tag:theconversation.com,2011:/us/topics/government-spending-13745/articlesGovernment spending – The Conversation2023-10-11T13:06:49Ztag:theconversation.com,2011:article/2154012023-10-11T13:06:49Z2023-10-11T13:06:49ZWhy the crisis in Israel is putting pressure on GOP to act over vacant House speaker role<figure><img src="https://images.theconversation.com/files/553095/original/file-20231010-19-39pfq0.jpg?ixlib=rb-1.1.0&rect=20%2C41%2C6968%2C4610&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">With Patrick McHenry leading the House as speaker pro tempore, spending and legislative options appear limited.</span> <span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/CongressSpeaker/bd1d7937b5ba4f24b420cfcf62260918/photo">AP Photo/J. Scott Applewhite</a></span></figcaption></figure><p><em>In the wake of the <a href="https://apnews.com/article/israel-palestinians-gaza-hamas-rockets-airstrikes-tel-aviv-11fb98655c256d54ecb5329284fc37d2">Hamas surprise attacks</a> on Israel, and that country’s resulting <a href="https://apnews.com/article/israel-gaza-hamas-war-74d8d8dc8dd26e84a189f72b65ec9428">heavy military response</a>, calls for Republicans in the U.S. House of Representatives to <a href="https://www.newsweek.com/republicans-blocking-calls-israel-aid-no-house-speaker-1833399">pick a new speaker quickly</a> have grown, including <a href="https://www.axios.com/2023/10/08/gop-lawmakers-israel-attack-urgency-house-speaker-vote">from GOP members themselves</a>. The absence of a speaker may slow or limit any aid the U.S. could provide to Israel.</em></p>
<p><em>The Conversation U.S. asked congressional scholar <a href="https://scholar.google.com/citations?user=50s4yQgAAAAJ&hl=en&oi=ao">Laura Blessing</a>, a senior fellow at Georgetown University’s Government Affairs Institute, to explain what a major crisis abroad has to do with internal divisions within one U.S. political party.</em></p>
<h2>How has the violence in Israel and Gaza shifted the dynamics within the GOP around the speaker search?</h2>
<p>Israel has strong support within Congress in general, and certainly among House Republicans and Republican voters. Both of the speaker candidates, Rep. Steve Scalise and Rep. Jim Jordan, have <a href="https://www.politico.com/news/2023/10/07/lawmakers-want-to-help-israel-but-political-chaos-could-slow-it-down-00120489">expressed their strong support</a> for Israel. The attacks on Oct. 7, 2023, call attention to the leadership vacuum in the House and place more urgency on the speaker search. </p>
<p>Both parties have voiced <a href="https://www.nytimes.com/2023/10/08/us/politics/house-speaker-israel-jordan-scalise.html">concern about the situation</a> in Congress. The notable exceptions have come from those who engineered the ouster of former Speaker Kevin McCarthy, including Matt Gaetz, who said, “<a href="https://www.cnbc.com/2023/10/09/israel-hamas-war-puts-pressure-on-republicans-to-select-house-speaker.html">I don’t think that other countries</a> think about Kevin McCarthy’s speakership quite as much as Kevin McCarthy does.”</p>
<p>Some House Republicans have <a href="https://www.politico.com/live-updates/2023/10/10/congress/mccarthy-speaker-vote-israel-math-00120720">even suggested</a> reinstating McCarthy, though apparently <a href="https://twitter.com/guypbenson/status/1711825592394678383">not at his direction</a>. </p>
<p>The Republican chair of the House Foreign Affairs Committee, Michael McCaul, has strongly <a href="https://www.politico.com/news/2023/10/08/congress-israel-hamas-mike-mccaul-00120514">called for action on Israel</a>, wanting a House statement of support even in the absence of a newly elected speaker. But the current consensus in Congress is that the power of the temporary speaker, <a href="https://www.washingtonpost.com/politics/2023/10/05/acting-house-speaker-powers/">Speaker Pro Tempore Patrick McHenry</a>, is very limited, which creates more pressure for a new speaker to be elected. McHenry appears to agree with this consensus. </p>
<p>Jordan <a href="https://www.npr.org/2023/10/06/1203961930/ukraine-funding-congress-speakers-race">opposes Ukraine aid</a> and supports larger appropriations cuts; he is seen as the populist, anti-establishment insurgent in contrast to Scalise’s establishment credentials. Both candidates support Israel.</p>
<p>But if Jordan were speaker, he would be expected to be more resistant to <a href="https://www.washingtonpost.com/politics/2023/10/09/biden-israel-ukraine-aid/">packaging support for Israel with other items</a>, such as Ukraine aid, or the passage of appropriations generally. Scalise, by contrast, is expected to be <a href="https://about.bgov.com/news/partisan-brawler-or-establishment-choice-confronts-house-gop/">far closer to the Kevin McCarthy mold</a> of leadership.</p>
<p>But whether the higher stakes of the crisis in Israel prompt those in the Republican conference to reconsider their votes, enlist McCarthy again, or prompt a faster process is hard to tell in this fast moving and, for now, opaque process.</p>
<p>Initial tracking of support, from <a href="https://docs.google.com/spreadsheets/d/1f5Ezu28UaO8NncBr6fG_moy2inMz70XfRZKvVrH8cAQ/edit#gid=0">FiveThirtyEight journalist Nathan Rakich</a>, for both Scalise and Jordan shows that neither candidate has a clear path to a win, that Jordan initially has more support, and that Scalise has the more establishment-minded members of the party backing him. But it took <a href="https://rollcall.com/2023/01/07/mccarthy-wins-speaker-election-finally/">15 votes and four days</a> for McCarthy to win the speakership this January, even though no one mounted an organized, opposing candidacy. </p>
<h2>What difference would it make if there were a House speaker already in place?</h2>
<p>Initially, the <a href="https://www.nytimes.com/2023/10/08/world/middleeast/us-aid-israel-biden-blinken.html">Biden administration is accelerating delivery of aid</a> the U.S. has already promised Israel, which receives more than US$3 billion in U.S. aid a year.</p>
<p>But when the administration wants more funding, which is very likely, it will need to go to Congress. The position of speaker would need to be filled for legislation to move forward. General congressional support for Israel may mean that proposal could more easily be coordinated with the Senate than other spending bills.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/553096/original/file-20231010-27-5ojn5j.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Soldiers kneel and lie on the ground." src="https://images.theconversation.com/files/553096/original/file-20231010-27-5ojn5j.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/553096/original/file-20231010-27-5ojn5j.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/553096/original/file-20231010-27-5ojn5j.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/553096/original/file-20231010-27-5ojn5j.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/553096/original/file-20231010-27-5ojn5j.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/553096/original/file-20231010-27-5ojn5j.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/553096/original/file-20231010-27-5ojn5j.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Israeli soldiers take up positions near a kibbutz overrun by Hamas.</span>
<span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/IsraelPalestiniansDailyPhotoGallery/fb84a440619e4ddd95481e0db893a812/photo">AP Photo/Ohad Zwigenberg</a></span>
</figcaption>
</figure>
<h2>What can the House do with only a temporary speaker in office?</h2>
<p>Nobody is really certain, and there are legitimate disagreements of how to interpret the powers of the speaker pro tempore. The bipartisan consensus of those in Congress, at least for now, is that <a href="https://wisconsinexaminer.com/2023/10/05/how-does-a-frozen-u-s-house-function-without-a-speaker-everyones-got-an-opinion/">McHenry can’t call up legislation</a>, including the appropriations bills that would be needed to give additional funding to Israel.</p>
<p>The part of the House rules governing the interim speaker, <a href="https://cha.house.gov/_cache/files/5/3/5361f9f8-24bc-4fbc-ac97-3d79fd689602/1F09ADA16E45C9E7B67F147DCF176D95.118-rules-01102023.pdf">Rule 1, Clause 8</a>, is very much open to <a href="https://goodauthority.org/news/everything-you-should-know-about-the-house-speakership-battle/">interpretation</a>. Congress could have gone in a different direction and voted to interpret the position’s powers as more active, though that would have reduced pressure for a new speaker. </p>
<p>The possibility of even having this office of a temporary speaker was a precaution taken in the wake of 9/11, imagining that a speaker might somehow be incapacitated; it’s never been tested. McHenry and the Congress are making precedent with every new action.</p>
<h2>How might different results in the speakership race affect the US positions toward Israel and Hamas?</h2>
<p>Aid for Israel, as a stand-alone item, has strong bipartisan support in Congress and with both candidates for speaker. But it is hard to say how quickly a new speaker would be elected; certainly it could be a drawn-out process. </p>
<p>The White House has <a href="https://www.nbcnews.com/politics/white-house/white-house-lawmakers-weigh-linking-ukraine-israel-aid-rcna119516">expressed interest</a> in a combined aid package that includes assistance to both Israel and Ukraine. Many House Republicans oppose such a move, and a Jordan speakership would be expected to make negotiations with the Senate and White House more difficult in general, with a greater appetite for government shutdowns. <a href="https://clerk.house.gov/Votes/2023513">Jordan voted against the recent stopgap spending measure</a> that averted a government shutdown; Scalise voted for it. </p>
<p>The wider state of government funding will be far more difficult, with the appropriations process revealing strong partisan disagreement. Even typically bipartisan bills such as <a href="https://www.cnn.com/2023/07/14/politics/house-ndaa-vote-amendments/index.html">defense spending are very partisan</a> after the inclusion of different socially conservative amendments in the House. </p>
<p>Ukraine funding is also in a difficult position, <a href="https://www.nytimes.com/2023/10/05/us/politics/republicans-ukraine-aid.html">emerging more recently as a partisan flashpoint</a> even though <a href="https://thehill.com/policy/defense/4096744-majority-of-republicans-vote-down-greene-gaetz-ukraine-bills/">back in July most House Republicans supported aid to Ukraine</a>. If funding for Israel becomes embroiled in other spending debates, agreement will become more difficult. </p>
<p>The lessons the House learns from deposing a speaker for the first time can also be consequential. Will members tire of the few in the hard-right flank who engineered McCarthy’s ouster, thus giving the incoming speaker more political capital, perhaps by eliminating the motion to vacate, with which a speaker can be ousted? Or will a very difficult governing situation become more so, as the next speaker continually looks over his shoulder? Much remains to be seen.</p><img src="https://counter.theconversation.com/content/215401/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Laura Blessing does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>A major crisis abroad may exacerbate internal divisions within one of the US’s major political parties.Laura Blessing, Senior Fellow, Government Affairs Institute, Georgetown UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2125202023-09-05T12:32:02Z2023-09-05T12:32:02ZCongress needs to pass 12 funding bills in 11 days to avert a shutdown – here’s why that isn’t likely<figure><img src="https://images.theconversation.com/files/545962/original/file-20230901-25-par0qb.jpg?ixlib=rb-1.1.0&rect=70%2C70%2C3264%2C2409&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">A shutdown last happened in 2018. Could it happen again?</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/sign-is-displayed-on-a-government-building-that-is-closed-news-photo/1074601288?adppopup=true">Andrew Caballero-Reynolds/AFP/Getty Images</a></span></figcaption></figure><p>U.S. senators and representatives returning from their summer vacations will need to shake off their suntans in quick time and get down to business.</p>
<p>Congress has just 11 days when it’s in session before the next <a href="https://www.federaltimes.com/management/budget/2022/09/20/why-the-us-federal-fiscal-year-2023-starts-in-october/">federal fiscal year begins on Oct. 1, 2023</a>. And in that time, it will need to enact all 12 <a href="https://www.house.gov/the-house-explained/open-government/statement-of-disbursements/glossary-of-terms">appropriation bills</a> to ensure that government agencies and departments have funding to keep programs going – or face a potential government shutdown.</p>
<p>So will they pull it off? And what will happen if they don’t? As an <a href="https://www.linkedin.com/in/raymond-scheppach-19b98536/">expert of public policy</a> and former deputy director of the Congressional Budget Office, I feel that the challenge this year is the greatest faced since the enactment of the Congressional Budget Act of 1974, which made significant reforms in the process. This is due to the magnitude of the differences not only between the two parties but also between the House and Senate. A worst-case scenario could see a government shutdown for several weeks, or even a couple of months – and that could have a significant negative impact on the economy.</p>
<h2>One down, many to go</h2>
<p>The House of Representatives initially faced a workload of 12 appropriation bills to get through Congress. But just before the House broke for August recess, it <a href="https://appropriations.house.gov/news/press-releases/house-approves-hr-4366-military-construction-veterans-affairs-and-related">passed one appropriation bill, for military construction</a>.</p>
<p>One down, 11 to go. The problem is the military construction bill is traditionally the easiest to pass, as it is very small – this year it stood at US$19.1 billion in spending. This is substantially less than the largest bill, which is usually the <a href="https://www.appropriations.senate.gov/news/majority/bill-summary-labor-health-and-human-services-education-and-related-agencies-fiscal-year-2024-appropriations-bill">Labor, Health, Human Services and Education bill</a>. When reported, or passed, out of the committee in the Senate this year, that bill amounted to $224 billion. Providing money for military construction is also generally done without much controversy, as it includes funding for housing military families – something few members want to oppose.</p>
<p>And while the military construction funding bill passed before the recess, the House leadership had also hoped to pass the <a href="https://appropriations.house.gov/subcommittees/agriculture-rural-development-food-and-drug-administration-118th-congress">Agriculture, Rural Development, and Food and Drug bill</a> but did not have the necessary votes for passage.</p>
<p>Complicating matters is that ongoing funding bills could be delayed or derailed by ideological battles in Washington.</p>
<p>The conservative Freedom Caucus in the House is <a href="https://www.politico.com/news/2023/08/21/house-freedom-caucus-potential-shutdown-00112068">pushing for tens of billions of dollars in cuts</a> in the eight appropriation bills that fund domestic spending. The other four are military construction; defense; state and foreign operations; and the legislative branch itself.</p>
<p>Part of this desire for cuts comes from the frustration that conservatives feel over there being virtually no reductions in the <a href="https://budgetmodel.wharton.upenn.edu/issues/2023/5/31/the-fiscal-responsibility-act-of-2023">Fiscal Responsibility Act of 2023</a>, which lifted the debt ceiling and was negotiated by House Speaker Kevin McCarthy and President Joe Biden in late May.</p>
<h2>Ideological impasse</h2>
<p>Members of the Freedom Caucus are also expected to <a href="https://thehill.com/homenews/house/4162189-freedom-caucus-policy-conditions-stopgap-government-funding-bill/">push for several riders</a> on the appropriation bills that would restrict abortion rights and eliminate funding for LGBTQ+ centers and diversity and inclusion programs. These will be vehemently opposed by Democrats and potentially create an impasse in negotiations. </p>
<p>Another complicating factor is that, recently, the administration <a href="https://abcnews.go.com/Politics/biden-administration-seeks-billions-ukraine-aid-teeing-congressional/story?id=102175637">submitted to Congress a request</a> for a $45 billion supplemental appropriation that includes $24 billion for the war in Ukraine. </p>
<p>In the past, these measures would often be attached to either an individual appropriation bill or what is known as <a href="https://obamawhitehouse.archives.gov/blog/2014/09/19/what-s-continuing-resolution-and-why-does-it-matter">a continuing resolution</a>. A continuing resolution generally funds the government at the same level as in the preceding year for a short time, usually a number of days or weeks.</p>
<p>However, there are Republicans in the House who may object to moving such a bill. Congress would also have to declare an emergency to exempt it from the caps in the <a href="https://www.cbo.gov/publication/59235">Fiscal Responsibility Act</a>.</p>
<p>Members in the House prefer to pass individual appropriation bills, since those are easier to amend. But with time running out, they may be forced to combine all of the outstanding bills into an omnibus bill – with the hopes that it could pass by Oct. 1.</p>
<p>While, constitutionally, appropriation bills must start in the House, they have to be reconciled with whatever version the Senate passes.</p>
<p>The good news here is the Senate Appropriations Committee has <a href="https://www.appropriations.senate.gov/news/majority/icymi-murray-leads-senate-appropriations-in-passing-all-12-bills-out-of-committee-in-overwhelming-bipartisan-votes">reported all 12 bills out of committee</a> and thus is ready for the full Senate to consider when it returns. It has also agreed to raise the caps on national defense spending by $8 billion and domestic spending by $5.2 billion above the caps in the Fiscal Responsibility Act.</p>
<p>But differences in spending between what’s in the bills passed by the Senate committee and the much lower levels desired by many Republicans in the House, combined with the ideological arguments over the various riders expected to be adopted by the House, is setting the stage for a chaotic time in late September and early October.</p>
<h2>A history of shutdowns</h2>
<p>So what is likely to happen?</p>
<p>Given the limited number of days the House is in session in September, the speaker has floated the idea of a short-term continuing resolution. This approach has been endorsed by the White House to give time to <a href="https://www.cbsnews.com/news/white-house-congress-short-term-spending-bill-cr-government-shutdown/">negotiate a permanent solution</a>. But the Freedom Caucus has indicated it will oppose such a measure unless it can attach many of its ideological riders.</p>
<p>Which would leave Congress – and the country – facing a funding gap or potential government shutdown.</p>
<p>Since the 1974 Budget Act, there have been 22 such gaps or shutdowns due to the inability of Congress to enact all the appropriation bills. Three of these shutdowns have been significant. </p>
<p>The first lasted 21 days in 1995-1996 <a href="https://www.npr.org/2019/01/12/683304824/the-longest-government-shutdown-in-history-no-longer-how-1995-changed-everything">during the Clinton administration</a>. It started as a standoff over the debt ceiling but then included disagreements on the appropriations bills. </p>
<p>There were some unique aspects to this standoff. The Republican Senate leader, Bob Dole, was running for president and was not really interested in lengthy negotiations. Meanwhile, House Speaker Newt Gingrich made some inappropriate comments about <a href="https://www.telegraph.co.uk/news/worldnews/us-politics/10347951/US-shutdown-1995-flashback-when-Newt-Gingrich-was-snubbed-on-Air-Force-One.html">being snubbed by the president</a> while traveling on Air Force One, and the press had a field day by linking the shutdown to the snub. Polling showed that the Republicans were being blamed for the shutdown - one indicated <a href="https://www.politico.com/story/2011/03/poll-americans-split-on-who-to-blame-for-a-shutdown-050398">46% blamed Republicans</a>, while only 27% blamed Democrats. Republicans finally accepted the Clinton budget proposal.</p>
<p>The second major shutdown lasted 16 days in 2013 during the Obama administration and was triggered by a dispute regarding the implementation of the Affordable Care Act. It ended with an agreement between the Obama administration and Republicans on a continuing resolution to fund the government.</p>
<p>The most recent significant funding gap <a href="https://www.nytimes.com/2018/12/21/us/politics/trump-shutdown-border-wall.html">occurred in December 2018</a> during the Trump administration, when the president stated he would not sign an appropriations bill that did not include his request for $5.7 billion to build a wall on the U.S.-Mexico border. This shutdown lasted 35 days – the longest in history.</p>
<h2>A record shutdown?</h2>
<p>Shutdowns eventually end, but not without first causing damage. Politically, the Republicans received virtually nothing beneficial from the 1995 or 2018 shutdowns, and were in fact <a href="https://www.politico.com/story/2011/03/poll-americans-split-on-who-to-blame-for-a-shutdown-050398">blamed for both</a>. Similarly, Republicans received little in 2013 but also seemed to receive less blame.</p>
<p>But there is more than political face-saving at play. The economic cost of the 2018 shutdown was <a href="https://www.cbo.gov/publication/54937">estimated by the Congressional Budget Office</a> to be $3 billion in the fourth quarter of 2018 and $8 billion during the first quarter of 2019. Much of this was recovered during the next several quarters, but the impact on the individual families of furloughed government workers and businesses that were not able to receive loans or certificates to operate were far greater.</p>
<p>Perhaps more important than the impact on the economy are the huge inefficiencies that are created by the uncertainties regarding funding in government purchases, particularly in national defense and other capital purchases. Federal contractors cannot extend long-term contracts until the bills are passed. This forces them into numerous short-run extensions, which are substantially more expensive.</p>
<p>With so much at stake, expect a stormy and chaotic session with huge partisan differences – as well as discrepancies between the House and Senate – regarding spending levels and riders to appropriation bills. </p>
<p>Congress has just 11 working days to pass these bills, and that seems virtually impossible, especially in the current political climate.</p>
<p>So brace for numerous short-run continuing resolutions. But, ultimately, I expect at least a partial government shutdown. I even wouldn’t rule out a much longer shutdown of a couple of months that exceeds the record 35 days during the Trump administration.</p><img src="https://counter.theconversation.com/content/212520/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Raymond Scheppach does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Lawmakers have given themselves a virtually impossible task – and the stakes are high.Raymond Scheppach, Professor of Public Policy, University of VirginiaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2086362023-07-03T11:52:44Z2023-07-03T11:52:44ZIt could cost the taxpayer £169,000 to deport each migrant to Rwanda – and possibly even more<p>The Home Office has revealed <a href="https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1165397/Illegal_Migration_Bill_IA_-_LM_Signed-final.pdf">how much it believes it will cost</a> to send migrants arriving in the UK to Rwanda – a staggering £169,000 per person. This estimate is even more surprising when you consider that one of the aims of the government’s migration policy is to stop spending <a href="https://www.independent.co.uk/news/uk/diana-johnson-channel-government-french-mps-b2210968.html">billions of pounds</a> on housing refugees in the UK. </p>
<p>Although the <a href="https://theconversation.com/why-uk-court-ruled-rwanda-isnt-a-safe-place-to-send-refugees-and-what-this-means-for-the-governments-immigration-plans-208768">Court of Appeal has ruled</a> the government cannot legally proceed with its plan to send deported migrants to Rwanda, the prime minister, Rishi Sunak, has already said the government will <a href="https://news.sky.com/story/government-plan-to-send-some-asylum-seekers-to-rwanda-is-unlawful-court-of-appeal-rules-12911494">appeal it in the supreme court</a>. </p>
<p>The government has arrived at this £169,000 number from five separate calculations. Each of these is itself wildly uncertain and, as the government’s own assessment notes, does not include a wide range of other costs that are sure to emerge. That implies that the true cost per head is likely to be even higher. </p>
<h2>£105,000 for ‘third country costs’</h2>
<p>The largest component of the £169,000 is £105,000 for “third country costs”. This is the amount the government believes it will have to pay to cover the costs incurred by a third country like Rwanda to host a refugee if they cannot be returned to their home country.</p>
<p>The calculation is based on a National Audit Office <a href="https://www.nao.org.uk/wp-content/uploads/2016/09/The-Syrian-Vulnerable-Persons-Resettlement-programme.pdf">estimate</a> of the cost of hosting Syrian refugees in the UK. This was published in 2016, at the beginning of the programme to take in Syrian refugees and so is itself a forward-looking estimate. The NAO itself recognised that the actual cost was “uncertain”.</p>
<p>To reach £105,000, the government has taken the estimated average cost per refugee coming to the UK in 2016 (£17,340), multiplied it by five and transformed it into 2023 costs. This was based on the Syrian resettlement scheme lasting five years – but there is no explanation as to why they assume someone deported from the UK would need support for that period. </p>
<p>A presumably more accurate estimate of these costs has recently been agreed in the <a href="https://www.gov.uk/government/publications/memorandum-of-understanding-mou-between-the-uk-and-rwanda">partnership signed with Rwanda</a> but the government has not published this figure, deeming it “commercially sensitive”. Publishing a figure that the UK will use in all future agreements (still to be negotiated) will result in this being used as a minimum starting point by any other third-country negotiators.</p>
<h2>Other costs</h2>
<p>“Flight and escorting costs” are estimated at £22,000 per person. This is based on an “uncertain assumption” that 50 people will be deported per flight, which is extremely optimistic. In 2022, an average of 25 people were <a href="https://corporatewatch.org/2022-uk-charter-deportations-a-balance-sheet/#:%7E:text=In%202022%2C%20the%20UK%20deported,by%20eight%20airlines%20(2)">on each deportation flight</a> out of the UK and most of these were to European destinations, which are easier logistically and cheaper than other third countries outside of Europe. And that only includes flights that took off.</p>
<p>Another element of the calculation is “Home Office resource costs”, estimated at £18,000. This is probably the most accurate component of the cost estimate, since it is based on current average legal costs of appeals. Still, this figure does not include costs to retrain Home Office officials or related capital costs for things such as building new detention centres.</p>
<p>The final two costs are more problematic. The figure of £7,000 for detention assumes 40 days between arrival and deportation. The inaccuracy of this figure may be judged by the 374 days that the passengers on the inaugural flight to Rwanda have spent in detention between June 14 2022, when the flight was cancelled, and the judgment on June 29 2023 that Rwanda deportations cannot go ahead.</p>
<p>Finally, £1,000 for “Ministry of Justice costs” includes only the costs of legal aid, not all of the other costs incurred by the Ministry of Justice to hold legal proceedings.</p>
<p>The final hole in these calculations comes from the recognition that this cost is only for those who are successfully deported and does not include those who, for whatever reason, remain in the UK.</p>
<h2>Pricing an unworkable policy</h2>
<p>Usually, economic impact assessments lay out the financial cost of legislation as a whole. So it’s notable that we’re now getting a “cost per head” of the proposed policy.</p>
<p>But the most surprising element of the impact assessment of this policy, as immigration expert Lucy Mayblin has <a href="https://lucymayblin.com/2023/06/27/the-illegal-migration-bill-impact-assessment-digested-read-it-and-weep/">pointed out</a>, is the Home Office’s frank admission that it has no idea how the bill will work once it becomes law.</p>
<p>The document itself states that this is “a novel and untested scheme, and it is therefore uncertain what level of deterrence impact it will have”.</p>
<p>In other words, the government does not know if people will stop trying to enter the UK if they know they could be deported to Rwanda or another third country on arrival. That uncertainty around how many people are implicated makes it impossible to calculate a total cost. And given the limited success of deterrence tactics so far, it seems entirely plausible that the eventual cost will be much higher.</p><img src="https://counter.theconversation.com/content/208636/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michael Collyer is Chair of Sanctuary on Sea, the Brighton and Hove branch of City of Sanctuary. He is also Chair of the Independent Advisory Group on Country of Origin Information, within the Office of the Chief Inspector of Borders and Immigration. Both are voluntary positions. This article is written in a personal capacity. He currently receives funding from the Economic and Social Research Council (grant numbers ES/T008067/1 and ES/T004509/1).</span></em></p>The maths behind this number, explained.Michael Collyer, Professor of Geography, University of SussexLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2055952023-06-26T16:14:12Z2023-06-26T16:14:12ZThe British public often has unexpected opinions about welfare spending – here’s why<figure><img src="https://images.theconversation.com/files/530988/original/file-20230608-19-7qw788.jpg?ixlib=rb-1.1.0&rect=344%2C82%2C4543%2C1908&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>The soaring costs of energy and food have <a href="https://www.resolutionfoundation.org/publications/stressed-out/">diminished the value of incomes</a> for millions, leaving the majority of Britons <a href="https://obr.uk/box/developments-in-the-outlook-for-household-living-standards/">significantly poorer</a>. Wages have <a href="https://www.bbc.co.uk/news/business-60373405">failed to recover</a> since the 2008 financial crash and public services have suffered in <a href="https://www.instituteforgovernment.org.uk/publication/public-services-spending-round">availability and quality</a>.</p>
<p>We might expect this to amplify calls for the government to spend more to help the less well off, particularly as increasing numbers of people are affected. But public opinion about redistribution, shifting resources from society’s richer to support its poorer, doesn’t always follow an immediately obvious logic.</p>
<p>Evidence suggests that broadly redistributive policies, like increasing general taxation to fund public services, are <a href="https://www.aeaweb.org/articles?id=10.1257/pol.20190276#:%7E:text=Contrary%2520to%2520prevailing%2520wisdom%252C%2520people,they%2520consider%2520acceptable%2520for%2520others.">not always more popular among poorer people</a>. However, they are often supported by many of the wealthier individuals who <a href="https://www.journals.uchicago.edu/doi/full/10.1086/694201">stand to lose out financially</a>.</p>
<p>In a new systematic <a href="https://politicscentre.nuffield.ox.ac.uk/research/redistribution-report/">review</a> from the Nuffield Politics Research Centre, we draw upon more than 100 pieces of academic research to make sense of this conundrum. We suggest that both material changes to household finances, alongside more long-lasting psychological factors, are central to understanding why economic crises have nuanced effects on support for redistribution. They affect people in different ways, and our review explains how and why. </p>
<h2>Material and non-material factors</h2>
<p>There is reason to think people support redistribution when they stand to personally benefit from it. In their most simple form, these arguments suggest that those at the lower end of the wage scale will want the government to <a href="https://www.jstor.org/stable/1830813#metadata_info_tab_contents">increase taxes to fund more public spending</a>.</p>
<p>These arguments are powerful because many Britons rely on a regular income, <a href="https://www.ons.gov.uk/peoplepopulationandcommunity/personalandhouseholdfinances/incomeandwealth/bulletins/totalwealthingreatbritain/april2018tomarch2020">absent significant savings or housing assets</a>. When people do have access to such wealth, it also drives their social attitudes. As house prices rise, for instance, homeowners feel less reliant on the welfare state and become <a href="https://www.cambridge.org/core/journals/american-political-science-review/article/political-economy-of-ownership-housing-markets-and-the-welfare-state/F9F0C1F7146D3F35CA3856CD981E5567">less supportive of government spending</a>. When house prices fall, support for such spending rebounds.</p>
<p>But these accounts focus only on people’s present day circumstances, and so fail to capture the whole story. Long-term expectations are one example. A university student cleaning tables might not support higher taxes if they have a graduate job lined up at an investment bank. A low-income family might think differently about government spending if they stand to inherit property from their parents. <a href="https://www.cambridge.org/core/books/who-wants-what/64C476A5E9154D764AA84358736F1125">Some of today’s poor stand to be tomorrow’s rich</a>, and they know it.</p>
<figure class="align-center ">
<img alt="A couple standing in front of a house with a sold sign in front." src="https://images.theconversation.com/files/530989/original/file-20230608-15-i790b6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/530989/original/file-20230608-15-i790b6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=405&fit=crop&dpr=1 600w, https://images.theconversation.com/files/530989/original/file-20230608-15-i790b6.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=405&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/530989/original/file-20230608-15-i790b6.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=405&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/530989/original/file-20230608-15-i790b6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=509&fit=crop&dpr=1 754w, https://images.theconversation.com/files/530989/original/file-20230608-15-i790b6.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=509&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/530989/original/file-20230608-15-i790b6.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=509&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Views on welfare can depend on future prospects.</span>
<span class="attribution"><span class="source">Shutterstock</span></span>
</figcaption>
</figure>
<p>We think eligibility and accessibility of government support are also key parts of the puzzle. Many poorer people in the UK find it <a href="https://www.jrf.org.uk/report/welfare-sanctions-and-conditionality-uk">difficult to access</a> the support to which they are entitled, with some analysts estimating that <a href="https://www.entitledto.co.uk/blog/2021/january/15plus-billion-unclaimed-means-tested-benefits-but-the-sketchy-take-up-data-makes-it-hard-to-say-for-sure/">up to £15 billion of means-tested benefits remain unclaimed each year</a>. The barriers put in place to make claiming benefits harder might shake people’s faith that the welfare system offers them a safety net, and question how much it contributes to society as a whole.</p>
<p>A lot of government spending also <a href="https://journals.sagepub.com/doi/10.1177/0958928714556970">helps middle-income Britons</a> more than their poorer counterparts. The best <a href="https://www.theguardian.com/society/2020/jan/23/englands-poorest-get-worse-nhs-care-than-wealthiest-citizens">healthcare</a> and <a href="https://schoolsweek.co.uk/schools-in-rich-areas-are-more-than-twice-as-likely-to-be-outstanding/">state schools</a> are usually found in the country’s wealthiest areas, while many services and subsidies, like tax-free savings allowances, <a href="https://www.which.co.uk/money/savings-and-isas/isas/cash-isas/are-isas-still-worthwhile-ajbZN3x6fWoO">cannot be fully exploited</a> by those on low incomes. Poorer individuals might support redistribution in principle, but in practice it is not always clear that they are the ones benefiting. </p>
<h2>Who deserves help?</h2>
<p>Away from cost-benefit style thinking, we consider how non-material factors might shape people’s attitudes. In public opinion surveys, a significant proportion of well-off people say they <a href="https://www.cambridge.org/core/books/who-wants-what/64C476A5E9154D764AA84358736F1125">support greater government spending</a> and would be willing to pay more tax to fund it. This circle is difficult to square in terms of self-interest alone.</p>
<p>In some circumstances, and at personal cost, richer individuals feel genuine concern for the wellbeing of others and are willing to <a href="https://www.journals.uchicago.edu/doi/full/10.1086/694201">redistribute resources to them</a>.</p>
<p>But the extent of this generosity is often limited and depends on someone’s definition of “others”. Altruism can be <a href="https://onlinelibrary.wiley.com/doi/full/10.1111/j.1467-6419.2011.00711.x">higher in countries that are less ethnically diverse</a> and support for redistribution is lower when the recipient is from a <a href="https://www.cambridge.org/core/journals/american-political-science-review/article/economic-versus-cultural-differences-forms-of-ethnic-diversity-and-public-goods-provision/1A668817F0A20FE9FF613B2247654A0E">minority ethnic group</a>. The same is sometimes true when the recipient is seen to be a member of a <a href="https://blogs.lse.ac.uk/politicsandpolicy/welfare-politics-discourse-public-opinion/">lower social class</a>.</p>
<p>Richer people might also adopt self-interested beliefs in meritocracy, with the poverty of others written off as stemming from a lack of effort rather than a lack of luck. Generosity only extends to certain groups of people. Altruism is not dead, but it is ‘parochial’.</p>
<p>Richer people might also adopt self-interested beliefs in meritocracy, with the poverty of others written off as stemming from <a href="https://www.sciencedirect.com/science/article/pii/S0167268121001116">lack of effort rather than lack of luck</a>. Generosity only extends to certain groups of people. Altruism is not dead, <a href="https://www.nature.com/articles/nature04981">but it is limited</a>.</p>
<p>Upbringing is also a part of the story. Being raised in a poorer household increases baseline <a href="https://www.sciencedirect.com/science/article/pii/009057209090030B">support for redistribution</a>, and this can colour the way that income shocks, or indeed financial comfort, are <a href="https://journals.sagepub.com/doi/full/10.1177/1470594X15618966">perceived in future</a>. Some wealthy individuals might be comfortable with redistribution because of their childhood experiences, while those born into wealth might remain averse even if they get poorer over time.</p>
<p>Some think that <a href="https://www.cambridge.org/core/journals/british-journal-of-political-science/article/how-do-economic-circumstances-determine-preferences-evidence-from-longrun-panel-data/73A1EA58796DA942A360401D01AB6BC5">only large shocks can truly shift the dial</a> on people’s beliefs, and perhaps Britain’s cost of living crisis – which has affected people across the income and upbringing distribution – represents such a case. But if those from wealthier backgrounds see the quickest financial recovery, any immediate changes in attitudes could be more short-lived.</p>
