UKIP

UKIP supporters are right to be concerned about the cost of the EU to our economy, not only in terms of the direct cost of our net £6.4bn annual contributions (soon to increase thanks to Blair's attempt to buy the European presidency by surrendering our rebate), but also in terms of the heavier cost of economic inefficiency imposed through regulations and other instruments mandated by EU Directives.

But UKIP supporters are not well-served by their party:

• UKIP's former leader, Nigel Farage (normally a man with a good popular touch), made himself and his party look like small-minded xenophobes in his ill-judged personal attack on Herman van Rompuy. This confirmed an impression that many people have of UKIP, and made it less likely that the party will be able to achieve electoral breakthrough in national elections, even though the impression is unfair in the case of most UKIP supporters.
• UKIP's current leader, Lord Pearson, appeared either not to know his party's policies or not to be able to defend them, in an interview with John Sopel. He confirmed the popular impression that UKIP only wants to talk about one thing (the EU), when many UKIP members have a more rounded philosophy that is concerned about the role of the state in many areas.

Perhaps Lord Pearson had read his party's manifesto, because (although there is quite a lot of good stuff in there) some of it would be hard to justify even by someone who appeared to be willing to make the effort.

For example, the sub-title of UKIP's economic manifesto - Honesty in a time of crisis - is a bit of a misnomer. Its objective of large cuts to government expenditure is laudable, but the claim that £200bn (over one-quarter) could be cut without any impact on front-line services is laughable.¹ If you want to give us honesty, admit that big cuts mean that government will not provide everything that it has been providing.²

That is what we have done, consistent with our philosophy that freedom must be accompanied by responsibility. We have set out the areas where we think over £100bn could be cut in short order, and freely acknowledge that such cuts mean that government will not be providing as much to its clients in a range of areas as it has been doing.

And if you are going to promise spending cuts as big as that, it's probably not a good idea also to promise additional capital spending of well-over £10bn/year (on defence, new nuclear, flood defences, transport and prisons, see party manifesto, section 2), not to mention significant current-account commitments like a much larger armed forces. Some of the commitments in themselves are not bad ideas, but they have to be squared with the claimed spending plans.

UKIP's economic manifesto also pedals deceits about the deficit and the scale of tax-cuts that are feasible. UKIP are right to highlight the size of our deficit and the threat to our economy. But if you are going to do that, don't then propose unbelievably-large cuts in tax rates whilst pretending that tax revenues will be barely affected.³

Yes, tax-cuts move us in the right direction along the Laffer Curve and yield more tax than the cuts would imply on a pro rata basis, thanks to stronger growth and higher compliance. But no one knows exactly how much this yields, and supply-siders (as the philosophy that UKIP appear to be espousing is known) almost always over-estimate it. This philosophy was the basis of George W Bush's policy of unfunded tax-cuts. It never yielded as much tax as hoped, and the massive deficit and unfunded stimulus that resulted was a significant contributor to the sub-prime bubble and the Credit Crunch.

When you have as big a deficit as the UK currently has, in as difficult economic times as we are currently experiencing, relying on the Laffer Curve to close the gap is risking national bankruptcy, default or devaluation, loss of credibility and serious economic damage. A prudent government must plan conservatively for modest Laffer gains, and if it is pleasantly surprised, use the additional revenue to support additional tax-cuts to create a virtuous economic circle. Banking on massive gains that you can't rely on and probably won't get when you are running a deficit of over 10% of GDP is highly irresponsible.

The UKIP manifesto is surprisingly dirigiste in places, for an organisation that supposedly wants to shrink the state. UKIP:

