Dishonest British Budgeting…Just Like We Do It in America

According to news coverage, United Kingdom Prime Minister Cameron is imposing deep and savage budget cuts. I was interviewed by the BBC recently, for instance, and asked whether 25 percent spending reductions were too harsh. And here’s an excerpt from a New York Times story that is very representative of the news coverage.

Like a shipwrecked sailor on a starvation diet, the new British coalition government is preparing to shrink down to its bare bones as it cuts expenditures by $130 billion over the next five years and drastically scales back its responsibilities. The result, said the Institute for Fiscal Studies, a research group, will be “the longest, deepest sustained period of cuts to public services spending” since World War II. …Public-sector unions are planning a series of strikes. Charities — which Mr. Cameron has said should take over some of the responsibilities now held by the state — say that they are at risk of collapse because they are so dependent on government money. And the chief executive of the Supreme Court, the country’s highest, said she did not know whether the court would be able to function at all if its budget were cut by 40 percent.

To be blunt, this type of analysis is completely false. There are no budget cuts in the United Kingdom, at least in terms of total government spending. Instead, the politicians are measuring cuts against some imaginary baseline, which is the same scam that happens in Washington. So if spending increases by 4 percent instead of 7 percent, that is characterized as a 3 percent budget reduction. The chart shows what is happening with overall government spending in the United Kingdom. Notwithstanding phony stories about budget cuts, spending in Prime Minister Cameron’s first year is climbing by more than 4 percent – twice as fast as needed to keep pace with inflation.

This doesn’t mean that Cameron isn’t doing anything right. There is a two-year pay freeze for bureaucrats, for instance, which is at least a small step in the right direction. But the Tory-Liberal Democrat coalition is not a good role model for those who want limited government and fiscal responsibility. There are promises of spending restraint in future years, but those belong in the I’ll-believe-it-when-I-see-it category. Spending is supposed to increase by less than 1 percent in next year’s budget, for instance, but politicians are very good with tough talk of fiscal discipline in future years. But if we judge them by what they’re doing today rather than what they’re claiming will happen in the future, Cameron’s policies leave much to be desired.

The tax side of the fiscal equation is even more depressing. There is small reduction in the corporate tax rate, but otherwise there is considerable bad news. The new government is leaving in place the new 50 percent top tax rate imposed by Gordon Brown as an election-year class-warfare gimmick. It is boosting the capital gains tax rate from 18 percent to 28 percent. And it increased the VAT rate from 17.5 percent to 20 percent.

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If This Is the GOP Future, They Will Be a Minority Party

Did Republicans lose in 2006 and 2008 because they were too far to the left or too far to the right? And which approach should they adopt if they want to regain power in 2010 and 2012? Some people think the GOP needs to be more moderate. David Frum, for instance, says Republicans need to mimic David Cameron in the United Kingdom. And at his website, Frum highlights this (rather disturbing, as I will explain below) video of Cameron making a pitch to the British people.

First, the good news about the video. It is possible that Cameron intends to do good things about education and welfare policy. Unfortunately, it’s also possible that he intends to do bad things. But we don’t know since there is nothing but rhetoric. Speaking of rhetoric, it is troubling that he also has lots of language about a “fair” society and the gap between rich and poor. This doesn’t necessarily mean he intends to push bad policy. A policy of smaller government and free markets, after all, will boost economic growth and help poor people climb the ladder. Shrinking government also will reduce the power of special interests, which will make society more fair. But it’s also possible – and perhaps more likely – that he is using this rhetoric to signal support for more redistribution.

What is most troubling, though, is that Cameron sides with government and against taxpayers whenever he gets specific about policy. About one minute into the video, he endorses the minimum wage and higher fuel subsidies. Fifteen seconds later, he wants more redistribution for food programs. The worst proposal comes around the 2:50 mark, when he endorses wage indexing instead of price indexing for the U.K.’s version of Social Security (which would be grossly irresponsible and undermine one of the best achievements of Margaret Thatcher). Last but not least, he then endorses more spending on government-run healthcare.

These proposals are all bad policy, but they’re also bad politics. If an election is decided on the basis of which party is more excited and more sincere about redistribution, that benefits left-wing parties. That doesn’t mean that a (supposedly) right-wing party will never win an election. Indeed, Gordon Brown may very well lose to Cameron later this year. But that will simply be a case of the electorate rejecting an incumbent party for doing a terrible job. There will be no mandate for better policy. Indeed, it appears that Cameron wants to be like Obama – a big-spending politicians who takes over from another big-spending politician. In the long run, this is a recipe for the Tories to be a minority party. And if Republicans follow the same approach, they also will be a minority party.

One final comment. It should go without saying that right-leaning parties should always be figuring out better ways of selling the message of liberty, freedom, prosperity, and responsibility. And they should be finding the candidates who are best able to articulate that message in an optimistic, forward-looking way to average voters. But that’s not what Cameron represents. From what I can tell, he’s Richard Nixon with a smile.

P.S. Cameron also has surrendered to the left on the global warming/climate change issue, though maybe the absence of any rhetoric in this video is an indication that he realizes the tide has turned and there is nothing to be gained electorally by imposing that particular piece of awful policy.

P.P.S. And he has refused to say that he will undo Gordon Brown’s reckless decision to raise the top tax rate from 40 percent to 50 percent.

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