<p>All in all, despite seeing one of the deepest and most widespread shocks to household incomes in decades, it is not obvious that everyone will want more redistribution than they did before. This variability is essential for campaigners, policymakers, and politicians to understand, in order to devise policies that will remain sustainable over the long term.</p><img src="https://counter.theconversation.com/content/205595/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Alex Yeandle does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>It’s not always the case that poorer citizens want more public spending and richer people want less.Alex Yeandle, Research Review Writer, Nuffield Politics Research Centre, University of OxfordLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2059582023-05-30T12:24:51Z2023-05-30T12:24:51ZCOVID-19 clawbacks, spending caps and a cut – what House Republicans got in return for pushing the US to the brink of default<figure><img src="https://images.theconversation.com/files/528884/original/file-20230529-2706-grqeae.jpg?ixlib=rb-1.1.0&rect=206%2C170%2C5784%2C3817&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">House Speaker Kevin McCarthy has billed the deal as a victory for his party. </span> <span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/DebtLimitMcCarthy/140101daf62343f1bde85a3eb62b8849/photo?Query=debt%20ceiling&mediaType=photo&sortBy=arrivaldatetime:desc&dateRange=Anytime&totalCount=1087&currentItemNo=44">AP Photo/J. Scott Applewhite</a></span></figcaption></figure><p>House Republicans pushed the U.S. to the edge of a fiscal crisis because they <a href="https://www.nytimes.com/interactive/2023/05/08/upshot/federal-budget-republicans.html">wanted deep cuts in government spending</a>. </p>
<p>So, based on the deal President Joe Biden <a href="https://www.msn.com/en-us/news/politics/biden-signs-bipartisan-debt-ceiling-bill-to-avert-government-default/ar-AA1c5t9d/">signed into law on June 3, 2023</a>, how did they do? </p>
<p>In broad strokes, the <a href="https://apnews.com/article/debt-ceiling-deal-food-aid-student-loans-3c284b01d95f8e193bca8d873386400e">deal suspends the debt limit</a> until January 2025, freezes nondefense discretionary funding at current levels and makes a few additional cuts and policy changes that were designed to appeal to enough Republicans and Democrats to get it through Congress. The deal also includes an incentive to motivate lawmakers to pass a budget on time in four months.</p>
<p>That provision and the 2025 expiration date should mean the U.S. will avoid any self-inflicted fiscal crises until at least after the next presidential election. </p>
<p>No one got everything they wanted. Biden didn’t get the <a href="https://www.politico.com/news/2023/05/20/dems-debt-limit-biden-00097925">clean debt ceiling increase</a> he had insisted on for months. Republicans didn’t get most of <a href="https://www.nytimes.com/2023/04/26/us/politics/debt-limit-vote-republicans.html">what they sought in a bill</a> they passed in April – though they did get some of it. </p>
<p>As a <a href="https://www.linkedin.com/in/raymond-scheppach-19b98536/">professor of public policy</a> and former deputy director at the Congressional Budget Office, I believe the deal, which passed through both Houses of Congress just ahead of the June 5 deadline to avoid default, does hardly anything to address America’s long-term debt problem. To me, this outcome shows why a debt ceiling standoff is not the right way to solve it. </p>
<p>Let’s take a closer look at what I would consider the five main components of the new law to see what they’ll accomplish.</p>
<h2>1. Expanded work requirements for SNAP</h2>
<p>The Supplemental Nutrition Assistance Program has been a <a href="https://www.cbpp.org/research/food-assistance/house-republicans-proposals-could-take-food-away-from-millions-of-low">Republican target for a while</a>. </p>
<p>Under current law, an <a href="https://otda.ny.gov/programs/snap/qanda.asp">individual must work</a> or be in training for 80 hours per month if they receive SNAP food benefits in three or more out of 36 months, is able-bodied, does not live with dependent children and is under 50 years old. This entitlement program is 100% funded by the federal government but is administered by states, which have the ability to waive the requirements in some low-unemployment areas.</p>
<p>The new deal expands the eligibility requirements to people up to age 54 and limits some of the state waiver authority. It excludes veterans and homeless people from the tougher work requirements and will expire in 2030. </p>
<p>The <a href="https://www.cbo.gov/system/files/2023-05/hr3746_Letter_McCarthy.pdf">Congressional Budget Office estimated the changes</a> would result in a net gain of 78,000 people getting benefits, according to a letter sent to Congress May 30. And while that provision was intended to reduce spending, because of the exclusions the CBO expects it to actually increase spending by US$1.8 billion over the next decade. </p>
<p>The bill also contains some additional work requirements for welfare recipients for the temporary assistance for needy families program, but the changes are relatively minor.</p>
<h2>2. Cap on nondefense discretionary spending</h2>
<p>The main way the agreement restricts federal spending is through the temporary cap on nondefense discretionary spending. </p>
<p>Spending on everything other than defense, entitlements like Social Security, and veterans benefits will stay flat in next year’s budget relative to the 2023 amount and increase 1% the following year, with no limits after that. </p>
<p>But ultimately, the caps apply to just a small share of total government spending – less than 13%. So not only is it a very minor reduction in spending, it involves a small fraction of the federal budget. </p>
<p>In their House bill, Republicans had sought a larger cut in discretionary spending.</p>
<p>Entitlement programs will be unaffected by the deal, while defense spending will grow by 3.3% next year, as <a href="https://www.defensenews.com/congress/budget/2023/05/29/debt-ceiling-agreement-locks-in-bidens-proposed-defense-budget/">Biden requested in his budget</a>. </p>
<p>According to the Congressional Budget Office, the savings from the caps <a href="https://www.cbo.gov/system/files/2023-05/hr3746_Letter_McCarthy.pdf">will amount to about $1.3 trillion</a> over the next decade, with another $188 billion in total interest savings.</p>
<p>But I – and the White House – believe the actual savings will be much more modest, likely under $200 billion. The White House <a href="https://www.nytimes.com/2023/06/03/business/biden-debt-ceiling-deal.html">puts it at as little as $136 billion</a>. </p>
<p>That’s because enforcement mechanisms exist for only the first two years of the deal, and some accounting tricks make the total savings seem higher than they are. After that anything goes, and Congress <a href="https://www.cbpp.org/research/federal-budget/new-budget-deal-needed-to-avert-cuts-invest-in-national-priorities">has a record of restoring</a> funding lost to those types of caps. </p>
<p>One item that will see actual cuts is the <a href="https://www.cnbc.com/2023/04/07/what-the-irs-80-billion-funding-plan-means-for-taxpayers.html">$80 billion that previously had been allocated</a> to beef up IRS enforcement of tax cheats. The deal trims that by $1.4 billion immediately, while another $20 billion will be “repurposed” to shore up other discretionary items facing spending caps.</p>
<p>The Congressional Budget Office estimates the $1.4 billion cut will actually increase the deficit by $900 billion over a decade because it’ll result in reduced tax revenue due to less enforcement. The actual impact could be a lot higher, but the CBO didn’t do an estimate for the other $20 billion.</p>
<p>Republicans <a href="https://www.pbs.org/newshour/politics/heres-whats-in-the-gop-bill-to-lift-the-u-s-debt-limit">had wanted to slash IRS enforcement by a lot more</a>, or $71 billion of the $80 billion originally approved.</p>
<figure class="align-center ">
<img alt="A black man in a suit speaks at a lectern in front of several other people" src="https://images.theconversation.com/files/528935/original/file-20230529-22-cxfp48.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/528935/original/file-20230529-22-cxfp48.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/528935/original/file-20230529-22-cxfp48.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/528935/original/file-20230529-22-cxfp48.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/528935/original/file-20230529-22-cxfp48.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/528935/original/file-20230529-22-cxfp48.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/528935/original/file-20230529-22-cxfp48.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">House Minority Leader Hakeem Jeffries managed to round up more Democratic votes for the bill than Speaker McCarthy did, even though Republicans are in the mnajority.</span>
<span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/DebtLimit/a459d037959f46279efd48ffbde47463/photo?Query=debt%20ceiling&mediaType=photo&sortBy=arrivaldatetime:desc&dateRange=Anytime&totalCount=1087&currentItemNo=49">AP Photo/J. Scott Applewhite</a></span>
</figcaption>
</figure>
<h2>3. Streamlining energy leasing and permitting</h2>
<p>Both Republicans and Democrats have interest in expediting the environmental review process for new energy leases, but they have very different priorities. </p>
<p>Republicans are more interested in gas pipelines and fossil fuel projects, while Democrats are more interested in wind, solar and other alternative energy installations. The problem for both is that the approval of environmental and technical plans <a href="https://www.eenews.net/articles/drilling-permits-spiked-then-plunged-under-biden/">is very slow</a> and often involves all three levels of government. Also, at the federal level decisions often involve federal agencies with overlapping jurisdictions. </p>
<p>The new deal makes some minor changes to the environmental review process to make it go faster – though it’s less than what Republicans initially wanted. </p>
<h2>4. COVID-19 funding clawback</h2>
<p>White House and House Republican negotiators <a href="https://apnews.com/article/debt-ceiling-deal-food-aid-student-loans-3c284b01d95f8e193bca8d873386400e#:%7E:text=The%20agreement%20would%20rescind%20about,and%20broadband%20for%20rural%20areas.">agreed to claw back</a> $27 billion in unspent funds from six COVID-19 programs passed by Congress. </p>
<p>Some of these funds were allocated to various agencies, while others have already been distributed to states and even to local governments. The Congressional Budget Office expects the actual spending to go down by just $11 billion. </p>
<h2>5. No government shutdown</h2>
<p>Negotiators included a provision that should ensure there isn’t another fiscal crisis related to the 12 appropriations bills Congress must pass by October to keep the government funded into the next fiscal year. I think this is the most important component of the deal.</p>
<p>It automatically funds everything at 99% of the previous year’s level if Congress fails to pass the bills in time. Besides eliminating the possibility of a shutdown over the budget, as the U.S. <a href="https://theconversation.com/link-205178">has experienced in the past</a>, the 1% decrease in funding – on everything from education to defense – provides a strong incentive for Republicans and Democrats to negotiate a compromise that keeps their priorities fully funded.</p>
<h2>The bottom line</h2>
<p>As you can see, while the deal limits some spending in the short run, it does very little to tackle America’s long-term debt problem, which I believe urgently needs to be addressed. </p>
<p>The <a href="https://fred.stlouisfed.org/series/GFDEBTN">U.S. national debt has exploded</a>, most recently as a result of trillions of dollars in spending related to the COVID-19 pandemic. At a <a href="https://www.usdebtclock.org/">little under $32 trillion</a>, it’s over 120% of gross domestic product, which <a href="https://www.gao.gov/products/gao-23-106201">is considered unsustainably high</a> and <a href="https://fred.stlouisfed.org/series/A091RC1Q027SBEA">is costing well over half a trillion dollars</a> in annual interest payments. At some point, investors may begin to see U.S. government bonds as a risky investment and stop buying, which would lead to higher borrowing costs and could bring down the entire U.S. financial system.</p>
<p>But using the debt ceiling as a negotiating tactic is unlikely to achieve the kinds of tough choices needed to meaningfully slow the growing mountain of U.S. debt. </p>
<p><a href="https://www.cbpp.org/research/federal-budget/where-do-our-federal-tax-dollars-go">About 60% of total government spending</a> goes to fund just a few items, such as Social Security, Medicare and national defense, <a href="https://theconversation.com/link-206462">that are very hard</a>, politically, to cut. And political realities make it nearly impossible to increase taxes. </p>
<p>But a <a href="https://www.congress.gov/93/statute/STATUTE-88/STATUTE-88-Pg297.pdf">budgeting process known as reconciliation</a> was created specifically for this purpose because it allows Congress to cut any mandatory spending and entitlement program and increase taxes in one bill. It also can’t be filibustered in the Senate – it just needs a majority. </p>
<p>To truly address the debt problem, what is needed, in my view, is a balanced bipartisan proposal that includes cuts to all programs, as well as some significant tax increases. <a href="https://theconversation.com/voters-want-compromise-in-congress-so-why-the-brinkmanship-over-the-debt-ceiling-206465">Political brinkmanship</a> won’t get America there.<br>
For all the debt ceiling drama and the risks of profound economic damage and global tensions that resulted from it, Republicans achieved only a two-year cap on a small fraction of the total budget. Reconciliation – and lawmakers willing to govern and compromise – is a far superior way to attain a comprehensive deficit-reduction plan. </p>
<p><em>This article was updated to include deal’s passage and CBO estimates.</em></p><img src="https://counter.theconversation.com/content/205958/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Raymond Scheppach does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Congress passed and the president signed the deal just days before the US was expected to default on its debt.Raymond Scheppach, Professor of Public Policy, University of VirginiaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2048632023-05-02T17:23:54Z2023-05-02T17:23:54ZYellen puts Congress on notice over impending debt default date: 5 essential reads on what’s at stake<figure><img src="https://images.theconversation.com/files/523872/original/file-20230502-28-3tukkp.jpg?ixlib=rb-1.1.0&rect=12%2C38%2C4230%2C2723&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Treasury Secretary Janet Yellen doesn't want to look back in anger over a debt deadline missed.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/secretary-janet-yellen-leaves-after-an-open-session-of-a-news-photo/1483917268?adppopup=true">Photo by Alex Wong/Getty Images</a></span></figcaption></figure><p>Lawmakers have been <a href="https://apnews.com/article/x-date-debt-ceiling-yellen-treasury-borrowing-f726fd88a9bb7f72e50f0b948731ac57">given notice of a new deadline</a> if they are to avoid a damaging default on U.S. debt: June 1, 2023.</p>
<p>If Congress fails to raise the nation’s borrowing limit by that date, <a href="https://home.treasury.gov/news/press-releases/jy1454">Treasury Secretary Janet Yellen warned</a>, then the federal government risks being “unable to continue to satisfy all of the government’s obligations.”</p>
<p>Giving herself a little wiggle room by saying that it is pretty hard to work out the exact date of default, Yellen was clear on the potential impact: “If Congress fails to increase the debt limit, it would cause severe hardship to American families, harm our global leadership position, and raise questions about our ability to defend our national security interests.”</p>
<p>Yikes!</p>
<p>The warning may spur leaders in Congress into action. House Speaker Kevin McCarthy <a href="https://apnews.com/article/speaker-kevin-mccarty-debt-ceiling-biden-1dd542c6c7acfc2287e68e6facae2be4">fired the starting pistol on negotiations</a> over the debt ceiling in April, laying out the criteria under which Republicans would accept an increase. But McCarthy’s proposals – which have since passed <a href="https://www.theguardian.com/us-news/2023/apr/26/us-house-debt-ceiling-bill-passed-kevin-mccarthy">a narrow vote in the House</a> – have been shot down by the Biden administration for <a href="https://theconversation.com/snap-work-requirements-dont-actually-get-more-people-working-but-they-do-drastically-limit-the-availability-of-food-aid-204257">having strings attached</a> that Democrats deemed unacceptable.</p>
<p>Explaining why the U.S. has a debt ceiling in the first place – and why it is a constant source of political wrangling – is a complicated matter. Here are five articles from The Conversation’s archive that provide some of the answers.</p>
<h2>1. What exactly is the debt ceiling?</h2>
<p>So, some basics. The debt ceiling was established by the U.S. Congress in 1917. It limits the total national debt by setting out a maximum amount that the government can borrow.</p>
<p>Steven Pressman, an <a href="https://ww4.newschool.edu/nssr/faculty/steven-pressman/">economist at The New School</a>, explained the original aim was “to let then-President Woodrow Wilson spend the money he deemed necessary to fight World War I without waiting for often-absent lawmakers to act. Congress, however, did not want to write the president a blank check, so it limited borrowing to US$11.5 billion and required legislation for any increase.”</p>
<p>Since then, the debt ceiling has <a href="https://theconversation.com/why-america-has-a-debt-ceiling-5-questions-answered-164977">been increased dozens of times</a>. It currently stands at $31.4 trillion – a figure already reached. As a result, the Treasury has taken “extraordinary measures” to enable it to keep borrowing without breaching the ceiling. Such measures, however, can only be temporary – meaning at one point Congress will have to act to lift the ceiling or default on its debt obligations, which <a href="https://www.nytimes.com/2023/04/18/business/debt-limit-wall-street.html">is expected to happen in July</a> or August.</p>
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Read more:
<a href="https://theconversation.com/why-america-has-a-debt-ceiling-5-questions-answered-164977">Why America has a debt ceiling: 5 questions answered</a>
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<h2>2. ‘Catastrophic’ consequences</h2>
<p>How bad could it be if the U.S. does default on its debt obligations? Well, <a href="https://theconversation.com/if-the-us-defaults-on-debt-expect-the-dollar-to-fall-and-with-it-americans-standard-of-living-169079">pretty bad</a>, according to Michael Humphries, <a href="https://tci.touro.edu/academics/faculty/">deputy chair of business administration at Touro University</a>, who wrote two articles on the consequences. </p>
<p>“The knock-on effect of the U.S. defaulting would be catastrophic. Investors such as pension funds and banks holding U.S. debt could fail. Tens of millions of Americans and thousands of companies that depend on government support could suffer. The dollar’s value could collapse, and the U.S. economy would most likely sink back into recession,” he wrote.</p>
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Read more:
<a href="https://theconversation.com/if-the-us-defaults-on-debt-expect-the-dollar-to-fall-and-with-it-americans-standard-of-living-169079">If the US defaults on debt, expect the dollar to fall – and with it, Americans' standard of living</a>
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<h2>3. Undermining the dollar</h2>
<p>And that’s not all. </p>
<p>Such a default could undermine the U.S. dollar’s position as a “unit of account,” which makes it a widely used currency in global finance and trade. Loss of this status would be a <a href="https://theconversation.com/us-debt-default-could-trigger-dollars-collapse-and-severely-erode-americas-political-and-economic-might-198395">severe economic and political blow</a> to the U.S. But Humphries conceded that putting a dollar value on the price of a default is hard: </p>
<p>“The truth is, we really don’t know what will happen or how bad it will get. The scale of the damage caused by a U.S. default is hard to calculate in advance because it has never happened before.”</p>
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Read more:
<a href="https://theconversation.com/us-debt-default-could-trigger-dollars-collapse-and-severely-erode-americas-political-and-economic-might-198395">US debt default could trigger dollar’s collapse – and severely erode America’s political and economic might</a>
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<h2>4. Can McCarthy make a deal?</h2>
<p>Many of these concessions are known, such as allowing a single member of the House to call for a vote to remove him as speaker. But there many be others that remain secret and <a href="https://theconversation.com/house-speaker-mccarthys-powers-are-still-strong-but-hell-be-fighting-against-new-rules-that-could-prevent-anything-from-getting-done-197391">could be influencing McCarthy’s decision-making</a>, argued <a href="https://pennstatelaw.psu.edu/faculty/brand">Stanley M. Brand</a>, a law professor at Penn State and former general counsel for the House. These could make it much harder to reach a deal with Biden over the debt ceiling.</p>
<p>“Some of the new rules spawned by McCarthy’s concessions may appear to democratize the procedures for considering and passing legislation. But they are likely to make it difficult for members to get the working majority necessary to pass legislation,” Brand explained. “That could make things such as raising the statutory debt ceiling, which is necessary to avert a government shutdown and financial crisis, and passing legislation to fund the government, difficult.”</p>
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Read more:
<a href="https://theconversation.com/house-speaker-mccarthys-powers-are-still-strong-but-hell-be-fighting-against-new-rules-that-could-prevent-anything-from-getting-done-197391">House Speaker McCarthy's powers are still strong – but he'll be fighting against new rules that could prevent anything from getting done</a>
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<h2>5. The GOP endgame: A balanced budget</h2>
<p>Another condition McCarthy agreed to in January is to push for a “balanced budget” within 10 years.</p>
<p>The U.S. government hasn’t had a balanced budget since 2001, the year President Bill Clinton left office. <a href="https://www.hks.harvard.edu/faculty/linda-bilmes">Linda J. Bilmes</a>, a senior lecturer in public policy and public finance at Harvard Kennedy School who worked in the Clinton administration from 1997 to 2001, explained how they achieved that rare feat and <a href="https://theconversation.com/i-helped-balance-the-federal-budget-in-the-1990s-heres-just-how-hard-it-will-be-for-the-gop-to-achieve-that-same-rare-feat-198363">why it’s unlikely to be repeated today</a>. </p>
<p>“Back in 1997, after the smoke cleared, both the Clinton administration and the Republicans in Congress were able to claim some political credit for the resulting budget surpluses,” she wrote. “But – crucially – both parties recognized that a deal was in the best interest of the country and were able to line up their respective members to get the votes in Congress needed to approve it. The contrast with the current political landscape is stark.”</p>
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<em>
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Read more:
<a href="https://theconversation.com/i-helped-balance-the-federal-budget-in-the-1990s-heres-just-how-hard-it-will-be-for-the-gop-to-achieve-that-same-rare-feat-198363">I helped balance the federal budget in the 1990s – here's just how hard it will be for the GOP to achieve that same rare feat</a>
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<p><em>Editor’s note: This story is a roundup of articles from The Conversation’s archives. Sections of this article appeared in a <a href="https://theconversation.com/speaker-mccarthy-lays-out-initial-cards-in-debt-ceiling-debate-5-essential-reads-on-why-its-a-high-stakes-game-204079">previous article</a> published on April 19, 2023.</em></p><img src="https://counter.theconversation.com/content/204863/count.gif" alt="The Conversation" width="1" height="1" />
If the US fails to increase its debt ceiling by June 1, it could be forced into an embarrassing – and hugely costly – default on its obligations.Matt Williams, Senior International EditorLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2017502023-03-14T15:48:43Z2023-03-14T15:48:43ZBudget explainer: here are some ways to read between the lines on what’s being reported<figure><img src="https://images.theconversation.com/files/515017/original/file-20230313-26-kuv4ic.jpg?ixlib=rb-1.1.0&rect=0%2C255%2C7034%2C3005&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Understanding economic news.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/diverse-group-people-community-togetherness-technology-497553619">Rawpixel.com/Shutterstock</a></span></figcaption></figure><p>UK budget announcements inevitably lead to a deluge of reporting on how the chancellor’s latest plans for the economy will affect our wallets, pensions and investments, as well as the bottom lines of businesses, charities and entire industries. </p>
<p>Sifting through all of this reporting can be confusing. Not just because of the sheer volume of budget-related news and analysis, but also because it’s difficult to accurately break down the real-life impacts of complex policy decisions for a wide audience, many of whom don’t have a background in economics or business.</p>
<p>A <a href="https://www.bbc.co.uk/aboutthebbc/documents/thematic-review-taxation-public-spending-govt-borrowing-debt.pdf">BBC review</a> of the impartiality of its reporting on fiscal policy – taxes, spending, government debt and so on – was certainly critical of the British broadcaster’s attempts to explain the economy. The report, published in November 2022, reflected many of the frustrations that academic economists like me have about the reporting of economic issues. </p>
<p>It’s unclear how much impact the BBC report will have on financial journalism, but we can at least use it to help people that aren’t economists spot when the reporting of economic issues may be more misleading than informative.</p>
<p>Recent figures showing <a href="https://www.gov.uk/government/statistics/hmrc-tax-and-nics-receipts-for-the-uk/hmrc-tax-receipts-and-national-insurance-contributions-for-the-uk-new-monthly-bulletin">unexpectedly high government tax takings</a> provide a great example. The data led to suggestions that the chancellor, Jeremy Hunt, will have more money to spend or give away in his budget. </p>
<p>But this treats the government as if it was a cash-constrained household, unable to borrow or save. Most governments <a href="https://theconversation.com/how-bonds-work-and-why-everyone-is-talking-about-them-right-now-a-finance-expert-explains-191550">find it easier to borrow</a> than households and firms. They can also create money through their central banks (as the UK did during the pandemic). So remember: any references to the government “<a href="https://www.ippr.org/blog/economists-urge-bbc-rethink-inappropriate-reporting-uk-economy">maxing out its credit card</a>” should be ignored.</p>
<h2>Debt isn’t always bad</h2>
<p>Assumptions that debt and deficits are inherently bad are also incorrect. For example, you might hear about “worrying” or “alarming” increases in government debt, which implies the government should be doing something to stop it – or even that it reflects government irresponsibility. </p>
<p>This kind of reporting was particularly prevalent under the UK coalition government of 2010-15. Some research shows it did <a href="https://www.taylorfrancis.com/chapters/edit/10.4324/9781003104476-17/media-austerity-mike-berry">a great deal of harm</a> in terms of encouraging public acceptance of spending cuts that have led to today’s impoverished public sector – and yet it persists. </p>
<p>In reality, debt and deficits allow governments to avoid cutting spending every time taxes are temporarily low (in a recession, for example) by borrowing instead.</p>
<p>Most economists would say what actually matters is that the <a href="https://en.wikipedia.org/wiki/Debt-to-GDP_ratio">ratio</a> of government debt to GDP should be stable in the long run – over decades rather than years. A record recession, <a href="https://ifs.org.uk/articles/10-years-have-we-recovered-financial-crisis#:%7E:text=The%20immediate%20result%20was%20a%20deficit%20of%20%C2%A3153%20billion%20or%20very%20nearly%2010%25%20of%20national%20income.">like that of 2008-2009</a>, is bound to produce record deficits. But economists generally have very little idea what the optimum level of government debt should be. In fact, governments can allow their debt to rise in recessions, as long as it stabilises (as a ratio of GDP) when the recession is over.</p>
<p>Reporting about debt sometimes also reflects two more general problems with economic news. The first is political, and involves internalising government policies. For example, you might read that a rising deficit means the government will have to cut spending. </p>
<p>What a news article on this topic should actually report is that a rising deficit means the government <em>will say</em> it has to cut spending. In fact, other choices like higher taxes or accepting higher borrowing are also possible. It is seldom true in economics that there is no alternative.</p>
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<img alt="Man standing in front of grey wall full with graph pie charts and calculations, finance, economics, uncertain, confused, frustrated." src="https://images.theconversation.com/files/515018/original/file-20230313-1442-j19r5v.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/515018/original/file-20230313-1442-j19r5v.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=364&fit=crop&dpr=1 600w, https://images.theconversation.com/files/515018/original/file-20230313-1442-j19r5v.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=364&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/515018/original/file-20230313-1442-j19r5v.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=364&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/515018/original/file-20230313-1442-j19r5v.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=457&fit=crop&dpr=1 754w, https://images.theconversation.com/files/515018/original/file-20230313-1442-j19r5v.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=457&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/515018/original/file-20230313-1442-j19r5v.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=457&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Trying to understand financial news.</span>
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<p>A related problem is when data is presented incorrectly, particularly in a way that creates alarm. The <a href="https://www.bbc.co.uk/aboutthebbc/documents/thematic-review-taxation-public-spending-govt-borrowing-debt.pdf">BBC review</a> starts with the example of a chart showing the value of government debt since 2020, with steady and sometimes quite rapid growth. But this value can be expected to rise over time because of inflation and economic growth.</p>
<p>So, be suspicious of charts that fail to “normalise variables” by, at the very least, adjusting the figures to account for inflation. Better still, such charts should show these figures as ratios to GDP, which will reveal any true underlying trends.</p>
<h2>Selective statistics</h2>
<p>We all know about the dangers of selective statistics. A notorious example that academic economists warn against is the comparison of GDP growth rates across countries in a single year. The winners and losers in such comparisons can vary a lot depending on the year chosen. It is always better to make longer-term comparisons. </p>
<p>But even when charts are used to show a decade or two of data, they can still be misleading if longer runs of data are available. The ratio of debt to GDP may look high today compared with 40 years ago, but it remains much lower than in the decades after the second world war.</p>
<p>NHS spending provides a good example of the last two problems combined. Even if you normalise NHS spending as a ratio of GDP over time, it tends to rise (the decade after 2010 is an exception). This can suggest the NHS is getting the resources it needs. However, the ratio of healthcare spending to GDP has been <a href="https://data.oecd.org/healthres/health-spending.htm">rising steadily in many countries</a> since the second world war, for reasons including ageing populations and advances in medicine. </p>
<p><strong>Rising healthcare spending</strong></p>
<iframe src="https://ourworldindata.org/grapher/public-health-expenditure-share-GDP-OWID" loading="lazy" style="width: 100%; height: 600px; border: 0px none;" width="100%" height="400"></iframe>
<p>So the key question is not whether NHS spending is rising, but whether this spending relative to UK GDP is above or below the underlying positive trend seen in other countries over decades.</p>
<p>Economics is, of course, not alone in being misrepresented by media reports. But <a href="https://mainlymacro.blogspot.com/2023/02/fiscal-reporting-at-bbc.html">I would argue</a> that reporting that gets the economics wrong has had an important impact on politics over the last 15 years.</p><img src="https://counter.theconversation.com/content/201750/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Simon Wren-Lewis has in the past received ESRC grants for developing a macroeconomic model of the UK economy. He has also been a consultant for H.M.Treasury, the Bank of England and the IMF.</span></em></p>Reading economic news can be confusing. Here’s how to understand what the news is – and isn’t – telling you.Simon Wren-Lewis, Emeritus Professor of Economics, and Emeritus Fellow of Merton College, University of OxfordLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1970882023-01-03T13:30:08Z2023-01-03T13:30:08ZGlobal economy 2023: Why central banks face an epic battle against inflation amid political obstacles<figure><img src="https://images.theconversation.com/files/502929/original/file-20230103-18-esxi1g.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">This could get ugly. </span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-vector/bull-vs-bear-on-stock-market-414654091">Shutterstock/Nataletado</a></span></figcaption></figure><p><em>Where is the global economy heading in 2023? After all the challenges of last year, it’s a question we ask with trepidation. Just as the economy was dealing with the ongoing effects of the COVID-19 pandemic, Russia’s invasion of Ukraine in February ramped up inflation.</em></p>
<p><em>Significant rises in the cost of vital items such as food and energy created a cost of living crisis that has engulfed households and businesses. Central banks reacted with a raft of interest-rate hikes, while a wave of industrial action saw workers in many countries fighting for pay and conditions to keep pace with this new economic era.</em> </p>
<p><em>Now, as we enter 2023, these conditions are set to continue, and the IMF thinks that a third of the world will experience a recession in the coming months.</em></p>
<p><em>To help you make sense of the way ahead, our international network has put together a series of expert briefings on the global economy in 2023. Publishing over the next few days, they will include reports on the cost of living crisis and industrial action, and deep dives into key areas like energy, food and the global supply chain.</em></p>
<p><em>Today’s article kicks us off by looking at where next for inflation, interest rates and economic growth.</em></p>
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<p>Some of the world’s biggest economies – and their central banks – face a tricky task this year taming inflation via higher interest rates without triggering a recession. </p>
<p>And whether they like it or not, the U.S. Federal Reserve, the Bank of England and other central banks are now being thrust into the center of a political debate that could threaten their independence as well as their ability to act decisively to curb rising prices. </p>
<p><a href="https://www.city.ac.uk/about/people/academics/steve-schifferes">I’ve been following and covering politics and finance</a> for four decades as a reporter and now as an economics research fellow. I believe there are two key ways politics may interfere with central bank plans in 2023. </p>
<h2>An inflationary challenge</h2>
<p>High inflation is perhaps the biggest challenge facing the world economy over the coming year.</p>
<p>Inflation has rapidly accelerated and <a href="https://www.pewresearch.org/fact-tank/2021/11/24/inflation-has-risen-around-the-world-but-the-u-s-has-seen-one-of-the-biggest-increases/">is now at or near its highest rate</a> in decades in most developed economies like the U.S. and in Europe, causing <a href="https://www.imf.org/en/Publications/WEO/Issues/2022/10/11/world-economic-outlook-october-2022">living standards to stagnate or decline</a> in many countries. This has particularly hurt the poorest people, who suffer a <a href="https://www.ons.gov.uk/economy/inflationandpriceindices/articles/inflationandthecostoflivingforhouseholdgroups/october2022">higher rate of inflation</a> than the general population because they spend more of their income on food and energy.</p>
<p>The sharp rise in inflation caught central banks by surprise after <a href="https://www.yahoo.com/video/past-two-decades-low-inflation-173230207.html">two decades of low and stable inflation</a>. They reacted by aggressively raising interest rates in the second half of 2022, with the Fed leading the way. The U.S. central bank <a href="https://www.federalreserve.gov/monetarypolicy/openmarket.htm">lifted rates 4.25 percentage points</a> over a six-month period, and the <a href="https://www.reuters.com/markets/global-central-banks-deliver-historic-rate-hike-blast-2022-2022-12-23/">Bank of England, the European Central Bank and others</a> followed in its footsteps. </p>
<p>Their strategies seem to be working. <a href="https://www.bls.gov/news.release/cpi.nr0.htm">Inflation in the U.S.</a> has slowed, while <a href="https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/consumerpriceinflation/november2022">in the U.K.</a> and <a href="https://ec.europa.eu/eurostat/statistics-explained/index.php?title=Inflation_in_the_euro_area#Euro_area_annual_inflation_rate_and_its_main_components">the eurozone</a>, recent data suggests inflation may have peaked – although it’s still very high, at around 10% – and might start trending down.</p>
<p>But interest rate hikes – which are expected to continue in 2023, albeit at a slower pace – could further cloud the outlook for economic growth, which already looks grim for developed economies.</p>
<p>The Organization for Economic Cooperation and Development predicts that in 2023 both the U.S. and the eurozone <a href="https://www.oecd.org/economic-outlook/november-2022/">will grow by only 0.5%</a>, well below their historic averages, while Europe’s largest economy, Germany, will actually shrink by 0.3%. In the U.K., the <a href="https://www.bankofengland.co.uk/monetary-policy-report/2022/november-2022">Bank of England projects</a> that the economy will continue to shrink until the middle of 2024.</p>
<h2>Fiscal spending and inflation</h2>
<p>That brings us to the first political problem that could upset central bank plans: government spending. </p>
<p>The politics is playing out in different ways. In the U.S., spending has increased substantially, most notably with the <a href="https://www.whitehouse.gov/bipartisan-infrastructure-law/">$1.2 trillion infrastructure bill</a> signed into law in late 2021 and the $1.7 trillion budget bill passed in December.</p>
<p>This kind of expansionary fiscal policy, which may be in place for years, could undermine attempts by central banks like the Fed to fight inflation. As the central banks seek to reduce inflation by curbing demand, <a href="https://www.ecb.europa.eu/events/pdf/conferences/Galietal.pdf">increased government spending has the opposite effect</a>. This could force the Fed and other banks to raise rates even higher than they otherwise would have.</p>
