Like student protests today’s strikes boil down to ‘who pays?’

Like student protests today’s strikes boil down to ‘who pays?’

We’re in a historic phase of massive public policy decisions. Yet we can’t focus solely on the impact on the directly affected group of ‘insiders’ (eg, students/public sector workers) and miss the impact on ‘outsiders’ (eg, the general taxpayer) – these things must be about balancing the see-saw …

Today’s public sector strikes are over pension provisions – the government wants to increase contributions from staff, increase the eligible retirement age and change the payout to average salary from final salary, which is likely to have a big impact on retirement income and completely change planned budgets.

Three big teaching unions plus the Public and Commercial Services union will strike, leaving many schools, immigration and job centres understaffed or closed and likely cause widespread national disruption.  It appears the strike itself seems to have been called as much about fairness and how unions feel they’ve been treated as the core issues.

I don’t want to get into the rights or wrongs of that issue here, but instead take a moment to mull over the wider context and underlying reason behind this debate with the taxpayer as consumer in mind, so here’s a couple of bullets …

  • The Government spends our money not its own. We often hear talk of government spending cuts or increases. Yet this is a bad way to think as the government actually has no money; it has our money as a custodian of our taxation receipts (or borrowing on our behalf).   

    Therefore if it spends more it’s not a zero sum game, that money has to come from somewhere, usually either taxation (either through raising taxes or hopefully increased receipts due to economic growth) or getting further into debt on our behalf.

  • Scale counts. Some people struggle to get their brains around cash values once they reach the millions or billions. One of my common frustrations when listening to Question Time, or reading peoples Tweets or Facebook is that people rarely understand the relative amounts of government spending.

    I often read comments such as “if the MPs stopped taking big expenses and a pay cut, that’d soon solve this” – frankly the total cost of 650 odd MPs (some would say most are odd) is diddly squat, maybe just tens of millions. Of course it’s a massive moral and political issue, but it isn’t material when it comes to the wider economy.

    It may seem strange writing ‘just tens of millions’ but in context our government spends well over £600 billion in other words SIX HUNDRED THOUSAND MILLION a year of our money, so there is a need to get some perspective.

    In contrast, small changes to public sector pensions are material, they will have billions of pounds worth of impact, so for the economy it’s a much bigger decision and needs handling with care.

    It’s well worth having a look at The Guardian’s wonder what they spend it on graphic to get an idea of this.

This is about insiders v outsiders

Once you focus on the fact that government is the custodian of our cash, then you have to look at everything as balancing a see-saw between the directly affected ‘insider’ and the passive but still impacted ‘outsider’.   

While reading this back before publishing, I am worried that while I’ve been trying to stay neutral as I’m trying to expand on the less discussed ‘outsider’ idea it may be read as being anti ‘insider’ (students or public sector workers).   Yet please be assured that is neither my intention, nor my view.  This is an explanatory piece not a polemic. If you read this and feel I’m pushing a side, I apologise, please see it as badly written rather than deliberate.

A couple of examples …

  • Student Finance: Insider v Outsider. Ignoring the structure of the loan (see Students Fees & Loans 2012 mythbusting) which substantially blurs the who pays what. The big picture decision falls down to how much should the student themselves pay, how much the taxpayer?”

    Yet the debate is rarely framed that way, it normally focuses just on the insider, in other words, ‘fairness to students’.  Of course though, the less we want students to contribute the more the taxpayer must pay.

    In truth what we’re actually asking is how much the general population, most of whom are ‘outsiders’ who didn’t get the benefit of university education, should contribute towards the costs for the students (insiders) who get the education.

    With the welcome massification of higher education, that means if we returned to old grants and loans of the late 70s, I guess you’d be talking about needing to add 5-10p to everyone’s basic rate of income tax to pay for it – a seismic shift.

    Please don’t read this as a justification of the current rise in tuition fees (which I’ve voiced my issues with elsewhere), but it’s to show that the debate can’t be about what’s fair for students – you have to look at fairness for everyone else too.

  • Public Sector Pension Strikes: Insider v Outsider. Public sector pensions are a big cost to the state, yet we want to treat people fairly and encourage a decent standard of living for those who provide our important public services.

    Yet again this debate is often pushed in the context of ‘being fair to public workers’ – the insiders. However, at the other end of the see-saw you have the taxpayer, some of whom have worse pensions & salary than public sector workers, some better and some the same (as of course public sector workers are taxpayers too).

    So again (provided for theory we ignore issues over whether the consultation and change process is fair) this comes down to where we want to balance the see-saw people – the insider and the outsider – rather than solely public sector workers themselves.

My real point here isn’t about the specific decisions, but that sadly this is often (though not always) about competiting interests. When the outsider gains, the insider may lose, and vice-versa and that’s what makes any decision a thankless task. Of course it’s more complicated more as the Venn diagrams of insiders and outsiders overlap, eg, both public sector workers and some students are taxpayers and fit in both groups and have cross over benefits (ie, content public sector workers are productive for society). Yet it still comes down to where you balance it.

Of course this is only the beginning of the debate and an oversimplification. I’ve talked about the general public as an agglomerated lump of taxpayers, of course some are net recipients on benefits and even within taxpayers there is discussion to be had on where the burden should fall between rich and poor, business and public taxpayers and more.

Feel free to continue those yourself in the discussions below.

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