Saturday, 29 September 2012

Making Welfare Popular

Consider the following conundrum.

The NHS is a universal public service, funded out of general taxation, which is designed to provide help to people at times when they are unable to do so themselves. It is enormously popular with the public, so much so that it has been said to be the closest thing Britain has to a national religion.

The welfare state is a universal public service, funded out of general taxation, which is designed to help people at times when they unable to do so themselves. According to the latest British Social Attitudes Survey support for spending on the welfare state is in long term decline, and sympathy for its recipients is in very short supply.

Why the difference?

People say that you can’t help getting ill, but you can get ‘on your bike’ and find work if you are unemployed, implying that unemployment is basically voluntary. If you think this, you must also believe that the huge rise in unemployment at the end of 2008 was due to millions of people simultaneously deciding to enjoy more leisure time. As Joe Stiglitz has pointed out, the Jarrow Crusade was not a hiking holiday, people are made unemployed by economic changes they cannot control. They have the same moral right to state help as people who get sick, so why does the public dislike welfare?

Rather than blame media representations of benefit recipients, I would suggest that the answer lays in the fact that the welfare state in its current form does not help the majority of people who have to pay for it. At the moment, if you lose your job and you have savings, the state will not help you, even if you have been paying in to the system all your life. This is the inherent problem of universal ‘safety net’ provision. The level below which the state will not allow a person to fall is too low to be acceptable to people higher up the income scale, yet an extravagantly generous level would make work pointless (and be ruinously expensive for the state).

In the end, asking the working population to continually pay in to a system that does nothing for them is politically unsustainable. They will eventually vote for a party which will dismantle the system. A state run welfare system must have the support of both its recipients and those who fund it. How could this be achieved?

Frank Field MP has spent his entire career thinking about these problems. His answer is to make the welfare system contributory, which basically means that the more you pay in the more you get out. A summary of his argument can be found here. To fund such a scheme, Field has in the past suggested pooling National Insurance contributions in to a state run investment fund (effectively a United Kingdom sovereign wealth fund). With the economic situation as grim as it is, it is perhaps time to consider radical solutions like this one. The alternative seems to be a gradual withering away of the welfare state.    

Thursday, 27 September 2012

Where Do We Go From Here?

Because I think we’ve had enough party politics for one week, I’m going to look at a deeper question today. Taking as a given that the 2008 financial crisis and its aftermath have changed the rules of the game completely what can, and indeed should, left wing governments of the future aim to do? Ours is the age of huge budget deficits and low growth. It is impossible to redistribute wealth that is not there. Yet we live in a society which seems more iniquitous than ever. What is to be done?

Two people who have made a serious attempt to answer this question are Gavin Kelly and Nick Pearce, who have written an extensive essay on the subject for the Institute for Public Policy Research. Because normal people do not read long think tank pieces, I have summarised the essay below, and added my own annotations in [square brackets]. It does not paint a pretty picture.  

After the Coalition: What’s Left?

The government’s strategy for economic recovery is failing, yet the left has not put forward a serious alternative. If this continues, we are in for a prolonged period of stagnation, reminiscent of the 1970’s, and they were terrible [Rough translation; if we don’t do something then a new Margret Thatcher will come along and make the country even more unequal than it is now].

We no longer have the money to ameliorate social inequalities, and try as we might we cannot wish this reality away. Spending cuts are here to stay, regardless of who is in power. Incomes have not risen since 2003, and are not likely to in the foreseeable future. A new approach is needed, and it must go further than simply restoring growth.

In recent years, people in low skill jobs have received an ever decreasing share of GDP, and as a result their spending has not been able to drive the economy forward with extra demand [Low wage workers here are competing with even lower wage workers in the far east, notably the millions of extra Chinese people who have joined the global economy in the past thirty years. You can’t wish this away either].

People attempted to increase their living standards by borrowing money to pay for consumption [How many people do you know who ‘put it on the mortgage’], resulting in huge private debt levels and an unsustainable property boom. The only bit of the British economy which is really world class is the banking sector. Everything else has declined.

