With the General Election “long campaign” starting on 19th December (that’s the period for which candidates’ expenses are controlled), I’m starting to think about how I should vote.
Tactically, as always.
First priority: ConDems out. This has been the worst government I have ever lived under, by a long way. #CameronMustGo is the trending Twitter hashtag; Cameron is the worst of the worst sort of modern toff Tory. His time at McKinsey obliterated any values of noblesse oblige that might have moderated the class loyalties of an earlier generation of Tories.
Second: Blairism begone. By Blairism, I mean the kind of Tory-lite Labourism that lickspittles the City and the Daily Mail, weasels about immigration, and whose prevalence in the PLP puts me right off. It’s not about the Blair/Brown personality clash, it’s much more to do with the wholesale abandonment of Labour values – the baby thrown out with the Clause IV bathwater – that meant that inequality rose in the Blair years. I will find it very hard to vote Labour while these values are still in the ascendant.
Third, stop UKIP. Round here, in the heartlands of the metropolitan elite, in my wonderfully mixed and diverse bit of London that is Brixton, they’re more of a laughing-stock than a threat, but their values are a threat to us all. In Europe, islamophobia is today’s antisemitism. We have no more need of Farage than we had of Oswald Moseley, and UKIP is becoming a haven to those who harbour the same racist views. Credit, then, to Douglas Carswell MP, who stands against it; but he jumped to the wrong ship.
Fourth, Greens in. In a fair voting system, which we do not have, I’d vote for them without a doubt, because on policy I’m more aligned to them than any of the major parties. I disagree profoundly with their position on GMOs and nuclear power, but their economic policy is one of the soundest. Sadly, there’s no chance that they’ll win a majority – though Caroline Lucas and Natalie Bennett would be brilliant leaders – but I’d rather have a couple of Greens negotiating a coalition than a couple of kippers.
I’m in one of the safest Labour seats in the country (and therefore almost entirely disenfranchised). Kate Hoey is my MP; I disagree with her on many things, but respect her independence of spirit. She’s one of the best of today’s Parliamentarians. Despite this, a tactical Green vote is where I’m heading.
Shirley Williams once said, “Economics are all right if you don’t inhale”. She also helped push through LibDem support for HASCA12 (the NHS Privatisation Act) so shredding any respect I might once have had for her.
Actually, we do need to inhale economics. We need to study it more, and better.
A friend of mine and I were discussing the recent decision of a mutual friend’s daughter to read economics at university. He blamed the discipline for the present state of the economy, and thought that actually studying it was the problem. The existence of an academic discipline of economics isn’t the problem; it’s the way it is now taught and practised that is. It should be about working out how we can make everyone better off, eliminating destitution instead of making a few people much richer. It always used to be the point: Alfred Marshall always kept a picture of a destitute street urchin in his rooms, to remind why he did what he did.
Students at Manchester University, followed by others around the world, have already realised this. The Post-Crash Economics Society was established earlier this year to challenge the neo-classical curriculum that predominates in most university economics departments. Andy Haldane, the much-respected chief economist of the Bank of England, wrote a positive foreword to the report they published in April, in which he outlined – and criticised – the way economics has developed, seeking to lay firm theoretical foundations on which to build mathematical models, just like the physicists were doing. He thinks that the problem is that the economists wanted to be too like the physicists, instead of the historians. I think the problem is that perhaps they didn’t want to be enough like the physicists; although the history matters too.
The big difference between economists and physicists is that the theoretical physicists share the same departments, the same journals, the same laboratories, the same canteens as the experimental physicists, a small fraction of the budget and, ideally, equality of prestige. The experimentalists probably beat them in prestige, because they have bigger budgets and better toys. Where are the experimental economists? (Partially, in the banks). In physics, experiment and theory go together. Experimental results guide the theoreticians’ theorising; the theoreticians’ predictions guide the experimenters’ experiments. Classical economics operates without the experimental division; it is trying to do science without the empiricism. So it becomes just another branch of theology; the fact that the language it uses is advanced mathematics rather than Latin or Greek makes it no more reliable than theology, because it has no empirical base. Econometricians, the nearest thing to experimental economists, aren’t given parity of esteem in the department; they’re considered a rather weird bunch and a whole school of economics considers them irrelevant. They, and their discipline, are the very foundation stones of positive economics. They should have the big offices and the big budgets, and feed lots of lovely data to the theoreticians.
