Policy-Based Evidence-Making

Glen Newey on the budget

According to classical Garbage Can theory, set out in a landmark 1972 article by Marshall Cohen, James March and Johan Olsen, bureaucracies are essentially chaotic systems. In the public policy soup, policy entrepreneurs vie to find problems to which they can offer a solution. With an ad hoc cast of contributors, policy-making is

a collection of choices looking for problems, issues and feelings looking for a decision situation in which they might be aired, solutions looking for issues to which they might be the answer, and decision-makers looking for work.

George Osborne makes an unlikely Garbageman. The old Bullingdonian, heir to the Osborne-Little wallpaper fortune and the baronetcy of Ballentaylor in Co. Tipperary and Ballylemon in Wexford, has a tough hand to play. Expansionary fiscal contraction has failed to grow the economy. The chancellor is now forecasting on the basis of OBR figures a near-flatline 0.8 per cent growth for 2012, having predicted a rate of 2.5 per cent in last year’s ‘fuel in the tank of the economy’ budget. When the government took office it continued Labour’s attempts at pump-priming via quantitative easing, but since the extra liquidity has largely been absorbed by the commercial banks’ deleveraging in response to the credit crisis, growth remains sluggish. Part of the hope seems to be to attract inward investment to big infrastructure projects by tipping the wink to overseas sovereign wealth and pension funds suffering low equity and bond yields. This does duty as a strategy for growth.

Osborne’s speech accordingly went large on policy-based evidence-making. The use of corporate envelopes to shield big-ticket residential property purchases against stamp duty is, as the chancellor put it in his budget speech, ‘morally repugnant’. So they get whacked with a 15 per cent surcharge on house purchases over £2 million; even on-the-level non-corporate buyers will now pay 7 per cent. He didn’t say why this presumably hitherto legal tax dodge should excite revulsion, but such wheezes as shunting one’s income into the preceding tax year to evade the 50p rate should be rewarded with a tax cut. As with the pick-and-mix approach to morality, so with the rational-actor model of fiscal behaviour: dodges make higher income and corporation tax a dead letter, but can be headed off with property transactions.

Lobby journalists had been primed to expect a drop in the top rate of tax from 50p, although Osbo reportedly defended it in November and again earlier this month at the 1922 committee. Why? One assumes that he was cowed by the thought of political fallout at being soft on the rich. But larger forces are in play. The Tories after all are a low-tax party, and the dominant partner in the coalition. So the 50p banding had to go, though triangulation with Clegg means it only drops to 45p, rather than the 40p clamoured for by the party right. Again, before the budget a mansion tax was touted as a sweetener to LibDem backbenchers. In the nature of things the hike in stamp duty won’t zap the most obvious way of dodging purchase taxes, which is not to buy in the first place. It will be interesting to see the yields in a couple of years’ time.

Some bits of the budget speech are hard to make out even at dog-whistle level. The coalition says it’s hanging out the sign that Britain is open for business by cutting per-sonal and corporate taxation; at the same time it slays its main political liability – that it’s government by the rich, for the rich – with the claim that the wealthiest will pay five times more than they did before: a figure not quantified, and presumably not net of projected avoidance. How are prospective investors, devotees of the larger carrot, meant to take that claim?

One can only think they’re meant to take it as an unavoidable sop to the non-wallpaper-inheriting classes. Or – though currently unfashionable in academe, except among a few diehards – the Garbage Can lives on in the Treasury. As Canners would readily agree, whether something counts as a ‘problem’ depends on its visibility – that is, whether anyone brings it into view. One group who don’t benefit from the hike in personal allowances are those paid too little to have been taxed already. While the well-off demand carrots, the badly-off get sticks. Among the government’s less trumpeted reforms is the switch to using the lower Consumer rather than Retail Price Index as the basis for uprating benefits. Welfare budgets will be cut by a further £10 billion by 2016. But, as E.M. Forster said, we are not concerned with the very poor: they are unthinkable, and as he might have added, often don’t vote.