Archive for the ‘politics’ Category

Monetary and Fiscal Policy for 2015 onwards: Seven Years Too Late

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.

Rebalance taxes

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.

The Bankers

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.



Boris B*****cks

Boris Johnson is a charming, intelligent eloquent man.  He is also ambitious, dangerous and wrong, and we must be careful that we do not let our admiration for his cheeky tousled locks blind us to his many egregious faults.  Were he ever to become Prime Minister he would make us long for David Cameron.

Today’s speech – celebrating extremes of inequality –  is tripe of the highest order. I hope that it turns out to be a political misjudgement  and will alert us all to the sort of man he is and the sort of views he holds.

It is tripe because it is an egregious example of a commonplace  fallacy I shall call the drunk’s fallacy. This is the fallacy that if a little of something is good, more of it must be better – and there is no such thing as “too much”. If a little wine is good, more wine is always better…

 Almost no one actually advocates total equality of income. It would, as Boris correctly concluded, remove all incentive to work and to take risks. If I were to earn the same by staying in bed as by getting up and putting in a full day’s work in my business, I’d stay in bed. (Actually, in my case at the moment, that’s a very bad example, because I would earn nothing by staying in bed and I am earning nothing by working fourteen hours  a day at my business…. But I digress). 

We need an economy where people can earn  more by working harder and more productively: a measure of inequality is thus both necessary and inevitable.  It does not follow that extremes of inequality are better. In an earlier post I argue that excessive income inequality has an adverse effect on growth, mainly because the rich save more and spend less, thus driving down aggregate demand and yields on investment. 

 What we need is a fair society. One which pays a fair wage at the top and the bottom of the market. One where people can be valued for their contribution to society, not just the size of their bank balance. Boris’ unbridled Thatcherism  repeats many of the claims of the 1980s. It was during this period, under the regime of the late unlamented lady, that we money – earning power – became the main  metric of merit.  Professions such as teaching and medicine suffered. We stopped admiring teachers for their dedication and began regarding them as much less worthy than bankers, because they earned less.

Boris, your notion is both bad economics and bad politics.    Admiration is due to people not for the size of their wedge, but for their achievements, and if the banking crisis has shown us anything it is that we cannot measure achievement only via money. 


The Net Positives of Migration

This is somewhat off-topic, but it is important. Migration Watch UK, chaired by retired diplomat Sir Andrew Green, a self-styled independent think-tank but more accurately a single-issue pressure group, has been vocal in bringing to public attention what it perceives to be the dangers of “mass immigration”. It has been very successful in getting air-time on the Today Progamme, still the most influential current affairs publication in any medium in the UK; and its views are seldom challenged.

This raises several issues, not least the question of the BBC’s famed impartiality, which is  required by its Charter.

Sir Andrew presents the “problem” of immigration almost entirely negatively. The BBC seldom has anyone up against him, and when it does it tends to choose well-informed academics who give a neutral, balanced case in reply.  No one, it seems, is willing to be as vocal about the benefits of mass immigration as Sir Andrew is about the downsides. Or rather, the BBC seems unable to find them, because such people do exist.

Immigration has always been immensely beneficial to this country. That’s my opinion, and it’s at least as valid as Sir Andrew’s contrary one. In fact, I challenge Sir Andrew to explain why he thinks immigration is bad. Does he think that immigration is always bad  – in which case, perhaps he’d feel confident explaining this to the large part of the population with immigrant heritage – or does he think that past immgration is good, or ok, but future immigration is bad? And why, in that case, choose now as the cutoff point?

No one can deny that the waves of immigration over the last sixty or so years and longer have changed the face of the country; and future immigration will continue to change it. The question is whether those changes have been positive, and it does not take much reflection to conclude that on  balance, they have. Our country is a far better one than it was sixty-four years ago, on the 22nd June 1948 when the Empire  Windrush docked at Tilbury with 493 Jamaicans on board. Those people, and the people who came after them from the Caribbean, India, Pakistan, Sri Lanka, Hong Kong and all over the world changed Britain and British culture, mostly for the better. Immigration does that. New ideas and new blood and the energy that migrants bring to an economy shake up society. Our cuisine, for example, was shaken out of its bland mediocrity at least as much by the Bengali and Hong Kong migrants who set up restaurants and take-aways across the country as it was by the middle-class cookery writers like Elizabeth David and Marguerite Patten. The Ugandan Asians, expelled by Idi Amin and welcomed by Edward Heath’s Conservative government in 1972, transformed our retail sector – amongst others.

