Opinion Articles

Historians respond to the Budget 2010

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Glen O'Hara of Oxford Brookes University, puts the public debt in historical perspective

"During the budget debate, the Leader of the Opposition said that the £167 billion being borrowed by the government this year is 'more than every single Labour Government in history ever borrowed, added up together'. The key here, of course, is that he was not speaking in real terms; he was talking about the cash value.

"This is not the main yardstick by which debt should be measured. It is much more important to show the stock of debt in relation to the UK's total Gross National Product. In those terms, the debt stock will rise to late 1970s levels and above, but only if one takes the bank bail-out into account, and disregards the much more serious recession that Britain has just suffered in comparison to the stagnation of 1975-77.

"The debts borne by Labour governments in the inter-war period, and in the 1940s and 1960s, were also higher than those with which the financial crisis has saddled us now. Misleading statements by politicians - on all sides - are one reason why no one political party seems able to catch the public's 'mood' or 'intentions'."

See also How (not) to cut government spending and reduce public sector debt by Glen O'Hara

Ronen Palan of Birmingham University, evaluates the Budget announcement on tax havens


"In his budget statement, Alistair Darling announced, 'tax agreements like that already signed with Liechtenstein, which is expected to bring in around £1bn of extra revenue. .. I can also now tell the House that we are ready to sign tax information exchange agreements with three additional countries - Dominica, Grenada and Belize'. These measures, he declared, 'will bring in additional tax worth half a billion pounds each year'. Sounds impressive. Only it is not. It is another case not only of a politician being 'economical with the truth', but banking, excuse my pan, on impressing a less than informed audience.

"The Tax Information Exchange Agreements (TIEAs) that Darling said were signed with Dominica, Grenada and Belize are of a different order to the opening up of Liechtenstein 's banking system, which followed the sale in 2008 of a disc containing the names and detailed secret accounts of British citizens in the country's largest bank, LGT. First, these three countries are relatively insignificant tax havens. More importantly, TIEAs have proved to be almost wholly ineffective while the system of creating them is extremely cumbersome, time-consuming, and expensive. To operate an existing TIEA, a tax authority must first present the jurisdiction requesting information with evidence of fraud and tax evasion linked unambiguously to a person resident in their domain - precisely the kind of evidence that is difficult to obtain because of tax haven secrecy.

"Tax campaigners, such as the tax justice network, claim that only a system of automatic exchange of information, such as the one introduced by the EU, will have the necessary deterrence effect and at the same time provide the "smoking gun" evidence that the TIEA system needs. The TIEA agreement with the three jurisdictions is not going bring in anything like the figure of half a billion mentioned by Darling, which is either plucked of thin air, or must refer to something entirely different. The mention of Belize, therefore, is largely for party political purposes, to remind everyone of the tax situation of Conservative Party Deputy Chair Lord Ashcroft. But unless the British authorities think they have good reason to suspect that Ashcroft was involved in fraud or tax evasion, the TIEA agreement with Belize will have no impact on him."

See also The history of tax havens by Ronen Palan

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Hugh Pemberton and Noel Whiteside discuss public sector pensions

"In announcing further pensions reforms yesterday, the Chancellor made a throwaway commitment to 'implement reforms to ensure public pensions are affordable.' For a very long time a major problem has been developing with the cost of public sector pensions. In the 1960s and 1970s public sector pay restraint was sustained with reference to the privileged pensions public sector workers attained on retirement; the principle of deferred pay. Those who accepted that argument in their 20s and are now approaching retirement are going to feel somewhat cheated.

"The Treasury puts the cost of public sector pensions over the next 50 years at £770bn. However, the National Audit Office warned earlier this month that the assumptions underlying Treasury projections were optimistic - not least the assumption that the number of public sector employees will remain static even as the demand for public sector services rises as the population ages. Edward Leigh, chairman of the House of Commons public accounts committee, described the Treasury's assumptions as 'heroic'. In June 2009, Policy Exchange, the right-of-centre think-tank, estimated the cost of unfunded public sector pension obligations at £1.1 trillion, describing it as 'a second national debt'.

"The implementation of these pension measures (or not) will, like so many of Wednesday's announcements, depend on the election result. If Alistair Darling is truly proposing reforms that will actually address this, and Labour finds itself still in government after the election, then the government is heading for an almighty bust-up with public sector workers."

Please note: Views expressed are those of the author.

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