Back to Life, Back to Reality

Today is the 3rd Round of the FA Cup, which traditionally marks the end of the Christmas holidays. In fact, I was going to watch Bristol City versus Cardiff City which was due to be shown live for free on Welsh channel S4C. However, the pitch is frozen and it’s been postponed. So I’ll be taking down the Christmas decorations instead…

Now that it is no longer the season to be jolly, I’ve decided to return to the theme of doom and gloom that prevailed before Christmas. In particular, you may recall that just before Christmas, Lord Mandelson wrote to the Higher Education Funding Council for England (HEFCE) to announce a package of £135 million cuts for next year. It has now been confirmed – see the story in the Times Higher – that these cuts are on top of huge cuts arising from decisions announced in the pre-budget statement, earlier in December. Altogether these cuts will amount to over £900 million being taken from the Higher Education budget over the next three years, or about 12.5% of the total.

The reduction in budget amounts to a cut in the “unit of resource” paid by the government directly to universities, and with a review of tuition fees currently being carried out by Lord Browne, the likelihood is that students will have to pay much more in future to make up the difference if the sector is to survive at its current level. This would require lifting the cap on tuition fees, a decision on which will almost certainly be postponed until after the next General Election (due by summer 2010). The combination of immediate cash cuts and uncertainty about the future will cause widespread unease and apprehension throughout the university system, and I think it won’t be long before we start hearing of more closures.

We won’t know what the situation will be in Wales until the Welsh Assembly announces its allocations to HEFCW, the Welsh counterpart of HEFCE. I can’t say I’m optimistic, especially after reading their recent discussion document on the future of higher education in Wales. Things might work out rather better in Scotland, where the university sector seems to be valued more highly than elsewhere in the United Kingdom.

Physics will be hit particularly hard by these cuts. It’s an expensive subject to run, and attracts only modest numbers of students paying customers. Savage cuts in research grants and postgraduate funding from STFC will have sent a clear message to university administrators that this is a risky subject to be investing in, a point of view likely to be reinforced by the inexplicably poor showing of physics in the 2008 Research Assessment Exercise.  The outlook for physics and astronomy  looks even bleaker than for the rest of the university system, at least in England and Wales.

But my fears for the New Year are even wider than that. The deep cuts that have been imposed on Higher Education will save less than £1billion over the next three years. Compare that with the estimated budget deficit for 2009/10 of £178 billion and you’ll realise that it’s a drop in the ocean. The problem is that there’s an election coming up and the government is scared of trying to tackle the problem because of fears it will alienate voters. It has ring-fenced expenditure on politically sensitive things like schools and hospitals so the only things that it can cut are things that potential labour voters don’t care so much about, such as universities. And of course it realises that doing the sensible thing  and putting up income tax would be electoral suicide, although it is absolutely certain that whoever wins the next election will have to do it.

The biggest danger with the strategy of waiting until after the election before deciding to start tackling the debt crisis properly is that before long the international markets are going to realise that Britain is basically insolvent. It is true that the stock market has  recovered from its low point in March 2009, but only slowly and uneasily. The government seems to be assuming that  the markets will politely wait until Britain has gone to the polls before passing judgement on the longer term futue. However,  if sovereign debt rather than private debt becomes a major concern, I don’t think the UK economy will survive until the election without at least one major market correction, and off we’ll be into another, probably deeper, recession. It might not be the UK that sparks this off, but the levels of sovereign debt in Central and Eastern Europe could trigger a market panic that engulfs Britain too. The prospect of a hung parliament could easily give investors the jitters too.

There have been considerable increases in the level of government investment in UK universities over the last decade.  Admittedly, not all of it has been useful – much has been wasted in extra bureaucracy, pointless initiatives and ever-growing Human Resources departments – but at least years of neglect were being reversed.  Now the next few years offer the prospect of all the increases in funding being reversed. Higher education was one of the last sectors to benefit from extra government spending, and it is the first to have it taken away again.

