Five Tory ‘cuts’ that will actually cost us money
contribution by Jon Stone
Back in October I outlined five irregularities that support the idea that the Tories’ cuts are ideologically motivated, rather than a necessity.
But a lot of these ideological changes that are being packaged as ‘necessary cuts’ are actually going to cost the country money, or not save anything at all. Here are five of the most high profile ones.
1. Raising tuition fees
Raising tuition fees is actually incredibly expensive. Does this sound counter-intuitive? Yes. But it’s true – because students don’t pay their fees upfront, but rather take out a loan, every pound that a student “pays” in fees has to be actually paid upfront. This is why teaching funding was cut by 80% – they wouldn’t have been able to afford to raise fees otherwise.
Now, in the long run this money might eventually get paid back (emphasis on might since plenty of people who took out loans on £1000 fees in 1999 still haven’t paid them back), but it certainly won’t be paid back within five years, which is the time the government is supposed to be trying to close the deficit in. This one is pure ideology.
2. Selling off the forests
Plans to sell of the nation’s forests to private companies are create a bizarre “market in forests” have been angrily criticised by practically everyone over the past few weeks.
But one fact that has barely been mentioned is that the government’s own impact assessment estimated the privatisation would actually cost us money, because much of the woodland was “unsellable at a political and practical level”. It would therefore have to be auctioned off at under market price.
3. Scrapping the EMA
The government has sold scrapping EMA as a way to save money, saying that money was being “wasted” on “deadweight costs” – but research by the Institute for Fiscal Studies (IFS) said that the initial costs of the EMA would “be more than recouped by the increase in productivity that we expect to result from the 16- and 17-year-olds staying on in education for longer”.
It also costs far less to pay someone EMA and keep them in school than it does to give them JSA and housing benefit. This was a policy that was paying its way in the economy, but it was scrapped.
4. Cutting child benefit for higher rate taxpayers
One nice thing about universal benefits is that they are relatively simple to administer – there are fewer caveats about who gets what and no messy enforcement systems. So, the government’s own analysis says that stripping child benefit from some families would force the government to set up a £370m a year enforcement system.
The cut may still save some money overall – the government had estimated a saving of £1bn before these costs. But the cut is so inefficiently placed that well over a third of that money out will have to be spent on ensuring that they are not spending money on child benefit. If the government’s projections are wrong it may not even save money at all. Raising the income tax threshold and keeping the benefit would have a similar but fairer effect, and not cost as much.
5. Shutting down those ‘quangos’, including the UK Film Council
An assessment of the government’s “Bonfire of the Quangos” by the Commons public administration committee said that the shutting down of the 29 non-government bodies scrapped by the government, including the Audit Commission, the eight Regional Development Agencies and the UK Film Council was done in such a hamfisted way that it didn’t actually save any money.
The committee further concluded that “There was no meaningful consultation, the tests the review used were not clearly defined and the Cabinet Office failed to establish a proper procedure.” Oh, and ministers had “failed to recognise the realities of the modern world.” Classy stuff.
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Jon Stone blogs here and tweets from here.
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Reader comments
If I spend money now to achieve a future benefit, is my action wise? Immediately you cry that I haven’t given you enough information… and indeed I haven’t, because I haven’t told you what discount rate I’m using. Governments traditionally used 5%, but there’s lots of evidence (which hopefully someone else has a link to 
) that private individuals use a much higher one than that. (Thought experiment: you’re going on holiday next week, which you expect to cost £1000 all in. Will you put it off for a year if I bung you £50? …thought not.)
This is why the cuts haven’t cost the coalition as much support as some people here might have expected. Think of all those young, fit Americans who haven’t bought any form of health insurance.
The government doesn’t mean what it says about the consequences of anything in its programme. It just has to say something vaguely acceptable to the supporters of two distinct political parties. The classic case is the argument that the private sector will create jobs to replace those removed from the public and voluntary sectors. Perhaps it will, but why any of them should be in this country, or indeed in any other country Brits have a right to enter and work in, I have simply no idea.
I wish someone could persuade their MP to write to the Treasury to ask if any estimate of the location of these new jobs has been made (if Osborne has any sense he will have forbidden his officials to do any such thing) – I would do so myself, but my Labour MP doesn’t answer my e-mails.
Now I am getting confused:
You have been against the cuts (which I think are no cuts at all: http://andreasmoser.wordpress.com/2010/11/15/uk-budget-what-cuts/) and now you aregue that the cuts don’t save anything, meaning that they don’t withdraw funds from the economy. So I assume you are not against them any longer?
