Tax is the Budget gorilla

As a rule I hate clichés. I cringe whenever I hear about a “perfect storm”. But I have a soft spot for the gorilla in the room, who is sometimes an elephant. The huge thing, obvious to everybody, but which it is impolite to talk about. In responding to Britain’s annual (OK, twice yearly) Budget I’m looking at one of them.

Britain’s Budgets are political theatre staged by the Chancellor of the Exchequer, as our senior finance minister is known, annually, or whenever there is new government. There is also an Autumn Statement, which amounts nearly to the same thing. The whole exercise is a process of heavily manipulated speculation in advance, followed by a tumble of instant reaction. All this shows how news is the enemy of information. By the time facts are known, contextualised and properly analysed the news media have long since moved on. People who try to be a bit more serious, like me, are torn. By joining the circus of speculation and premature response we get more readers and more reaction. But this is often at the cost of saying anything that is worth saying. My compromise is not to respond until after I have read the reactions the morning after.

The Budget process seems particularly farcical at the moment. The government is trying to set out its plans over a five year period, and in particular over the five years of a parliament, which in both cases means up to 2020 at the moment. This means they depend on five year projections of the economy. These projections are produced independently of the Treasury by the Office of Budget Responsibility (OBR). Without the smoothing hand of political manipulation, the five year outlook is highly volatile. Last Autumn the OBR “found” £27 billion; a mere six months later they had “lost” £56 billion. I can’t offer much help about what is going on here, except to point out that economic forecasting is a dodgy business, and this sort of volatility simply shows the absence of manipulation. It is no basis upon which to carry out serious economic planning. And yet the government says that it is doing just that. Last Autumn it used the £27 billion windfall to relax its fiscal plans. This time it was forced to tighten up a little, plus deploy a few accounting tricks to pretend that it is on course to meet tis five year target to move the budget into surplus, even as interim targets fall by the wayside.

But nobody is convinced, and nobody cares. It is far too early to worry about 2020, with so many unknowns. The critical thing is the next year, and nobody disagrees much with the overall thrust of George Osborne’s strategy. The muddle is particularly noticeable on the left. They are trying to capitalise on the fact that the government is missing its short-term austerity targets, while at the same time condemning austerity. Since 2010, the government has taken a pragmatic, Keynesian stance to fiscal policy, while pretending that it is being austere.  This means that the country’s fiscal deficit and levels of public debt are higher than pretty much any other major developed economy apart from Japan, having started the crisis in a much stronger position. That this has still meant dramatic cuts to public spending shows just how out of control the government finances had become under the previous government, as it pursued the illusory goal of Scandinavian public spending backed by US taxes. The left are still in denial about this.

So what did Mr Osborne do? Not much. There were promised tax cuts on personal allowances and higher rate thresholds. He failed to increase tax on petrol, even after petrol prices have fallen so far. There were cuts to company taxes and capital gains. I don’t approve of much of this, though many liberals do. But the impact will not be huge. He stepped up the ratchet on public spending, without being too specific, but pushing the hard decisions way into the future in the hope, no doubt, that the economy will come to the rescue. There were gimmicks and irrelevances aplenty, like a sugar tax, and pushing schools towards academy status, which I comment on in another post.

But here’s the problem. Constraining, never mind cutting, public spending is getting harder. Benefit cuts are causing anguish that even Conservative MPs feel; the ambitious idea for Universal Credit could yet collapse amid its technical problems. The attempt to drive efficiency savings in the NHS through ratcheting up financial pressure annually, a policy that predates 2010, has now collapsed. Hopes that the NHS can achieve substantial savings through re-engineering are vanishing. The ugly behemoth is unmanageable, and the reforms made by the Coalition aren’t helping. Outsourcing bits of it will not help. Meanwhile demand continues to rise. The government’s bid to reform schools finance requires a lot of extra money to placate the losers if it is not going to run into big problems. Social care is in crisis. Attempts to curb the defence budget have collapsed.

