We don’t do hypothecation and for damn good reason
This is one of those terrible ideas that needs to be stamped upon, hard.
Rachel Reeves’s Treasury is looking to keep millions of pounds levied on polluting water companies in fines that were meant to be earmarked for sewage cleanup, the Guardian has learned.
The £11m water restoration fund was announced before the election last year, with projects bidding for the cash to improve waterways and repair damage done by sewage pollution in areas where fines have been imposed.
However, the Treasury is in discussions about keeping the money to use it for unrelated purposes at a time of huge pressure on the public finances and rising debt interest costs.
Of course the Treasury should keep the money as part of the general revenue. Of course.
The idea that money raised in a particular manner should then only be spent in a particular manner is known as “hypothecation”. It’s something we do not do in Britain. We do not do it in Britain for damn good reason too.
The first such reason is simply logical. There is no connection - none, zip, nada - between how much is, or can be, raised from an activity and what needs to be spent upon either that or any other activity. Say we had a tax upon cigarettes. Say we also had costs resulting from those who smoke cigarettes. Insisting that the money raised from taxing ‘baccy must be spent upon the effects of ‘baccy would be absurd. We’d, in the current world, end up either spending some triple what we currently do on treating lung cancer or cutting the ‘baccy tax to a third of its current level. Or, say we spent the ‘baccy tax upon aid to poor people in other countries? There is no link between how many Britons kill themselves over the decades and the needs and requirements of those poor people.
No, think on it. If fewer Brits smoked then that would mean less aid to poor foreigners. Even, those who would like more aid might go around handing out ciggies to teenagers so as to up that tax take.
We tax cigarettes because demand is - relatively - inelastic so we can tax ‘baccy lots and lots. This puts lots of money into the central pot so that we can spend on all sorts of good things. As well as - come on, this is politics - a certain leakage into simple micturation up against the vertical bricks.
But the other reason is historical. Allowing the bureaucracy to raise money to be spent as that bureaucracy pleases takes us back to early Stuart financing of government. And we fought a civil war about that, lopped the head off one King and drove another from the land.
Parliament is sovereign, not the sovereign nor government. So, Parliament decides where money comes from and Parliament decides where money goes. That’s simply the basic constitutional settlement.
Now, there are things to like about the Stuarts - better hair than their opponents for example. But returning to their constitutional settlement could be thought of as retrograde.
The basic system is and should remain. All money raised, from wherever, goes into the one pot to then be allocated. No hypothecation.
Tim Worstall