Three Reasons To Stop Costing Manifestos

07/06/2017 16:56
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This Thursday, when Britain goes to the polls, many voters will have numbers on the brain. For the past four weeks, the electorate have been bombarded with a barrage of election coverage built to batter the average brain into a state somewhere between nausea and despair.

The costing of the manifestos is perhaps the most unrelenting of all the election traditions. Like the interminable bore who insists on only paying for his exact share of the restaurant bill, the media police party manifestos of all colours: crying foul for each and every 'uncosted' policy and giving praise where spending has been matched with tax - a sort of Tinder for fiscal rectitude.

This obsession with costing is a wasteful distraction from the most important issue of debate: what kind of government does Britain want to elect. More importantly, the costing commandment (no. 11, just after 'thou shalt not covet thy neighbour's wife') is potentially damaging to effective and fair government. Voters should instead choose their party based on the broad direction of travel: more taxes and more spending, or vice versa.

1. Costing is Bad Economics
The first response to any new manifesto commitment is always the most predictable: "Well, how are you going to pay for it?"

To the average Joe, running a government budget is rather like running a household one - if on a much larger scale. The government has an income - tax - and it has expenditures, covering health, education, military and much more. Households appear to operate in much the same way: income drawn from employment pay for rent, bills, food and more - it quite literally puts the bacon on the table. The logic is simple: for every penny spent, there must be a penny earned.

But governments are not really like households at all: they are different in type rather than size. Unlike the average household, governments can create money, by borrowing from the bond market. It is this which funds the NHS, public schools and the Royal Navy, not tax income. Sure, governments cannot borrow indefinitely - as the Greek crisis has shown - but in normal times they are able to do so with relative ease. In 1945, for example, British national debt stood at around 200% GDP (it is now 'only' 81%), but the Attlee government was still able to fund the construction of the welfare state.

In reality, each penny of new spending does not need an extra penny of tax. To insist that it does is to fundamentally misunderstand economics.

2. Costing Makes Bad Government
So what is the effect of pursuing bad economics? The answer, quite simply, is bad government.

Governments which only pursue policies fully costed in their manifestos are, in effect, tying their own hands. Ken Clarke - former Tory Chancellor - agrees. In good times and bad, governments need flexibility over how much they borrow, where they set the tax rate and how much they spend, in order to adapt to the changing economic climate. At the present, when growth appears to be stalling and Brexit looms on the horizon, it would be downright irresponsible to curtail the actions of the incoming government, whichever party might be leading it.

Who better to demonstrate the pitfalls of this than George Osborne, the costing champion. In 2010, Osborne made the commitment as Chancellor to reduce net government borrowing to zero over five years. In vain pursuit of this goal, he cut public spending too fast, prompting a double dip recession which was only overcome through increased spending, in 2011/12.

Flexibility saved the Cameron government; the costing mantra almost destroyed it.

3. Costing is Politically Biased
Costing is bad economics and can have potentially disastrous results for effective government. It is also deeply politically biased.

The notion that governments can only spend what they earn through tax precludes the use of borrowed or printed money to fund new services or investment, both staples of left-wing politics. Take Labour's proposal to nationalise the water industry. Critics have pointed out that the party has not accurately accounted for the cost of doing this and would have to borrow more to cover the costs.

They would, but that is not the point. Borrowing to pay for assets can be a valuable use of money, as anybody with a mortgage understands. Instead, the debate should focus on whether nationalised industries perform better, not whether their acquisition can be paid for out of the government's pocket. Left-wing parties need the opportunity to argue their case.

It is hardly surprising that costing is biased. The first manifesto of the modern era to make a headline promise to fully cost all policies was the Conservative manifesto in 2010. This was a clever political move, helping Cameron to establish the notion that government spending worked like a household budget, and so legitimising his planned cuts to the size of the state.

Since then, manifestos from all parties have followed the same logic, imprisoned by the terms of a debate they did not set. The blind following the blind. Parties should recognise this and, at the next election, follow Theresa May in not costing their manifestos at all.