Is evidence-based policy losing out to populism? (by George Kendall)

Originally published on LibDemVoice on 10/09/15

Populism always sounds good, but in the long-run it usually hurts those it is supposed to help.

In the UK, interest rates used regularly to be cut to stimulate an artificial boom before an election. This was good for the ruling political party, but the country paid a heavy price later. In the nineties, the Liberal Democrats championed the idea of making the Bank of England independent, and, in 1997, Labour implemented the policy.

As a result, inflation has been controlled, and business and international investors have more confidence in the UK. It’s no panacea. It didn’t stop serious mistakes being made over bank regulation. But, I think, it’s proved a real success.

In 1997, the Labour party proposed a National Minimum Wage. Many were deeply concerned that, by not allowing the existence of low paid jobs, this policy would price some low skilled workers out of the job market.

To counter that fear, the minimum wage was set, not just by politicians, but after the public recommendations of a new independent body.

The Low Pay Commission’s terms of reference were:

to recommend levels for the minimum wage rates that will help as many low-paid workers as possible without any significant adverse impact on employment or the economy.

Over the seventeen years of its existence, internationally, the Low Pay Commission is seen as a policy success.

These two policies are excellent examples of evidence based policy. Independent bodies assess the evidence and publish their conclusions. Politicians provide their terms of reference, but, by subcontracting the assessment of the best precise levels of interest rate or minimum wage, we avoid populist decisions that might do more harm than good.

Unfortunately, the tide seems to moving against evidence based policy. In the 2015 election, Ed Miliband proposed a minimum wage of £8 by 2020. £8 wasn’t a particularly high figure. From previous experience, if the economy kept growing, that’s about what the Low Pay Commission would have recommended.

What was bad about Ed Miliband’s proposal is that it ended the policy of setting the minimum wage based on the evidence at the time.

Worse was to come after the election.

In a shameless piece of political opportunism, George Osborne announced that the minimum wage will be raised to £9 per hour by 2020. The Office for Budget Responsibility warned that this could well cost around 60,000 jobs. But as this policy provided Osborne with political cover to significantly cut in-work benefits, and few of those extra unemployed would ever vote Tory, why should he care?

Of course, Jeremy Corbyn has now gone one further than Miliband and Osborne. He is proposing £10 per hour.

Jeremy Corbyn is also proposing the Bank of England print money for new large scale housing, energy, transport and digital projects.

If politicians could instruct the Bank of England to fund the capital spending of the government, this would drive a coach and horses through the independence of the Bank of England.

I would like more capital spending, especially on housing, but printing money to get it is dangerous.

 Up to the time of the independence of the Bank of England, inflation was a constant threat to the UK economy. If we want more capital spending, the government needs to struggle with the difficult problem of finding the money, not pretend it can magic it out of thin air without dangerous inflationary consequences.

The political tide may be turning towards populism, but we don’t have to follow it. In coalition, the Liberal Democrats had a good record of supporting these evidence-based institutions. Even if Labour and the Tories start to abandon them, I hope we stick with what has served the country well for eighteen years.

George Kendall is convener of the Social Democrat Group, which is being formed to celebrate and develop our social democrat heritage, and to reach out to social democrats beyond the party.

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