Same with tuition fees:
You have argued against the rise of the cap (which is not necessarily a rise in fees), but now agree that most students might actually never have to pay these fees. Well, then surely these fees are not prohibitive?
“This is why teaching funding was cut by 80% – they wouldn’t have been able to afford to raise fees otherwise.”
Not quite. It is an ideological decision, but not the one you imply. At the moment, HEFCE sets a quota of UK-origin undergraduates for each university. Universities then receive central funding for the number of students they are supposed to have (and fines if they go too much above or below that number). Additionally a smaller amount of funding is received per-student directly as “tuition fees”.
The ideological decision – made by Browne, and agreed with by the coalition – is that HEFCE should not be centrally setting UK-origin undergraduate numbers. (For that matter, NUS agrees on this point, having heavily criticised the capping of student numbers in recent years) Instead, the situation should be like international undergraduates and all postgraduates, where universities take as many students as they can attract and want to admit. (Extremely controversial and scarily unpredictable, but not the part of the legislation that got the most attention)
That means that the funding, rather than being given as a block, has to follow the students around. So, no block teaching grant. (Except for the STEM lab-based supplement, which is somehow remaining as a block. I’m not sure how that’s supposed to work) Since all the money is following the student, it’s simpler to treat it all as tuition fee.
So, yes, it’ll be a Tory-led expansion of HE funding (though, in part due to the compromises the Lib Dems managed to get, a much smaller expansion than that proposed by Browne)
Now, in the long run this money might eventually get paid back
…but by then, it won’t be the government’s problem. The government periodically packages up student loan debt and sells it to private investors, and they take the loss if there’s no repayment. This accounting trick actually works in the government’s favour as far as the deficit is concerned, compared with openly paying for HE out of general taxation and/or a graduate tax.
(In fact, I think being able to do this accounting trick is the sole reason that the student loans are described as student loans rather than as a politically more palatable graduate tax.)
Mike/1: Send an FOI request into the Treasury directly. You might not get the actual research, but you should be able to tell from the reply if it exists or not. (My MP always replies to correspondence, but for information requests – as opposed to “please oppose/support this” – it’s usually still quicker to pester the government department myself, especially if their initial reply brings up follow-up questions)
#6 Legal aid cuts will lead to greater legal costs being paid out
http://d-notice.blogspot.com/2010/11/legal-aid-cuts-will-lead-to-greater.html
cim – calling the HEFCE block grant a “block grant” (I know everyone does it, including HEFCE) is a little bit misleading, or at least contrasting it with a system where the money follows the student around is.
They money already follows the student because the HEFCE grant is on a per student basis, as you recognise. Tuition fees are also on a per student basis, the change is that the money is being paid by students rather than coming from the government. But it’s always been following the students. “Block grant” sort of conjures up the image of a lump sum of money that isn’t responsive to the number of students at an institution.
Also, worthwhile points about student cap abolition and repackaging of debt.
Jon/5: But it’s always been following the students.
That’s only true if the university recruits the number of UK-origin undergraduate students that HEFCE expects, plus or minus a very narrow tolerance.
Go outside that by overrecruiting, and there’s a harsh fine (aka “claw-back”) for doing so, which means that in effect not only are the students over the tolerance band not funded (the funding hasn’t followed them) but some of the funding that would be given for the other students is taken away as well. (I’m not sure if there’s a similar claw-back for underrecruiting, or whether you just lose the money for the students you don’t have, but it doesn’t tend to happen much anyway)
The claw-back has to be there or HEFCE can’t meaningfully set student numbers. But because HEFCE can do that, the money isn’t really following the individual students – it’s following the expected student numbers (which are very close to the real student numbers because university admissions staff everywhere fear the claw-back).
Er, if they’re actually not saving money, then they’re not cuts are they? It would make them ‘spending’ and therefore ‘borrowing for fiscal stimulus’ and therefore unquestionably good however well or badly the economy is doing, and however big the deficit is. Have I missed something here?
“Er, if they’re actually not saving money, then they’re not cuts are they? ”
Yes, you have missed something. Cuts mean spending less (or none) on service X. If by doing this you have an increased spend on service Y (be they admin costs, increased welfare costs, increased costs of courts or prisons etc) then this doesn’t deflect from the fact you still made cuts to service X. It just means the cuts to X were pointless and counter-productive.
