The Autumn Statement shows the conflict of short and long term Tory priorities

George Osborne, Britain’s Chancellor of the Exchequer, delivered his Autumn Statement yesterday. This is a very British piece of political theatre, delivered by somebody with a very theatrically British job title, that adds up to “Finance Minister”. In the statement Mr Osborne announced financial plans for the next five years of the Conservative government. It is a set-piece event designed to score political points and attract good publicity. The dust has not had time to settle, but some important issues are clear.

The main headlines were these: the government dropped the central part of its plans to reduce tax credits to top up the incomes of people working on low pay. It also withdrew plans to cut police budgets. Various other goodies were doled out; schools had their budget protected in real rather than nominal terms; there was more money for the NHS, and various investment projects. This was all part of a familiar game of managing expectations, which Mr Osborne now handles with competence. The reversal on police cuts was particularly well managed. The short-term politics has worked very well for the government, helped by the Labour opposition spokesman John McDonnell’s misjudged stunt using Chairman Mao’s Red Book.

But let’s step back a bit.  The first point to make is that this exercise is one of completely false precision. The justification for a greatly reduced level of cuts to departmental spending (according to the FT’s Martin Wolf, from £41.9bn in pre-election March, to £15.6bn in post-election July to £7bn now) was a £27bn reduction in 2020’s projected borrowing. This £27bn figure is widely reported in the media, but it is nearly meaningless. It is based on economic forecasts which have almost no chance of being fulfilled – though at least they are produced independently by the Office for Budget Responsibility. That £27bn can appear out of nowhere in four months simply reflects this imprecision; it can disappear just as quickly. Personally I feel that the projection of a steady 2% plus of GDP growth, which underlies this forecast, is most unlikely to be fulfilled; it is an artefact of a deeply flawed process of economic modelling that still has a grip on conventional economics, because nobody has found a substitute.

So this needs to be taken in a broader strategic context. The government has two stated economic aims for the medium term. The first is that the state should run a surplus in the middle of the business cycle; the second is that overall government spending should be cut to about 37% of national income- low by postwar standards. Both are entirely arbitrary. There is a good case for a government deficit to fund investment, especially if the private sector is reluctant to invest its profits, which has been the story of the 21st Century so far. There is no convincing evidence that I know of to suggest that a lower level of government expenditure is more economically efficient.

But all this makes more sense if you think about the politics rather than the economics. And here the Statement was balancing long and short term aims. The long term aim is to crush an ecosystem of political bureaucrats in central and local government, and a range of agencies, consultancies and NGOs that hover around them. This is the principal power base of the Labour Party, and flourished mightily under the patronage of Mr Osborne’s predecessor but one, Gordon Brown. What is set to replace it is series of soulless, hollowed out agencies that are as easy to deal with as modern big businesses like phone companies (BT, TalkTalk, Virgin Media, etc) that are unable to manage complexity, so try to deny that it exists. The government’s new Universal Credit system is shaping up to be just such a nightmare. I see both sides of the argument here. I hate the old Labour bureaucracy and its hangers on with a passion, and I am not sorry to see it being dismantled (though a lot of excellent professional services are going too). But its hollowed out replacement lacks credibility, and at will be a partial solution at best.

The difficulties with this Conservative dystopia are apparent in the short-term politics. Welfare, security, health, education and social care are proving politically highly resistant, and hence the retreats evident in Mr Osborne’s statement. The Conservative fight to crush the opposition Labour and Lib Dems is going very well. But this is in large part due to Labour’s ineptitude. What if it woke up and led a serious fightback?.

The Conservatives’ drive to cut government budgets leaves them politically exposed. They stand a real chance of shutting Labour out of power for generations, but only if they secure the votes the working class and and the less secure middle classes. The changes to tax credits would have made these voters very angry. Mr Osborne’s U-turn is unsurprising – but leaves the question of how he managed to get into the mess in the first place. Meanwhile added demands of an ageing population on health and social care services is a challenge that will not go away. The extra funds found for these are unlikely to be equal to the challenge.  And the problem of an economy polarising between low and high wages, while housing costs are escalating, is placing huge stress on welfare.

The hollowing out of the state at both national and local levels will continue apace. But a weaker than expected economy, and mounting pressure on health and social care services are likely to break Mr Osborne’s plans eventually. Whether the political opposition, outside Scotland, will be in any shape to exploit this situation remains open to doubt, however.


To understand the politics of Islam you must look at its history

Islam has become one of the hottest topics in politics worldwide.  And yet the religion is little understood by non-Muslims. Instead ill-informed narratives gain currency, even amongst the better educated. It is a hard subject to get a grip on, but BBC Radio 4’s The World This Weekend, on Sunday broadcast an excellent item on combating Islamic State (IS). Each of the three introductory interviews was illuminating, but that with Washington Islamic history expert Haroon Mughal made things a lot clearer to me.

As with most areas of current politics, we need to get a historical perspective. Most educated people will know that Islam has two main denominations, Sunni and Shia, which arose from a split in the 7th Century over who was the prophet Mohammed’s successor as caliph. That, of course, remains an important fault-line, as followers of the two sects (and variations within) are intermingled in Iraq, Syria, Lebenon, Saudi Arabia, the Gulf and Yemen, to name the main hotspots. The split may be compared to the Christian split between Catholic and Orthodox, but geographically it is much messier. Apart from in Iran and, to a lesser extent, Iraq Shias are in the minority – but they are politically more coherent because there have reasonably clear hierarchies and, perhaps, they are used to a greater level of challenge.

The Sunni realm too used have clear hierarchies and orthodoxies, sponsored, in early-modern times, by the Ottoman Turks, who held sway across most of it; there was even a (nominal) caliph, until the Ottoman Empire fell in 1922. But this orthodoxy was subject to challenge, and a Reformation of sorts took place in the 18th Century, led in particular by Muhammad ibn Abd al-Wahhab. Like the Christian Protestant Reformation, it urged a back to basics creed, that rejected the corrupt ways that orthodox Sunni religion was practised. There are two key things to know about Wahhabism, which is now the orthodoxy in Saudi Arabia. It emphasises the separateness of true-believing Muslims; others are condemned to hellfire and not worthy of consideration. The second is that it takes inspiration from the customs of early Arab days, most notably in its strictures on sex, women and crime.

