Danny Alexander is the Lib Dems most successful minister. Why does he not get the credit?

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The Liberal Democrat Treasury Secretary Danny Alexander’s placeDanny and George in history is assured. He is a member of the “quad” that sets the coalition government’s agenda, along with the Lib Dem Leader and Deputy Prime Minister Nick Clegg, the Prime Minister David Cameron and the Chancellor George Osborne (with whom he is pictured here). But recently there was a revealing kerfuffle, when the Lib Dems named their election “shadow cabinet” with him as the Treasury spokesman. Shouldn’t it be the more senior Vince Cable, people asked? Many Lib Dem activists fell for the bait and were suitably outraged. In fact this was a non-story – the shadow cabinet simply reflected current ministerial responsibilities with the gaps filled in. But if anybody had doubted Mr Alexander’s weak reputation, the response to the story proved it.

But more recently the highly respected Institute for Fiscal Studies (IFS) published a study of the effects of government policies on tax and benefits on people of different income bands. For the rare few voters who are interested in the facts of the coalition’s record this 30 page report is a fascinating read. The core of it is contained in this graphic:

IFS Graphic reducedWhat this shows is that the burden of the changes has fallen hardest on the top decile, but that every other decile has benefited from a reduced tax burden (i.e. the solid green bars), mainly the increase in income tax allowances. That, of course was the Lib Dem manifesto promise in a nutshell. Reductions in tax credits and benefits, however, have hit the poorer, so that as a proportion of income the overall effect on the bottom decile has been greater than the top (about 4% to 3%). The lucky 7th decile have suffered a net effect of nil. Further analysis shows that households with children have been hit the hardest, while even the poorest pensioner households have been protected:

IFS Graphic reduced 3

This represents a reversal of generous policies for families from the last government. If you take the whole sweep of policy since 1997 you get the following change:

IFS Graphic 2 reduced

Now this shows that the treatment of families overall lines up with that of pensioners – but that working age people without children have ended up with little net benefit. This may feel a bit harsh, but politicians have never suggested that their policies would do anything else. Pensioner and child poverty were the stated priorities.

And in case you are swept on by leftist rhetoric that these changes will be swamped by changes in income inequality before tax, a separate IFS study suggests that pre-tax income inequality has actually narrowed over the period of coalition. Put the two together and you get the picture of a government with a clear agenda to redress income imbalances. All this follows the policies Liberal Democrats advocated before the election.

The Treasury is also held responsible for managing the government’s overall finances, and Mr Alexander had a critical role in managing government expenditure. In 2010 the Conservatives promised to eliminate the structural government deficit in 5 years. Labour and the Liberal Democrats converged on about 8 years. Guess what? Though the coalition initially talked about the former target, it moderated when the economy struggled, and it is on course to follow the original Lib Dem (and Labour) target. Overall economic growth projections have disappointed the politicians, of course. But what, in Labour’s alternative strategy, could have led to a better overall outcome? They called for a softening of austerity and that’s exactly what the coalition did. Beyond some sound and fury over Keynesian stimulus, now irrelevant, Labour has had nothing to say about redressing weak productivity, the real reason for the lack of economic growth and real incomes. The scale of the deficit was such that it was always going to be hard going.

So Mr Alexander has, in spite of his position as junior to one of the most powerful men in the Conservative party, delivered a government record that is much more similar to what the Lib Dems had planned than the Tories had (they had planned to be much easier on the rich). Quite a record.

How does that compare with other Lib Dems? Poor old Mr Clegg’s political reforms have largely sunk without trace, and he also failed to spot the problematic NHS reforms quickly enough (as did Mr Cameron). Vince Cable was responsible for the reversal of Lib Dem policy on tuition fees, as well as the PR disaster of the Royal Mail flotation. Chris Huhne and Ed Davey battled valiantly at Energy but have had to give ground on nuclear power and fracking. Michael Moore and Alistair Carmichael at the Scottish Office have supervised a calamitous straining of the Union. All of these men, it should be added, have a string of positive achievements too, but they’ve been forced to compromise more than Mr Alexander has. There have been some impressive performers in the junior ranks (Steve Webb and Norman Lamb in particular), but their scope is inevitably narrow. Surely Mr Alexander is top of the heap?

So why are Lib Dem members reluctant to give him credit. First is a rather indifferent record on media interviews. He lacks a sense of ease and the ability to move away from pre-prepared sound-bites, unlike his Lib Dem cabinet colleagues. He doesn’t sound as if he is in command. He manages the detail rather than the big picture. And he sounds a bit Tory sometimes in the messages he gives.

But I don’t think that’s all. I don’t think that many Lib Dem members are at ease with the government’s record on tax and benefits. Those graphs in the IFS report show that the effects of increased tax allowances have not really helped the poorest, and that cuts to benefits and tax credits, especially to those with children, have squeezed the bottom half of the wealth distribution. There has been no offsetting increase in real incomes before tax. Labour have been energetically pointing all this out.

But given Lib Dem promises on tax allowances, on cutting the deficit, and on reforming pensions, cuts to benefits and tax credits were absolutely inevitable. The government has already gone after the richest 10% heavily, in increased taxes and, especially, a clampdown on tax avoidance (something with Mr Alexander has particularly championed). The only major budgets that haven’t been heavily squeezed are those for education and the NHS (foreign aid does not count as major), something Lib Dem members would support. Benefit cuts may not have been in flashing lights in the Lib Dems’ manifesto for 2010, but they might as well have been.