Behind this can be spied a strategic problem. Or, rather, two. The first is a growing proportion of older people, with an added demand for public pensions, and health and social care support, while dropping out of the tax base. The second is that the benefits of a modern economy are increasingly going to the richest, leaving many behind without adequate savings, and putting pressure on the social security safety net. Rising property prices are exacerbating this, burdening many younger people with huge rents and no prospect of joining the property bonanza. I could add a number of further issues which suggest that the days of easy economic growth are over.

So demand for public services is rising, but the tax base is shrinking, or at least stagnating. There is a substantial current account deficit, which limits the scope for creative government finance (like “people’s QE) we need lots of foreign currency to buy the all those foreign goods we depend on. There is really only one way out. Taxes will have to go up, and not just on the richest. That means the sacred trio of income tax, national insurance and VAT. But nobody talks about this. Not even the opposition parties.

And that is the gorilla.

Tim Farron sets about changing the Lib Dems

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Tim Farron is proving a decisive leader of the Liberal Democrats. The party is in a poor way. It languishes at about 6-8% in the opinion polls, and its doings are almost entirely ignored by mainstream media. Whether he is able to save the party remains to be seen; but he is certainly making his mark.

This struck me forcibly as I attended the party’s Spring conference in York last weekend. The most dramatic development there was the adoption of a motion on ensuring greater diversity amongst the party’s elected representatives. This has always lagged behind the party’s rhetoric. Dominance by white middle class males remains largely undisturbed after decades; even the Conservatives manage better. Some of the stories put about by female activists show the party in quite a shocking light, with discriminatory questions and petty harassment widespread (though I have to say that I haven’t seen it in cosmopolitan London – but maybe it isn’t the sort of thing I register). The only proven way of breaking this is positive discrimination, with the use of quotas or exclusive selection contests. This has been proposed many times in the party’s history, always to be knocked back by the conference as illiberal.

Tim meant to change that this time. He supported a motion that imposes all-women shortlists for replacing any MP that stands down, and at least one other more winnable seat in each region of the country. Local parties are mandated to apply all-women or all-disabled lists more widely. Positive discrimination for ethnic minorities is a lot harder legally, but the party is meant to push matters as far as it can. Having thrown his weight behind the idea, and, importantly, spent considerable effort in persuading key people in advance, he secured the change by an overwhelming majority, notwithstanding many eloquent speeches against.

That is quite an achievement. It is not beyond the bounds of possibility that if the party has a moderately successful general election next time (say raising its tally of seats from the current  eight to twenty or so), it could become 50% female in one sweep. Tim has already shown he means business by having more than 50% female and 10% BAME in his shadow cabinet, if it can be conferred such a grand title. Whether you approve of it or not, this is decisive leadership.

On policy too there is an evident change, led from the top. He is following a “core vote” strategy by picking issues that are likely to motivate core supporters, rather than the general public. The leadership supported motions against fracking and in favour of legalising cannabis at the conference. In his closing speech Tim supported the accommodation of refugees, backed the junior doctors in their dispute with the government, and opposed laws designed to make life easier for the security services to gather personal information. This is all crowd-pleasing stuff for liberals that a party with ambitions to govern would struggle with.

A third element of Tim’s strategy is more strategic. He is promoting community politics – which means the party’s activists cultivating contacts with their local communities and facilitating solutions to local problems. Related to this he is trying to promote policies that support small, locally based businesses. The party at large likes this in theory, but often lacks the understanding or appetite to put these ideas into practice. It pushes political activists way out their comfort zone and forces them to deal with real peoples’ problems, rather simply sounding off amongst the like-minded – which is, of course, why it is such a powerful idea if it can get going.

As with all strong leadership, this is taking risks. The diversity ideas have put quite a few people’s backs up, and may hasten the departure of many older hands who run local organisations. As one such I always feel weak after being lectured by assorted conference speakers about how local parties need to be made to do this, that and the other – and I support them. That is no bad thing in itself, but will enough younger and more willing people come to take our places? The collapse of much of the party’s local organisation will no doubt be hastened. With the paid part of the organisation also in free fall, and with the regional layer dependent on a small number of usual suspects, this is going to be hard going. The party will need to develop online networks and non-geographical interest groups to compensate for the hollowing out of much of its organisation. The push on diversity is hardly the cause of this hollowing out, and one day it will even be part of the solution, but it will make things worse in the short run.