• somehow know that 50% is the appropriate share for nuclear power in our electricity mix, and that this target is worthy of the massive (though under-estimated) support that is not to be afforded to other technologies.
• observe that wind power is too expensive, but want any new wind power to be built offshore (where it is at least twice as expensive).
• would use the courts (rather than a mechanism to discover and internalise externalities) to decide, in a single snapshot moment on the basis of incomplete and contradictory information, how best to respond to the risk of anthropogenic global warming.
• would pick their own environmental winners to receive subsidies removed from climate-change projects (having already pre-judged the outcome of their proposed trial), rather than handing the cash back to taxpayers.
• would pick some types of recycling and electric transport as other winners they would target taxpayers' money at.
• have plans for spending on the sorts of transport infrastructure that will require even more subsidy from government. 
• inhibit transport-fuel price-signals by using the tax system to damp the effect of price increases and reductions.
• tell rail operators how to run their businesses, rather than giving them more freedom to thrive or fall according to their ability to satisfy customers' needs.
• decide where our London airport should be, and invest in massive infrastructure to support the grand plan for relocation, rather than leaving it (subject to planning) to the market.
• interfere in the housing market to try to influence choices on occupancy, and remove the ability of developers to negotiate some compensations for the community in exchange for the permitting of a development.
• increase the number of buildings that would be listed and whose owners would therefore be prevented from doing with their property as they saw fit, by introducing "local listing" to allow communities to list buildings for protection even where they are not of sufficient interest to merit listing in the national scheme.
• make councils build (as opposed to contract, even where that would be more economic) more social housing, and provide special privileges for the funding of such development.
• introduce protectionist measures for certain British businesses (like the French government protecting its yoghurt manufacturer for "strategic" reasons).
• think it's government's business to try to shoehorn businesses into certain locations ("Production Enterprise Centres") that government has deemed most suitable (and worthy of special support) for SMEs, rather than removing distorting incentives so businesses choose their location purely on the basis of their own commercial considerations.
• would do nothing to tackle the imbalance between supply and demand for healthcare, which results when all health services are provided by the state free at the point of use (and in fact, make some items free that had become chargeable).

Above all, UKIP by its very name and origin, is seen as too obsessive over a single issue - the EU - to have much chance of expanding beyond a minority party. And though it is very likely that it would be impossible to negotiate a set of derogations from EU Directives that made it worth staying in the EU and retaining the benefits of the single-market, it is not inconceivable that this could be achieved under threat of withdrawal. Some of our European partners might, in the current economic climate, be more supportive of demands to reduce the EU's economic inefficiencies than we currently expect. And it would be easier to attract support from those who are less hostile to the EU if a serious attempt at renegotiation were attempted first (which means giving yourself the bargaining position of threatened withdrawal and being willing to use it, rather than the Tories' toothless promise to renegotiate with no sanction if they are refused).

If you are one of the minority of UKIP supporters who see it as a more politically-acceptable front than the BNP to promote bigotry and xenophobia, then go and vote for the BNP. But if you are one of the majority of UKIP supporters who have no hostility to other nationalities and races but simply believe that nation states are the most appropriate unit in which legislation can be formed to reflect a shared culture, and want a smaller state in a number of areas (of which the EU and other supranational organisations are only one facet), then come and join a party that takes and presents a more balanced perspective on a range of areas where we need to shrink the state.

¹ See para. 6.7, p.11 of UKIP's economic manifesto: "public sector spending could be reduced by a quarter with absolutely no impact on frontline services".

² Remember, public-sector job losses save only a fraction of the employment cost, because (a) a significant proportion of the public-sector workers' wages were recycled in taxes to the public purse, which makes each public-sector worker cheaper to employ on a net than a gross basis, and (b) many of those public-sector workers made redundant will not find jobs immediately in the private sector, and will end up costing the public purse in benefits. It is ludicrous to believe that we can add to the 5.5 million people of working age who are not currently in employment another 4 million people from the public sector (para 6.7 again), many of them bureaucrats with neither the skills nor the mindset to operate gainfully in the private sector, and expect to have no impact on the level of unemployment.

We should still cut any public-sector jobs that are not essential, because there is some financial saving and a greater saving in terms of the removal of bureaucratic obstacles to private enterprise. But we should not pedal the lie that this will save more than a fraction of the employment costs in the short-term. It will take a long time for people and businesses to adjust to the necessary correction in the balance between private and public sectors in the economy.

³ UKIP propose to cut central-government's share of VAT from 17.5% to 12.5% (a reduction of almost 30%, para. 3.9), raise the income-tax personal allowance to £11,500 (para. 3.7), replace income tax and employees' National Insurance contributions above that threshold with a flat rate of 31% (para. 3.7), phase-out employers' National Insurance contributions over five years (para. 3.8), allow councils to retain half the business rates paid in their area, and reduce property taxes (Appendix 2, Note 2). Yet they expect only to reduce central government's tax revenue by £30bn (from £530bn to £500bn), even though income tax, National Insurance, VAT, business rates and property taxes make up two-thirds of central government's tax revenue.