Where should UKIP stand on the big economic question in the years ahead?
6th Jul, 17
WHERE should UKIP stand on the big economic questions in the years ahead? I do not expect to remain as economic spokesman once the new party leader is installed - whoever that may be - but I thought I would set out a few thoughts in order to stimulate debate.
At the election we were for cutting taxes (VAT off energy bills, abolishing green levies, raising the personal allowance and the 40% threshold, cutting inheritance tax, abolishing the TV licence) and also for cutting wasteful or unjustified spending (the foreign aid budget, HS2, the overspend per head in Scotland).
As a result of specifying some significant spending cuts, we were able to pledge big uplifts in other areas - most notably the NHS - while still in most years matching or beating the Government’s deficit reduction schedule.
We naturally took a broadly pro-free enterprise position, while still noting that something needed to be done about aggressive tax avoidance by multinational corporations.
As it happens, the economy barely featured in the campaign thanks largely to the Conservatives deciding not to major on it and to instead hide the Chancellor away.
But nonetheless, a consensus has emerged among commentators that part of the reason for Jeremy Corbyn’s advance was a feeling among millions of voters that they were tired of austerity - both in terms of public spending and private incomes.
Mr Corbyn’s line, that the richest citizens and corporations in our society should “pay a bit more” in tax to allow for extra public spending certainly seemed to connect with many working class voters who backed us in 2015.
The result has been that even Conservative Cabinet ministers are now publicly supporting a lifting of the public sector pay cap and signalling that austerity in general needs to be toned down. This despite the annual deficit still running at more than £50 billion and the overall national debt approaching a shocking £1.8 trillion.
So there is clearly scope for UKIP, should it wish to, to move into the space the Tories are vacating as the real austerity party. We could commit ourselves to policies to remove the deficit quickly and get into surplus so the national debt can be reduced.
Were we to opt for such a course we would have a further decision to make. Namely, should we load the burden of deficit reduction mainly on cuts to public spending or mainly on tax rises (presumably on wealthy individuals and companies).
If we opted for the former method we would be taking a notably libertarian, small state path and to be convincing would need to spell out functions that we no longer thought the state should perform. If we opted for the latter method we would of course be accused of risking a brain drain of wealth creators to other, more forgiving, tax jurisdictions.
I would like to see senior UKIP politicians with leadership aspirations who advocate either of these courses doing their sums and showing their working: ie which services do they propose to cut or which taxes do they propose to raise, by how much and upon whom?
It is very easy to talk in visionary terms about a thriving, free enterprise economy where people strive to be self-reliant and where a much reduced state is still there as a safety net, but not a feather bed. But it is much harder to make the sums add up and identify major public spending budgets for scything back. And that is before you even start the task of trying to sell it to the voting public.
And this is why I find myself perhaps living up to the “Pinko Patrick” nickname given to me by some of those on the Right of the party.
Because I most certainly dispute something that is frequently said in those quarters: that there “hasn’t been any austerity”. There most certainly has. Let me give you a few statistics to illustrate this.
The share of public spending in overall national income as reduced from 44.8% in 2011 to 39.9% this year. In nominal money terms (ie without adjusting for inflation) public spending has increased from £714bn to £784bn in the same time frame (for comparison, the overall economy has increased from £1,592bn to £1,963bn). Plug in the eroding impact of inflation and there has barely been any rise at all in public spending. Yet during this period the UK population has risen from 63.9 million to 66.5 million - so real public spending per head has been under serious pressure.
The percentage of the workforce employed in the public sector has also dropped from almost 20% to a little over 16% in recent years.
And that is not the end of the story. An ageing population has also placed hugely increased pressure on the NHS, with sky-rocketing numbers of surgical procedures, A&E attendances and the like. On top of that, the British public appears to have decided that the state should shoulder more of the rapidly escalating cost of social care for the frail elderly too (I refer you to the political impact of the “dementia tax” row). More than that, there is also serious voter pressure for a better financial deal for undergraduate students.
The public realm also faces an escalating bill for protecting us from the threat of terrorism and there are powerful arguments for spending on defence to be increased as well.
At the same time as the public sector has gone on a serious diet, private incomes have also flat-lined for most people, partly because of the depressing impact on wages of an unlimited supply of foreign labour for working class jobs.
Yet senior executive and boardroom pay has continued to roar away, often notching up annual double-digit increases. And these are the very people who were given a tax cut by George Osborne on earnings over £150,000 as well.
It is this combination of factors that I think has given Corbyn’s very left-wing economic agenda popular appeal despite its lack of solid foundations and blind spot when it comes to immigration control.
I do not think these circumstances justify a further radical cutting back of the public realm and I do not think many of UKIP’s target voters will think so either. If it were left up to me (don’t worry, it won’t be), I would certainly be reviving my allegedly “Pinko” ideas of a turnover tax for multinationals operating in the lucrative UK market while engaged in aggressive tax avoidance and a premium rate of VAT for luxury goods.
When we compare the high-end spending of the very rich - including foreign nationals using the UK as a convenient playground - with the pressures on the public realm I think we see a picture that the American economist JK Galbraith would have described as “private affluence and public squalor”.
Now, I am not saying that there are not further efficiency savings to be found across the public sector - there most certainly are. And salaries at the top of the public sector - including in local government - have clearly got badly out of control too.
But in my opinion the broad swathe of voters who might consider backing UKIP at the ballot box are not looking for a further dose of shrink-the-state libertarianism and we would be unwise to go down that path, whether as fiscal conservatives or naive believers in speculate-to-accumulate “Reaganomics” (the blithe notion that cutting tax rates always leads to higher tax yields - that only sometimes happens and with a national debt as large as ours we cannot bank on it).
The current UKIP leadership contest seems to be shaping up as a battle between the party’s hardline libertarians on the one hand and those entirely fixated by the issue of Islam on the other. This does not give me great hope for the future. I happen to think tackling radical Islam is indeed a very important issue but far from the only one. And I also think it needs addressing responsibly from the standpoint of furthering integration. Turning UKIP into a militant, street-focuised anti-Islam protest party would be disastrous.
My “wing” of the party (broadly, those believing that UKIP should be at the common sense centre of politics from where it can best challenge establishment failings) seems unlikely to have a candidate in this contest after coming runner-up in both the last two. So we wait and we watch and we worry. But as far as the economy goes I merely advise voting members that if a candidate has a message that sounds too good to be true then it probably is.