Mr Mughal’s critical insight was that, unlike for the Christian Reformation, there was no Counter Reformation – a reinvigoration and counterattack by the orthodox. At this time the Ottomans were on the wane, and the orthodox structures were too weak to mount such an effort. That leaves a vacuum at the heart of Sunni Islam. There is a huge amount of scholarship which can be used to counter Wahhabism, but efforts to do so are weak and disjointed. Imams tend not to be up for the sort of intellectual challenge required. Meanwhile the Wahhabists have a clear message and are expanding their appeal. The ground has been prepared through official Saudi sponsorship of mosques and schools, which has spread throughout the world, and undermined orthodox teachings. Now more sinister forces are promoting Wahhabi ideas to the disaffected, in ways that a re socially corrosive.

There are two important groups of Wahhabist derivatives, both of which have a clear political agenda, that some refer to as “Islamism” . There are the violent ones (I don’t want to call them “Jihadis”, since it is important to preserve non-violent aspects of jihad, just as there are non-violent uses of “crusade”, a very similar idea), promoted by terrorist movements like al-Qaeda and IS. They have a millenarian interpretation of the scriptures: that the end of the world is nearing. They extend the Wahhabist ideas of separateness to the practice of violence against non-believers, not least Muslims that do not share their binary world view.  There are enough sacred texts and historical episodes from Islam’s formative years to allow a coherent narrative – even if their practices go against a mass of Islamic scholarship. This narrative of violence has a clear appeal to the disaffected looking for some kind of heroic way out of their dead-end lives. The second group is known as Salafists; they share much of the millenarian credo of the terrorists – but they are non violent. They advocate the withdrawal of believers from any non-Islamic political structures. Salafists are much more numerous than the terrorists, with a lot of strength in Egypt and Tunisia, but their doctrines of withdrawal reduce their political weight. Some politicians have tried to play them off against the terrorists, since they are able to argue the case for non-violence from a Wahhabist perspective. But this serves to entrench the basic, and socially corrosive, ideas of Wahhabism.

The critical question is whether orthodox Sunnis can organise themselves into putting together a vigorous, international counterattack on Wahhabism, and to win back the battle of ideas. The hope is that a confident, cosmopolitan orthodoxy can be established that offers a middle way between a godless  materialism that denies Islamic heritage, and the backward looking ideas of Wahhabism. This seems to be what Mr Mughal was advocating.

But such a Counter Reformation faces formidable challenges. The first comes from political power. One group that would love to promote such a “respectable” version of Islam are the military backed regimes of Arab countries, like Egypt. And yet the incompetence and corruption of these regimes is one of the things that gives the Wahhabist creeds a lot of their appeal. Any Counter Reformation has to keep its distance from such willing official sponsors. Another challenge, of course, is the rejection of Saudi sponsorship; we may hope that low oil prices will reduce this malign influence.

But the biggest challenge surely is to develop ideas that are compatible with the modern, cosmopolitan world. This means rejecting the paternalism of the current order -allowing young people more freedom to consort with the opposite sex and choose their own marriage partners, and to offer women more freedom and power all round. To say nothing of more tolerant attitudes to gay sex. This is a huge jump for many, older Muslims. To them the paternalist ways are something worth fighting for, and their religion is bulwark against dissolute modern ways.

Is their anything to learn from what has happened to Christianity? In Europe established churches are fighting a losing battle with materialism. They cannot find a viable middle way between an empty modernism and being perpetually behind the Zeitgeist. They remain the standard bearers for socially conservative values – which is perhaps why they have a strange obsession with sexual morals. This has parallels with modern Islam.

Still, in America it is a different story. Somehow American churches are able to find compatibility between traditional beliefs and the modern world. We may associate them with conservative strictures on abortion and gay sex, but they have moved on in the question of love and marriage, and the empowerment of women. American churches are fragmented and highly competitive. They have no choice but to adapt to the modern world, or else they will lose out to neighbouring churches, constantly juggling a mix of social conservatism and modern values. To my knowledge Muslim imams and mosques haven’t taken on such a competitive approach – but I don’ think there is any institutional barrier to it. This bottom-up way offers more hope, surely, than some kind of top-down institutional one based on learned scholars and high level conferences.

But, assailed by an ultimately futureless and destructive Wahhabism on one side, and the temptations of godless materialism on the other, orthodox Sunni Islam must change itself somehow.


Jeremy Corbyn has been holed below the waterline

The metaphor of a ship holed below the waterline is an engaging one. Above the surface nothing much seems wrong – perhaps a minor list. But down below the water is pouring in; barring extreme good fortune the ship is doomed. I remember using it in 2007, when the world’s interbank markets froze over; the ensuing collapse of the banking system did not happen until over a year later, when Lehman Brothers failed, though a surprising number of people did not see it coming. I think the metaphor is just as appropriate for Labour’s new leader: Jeremy Corbyn.

Many wrote Mr Corbyn off from the start, as a far-leftist, backed by trade unions promoting fantasy economics. These were my instincts, but I tried to give him the benefit of the doubt. He sparked real enthusiasm amongst hundreds of thousands of activists. He came over as an engaging, anti-politician – a nice chap. With the public so tired of the usual type of politician, might he not spark enthusiasm amongst the wider public? Hearing him occasionally on the radio, he seemed to be talking a lot of sense. He had real momentum. You could put a positive spin on most of what he said.

Of course there were doubts. His Shadow Chancellor John McDonell’s inept handling of the government’s fiscal plans did not bode well. There is something chaotic about the party under his leadership, with no coherence across the Shadow Cabinet. But that sort of thing happened to Mrs Thatcher in her early days too – and look what happened to her. And I did not take much notice of those putting it about that next year’s elections, in Scotland, Wales, London and local councils, would be a critical test. Mr Corbyn was enjoying his new job, and his backers were determined to consolidate their hold on the party. I thought he could weather one set of bad results at least. Politicians are expert at finding somebody else to blame; no doubt the left would simply blame die-hards from the old order.

And then came the Paris attacks. The public regards these things as a critical test of political leadership. There is a lot of fear out there. Could something like that happen here? Can we not holiday in safety in European capital cities? We want leaders who can express our outrage, provide reassurance, and take charge of stopping the bad guys. The FT’s Janan Ganesh suggests that the public’s insecurity might make them seek older, more experienced politicians, especially ex-soldiers – in place of the callow think-tankers, PR types or charity workers that currently dominate the political ranks.

What they do not want are the intellectual prevarications we have had from Mr Corbyn in the last few days. He suggested that the killing of British terrorist Jihadi John by drone attack was not as good as bringing him to justice in a court. He failed to dissociate himself from Stop the War Coalition, which he used to chair, when it suggested the the French were reaping what they had sowed. He professed his nervousness about a police shoot-to-kill policy, when the public carried mental pictures of gunmen in suicide vests firing indescriminately. He seemed to rule out attacks on Islamic State in Syria (or Iraq come to that) by the British military.