Gradually, however, we are beginning to realise that there is a lot of data out there. We can be critical about it. Experimental physicists are very critical of the data they collect. They understand that there is never an exact answer; they know that the best they can say is that “the probability that the answer lies between these two values is such-and-such”. They analyse and allow for the errors in their instruments, the most important and error-prone of which is the experimenter, or observer, himself. Economics needs to develop the physicists’ critical analysis of bias in measurement. Double-blind clinical trials are structured so as to eliminate the possibility of the experimenter’s bias affecting the results. Is there anything like such rigour, anywhere near the heart of the discipline of economics? Economists still think along the lines of “the data will say anything you want if you torture them enough”.
There are signs, around the discipline, that things are beginning to change. Piketty’s work has been data-driven; he isn’t the only one. The Manchester students are arguing for a discipline based on a critical analysis of historic episodes, the policy responses and the results; and how these events drove the development of economic thought. There is much less historic data than there is current data; and a lot of current data is hidden because it’s about people’s money; and it’s proprietary because it can be used to make money. Surely better that it should be used to inform the policies on which the nation is governed? Yet another argument for transparency: if current financial data is available for analysis, anonymised, there’ll be lots of empirical data from which to make economics a sound academic discipline.
The idea of evidence-based economics, without political bias, seems to be a pipe-dream today. On the left and on the right, academic economics is partisan. There are schools of economic thought: the Chicago school, the Cambridge school, the Austrian School. They’re selective about the data they choose to support their arguments. They’re also hand-in-glove with Government and the financial services industry; their decisions affect everyone’s lives. It’s irresponsible not to want to try to find the right answers, and you can’t get the right answers without experiments. Lots and lots of them.
No economic paper should ever be published without asking the question: how do I test this hypothesis? Is it testable? if not, it’s theology, not published in this journal. If so, let’s test it. Don’t let anyone publish another paper in the same vein without some further research, data driven, empirical research to support it.
In 1972, three crucial documents informing the modern environmental movement were published. They were “Limits to Growth”, the report of the Club of Rome; “Blueprint for Survival”, an entire issue of the Ecologist Magazine describing a decentralised way of living in small rural communities; and “Only One Earth”, a popular book by Barbara Ward.
I was a politically-motivated rather nerdy schoolboy at the time, and I was taken in by all of this. I have considered myself an environmentalist ever since; I think that environmentalism is the single most important political idea of the last half-century because it is based on real science. The green movement is the only political movement driven first and foremost by evidence rather than ideology. But those seminal documents, read today, are just wrong; and it’s time for the green movement to face up to that, and the green mantra that must be the first to go on the bonfire is zero-growth economics.
Growth isn’t just good; it’s what makes us human. Economic growth is about people getting richer; and that’s not a bad thing. If there’s zero-growth, we stop getting richer. If we stop getting richer, things stop getting better; and the desire to make things better, for ourselves and for our heirs, is what propelled us from being just another species of wild animal on the savannah. Growth means more people living longer, more comfortable happier lives. It’s also unashamedly Green.
There has always been a conservative, Puritan, killjoy strand to human thought which disdains progress, and suggests that anything good must be more uncomfortable. It has infected most religions at various stages of their development, and the Green movement has not been immune. Modernity is damaging so we must eschew modernity; it is the doctrine of Boko Haram. The same strand of puritanical, illiberal thought informs the Limits to Growth, and it has no place in progressive politics.
The Zero-Growth thesis misunderstands humanity. Our human desire to make things better is a tremendous force for all sorts of things, and technology – from fire, flints and farming to satellites, smartphones and solar panels is its result. Mostly, technology has made things better; some technologies have been damaging (cars and coal spring to mind), but have none the less contributed to our present state. It took coal-fired steam and steel to get us to the position where we can make smartphones and solar panels. Our role as informed citizens, as protagonists in the Green movement (whichever way we vote) is to influence the direction of technology as innovators and consumers, towards the sustainable and away from the crass over-consumption which is sometimes identified with economic growth.
