The Economist UK - 27.07.2019

22 Britain The EconomistJuly 27th 2019

1

B

oris johnson’s appointment as prime

minister does not just mean a new ap-

proach to Europe. On July 24th he appoint-

ed Sajid Javid, formerly the home secretary,

to replace Philip Hammond as chancellor.

An emergency budget is said to be in the

works. It seems likely that Mr Johnson’s

tenure will confirm a crucial shift in Tory

economic policy. A party that was obsessed

with fiscal discipline is turning lax.

When the Conservatives came to power

in 2010 Britain was in a tight economic

spot. Following the financial crisis it was

running a budget deficit of 10% of gdp, one

of the largest in the rich world (see chart 1).

George Osborne, then the chancellor, im-

plemented big spending cuts and tax rises.

After promising more fiscal austerity in the

run-up to the general election in 2015, the

Tories won a majority.

The shift away from this ascetic stance

started shortly after the election. Evidence

emerged that public services had begun to

deteriorate. The number of “delayed trans-

fers of care”—people stuck in hospital be-

cause they had no care home to go to—rose

sharply from 2014-15, as did the number of

violent incidents in prisons. More people

came to believe that higher taxes and more

government spending were necessary (see

chart 2). A surprisingly strong economy in

2016-18 meant that the deficit fell.

Mr Hammond, who succeeded Mr Os-

borne in 2016, loosened fiscal policy a little.

Yet with Brexit hanging over the economy,

he eschewed costly crowd-pleasers in fa-

vour of amassing what became known as

his “Brexit war-chest”. This is the differ-

ence between the forecast structural deficit

in 2020-21 and Mr Hammond’s self-im-

posed target for that year. At present there

is some £27bn ($34bn, or 1.2% of gdp) of fis-

cal headroom, which would have allowed

Mr Hammond to give the economy a one-

off boost in the event of a slowdown.

Many Tories, however, believe the war-

chest is a pot of money squirrelled away in

the Treasury. In her final days as prime

minister, Theresa May tried to get all sorts

of costly projects past Mr Hammond. On

the campaign trail, Mr Johnson referred to

the war-chest as the source of funds for tax

cuts and extra spending. This is nonsense.

Mr Johnson’s promises—including a rise in

the points at which people pay national in-

surance and the higher rate of income tax,

and lots more cash for schools and the po-

lice—would instead lead to a permanent

rise in public borrowing.

Drawing on the theories of Art Laffer,

President Donald Trump’s favourite econo-

mist, both Mr Johnson and Mr Javid have

claimed that by geeing up the economy,

looser fiscal policy can pay for itself. “There

are plenty of taxes that you can cut which

will actually increase your revenues,” says

the new prime minister. Almost no econo-

mist would agree that this argument ap-

plies to what Mr Johnson has proposed, in

part because most of the benefits of the tax

cuts would accrue to richer folk, who are

more likely to save their windfalls.

The upshot is that under Mr Johnson’s

plans, the deficit might rise by £30bn. And

that is before any fiscal hit from a no-deal

Brexit. On July 18th the Office for Budget Re-

sponsibility, the fiscal watchdog, said that

even assuming a relatively benign version

of no-deal, public borrowing would rise by

£30bn. All in all, the budget deficit would

probably end up 3% of gdphigher.

This is all the more worrying given the

long-term pressures on the public fi-

nances. Britain will become a much older

country in the 2020s, straining the Nation-

al Health Service and social care, both of

which are already underfunded. In the long

run, spending cannot go up as taxes are cut.

At some point politicians will have to be

honest about that. 7

The Tories used to be a party of fiscal

discipline. No longer

Fiscal policy

The end of an era

Socialism in our time

Source: NatCen

Britain, support for different

approaches to taxation, %

2

0

20

40

60

80

1997 2000 05 10 16

Tax and

spend more

Northern

Rock

collapse

Austerity

budget

Reduce taxes

and spending

Keep current taxes

and spending

Almost a paragon

Source: IMF *Forecast

Government budget balance as % of GDP

1

-15

-10

-5

0

5

2005 10 15 20

**

Britain France

Germany

United States

“I

f you popdown and say I’m going to

steal some sheep, good luck to you. It’ll

be entertaining to watch,” says Robyn Ma-

son. “It’s not like ‘Shaun the Sheep’. You

have to have certain expertise in rural is-

sues before you rock up and steal a sheep.”

Mr Mason has plenty of expertise in ru-

ral issues. He is the son of a farmer. His son

is a farmer too. And he is the Dyfed-Powys

police superintendent in charge of rural

crime. Mr Mason was appointed last year

when the force—which covers the largest

land area in England and Wales—started its

rural crime team, with 11 officers, specialist

vehicles and a focus on building trust with

country folk. The very first such team was

set up next door, in North Wales, in 2013.

The latest force to establish a rural squad,

in January, was just to the south, in Gwent.

In the interim at least 30 of the 43 police

forces in England and Wales, as well as the

Scottish and Northern Irish services, have

started their own dedicated teams.

The surprising thing about this focus on

rural crime is not that it is happening but

that it took so long. About one in five

Britons lives in the countryside. More than

half the nation is farmland. And, although

rural crime is less common than the urban

kind, it is surprisingly hard to tackle—

sometimes for the same reasons that

CARMARTHEN AND RHUDDLAN

Police forces are at last paying

attention to crime in the countryside

Rural affairs

Easy pickings

Yeah, right