Never mind Kwasinomics – we’re all socialists now

ORDINARILY, this column appears on the last Thursday of the month. My usual format is to pick upon some international economics issue and put a sustainability bent on it, and while doing so fashion some local angle for domestic consumption.

But just two weeks since I declared myself a self-styled Kwasi Kwartang groupie, events have moved me to, figuratively, put pen to paper once more. And I’m not referring to the award of the Nobel prize for economics to Ben Bernanke, Doug Diamond and Philip Dybvig this week either. Nor Andrew Bailey’s incredibly inept comments in Washington on Tuesday night.

‘For too long in this country, we have indulged in a fight over redistribution. Now we need to focus on growth, not just on how we tax and spend.’

I still get myself into quite a lather reading this standout quote from Kwasi’s mini-budget statement. Despite the events of the last two weeks, I’m still strongly of the view there is a clear sign of determination to break with the consensus nonsensonomics of the last 15 years.

But the consensus fought back hard. The IMF, Mark Carney, even Michael Gove, all weighed in on the rashness of Kwasi’s plans.

And it hasn’t been long before the fight over redistribution of other people’s money has restarted in earnest. Jacob Rees-Mogg, UK Business Secretary and doyen of the Labour Left apparently, reportedly put the final nail in the coffin of the attempt to reduce benefits expenditure, with the comment that uprating benefit payments to reflect rising prices (as opposed to wages) ‘is the only political reality amid a cost-of-living crisis’.

It looks like there might just be two Tories left in the Tory Party. Seems we’re all socialists now.

It’s clearly not just that nice man Peter Roffey who considers it to be OK for workers’ pay to be hit by inflation but not claimants’ benefits. It was very decent of Deputy Roffey to propose a 7% across-the-board increase in benefits so soon after the 5% hike that he’s just overseen.

Shame for the workers who foot the bill with their taxes and social security contributions that they’re not going to get an immediate 12% pay increase to help pay for it all.

And good on him for proposing to remove that Dickensian benefits cap. The cap that is causing some to have to ‘choose between food and clothes’. The cap that’s already been lifted to £980 a week – an amount that’s equivalent to a gross salary of £75,000. That’s just shy of double average earnings. It seems like worrying about how to pay for everything is very old hat.

For more evidence of socialist tendencies, the full States 2023 budget has been published amid more warnings from our most senior politicians that ‘something must be done’. That ‘something’ clearly not including getting a grip on States expenditure. All these spending increases are all presented rather as a fait accompli. One gets a sense of the towel having been thrown in. There’s nothing to be done about rising spending, it seems. It’s all just inevitable. All very King Canute.

What most frustrates is this continued pretence that somehow we are a low spending jurisdiction. This Monday, I felt moved to apologise to Deputy Trott at the GPEG lunch. As a quick aside, Andrew Hunt gave a very, very interesting presentation at the GPEG lunch on Monday. Another lunch of nourishing brain fodder. Many thanks. But back to the apology. I said I was sorry I ever introduced the States to the notion of measuring public spending as a proportion of GDP in the fiscal framework. The variable is prone to manipulation, especially when you can change how you count the numerator and denominator without effective scrutiny. It’s been used for several years now by the States to sanitise the presentation of prolificacy.

Because of the apparent low public spending as proportion of GDP (comparing relative to other jurisdictions usually does the trick of misdirection), deputies are able to cling to the pretence that we’re a low spending jurisdiction. For those clinging to that delusion, this next bit is going to hurt. We’re not. Revenue expenditure on services and social security per head was the same in Guernsey as the south-east region of England in 2021 (the comparison does not include UK debt interest payments by the way). And our spending for 2023 is forecast to be £1,000 per head higher than even this. The States continues to delude itself at our peril.

I’ve said it many times now, but I’ll say it again. The fiscal framework has been through the ringer a couple of times since I left the States and bears only a superficial resemblance to its original format. It is used constantly to help obfuscate the fact that our spending has increased way more than is readily acknowledged.

This isn’t some ego trip about having a piece of professional work butchered and ruined. It’s a genuine concern about our tax base and economy. This tax and spending habit is making us poorer and less internationally competitive. This notion of ‘headroom’ for increased spending, a States phrase that continually find its way into reports, is misleading. It implies there’s plenty of space for more spending. There’s not. Next year’s budget expenditure comes in at £573m. When I arrived in 2008 it was £297m. I’m afraid that’s not just an inflationary uplift. It’s a third higher in real terms. That’s equivalent to an £2,500 extra spending in today’s terms per man, woman and child.

So let me come off the fence. Our spending growth is out of control. I know politicians keep suggesting there’s huge demand for increased services. Not from me there’s not. Not from a lot of the population, I’d even wager most. I never would have imagined it possible when I came here in 2008, but we have a serious client state problem in Guernsey, and it’s one being promulgated by most of our deputies.

We used to have a fiscal policy panel. It was modelled on the principle of the UK’s Office of Budget Responsibility. The one that Kwasi refused to have check his numbers before his mini budget the other week. Oops. Last time I wrote about this topic, I only slightly tongue in cheek offered my services to provide independent public scrutiny of States fiscal policy in the same manner. No calls. Imagine my surprise. I wouldn’t want me looking over my shoulder in an official capacity either.

Balancing the books long term is going to need several coordinated moves. Reforming corporate tax and yes, likely introducing GST are going to be required moves in my view (I’m winning few friends, I know), but increasing population and growth, and most importantly cutting spending must be part of the mix.

Right now, I just can’t see how the States is going to manage to develop, let alone deliver, the required package.

Horace beat me to the ‘last person to leave switch off the lights’ jibe last week. But frankly, the way we’re going I’d be surprised if we can afford to keep them on. Only kidding, but this is what a rich man’s death feels like. The States is sleepwalking its way there.