The liberal populism is also risky. Some of the ideas are probably ahead of their time, like more liberal drugs laws perhaps. The world will catch up and the party will get kudos. But others will look plain nuts to most people. It’s lovely to help refugees, but won’t it just encourage more to take to boats and get drowned? Or just divert developing world entrepreneurship towards people-smuggling? It tends to reinforce the public’s fear about liberals – nice but too soft to be given real power. I think a lot of the party’s ideas on privacy may be backward rather than forward-looking, too. All this risks leading the party up the same old blind alley which it took in Charles Kennedy’s (much less vigorous) leadership – which means that if it enters government it will be accused of betraying its principles. Tim ran into bumpy waters himself when he decided to support the government over bombing in Syria. He risks more of that sort of thing. A broader fear is that “core vote” in fact equates to “middle-class”, and the party cuts itself off from working class support.

Community politics should counter these problems. It is a very good way of involving and empowering working class people, as well as showing that the party can deal with, tough, practical problems. It is Tim’s strongest suit, after the idea has been systematically neglected by his three predecessors. The danger is that he finds himself unable to deliver on it, as activists prefer sounding off in blogs and social media to helping to create a thriving environment for local businesses.

But the party must take risks. I admire the way Tim is trying to take the party by the scruff of its neck. He is working out much better than I feared. The unpredictable world of British politics may yet throw the party the lifeline it needs to make a comeback. The progressive destruction of the Labour Party makes that look a distinct possibility. And if it does, the party will be a different thing to the one that embarked on coalition government in 2010.

 

 

 

 

 

 

The speech I would have given at #ldconf

I wasn’t called to speak to speak at the economics debate. Only one speaker was picked to oppose the motion. That reflected d the balance of cards submitted, apparently. This is what I was planning to say:

What on on Earth am I doing? Vince Cable is one of my heroes! He is one of the few economically literate people in British politics. How can I oppose a motion that he has proposed so eloquently? And a motion with so many worthy sentiments in it. It’s like voting against motherhood.

Well maybe that’s the problem. The party at this point in the political cycle needs  a serious motion on economics to do one of two things.

First it could set out a clear but simple vision that shows what the party stands for and who we are. It could pick up themes such as green growth or local enterprise.

Or it spell out specific policies. Things that can be put in a manifesto, or, Heaven forbid, a coalition agreement.

But the motion has no clear organising theme. Vince’s speech helpfully offered us four. But not the motion we are being asked to adopt. As originally published it had 10 complaints about current government policy, and no less than 15 themes for Lib Dem policy.  From my Conference Daily I see that it has grown. It truly is no hobby horse left behind! Where on earth is the clarity and vision in that?

Amendment one does try to build a green theme, which improves the motion, and I support it. But it cannot save it.

And neither does it help create detailed policy. Each of those 15 proposals needs a debate of its own.

This motion is neither fish for fowl.

Conference, you could take the easy option. You can vote it through, and let it be instantly forgotten. For that is the only fate that can await it. But is that what you really want for the first motion under One Member One Vote? No. You can be brave. Throw it out and send a signal that this conference means business.

Neither fish nor fowl, why I will oppose the economics motion at #ldconf

This weekend the Liberal Democrats meet for their Spring Conference. To most observers of the political scene, this is an irrelevance. But with the growing gap between Labour members and the general voting public,  and the Conservative Party riven by splits on Europe, who knows what opportunities might arrise for the party? I still care about it, anyway.

The party is rebuilding itself after the five year car crash of coalition government ended last year with it being reduced to near irrelevance in the House of Commons. And that followed five years of rather gentler decline after its peak year of 2005. The party conferences are an opportunity for members and leaders to decide what the revitalised party stands for.

One complaint after last year’s meltdown was that the party was weak on economic policy, and so let others set the agenda. No doubt that motivated the submission of a motion on the economy as the first item of policy business on Saturday with just an hour’s debate. Alas the motion plumbs the depths of awfulness.