The Limits to Growth argued that perpetual exponential growth was inevitably unsustainable, and that only zero growth is sustainable. The mathematical logic is irrefutable, but the argument is irrelevant. In the long run, we are all dead. In the long run, however green our lifestyles, the Earth will be consumed by an expanding red giant Sun. For now, we live in a world full of poverty and disease from which only economic growth can provide an escape. The Green debate should not be about whether there should be growth, but rather what sort of growth there should be:
- Technology-led growth that gets more for less by the application of knowledge rather than the consumption of fuel.
- growth that’s about better rather than more or bigger.
- growth for the coming nine billion, not just a privileged few.
As any gardener knows, “green growth” has never been an oxymoron.
If you haven’t seen yesterday’s epic rant by Paul Mason, Channel 4’s economics correspondent, do now.
But there’s a problem with regulation: it doesn’t work.
Regulators are never as well-resourced as the banks. So they can’t afford to employ the smartest people. Or not for long, anyway – a good career move is to spend a year or two working at a regulator, then move into compliance with a major bank. Gamekeeper turned poacher. When you work in compliance at a bank, you’re not a policeman – you wouldn’t last long if you kept on preventing profitable deals (the ones that in the end go to paying your salary). Your job is to provide the whitewash.
So there’s a brain drain from the regulators to the banks. What’s more, much of the young talent working in the regulators has an eye on this career path so won’t do anything to mess it up. Like get involved in pursuing an enforcement case against a possible future employer. And the regulators really don’t like pursuing enforcement cases, particularly not criminal ones. The lawyers are lining up on both sides to take their fees, and the banks won’t skimp on paying for the best. If the regulator loses, there’ll be questions asked in Parliament about the waste of taxpayer’s millions, and the banks will be saying “we told you we were perfectly innocent”. If the regulator wins, the bank puts the cost down as a routine cost of business and fires the compliance officer for failing to apply enough whitewash.
And what were the auditors at RBS doing? Who appoints them? Duh.
There is an answer, though. Less regulation, more transparency. Much, much more transparency. So much transparency that it completely changes the way the City works.
No secret deals. A secret deal is a dodgy deal, so make unenforceable any deal that has any element of secrecy.
Publish everything IN REAL TIME.
Let us be the auditors with a GoogleBot.
If I can’t find out everything about a deal as it happens, from my smartphone in the cafe over the road, it’s not transparent enough.
It’s how it used to be.
Well, not quite. But trading was much more public when it was by open outcry on public trading floors. Deregulation and electronic trading came in at about the same time. Before then, honour – “my word is my bond” – and as much transparency as the technology of the time afforded kept all but the most egregious cases under control.
(And read Stiglitz).
Better late than never
It is clear that we have been doing something wrong. I have no doubt what it is: fiscal austerity. “But the debt, the deficit, the debt!” cry the bankers and the Germans. Their fears are misplaced (at least, the Germans’ are. The banks cannot be regarded as impartial).
The Bank of England has been practising QE to ease monetary conditions and in so doing has taken a lot of public debt onto its own balance sheet. It needs to continue to do this, effectively printing money for the government to finance the deficit. Yes, I know, breaking every rule beloved of dear Prudence.
The Government, on the other hand, should be pushing forward fast with major infrastructure projects, principally the development of offshore wind power and the associated industrial capacity to install it. We should be world leaders in this technology (we are already in installed capacity). It should also take on the development of more nuclear power stations, not by making ridiculous unit price promises (tying us in to paying well over the odds for new nuclear electricity) but by commissioning contractors to build them. Put money into nuclear research and developing prototype novel reactors under the management of university physics and nuclear engineering departments – let them teach practical, as well as theory. Not just nuclear research, by the way, but really back our scientific base so that a career in science makes sense. Better rail links – don’t just talk about HS3 for the north, build it now. Home Insulation projects – not the weaselly Green Deal, but a programme of grants focussed particularly on social housing. Talking of social housing, build some. Build a lot. That’s what we should be doing with the money printed by QE.
