for which, read tax cuts, grands projets and higher spending.

And like Macmillan, he has already had a Chancellor quit on him, though the cause was process rather than policy.  Rightly or wrongly, Johnson and Dominic Cummings wanted Number Ten and the Treasury joined at the hip, or rather at the top.

Up with this amalgamation, and the consequent sacking of his main advisers, Sajid Javid would not put.  His own later shadow budget, so to speak, produced for the Centre for Policy Studies, was in broad outline much like Rishi Sunak’s real and recent one.

Essentially, both men wanted to spend now and save later.  Or, rather, spend then: the Chancellor’s last Budget was produced during lockdown – on March 3, a few days before the first stage of lockdown easing, the return of children to school on March 8.

But now that we are returning to more normal times and the winter of lockdown is melting away, the unavoidable choices about tax and spending are looming into view.

The Prime Minister’s threat to move Sunak, made in front of a large group of aides – big enough to leak swiftly – wasn’t caused by tensions over economic policy.

Rather, it was by the leaking of a letter from the Chancellor to him urging the faster loosening of travel restrictions.  Nor should Johnson going “f***ing tonto”, as one of those at the meeting apparently put it, be taken too seriously.

It is part of the Prime Minister’s modus operandi to let off steam, and disperse words and ideas like chaff, in order to find out what he thinks.  His motto is Auden’s: “how do I know what I think until I see what I say?”

So read the counter-briefing by anoymous “friends” of Sunak’s – to the effect that the Chancellor would rather quit than accept demotion – with a cool head amidst the summer lightning.  This is the silly season, after all, and this silliness must be kept in proportion.

All the same, we have a boosterist Prime Minister, whose instinct for higher spending sits well with more state-reliant constituencies, like a mass of those that the Conservatives won at the last election in the provincial north and midlands.

And a more conventional Chancellor, who has warned that spending, deficits and debt must be kept under control.  Is Sunak a Thorneycroft, ready to resign on principle?  Or has Javid already played that part?

Or is the Chancellor a Selwyn Lloyd, to be ousted in some Johnsonian “night of the long knives” – the phrase originally applied to the shuffle in which Selwyn Lloyd was one of seven Cabinet Ministers fired?

Or is he neither?  Probably the last.  All the same, when Prime Ministers eye the control panel of the spending aircraft, Chancellors tug nervously at their parachutes and check the exit doors.





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David Gauke: There are signs that the Treasury is winning. And that more tax rises are coming.


David Gauke is a former Justice Secretary, and was an independent candidate in South-West Hertfordshire at the 2019 general election.

When asked about the proposal by Henry Dimbleby that a new Salt and Sugar Reformulation Tax should be introduced, the Prime Minister responded by saying that he is ‘not attracted to extra taxes on hard working people’.

At one level, this is what one might expect him to say, given his reluctance to be the bearer of bad news. But some have taken this to be not just a holding response to the publication of the National Food Strategy, but a firm determination to hold the line against tax rises. If so, there may be problems ahead.

It was only a few months ago that Rishi Sunak delivered a tax-raising Budget, with the freezing of allowances and thresholds in the personal tax system, plus a hefty increase in the rate of Corporation Tax (which, in the end, will be paid by people because all taxes are). These increases may well be sufficient to meet the Chancellor’s fiscal rules ,but only if he maintains the current spending plans.

This looks unlikely. To take just three examples, the cost of Covid catch-up, social care reform and net zero could easily cost £10 billion a year a piece. Add to that the cost of levelling up, plus the risks that debt interest payments could increase significantly, the Chancellor’s target of current expenditure being paid for by current revenue and debt falling as a proportion of GDP looks precarious.

It would be fair to say that the cause of spending control has been strengthened in recent days. The Government saw off attempts to block the cut in overseas aid more comfortably than expected, with Sunak very heavily involved in talking round potential rebels.

The temporary uplift in Universal Credit is looking like it will indeed be temporary (although this is likely to store up problems, I suspect) and the Chancellor has – to all intents and purposes – ruled out a huge increase in the state pension, which would happen if the triple lock was applied in the normal manner. On the latter point, this is entirely sensible and has been met with little opposition.

A month ago, there were complaints from the Treasury that the Prime Minister was going around making unfunded spending commitments but Boris Johnson appears to have been reined in. Big promises on climate change seem to have been deferred to the autumn, and a supposedly big speech on levelling up involved a spending commitment of just £50 milliom. Whereas most observers considered the Coventry address to be one of the least impressive set-piece Prime Ministerial speeches ever delivered, the Treasury would have considered it a triumph.

An announcement on social care reform is imminent, but this does look like it may be properly funded by additional taxes, suggesting that ‘not attracted to extra taxes’ does not mean ‘no extra taxes’ after all. It is reported that it is the Chancellor who is sceptical about the proposed policy, although I suspect this is driven by Treasury doubts about pursuing a Dilnot-style cap on social care costs (which benefits those with the largest estates most), rather than by an objection to the principle that new spending commitments have to be paid for.

For the first time in a while, the cause of fiscal conservatism – ensuring that public finances are sustainable – is gaining the upper hand. There are two reasons for this.

First, the Chesham & Amersham by-election has caused some nervousness. The fear within Government is that high spending is all very well, but a section of the Conservative voting electorate will draw the conclusion that they are the ones who will have to pay for it. It was striking that the Prime Minister spent much of his levelling-up speech saying that he does not want to make rich places poorer, which may come as a disappointment to parts of the Red Wall, but is clearly designed to reassure the South East.