I can’t find a neat link to it, so I will reproduce it here in full below, so you can judge for yourself. But with its 10 whinges about the current situation, and 15 proposals, I’m not sure I would recommend a close read. It is mostly unobjectionable. It has some worthy ideas, and some airy aspirations. Item 11 od the 15 reads: “Addressing inequality through a renewed commitment across Government and society to analyse and address Beveridge’s Five Giants in modern society.”

In some contexts a list of 15 rather disconnected policy ideas is not a bad idea for a policy motion – for example if the party was planning to negotiate a coalition programme from a position of strength. This is hardly the context now, and even then it fails. Just what would you do with a commitment to tackle the Five Giants in a coalition negotiation? Instead all such a long list of vague ideas serves is to offend people whose own hobby horses are left out of the 15, or are underrepresented, or given too low a prominence.

What the party actually needs from a debate on economics at this stage in the political cycle either of two things.

The first thing it could do is set out a very limited number of general themes, around which to hang more detailed policies. These need to display a bit of vision, and show  what the party is all about. I suggested a few last year: green growth, small is beautiful (or greater diversity and innovation, if you will), problem-solving public services and addressing inequalities and imbalances. It would not be hard to do better than that, and any debate would say something about the party’s values and campaigning priorities. I can find no such clear general themes in the motion. Worse, I am rather shocked to see so few references to environmental sustainability in a party that used to pride itself on environmental consciousness – that alone is reason enough to vote the motion down.

The second thing it could do is develop a particular economic idea or solution to a specific economic problem. There are plenty of places where this needs to be done: investing for green growth; tackling the housing crisis; free but fair trade; taxing businesses. Or the role of fiscal policy in economic management, though the chances of getting a rational debate on that area in a left of centre political party are slim. This is actually where the heavy lifting needs to be done, and where the Lib Dems can make a substantive contribution to the wider political debate on economics.  The real world of democratic politics is evolutionary; revolutions fail. What is needed is a series of practical changes, each of which will works on its own merits, and which collectively will amount to radical change. The motion does point to some specifics, but each of its 15 proposals needs to be picked apart in a debate of its own. Instead we have a series of vague and useless commitments.

And as a result the motion is a complete waste of time. Much hope seems to be being placed on amendments. But unless these are allowed to replace the motion with an entirely new one, which would be an abuse of process, I can’t see how it can either be turned into a general vision or a specific economic proposal. It is neither fish nor fowl.  The best thing to do with it is to throw it out and start again.

Conference re-asserts the Liberal Democrats’ continuing commitment to sound public finances, social justice, an open economy in an open society, and the principle of free markets whenever possible with intervention where necessary by an enabling state.

Conference notes:

a) The Liberal Democrats’ effective record in Government in stabilising the public finances and major contributions in the fields of apprenticeships, banking regulation, the British Business Bank, the Green Investment Bank and the promotion of innovation through the Catapult network.

b) The fragile nature of economic recovery following the 2008 crash, evidenced by interest rates which are historically low and continued Eurozone uncertainty.

c) The growth of house prices carrying the threat of a price bubble and subsequent crash.

d) The Chancellor’s unhelpful and arbitrary re-definition of the deficit, doubling the total by including capital spending, in his attempt to justify Tory spending cuts.

e) The medium-term risk to the UK economy posed by increasing and unsustainable private and household debt.

f) The threats to the UK economic prospects posed by Conservative approaches to UK membership of the European Union and immigration.

g) The International Monetary Fund’s advice to reduce debt through growth not cuts.

h) The UK economy’s over-dependence on London and the South-East.

i) The UK’s bad record in allowing the growth of an increasing number of young people with low levels of education, training and aspiration.

j) Growing inequalities in wealth and income, coupled with unfair and regressive action against the poorest people in the country, now exacerbated by the assault on welfare spending.

Conference calls for effective measures to support and grow the UK economy, including by many established Liberal Democrat policies:

1. Increased investment, both directly by Government financed by public borrowing, and stimulated by Government, particularly in affordable housing including social housing and infrastructure to support balanced growth throughout the UK.

