New Statesman & Society, 2 February 1996
The political philosopher John Gray has just published a pamphlet arguing that social democracy is obsolete. Paul Anderson finds out why
It isn't easy in Britain to succeed both as an academic political philosopher and as apublic intellectual. But Oxford don John Gray has managed it with apparent ease for more than a decade.
He made his name in his thirties as the most urbane and sophisticated intellectual adherent in Britain of the early-1980s new right – but it was as a critic of its nostrums that he gained his current prominence. In a series of essays in the late 1980s and early 1990s, he moved further and further away from the neo-liberalism he had once embraced. Since he published his book Beyond the New Right in 1993, he has been a regular on the Guardian's op-ed pages and a willing participant in all sorts of left-leaning conferences and seminars.
Now, though, the new right's most articulate renegade has sprung a new surprise. Just when his lazier admirers thought he was safe for Blairism, he has written a tract that consigns social democracy – a term he uses to cover everyone in British politics from Tory wets like Ian Gilmour to Labour left-wingers like Peter Hain – to the proverbial dustbin of history. "The postwar social-democratic settlement in Britain, and indeed in most other west European countries, has ceased to exist," he says, "and it is now irrecoverable."
It's not that he has returned to his new-right past. The argument of After Social Democracy, published this week by the think-tank Demos, is anything but sympathetic to the neo-liberal project: indeed, Gray's starting-point is the exhaustion of the free-market ideology that gripped Britain in the 19803. His case, however, is that the mainstream left alternative to that free-market ideology is just as worn out.
"The new realities that spell ruin for the social-democratic project are the billions of industrious and skilled workers released on to the global market by the communist collapse and the disappearance of any effective barriers to the global mobility of capital," he writes. "In this changed historical circumstance, the central economic programme of social democracy is unworkable and social democracy itself a bankrupt project."
Part of this position is, of course, accepted wisdom even on the mainstream left. Ever since the failure of Francois Mitterrand's attempt at a radical Keynesian reflationary programme in France in the early 19805, the majority of thinking social democrats have recognised that the mobility of capital now makes it impossible for medium-sized nation-states to go it alone on macro-economic policy. And in the past five years, there has been a growing consensus, on the left as on the right, that western Europe already faces a serious challenge from the "tiger" economies of east Asia and will soon have more competition from high-skill, low-wage former-communist countries.
What makes Gray's perspective different, however, is his insistence that there is no social-democratic way out. For a start, he dismisses the idea that a federal Europe could act as a counter to the forces of globalisation – the basis upon which most west European social democrats, including the British Labour Party, have backed "ever-closer union" – as "hopelessly Utopian". "Social-democratic politics cannot be recovered at the level of European institutions," he says. "Since the Maastricht treaty, Europe has taken a neo-liberal turn. Maastricht's deflationary consequences make the whole federalist project difficult if not impossible to legitimate democratically – and I can't see that changing. The idea that social-democratic institutions that have gone into decline at national level can be revived at the level of Europe seems to me to be a mirage."
He is equally scathing about the idea, common in Labour circles these days, at least partly because of the influence of Will Hutton's The State We're In, that western Europe provides the British left with a model of capitalism that it can import wholesale. The "Rhine model of capitalism" is in trouble, says Gray, and in any case it is not really social-democratic. Most important, "it relies on cultural traditions of consensual managerial politics that are absent in the individualist Anglo-Saxon model," he says.
So what is the alternative? Gray favours an approach he calls "communitarian liberalism", an idea rooted in the anti-rationalist thinking spelt out in his philosophical work, most recently in the book Enlightenment's Wake. Like all communitarians, he rejects the abstract individualism of most liberal political theory (which is also assumed by most social-democratic perspectives on social justice): people cannot be understood as atomised individuals but are essentially social beings, rooted in families and communities. At the same time, however, he also rejects the view of more extreme communitarians that individual autonomy is no more than a myth.
"Communitarian liberalism departs from individualist liberalisms in that it conceives of choosing individuals as themselves creations of forms of common life," he writes in the pamphlet. "It rejects the libertarian view that individual choice must always be paramount over every other human need and interest. It differs from conservative and neo-traditionalist communitarianisms by acknowledging the strength and urgency of the need for individual autonomy. Few of us are defined by membership of a single, all-embracing community, and there is no going back to any simpler, 'organic' way of life. It differs from social democracy by rejecting the egalitarian imposition of a single conception of justice in all contexts of economic and social life."
Gray says that what is most important about communitarian liberalism in public policy terms is its insistence that market freedoms have a purely instrumental value, as a means to individual and community well-being. Where the impact of markets on individual autonomy or community life is disabling, competition must be limited. And where the popular consensus is that fairness demands the exclusion of the market – for example in health-care and education – the market should be excluded.
All of which is fine where there is a popular consensus on what is fair, but what if there isn't – as with selection in schooling (which Gray favours) or welfare reform, where there is both a growing consensus that the social exclusion created by mass unemployment must be ended and also radical conflict over the best means of doing it? For Gray, there's no point in appealing to some overarching notion of what is just: it's a matter of conflicting ideas of fairness battling it out politically, appealing to common sense, negotiating compromises if necessary and resolving issues where compromise is impossible (and there will inevitably be many) through majoritarian decision-making.
On the future of the welfare state, for example, Gray argues that common-sense notions of "just deserts" rule out the idea of a citizen's income as a means of ensuring social inclusion – it would be generally seen as giving people "something for nothing" – but make attractive the other much-touted welfare innovation, a compulsory savings scheme to fund pensions and other benefits. But he accepts that advocates of citizen's income can appeal to different common-sense notions of fairness, and that, in the end, the only way of resolving the conflict is through collective political choice.
" I think it is crucial that we give greater weight to the political sphere than much recent political thought does," he says. "Squeezing down the democratic domain to a very narrow space by trying to hive off political decisions to market forces or legal arbitration simply does not work. And to give greater weight to the political sphere, we need to make our political institutions, particularly political parties, more representative. I am strongly in favour of electoral reform, not as some subordinate element in a programme of constitutional reform, other parts of which would have the effect of stripping the political realm of its significance, but as the necessary condition of a new political settlement. The Charter 88 view of constitutional reform, valuable as it was under Thatcherism, is animated in part by a legalist conception of government in which the most important thing is to protect rights-holders from collective decision-making. The idea that these important areas of human well-being should be removed from the political process is a fundamental error."
So does Gray see any sign that British political discourse is taking on board his perspective? He points to the output of Demos and the writing of Anthony Gid-dens, and says that the current debate over the lessons to be learned from the east Asian "tigers", however crude it has been, "has at least displaced the parochialism of British political culture". But, he goes on: "There's a notable cultural lag in British political life, partly accounted for by the stubborn strength of fixed positions in our major parties. Most people are still tracking a world we have lost."
WHAT'S IN A WORD?
The British left is uneasy with the idea of "social democracy" – but it needs to take it, and reports of its demise, deadly seriously, writes Paul Anderson
"Social democracy" is not an easy term to throw around in British politics. In most of continental Europe, outside Leninist circles, it has long been more-or-less synonymous with "socialism"-and it used to be in Britain too. For most of the past 40 years, however, it has meant something quite different here.
No matter that, in continental European terms, Labour has always been a social democratic party, with its left as deserving of the label as its right-from the late 1950s until what became the Social Democratic Party split from Labour in 1981, the tag "social democracy” functioned in Britain as a means of distinguishing left and right in the Labour Party.
