The new golden rule of politics: all governments will disappoint voters

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The Independent Online

For the moment it may be mid-term blues, but soon it will be all-term blues. A number of issues that have come to the fore during the last few weeks suggest that the electorate is concerned it is not getting value for money. One has been the extent to which the tax burden has risen under Labour: this week's Ernst & Young report claims that personal taxation is the highest since 1982-3. Another is the criticism levelled at the Chancellor on account of his budget's tiny increase in the basic old-age pension. And of course there is the non-appearance - so far - of any evident quality improvements in the NHS.

For the moment it may be mid-term blues, but soon it will be all-term blues. A number of issues that have come to the fore during the last few weeks suggest that the electorate is concerned it is not getting value for money. One has been the extent to which the tax burden has risen under Labour: this week's Ernst & Young report claims that personal taxation is the highest since 1982-3. Another is the criticism levelled at the Chancellor on account of his budget's tiny increase in the basic old-age pension. And of course there is the non-appearance - so far - of any evident quality improvements in the NHS.

There are perfectly good answers to all these attacks. For example, while it is true that the tax take has risen a little as a proportion of national income over the life of this government, spending has fallen. The additional tax has been used to make the switch from deficit to surplus in the government accounts - something that makes a great deal of sense given the rapid growth of the last three years and the need to bring down public debt levels generally.

To attack the 75p a week increase in pensions as miserly is to ignore other measures the Chancellor took to increase the real incomes of the poorest. And as for the NHS, well, the Government has yet to spend the large additional amounts of money promised, and even when it does there will be a time-lag before there is any evident improvement in services.

Nevertheless there does seem to be a perception that the spin has run ahead of the delivery: that Tony Blair is all mouth and no trousers. If that is worrying for this government, it should be profoundly alarming for any politician. These have, after all, been the good times. We have had rapid growth, low and falling unemployment and inflation, a strong currency and substantial inward investment. Britons have enjoyed a faster rise in their real incomes than at any time since the late 1980s.

They have also had a government that is redistributing income on an enormous scale: this week it was revealed that half of the income tax take is paid by the top 10 per cent of earners, and 20 per cent by the top 1 per cent. Twenty years ago the top 10 per cent paid one-third of total income tax and the top 1 per cent only 10 per cent.

If you cannot satisfy the majority of voters in the good times, helped by vastly increased transfers of income from the richest ones, what hope have you of doing so in the less good times that will inevitably come?

It is worse than that. There are three reasons why future governments are almost bound to disappoint - what we are seeing now is simply an early warning signal of that disappointment. The first has been widely noted but is no less important for that: adverse demography. This changes the ratio of working people (who pay most of the taxes) to children, students and the retired (to whom the largest proportion of government spending is directed).

The second is that expectations of voters have been driven upwards by improved service in the private sector. Sure, that service is frequently uneven, but the contrast between, say, the inside of a post office and the inside of building society office is much starker now that it was 20 years ago. People are to some extent prepared to accept lower quality services from the public sector, but as the gap widens it becomes harder to hold the line.

And third, governments cannot even assume that they will be able to maintain the revenue they now have in the future. Tax competition has spread from governments competing for inward corporate investment to competing for skilled workers. This means a general downward pressure on tax levels. The UK's personal tax levels are still competitive globally, but some other countries - the Netherlands, for example - have had to introduce a lower top tax rate for foreign workers than it maintains for home ones. Indeed Britain has a much more favourable tax regime for non-residents than it has for residents.

Through most of the post-war period, governments were able to tell voters, with some success, that services could be improved without increasing tax rates, as this government did before it came to office. In future they will have to admit that they will need to increase taxes just to maintain the present standard of service. That is not an easy proposition to sell.

So what gives? There are really only two possible approaches. One is to muddle through; the other to rethink the nature of the public sector.

Muddle through is the option chosen by New Labour. It involves nudging up taxation in ways that will not be too noticeable, such as taxing pension funds, and increasing spending in areas where it can be seen to have the greatest impact, such as in primary schools and the NHS. This also involves shuffling off parts of the public sector, including air traffic control and the London Underground, that demand big capital investment. And it involves pushing society towards long-term social changes: a later retirement age, an increase in the proportion of people in some kind of job, and so on.

This may work, but it means governments will always be on the back foot, explaining why they haven't succeeded in doing something - why they cannot increase pensions faster, why hospitals still have waiting lists, why people have to pay higher university fees, and so on. Meanwhile they will also have to explain why the state cannot finance investment in the Tube and why air traffic control has to be sold off.

But this may not be saleable to voters. The electorate will be old. We have had a few glimpses of pensioner power in the last few months. Expect that to increase as the proportion of retired people rises. If voters are grumpy now about their pensions, expect them to be much more so in five or 10 years' time.

So what is the alternative? I don't think it is possible at this stage to do more than sketch the principle. This would be to say that governments should not undertake activities that can be done by other parts of our society - companies, financial institutions, families, whatever - so that they conserve their resources to do the things that only governments can do.

Under this model, governments would do much less themselves; they would be regulators and guarantors. They would still have the responsibility to see that societies were orderly and that the disadvantaged were supported: the voters rightly would demand that. But they would achieve their ends by different means. Instead of tax'n'spend, they would try to improve economic performance through brokering deals between business and the community, and more generally exhorting, encouraging and promoting wealth creation.

From a politician's point of view this is surely more attractive: be a cheerleader, not a punch-bag. How you get from here to there is more of a problem.

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