Ever since the Elizabethans institutionalised the idea of the ‘deserving’ and the ‘undeserving’ poor into the system of poor relief, governments have had two main public reasons for giving people money (here or abroad): because they need it (see, for example, humanitarian aid or child benefit), or because it will do some wider good (like help them find a job, or promote economic growth), and two reasons for taking it away: becasue they don’t really need it (the ‘undeserving poor’ that right-wing pundits are so keen to uncover), or because taking it away is in their own best interests (so they can, in the jargon, ‘stand on their own two feet’).  Welfare reforms, aid budgets, all are subject to this remorseless political logic.

There are two things which are particularly frustrating about this rather sterile argument.  Firstly, it’s conducted entirely on the spending side, while in fact the fairness of a system depends both on how money is raised and how it is spent.  Debates on spending are often conducted as if choices were all about distribution within a group of very poor people. 

Iain Duncan Smith, speaking for the government on the BBC’s Today programme this morning, argued that the welfare bill will seem fairer to people in work who are earning low incomes and who don’t want to see their taxes used to provide the unemployed with higher incomes than they themselves enjoy.  But if public spending really has come down to dividing up tax revenues from and benefit payments to people who are at or below the average wage, then the answer is not welfare reform to change the distribution of the spend, but tax reform to change the distribution of the revenue. 

Of course poor working families should not be paying for poor non-working families, just as poor working families should not be paying for poor families in other countries.  The whole point of a redistributive tax system is that it’s the wealthy who pay for the poor.  If this is really the issue, then change the tax system rather than tinkering with spending.

My second bugbear is the myth of the perfect system.  People arguing on both sides of the debate about the welfare bill and discussions about aid often appear to assume that there is some possiblity of a perfect system out there, which will solve the short-term problems of poverty without any risk of long-term distortions to people’s behaviour. 

Well there isn’t.  Rather than looking for perfection, it might be better to think about both debates in terms of different types of mistakes various systems might make.  Is it better to err on the side of generosity, and perhaps risk giving aid or welfare to a few people who don’t really need it, or is it better to err on the side of meanness, and risk cutting off aid or welfare to people who really do need it? Which kind of mistake can we live with?

Governments in this corner of the world have been struggling with this idea, at home and abroad, for over 400 years, since the first Poor Law was passed in England in 1601. There are real practical questions about how to manage both aid and welfare, how to make the most of scarce resources, and how to build handouts into a system of longer term improvements in people’s lives.  But going down false, politically expedient avenues won’t help anybody.

If it’s a choice between keeping the euro together or keeping the Conservative Party together. It’s in the national interest to keep the Conservative Party together.

What a day. Five observations:

1. My initial reaction this morning: On a sinking Titanic, the UK is lobbying to avoid further damage to the iceberg.  If David Cameron was motivated mostly by his wish to suck up to the City (and to his backbenchers), then he deserves all that fate can throw at him. He has transformed eventual British exit from the EU from Eurosceptic fantasy to the new conventional wisdom in just 12 hours. Quite a feat.
2. But maybe… his government has decided that the euro is now doomed and has made a rational decision to swim as far from the vortex as possible. Many believe that a disorderly break up of the single currency has become more likely than not. That would probably cost the UK 10% of GDP and make British default a near certainty. But if that’s what’s going to happen, then we better knuckle down to being as resilient to the shock as possible.
3. The British veto makes euro failure more, not less, likely. In theory, agreement between a core group is easier than having all 27 countries in the room, but the legal complications of conjuring a new set of institutions from thin air are daunting. Also, expect the core to shrink as the summit’s aspirations are chewed up by domestic politics. Each defection will provide a potential trigger for wider breakdown – probably when a group of the strong decide all hope is lost, and make a collective rush to the lifeboats. By being the first to desert the ship, Cameron has made it much easier for other European leaders to follow.
4. Contingency planning must now go much deeper. Behind the scenes, governments are playing out failure scenarios, and most big businesses have some kind of post-euro plan in place. Much of the thinking is still pretty rudimentary, however. The eurozone countries can’t risk letting markets see them flinch and have to put a brave face on their prospects, but the UK no longer needs to have such scruples. What exactly would we do if the euro goes down? What would be thrown overboard? What, and who, would be saved? How can the government organise effective collective action as the catastrophe hits?
5. Nick Clegg is dead, politically. That was already true, but I can’t imagine even Miriam González Durántez now plans to support her husband at the next election. Paradoxically, accepting his terminal status could give Clegg new freedom of action. Instead of continuing to play the role of coalition gimp, he should offer leadership to those keen to explore what comes after the storm. Politicians with proper jobs – Cameron, Osborne, even Cable – are going to be overwhelmed by events throughout this parliament, even in the best case where Europe struggles back onto its feet. Clegg, though, has an opportunity to focus energy on the longer term. He’ll still lead the Lib Dems to electoral Armageddon, but catalysing a vision for renewal might make posterity a little kinder to the poor man.

