Media Briefings

When Middle Class Voters Call For Public Sector Cuts: ‘Retrenchment’ Lessons From Late

  • Published Date: September 2010

Extensions of the voting franchise to the middle classes in England in the latter half of the nineteenth century led to growing pressures for retrenchment in public spending. That is the central message of research by Toke Aidt, Martin Daunton and Jayasri Dutta, a finding that goes against conventional wisdom that the middle classes generally benefit most from public spending and will therefore typically support it.

Their study, published in the September 2010 Economic Journal, suggests that in English cities where franchise extension moved political power away from the local elite to ‘penny-minding’ middle class voters, the result was retrenchment. But in other cities, where local elites maintained control, retrenchment turned to expansion and urban improvement.

Co-author Toke Aidt makes a comparison with the current debate about spending cuts:

‘Today, in contrast, the political elite is at the epicentre of the cry for retrenchment, and it will be interesting to see if the cry survives the predictable opposition to cuts from today’s middle classes.’

After an extended holiday, the word ‘retrenchment’ is firmly back on the policy agenda. The ballooning public deficits and increasing debt burdens have focused the minds of politicians in the UK and elsewhere on expenditure reduction in the public sector. After a long period of expansion in both the public and private sector, the time seems ripe for retrenchment, at least in the eyes of many politicians.

The rally call to contain spending has, of course, been heard before. In this study, a team of economists and historians from Cambridge and Birmingham revisits the battleground for public investments in late Victorian England. They ask if the extension of the voting franchise can by itself be a source of retrenchment in public spending and answer affirmatively that it can.

This goes against conventional wisdom. This is not only because new quantitative evidence (based on a newly constructed panel data set of 75 municipal corporations from 1868 to 1885) that including hitherto excluded citizens in the democratic process can generate demands for lower public spending challenges the widespread presumption that democracy and growth in government go hand in hand.

It also goes against conventional wisdom because it shows that the source of retrenchment was middle class opposition to public spending. This stands in contrast to the so-called Director’s law, which holds that it is the middle class that benefits most from public spending at the expense of people at the top and bottom of the income distribution.

The logic behind this surprising result can be captured by the slogan ‘no taxation without representation’, which governed local politics at least until the First World War and still plays a role today. For local politicians in the late nineteenth century, the (main) tax base was local property and the key tax instrument controlled locally was the rate (the tax levied on that property).

The franchise rules laid down for the municipalities by Parliament in 1835 linked the right to vote to prompt payment of the rate. This provided a tight link between taxation and voting rights: citizens who did not pay the property tax were disenfranchised in local elections, on the one hand, and the tax base from which spending could be financed was linked to the size of the electorate, on the other.

Add to this the fact that the incidence of the local property tax tended to fall particularly hard on middle class shopkeepers and landlords, while big manufacturers and other members of the urban stood to benefit from investments in urban sanitation as they would harvest the lion’ share of the benefits of a healthier workforce, of reductions in transport costs and of having access to a reliable (and clean) water supply – an important input into many manufacturing processes.

The stage was thus set for middle class retrenchment. Imagine a municipality governed by the local elite on a narrow franchise. They were, in general, keen on investing as they benefited disproportionally from urban improvement, but were constrained by a relatively narrow tax base.

Suppose, now, that the middle class was enfranchised through one of the national reforms of the era. This expanded the tax base, but at the same time political power moved away from the local elite to ‘penny-minding’ middle class voters who were unwilling to pay the tax cost of urban improvement. The result was retrenchment caused by enfranchisement of the middle class.

This retrenchment effect delayed spending in some cities by more than 20 years. In others, most notably perhaps in Birmingham under the leadership of Joseph Chamberlain, retrenchment turned to expansion and improvement as the local elite maintained control of the councils.

ENDS

Notes for editors: ‘The Retrenchment Hypothesis and the Extension of the Franchise in England and Wales’ by Toke Aidt, Martin Daunton and Jayasri Dutta is published in the September 2010 issue of the Economic Journal.

Toke Aidt is in the Faculty of Economics, University of Cambridge. Martin Daunton is in the Faculty of History, University of Cambridge. Jayasri Dutta is in the Department of Economics, University of Birmingham.

 For further information: contact Toke Aidt on +44 1223 335231 or +44 1223 766471 (email: tsa23@econ.cam.ac.uk); or Romesh Vaitilingam on +44-7768-661095 (email: romesh@vaitilingam.com).