Now this will, eventually, trigger some inflation and in so doing it will devalue the debt and peoples’ savings. QE has already been devaluing people’s savings, for no apparent benefit other than papering over deep deflationary cracks. In the 20th century, big national debts have only ever been repaid by inflation, which doesn’t really repay them. It will probably be the way today’s debt is repaid, but if we have a truly growing economy (unlike today’s phoney growth) there is a chance that some of the money owed to us – most of the government debt, by the way, is owed to us, we the people, the pensioners, the baby boomers – will be paid for real. And this programme of managed government investment will pay us back.
A good deal of this government investment will generate a return. Offshore wind farms and nuclear power stations can be sold, or kept so we earn from the electricity they sell. Social housing capital can be recycled through Right-to-Buy (need to look at those discounts though, currently far too generous). For others the return will be less direct.
Osborne almost gets it
I have very little time for George Osborne but he does understand that infrastructure spending matters. He didn’t cancel Crossrail, for example. But he didn’t go nearly far enough in boosting infrastructure spending in the recession.
Keep a lid on current spending
Current spending does need to be kept under control. The overall budget does need to be in surplus across the economic cycle but cutting current spending in a recession is completely counterproductive.
This is very important. The ConDems’ actions in increasing tax thresholds are, mostly, to be applauded, but they have been much more expensive than they needed to be. They should have been balanced by an increase in rates. For every penny off average tax rates for those on less than median earnings, a penny more on average rates for those above the median. Increasing allowances without an increase in the basic and or higher rate reduces average rates for everyone. It doesn’t have much effect in making the tax system more progressive. But allied to an increase in tax rates – even the basic rate – it does make it more progressive.
I have clear views on simplifying the tax system and ultimately I think Income Tax should be scrapped, replaced with a CashFlow Tax that wraps up the benefit system as well and provides everyone with a Basic Income. But in the meantime it is important to keep it gently progressive, by which I mean simply that the average tax rate paid should increase for higher incomes.
The German Concern
Germans are terrified of hyperinflation brought on by excessive government spending using paper money; rightly so, since it triggered the economic collapse of the Weimar republic out of which came Hitler. But Weimar would never have been in that state had it not been for the war reparations it had to pay. It was the reparations, not the deficit, that did for Weimar. Now, in the Eurozone as a whole, German reluctance to tolerate monetary expansion is keeping the entire zone barely above the deflation level. Europe needs the same medicine as the UK and the US: monetary and fiscal expansion.
QE was supposed to have provided banks with the liquidity they needed to start lending to small businesses to get the economy growing. However, they really needed it to fix their balance sheets and weren’t about suddenly to start lending to enterprises without customers. Banks aren’t in the business of providing equity capital or of taking entrepreneurial risks in the real economy; it’s not in their DNA.
Banking continues to need reform. Bankers need to be held accountable to politicians, and politicians to the electorate. Nowaday’s its backwards: politicians are firstly accountable to bankers.
I know it’s nearly six months away, but election fever is beginning.
This post is about UK politics, and next years’ election is the most open for a long time. We seem to be moving towards five or even six party politics. Despite the disaster of the ConDem coalition, we may yet get another five years of it, or worse – a Con-UKIP coalition. Since it is also likely that we will enter a period of extreme economic difficulty, globally (see my last post), perhaps the younger talent on the left thinks that 2015 is a good election to lose. Perhaps, but that is a selfish view and I am not sure that the country can afford another five years of plutocratic larceny, or the risk of leaving the EU that the in-out referendum of 2017 presents.
It should be clear by now that my sympathies lie on the left; I consider myself a progressive but find that Labour’s reluctance to embrace progressive politics, as well as its refusal to admit its failings when last in office, deter me from giving them unequivocal support. When I participate in online surveys of parties I should support, based on my opinions, the Greens invariably win, and I have voted for them in the past. They are the only party that has consistently, sane, left-of-centre policies; but I cannot give them my wholehearted support for two key reasons:
Firstly, their policy on genetic modification: http://policy.greenparty.org.uk/fa.html (scroll down to the section starting FA710).
It is true that most commercial GM is used for the purposes of simplifying industrial monocultures: Monsanto’s Roundup Ready glyphosate-tolerant crops being the most egregious example, and there is little doubt that industrial monocultures are damaging for biodiversity. But GM is potentially an enormously positive technology, harnessing the huge strides we have made in genetic science. It is far better controlled than other methods such as cross-breeding.
