Cameron's Budget Explained

Sean Gabb, a real economist and England's leading libertarian tells us just how bad Cameron's budget is. Some of the comments are worth reading too.

FLC198, The Coalition and the Economy: A Fanning of Stale Air -

Free Life Commentary,
A Personal View from
The Director of the Libertarian Alliance
Issue Number 198
28th October 2010

The Coalition and the Economy: A Fanning of Stale Air
By Sean Gabb

We have, during the past week or so, had two major statements from the Government on economic policy. The first was the annual Spending Review, in which the Chancellor of the Exchequer explained how state spending was to be cut. The Second was the Prime Minister’s speech to the Confederation of British Industry, in which Mr Cameron explained how the private sector is to be encouraged to absorb job losses from the state sector. Together, these set out the Coalition’s plan for dealing with the massive state expansion of the Blair and Brown Governments. There is, in this plan, much to condemn.

In the first place, total state spending will not be cut. Instead, it will fall back to the level it reached before Gordon Brown became Prime Minister. The “cuts” that all the usual suspects are lining up on the BBC to denounce are nothing more than a reallocation of spending. Because Mr Brown borrowed so recklessly, there are debts that must be serviced. Because they have already been pushed as high as anyone in office dares, taxes cannot be increased. And so many individual budgets must be cut to make room for servicing the last Government’s debt. Even if several big ministries lose a quarter of their budgets, it does not mean that the State overall is being reduced.

This being said, the budget cuts are to be welcomed. The consensus within British politics is that state spending is a good thing balanced only by the taxes needed to pay for it. The truth is that taxes are always bad, but they are made worse by the purposes for which they are raised.

Spending on the salaries and pensions of state officials is most obviously bad. When these people provide services that we might really want, the services are at higher prices and to lower standards than would be the case given voluntary arrangements. This kind of provision also limits the scope for voluntary action. When the officials are employed to spy on us and to manage our lives, they are an obvious burden. And state employment is corrupting in itself. Whoever works for the State becomes a cog in a giant machine. His function is to follow rules and give and receive orders. Personal initiative and personal responsibility are discouraged. Above all, he is a client of the ruling class, and part of his job will be to transmit the legitimising ideology of the ruling class. Bearing in mind how destructive is the present ideology, any reduction of numbers is good.

Moreover, state spending is bad when it pays for services to the poor, or goes directly as benefits. I will not deny that many people look to government for all they have. But what is given always has demeaning or pauperising conditions attached. Whoever relies on the State for education and healthcare gets what the ruling class things appropriate – and this is usually the minimum needed to hide that the real purpose of taxes is to empower and enrich the ruling class. Whoever relies on the State for specific benefits invites an army of snooping, bossy officials into his life. And getting them out again is more than many people seem able to manage.

It would be nice had state spending overall been cut. Our taxes could then be cut. Even so, its reallocation is good on balance. If we must pay them, it is better that our taxes should go to the holders of government debt than to state officials. Granted, most government debt is owed to banks that rely on various kinds of state privilege to create the money out of thin air. The resulting moneyed interest is both parasitic and sinister. Those who work in its lower reaches are either gamblers or officials no different in their thinking from those employed by the State. Nevertheless, the banks do less harm than most government departments.

I will suggest how overall spending might be cut. Before then, however, I will turn to Mr Cameron’s speech on encouraging the private sector. It makes sense that, if the State is to do less, the people should do more. Beyond this truism, everything read out by the Prime Minister is very much to be condemned. It is nothing more than warmed over Thatcherism. Its main idea is that those who currently rely on the State for employment or for benefits must get jobs with private corporations. Any talk of encouraging small business is based on the hope that these will employ people, and that some of them will grow into big businesses.

A better view is that people do not need jobs. What they need is earnings. There is a difference. Getting up every morning to make someone like Alan Sugar even richer is almost as corrupting as drawing unemployment benefit. And, while his behaviour on television shows him as a sadistic bully, Mr Sugar may be a better boss than Richard Branson, who seems to add hypocrisy to nastiness. Some people who work as salaried employees earn rather well. Even so, they are often cogs in private machines, and what I have said about state employment applies with similar force to private employment. Most employees, however, do not earn very well, and their conditions of service are generally unpleasant.

