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.
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.
Tags: Spending Cuts