This messed up the tax system. The UK depends on taxing bankers and houses to fund itself. When the crash hit, this revenue decreased dangerously. That is why we have such a huge budget deficit. We need other parts of the economy to grow to make the tax system more stable.

We need to be much stricter about regulating financial and housing bubbles to prevent this happening again. We need to make banks lend to projects which build long term businesses, not short term housing bubbles [How? Nationalise all of them? The state already owns two banks, and they don’t seem to be helping]. The state should take the lead on this, setting up its own bank and spending tax revenue of projects which help the economy, like roads [and airports?].

We need to increase the wages of the low paid. This should be done by increasing the minimum wage [This could increase unemployment] and by making companies move in to higher skilled sectors [Again, how does a government do that?].

More women and older people should go to work. This means we need to widen access to child care [It doesn’t say how-I bet it’s expensive though]. We should encourage both parents to work, as we can no longer afford family tax credits. Raising incomes will be difficult, and not enough people are members of trade unions to rely on them to do it.

Now that we know what we’re aiming for, it is time to decide where to cut spending now. People on the left are ignoring this part at the moment [Agreed!]. Hardest of all will be the NHS. The cost of providing health care goes up faster than the economy grows. Even without cutting, the amount of health care the NHS provides will go down. We must get the best possible value for money. This will probably mean fewer hospitals [the idea that a left wing government will find it politically possible to close hospitals when even the coalition shy’s away from it shows you how hard this will be].

Defence spending must continue to fall [This is a shit idea. George Lansbury thought you could cut defence to spend more domestically. He was wrong then and it is wrong now]. In all areas of spending, there must be real focus on value for money [Yes. But no government sets out to waste money. It just happens. This is a chimera].

It is OK to borrow for growth producing infrastructure spending. It should be made easier for councils to do this by letting them use their assets as collateral [So could a council housing estate be repossessed? I don’t think so]. Road tolls should be introduced to pay for better transport.

Child benefit should be frozen, and higher rate pension tax relief cut [Vote winner there!] to pay for universal childcare. The goal of reducing child poverty should be abandoned. Some kind of social care system should be introduced.

The biggest nightmare is the aging population. People will claim pensions and health care for much longer in the future. That will squeeze all other budgets. We are not ready for this. To raise the money we should increase property taxes, introduce a financial transactions tax [Which will probably drive our only world class industry away unless the rest of the planet does it as well] and charge people national insurance after they retire.

This will not be enough. We will also have to raise VAT above 20% [The poor suffer proportionally more from VAT than the rich. This will be unpopular on the left].

Overall, what has been set out here is an attempt at outlining a left wing strategy, with both a goal and the steps necessary to achieve it. It shows the magnitude of the task that the left is facing, and that simply winning the next election is the easy bit. The hard work starts the day after.

Wednesday, 26 September 2012

Nick Clegg: Stronger Than You Think

Nick Clegg has used his annual conference speech to do something rather unorthodox, in that he has addressed the delegates in the room, rather than the TV cameras and the six o’clock news. He delivered a workmanlike, ‘stick with it guys’ message, clearly designed to reassure his activists that the party is on the right track, and that despite the dire poll ratings that they are currently receiving, come the 2015 election everything will turn out rosy.

On the face of it, this seems incredible. Many ex Lib Dem voters remain furious about the broken tuition fees pledge. Those who supported the party under Charles Kennedy, when it basically acted as a left wing alternative to Blair, have defected to Ed Miliband’s newly soft left Labour Party. Nick Clegg himself is now more unpopular than even Gordon Brown ever managed. However, although their situation may appear bleak, the Liberal Democrats are in a deceptively strong position, and given the current political climate, have a real chance of maintaining a position in government after 2015.

