Observing and Classifying Fiscal Squeezes

As we noted at the outset, 'austerity' in the sense of restraints imposed on consumption can take different forms, and the focus here is primarily on austerity in the sense of fiscal squeeze, namely pressures to increase tax revenue or reduce public spending. But as has also been noted, the effect of such squeezes depends on what other kinds of 'austerity'—or the reverse—are in play. For example, in the 1920s public spending restraint was coupled with high interest rates and monetary contraction, while in the early 2010s spending restraint was linked with highly expansionist monetary policy (in the form of official interest rates close to zero and massive quantitative easing, which took the form of purchases of government debt by the central bank, thereby driving spending on debt interest below what it would otherwise have been). We have to take such non-fiscal austerity or the reverse into account in assessing the overall amount of loss imposed on citizens or voters.

Even for fiscal squeeze on its own, there is no clear and accepted metric for comparing levels of austerity. We have already noted that a focus on 'fiscal consolidation' in the sense of achieved reductions in deficit as recorded retrospectively in official statistics will not necessarily indicate how much pain citizens or voters experience, and for that reason we focus on recorded changes in spending and revenue both in absolute (constant-price) terms and relative to Gross Domestic Product (GDP).

Table 1.1 therefore lays out the range of fiscal squeeze outcomes that are observable in this study. It distinguishes fiscal squeezes in terms of whether they involve revenue only, spending only, or a mixture of the two. It also identifies different forms of revenue and spending squeeze. On the revenue side we distinguish cases where revenue rose relative to GDP or in constant- price terms, or both; and likewise, for spending we distinguish cases where expenditure fell relative to GDP or in constant price terms or both. We refer to squeezes where revenue rises or spending falls both in constant-prices and relative to GDP as 'hard', and squeezes where revenue rises or spending falls either in constant price terms or relative to GDP (but not both) as 'soft' (Hood, Heald, and Himaz 2014: 8). That gives us sixteen possible types of squeeze on reported spending and revenue outcomes, as shown in Table 1.1, and the next chapter examines the relative incidence of those different types.

But there are inevitable limitations about looking at fiscal squeezes only through the prism of administrative reported-outcome numbers, so we need to supplement that analysis with more qualitative assessments. Accordingly, Table 1.2, also developed from earlier work (Hood, Heald, and Himaz 2014: 7, Table 1.2), presents a qualitative spectrum of the intensity of fiscal squeeze in three dimensions, namely: the degree of extra loss imposed on citizens or voters; the extent of political capital expended or reputation risked, by

Table 1.1. Some different types of fiscal squeeze based on reported financial outcomes

Revenue

Expenditure

No fall

Fall only in constant prices

Fall only as % of GDP

Fall as % of GDP and in real terms

No rise

1

No squeeze

2

Single

(expenditure) soft squeeze

3

Single

(expenditure) soft squeeze

4

Single

(expenditure) hard squeeze

Rise only in constant price

5

Single

6

Double soft

7

Double soft

8

Hybrid soft/hard

terms

(revenue) soft squeeze

squeeze

squeeze

squeeze

Rise only as % of GDP

9

Single

(revenue) soft squeeze

10

Double soft squeeze

11

Double soft squeeze

12

Hybrid soft/hard squeeze

Rise as % of GDP and in real terms

13

Single

(revenue) hard squeeze

14

Hybrid soft/hard squeeze

15

Hybrid soft/hard squeeze

16

Double hard squeeze

Source: Adapted from Hood, Heald, and Himaz (2014, Table 12.3, p. 268)

incumbent party politicians imposing the squeeze; and the degree of effort exerted by the state apparatus to develop fiscal squeeze measures.

For the degree of extra loss imposed on citizens or voters, the lower levels identified in Table 1.2 consist of 'inertia strategies', measures that are like 'victimless crimes' in the sense of imposing losses on diffused, low-stakes victims, and squeezes whose effect is offset by other factors, such as economic growth or easy money policies. The higher levels come when significant and visible losses are imposed on swing voters (those most likely to shift between one party and another) and/or a party's 'core' voters (those who normally vote for it) and when squeezes are exacerbated by other types of austerity. In between those two types come cases where squeezes are neither offset nor exacerbated by other measures, involve 'stealth' spending cuts or tax rises, and when core and/or swing voters are hit only moderately.