The right, who called themselves social democrats, believed in a mixed economy, Keynesianism and the Atlantic alliance; the left, who called themselves democratic socialists, wanted more nationalisation and tended to be sceptical about Atlanticism. (The other great foreign policy question, Europe, was not a defining feature at first: both camps were split.)
In practice, the differences were of degree rather than of kind: as the experience of the 1964-70 and 1974-79 Labour governments went to show, what "social democrats" and "democratic socialists" did when they got into government and confronted the real constraints on their freedom of action was pretty much the same. But at least the nomenclature served as shorthand for real political divergences. After the SDP left Labour, "social democracy" became little more than a term of Labour Party abuse.
For several years, Labour loyalists, regardless of their views, described themselves as "democratic socialists": not even the most right-wing Labourites dared describe themselves associal democrats. Meanwhile, the SDP under David Owen abandoned most of the policies that had once beenthedefiningfeaturesofLabour'sself-styledsocialdemocratsinfavourofanout-and-out neo-liberalism.
Recently, however, linguistic sanity has made a comeback. Although Neil Kinnock and John Smith were reticent about calling themselves social democrats, Tony Blair is not. Increasingly, "social democracy" stands in British political discourse not for the views of a faction of the Labour Party (let alone those of a small centrist splinter party) but for the broad approach to economic and social policy .adopted by Labour and its sister parties in western Europe and the rest of the industrial world since 1945.
But that's just the beginning of the problem. If it's now more acceptable than at any time in 40 years to describe Labour as a social democratic party, what social democracy means in practice has changed a great deal in the past 20 years.
Until the mid-1970s, if you stripped away the British left's difficulties with the words, what it meant to be a social democrat was simple. You backed broadly Keynesian economic policies to maintain full employment, egalitarian taxation, expansion of the welfare state, corporatist management of industrial relations and a substantial state sector in the economy.
But then something started to go badly wrong. In the wake of the first oil shock, social democratic governments throughout Europe found themselves facing crises of inflation and unemployment simultaneously-just what was not supposed to happen with Keynesian economics. One by one, they were forced to adopt austerity policies that owed more to the new right than to orthodox social-democratic thinking. The final straw was the collapse of the French socialists' Keynesian expansionist experiment in 1983 after the revolt of the financial markets. Since then, there have been few social democratic governments in the west European heartland of social democracy-and not one anywhere in the world has dared to mess with the imperatives of global capital. Most have adopted prudent, privatising economic policies barely distinguishable from those of the right.
So is social democracy dead, as John Gray and others claim? Certainly, 1960s-style "Keynesianism in one country" has few advocates anywhere. Nor are there many enthusiasts for corporatism these days outside those countries – notably Germany – where it is culturally entrenched.
But the notion that Europe, with its extra weight in the world economy, could take over from the medium-sized nation-state as Keynesian manager is still just-about alive. Despite the EU's effective abandonment of the Delors plan to compensate for the deflationary effects of monetary union under the Maastricht treaty, there is still some hope in European social democratic circles that the Eurokeynesian dream can be revived.
There are also signs of life in social-democratic redistributive taxation, despite the now-general fears of "taxpayer revolt" that have been stoked by the scale of welfare payments in the context of mass unemployment and an ageing population. In an insecure era, the argument goes, taxation fo rwelfare spending will regain popularity.
Is all this clutching at straws? Gray is not alone in thinking that it is – but we won't really know until a social democratic party wins an election in one of Europe's bigger countries. As things stand, the most likely place for that to happen is Britain. It's not just here that Tony Blair's progress will be noted with interest.
Friday, 2 February 1996
Friday, 26 January 1996
DISTRIBUTION SHOULD BE A RIGHT
Paul Anderson, New Statesman & Society column, 26 January 1996
Forget legal constraints – there's no press freedom unless you're stocked at the newsagent's
The unnoticed bad news of the week is that one of Britain's biggest retail newsagents, W H Smith, is planning to drop a large number of the small-circulation publications it currently sells. Forget the fiasco of the Maxwell brothers trial and what cannot legally be said about their father even after his death. The biggest threat to press freedom in Britain today is posed not by the Contempt of Court Act, but by market forces.
For W H Smith, it's simple. There are 100-odd publications which it currently stocks that are no longer worth carrying, for purely commercial reasons. New Statesman & Society, despite its current problems, is not one of them. But my old flame, Tribune, is. As a former editor of that venerable weekly organ of the Labour left, I know that it isn't exactly a mass-circulation business. It relies on subscriptions for most of its 6,000-odd circulation, but it sells more than 2,000 copies a week through newsagents – nearly all of which these days go through the big chains, of which W H Smith is one of the most important. And those 2,000 sales are near enough to being crucial – don't I know it – to the continuing survival of the paper. Tribune could not keep going if you couldn't buy it at the railway station or in the high street.
Which means that Smith's decision – taken, it seems, because of the competition the big newsagents now face from supermarkets – could be fatal for one of the most important institutions that underpin the pluralism of the British press. Like it or loathe it, long after Aneurin Bevan and George Orwell, Tribune still plays an essential role as a conduit for the opinions of Labour's grassroots, as a forum for debate and as a school of journalistic talent. And it does so these days without any major subsidies – unlike in the not-so-distant past, when its relationship to the trade union bosses was rather like a drunk's to a lamp-post.
But it's not just Tribune: the point is that the imperatives of the supermarket can do disastrous damage to the prospects for any small-circulation serious political magazine. Unless they have the cash to invest in the subscriptions market in a big way – as NSS has had, at least recently – they are, on current trends, doomed to be marginalised and die.
Should we care ? There is an argument that the whole culture of small magazines and j ournals of opinion is irrevocably part of the past, superseded by television, the expanded daily and Sunday newspapers, the booming consumer magazine sector and the development of electronic communications. But a commitment to a critical democratic culture dictates a different point of view – or, rather, an infinite variety of points of view. Tiny, cerebral, awkward publications of all political persuasions are an essential part of any democracy's intellectual culture, and that they are unsaleable in Safeway should not be a matter of their life or death.
Of course, it's not the fault of WH Smith. Like any business, it operates to maximise profits. But there is a way of protecting the Tribunes of this world from the ravages of untrammelled market forces without causing much offence to capitalist ethics. After the last war, many continental European countries introduced "right to distribution" legislation to ensure press pluralism after fascism, passing laws to ensure that periodicals of democratic opinion were sold, as of right, in retail newsagents at least in all maj or towns and cities.
Those laws still exist today. A similar law here would make an excellen t addition to the list of no-cost legislation for an incoming Labour government compiled by Chris Mullin, another former Tribune editor. Press diversity is too precious to be thrown away.
Forget legal constraints – there's no press freedom unless you're stocked at the newsagent's
The unnoticed bad news of the week is that one of Britain's biggest retail newsagents, W H Smith, is planning to drop a large number of the small-circulation publications it currently sells. Forget the fiasco of the Maxwell brothers trial and what cannot legally be said about their father even after his death. The biggest threat to press freedom in Britain today is posed not by the Contempt of Court Act, but by market forces.
For W H Smith, it's simple. There are 100-odd publications which it currently stocks that are no longer worth carrying, for purely commercial reasons. New Statesman & Society, despite its current problems, is not one of them. But my old flame, Tribune, is. As a former editor of that venerable weekly organ of the Labour left, I know that it isn't exactly a mass-circulation business. It relies on subscriptions for most of its 6,000-odd circulation, but it sells more than 2,000 copies a week through newsagents – nearly all of which these days go through the big chains, of which W H Smith is one of the most important. And those 2,000 sales are near enough to being crucial – don't I know it – to the continuing survival of the paper. Tribune could not keep going if you couldn't buy it at the railway station or in the high street.