It would be my guess, and it appears that Nick agrees with me, that in 2015 both major parties will be damaged goods. The Conservatives have spectacularly failed to ‘decontaminate’ their brand, and look like they will enter the next election unpopular, out of touch and aloof, the only thing going for them being the (again tarnished) image of competence, which it seems likely their main rivals will lack. Judging based on their current form, Labour will offer the voters an incomprehensible academic seminar on the nature of capitalism and its relationship with society, then wonder why nobody cares. If, as seems likely, the election degenerates into a ‘Conservatives are evil’ vs ‘Ed Miliband is wierd’ type slanging match, both major parties will end up damaged and the Liberal Democrats will appear to be the sensible, one nation party. To achieve this, the liberals must stick closely to the perceived centre ground, more caring than the Conservatives and more realistic than Labour. In other words, they need to position themselves in exactly the place where Nick Clegg has tried to position the party throughout his leadership.   

Despite all that they have faced, the party has remained united behind Clegg. Vince Cable is positioning himself as a successor to Clegg, not attempting to oust him. There are no Liberal MP’s calling Clegg an ‘arrogant posh boy’, or claiming that the whole thrust of government policy is wrong, as David Cameron regularly has to put up with from his own backbenchers. There is no psychodrama about Nick Clegg destroying his family to gain his position, and splitting his party in the process. The public will not vote for divided parties (think Labour in 1983 or the Conservatives in 1997), and it is quite possible that the Liberals will look like the most mature and united option going in to the next election. ‘We care about fighting for the country, not fighting each other’ could be an appealing proposition if the others cannot match it. Don’t write Nick Clegg off just yet.  

Sunday, 23 September 2012

That's The Big Idea?

Brace yourselves. The Liberal Democrats have had an idea. Somebody has brought it to their attention that the high price of housing, combined with the very large deposits that mortgage lenders have demanded ever since the financial crisis, have made it more or less impossible for first time buyers to get on the property ladder.

In response, Nick Clegg has announced a plan (to Andrew Marr, not Parliament) to allow parents to sign over 25% of their pension pot as a housing deposit for their children. This plan is flawed on a number of levels.

It will only benefit the children of parents wealthy enough to have built up a pension pot of around £40,000. This will include some teachers and nurses, but obviously not everybody. It is a pure middle class subsidy. It does nothing to help young people from lower income backgrounds, even if they themselves are working in relatively well paid jobs. As such it is a move away from meritocracy and social mobility. I thought those were desirable characteristics in society?

It does not address the root cause of the problem, namely that there are not enough houses to go round and we are not building any more. If housing is to become affordable, prices must come back in to alignment with people’s incomes. The high house prices that we have seen in the past 10-15 years are a bubble, not the natural order of things. This policy serves to sustain that bubble, in the interests of existing homeowners, but at the expense of those who rent. What’s liberal about that?

Perhaps most worryingly of all, how can it possibly be a good idea to reduce the value of people’s pensions? We are living longer, and old age is becoming more expensive. We are not saving enough to cover these costs as it is, let alone if older people use the savings they have to prop up the house price bubble that is preventing their children securing adequate housing.

Housing is one of the most pressing issues facing the UK today. Any solution must involve building more houses, and realigning the cost of housing with people’s incomes. It seems that the Liberal Democrats lack the vision required to address these problems. What a surprise.   

Saturday, 22 September 2012

Loan Sharks

The man pictured above is John Kiely. In 2009 he was convicted of two counts of blackmail, after threatening an auxiliary nurse whom he had loaned £300 to. By this time, Kiely had built up an illegal loan sharking empire, which had made him an estimated profit of £2.9 million. He charged interest rates of up to 2,437% APR to low income clients in the Manchester area. It seems right and proper that exploitation of vulnerable people in this manner is against the law.

Compare and contrast. is a registered, legitimate and 100% legal company, which specialises in providing loans to the same low income demographic as Kiely. A glance at its home page shows us that they charge a representative interest rate of 4214% APR. That’s not a typo. Four thousand, two hundred and fourteen percent. John Kiely was offering a good deal in comparison.

The difference, I hear you say, is that do not use violence to collect their money. Good. That doesn’t mean that all is well. It is not difficult to find horror stories about Wonga customers who have found themselves in disproportionately enormous amounts of debt as a result of missing a payment.

Surely we should be concerned about the act of charging vulnerable people extortionate rates of interest, not just about the manner in which it is collected. Rates this high are exploitation, pure and simple. Does the credit risk that these groups present really justify rates of over 4000%?* I think not.