Secondly, their policy on nuclear power.
I have changed my mind on this issue several times in my life: originally, strongly in favour; then, after Harrisburg-TMI coming to the conclusion that it wasn’t worth the risk, a view that the Chernobyl disaster reinforced, and most recently, after Fukushima-Daichi coming once again to the view that it is a manageable risk: because, despite the scale of the disaster, the number of global premature deaths it caused or is likely to cause is minimal. It hit the headlines, but more than 10,000 Japanese people died in the tsunami. Not one from radiation. Most of all, I think it is tragic that public opposition to nuclear power (including mine) stopped suitable research funding taking place. Heysham C will be the same type of reactor that failed at Harrisburg (a pressurised water reactor): much safer, not doubt, as a result of the lessons learned since then, but not one of the many potentially-safer designs such as molten-salt reactors, thorium cycle reactors etc – none of which has been developed even to prototype stage let alone commercial viability because the research funding dried up.
A deflationary world
This is a post about the conventional world economy, particularly the USA and the UK.
Both economies have been suffering from low-wage employment growth. Unemployment, normally a clear indicator of a failing economy, has fallen; and so have wages.
Both have had major financial crises and both governments have had to stage bank rescues.
The Eurozone and Japan are also primarily in sync with this movement. The Eurozone has suffered worse because it has had less QE.
There are a few differences, cultural, institutional, but essentially, the whole developed world has been stagnating since at least 2008, with the underlying malaise probably starting as much as a decade earlier.
The facts are that despite the key commodity (oil) being at well-above-average real price levels for most of that time, inflation has remained low and wages have fallen. We have, essentially, been living through deflationary times, saved only by quantitative easing. Without the actions of both the Federal Reserve and the Bank of England, things would have been much, much worse over the last six years. Unfortunately, QE could not solve the underlying problems and now it is being withdrawn, they are likely to emerge with a vengeance next year.
I could be wrong; I often am and in this case I really hope so. But I don’t think so.
Classical economic theory (on all sides of the fence) says that recessions are the consequence of inadequate demand. Keynesian analysis says that the way to deal with that is for government to increase spending and/or reduce taxation during a recession, thus putting more more money in people’s pockets and increasing demand. These two things aren’t, however, equivalent. On the liberal right, tax-cutting is the preferred mechanism because it lets people, not governments, decide how to spend the money and determine where the demand goes; the interventionist left favours more public works (the Mersey Tunnel, the Tennessee Valley Authority, re-arming for the second world war). Intervention means that the money is actually spent; individuals and companies, as is their right, don’t always choose to do so, particularly when there’s deflation about. The monetary authorities (central bankers) respond to this by devaluing money, making real interest rates negative. This is normally a strong incentive to spend, after all, why keep the money in the bank losing value? One of the problems of today’s global economy is that consumers, and particularly companies, haven’t been spending their money.
Quantitative Easing (QE): blowing bubbles
QE is a emergency lever used by central bankers to devalue money when the interest rate lever has come to the end of its range. Global interest rates have been near-zero since the crash. The central bankers create money to buy bonds from financial institutions. Creating money without creating a corresponding amount of stuff inevitably devalues it, which is the point of the exercise. However, QE has operated at a scale far beyond that originally intended.
The problem with QE is that it is used to buy assets: government securities, commercial paper, and in the US in particular the toxic securitised debt that had triggered the first crisis. This has the result of pushing up asset prices. Suppose a bank holds $1bn of toxic debt, which it sells to the Fed. The result is that it has $1bn of cash instead of the toxic debt. That needs to go somewhere; held as cash, it will decline in value. So it spends it on other assets. Up to a point, this is a good thing. For related reasons, banks have been under great pressure to “strengthen their balance sheets”, since many had to be rescued during the crash. New international rules on capital adequacy have come into force and QE has helped them meet the requirements, most clearly in the USA. German refusal to let the ECB do much in the way of QE, allied to the Eurozone’s structure, means that some Eurozone banks have found it harder to pass the new stress tests. But beyond a point, it is a bad thing: it pushes up the price of assets, creating asset bubbles. There are lots of these around the world, fuelled mainly by dollar QE. London property is one. If the bubbles are relatively local, they can burst without bringing the system down. The market for luxury property in Istanbul – definitely a QE bubble – has been hit by regional unrest. But the collective effect of asset bubbles bursting is that investors lose money and the effect of the QE evaporates. A significant factor here is the way insiders offload inflated assets just before the bubble bursts, thus passing off the losses to schmucks, or retail investors as they are more politely known.
