The Treasury has put together data on how its policies impact on people. Ministers have been sluggish at using it. (Photo:Getty)
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Hard choices lie ahead - here's how the next government might make them

The next government can use data to make cuts more effectively and in a fairer way than this one

One of the unforeseen consequences of coalition, combined with fixed-term Parliaments, is that we currently have a lame-duck government. Nothing is happening in terms of government policies – instead ministers are promising, on behalf of their own party not the government as a whole, to do things if they are elected to govern alone. The consequence has been the announcement or reannouncement of a series of gimmicks (for example, benefit sanctions for addicts refusing treatment) that the government had sensibly previously dismissed as impractical or counterproductive.

So civil servants aren’t doing any policy work. Instead, they are preparing for the really big event of the first few months of the next Parliament – the spending review.  As the Office of Budget Responsibility has pointed out, the government’s current “plans”, set out in the Autumn Statement, imply that total public spending, relative to GDP, would fall to its lowest level in 80 years.  The OBR also made it clear that these were simply assertions by the government as to what it would do – there are no actual spending plans as yet beyond 2015-16. For this reason, they should not be taken that seriously; indeed, the definitive survey of UK macroeconomists by the Centre for Macroeconomics found that only 1 in 10 thought the government’s plans were credible.

But there will be a spending review. And there will be, in the usual cliché, “tough choices” – even tougher than usual. As FlipChartRick’s venn diagram memorably puts it, anybody who thinks that you can balance the budget, not put up taxes and maintain public services at a reasonable standard is “living in LaLa land”.

Before the 2010 spending review, the Prime Minister said “we are all in this together”.  But of course, and inevitably, some individuals and groups lost out more or less than others. That doesn’t make the decisions taken then “unfair”; some were deliberate political choices, made by an elected government in the full knowledge of the consequences; some reflected the patterns of existing public spending and services.

However, any government has both a moral and a legal obligation to do its best to understand the consequences of its decisions – preferably in advance.  In particular, the 2010 Equality Act imposes a requirement on the government to take account of the impact of its decisions on equality of opportunity between different groups.   Since 2011, the Equality and Human Rights Commission has been looking at how that worked in practice in the Treasury and Whitehall in the 2010 Spending Review and since – and what lessons can be learned for the next Parliament. 

The EHRC also commissioned NIESR, and my colleague Howard Reed at Landman Economics, to model the overall impact of tax and spending decisions.  There is more about the background here; and more about our findings here.

 I would sum our findings as two-fold. First, the Treasury did its best (and better than it ever did before) with limited resources and inevitably imperfect data, to analyse the consequences of tax and spending decisions taken in this Parliament on different groups. Considerable progress has been made, and they deserve credit.  But, second, that with relatively limited extra effort and resources more could easily be done; and, perhaps more importantly, that if more analysis had been done decisions might well have been different.  One chart makes the point. It is difficult (although, admittedly, not impossible) to believe that a government genuinely committed to the principle of “we’re all in this together” would have deliberately chosen to implement a set of measures that bore far more heavily on low-income disabled families than any other single group.

Today, however, the EHRC publishes its final report, and it looks forwards not backward.  It makes five key recommendations:

  • Making sure the government has the best possible advice by nominating a body to have overall responsibility for advising Ministers on the impacts of tax and spending decisions on different people in society, including women, ethnic minorities and disabled people.
  • Assessing the combined effects on people of different decisions.  Decisions in different departments which affect women for example, should be assessed together for their total impacts.
  • Improving the coverage of evidence and analysis in the Equalities Impact Statement published alongside major government announcements, such as budgets and reviews of spending.
  • Improving the quality of data by engaging further with government departments to clarify expectations and reach a common and agreed approach on different types and sources of acceptable data and evidence.

"The EHRC, not me, is responsible for the recommendations. But for what it is worth, both as a researcher and as a former senior civil servant in the Treasury, DWP and elsewhere, I think they are practical, reasonable, and implementable; and that they would deliver a meaningful improvement in the quality of analysis available to Ministers when they make those inevitable "hard choices". "

Jonathan Portes is director of the National Institute of Economic and Social Research and former chief economist at the Cabinet Office.

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BHS is Theresa May’s big chance to reform capitalism – she’d better take it

Almost everyone is disgusted by the tale of BHS. 

Back in 2013, Theresa May gave a speech that might yet prove significant. In it, she declared: “Believing in free markets doesn’t mean we believe that anything goes.”

Capitalism wasn’t perfect, she continued: 

“Where it’s manifestly failing, where it’s losing public support, where it’s not helping to provide opportunity for all, we have to reform it.”

Three years on and just days into her premiership, May has the chance to be a reformist, thanks to one hell of an example of failing capitalism – BHS. 

The report from the Work and Pensions select committee was damning. Philip Green, the business tycoon, bought BHS and took more out than he put in. In a difficult environment, and without new investment, it began to bleed money. Green’s prize became a liability, and by 2014 he was desperate to get rid of it. He found a willing buyer, Paul Sutton, but the buyer had previously been convicted of fraud. So he sold it to Sutton’s former driver instead, for a quid. Yes, you read that right. He sold it to a crook’s driver for a quid.

This might all sound like a ludicrous but entertaining deal, if it wasn’t for the thousands of hapless BHS workers involved. One year later, the business collapsed, along with their job prospects. Not only that, but Green’s lack of attention to the pension fund meant their dreams of a comfortable retirement were now in jeopardy. 

The report called BHS “the unacceptable face of capitalism”. It concluded: 

"The truth is that a large proportion of those who have got rich or richer off the back of BHS are to blame. Sir Philip Green, Dominic Chappell and their respective directors, advisers and hangers-on are all culpable. 

“The tragedy is that those who have lost out are the ordinary employees and pensioners.”

May appears to agree. Her spokeswoman told journalists the PM would “look carefully” at policies to tackle “corporate irresponsibility”. 

She should take the opportunity.

Attempts to reshape capitalism are almost always blunted in practice. Corporations can make threats of their own. Think of Google’s sweetheart tax deals, banks’ excessive pay. Each time politicians tried to clamp down, there were threats of moving overseas. If the economy weakens in response to Brexit, the power to call the shots should tip more towards these companies. 

But this time, there will be few defenders of the BHS approach.

Firstly, the report's revelations about corporate governance damage many well-known brands, which are tarnished by association. Financial services firms will be just as keen as the public to avoid another BHS. Simon Walker, director general of the Institute of Directors, said that the circumstances of the collapse of BHS were “a blight on the reputation of British business”.

Secondly, the pensions issue will not go away. Neglected by Green until it was too late, the £571m hole in the BHS pension finances is extreme. But Tom McPhail from pensions firm Hargreaves Lansdown has warned there are thousands of other defined benefit schemes struggling with deficits. In the light of BHS, May has an opportunity to take an otherwise dusty issue – protections for workplace pensions - and place it top of the agenda. 

Thirdly, the BHS scandal is wreathed in the kind of opaque company structures loathed by voters on the left and right alike. The report found the Green family used private, offshore companies to direct the flow of money away from BHS, which made it in turn hard to investigate. The report stated: “These arrangements were designed to reduce tax bills. They have also had the effect of reducing levels of corporate transparency.”

BHS may have failed as a company, but its demise has succeeded in uniting the left and right. Trade unionists want more protection for workers; City boys are worried about their reputation; patriots mourn the death of a proud British company. May has a mandate to clean up capitalism - she should seize it.