<p>In Europe and the U.K., governments <a href="https://www.cnn.com/2022/09/08/business/liz-truss-energy-price-cap-europe/index.html">have been forced to spend billions</a> to subsidize the energy bills of consumers and businesses, while the economic slowdown has reduced their tax revenue, leading to soaring government deficits</p>
<p>Nevertheless, in the U.K. the <a href="https://www.gov.uk/government/news/chancellor-delivers-plan-for-stability-growth-and-public-services">Conservative government has prioritized the fight against inflation</a>, announcing cutbacks to consumer subsidies for energy, plus higher taxes and further cuts in public spending if it wins the next general election, which is expected to take place in 2024. While these actions are deflationary, they are <a href="https://yougov.co.uk/topics/politics/articles-reports/2022/12/16/voting-intention-con-23-lab-48-14-15-dec-2022">politically unpopular</a>.</p>
<p>The Bank of England is now split on whether, or how fast, to <a href="https://www.bankofengland.co.uk/monetary-policy-summary-and-minutes/2022/december-2022">continue to raise rates</a>. </p>
<figure class="align-center ">
<img alt="Two white women hold up signs, one reading 'nurses running on empty, SOS,' in front of a brick building" src="https://images.theconversation.com/files/502855/original/file-20230102-16-5qi3nt.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/502855/original/file-20230102-16-5qi3nt.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=405&fit=crop&dpr=1 600w, https://images.theconversation.com/files/502855/original/file-20230102-16-5qi3nt.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=405&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/502855/original/file-20230102-16-5qi3nt.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=405&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/502855/original/file-20230102-16-5qi3nt.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=508&fit=crop&dpr=1 754w, https://images.theconversation.com/files/502855/original/file-20230102-16-5qi3nt.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=508&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/502855/original/file-20230102-16-5qi3nt.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=508&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The inflation crisis is increasingly turning political as workers strike over wages not matching the soaring cost of living.</span>
<span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/BritainStrikes/dab904e651eb4ae4b22e507babc01bf1/photo?Query=strike%20nurses%20uk&mediaType=photo&sortBy=arrivaldatetime:desc&dateRange=Anytime&totalCount=87&currentItemNo=20">AP Photo/Kirsty Wigglesworth</a></span>
</figcaption>
</figure>
<h2>Central bank independence under threat</h2>
<p>The other political problem is more existential for central banks and makes their task all the more delicate. </p>
<p>For the past 20 years, their independence from government interference and the setting of public inflation targets at around 2% <a href="https://www.cato.org/cato-journal/winter-2020/fresh-look-central-bank-independence">have helped them gain credibility</a> in fighting inflation, which stayed at historic lows for much of the 21st century. </p>
<p>Now both their credibility and independence may be under threat.</p>
<p>Central bankers, especially in Europe, are acutely aware of public concerns about how <a href="https://www.pbs.org/newshour/economy/inflation-in-europe-likely-to-increase-more-interest-rate-hikes-likely-warns-central-bank-president">higher interest rates might stifle growth</a>, in part because their economies have been more severely affected than the U.S. by the Ukraine war. Meanwhile, consumers are being hit by higher mortgage payments, which may <a href="https://www.ft.com/content/76e8b499-2381-463d-ac6d-9d3507f150c3">tank the housing market</a>.</p>
<p>At the same time, central bank efforts to persuade workers <a href="https://www.bbc.co.uk/news/business-60206564">not to ask for higher wages</a> to compensate for inflation, which would help reduce the need for more interest rate hikes, have spectacularly backfired, especially in Britain, where a <a href="https://www.ft.com/content/f5123b82-84a5-4af4-93e9-420803b8128f">wave of strikes</a> by public-sector workers shows no sign of abating.</p>
<p>Long-standing <a href="https://www.sciencedirect.com/science/article/abs/pii/S0176268022000234">political tensions</a> over the role of the European Central Bank have been exacerbated by the election of <a href="https://www.reuters.com/markets/europe/italy-minister-takes-swipe-ecb-after-policy-moves-hit-markets-2022-12-15/">right-wing governments</a> in <a href="https://www.pewresearch.org/fact-tank/2022/10/06/populists-in-europe-especially-those-on-the-right-have-increased-their-vote-shares-in-recent-elections/">several eurozone countries</a>. </p>
<p>Traditionally, under the influence of Germany’s Bundesbank, the European Central Bank has <a href="https://www.bundesbank.de/en/press/interviews/-inflation-is-one-of-the-biggest-worries-for-germans-at-the-moment--899798">worried about inflation</a> more than other central banks. Under competing political pressures, it has moved more slowly than some other central banks to unwind its policy of low – and even negative – interest rates.</p>
<p>On the other side of the Atlantic, where Fed Chief Jerome Powell <a href="https://apnews.com/article/inflation-business-prices-jerome-powell-government-and-politics-9e7fed8f82ffbe9af205ec969e6277af">has rejected any attempt</a> to mitigate his focus on inflation, political pressures may grow from <a href="https://thehill.com/policy/finance/3714503-democrats-tell-fed-chief-rate-hikes-disregard-working-families/">both left</a> and right, particularly if <a href="https://www.wsj.com/articles/trump-steps-up-attacks-on-fed-chairman-jerome-powell-1540338090">Donald Trump</a> becomes the Republican presidential nominee. This ultimately <a href="https://kelo.com/2022/12/21/republican-senators-propose-overhaul-of-federal-reserve-amid-concerns-about-politics/">may lead Congress or a new administration</a> to try to change the central bank’s approach, its leadership and even its mandate.</p>
<h2>Uncharted waters</h2>
<p>None of this might be a problem if <a href="https://www.forbes.com/advisor/investing/inflation-outlook-2023/">central bank projections</a> of a sharp fall in inflation by the end of 2023 come to pass. But these projections are based on the belief that energy prices will continue to remain below their peak or even fall further in the coming year. </p>
<p>Just as in 2022, when central banks <a href="https://www.bloomberg.com/news/articles/2022-07-29/here-s-how-badly-central-banks-failed-to-spot-inflation-shock">failed to grasp the inflationary threat</a> early enough, other <a href="https://www.imf.org/en/Publications/WEO">risks beyond their control</a>, as well as political developments, may derail their hopes. These include an escalation of the war in Ukraine, which could raise energy prices further, more supply chain disruptions from China, and domestic pushes for higher wages.</p>
<p>With the cost-of-living crisis now at the <a href="https://www.weforum.org/agenda/2022/10/worries-inflation-economy-concerns/">top of the public’s agenda</a> in many developed countries, the setting of interest rates has ceased to be just a technical matter and has instead become highly political. Both governments and central banks are entering uncharted waters in their attempt to curb inflation without stifling growth. If their projections prove overly optimistic, the political as well as the economic costs could be high.</p>
<p>All this means that the outlook for inflation is highly uncertain. And fears of <a href="https://theconversation.com/1970s-style-stagflation-now-playing-on-central-bankers-minds-185868">1970s-style stagflation</a> – high inflation and stagnant economic growth – could become a reality.</p>
<hr>
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<img alt="" src="https://images.theconversation.com/files/502930/original/file-20230103-20-riy0if.png?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/502930/original/file-20230103-20-riy0if.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=600&fit=crop&dpr=1 600w, https://images.theconversation.com/files/502930/original/file-20230103-20-riy0if.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=600&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/502930/original/file-20230103-20-riy0if.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=600&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/502930/original/file-20230103-20-riy0if.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=754&fit=crop&dpr=1 754w, https://images.theconversation.com/files/502930/original/file-20230103-20-riy0if.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=754&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/502930/original/file-20230103-20-riy0if.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=754&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<p><em>This article is part of <a href="https://theconversation.com/topics/global-economy-2023-132115">Global Economy 2023</a>, our series about the challenges facing the world in the year ahead. You might also like our Global Economy Newsletter, which you can <a href="https://theconversation.com/uk/newsletters/global-economy-and-business-115?utm_source=Global+Economy&utm_medium=linkback&utm_campaign=2023">subscribe to here</a>.</em></p><img src="https://counter.theconversation.com/content/197088/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Steve Schifferes does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Central banks are raising interest rates to tame inflation, but 2023 will increasingly turn a technical decision into a political challenge.Steve Schifferes, Honorary Research Fellow, City Political Economy Research Centre, City, University of LondonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1968702022-12-20T05:03:40Z2022-12-20T05:03:40ZThe Morrison government spent a record amount on taxpayer-funded advertising, new data reveal<p>The federal government is a big spender in the advertising world, regularly spending more than major companies such as McDonald’s, Telstra and Coles. New data <a href="https://www.finance.gov.au/publications/reports/campaign-advertising-australian-government-departments-and-agencies-report-2021-22">released on Friday by the Department of Finance</a> shows that in the lead-up to the May 2022 election, the Coalition government’s advertising spend skyrocketed yet again.</p>
<p>The past financial year was the biggest year on record for taxpayer-funded advertising. The previous federal government spent A$339 million on taxpayer-funded advertising campaigns in 2021-22, well above the <a href="https://grattan.edu.au/wp-content/uploads/2022/10/Grattan-Institute-advertising-report.pdf">25-year average</a> of about $200 million a year.</p>
<p>In the first six months of 2022, the previous government was the <a href="https://www.mediaweek.com.au/nielsen-unveils-the-biggest-ad-spenders-for-the-first-half-of-2022/">biggest advertising spender</a> in the country.</p>
<figure class="align-center ">
<img alt="Graph showing annual federal government spending on advertising campaigns" src="https://images.theconversation.com/files/502056/original/file-20221220-16-yqs7ym.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/502056/original/file-20221220-16-yqs7ym.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/502056/original/file-20221220-16-yqs7ym.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/502056/original/file-20221220-16-yqs7ym.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/502056/original/file-20221220-16-yqs7ym.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/502056/original/file-20221220-16-yqs7ym.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/502056/original/file-20221220-16-yqs7ym.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<p>The Morrison government ran 28 separate advertising campaigns last financial year – the most on record. Many were for legitimate purposes, such as an $89 million campaign encouraging take-up of the COVID-19 vaccine, and a $25 million campaign urging people to fill out the Census.</p>
<p>But sometimes, taxpayer-funded advertising campaigns seek to confer a political advantage. This is often achieved by including party slogans or colours, and/or spruiking government achievements – often in the lead-up to elections.</p>
<figure class="align-center ">
<img alt="Chart showing the top 20 most expensive taxpayer-funded campaigns for 2021-22" src="https://images.theconversation.com/files/502021/original/file-20221219-22-4nj10j.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/502021/original/file-20221219-22-4nj10j.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/502021/original/file-20221219-22-4nj10j.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/502021/original/file-20221219-22-4nj10j.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/502021/original/file-20221219-22-4nj10j.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/502021/original/file-20221219-22-4nj10j.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/502021/original/file-20221219-22-4nj10j.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="attribution"><span class="license">Author provided</span></span>
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<h2>Why does government advertising spike before elections?</h2>
<p>Taxpayer-funded advertising typically spikes in election years, and 2022 was no exception.</p>
<p>In the six months leading up to the 2022 election, the Coalition government spent about <a href="https://www.finance.gov.au/publications/reports/advertising">$180 million</a>, compared with about $120 million in the six months leading up to the 2019 election.</p>
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<img alt="Chart showing federal government advertising spend spikes just before federal elections" src="https://images.theconversation.com/files/502022/original/file-20221219-18-4nzzzb.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/502022/original/file-20221219-18-4nzzzb.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/502022/original/file-20221219-18-4nzzzb.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/502022/original/file-20221219-18-4nzzzb.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/502022/original/file-20221219-18-4nzzzb.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/502022/original/file-20221219-18-4nzzzb.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/502022/original/file-20221219-18-4nzzzb.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="attribution"><span class="license">Author provided</span></span>
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<p>An otherwise legitimate campaign might be strategically run pre-election to encourage a positive impression of the government. For example, an $18 million federal government campaign on recycling was called out by the then-Labor opposition as “<a href="https://www.joshwilson.org.au/2022/02/15/more-waste-more-rubbish-government-spends-millions-on-greenwashing-again/">ridiculous and self-serving greenwash</a>”.</p>
<p>But usually, pre-election advertising also contains messages that look politically motivated – promoting the government’s policy platform on key election issues.</p>
<p>For example, the $28.5 million Emissions Reduction campaign – the third most expensive campaign of the year – ran from September 2021 to April 2022, and sought to promote the government’s “<a href="https://www.theguardian.com/media/2022/feb/14/coalition-spends-31m-on-ads-spruiking-efforts-to-cut-greenhouse-gas-emissions">good progress</a>” on reducing greenhouse emissions and switching to renewable energy. The campaign clearly used messaging that created a positive image of the government’s performance, and lacked a call to action that might justify it on public interest grounds.</p>
<p><a href="https://grattan.edu.au/report/new-politics-depoliticising-taxpayer-funded-advertising/">Grattan Institute analysis</a> shows that typically, about a quarter of government spending on advertising is politicised in some way, by both sides of politics. Historically, about $50 million on average each year has been spent on campaigns that are politicised.</p>
<p>The former government’s “<a href="https://www.finance.gov.au/sites/default/files/2022-12/Campaign%20Advertising%20by%20Australian%20Government%20Departments%20and%20Agencies%20-%20Report%202021-22.pdf">COVID-19 Economic Recovery Plan</a>” fell into this category, because it blatantly spruiked the government of the day, without requiring any action or behaviour change from citizens.</p>
<p>Officially, the campaign sought “to inform Australians about the government response to the recurring challenges being faced and reassure [us] there was an adaptable and future-focused plan in place for the economy”.</p>
<p>This was criticised by Labor Senator Tim Ayres in early 2022, <a href="https://www.theaustralian.com.au/nation/treasury-suspends-10m-ad-blitz-promoting-economic-recovery-and-coalitions-job-record-due-to-poll/news-story/5b42f2f756ba253a81bf15c25eb9b933">who asked</a>: </p>
<blockquote>
<p>What possible public purpose is there in ‘Australia’s Economic Plan – we’re taking the next step’? […] What is it asking people to do apart from vote Liberal?</p>
</blockquote>
<h2>Why is politicisation of taxpayer-funded advertising harmful?</h2>
<p>Politicisation of taxpayer-funded advertising is wasteful and creates an uneven playing field in elections.</p>
<p>Government advertising budgets are well above the expenditure of individual political parties, even in election years.</p>
<p>We won’t know until February 2023 how much political parties spent in the 2022 federal election. But in the lead-up to the 2019 election, <a href="https://transparency.aec.gov.au/download">the Coalition spent $178 million, Labor $122 million, and Clive Palmer $89 million</a>, with advertising only a portion of their expenses.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/how-big-money-influenced-the-2019-federal-election-and-what-we-can-do-to-fix-the-system-131141">How big money influenced the 2019 federal election – and what we can do to fix the system</a>
</strong>
</em>
</p>
<hr>
<h2>How things should change</h2>
<p>The new federal government has announced it will cut taxpayer-funded advertising, although by how much is not yet clear. Labor has promised to tackle <a href="https://www.adnews.com.au/news/the-federal-government-slashes-advertising-budget">advertising</a> as part of its broader “rorts and waste” audit.</p>
<p>That promise to cut wasteful spending will be best tested by whether Labor tightens the rules and oversight for government advertising.</p>
<p>Public money should not be used to spruik government policies. It should be used only on public-interest advertising campaigns that have a clear “need to know” message and a call to action.</p>
<p>An independent panel should be established to check compliance. The panel should have the power to knock back campaigns that aren’t compliant – whether they are politicised, or more generally don’t offer value for money.</p>
<p>And if the rules are broken, then the political party – not the taxpayer – should foot the bill for the entire advertising campaign.</p>
<p>Establishing a proper process is the only way to truly reduce waste and restore public confidence in genuinely important government messages.</p>
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<p><em>Kate Griffiths and Anika Stobart are coauthors of <a href="https://grattan.edu.au/report/new-politics-depoliticising-taxpayer-funded-advertising/">New politics: Depoliticising taxpayer-funded advertising</a>, Grattan Institute, 2022.</em></p><img src="https://counter.theconversation.com/content/196870/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The Grattan Institute began with contributions to its endowment of $15 million from each of the Federal and Victorian Governments, $4 million from BHP Billiton, and $1 million from NAB. In order to safeguard its independence, Grattan Institute’s board controls this endowment. The funds are invested and contribute to funding Grattan Institute's activities. Grattan Institute also receives funding from corporates, foundations, and individuals to support its general activities as disclosed on its website.</span></em></p><p class="fine-print"><em><span>Kate Griffiths does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Politicisation of taxpayer-funded advertising is wasteful and creates an uneven playing field in elections.Kate Griffiths, Deputy Program Director, Grattan InstituteAnika Stobart, Senior Associate, Grattan InstituteLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1948292022-11-17T16:15:40Z2022-11-17T16:15:40ZAutumn statement 2022: experts react<p><em>UK chancellor Jeremy Hunt laid out his plans for the British economy today. The statement was made against a backdrop of a more than <a href="https://www.theguardian.com/business/2022/nov/16/uk-inflation-rate-energy-price-rises">40-year inflation high</a> and <a href="https://www.reuters.com/markets/europe/bank-englands-recession-warning-turns-spotlight-uk-budget-plan-2022-11-04/">recession warnings</a> from the Bank of England.</em></p>
<p><em>Hunt <a href="https://www.bbc.co.uk/news/live/uk-63591754?ns_mchannel=social&ns_source=twitter&ns_campaign=bbc_live&ns_linkname=6376067f49d9ef23494baaa2%26Chancellor%20appears%20outside%20Number%2011%262022-11-17T10%3A39%3A53.657Z&ns_fee=0&pinned_post_locator=urn:asset:0263a644-4497-4d45-a22b-8036cd5e4921&pinned_post_asset_id=6376067f49d9ef23494baaa2&pinned_post_type=share">skipped the usual photocall</a> with his red ministerial box, since this is an autumn statement rather than a full-blown budget.</em></p>
<p><em>The main aim of the statement is to <a href="https://theconversation.com/rishi-sunak-faces-a-very-different-economy-to-the-one-he-left-as-chancellor-heres-what-he-must-tackle-as-prime-minister-193150">restore government credibility</a> following the disastrous <a href="https://theconversation.com/mini-budget-2022-experts-react-to-the-new-uk-governments-spending-and-tax-cut-plans-191274">September mini-budget</a> from the previous chancellor Kwasi Kwarteng. To do this, Hunt said before the announcement that he would be making “<a href="https://www.itv.com/news/2022-10-17/jeremy-hunt-to-outline-mini-budget-tax-spending-and-plan-today">eye-watering</a>” decisions about tax rises and spending cuts.</em></p>
<p><em>We asked a panel of experts to analyse whether the government has achieved these twin aims of stabilising the economic picture and addressing a dire cost of living crisis.</em></p>
<h2>Stealth taxes and rising costs</h2>
<p><strong>Jonquil Lowe, senior lecturer in economics and personal finance, The Open University</strong></p>
<p>The government’s expected spending cuts and tax rises, set to reach £30 billion and £24 billion respectively, were difficult to spot. Instead, the chancellor appeared to be announcing more spending on health, social care and education, while promising continued help with energy costs and the cost-of-living crisis. </p>
<p>But in the shadows loomed stealth taxes and public service “efficiency savings” as inflation rates continues to bite, with the OBR <a href="https://obr.uk/">predicting</a> that living standards will fall by 7% over the next two years</p>
<p>Starting with income tax, the thresholds of personal allowance (£12,570) and higher-rate tax (£50,270) will now remain frozen until April 2028. So too will the threshold for national insurance (also £12,570). </p>
<p>This means that as incomes rise (even if not by enough to counter the impact of inflation) more people who were previously non-taxpayers will start to pay tax, and more basic-rate taxpayers will slip into the higher-rate bracket. More people will also pay the 45% rate as that threshold drops from £150,000 to £125,140.</p>
<p>From April 2023, households will also see a bigger rise in council tax bills, as local authorities are given the freedom to increase them by up to 5%, which includes 2% to meet social care costs. Plans designed <a href="https://theconversation.com/social-care-reform-lifetime-cap-on-costs-may-only-partially-protect-assets-167574">to protect individuals</a> from bearing catastrophically higher care costs have been delayed for two years.</p>
<p>Meanwhile, the energy price guarantee which shields households from the full impact of soaring global energy prices is set to be extended by 12 more months from April 2023. Although energy costs will still rise, the “typical” household will see their energy bills capped at £3,000 a year (up from the current £2,500). </p>
<p>Surprisingly the guarantee will continue to apply to all households, not just the most vulnerable. But the government is consulting on restricting this state support in the case of those who use very large volumes of energy. It has also said it will look into improving social tariffs for vulnerable households.</p>
<p>There will be a repeat roll out of cost-of-living payments in 2023-24, with £900 for households on means-tested benefits, £300 for pensioner households and an extra £150 for individuals on disability benefits. </p>
<p>Benefits and state pensions will go up by 10.1%, in line with September’s inflation rate. But the government is going ahead with plans to put pressure on working-age claimants to increase their hours or earnings. It is not clear whether this will include sanctions for those who don’t succeed.</p>
<h2>Filling ‘black hole’ will hit growth</h2>
<p><strong>Phil Tomlinson, professor of industrial strategy, deputy director centre for governance, regulation and industrial strategy, University of Bath</strong></p>
<p>The new chancellor has adopted the persona of <a href="http://micawberprinciple.com/the-micawber-principle-living-the-fundamental-law-of-personal-finance-45/">Mr Micawber</a> of Charles Dickens’ David Copperfield – whose happiness depended on living within his means. The chancellor wants to fill a <a href="https://www.msn.com/en-gb/money/other/what-is-the-uks-55billion-fiscal-black-hole-simon-lambert-on-why-we-face-a-wave-of-budget-tax-hikes-into-a-recession-based-on-a-forecast/ar-AA14d9wW">£55 billion “black hole”</a> in the public finances. This is the gap between the Office for Budget Responsibility (OBR) forecasts of national debt and the government’s own fiscal target to reduce public debt as a proportion of national income over the next five years. To do this, the chancellor has announced a combination of public spending cuts and tax rises. This is a political choice rather than one based on economics. The black hole arises from the government’s <a href="https://progressiveeconomyforum.com/publications/the-dangerous-fiction-of-the-fiscal-black-hole/#:%7E:text=The%20Dangerous%20Fiction%20of%20the%20%E2%80%9CFiscal%20Black%20Hole%E2%80%9D,highly%20uncertain%20forecasts%2C%20not%20tax%20or%20spending%20decisions">own accountancy rules</a> and highly uncertain forecasts.</p>
<p>Unlike ordinary households, the UK government has an infinite amount of time to repay its debts. And, as a currency issuer (exchange rate and inflation risks aside), it can always repay debts denominated in sterling. The UK’s <a href="https://www.statista.com/statistics/282841/debt-as-gdp-uk/">debt to GDP</a> ratio is also the second lowest among the G7 group of nations. So, the government actually has scope to invest in the economy.</p>
<p>The announced fiscal tightening will reduce demand in the economy and hit critical investment in public services and infrastructure. This is at a time when the UK is entering what is expected to be the <a href="https://www.bbc.co.uk/news/business-63471725">longest recession</a> since records began. Some might suggest the chancellor has joined the “<a href="https://www.theweek.co.uk/news/uk-news/958106/the-anti-growth-coalition-who-are-liz-trusss-new-enemies">anti-growth coalition</a>” because the measures announced today will hurt growth. These cuts will also feel like a betrayal to <a href="https://www.theguardian.com/politics/2022/jul/17/red-wall-tories-warn-honour-levelling-up-pledges-or-well-lose-the-next-election">Tory voters</a> who bought into the promise of levelling up.</p>
<p><a href="https://www.economist.com/leaders/2022/06/09/low-economic-growth-is-a-slow-burning-crisis-for-britain">Anaemic growth</a> has plagued the UK for more than a decade. Micawber eventually triumphed over adversity by borrowing to purchase a ticket to start a new (and successful) life in Australia. Public borrowing to invest in the UK’s dilapidated public services, research and development, green technologies and infrastructure would boost the supply side of the economy, increasing productivity and stimulating growth. Instead, the autumn statement is a return to austerity and <a href="https://en.wikipedia.org/wiki/Hard_Times_(novel)">hard times</a>.</p>
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<h2>Economy worse now than when austerity first introduced</h2>
<p><strong>Shampa Roy-Mukerjee, associate professor in economics, University of East London</strong></p>
<p>Spending cuts announced in the autumn statement have been widely dubbed “<a href="https://www.independent.co.uk/independentpremium/autumn-statement-uk-politics-latest-b2226977.html">Austerity 2.0</a>” since they follow 12 years of austerity measures implemented by previous Conservative chancellor <a href="https://www.cnbc.com/2016/07/14/osbornes-legacy-what-the-austerity-chancellor-leaves-behind.html">George Osborne</a>. But there are some major differences between the two and the impact they will have on UK households and businesses.</p>
<p>First, the 2010 austerity measures were introduced after public services had enjoyed <a href="https://www.irishtimes.com/news/brown-commits-britain-to-major-increase-in-public-spending-1.1088670">record levels of investment</a> by the previous Labour government, leaving more scope for cuts. With no real term investment in public services since 2010, many are already <a href="https://www.theguardian.com/society/2022/oct/25/how-spending-cuts-could-affect-uk-government-departments">cut to the bone</a>.</p>
<p>Second, when austerity cuts were introduced in 2010 the economy was growing, albeit slowly. But the Bank of England has announced a UK recession for the next eight quarters – one of the longest in recent history. More deep cuts to public services will negatively impact growth.</p>
<p>Third, in 2010 inflation was under control and interest rates were <a href="https://www.bankofengland.co.uk/boeapps/database/Bank-Rate.asp">much lower</a> than today, hovering around 1%. This allowed the Bank of England to carry out quantitative easing (QE – increasing the money supply) to grow the economy after the 2007-8 global financial crisis. This is certainly not the case now as the bank has ruled out such measures and has steadily <a href="https://www.bankofengland.co.uk/monetary-policy-report/2022/november-2022">increased interest rates</a> to 3%, so far, to control inflation.</p>
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Read more:
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<p>High interest rates increase the cost of borrowing for households, businesses and the government, negatively affecting future investment in the economy. Labour markets are also tighter than ever and the shortage in skilled labour in public services and in private businesses is preventing economic growth.</p>
<p>The government’s ability to balance economic growth and commit to fiscal discipline amid one of the worst economic downturns in recent history will also depend on global events. Russia’s war in Ukraine, China’s COVID lockdowns, as well as the ability of the UK to forge trade and foreign investment deals post-Brexit will all affect the success of Hunt’s plans.</p>
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<img alt="Growing stacks of coins with blocks on top spelling out " src="https://images.theconversation.com/files/495904/original/file-20221117-17-nrs4l.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/495904/original/file-20221117-17-nrs4l.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=401&fit=crop&dpr=1 600w, https://images.theconversation.com/files/495904/original/file-20221117-17-nrs4l.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=401&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/495904/original/file-20221117-17-nrs4l.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=401&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/495904/original/file-20221117-17-nrs4l.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/495904/original/file-20221117-17-nrs4l.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/495904/original/file-20221117-17-nrs4l.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">The autumn statement will affect the taxes people pay.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/tax-concept-wooden-block-on-stacked-313474802">enciktepstudio</a></span>
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<h2>£2.3 billion support for education</h2>
<p><strong>Hilary Ingham, senior lecturer in economics, Lancaster University</strong></p>
<p>Keeping the <a href="https://www.gov.uk/government/speeches/the-growth-plan-2022-speech">goal of growth</a> promoted by his predecessor, Kwasi Kwarteng, Hunt’s autumn statement contained important statements on education and work.</p>
<p>Somewhat surprisingly, in the light of the <a href="https://www.reuters.com/world/uk/uk-faces-50-billion-pound-fiscal-hole-government-sources-say-2022-11-07/">£50 billion hole</a> in government finances, the chancellor <a href="https://www.gov.uk/government/speeches/the-autumn-statement-2022-speech">today announced</a> a strong support package for education, calling education a public service that determines all our futures. Referring to the UK rising nine places in global league tables for maths and reading, Hunt stressed the need for the country’s school leavers to have the skills needed for the modern economy when they enter the workforce.</p>
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<img alt="Children walking to school wearing backpacks." src="https://images.theconversation.com/files/495952/original/file-20221117-20952-cc1n4t.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/495952/original/file-20221117-20952-cc1n4t.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/495952/original/file-20221117-20952-cc1n4t.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/495952/original/file-20221117-20952-cc1n4t.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/495952/original/file-20221117-20952-cc1n4t.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/495952/original/file-20221117-20952-cc1n4t.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/495952/original/file-20221117-20952-cc1n4t.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="attribution"><span class="source">MAD/Shutterstock</span></span>
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<p>The goal is that young people will match the achievements of their peers in Germany, Japan, and Switzerland. To achieve this, the chancellor said the government would invest an extra £2.3 billion in schools in 2023 and 2024. <a href="https://www.gov.uk/government/people/michael-barber">Sir Michael Barber</a>, a former adviser to the education secretary, will also be appointed to work on a skills reform programme.</p>
<p>At the same time, Hunt addressed the problem of the “great resignation” which has left the UK with more than 300,000 economically inactive people – those neither in work nor seeking paid employment. With businesses struggling to fill vacancies, the Department of Work and Pensions will be providing support to encourage these people back to work. At the same time, measures will be put into place to enable those on Universal Credit to increase both their hours and earnings.</p>
<p>So, amid the spending cuts, the government remains committed to growth and sees education, skills and a buoyant labour market as central to this.</p>
<h2>Subtle amendments to personal tax</h2>
<p><strong>Gavin Midgley, senior teaching fellow in accounting, University of Surrey</strong></p>
<p>One of the most difficult political manoeuvres a chancellor faces is the raising of personal tax while avoiding a move that will create immediate public anger. Hunt has opted for subtle amendments (or in the case of threshold freezes, non-amendments) that will gradually increase the public’s tax burden over time but not cause a sudden increase in the average citizen’s tax liability.</p>
<p>For the households more immediately concerned about changes to their standard of living, a reduction of the additional rate income tax bracket from £150,000 to £125,000 is unlikely to see people take to the streets. The proposed reduction of the annual exemption for capital gains tax to under a quarter of current levels (from £12,300 to £3,000 in April 2024) is also striking and may affect more than relatively wealthy individuals.</p>
<p>But should higher inflation persist beyond the next two years, the freezing of the upper tax bracket threshold at £50,270 to April 2028 may cause headaches. This means that for somebody earning just under £40,000 a year in 2022-23, should their wages increase at a rate of 5% per year (well below the current inflation rate) they will find themselves slipping into the 40% tax bracket by 2027-28. </p>
<p>So if inflation averages higher than 5% a year over this time, they may well see a reduction in their real level of disposable income while paying a higher effective tax rate. For households with a higher level of costs, this may give rise to resentment over time.</p>
<p>In some past budgets and fiscal statements, relatively smaller measures have ended up being those that the public rail against. Could it happen again this time? While £165 a year may not be considered a sizeable amount to many, it will be interesting to see how the government fully justifies its removal of the vehicle excise duty (VED) exemption for electric vehicles, also announced in the autumn statement, given their <a href="https://www.edfenergy.com/electric-cars/government-grants">previous promotion</a> of these vehicles.</p>
<h2>Extra £3.3 billion not enough to repair NHS</h2>
<p><strong>Cam Donaldson, Yunus chair and distinguished professor of health economics, Glasgow Caledonian University</strong></p>
<p>Healthcare was never going to be a big feature of Hunt’s statement. But as a former health secretary, he must know that health and the economy are intimately intertwined. </p>
<p>Not only is it well established that poverty and income are key determinants of population health, but we are also now seeing <a href="https://www.health.org.uk/news-and-comment/charts-and-infographics/is-poor-health-driving-a-rise-in-economic-inactivity">evidence</a> of the extent to which poor health affects the size of the UK workforce. </p>
<p>The safety nets of welfare, the NHS and social care have never been more important, and the major challenges they face continue. Previous NHS funding increases have been gobbled up by inflation and the system faces huge backlogs. An extra £3.3 billion added to a £200 billion budget will do little to repair either. </p>
<p>We have been promised two reviews. The first is to tell new “integrated care boards” how to operate more efficiently – something previous configurations of the NHS have not been good at. The second is a review of staff shortages when the need to retain nurses and stop overpaying for agency nurses is urgent and has an obvious solution – to pay existing staff more. This is necessary, but will not enhance NHS productivity.</p>
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<img alt="Ambulances outside A&E department." src="https://images.theconversation.com/files/495953/original/file-20221117-25-vbtiiq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/495953/original/file-20221117-25-vbtiiq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=320&fit=crop&dpr=1 600w, https://images.theconversation.com/files/495953/original/file-20221117-25-vbtiiq.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=320&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/495953/original/file-20221117-25-vbtiiq.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=320&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/495953/original/file-20221117-25-vbtiiq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=402&fit=crop&dpr=1 754w, https://images.theconversation.com/files/495953/original/file-20221117-25-vbtiiq.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=402&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/495953/original/file-20221117-25-vbtiiq.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=402&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">The NHS needs better care.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/london-uk-june-17th-2020-ambulances-1758285446">Shutterstock/chrisdorney</a></span>