Rather than shepherding them into employment, it would be better to allow the poor to shift for themselves. I do not suppose that this means an end to the wage system. Many people are sheep by nature, and would starve if there were no one to employ them. But most are not sheep. Certainly, no one should be prevented from trying to replace or at least supplement paid employment by selling whatever goods or services he can supply. The modes of self-employment I have in mind may not make people rich, but will make them reasonably independent.

The problem here is that, for a long time now, most of the relevant occupations have been regulated out of reach. I can, for example, remember when anyone with a car could become a minicab driver. In the 1980s, you could walk into a cab office in London, put £25 on the table and get a radio for the week. You needed to show that you had hire and reward insurance, which was about £20 a month. You were not supposed to ply directly for business on the streets, which was a right confined to licensed taxi drivers. Otherwise, you could work as much or as little as you pleased, collecting passengers from addresses given over the radio. If you wanted a break or to give up altogether, you handed back your radio and stopped paying your weekly rent. Working two long shifts at the weekend and three weekday evenings could net about £500 a week – not bad for the 1980s, when most working class employments paid about half that. You could live well as a minicab driver. Or you could add the weekend shifts to your earnings from paid employment.

This is no longer possible. Minicab drivers must all now be licensed. A friend of mine lives in Oxford. He told me last week that the City Council deliberately restricts the number of cabbing licenses, and that these change hands for about £70,000. I doubt it is much different elsewhere. The stated purpose of licensing is to protect the public from unsafe cars and violent drivers. My own experience is that any car powerful enough to be cabbed is unlikely to be unsafe. As for violence, the real problem is drunken or criminal passengers. The effect of licensing is to close the market to any driver without means. A further effect is to censor the speech of drivers. For whatever reason, both taxi and minicab drivers tend to hold unflattering views about non-whites. These views were once rather strongly expressed to any passenger willing to listen. Now that everyone must be licensed, and that the licensing system has been taken over by politically correct bureaucrats, drivers need to be careful what they say in their own cars. I have no doubt that the bureaucrats are financially as well as morally corrupt, and that, if existing licenses are valuable, they take large bribes for the award of new licenses. These are the effects of licensing. I am inclined to believe they are the purposes. In any event, the market is closed to anyone who cannot buy his way into it.

Another example I know is child minding. Until about thirty years ago, anyone could take in children and look after them during the day. The market was then regulated. Again, the stated purpose of regulation was to protect the public. In fact, anyone who cares about his own children is unlikely to put them with someone who will treat them badly. As for child minding itself, this is hardly difficult. Anyone – male as well as female – who has had children knows how to look after other children. It does not require the elaborate supervision that has emerged. My wife and I take our daughter to a registered child minder. She must have a Criminal Records Bureau certificate. She is inspected by Ofsted. She must fill in endless forms and understand the detailed circulars that fall through her letterbox. She must seek written permission to put suntan cream on her charges, or to give them child medicines, or to let them bounce on the trampoline in her garden. She is not allowed to smack them. For all I can recall of the forms I signed, she needs permission to cuddle her charges.

Not surprisingly, child minding has become a largely middle class occupation. No doubt, there are unregistered child minders – just as there are unlicensed mini-cab drivers. But these are by their nature criminal activities, and they tend to attract the very people that regulation was supposed to deter.

In these two instances, I write from personal experience. But there are many others I could mention. Night club bouncers must now be registered. So must street musicians. There is no licensing system for window cleaners. Instead, they are regulated by health and safety laws that add greatly to their overheads. Small jobbing builders are not licensed. Instead, waste disposal and other regulations make it hard for one man businesses to survive without breaking the law. Private tutors are neither licensed nor regulated. But I doubt this will be allowed to continue. Already, anyone who teaches more than one child at a time must do business with Ofsted and study a mass of health and safety laws.

Every market I know is rigged, or soon will be rigged, against small operators. I believe the same is true of all the other markets I do not know. What is the Government doing to re-open these occupations? The answer is nothing at all. A few weeks ago, I was sent a letter appearing to tell me that Criminal Records Bureau certificates will need to be renewed by anyone who spends longer than three months not working with children. The letter did not tell me how many paedophiles this change would drive out of the market.

