Thursday 16 March 2017

'Spreadsheet' Phil is weakened but safe

The relationship between the prime minister and the chancellor of the exchequer is the most crucial one in British government, but it hasn't been studied very systematically, although I attempted a typology in my Economic Policy in Britain.

'Spreadsheet' Phil Hammond has suffered a blow to his reputation after he was forced to withdraw his increase in national insurance charges for the self-employed. The expressions of studied neutrality on those around him as he made his statement yesterday told their own story.

The line from Downing Street is that the Chancellor was warned beforehand about the political risks of the increase, but felt he had to go ahead to meet new spending demanded by the prime minister. Indeed, the Treasury line is that the prime minister and her aides are too keen to spend additional money, although something had to be done to provide additional funding for social care. Quite how the £2 billion hole in what was a fiscally balanced budget is going to be repaired remains to be seen. The Government has boxed itself in by its manifesto pledge not to increase income tax, VAT or national insurance, the main means of raising revenue.

In the longer run, something is going to have to be done about the erosion of the tax base by the growing numbers of self-employed, some a by-product of the digital economy, but many of them attracted by the tax benefits which include allowances not available to the employed. Employers also benefit from not having to pay NICs. However, it would have been surely better to wait for the results of the review being conducted by Matthew Taylor which will also look at the narrower range of benefits received by the self-employed. Certainly, Phil Hammond did not display much political awareness.

In the longer run, there is a need to look at the rationale of separating national insurance and income tax. National insurance is another form of income tax, but one not applied to particular groups such as the elderly. Whether any party would be prepared to tackle this particular hot potato is open to question.

What is the immediate political fallout from this U-turn? It shows that the Government is vulnerable to determined resistance by small groups of backbenchers, given its slim majority. School funding formulas will be the next target. It also showed once again that Jeremy Corbyn is unable to take advantage of government errors.

The SNP economy spokesman suggested that relations between No. 10 and No. 11 could revert to the days of Tony Blair and Gordon Brown. That will not happen because Phil Hammond has no ambitions to be prime minister. He is a Derek Heathcoat-Amory rather than a Gordon Brown. From Theresa May's point of view, it suits her to have a weakened chancellor beholden to her so his job is safe for now.

Wednesday 15 March 2017

Too much policy reinvention?

A new report from the Institute for Government argues that there has been too much policy reinvention in British government, leading to waste and lost policy effectiveness. Three areas which have certainly suffered from constantly changing policies are examined in detail: further education, regional governance and industrial strategy: All change?

What one can do about it is another question, given the susceptibility of governing parties to fads and fashions and the incentives for ministers to build a reputation as policy innovators, even if the policies are reheated.

One suggestion made by the report is that the institutional memory of departments needs to be improved, but current personnel policies militate against this. One might also heretically that the days of paper files provided more prompts about what had been tried in the past.

Monday 13 March 2017

How to be an effective minister

Based on interviews with former ministers including Ken Clarke and Alistair Darling, this report for the Institute for Government looks at what it takes to be an effective minister and whether they have sufficient preparation for their roles: Ministers Reflect

Wednesday 1 March 2017

Public services could be pushed to breaking point

The Institute for Government has published a report on the performance of public services in the period of austerity since 2010: Performance tracker

The report finds that the 2010 spending review was largely successful in terms of its objectives. My interpretation would be that there were efficiency gains to be made in public services which did not substantially affect their quality.

However, it is a different story since 2015. Performance is being adversely affected and some services could be pushed to breaking point. In the case of prisons, they are already beyond that point.

The report warns, 'In the upcoming Budget, the Chancellor cannot simply choose to ‘tough it out’, eschewing any reference to how the Government will deal with the mounting pressures in public services, as he did in the 2016 Autumn Statement, when his only announcement was emergency funding for prisons. The Government risks being bounced from crisis to crisis, unable to get a grip on the situation. Without action, within the next two years it could face a disastrous combination of failing public services and breached spending controls against a background of deeply contentious Brexit negotiations.'