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Loss, Cost, and Effort Involved in These Episodes

As already noted, the 1990s fiscal squeeze described in this chapter is the longest-drawn-out episode in the whole period covered by this book, but it seems hard to argue that it also involved the greatest political stress and effort on the part of officeholders or the greatest losses imposed on the population. As in previous chapters, Table 9.1 gives a summary rating of the intensity of the squeeze for the two governments involved on the spectrum we discussed in Chapter One.

Table 9.1. A qualitative classification of imposed loss, political cost, and state effort associated with 1990s fiscal squeezes

Low

Moderate

High

Overall classification

1993-

-2000 Squeeze Type: Soft Spending/Soft Revenue

Conservatives 4/1992-5/1997

Loss

[1], [2]

[1]

Moderate

Cost

[1]

[1], [2]

[3]

Moderate

Effort

[1], [2], [3]

[1]

Moderate

Labour 5/1997 onwards

Loss

[3]

[1], [2]

Moderate

Cost

[1]

[1], [2]

Low

Effort

[1]

[1]

Moderate

Note: numbers in square brackets referto categories in Table 1.2, ChapterOne.

Certainly, there were some significant losers in this squeeze episode, under both governments, such as those disadvantaged by the changes in welfare policies and by the 1993 budget that froze tax thresholds and imposed VAT on fuel and power. But even the two post-election budgets—the 1993 'tax wedge' budget and the 1997 'windfall tax' budget—do not seem to have matched the losses imposed by the 1981 budget, and some of the extra taxes imposed in the post-election 1997 budget, notably the utilities windfall tax, did not fall visibly or directly on mainstream voters. Further, as we have seen, for much of the episode, under both the Conservatives and Labour, steady economic growth meant spending could be increased in constant-price terms while declining relative to rising GDP, and that revenue rose in real terms though not as a proportion of GDP. Those are much more benign conditions than applied to several of the eras described in earlier chapters, and without accompanying non-fiscal austerity in the form of rationing or wage caps that applied to some previous squeezes. Moreover, even though privatization proceeds were starting to fall off at this time, this episode also reflected revenue raising or spending reduction through selling assets and exploiting oil reserves which we noted in Chapter Eight as features of the Thatcher squeezes of the 1980s and which limited the direct and immediate pain imposed on voters.

As for political costs to incumbents, this period of fiscal squeeze certainly involved political effort over both tax and spending. But again it seems hard to rate these squeezes at the same level on our spectrum as cases such as 1931 or 1976. Even for the Major Government, the post-ERM dramas of the 1992 Autumn Statement and March 1993 budget did not involve an outright breach of manifesto promises, though they certainly included tax increases and spending cuts about which the 1992 Conservative manifesto had been notably silent. (That manifesto, an unwieldy document running to almost 30,000 words, promised tax cuts and contained only a vague statement about maintaining 'firm control of public spending',[1] so the post-election VAT hike in particular inevitably invited accusations of misleading the voters.)

For the continuation of the squeeze under the subsequent New Labour Government, it can be argued that political costs for incumbents rated rather lower than for the Major Conservative Government. Some of that government's approach to handling the squeeze consisted of 'inertia strategies', such as continuing with accelerators on indirect taxes on fuel and tobacco, staying with the previous government's spending targets, and broadly matching the previous government's policies on lone parent benefits and welfare to work.

Some of the policies accompanying the spending squeeze in the early years of New Labour—such as the imposition of university tuition fees and restriction of benefit increases to single parents—certainly provoked political conflict and backbench revolts, but the government's parliamentary majority was so large that such conflict did not pose political threats to its future at the same level as (say) those of the early 1930s or mid-1970s. Moreover, again in contrast to those episodes, the timing of the New Labour squeeze went with the electoral cycle rather than against it, with the squeeze ending well before the 2001 general election.

As for the effort required from the state machinery in applying the fiscal squeezes discussed in these chapters, that too seems to have gone well beyond the incremental level under both governments—for instance, in the crafting of the 'New Control Total' and 'EDX' machinery in the early 1990s, remarkable reductions in running costs and plans for long-term pension changes under the Major Government, and the changes in funding higher education, the 'welfare-to-work' regime, the crafting of new taxes including the utilities windfall tax, and the development of the comprehensive spending review system under the Blair Government.

  • [1] 'The Best Future for Britain', 1992 Conservative Party manifesto, http://www.conservativemanifesto.com/1992/1992-conservative-manifesto.shtml.
 
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