Electoral and Other Consequences

How far does this episode support the idea that fiscal squeeze can ordinarily be expected to be followed by electoral punishment of incumbents? On the face of it, the Conservatives' massive electoral defeat in 1997 seems to support that expectation. The Major Government that applied the squeeze over 1993-97 was heavily punished by the voters amid widespread claims of 'underfunding' of public services, and its Labour successor that took the brakes off public spending before the subsequent general election (and promised further increases in a second term) was rewarded with comfortable re-election. And—especially with Norman Lamont's 'tax wedge' in his 1993 budget—the

1997 electoral outcome is also consistent with the 'asymmetrical punishment' suggestion considered in Chapter One, namely that right-of-centre parties may be particularly vulnerable to electoral punishment for tax squeezes.

Still, it seems implausible to attribute that 1997 electoral outcome to fiscal squeeze alone. As already noted, it was the perceived debacle of the pound exiting the ERM in 1992 that seems to have been the key factor in the Conservatives' loss of their previous poll lead on economic competence, rather than the fiscal squeeze measures alone.

Moreover, while quality of electorally salient public services such as education and healthcare whose funding had lagged behind the rate of economic growth certainly seems to have been a key issue in party competition for votes, Labour's 1997 decision to match the Conservatives' spending plans meant it was not promising the voters to let rip with public spending, at least for the following two years. And most of those commenting on the 1997 election see the outcome as a product of a combination of factors rather than a single one—for instance, a 'time for a change' factor in the replacement of a very long-tenure government perceived to have run its course by a repositioned 'centrist' Labour Party under energetic and carefully orchestrated leadership; voter reaction against the Conservatives' internal divisions over the European Union which had led to recurring friction and disunity within the Major Government; and perceptions of Conservative 'sleaze' arising from a succession of well-publicized scandals over financial and other misconduct by Conservative MPs and ministers (Butler and Kavanagh 1997). Fiscal squeeze seems only to have been part of the mix.

Going beyond electoral effects, these squeezes left some long-term institutional and policy consequences behind them. As we saw, some major institutional changes were made in the management of public spending in the 1990s. The specific machinery of EDX and the 'New Control Total' adopted in 1992 did not outlive the Major Government, but the general pattern of punishing 'holdouts' in spending negotiations by subjecting them to scrutiny by ministers who had already settled re-emerged under the Conservative- Liberal Democrat coalition government in the 2010s. And the distinction made in 1992 between cyclical and non-cyclical expenditure and the subjection of the latter to top-down control limits proved to be the basis of all subsequent public expenditure control regimes up to the time of writing.

Going beyond those institutional changes, we have seen that these fiscal squeezes also included policy changes that crossed some important political 'Rubicons'. One such change was the abandonment (in England, Wales, and Northern Ireland at least) of the former system of free university education and state subsidization of most students' living costs, significantly shifting the state's role from funder to regulator in an important policy sector. Another comprised the 'raids' on pension funds (and the effective abandonment of the principle that retirement savings should only be taxed once), beginning with Norman Lamont's reduction of tax credits for pension funds in 1993 and Gordon Brown's more dramatic removal of such credits four years later. A third was a further shift towards 'workfare' (that is, measures to compel benefit claimants to seek work or undergo training or work experience, as with the changes to lone parent benefit announced in 1997), and a fourth was the 1994 decision to raise the age of pension entitlement for women in the future, the first increase in pension entitlement age since state retirement pensions had been introduced in 1908. These fiscal squeezes certainly did not disappear without leaving their mark on public policy.

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