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<p>With the better off spending more on private treatment, a tipping point leading towards complete breakdown feels imminent. Despite funding promises, major social care challenges remain unresolved, providing a good indication of where we are heading with a broken NHS – potentially ending up with a multi-tiered US-style system which is more expensive and less equitable. This is why a fresh vision is required for taxation that goes beyond simply trying to balance the books.</p>
<p><strong>Karen Bloor, professor of health economics and policy, University of York</strong></p>
<p>NHS performance reflects not only the pandemic but a decade of relatively <a href="https://www.health.org.uk/news-and-comment/news/uk-spent-around-a-fifth-less-than-european-neighbours-on-health-care-in-last-decade">constrained funding</a>. The chancellor announced real terms increases in spending for both health and social care. </p>
<p>He also (unsurprisingly but importantly) accepted the findings of the health select committee (where he was formerly the chair) on the health and care workforce; staff retention and productivity are key to getting performance back on track. Although he announced investment in social care, he avoided any real reform and again delayed implementing the <a href="https://www.lgcplus.com/services/health-and-care/dilnot-very-disappointed-by-social-care-cap-announcement-18-11-2021/">cap on care costs</a>.</p>
<h2>Taxes will reduce investment in energy</h2>
<p><strong>Adi Imsirovic, senior research fellow, Oxford Institute for Energy Studies, University of Surrey</strong></p>
<p>As expected, the chancellor increased the windfall tax on profits of oil and gas firms from 25% to 35% and extended it until March 2028. From January, he also introduced a temporary 45% tax on electricity generators. </p>
<p>Both taxes tend to reduce investment in energy, just as we need more of it. The biggest multinational energy companies also make most of their money overseas, making the policy limited in scope. But right now the UK needs the money, and these two taxes will raise around £14 billion next year alone. </p>
<p>Yet if the profits for energy companies caused by the war in Ukraine are the driver for these taxes, an opportunity was surely missed to tax other sectors of the economy which have also made huge profits from the war – such as arms manufacturers.</p>
<p>Elsewhere the chancellor set a target of cutting energy demand by 15% by investing £6 billion in insulation and efficiency, and creating an energy efficiency taskforce. These are good policies – increasing efficiency is the easiest and cheapest way to reduce energy bills and improve energy security – but probably amount to a case of too little too late. The continued ban on onshore wind and slow approvals of all energy projects remain major obstacles, but were not addressed at all.</p>
<p>The energy price cap was extended for one year beyond April, but the typical bill was capped at £3,000 a year, £500 higher. Capping prices is a bad policy, keeping demand high while funding despots like Putin. A better policy would be targeted measures to help households on means-tested benefits. </p>
<p>The chancellor will give them an extra £900 next year. Pensioner households will get £300, and those on disability benefits £150. But if the chancellor got rid of the price cap, which disproportionately subsidised the rich, he could have been far more generous towards those in need – and saved some cash for the government coffers at the same time.</p>
<h2>An eye on the election</h2>
<p><strong>Despina Alexiadou, senior lecturer at the school of government and public policy, University of Strathclyde</strong></p>
<p>The autumn statement was designed to win back the trust of international markets in a challenging economic climate - but also with a clear eye on the next general election. </p>
<p>Taxing the richer earners, for example, was the most progressive element, with its reduction in the highest tax rate threshold from £150,000 to just over £125,000. For while this might not be something we’d expect from a Conservative government, the majority of voters clearly favour higher taxes on high income earners. </p>
<p>According to a <a href="https://www.ipsos.com/en-uk/britons-most-oppose-raising-council-tax-and-vat-ahead-autumn-statement">recent survey</a>, 64% of British people support increasing the top income tax-rate from 45% to 50% for those earning over £150,000. The government did not go that far, but it increased the number of earners who will pay the current top rate of 45%. </p>
<p>There was also the halving of the capital gains tax allowance, from £12,000 to £6,000. But in reality this is mostly a blow to small investors rather than those whose main income comes from capital gains. A budget that genuinely asks those with the most to contribute more would have increased the tax rate from its current level of 20% to something closer to Germany’s 26% or the 34% rate in France.</p>
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<img alt="A black hole." src="https://images.theconversation.com/files/495957/original/file-20221117-25-eqoykh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/495957/original/file-20221117-25-eqoykh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=354&fit=crop&dpr=1 600w, https://images.theconversation.com/files/495957/original/file-20221117-25-eqoykh.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=354&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/495957/original/file-20221117-25-eqoykh.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=354&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/495957/original/file-20221117-25-eqoykh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=445&fit=crop&dpr=1 754w, https://images.theconversation.com/files/495957/original/file-20221117-25-eqoykh.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=445&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/495957/original/file-20221117-25-eqoykh.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=445&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Filling the void.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/science-fiction-black-hole-into-space-1389012446">Shutterstock/Dima Zel</a></span>
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<p>The statement also mostly maintained current levels of benefits, which is what the vast majority of British people prefer. Only a minority (around 30%) were in favour of benefits not rising in line with inflation. </p>
<p>Amid those benefits, the government maintained the pension triple-lock, which ensures that pensions rise every year in line with inflation. This is fair and vital for poorer recipients – and also vital for the Conservative party, given that pensioners make up a <a href="https://yougov.co.uk/topics/politics/articles-reports/2019/12/17/how-britain-voted-2019-general-election">significant section</a> of their support when that general election comes around. </p>
<h2>Military investment</h2>
<p><strong>Peter Bloom, professor of management, University of Essex</strong></p>
<p>For those hoping to see a rise in defence spending, the statement was cautiously optimistic. Hunt said he would not allow it to fall under 2% of GDP – and there is still a chance of an increase at a review later on. The government has said it needs to spend more to “meet the threats we face”. </p>
<p>At the moment, the defence budget is planned to grow from £14.2 billion this year to £19.5 billion in 2022-2023. The following year it will be reduced to £16.6 billion. While these figures are projections, it does show an apparent desire for both investment and cost effectiveness.</p>
<p>And there are more fundamental questions to to be asked beyond numbers on a budget spreadsheet. While the government continues to link defence spending to the spread of democracy (and a desire to view the UK as a responsible global citizen), the facts are more complicated. </p>
<p>Putin’s invasion was completely unjustified, but it does not change the fact that heightened military build-ups, whether by Nato, China, Russia, or the US, breeds more conflict and less peace. Continuing to link economic growth and job creation to military investment should concern us all.</p>
<h2>Failure to address childcare costs</h2>
<p><strong>Jennifer Castaneda Navarrete, senior policy analyst, University of Cambridge</strong></p>
<p>Although the adoption of the pay recommendations of the independent pay review bodies for the NHS and teachers is welcome, there is no mention in the statement of the working conditions in social care and childcare. The <a href="https://www.coram.org.uk/sites/default/files/resource_files/Coram%20Childcare%20Survey%20-%202022.pdf">increasing cost</a> and unavailability of childcare is exacerbating the cost of living crisis and pushing many women out of the labour market. An estimated <a href="https://wbg.org.uk/wp-content/uploads/2022/03/Childcare-and-gender-PBB-Spring-2022-1.pdf">1.7 million women</a> are prevented from taking on more hours of paid work due to lack of affordable childcare, resulting in up to <a href="https://wbg.org.uk/wp-content/uploads/2022/03/Childcare-and-gender-PBB-Spring-2022-1.pdf">£28.2 billion economic output lost every year</a>.</p>
<p>Prioritising public services during difficult economic times is a sensible approach, however, the government could invest further in social care and childcare, recognising the <a href="https://wbg.org.uk/wp-content/uploads/2022/03/Childcare-and-gender-PBB-Spring-2022-1.pdf">long-term impact of these investments</a>, such as unlocking talent to address skills shortages in the labour market and contributing to the levelling-up agenda.</p>
<h2>Businesses will go under</h2>
<p><strong>Steve McCabe, associate professor, Institute for Design, Economic Acceleration & Sustainability, Birmingham City University</strong></p>
<p>The Conservative party knows that supporting entrepreneurship is essential. What’s crucial is that there’s financial stability to create the levels of confidence for investment that will stimulate economic growth and the well-paid jobs which will lead to future prosperity. </p>
<p>Investing in infrastructure, energy provision and in education is essential. However, as the OBR has warned, high energy costs, interest rates and corporate taxes also reduce business investment. </p>
<p>And the general environment for UK business looks really dreadful. Talk of “levelling up” coupled with a somewhat grandiose vision of Britain becoming the next Silicon Valley needs to be measured against quite how difficult things are going to be in the immediate future. </p>
<p>A massive drop in living standards will have a profound impact on discretionary spending. Retail and hospitality, already reeling from the effects of the pandemic and spiralling energy costs, will be hit hard. The businesses which do survive will undoubtedly emerge stronger. But far too many businesses will go under – at great cost to economic growth, the exchequer, and young people in need of opportunity.</p>
<h2>UK’s slower growth than eurozone</h2>
<p><strong>Supriya Kapoor, assistant professor of finance, Trinity College Dublin</strong></p>
<p>The UK economy has reported slower growth this quarter compared to the final quarter of 2019, which was 2.1% higher. The IMF has forecast that the UK will have the <a href="https://www.bbc.co.uk/news/business-62299490">slowest growth</a> of all G7 countries next year. This is in sharp contrast to eurozone, where output growth has already exceeded the pre-pandemic figures.</p>
<p>All European countries are dealing with the aftermath of the pandemic, inflation and rising interest rates, so the current economic situation and political instability in the UK are more likely due to a worsening of the country’s finances following Brexit. A recent YouGov shows 56% of Britons certainly think leaving EU was the <a href="https://yougov.co.uk/topics/politics/articles-reports/2022/11/17/one-five-who-voted-brexit-now-think-it-was-wrong-d">wrong decision</a>.</p>
<p>During his autumn statement, Hunt admitted the UK is in a recession and has promised billions of pounds worth of spending cuts and tax hikes, something that no other advanced economy is doing. This <a href="https://news.sky.com/story/pound-falls-as-markets-and-business-respond-to-autumn-statement-12749526">immediately resulted</a> in further depreciation of the currency against the dollar and a rise in gilt yields.</p>
<p>On the health front, the question is whether investing in social care and an increase of £3.3 billion in NHS funding will help UK health spending come close to EU countries. Currently the UK spends <a href="https://www.ft.com/content/f752a1ad-4a23-408f-a549-4909974c6a2c">about 20% less</a> than other European countries on per capita health spending</p>
<p>The Sunak government believes the UK’s £55 billion energy package will help businesses and households with energy bills, claiming this is the largest support plan in Europe currently. However, the introduction of the energy windfall tax has immediately reflected in a <a href="https://news.sky.com/story/pound-falls-as-markets-and-business-respond-to-autumn-statement-12749526">small drop</a> in energy company share prices.</p>
<h2>Regional inequality continues to grow</h2>
<p><strong>Tolu Olarewaju, economist and lecturer in management, Keele University</strong></p>
<p>Annual inflation rates up to April this year for the poorest and richest 10% of UK households were 10.9% and 7.9% respectively, with inflation rates <a href="https://ifs.org.uk/news/inflation-poorest-households-likely-increase-even-faster-richest-and-could-hit-14-october">expected to hit</a> 14% and 8% respectively by the end of this year. This is because energy and food costs, the major drivers of recent inflation, make up a greater proportion of household budgets for poorer households.</p>
<p>Inflation is also higher in the north than in the <a href="https://www.centreforcities.org/blog/northern-cities-hit-harder-by-cost-of-living-crisis/">south-east of the UK</a>. Burnley, Blackpool and Blackburn are the worst affected, with inflation above 11% in all three places. This is more than 2% points higher than in cities like London, Cambridge and Reading. There was no mention of this trend in the announcement.</p>
<p>Some regional disparities between poorer and richer areas of the UK were recognised by keeping investment zones, centred on universities in “left behind areas” to help build growth clusters. I expect further announcements on this will happen at the spring budget.</p><img src="https://counter.theconversation.com/content/194829/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Phil Tomlinson currently receives funding from the Engineering and Physical Sciences Research Council (EPSRC) for the Made Smarter Innovation: Centre for People-Led Digitalisation. </span></em></p><p class="fine-print"><em><span>Hilary Ingham has previously received funding from the Department for International Development, the Economics and Social Research Council (ESRC), Nuffield, Leverhulme and the Joseph Rowntree Foundation.</span></em></p><p class="fine-print"><em><span>Jennifer Castaneda Navarrete is affiliated with the International Association for Feminist Economics. Views expressed are those of the author and do not necessarily represent the views of her institutions of affiliation.</span></em></p><p class="fine-print"><em><span>Jonquil Lowe is affiliated with the Women's Budget Group where she is a member of its policy advisory group.</span></em></p><p class="fine-print"><em><span>Karen Bloor receives funding from the National Institute for Health Research, including funding to provide a fast-response analysis programme for the Department of Health and Social Care.</span></em></p><p class="fine-print"><em><span>Adi Imsirovic, Cam Donaldson, Despina Alexiadou, Gavin Midgley, Peter Bloom, Shampa Roy-Mukherjee, Steven McCabe, Supriya Kapoor, and Tolu Olarewaju do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Our panel of academics responds to the UK government’s latest economic plans.Phil Tomlinson, Professor of Industrial Strategy, Deputy Director Centre for Governance, Regulation and Industrial Strategy (CGR&IS), University of BathAdi Imsirovic, Senior Research Fellow, Oxford Institute for Energy Studies, University of SurreyCam Donaldson, Yunus Chair and Distinguished Professor of Health Economics, Glasgow Caledonian UniversityDespina Alexiadou, Senior Lecturer at the School of Government and Public Policy, University of Strathclyde Gavin Midgley, Senior Teaching Fellow in Accounting, University of SurreyHilary Ingham, Senior Lecturer, Department of Economics, Lancaster UniversityJennifer Castaneda Navarrete, Senior Policy Analyst (IfM Engage), University of CambridgeJonquil Lowe, Senior Lecturer in Economics and Personal Finance, The Open UniversityKaren Bloor, Professor of Health Economics and Policy, University of YorkPeter Bloom, Professor of Management, University of EssexShampa Roy-Mukherjee, Associate Professor in Economics, University of East LondonSteven McCabe, Associate Professor, Institute for Design, Economic Acceleration & Sustainability (IDEAS), Birmingham City UniversitySupriya Kapoor, Assistant Professor of Finance, Trinity College DublinTolu Olarewaju, Economist and Lecturer in Management, Keele UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1931502022-10-24T15:21:52Z2022-10-24T15:21:52ZRishi Sunak faces a very different economy to the one he left as chancellor – here’s what he must tackle as prime minister<p>As the <a href="https://www.bbc.co.uk/news/live/uk-politics-63327087">incoming UK prime minister</a>, Rishi Sunak has the immediate advantage of perceived success in his two years as chancellor. </p>
<p>His tenure ended last July when he <a href="https://www.gov.uk/government/publications/rishi-sunaks-resignation-letter-and-the-prime-ministers-response">resigned</a> due to a difference of opinion with then-prime minister Boris Johnson over the economy. But during his time as chancellor, he is credited with rescuing households and businesses from the effects of the COVID pandemic lockdowns by launching an innovative and impressively timely <a href="https://www.resolutionfoundation.org/publications/job-well-done/">furlough scheme</a>. He reversed a “<a href="https://www.spectator.co.uk/article/rishi-sunak-s-new-age-fantasy-and-the-great-tory-con">small state</a>” approach to become the private sector’s temporary paymaster, spending an unprecedented <a href="https://researchbriefings.files.parliament.uk/documents/CBP-9152/CBP-9152.pdf">£70 billion</a> to shorten the recession. </p>
<p>This image of having saved the nation by minimising the loss of national output and employment during the pandemic has outshone the less successful moments of his chancellorship. This includes inadequate <a href="https://www.gov.uk/government/publications/measuring-error-and-fraud-in-the-covid-19-schemes/error-and-fraud-in-the-covid-19-schemes-methodology-and-approach-an-update-for-2022">fraud-proofing</a> of furlough supports, the coronavirus surge that followed his “<a href="https://www.reuters.com/article/us-health-coronavirus-britain-vouchers-idUKKBN27F1IR">eat out to help out</a>” hospitality revival scheme and the discussion of his well-sheltered family finances.</p>
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<a href="https://theconversation.com/what-is-a-non-dom-an-expert-answers-our-questions-about-the-tax-status-claimed-by-rishi-sunaks-wife-and-other-wealthy-people-180928">What is a non-dom? An expert answers our questions about the tax status claimed by Rishi Sunak's wife and other wealthy people</a>
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<p>But as he takes up the UK’s highest office, the economic supports that enabled the furlough scheme have largely fallen away. The government’s long-term borrowing costs, previously close to zero, had <a href="https://www.reuters.com/markets/europe/uk-borrowing-costs-jump-again-boe-sticks-by-bond-plan-deadline-2022-10-12/">risen above 5%</a> by mid-October, even with the Bank of England shoring up demand to keep bond yields down. At the same time, <a href="https://www.bloomberg.com/news/articles/2022-10-19/a-52-billion-jump-in-mortgage-costs-fuels-risk-for-uk-lenders">consumer borrowing</a> has also risen in cost, dowsing any hope of a post-pandemic bounce-back of growth-promoting investment. </p>
<p>The UK now faces a <a href="https://edition.cnn.com/2022/10/21/economy/uk-credit-rating-outlook/index.html">worsening credit rating</a>, which is adding to the risk premium (and therefore cost) that investors place on public debt. And consumers are unlikely to spend their way out of the <a href="https://www.unbiased.co.uk/news/financial-advice/will-there-be-a-uk-recession-in-2022-what-it-could-mean-for-you">expected recession</a>. Millions are already struggling to meet rising food, fuel and mortgage bills, knowing their energy costs could jump again when the current <a href="https://www.theguardian.com/money/2022/oct/17/energy-price-guarantee-cap-household-bills-4347-april-hunt">price cap ends</a> in April 2023.</p>
<p>In the US, where Sunak earned his MBA and <a href="https://www.bbc.co.uk/news/uk-politics-61044847">made his fortune</a>, post-crisis presidents are often seen as “<a href="https://en.wikipedia.org/wiki/Lone_Ranger">Lone Ranger</a>” figures. They ride into town (with a masked companion) to resolve a desperate situation, winning over an initially sceptical public with effective steps that overcome past rivalries and injustices. </p>
<p>Contemporary American Conservatives have emphasised <a href="https://theimaginativeconservative.org/2014/02/lone-ranger-nationalist-myth-stephen-klugewicz.html">additional plot twists</a>: the Ranger must overcome prejudices and sidestep rigid laws to save the day. This certainly speaks to the task ahead for Sunak as he becomes the fifth UK prime minister in six years.</p>
<figure class="align-center ">
<img alt="Former prime minister Liz Truss stands at a lectern giving her resignation speech outside Number 10 Downing Street on October 20 2022." src="https://images.theconversation.com/files/491394/original/file-20221024-496-q60vzl.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/491394/original/file-20221024-496-q60vzl.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/491394/original/file-20221024-496-q60vzl.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/491394/original/file-20221024-496-q60vzl.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/491394/original/file-20221024-496-q60vzl.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=501&fit=crop&dpr=1 754w, https://images.theconversation.com/files/491394/original/file-20221024-496-q60vzl.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=501&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/491394/original/file-20221024-496-q60vzl.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=501&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Can Rishi Sunak clean up the economic mess left by Liz Truss, who resigned as UK prime minister on October 20 2022?</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/london-united-kingdom-september-6-2022-2198582421">Fred Duval / Shutterstock</a></span>
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<h2>Staggering under stagflation</h2>
<p>Unusually, UK firms are experiencing widespread <a href="https://www.ft.com/content/a9677ee4-281d-4d0d-8456-661982890304">labour shortages</a> right now, among other supply constraints that usually characterise the peak of a boom rather than the brink of a recession. That’s down to the <a href="https://commonslibrary.parliament.uk/research-briefings/sn02791/">decade-long stagnation</a> of UK labour productivity. This is a problem that Sunak as a backbencher wanted to tackle with doses of deregulation and labour-market discipline, but which as chancellor he left unresolved.</p>
<p><a href="https://londoneconomics.co.uk/le/publications/pdf/EU%20integration%20and%20productivity.pdf">Productivity growth</a> picked up after the UK propelled the EU to complete its single market from 1992. So Sunak’s support for leaving the EU remains an obstacle to his re-uniting the Conservatives and rebuilding badly burnt bridges with European trade partners. Their importance has been heightened by the declining chance of any <a href="https://www.politico.eu/article/liz-truss-admits-us-trade-deal-out-of-reach/">transatlantic trade deal</a> and the <a href="https://www.imf.org/en/Blogs/Articles/2022/10/13/asia-sails-into-headwinds-from-rate-hikes-war-and-china-slowdown">slowdown</a> in the Chinese economy, which will dampen growth across emerging Asia.</p>
<p>So what’s a new prime minister to do? Having resigned from the cabinet in July, triggering the very Conservative infighting that has now led him to the top job, Sunak can leave the difficult fiscal choices to Jeremy Hunt, his successor as chancellor. But the prime minister still bears ultimate responsibility for the direction the government takes to deal with the economy. Hunt’s <a href="https://commonslibrary.parliament.uk/research-briefings/cbp-9643/">statements so far</a> have rescinded most of Kwasi Kwarteng’s mini-budget, indicating that the new government has no room for tax reduction and could be preparing for more <a href="https://ifs.org.uk/articles/response-chancellors-mini-budget-reversals">painful cuts in public spending</a> instead.</p>
<p>If Hunt sticks to the Conversatives’ election-winning <a href="https://www.conservatives.com/our-plan/economy">2019 pledge</a> of no rises in income tax, VAT or national insurance, the government will probably need to deploy “stealth taxes”. This means leaving working people to be taxed more as their wages rise to keep pace with prices while a four-year <a href="https://www.reuters.com/world/uk/britain-freeze-personal-tax-thresholds-until-2026-2021-03-03/">freeze in tax thresholds</a> imposed by Sunak is still in place. Social benefits could also be allowed to erode through being raised by <a href="https://www.theactuary.com/news/2022/10/19/hunt-refuses-be-drawn-triple-lock-pension-inflation-soars">less than inflation</a>.</p>
<p>The present high rate of inflation would also, in the past, have eased the government’s financial pressures by eroding the costs of public and private debt. But that shield has worn thin. Payments on <a href="https://www.investorschronicle.co.uk/news/2022/08/02/uk-government-debt-interest-payments-soar/#:%7E:text=The%20UK%20was%20an%20early,0.9%20per%20cent%20for%20Japan.">25% of the government’s debt</a> are now aligned with the inflation rate, and lenders are <a href="https://www.bbc.co.uk/news/business-63061534">rapidly passing on the rise</a> in borrowing costs to mortgage and credit card borrowers.</p>
<p>Former prime minister <a href="https://www.gov.uk/government/speeches/economy-speech-delivered-by-david-cameron">David Cameron</a> could cite an outgoing Labour government’s budget hole for earlier austerity rounds. But Sunak will struggle to blame his predecessors for the new fiscal squeeze the UK faces. Supporters of Kwarteng are likely to continually remind him – <a href="https://www.youtube.com/watch?v=q84P-eXYa1Q">as ex-prime minister Liz Truss did</a> on her way to beating him in the previous leadership contest – that tightening fiscal policy now will only <a href="https://www.bankofengland.co.uk/monetary-policy-report/2022/august-2022">deepen the recession</a> predicted by the <a href="https://www.theguardian.com/business/2022/sep/22/bank-of-england-interest-rate-rise-latest#:%7E:text=1%20month%20old-,UK%20in%20recession%2C%20says%20Bank%20of%20England%20as,raises%20interest%20rates%20to%202.25%25&text=Britain%E2%80%99s%20economy%20is%20now%20in,of%20inflation%20for%2040%20years.">Bank of England</a> and many independent analysts. </p>
<p>The rescuer from Number 11 must become “Austerity Rishi” now he’s moved next door. This could make it far more difficult for the Lone Ranger to ride into the sunset after saving the day.</p><img src="https://counter.theconversation.com/content/193150/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Alan Shipman does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Rishi Sunak is taking over as UK prime minister from Liz Truss during very difficult economic times.Alan Shipman, Senior Lecturer in Economics, The Open UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1798082022-03-23T17:35:32Z2022-03-23T17:35:32ZSpring statement 2022: quick analysis about standard of living, energy crisis and more – from experts<p><em>UK Chancellor Rishi Sunak’s <a href="https://www.bbc.co.uk/news/business-60849054">2022 spring statement</a> was delivered in the haze of an extremely testing economic environment. As the war in Ukraine rages on, inflation has hit a 30-year high, energy bills are about to soar, tax rises are imminent and the fallout from COVID continues. With events straining the financial resources of millions of households, our panel of experts offer their views on Sunak’s announcement.</em></p>
<h2>Energy prices</h2>
<p>The chancellor said nothing to provide any warmth or comfort to the millions of householders facing spiralling energy costs in April. Some stark <a href="https://www.citizensadvice.org.uk/Global/CitizensAdvice/Energy/Crunch%20point%20March%202022.pdf">recent figures</a> reveal that the average annual fixed-price tariff available for electricity and gas is now £3,213. </p>
<p>From April, it is expected that 5 million people will be unable to afford the average monthly rise; a number expected to almost triple to 14.5 million from October when the energy price cap is raised again. So an <a href="https://www.local.gov.uk/about/news/lga-statement-spring-statement-2022">extra £500 million</a> for councils from Sunak (taking the total to £1 billion) to help support the poorest households is a drop in the ocean. </p>
<p>Elsewhere, removing VAT from the cost of home solar panels and insulation is long overdue, but will only benefit those who can afford to install them. Energy-wise, these are plans for whoever is left in the middle classes by the time winter fuel bills hit.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/453961/original/file-20220323-15-1rcr168.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Worker attaching a solar panel to a house" src="https://images.theconversation.com/files/453961/original/file-20220323-15-1rcr168.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/453961/original/file-20220323-15-1rcr168.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=401&fit=crop&dpr=1 600w, https://images.theconversation.com/files/453961/original/file-20220323-15-1rcr168.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=401&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/453961/original/file-20220323-15-1rcr168.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=401&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/453961/original/file-20220323-15-1rcr168.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=504&fit=crop&dpr=1 754w, https://images.theconversation.com/files/453961/original/file-20220323-15-1rcr168.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=504&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/453961/original/file-20220323-15-1rcr168.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=504&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Cutting VAT on solar panels is green; cutting fuel duty not so much.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/male-engineer-protective-helmet-installing-solar-1705577161">Anatoliy_gleb</a></span>
</figcaption>
</figure>
<p>In fuel-poverty research, there is often mention of the “heat or eat” dilemma, but we’re now looking at a winter when many households will struggle to do either. This could have been mitigated to some extent if Sunak had been brave enough to follow <a href="https://www.theguardian.com/business/2022/jan/14/france-edf-cap-household-energy-bills">France’s lead</a> and announce a windfall tax on energy companies. </p>
<p><em>Keith Baker, Research Fellow in Fuel Poverty and Energy Policy, Glasgow Caledonian University</em></p>
<h2>Cost of living</h2>
<p>With the headline rate of inflation climbing to an annual rate of <a href="https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/consumerpriceinflation/february2022">6.2%</a> and due to rise further, all eyes were on the chancellor to provide further relief on top of the measures <a href="https://www.gov.uk/government/speeches/chancellors-statement-to-the-house-energy-price-cap">announced in February</a> to help with energy bills. </p>
<p>Rishi Sunak rose to the challenge, with measures that will be popular with middle-income households in particular. Among them was help for motorists with a temporary 12-month cut of 5p in fuel duty from 6pm on March 23. For a medium-sized car with a 45 litre tank, this will knock £2.25 off the current £75 cost of filling the tank. The reason why this primarily benefits higher income households is that people on lower incomes are <a href="https://www.ons.gov.uk/peoplepopulationandcommunity/personalandhouseholdfinances/expenditure/datasets/percentageofhouseholdswithcarsbyincomegrouptenureandhouseholdcompositionuktablea47">less likely</a> to own cars. </p>
<p>However, fuel – particularly diesel – is also a major cost in the production and distribution of food and other goods. And it impacts on the cost of running public transport, such as buses. So, indirectly, the cut in fuel duty should help to dampen inflation more generally. </p>
<p>The 1.25 percentage point <a href="https://www.gov.uk/government/publications/health-and-social-care-levy/health-and-social-care-levy">increase in national insurance</a> to 13.25% due from April is still going ahead. But the chancellor has more than offset the impact for most workers by increasing the threshold at which national insurance starts to be paid. </p>
<p>This is increasing from £9,568 to £9,880 from April but from July will increase again to £12,570, aligning it with the income tax personal allowance. For an employee on UK average earnings (£31,772 a year) the combined effect for 2022-23 of the rise in both rates and threshold will be a cut in national insurance payments of around £30 compared with 2021-22.</p>
<p>Raising the threshold means 2.2 million people will be taken out of paying national insurance altogether. However, it should be remembered that many of the poorest households are not in work, so will not benefit at all. </p>
<p><em>Jonquil Lowe, Senior Lecturer in Economics and Personal Finance, The Open University</em></p>
<p>Rishi Sunak certainly had some eye catching ideas. Raising the national insurance threshold by £3,000 to £12,570, cutting fuel duty by 5p and reducing income tax by 1p by 2024 will certainly be welcomed by households facing astronomic rises in the price of living. But how much impact will they make? </p>
<p>The answer depends on who you are. For some, these changes will make a difference, although not necessarily a big one. And the focus has clearly been on increasing allowances for those working. For those unable to work, the impact will be minimal – at a time when they are in great need. </p>
<p>So Sunak’s plans are unlikely to reduce the number of children living in poverty, or the number of people using food banks, or the number of people having to decide between heating and eating. The best that can be said about the statement is that it might help some, and won’t cause more harm to others.</p>
<p>But maybe that is the best that can be hoped for. COVID has driven government borrowing to extremely high levels, and servicing that debt is expensive. Brexit has negatively affected the economy, and the war in Ukraine has added to energy prices. Within those constraints, Sunak will probably be pleased with his offerings – but others will have little to smile about. </p>
<p><em>Victoria Honeyman, Associate Professor of British Politics, University of Leeds</em></p>
<h2>Tax</h2>
<p>The cautious optimism of <a href="https://theconversation.com/drafts/170741/edit">October’s budget</a> has been replaced by a much more sober outlook. In fact, Sunak’s spring statement effectively demonstrated the limited power of a British chancellor to combat the combined threats of suppressed economic growth and rising inflation. </p>
<p>All three major tax announcements came with in-built limitations. The 1% cut in income tax won’t happen until 2024 (and on the assumption that the economy will be on more of an even keel by then). </p>
<p>The expected increase in the national insurance threshold was announced to £12,570, in line with the income tax personal allowance. But there was no U-turn on the rate rise. </p>
<p>And while the government will hope that a fuel duty cut of 5p will be widely celebrated, it will not entirely offset the increase in prices at the pump. Indeed, the cut is arguably only possible because of an <a href="https://theconversation.com/spring-statement-why-rishi-sunak-may-not-use-his-20-billion-war-chest-to-tackle-cost-of-living-crisis-179785">increase in tax revenue</a> from VAT caused by recent price hikes, meaning it is not really a government giveaway at all. </p>
<p>It is also debatable whether any of these measures will have a positive effect on those worst hit by the rising cost of living. The larger proportion of these tax changes will tend to benefit those on middle and higher incomes instead. </p>
<p><em>Gavin Midgley, Senior Teaching Fellow in Accounting, University of Southampton</em></p>
<h2>Defence</h2>
<p>Sunak began his speech by highlighting the danger posed by Russia and its war in Ukraine. Were we about to hear about an increase in spending for the Ministry of Defence? No. Sunak held firm at current levels and did not make any new pledges.</p>
<p>He appears to not want to massively expand public spending even in the face of military crisis in Europe. Instead it seems he is more interested in ensuring that defence spending is more efficient. But this reflects a potentially difficult tension for the Conservatives in seeing themselves as a party of both fiscal responsibility and national security.</p>
<p>Labour, meanwhile, is pushing for more defence spending – partly as a way to invest in economic recovery. The invasion of Ukraine is seen by some as an opportunity to ensure that any new UK weapons are produced in the UK.</p>
<p><a href="https://theconversation.com/defence-cuts-effectively-paid-for-uk-welfare-state-for-60-years-but-that-looks-impossible-after-ukraine-178680">A similar approach</a> is being taken elsewhere. The atrocities in Ukraine have led to countries in Europe pledging to ramp up defence spending – not just for reasons of international security, but to create jobs, fund manufacturing and help secure their economies. Debating the morality of military spending may have to wait.</p>
<p><em>Peter Bloom, Professor of Management, University of Essex</em></p>
<h2>Levelling up</h2>
<p>The chancellor made no mention of “levelling up” in his spring statement. Maybe he forgot, or perhaps he preferred to steer clear of new spending commitments in what are challenging economic circumstances. </p>
<p>Nevertheless, the levelling up <a href="https://levellingup.campaign.gov.uk/?utm_source=Google&utm_medium=Search&utm_campaign=Levelling+Up">white paper</a> published in February so far lacks the resources to meet the scale of its ambitions. Funding is <a href="https://www.independent.co.uk/news/uk/politics/eu-regional-deveopment-funds-cut-brexit-levelling-up-b2004944.html">significantly less</a> than was available for local growth under previous EU schemes. So much for a Brexit dividend. </p>
<p>For business, there were some reforms to research and development tax credits, and promises of future tax reliefs on investment. The chancellor hopes these measures will boost UK productivity and economic growth, but it is hard to see them having a real impact. </p>
<p>And there was nothing to support manufacturers disproportionately hit by the energy crisis. Energy intensive industries such as steel, ceramics and glass, which are largely located in those regions in need of levelling up and are also a key part of UK supply chains, are especially vulnerable. </p>
<p><em>Phil Tomlinson, Full Professor in Industrial Strategy, University of Bath</em></p>
<h2>Jobs</h2>
