1 November 2011

Economically illiterate, politically naive and fundamentally irrresponsible...

...that's my view of the 10 Liberal Democrats who put their name to a Guardian letter supporting the frankly bonkers Compass think tank's 'plan B'.

The plan is crazy - calling for a UK tobin tax on banking transactions. It also calls for rises in benefits to help those on 'low and middle incomes' and additional quantitative easing (presumably on top of that just announced by the Bank of England). And finally for an end to all public spending cuts and job losses. And the report is unspecific about how much this would cost - but presumably it would be a lot more than the additional tax revenues (if any) so created.

Liberals shouldn't be arguing for a welfare state so bloated it encompasses those on middle incomes - nor for a tax that without coordinated international action is guaranteed to send the finance sector offshore.

And as for the idea that the public sector has contracted over the past year - today's growth figures reveal the government and other services sector grew by 0.5% in Q3 of 2011. Full details can be found here. In fact over the next four years government spending is set to rise by £40bn.

And by going public in the way they have the 10 Lib Dems have allowed themselves to become Labour's patsies and have given the media the opportunity to embarrass the party and create division where none exist. Some of the 10 ought to know better whereas Linda Jack and Richard Grayson have form.

The irony is that the 10 are some of those who have argued for a looser 'supply and confidence' arrangement instead of full blown coalition with the Conservatives. Under these circumstances the party would have been expected to support a Tory only budget - rather than one with strong Lib Dem strands running through it.


  1. Dan - a few thoughts on your thoughts if I may.

    1) re FTT - the report explicitly says that any FTT would be 'ideally on a global basis' but at the very least 'if such a tax were introduced it should be possible to introduce it for all trading centres in the European Union simultaneously.' So to clarify, they haven't called for a 'UK Tobin Tax' as you suggest.

    2) as for your assertion that such a tax would be 'guaranteed to send the finance sector offshore,' may I point out that similar threats were made by banking lobby when bonus tax was carried out, and when Coalition introduced bank levy in its place - yet the mass exodus of banks HQs hasn't materialised. This is mainly because banks have invested massively in London for reasons other than its friendly tax regime, although I acknowledge the latter has played a part. Sabre-rattling on the part of powerful corporate interests does not negate the validity of a tax, which can only really be assessed on whether it would raise sufficient revenue in a fair way. Besides, like I said in 1), this isn't what Plan B or anyone else who's serious is calling for.

    3) I tend to agree that raising benefits is a crude method to boost the incomes of the poorest, but forgive me my ignorance doesn't it come from the same stable as raising the income tax threshold - i.e. the thought is that if there's more money in the pockets of the poor, increased consumption would boost growth. As I indicated on the post over at SLF website, given indebtedness amongst benefit recipients I'm dubious as to the stimulatory effects because I imagine a lot of the increased payments would go to paying these debts down. I'm with David Blanchflower and I'm sure most liberals on this front - far better to create jobs, but the current government's strategy is not exactly a roaring success on this front... if it weren't for Lib Dems doing their best in departments like BIS, eevn fewer jobs would be around.

    4) I tend to agree about calling for a halt to public spending cuts being out of line - more thoughts on this can be found in my IPPR article on the matter here

    5) it isn't really relevant that government spending is set to rise by £Xbn, what is relevant is what that spending achieves and whether we have an underlying economic model that permits us to pay for that increase - and with reduced demand (partly because of the inertia in a risk-averse private sector and partly because 100s of thousands are being kicked out of work from the public sector, demand is close to rock-bottom) we don't really. So by all means express concern at the economic model that's left the nation, the exchequer, businesses and families poorer, but pointing to a number and claiming 'this is bad' is just daft.

    6) like any political party, the Lib Dems are a broad church - forgive the cliche - and that means members and supporters will disagree, frequently. accusing those who disagree with your view of being Labour patsies (when Plan B isn't Labour policy as Compass doesn't speak for Labour) and creating division is disingenuous and unhelpful - if you can't stand pluralist discourse and debate, why get involved in politics?!

  2. Thanks Prateek for your thoughtful post.

    I wish the 'Compass 10' had been as considered as you before leaping to publicly back their ridiculous plan B. And I'm glad that the SLF are not formally backing it.

    The idea that a Tobin tax can be introduced on an EU wide basis - given the last two weeks shenanigans over the Greek bailout - is about as unlikely as on a world wide basis.

    I agree with you that the test for public spending is what it achieves not its level. But given the huge increases under Labour achieved very little - the current retrenchment should have little impact (if managed properly).

    On your final point I agree the Lib Dems are a broad church and healthy debate is in the party's DNA. But there is a difference when this debate is in private or if those involved are not seeking public office. But if you are Stephen Knight seeking to become one of two or three of the most significant elected Lib Dems in London and you cannot bring yourself to support the party's economic policies and openly support that of another party's - you are basically saying you have no confidence in the party you seek to represent. Stephen Knight wants Lib Dems to get him elected to a well paid job but is not prepared to accept the discipline of keeping one's reservations private. He wouldn't put up with it from a member of the group he leads in Richmond, so why should London Lib Dems put up with it from him?