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22 Responses to “Back to Life, Back to Reality”

  1. Anton Garrett Says:

    Not that I’m a great fan of church traditions that have no basis in the gospel story, but 12th Night is ‘officially’ the end of Christmas, and it certainly predates the FA Cup…
    Anton

  2. telescoper Says:

    Two flies are playing football in a saucer. One of them turns to the other and says “Cheer up, Charlie! We’re playing in the cup next week.”

  3. Mr Physicist Says:

    We are doomed…. doomed!

  4. […] This post was mentioned on Twitter by Stuart, Peter Coles. Peter Coles said: Back to Life, Back to Reality: http://wp.me/pko9D-1cE […]

  5. Peter- Of course (re: Soul II Soul)!

  6. Anton Garrett Says:

    The government doesn’t have to put income tax up. It could alternatively:

    1. Sack 2/3 of NHS administrators (since the ratio of administrators to doctors-and-nurses is four times higher there than in private hospitals)

    2. Enact legistlation requiring local authorities to sack all politically correct “equal opportunity” commissars, whose job is simply to cause trouble by looking for discrimination where it largely does not exist. There are now alarming numbers of these in town halls.

    3. Remove the inflation-proofing of civil service and local government employee pensions.

    4. Insist on the same age for pension entitlement for public and private employees, and for men and women.

    5. Enact a 10% pay cut for all public employees. (I have tightened my belt one notch because of the effect of the recession on my business; why should I tighten it another to pay higher taxes so that public employees don’t have to tighten their belts at all?)

    6. Quit the EU, to which we pay many billions annually for the privilege of being told what to do by people we do not elect.

    7. End all consideration of paying large sums of taxpayer money to the corrupt 3rd world dictators who turned up for a free lunch at the Copenhage climate conference. The problem, if there is one, is unquantifiable and the unindustrialised world has benefited hugely from the fruits of industrialisation.

    8. End all government aid to poor countries. It is government’s job to run this country, not to nationailse charity – of which the whole point is that it is a voluntary choice made out of compassion. This money should be returned to taxpayers, who can then be encouraged to donate to 3rd world charities themselves.

    Anton

  7. telescoper Says:

    Anton,

    I actually agree (at least to some extent) with some of your comments, but that’s outweighed by my opposition to some of the others!

    First, many public employees (such as nurses) are already on low wages so I couldn’t agree to cuts across the board. I’d support attempts to cut salaries of overpaid managers and bureaucrats across the public sector, but it would better just to make them redundant, and that goes not just for the NHS, but for entire quangos…

    As for pensions, I think you have to realise that public sector employees pay substantial amounts into the pension schemes in order to receive their retirement benefits (including the index link). They’ve entered into a contract with their employers, part of which is the pension. As long as their schemes are actuarially sound, therefore, Most workers should therefore keep the pension entitlements that they’ve been paying for, but I do admit that there are clear abuses at the top end with many civil servants retiring on grossly inflated pensions. For most people – including myself – the pension scheme is one of the few benefits of working in a sector where salaries are lower than comparable jobs in business or industry.

    In cany case, the funds involved have performed poorly in recent years and it’s clear that some fairly drastic changes will be coming soon, involving later retirement ages or higher contributions. That also goes for the University Superannuation Scheme (of which I am a member), which is one of the few final salary schemes to still be running.

    Finally, the purpose of development aid is not simply meant to be charitable. The idea is that, in the long run, international cooperation could pay dividends to the donor as well as the recipient. Whether it succeeds in any of its aims is, I admit, controversial.

    The overseas aid budget is very small compared to the budget deficit, so I can’t see that one helping much. It would be interesting to see how much the other suggestions would add up to.

    But anyway, I’d happily wager that whatever its political complexion, the next UK government will put up income tax and/or national insurance….

    Peter

  8. Is there a reason the next government should NOT increase income tax? Assuming, of course, that the increase does not disproportionately affect those who don’t have much anyway.

  9. Anton Garrett Says:

    Phillip: Tax falls hardest on the (working) poor. But I question your assumption that government need not explain itself in regard to tax policy. Also you might not be aware of the large and monotonic rise of government employment in UK relative to the rest of Europe. This is the non-productive sector of the economy and it doesn’t need to be frozen, it needs to be pruned. It has been expanding because State employees tend to vote Labour and we have had a Labour government for a long time. It’s called bribery.