The point isn’t that these views are without validity. Extra-judicial killing makes many feel queasy – and making martyrs, with all the risk of killing innocents alongside them, is no substitute for the grinding humiliation inflicted by judicial process and punishment. Our politicians have often suggested that the country’s interventions in the Middle East are designed to make our streets safer; that is open to challenge, to put it mildly. Trigger-happy police kill innocent civilians – as Londoners well know from 2005. It isn’t clear how bombing IS target in Syria will help.

But now was the wrong time to raise these concerns. They smack not just of qualified outrage, but of indecisive leadership that will be no match for the hard men (and women) that want to kill us. Unless Britain becomes an unexpectedly more secure and optimistic place, the vast majority of the British public will take fright at the idea that Mr Corbyn could be Prime Minister. The best that could be said of him is that he is too nice for the job. It was bad enough in May when Ed Miliband didn’t look Prime Ministerial enough; this is infinitely worse. In the full heat of a General Election campaign, Labour would be lucky to hold onto seats it had previously considered safe. What happened in Scotland could be repeated across England and Wales. The Conservatives, Ukip, or even the Liberal Democrats could clean up.

And yet SS Labour sails serenely on. Labour MPs know they are in trouble, but apart from an outburst at an MPs’ meeting on Monday they don’t feel they can do much about it- Mr Corbyn’s support amongst grassroots activists is too strong. Those activists are in denial, dismissing these difficulties as a bit of a wobble. They can’t possibly admit they have been so wrong only a month or two ago.

But the party is in serious trouble. I think there will be three key arenas in which this drama will play out: Scotland, London and the old industrial heartlands of England.

Labour must win back Scotland from the SNP in order to regain power in Westminster. Mr Corbyn’s supporters claimed that he was the right man to do this, interpreting the SNP’s rise as a backlash against austerity, rather than against rampant incompetence. But the SNP leader, Nicola Sturgeon’s handling of the Paris outrages has been assured, even promising an open mind on bombing Syria, in spite of her party’s conference resolution against it. Labour do not look like a serious government in waiting in Scotland, and they are sure to be routed in next May’s elections to the Scottish parliament. That will a a hard failure for the left to gloss over.

London holds its Mayoral and Assembly elections next May too. The interest here is that London is the biggest stronghold of Mr Corbyn’s activists. If there is to be a pro-Corbyn surge, it will start here. But Zack Goldsmith, the Conservative candidate for Mayor is well-funded, and has hired top-rate campaign advisers, fresh from the Tory General Election victory. He wants to win and will pull no punches – even if other Tories would happily give Labour a run here to keep Mr Corbyn in place. If Labour do badly it will be devastating for their future prospects – though Mr Goldsmith has weaknesses of his own, and it wouldn’t do write off Labour’s Sadiq Khan just yet. He certainly gets my second preference over Mr Goldsmith.

But perhaps the most interesting battleground will be in England’s northern and central heartlands: Manchester, Leeds, Birmingham and so on. Many of these cities are virtually Labour one-party states. But interestingly a number of local leaders are taking a pragmatic and enterprising line to power. They support local devolution and are prepared to work with the government on that basis. And yet Labour’s working class voters will be amongst the most distrustful of Mr Corbyn’s metropolitan ways – and outraged at his recent prevarications on security. An early test of their feelings will come in a by election in Oldham in December. Ukip, anxious to overcome their disappointments in May, scent blood. Even the Lib Dems, with their Lancastrian leader, Tim Farron, are putting in an effort. This will be an interesting election to watch. If Labour fare badly in these heartlands, an anti-Corbyn coup is surely only a matter of time.

And what will happen when the good ship Corbyn finally keels over and sinks? That’s another matter, but Labour’s problems would hardly end then.



The Lib Dems in London: two straws in the wind from @RuthDombey and @MzLashmore

In the shadow of events in Paris, the Liberal Democrats held their London conference last Saturday. For a party that most people think has ceased to exist, party members are in a surprising upbeat mood.  Held a university building in Brentford, well out of the centre, the conference was nevertheless well-attended, cheerful and lively. Even as I delivered the Treasurer’s report just after lunch, the dullest piece of business in the whole day, there were dozens in the audience. I survived unscathed, and live on to be Treasurer of the regional party for another year.

And yet detached outsiders  would not give much for the party’s prospects. The Mayoral and Assembly elections are in May 2016, and they are a critical test for the  party. As things stand even winning the deposit in the Mayoral race (lost last time, in 2012) and any representation in the Assembly (only narrowly achieved in 2012), both of which need 5% of the votes, will be a challenge. The party has sunk into irrelevance in most people’s minds. But the party polls about 8% nationally, the same level that it achieved in the General Election. A result on this level is surely realistic, but would amount to no more than what City traders used to call “dead cat bounce” – bumping along the bottom, in a less colourful metaphor.

But things could be much better. With the Conservatives riven by differences over Europe, the effect of Labour’s lurch to the left uncertain, and with the other minor parties, the Greens and Ukip, seemingly having peaked, a whole range of possibilities opens up. The party is aiming for more than 8%, and so it should. There was a buzz of ideas for promoting the Party’s lead candidate, Caroline Pidgeon, the experienced and capable group leader on the Assembly, who is standing for both Mayor and leads the Assembly list – elected by proportional representation. Policy positions are being developed on housing, policing and taxis.

But these depend on attracting the attentions s of a flighty electorate. Building a more solid base for the future will take a lot longer. On what basis can that be done? One idea doing the rounds is to make a conspicuous stand on touchstone liberal issues, like supporting immigration and human rights. It is estimated that about 30% of Londoners have liberal views on these subjects. The Conservative and Labour parties are still circumspect because they draw so much other support from the other 70%. The talk was of targeting that 30%, who tend to be young and professional.

That’s all very well, but I worry. Some activists were concerned about a strategy based on just talking to people like us, rather than trying to reach out more widely. And though getting a large chunk of that 30% would transform the party’s standing, where would that lead? In order to get anything actually done the party has to engage with the other 70%, either directly seeking their votes, or working in coalition with parties that do. The party’s experience over last five years, in coalition with the Conservatives, have shown how difficult that can be. The party gets accused of breaching its principles, and then appearing irrelevant. Surely the party must try to develop a broader appeal from the start, alongside the core liberal one.