Every time there have been waves of “mass immigration” there have been naysayers like Sir Andrew. Enoch Powell predicted “rivers of blood”. They never flowed. Opposition to the Heath government’s principled position over the Ugandan Asians was most vocal from his own back benches;  had Sir Andrew been active then, he would no doubt have been leading that opposition.There was opposition, too, to the arrival of  Jewish migrants from Eastern Europe fleeing pogroms and worse in the first half of the last century. Their heirs are now amongst the pillars of society, and society is richer for it.

There have been difficulties; it would be surprising if there had not been. The disturbances in northern England in 2001 were unfortunate, but were due as much to the particularly segregated nature of the populations in those former mill towns as to migration itself.

I live in Brixton, and I am proud to run my business in Brixton Market. I am proud because Brixton Market, with all its different traders from the Caribbean, Africa, South America, Asia,  Europe selling to Brixtonians, Londoners and visitors, represents the best of Brixton, a district that has been made and transformed by different waves of migrants for more than a century, and Brixton represents the best of London, the greatest city on the planet because of its wonderfully diverse, welcoming and beautiful people – and it’s that, above all, that makes me proud to be British.

Gagging clauses in settlements

I understand entirely why the parties to negotiated settlements wish to impose gagging clauses, and super-gagging clauses. What I don’t understand is why they are lawful. Although I have said that “nothing to hide, nothing to fear” is the excuse of tyrants, that’s in connection with individual privacy.

Corporations should have no right to privacy, and although they can expect their commercial interests to be respected (for example, under today’s patent law, it would be acceptable to require a gaggee not to disclose the details of an invention for which the patent application had yet to be filed), I don’t see why the merely political should be subject to gagging, Indeed, to do so has a stifling effect on free speech. If corporations have nothing to hide, then they have nothing to fear from a law that makes gagging clauses unenforceable.

Because if a gagging clause is imposed, we will always ask, what are they trying to hide?

Updated Valentine’s Day 2013.

Gagging clauses are in the news again as Gary Walker, former CE of United Lincs Healthcare trust, has breached the gagging clause included as part of his unfair dismissal settlement.  A bold move, and he’s already had a nastygram from lawyers acting for his former employers, the Strategic Health Authority. There is clearly no love lost between him and the former chair of that authority, whom he named on the Today Programme, and who is now a Dame and in a senior position at the Department of Health.

Steven Dorrell MP, the chair of the Commons Health Select Committee, said on the programme that there was a balance between the public’s right to know and individual patient confidentiality, and he also talked about the need for new criminal sanctions. Both points are wrong.  Individual patient confidentiality is absolute, and you don’t need a gagging clause to impose it. If Gary Walker were to reveal any information about individual patients, the full force of the law and of public opinion should come down against him. But his disagreements with his then boss about priorities of emergency over non-emergency care  are matters of public interest and should not be gaggable. It’s not difficult for Parliament to draft a law that simply makes these clauses unenforceable. Even I could have a go in about five minutes:

(1)  In any contract, a term  purporting to impose any obligation of confidentiality on either or both of  the parties shall be void;

(2) All other terms in the contract shall remain in full force and effect, regardless of any clause to the contrary;

(3) Subsection 1 shall not apply to obligations of confidentiality in connection with:

(a) information of a personal nature pertaining to  individuals;

(b)Trade secrets and other  information of a proprietary technical nature;

If such a law had existed at the time, it’s quite likely that Gary Walker would have been offered somewhat less than the £0.5m he is reported to have got, because – if the story is correct – the SHA thought it worth paying him that amount to shut up. Public money saved all round, in over-the top payoffs, so what’s not to like?

