Why the IFS and the coalition should learn to get along

How to resolve the unending progressive/regressive debate.

You all know the ritual. The coalition publishes a budget/spending review and insists that it is "progressive" and that "those with the broadest shoulders" will bear the greatest burden. The next day, the Institute for Fiscal Studies publishes a study showing that the budget/spending review is "regressive" and that the poorest will be hardest hit. The liberal press and the left-wing blogosphere ("at its ruthless best yesterday", says Tim Montgomerie) splash on the findings and put the coalition on the defensive. The next day, Nick Clegg insists that the IFS study is misleading and that the coalition is committed to "fairness". Last time it was an FT article and today it's a Guardian interview.

Clegg says:

I think you have to call a spade a spade. We just fundamentally disagree with the IFS. It goes back to a culture of how you measure fairness that took root under Gordon Brown's time, where fairness was seen through one prism and one prism only which was the tax and benefits system. It is a complete nonsense to apply that measure, which is a slightly desiccated Treasury measure. People do not live only on the basis of the benefits they receive. They also depend on public services, such as childcare and social care. All of those things have been airbrushed out of the picture by the IFS.

This is what the French call a dialogue de sourds, or a dialogue of the deaf. It arises, in part, from the failure of some to understand that when the IFS terms spending measures "progressive" or "regressive", it isn't making a value judgement. In economics, the terms "progressive" and "regressive" simply refer to the distribution of resources between individuals, they are not intended as terms of political praise/abuse.

Then there's the complaint that those notorious IFS decile graphs "don't tell the whole story". They don't, as the IFS itself pointed out yesterday, nor are they intended to. But few would deny that the distributional effect of tax and benefit changes is a key part of the story. The government acknowledges this by publishing its own decile graphs. It is therefore hypocritical and absurd of Clegg to accuse the IFS of employing a "desiccated Treasury measure".

The key difference between the IFS and the Treasury graphs is that the IFS version includes the third of changes ignored by the government. Among these are some of the most regressive measures, such as the cap on housing benefit, the cuts to council tax benefit and the disability living allowance, and the time-limiting of the employment and support allowance. I've yet to hear a convincing argument for excluding these changes.

Rather than denouncing the IFS report as "distorted and a complete nonsense", Clegg would do well to read the section explaining why it's so hard to model public-service changes and, therefore, why the IFS is unable to make a judgement on the progressivity of the "entire fiscal consolidation".

Clegg's criticisms amount to a demand for the IFS to recognise the coalition's public-sector reforms as inherently "progressive". But because these changes can't be modelled fully, that would involve a value judgement rather than an economic one. You can't help but feel that Clegg's target should not be the IFS, but those who misrepresent its findings.

In any case, with his party languishing on 10 per cent in the polls, Clegg should get out and make his case to the voters, not fire fusillades at a respected and impartial think tank.

George Eaton is political editor of the New Statesman.

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Theresa May defies the right by maintaining 0.7% aid pledge

The Prime Minister offers rare continuity with David Cameron but vows to re-examine how the money is spent. 

From the moment Theresa May became Prime Minister, there was speculation that she would abandon the UK's 0.7 per cent aid pledge. She appointed Priti Patel, a previous opponent of the target, as International Development Secretary and repeatedly refused to extend the commitment beyond this parliament. When an early general election was called, the assumption was that 0.7 per cent would not make the manifesto.

But at a campaign event in her Maidenhead constituency, May announced that it would. "Let’s be clear – the 0.7 per cent commitment remains, and will remain," she said in response to a question from the Daily Telegraph's Kate McCann. But she added: "What we need to do, though, is to look at how that money will be spent, and make sure that we are able to spend that money in the most effective way." May has left open the possibility that the UK could abandon the OECD definition of aid and potentially reclassify defence spending for this purpose.

Yet by maintaining the 0.7 per cent pledge, May has faced down her party's right and title such as the Sun and the Daily Mail. On grammar schools, climate change and Brexit, Tory MPs have cheered the Prime Minister's stances but she has now upheld a key component of David Cameron's legacy. George Osborne was one of the first to praise May's decision, tweeting: "Recommitment to 0.7% aid target very welcome. Morally right, strengthens UK influence & was key to creating modern compassionate Conservatives".

A Conservative aide told me that the announcement reflected May's personal commitment to international development, pointing to her recent speech to International Development staff. 

But another Cameron-era target - the state pension "triple lock" - appears less secure. Asked whether the government would continue to raise pensions every year, May pointed to the Tories' record, rather than making any future commitment. The triple lock, which ensures pensions rise in line with average earnings, CPI inflation or by 2.5 per cent (whichever is highest), has long been regarded by some Conservatives as unaffordable. 

Meanwhile, Philip Hammond has hinted that the Tories' "tax lock", which bars increases in income tax, VAT and National Insurance, could be similarly dropped. He said: "I’m a Conservative. I have no ideological desire to to raise taxes. But we need to manage the economy sensibly and sustainably. We need to get the fiscal accounts back into shape.

"It was self evidently clear that the commitments that were made in the 2015 manifesto did and do today constrain the ability to manage the economy flexibly."

May's short speech to workers at a GlaxoSmithKline factory was most notable for her emphasis that "the result is not certain" (the same message delivered by Jeremy Corbyn yesterday). As I reported on Wednesday, the Tories fear that the belief that Labour cannot win could reduce their lead as voters conclude there is no need to turn out. 

George Eaton is political editor of the New Statesman.

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