    Anton

    • telescoper Says:

      The reason the government won’t increase taxation, at least until the election is over, is that it will lose votes.

      I agree that much of the increased public spending by labour has been wasted on extra levels of bureaucracy. All the apparently new funds going into vital public services have come with so many strings attached that they have resulted in new people being employed simply to administer them. However, this trend most definitely started with John Major’s conservative government, of which New Labour was simply a continuation.

      The civil service and NHS managers are the areas to target for cuts, but teachers, emergency service workers and others doing front line jobs in the public sector, far from being “unproductive”, are vital to our national wellbeing. Universities, I might add, directly generate billions for the UK economy over and above the money spent on them.

      Taxes in any case need not hit the working poor disproportionately, as long as the tax system is progressive and well policed. It’s the idle rich that I would have my eye on.

  10. Anton Garrett Says:

    Peter: As soon as you start trying to decide who should take more of the pain in the public sector, rather than implement a uniform salary cut, you get bloody disputes over whose job is more valuable to ‘the community.’ As for nurses being low-paid: probably so, but every one of the hundreds of businesses which are in danger of going under contains dozens of workers who are low-paid. Why should the (non-wealth-creating) public sector be featherbedded at the expense of the (wealth-creating) private sector? How can the latter be expected to recover whle bearing this extra load?

    I agree that pensions should reflect the contributions made. It is specifically the inflation-proofing of pensions which takes place in some areas of public service to which I am objecting. Inflation-proofing is *not* pre-funded by contributions.

    A good definition of overseas aid is “taking money from poor people in rich countries and giving it to rich people in poor countries”.

    Anton

  11. Where the tax falls the hardest is a political decision. One could, for example, say that income up to 100,000 per year is not taxed at all, and
    after that taxed with x%. You make it sound like a tautology that the tax burden falls the hardest on the working poor.

    I didn’t say that the government shouldn’t explain its decision to raise taxes; I merely asked whether there is any reason why they shouldn’t raise taxes. How exactly the increases are implemented and how they are justified are separate questions.

    Declaring government employees non-productive in a blanket statement is either wrong or sees productivity only in economic terms (wasn’t that what we were all criticising in the discussion on “impact” and budget cuts?). Yes, there might be some superfluous stuff, but let’s face it, the current economic crisis was brought on by the private sector, not by big government.

    There are also countries with a much higher proportion of civil servants than the UK, much higher taxes yet better societies in many respects, including financing blue-skies research. Big government = the root of all evil is, at best, too simple.

  12. “Why should the (non-wealth-creating) public sector be featherbedded at the expense of the (wealth-creating) private sector?”

    Because proper care for someone in hospital is more important than being able to buy a cheap widescreen LCD television.

    • telescoper Says:

      Show me the evidence that the banking sector is taking 10% pay cuts across the board. They should be first.

  13. Anton Garrett Says:

    Phillip: I have never known of a nation at any time or place where the tax burden was not hardest felt by the working poor – because they have least disposable income. You say “How exactly the [tax] increases are implemented and how they are justified are separate questions” and you use the word “how” rather than “whether,” which I think is the core of our difference. When government takes money from people in taxes it is empowering itself and disempowering its people, because the money gets spent on government’s priorities rather than those of the people. I respect your faith that politicians have the best interests of the people at heart rather than self-aggrandisement, but I do not share it.

    Please fill in the gaps in the logical train of argument in your answer of 10.09am to my question…

    Anton

  14. There are many countries in which the relatively poor pay no income tax. Yes, they pay sales tax, VAT, whatever it’s called, though again essential things like food and rent have no or reduced sales tax. In Germany, a family of 4 earning the average income pays no income tax. I’m sure Germany is not the only case.

