IFS claims cause storm

A report by the respected Institute for Fiscal Studies casts doubt on the Coalition Government's claim that the Budget was progressive rather than regressive: Budget

Of course, the IFS is trying to look at a longer time period than the Government, up to 2014 rather than 2012. They attempt to allocate changes to housing benefit, Disability Living Allowance and tax credits to households.

Their conclusion is that low-income households of working age lose the most because of the cuts to welfare spending. Those who lose the least are households of working age without children in the upper half of the income distribution. This is because they do not lose out from cuts in welfare spending and are the biggest beneficiaries from the increase in the income tax personal allowance.

The biggest change to welfare policy in the 2010 budget was linking benefits with the CPI rather than the RPI. This is very likely to mean less generous benefits in the years ahead. The savings from linking to a lower index will compound over time, rising to £5.8bn in 2014-15.

Nick Clegg's initial and rather lame response was that the IFS did not take account of the efforts of the Government to get people off benefits and into work. These efforts are laudable, but previous Governments have tried to do this with mixed success.

The 2010 general election

These graphs of poll data relating to the 2010 general election from the British Election Study based at the University of Essex summarise some interesting data on what happened: Election

The First 100 Days

This week Britain's Coalition Government marked 100 days in office. Why are we so preoccupied with a time span of 100 days when President Kennedy said that 1000 days was too little to achieve anything? The original Hundred Days was the period between the arrival of Napoleon in Paris after his escape from Elba to his removal after the Battle of Waterloo. The term gained political currency when President Roosevelt got the New Deal off to a good start in his first hundred days in office. As prime minister in the 1960s Harold Wilson promised 100 days of dynamic action, but the reality was more disappointing.

One test of success for the Coalition Government is that it has survived for 100 days without any major rifts appearing. Indeed, there have been fewer tensions between ministers than in many single party governments. There has been grumbling about their lack of influence from MPs the right of the Conservative Party and from Liberal Democrat backbenchers, but it has had little real effect.

The real tests for the Coalition Government are still to come. One will be when the Comprehensive Spending Review is published in October. Some cuts in public spending have already been announced, but then their full extent will hit home. Another will be getting the referendum of the alternative vote through Parliament and then, as far as the Liberal Democrats are concerned, winning it. 100 days is not a real test of five years.

Milk snatching

There is no evidence that free milk for under 5s makes any significant impact on their diet and nutrition and in any case it is a blanket subsidy that is not targeted on those in most need. Given the current fiscal climate, it would be a good way of saving £150m a year.

However, David Cameron quickly knocked down his health minister when she suggested getting rid of the free milk. No doubt he remembered the 'Thatcher the milk snatcher' that attached to Margaret Thatcher for so long. That was in part because it rhymed and someone actually made a song of it. I was reading a compilation of remniniscences the other day and it was pointed out that the milk was often in poor condition when it reached the children. Its original introduction in the 1930s reflected the power of the dairy lobby.

What this episode shows is the risk that relatively ineffective programmes will survive the cuts and more effective ones may take the hit.

Salami slicing

An increasing concern is being expressed, particularly on the right of the Conservative Party, that the Comprehensive Spending Review is taken the form of salami slicing. Quite big slices, yes, but rather than starting from a zero base and asking whether government needs to be undertaking a particular activity, good programmes are being cut as much as bad ones.

In this context the presentation by Andrew Gamble on the 2010 spending review at a British Academy forum last week was of particular interest. Gamble looked at different conceptions of the state such as the mimimal state (Nozick), the frugal state (Bentham) and the active state (Keynes). He set out three models of government spending (each relating to a share of public expenditure in GDP):
1) 44 per cent, the social investment model
2) 38 per cent, the Anglo-Saxon model
3) 25 per cent model, the free market model with the 1920s and 1930s in Britain as the historical precedent.

He argued that after periodic forest fires public spending tends to grow back. The consensus in the discussion was that Britain was likely to revert to a 38 per cent model and indeed there were some indications that that was George Osborne's conscious intention.

Of course, it is possibly to become too preoccupied with the arithmetic (which in any case is substantially influenced by how fast GDP is growing) and the size of the state rather than its shape. What can the state do and how can it do it effectively?