The criminal case argument made by Dorrell is a massive red herring.  Who is the criminal here? Could it be proved beyond reasonable doubt? Just make the gagging clause unenforceable.

The DeAbolition of the National Health Service

The NHSBill is now irrevocably destined for enactment. Now, the only hope is repeal. #StopTheBill becomes #repealHASCA.

This process has been a shocking display of how not to run government. Coalition was supposed to bring us consensus; instead it has brought us a foul fudge.  There are lessons to be drawn about democracy.

Our much-lamented health service certainly needed reform. On that, almost everyone agreed. The impending demographic shifts in the population mean it had to change. But HASCA12 is the wrong change, mostly because of the way it came around. It is driven by the ideological obsessions of Andrew Lansley himself.  He believes that there should be a market in the provision of health services, and that competition will drive down the price while driving up the quality.  Whatever the merits of the case, in a democracy, you shouldn’t just impose your ideology. Even if you are elected, it is tyrannical to do so, and it is a weakness of our Parliamentary democracy that there are few controls against this tyranny, within the lifetime of a Parliament. Actually, we hoped that coalition might act as some form of control, and the fact that it didn’t suggests that British politics is more rotten than we thought.

If you plan major reform of any part of the public realm,   you should make your case before an election, so that you have a mandate. The shape  of the reform should be in your manifesto. Then, you could realistically say that you have democratic legitimacy. On the other hand, if your campaigning should suggest, for example, that you do not intend any major top-down reforms, and then – contrary to your campaign statements – you impose reforms against the will of the majority affected, it is acting tyrannically.

That this Bill was first approved by Cabinet, without vociferous LibDem complaints, was a bad sign. The LibDems in Cabinet only started to get concerned when the public started to complain. Their first, and only, success, was to win last year’s pause.

No doubt Andrew Lansley is so convinced of the rightness of his position, that he believes that it would be wrong to consider  the views of practitioners whose vested interests would inevitably set them against reform.   He would, of course, be the first to point out that many practitioners, including the BMA, were indisposed to the creation of the NHS in 1948. But revolutionary thought it was, the NHS was a continuation of a much older tradition of medical treatment driven by motives other than money.  Barts, for example, had provided treatment free at the point of use since its foundation in 1123. The quality of its care advanced dramatically between 1123 and 1948, driven by the tradition of charity and  the competition of scholarship . Its ethos, with that of many other constituents,  became part of the wider principles of the NHS to serve the nation as a whole. It is one that the nation’s GPs now adopt wholeheartedly, despite the reservations that their forbears had in 1948.

These latest marketisation reforms, which are much more radical than the  “internal market” imposed under the Tories’ previous regime,  infer an equally old ethos – that of commerce. Medicine will become a trade, as it is in the United States, and being traded, we are asked to believe that the forces of the market will bring down the price and improve the quality – despite the impressive history of advance from competitive scholarship.

Yet I do not think that the problem is medicine, and its non-commercial exceptionalism.  Rather, it is public procurement.  It is very unlikely that your GP, under the new system, l – when you need a hip replacing or a course of chemotherapy –  will lookout for the best provider on that day. Rather, he will send you to the wholesale provider of orthopaedic surgery or oncology that his Clinical Commissioning Group selected at the last round of contracts. Now that wholesale provider – say, Virgin Orthopaedics, or Serco Cancer Care, will have bid low to get the contract. To make its margins, it will cut out the fripperies and will try to charge you for as much extra as it lawfully can, and if not you, the commissioning group. Pay extra for the latest chemo?   Grieving relatives are always good for a whip-round. Watch out for claims that the orthopaedics contract  only included one session of post-op physio per patient – and upselling to Virgin Active.

It’s these contracts that are the problem.  Negotiating, drafting, enforcing and mediating them is fertile ground for parasitic professionals who will command high fees and suck money away from frontline care. These professionals, and the institutions who employ them, are largely responsible for the additional costs of the US healthcare system. They are different in every sector, and jurisdiction, and they are a significant part of the economy.  In this country, mostly they are Tory.  They are part of the web of corruption in which Lansley and over 100 Tory peers who supported the Bill are implicated.

