Monday, April 11, 2005

A Penny in the Pocket

Recently Richard and An Englishman in Philly have been having a spirited debate regarding the levels of taxation that are current in Britain, and how they may be adapted, especially with regards to funding the public services. Richard believes that any reform of the public services must be coupled with continued investment, so that the provision of front-line services can actually be improved. Ed believes that once reforms are achieved, then the savings made from efficiency should as far as possible be diverted into tax cuts.

Both of these positions work from assumptions on the level of provision as things stand - Ed's, that the current provision is more or less acceptable, and just needs to be more efficent. Richard's works on the basis that the current level of investment is about right for the provision of the NHS (which is where the argument has largely focused), and it is the structures that need to be made greater. Interestingly, the lines of argument largely mirror the political debate, in that those arguing for continued high investment concentrate on the human side of provision, in doctors and nurses, and that those arguing for reform concentrate largely on economics.

The debate started thus:
he intelligently argues that Tories need to ensure their reform agenda gets equal limelight with the tax cuts, or else they can be too easily painted as hacking services. His problem is that they will, or at least provide poorer services than they otherwise could.

That is developing to be slightly disingenuous on Richard's part - although he draws back from the wrong assertion that efficiency reform will "hack" services, the centre-left all too easily fall into the trap that more spending of itself brings about better services. Now, the chances are that they will, provided that it brings in properly trained staff, for example. But it doesn't necessarily imply that benefits are proportional to the amount of money spent. Indeed, to take Blair's claim that more investment really does put schools and hospitals first as a case in point - more investment has not led to improvement.

Yet neither Richard nor Ed would deny that reform is essential in the public services if they are to achieve optimal levels. The fact that the right have to face up to is that such reform will increase expenditure in the short term, for reductions later. The failure of Thatcherite doctrine was that when significant money was made from privatisation, it was ploughed into tax cuts, rather than investing in the long-term reforms which would have made such tax cuts more sustainable, assuming that keeping public services at their current level of service is considered to be a desirable end.

The problem that faces the country is that a four(or five)-year electoral cycle acts as a major disincentive to pushing through proper service reforms, for they have a high level of risk, in that they may well reduce the efficiency of service provision in the short-term. Thus neither major party really wants to address the issue of widespread reform, instead talking of cutting out waste. Without a clear blueprint of how structures, not productivity, can be made more efficient, it is difficult to see exactly how such changes can be made. Yet given the supposed level of bureaucracy in the NHS (I do not know exact figures, but I believe there are huge numbers of managers compared to service providers within the organisation), reform should be able to achieve much.

Thus when Ed says:
Despite his rhetoric about being a liberal I see very little desire from Richard for the state only acting where necessary. Any real liberal must surely ask whether any given level or type of public expenditure is good enough to exhaust the duty of trust owed to the person from whom it was taken, to outweigh the wrong of taking what belongs to someone else.

I am inclined to agree with him to a certain extent. By suggesting it is desirable to plough any savings from reform back into the service works from the assumption that the spending level is right, not the level of provision provided. If the service works at maximal efficiency, then any extra investment is going to lead to some improvements in the volume of service that can be provided. But unless the NHS always has spare capacity - ie there is always some wasteful spending in the service - it can never be perfect.

And although Richard talks of tax rates not being "economically oppressive", any tax increase affects someone who lies on the margins. So, although it is said that the main brake on increased spending is the limit of economic expansion, there will always be people affected no matter how tiny the tax increase. The slight fallacy of Richard's argument, therefore, is that if more spending is intrinsically desirable, then it implies the state should have an unlimited power to tax. And that is not only politically infeasible, but it is wrong. If all money is to a greater or lesser extent under threat from the Inland Revenue, then it really is a disincentive to productivity no matter what the limits are.

However, I cannot fully agree with Ed, either. Despite protestations to the contrary, an ideological objection to any taxation shines through his piece. He talks about outweighing "the wrong of taking what belongs to someone else", and finishes by saying he wants to "return money to its rightful owners". Whilst I would agree there has to be an incentive to earn, working in any society also requires social responsibility. I intend to blog later in the week about an initiative in Brighton designed to try and stop people using foul language; one of the more appealing aspects of the Conservative manifesto is the idea of cutting down on "yob culture" and so implicitly promoting social responsibility.

Believing that all taxation is theft goes against that idea. It should be a hallmark of a civilised society that we believe in high quality health and education systems, and that requires collective public expenditure. I wrote on the Dustbin of History a while ago a piece that on the face of it seems to hold a lot in common with Richard's position - that we should work out what provisions we want and base the tax take around that. I still believe it, but Richard has gone away from this argument in this debate that suggests more spending is always desirable to achieve better services. Simply put, too much investment eventually leads to the law of diminshing returns. And that is when the anti-tax ideologues start to see greater public support for their arguments. A happy medium needs to be found, and neither believing in unlimited investment nor large reductions in tax is a healthy starting point.