The underlying problem is much more serious and none of the actions of the authorities since 2008 have done anything to address it. It is structural, based on continued weakness of real productive industries outside the newly-industrialising countries. Growing income inequality creates a large class of people able to afford only the most basic goods and another, much smaller class of super-rich people with nowhere to put their money. Together, these two groups’ spending isn’t enough to support a prosperous middle-income, working class. Making money by making useful stuff has been eclipsed by making money from inflating assets. Austerity policies have exacerbated and prolonged the structural problems.
I continue to believe that QE was, perhaps is, a necessary evil, but not a sufficient response to the structural failings of the global economy. On its own, all it has done is disguise the intrinsic deflationary phase; that needed addressing by significant state intervention on capital infrastructure projects.
The end of QE without solving the underlying deflationary nature of the economy threatens to bring deflation out into the open. That’s what I’m worried about for next year, although I believe that it’s more likely that central bankers will resume QE to prevent that particular disaster. I really don’t think they have a choice; it’s governments who need to act.
The health and social care Act of 2012 is, according to certain Tory cabinet insiders, the biggest mistake the Tories made in government. It was a direct contradiction of their manifesto pledge not to impose any top-down reorganisations of the NHS, and it wasn’t mentioned in the Coalition agreement. LibDem endorsement of it was a far greater betrayal of principle than Nick Clegg’s about-turn on tuition fees.
HASCA2012 continued Nu-Labour’s reform agenda, which bought into the unsubstantiated neo-liberal claim that cost savings could be made by outsourcing healthcare provision to private-sector suppliers. Another facet of the reform agenda was the use of PFI agreements to build new hospitals. These off-balance-sheet instruments made the public sector finance numbers look prettier in the beginning but were badly written, badly negotiated and have left today’s and tomorrow’s NHS facing payments they can’t avoid for services and hospitals they no longer need. Nu-Labour is as guilty as the Tories on this; I will allow that they were more gullible schmucks than conniving predators, but the result is the same.
Anyway, back to the current (and future) problem. Billions of pounds of NHS expenditure is going through outsourcing, PFI and other contracts to private-sector suppliers, when in many cases the services can be provided more flexibly and often more cheaply by directly-employed NHS professionals working to a patients-before-profits, care-before-costs agenda. The government, and in particular a future government of honour and integrity (we can dream) will be stuck with honouring deals done by the present bunch of thieves. There are international laws and standards about not breaking deals your predecessors in government have done. Surprisingly some of these are human rights laws (Governments can’t deprive citizens of their property without compensation).
So what is to be done? What can a future good-Labour, Green or NHAParty government do to unpick these deals and rebuild a fair NHS? While the deals themselves can’t be undone, the context in which they continue can be changed. It could make the legal, economic and tax environment too uncomfortable for the private sector contractors to continue, and it could provide a mechanism by which they could choose to give up or change the terms of their agreements. However, such a change would have to be done without discrimination. A law directed specifically at NHS contractors would be open to challenge.
Naturally, I would make the case for a law about transparency as part of the mix. Make it so that every government and public sector contract must be published in full. Plus information about the beneficial ownership, tax status and political affiliation of the contractor. Let’s add to that a requirement that NHS trusts also publish their accounts in detail, leaving out only any personally-identifiable data – transparency is a good thing all round: the only thing that should be confidential in the NHS is patient information.
By pursuing the transparency agenda, the new government will make it more and more uncomfortable for the worst private contractors. If the ownership paper trail ends up at a brass plate in Grand Cayman (as well it may), the Government can and should require the UK end to disclose the details or forfeit the contract.
