False realism in costing policies

In all the fuss about Natalie Bennett’s unfortunate media interviews, for which she has penned this very strong and courageous apology, we have seen this idea talking hold that governments can cost policies down to the last penny. The Green Party always puts forward broadly costed proposals, but the direction of travel is equally important and needs more attention.

I worry that journalists have bought into a “false realism”, thinking that – as the philosopher Roberto Unger said in a recent lecture in London, “a proposal is realistic to the extent that it approaches what already exists.” (Thanks to Zoe Williams for that quote!)

So any policy that is outside the mainstream must be suspect, and is then judged credible based on a very narrow analysis of the figures, ignoring all of the problems in the rest of this article.

Of course it’s important that we can show, broadly speaking, how we pay for things. We can’t, and don’t, just will half a million council homes or huge fare cuts into existence. But public finances are so uncertain that it’s rarely possible to accurately predict exactly how things will pan out. What’s much more important is that, with a broadly costed proposal, the Green Party can show the very radical changes we think this country needs.

Let me give a few examples.

Budgeting in London

I’ve led on the budget process at the London Assembly for the past five years.

Each year, the Green Party Group produces a costed budget amendment which is checked by the finance department to ensure it is robust. In the past few years we have shown that the Mayor of London could:

• deliver a real fares freeze by increasing the congestion charge and tolling the Blackwall tunnel, for a city with lower costs and less traffic (in 2013-14)
• spend at least two per cent of his transport budget on cycling, to make junctions safe and deliver all his cycle superhighways (in 2014-15)
• set-up a solar PV delivery unit using funds already available in next year’s budget to unleash a solar revolution on our rooftops (in 2015-16)

These amendments are one way that we can demonstrate a different set of priorities. In place of Boris Johnson’s ideology of the shrinking state, we put forward investments to make London more equal and sustainable.

We’re conservative in our costings. When we’ve proposed increases in the congestion charge, we’ve taken account of the likely fall in traffic when working out the extra revenue. Our proposals to reduce police overtime were so conservative that, in recent years, the police have actually exceeded them. That didn’t stop the police claiming we were “unrealistic” at the time we made our case, of course.

Budgets are always a bit of guesswork

But we shouldn’t get too lost in this penny pinching. Each year, while my team toil away making sure every last penny is accounted for, there are huge variances in what the Mayor actually spends compared to his plans.

For example, TfL (with a budget averaging over £8 billion) has overachieved on its saving targets by an average of £89 million over the past five years:

It has also overachieved on fares income, bringing in an average of £47 million more than planned:

Given these consistently rosy out-turns, an alliance of Green Party, Liberal Democrat and Labour members argued in this year’s budget process that the Mayor could easily afford to bring back the off-peak cap on fares from zones 4-6.

This cap was scrapped when TfL introduced it’s part-time travel package, and left people travelling from outer to inner London paying as much as 38% more. We should be encouraging off-peak travel to spread the load, not penalising it!

It would cost TfL £10 million at most to reintroduce this cap. This cross-party alliance demonstrated various ways this could be paid for, but in the end pointed out that – at just 0.15% of TfL’s budget- TfL could easily find the money. It’s well within the margin of error of their budgets for each year.

Bean-counting the benefit bill

Once you reach the national level, the numbers jump by an order of magnitude.

The most striking example of this has to be the benefit bill, and the cuts this government has introduced.

Since 2010 the government has cut and capped benefits, and claimed these would add up to a £19 billion saving by this financial year (2014-15). But as the Institute for Fiscal Studies found, the bill has only actually fallen by £2.5 billion. The difference would pay for our pledge to build 500,000 social rented homes three times over!

Here’s a table showing some of the variance between plans and reality:

The housing benefit bill has actually increased, despite all the nasty punitive cuts hurting low income households. Why? The IFS say it’s because “the private rented sector has grown faster than expected, private rents have grown faster than expected, and earnings have grown more slowly than expected – all of which increase housing benefit spending”.

Green politicians like Darren Johnson were actually predicting this would happen. But I have some sympathy with the Government’s defence: they were introducing these cuts because they thought they were fair, the morally right thing to do.

We should hold them to account for the broken fiscal promises, but the more important debate for politicians is whether those cuts and caps were the right thing to do.

Building social rented homes

This brings me neatly to our proposal to build 500,000 social rented homes in the next Parliament.

There are three ways that we pay for this:

1. Allow councils to borrow prudently to build new homes (they are currently capped, and everyone including the Local Government Association and even Boris Johnson argues this cap should be lifted);
2. Reform private landlords’ tax allowances, which are worth in the region of £13 billion per year, including scrapping the mortage interest relief which is basically a subsidy for their house values;
3. Save on the benefit and health bills in the medium term with lower rents and better housing conditions, netting at least £300 million over the next Parliament;

So this isn’t a totally pie-in-the-sky proposal. What’s more, in an annual budget of £732 billion, pledging to shift £4.5 billion around each year (less than one per cent of the total) is likely to come out as a rounding error in the final accounts. When you consider that this government will spend, over five years, some £95 billion on housing benefit and only £5 billion on affordable housing, and that the lack of affordable housing is one of the reasons for the rising benefit bill, you begin to see that our sums are quite modest and prudent.

So I’d invite you to examine our sums. Quibble with our figures, by all means.

But please, focus on the more important question, which is whether you would prefer to see the Government prioritise funds for social housing or tax breaks for private landlords, and whether you would rather the benefit bill was reduced by building social housing or cutting entitlements.