Economic Policy

The Open Manifesto – Economic Policy

The British economy has for too long been unduly reliant on financial services and the property market. Speculation, asset appreciation (particularly in respect of people’s own homes) and consumer spending financed by debt secured against appreciating assets have supplanted investment in productivity as the main drivers of growth in the economy. This imbalance is unsustainable. We will reform the housing market and financial services – including pensions – making it much easier for ordinary people to invest directly in commercial enterprises, particularly within their local communities. The enterprise ladder, not the housing ladder, is the only sustainable way out of recession.

Finance and the Public Deficit

We will conduct an in-depth tax and spending review to identify the causes of the structural deficit, and we will then make the necessary changes to tax and expenditure. The structural deficit is the long-term imbalance between revenue and expenditure, once the cyclical variations are excluded. The problem for the country is that we did not run a big enough surplus (allowing us to pay back borrowing) in the boom years, so that in the long term borrowing increases. It also makes it very difficult to borrow enough money to maintain public services at the level we would like during a recession, because the “market” – people who might be willing to lend the Government money – is worried either, that it will not be repaid, or, perhaps more seriously, that the debts will lose real value through inflation.

The public finances are vast and complex, and even the Government operates without enough information. We will push a continuing programme of reform in the management and reporting of Government accounts, opening up so far as we can all government ledgers to public scrutiny through open-book accounting. This information will allow us to conduct the tax and spending review in public and with as much participation from taxpayers and users of public services as we can.

Nevertheless, it is unlikely that we will be able to avoid making both substantial expenditure cuts (meaning public sector job losses) and tax rises during the course of this Parliament; we will, however, try to manage the extent and the timing of these to avoid endangering the sustainable recovery.

Public-Sector Pensions

Public-sector pension liabilities are a growing burden on the economy, to which there is no simple or painless solution. We will take all current, accrued public sector pension liabilities out of departmental budgets and account for them centrally. For example, the Department of Health should not be required to cover the pensions of retired doctors and nurses; this obligation – which must and will be honoured – should fall on the Treasury.

But we cannot continue building up these unsustainable pension obligations. We will urgently embark on a programme of reform of all public-sector pension schemes going forward. We will review the pay and pensions packages of all public servants, to encourage later retirement by rewarding later retirement with higher pensions.

Pension Reform Generally

The trouble is, we are all living longer than ever before. This is a good thing, but it means that – if we still retire in our sixties – we have longer retirements, and it is this basic problem which causes the pensions crisis in both the public and the private sector. But, since we are living longer, so we should expect to work for longer. Retirement needn’t be a sudden switch from full-time to no-time working, but a progressive slow-down, concentrating on the work we find most enjoyable, well into old age: at which point, the state could and should support us generously.

We will legislate for a programme of pensions reform, which will allow much greater flexibility of retirement, encouraging much more substantial pensions in consideration of much later retirement. The restructuring of both private and state pensions will be achieved as part of our tax reforms with the introduction of Cash Flow Tax. We will abolish the standard state retirement age in favour of a sliding retirement age and a sliding scale of pensions. We will strengthen legislation against age discrimination.

Capital Expenditure and Infrastructure Bonds

We will reform the presentation of the nation’s accounts, distinguishing revenue from capital expenditure and reclaiming the value of the word “investment”. It is not investment to continue covering a structural deficit; it is investment to develop infrastructure which leads to a more efficient and productive economy and increasing tax revenue. It is all treated as deficit finance at present.

We will introduce a new form of Government Bond, an “infrastructure bond”. This is a long-term variable-coupon instrument where the coupon is related to the measurable return from an infrastructure investment. For example, an issue of the bond might be used to finance an offshore wind development. The coupon would be based on a proportion of the sales to the grid of power generated by that development, and the principle redeemed when the project is sold on.

Financial Services

The financial services sector plays a central role in every modern economy. It has two central functions: first, to provide banking (cash transfer, deposit and settlement) services to individuals and businesses (the so-called “utility” function), and secondly, to provide risk capital to enterprises (the so-called “casino” function). Both are important and we will aim to reform systems and regulation in both sectors to make them work more efficiently. We believe that a major factor in the current imbalance in the sector is a failure of the casino function to raise the right sort of risk capital for new and developing enterprises, leading to an inwards focus concentrating on financial services itself while ignoring the rest of the economy. It is worth noting that despite the high profile of the financial services sector it still accounts for a much smaller share of the national economy than manufacturing (9% to 20%).

Mutuals

We will encourage a return to mutualism and will legislate to replace the statutory protections against asset stripping of mutuals that were removed in the 1980s. In particular, we will encourage the setting up of new mutual societies to provide enterprise credit and risk capital. Where building societies provided housing credit in the 19th and early 20th centuries, we now need enterprise credit – particularly at a local level – and mutuals are a good way of of providing it.

Commission and bonuses

We will legislate to ensure fair systems of commission in the financial services market, to ensure that all commission is commensurate in risk and reward with the instrument being traded. This means that traders and brokers will not be able to take short-term profits from trading a long-term instrument; instead, they will receive their commission in units of the instrument being traded, subject to the same penalties for early transfer or redemption.

We will legislate to make all fund management fees performance-related, based not on a percentage of funds under management but a percentage of gains.

Insider trading

We will address the problems of insider trading by requiring far greater continuing openness from publicly-quoted corporations, including real-time listing of their cash positions and the publication of all their contracts. Insider trading is a problem because there are almost always significant price movements before the orchestrated release of price-sensitive information, so we will address this problem by requiring that such information cannot be withheld from the public domain at all.