This forced opening of contracts will allow teams of NHS supporters to conduct forensic analysis of the terms. It may be that some private-sector contracts actually turn out to be more efficient than keeping the services in house; if so, there are other things to worry about.
The Tories are concerned that working age benefits cost about £100bn per year. About a quarter of that is housing benefit, and about 40% of housing benefit goes to private sector landlords – £9bn pa. This public money pushes up house prices and is a factor in the distorted property market. The real gainers are the said private sector landlords.
Tax private rental income more. I can’t immediately find statistics for the size of the private rental market – what I’d like is the aggregate private rent paid – so I’m going to estimate. There are about 4m privately-rented homes in the country. According to the Valuation Office Agency, the average monthly rent for England is £720, which amounts to an annual rent of £8620. Assume for the UK as a whole it will be rather less because of the distorting London factor, so I’ll assume a mean annual rent of £6k. Multiply by 4m and you get an annual private rental market of £24bn. Tax is already paid on some of that, but the net income is going to be substantially less after allowing for mortgage interest and other expenses including repairs and maintenance. I guess – though there may be treasury and HMRC figures to correct this – that the total income tax take from the sector is less than £2bn. It’s certainly well below the £9bn paid to the sector in housing benefit.
My suggestion is that all Schedule A income from residential property should be taxed at the higher rate regardless of the taxpayer’s other income. It could cover the cost of housing benefit.
This will hurt a lot of private landlords. Do we feel sorry for them? Just a little. But in most cases, the reduction in their net income after tax will be easily absorbed. Some private landlords will be highly-geared and will have borrowed substantially; it is possible that they will be forced to sell up and there will be cases of individual hardship (although hardship is probably too strong a word). Others will find that property is no longer such a satisfactory place for their money and will sell up by choice rather than imperative. This will release some private-sector rented property onto the market for owner-occupation and will tend gently to push down already-inflated house prices.
Impact on rents
Opponents will argue that it will push up rents as landlords try to recoup the cost of the extra tax through rent rises. This is unlikely; rents are determined by supply and demand, not by cost pressures. If anything, the result will be to lower rents because of the overall impact on capital values.
Administration and anti-avoidance measures
To make this work, HMRC should undertake to register all private tenancies. Changes would be made to housing legislation, so that the landlords’ protection of an assured shorthold tenancy would be conditional on registration with HMRC. An unregistered tenancy would be automatically protected in favour of the tenant who would gain indefinite security of tenure, the right to a fair rent assessed by a tribunal and the right to buy. The register would be publicly-accessible and would generate the necessary pages for the landlord’s tax return. The cost of developing such a register would be relatively small and substantially less than the annual revenue a new tax would generate; it is essentially a database.
Restrict Housing benefit through caps and stricter eligibility criteria. Clearly this is what the Tories would prefer as it would hurt their kind rather less. It is, however, likely to be much less effective. Fair tax on private rental income would have a much clearer and measurable impact on government finances.
Hasn’t he just blown his last opportunity before the election? Never mind, let’s get with it.“In a few months, the people of the UK will be voting for a new Parliament and a new Government. We’ll be able to get rid of the ConDems, certainly the worst government to have run this country in my lifetime. They have been almost entirely without principle, apart from the principle that creates systems to award contracts to people and businesses who are natural supporters of and donors to the party. The damage they have done to the NHS by allowing cost criteria to crowd out care criteria will take years to put right. The Labour Party is the obvious choice to replace them. But let’s not imagine that it will be the same as last time. This time will be different, because Labour is different. We are no longer New Labour, but neither are we Old Labour; we are just The Labour Party. I served in the last Labour Government, as did my colleague Ed Balls. We didn’t get everything right, and we got some things badly wrong. We won’t be doing those things again. The thing we got most wrong our relationship with the financial services industry. We believed it was mostly doing good for the country; we needed the tax income it generated. But it distorted the economy in many ways. I won’t discuss detail here, but just look at the results. During our term in office, inequality rose and social mobility fell. The rich got much richer, and while – for most of our time in power – most people got a little richer, the lions share of the benefits went to the rich. You expect that under a Conservative government, and