<p>The chancellor offered little to help people with low paid jobs or insecure employment. Despite <a href="https://news.sky.com/story/budget-2021-national-living-wage-to-increase-from-8-91-to-9-50-an-hour-12444307">previous increases</a> in the national minimum and living wages announced at the autumn budget, inflation is rising at a much faster rate than workers’ pay. And while employment levels have started to recover, there are still a record number of people on universal credit. </p>
<p>This is partly because people in precarious work, such as those on zero-hours contracts, are officially counted as employed. But it is “employment” which comes with financial insecurity, where workers get irregular shifts and can be simply and immediately removed from rotas. </p>
<p>Employers have been moving workers from secure contracts onto zero hours contracts to lower their costs – as happened to <a href="https://theconversation.com/pando-sacking-of-800-staff-shows-just-how-precarious-uk-jobs-can-be-179589">800 P&O Ferries employees</a>, who were replaced by agency staff last week. Agency staff are cheap because of the lack of benefits they are entitled to, and suffer as a result – facing the cost of living crisis without a steady flow of income. They need much more support than the chancellor is currently offering.</p>
<p><em>Ernestine Gheyoh Ndzi, Senior Lecturer at York Business School, York St John University</em></p>
<figure class="align-center ">
<img alt="Full shopping trolley on an upward pointing arrow." src="https://images.theconversation.com/files/453936/original/file-20220323-13-1xu6nxx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/453936/original/file-20220323-13-1xu6nxx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/453936/original/file-20220323-13-1xu6nxx.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/453936/original/file-20220323-13-1xu6nxx.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/453936/original/file-20220323-13-1xu6nxx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/453936/original/file-20220323-13-1xu6nxx.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/453936/original/file-20220323-13-1xu6nxx.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Inflation is rising fast.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-illustration/inflation-growth-food-sales-market-basket-1966788610">Shutterstock/Maxx-Studio</a></span>
</figcaption>
</figure>
<h2>Health</h2>
<p>Over the last two years, COVID has taught us that health and the economy are intimately linked. Poverty and income are key determinants of population health; people in lower-income groups do not live as long as others. </p>
<p>Their choices remain stark, and any financial relief, whether it’s cuts in duty or an increase in thresholds for payment of taxes, will be welcomed by those most vulnerable to the rising cost of living. </p>
<p>But major challenges still lie ahead for the NHS and social care. Funding increases previously announced by the government are temporary and will be gobbled up by inflation. The system will have trouble, therefore, in reducing the treatment backlogs which mounted up during the pandemic. </p>
<p>Another key issue in health and social care is staff retention. This requires better pay and reductions in the cost of working (as well as living). In these respects, reductions in fuel duty are to be welcomed and will hopefully help those who do some of society’s most important jobs. But this is minor and, frankly, the very least we can do for the nurses and carers we so lauded during the pandemic. </p>
<p><em>Cam Donaldson, Yunus Chair & Distinguished Professor of Health Economics, Glasgow Caledonian University</em></p>
<p>Two years since the first lockdown, COVID is still infecting one in 20 of us, and health services are nowhere near back to normal. On top of this, 6.1 million people are currently waiting for NHS treatments and by 2025 this could double. </p>
<p>What’s left of the funds raised by the planned April increase in national insurance are intended to target waiting lists for the next three years, and then social care reform. Funding alone, though, will not deliver care –- workforce shortages will be the key factor limiting efforts to tackle the backlog, exacerbating the high workloads, stress and burnout which were reported even before the pandemic. </p>
<p>The NHS needs to train more health professionals, but in the short-term it also needs to retain staff, attract back those who have left, and potentially encourage part-time staff to increase their commitment. It is the UK’s biggest employer, with staff, like everywhere else, facing startling increases in the cost of living. </p>
<p>Boris Johnson, after being hospitalised with COVID, described the NHS as being “powered by love”. NHS staff might reasonably expect the chancellor to show a little more love in return.</p>
<p><em>Karen Bloor, Professor of Health Economics and Policy, University of York</em></p>
<h2>Supply chains</h2>
<p>Over the last two years, we have all learned to care more than we ever used to about supply chains. But while Sunak spoke about the need to enhance productivity, no measures were announced to help strengthen those chains. </p>
<p>Issues in transport and supply have now been compounded by the <a href="https://theconversation.com/five-essential-commodities-that-will-be-hit-by-war-in-ukraine-177845">war in Ukraine</a>, and will no doubt get worse before they get better. But an increased focus on training and people could help to address labour shortages, for example in recruiting and retaining HGV drivers. </p>
<p>And while the spring statement put a crucial focus on the cost of living crisis, the British Chambers of Commerce also <a href="https://www.britishchambers.org.uk/news/2022/03/bcc-gives-response-to-chancellors-spring-statement-2022">highlighted</a> the “cost of doing business” crisis – noting extreme price increases and significant supply chain volatility. The announced cut in fuel duty by 5p per litre will help to address some of these concerns.</p>
<p>Around 85% of the domestic freight in the UK is transported on roads. Fuel accounts for around a third of the annual operating cost of an HGV and the cut will result in an average <a href="https://www.fleetnews.co.uk/news/fleet-industry-news/2022/03/22/spring-statement-could-bring-some-relief-for-fleets-at-the-pumps">saving of £2,356</a> per year per 44-tonne truck. However, there are concerns within the transport sector that this cut will <a href="https://www.fleetnews.co.uk/news/fleet-industry-news/2022/03/22/spring-statement-could-bring-some-relief-for-fleets-at-the-pumps">do little</a> to ease the overall burden of price increases. </p>
<p><em>Sarah Schiffling, Senior Lecturer in Supply Chain Management, Liverpool John Moores University</em></p>
<h2>Fuel</h2>
<p>Tax on fuel will be reduced by 5p from the existing level of 57.95p – a small reduction matched by little hope that the cost of petrol and diesel at UK forecourts will go down significantly any time soon. </p>
<p>The cut should instead be seen as one element of an “energy security” package which includes restarting licensing for hydrocarbon production in the North Sea and a push for increased nuclear energy generation. </p>
<p>Overall, that package aims to address energy supply security. Global markets have been severely affected by COVID (when demand was drastically reduced) and Ukraine (which has led to dramatic increases in the price of crude oil). The chancellor can do little about global market levels, but he has at least noticed motorists’ pain. </p>
<p>The price of a litre of petrol includes fuel duty, VAT, the retailer’s margin, plus the costs of transportation. Fuel duty is the largest share of that, so 5p may be considered a fairly modest cut. But in the light of the government’s long term aim towards reducing carbon emissions, anything more may have been seen as going into reverse gear.</p>
<p><em>Slawomir Raszewski, Senior Lecturer, Royal Docks School of Business & Law, University of East London</em></p>
<h2>Two years on from Brexit</h2>
<p>The chancellor was cheered by his Conservative colleagues when he announced a VAT cut on energy saving devices, claiming he could not have done it without Brexit. But he could have done the same within EU rules by using subsidies, and will do exactly that in Northern Ireland. </p>
<p>And despite offsetting some of the tax increase announced for April, the country remains closer to the model of <a href="https://www.newstatesman.com/politics/uk-politics/2022/02/the-rise-of-high-tax-britain">European countries</a> than from becoming “<a href="https://www.thetimes.co.uk/article/wheres-our-singapore-on-thames-brexit-backers-feel-let-down-by-high-tax-pm-6sz8nffdr">Singapore-on-Thames</a>”. If the government wants to show economic gains from leaving the EU single market, it needs to start explaining what it will do differently. </p>
<p>Leaving the EU single market currently means <a href="https://www.ft.com/content/af1ef504-ee32-43c0-b7d5-81d045714618">less trade</a> and <a href="https://www.ft.com/content/a009ce74-b6a0-4939-95f0-5ea83771ca78">more bureaucracy</a>. New trade deals have so far failed to deliver economic benefits.</p>
<p>The relationship with China has deteriorated. The government estimates a <a href="https://lordslibrary.parliament.uk/uk-membership-of-the-trans-pacific-trade-agreement/">0.1% GDP gain</a> from being a prospective member of the Trans-Pacific Partnership. Agreements with Australia and New Zealand are equally unimportant for growth and involve unpopular concessions hurting British farmers and the environment. To get a substantial US trade deal, the UK will need to diverge from EU standards, including on food safety. For now, the benefits of Brexit remain elusive. </p>
<p><em>Renaud Foucart, Senior Lecturer in Economics, Lancaster University Management School, Lancaster University</em></p>
<h2>Macroeconomy</h2>
<p>In the next few weeks, the average UK household is expected to face a 50% rise in home energy costs, with further rises expected in October. This comes on top of rising fuel prices, which in turn effects the prices of many goods and services. Meanwhile, wage rises are failing to keep up with inflation. The planned rise in national insurance to fund health and social care further reduces household income.</p>
<p>The public finances have taken a hit from two years of COVID support measures, and while tax receipts are increasing, the cost of servicing government debt is rising. It is a challenging set of circumstances for any spring statement to address.</p>
<p>The measures announced by Sunak clearly have an eye on previous election commitments to reduce tax. The future 1p cut in the basic rate of income tax, while welcome, does not have any impact on households today. </p>
<p>On the other hand, the rise in the national insurance threshold will have immediate impact. The extension of targeted support measures for small businesses will also be welcome. And no VAT on energy efficiency products provides a green virtue signal, but is unlikely to make substantial inroads into the poor energy performance of Britain’s housing stock.</p>
<p><em>W David McCausland, Professor of Economics, University of Aberdeen</em></p>
<h2>The view from Europe</h2>
<p>These are difficult times for European governments of all political colours. COVID forced them to open their coffers to support their economies, which resulted in strong increases in debt-to-GDP ratios. Then persistent supply chain disruptions and some pent-up consumer demand for goods led to a surge in inflation. Now Russia’s attack on Ukraine has sent energy prices skyrocketing and further exacerbated economic problems. </p>
<p>The chancellor began his speech by emphasising that sanctions against Russia come at great cost to the UK and its allies. In light of the various problems, governments have little room to manoeuvre. (Perhaps this also explains why the speech was uncharacteristically short; Rishi Sunak spoke for only 27 minutes.) </p>
<p>Despite this, Sunak delivered a rather rosy outlook for the next five years. Perhaps he had to make such optimistic forecasts for the fiscally conservative wing in his party. Given the huge degree of economic uncertainty in the world, we can safely ignore those forecasts.</p>
<p>The chancellor also promised to address the UK’s productivity gap compared to the US, France and Germany in the autumn budget. He wants to address the comparative lack of vocational training (compared to much of Europe) by encouraging businesses to invest more in training their employees. He also plans to reform the research and development tax credit for companies. Conventional economic theory tells us that this is exactly the right medicine for the problem. Let’s hope he delivers.</p>
<p><em>Karl Schmedders, Professor of Finance, International Institute for Management Development (Switzerland)</em></p>
<h2>Business</h2>
<p>Business will welcome the fact that there’s a new tax cut for small businesses, as well as a business rates discount for retail, hospitality and leisure, and a reduction in tax rates on business investment. However, what will worry most businesses is the fact that they will have to pay more national insurance for employees, and that corporation tax is going to rise next year. </p>
<p>Worse still, most businesses rely on people having disposable income to spend on the goods and services they offer. What Sunak suggested, in common with pretty much every other commentator, is that we’re going to get poorer. Those who can will reduce discretionary spending. That’s bad news for business seeking confidence in future prospects – and dreadful for the economy.</p>
<p><em>Steven McCabe, Associate Professor, Institute for Design, Economic Acceleration & Sustainability, Birmingham City University</em></p><img src="https://counter.theconversation.com/content/179808/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The government knows 2022 is going to be tough for voters.Keith Baker, Researcher in Fuel Poverty and Energy Policy, Built Environment Asset Management (BEAM) Centre, Glasgow Caledonian UniversityCam Donaldson, Yunus Chair and Distinguished Professor of Health Economics, Glasgow Caledonian UniversityErnestine Gheyoh Ndzi, Senior Lecturer at York Business School, York St John UniversityGavin Midgley, Senior Teaching Fellow in Accounting, University of SouthamptonJonquil Lowe, Senior Lecturer in Economics and Personal Finance, The Open UniversityKaren Bloor, Professor of Health Economics and Policy, University of YorkKarl Schmedders, Professor of Finance, International Institute for Management Development (IMD)Peter Bloom, Professor of Management, University of EssexPhil Tomlinson, Professor of Industrial Strategy, Deputy Director Centre for Governance, Regulation and Industrial Strategy (CGR&IS), University of BathRenaud Foucart, Senior Lecturer in Economics, Lancaster University Management School, Lancaster UniversitySarah Schiffling, Senior Lecturer in Supply Chain Management, Liverpool John Moores UniversitySlawomir Raszewski, Senior Lecturer, Royal Docks School of Business & Law, University of East LondonSteven McCabe, Associate Professor, Institute for Design, Economic Acceleration & Sustainability (IDEAS), Birmingham City UniversityVictoria Honeyman, Associate Professor of British Politics, University of LeedsW David McCausland, Professor of Economics, University of AberdeenLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1657112021-09-01T10:38:30Z2021-09-01T10:38:30ZCuts to housing benefits led to over 75,000 more overcrowded households during the pandemic<figure><img src="https://images.theconversation.com/files/415847/original/file-20210812-22-uyqyxa.jpg?ixlib=rb-1.1.0&rect=49%2C106%2C5414%2C3530&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/facade-council-housing-tower-block-agar-1438589654">I Wei Huang/Shutterstock</a></span></figcaption></figure><p>COVID-19 has been described as a <a href="https://www.insidehousing.co.uk/news/council-with-highest-covid-19-death-rate-brands-illness-a-housing-disease-66608?">“housing disease”</a>. Overcrowded <a href="https://theconversation.com/coronavirus-pandemic-puts-the-spotlight-on-poor-housing-quality-in-england-136453">living conditions</a> make it easier for the virus to spread, and statistics <a href="https://www.insidehousing.co.uk/insight/insight/the-housing-pandemic-four-graphs-showing-the-link-between-covid-19-deaths-and-the-housing-crisis-66562">show a link</a> between overcrowding and mortality from COVID. </p>
<p>In my new research published in the <a href="https://www.tandfonline.com/doi/full/10.1080/19491247.2021.1964253">International Journal of Housing Policy</a>, I found that reductions to housing benefits led to a significant increase in overcrowding among private renters in England in the years leading up to the pandemic. My analysis shows that more than 75,000 additional households were overcrowded during the pandemic because of these policies.</p>
<h2>Changes to housing benefit</h2>
<p>The local housing allowance (LHA) approach to calculating housing benefit for private renters was introduced by the Labour government in 2008. Previously, housing benefit was based on the actual rent paid by individual recipients. Arguing that this was <a href="https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/422155/Supporting_people_into_work-Housing_Benefit_consultation.pdf">undermining work incentives</a>, the LHA approach instead meant recipient households could receive support up to the median rental prices for the <a href="https://lha-direct.voa.gov.uk/BedRoomCalculator.aspx">relevant property size</a> in their area. The median, or 50th percentile, represents the “middle” value between the lowest and highest values – in this case the lowest and highest rents, therefore making the cheapest half of housing in an area affordable to recipients.</p>
<p>After the 2010 election, the Conservative-Liberal Democrat coalition government made further changes with the aim of <a href="https://researchbriefings.files.parliament.uk/documents/SN05638/SN05638.pdf">reducing spending</a>. From April 2011, LHA rates were reduced from the 50th to the 30th percentile, meaning that housing benefit would now only cover rents for the cheapest three out of 10 homes in an area. This resulted in an <a href="https://academic.oup.com/aje/article/184/6/421/2576058">average loss of £1,220</a> per household per year. Caps depending on property size were also introduced. </p>
<p>The government argued that the lower levels of support would encourage lower rent levels. However, a government-commissioned review found that <a href="https://www4.shu.ac.uk/research/cresr/sites/shu.ac.uk/files/final-reports-dwp-research-summary.pdf">this was not the case</a>: the vast majority (89%) of the effects fell on tenants who had to find money for their housing costs elsewhere, while just 11% of the effects fell on landlords via reducing rents.</p>
<p>In the years that followed this change, the way that LHA rates were updated to keep up with rising rents was also altered. Previously increased monthly according to rental prices, from April 2013 increases took place annually, capped at the Consumer Price Index measure of inflation. The Consumer Price Index calculates inflation based on the price of a range of goods and services, but does not include housing costs. </p>
<p>Annual increases were further restricted to 1% in 2014 and 2015 before being frozen for four years. This led to a widening gap between LHA rates and rents in the years leading up to the pandemic. For example, in the year to 2016 while increases were limited to just 1%, actual <a href="https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/indexofprivatehousingrentalprices/sept2016">rents in England increased by 2.5%</a>.</p>
<h2>Overcrowding</h2>
<p>One potential way for renters to adapt to lower financial support is to move into smaller and less suitable homes. In my research, I compared trends in overcrowding both before and after the LHA reductions, as well as between private renters who do and do not receive support. By using this approach, I found a causal link between the policy changes and overcrowding.</p>
<p>My analysis first looked at the immediate effect of the cut to LHA rates from the 50th to 30th percentile of rents in an area, finding an increase in overcrowding of over 5% in England. This is equivalent to 75,000 additional households living in overcrowded homes. </p>
<p>I then looked at the longer-term effect of the changes, including the changes to to the way LHA rates were set, which undermined the link between allowances and actual rents. The results show further increases in overcrowding for recipients of housing benefit, while overcrowding for other private renters continued to decrease.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/415468/original/file-20210810-17-6zapp1.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/415468/original/file-20210810-17-6zapp1.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=383&fit=crop&dpr=1 600w, https://images.theconversation.com/files/415468/original/file-20210810-17-6zapp1.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=383&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/415468/original/file-20210810-17-6zapp1.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=383&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/415468/original/file-20210810-17-6zapp1.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=481&fit=crop&dpr=1 754w, https://images.theconversation.com/files/415468/original/file-20210810-17-6zapp1.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=481&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/415468/original/file-20210810-17-6zapp1.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=481&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Figure showing the change in overcrowding for recipients and non-recipients of LHA, before and after the 2011 reduction.</span>
<span class="attribution"><span class="source">Author</span></span>
</figcaption>
</figure>
<p>Spread within households has been one of the <a href="https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/952799/s1020-Reducing-within-between-household-transmission.pdf">main routes</a> of COVID-19 transmission, putting people in overcrowded homes at greater risk. Overcrowding makes self-isolation and reducing risk much harder and <a href="https://theconversation.com/stories-from-lockdown-interviews-show-how-poor-housing-quality-made-life-even-more-tough-148686">less pleasant</a>, and is associated with <a href="https://www.annualreviews.org/doi/10.1146/annurev.publhealth.25.101802.123036?url_ver=Z39.88-2003&rfr_id=ori%3Arid%3Acrossref.org&rfr_dat=cr_pub++0pubmed">poorer mental and physical health</a>.</p>
<p>During the pandemic the government did increase the LHA levels back to the true 30th percentile of rents, reversing the effects of limits to increases. But failure to adjust the benefit cap in response will have significantly reduced any beneficial effect this may have had. Between February and May 2020 there was a near <a href="https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/906680/benefit-cap-statistics-May-2020-tables.ods">doubling of households</a> who had their benefit income reduced by the cap, disproportionately affecting single-parent households. LHA rates have once again been frozen.</p>
<h2>Moving forward</h2>
<p>These findings support calls from housing organisations such as Shelter to increase the LHA <a href="https://blog.shelter.org.uk/2020/04/how-the-government-can-avoid-a-rise-in-homelessness-after-covid-19/">back to the 50th percentile</a>, and to once again increase allowances in line with rents. This would protect private renters from financial hardship in the short term while a more sustainable housing policy should be the longer-term goal. While this conflicts with government’s approach of once again freezing LHA rates and reducing spending, three arguments against such an approach should be considered. </p>
<p>Firstly, the increased spending on renter support reflects government decisions more than it does <a href="https://www.tandfonline.com/doi/full/10.1080/14036096.2015.1027830?casa_token=dUalwJ8Sx20AAAAA%3AgQsrzt1xuYaB7xJzH3WSupRLg4KsTRXQfSgEuvu2yalJbDmlGDcYlEMe5a5l-yL0zI5ugQRMJ29x">excessive or frivolous spending</a> by benefit recipients. Continuous reductions in support for the social rented sector have led to more people living in the private sector, where rents, and therefore housing benefit rates, are higher.</p>
<p>Secondly, many policies to “improve” access to home ownership have, at great cost, inflated housing prices and made accessing ownership <a href="https://assets.ctfassets.net/6sxvmndnpn0s/5vZ3yaIl8S0UQApIWWLAZV/4072f308ee81061ab7a00e6265d60354/2015_09_how_much_help_is_Help_to_Buy.pdf">more difficult</a> for renters. These policies benefit <a href="https://www.theguardian.com/business/2019/mar/01/help-to-buy-pushes-uk-housebuilder-dividends-to-23bn">large housebuilders</a>, and those <a href="https://www.independent.co.uk/news/business/house-prices-uk-average-property-mortgage-b1835117.html">already in</a> <a href="https://www.insidehousing.co.uk/comment/the-governments-housing-market-interventions-have-done-little-to-benefit-first-time-buyers-70437">owner occupation</a>. Given these impacts, support for renters should perhaps not be the main target of actions to reduce housing spending.</p>
<p>Finally, reducing LHA levels may have reduced government spending on housing, but its consequences will have led to increases in spending elsewhere, particularly <a href="https://academic.oup.com/aje/article/184/6/421/2576058">health</a>. A person’s home is central to their broader health and wellbeing – in an era where low housing quality has been directly linked to the spread of a deadly disease, housing policy must take this into account.</p><img src="https://counter.theconversation.com/content/165711/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Amy Clair receives funding from the Economic and Social Research Council via the ESRC Research Centre on Micro-Social Change (MiSoC) in the Institute for Social and Economic Research, University of Essex (grant number ES/S012486/1). </span></em></p>A new analysis shows how government policy led to thousands more overcrowded households in the years ahead of the pandemic.Amy Clair, Research Fellow in Social Policy, University of EssexLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1649772021-07-23T12:14:38Z2021-07-23T12:14:38ZWhy America has a debt ceiling: 5 questions answered<figure><img src="https://images.theconversation.com/files/412709/original/file-20210722-15-lxzlb9.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C4256%2C2828&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The sky's not always the limit. </span> <span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/DomeRestorationTour/4d4de6e58a5e4b9bae9e7573d1ee53bd/photo?Query=capitol%20rotunda%20ceiling&mediaType=photo&sortBy=arrivaldatetime:desc&dateRange=Anytime&totalCount=24&currentItemNo=12">AP Photo/Susan Walsh</a></span></figcaption></figure><p><em>A tentative deal to raise the debt ceiling may finally end the game of chicken Republicans and Democrats have been playing over the government’s spending limit -– with the nation’s financial stability at stake.</em></p>
<p><em>The deal, announced on May 27, 2023, would raise the <a href="https://www.reuters.com/markets/rates-bonds/us-congress-vote-debt-limit-hike-averting-default-risk-2021-12-14/">US$31.38 trillion ceiling</a> and cap federal spending. It must still be reviewed and approved by the House and the Senate before the U.S. government runs out of cash, which Treasury Secretary Janet Yellen <a href="https://www.npr.org/2023/05/26/1178510391/janet-yellen-treasury-debt-ceiling-limit-default-congress-negotiations">now estimates will happen by June 5</a>.</em></p>
<p><em>The government <a href="https://home.treasury.gov/news/press-releases/jy1196">hit the debt limit back in January</a> and has been using “extraordinary measures” since then to keep paying its bills.</em></p>
<p><em>Economist <a href="https://www.monmouth.edu/directory/profiles/steven-pressman/">Steven Pressman</a> explains what the debt ceiling is and why we have it – and why it may be time to abolish it.</em> </p>
<h2>1. What is the debt ceiling?</h2>
<p>Like the rest of us, governments must borrow when they spend more money than they receive. They do so by issuing bonds, which are IOUs that promise to repay the money in the future and make regular interest payments. <a href="https://fred.stlouisfed.org/series/GFDEBTN">Government debt</a> is the total sum of all this borrowed money. </p>
<p>The <a href="https://home.treasury.gov/policy-issues/financial-markets-financial-institutions-and-fiscal-service/debt-limit">debt ceiling</a>, which <a href="https://www.google.com/search?client=safari&rls=en&q=congress+creates+debt+ceiling&ie=UTF-8&oe=UTF-8">Congress established</a> a century ago, is the maximum amount the government can borrow. It’s a limit on the national debt. </p>
<h2>2. What’s the national debt?</h2>
<p>The U.S. government debt <a href="https://fsapps.fiscal.treasury.gov/dts/issues">of $31.38 trillion</a> is about 22% more than the <a href="https://fred.stlouisfed.org/series/GDP">value of all goods and services</a> that will be produced in the U.S. economy this year. </p>
<p>Around one-quarter of this money the government actually owes itself. The Social Security Administration has accumulated a surplus and invests the extra money, <a href="https://www.ssa.gov/cgi-bin/investheld.cgi">currently $2.8 trillion</a>, in government bonds. And the Federal Reserve <a href="https://fred.stlouisfed.org/series/TREAST">holds $5.5 trillion</a> in U.S. Treasurys. </p>
<p>The rest is public debt. As of October 2022, <a href="http://ticdata.treasury.gov/Publish/mfh.txt">foreign countries, companies and individuals</a> owned $7.2 trillion of U.S. government debt. Japan and China are the largest holders, with around $1 trillion each. The rest is owed to U.S. citizens and businesses, as well as state and local governments. </p>
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<h2>3. Why is there a borrowing limit?</h2>
<p>Before 1917, Congress would authorize the government to borrow a fixed sum of money for a specified term. When loans were repaid, the government could not borrow again without asking Congress for approval.</p>
<p>The Second Liberty Bond Act of 1917, which <a href="https://www.federalreservehistory.org/essays/liberty_bonds">created the debt ceiling</a>, changed this. It allowed a continual rollover of debt without congressional approval. </p>
<p>Congress enacted this measure to let then-President Woodrow Wilson spend the money he deemed necessary to fight World War I without waiting for often-absent lawmakers to act. Congress, however, did not want to write the president a blank check, so it limited borrowing to $11.5 billion and required legislation for any increase. </p>
<p>The debt ceiling <a href="https://fas.org/sgp/crs/misc/RL31967.pdf">has been increased dozens of times</a> since then and suspended on several occasions. The last change occurred in December 2021, when <a href="https://www.crfb.org/papers/qa-everything-you-should-know-about-debt-ceiling">it was raised</a> to $31.38 trillion.</p>
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<h2>4. What happens when the US hits the ceiling?</h2>
<p>Whenever the U.S. nears its debt limit, the Treasury secretary can use “<a href="https://www.treasury.gov/initiatives/Documents/Description_of_Extraordinary_Measures_2017_03_16.pdf">extraordinary measures</a>” to conserve cash, which she indicated began on Jan. 19. One such measure is <a href="https://www.govexec.com/pay-benefits/2019/03/treasury-stops-investments-delay-debt-ceiling-retirement-programs-could-become-more-generous-and-more/155340/">temporarily not funding retirement programs</a> for government employees. The expectation will be that once the ceiling is raised, the <a href="https://www.govexec.com/pay-benefits/2019/03/treasury-take-extraordinary-measures-us-hits-debt-ceiling-saturday/155244/">government would make up the difference</a>. But this will buy only a small amount of time.</p>
<p>If the debt ceiling isn’t raised before the Treasury Department exhausts its options, decisions will have to be made about who gets paid with daily tax revenues. Further borrowing will not be possible. Government employees or contractors may not be paid in full. Loans to small businesses or college students may stop.</p>
<p>When the government can’t pay all its bills, it is technically in default. <a href="https://www.nytimes.com/2023/01/07/us/politics/speaker-election-debt-limit-republicans.html">Policymakers</a>, <a href="https://www.bloomberg.com/news/articles/2023-01-06/mccarthy-deal-with-rebels-would-heighten-risk-of-debt-standoff?sref=Hjm5biAW">economists and Wall Street</a> are concerned about a calamitous financial and economic crisis. <a href="http://www.pbs.org/newshour/bb/politics-july-dec13-debtceiling_10-03/">Many fear</a> that a government default would have dire economic consequences – soaring interest rates, financial markets in panic and maybe an economic depression.</p>
<p>Under normal circumstances, once markets start panicking, Congress and the president usually act. This <a href="http://www.nytimes.com/2013/10/17/us/congress-budget-debate.html">is what happened</a> in 2013 when Republicans sought to use the debt ceiling to defund the Affordable Care Act. </p>
<p>But we no longer live in normal political times. The major political parties <a href="https://nymag.com/intelligencer/2021/02/a-record-partisan-gap-underlies-bidens-job-approval-rating.html">are more polarized than ever</a>, and the concessions McCarthy gave right-wing Republicans may make it impossible to get a deal on the debt ceiling. </p>
<h2>5. Is there a better way?</h2>
<p>One possible solution is a <a href="https://archive.nytimes.com/krugman.blogs.nytimes.com/2013/01/07/be-ready-to-mint-that-coin/">legal loophole allowing the U.S. Treasury to mint platinum coins of any denomination</a>. If the U.S. Treasury were to mint a $1 trillion coin and deposit it into its bank account at the Federal Reserve, the money could be used to pay for government programs or repay government bondholders. This could even be justified by appealing to <a href="https://constitution.congress.gov/browse/essay/amdt14-S4-1/ALDE_00000849">Section 4 of the 14th Amendment</a> to the U.S. Constitution: “The validity of the public debt of the United States … shall not be questioned.”</p>
<p><a href="https://theworld.org/stories/2013-10-16/quick-can-you-name-another-country-debt-ceiling-its-hard">Few countries even have a debt ceiling</a>. Other governments operate effectively without it. America could too. A debt ceiling is dysfunctional and periodically puts the U.S. economy in jeopardy because of political grandstanding.</p>
<p>The best solution would be to scrap the debt ceiling altogether. Congress already approved the spending and the tax laws that require more debt. Why should it also have to approve the additional borrowing? </p>
<p>It should be remembered that the original debt ceiling was put in place because Congress couldn’t meet quickly and approve needed spending to fight a war. In 1917 cross-country travel was by rail, requiring days to get to Washington. This made some sense then. Today, when Congress can vote online from home, this is no longer the case.</p>
<p><em>This story has been updated to reflect the draft deal announced on the evening of May 27, 2023.</em></p><img src="https://counter.theconversation.com/content/164977/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Steven Pressman does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Republicans and Democrats have negotiated a draft deal that may avert a financial crisis, but why does the US have a debt ceiling in the first place?Steven Pressman, Part-Time Professor of Economics, The New SchoolLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1565572021-03-05T13:12:11Z2021-03-05T13:12:11ZSupport for Biden’s $1.9 trillion coronavirus relief package may not be as broad as it seems – it’s all a matter of perspective<figure><img src="https://images.theconversation.com/files/387890/original/file-20210304-21-1s7pvo4.jpg?ixlib=rb-1.1.0&rect=15%2C50%2C3320%2C2260&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Government spending bills that cost billions or trillions of dollars can seem abstract.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/photo/stack-of-us-dollar-banknotes-close-up-royalty-free-image/200556773-001">Siri Stafford/DigitalVision via Getty Images</a></span></figcaption></figure><figure class="align-center ">
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<p><a href="https://www.washingtonpost.com/us-policy/2021/03/02/biden-stimulus-covid-relief/">Congress is on the verge</a> of spending US$1.9 trillion to provide additional coronavirus relief to Americans, including <a href="https://www.cnbc.com/2021/02/27/heres-whats-in-the-dem-houses-covid-relief-bill.html">$1,400 direct payments and extended unemployment benefits</a>. Opinion polls show the bill has strong support, <a href="https://www.nytimes.com/2021/02/25/us/politics/republicans-trump-biden-stimulus.html">even among Republican voters</a>.</p>
<p>But what if you were told that this spending level represents about $15,000 for every household in the U.S.? Would that make you less likely to support it even if you like its provisions?</p>
<p><a href="https://scholar.google.com/citations?user=ccS5eAoAAAAJ&hl=en&oi=ao">We are</a> <a href="https://www.isenberg.umass.edu/people/david-piercey">accounting professors</a> who research how the presentation of financial information affects individual judgments. Our recent work suggests it would lessen most people’s support for the spending bill.</p>
<h2>Making sense of big numbers</h2>
<p>In the Spring 2020 issue of Behavioral Research in Accounting, <a href="https://doi.org/10.2308/bria-18-017">we published a study</a> investigating whether individuals comprehend the large numbers involved in government spending.</p>
<p>The federal government routinely spends amounts in the millions, billions and, more recently, trillions, yet <a href="https://theconversation.com/millions-billions-trillions-how-to-make-sense-of-numbers-in-the-news-86509">these numbers are far beyond</a> what individuals encounter on a daily basis, making it hard for most people – and probably lawmakers – to wrap their heads around them. </p>
<p>We hypothesized that presenting the cost of government spending in per-household terms would make these amounts easier for individuals to understand and evaluate.</p>
<p>In our study, we conducted an experiment in which people evaluated a hypothetical federal spending proposal that included provisions like job training, unemployment benefits and infrastructure spending. Half the participants were presented with a plan that would cost $718 million, while the other half saw the same proposal at a cost of $718 billion. Participants were randomly told either the full cost of the proposal or the tally in per-household terms. That is, $5,744 for the $718 billion version and $5.74 for the $718 million one. </p>
<p>We found no difference in the level of support expressed by people who saw the $718 million proposal versus people who saw the $718 billion proposal, even though it’s 1,000 times larger. But the people who saw the per-household amount expressed significantly less support for the version with the larger price tag. Additionally, we then showed the participants who were given the total figures the per-household expression and found a similar drop in support for the more expensive proposal.</p>
<p>Thus, we concluded that the per-household presentation made individuals cost sensitive to government spending.</p>
<p>Interestingly, although liberals were on average more likely to support the spending proposal than conservatives, both groups became more cost sensitive when government spending was presented in per-household terms. </p>
<h2>What it means</h2>
<p>This is not to suggest the U.S. should or shouldn’t spend $1.9 trillion on coronavirus relief.</p>
<p>Our point is that it’s important to make these large numbers relatable to voters, allowing them to put the overall cost into context and then make up their own minds on whether the spending is worth it. And it may mean, were voters told the per-household cost of the $1.9 billion bill, they’d offer less support.</p>
<p>One caveat to this is that putting government spending in per-household terms may lead voters to incorrectly think they are personally responsible for that amount. Most – <a href="https://www.reuters.com/article/us-usa-trump-taxes-revenue-explainer/explainer-the-4-trillion-u-s-government-relies-on-individual-taxpayers-idUSKBN26J30F">though not all</a> – government funding comes from individual taxpayers, and not all households pay an equal share.</p>