Two speakers at the Brentford conference gave a hint of what that might be. One was Ruth Dombey, leader of Sutton council, the party’s last council stronghold in London. She described how the party has maintained its remarkable record of success there. It is through a process of genuine dialogue with residents, going as far as possible to make them feel included (which, to be clear, means actually including them…). This is completely opposite to the normal model of elected dictatorship that most British politicians confuse with democracy. It is not easy, but Sutton has managed it over many years.

Ruth is a professional and experienced politician, and it wasn’t surprising that her presentation was slick and forthright. A second speaker was edgier. Teena Lashmore, though very much a professional, is new to politics. She led a policy consultation on dealing with knife crime and reaching out to communities. She made two important points: the first, like Ruth, was that politicians must do things with communities and not for them. This is the beating heart of community politics. But it is something that metropolitan elites usually don’t understand, not just politicians. Speaking to her during the tea break, Teena gave me an example of a memorial for victims of knife crime in her area; nobody thought to ask local people what they wanted, with the result a proposal was made that they found insulting.

The second point was that we must find ways of making local economies grow and become more inclusive. Free enterprise is the key to inclusion because it is empowering. Entitlements and handouts are not. She gave the example of a troubled estate where the management contract was awarded to a local enterprise, and not to one of the usual stripped down outsource providers; this contractor then started employing the local young people as apprentices; money stayed in the local economy; antisocial behaviour fell. Now regular readers of this blog will know that I am supporter of developing local economies, following campaigner David Boyle. But it had not struck me until Teena’s presentation just how powerful this idea is for developing inclusion in London.

These are critical ideas. Britain’s main political parties are still in the culture of doing things for the people they represent, rather than with them. Our whole centralised Westminster-bubble culture promotes that. The working ethos of the Labour Party  is built on developing client communities that they dish out goodies to. Some Conservatives have toyed with something more inclusive, like David Cameron’s Big Society, but their thinking is more often driven by big business and trendy but narrow think tanks. Indeed, though the Lib Dems achieved much of their early successes in the 1980s and 1990s through community politics, success in Westminster seemed to be slowly corrupting them. And few Lib Dems really got the importance of developing local enterprise, and what this means for wider public policy, for example in commissioning and procurement.

Well now the Lib Dems have been largely ejected from the Westminster bubble. They must go back to the long, hard business of developing conversations with local communities. And it needs to start developing robust ideas for developing local, inclusive economies. That includes in London, and it is a promising basis for reaching out to communities of all ethnic dimensions, not excluding the more stressed white British ones.

It’s a long hard road, but the party has the culture and record to make it work. I hope it rises to the challenge.




Post Imperial thinking on the Iraq-Syria troubles needs to be challenged

Last week I watched BBC Question Time. Not something I do often, and not something I would care to repeat. It’s what happens when news is treated as entertainment. Three politician panellists put forth their careful platitudes, but at least showed some grounding in reality (none of them were in the Donald Trump school of politics). No doubt to spice things up the BBC added two journalists to the panel. They proceeded to spout a lot of provocative rubbish, in the way that you can when you are unaccountable for what you say. The audience chipped in with their own angry views. There was no time to unpick anything anybody said. It was all anger and provocation; there was no time for truth or solutions.

Syria came up as a subject, in the context of whether the RAF should extend its bombing to Islamic State targets in that country. It was striking that everybody seemed to think that Syria’s troubles were both our fault, and that it was our responsibility to sort them out. “Our” in this case being a rather fuzzy conflation of the the UK and the West generally. It is an attitude that I will call “post imperialism”. It is an advance on imperialism but shares much the same view of the world. It should be challenged.

The imperial era was at its height before the First World War broke out in 1914. In these times people in Britain and in other leading nations divided the world into three camps. On the one hand were the civilised countries, being the major powers: Britain, the USA, France and Germany at a minimum. Then there were the uncivilised or semi-civilised ones. The former had a positive duty to civilise the latter, and the favoured method was through colonisation, or other inclusion in an imperial domain. Then there were the countries in between: Russia, Turkey, Japan and so on, who were bit-players of different levels of importance.

Apart from a general mission to civilise, the major powers felt that empires were a good thing for the imperial powers themselves. This was mainly a matter of prestige, but various other economic and military benefits were widely touted. Failed states and political vacuums were therefore regarded as opportunities for imperial expansion. The main risk was of clashes between the rival powers. So the leaders of these major powers, and most of their people too, felt that what went on in any part of the “less civilised” world was their business. The doctrine of non-interference with the internal affairs of other states only applied to other major powers. China had particular reason to be aggrieved, as the major powers felt they could do what they liked, from grabbing port facilities to promoting the opium trade.

Post imperialism is definitely an advance. We now recognise that imperial possessions are more trouble than they are worth. Failed states are regarded as threats rather than opportunities. But there is still an attitude that the world is their business from the old colonial nations, and the US, and its implicit division of the world between the civilised and less civilised. It follows from this that practically any disaster anywhere in the world, outside a select group of stronger nations, is somehow the responsibility of these powers, and blame should be pinned on their political leaders. China and India are among the few big nations that reject this notion, with perhaps some marginal exceptions in their near-abroad. Russia shares the post imperialist attitude, but is bitter at being left out of the post imperialist club. The defeated powers of the Second World War, Germany and Japan, have more complex attitudes, it must be added and it wouldn’t be right to label them as post imperialist – though Japan’s Prime Minister, Shinzo Abe, wants to be.

But the trouble is that these post imperialist nations have no idea how to establish peaceful, thriving polities amongst the “lesser” nations. Do they back military strongmen, like Colonel Gadaffi, to preserve at least some semblance of stability and a functioning state? As soon as they do, these dictators push the limits to see how oppressive and corrupt they can be before they are rejected. This often leads to a catastrophic breakdown. Do they carry out “liberal interventions”, set up a new government and leave? But successes are rare (Sierra Leone perhaps) and the failures even more catastrophic (Iraq and Afghanistan).

So what we are left with is an incomplete “do something” idea, which involves finding some villains and hitting them with advanced weapons while keeping as few servicemen as possible in harm’s way. This has never worked, of course. But even some quite respectable people, like the Economist magazine, seem to favour it as better than nothing, which is a doubtful proposition.