Which means that Smith's decision – taken, it seems, because of the competition the big newsagents now face from supermarkets – could be fatal for one of the most important institutions that underpin the pluralism of the British press. Like it or loathe it, long after Aneurin Bevan and George Orwell, Tribune still plays an essential role as a conduit for the opinions of Labour's grassroots, as a forum for debate and as a school of journalistic talent. And it does so these days without any major subsidies – unlike in the not-so-distant past, when its relationship to the trade union bosses was rather like a drunk's to a lamp-post.
But it's not just Tribune: the point is that the imperatives of the supermarket can do disastrous damage to the prospects for any small-circulation serious political magazine. Unless they have the cash to invest in the subscriptions market in a big way – as NSS has had, at least recently – they are, on current trends, doomed to be marginalised and die.
Should we care ? There is an argument that the whole culture of small magazines and j ournals of opinion is irrevocably part of the past, superseded by television, the expanded daily and Sunday newspapers, the booming consumer magazine sector and the development of electronic communications. But a commitment to a critical democratic culture dictates a different point of view – or, rather, an infinite variety of points of view. Tiny, cerebral, awkward publications of all political persuasions are an essential part of any democracy's intellectual culture, and that they are unsaleable in Safeway should not be a matter of their life or death.
Of course, it's not the fault of WH Smith. Like any business, it operates to maximise profits. But there is a way of protecting the Tribunes of this world from the ravages of untrammelled market forces without causing much offence to capitalist ethics. After the last war, many continental European countries introduced "right to distribution" legislation to ensure press pluralism after fascism, passing laws to ensure that periodicals of democratic opinion were sold, as of right, in retail newsagents at least in all maj or towns and cities.
Those laws still exist today. A similar law here would make an excellen t addition to the list of no-cost legislation for an incoming Labour government compiled by Chris Mullin, another former Tribune editor. Press diversity is too precious to be thrown away.
Friday, 12 January 1996
AT LAST, A BIG IDEA
New Statesman & Society, leader 12 January 1996
The idea of a "stakeholder society", as advanced by Tony Blair in his speech in Singapore this week, is an excellent one. But what would it mean in practice?
Tony Blair's speech on the "stakeholder economy" and the "stakeholder welfare system" in Singapore this week was one of the most significant he has made as Labour leader. It contained nothing in the way of detailed policy. But for the first time Blair articulated an overarching ideological theme for what he hopes will be a long spell in office.
So what's the big idea? Essentially, that the central aim of all economic and social policy must be to encourage the involvement and participation of all citizens in economic activity and welfare provision, within the broad framework of a market economy. "It is a stakeholder economy in which opportunity is available to all, advancement is through merit and from which no group or class is set apart or excluded," said Blair. If we fail to create such an economy, "we waste talent, squander potential wealth-creating potential and deny the basis of trust upon which a cohesive society, One Nation, is built". "The development of an underclass of people, cut off from society's mainstream, living often in poverty, the black economy, crime and family instability," he went on, "is a moral and economic evil."
None of which is particularly controversial or even novel, one has to admit. But Blair went on to discuss what the imperative of discouraging exclusion means in practice – and in doing so gave a tantalising glimpse of what could be an extensive and genuinely radical programme for government.
Most attention has been given to what he said about a "stakeholder welfare system" – which is not altogether surprising. Blair was in Singapore, after all, and Singapore has a welfare system very different from our own, one feature of which is a compulsory savings scheme to provide pensions and other benefits.
It is no secret that Labour is looking very closely at this idea, and so it should: it is in essence a genuine national insurance scheme along the lines recommended by William Beveridge in his 1943 report but only imperfectly implemented after 1945, and, as Frank Field and others have argued, a version of it could serve Britain well. Of course, the devil is in the detail with anything like this, and the value of a compulsory savings scheme would depend crucially on its size, the extent of any compensatory tax cuts, what happens to non-contributory benefits and a whole lot besides. But the principle is sound enough, and it would be foolish for the left to dismiss it out-of-hand because of lack of familiarity or because other elements of Singapore's welfare system are deeply unattractive.
Welfare reform, however, is just one part of the "stakeholder" idea. Blair also talked of guaranteeing that education serves "all our people, not an elite", and of ensuring that new technologies "are harnessed and dispersed among all our people".
More interestingly, he went on to suggest that far-reaching change is needed not just in the relationship between business and government, but in the whole British business culture. "We cannot by legislation guarantee that a company will behave in a way conducive to trust and long-term commitment. But it is surely time to assess how we shift the emphasis in corporate ethos, from the company being a mere vehicle for the capital market, to be traded, bought and sold as a commodity, towards a vision of the company as a community or partnership in which each employee has a stake, and where a company's responsibilities are more clearly delineated."
Once again, the devil is in the detail here. If all that a Labour government does is exhort companies to be nice to their workers and to resist the temptations of takeovers, it won't have very much effect. What is exciting is the prospect that it would do a lot more – from legislation to make takeovers and asset-stripping more difficult to the introduction of incentives for the creation of worker co-operatives. A Labour government that is really serious about tackling the domination of the British economy by what Will Hutton calls "stock-market capitalism" would be a novelty indeed.
Of course, there are plenty of problems with Blair's approach, the biggest of which is that it relies on Labour's ability to make rapid and massive reductions in unemployment. That would be difficult enough at the best of times: as Blair and shadow chancellor Gordon Brown have argued consistently in recent years, the globalisation of the economy means that a Keynesian "dash for growth" is no longer a feasible option for a medium-sized country like Britain. It will be even more difficult if Britain is struggling under self-imposed austerity to meet the conditions laid down in the Maastricht treaty for economic and monetary union. What price stakes when the chips are down?
The idea of a "stakeholder society", as advanced by Tony Blair in his speech in Singapore this week, is an excellent one. But what would it mean in practice?
Tony Blair's speech on the "stakeholder economy" and the "stakeholder welfare system" in Singapore this week was one of the most significant he has made as Labour leader. It contained nothing in the way of detailed policy. But for the first time Blair articulated an overarching ideological theme for what he hopes will be a long spell in office.
So what's the big idea? Essentially, that the central aim of all economic and social policy must be to encourage the involvement and participation of all citizens in economic activity and welfare provision, within the broad framework of a market economy. "It is a stakeholder economy in which opportunity is available to all, advancement is through merit and from which no group or class is set apart or excluded," said Blair. If we fail to create such an economy, "we waste talent, squander potential wealth-creating potential and deny the basis of trust upon which a cohesive society, One Nation, is built". "The development of an underclass of people, cut off from society's mainstream, living often in poverty, the black economy, crime and family instability," he went on, "is a moral and economic evil."
None of which is particularly controversial or even novel, one has to admit. But Blair went on to discuss what the imperative of discouraging exclusion means in practice – and in doing so gave a tantalising glimpse of what could be an extensive and genuinely radical programme for government.
Most attention has been given to what he said about a "stakeholder welfare system" – which is not altogether surprising. Blair was in Singapore, after all, and Singapore has a welfare system very different from our own, one feature of which is a compulsory savings scheme to provide pensions and other benefits.
