Let me ease you gently into a big and boring-sounding word for a small dishonesty that today corrupts the language of politics. Doubtless we shall be encountering it (though never by name) in Rachel Reeves’s looming Budget.
If you step away from levying the new taxes you must then cut the goodies they were to pay for
But we’ll start at my mother’s knee. I was five, and she was teaching me reading: an activity I viewed with displeasure. I did, however, like sugar-coated almonds – very much. So Mum undertook to give me one sugar-coated almond for every chapter I read aloud to her from my First Reading Book. It did not occur to me to quantify cost and reward or question the rate of exchange between one sugar-coated almond and one chapter read aloud, nor wonder whether I could quit my studies if we ran out of sweets. The transactionality of the deal, delivered from on high, came to me as a fact. Sweets had duties attached. Drudgery came with sugar.
In boyhood I was to encounter these exchanges frequently, especially when we little Parrises wanted something that cost money. If we were to have a holiday this summer, Daddy would have to delay the arrival of my first bicycle to pay for it. If we didn’t stop for a cream tea on our way back from the beach, Mum could afford to take us to the cinema to see The Wizard of Oz. There were funds for one or the other but not both.
And this goes with the grain of human nature. The linkage between the thing desired and the thing denied may be fanciful but there’s enough truth in the lie to give it an easily grasped plausibility. No pain, no gain.
In economics, or rather the politics of economics, it’s called hypothecation. If we don’t have the Manchester leg of HS2, we can afford to fix a lot of potholes and build bypasses for traffic-choked towns. If we pay an extra tax called national insurance, we can provide for the elderly in retirement. It’s a way of explaining things to people. The explanation is bogus – the case for extending HS2 stands or falls alone: it’s not an either/or with road-mending, and the two pots of money are most unlikely to balance on the financial scales; and NI has never neatly funded provision for the elderly. No such fund exists. But fatuity does not detract from a certain facile political attractiveness. A lie is still a lie, though. The Treasury hates hypothecation and always has. But politicians keep doing it to sweeten the pill. And this lot – our new government – have embraced the fiction with gusto.
No sugar rush, however, comes without cost. If you degrade the terms on which grown-up economic reasoning rests, the consequences will come back to bite you, and the children will sooner or later cry foul.
It has not taken long for the Chancellor to face the embarrassment arising from this juvenile sales technique. ‘Rachel Reeves backs down on pension tax raid,’ the Times reported last weekend. ‘The money Labour expected to raise has already been earmarked for 8,500 new mental health workers, legal aid for victims of disasters, and waiving visa costs for non-UK veterans serving in British forces.’
In another report (‘Labour poised for U-turn over tax plans for investment gains’), we learned that Reeves is ‘reassessing a key manifesto commitment’ to crack down on non-dom perks. The party had promised that the money saved ‘was earmarked for priorities including universal school breakfast clubs and extra hospital and dental appointments’. Most of this hypothecation (‘earmarked for’, ‘set aside for’) has its origins in Labour’s 2024 manifesto. The intention there was to demonstrate the party’s determination not to spend money it had not worked out how to raise – ‘prudence with a purpose’ as Gordon Brown used to put it. The problem with this kind of political marketing is obvious. Not only must you demonstrate that the sums add up (and, looking at the weird ragbag of new commitments to be paid for by the new taxes, it looks as though Reeves has at least tried to do this) but if you step away from levying the new taxes, you must then either cut the goodies they were to pay for, or else say which other taxes you will raise.
So if the government relents on its threat to raid pensions and investment gains, which concomitant sugared almonds are now to be junked? Have the extra hospital and dental appointments been withdrawn? Are the universal school breakfast clubs on ice? Will disaster victims be denied legal aid? Had recruitment started for the 8,500 new mental health workers, and must their intended patients go without therapy? Have foreigners serving in our armed forces yet been told they’ll have to pay for their visas after all?
Journalists more assiduous than me would do well to comb that manifesto, and the speeches made by opposition spokesmen before the election, and keep a list of the hypothecations, so that every time a commitment to raise a tax is watered down, we can learn the fate of the sugar coating that came with the pill.
Or else, of course, Reeves could just admit that it was all bunkum in the first place, and we were never supposed to take the hypothecations literally – but instead see them as random examples of the kind of nice things government would like to do if we would only give them the leeway to raise taxes to pay for the sweets.
The point about hypothecation is that the read-across is indeed entirely hypothetical. If the BBC must pay its way within the limits of what it can raise through the licence fee and its commercial activities, then fine. It works (sort of). But the fact that overseas aid is fairly unpopular, and that to fund it you’d struggle to match it with a tax which people approved of, should never undermine the case for overseas aid. Bad arguments have consequences. When the going gets rough, consequences surface.
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