So what do I suggest? We should step back and not assume that the great powers are ultimately responsible for any political mess that arises. There are plenty of more local people that can take the blame for the rise of IS, for example. Iraq’s Nouri al-Maliki for his combination of malign neglect and downright oppression of Iraq’s Sunni tribes. The leaders of Iran, Saudi Arabia and Turkey for stirring the pot without any interest in establishing a stable alterative. And Bashar al-Assad, who, though more competent than Mr Maliki, knew no other form of governance than outright oppression. And yet, with the exception of Mr Assad, criticism of these figures in the west is muted. It is much more fun to blame Tony Blair or George Bush. The record of both these men is atrocious, but it really isn’t helpful to keep blaming them as if they were the only grown-ups in the room. All that does is encourage the local powers to keep stirring the pot in the hope they will get western arms – or prestige from defeating them.

In the long run, the situation will only improve when the local powers start to practice mature statesmanship. The should be establishing diplomatic solutions with each other rather than fighting proxy wars and seeking to get outsiders involved. That will only start to happen when the western powers let go. No doubt limited humanitarian interventions will still be needed. But at some point we must grow up and admit that we are imperial powers no longer.


Are we worried about the right issues on data privacy?

There are many reasons why I should not be a front line Lib Dem spokesperson. Among them is my rather pragmatic stance on civil liberties. I fear that my attitude to the government’s proposed law on surveillance is a case in point. Of course I think that individuals deserve proper legal protection, but I worry that the party, and the civil rights lobby generally, is expending too much energy on narrow legalisms, while missing what is happening in concrete reality.

Civil liberties are a touchstone issue for Lib Dems. While most of the public are indifferent, the party’s activists are passionate. Nick Clegg, the leader during the party’s coalition with the Conservatives, expended enormous amounts of political capital on the matter – and yet his compromises attracted opprobrium from activists, and not a few resignations. Now, as the party tries to stake out ground for a “core vote”, it has picked on this group of issues as an area to distinguish itself from the other parties. To do so the party will oppose the government’s new law, no matter what its final content. It is out and out oppositionalism, involving no fresh thinking and only token attempts to consider the problems  that the government faces. No doubt many of the criticisms will be valid, but the party will give ordinary citizens no reason to trust its overall judgement. Alas, that is politics.

At issue here is personal privacy, and how much information state agencies may collect on us without our direct consent, and in particular data on our online activities. The state faces a major problem: dealing with bad people: those who want to undermine public safety or steal our money, either through a malign political agenda (Islamic extremists is the favourite example), personal greed (an army of fraudsters) or simply personal gratification (such as paedophiles). These bad people are making full use of the opportunities provided by the internet, and the authorities are struggling to keep up. There is a more general difficulty alongside this: as the cost of skilled labour rises inexorably, the ability of law enforcement agencies to gather evidence by more traditional means diminishes. This means that much petty crime is not investigated; the police scarcely consider online scams to be a crime at all – they are left out of headline crime statistics. This allows a criminal fringe to exist on the edges of our society without serious molestation. Or so it seems to me (this is an unevidenced assertion!). Access to online data, including metadata (data applying to large groups of people), offers alternative ways to narrow down the search for leads, and may provide important evidence in its own right, allowing the authorities to pursue major threats and petty ones alike.

Now there is a real problem here: the problem of the false positive. Modern analysis techniques work on correlations and probabilities (much like human prejudices, in fact). This may be very helpful, in many fields, but it offers proof of nothing. Increasingly we tire of going that extra mile to get proof, and base decisions on these correlations. Mostly this is quite harmless. I get some rather odd online adverts on my Facebook feed; Amazon has yet to make any kind of sense out of my purchase history when it makes its suggestions. But it can be more sinister. Could some ill-advised browsing by your child on your computer mark you down as a terrorist suspect or, worse, as somebody who likes child porn? If such fears lie behind opposition to extending the rights of the state to examine online data, then it is not without foundation.

But isn’t stopping the state from gathering and analysing data tackling the problem in the wrong place? Shouldn’t we be looking harder at how they use the results of their analysis? My impression is that they don’t blink at trashing innocent people’s lives. The idea of innocence until proven guilty is being steadily eroded. In many fields all it takes is an allegation to wreck your career, even if it is false, or malicious. Credit ratings can be blotted by clerical errors, to say nothing of frauds. The more decisions are taken by computer algorithm, the more I worry about injustice. And yet these techniques surely have their place, if law is to be enforced by more than personal conscience.

I think this means that we need more accountability for the law enforcement authorities (from the intelligence services to the police to council officials), and better coding of what they are and are not allowed to do. The government’s new law looks like an important step forward here. No doubt it isn’t nearly as good as it is cracked up to be, but progress of any sort can be built on. The present legal vacuum allows injustice to be routine. We also need to be clearer on the types of inference that are acceptable in the legal process – mere correlation is insufficient.

So I think that liberals, instead of campaigning for stronger privacy, should be campaigning to prevent the abuse of data – and in particular establishing that enforcement actions taken should be proportionate to the level of proof. That will take a change of culture, and maybe it is swimming against the tide. But too heavy an emphasis on privacy simply aids those who are undermining our liberal society. And the public knows it.



Have big organisations had their day? Alas not in the public sector

In a recent bog post David Boyle, whom I regard as a fellow campaigner for a new economic paradigm, describes the phenomenon of the “empty corporation”. He mentioned this after trying to deal with two large British companies: Barclays Bank and TalkTalk, the telecoms company. These companies offer their customers no human contact, and are unable to solve more than very simple problems without causing their customers a lot of work. And yet these businesses conform to our idea of high productivity, which is the holy grail of economic development. Examining how these companies work gives us clues about how economic development needs to change direction.

The key to this is the insight, offered in recent book by information scientist César Hidalgo, that the human brain can only handle so much complexity. And the human brain is at the apex of any system for managing complexity. Whatever power Artificial Intelligence (AI) and computing may have to transform life, they remain a long way from handling complex situations reliably. Groups of people can manage more complexity that individuals, but this is a process of diminishing returns; it ceases to be true of large groups. That is fundamentally why large organisations do not handle complexity well. So how do they succeed?

They do so by simplifying things. Manufacturers build standard products in large numbers. Service providers try to pull off a similar feat, by offering a standard service, handled by a relatively simple set of rules, with the minimum variation due to context. Further, they produce these products and services by fragmenting the more complex parts into simpler steps. By doing so they are able to develop “economies of scale”, first admiringly highlighted by the founder of modern economics, Adam Smith, in a pin factory. That makes them highly productive and competitive, within a tightly defined remit.

Anybody who has worked in a large organisation (as I have within in financial services) will recognise this drive to simplicity. Failures are usually attributed to excessive complexity. Every so often there is a reorganisation to re-simplify things. Hierarchies and bureaucracy is put in place with the aim of preventing complexity from growing – though this sometimes backfires by doing the opposite. Even so large organisations often become unstuck because vital processes are neglected (a recent example being TalkTalk’s inadequate defence against hacking) or parts of the organisation interpret their an over-narrow remit without comprehending the full context (VW’s problems with emissions standards being a case in point here).  It seems impossible to get the balance between inadequate and excessive control.