It is no secret that Labour is looking very closely at this idea, and so it should: it is in essence a genuine national insurance scheme along the lines recommended by William Beveridge in his 1943 report but only imperfectly implemented after 1945, and, as Frank Field and others have argued, a version of it could serve Britain well. Of course, the devil is in the detail with anything like this, and the value of a compulsory savings scheme would depend crucially on its size, the extent of any compensatory tax cuts, what happens to non-contributory benefits and a whole lot besides. But the principle is sound enough, and it would be foolish for the left to dismiss it out-of-hand because of lack of familiarity or because other elements of Singapore's welfare system are deeply unattractive.
Welfare reform, however, is just one part of the "stakeholder" idea. Blair also talked of guaranteeing that education serves "all our people, not an elite", and of ensuring that new technologies "are harnessed and dispersed among all our people".
More interestingly, he went on to suggest that far-reaching change is needed not just in the relationship between business and government, but in the whole British business culture. "We cannot by legislation guarantee that a company will behave in a way conducive to trust and long-term commitment. But it is surely time to assess how we shift the emphasis in corporate ethos, from the company being a mere vehicle for the capital market, to be traded, bought and sold as a commodity, towards a vision of the company as a community or partnership in which each employee has a stake, and where a company's responsibilities are more clearly delineated."
Once again, the devil is in the detail here. If all that a Labour government does is exhort companies to be nice to their workers and to resist the temptations of takeovers, it won't have very much effect. What is exciting is the prospect that it would do a lot more – from legislation to make takeovers and asset-stripping more difficult to the introduction of incentives for the creation of worker co-operatives. A Labour government that is really serious about tackling the domination of the British economy by what Will Hutton calls "stock-market capitalism" would be a novelty indeed.
Of course, there are plenty of problems with Blair's approach, the biggest of which is that it relies on Labour's ability to make rapid and massive reductions in unemployment. That would be difficult enough at the best of times: as Blair and shadow chancellor Gordon Brown have argued consistently in recent years, the globalisation of the economy means that a Keynesian "dash for growth" is no longer a feasible option for a medium-sized country like Britain. It will be even more difficult if Britain is struggling under self-imposed austerity to meet the conditions laid down in the Maastricht treaty for economic and monetary union. What price stakes when the chips are down?
Friday, 15 December 1995
NOT WHAT EUROPE NEEDS
New Statesman & Society leader, 15 December 1995
Throughout the European Union, politicians have lost any sense of vision for the continent – and in Britain, as the election approaches, it's even worse
After six months in which Europe has taken a back seat in British politics, this week's European summit has refocused attention on the future of the continent. For a month or so, the leading figures from the major political parties have been making keynote speeches about qualified majority voting, enlargement and the European Parliament. Meanwhile, the TV current affairs industry and the quality newspaper pundits have been working overtime to find Euro-rebels and Euro-splits.
It should surprise no one, however, that nothing new has emerged from all this. The parties' official positions and disagreements on Europe are well-rehearsed, and the supposed main talking-point of the summit, the 1996 Intergovernmental Conference (IGC) on European union, has long been destined to be a damp squib.
Of course, back in 1991, when the Maastricht treaty was negotiated, it looked as if the 1996 IGC might be something rather more important, a real battle between out-and-out European federalists and the rest over the very principles of the EU. Then, however, came the popular backlash against the whole European project in the Danish and French Maastricht referenda, and after that the collapse of the exchange rate mechanism (which was supposed to be the midwife of monetary union).
Subsequently, just about every government in Europe got cold feet. Neither the politics nor the economics of closer European integration seemed quite the priority after 1992. It became increasingly clear that only Germany, the Benelux countries and France were on track for EMU before the end of the century, with the rest either failing to meet the economic convergence criteria laid down by the Maastricht treaty (Italy, Spain, Greece, Portugal, Ireland) or else unable politically to embrace the idea (Britain, Denmark). Meanwhile, the Euro-Keynesian dream of European Commission President Jacques Delors – in which an expanded EU budget com-pensated for the effects of EMU and gave a boost to growth on top of that – was scuppered by British intransigence. Long-promised reforms of the Common Agricultural Policy, the EU's biggest redistributive existing programme, got stuck in the mud of procedure.
As for the democratisation of the EU's political structures, well, all that really happened was that ancient national prejudices found new confidence. Britain and France were able to block serious consideration of Germany's plans for the expansion of the European Parliament's powers to make accountable the secretive intergovernmental and appointed elements of the EU set-up.
Which, roughly, is where we are now – with the addition of German jitters about giving up the Deutschmark, a serious French crisis that could force Paris to give up on meeting the Maastricht criteria for EMU, and a lot of hot air about enlargement eastwards (which should be a strictly long-term project). The next IGC will see very little constructive on the long-overdue democratic reform of the EU's political structures that it was supposed to address. So, except on EMU, which will inevitably be the subject of protracted argument, this week's summit is a photo-opportunity and little else.
The faltering pace of European integration has had a marked effect on British politics: both major parties have adopted significantly more sceptical rhetoric on Europe in the past three years. It has been most noticable on the part of the Tories, whose Europhobes appear to have won the battle for the party's ideological soul (even if their representatives have been marginalised in the cabinet). But Labour, too, has taken a step away from its Euro-enthusiasm of the early 19905 since Robin Cook became shadow foreign secretary. Labour's "yes, but" and the Tories "no, but" have a lot in common: "perhaps" to EM U, a vague commitment to E U enlargement, no to big increases in the European Parliament's powers. All that is between them is the social chapter and disagreement on the extension of qualified majority voting in the Council of Ministers.
This is perhaps understandable in the light of the internal politics of the two parties and the scepticism clear in the opinion polls. (The latter is a particular problem for the Tories because of Sir James Goldsmith's promised intervention in the next election.) But it also has a detrimental effect on the European debate in British politics. Labour's sceptical turn means that the left's case for much closer European integration is now rarely made. What Europe desperately needs is a counter-cyclical and redistributive EU economic policy, based on a massively increased EU budget, and, to control it, a giant increase in the powers of the European Parliament. But it will never get it unless someone starts trying to persuade the public of its merits.
Throughout the European Union, politicians have lost any sense of vision for the continent – and in Britain, as the election approaches, it's even worse
After six months in which Europe has taken a back seat in British politics, this week's European summit has refocused attention on the future of the continent. For a month or so, the leading figures from the major political parties have been making keynote speeches about qualified majority voting, enlargement and the European Parliament. Meanwhile, the TV current affairs industry and the quality newspaper pundits have been working overtime to find Euro-rebels and Euro-splits.
It should surprise no one, however, that nothing new has emerged from all this. The parties' official positions and disagreements on Europe are well-rehearsed, and the supposed main talking-point of the summit, the 1996 Intergovernmental Conference (IGC) on European union, has long been destined to be a damp squib.
Of course, back in 1991, when the Maastricht treaty was negotiated, it looked as if the 1996 IGC might be something rather more important, a real battle between out-and-out European federalists and the rest over the very principles of the EU. Then, however, came the popular backlash against the whole European project in the Danish and French Maastricht referenda, and after that the collapse of the exchange rate mechanism (which was supposed to be the midwife of monetary union).
Subsequently, just about every government in Europe got cold feet. Neither the politics nor the economics of closer European integration seemed quite the priority after 1992. It became increasingly clear that only Germany, the Benelux countries and France were on track for EMU before the end of the century, with the rest either failing to meet the economic convergence criteria laid down by the Maastricht treaty (Italy, Spain, Greece, Portugal, Ireland) or else unable politically to embrace the idea (Britain, Denmark). Meanwhile, the Euro-Keynesian dream of European Commission President Jacques Delors – in which an expanded EU budget com-pensated for the effects of EMU and gave a boost to growth on top of that – was scuppered by British intransigence. Long-promised reforms of the Common Agricultural Policy, the EU's biggest redistributive existing programme, got stuck in the mud of procedure.
