Follow the Money: the Unholy Trinity that Could Spell May’s Downfall

Given the proclivity of politicians and the appetite of the media, one would have thought it was sexual scandal that brought down British governments. But in fact is it is abuse and misuse of people’s money that tends to do for them in the end.

While Gordon Brown’s administration could have survived the global financial crisis, it was the accusation that he had added a trillion pounds to debt to bail out the banks that condemned his government.

It was the iniquitous poll tax that brought Britons out on the streets with clubs and petrol bombs that ultimately ended Margaret Thatcher’s 11-year reign, and going back to the 1970s it was the opposition to Denis Healey’s “squeaking pips” — a top rate of tax of 83 per cent, and a rate on unearned income of 98 per cent — that turned the people against Labour (although the coup de grâce came from the Winter of Discontent, of course).

Fast forward to today and there is a triptych of taxes — or things that look like taxes — that may come to haunt the already weakened May government: council funding, the private finance initiative, and student tuition fees.

All are highly distinct and complex issues with arguments over them raging on all sides but what they have in common is a perceived failure to fund key public services in a sustainable and equitable way.

The issue of council tax is especially peculiar as the issue is that taxpayers are asking to pay more. Westminster City Council, which has been known for decades for its reputation for charging one of the lowest taxes in the country, is asking its wealthiest residents to pay double their usual amount of council tax.

While the council intends to freeze regular council tax in 2018-19, its social care precept is set to rise by 2%.

A survey of 904 residents found that more than half (55%) of those with properties worth more than £10m backed the proposal, while a similar share (52%) of properties worth £5m-£10m agreed. Based on the responses, the proposals could raise an additional £350,000 a year.

This follows the move by Surrey County Council to impose a 15% hike in council tax that led to a referendum over the move that it said was in response to government cuts of £170m and an increased demand for social care. However, a month later the plan was scrapped and a 5% rise agreed.

Thanks to texts sent by council leader David Hidge to the wrong person but apparently meant for a civil servant in the Department for Communities and Local Government and which were read out in the House of Commons by Jeremy Corbyn, it seemed that Whitehall intervened. These stories send a strong message that even the two most Conservative councils in the country have realised that there is not enough tax revenue to fund social care.

both the main parties have stains on their hands

The row over tuition fees focuses on an earlier stage in life — the post-18 school leaver. The imposition of university tuition fees at £1,000 in 1998 caused problems for Labour whose members felt this was hitting poorer families but it got away with a hike to £3,000 in 2003.

However it was the increase to £9,000 a year by the Conservative-Liberal Democrat coalition that claimed its victim as students expressed their fury at Lib Dem leader Nick Clegg for breaking a pledge not to raise the fees and ultimately ousting him from his Sheffield Hallam seat in 2017.

The decision by then Chancellor George Osborne in 2015 to peg fees to inflation from the 2017-18 academic year onwards and scrap maintenance grants opened the door to Corbyn’s pledge to abolish the fees.

Theresa May has announced a year-long review but that is unlikely to assuage the concerns of parents and students from all backgrounds that loading people in the early 20s with £50,000+ of debt that will hang over their heads for decades to come and which may in many cases never be repaid is utterly misguided. Whatever the outcome of the review it seems unlikely that tuition fees will survive the next election.

The last in the trio is the private finance initiative (PFI) or the public private partnership (PPP). Again, both the main parties have stains on their hands over this — it was introduced by Conservative Chancellor Norman Lamont, expanded by his Labour successor Gordon Brown and reformed by Osborne under the Coalition.

The train came off the tracks  earlier this year when Carillion, one of the largest PFI and PPP private sector partners, collapsed into bankruptcy leaving thousands of workers without a job and many more suppliers facing financial ruin.

The failure exposed not just the weaknesses of one of the private companies working on the governments behalf but reminded people of the bizarre accounting trickery that lay behind these projects.

Rather than borrow money at the cheapest lending rates seen for generations, governments decided to saddle future taxpayers with payments for one-off projects for decades to come. According to the National Audit Office, the cost of privately financing public projects can be 40% higher than relying solely upon government money. Taxpayers will be forced to hand over nearly £200bn to contractors under private finance deals for at least 25 years.

Both the main parties have been complicit in all three of these but now the music has stopped it is the May government that is without a chair. And it may be that while pundits condemn this government for its mishandling of Brexit negotiation, voters as they go to the polls in 2022 condemn them for the unholy, and costly, trinity of council tax, tuition fees, and PFI.

More about the author

About the author

Phil has run Clarity Economics, a London-based consultancy, since 2007 and, before that, was Economics Correspondent at The Independent.

Phil won feature writer of the year Work Foundation Work World media awards in 2009, and was commended by the Royal Statistical Society in 2007.

He is the author of Brilliant Economics and The Great Economists.

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