A particularly sad aspect to this story is that demand for these loans goes up at Christmas. Parents will try almost anything to avoid disappointing their children on Christmas morning. There is a well organised campaign, calling for a limit on the interest rates that these payday lenders charge, which can be found here. I urge you to take a look.    

Thursday, 20 September 2012

Nick Clegg-It's Personal

Two and a half years in to the coalition, Nick Clegg has decided to apologise for his pre-election pledge to scrap university tuition fees. Not, note, to apologise for breaking his pledge. Not to apologise for increasing them to £9000 per year. But to apologise for making a promise that he didn’t think he could keep. His apology follows the same structure as a cheating husband apologising to his devastated wife for making wedding vows while knowing that he was prone to infidelity.

Rather than debate the pros and cons of the issue I thought that I would add a personal perspective, to show why my generation (who campaigned against the fee rise despite it only affecting those younger than us) might expect more than a two minute Youtube clip.

During the 2010 general election, I was an undergraduate student at the University of Brighton. Although I was not involved in student politics at the time, I considered it vital for the health of our society that as many people as possible should vote in the election. Low turnout, particularly amongst the young, was and remains a depressing feature of British democracy. The National Union of Students was running a campaign to get young students registered to vote and informed about the policy stances of the major parties. I volunteered to help with this campaign, and I did manage to sign some students up, and tell them a little about what the various parties were promising. The issue that I was asked about more than any other was tuition fees.

How many of those students that I signed up to vote for the first time in their lives will have concluded that voting is a waste of time? Why would they be wrong about that? How many will vote again? Why should they? Nick Clegg’s little video gives no answers to these questions.

Of course this post does allow me to share this little gem with you (c/o The Poke).    

Tuesday, 18 September 2012

Decision Time in Afghanistan

The deaths of two British soldiers, followed by the news that NATO is suspending joint patrols with Afghan forces, have once again highlighted ongoing problems in the Afghan deployment. The fact that the defence secretary did not appear to be aware of the suspension of joint patrols indicates that there are serious issues regarding the strategic direction of the campaign.

NATO’s objective in Afghanistan is to withdraw from combat operations in 2014, leaving behind a stable country under the control of a central government in Kabul, thus ensuring that Afghanistan cannot become a refuge for terrorists as it was before 2001. In order to achieve this, NATO has been training a large Afghan army, which they hope will number 350,000 men, to take charge of the country’s security when they leave.

If NATO troops cannot patrol with the Afghan army because that army has been infiltrated by insurgents who are willing to kill them, then there must be serious doubts about the ability of that army to protect the NATO friendly central government when NATO leave. It is now time to make a serious strategic choice, choosing one of the three options which I will outline here.

    Continue as we are now. Hope that by increasing the rigor of the vetting procedures insurgent forces can be removed from the Afghan security forces, and that these forces will be ready to effectively secure the country by 2014. The increasing frequency of attacks on NATO troops by members of the Afghan forces make this seem an unlikely prospect.

    Extend the date for NATO withdrawal. Assume that with a new plan and more time the country can be stabilised. The deployment has lasted over a decade already, and cost thousands of lives. If no stability has been achieved by now how much longer will it take? At what point does the cost of the deployment (in blood and treasure) exceed the possible benefit? Has it already?

    Cut and run. Assume that the war is unwinnable, and the country cannot be stabilised by NATO. This option may involve negotiating with the insurgents in the hope that they will prevent Afghanistan becoming a haven for terrorists again. This will mean leaving anybody who cooperated with NATO for the last ten years to a horrible fate. As well as a human catastrophe, it will be a devastating blow to the credibility of the alliance in any future conflict.

All these options are bad. Yet as far as can be discerned there are no others. History will be most unkind to the leaders who are responsible for this long, bloody and so far mostly fruitless war.