<p>However, we also found that participants didn’t have increased cost sensitivity because they felt personally liable, but because they simply understood the magnitude of the spending better. </p>
<p>[<em>Insight, in your inbox each day.</em> <a href="https://theconversation.com/us/newsletters/the-daily-3?utm_source=TCUS&utm_medium=inline-link&utm_campaign=newsletter-text&utm_content=insight">You can get it with The Conversation’s email newsletter</a>.]</p><img src="https://counter.theconversation.com/content/156557/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>It’s awfully hard to wrap your mind around a sum that large. But converting it to a more bite-size representation can affect a voter’s willingness to support government spending.Aaron Saiewitz, Associate Professor of Accounting, University of Nevada, Las VegasM. David Piercey, John F. Kennedy Endowed Professor of Accounting, UMass AmherstLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1540622021-01-28T03:38:55Z2021-01-28T03:38:55ZThe government is spending almost A$24m to convince us to accept a COVID vaccine. But will its new campaign actually work?<figure><img src="https://images.theconversation.com/files/381007/original/file-20210128-19-b4gq0n.jpg?ixlib=rb-1.1.0&rect=0%2C5%2C1000%2C660&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/portrait-her-she-nice-attractive-healthy-1785901274">from www.shutterstock.com</a></span></figcaption></figure><p>The federal government’s A$23.9 million COVID-19 vaccination information campaign, <a href="https://www.health.gov.au/ministers/the-hon-greg-hunt-mp/media/australias-covid-19-vaccine-information-campaign-begins">launched</a> <a href="https://www.abc.net.au/news/2021-01-27/government-rolling-out-covid-19-vaccine-advertising/13093168">yesterday</a>, aims to reassure the public about vaccine safety and effectiveness. It will also provide information about the vaccine rollout. </p>
<p>We’ve only just started to see the <a href="https://www.youtube.com/channel/UCf3BkFTwI4G1vMc6W-NpQNw">campaign materials</a> appearing online, but the government also promises other communication formats, such as print, radio and outdoor advertising.</p>
<figure>
<iframe width="440" height="260" src="https://www.youtube.com/embed/0OcgpwnQegg?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
<figcaption><span class="caption">This 30-second TV commercial is part of the campaign.</span></figcaption>
</figure>
<p>Australia has never undertaken a vaccination program of this scale, and effective communication will be crucial to its success. </p>
<p>So here’s the $24 million question: will this communication campaign work? Vaccine and public health communication <a href="https://theconversation.com/5-ways-we-can-prepare-the-public-to-accept-a-covid-19-vaccine-saying-it-will-be-mandatory-isnt-one-144730">research</a> provide some useful insights.</p>
<h2>Who are the spokespeople?</h2>
<p><a href="https://www.who.int/risk-communication/introduction-to-risk-communication.pdf">Research</a> into how best to communicate risk tells us the most trustworthy spokespeople: </p>
<ul>
<li><p>are competent and objective</p></li>
<li><p>are reliable and transparent</p></li>
<li><p>share the values and experiences of the audience</p></li>
<li><p>demonstrate empathy and address the audience’s concerns.</p></li>
</ul>
<p>This video — which features a deputy chief medical officer (and infectious disease physician), a representative of the Therapeutic Goods Administration and chief nursing and midwifery officer — is a great start.</p>
<figure>
<iframe width="440" height="260" src="https://www.youtube.com/embed/BL62mNLOdzQ?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
<figcaption><span class="caption">This video features experts and trusted health-care providers, which is a great start.</span></figcaption>
</figure>
<p>These people are widely seen as experts and trusted health-care providers. They’re not controversial or partisan figures who might be seen to have a political agenda. </p>
<p>But do they resonate with every audience? It might be valuable also to include some diverse and more accessible spokespeople who represent particular communities, such as cultural or religious leaders. </p>
<p>To increase engagement on social media, the campaign could also use respected celebrities or sports stars to share messages or act as <a href="https://www.nber.org/system/files/working_papers/w25589/w25589.pdf">vaccination role models</a>. In the 1950s, Elvis Presley was used to <a href="https://www.neh.gov/article/elvis-presley-set-example-getting-his-polio-vaccination">promote the polio vaccine</a>.</p>
<p>An effective communication campaign should also <a href="https://www1.racgp.org.au/ajgp/2020/october/preparing-the-public-for-covid-19-vaccines">train and empower health-care workers</a> such as GPs, nurses and pharmacists to discuss COVID-19 vaccines confidently with the public. This is not visible in the public campaign, but may be part of the government’s strategy. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/5-ways-we-can-prepare-the-public-to-accept-a-covid-19-vaccine-saying-it-will-be-mandatory-isnt-one-144730">5 ways we can prepare the public to accept a COVID-19 vaccine (saying it will be 'mandatory' isn't one)</a>
</strong>
</em>
</p>
<hr>
<h2>Is it easy to understand?</h2>
<p>Information for a wide population needs to be designed for people with <a href="https://www.phrp.com.au/issues/december-2020-volume-30-issue-4/health-literacy-and-disparities-in-covid-19-related-knowledge-attitudes-beliefs-and-behaviours-in-australia/">different levels</a> of health literacy — the ability to understand, access and act on health advice. </p>
<p>The government’s <a href="https://www.youtube.com/channel/UCf3BkFTwI4G1vMc6W-NpQNw">animated explainer videos</a> demonstrate many principles of effective communication. They are relatively simple, use graphics and short bullet-point lists, and repeat their key messages.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/most-government-information-on-covid-19-is-too-hard-for-the-average-australian-to-understand-153878">Most government information on COVID-19 is too hard for the average Australian to understand</a>
</strong>
</em>
</p>
<hr>
<p>They currently focus on passively providing information, but the best kind of public health messages are <a href="https://nam.edu/wp-content/uploads/2015/06/HealthLiteracyGuidance.pdf">action-oriented</a>. Hopefully, once the vaccines are actually available, the campaign will focus on behaviours such as visiting a vaccination delivery site, speaking to your GP or demonstrating where to find information. </p>
<p>There’s also an important balance to strike between accessibility and oversimplification. Some people with concerns about vaccines want <a href="https://www.thelancet.com/journals/laninf/article/PIIS1473-3099(20)30724-6/fulltext">more detailed information</a> about safety, side-effects and efficacy. This information should also be available as part of the communication campaign.</p>
<h2>Is it culturally appropriate?</h2>
<p>Australia is a diverse country. Not everyone speaks English or watches government press briefings on TV. Throughout the pandemic, communication strategies that were <a href="https://www.sbs.com.au/news/victoria-to-spend-14-million-on-more-multicultural-coronavirus-support-after-translation-bungles">inadequately or incorrectly translated</a> or <a href="https://www.theguardian.com/australia-news/2021/jan/05/low-covid-testing-rates-in-western-sydney-blamed-on-failure-to-get-message-to-migrant-communities">poorly disseminated</a> have been rightfully <a href="https://www.croakey.org/an-urgent-call-for-governments-to-improve-pandemic-communications-and-address-health-literacy-concerns/">criticised</a>.</p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1329530138422353920"}"></div></p>
<p>The new communication campaign plans to specifically target Aboriginal and Torres Strait Islander people, people with disabilities, and culturally and linguistically diverse communities. </p>
<p>Better yet, the <a href="https://www.health.gov.au/ministers/the-hon-greg-hunt-mp/media/australias-covid-19-vaccine-information-campaign-begins">government indicates</a> committees representing these groups are informing its campaign. Therefore, communication materials may look very different for different groups. </p>
<p>This would show the government has undertaken a meaningful process of <a href="https://theconversation.com/we-asked-multicultural-communities-how-best-to-communicate-covid-19-advice-heres-what-they-told-us-142719">community engagement</a> to design communication to reach everyone and resonate with their values.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/we-asked-multicultural-communities-how-best-to-communicate-covid-19-advice-heres-what-they-told-us-142719">We asked multicultural communities how best to communicate COVID-19 advice. Here's what they told us</a>
</strong>
</em>
</p>
<hr>
<h2>Is it responsive?</h2>
<p>From what we know so far, the communication campaign shows promise with its spokespeople, health-literate design and focus on engaging with diverse communities.</p>
<p>However, we don’t know whether the campaign can adapt and respond to changing events, concerns and evidence. This is one of the <a href="https://obssr.od.nih.gov/wp-content/uploads/2020/12/COVIDReport_Final.pdf">most important features</a> of an effective vaccination communication campaign. </p>
<p>People concerned about COVID-19 vaccines commonly cite safety as one of their top concerns. So it is paramount the government <a href="https://apps.who.int/iris/bitstream/handle/10665/338400/9789240018280-eng.pdf?sequence=1&isAllowed=y">proactively prepares</a> to communicate about any side-effects or possible safety issues that arise following vaccination, and respond to events quickly. The government also needs to share safety data transparently and regularly with the public to build and maintain trust.</p>
<p>Monitoring social media can also help identify developing rumours and misinformation before they spread widely. This strategy, also called “<a href="https://www.unicef.org/mena/reports/vaccine-misinformation-management-field-guide">social listening</a>”, can be used to inform the communication messages and approach. </p>
<p>If rumours are caught soon enough, it’s possible to pre-emptively debunk — or “prebunk” — misinformation before it takes hold.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/laws-making-social-media-firms-expose-major-covid-myths-could-help-australias-vaccine-rollout-153887">Laws making social media firms expose major COVID myths could help Australia's vaccine rollout</a>
</strong>
</em>
</p>
<hr>
<p>Finally, the campaign should be actively seeking public feedback and input. It should be informed by regularly measuring how people feel about vaccination and asking about their concerns. </p>
<p>The government could do this by setting up interactive virtual town hall meetings or Q&A sessions for the public to speak directly with spokespeople. This would demonstrate transparency and a willingness to hear and respond to issues as they arise.</p>
<p>There has been extraordinary coordinated effort and investment around the world to develop effective COVID-19 vaccines. Now, we need evidence-based communication about these vaccines that engages people, offers accessible, culturally appropriate information and earns their trust.</p><img src="https://counter.theconversation.com/content/154062/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jessica Kaufman receives funding from the National Health and Medical Research Foundation (Vaccine Barriers Assessment Tool, GNT1164200). She is a member of the Collaboration on Social Science and Immunisation (COSSI) network.</span></em></p>The campaign shows promise. But it’s not clear if it will preempt and respond to people’s concern about vaccine safety.Jessica Kaufman, Research Fellow, Vaccine Uptake Group, Murdoch Children's Research InstituteLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1527002021-01-13T13:09:36Z2021-01-13T13:09:36ZHow government spending goes to certain voters – and shapes inequality<p>Governments face pressure in the years ahead to <a href="https://theconversation.com/coronavirus-has-brought-the-welfare-state-back-and-it-might-be-here-to-stay-138564">ramp up social security payments</a> to help people affected by the coronavirus pandemic. However, in the UK, it has historically been voters who support the parties of government who get the money. <a href="https://osf.io/preprints/socarxiv/t8uks/">My research</a>, outlined in a paper awaiting full review, shows how this redistribution has contributed to inequality and poverty over the years. </p>
<p>Images posted by parents of the <a href="https://inews.co.uk/news/education/free-school-meals-food-parcels-how-much-lockdown-marcus-rashford-hamper-826558">meagre food parcels</a> they have been given in lieu of school meal vouchers have been a stark illustration of this trend.</p>
<p>As a result of spending decisions based on voter demographics, child poverty has risen over the past decade while <a href="https://osf.io/preprints/socarxiv/t8uks/">pensioner poverty remained stable</a>. Put simply, the Conservatives rewarded the pensioners (and high-income non-pensioners) who voted for them while levying cuts on the low-income parents who did not.</p>
<p>Electoral competition and redistribution used to be a simpler matter. <a href="https://www.jstor.org/stable/27644342">Low-income voters</a> could be expected to support left-wing governments, who gave them higher social security payments in return, while higher income voters supported right-wing parties, who rewarded them with tax cuts. Middle-income voters generally held the casting vote. Margaret Thatcher’s Conservatives, for example, <a href="https://academic.oup.com/ej/article-abstract/103/417/429/5158253">reduced taxes</a> for middle and high-income voters while cutting social security payments for all those on low incomes, including pensioners.</p>
<p>The times – and electoral coalitions – then began to change. When New Labour came to power, electoral coalitions were no longer divided solely by income. Age and whether you were a parent began to play a role. New Labour did still <a href="https://www.ifs.org.uk/bns/bn88.pdf">increase taxes on the rich</a> but didn’t increase social security payments for everyone on low incomes. Labour prime minister Tony Blair promised <a href="http://www.bristol.ac.uk/poverty/downloads/background/Tony%20Blair%20Child%20Poverty%20Speech.doc">“to end child poverty”</a>, while Gordon Brown promised to do the <a href="https://www.theguardian.com/politics/2002/sep/30/labourconference.labour7">same for pensioners</a>, but they did not promise to end all poverty. Child and pensioner poverty subsequently fell between 1997 and 2010 whereas <a href="https://sticerd.lse.ac.uk/dps/case/spcc/wp05.pdf">poverty among non-parents actually rose</a>. </p>
<p>More complex electoral coalitions would remain after New Labour left power. In a striking change from the Thatcher era, the Conservatives made it clear that they <a href="https://books.google.co.uk/books/about/Cameron_at_10_From_Election_to_Brexit.html?id=6lvkBgAAQBAJ&redir_esc=y">“would not touch pensioners”</a> when they came to office in 2010. This commitment did not, however, extend to others on low incomes. Almost all of their subsequent social security cuts <a href="https://sticerd.lse.ac.uk/dps/case/spcc/wp11.pdf">hit non-pensioners.</a> Since 2010, pensioner poverty has remained stable whereas non-pensioner poverty <a href="https://www.ifs.org.uk/publications/14901">has begun to rise</a>. Child poverty, in particular, has been growing as low-income parents experienced cuts to social security.</p>
<h2>One eye on the ballot box</h2>
<p>These changes in poverty were driven by government spending decisions. Politicians always have one eye on the next election and they know taxation and social security policies are among the <a href="https://www.journals.uchicago.edu/doi/abs/10.1086/694549?casa_token=fRfRsffM1yYAAAAA:CJO4DkrnY_I8x2OqRfD-6tIpE93yreUd287_1ksdIMuBeRw_GLR2aDsfUgVaDj85Doq23yCSN7odhg">most powerful tools</a> a government can use to win votes. Citizens <a href="https://idp.springer.com/authorize/casa?redirect_uri=https://link.springer.com/content/pdf/10.1007/s11127-013-0086-6.pdf&casa_token=owK1w91M63UAAAAA:qKNOCkuycK7TZWFkDAaCQqct3DkG2raUVeBm57HrP0ONMeJoER0anHqRY7trKKAHxI3sYYPi5fmkmH0Fq2U">reward incumbents with their vote</a> when they feel like government decisions have made them <a href="https://www.annualreviews.org/doi/abs/10.1146/annurev-polisci-032211-212920">better off</a>. Indeed, David Laws, a Liberal Democrat cabinet minister in the coalition government, said he believed that the Conservatives did not cut pensions precisely because they viewed older voters as <a href="https://books.google.co.uk/books?id=Q5PGCwAAQBAJ">“a key electoral target”</a>.</p>
<h2>Identifying a voter base</h2>
<p>We can tell which voters are a priority for governments by looking at the electoral coalitions that brought them to power. To show how these electoral coalitions changed, I measured the difference between the proportion of pensioners and non-pensioners, by income level, that voted for the Conservative-led government in 2010 and Labour in 1997. </p>
<p>I measured votes for the Conservative-led government by weighing the votes for the Conservatives and Liberal Democrats in line with the number of seats each party won in 2010 (84% Conservative, 16% Liberal Democrat). Using votes only for the Conservative party in the calculation would also give almost identical results.</p>
<p>Nearly all pensioners were more likely to vote for the Conservative-led government in 2010 than they were New Labour in 1997. Of the working-age population, only those on high incomes were more likely to vote for the parties that ended up forming the coalition government. Middle and lower-income non-pensioners were less likely to vote for them.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/377267/original/file-20210105-13-1cdix6g.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/377267/original/file-20210105-13-1cdix6g.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/377267/original/file-20210105-13-1cdix6g.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/377267/original/file-20210105-13-1cdix6g.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/377267/original/file-20210105-13-1cdix6g.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=502&fit=crop&dpr=1 754w, https://images.theconversation.com/files/377267/original/file-20210105-13-1cdix6g.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=502&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/377267/original/file-20210105-13-1cdix6g.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=502&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Source: Understanding Society.</span>
</figcaption>
</figure>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/377268/original/file-20210105-21-ixvuqx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/377268/original/file-20210105-21-ixvuqx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/377268/original/file-20210105-21-ixvuqx.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/377268/original/file-20210105-21-ixvuqx.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/377268/original/file-20210105-21-ixvuqx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=502&fit=crop&dpr=1 754w, https://images.theconversation.com/files/377268/original/file-20210105-21-ixvuqx.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=502&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/377268/original/file-20210105-21-ixvuqx.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=502&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Source: Understanding Society.</span>
</figcaption>
</figure>
<p>The Conservatives then channelled money through the taxation and social security system to the groups that voted for them.</p>
<h2>How electoral decisions shape lives</h2>
<p>We can see the impact of this strategy when we look at the combined effect of government changes to taxation and social security payments on people’s incomes between 2011 and 2019.</p>
<p>High-income non-pensioners who were more likely to vote for the Conservative-led government received tax cuts and, similarly, pensioners received higher social security payments. Middle and lower-income non-pensioners, who were less likely to support the Conservatives, had their social security payments dramatically cut. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/377269/original/file-20210105-17-blxxfk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/377269/original/file-20210105-17-blxxfk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/377269/original/file-20210105-17-blxxfk.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/377269/original/file-20210105-17-blxxfk.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/377269/original/file-20210105-17-blxxfk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=502&fit=crop&dpr=1 754w, https://images.theconversation.com/files/377269/original/file-20210105-17-blxxfk.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=502&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/377269/original/file-20210105-17-blxxfk.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=502&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Source: UKMOD Microsimulation Model.</span>
</figcaption>
</figure>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/377270/original/file-20210105-19-1hzl1o8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/377270/original/file-20210105-19-1hzl1o8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/377270/original/file-20210105-19-1hzl1o8.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/377270/original/file-20210105-19-1hzl1o8.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/377270/original/file-20210105-19-1hzl1o8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=502&fit=crop&dpr=1 754w, https://images.theconversation.com/files/377270/original/file-20210105-19-1hzl1o8.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=502&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/377270/original/file-20210105-19-1hzl1o8.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=502&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Source: UKMOD Microsimulation Model.</span>
</figcaption>
</figure>
<p>The effects of this redistribution were large. Tax cuts for high-income voters and social security cuts for low-income non-pensioners led to a substantial rise in inequality and poverty. By calculating what each person would have earned if there hadn’t been a change in government in 2010, I estimated the impact that electoral incentives had on the evolution of inequality and poverty. I found that, had there been no change in government in 2010, inequality would be lower and 784,000 fewer people would be in poverty.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/377423/original/file-20210106-17-13oooca.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/377423/original/file-20210106-17-13oooca.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/377423/original/file-20210106-17-13oooca.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/377423/original/file-20210106-17-13oooca.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/377423/original/file-20210106-17-13oooca.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=502&fit=crop&dpr=1 754w, https://images.theconversation.com/files/377423/original/file-20210106-17-13oooca.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=502&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/377423/original/file-20210106-17-13oooca.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=502&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Source: UKMOD Microsimulation Model & Author’s Calculations.</span>
</figcaption>
</figure>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/377425/original/file-20210106-21-ntfsr5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/377425/original/file-20210106-21-ntfsr5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/377425/original/file-20210106-21-ntfsr5.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/377425/original/file-20210106-21-ntfsr5.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/377425/original/file-20210106-21-ntfsr5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=502&fit=crop&dpr=1 754w, https://images.theconversation.com/files/377425/original/file-20210106-21-ntfsr5.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=502&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/377425/original/file-20210106-21-ntfsr5.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=502&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Source: UKMOD Microsimulation Model & Author’s Calculations.</span>
</figcaption>
</figure>
<p>Crucially, however, the Conservatives did not treat all low-income people alike. They had a clear electoral incentive to reward pensioners, who were more likely to have voted for them. Their reward was higher pensions that stopped pensioner poverty rising. There would, however, be a quarter of a million fewer children living in poverty had there been no change in government in 2010.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/377277/original/file-20210105-13-xjg7hw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/377277/original/file-20210105-13-xjg7hw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/377277/original/file-20210105-13-xjg7hw.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/377277/original/file-20210105-13-xjg7hw.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/377277/original/file-20210105-13-xjg7hw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=502&fit=crop&dpr=1 754w, https://images.theconversation.com/files/377277/original/file-20210105-13-xjg7hw.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=502&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/377277/original/file-20210105-13-xjg7hw.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=502&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Source: UKMOD Microsimulation Model & Author’s Calculations.</span>
</figcaption>
</figure>
<p>This research shows spending decisions often relate heavily to which voters brought a government to power. As much as we’d like to see a massive boost for people left destitute by this pandemic, post-crisis spending decisions may actually depend more on what these voters demand.</p><img src="https://counter.theconversation.com/content/152700/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jeevun Sandher does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Spending decisions can often be explained by looking at who voted for the party in government.Jeevun Sandher, PhD Candidate - Department of Political Economy, King's College LondonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1433782020-08-11T19:41:06Z2020-08-11T19:41:06ZTrillions in coronavirus spending is putting AOC’s favorite economic theory to the test<figure><img src="https://images.theconversation.com/files/352350/original/file-20200811-23-14676ms.jpg?ixlib=rb-1.1.0&rect=163%2C91%2C4197%2C2811&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The Fed can create all the money Uncle Sam needs. </span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/photo/sheet-of-100-bills-royalty-free-image/108222432">GeorgePeters/E+ via Getty Images</a></span></figcaption></figure><p>French philosopher <a href="https://www.brainyquote.com/lists/voltaire--god-quotes">Voltaire famously quipped</a>: “If God did not exist, it would be necessary to invent him.” Something similar can be said of modern monetary theory, also known as MMT, because it may be the economy’s only hope to get through the pandemic. </p>
<p>Coined by <a href="https://theconversation.com/explainer-what-is-modern-monetary-theory-72095">Australian economist Bill Mitchell</a> and <a href="https://www.vox.com/future-perfect/2019/4/16/18251646/modern-monetary-theory-new-moment-explained">popularized recently</a> by <a href="https://www.npr.org/2019/07/17/742255158/this-economic-theory-could-be-used-to-pay-for-the-green-new-deal">Democrats like Rep. Alexandria Ocasio-Cortez</a> to fund programs such as the Green New Deal, MMT holds that a country with its own currency <a href="https://www.fastcompany.com/90515098/what-if-the-federal-deficit-didnt-actually-matter-modern-monetary-theory-explained">can spend almost unlimited sums of money</a>. While government spending is normally financed by either taxes or borrowing, <a href="https://theconversation.com/modern-monetary-theory-the-rise-of-economists-who-say-huge-government-debt-is-not-a-problem-141495">MMT suggests that governments can also do this by simply creating money</a>.</p>
<p>I’m currently working on a book chapter that examines various economic theories about government debt, including MMT. I believe this theory is now being put to the test as the U.S. and other countries spend unprecedented amounts of money to aid companies, workers and their citizens during the coronavirus pandemic. </p>
<h2>Unprecedented spending</h2>
<p>There is little doubt that the <a href="https://www.worldbank.org/en/news/feature/2020/06/08/the-global-economic-outlook-during-the-covid-19-pandemic-a-changed-world">world faces enormous economic problems</a>. </p>
<p>The situation in the U.S. is <a href="https://www.worldbank.org/en/news/press-release/2020/06/08/covid-19-to-plunge-global-economy-into-worst-recession-since-world-war-ii">already worse</a> than at any time since the Great Depression, with <a href="https://www.pewresearch.org/fact-tank/2020/06/11/unemployment-rose-higher-in-three-months-of-covid-19-than-it-did-in-two-years-of-the-great-recession">millions unemployed</a> and <a href="https://www.nytimes.com/2020/07/13/business/small-businesses-coronavirus.html">tens of thousands</a> of <a href="https://nymag.com/intelligencer/2020/07/major-companies-filing-for-bankruptcy-due-to-coronavirus.html">businesses filing for bankruptcy</a>.</p>
<p>The <a href="https://www.govtrack.us/covid-19">U.S. government</a> <a href="https://www.npr.org/2020/05/15/854774681/congress-has-approved-3-trillion-for-coronavirus-relief-so-far-heres-a-breakdown">has already spent about US$3 trillion</a> seeking to mitigate the damage. As a result, the federal government deficit for this fiscal year <a href="https://fred.stlouisfed.org/series/FYFSGDA188S">will be far greater than any since World War II</a>. And the government is expected to <a href="https://www.cnbc.com/2020/07/20/coronavirus-stimulus-congress-tries-to-pass-pandemic-relief-bill.html">add $1 trillion to $3.5 trillion more red ink</a>, assuming lawmakers agree to another relief bill.</p>
<p>All this spending helps prop up industries such as beleaguered airlines, keeps small businesses afloat and supports Americans who have lost jobs or incomes. The U.S. is hardly the only country throwing money at the coronavirus recession. <a href="https://voxeu.org/article/growth-shadow-covid-19-debt">Most developed nations</a> are increasing government spending and debt levels to prop up their economies.</p>
<figure class="align-center ">
<img alt="Democratic presidential candidate Sen. Bernie Sanders and Rep. Alexandria Ocasio-Cortez hold a news conference to introduce legislation to transform public housing as part of their Green New Deal proposal out" src="https://images.theconversation.com/files/352271/original/file-20200811-18-hu3ttq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/352271/original/file-20200811-18-hu3ttq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=403&fit=crop&dpr=1 600w, https://images.theconversation.com/files/352271/original/file-20200811-18-hu3ttq.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=403&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/352271/original/file-20200811-18-hu3ttq.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=403&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/352271/original/file-20200811-18-hu3ttq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=506&fit=crop&dpr=1 754w, https://images.theconversation.com/files/352271/original/file-20200811-18-hu3ttq.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=506&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/352271/original/file-20200811-18-hu3ttq.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=506&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Rep. Alexandria Ocasio-Cortez argues MMT could pay for the Green New Deal.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/democratic-presidential-candidate-sen-bernie-sanders-and-news-photo/1187695107">Chip Somodevilla/Getty Images</a></span>
</figcaption>
</figure>
<h2>MMT to the rescue</h2>
<p>A <a href="https://www.pbs.org/newshour/economy/the-u-s-has-23-5-trillion-in-debt-so-how-can-it-still-afford-a-big-coronavirus-stimulus-package">big concern</a>, however, is whether countries can afford all this spending. </p>
<p><a href="https://www.clevelandfed.org/en/newsroom-and-events/publications/economic-commentary/2014-economic-commentaries/ec-201409-why-do-economists-still-disagree-over-government-spending-multipliers.aspx">Traditionally, economists have argued</a> that higher spending today means taxes will have to go up to pay for it. This outcome can be put off, for a time, by borrowing money from investors. </p>
<p>Both options have risks. Higher taxes hurt consumer and business spending. And increased borrowing can lead to rising interest rates, which <a href="https://www.pgpf.org/the-fiscal-and-economic-challenge/fiscal-and-economic-impact">raises costs for consumers and businesses</a>. Both end up hurting economic growth, which is why <a href="https://www.wsj.com/articles/the-covid-fiscal-crisis-is-about-debt-and-taxes-11594831359">some are arguing</a> the U.S. can’t afford to spend more money fighting the coronavirus recession. </p>
<p>MMT dismisses this reasoning and argues currency-issuing countries like the U.S. have a third option: Make money out of thin air. </p>
<p>In a bare-bones version of MMT, the Treasury Department borrows from investors to finance spending, as it usually does, but then the Federal Reserve buys a significant share of that debt, <a href="https://www.bloomberg.com/news/features/2019-03-21/modern-monetary-theory-beginner-s-guide?sref=Hjm5biAW">depositing funds</a> in the government’s checking account <a href="https://theconversation.com/how-the-federal-reserve-literally-makes-money-140305">and creating money in the process</a>. </p>
<p>This allows the government to then spend the money it wants. The Treasury and Federal Reserve may not call it MMT, but that is essentially what it is.</p>
<p>And that’s what happens when the Fed buys the bonds the <a href="https://markets.businessinsider.com/news/stocks/treasury-department-record-bond-sale-coronavirus-stimulus-bill-deficit-recession-2020-8-1029474144">Treasury is issuing</a> to finance coronavirus relief spending. The central bank deposits money that didn’t exist before into the government’s account, which then gets transferred into the bank accounts of people and business firms when the government spends the money. </p>
<p>In just the past few months, the Fed has purchased <a href="https://fred.stlouisfed.org/series/TREAST">almost $2 trillion in government debt</a>, or more than half of what Congress <a href="https://thehill.com/blogs/congress-blog/economy-budget/511093-will-the-next-coronavirus-relief-package-leave-essential">has so far agreed to spend</a>.</p>
<p>No need to raise taxes. No worries about interest rates. “New money” helps save the day. </p>
<h2>What about inflation?</h2>
<p>If that sounds a little too good to be true, it might be. </p>
<p>One fear regarding MMT is that the money created <a href="https://prospect.org/culture/books/mmt-can-we-create-all-the-money-we-need/">will lead to excessive spending</a> and generate inflation, which would reduce the value of people’s savings and generate political instability.</p>
<p>At the moment, the money being created and spent replaces income that workers and businesses would have received had there been no COVID-19. Basic economic theory tells us this shouldn’t cause inflation to rise – as would likely happen if money creation came on top of normal wages and profits that people receive and then spend. </p>
<p>The recent history of Japan provides some support for the idea that a country can increase its monetary supply without spurring inflation. The government’s been trying to do so since the 1990s, yet inflation in Japan has remained very low, <a href="https://www.statista.com/statistics/270095/inflation-rate-in-japan">averaging under half a percent a year</a> over the past decade. Likewise, enormous money creation during the Great Recession <a href="https://www.thebalance.com/u-s-inflation-rate-history-by-year-and-forecast-3306093">did not lead to higher inflation</a> in the U.S., though it did in <a href="https://voxeu.org/article/money-and-inflation-us-2008-vs-german-1920s">Germany, during the early 1920s</a>. </p>
<p>Acknowledging this possibility, MMT <a href="https://www.fastcompany.com/90515098/what-if-the-federal-deficit-didnt-actually-matter-modern-monetary-theory-explained">advocates contend</a> that if inflation does accelerate, it can be controlled by tax hikes, less government spending or some other means.</p>
<p>I worry that if there is a second coronavirus wave in the fall, as <a href="https://www.ama-assn.org/delivering-care/public-health/harvard-epidemiologist-beware-covid-19-s-second-wave-fall">public health officials believe</a>, the U.S. government will need to spend trillions more. MMT tells us we can simply keep creating money indefinitely – or until inflation spikes. </p>
<p>But past history is no guarantee of future success. If inflation does start to rise during the pandemic, at a time when it’s unlikely the U.S. would either cut spending or raise taxes, we may find that MMT is not a practical solution after all.</p>
<p>[<em>Understand new developments in science, health and technology, each week.</em> <a href="https://theconversation.com/us/newsletters/science-editors-picks-71/?utm_source=TCUS&utm_medium=inline-link&utm_campaign=newsletter-text&utm_content=science-understand">Subscribe to The Conversation’s science newsletter</a>.]</p>
<h2>A future test of political will</h2>
<p>A final test of MMT will come when the current pandemic ends, and the U.S. economy begins returning to normal. </p>
<p>At this point there will be a great deal of money circulating in the U.S. economy, way more than is needed to support a normal, growing economy. If it’s not “drained,” by essentially taking it from people and companies through taxes or higher interest rates, inflation becomes a growing risk. </p>
<p>Will tomorrow’s politicians have the will to raise taxes? Will the Fed be able to reduce its support for the economy and raise interest rates? These decisions will be painful, however necessary, even if the economy is in great health. </p>
<p>But that’s for tomorrow. For now, I believe governments must be pragmatic. More spending – financed by creating money so that families can stay at home, pay the rent and put food on the table – seems a very good trade-off. </p>
<p>Like God, MMT provides us with hope that we can make it through our current difficult times – not with prayer but with an economic policy that encourages us to spend what is necessary.</p><img src="https://counter.theconversation.com/content/143378/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Steven Pressman does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Congress is spending trillions of dollars trying to rescue the US economy and support workers and businesses. Can America afford it? ‘No sweat,’ according to modern monetary theory.Steven Pressman, Affiliate Professor of Economics, Colorado State UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1411052020-07-10T12:23:31Z2020-07-10T12:23:31ZCoronavirus’s painful side effect is deep budget cuts for state and local government services<figure><img src="https://images.theconversation.com/files/346680/original/file-20200709-42-zuizzp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Washington state cut both merit raises and instituted furloughs as it faced a projected $8.8 billion budget deficit because of the coronavirus.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/washington-state-olympia-state-capitol-building-with-spring-news-photo/452908636?adppopup=true">Wolfgang Kaehler/LightRocket via Getty Images</a></span></figcaption></figure><p>Nationwide, state and local government leaders are warning of major budget cuts as a result of the pandemic. One state – <a href="https://www.budget.ny.gov/pubs/archive/fy21/enac/fy21-enacted-fp.pdf">New York</a> – even referred to the magnitude of its cuts as having “no precedent in modern times.” </p>