And this leads to a question that many Lib Dems would rather not think about. Just how much is it the state’s duty to top up low incomes with automatic entitlements to state benefits? And how much do such entitlements create dependency and a sense of victimhood from rich and poor alike? The great Liberal designer of the the welfare state, William Beveridge, was very worried about creating unconditional entitlements. Just what he would have made of the blank-cheque of the old Housing benefit we can only imagine. But modern leftist thinking takes such entitlements for granted, forever trying to raise the bar. But most of the public regards the idea of topping up incomes with taxpayers’ money with suspicion. It stinks of a freedom with other peoples’ money.

Personally, I think the expansion of automatic benefit entitlements  is a blind alley. Instead we need much more intelligent and directed interventions to help people cope with poverty, and manage their way out of it, if they want to. This needs to be done in a person-centred way that to tackles the underlying problems (housing, mental health, addiction and so on) head on, instead of paying people money to go away and keep quiet.

But that’s just my view. Meanwhile Mr Alexander has implemented a liberal agenda at the Treasury and deserves more credit than he gets.

 

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Labour are in serious trouble

Not long ago Labour supporters seemed very confident. Their lead in the polls pointed to a comfortable majority; the electoral system was loaded against the Conservatives; they (in their own minds) had won the argument on austerity. It was a good moment to move to the political left and drop the Blairite obsession with the political centre. But now Labour’s poll ratings are sinking, and the Tories catching up.  The 2015 election increasingly looks like a stalemate or worse for Labour. What can they do?

And it is not difficult to see the source of Labour’s problems: Britain’s reviving economy, and rapidly falling unemployment. This is not running to the Labour script – which was that austerity policies doomed the British economy to stagnation and misery. It used to be that Labour’s Shadow Chancellor, Ed Balls, sounded easily the most economically literate of the front-bench spokesman of either side (challenged only by the Lib Dem Business Secretary, Vince Cable). Now he sounds panicky and flustered. His arguments, that the recovery is shallow because it is based on consumption rather investment and exports, is technically correct but irrelevant. Labour’s alternative policies of fiscal stimulus were promoting an equally shallow recovery. Labour has no serious ideas on how to promote investment and exports. Meanwhile, the rising economy is giving government spokesmen more confidence: Lib Dem Treasury Secretary Danny Alexander sounded more in control of the economic arguments than he has ever been on the radio this week, managing to pick apart arguments presented by the FT’s Martin Wolf. The Tory Chancellor George Osborne, always more interested in politics than economics, is not wasting any opportunity to skewer Labour using much less sophisticated arguments.

Labour started their damage limitation strategy last Autumn by their leader, Ed Miliband: to try and change the subject. First there was the “cost of living crisis”, focusing on the failure of pay to keep up with prices. Now it is the top rate of tax, where they want to restore the 50% rate rashly reduced to 45% by the Coalition in 2012. Labour’s policy is popular, and the criticism coming in from business groups is unconvincing. These lobbyists say that reducing taxes, especially on the better off, is what is need to awaken dormant business investment. And the government has duly cut taxes (that top rate, and also the rate of company tax) without investment budging. The trouble is that Labour’s policies sound unfriendly to businesses, and therefore likely to stall growth and cause general taxes to rise.

It gets worse for Labour. The energy that drives their activists comes from opposition to austerity: fighting cuts which are seen as mean-minded and ideological. The theory was that the fighting the huge government deficit should be left until later, when the economy was growing. That “later” has now arrived. So how will Labour cut the deficit? Being specific about this, as they will have to be by 2015, will cause huge angst and disillusionment amongst their core supporters.

And in any case Britain’s electoral system is not so weighted in favour of Labour as some supposed. There is a pro-Labour bias in the distribution of seats it is true, but there is also a pronounced benefit to incumbency. When it comes to asking which seats the party will have to capture to win an outright majority it looks hard going. Battersea, the seat where I live, is a case in point. The Conservatives took it off Labour in 2010, but it looks very difficult for them to win back. In the last 3 years I have heard nothing from Labour, but regularly from the Tories; residents aren’t being given the impression that Labour are in contention. The hard fact is that modern politics, with fewer volunteer workers and high postal costs, is an expensive business. Labour surely do not have the money to capture enough marginal through trench warfare tactics in the marginals. They need a national landslide effect, such as they achieved in 1997 under the hated Tony Blair.

So what to do? A change in leadership is out of the question, especially as the most popular alternative, David Miliband, Ed’s brother, is out of contention. A ruthless reshuffle of the front bench might help, but only if it went alongside a wider change of strategy. I think promising more money for the NHS, struggling to keep up with demand, would play to their strengths. But they would have to have credible tax policies to back it up. Taxing just the very rich won’t quite cut it. But taxing a wider body of people would totally undermine their rhetoric on the cost of living. They have dug themselves into a real hole.

Their best bet may just be to keep calm and hope the Tories self-destruct. They show every sign of wanting to do so over the toxic issues of Europe and immigration. Labour’s best chance of benefiting from this tendency to suicide is to appear moderate and centrist. Not a good moment to lurch to the left.

And what of the Liberal Democrats? About half their voters at the 2010 election deserted them for Labour. The polls that show Labour sinking do not show any real benefit for the Lib Dems. But if the contradictions of Labour’s criticism become exposed in the next year or so, then they may get their opportunity. The centre ground, though treated with justifiable suspicion by many of their activists, is a sound place for them to stick to for now.

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