And yet officialdom often favours large corporations. That is mainly because they have a similar problem with complexity. They find it much easier to handle a smaller number of large organisations. They are many examples, but one that sticks in my mind is the almost vindictive campaign by officialdom against smaller abattoirs after a scandal of lax standards. This still afflicts British agriculture; we may question whether it really has produced much in the way of safety benefits. But it has made the blame game easier to manage. There is a further, and sinister twist. Large corporations, especially in the USA, have discovered how easy it is to manipulate new regulations by lobbying officials and politicians. The payback on investment is apparently enormous.

The problems of excessive scale are even more apparent in the public sector than in the private one. A recent case described by Guardian journalist Deborah Orr is particularly poignant. She told of a woman falsely accused by a neighbour of antisocial behaviour. It was quite clear that this neighbour had mental health problems. Officialdom, in the shape of the housing association that managed the property and the police, where utterly unable to cope. They could not see beyond an isolated series of incidents, which each had to be dealt with according to a set process, regardless of human impacts. In the end her neighbour was evicted – but only because his rent was behind; at no point did anybody think of getting down to the root of the problem – the neighbour’s mental health problems, which are presumably being inflicted on somebody new. The theme of Ms Orr’s article is the lack of compassion in the modern world. To me it is simply the inability of large organisations, like the housing association and the police, to manage context and complexity. There is no place for compassion is such places. Compassion means allowing the impact of context, and that means losing control.

These problems are made worse by organisations attempting to be more “productive” by reducing levels of staff, and “de-skilling” – using less qualified, and cheaper, staff, working within tightly defined rules. Unfortunately this is one area where the wrong lessons from the private sector are being imposed on the public sector.

There is a sort of defining paradox about the problem. On the one hand we have workers working very hard, and very productively, and on the other we have the organisations they work for failing. This almost always arises because the sum of all the things that the workers are doing fails to add up to what they are collectively trying to do. There is even a name for the discipline of trying to resolve this type of problem: “process management” – which I personally have found an essential set of ideas as a manager. Unfortunately people charged with process management are usually given too narrow a remit to get to grips with the real problems their organisation faces. And all too often these problems are insoluble for large organisations – because solving them means depending too much on the exercise of judgement at a junior level (including the “compassion” of which Ms Orr speaks), the full consequences of which the wider organisation will be unable to handle.

Economists should ponder this paradox when they tut-tut about poor growth in productivity, as they are prone to do. Most still believe that productivity comes about with simplification and scale. But each of our lives is complex, from the billionaire to the welfare claimant. Offering us a bewildering menu of simple, standardised products and services is often not what we need, even if each of these services is very cheap, because it is produced to high standards of productivity. At least the billionaire can employ a small staff of professionals to try and make sense of it all. Alas the welfare claimant often needs interaction with just the sort of trained and empowered professional whose jobs are being de-skilled. Productivity, as it is usually understood, may be self-defeating. We need a new way of looking at it.

In the private sector the processes of technological advance and competition will eventually drive positive change. Big corporations will try to slow it down by creating monopolies, by making life difficult for their competitors, or by misusing such concepts as intellectual property rights. But the life expectancy of larger organisations is already shortening. A long last technology may be taking forward individual empowerment at the expense of centralisation. It is always dangerous to predict where technology will take us, but the smartphone, blockchain technology (pioneered by BitCoin), and additive manufacturing (3D-printing) are surely pointing towards a more distributed model of capitalism. Meanwhile the struggles of large companies to secure customer databases and fight disruption from cyber attack are pointing the same way too. With inevitable exceptions, the big commercial corporation may have had its day.

Alas there is no sign that policymakers understand that scale is a problem for public services, even though almost very day provides evidence that it is. Each failure is greeted with promises that some tweak in the system will sort the problem out. You would think that after so many years of such failed promises that people would start to twig. And yet, alas, no.


Is the world heading for a new financial crash?

Yesterdays’ Guardian carried an article entitled Apocalypse now: has the next giant financial crash already begun? by Paul Mason, who is Channel 4’s economics editor. The same paper carried an article last week by David Graeber: Britain is heading for another 2008 crash: here’s why. So it’s clearly becoming fashionable for left wing types to start spreading stories of doom. Could they be right?

Mr Graeber is not a professional economist (neither am I, I should make clear); he’s an anthropologist, in fact. He has written engagingly on financial matters though, notably his book Debt: the First 5,000 years. His enthusiasm is for the big picture and the global explanation. I found his book a huge let-down because he was incapable of analysing more recent financial events at any level below sweeping generalisation.

And so it is this time. His central argument is that enthusiasm for governments to cut their financial deficits means that private debt, at less affordable rates of interest, will pile up. The key strand of evidence is this graph, which shows public, private and external deficits:

Graeber graph

He notes that it is symmetric, because it is based on an accounting identity. So, if the external balance is constant, which it roughly has been, any reduction in public deficit must be matched by an increase in private deficit. Ergo, we are simply swapping public debt for private debt. And since, as everybody knows, the crash of 2008 came about because of excessive private debt, another one is inevitable. He calls this the Peter-Paul principle (ie. robbing Peter to pay Paul).

Oh dear! It’s hard to know where to begin. As anybody with an understanding of mathematics will tell you, accounting identities don’t tell you as much as you might think. They are tautologies: you can’t use them to predict anything useful about the world. I remember, back in the 1980s, another accounting identity, this time on money, growth and inflation, getting people into trouble, as monetarists used it to “prove” that inflation and growth depended on money supply. Alas all it showed was how uselessly elastic are the concepts of money supply and velocity of circulation. A moment’s thought tells you that Mr Graeber’s argument must be flawed. He is suggesting that the amount of debt in the economy remains fixed – and yet it clearly goes up and down. Actually, the amount of debt is fixed – it is a net of zero! For every debtor there is a creditor; gross debt, however, must be independent of the sizes of the sectoral balances. The Peter-Paul principle is not the great taboo of economics as Mr Graeber suggests. It just doesn’ tell you very much. Not nothing, as the FT’s economics writer Martin Wolf, has shown – but it has taken him in a different direction. He suggests that if government austerity is not matched by extra private sector spending, the economy will shrink. An altogether more subtle point.