Mr Cameron’s “enterprise economy” is nothing but a system in which the poor have a choice between pitiful welfare benefits and the grotty end of a master and servant relationship.

I will now return to the budget cuts. These do not show any desire to reduce the size of the State in the long term. They are emergency cuts to deal with the Brown deficit. The State is behaving like a frightened slug that draws in its horns and curls up until the danger is passed. Cutting child benefit and housing benefit will save a few billion a year. But these cuts are substitutes for reducing the core bureaucracy.

I do appreciate that reversing the state expansion of the past decade requires skills that are not easily found. Most state activities are bad or merely superfluous. But these are often mingled with useful activities that have taken the place of voluntary arrangements that would not come at once back into existence if the State withdrew from them. How to cut the bad or superfluous while leaving the useful temporarily untouched is knowledge largely confined to those who manage the system as it is. Anyone, that is, who really understands how the National Health Service works has a vested interest in keeping its payroll bloated with accountants and compliance officers. Given this fact, it is unreasonable to expect even a well-intentioned Minister to sit at his desk and run down an elaborate machine without hurting legitimate expectations. Unscrambling these budget can be done – but will take years of informed and patient cutting.

Nonetheless, if cutting health and welfare and education budgets cannot be done quickly in a rational manner, there are many other budgets that could be just abolished. We do not need a Department of Culture, Media and Sport. The media need no regulation whatever. Sport was, until recently, ignored by the State, and should be again. As for culture, most of the subsidies given are for bad art or anti-art [ what little Adolf called Degenerate Art ]. If the Government wanted to save a few theatres and orchestras, it could set up an Arts Council, staffed by a dozen conservative art lovers, and give this a small budget to dole out. We do not need a foreign aid budget. Most of this ends up in Swiss bank accounts or is spent on weapons. Even otherwise, the State should not be giving money to foreigners when there are poor people at home. We should withdraw from the European Union. All other considerations aside, this would save about £11 billion a year in contributions that go mostly to foreign bureaucracies or to people at home who are already rich. We should give up the farce of trying to manage the climate. There is no respectable evidence of man-made climate change. If there is, none of the grotesquely expensive schemes adopted is likely to help matters.

The Government could shut down the BBC. It could shut down English Heritage and the Equalities Commission, and dozens of other organisations that exist only to oppress or corrupt. It could impose a public sector tax, so that no one directly or indirectly employed by the State earned more than £40,000 net per year – and that no pension paid directly or indirectly by the State was more than £20,000 net per year. I have no idea how much this sort of tax would save. But it would be entertaining to see its effects. Watching Peter Mandleson’s face go pale at the sight of his unopened gas bill is a pleasure there may be only one person in the world unable to appreciate.

The Government might even repudiate the national debt. No one believes that this will really be paid back. As with the debts run up in the two world wars, it will be reduced by inflation. The pound is already worth only about a penny farthing of its 1914 value. We might as well cut out the need for further inflation by walking away from the whole debt. Or the Government could fix the interest charge at half a per cent, regardless of market rates. Or the debt could be given to Scotland as an independence present, along with the flag and our European Union membership. Most of the debt, after all, was run up by Scotchmen.

It may be that repudiation meant that no one would ever lend money again to the British or English State. That might not be a bad thing. But both common sense and actual experience show that it is easier and cheaper for a government to borrow after repudiating its debts than before. Certainly, there is no moral case for repaying the debt. Most of it was not borrowed from real people. Hardly any of it was spent for other than malign purposes – and the lenders had every reason to know this.

I could go into further detail of what might be done. But what I have said is enough to show the general course. If the Coalition were serious about making this country a better place for ordinary people, there are many easy things that could be done at once. These things are not being done. Most budget cuts will fall on the poor. The only enterprise likely to be encouraged is big business enterprise. Sooner or later, the present emergency will end. Inflation and renewed economic growth will close the state deficit. State spending can then resume its upward progress. In the meantime, nothing is to be done to reduce the corporatisation of our lives.

Taken together, the two statements on economic policy show that nothing has been learnt and nothing forgotten since the last crisis of overexpansion in the 1970s. What the Prime Minister and the Chancellor of the Exchequer have promised us is the equivalent of switching on a fan in a room filled with stale air.