<p>Declining revenue combined with unexpected expenditures and <a href="https://www.washingtonpost.com/business/2020/04/10/cities-states-coronavirus-budgets/">requirements to balance budgets</a> means state and local governments need to cut spending and possibly raise taxes or dip into reserve funds to cover the <a href="https://www.cbpp.org/research/state-budget-and-tax/states-continue-to-face-large-shortfalls-due-to-covid-19-effects">hundreds of billions of dollars lost by state</a> and local government over <a href="https://www.nlc.org/sites/default/files/users/user52651/CAE-Local-Impact-Survey-One-Pager.pdf?_ga=2.13807287.1829137316.1594041435-1549561652.1523293299">the next two to three years because of the pandemic</a>. </p>
<p>Without more <a href="https://www.nga.org/news/press-releases/with-millions-of-jobs-at-stake-state-and-local-government-associations-call-on-congress-to-approve-aid/">federal aid</a> or access to other sources of money (like reserve funds or borrowing), government officials have made it clear: Budget cuts will be happening in the coming years.</p>
<p>And while specifics are not yet available in all cases, those cuts have already included reducing the number of state and local jobs – from firefighters to garbage collectors to librarians – and slashing spending for education, social services and roads and bridges.</p>
<p>In some states, agencies have been directed to cut their budget as much as 15% or 20% – a tough challenge as most states prepared budgets for a new fiscal year that began July 1. </p>
<p>As a <a href="https://www.american.edu/spa/faculty/flink.cfm">scholar</a> of public administration who researches how governments spend money, here are the ways state and local governments have reduced spending to close the budget gap. </p>
<h2>Cutting jobs</h2>
<p>State and local governments <a href="https://www.routefifty.com/management/2020/07/state-local-govenrment-job-losses-june-coronavirus/166619/">laid off or furloughed 1.5 million workers in April and May</a>.</p>
<p>They are also reducing spending on employees. According to surveys, government workers are feeling <a href="https://www.routefifty.com/management/2020/06/coronavirus-state-local-employees-finances-layoffs/166257/">personal financial strain</a> as many state and local governments have cut merit raises and regular salary increases, frozen hiring, reduced salaries and cut seasonal employees. </p>
<p><a href="https://www.king5.com/article/news/politics/washington-state-furloughs-employees-cancels-raises-citing-severe-revenue-downturns/281-c24fa6b1-110f-4b06-b606-26e192467b66">Washington state</a>, for example, cut both merit raises and instituted furloughs. </p>
<p>A <a href="https://www.nlc.org/sites/default/files/users/user52651/CAE-Local-Impact-Survey-One-Pager.pdf?_ga=2.13807287.1829137316.1594041435-1549561652.1523293299">survey</a> from the National League of Cities shows 32% of cities will have to furlough or lay off employees and 41% have hiring freezes in place or planned as a result of the pandemic.</p>
<p>Employment reductions have met some resistance. In Nevada, for example, a state worker union <a href="https://www.usnews.com/news/best-states/nevada/articles/2020-06-26/nevada-state-workers-sue-governor-over-coronavirus-furloughs">filed a complaint against the governor to the state’s labor relations board</a> for violating a collective bargaining statute by not negotiating on furloughs and salary freezes.</p>
<p>Most of the employee cuts have been made in <a href="https://www.routefifty.com/finance/2020/05/coronavirus-will-have-unequal-impact-school-budgets/165710/">education</a>. Teachers, classroom aids, administrators, staff, maintenance crews, bus drivers and other school employees have seen salary cuts and layoffs. </p>
<p>The job loss has hurt public employees beyond education, too: librarians, garbage collectors, counselors, social workers, police officers, firefighters, doctors, nurses, health aides, park rangers, maintenance crews, administrative assistants and others have been affected. </p>
<p>Residents also face the consequences of these cuts: They can’t get ahold of staff in the city’s water and sewer departments to talk about their bill; they can’t use the internet at the library to look for jobs; their children can’t get needed services in school.</p>
<p>Most of these cuts have been labeled temporary, but with the extensions to stay-at-home orders and a mostly closed economy, it will be some time before these employees are back to work. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/346671/original/file-20200709-87076-mi6n28.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/346671/original/file-20200709-87076-mi6n28.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/346671/original/file-20200709-87076-mi6n28.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/346671/original/file-20200709-87076-mi6n28.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/346671/original/file-20200709-87076-mi6n28.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/346671/original/file-20200709-87076-mi6n28.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/346671/original/file-20200709-87076-mi6n28.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Health care workers are among those affected by budget cuts.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/registered-nurse-gina-aubourg-changes-her-protective-gloves-news-photo/1225692546?adppopup=true">Octavio Jones/Getty Images</a></span>
</figcaption>
</figure>
<h2>Suspending road, bridges, building and water system projects</h2>
<p>As another way to reduce costs quickly, a National League of Cities <a href="https://www.nlc.org/article/canceled-infrastructure-projects-furloughs-and-economic-ripple-effects-nlc-survey-shares">survey</a> shows 65% of the municipalities surveyed are stopping temporarily, or completely, <a href="https://www.washingtonpost.com/business/2020/06/23/cities-budget-infrastructure-cuts/">capital expenditure and infrastructure projects</a> like roads, bridges, buildings, water systems or parking garages. </p>
<p>[<em><a href="https://theconversation.com/us/newsletters/the-daily-3?utm_source=TCUS&utm_medium=inline-link&utm_campaign=newsletter-text&utm_content=experts">Expertise in your inbox. Sign up for The Conversation’s newsletter and get expert takes on today’s news, every day.</a></em>]</p>
<p>In New York City, there is a US$2.3 billion proposed cut to the capital budget, a fund that supports large, multiyear investments from sidewalk and road maintenance, school buildings, senior centers, fire trucks, sewers, playgrounds, to park upkeep. There are potentially serious consequences for residents. For example, New York housing advocates are concerned that these cuts <a href="https://therealdeal.com/2020/06/01/nyc-will-lose-21000-affordable-units-to-budget-cuts-report/">will hurt plans for 21,000 affordable homes</a>.</p>
<p>Suspending these big money projects will save the government money in the short term. But it will potentially harm the struggling economy, since both public and private sectors benefit from better roads, bridges, schools and water systems and the <a href="https://www.brookings.edu/research/expanding-opportunity-through-infrastructure-jobs/">jobs these projects create</a>. </p>
<p>Delaying maintenance also has consequences for the deteriorating infrastructure in the U.S. The costs of unaddressed repairs could increase future <a href="https://www.washingtonpost.com/opinions/the-high-cost-of-delaying-infrastructure-repairs/2015/05/14/dd033556-f1a7-11e4-90bc-afe06f530791_story.html">costs</a>. It can cost more to replace a crumbling building than it does to fix one in better repair.</p>
<h2>Cities and towns hit</h2>
<p>In many states, the new budgets severely cut their aid to local governments, which will lead to large local cuts in education – both K-12 and higher education – as well as social programs, transportation, health care and other areas. </p>
<p><a href="https://www.budget.ny.gov/pubs/archive/fy21/enac/fy21-enacted-fp.pdf">New York state’s</a> budget proposes that part of its fiscal year 2021 budget shortfall will be balanced by $8.2 billion in reductions in aid to localities. This is the state where the cuts were referred to in the budget as “not seen in modern times.” This money is normally spent on many important services that residents need everyday –mass transit, adult and elderly care, mental health support, substance abuse programs, school programs like special education, children’s health insurance and more. Lacking any of these support services can be devastating to a person, especially in this difficult time. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/346676/original/file-20200709-46-1fzjqm8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/346676/original/file-20200709-46-1fzjqm8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/346676/original/file-20200709-46-1fzjqm8.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/346676/original/file-20200709-46-1fzjqm8.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/346676/original/file-20200709-46-1fzjqm8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/346676/original/file-20200709-46-1fzjqm8.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/346676/original/file-20200709-46-1fzjqm8.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Schools will need more money as the coronavirus crisis continues.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/the-schoolyard-at-ps-75-sits-empty-during-the-coronavirus-news-photo/1220018898?adppopup=true">Rob Kim/Getty Images</a></span>
</figcaption>
</figure>
<h2>Fewer workers, less money</h2>
<p>As teachers and administrators figure out how to teach both online and in person, <a href="https://www.edweek.org/ew/articles/2020/05/18/how-covid-19-will-balloon-district-costs-this.html">they and their schools will need more money</a> – not less – to meet students’ needs. </p>
<p>Libraries, which provide services to many communities, from free computer use to after-school programs for children, will have to cut back. They may have fewer workers, be open for fewer hours and not offer as many programs to the public.</p>
<p>Parks may not be maintained, broken playground equipment may stay that way, and workers may not repave paths and mow lawns. Completely separate from activists’ calls to shift police funding to other priorities, police departments’ budgets may be slashed just for lack of cash to pay the officers. Similar cuts to firefighters and ambulance workers may mean poorly equipped responders take longer to arrive on a scene and have less training to deal with the emergency.</p>
<p>To keep with developing public safety standards, more maintenance staff and materials will be needed to <a href="https://www.health.state.mn.us/diseases/coronavirus/schools/clean.html">clean and sanitize schools</a>, courtrooms, auditoriums, <a href="https://www.cdc.gov/coronavirus/2019-ncov/community/correction-detention/faq.html">correctional facilities</a>, <a href="https://www.cdc.gov/coronavirus/2019-ncov/community/organizations/transit-maintenance-worker.html">metro stations, buses</a> and <a href="https://www.cdc.gov/coronavirus/2019-ncov/community/parks-rec/park-administrators.html">other public spaces</a>. Strained budgets and employees will make it harder to complete these new essential tasks throughout the day.</p>
<p>To avoid deeper cuts, state and local government officials are trying a host of strategies including borrowing money, using rainy day funds, increasing revenue by raising tax rates or creating new taxes or fees, ending tax exemptions and using federal aid as legally allowed.</p>
<p><a href="https://www.dailycamera.com/2020/06/22/colorado-budget-cuts-coronavirus-polis/">Colorado</a> was able to hold its budget to only a 3% reduction, relying largely on one-time emergency reserve funds. <a href="https://www.newarkpostonline.com/news/delaware-lawmakers-give-final-approval-to-new-budget/article_9ffcb379-c9e8-54f4-b72c-8bafe44571a8.html">Delaware</a> managed to maintain its budget and avoided layoffs largely through using money set aside in a reserve account.</p>
<p>Nobody knows how long the pandemic, or its economic effects, will last.</p>
<p>In the worst-case scenario, budget officials are prepared to make steeper cuts in the coming months if more assistance does not come from the federal government or the economy does not recover quickly enough to restore the flow of money that governments need to operate.</p><img src="https://counter.theconversation.com/content/141105/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Carla Flink does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>State and local government jobs are being axed, public schools won’t get money the state planned to send them, and fire and police departments budgets are being slashed. All because of the pandemic.Carla Flink, Assistant Professor of Public Administration and Policy, American UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1378622020-05-06T19:16:07Z2020-05-06T19:16:07ZPaying for the pandemic: Why the government’s massive coronavirus spending may not lead to higher taxes<figure><img src="https://images.theconversation.com/files/332908/original/file-20200505-83725-mllp4x.jpg?ixlib=rb-1.1.0&rect=0%2C13%2C2997%2C1983&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Canada's federal deficit has skyrocketed since the beginning of the coronavirus pandemic. How will Ottawa pay back the money its borrowed?</span> <span class="attribution"><span class="source">THE CANADIAN PRESS/Sean Kilpatrick</span></span></figcaption></figure><p>The Parliamentary Budget Officer recently released an <a href="https://www.pbo-dpb.gc.ca/en/blog/news/RP-2021-005-S--scenario-analysis-update-covid-19-pandemic-oil-price-shocks--mise-jour-analyse-scenario-chocs-dus-pandemie-covid-19-chute-prix-petrole">updated analysis of the coronavirus pandemic’s impact on the Canadian economy</a> that forecasts the federal budget deficit will be $252 billion in 2020-21, compared to $25 billion in 2019‑20.</p>
<p>Such a massive deficit would represent 12.7 per cent of Canada’s Gross Domestic Product. In comparison, the deficit for 2019-20 is expected to be be only 1.1 per cent of GDP, according to the PBO’s analysis.</p>
<p>The increase in the deficit is mainly caused by the fall in tax revenues resulting from the lockdown-induced recession and the extraordinary spending measures adopted by the government to support the economy and manage the pandemic. The PBO says these measures totalled $146 billion as of April 24.</p>
<p>So, where is the money for all this extra spending coming from?</p>
<p>With tax revenues down, the only option right now is borrowing. But who can lend the government such large sums? At what cost? And how are Canadians going to pay it all back? Is the federal government going to have to raise taxes and cut regular spending once the COVID-19 crisis is over?</p>
<h2>Cost to taxpayers should be minimal</h2>
<p>The good news is that the cost to Canadian taxpayers and beneficiaries of government services should be minimal. Canadians do not have to fear years of austerity from their federal government once the pandemic has passed.</p>
<p>Domestic and foreign financial institutions (banks, insurance companies, pensions funds and other investment funds) and large corporations are the federal government’s main lenders. They do so by buying bonds (essentially contracts where <a href="https://guides.wsj.com/personal-finance/investing/what-is-a-bond/">the borrower pays lenders or investors a fixed rate of return over a certain period of time</a>) from the federal government.</p>
<p>Demand and supply determine the interest rates the government pays to the investors on these bonds. If there is a lot of demand for the government’s bonds relative to their supply, then interest rates will be low. If demand is low, then interest rates will be high.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/332909/original/file-20200505-83779-u2qgam.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/332909/original/file-20200505-83779-u2qgam.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=404&fit=crop&dpr=1 600w, https://images.theconversation.com/files/332909/original/file-20200505-83779-u2qgam.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=404&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/332909/original/file-20200505-83779-u2qgam.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=404&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/332909/original/file-20200505-83779-u2qgam.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=508&fit=crop&dpr=1 754w, https://images.theconversation.com/files/332909/original/file-20200505-83779-u2qgam.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=508&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/332909/original/file-20200505-83779-u2qgam.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=508&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Minister of Finance Bill Morneau looks on as Bank of Canada Governor Stephen Poloz responds to a question during a news conference in Ottawa during the coronavirus pandemic.</span>
<span class="attribution"><span class="source">THE CANADIAN PRESS/Adrian Wyld</span></span>
</figcaption>
</figure>
<p>In the current context, we would expect the demand for Canadian government bonds to be low and their supply to be high. With the economy in recession because of the pandemic, financial institutions and most large companies are struggling. It’s likely they don’t have much spare cash to invest in the vast amounts of bonds offered by the federal government. As a result, the government would be expected to pay high interest rates on its extra COVID-19 borrowing to attract investors.</p>
<h2>Interest rates have dropped</h2>
<p>The reality is, however, the opposite. According to the Bank of Canada, <a href="https://www.bankofcanada.ca/rates/interest-rates/canadian-bonds/">interest rates on government bonds have dropped</a> significantly in the past two months. Canadians can thank the Bank of Canada for this fortunate turn of events. The bank’s unprecedented actions to support the economy and financial markets during the COVID-19 crisis <a href="https://www.bankofcanada.ca/markets/market-operations-liquidity-provision/covid-19-actions-support-economy-financial-system/">have brought down the cost of borrowing</a>.</p>
<p>One such action is the <a href="https://www.bankofcanada.ca/2020/03/operational-details-for-the-secondary-market-purchases-of-government-of-canada-securities/">Government of Canada Bond Purchase Program</a>, whereby the Bank of Canada purchases a minimum of $5 billion worth of federal government bonds per week in the so-called secondary market (from financial institutions and corporations), as opposed to directly from the government itself (the primary market).</p>
<p>In doing so, Canada’s central bank has indirectly pushed up the demand for federal government bonds. In fact, it is as if the Bank of Canada was lending directly to the government at very low interest rates.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/332910/original/file-20200505-83745-1d5dddt.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/332910/original/file-20200505-83745-1d5dddt.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/332910/original/file-20200505-83745-1d5dddt.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/332910/original/file-20200505-83745-1d5dddt.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/332910/original/file-20200505-83745-1d5dddt.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/332910/original/file-20200505-83745-1d5dddt.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/332910/original/file-20200505-83745-1d5dddt.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">This graph shows the average yield of three- to five-year Government of Canada Marketable Bonds. Borrowing costs for the federal government have dropped since the start of the coronavirus pandemic.</span>
<span class="attribution"><span class="source">(Bank of Canada)</span></span>
</figcaption>
</figure>
<p>As a result, the federal government’s cost of borrowing is now lower than it was a couple months ago. For instance, it currently costs the government 0.35 cents for every dollar that it borrows for three to five years. Back in February, it was paying between 1.25 and 1.75 cents per dollar borrowed for the same period of time.</p>
<p>This means the annual cost of borrowing $252 billion for three to five years would be only $882 million, compared to the $3.8 billion it would have cost without the Bank of Canada’s actions. Such a sum would add only 0.04 per cent of GDP to the federal government’s future yearly deficits. It can, therefore, be easily absorbed without raising taxes or cutting regular program spending in the future.</p>
<p>But what about paying back all the extra debt? Won’t that require raising taxes and cutting spending for the foreseeable future? Not necessarily.</p>
<h2>Debt will be rolled over</h2>
<p>Assuming federal government spending and the Canadian economy go back to some kind of normal when the pandemic is over, then the government will simply be able to roll over its debt into the future and, therefore, not have to pay back any of it — possibly forever.</p>
<p>In other words, as long as investors are willing to buy the government’s bonds, then it can issue new bonds to pay back old bonds that are coming due. And if the economy grows faster than the deficit, then the debt-to-GDP ratio decreases, as it has in the last decade.</p>
<p>So Canadians will not have to suffer twice for the coronavirus pandemic: first by being locked down and then by paying higher taxes and/or experiencing cuts to regular federal government programs.</p>
<p>Instead, they should thank the government for doing the right thing by reducing the economic and social harm caused by the pandemic lockdown at little cost to future public finances. They should also thank the Bank of Canada <a href="https://www.ctvnews.ca/business/meet-tiff-macklem-the-new-bank-of-canada-governor-1.4920392">and its outgoing governor, Stephen Poloz</a>, for making it all possible.</p><img src="https://counter.theconversation.com/content/137862/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Patrick Leblond is affiliated with the Centre for International Governance Innovation. </span></em></p>Canada’s federal deficit has ballooned as Ottawa spends billions in response to the coronavirus pandemic. An economist explains why the massive spending will not harm Canadians in the future.Patrick Leblond, CN-Paul M. Tellier Chair in Business and Public Policy, L’Université d’Ottawa/University of OttawaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1362952020-04-15T13:30:42Z2020-04-15T13:30:42ZCoronavirus will drive public debt far higher than expected – but that doesn’t mean a return to austerity<p>In the months before the coronavirus pandemic, the devotion of many mainstream politicians to balanced budgets and austerity was waning. The likes of Germany and the US <a href="https://www.bloomberg.com/opinion/articles/2019-08-22/fiscal-stimulus-is-finally-back-as-option-to-fight-next-downturn">were looking at</a> improving economic growth through greater government spending, reasoning that central banks were running out of ammunition. </p>
<p>The coronavirus has accelerated this rethink, as shown in a recent <a href="https://www.ft.com/content/7eff769a-74dd-11ea-95fe-fcd274e920ca">Financial Times editorial</a> calling for a new “social contract that benefits everyone”. Such a contract would increase spending to address social inequalities, substantially expanding the public sector. </p>
<p>This fundamental shift in the face of disaster should not surprise us. In 2008, there was <a href="https://www.ft.com/content/c85b9792-aad1-11e8-94bd-cba20d67390c">much talk</a> of abandoning light-touch banking regulation, though it was later watered down. Will change endure this time?</p>
<h2>Wars and spending</h2>
<p>It is worth looking at what happened after the two world wars. In 1913, <a href="https://www.bankofengland.co.uk/statistics/research-datasets">British government spending</a> was 18.5% of GDP. It rose to 59% in 1916. By 1922 it was back to 18.7%, and essentially remained so for the interwar period.</p>
<p><strong>Public spending as % of GDP</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/327760/original/file-20200414-117587-4itpk.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/327760/original/file-20200414-117587-4itpk.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/327760/original/file-20200414-117587-4itpk.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=346&fit=crop&dpr=1 600w, https://images.theconversation.com/files/327760/original/file-20200414-117587-4itpk.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=346&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/327760/original/file-20200414-117587-4itpk.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=346&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/327760/original/file-20200414-117587-4itpk.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=434&fit=crop&dpr=1 754w, https://images.theconversation.com/files/327760/original/file-20200414-117587-4itpk.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=434&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/327760/original/file-20200414-117587-4itpk.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=434&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="source" href="https://www.bankofengland.co.uk/statistics/research-datasets">Bank of England</a></span>
</figcaption>
</figure>
<p>Wartime public expenditure peaked at 61% of GDP in 1945. During the Attlee years it settled into the 30% range – over ten points higher than in 1938 – partly spent establishing the NHS. Even when the Conservatives took over in 1951, spending never again fell below 27% of GDP. </p>
<p>Economic growth differed during these two post-war periods. Between 1919 and 1938, it averaged less than 1% a year. After the second world war, there was a decade of 2.5% annual expansion. Contrasting public spending levels were a crucial difference. </p>
<p><strong>UK GDP growth 1899-2019</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/327761/original/file-20200414-117587-1ssfh8m.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/327761/original/file-20200414-117587-1ssfh8m.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/327761/original/file-20200414-117587-1ssfh8m.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=303&fit=crop&dpr=1 600w, https://images.theconversation.com/files/327761/original/file-20200414-117587-1ssfh8m.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=303&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/327761/original/file-20200414-117587-1ssfh8m.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=303&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/327761/original/file-20200414-117587-1ssfh8m.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=381&fit=crop&dpr=1 754w, https://images.theconversation.com/files/327761/original/file-20200414-117587-1ssfh8m.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=381&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/327761/original/file-20200414-117587-1ssfh8m.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=381&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="source" href="https://www.bankofengland.co.uk/statistics/research-datasets">Bank of England</a></span>
</figcaption>
</figure>
<p>The next chart looks at these periods’ fiscal deficits, meaning government income minus outgoings. Both war-time deficits reached about 30% of GDP then quickly declined, hitting surplus after eight and ten years respectively. </p>
<p>This happened after the first world war, despite the stagnant economy, thanks to a large reduction in military expenditure. Compare the 2007-09 crisis, whose much smaller deficit has endured longer than it took to return to surplus after either war. </p>
<p><strong>Deficits during crises</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/327659/original/file-20200414-117553-13x5o5g.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/327659/original/file-20200414-117553-13x5o5g.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/327659/original/file-20200414-117553-13x5o5g.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=341&fit=crop&dpr=1 600w, https://images.theconversation.com/files/327659/original/file-20200414-117553-13x5o5g.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=341&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/327659/original/file-20200414-117553-13x5o5g.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=341&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/327659/original/file-20200414-117553-13x5o5g.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=429&fit=crop&dpr=1 754w, https://images.theconversation.com/files/327659/original/file-20200414-117553-13x5o5g.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=429&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/327659/original/file-20200414-117553-13x5o5g.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=429&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="source" href="https://www.bankofengland.co.uk/statistics/research-datasets,%20https://www.ons.gov.uk/economy/governmentpublicsectorandtaxes/publicsectorfinance/datasets/publicsectorfinancesappendixatables110">Bank of England/Office for National Statistics</a></span>
</figcaption>
</figure>
<p>There are two reasons. There has been nothing to compare to the cuts in military spending. Yet just like after 1918, there has been weaker growth because austerity has depressed demand and business activity. </p>
<h2>Where we’re heading</h2>
<p>By <a href="https://giftarticle.ft.com/giftarticle/actions/redeem/7e34b161-19d3-4de7-b2d8-891bf66690e6">one recent forecast</a>, GDP for 2020 could fall 15%. Even the government’s Office for Budget Responsibility (OBR) <a href="https://www.theguardian.com/business/2020/apr/14/uk-economy-could-shrink-by-35-with-2m-job-losses-warns-obr">predicts</a> 13%. If 15% is correct and the 2007-09 collapse is anything to go by, tax revenues might fall 25%. Tax revenues should fall more sharply than GDP because much of the tax system is progressive – for example, no one pays tax on their first £12,500 of annual income, so a 15% drop in the average income will erase more than 15% of the average person’s income tax liability. </p>
<p>By my calculations, a 15% GDP drop plus government recovery spending that I suspect will reach £100 billion will produce a fiscal deficit of 16% of GDP – over £300 billion (the OBR <a href="https://cdn.obr.uk/Coronavirus_reference_scenario_commentary.pdf">forecasts</a> 14%; several weeks ago, the Institute for Fiscal Studies <a href="https://www.ifs.org.uk/publications/14771">thought 8%</a> was possible). </p>
<p>Even if the economy quickly returns to 2.5% annual growth, I calculate that public debt will rise to a peak of around 150% of GDP. This is around 50% more debt than the OBR expects, which seems to assume a return to near 2% growth in 2021 without any further recovery spending <a href="https://www.ifs.org.uk/publications/14771">beyond the initial</a> £70 billion – not tenable in my view. </p>
<p>No doubt some will call for balanced budgets aka more austerity, but I think those favouring increased public spending will probably win out. The UK’s experience after the second world war suggests that such high public deficit and debt levels do not in themselves prevent strong recovery or put an intolerable burden on the state. </p>
<p>Admittedly recovery could be undermined by household and business debt vastly higher than after the second world war. Both have eased since the 2007-09 crisis, per the chart below, but household debt in particular is <a href="https://www.ons.gov.uk/peoplepopulationandcommunity/personalandhouseholdfinances/incomeandwealth/bulletins/householddebtingreatbritain/april2016tomarch2018">rising again</a> – driven this time by credit card and student debt rather than mortgages. </p>
<p><strong>Private debt as % GDP</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/327740/original/file-20200414-117549-1uyri7p.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/327740/original/file-20200414-117549-1uyri7p.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/327740/original/file-20200414-117549-1uyri7p.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=287&fit=crop&dpr=1 600w, https://images.theconversation.com/files/327740/original/file-20200414-117549-1uyri7p.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=287&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/327740/original/file-20200414-117549-1uyri7p.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=287&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/327740/original/file-20200414-117549-1uyri7p.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=360&fit=crop&dpr=1 754w, https://images.theconversation.com/files/327740/original/file-20200414-117549-1uyri7p.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=360&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/327740/original/file-20200414-117549-1uyri7p.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=360&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="source" href="https://www.bis.org/statistics/totcredit.htm">Bank of International Settlements</a></span>
</figcaption>
</figure>
<p>To achieve sustained recovery, the government <a href="https://www.ftadviser.com/investments/2019/04/03/should-we-abolish-household-debts-by-johnna-montgomerie/">might need to</a> have household debt partially cancelled. The chancellor’s <a href="https://www.gov.uk/government/news/chancellor-announces-additional-support-to-protect-businesses">recovery programme</a> addresses corporate debt to some extent, by providing businesses with loans with generous payback conditions and other support. </p>
<h2>A Tory socialism?</h2>
<p>Assuming greater government spending leads to a steady recovery, the ideology of balanced budgets as a continuous policy goal is unlikely to return. But this doesn’t mean the global order will be overhauled. Some commentators predict the <a href="https://www.resilience.org/stories/2020-04-03/coronavirus-spells-the-end-of-the-neoliberal-era-whats-next/">end of neoliberalism</a> or a <a href="https://www.newstatesman.com/politics/economy/2020/03/coronavirus-crisis-economic-collapse-capitalism">broader resurgence</a> of social-democrat policies, but I think this premature. Both world wars exposed ills in the social system, but only after the second world war did a major shift take place. </p>
<p>Britain will have a Conservative government with a large majority for four more years. The Sun may fear a “<a href="https://www.thesun.co.uk/news/11241220/coronavirus-lockdown-change-britain-forever-brave-new-world-revolution/">Tory socialist state</a>”, but I doubt we’ll see any major expansion of public provision or regulation. Four decades of consumerism have instilled an ideology in many people that taxes are a burden that prevent “freedom of choice” through the market. </p>
<p>For this faith in markets to be swept away, the health crisis might have to lead to <a href="https://www.theguardian.com/global-development/2020/mar/26/coronavirus-measures-could-cause-global-food-shortage-un-warns?CMP=share_btn_link">shortages</a> of necessities, perhaps linked to <a href="https://www.nytimes.com/2020/03/25/world/europe/coronavirus-ship-crews-trapped.html?smid=em-share">disrupted international trade</a>. Perhaps even a Conservative government <a href="http://www.primeeconomics.org/articles/dealing-with-the-health-crisis-rationing-and-price-controls">might then introduce</a> rationing and price controls. But this takes us deep into speculative territory, so we will see how things play out.</p><img src="https://counter.theconversation.com/content/136295/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>John Weeks does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Why most debt and deficit projections are still way too upbeat. John Weeks, Professor Emeritus of Economics, SOAS, University of LondonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1256312019-10-24T23:24:06Z2019-10-24T23:24:06ZThe economic illusions of the Canadian election<figure><img src="https://images.theconversation.com/files/298398/original/file-20191023-119449-1d4nak5.jpg?ixlib=rb-1.1.0&rect=0%2C173%2C4000%2C2113&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The time has come to accept that energy corridors and fossil fuel exports will be a declining feature of Canada’s economic future.</span> <span class="attribution"><span class="source">THE CANADIAN PRESS/Jeff McIntosh</span></span></figcaption></figure><p>As an economist, I approached voting in the Canadian federal election with deep ambivalence that was shared by most everyone I know regardless of vocation or political persuasion. </p>
<p>Most expressed resignation and stated, with a sigh, that: “X is at least better than the alternatives,” or “I don’t want X to win, so am voting for Y.” I too fell into that ditch of despair, but then remembered a strategy from my <a href="https://theanarchistlibrary.org/library/george-woodcock-what-is-anarcho-syndicalism">anarcho-syndicalist</a> days of my early 20s. </p>
<p>I now feel much better about how I voted, but before revealing my choice and a recommendation for the construction of future ballots, let me share the source of my pre-vote despondency from the perspective of an economist.</p>
<p>It is really time we insisted that party platforms reflect some modicum of economic literacy and coherency, at least at the first-year university level. </p>
<p>Let’s consider some of the prominent positions of the national parties that irked me and have repercussions for Canadians’ financial well-being now and in the future.</p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/298396/original/file-20191023-119459-odggnx.jpg?ixlib=rb-1.1.0&rect=0%2C351%2C3911%2C2201&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/298396/original/file-20191023-119459-odggnx.jpg?ixlib=rb-1.1.0&rect=0%2C351%2C3911%2C2201&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/298396/original/file-20191023-119459-odggnx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/298396/original/file-20191023-119459-odggnx.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/298396/original/file-20191023-119459-odggnx.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/298396/original/file-20191023-119459-odggnx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=502&fit=crop&dpr=1 754w, https://images.theconversation.com/files/298396/original/file-20191023-119459-odggnx.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=502&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/298396/original/file-20191023-119459-odggnx.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=502&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">A man fills up his truck with gas in Toronto in April 2019.</span>
<span class="attribution"><span class="source">THE CANADIAN PRESS/Christopher Katsarov</span></span>
</figcaption>
</figure>
<p>What is striking about many of the policy positions of the federal parties is their timidity. Take climate change. The three left-of-centre parties would continue the current <a href="https://newsinteractives.cbc.ca/elections/federal/2019/party-platforms/">Liberal program</a>, which currently adds about four cents per litre at the gas pumps, and would lead to an additional 11 cents by 2022. </p>
<p>While I support a carbon tax, this modest increase applied to only some provinces, won’t change driver behaviour or industrial use of fossil fuels. The increases must be greater, progressive and locked in.</p>
<h2>Conservative mishmash</h2>
<p>The Conservatives reject the carbon tax as ineffective in meeting the challenge of climate change, which at these levels it is, but they proposed a <a href="https://www.andrewscheer.ca/en/platform/more-innovation-to-fight-climate-change#greentech">vague penalty</a> system on big polluters presumably to fund investment in green technology, home improvements and investment standards. It’s a mishmash of a <a href="https://www.foreignaffairs.com/articles/world/2018-06-14/why-carbon-pricing-isnt-working">cap-and-trade</a> system that has proven elsewhere to be ineffective and a bureaucratic nightmare.</p>
