The Analytic Approach: Plan of the Book

We combine quantitative and qualitative comparison of the UK's various fiscal squeeze episodes over a hundred years. We look at historical statistics to see what they tell us about how steep spending cuts or revenue increases were, where and on whom the greatest pain seems to have been imposed according to the administrative categories under which spending and taxes were recorded, what the voting outcomes were in subsequent elections, and what if any other longer-term consequences seem to have flowed from fiscal squeeze.

But we also look at softer materials (mainly earlier published studies, documents, and some interviews), to help us go behind the officially reported numbers to the sort of qualitative issues identified in Table 1.2, notably how squeezes were presented and packaged, how outcomes compared to plans, how the decision-making process worked, and what the politically awkward or difficult issues were.

Accordingly, the next chapter (Chapter Two) examines a hundred years of fiscal squeeze on the basis of reported aggregate financial outcomes. That analysis shows up both variety and changes over time for two of the three aspects of fiscal squeeze we discussed earlier—tax versus spending, depth versus length, direct control versus blame avoidance. Tax hikes seem to have played rather less of a part in fiscal squeezes in the last thirty years of the period considered here than they did before, and likewise, in those final decades, there were three episodes of relatively long-drawn-out spending restraint compared to earlier squeezes.

The following eight chapters look qualitatively at the politics of successive fiscal squeezes in different political and economic settings. Those settings range from global financial crises and the conduct and aftermath of total wars, to less extreme conditions, and they include governments of a variety of types and ideological orientations. They also vary in terms of what other forms of austerity (or the reverse) accompanied fiscal squeeze, notably in terms of monetary restraint or expansionism, physical rationing or market supply, and wage controls or free labour markets.

These more qualitative accounts of the various squeezes highlight the difference between:

  • • the world war squeezes, when military spending soared, funded substantially by debt (particularly in World War I) but accompanied by steep revenue increases in the form of special war taxes, while spending on non-military civilian services was cut;
  • • the deflationary squeezes of the 1920s and 1930s (both undertaken during recession and accompanied by tight money policy in the 1920s but not the 1930s);
  • • the multiple-austerity squeezes of the late 1940s and early 1950s (when taxes remained at near-confiscatory wartime levels, external bailouts were important, and public spending restraint was accompanied, indeed overshadowed, by rationing and physical shortages);
  • • the 'stagflation' squeezes of the 1970s and early 1980s (when 'cash limits' and partial or non-indexing of benefits and tax thresholds were the central mechanisms of squeeze, and wage control policies added another element of restraint); and
  • • the shifting-relativities squeezes of the later 1980s, the later 1990s, and the early-to-mid-2010s, when steady periods of economic growth with lowish inflation allowed public spending to be cut relative to rising GDP without significant cuts in overall expenditure in real terms, mostly with fairly expansionary monetary policies and no other forms of non-fiscal restraint. Such revenue squeezes as there were over that period tended to rest on indirect or 'stealth' taxes of one kind or another rather than special war taxes or increases in the main rates of income and profits taxes.

Each of those types of squeeze is distinctive, with few episodes sharing exactly the same features. The eight chapters describing those episodes aim to look behind the reported financial outcome numbers as set out in Chapter Two, but while they aim to ask the same questions, the sources available are not uniform. For the earlier periods, only documentary and official archival materials are available, there were no public opinion polls until the 1940s, and for the most recent period there are no official archival materials and few political memoirs, so more reliance has necessarily to be placed on media, parliamentary speeches, and some interviews.

The final chapter concludes our analysis in three main ways. First, it compares the intensity of the fiscal squeezes described in Chapters Three to Ten according to the criteria identified in Table 1.2 earlier, and shows a fairly close correspondence between our first qualitative indicator (of imposed losses) and our quantitative measure of 'hardness' of squeezes on the revenue or spending side, but less correspondence between the other two qualitative measures of squeeze intensity and reported financial outcomes.

Second, it returns to the three issues raised earlier (tax versus spending, length versus depth, blame avoidance versus control), and explores particularly how blame-avoidance strategies changed over the century. What it shows is that outsourcing responsibility for proposing spending cutbacks and/or tax rises was rare (even though the outsourcing approach was applied both to economic forecasting and interest rate setting in the later part of the period). For a process often claimed to be so electorally toxic, that outcome raises some important questions for the 'blame avoidance' interpretation of fiscal squeeze.

Third, examining the electoral consequences of fiscal squeezes, it explores the association between electoral defeat by incumbents and fiscal squeezes, and finds a markedly higher incidence of loss of office by incumbents after fiscal squeezes when those squeezes were 'hard' on the revenue or spending side—a result that challenges the view that there is no clear association between 'austerity' and electoral defeat of incumbents.

Accordingly, we reflect in this final chapter on what future fiscal squeezes can be expected to be like if those past trends continue—that is, relatively long, 'soft', mostly spending-focused and unaccompanied by other forms of 'austerity'. But we also reflect on whether some of the older approaches to fiscal squeeze are necessarily gone for good, and if not, what might be different about future fiscal squeezes in the UK and elsewhere.

 
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