As for the democratisation of the EU's political structures, well, all that really happened was that ancient national prejudices found new confidence. Britain and France were able to block serious consideration of Germany's plans for the expansion of the European Parliament's powers to make accountable the secretive intergovernmental and appointed elements of the EU set-up.
Which, roughly, is where we are now – with the addition of German jitters about giving up the Deutschmark, a serious French crisis that could force Paris to give up on meeting the Maastricht criteria for EMU, and a lot of hot air about enlargement eastwards (which should be a strictly long-term project). The next IGC will see very little constructive on the long-overdue democratic reform of the EU's political structures that it was supposed to address. So, except on EMU, which will inevitably be the subject of protracted argument, this week's summit is a photo-opportunity and little else.
The faltering pace of European integration has had a marked effect on British politics: both major parties have adopted significantly more sceptical rhetoric on Europe in the past three years. It has been most noticable on the part of the Tories, whose Europhobes appear to have won the battle for the party's ideological soul (even if their representatives have been marginalised in the cabinet). But Labour, too, has taken a step away from its Euro-enthusiasm of the early 19905 since Robin Cook became shadow foreign secretary. Labour's "yes, but" and the Tories "no, but" have a lot in common: "perhaps" to EM U, a vague commitment to E U enlargement, no to big increases in the European Parliament's powers. All that is between them is the social chapter and disagreement on the extension of qualified majority voting in the Council of Ministers.
This is perhaps understandable in the light of the internal politics of the two parties and the scepticism clear in the opinion polls. (The latter is a particular problem for the Tories because of Sir James Goldsmith's promised intervention in the next election.) But it also has a detrimental effect on the European debate in British politics. Labour's sceptical turn means that the left's case for much closer European integration is now rarely made. What Europe desperately needs is a counter-cyclical and redistributive EU economic policy, based on a massively increased EU budget, and, to control it, a giant increase in the powers of the European Parliament. But it will never get it unless someone starts trying to persuade the public of its merits.
Friday, 8 December 1995
CE N'EST QU'UN DEBUT...
New Statesman & Society leader, 8 December 1995
The crisis in France marks the beginning of what promises to be a protracted battle over the future of western Europe's welfare systems
A re-run of May 1968 it is not. Despite the superficial similarities – an unpopular right-wing government, students and workers on the streets of Paris, the riot police wading in with truncheons and tear-gas – the current crisis in France is not a case of history repeating itself.
The crisis in France marks the beginning of what promises to be a protracted battle over the future of western Europe's welfare systems
A re-run of May 1968 it is not. Despite the superficial similarities – an unpopular right-wing government, students and workers on the streets of Paris, the riot police wading in with truncheons and tear-gas – the current crisis in France is not a case of history repeating itself.
May 1968 was a revolt against the
tedium and powerlessness of life in a bureaucratic welfare-capitalist consumer
society in which steady growth and full employment were taken for granted.
December 1995 is a revolt against a government's plans to remove substantial
parts of the welfare safety net from a society that has long seen steady growth
and full employment as things of the past.
But if that makes the current crisis
rather less exciting for left- wingers brought up on 1968’s dreams of a self-managed
socialist revolution, it is in many ways just as profound. The level of public
spending on welfare in west European societies is the single biggest issue
those societies face today, and the events of the past fortnight have brought
it into sharp relief. The government of Prime Minister Alain Juppe says that
France must reduce its generous welfare provision if it is to compete in the
modern global economy: there is no alternative to the rigours of the
marketplace. The unions say that they have paid for their benefits through
taxation and don't want to give them up. As NSS
goes to press, the chances of compromise seem remote.
What gives the crisis its
particular edge is that the government has been hoist with its own petard – or
rather one it was happy to inherit from the previous socialist administration.
For all Juppe's talk, international competitiveness isn't all that his
austerity programme is about: he wants to cut welfare spending because, according
to the Maastricht treaty, he needs to reduce the public debt if France is to
participate in European monetary union.
But the reason that the public
debt is so great is that growth is so low and unemployment so high – and the most
important reason for this is that the franc has been overvalued as a result of
a policy of pegging its value to that of the Deutschmark, the purpose of which
is of course to ensure that France is able to participate in European monetary
union in 1999.
The stakes are thus extremely
high. If Juppe gives in to the strikers and demonstrators and withdraws his austerity
programme, his political career will be over and President Jacques Chirac's
room for manoeuvre in his remaining six years in the Elysee palace will be
severely constrained. More important, if the Juppe plan is killed off, France
will be unable to meet the Maastricht treaty criteria on public debt until well
into the next century – and the money markets will almost certainly force a devaluation
of the franc into the bargain. Given that the Germans don't see any point in
EMU unless France is involved – they only agreed to it because Francois Mitterrand
insisted on it as the price for political union – that would almost certainly
destroy the prospects for EMU before the millennium.
It is not necessary to be a
Eurosceptic to consider that this might not be quite the disaster that some
commentators think it would be. The timetable for monetary union envisaged in
the Maastricht treaty was always ambitious, and the treaty always involved
serious pain for all the larger economies locked into it apart from Germany.
Many on the left who backed
Maastricht in 1992, including NSS, argued that the deflationary effects of the
process envisaged by the treaty – caused by budget deficit cutting and over-valued
currencies – necessitated serious compensatory measures organised through the EU
if it was not all to end in tears. But, thanks largely to the most Eurosceptic
government of all, our own, the best chance of such measures, the Euro-Keynesianism
outlined by Jacques Delors as president of the European Commission, was
scuppered last year. Since then, even the Europhile left has started to have
doubts about the conditions and timetable laid down by Maastricht. A victory
for the strikers and demonstrators would, at the very least, force a welcome
rethink about how we secure monetary union.
What it would not do, however, is
end the argument about how much western Europe can afford to spend the welfare
state if it is to compete internationally. Like the French strikers, NSS has always been sceptical of the idea
that a welfare state largely funded through income and consumer taxation is
such a disincentive to investment that it must be constantly pared back. We
can spend, in short, if we tax. But defending this view is likely to get
increasingly difficult in years to come. The French crisis is just the
beginning of a protracted struggle over the very nature of the society in which
we live.
Friday, 1 December 1995
AN UNJUST PEACE
New Statesman & Society leader, 1 December 1995
It is by no means clear that the agreement on Bosnia signed last week in Dayton, Ohio, is 'more just than continuing the war'
The Bosnia peace agreement initialled by the pres¬idents of Bosnia, Croatia and Serbia last week in Dayton, Ohio, after three weeks of gruelling secret negotiations, is a shabby compromise.
On that, just about every impartial observer is agreed. It is all too easy to see that the ten articles, 11 annexes and 102 maps agreed in Dayton, which will form the basis of a treaty to be signed later this month, do not constitute a just peace. But is it, as Bosnian president Alija Izetbegovic claimed, "more just than continuing the war"? Is it true, as he put it, that "a better peace could not have been obtained"?