<p>Maybe it’s time we accepted that energy corridors and fossil fuel exports will be a declining feature of Canada’s economic future. The Liberals clung to the fantasy that the Trans Mountain pipeline will proceed, and the Conservatives dreamed of an energy corridor. But these projects will be <a href="https://www.lesoleil.com/actualite/politique/projet-de-pipeline-legault-riposte-a-scheer-9d951d098591ee1b7dd1179e6582a4a2">“Bloq-ed” on provincial self-interest</a> as well as environmental and Indigenous opposition. </p>
<p>This election was an opportunity to either put forward a vision of a post-oil economy or present a strategy for how the federal government can navigate the competing interests that stymie resource development in Canada.</p>
<h2>Balanced budget pledges</h2>
<p>All party leaders also promised a balanced budgets in a set number of years, while planning billions in spending increases ranging from modest tweaks in the <a href="https://www.conservative.ca/andrew-scheer-will-give-more-support-to-seniors/">senior’s tax credit</a> (Conservatives), adjustments to <a href="https://www.cbc.ca/news/politics/liberals-will-promise-a-student-loan-repayment-break-for-new-parents-report-1.5301769">student loans</a> (Liberals), a national pharmacare program (all but the Conservatives) and a <a href="https://www.cbc.ca/news/politics/green-party-platform-2019-1.5284872">basic income</a> (Green Party). </p>
<p>These election promises came at voters like mosquitoes on a summer day and I am sure most, like me, became numb.</p>
<p>How can we improve this dismal situation?</p>
<p>This is the first election where the Parliamentary Budget Office (PBO) had a mandate to prepare estimates of <a href="https://www.pbo-dpb.gc.ca/en/election-proposal-costing">election spending proposals</a> over the next 10 years. However, the PBO only estimated the costs of proposals submitted, and nowhere could anyone locate a consolidated estimate of the total spending package for each party. </p>
<p>If each platform were independently and fully costed three weeks before the election, voters would see more responsible promises by the parties, who would need to justify their total spending plans. </p>
<p>Promising a balanced budget is also a meaningless gesture. A household with $50,000 annual income may balance its budget through frugality, while a household with an annual income of $250,000 may chronically run out of money. Rather than promising a balanced budget, we need politicians to debate the desirable size of government relative to the national income or GDP. </p>
<p>One useful measure is the tax-to-GDP ratio and on this front, Canada does not too badly at <a href="https://www.oecd.org/tax/revenue-statistics-canada.pdf">32.7 per cent</a>. Countries that include the United States, Australia and Mexico have lower ratios. Unsurprisingly, countries like France and Sweden have public spending at 46 per cent and 44 per cent of GDP. </p>
<p>France’s spending in particular is <a href="https://www.france24.com/en/20190625-rising-french-debt-worrying-public-auditors-warn">triggering warnings</a> from auditors.</p>
<h2>What about the size of government?</h2>
<p>So, a second task for the PBO in an election is to monitor how election promises affect the size of government. </p>
<p>The minor tinkering of tax credits and adjusting exemptions won’t have much impact, but a national pharmacare program or a universal basic income could greatly expand the scope of government. Voters need independent information to support an informed choice.</p>
<figure class="align-left zoomable">
<a href="https://images.theconversation.com/files/298529/original/file-20191024-170458-e8697r.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/298529/original/file-20191024-170458-e8697r.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/298529/original/file-20191024-170458-e8697r.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=900&fit=crop&dpr=1 600w, https://images.theconversation.com/files/298529/original/file-20191024-170458-e8697r.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=900&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/298529/original/file-20191024-170458-e8697r.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=900&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/298529/original/file-20191024-170458-e8697r.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1131&fit=crop&dpr=1 754w, https://images.theconversation.com/files/298529/original/file-20191024-170458-e8697r.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1131&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/298529/original/file-20191024-170458-e8697r.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1131&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Instead of setting them on fire, imagine if we could write ‘none of the above’ on our ballots?</span>
<span class="attribution"><span class="source">(Shutterstock)</span></span>
</figcaption>
</figure>
<p>Failing to find any sensible discussion of Canada’s economic issues, I did vote, but not for any candidate on the ballot.</p>
<p>I elected to write in “none of the above” and spoiled my ballot. But think for a moment. If “none of the above” officially appeared on the ballot and those votes were counted along with votes for candidates, two benefits might accrue. </p>
<p>First, it may encourage voting by those whose election ennui keeps them at home, and therefore could raise the turnout rate from the current <a href="https://www.cbc.ca/news/canada/voter-turnout-2019-1.5330207">66 per cent</a> toward the almost 80 per cent who <a href="https://www.elections.ca/content.aspx?section=ele&dir=turn&document=index&lang=e">voted in 1958</a>. </p>
<p>Second, it shrinks the degree of support for all candidates, reminding everyone that a group of voters exists who want someone to vote for, not against.</p>
<p>[ <em>Deep knowledge, daily.</em> <a href="https://theconversation.com/ca/newsletters?utm_source=TCCA&utm_medium=inline-link&utm_campaign=newsletter-text&utm_content=deepknowledge">Sign up for The Conversation’s newsletter</a>. ]</p><img src="https://counter.theconversation.com/content/125631/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Gregory C Mason does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>In the aftermath of the election, what is striking about many of the policy positions of Canada’s federal parties is their timidity, especially when it comes to climate change.Gregory C Mason, Associate Professor of Economics, University of ManitobaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1093582019-01-07T12:39:18Z2019-01-07T12:39:18ZDrones caused havoc at Gatwick, so why are governments still spending billions on tanks and aircraft carriers?<p>The disruption caused by reports of drones flying over <a href="https://theconversation.com/gatwick-drone-drama-shows-how-even-unarmed-uavs-can-cause-economic-chaos-and-risk-to-life-109187">Gatwick airport</a> in December 2018 was a magnificent illustration of the uselessness of the UK’s big-ticket defence spending. The United Kingdom is not short of high-end military kit. Apart from its nuclear deterrent (which may or may not be in <a href="https://theconversation.com/trident-missile-failure-just-how-safe-is-the-uks-nuclear-deterrent-71744">working order</a>), the nation’s <a href="https://rusi.org/commentary/uk-defence-and-2018-budget">£37 billion annual defence spending</a> has allowed it to build, buy and maintain a formidable array of weapons systems. Britain’s new aircraft carrier provides a platform for F-35 fighter planes and, according to the UK <a href="https://www.telegraph.co.uk/news/2018/09/28/britain-regains-carrier-strike-capability-f-35-stealth-jets">defence secretary</a>, the power “to strike decisively from the seas anywhere in the world”. </p>
<p>Yet, despite all this firepower, the country’s second busiest airport (a strategic asset if there ever was one) was immobilised for more than 24 hours, leaving tens of thousands of people stranded. In time a military grade <a href="https://www.standard.co.uk/news/uk/gatwick-drone-disruption-pair-arrested-over-airport-chaos-released-without-charge-a4024531.html">jamming system</a> was deployed, but by that stage the stable door was flapping in the wind and the horses had bolted.</p>
<p>The Gatwick example raises the question: what is the point of the UK’s defence spending and posture? The question is timely as the UK government is currently undertaking a <a href="https://www.gov.uk/government/news/strategic-defence-and-security-review-implementation">strategic defence and security review</a> in order to update its 2015 <a href="https://www.gov.uk/government/publications/national-security-strategy-and-strategic-defence-and-security-review-2015">national security strategy</a>. The chaos and keystone cops incident at Gatwick leads us to ask: who or what is being secured? </p>
<p>Government documents make all the right noises about understanding the changing threat environment. The importance of cyber-security and violent extremism are flagged. But follow the money of defence spending and it is clear that many in Whitehall are still fighting an imaginary war involving tanks, fighter aircraft and warships. They are investing £700m to update <a href="https://ukdefencejournal.org.uk/bae-systems-led-challenger-2-upgrade-team-offers-upgraded-thermal-imaging-technology/">Main Battle Tanks</a> (when was the last tank battle?). Britain’s two new <a href="https://www.bbc.co.uk/news/resources/idt-sh/UK_aircraft_carriers">aircraft carriers</a> will cost at least £6 billion. Perhaps reflecting growing isolationism, the magic money tree has been shaken to find £2 billion to develop a British-built fighter jet. That is merely the first instalment of development costs. One can’t help thinking of the Sinclair ZX Spectrum computer in the face of more nimble overseas competitors like Apple and Microsoft. </p>
<p>Defence spending of this kind does not inspire confidence that the UK is orientated to fight the next battles. It suggests a military (and political) mindset that is backward-looking and sees a world of flags on a map. In this mindset, sovereignty is about territory, airspace and sea lanes. All of these are important, but they are reasonably well-regulated by current international protocols. While there are notable transgressions (Russia’s seizure of Crimea, China’s militarisation of Pacific reefs), by and large, international law works.</p>
<p>Moreover, as events proved, the UK – despite all of its big-ticket military kit – was incapable of preventing Russian and Chinese expansion in Crimea and the Pacific. The UK’s hoard of weaponry is doubtless a deterrent to an invasion, but does anyone believe that Russia or anyone else is going to invade the UK? As long as political leaders do not precipitate a nuclear war, there is no credible existential military threat to the UK. </p>
<h2>Who is being protected?</h2>
<p>This brings us back to the question of who or what is to be secured. As the Gatwick incident illustrated, the people of the UK are quite far down the pecking order. And the Gatwick incident was not an outlier. Take the May 2017 <a href="https://theconversation.com/uk/topics/wannacry-38684">WannaCry</a> cyber attack on the UK’s National Health Service. Around 19,000 medical appointments were cancelled with an obvious impact on the lives of a huge number of citizens. It was probably the most serious attack on the UK in the post-World War II era. A foreign power – North Korea – is largely thought to be responsible. Again the UK’s military hardware was useless when faced by an actual attack on people and their way of life. It was also useless when <a href="https://theconversation.com/uk/topics/sergei-skripal-50988">chemical weapons</a> were used in Salisbury. It was the police, the National Health Service, and the local council who stepped in to avert a potentially catastrophic public health emergency.</p>
<p>The lesson from Gatwick, WannaCry, and Salisbury is that a defence posture equipped to ward off a fantastically unlikely invasion, and possibly to invade some other far away land, is of limited use to people in the UK. All three incidents affected real people in their everyday lives. A huge amount of research – including <a href="https://everydaypeaceindicators.org">my own</a> – emphasises that people see their security not in terms of national strategy but in terms of everyday routes and tasks. Security, for most people, is about getting the kids to school, making sure granny is OK and being able to hold down a job. A strategic defence review that does not understand that seems likely to repeat the failures of the past.</p><img src="https://counter.theconversation.com/content/109358/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Roger Mac Ginty has recieved research grant funding from the ESRC, European Union, and the British Academy. </span></em></p>The UK has fallen victim to drones, chemical weapons and cyber-attacks in recent years. But at least it’s got a really big boat.Roger Mac Ginty, Professor, School of Government and International Affairs, Durham UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/918112018-03-26T10:48:05Z2018-03-26T10:48:05ZA return to earmarks could grease the wheels in Congress<figure><img src="https://images.theconversation.com/files/211759/original/file-20180323-54893-1vpgr9s.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Members of Congress debated a government spending bill into the early morning on March 20.
</span> <span class="attribution"><span class="source"> AP/J. Scott Applewhite</span></span></figcaption></figure><p>Congress passed a US$1.3 trillion spending bill last Thursday, March 22 – only narrowly averting a third government shutdown this year. President Trump <a href="https://www.nytimes.com/2018/03/23/us/politics/trump-veto-spending-bill.html">signed the bill</a> into law on Friday.</p>
<p>Congress’s inability to pass spending bills on schedule has produced unrelenting frustration and criticism by commentators and members of Congress alike. </p>
<p>Because the congressional budgeting process has become so dysfunctional, many suggest that a return to earmarks, popularly known as “pork-barrel spending,” would grease the wheels for appropriations bills. An earmark is money provided for an individual project in an elected official’s district, as a way of encouraging that official’s vote for a spending bill. </p>
<p>A return to earmarking – for <a href="https://www.cagw.org/content/pig-book-2010">projects ranging</a> from new bridges to museum funding to renewable energy research, tailored for individual members’ districts – would require lifting a <a href="https://www.washingtonpost.com/investigations/what-is-an-earmark/2012/01/27/gIQAK6HGvQ_story.html?utm_term=.4d20f6eae67f">2011 moratorium</a> imposed on the practice.</p>
<p>I have <a href="http://www.cambridge.org/us/academic/subjects/politics-international-relations/american-government-politics-and-policy/greasing-wheels-using-pork-barrel-projects-build-majority-coalitions-congress?format=PB&isbn=9780521545327#iRqCLBv6sXpLtGJr.97">studied</a> the effect of pork-barrel spending on passing spending bills. Although earmarks are worth reconsidering as a way of greasing the legislative wheels, I would argue that the case for them is mixed.</p>
<p>Pro-earmark arguments have come from <a href="https://www.pbs.org/newshour/politics/the-bipartisan-movement-to-bring-back-earmarks-in-congress">both parties</a>. The supporters include Sens. Patty Murray, D-Wash., and Susan Collins, R-Maine, as well as <a href="https://www.washingtonpost.com/news/monkey-cage/wp/2018/01/12/trump-just-praised-earmarks-heres-what-the-fuss-is-about/?utm_term=.c59c812e7fb8">President Trump</a>. </p>
<p>Simultaneously, pressure from House Republicans has led Speaker Paul Ryan <a href="https://www.c-span.org/video/?439801-1/house-rules-committee-holds-hearing-earmarks">to allow hearings</a> to consider ending the 2011 earmark moratorium. </p>
<p>Prior to 2011, these earmarks were, with a few exceptions, regularly, and until 2006, in increasingly <a href="https://www.cagw.org/content/pig-book-2010#historical_trends">large numbers,</a> put into appropriations bills as well as highway reauthorizations to help smooth the way to passage. </p>
<h2>Pork helps move things along</h2>
<p>My own <a href="http://www.cambridge.org/us/academic/subjects/politics-international-relations/american-government-politics-and-policy/greasing-wheels-using-pork-barrel-projects-build-majority-coalitions-congress?format=PB&isbn=9780521545327#iRqCLBv6sXpLtGJr.97">research</a>, as well as that of <a href="https://www.jstor.org/stable/3186129?seq=1#page_scan_tab_contents/">Frances Lee of the University of Maryland</a>, shows that earmarks helped transportation committee leaders pass three massive highway bills, overcoming significant policy controversies surrounding each bill. I also found that earmarks were often helpful in passing appropriations bills. </p>
<p>Nevertheless, to opponents, earmarks remain pork-barrel projects that are rife with waste and reek of corruption. Sen. Jeff Flake, R-Ariz., called earmarks “the Washington swamp creature that <a href="https://www.flake.senate.gov/public/index.cfm/2018/1/bipartisan-senate-coalition-introduces-bill-to-permanently-ban-earmarks">just never seems to die.”</a> </p>
<p>To supporters, on the other hand, earmarks are congressionally directed spending. They are a legitimate use of Congress’s constitutionally mandated <a href="https://books.google.com/books/about/Cheese_Factories_on_the_Moon.html?id=xwILSgAACAAJ">power of the purse</a>, which, not incidentally, may help members’ political careers.</p>
<p>Earmark proponents say a return to the practice could remedy the long-running difficulty of passing appropriations bills in a carefully considered, transparent manner. </p>
<h2>What did we spend that money for?</h2>
<p>In the normal appropriations process, Congress would pass twelve individual spending bills each year, a process designed to give members of Congress a chance to examine the spending in each bill before voting. </p>
<p>The reality is far different. </p>
<p><a href="http://www.pewresearch.org/fact-tank/2018/01/16/congress-has-long-struggled-to-pass-spending-bills-on-time/">Data compiled</a> by the Pew Research Center show that between the 2011 earmark moratorium and fiscal year 2018, only one individual appropriations bill was enacted, rather than the 84 appropriations bills Congress should have passed. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/211762/original/file-20180323-54869-1e7i2ow.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/211762/original/file-20180323-54869-1e7i2ow.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=326&fit=crop&dpr=1 600w, https://images.theconversation.com/files/211762/original/file-20180323-54869-1e7i2ow.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=326&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/211762/original/file-20180323-54869-1e7i2ow.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=326&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/211762/original/file-20180323-54869-1e7i2ow.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=409&fit=crop&dpr=1 754w, https://images.theconversation.com/files/211762/original/file-20180323-54869-1e7i2ow.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=409&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/211762/original/file-20180323-54869-1e7i2ow.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=409&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Pork-barrel spending can help move things along.</span>
<span class="attribution"><span class="source">Shutterstock</span></span>
</figcaption>
</figure>
<p>Instead of using the process that encourages careful consideration of individual spending items, Congress has funded government agencies in <a href="http://www.pewresearch.org/fact-tank/2018/01/16/congress-has-long-struggled-to-pass-spending-bills-on-time/">massive omnibus appropriations bills or full-year continuing resolutions</a>. These bills make it virtually impossible for members to know what they are voting for. </p>
<p>This breakdown in the appropriations process coincides neatly with the earmark moratorium. </p>
<p>However, prior to the moratorium, the process did not always go smoothly. The <a href="https://www.cagw.org/content/pig-book-2010#historical_trends">large increase</a> between 1991 and 2006 in the cost of earmarks, from $3.1 billion to $29 billion, did not ensure the passage of stand-alone appropriations bills.</p>
<p>Would earmarks now help Congress pass appropriations bills? </p>
<p>The evidence is less clear than it is for highway bills. I <a href="http://www.cambridge.org/us/academic/subjects/politics-international-relations/american-government-politics-and-policy/greasing-wheels-using-pork-barrel-projects-build-majority-coalitions-congress?format=PB&isbn=9780521545327#iRqCLBv6sXpLtGJr.97">analyzed</a> a number of Senate appropriations bills from 1994 to 2000; although the political dynamics might be different today, the findings could be helpful for the current conversation about earmarks. </p>
<p>In 1994, when the Democrats still controlled Congress, earmarks helped convince senators to vote in support of the positions of the powerful appropriations subcommittee chairs. </p>
<p>After the Republican takeover in 1995, however, earmarks were somewhat less effective. By 2000, with Republicans still in control, earmarks – although growing in number and cost – had no discernible effect on senators’ appropriations votes. </p>
<h2>Partisanship could undermine earmarks’ benefits</h2>
<p>My interviews with committee staff members suggested various reasons for this. Prominent among them, according to one staffer, was the fact that votes were “increasingly … on highly charged substantive policy matters.” Senators needed to vote on those issues in a partisan manner, regardless of earmarks. </p>
<p>Another staffer blamed the failure of leaders to punish disloyal members by removing their earmarks. </p>
<p>That staffer said, “People have no shame. They vote no and take the dough.”</p>
<p>It is difficult to predict how returning to pork-barrel spending would work today. </p>
<p>For earmarks to be effective tools, members who otherwise would oppose the bills on a partisan or ideological basis would have to vote contrary to their own or their party’s preferences. Their willingness to do so would undoubtedly depend partly on the electoral consequences.</p>
<p>As Yale political scientist David Mayhew has <a href="https://yalebooks.yale.edu/book/9780300105872/congress">argued</a>, members believe that bringing benefits to their home district gives them something they can claim credit for, enhancing their chances for re-election. That gives congressional leaders leverage over members’ votes.</p>
<p>The evidence for this effect is nuanced, however. </p>
<p>Earmarks can help members <a href="https://www.sciencedirect.com/science/article/pii/S0176268013000633">win re-election</a>, especially when members <a href="https://www.cambridge.org/core/journals/american-political-science-review/article/how-words-and-money-cultivate-a-personal-vote-the-effect-of-legislator-credit-claiming-on-constituent-credit-allocation/7538BBE494CE31274DAE7F9F2E220F04">claim credit for them</a>. </p>
<p>But there is also evidence that constituents are more likely to reward Democrats than Republicans <a href="https://www.researchgate.net/publication/4935138_Deficits_Democrats_and_Distributive_Benefits_Congressional_Elections_and_the_Pork_Barrel_In_The_1980s">for such benefits</a>. This is not entirely surprising, given that earmarks are consistent with Democrats’ commitment to activist government. For Republicans committed to cutting the cost of government, bringing home earmarks could be painted as hypocritical. </p>
<p>These differences could help explain why I found that earmarks provided leaders with less leverage over members’ votes in Republican-controlled congresses.</p>
<p>The negative effect of earmarking for Republicans may have grown over the last two decades, as critics have increasingly made earmarks a national issue, framing them as egregious government waste. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/211737/original/file-20180323-54866-1bpk3hk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/211737/original/file-20180323-54866-1bpk3hk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=479&fit=crop&dpr=1 600w, https://images.theconversation.com/files/211737/original/file-20180323-54866-1bpk3hk.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=479&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/211737/original/file-20180323-54866-1bpk3hk.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=479&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/211737/original/file-20180323-54866-1bpk3hk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=602&fit=crop&dpr=1 754w, https://images.theconversation.com/files/211737/original/file-20180323-54866-1bpk3hk.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=602&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/211737/original/file-20180323-54866-1bpk3hk.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=602&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Former Sen. Tom Coburn, R-Okla., was a frequent critic of pork-barrel spending.</span>
<span class="attribution"><span class="source">AP Photo/J. Scott Applewhite</span></span>
</figcaption>
</figure>
<p>Former Sen. Tom Coburn, a Republican from Oklahoma, for example, called earmarks “<a href="https://www.wsj.com/articles/tom-coburn-porkys-ii-the-earmarkers-strike-back-1398985965">the gateway drug to Washington’s spending addiction</a>.”</p>
<h2>The powerful get more</h2>
<p>At their peak, earmarks amounted to approximately 3 percent of the discretionary budget, the portion that Congress controls, which amounts to about one-third of total federal spending. As a result of earmark reform in 2007, spending on earmarks dropped to 1.3 percent <a href="http://onlinelibrary.wiley.com/doi/10.1111/j.1540-6210.2010.02304.x/abstract">of the discretionary budget</a>. In fiscal year 2010, earmarks cost $16.5 billion.</p>
<p>Earmarks are vulnerable to other criticisms, not least of which is the disproportionate share awarded to the districts of the most powerful members, particularly to members and leaders of the appropriations committees. </p>
<p>For example, scholar Austin Clemens and his colleagues <a href="http://journals.sagepub.com/doi/abs/10.1177/1532673X15576952">found</a> that in 2008 and 2009, members of the House Appropriations Committee got 35 percent of all earmarked dollars. That was more than twice what they would have received if earmarks had been equally distributed among all the committee members.</p>
<p>In addition, the majority party gets disproportionately more earmarks than the minority, although the minority gets enough to make it harder for them to use earmarks as a campaign issue. That’s a strategy dubbed “partisan blame avoidance,” <a href="http://www.jstor.org/stable/3088396?seq=1#page_scan_tab_contents">according to Steven J. Balla of George Washington University and his colleagues</a>.</p>
<p>While it is tempting to condemn earmarks as frivolous at best, and wholly wasteful and corrupt at worst, research on their uses and effects paints a more complex picture of their role in the governing process. </p>
<p>As Congress wrestles with the process of passing individual appropriations bills, Republican leaders may respond by once again allowing earmarks in appropriations bills, winning more Democratic votes for spending bills, and protecting some of their own vulnerable members at the polls.</p>
<p><em>An updated version of this story can be found <a href="https://theconversation.com/the-gateway-drug-to-corruption-and-overspending-is-returning-to-congress-but-are-earmarks-really-that-bad-151909">here</a>.</em></p><img src="https://counter.theconversation.com/content/91811/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Diana Evans does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Pork-barrel spending – that often reviled custom otherwise known as ‘earmarks’ – may well help Congress pass bills on schedule. Banned since 2011, they may be making a comeback.Diana Evans, Professor of Political Science, Trinity CollegeLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/893072017-12-21T00:03:08Z2017-12-21T00:03:08ZUniversities get an unsustainable policy for Christmas<figure><img src="https://images.theconversation.com/files/200285/original/file-20171220-4973-1gfpm1i.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The government is proposing to save A$2.2 billion on education over the next four years, which will hit students the hardest.</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>On Monday, the government announced its third attempt to significantly reduce spending on higher education in the <a href="http://www.budget.gov.au/2017-18/content/myefo/html/">Mid-Year Economic and Fiscal Outlook</a> (MYEFO). </p>
<p>It’s unclear whether the proposal is intended to be a long-term policy, or a bargaining chip to achieve the cuts Education Minister Simon Birmingham <a href="https://ministers.education.gov.au/birmingham/focusing-facts-higher-education-reform">tried to push through earlier this year</a>. </p>
<p>Overall, it’s not very good policy, as it’s primarily about making savings rather than improving higher education. Australia needs a higher education system that can respond to change, not one that is locked down. It will become extremely difficult for any minister to reverse these funding cuts after a couple of years. Students will pay a greater share of costs as a result. </p>
<h2>What’s in the proposal?</h2>
<p>The government is <a href="https://www.education.gov.au/higher-education-reform-package-student-overview">proposing</a> to achieve savings in ways that don’t require Senate approval. It proposes to:</p>
<ul>
<li><p>freeze Commonwealth Grant Scheme (CGS) funding for bachelor level courses in 2018 and 2019 at 2017 levels. This means no increases for any additional bachelor degree student places or for increased costs due to inflation</p></li>
<li><p>increase CGS funding for bachelor level courses in 2020 and subsequent years by the growth rate in the 18-64 year old population (so, <a href="http://www.abs.gov.au/ausstats/abs@.nsf/Lookup/3222.0main+features52012%20(base)%20to%202101">around 1.2% a year</a>), but only for universities which meet performance targets (the detail of which will be discussed in 2018) </p></li>
<li><p>reduce the number of funded postgraduate student places by removing 3,000 postgraduate places, which we are told are not used (and hence do not cost anything)</p></li>
<li><p>cease funding over 1,000 student places <a href="https://ministers.education.gov.au/pyne/coalition-announces-additional-university-places">allocated in 2013</a> to meet priority skill and regional needs - 419 postgraduate places in allied health and nursing, 533 in language diplomas and 250 in enabling/tertiary preparation courses; and</p></li>
<li><p>change the current allocation of student places for diplomas, associate degrees and postgraduate level courses to better meet industry needs and reflect institutional outcomes (the detail of which will be discussed in 2018).</p></li>
</ul>
<p>The government also indicated it would pursue some savings requiring Senate approval. These are to:</p>
<ul>
<li><p>lower the HELP repayment threshold to A$45,000 and make other changes to the HELP repayment schedule to speed up student debt repayments; and</p></li>
<li><p>introduce a lifetime lending limit across all HELP programs, including HECS-HELP, capped at A$104,440 for most students and A$150,000 for students in medicine, dentistry and veterinary science. </p></li>
</ul>
<h2>What will the proposals do?</h2>
<p>The government estimates these proposals will save around A$2.2 billion over the next four years. Most of the savings come from freezing funding for bachelor degree courses in 2018 and 2019, and the limit on funding growth for those courses from 2020 onwards. </p>
<p>This funding is delivered through the student place subsidies paid under the CGS. Combined with a student’s contribution (usually paid through HECS-HELP), these cover the cost of teaching students.</p>
<p>The CGS provides subsidies for all courses, not just bachelor degree courses. It also provides a number of loadings, such as <a href="https://theconversation.com/a-new-approach-to-regional-higher-education-is-essential-to-our-economic-future-88537">the regional loading</a>, to help to meet extra costs. In 2017, CGS spending will be around A$7.1 billion in total. </p>
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<p>The main target of the government’s proposals is the A$6 billion of spending on bachelor degree courses. Currently, universities can offer as many places for bachelor students as they want in the demand-driven system, so spending on this element of the CGS can increase without government approval. </p>
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Read more:
<a href="https://theconversation.com/uncapping-of-university-places-achieved-what-it-set-out-to-do-so-why-is-it-dubbed-a-policy-failure-61082">Uncapping of university places achieved what it set out to do. So why is it dubbed a policy failure?</a>
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<p>In the case of other courses, such as diplomas, associate degrees and postgraduate degrees, the government still controls how many places a university can offer. It controls its spending on these courses and special loadings. </p>
<p>The government will no longer try to lower the amounts of its contribution to student places, which are specified in higher education funding legislation. Instead, it will use a provision in the legislation that allows it to put a cap on funding for bachelor degree courses without Senate approval. </p>
<p>This is achieved simply by inserting a sentence specifying the upper limit on bachelor degree course funding in a university’s CGS funding agreement. The only restriction placed on the government is that the amount cannot go down from the previous year. So, in 2018, a university’s maximum funding for bachelor degree courses cannot be less than it was for 2017.</p>
<p>Universities don’t have the option not to sign these funding agreements. They are a precondition of getting any CGS funding and having any Commonwealth supported students. </p>
<p>Currently, the government will pay a university for every domestic bachelor degree student according to the legislated subsidy levels for the relevant year. It will still do this, but only up to the maximum amount specified in the funding agreement - then it will just stop. </p>
<p>When the maximum amounts for every university in 2018 are added up, they will not exceed the A$6 billion expected to be spent in 2017. The same goes in 2019.</p>
<h2>What happens after the freeze lifts?</h2>
<p>From 2020, a university may have its maximum amount for student places in bachelor degree courses increased by the growth rate in the 18-64 year old population, if the university meets performance targets. On current <a href="http://www.abs.gov.au/ausstats/abs@.nsf/Lookup/3222.0main+features52012%20(base)%20to%202101">ABS population projections</a>, that is likely to be around 1.2% each year.</p>
<p>Assuming all universities meet the performance targets, there are two ways of looking at the impact:</p>
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<li><p>If a university grows its bachelor degree student places to match Australia’s growing population, the government subsidy component will never be increased to compensate for the increased costs of providing bachelor level places due to inflation. </p></li>
<li><p>If a university never increases its bachelor degree student places, the government subsidy component cannot rise by more than 1.2%. If inflation is 2.5%, the real value of the subsidy will be reduced by 1.3%.</p></li>
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<p>Education Minister Simon Birmingham <a href="https://ministers.education.gov.au/birmingham/interview-abc-rn-breakfast-hamish-macdonald">has been asked</a> what his policy will mean for the number of domestic student places. He can’t answer these questions because it’s not his decision. Universities are unlikely to increase domestic bachelor degree student places and the policy settings are likely to distort university decision-making.</p>
<p>Universities may decide to have fewer students in courses with above-average subsidy levels, such as health sciences, nursing, engineering and agriculture. They may increase students in courses with low subsidy levels, such as law, accounting, economics and administration. </p>
<p>The government hasn’t released estimates of how university funding will be reduced due to restricting growth in bachelor degree funding. The graph below indicates how it is likely to be reduced each year to 2025, based on a fairly conservative set of assumptions. It shows how rapidly the savings from such a proposal escalate. </p>
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<p><iframe id="bLfA9" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/bLfA9/5/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
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<p>If the government’s policy is implemented, any minister would find it almost impossible to reverse. Ministers who want to change policy and increase spending have to find savings from elsewhere to cover the costs. The cost of reversing this policy would be massive, as it takes only a few years for it to produce savings of over a billion dollars a year.</p>
<h2>How does this affect students?</h2>
<p>While the government will substantially reduce its funding contribution by eroding its real value, students will continue to pay more as their contribution to the cost of their degree continues to increase with inflation. </p>
<p>In addition, if a university decides to grow its bachelor level student places despite not receiving any government subsidy for them, the student will still be required to make their contribution. </p>
<p>Both of these factors mean the 30-year trend of shifting the cost of higher education from government to students will continue. This is despite it being a major part of the reason student debts are continuing to grow and greater amounts are not being repaid - a problem the government claims it’s trying to fix. </p>
<h2>The demand-driven system is not unsustainable</h2>
<p>The rapid expansion that occurred under the demand-driven system <a href="https://www.universitiesaustralia.edu.au/Media-and-Events/media-releases/University-enrolment-growth-remains-stable--latest-data#.Wjr52lT1VBy">has largely stabilised</a> and total funding for general research and tertiary education has declined in real terms by 1.3% over the last four years. </p>
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<p><iframe id="ni4lQ" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/ni4lQ/2/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
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<p>Previous savings paid for most of the demand-driven expansion in student places and Australia’s spending on tertiary education as a share of GDP is <a href="http://melbourne-cshe.unimelb.edu.au/news-and-events/beyond-the-demand-driven-obsession-and-policy-impasse">now lower</a> than it was before the demand-driven system was introduced.</p>
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Read more:
<a href="https://theconversation.com/vocational-education-and-training-sector-is-still-missing-out-on-government-funding-report-88863">Vocational education and training sector is still missing out on government funding: report</a>
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<p>The government is giving the objective of returning the budget to surplus a higher priority than the development of our tertiary education sector. This includes the vocational education and training system, which has already had its funding eroded over many years. </p>
<p>We can have both budget repair and well-funded tertiary education, but not with this policy.</p><img src="https://counter.theconversation.com/content/89307/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Mark Warburton is a part-time consultant and associate of PhillipsKPA, an education industry consulting group. He worked for Universities Australia in 2015 and prior to that was a public servant for 32 years, advising both Labor and Coalition Governments on higher education. </span></em></p>The cuts to higher education funding are more about making savings than improving higher education, and would be extremely hard to change in the future.Mark Warburton, Honorary Senior Fellow, LH Martin Institute, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.