2. Support for planning reform, institutional lending to small builders and action by local authorities for planned development, including assembling land for auction.

3. Further measures to improve and regulate banking services by promoting efficient lending, particularly to small and medium-sized enterprises, encouragement of challenger banks and increased personal accountability.

4. Strengthening takeover legislation to protect the country’s science base.

5. Reversing cuts in the development of green energy and promoting investment in green business initiatives.

6. Further development of the Government’s industrial strategy, promoting co-operation and supply chain development in key sectors for the long-term.

7. Re-balancing the economy towards manufacturing industry and regions, based on the coherent and substantial devolution of political and financial power.

8. Further reform of corporate governance to encourage ‘long-termism’ and to discipline executive pay, including an employee role in determining executive pay.

9. Renewed emphasis on vocational education and training, particularly through effective apprenticeships and especially higher-degree level and engineering and construction apprenticeships.

10. Coherent efforts across Government Departments to address the needs of young people who are excluded from the labour market and participation in wider society.

11. Addressing inequality through a renewed commitment across Government and society to analyse and address Beveridge’s Five Giants in modern society.

12. Investigating sustainable ways of funding universal services, including a cross-party, cross-society settlement on funding health and social care.

13. A new commitment to taxing unearned wealth, including Land Value Taxation.

14. Measures to dampen the growth of asset bubbles in opposition to Conservative approaches which tend to increase that growth.

15. Support for more diverse ownership models including worker ownership, social enterprise, mutuality and co-operation.

Why isn’t the sovereignty argument for Brexit making traction?

Maslow Hierarchy ofNeeds.svgThank you to Politcal Betting’s Alistair Meeks for giving me the idea of using Maslow’s hierarchy of needs to offer insight to Britain’s referendum on whether to leave the European Union. It poses an interesting conundrum about the campaign for a Leave vote.

Maslow’s hierarchy is old-fashioned psychology, which has no doubt been left behind by practising psychologists long ago.  But it contains enough truth to resonate with political analysts. This hierarchy is presented as a series of layers, usually visually presented as a pyramid. At the bottom are physiological needs (food, shelter, etc.); at the top is “self-actualisation” – the higher needs of confident people. The idea is that while needs are unmet in lower layers of the hierarchy, higher needs will count for little. People won’t worry about safety if they are starving, and so on. The political message is that high-flown arguments about democracy and freedom will not appeal to people unless more basic needs and fears have dealt with.

Mr Meeks puzzles that many Leave campaigners are obsessed with the European Union, and its supposed effects on national sovereignty, and yet the EU hardly registers in lists of important issues identified by ordinary voters. It is trumped by issues such as the economy and immigration, which speak to needs (security and, perhaps, belonging) that are lower down the hierarchy.

But the puzzle doesn’t end there. The Economist’s Bagehot column points out that there is a great educational divide in attitudes to the EU, and uses two nearby cities to illustrate the point. Middle class, well-educated Cambridge is strongly for Remain; working class Peterborough is the opposite. And here’s the puzzle: it is the middle classes, much further into self-actualisation level, to whom the standard Leave argument about sovereignty should appeal. And it seems to be having little or no impact there.

And that is not from lack of exposure. For the last five years people on BBC Radio 4 have been banging on about it, and not just in news programmes. Arch Eurosceptic MP John Redwood presented an Analysis programme on Europe; conservative philosopher Roger Scruton majored on it in one his Sunday morning point of view programmes. And it has been repeated endlessly in the last week, most notably by Conservative cabinet minister Michael Gove, usually reckoned to be a thoughtful type, as well as the more opportunist Boris Johnson, London’s Mayor. And almost no argument has been offered against the idea that the EU is an outrageous assault on British democracy and in effect a foreign dictatorship. Instead responding Europhiles quickly migrate down the Maslow hierarchy and talk about jobs and security, or pick off relatively minor points, such as challenging the figures on Britain’s budget contribution to the EU. And yet for all the apparent one-sidedness of the high intellectual debate, Remain seems to be winning at the top of the Maslow pyramid.