Looking on the bright side, it at least means that people are not killing one another – and that, after three-and-a-half years of the bloodiest war on European soil in half-a-century, is a start. The Dayton agreement keeps Bosnia as a single state, with the same internationally recognised borders as when the war began in 1992. Bosnia will have a single capital, Sarajevo, and a central government with a parliament, a supreme court and a national bank. All those found guilty of war crimes by the UN tribunal will be barred from office, including the president of the Bosnian Serb breakaway republic, Radovan Karadzic, and its senior military man, Ratko Mladic. And all those who have been forced to leave their homes during the war will have the right to reclaim them or get compensation. All of which is fine on paper. In reality, of course, no one believes that the right to return or compensation for the victims of "ethnic cleansing" will mean anything at all in practice; nor does anyone seriously think that Karadzic and Mladic will be effectively removed from political influence, let alone brought to justice. The likelihood that the political institutions agreed in Dayton will ever work is slim indeed.
And that is the bright side. Other elements of the Day¬ton deal are lousy even on paper. By dividing Bosnia into two "entities", with a Bosnian-Croat federation control¬ling 51 per cent of the land area, including Sarajevo, and a Serb republic the rest, Dayton effectively sanctions the Serb land-grab that began the war and the Serbs' subsequent murderous "ethnic cleansing". The idea that people of all religions and none can live together in a cosmopolitan, multicultural Bosnian society – for years the rallying cry of the Bosnian government in its struggle against the Serb aggression – has been buried, just as it would have been buried by the previous (unsuccessful) plans for an ethnically divided Bosnia put forward by David Owen and Cyrus Vance in 1993 and the Contact Group in 1994.
To make matters even worse, the way the country will now be divided blatantly favours the Serbs. The only minor concessions they have had to make of territory they held on 12 October, when the ceasefire began, is a small area in and around Sarajevo and the corridor from Sarajevo to Goradze – surely the most modest possible price to pay for their vicious ethnic cleansing in eastern Bosnia.
In northern Bosnia, the maps actually give them back some ofthe territory they had lost to this summer's offensive by Bosnian government and Croatian forces. The Dayton deal takes absolutely no account ofthe fact that, when the ceasefire began, the Serbs were facing a rout in northern Bosnia, with the surrender of their real capital, Banja Luka, weeks if not days away if the fighting had continued. In Dayton, the Serbs achieved by negotiation what they could not have managed by force of arms, the maintenance of their control of territories west of the Brcko corridor. Despite their now-official pariah status, Mladic and Karadzic have grounds to be pleased.
So too has president Franjo Tudjman of Croatia, who in Dayton secured agreement from the Serbs to return Eastern Slavonia – after this year's military successes in Western Slavonia, the only part of Croatia under Serb control. The Croats have also acquired, in the Bosnian-Croat federation, a dependent buffer state between themselves and Serbia.
The losers, as ever, are those Bosnians (mostly, but by no means all, Muslim) who have supported the struggle of the Sarajevo government to maintain a multicultural, tolerant society against the ethnic cleansers. They feel, with reason, that the Americans pulled the rug from under them just as they were beginning to win. Contrary to Izetbegovic's claims, even if the Dayton deal was all that was on the table for negotiation, it is not clear that the peace it has created is more just than a continuation of war. It is no wonder that there was no celebration in Sarajevo at the news ofthe peace agreement – and it will be no wonder if the Dayton agreement breaks down sooner rather than later because of its injustice to the Bosnian cause.
It is by no means clear that the agreement on Bosnia signed last week in Dayton, Ohio, is 'more just than continuing the war'
The Bosnia peace agreement initialled by the pres¬idents of Bosnia, Croatia and Serbia last week in Dayton, Ohio, after three weeks of gruelling secret negotiations, is a shabby compromise.
On that, just about every impartial observer is agreed. It is all too easy to see that the ten articles, 11 annexes and 102 maps agreed in Dayton, which will form the basis of a treaty to be signed later this month, do not constitute a just peace. But is it, as Bosnian president Alija Izetbegovic claimed, "more just than continuing the war"? Is it true, as he put it, that "a better peace could not have been obtained"?
Looking on the bright side, it at least means that people are not killing one another – and that, after three-and-a-half years of the bloodiest war on European soil in half-a-century, is a start. The Dayton agreement keeps Bosnia as a single state, with the same internationally recognised borders as when the war began in 1992. Bosnia will have a single capital, Sarajevo, and a central government with a parliament, a supreme court and a national bank. All those found guilty of war crimes by the UN tribunal will be barred from office, including the president of the Bosnian Serb breakaway republic, Radovan Karadzic, and its senior military man, Ratko Mladic. And all those who have been forced to leave their homes during the war will have the right to reclaim them or get compensation. All of which is fine on paper. In reality, of course, no one believes that the right to return or compensation for the victims of "ethnic cleansing" will mean anything at all in practice; nor does anyone seriously think that Karadzic and Mladic will be effectively removed from political influence, let alone brought to justice. The likelihood that the political institutions agreed in Dayton will ever work is slim indeed.
And that is the bright side. Other elements of the Day¬ton deal are lousy even on paper. By dividing Bosnia into two "entities", with a Bosnian-Croat federation control¬ling 51 per cent of the land area, including Sarajevo, and a Serb republic the rest, Dayton effectively sanctions the Serb land-grab that began the war and the Serbs' subsequent murderous "ethnic cleansing". The idea that people of all religions and none can live together in a cosmopolitan, multicultural Bosnian society – for years the rallying cry of the Bosnian government in its struggle against the Serb aggression – has been buried, just as it would have been buried by the previous (unsuccessful) plans for an ethnically divided Bosnia put forward by David Owen and Cyrus Vance in 1993 and the Contact Group in 1994.
To make matters even worse, the way the country will now be divided blatantly favours the Serbs. The only minor concessions they have had to make of territory they held on 12 October, when the ceasefire began, is a small area in and around Sarajevo and the corridor from Sarajevo to Goradze – surely the most modest possible price to pay for their vicious ethnic cleansing in eastern Bosnia.
In northern Bosnia, the maps actually give them back some ofthe territory they had lost to this summer's offensive by Bosnian government and Croatian forces. The Dayton deal takes absolutely no account ofthe fact that, when the ceasefire began, the Serbs were facing a rout in northern Bosnia, with the surrender of their real capital, Banja Luka, weeks if not days away if the fighting had continued. In Dayton, the Serbs achieved by negotiation what they could not have managed by force of arms, the maintenance of their control of territories west of the Brcko corridor. Despite their now-official pariah status, Mladic and Karadzic have grounds to be pleased.
So too has president Franjo Tudjman of Croatia, who in Dayton secured agreement from the Serbs to return Eastern Slavonia – after this year's military successes in Western Slavonia, the only part of Croatia under Serb control. The Croats have also acquired, in the Bosnian-Croat federation, a dependent buffer state between themselves and Serbia.
The losers, as ever, are those Bosnians (mostly, but by no means all, Muslim) who have supported the struggle of the Sarajevo government to maintain a multicultural, tolerant society against the ethnic cleansers. They feel, with reason, that the Americans pulled the rug from under them just as they were beginning to win. Contrary to Izetbegovic's claims, even if the Dayton deal was all that was on the table for negotiation, it is not clear that the peace it has created is more just than a continuation of war. It is no wonder that there was no celebration in Sarajevo at the news ofthe peace agreement – and it will be no wonder if the Dayton agreement breaks down sooner rather than later because of its injustice to the Bosnian cause.
KEN'S DAMP SQUIB
New Statesman & Society, 1 December 1995
The budget was not quite the cynical attempt to buy the next election for the Tories that everyone expected, writes Paul Anderson. But wait for next year's effort
It was not what had been expected. The backbench Tories and the Tory press had assumed that the income tax cuts would be enough to make an early 1996 general election at least an option; Labour had done the same.