@6
You are right, but that’s really the system as its currently constituted working as its supposed it – the HEFCE student cap isn’t an accident, it’s a recognition of the fact that there is only so much money allocated to the higher education teaching budget, for better or for worse.
@8 you are in danger of bringing value for money into the picture. I would welcome that, but the uncut brigade would not. Purely on the spending, the accusation is that these policies represent spending increases and are therefore bad. It is a fairly hard line to take on public spending.
Purely on the spending, the accusation is that these policies represent spending increases and are therefore bad. It is a fairly hard line to take on public spending.
No, the argument is that because these measures don’t save any money – the reasoning behind the implementation is fatuous. There is no consistency in govt priorities.
And Joe, are you for increasing govt spending now?
I’m afraid there is at least one obvious flaw in the original post, which is that it is very selective in the way it judges what is a successful cut or not. Apparently tuition fees are not a successful cut because they require a huge outlay now which may or may not be recouped later. However, cutting EMAs saves money now but may cost money in the future. So basically either saving money now and spending later or spending now and saving later is costing us money. Not consistent is it?
Oh, and apparently forestry privitisation would be unsuccesful because the forestry would have to be auctioned at under market value. Do you know what market value would mean in the context of an auction? Clue – it’s the bloody price that someone is prepared to pay for it. If land is not worth what someone will pay for it, it is not at market value is it? So something is costing us money if it is sold at a value arbitarily decided to be market value (rather than actual market value). Still, as your source story only concerns the Heritage woodlands and not the whole forestry portfolio, it is hardly that reliable.
And apparently saving £630 million (child benefit) is a cut that will cost us money – I never knew that saving money was a cost. You may be right about raising the income tax threshold but I can’t see that saving money myself – since less tax will be paid (unless you believe cutting taxes increases the tax yield – which is quite likely).
So basically, your criteria for a successful cut seem to be that it has to save money now and in the future, be above market rate and also not actually simply save money. This is basically a poorly-referenced political puff piece with no logic or argument. I am sure you could put together a case these cuts are not working (and of course they are ideological – but is ideology a bad thing?), but it should be done in a way that takes me longer than ten minutes to figure out is badly flawed and weak.
Re the Child Benefit cut:
“Raising the income tax threshold and keeping the benefit would have a similar but fairer effect, and not cost as much.”
I don’t follow this (and the article you link to talks about raising basic rate income tax, not raising the income tax threshold). Raising the income tax threshold is a way of cutting taxes, not a way of cutting spending (or increasing tax revenue).
Do you mean *lowering* the tax threshold (for higher rate tax, maybe)? I can see how that would have a ‘similar but fairer’ effect to cutting CB for higher-rate taxpayers – i.e. it would still hit better-off people, but the pain would be spread around rather than being focused exclusively on those with children.
Sunny@11, the government can speak for itself on its reasoning and consistency. My impression was that the left had a bigger objection to the government than reasoning and consistency – that it was not borrowing and spending enough (also not taxing and spending enough – although this is not said so much as it is taxing and spending more than the last government did).
So when the government is attacked by lefty conspiracy for spending too much in 5 areas it seems reasonable to ask what the consistent reasoning behind this attack is.
13. G.O. – Thanks for pointing that out, you are absolutely right, that is a mistake in the article. Wasn’t my intention to endorse a tax threshold rise but rather a drop in the point it kicks in.
Lab did this when they privatised local govt – the company taking over ours is bleeding cash at great speed but we are assured it will save us money in the long run.
Since long term spending plans are so rarely implemented and justified because of the short termism of politics it rightly fills everyone with a deep suspicion.
Cam quoted some figures in a recent PMQs saying he would save a sum only just higher than what he was spending (on the NHS I think). It’s a lot of trouble to go to just to save a small sum. In the grand scheme of things it is a tiny drop in the ocean.
That’s how I feel about the cuts in general – it’s so much trouble to go to the costs probably outweigh the savings…
All decisions in politics are swayed by ideologically anyway. What’s new? We all know the Tories don’t want poor people at uni. It won’t be the cost putting them off. It will be the threat of debt which poor young people are taught to stay away from.
@Watchman – it’s not about “successful cuts” – I don’t imagine there is such a thing – it’s about outlining the various problems with specific cuts. You rightly haven’t denied that any of these individual problems are not an issue.
Really, the fact that your hypothetical ‘successful cut’ is something that cannot exist (because of all the various different problems listed in both the long and short term) is testament to the point that cutting services is an insanely problematic solution to closing the deficit and that an alternative is preferable.
