Monday, October 09, 2006

UKIP and 'train set politics'

The UKIP are in something of an internal mess thanks to, as I have noted before, their party containing far too many of those who are not quite up to making it in mainstream politics. A first past the post system is always going to give a major advantage to the biggest parties and this should ensure that compromise happens within the major parties before an election rather than through averaging out the view of voters in negotiation afterwards as is done with messy consequences in countries such as Germany.

If the UKIP's logic that EU membership is an absolute wrong as a violation of our sovereignty is correct, I do not share this view as I'm not sure it is qualitatively different to the UN in this regard, then compromise with a Tory party which does not agree to leave the EU right now is impossible. This would make the UKIP a good idea as a point of principle.

However, as a mechanism to influence the mainstream political balance it is likely to do more harm than good in euronihilist terms. It weakens the relatively eurosceptic position by splitting the vote. It isn't even likely to successfully threaten the Tories into going more eurosceptic as that will be more than balanced out by distancing a large number of those most enthusiastic for leaving the EU from the internal debate within the party.

Their flat tax policy was an exercise in what I like to call 'train set politics'. It is constructed without much regard to transition or implementation as the UKIP is never going to have to put any of this into practice. You can tell this from the distinctly glib response to the threat of a fiscal imbalance. Planning for a deficit thanks to tax changes at a time when there is a looming challenge to fiscal policy from growing numbers of old people is a distinctly poor idea.

If you are going to do train set politics then do it right. Don't start from current spending priorities and then work out what you can cut. It sounds negative and the word cut in particular sounds unpleasant. Start from zero and play God properly. The rest of this article is my best effort, after about an hour or so's hunting down some figures, at a fiscal policy. As such, if there are errors or miscalculations please forgive me.

Alistair Heath's research into the flat tax isn't exactly designed for my purposes but by my calculation from its numbers we have roughly £507.5bn to work with if we were to implement it this year. This sum may change in the future but the basic gist with respect to the rest of the economy will remain the same in the short run. This means significant tax savings for all income levels but particularly for those on lower incomes combined with a significant number of people being taken out of tax altogether (up to a £9000 income). The dynamic effects of this can be expected to lead to a significant increase in revenue quite quickly as such shifts to a low tax economy tend to but I'm not going to rely on that. You could think about that as around £60bn of tax cuts but it is a lot more fun to think of it as £507.5bn to play with. So, how do we spend just under £510bn?

Divide it the following way:

£60bn - just over double the defence budget so we can have a bigger army, equip it better and will have the military to match our foreign policy ambitions.

£70bn - just over double the public order budget to pay for more prisons, police officers and the resources to properly defend property rights, keep order and protect vulnerable communities from criminality.

£30bn - to cover our debt interest payments... can't be avoided.

£30bn - for a substantial boost to the transport budget which is needed in the short term although should be targetted to fall sharply in the medium term with privatisations of the motorway network and other changes.

£1bn - for democratic institutions.

£20bn - for environmental services (this is currently the housing and environment budget). More research is needed into this item but my guess is it can't be removed.

£30bn - to put into a 'vulnerable people's fund' which could be distributed to those, I would expect a relatively small number in the end, who cannot work and for whom the main benefit below really isn't enough. If that amounts to about 6 million people (10% of the population) they can be allotted around £5,000 (to over double their basic income) each but the true amount would probably be more concentrated (a smaller number of people receiving more). A large part of the initial cost is likely to be pensioners who haven't adjusted to the new system and have not saved at all.

£4441.66 x 60m = £266.5bn to pay £4441.66 to every man, woman and child in the UK. This provides them with a basic income and serves to replace unemployment benefit (under £3200 at the maximum rate), the minimum wage (everyone gets this) and current state spending on services. Living only on the £4441 would not be comfortable as it is not a lot and there will be additional costs such as healthcare which are currently paid by the state which would need to be funded out of that money but being unemployed isn't comfortable in the status quo and is an ugly situation to be in regardless of the material results.

Note that this leaves people paying income tax from a private income of £9000 plus the basic income of £4441; they will pay income tax from a total income of £13441 and up.

You then mandate that people have health insurance of some kind and children have education up to standards set by a regulator. This can be covered for the poor out of their basic income as set out above. If someone is completely unemployed they may be in a slightly tighter spot than they are now after the cost of public services but not by a lot and thanks to the complete absence of a poverty trap (they don't lose benefits when they start earning) any extra money they can earn doing odd jobs can supplement this so fewer will be trapped in complete unemployment by the prospect of losing benefits if they start work.

Such a system would leave the state ensuring that everyone can afford basic services and providing a safety net. It would do as little as possible to weaken incentives to work and increase your income. It would provide the finances to law enforcement and the military to ensure that no one could abuse its citizens and that it could play a full part in ensuring the stability of the wider world. Would be fun wouldn't it?

The UKIP are welcome to copy this and it will serve them better than their current scheme. However, I would suggest to them that the pragmatism and moderation required to engage with the Conservative party, even if they would prefer a stronger ideological flavour than the current leadership, is, perhaps, worth the effort and will allow them to spend their time more productively.


Devil's Kitchen said...

Interesting stuff, which I shall have a look at. The thing ios with the UKIP flat tax policy (and education, etc.) is that there are some people who really are attempting to imagine that they might get into power, hence the relative timidity of the flat tax policy.

The other problem that they have is that they are not well-funded and research costs money. This is why the scope was so narrow.

If you really are going to play trainset politics, then you should certainly be aiming to spend considerably less than the present government.

Also, why are you paying an effective CBI to children? You are essentially paying people to have large quantities of children and irrespective of parenting; this is what we currently have and it has not had happy results.

Having children is a life-style choice by parents; whilst we as a society are willing to ensure that those children (or, indeed, all people) do not starve, there is absolutely no way that we should pay them (or, actually, their parents) an allowance of £4.5k from birth.


Matthew Sinclair said...

Well, I'm spending about 10% less than the current government. The TaxPayers Alliance flat tax proposal isn't exactly wet.

I agree it could have been more radical but I couldn't really be bothered to work out the sums for how much revenue I'd have to play with if I made a really big tax cut. The TPA report was quite well researched.

The children thing I thought about a bit. The question comes down to whether you worry about demographic decline (I do a bit although I don't buy the Steyn et. al. demographic apocalypse line) or about welfare babies. I find the demographic problem more worrying because I think our ability to integrate immigrants is becoming a lot worse and that means we need to think about sources of population.

Devil's Kitchen said...

Yes, but I have seen it argued that we do not, in fact, require more people; simply more GDP per capita (I will attempt to find a link. I'm really bad at bookmarking these things!).


Matthew Sinclair said...

I think the problem you'll have without benefits for children is that you can't credibly not provide them with welfare. It's similar to the conundrum of pensioners where you want to convince them that they need to save but, in the end, you won't let them starve and they know it. The same problem exists for parents having children. We aren't really hard headed enough.

Equally, bear in mind also that giving them the same as adults isn't as much as it seems. This is expected to finance their cost of education as well which is no small amount.

Jeremy Jacobs said...

Been loving all this UKIP publicity this week. I believe Nigel Farage is on Andrew marr's programme on Sunday.