Just a week ago, Gordon Brown was talking about tax cuts of "even 3p, 4p, 5p in the pound" as the sort of outrageously irresponsible election-priming package that Chancellor of the Exchequer Kenneth Clarke would pull out of his battered briefcase on Tuesday; the Tories were looking to precisely the same level of hand-out to get the feel-good factor going.
Instead, it was a damp squib: a penny off the headline basic income-tax rate, 15p on fags, some incentives for savers and a load of dull technical stuff that has little or no popular appeal. The consensus in Westminster is that it means a 1997 general election, almost certainly in May or early June, after next year's income-tax cuts have found their way into pay packets at the beginning of the 1997-98 finan¬cial year.
Labour feels rather pleased that it doesn't have to gear up at once for an elec¬tion campaign; the Tories, for all Michael Heseltine's attempts to talk the tax cuts up as "£9 a week for the average family", are torn between despondency at the fail¬ure of the Chancellor to play his trump card and a sense of relief that the day of reckoning has been postponed. With the exception of the ever-supine Express, the best that the Tory press had to say for it was the Telegraph's sniffy "quite good economics and quite good politics". As far as the Sun was concerned, Clarke "blew a golden opportunity to revive the Tories when he cut income tax by just a miserly 1p". The most important political event of this parliament has turned out to be, well, rather less important than next year's version of the same.
So what was he up to? Clarke is not stupid. He knew that everyone on Fleet Street was expecting at least 2p off the basic rate for Wednesday morning's front pages, and that plenty of MPs on both sides of the House were of similar mind. But he also knew that the markets were expecting a gesture of responsibility – a continued campaign to reduce public borrowing – and that public opinion has turned against tax-cutting in favour of maintenance, if not improve¬ment, of public services.
Most important of all, he knew that his party is so far behind in the opinion polls that an early election would be suicidal. The answer? Try to give everyone a little in the short term, but reserve options after that.
Which is precisely what he has done. The tax-cuts are certainly there, if not quite on the scale expected. There are four crucially important measures – a reduction in the basic rate from 25p to 24p, increases in tax allowances, an extension in the scope of the 20p band of income tax and a reduction in tax on income from interest on savings – the cost of which adds up to around £4 billion next year. The various other tax cuts and increases cancel one another out. In the context of Clarke's stated intentions of getting the basic rate down to 20p and abolishing inheritance and capital gains taxation, the package acts as a tempting hint of what is to come in the 1996 budget, even if it doesn't add up to very much on its own.
But then the £4 billion giveaway is itself cancelled out by cuts in public spending. No matter that some of the spending cuts are achieved by sleight of accounting hand, many are real, includ¬ing those in defence (end of the cold war), civil service bureaucracy (cheap computers) and social security (meanness to the poorest). More important, however, the scale of the public spending cuts in some departments is enough to maintain or increase expenditure in others – at least on paper: more for education, more for the health service, more for the police. The detailed tables in the Financial Statement and Budget Report, the "Red Book", show that the headline increases hide cuts on previous projections in some areas in the longer term, and there are some vicious cuts of which Clarke seems proud, notably the reduction in housing benefit entitlements for the under- 25s. But the political message that the Tories care about the welfare state is convincing enough.
In his presentation of the slicing of the public spending cake – and indeed in the manner of his tax-cutting, which is broadly progressive in its impact – Clarke has stolen a march on Labour's claims that the Tories have lurched to the right since John Redwood's challenge to John Major's leadership this summer. This was a One Nation budget speech, and the more honest Labour observers admitted their surprise at the substance as well as the rhetoric: they had been reck¬oning on a much more brutal "slash-and-burn" assault on spending.
Just as important, the package was carefully designed to please the markets with its prudence. Of course, the figures for public sector borrowing are embarrassingly wide of the mark set down this time last year, the result, according to Clarke, of slower domestic growth than expected caused largely by a downturn in Britain's main foreign markets, which led to a shortfall in government receipts.
All the same, the projection remains that public borrowing is on a steady downward course. Even if Clarke's figures rest on an over-optimistic assump¬tion of growth in 1996-97, the neutrality of his budget – the balance between tax and spending changes – is enough to show the markets that he means business about reducing the PSBR in the medium term. With low interest rates to compensate for his tight fiscal stance (and a little luck with international conditions) it is just possible that he could pull off his trick and give himself space for further tax-cuts next year.
But will it work? There's no doubt that Clarke has adopted a very risky strategy politically, effectively putting a wager on the current stagnation of the British economy being temporary. If he is right, he will have plenty of room for man¬oeuvre next year. But if he is wrong, he could face political disaster. Forget about a full-blown recession: all it would take to make a real mess of his PSBR figures would be for growth to continue as it has in the past six months. If that happens, in November 1996 the Chancellor will have to choose between pleasing the markets (with austerity) and pleasing the voters (whether through tax-cuts or public spending) – unless he can persuade the markets that Britain is facing a dire reces¬sion that necessitates a temporary relax¬ation of fiscal policy.
In the meantime, he is hoping that monetary policy, in the form of low inter¬est rates, will give the economy the vigor¬ous boost it needs to reach his optimistic targets for growth. If the budget was a damp squib, it still leaves Clarke with the initiative. He is in for a nervous 18 months.
The budget was not quite the cynical attempt to buy the next election for the Tories that everyone expected, writes Paul Anderson. But wait for next year's effort
It was not what had been expected. The backbench Tories and the Tory press had assumed that the income tax cuts would be enough to make an early 1996 general election at least an option; Labour had done the same.
Just a week ago, Gordon Brown was talking about tax cuts of "even 3p, 4p, 5p in the pound" as the sort of outrageously irresponsible election-priming package that Chancellor of the Exchequer Kenneth Clarke would pull out of his battered briefcase on Tuesday; the Tories were looking to precisely the same level of hand-out to get the feel-good factor going.
Instead, it was a damp squib: a penny off the headline basic income-tax rate, 15p on fags, some incentives for savers and a load of dull technical stuff that has little or no popular appeal. The consensus in Westminster is that it means a 1997 general election, almost certainly in May or early June, after next year's income-tax cuts have found their way into pay packets at the beginning of the 1997-98 finan¬cial year.
Labour feels rather pleased that it doesn't have to gear up at once for an elec¬tion campaign; the Tories, for all Michael Heseltine's attempts to talk the tax cuts up as "£9 a week for the average family", are torn between despondency at the fail¬ure of the Chancellor to play his trump card and a sense of relief that the day of reckoning has been postponed. With the exception of the ever-supine Express, the best that the Tory press had to say for it was the Telegraph's sniffy "quite good economics and quite good politics". As far as the Sun was concerned, Clarke "blew a golden opportunity to revive the Tories when he cut income tax by just a miserly 1p". The most important political event of this parliament has turned out to be, well, rather less important than next year's version of the same.
So what was he up to? Clarke is not stupid. He knew that everyone on Fleet Street was expecting at least 2p off the basic rate for Wednesday morning's front pages, and that plenty of MPs on both sides of the House were of similar mind. But he also knew that the markets were expecting a gesture of responsibility – a continued campaign to reduce public borrowing – and that public opinion has turned against tax-cutting in favour of maintenance, if not improve¬ment, of public services.
Most important of all, he knew that his party is so far behind in the opinion polls that an early election would be suicidal. The answer? Try to give everyone a little in the short term, but reserve options after that.