The second reason why a more cautious approach to the public finances might be pursued is the apparent return of inflation. This may be transitory as we return to some kind of normality, and adjust to Brexit frictions and labour shortages, but it may not be. If it results in higher interest rates, the costs for the exchequer in funding our debt could rise very quickly – as the Office for Budget Responsibility has pointed out. An increase in interest rates of one per cent would add £21 billion to our debt interest bill. If our fiscal policy is considered to lack credibility, our problems could be worse.

There remains, however, the question of how the Conservative Party maintains the support of the new supporters it gained in 2019, whose views on tax and spend are much closer to those of the Labour Party than the traditional Conservatives. On spending on public services in general ,plus investment in their localities, they will want to see evidence of delivery.

Boris Johnson will be given the benefit of the doubt and, I suspect, be able to retain most of the Red Wall at the next general election but the pressure to spend money – not least from Red Wall MPs – will be considerable. The Treasury has won a few battles of late, but with a Prime Minister prone to change direction like a shopping trolley (as one prominent Westminster pundit likes to put it), he may be on the other side of the aisle before long.

There is also another reason for raising taxes, as well as funding public services. Tax can be used as a lever to change behaviour. The Prime Minister has declared that he is on a mission to reduce obesity, and it is hard to see how this could be done without using tax to change behaviour.

Ultimately, this may not mean consumers paying much of a price because producers reformulate their products (as happened with the Soft Drink Industry Levy) in order to prevent consumers facing higher prices. It was an effective way of using the price mechanism to achieve a Government objective, but it did mean legislating for a new tax.

A similar argument can be made for using taxes to help achieve net zero. If we want people to consume less carbon, the most efficient way to do this is to ensure that the cost of carbon is incorporated into the price of products by using a carbon tax. (By the way, those of us who value markets as a means of allocating resources should be instinctively more sympathetic to meeting environmental objectives by using the price mechanism where possible, rather than through regulation which can be cumbersome and ill-targeted.)

In both cases, tax increases, as a behavioural stick, may be required. They are also likely to be regressive, which may mean compensating mechanisms of some description which – in turn – will need to be paid for.

All of this means that extra taxes on hard working people may be necessary to deliver sound public finances and to meet other Government objectives, however unattractive the Prime Minister considers them to be.





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The Government’s aid manoeuvre. Sunak retreats to advance – as he sends a signal about the future control of spending.


“The champions of 0.7 per cent will win either way – if not in the Commons, then in court,” we wrote recently, after a vote to end the reduction from that percentage almost happened.

It didn’t take place because the vehicle for a decision, an amendment to the Advanced Reseach and Invention Agency Bill, was ruled out of order by Lindsay Hoyle.

The Speaker acted correctly.  He was then lambasted on social media for not “being a Bercow” – in other words, acting incorrectly.  That will not in itself have ruffled his feathers.

However, he believes that the Government has been flouting its obligation to make important announcements to the Commons before doing so elsewhere – in particular, those about Covid-19.

That proper resentment will have informed his decision, made public in the wake of the cancelled vote, to ensure that a vote on the 0.7 per cent cut was held in the Commons in due course.

Which brings us to Rishi Sunak, the author of the reduction.  He was staring down the barrel of a Parliamentary defeat – and yesterday evening’s news saw him jerk his head away before the trigger is pulled.

His gambit comes in the form of a “double lock”.  The cut from 0.7 per cent to 0.5 per cent stands.  It will end when aid spending will the Government is no longer borrowing to fund day-to-day spending, and public sector net debt is falling as a percentage of GBP.

Furthermore, the decision about if and when those criteria have been met will be made not by the Chancellor himself, but by the Office of Budget Responsibility.

The Government is gambling on rushing a vote on the proposal through the Commons today, having tried to minimise its retreat by announcing its plan under the cover of yesterday evening’s Covid press conference.

The new policy hasn’t satisfied Andrew Mitchell, the author of the ARIA amendment, but Ministers aren’t straining to appease the former International Development Secretary, whose opposition to the cut is implacable.

Rather, their aim is to peel off enough backbench dissenters to get the policy through.  Much may turn on whether they believe that any reversion to 0.7 per cent will come fast enough: it might not happen for five years or so, though post-Covid growth could speed it.

Three main points arise from this new proposal. First, it emphasises how a majority of 80 won’t always be enough – and signals that, faced with enough opposition from its own MPs, the Government will fold, which sends a signal to seasoned critics and rebels.

If Ministers won’t defend a policy popular with most voters, how fast will they collapse when defending unpopular ones?  The second point is about Sunak himself.

His critics will say that he sought to play to the popular gallery without doing his Parliamentary sums.  His friends say that both he and the Foreign Secretary wanted to hold a vote earlier, before opposition to the 0.7 per cent cut gathered backbench pace.

Finally, the Chancellor is sending a signal about future public spending.  He is reminding Tory MPs that the Conservative manifesto didn’t only make big spending commitments, but also contained a framework for restraint.

When they point out that it promised big increases to find more doctors, police and nurses, he can fire back that it also pledged expenditure control.  Watch this space as the spending review looms into view.

A lesson from this tale is that manifesto promises matter.  We have no particular brief for keeping aid spending at 0.7 per cent, let alone putting that target into law – the driver of the Government’s undoing over its plan for a reduction.

But Ministers can’t break their commitments and expect no consequences.  ConHome is thinking of the pensions triple lock as we write.  And of much else.

The Prime Minister may be a “Brexity Hezza” whose instinct is to spend, spend, spend.  But the Chancellor must follow his incontinent horse with a dustpan and brush.  The Treasury never had much room for manoeuvre, and that space it has is vanishing.





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