So how should the Secretary of State for Health have set about addressing the reform that the NHS needed?

Government in a democracy is essentially about consensus, but consensus-building is an art to which today’s partisan politics does not lend itself. It needs active, multilateral engagement; it did not just need a “pause”.  It means approaching the problem with strongly-engaged opinions and yet being ready to change them.  To build consensus in the face of the health sector’s myriad slightly differing vested interests – from patients’ groups to Royal Colleges, not to mention the hospital trusts and the pharmaceutical industry – is a job that could have taken a political genius the lifetime of a parliament.  Every vocal representative would use every opportunity to grandstand at meetings and in phoneins and talkshows: tyranny must seem a much simpler option. Yet there are many strategies that can be adopted to build consensus: for example, conducting meetings under the Chatham House Rule helps to temper grandstanding.

There is, fundamentally, a difference between tyranny and leadership. What Andrew Lansley has shown has been tyranny; because had he shown leadership, the troops would be following.

Instead, they are mutinying, and mutiny is the only sane response to tyranny.


It’s Clegg’s fault

Someone asked “has there ever been a worse politician than Nick Clegg”?, and at first sight it is hard to think of one, other than GW Bush. And actually, most American politicians.

But Clegg has been spectacularly rubbish. He has squandered the opportunity of coalition and  politically, ruined his party. Financially, it was already ruined.  He could have, should have been a much feistier coalition partner, not afraid of the odd harsh word (they are different parties, anyway) but always standing up for what is right. He’s failed, but for the nation as a whole, his biggest failure came last Thursday.

If Clegg, not Cameron, had been doing his job, Thursday night’s Brussels fiasco could have been prevented. Cameron was doing his, for the sake of his mates and his toxic backbenchers, but Clegg was asleep in Sheffield.

Clegg doesn’t have a country to run. He doesn’t have the Eurosceptic baggage that Cameron has, he speaks several languages, and he could have spent time building alliances before the meeting.

With those alliances in place, there might not have been the need for a Tory veto at all; if Clegg had done his job, the options on the table might have been palatable even to Cameron.

Had he been in Brussels, as he should have been – he’s Deputy Prime Minister, after all – he’d have been able to say to Cameron, as he was considering his veto at four in the morning, “Listen, Dave, don’t be such a twat.” Or words to that effect. He might have been able to negotiate a better deal on the Tobin Tax – “yes we support it in principle, and we will agitate for it internationally, but it must be global, so we want a deferred implementation”.

But he didn’t. He was asleep in Sheffield.

What a useless fuckwit he has been.

The Coalition Document

There’s a surprising amount of good stuff in the Coalition Document – I just hope that it turns out better than most manifestos.

But there are several things that I really like, as well as some that are truly dreadful (such as the commitment to the E-borders scheme).  There’s a lot of good in section 16 on Government Transparency: of course, it doesn’t go nearly far enough.

I especially like this:

“we will take steps to open up Government procurement and reduce costs  and will publish all Government ICT contracts online” – but why the special treatment for ICT?

Because later, we have:

“we will require full, online disclosure of all central government contracts over £25,000” – so apparently non-ICT contracts under £25,000 won’t have to be published. But does it mean that contracts will have to be disclosed even when the contractor claims commercial confidentiality? I rather suspect that the lawyers of quite a few major government contractors are now looking hard at that and at any other possible get-out clauses.

And can we expect to see the full publication of all the contracts between the MOD and BAE?  Err, no: we can expect the “national security” trump to be played on that one.

Local government has tougher requirements – everything over £500 has to be listed, as well as all contracts and tenders. At what point? Does that mean that documents from unsuccessful bidders must also be published?

ConDem Fail on Corporate Taxes

It’s a pity that the ConDems, who claim they want to make the UK the best place for corporates in the G20, haven’t bitten the bullet and done what needs to be done – which is to abolish corporation tax.

Ok, there’s a little matter of the £40bn hole it would leave in the budget, but abolishing corporation tax doesn’t mean going without the tax that they currently pay.