Tax Reform

We will immediately start a process of fundamental tax reform, aiming to replace Income Tax, National Insurance Contributions, Capital Gains Tax and Corporation Tax with a single, simple tax to be called Cash Flow Tax. Cash Flow Tax will be administered on behalf of taxpayers and in accordance with specifications to be set out by HMRC by financial service institutions, instead of employers, which will reduce the costs of taking on employees and create much greater labour market flexibility while protecting the rights of employees. Cash Flow Tax is assessed on a single, objective measure (cash flow) and is thus much less amenable to evasion than Income Tax and Capital Gains Tax; and it will treat earnings and capital gains in the same way.

Benefits Reform

At the same time as we reform general taxation, we will reform the benefits system (including Jobseeker’s Allowance, Incapacity Benefit and the State Pension), merging benefits with tax allowances. This will eliminate the poverty trap, encourage rewards for enterprise and make benefit fraud almost impossible. Cash flow Tax allowances, and therefore benefits, will be payable to anyone engaged in a constructive occupation, a term which will include active job-seeking.

Open-Book Accounting

We will move all government departments and public bodies to a system of open-book accounting, so that all ledgers are world-readable in real time (other than those from which it is possible to infer sensitive personal information). The remit of the National Audit Office will therefore be amended so that it will be required to insist on full open-book accounting.

We will extend this principle so that beneficial shareholders in all corporations have the same rights in respect of the corporation’s ledgers. In respect of public companies, in practice this means that the public will have real-time, but read-only, access to ledgers.

Contracts

We will reform the law of contract to provide that a contract is only enforceable to the extent that it is published, and we will provide exceptions and limitations to this principle to allow for the redaction from published contracts of sensitive personally-identifiable information about individuals (including individuals who are a party to the contract).

For consumer contracts and consumer terms and conditions of sale, we will legislate to make plain English drafting obligatory. We will legislate to make unenforceable any term or condition in a consumer contract which is “calculated to obfuscate or to confuse” .

Non-disclosure Agreements

We will review the case for permitting non-disclosure agreements at all, particularly where they directly or indirectly restrain competition. Following the review, we expect to legislate to make most NDAs unenforceable.

Intellectual Property

We will reinvigorate the fundamental bargain of intellectual property: a limited monopoly over the commercial exploitation of the protected matter in consideration of publication. The state should never grant a monopoly over a secret. We will start a process of major reform of intellectual property law by issuing, within the first year of the next Parliament, a Green Paper calling for evidence on the effect of intellectual property law on creativity and innovation. We hope to legislate to replace the Copyright, Designs and Patents Act 1988 before the end of the next Parliament.

Copyright: computer software

We will reform copyright law so that copyright will only subsist in a published computer program to the extent that the source code is published.

Patents

Internationally, we will push for reform of the Patent Co-operation Treaty so that patent priority is established by publication, rather than filing. To that end we will reform UK patent legislation so that the formality of filing is fulfilled by the publication, with the Patent Office, of the claimed invention.

Information Technology

IT is what makes the Open Revolution possible, yet major government IT projects are almost as disastrous as defence procurement. We will completely reform the way Government uses and procures IT.

Open Source

Government will not purchase any software without access to the source code. All new software licences will be for software for which the source code is published. We therefore expect to move the whole of the Government IT estate to open-source operating systems and applications within the life of the current Parliament.

Interoperable Systems

We will move, within two years of taking office, to fully interoperable systems. This means, firstly, that within one year all government systems (at national and local level) must accept input in “open formats”, that is, file formats the specification for which is open and published; and secondly (at a later stage in the transition to fully interoperable systems), that they must not accept input in closed, proprietary formats.

Many government departments need to collect structured information, such as – for example – a tax return. Departments will publish the specification for submitting such structured information in a standard form – in most cases, by publishing an XML-schema for the data or a similar data specification document for other systems of submitting structured data.

Interface Specification

Most IT procurement will be carried out by Interface Specification. Government IT specialists will specify, and publish publicly for open review, the specifications for the interfaces between systems. Specifications will include a requirement for flexibility following review and upgrading in the light of changing requirements. Private-sector systems developers will then bid to deliver systems which meet the interface specifications. There will be no systems lock-in or exclusive contracts. In awarding contracts, preference will be given to contractors undertaking to license their work on Free Software terms.

Financing local government: Infrastructure Bonds

We will reform the system of local government finance and abolish the council tax. All statutory duties carried out by local authorities (such as education, policing, libraries, fire protection and social care) will be financed out of national taxation by a central government grant. Councils have to do this work, so it doesn’t affect the electoral arithmetic. Local taxes will be used only to finance discretionary expenditure by local authorities. This is a small fraction of the overall expenditure of local authorities and is supportable from a local tax base .

We will introduce a new tax, to be called Land Tax, which will be assessed on the unimproved annual value of land given its current Use Class and extant development status. (This is what used to be called “site value rating”). The valuation process will be continuing, indexed, and always updated annually, by a transparent process taking information from land transactions registered with the Land Registry.

Local Authority Infrastructure Bonds

Local Authority Infrastructure Bond issues will have a coupon related to a given Land Tax percentage levied on the area concerned. Thus, suppose the annual land value in Borough A is £1bn in year 1, and Borough A issues a 10-year Infrastructure Bond with a coupon of 0.1p. This is equivalent to £1m (0.1p x £1bn) in year 1, which is paid to holders of the bond. In year 2, the annual land value goes up to £1.2bn, perhaps as a result of infrastructure improvements financed by the proceeds of the bond issue. So in year 2, bond holders will get £1.2m between them. Local taxpayers will be able to hedge the impact of these taxes by investing in their local bonds themselves, a practice which we will encourage as it will show commitment to the local economy.
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1 comment so far

  1. […] accounting? For an idea of what is meant by transparent accounting, let’s consider the Transparency Extremist blog. Here are some key […]


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