Saturday, October 22, 2005

DD/DC Policy Differences- Public Spending

This is the first of our posts on policy differences between DD and DC.

On public spending, DD has robustly said that he would implement Reform's Growth Rule. This states that:

'for the next two Parliaments the trend growth rate of departmental spending should be at least 2 percentage points lower than the trend growth rate of GDP. This means departmental spending rises of 0.75 per cent in real terms per annum.'

In contrast DC sticks with the much fuzzier:

'we should share the proceeds of economic growth between tax reduction and investment in public services.'

Why does it matter? Well, because spending determines tax levels, and all the evidence is that higher taxes mean lower incomes (for a more detailed overview of the evidence, see eg here). What's more, experience around the world shows that leaving such matters to the unfettered discretion of politicians is always a bad idea: those varmints invariably find great new discretionary reasons for spending yet more of our money.

So we need clear rules, not discretion. We must concentrate their minds. Hence the Reform Growth Rule- which, please note, does not actually call for spending cuts.

Think of this as a further development of Gordo's Golden Rules- they were good as far as they went, covering government borrowing and debt. Their shortcoming was that they didn't cover actual underlying spending. (Yes, we know in practice he's cheating on their implementation, but we'll address that by setting up a truly independent Budget Office henceforth to monitor all such backsliding politicos.)

This is a very clear example of DD being prepared to bite a bullet that has been richoceting around our economy and our lives for as long as I can remember. When Britain confronts the aftermath of New Labour, it will become conventional wisdom. Right now, only DD is offering it.
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