For political capital expended or reputation risked, by incumbent party politicians, the lower levels in this scheme consist of cases where squeeze measures have been foreshadowed or even promised before elections, where electoral competition is suspended or all-party coalitions share the blame, where there are readily available scapegoats (such as defeated outgoing governments), and where key decisions are made or at least endorsed by experts who can be blamed when things go wrong. The higher levels come when squeezes break explicit election promises, run counter to the election cycle (for

Table 1.2. A qualitative framework for assessing degrees of squeeze in terms of voter loss, political cost to incumbents, and state effort

Qualitative Intensity of Squeeze in Voter Loss, Political Cost to Incumbents, and State Effort

Low

Moderate

High

Amount of extra visible cost imposed on key (median/ core) voters or citizens

[1] Continuing the status quo (e.g. not reducing taxes or raising spending),

[2] focus on diffused, low-stakes victims,

[3] fiscal squeeze offset by other factors (e.g. economic growth, non-fiscal largesse)

[1] Imposition of less visible losses through 'stealth' taxes or cuts, [2] concentration of losses on non-key voters (e.g. millionaires, bankers, foreigners), [3] no/little extra losses combined with fiscal squeeze

[1] Imposition of significant and visible losses on key voters by raising taxes or cutting spending, [2] fiscal squeeze exacerbated by other factors, e.g. major recession,

[3] significant increases in non-fiscal austerity such as rationing, conscription, wage caps

Political capital expended, or reputation risked, by incumbent politicians

[1] Squeeze measures foreshadowed before elections, [2] all-party coalitions sharing the blame, [3] electoral competition suspended, [4] readily available scapegoats (e.g. outgoing government), [5] key decisions made or endorsed by experts who can be blamed

[1] Tax rises or spending cuts not mentioned (but not abjured) in election promises,

[2] measures timed to fit the electoral cycle (i.e. post-election austerity, pre-election largesse), [3] experts divided or not uniformly hostile

[1] Tax rises or spending cuts that break explicit election promises, [2] run counter to the electoral cycle (e.g. extra squeeze imposed in the run-up to expected elections), [3] no plausible political scapegoats available, [4] measures counter (near) unanimous views of policy experts

Effort exerted by the state apparatus to develop or impose squeeze measures

[1] Incremental resetting of existing structures or schemes (e.g. changes in tax rates/thresholds, alteration in qualifying periods or benefit levels), [2] straightforward and limited changes, e.g. in closing down discrete services, [3] fairly clear political priorities, [4] fairly high levels of public compliance

[1] Some non-incremental changes, e.g. non-trivial changes in fiscal rules/decision systems, crafting of some new (but not 'mainstay') taxes, [2] spending cuts that go beyond incremental changes and current organizational boundaries (e.g. quango culls), [3] some division over political priorities, [4] moderate levels of public compliance

[1] Wholly new decision procedures, major restructuring of 'mainstay' tax and/or benefit systems, introduction of quite new control regimes, [2] move to notably changed forms of working or policy delivery, production of long-term plans for change,

[3] deep political splits over priorities,

[4] high levels of public non-compliance (e.g. riots, strikes)

example with a squeeze imposed at the end of a government's electoral term), when no ready-made scapegoats are available (such as when incumbents have been in office too long to plausibly blame their predecessors), and when the measures taken counter the views of orthodox economic experts. In between those two types come cases where experts are divided; when tax rises or spending cuts neither break nor fulfil pre-election promises, such that they can be defended in a 'terms and conditions' vein; where squeezes follow the electoral cycle, that is, with fiscal pain applied immediately after election victory and reversed before the following election; and where squeezes target swing and/or core voters to only a limited extent.

For the degree of effort exerted by the state apparatus to develop or impose squeeze measures, the lower levels identified in Table 1.2 consist of cases where the main effort required of the state machine involves incremental resetting of existing structures or schemes (in the same way as a fuel filling station might change the prices at the pumps when the cost of oil goes up or down), where the state machine works with relatively clear political priorities, and when changes in ways of working are limited and straightforward, such as in cancellation or delay of capital projects, or closure of discrete organizations. The higher levels come when fiscal decision procedures are completely restructured, when radically new methods of delivering public services have to be adopted under the pressure of fiscal stringency, when mainstay taxes or benefit structures have to be redesigned to deliver a squeeze, and when there are serious political conflicts within government over priorities. In between those two types come cases that involve some non-incremental change and some restructuring across existing organizational boundaries, and a moderate degree of division over priorities within government.

Such categorization is of course anything but an exact science. As we shall see, many tricky issues arise, including who exactly counts as an 'incumbent' in such analysis and whether we should focus on the planning or implementation of squeezes, or both. But nevertheless, some categorization along these lines is necessary for a qualitative comparative assessment of the intensity of fiscal squeezes and so, after giving qualitative accounts of the various squeezes in Chapters Three to Ten (exploring where they fit in terms of the square-bracketed items in Table 1.2), our final chapter classifies and compares the fiscal squeezes we observed in the UK over a century on these more qualitative measures as well.

 
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