Mr Mason’s line of argument is sounder, in that it is based on more factual evidence rather than airy assertions. His line of argument is that aggregate debt has continued to rise, but the world economy has stalled, so that debt will be unrepayable, and so there will be a financial crisis. But this is still lightweight fare, based on aggregated data, which may be unreliable, and not on the specifics of who owes what to whom. The problem is that the world financial system is a very complex thing. It very hard to attribute cause and effect – or rather it is all too easy, it is just impossible to prove that you are right. The financial crash of 2007/2008 came about with the convergence of a number of things, of which the reckless build-up of private sector debt was only one (rising oil and food prices, reckless use of off-balance sheet finance by banks, persistent trade surpluses from China and oil states, a false sense of security from central banks – to name but a few).

One thing we can say is that the world in 2015 is very different from that of 2007, when the last crisis started. It is commonplace in left-wing circles to suggest that nothing has changed in the world of international banking since the crash. Well some banks are making money again, and some bankers are taking outrageous bonuses. But there are many fewer of them; there is much less profit sloshing around. The banks have been forced by regulation and bitter experience to be more prudent. Off-balance sheet finance, at the heart of the 2007 crisis, has been drastically reined in. And the world financial situation is very different, with low oil and commodity prices, a fading China, and the US fast becoming self-sufficient in hydrocarbons.

But that may not offer us much reassurance. We may not be heading for another 2007/2008 but we could still be heading for something nasty. There are four things that could be a sign of trouble:

  1. There are asset bubbles in some places. What is referred to as “emerging market” assets are the most spoken of: debt, shares and property located in China and various parts of the developing world. But there are others: London property and US shares come to mind. Some suggest that developed government bonds are in a similar bubble, as their prices are historically high, but Japan has shown that these prices can stay high for a very long time indeed.
  2. Central banks are running with ultra low interest rates, meaning that the main arm of monetary policy is not available. Quantitative Easing (QE) is problematic. This leaves them without the firepower to deal with a crisis as it emerges – or so many people think. In fact the dynamics of monetary policy have moved well beyond textbook theories about money supply and inflation expectations, leaving us unable to understand how things work.
  3. The maturing of China and the rise of shale oil and gas in the US have changed world financial and trade dynamics fundamentally from the pattern of the last two decades. I suspect the new pattern is more stable than the old one in the long run – but any such change tends to cause dislocation. It may, for example, become much more difficult for many countries, including Britain, to finance their deficits (the blue bit in Mr Graeber’s graph could shrink).
  4. International politics has become more fractious, making international deals more difficult to do. And populists from left and right are making it harder for governments to intervene to stabilise financial markets – often portrayed as bailing out bankers at the expense of ordinary taxpayers. That will make any future banking crisis harder to manage.

So I share some of Mr Hunt’s and Mr Graeber’s worries. I have my own airy narrative. Since the the Bretton Woods system of fixed exchange rates and gold underpinning was broken in the 1970s, by President Nixon who needed to fund the Vietnam war without raising taxes, the world has been addicted to an increasing cycle of debt. Some of this debt might be regarded as lubrication for the wheels of capitalism. But also there seems to be a bit of Ponzi scheme about it, with debt being repaid by the issue of yet more debt, rather than through substantive economic advance. In the long run, that cannot be stable. And yet it may take a long while yet before the trouble starts to show up.



The real meaning of the controversy over the House of Lords

This week Britain’s House of Lords voted to delay the reduction of tax credits for Britain’s poorest working families. Parliamentarians from the ruling Conservative Party are apoplectic at what they say is constitutional outrage – an unelected chamber challenging an elected one. There is an important constitutional issue here, but as usual the Conservatives are pointing to the trees so that we miss the wood. The key issue is not whether the upper chamber is elected; it is how the executive power of the British government should be held accountable, and prevented from excess.

Britain does not have a written constitution. There is no charter of sacred principles which sets out the rights and responsibilities of each part of government and of its citizens. What we have is the result of a very messy process of evolution. It is the result of a struggle between those who want unlimited executive power, and those who want to limit it. We can date this struggle back to King John in 1215 at least. Some may push this back to the time of King Alfred the Great in the late 800s.

Initially the kings claimed their authority from the Divine. They competed for power with their nobles and with the Church. Things have moved on. The power of the Church was crushed by Henry VIII, and the hold of the Divine withered. The House of Lords retains, nominally, the last vestiges of the rights of the nobles. Instead both the divine and the nobility have been replaced by an idea of the Will of the People. But that is just as slippery an idea as that of the Divine.

To most politicians in both Britain’s main ruling parties, the Conservatives and Labour, the Will of the People is represented by a majority in the House of Commons, elected every five years using single member constituencies under the First Past the Post (FPTP) electoral system. In their eyes theses elections confer rights on the House of Commons akin to the old doctrine of the Divine Right of Kings, or the Chinese one of the Mandate of Heaven. This doctrine is often referred to as the Sovereignty of Parliament. The usual practice is that the Commons is controlled my a majority of members from one party, who approve an executive and are expected to support it all of the time. Checks on the executive are regarded as both inefficient and undemocratic. Checks by the judiciary are tolerated (less so if they are at the European level), since most accept that the rule of law is essential to an orderly democratic state. But even that has its limits; the executive chafes at laws that confer rights on ordinary citizens, especially human rights and rights to information. Other checks on power are not accepted. The House of Lords is more there for decoration than anything: a useful political tool to reward politicians for good behaviour, or political donors. There may also be value in the minor revisions to legislation that it proposes from time to time. Hence the anger at this week’s challenge.

And yet many observers feel that this leaves an inadequate check on the executive. There is an argument that unlimited executive power is dangerous rather than efficient, and should be subject to checks and balances. The most famous example of this, of course, is the constitution of the United States of America. The political system there often seems stuck in gridlock, and yet we can hardly call that country a failure, or less democratic than ours. There are three classic ways in which executive power might be limited. A written constitution allowing government actions to be challenged in the courts; a federal constitution that distributes powers between federal and state levels; or an “upper” chamber of the legislature to form a check on the main, popularly elected one. Britain has elements of all three, but they are all weak. The Conservatives want to keep it that way, and weaken the second chamber further.

Is this a bad thing? Conservatives would argue that a strong executive offers decisive government, that is able to develop the economy and protect its citizens better. In particular it is better placed to push through hard but necessary reforms. These reforms may not have been explicit at the time of the government was elected (one of the key arguments against the tax credit proposals), but there is also a sense that the next election casts a verdict on the past government, as well as electing the new one – so there is accountability in the end. Labour politicians are sympathetic to that line of argument, since they want the minimum limits on power when it is their turn.