There are several reasons companies shouldn’t be taxed. First off, they don’t have a vote – and it’s wrong to tax non-voting entities. We lost some quite valuable colonies a few years back because we didn’t get that particular point.

Secondly, and much more important, corporation tax is regressive.  We shouldn’t tax companies on their profits, we should tax shareholders on what they get out of the companies they invest in.  Not all shareholders are fat cats – ultimately, when you disintermediate the  pension funds – most  are either pensioners or people saving for a pension. Fat cats should pay tax at the appropriate  rate for fat cats, and pensioners should pay tax at the appropriate rate for pensioners. But if you tax the company, you tax them all at the same rate, which is regressive and wrong.

You may think that most corporations are scum – and some, like Shell in the Niger Delta are – and that therefore they shouldn’t get such a big tax break.  But that’s an irrelevant value judgement; because this isn’t a proposal about whether y corporate profits should be taxed, but how and where the tax should be paid – and that’s the answer to the £40bn hole: it would have to come from income and capital gains tax. It would be much fairer if it did.

Shell, the FT and the Niger Delta

Amnesty International raised money from personal donations to pay for a full-page ad in the FT today, timed to coincide with Shell’s AGM. However, the FT refused to publish it and a twitter campaign is under way.Here’s a link to it.

Shell’s record in the Niger Delta is appalling. Environmentally, this is just as sensitive an area as the Mississipi delta now threatened by the Horizon spill; but it’s in Africa.  Actually, it’s in Nigeria. It’s in the country that would have been called Biafra, had its secession movement that led to the 1960s Nigerian civil war succeeded.  Oil is controlled federally, and memories of the civil war still linger, particularly the chilling phrase uttered by the Yoruba prime minister at the time, Obafemi Awolowo: “starvation is a weapon of war”.  There are many smaller ethnic groups  in the Niger Delta, between Port Harcourt in the east and Warri in the west. It’s a land of creeks and mudflats, mangrove swamps, rainforest  and palm-oil, mahogany and rubber plantations in varying states of decay, and it has been neglected by the Federal government largely because of the population equations. Nigeria, like much of Africa, still votes on ethnic lines.  The poet and activist Ken Saro-Wiwa campaigned against Shell’s operation; he was hanged by the last military government. Shell claims that it complies with Nigerian law; it pays the Federal Government and its officials for its drilling permits; it doesn’t need to deal at a state or local level.  So it doesn’t; and activist groups like MEND – the Movement for the Emancipation of the Niger Delta – have spawned some armed resistance and have kidnapped oil workers on the offshore platforms.

Shell would only have to spend a tiny fraction of what its rival BP is now spending in Louisiana to employ local people to clear up the mess coming from its activities and restore its credibility locally.  It wouldn’t take much to turn round the local economy in the Delta: it should be the most prosperous region in the country, as it has both the oil and the rainfall. Nigeria isn’t an easy place to do business –  it’s practically impossible to do anything without bribing someone somewhere along the way – and standards become more compromised the more you engage with local people and local businesses.  But Shell’s approach, in cahoots with the Nigerian Federal Government, is destroying people’s lives. It is shameful.


The most disappointing thing about the new coalition is that it hasn’t had the gumption to tackle tax reform head on; in fact, it has fallen straight into the fudgepit in order to get the headline LibDem aspiration of a £10,000 income tax threshold.

There will be no such thing, any time soon.

Question: What is the marginal rate at which employment income is taxed in the UK for “basic rate tax payers”?

Clue: the answer is not 20%.

It’s actually 43.8%. Now, before any new budget comes into play. And it won’t be much different after 2011 either.

The stealth tax is National Insurance Contributions – which most people pay at 11% on their salaries. But their employer also has to pay an extra-stealthy 12.8%. Now you see where the 43.8% figure comes from. It’s a big lie that   income is taxed at  20%. We might pay Income Tax at 20%, but it’s not the only tax our our income.    If the new regime were really interested in being fair and transparent about taxation, it would be taking immediate steps to merge Income Tax with National Insurance Contributions, so that there was just one tax on income.