    “How” rather than “whether” was because in the post I was assuming that taxes would be raised—because my question “why not” implies that and because Peter says they will be raised in any case. Also, “whether” is just a special case of “how”. 🙂

    If the government’s priorities are not those of the people, then there is a problem with the way the country functions. With the first-past-the-post system and lack of PR, that might very well be the case in the UK. If not, and the people elect a government and the government raises taxes, perhaps the government was elected BECAUSE it planned to raise taxes, then that’s fine and no amount of neo-liberal free-market-low-tax-solves-everything rhetoric can justify disregarding the decisions made by a democratically elected government.

    There are no gaps.

  15. Anton Garrett Says:

    Peter: I share your opinion of bankers, but they don’t decide how much of my money to take in taxes. If you are going to apportion blame for this recession, it is necessary to look at both supply and demand sides. Far too many people have been living beyond their means on cheap credit. Politicians loved the resulting bubble because it meant they could get more tax revenue. We are all guilty – except for those who prefer to save and spend their money responsibly, who will get shafted as usual.

    You said that: “teachers, emergency service workers and others doing front line jobs in the public sector, far from being “unproductive”, are vital to our national wellbeing.” I think we are using slightly different definitions of the word “productive” and I agree that we need the jobs doing that are done by those public sector workers; but Britain grew great when those jobs were not nationalised, and we have been in decline ever since…

    Also: “Universities, I might add, directly generate billions for the UK economy over and above the money spent on them.” Careful! If they “directly” generate it then there is an unassailable argument for stopping all government subsidy to universities. Overseas postgrads are an excellent source of revenue for unis but higher education can’t survive on that alone. Personally I think that undergrad fees should be charged in inverse proportion to how useful each course is to the nation. If you want to be a doctor at a time when there is a national shortage then you should have your fees fully paid by government. If you want to do Media Studies at some mediocre higher education establishment then you should have to pay all the course fees yourself.

    Anton

  16. “I share your opinion of bankers, but they don’t decide how much of my money to take in taxes.”.

    No, the bankers don’t decide, but the government decides what the tax rate is for capital gains, and what it is for wages.

  17. Anton Garrett Says:

    Phillip: You write as if democracy is perfect, whereas I think it’s just the least worst option in the context of Western Civ. (In Iraq the USA bumped into the contradiction of trying to impose democracy by force, and it hasn’t worked.) There is actually a great deal to be said for benevolent dictatorship, but it never happens because anybody who seizes power isn’t benevolent, power corrupts more acutely in a dictatorship, and there is a problem of succession. As for PR, in the UK we vote for a person not a party. I am going to vote for somebody at the next election whom I wouldn’t vote for on party lines, because he is the current MP and he did a lot more than he needed to when a friend of mine got into trouble. I want people like that in parliament. And I would like to weaken the party system, not strengthen it as PR does. I am open to suggestions how.

    Anton

  18. I agree that it is the least worst system—far from perfect.

    You pointed out some reasons why I am a monarchist. 🙂 No, not in the old anti-democratic sense, but in the case where the monarch is “only” a figurehead. I think there is something to be said for the fact that the formal head of state (as opposed to head of government) owes this position to no-one (and didn’t even choose it himself, though of course he can voluntarily opt out). (The UK is not a typical example; there, the monarchy is the tip of the aristocratic iceberg. Rather, I’m thinking of a country where there are the common people and the monarchy and nothing in-between. This is the case in most countries on the continent. (In some, various aristocratic titles might still be in use, but they are today essentially parts of the names of the people and imply, if anything, a slightly higher probability of being in the yellow press, something few would deem an advantage.))

    As for PR, the vast number of people don’t know their MP, and there is no way that a vast number could know their MP, for technical reasons, just like Santa Claus can’t pop down millions of chimneys on Christmas Eve. Personally, I think politics is about ideas and I want to vote for ideas; the MPs are a means to an end. The bigger problems I see with first-past-the-post is that districts can be arbitrary (e.g. gerrymandering) and skew the results and also the fact that even significant minorities might not receive any representation at all. Thus, one has the option of one’s vote not counting, or voting for the lesser of two evils rather than for the party whose ideas one agrees with most.

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