that’s what we’ve had for the last five years – only this time, not only have the rich been getting much richer, the poor have been getting much poorer. But on our watch, inequality still rose, and most of those rich people who got much richer were working in or associated with financial services. Now this matters to Labour because we are a party that has egalitarianism in our soul. We are the party of aspiration, of the rising tide that floats all the ships. Inequality should go down when we’re in charge, but from 1997 to 2010 it didn’t. The Tories are the party of the wealthy establishment; they don’t mind if the poor stay poor so long as their mates get richer. But for Labour, it hurts. It hurts me to acknowledge that we didn’t do as well in reducing inequality as we should have done, and dealing with inequality will be top of our economic priorities when we are in power. This is because it matters for the economy. Not just for social fairness, the things that brought me and my colleagues into Labour politics. They matter, of course – we forget those basics at our peril. But because too much inequality is bad for the economy. There’s a growing body of serious economic research that shows for a developed economy, sustainable growth comes best when the economy is more equal. You may remember a speech Boris Johnson gave last year when he celebrated inequality. Obviously it suits him and his rich Etonian friends. And don’t think that we want a system where everyone gets the same, regardless of how much work they do. That’s absolute income equality, and it’s just as undesirable. We must each be able to get a little richer by working a little harder, and much richer by working much harder. Boris’s argument that because a little inequality is a good thing, a lot of inequality is a better thing is an example of the drunk’s fallacy. This isn’t just about redistributive taxation: increasing taxes on the rich, to pay bigger benefits, wage subsidies and tax credits to the poor. That is the worst way of all to deal with inequality – It’s better than nothing and it will always be part of the mix, but no one should go into government with it as the only plan. It’s really a sign of failure – that we have an economy that has become so unequal, that we can only correct it by redistributive taxes. We want an economy that rewards hard work from the bottom up. For much of our time in power, inequality was made less bad by the property market. Many people who owned or bought property in that time have done OK. So much so that for millions, the “property ladder” was seen as the best way out of the rut of poverty. People made – and some still make – incredible sacrifices to get their foot on the property ladder, and those that have stuck with it have done OK. But it’s not sustainable, as we are now finding out. The children of those who got on the ladder in the nineties are now finding that the bottom rung is completely out of reach. That’s because it was always an illusion. The property ladder can’t help a whole economy out of its own mess. The only ladder that’s any use is the enterprise ladder, and it turns out that no one has really been looking after it properly. We’ve patched it up, here and there, tried to fix bits of it, but it should be the centrepiece of our economy. It’s much more important than the property ladder. It should be accessible to everyone, and everyone needs to be keen to get on to it. So in government, we’ll need to make some changes. One, we’ll need to fix the ladder. We won’t repeat George Osborne’s mistake of trying to fix the property ladder. His Help To Buy scheme has made it worse anyway. We’ll concentrate on the enterprise ladder. We’ll look at all aspects of starting and growing businesses, we’ll deal with bank lending, we’ll encourage new peer-to-peer funding mechanisms such as equity crowdfunding, things that – as it happens – disintermediate much of the banking sector. We’ll look again at regulations, reforming regulations so that they help enterprises do better rather than hindering them with red tape. We’ll encourage more and more apprentices, making it easy for new businesses to take on apprentices, with schemes that encourage businesses to keep them on with a share of the business once their training is over. We’ll make business rates cheaper for small businesses, and we’ll look at market for commercial premises. We’ll make enterprise, not property, the focus of a new generation’s aspiration. For too long, we’ve had a situation where you needed to be on the property ladder to get on the enterprise ladder. As a home owner, you could give the guarantees lenders and landlords needed. That’s the wrong way round! We’ll make it so that the enterprise ladder is the way to the bottom rung of the property ladder. Many of the most enterprising people in the country are newer citizens. We welcome the enterprising drive that new immigrants often bring to the country, and we’ll encourage them to share it with those who’ve been here longer. Integration is key to making a diverse society work, and the workplace is where we should be making it happen. Let’s all learn from each other.”
OK, Ed – got it? Pity you didn’t manage something like this last week. Never mind, you’ll have other opportunities. But for god’s sake, do it.
- man up and admit to the failure on inequality when you were in power;
- Be clear that inequality is BAD FOR THE ECONOMY
- Promise to FIX THE ENTERPRISE LADDER.