I’d like to add the little publicised cut in university degree funding. Not enough people know that the huge difference in university fees for home students and those from overseas is actually because the Government pay a sizeable chunk of the fees for home students. That chunk used to be 60% but has just been cut to 40%.
It must have sounded great on paper: change one number and reduce by a third what the tax payer gives to put poor people through uni. Except universities aren’t stupid: the number they give for the ultimate cost of a course is decided by themselves and it is alway possible to justify increasing it. I’ve noticed the stated fees for a number of course seem to have jumped for the 2011 intake by, oddly, just the right amount to offset what the Governments cuts have cost them, plus a bit.
What a stupid policy.
Joe: Sunny@11, the government can speak for itself on its reasoning and consistency. My impression was that the left had a bigger objection to the government than reasoning and consistency – that it was not borrowing and spending enough
Well, firstly the article is aimed at the government’s own hypocrisy. You’re trying to skate over it because you know it’s clear as day.
Second, lefties would like the deep cuts to stop, but its also about priorities. These measures might end up with the govt spending more, but they will also wreck people’s futures, our national heritage and close important organisations like the Audit commission. I thought that bit was obvious. Why would anyoen in their right minds want govt to spend more just so they could hike up tuition fees?
Sunny it’s only hypocrisy if the government knows that its policies won’t work as intended, but is doing them anyway. That’s pretty lazy knee-jerk opposition. It’s playing the man instead of the ball.
Yes you are right that extra spending doesn’t always work. I’m not interested in defending all those policies, but I would be interested in a reasoned debate about them, not this caricature of the policies followed up by ad hominem.
It’s not just lefties that wish there was more money to spend. Shall I wish harder, upon a star, and see what happens?
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RT @akicif Ideological 'cuts' that cost more than not making them: http://t.co/BcGaYMI via @libcon – & these are only the start… #ToryFail
- Yonmei
#saveourforests #saveEMA #savechildbenefit #saveBFC #tuitionfees All "cuts" imposed at higher expense than keeping them http://t.co/BcGaYMI
- Nick H.
RT @sunny_hundal: Incase you missed it earlier: 'Five Tory ‘cuts’ that will actually cost us money' http://bit.ly/hXh7M2 by @the_red_rock
- Stephen Newton
RT @sunny_hundal: Incase you missed it earlier: 'Five Tory ‘cuts’ that will actually cost us money' http://bit.ly/hXh7M2 by @the_red_rock
- Andy Bean
RT @sunny_hundal: Incase you missed it earlier: 'Five Tory ‘cuts’ that will actually cost us money' http://bit.ly/hXh7M2 by @the_red_rock
- David Lane
RT @libcon: Five Tory ‘cuts’ that will actually cost us money http://bit.ly/hXh7M2
- Kate
RT @sunny_hundal: Incase you missed it earlier: 'Five Tory ‘cuts’ that will actually cost us money' http://bit.ly/hXh7M2 by @the_red_rock
- Andy Lewis
RT @sunny_hundal: Incase you missed it earlier: 'Five Tory ‘cuts’ that will actually cost us money' http://bit.ly/hXh7M2 by @the_red_rock
- Lindsey J
RT @sunny_hundal: Incase you missed it earlier: 'Five Tory ‘cuts’ that will actually cost us money' http://bit.ly/hXh7M2 by @the_red_rock
- Stephen Newton
Five Tory ‘cuts’ that will actually cost us money http://bit.ly/gaJcn5
- Rachel F
RT @stephennewton: Five Tory ‘cuts’ that will actually cost us money http://bit.ly/gaJcn5
- timjmann
RT @sunny_hundal: Incase you missed it earlier: 'Five Tory ‘cuts’ that will actually cost us money' http://bit.ly/hXh7M2 by @the_red_rock
- weldon kennedy
5 Tory ‘cuts’ that will actually cost us money: http://me.lt/7ga4
- danjdevine
RT this, very interesting: http://tinyurl.com/6gbx3t7 < "Five tory cuts that will actually cost us money".