Which is precisely what he has done. The tax-cuts are certainly there, if not quite on the scale expected. There are four crucially important measures – a reduction in the basic rate from 25p to 24p, increases in tax allowances, an extension in the scope of the 20p band of income tax and a reduction in tax on income from interest on savings – the cost of which adds up to around £4 billion next year. The various other tax cuts and increases cancel one another out. In the context of Clarke's stated intentions of getting the basic rate down to 20p and abolishing inheritance and capital gains taxation, the package acts as a tempting hint of what is to come in the 1996 budget, even if it doesn't add up to very much on its own.
But then the £4 billion giveaway is itself cancelled out by cuts in public spending. No matter that some of the spending cuts are achieved by sleight of accounting hand, many are real, includ¬ing those in defence (end of the cold war), civil service bureaucracy (cheap computers) and social security (meanness to the poorest). More important, however, the scale of the public spending cuts in some departments is enough to maintain or increase expenditure in others – at least on paper: more for education, more for the health service, more for the police. The detailed tables in the Financial Statement and Budget Report, the "Red Book", show that the headline increases hide cuts on previous projections in some areas in the longer term, and there are some vicious cuts of which Clarke seems proud, notably the reduction in housing benefit entitlements for the under- 25s. But the political message that the Tories care about the welfare state is convincing enough.
In his presentation of the slicing of the public spending cake – and indeed in the manner of his tax-cutting, which is broadly progressive in its impact – Clarke has stolen a march on Labour's claims that the Tories have lurched to the right since John Redwood's challenge to John Major's leadership this summer. This was a One Nation budget speech, and the more honest Labour observers admitted their surprise at the substance as well as the rhetoric: they had been reck¬oning on a much more brutal "slash-and-burn" assault on spending.
Just as important, the package was carefully designed to please the markets with its prudence. Of course, the figures for public sector borrowing are embarrassingly wide of the mark set down this time last year, the result, according to Clarke, of slower domestic growth than expected caused largely by a downturn in Britain's main foreign markets, which led to a shortfall in government receipts.
All the same, the projection remains that public borrowing is on a steady downward course. Even if Clarke's figures rest on an over-optimistic assump¬tion of growth in 1996-97, the neutrality of his budget – the balance between tax and spending changes – is enough to show the markets that he means business about reducing the PSBR in the medium term. With low interest rates to compensate for his tight fiscal stance (and a little luck with international conditions) it is just possible that he could pull off his trick and give himself space for further tax-cuts next year.
But will it work? There's no doubt that Clarke has adopted a very risky strategy politically, effectively putting a wager on the current stagnation of the British economy being temporary. If he is right, he will have plenty of room for man¬oeuvre next year. But if he is wrong, he could face political disaster. Forget about a full-blown recession: all it would take to make a real mess of his PSBR figures would be for growth to continue as it has in the past six months. If that happens, in November 1996 the Chancellor will have to choose between pleasing the markets (with austerity) and pleasing the voters (whether through tax-cuts or public spending) – unless he can persuade the markets that Britain is facing a dire reces¬sion that necessitates a temporary relax¬ation of fiscal policy.
In the meantime, he is hoping that monetary policy, in the form of low inter¬est rates, will give the economy the vigor¬ous boost it needs to reach his optimistic targets for growth. If the budget was a damp squib, it still leaves Clarke with the initiative. He is in for a nervous 18 months.
THE DOG THAT DIDN'T BARK
Labour breathed a sigh of relief at the budget: Clarke didn't impose a windfall tax on utilities
And so, in the end, Kenneth Clarke decided not to pinch all of Labour' s clothes. Most important of all, he was scathing in his budget speech about the windfall tax on utilities' "excess profits" that shadow chancellor Gordon Brown has promised to pay for Labour's flagship emergency employment programme. "A windfall tax would damage investment and threaten the quality of customer service," intoned the Chancellor. "It is an illusion that a windfall tax is paid by the company. lt is paid by the shareholders, including many small shareholders and pension funds. And it would mean higher future prices for customers. The whole point of privatisation is to benefit customers, not the exchequer. I do not intend to introduce such a tax."
Labour's big fear, given everything that the party had invested in the windfall tax, had been that Clarke would adopt a version of it and watch laughing as Labour cast around desperately for some populist alternative means of funding its programme. The signs of relief when he attacked the windfall tax were visible on the faces of the opposition front bench.
Of course, Labour still has a problem. With the opinion polls in their current state, it would be a big surprise if the public utilities don't make sure that they have nothing like "excess profits" in 1995-96 or 1996-97 as the general election approaches. By their nature, windfall taxes rely on an element of surprise if they are to work: by the time a Labour government comes in, it is likely that the utilities will be virtuously ploughing back their profits into investment.
At least, though, that gives Labour a year, not five minutes, to think up some alternative to the windfall tax, and the windfall tax still has enough life in it to last at least for the duration of the debate on the budget. Labour's other great worry had been that Clarke's tax cuts would be of a magnitude or nature that would make it very difficult for Labour to accept them. In fact, they were nothing of the kind. Blair immediately announced that Labour would not be voting against the tax cuts in his response to the budget speech, and he is unlikely to face a giant backbench revolt for saying it. The way the chancellor has cut income tax, reducing the basic rate, extending the lower rate and putting up allowances is, fort he most part, progressive, and the modesty of the cuts mean it is easy enough for Labour to live with.
Which leaves Labour with only minor problems arising from the budget-unless, of course, Clarke's package has an unexpectedly miraculous effect on the Tories' standing in the opinion polls. lt will be easy enough for the opposition to welcome those elements of the budget that are in line with its thinking – the increases in spending on education, the health service and the police, the measures to help the elderly who need care, the extra taxes on tobacco, or the green-tinged taxes on landfill and on petrol – while denouncing the whole as unimaginative and inadequate, particularly on unemployment and industry, and attacking the Tories for putting up taxes in the past three years.
For the first time since John Smith's pre-election shadow budget of 1992, Labour is helped by thefact that it now has a reasonably worked-out set of proposals of its own. It's not just the windfall tax, designed in Brown's words "to unlock a new solution to long-term and youth unemployment" by providing extra cash for training. Nor is it Labour's alternative tax-cutting strategy, outlined by the shadow chancellor last month, according to which Labour would aim at "a starting rate of income tax of 15p or preferably 1Op" and "cut VAT on fuel to 5 per cent", rather than trying to reduce the basic rate of income to 20p and abolish capital gains and inheritance taxation as the Tories want.
Labour can also legitimately point to its plans for tax-breaks and development agencies to encourage investment, as laid out in its "Budget for Britain" a month ago, its long-standing scheme for releasing receipts from council house sales for new building and its ambitious policies (albeit not yet fully formed)for partnerships between public and private sectors in developing the infrastructure (including a controversial deal with British Telecom under which BT would cable Britain's schools for free in return for being allowed into the lucrative cable market).
Of course, all these measures have their critics. Andrew Dilnot, director of the Institute for Fiscal Studies, described Brown's 1Op income tax proposal as "a con", and the Economist denounced his plans for investment tax breaks as "a gimmick". Others say that, even leaving the BT deal aside, private-public partnerships could well be less of a panacea than Labour thinks and that the release of capital receipts will not have the effect Labour claims.
But Labour's plans are credible enough to impress much of the City, significant parts of industry and many pundits. Whether they work the same magic on the voters, of course, remains to be seen.
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