Inflation and hypocrisy

In the budget today, the Chancellor announced that inflation this year is expected to be between 4 and 5%, and that it is hoped that it may come down to around 2.5% next year. Even if you believe the Chancellor (and I don't), and the prediction for 2012 is achieved, it is still above the level requiring Mervyn King to report to explain himself.

The Tory party like to portray themselves as the party of those who are self-reliant, who want to contribute to society rather than only take from it, and who want to make the most of themselves. Self-reliance means saving for difficult times. This includes making provision for old age. But the Chancellor's willingness to inflate himself out of the national debt is confiscatory with respect to just those people. Ordinary savings offer rates of interest which are way below the rate of inflation, and what meagre income that is received, even though much below the amount necessary to match inflation, is still taxed. Similarly, capital gains on savings investments are taxed even though, because of inflation, the gains may be entirely illusory: this is because the Chancellor is not prepared to index capital gains against inflation.

The Tories were supposed to raise the inheritance tax threshold. They haven't done it. They were supposed to replace the Barnett formula with a needs based grant distribution system for the UK. They haven't done it. On the last of those, this was also matched a Liberal Democrat manifesto commitment, so there is no excuse.

As it happens, for reasons explained in earlier articles in this blog, I do not support replacing the Barnett formula. The Barnett formula has the great advantage that it operates, so to speak, without human input: find out how much is voted in the annual Appropriation Acts for functions relating to England in any year on matters devolved elsewhere, and you then know exactly how much is to go to Scotland, Wales and Northern Ireland in that year. On the other hand, a needs based formula will be subject to annual arguments about relative assessments of need (which over time is likely to act to the disadvantage of those in England, because if the UK government acts neutrally as it ought to, there is no one to stand up for their interests).

Equally I do not support raising the inheritance tax threshold: I see no reason why children should expect to inherit their parents' wealth as a matter of right.

The point arising from this is not that the Tories' policies are necessarily wrong (they are on inflation, not on the others), but that the Tories are untrustworthy. They knew the economic condition of the country perfectly well at the time of the last election. If they didn't think something could be afforded then they should not have promised it. The Labour party, if in government, would probably have followed all the same steps on these issues. However, they would not have (and did not) promise anything different.

To make matters worse, some Tory policies seem to me to be bound to fail. The NHS reforms if implemented as intended will lead to unaccountable decision making by people it will be impossible even to identify - but it is doubtful those reforms are implementable. The Big Society as explained so far seems to have turned out to be a means of confiscating dormant bank accounts in England to make up for shortfalls in local government spending. I think that the policy on student fees for higher education is wrong and I think the Tories misunderstand the resentment at grass-roots level about the unfairness caused by only those students living in England having to pay the higher fees. The single policy which may have beneficial impacts and go some way to meeting manifesto commitments is the Localism Bill (in which I think there are some genuinely good things).

If the Tories end up with a reputation of being untrustworthy, as it seems to me they deserve, this will store up trouble for them for the future. The plan may be that as the next election approaches a pre-election budget will issue enough goodies to the Tories' natural supporters as to cause them to overlook their failure to meet their past commitments. That calculation may be wrong. Their natural voting supporters may not be fooled twice, and if AV were to arrive UKIP may well steal part of the Tories' lunch box. (Again, to avoid misunderstanding, readers of this blog will know I am opposed to UKIP policies on the European Union, but they are a threat to the Tories.)