Thursday, 13 September 2012

How Politics Corrupts Policy

After yesterday’s rant, I thought I’d bring you some calm reflection. Consider the way that politics is understood in the UK. Parliament is made of two great bodies of opposing ideas, made real in the form of two great political parties, facing each other in the caldron of public debate, separated only by the length of two drawn swords.

Sounds romantic, right? Principles forged into parties then refined by parliament. The only thing is that it’s probably not true. There is a large and convincing body of political science which considers the type of politics that a democracy has to be a product of the election rules that particular democracy has. Because we elect a single MP for a single area we are likely to have a two party system (for the geeks this is referred to as Duverger’s law). In countries like Germany, where they have different rules, there are lots of different parties, who always govern in coalition.

This has a fascinating implication. Every time you hear a party fanatic, be they Labour or Conservative, extolling the virtue of their world view, this view is not only the product of principled reasoning, but also of their picking a side in an artificial debate. Party allegiance is, for the most part, a similar process to that which causes a child who lives in Surrey to become a fanatical Manchester United supporter.

This is not to say that there are no other political ideas and perspectives out there. Marxists, Libertarians, Greens, Liberal Democrats (who knows what they believe) and many others all compete with each other for the right to be mocked or ignored by the general public. Yet power is always divided by the two parties which are the product of our election system.

Think about the consequences of this for the public debate around policy making. Instead of being implemented on merit, a policy must be acceptable to the artificial world view of one of the major parties. Questions which are by their nature managerial, for example how to improve school performance, are seen through an artificial ideological prism rather than a neutral process of cost benefit analysis. It can, and has, been argued that this process is why the government is sometimes an ineffective provider of services. A proper analysis of policy making requires a certain detachment from politics. It seems most unlikely that you will ever see that happen in the mainstream media, which is notoriously party political, and our public debate is all the poorer for it.  

Wednesday, 12 September 2012

A Word in Search of a Meaning

I’d like to begin this return to blogging with an apology. I wanted, and still want, this site to be a place where you can get a bit of background to the headlines that you see every day. I have no intention of becoming another angry politics blogger, clogging up the collective bandwidth without adding anything to the public debate. However, sometimes somebody does something so infuriating that I am unable to contain my frustration. Right now, that person is Ed Miliband (disclosure-I’m a member of the Labour Party).

Mr Miliband has had an idea. He has called it ‘pre-distribution’. In a rambling interview with the New Statesman he has told us that this is a central idea in his bid to establish a “new paradigm” regarding how the economy works. As far as I can make out from this interview and from a speech he has made at a think tank (sources on this idea seem few and far between), the plan is that since there will be no money for governments of the near future to redistribute, the focus of government activity must be making the market deliver better outcomes in the first place.

This implies raising wages and lowering the cost of essentials like energy and transport, as well as increasing the quality of education so people can get better paid jobs. All this sounds fantastic, but when examined in greater detail it quickly begins to unravel.

Take the example of lowering the cost of rail fares. More serious analysts than me have pointed out that rail transport is already subsidised by the government. Capping fares will take money away from infrastructure investment as well as company profits. In the end our already creaking railways will get worse, or cost the taxpayer the money that pre-distribution assumes it does not have.

Similar applies to rent caps. If rent is legally limited in a time of a housing shortage, landlords will sell the unprofitable properties, thus constricting the supply of available homes even further. Who does this help exactly?

Raising wages sounds like a fantastic idea. That must be why the Shadow Chancellor was willing to be heckled at the TUC for pointing out that under the current economic circumstances, wage increases will mean job losses, even in the public sector. The money to pay for the increases must come from somewhere, and Mr Miliband seems to have no conception of where that place is.

Finally, what about improving the education system so that everybody can get better jobs? Two points here. Firstly, the labour market is relational. Creating high skilled workers does not create high skilled jobs, but more overqualified workers in low skilled jobs. Secondly, every single politician of every persuasion will attempt to improve the education system. Nobody wants it to get worse. The question is how you do it. On this Mr Miliband is strangely silent. As such he has no policy to announce.

Herein lays the painful truth about pre-distribution. Mr Miliband has created a word, not a policy. It will not stand up to any serious scrutiny, and certainly does not amount to a programme of government.