I think that is because there is a massive disconnect between Leave campaigners and members of the general public on the nature of Britain and democracy. Mr Gove paints a picture of a proud history of the British freedom and democracy, against an EU that has achieved little and is stuck in the past. He wants laws made in Britain, by lawmakers the British people can throw out if they don’t like them. But it is all very well for Conservative MPs holding safe parliamentary seats to wax lyrical about British democracy (and to talk aggressively about throwing the blighters out – a very distant prospect I their own personal cases…), and decry the limits that the European treaties place on their exercise of power – but ordinary people, even nice, educated, middle class ones, don’t feel connected to their lawmakers. They distrust their parliamentarians, and aren’t sure that they actually would be “thrown out” if they didn’t like them. Indeed when it comes to elections, the same politicians delight in suggesting to electors that they have no real choice at all – vote for them or for chaos. And don’t waste your vote on Greens, Liberal Democrats or Ukippers. Many voters are persuaded to vote for people they don’t really like or trust, for fear of something worse. It is hardly surprising if people have rather more nuanced views about British democracy than their elected representatives.

This is all reinforced by standard political wisdom. Democracy is not supposed to be elective dictatorship. Hitler’s attack on minorities and opponents was not legitimated by the fact that he had a mandate from an elected parliament. As the Americans appreciated from the start, freedom and democracy is about checks and balances. And there are frighteningly few of these against the British House of Commons, whose majority, these days, is based on the votes of about a quarter of the electorate. The European Union presents one of the few remaining checks, and usually for reasonably sensible things, like protecting the environment, ensuring public procurement isn’t stitched up, or that there are some standards of job protection. These regulations may not be especially loved, but they offer some bastion against our own politicians, especially Conservative ones, who celebrate the freedom of employers to sack people at will, and landlords to do as they please. The EU is not imposing taxes or calling up our young people to serve in a European army. This “dictatorship” has a rather muted impact on our daily lives, it turns out, which well be rather benign in the long run.

There is another problem with the sovereignty argument. What is so special about the British level of polity? Mr Gove is annoyed that French or German politicians have a say over our laws. But don’t Scots voters feel even more strongly about the say of English Conservatives over theirs? Why should London voters have so much say over what goes on in Manchester or Cornwall? Politics is clearly a much more complex business than is being made out. It is interesting to deploy the arguments of Messrs Gove and Johnson to the question of Scottish independence. And to note that to most Scots the EU does not look like an instrument of foreign oppression.

Furthermore, many middle class voters may be rather less than convinced that the rest of Europe is such a bad place that we should have nothing to do with them, or (a longer shot) that the EU has achieved nothing. Things seem to work well enough in France, Germany and Austria – and even in Spain and Italy. The EU’s mission to extend democracy and the rule of law to south and east Europe may not be entirely successful or complete, but surely it is a worthy cause? And surely the most important moments of British history, from Waterloo to the First and Second World Wars show that what happens over the Channel affects us deeply. Europe is where Britain belongs, surely?

This is not to say that there are not many insecurities that the Leave campaign can play on, especially amongst working-class Britons. These, especially including fears over immigration, may yet win them the referendum. But banging on about sovereignty is unlikely to help them much.

The Metropolitan Police: institutionally stupid?

Some years ago London’s Metropolitan Police were accused of being “institutionally racist” by a learned judge. Recently I was talking to an experienced police officer (not from the Met, as it happens), who took great exception to this accusation. Now I have no strong evidence that the original accusation was fair (nor that it wasn’t), and neither do I feel able to comment on how things stand now on that matter. But it goes with the territory that institutional failings are often invisible to the institution’s members. This came to mind in the latest kerfuffle over the police’s investigation of child sex abuse claims.

The current row centres around accusations of child sex abuse made about Lord Bramall, a distinguished ex-soldier. Lord Bramall claims that the whole matter was bungled, took far longer than the merits of the case warranted, and was conducted without regard for the impact on the accused. Similar claims have been made about other investigations of child sex abuse, and not just by the Met (one by Wiltshire Police on former Prime Minister Edward Heath comes to mind). In response senior police officers seem unable to understand what they are being accused of, and reject the criticism as unfair, beyond the odd minor mistake. Sir Bernard Hogan-Howe, the Met’s Commissioner won’t apologise, because he thinks that doing so would suggest that no investigation should have been carried out. Which his critics have never suggested.

