This morning’s Guardian leader makes very uncomfortable reading for the coalition. Nick Clegg defended George Osborne’s budget on the basis that it redistributed from the rich to the poor. The analysis from the Institute for Fiscal Studies shows that the position is more complicated than suggested by the deputy prime minister. Some of the budget measures, notably the freezing of certain benefits, will fall disproportionately on low-income families.
The Treasury will inevitably dispute the IFS analysis and there is much merit in doing so. Some of the institute’s assumptions assume the worst, for example, about the housing market. It is also unfair to judge any government on one budget. Policies such as the graduate tax mooted by Vince Cable will probably create a more pro-poor tax system if enacted. It also looks as if Clegg and Iain Duncan Smith are winning their vital battle to cut certain badly targeted benefits and use the savings to help people at the bottom of the ladder. A government should be judged on a full term and not on its first emergency effort to solve a debt crisis bequeathed by its Labour predecessors.
But the coalition would be making a big mistake if it allows itself to be judged on the terms set by the IFS. Today is a wake-up call for the coalition. It calls for a radical change in the way the government defines its mission. The national debate has been dominated by cuts since the coalition was elected. Cuts have been announced drip-by-drip-by-deadly-drip. Cutting quangos. Cutting waste. Cutting public sector entitlements. Cutting ineffective government programmes. All the cuts have been necessary. Britain’s borrowing was getting out of control and Osborne’s early action means that the interest charged on the national debt has already come down markedly. Some estimates put the saving from early action at more than £6bn.
But alongside cuts, the chancellor needs to talk more about growth. Much more. The whole government also needs to redefine its poverty-fighting strategy.
At the time, I was actually in a minority on the right to be disappointed by the budget. While I admired the chancellor’s deficit-cutting ambition I was concerned at the absence of a more radical pro-growth agenda. I wish he had increased taxes, for example, on “sin” (drinking, pollution and the high-end property market) and cut taxes on jobs. In the growth debate and its implications for employment and earnings, it important to achieve redistribution from the unproductive to the productive parts of the economy, just as in the cuts debate, it is important to avoid balancing the budget on the backs of the poor.
David Miliband is today talking about using higher bank levies to fund lower taxes on manufacturers. The coalition must not allow him to conquer this territory. The Treasury minister David Gauke is undertaking some potentially revolutionary reforms on patents and tax simplification but they are far from sexy. Osborne needs a headline-grabbing growth agenda to sit alongside the looming autumn of cuts.
In the debate about fairness the most important task for the coalition is to emphasise reform. It needs to state that the good life is not a life where you are maintained by the state. It needs to say that the amount of money the state redistributes from rich to poor is not the true test of a compassionate society. It must establish a new paradigm.
The surest route out of poverty is a good education, a strong family and a willingness to take work, however low paid it may be at first. Labour made all of those things harder. Discipline broke down in Britain’s schools during the Brown-Blair years and we slid down international league tables for educational attainment. On the family, Gordon Brown actually crafted a benefits system that discouraged low-income couples from living together. On work, he created a benefits maze that generated fraud and disincentives to take a job.
The coalition should proudly be pro-poor but on its own terms. It should define itself by Michael Gove’s school reforms, Duncan Smith’s welfare reforms and by the wider social mobility agenda set out last week by Clegg. Yes, it must guarantee a fair safety-net income and decent public services for the poor but, most of all, it should say that it wants to fight poverty, not maintain it.