Sounds like a cheap shot? Then have a look at yesterday’s FT, which has a full page analysis article (£ – or free blog post here) documenting an interesting fact about where the Conservative party gets its funding from:

“In the past decade, a dramatic shift has occurred. Super-rich hedge fund managers have become the biggest single interest group to bankroll the UK’s current main party.”

Wondering what effect this has on policy? Here’s Tim Montgomerie, editor of ConservativeHome.com and the Tory world’s blogger-in-chief:

“The City’s influence is that top Tories spend a lot of time in the company of people to whom the City matters. If the party was reliant on northern industrialists, it would be a different party.”

Or try this observation from “one of the 10 biggest hedge fund donors”:

“There probably aren’t many votes in cutting the 50p top rate of tax – but among those that give significant amounts to the party, it’s a big issue, and that’s probably why it’s a big issue for the party too.”

I’m in favor of a mix of moral clarity and realistic judgment, topped off with an  incisive turn of phrase that sticks in the memory.  So I find it hard to top this observation on the recent attack on the UK embassy in Iran, culled from today’s Financial Times:

“I do not like Britain and I know it is evil, but a savage attack on their embassy not only makes us look uncivilised but means we have to pay for its consequences, which will be more sanctions and maybe a war,” says Saeed, a 42-year-old government employee.

100% crystal clear analysis.  Love it.

It’s almost cliched to paint Balls as the the crudest of tax and spenders, throwing money at a failed system in a desperate attempt to turn the ship around. To read much of the media coverage around the shadow chancellor (and for that matter, the Labour leader), you’d presume they long for nothing more than another spending binge.

Yet tell that to the shadow cabinet, many of whom feel stymied in their attempts to even float potential new policies (nevermind make concrete spending commitments) by the strict control Balls’ office has maintained over even potential spending commitments. Nothing that could even notionally impinge on economic policy is put forward without the explicit say so of the shadow chancellor – a cause for silent frustration for many seeking to make their mark around the shadow cabinet table.

I am sure Ed Miliband is enjoying this as much as Tony Blair did.

But how confident can we be that that storm has been averted? In the city, sovereign risk and an economic downturn are seen as the most important threats to the UK financial system. An economic downturn now seems more than likely, and will be savage if efforts fail to shore up the euro.

What about a sovereign debt crisis in the UK? When asked to name the most important current threat, risk managers for around 70 UK financial institutions now put debt at the top of their list.

I think they’re right to be worried. Even after this week’s downward revisions, the Office of Budget Responsibility expects tax revenues to grow rapidly over the next two financial years – but there’s little prospect of that happening if there’s a sharp downturn.

Imagine, instead, if the government’s income declined in the same way it did after 2008 – that would mean more than £150bn less revenue than expected over two years (a ‘taxation double dip’). Following the Chancellor’s logic, that would be enough to steer the UK straight into a debt storm.

Now you could argue that revenue will prove more robust than it did after 2008 and that’s probably true if the UK sees ‘normal’ economic underperformance. But euro breakup – accompanied by an inevitable banking crisis, massive disruption of exports, lower oil revenues etc. – would take us far beyond normal.

Bottom line: if the euro goes, it probably takes the British government with it. Happy days.

Update: Duncan Weldon has an IMF chart that shows the disproportionate contribution loss of tax revenues has made to driving up UK debt over the past four years.

Wolf fails to understand the logic of the new policy. It’s not the first time buyer who is really being subsidised by mortgages backed by the British government. They are simply entering an overpriced market, and taking on debt that will strangle some of them in what Wolf expects to be a ‘lost decade’.

Instead, it is those who are exiting the market who will benefit if the Chancellor’s largesse succeeds in propping up prices – that’s the elderly who are dying and passing on the proceeds from a house sale to their children (who tend to be in late middle age), or the baby boomers themselves as they downsize in preparation for retirement.

Any government policy that keeps house prices artificially high benefits the old not the young. Of course, banks will do quite nicely from government-backed 95% mortgages as well – they can relax lending standards and we all know where that leads.