- Mel Williams
Five Tory ‘cuts’ that will actually cost us money | Liberal Conspiracy http://t.co/CqNgZf5 via @libcon
- Sean
any1 who thinks tories r cutting due 2 debt r fools http://liberalconspiracy.org/2011/02/07/five-tory-cuts-that-will-actually-cost-us-money/
- Press Not Sorry
RT @sunny_hundal: Incase you missed it earlier: 'Five Tory ‘cuts’ that will actually cost us money' http://bit.ly/hXh7M2 by @the_red_rock
- Alan Jones
RT @sunny_hundal: Incase you missed it earlier: 'Five Tory ‘cuts’ that will actually cost us money' http://bit.ly/hXh7M2 by @the_red_rock
- Brummie Protestor
RT @latentexistence: RT @libcon: Five Tory ‘cuts’ that will actually cost us money http://bit.ly/hXh7M2
- Tørris Rasmussen
further evidence that the tories don't seem to focus on cutting the deficit, ideology is more important than the costs http://bit.ly/dR8xJT
- Ian Rathbone
http://liberalconspiracy.org/2011/02/07/five-tory-cuts-that-will-actually-cost-us-money/ The Tories’ cuts are… http://fb.me/USd422jB
- Tom Parker
RT @libcon: Five Tory ‘cuts’ that will actually cost us money http://bit.ly/hXh7M2
- Keith Martin
RT @psimonk: Five Tory ‘cuts’ that will actually cost us money http://bit.ly/hXh7M2 (RT @adjectivemarcus @libcon)
- Ben
RT @libcon: Five Tory ‘cuts’ that will actually cost us money http://bit.ly/hXh7M2
- Juggzy Malone
RT @libcon: Five Tory ‘cuts’ that will actually cost us money http://bit.ly/hXh7M2
- iain fleming
RT @libcon: Five Tory ‘cuts’ that will actually cost us money http://bit.ly/hXh7M2
- Levin Wheller
RT @sunny_hundal: Incase you missed it earlier: 'Five Tory ‘cuts’ that will actually cost us money' http://bit.ly/hXh7M2 by @the_red_rock
- Ian Blades
Five Tory ‘cuts’ that will actually cost us money | Liberal Conspiracy http://t.co/Jf9hw7R via @libcon
- shona mcculloch
RT @libcon: Five Tory ‘cuts’ that will actually cost us money http://bit.ly/hXh7M2
- jimmcvicar
RT @shona_mcculloch: RT @libcon: Five Tory ‘cuts’ that will actually cost us money http://bit.ly/hXh7M2
- Ben Humphry
Five Tory ‘cuts’ that will actually cost us money | Liberal Conspiracy http://t.co/On1RHQk via @libcon
- Aman Anand
Brilliant article on how 5 Tory cuts will actually cost money, showing the 'deficit reduction' is purely ideological: http://bit.ly/fzYUkP
- Kathryn Rose
Five Tory ‘cuts’ that will actually cost us money | Liberal Conspiracy http://t.co/GhQL6ch via @libcon
- Save EMA
RT @MistressMarlowe: RT @libcon Five Tory ‘cuts’ that will actually cost us money http://bit.ly/hXh7M2 @saveEMA #tuitionfees #forests
- Robert Ronsson
RT @MistressMarlowe: RT @libcon Five Tory ‘cuts’ that will actually cost us money http://bit.ly/hXh7M2 @saveEMA #tuitionfees #forests
- Sooper8
The shit these Tories spout- 5 cost cutting measures that are anything but http://bit.ly/hXh7M2
- downinjamaica
RT @libcon: Five Tory ‘cuts’ that will actually cost us money http://bit.ly/hXh7M2
- Chris Boyle
RT @libcon: Five Tory ‘cuts’ that will actually cost us money http://bit.ly/hXh7M2
- Daniel Pitt
RT @libcon: Five Tory ‘cuts’ that will actually cost us money http://bit.ly/hXh7M2
- Cameron promotes ‘muscular liberalism’, the big society teeters on the brink and Project Merlin conjures up a trick for the banks | British Politics and Policy at LSE
[...] Conspiracy offer up five Tory ‘cuts’ that will in the long run make no saving or cause us a greater cost, including scrapping EMA and the selling off of [...]
- Andy Diggle
RT @EddieRobson: RT @exitthelemming: Oops. RT @libcon Five Tory ‘cuts’ that will actually cost us money http://bit.ly/hXh7M2
- Al Ewing
RT @EddieRobson: RT @exitthelemming: Oops. RT @libcon Five Tory ‘cuts’ that will actually cost us money http://bit.ly/hXh7M2
- NORMAN HERRINGTON
RT @EddieRobson: RT @exitthelemming: Oops. RT @libcon Five Tory ‘cuts’ that will actually cost us money http://bit.ly/hXh7M2
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