Liberals oppose this on the basis that it is undemocratic, too beholden to vested interests, and centralises too much power at the national level. These are familiar arguments that I will not try to develop today.

Liberals do have a problem when it comes to the House of Lords though. It is manifestly undemocratic, but simply replacing it with an elected upper chamber with similar powers looks a bit of a nonsense. How would the new upper chamber’s mandate differ from that of the Commons? it could set itself up an an alternative “Will of the People” and simply create deadlock. Wouldn’t it be better to have a single chamber and make that work more effectively? Many liberals might accept that argument in theory, but fear in practice that abolition would not be linked to reforms of the Commons, for example to be elected on a proportional voting system. That fear is well-founded, but it leaves them arguing for something that looks inadequate.

A better way out is surely to come at the problem form a new angle: that of federalism. The new upper chamber might represent the interests of elected governments below the top level. There are many ways that this can be approached, and it would serve a wider purpose. The would help secure a better distribution of power within the country by strengthening local and regional levels of government (I dislike calling this idea “devolution” because it suggests a top-down process). It may also present a more robust solution for Scots’ demands for more self-rule than the unbalanced solutions now on offer. And it is the urgency of the Scotland problem that might give the idea political traction, alongside the widespread recognition that government in England is over-centralised.

That will require some form of constitutional convention to resolve. That is what liberals should be calling for -a not an elected upper chamber by itself.


The tax credit row: ignorance and obfuscation are rampant

Britain’s tax credit row  reached a milestone last night with a government defeat in the House of Lords. As I said last week, it doesn’t show British politics in a flattering light. Then I complained about the failure of the government’s critics to tackle the financial implications. But ignorance seems to be wilful on both sides. What is the row really about?

First, we need to understand what tax credits are. There are two systems: Working Tax Credits (WTC) and Child Tax Credit (CTC). WTC amounts to £1,890 to £4,525 per annum, plus more for those with disabilities. It starts to be withdrawn when income is above £6,420 and the rate of withdrawal is 41%. In other words, for every £1 you earn above £6,420 your benefit is cut by 42p. CTC is for parents responsible for children. This amounts to a basic £545pa plus £2,750 per child (plus extra if the child has disabilities). For those in work these amounts are added to WTC and withdrawn at the same rate. For those not claiming WTC, withdrawal starts at £16,105 (I’m not sure how that works, and why you would be in work and not claiming WTC, but I’ll leave that for now).

So what were the proposed changes? There are two sets. The first is due to be implemented in April 2016. The withdrawal threshold for WTC is to be cut to £3,850; for those only on CTC the rate is cut to £12,125. The withdrawal rate is increased to 48%. The second set of changes will be made in 2017 to CTC. The £545 family element will be withdrawn, and the benefit per child will be limited to two children. These elements will apply to new families, not those who are currently claiming.

So what do the changes mean? First: the basic amounts of the benefits are not being changed, until the changes in 2017, and the latter do not cover existing claimants. This allows the government to say that it the Prime Minister David Cameron was not lying when he said that “he did not want to cut” CTC, during the election campaign. But, of course, the changed withdrawal rules mean that the benefit is being cut for everybody earning more than £3,850. The impact will be concentrated on lower earners, who will face a high marginal rate of tax, starting at 48%, and rising to 60% as National Insurance kicks in, and then 80% as Income Tax joins the party.  This creates something of a poverty trap effect, reducing the incentives to work. But then again, the tax credits are not being abolished, and workers do keep some of their extra earnings.

The government’s chief advertised mitigation measure is raising the national minimum wage. This should put more money in the pockets of the poorest workers, provided employers don’t cut their hours. But much of the benefit of this will go to workers not claiming tax credits, and it will do little to alleviate the hardships of those worst affected. There seem to be two strategic aims. The first is to transfer some of the economic burden of lower wages to employers. There is a suggestion, for example, that employers are paying lower wages because they know that tax credits will make up some of the difference. The evidence that this effect is important is weak, however. A second strategic aim, not doubt, is to reduce the poverty trap element of the changes – so that workers are pushed through the levels of pay at higher marginal tax rates faster. The problem with these strategic aims that the new levels set for the minimum wage are arbitrary. Much of the cost will have to be borne by small and marginal businesses that can ill afford the cost – they may well choose to cut hours paid, and so undermine the policy.

The worst of the interventions in the debate, however, come from some of the suggestions made as to how to mitigate the effects of the changes. These have centred on raising the thresholds at which Income and National Insurance are paid. This is obvious nonsense. It may be clever to mitigate the withdrawal of a universal benefit by using targeted ones. The mitigation will cost less than the original change would save. To suggest the opposite, which is what these ideas amount to, is plain stupid. Worse, the poorest earners are not even paying these taxes, so exempting them will not help. And yet the BBC interviewer on the Today programme this morning sounded surprised when his interviewee pointed this out to him. This is wanton ignorance. The ulterior motive for these “mitigations” is to provide tax cuts to the better off, not to help the poor and struggling.

Moving on. Here are the points that should be being made in this debate, and either aren’t being made, or are being made by too few people:

  1. The government’s changes are tackling the symptoms of the disease of low pay and poverty, and not its causes. Raising the minimum wage may help, but not by much, and could backfire. The real problems arise from the economic pressures that cause lower wages, and from increasing housing costs that make that poverty harder to bear. The risk is that the savings made from cutting tax credits will ultimately be overwhelmed by the less direct effects of poverty on the state. Instead of making it easier climb out of poverty these changes make it harder.
  2. The cost of tax credits will fall if lower incomes rise. The whole design of tax credits is that their costs fall as the need diminishes.
  3. The 2017 proposed changes, are more harmful and ill-considered than the 2016 ones. Clearly the thought is that the level of benefits is encouraging poor families to be larger. I don’t think any strong evidence is being put forward to justify this. It looks positively vindictive.
  4. The government’s policies are not a vindictive attack on the poor, but an attempt to rebalance the system to something that is more sustainable in the long term. But they are a gamble. They are making several changes at once, without a base of evidence to support them. It is these risks that should be the focus of the debate.

Personally I feel that the basic, original, design of tax credits is reasonably sound. The fact that they are costing much more than originally planned is a problem in itself, of course. But it is also an alarm bell – it points to even deeper problems in our society. If we take away the short term cost to the taxpayer, it does not mean that this problem has been solved. I would tackle the funding problem through taxes on the better off (loosely defined, not just chasing the slippery very rich). But the real energy needs to go into alleviating the causes of tax credits. Nobody is talking about that at all.



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