Sir Bernard did muse, however, that perhaps the police’s policy of automatically believing accusers in sex abuse cases might not be quite right. This attracted an attack from Vera Baird, the police and crime commissioner of Northumbria, a lawyer by profession.  She suggested that any departure from a strict policy of believing all accusers would condemn thousands of victims.This entirely misses the point.

The trouble is that the sort of practices complained about by Lord Bramall are hardly restricted to the investigation of sex abuse claims on famous people. They are normal police practice. Plodding investigation (if you are lucky, that is; too often nothing is happening at all as cases never get to the top of the pile before the file is lost); vital clues ignored; complete disregard for the impact of their investigation on the people that are involved in it. In common language, a complete and utter lack of common sense – and instead blind adherence to policies and procedures that prevent context, efficiency and initiative from getting in the way. And this does not just apply to investigations; the police got into a real muddle over crowd management at the G8 summit in London in 2013. They applied “tactics” (a revealing word) that were often totally inappropriate in context, causing distress to thousands of ordinary law-abiding citizens.

But this is how many people like to run large organisations, and how, incidentally, lawyers often advise such organisations be run. The senior officers adopt sheaf-loads of policies and plans, and then tell their underlings to follow them. If something goes wrong, it either arises from a failure of an underling to follow a policy, or else the policy itself is at fault. And, of course, because the policy cannot cater for all circumstances, many failures are tolerated with a shrug, and, are not seen as failures but as just the way the world is. What is not allowed is for junior management to assess a situation, and decide the most appropriate course of action, given the organisation’s overall objectives, disregarding those sheafs of policy documents. Hence Ms Baird’s and Sir Bernard’s spat over police policy on how to treat sex abuse accusations. Neither can stand the thought of discretion and common sense entering police procedure; or rather, the idea that it might do is unthinkable. It is institutional blindness. and institutional stupidity.

Lord Bramall, as former Field Marshal, may well recognise the syndrome. One hundred years ago armies used to be run like this. The senior staff made plans; everybody else had to comply, regardless of context (even the political leaders, in the case of Germany’s Schlieffen Plan in 1914). It proved utterly disastrous as the First World War unfolded, and nowhere more so than in the order-loving German army. The shock was such that the Germans carried out a systematic rethink, so that by the Second World War they had managed to reconcile the need for local initiative and overall command. Evil though their cause was, the German army proved astonishingly effective in that war, except at its very top level of command. Right until the end they seemed to outfight their opponents man for man. Modern armies learnt from this, and local initiative is now a standard part of how the British Army works.

Alas the police have no such initiative-taking, intelligence-using, problem-solving culture, except perhaps in elite units. This seems to affect all British police forces; it just creates most damage in the Met, the country’s biggest, where senior management are most remote from the front line. A living demonstration of the problem can be seen in the recent disastrous merger of Scotland’s police forces, which was much applauded by policy wonks south of the border when it was first proposed.

It is perhaps one good reason why an outsider, from another country or another service, might be a good idea to lead the Met. But the problem is much deeper. Police middle management seem to be of dire quality, being so cossetted in a culture that favours following orders and procedure, and then sticking together under pressure. It will be a tough job making things better.

The truth about school choice is emerging. It doesn’t raise standards.

I read this article in last week’s Economist. The implications are quite extraordinary for anybody follows the political debate about school provision. One of the central ideas of the right, school choice, is in collapse.

The article concerns school voucher schemes in the USA. In a number of areas vouchers are distributed to poor families, so that they can use them to get places for their children in private schools. The article takes a case study from a large scheme adopted in Louisiana following Hurricane Katrina. One interesting feature for policy wonks was that the vouchers were distributed randomly, which is evidential gold dust. You can compare the children who got vouchers with those that didn’t on a level playing field, as it were.

