Great Expectations: Charles Dickens and 'fiscal headroom'
The notion of 'fiscal headroom' has infested early twenty-first century British political debate. It is a device that enables governments to claim that they have a cushion of funding available to respond to emergencies, hint at possible tax cuts and pay for eye-catching gimmicks. It may owe its origin to Charles Dickens.
An authoritative think-tank provides a definition and brief discussion. "Fiscal headroom refers to the amount of leeway or buffer the government has within its generally self-imposed fiscal rules to increase spending or cut taxes.... For example, if the government has a rule that the deficit should not exceed 3% of GDP, and the current deficit is projected to be 2%, there is a 1% fiscal headroom. This means the government can potentially increase its deficit by up to 1% of GDP – either by increasing spending or cutting taxes – without breaking its own rule." The concept is intended to give the impression that "the government has room to manoeuvre in case of economic downturns or emergencies. However, the economic forecasts used to determine the future deficit can be imprecise, in part because of how quickly economic prospects can change. In addition, governments may change fiscal rules or reinterpret headroom to suit their political needs."[1]
Essentially, 'fiscal headroom' is a toxic device designed to disguise, or even to deny, the severe pressure on the United Kingdom's public finances. It cannot even be likened to smoke and mirrors, since the smoke is easily blown away and the mirrors are distorting.
This destabilising approach to financial management was foreshadowed, maybe even invented, by Charles Dickens a century and a half ago. His thirteenth novel, Great Expectations appeared in serialised instalments during 1860-1. The story is packed with unlikely episodes and unbelievable coincidences that explain why Dickens is widely regarded as unreadable today, and the author's predilection for cumbersome and ludicrous surnames does not help. The hero, Philip Pirrip (mercifully referred to as "Pip"), is an orphan who is unexpectedly financed by an unknown benefactor so that he may adopt the comfortable life of a gentleman. He befriends a young scion of the professional middle class, the easy-going Herbert Pocket (another wince-making cognomen), who provides him with lifestyle tips which, not surprisingly, include congenital overspending. In return, Herbert is impressed by Pip's financial management skills, which consist mainly of docketing individual bills and filing them by categories. Unfortunately, this accounting wizardry was less effective in ensuring that the various accounts were actually settled. But the hero, who was also the narrator, later reminisced about the creative flexibility that he adopted to protect their underfunded way of life. Let us hear how Pip explained his use of fiscal headroom:
"My business habits had one other bright feature, which I called 'leaving a margin'. For example: supposing Herbert's debts to be one hundred and sixty-four pounds four-and-two pence, I would say, 'leave a margin, and put them down at two hundred'. Or supposing my own to be four times as much, I would leave a margin, and put them down at seven hundred. I had the highest opinion of the wisdom and prudence of this same margin; but I am bound to acknowledge that, on looking back, I deem it to have been an expensive device. For we always ran into new debt immediately, to the full extent of the margin, and sometimes, in the sense of freedom and solvency it imparted, got pretty far on into another margin."[2]
It is ironic to reflect that Great Expectations was published at the height of Gladstone's austere ascendancy at the Treasury, years when the rigidity of household budgeting was ruthlessly imposed upon the nation's finances. Indeed, Dickens had given voice to the Gladstonian-Peelite approach to fiscal discipline ten years earlier, through another of his implausibly named characters, Wilkins Micawber, in David Copperfield. Like Pip, the eponymous hero is also the narrator (and his initials, when inverted, suggest that the story is essentially autobiographical). As he takes his first steps in adult life, David Copperfield receives philosophical advice on money-management from the engagingly disreputable Mr Micawber. "He solemnly conjured me, I remember, to take warning by his fate; and to observe that if a man had twenty pounds a-year for his income, and spent nineteen pounds nineteen shillings and sixpence, he would be happy, but that if he spent twenty pounds one [shilling] he would be miserable. After which he borrowed a shilling of me for porter, gave me a written order on Mrs Micawber for the amount, and put away his pocket-handkerchief, and cheered up."[3] Micawber shed tears over his failure to live up to his own responsible precepts. British governments may have equal reason to regret their imaginative conjuring of cash that does not exist.
ENDNOTES
[1] https://ukandeu.ac.uk/the-facts/what-is-fiscal-headroom/.
[2] Great Expectations (1860-1), ch. xxxiii.
[3] David Copperfield (1849-50), ch. xi. 'Porter' is a now-dated term for stout, often referred to by the brand-name 'Guinness'. £19.19.6 is approximately £19.97 in decimal currency; £20, one shilling is £20.05.