Voucher schemes are popular with the right, ever since the economist Milton Friedman advocated them back in 1955. Fans included the Economist newspaper. They were also quite popular with the poor families themselves – though, if I remember correctly, researchers felt that was more to do with a sense of empowerment than any educational benefit.

But in this study the children with the vouchers did worse than those allocated to their local state school. even after controlling for other explanations. Meanwhile dramatic improvements have been made in that state system in Louisiana through the use of good old-fashioned state management.

School choice has been a favourite idea of the right, who prefer market-mimicking solutions to state control. This is very much part of a fashion that the left refers to as “neoliberalism”, on this occasion with some accuracy (they have a tendency to apply it to anti-state followers of Ayn Rand, who should be regarded as libertarians rather than liberals). Neoliberals think that state run systems are inefficient because of inadequate or dysfunctional incentives for those running them, while markets are more efficient processors of information. The fashion for school choice caught on in Britain under the last Labour government, promoted by Tony Blair in particular, and then turbocharged in the Conservative-led governments that followed. The British policy was to introduce state sponsored “academies”, free of local authority control, to mimic private schools. Alas it is difficult to see this as anything other than a colossal distraction.

As it happened the Labour government had managed to raise school standards spectacularly, especially in London, through good old-fashioned management before they started messing with academies. Using a system of school inspections (by Ofsted, a state agency) to develop a broader idea of quality than mere test results, the British state has created a system that has delivered substantial improvements. According to last weekend’s Guardian, private schools are worried by the climbing standards of state schools. To be fair some of that may be due to the propaganda buzz around academies.  Certainly they do have something to be said for them as a way of diverting attention from private schools – including tapping into latent demand for state schools that local authorities struggle to recognise.

Right wing think tankers would do well do examine the remarkable success of many British state schools, and try to think about the reasons for their success. Voucher schemes can be quietly dropped.

@markpack ‘s 20% strategy is not enough. The Liberal Democrats must develop a clear political strategy.

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Mark Pack and David Howarth have published a second version 80-20their 20% Strategy, originally published last summer. In the preface the authors bemoan the lack of controversy over their proposals, which signal that their implications have not been fully internalised. This is exactly what I predicted in my reaction to the document at the time. I stand by my suggestion then that the party must work on a political strategy too.

The document is well worth a read if you haven’t already. If you read the first edition, I’m not sure the second version says much that is different. I must admit that I just skimmed through it. What struck me this time was that there was a bit of a diversity paradox in it. In one sense a core vote strategy is a step away from diversity in order to secure greater cohesion. In principle that is based on a sharper focus on liberal values, but it can easily stray from that. The document suggests that the party concentrate its messaging on more educated people, as they are more likely to be liberal. On the other hand their research suggests that the potential core vote has a great deal of ethnic diversity, which is not reflected in the party’s membership. There is also a bias towards women, which suggests that the male dominance of the party’s upper echelons is an issue too.

That’s a worth a bit more reflection – but I have to admit that I am struggling to think through how to promote diversity in a liberal organisation. Some attempts to promote diversity end up by reinforcing a sense of difference between different groups, and collective victimhood amongst some of them – when it is what we have in common that is most important, and victimhood gets in the way of personal empowerment and agency, which are keys to the liberal vision. A further concern (and not unrelated) is that a “core vote” strategy will too easily become a “middle class comfort zone” strategy. I think the party would benefit from a stronger diversity across social classes – which would help make the party sharper and more politically relevant.

But for now I want to come back to the issue of what I am calling “political strategy”. If the party’s values describe the “What?” and, perhaps, the “Who?”, political strategy addresses the “How?”. And in particular, how the party proposes to advance the liberal policies for which it is fighting. In my piece last summer, I suggested that the party needed to talk about this to create a bit of the controversy that is needed for the party to sharpen its collective thinking.

But in fact it goes deeper than that, because as well as “How?” it addresses “Why?”. In order to attract core supporters it is not enough simply to say things that they agree with. The party needs to explain how support for the party will actually have a positive effect in the Britain’s political system.

It is here that the party is weakest, because its strategy up to 2010 has completely collapsed, unless you think that 5 years as a junior coalition partner in national government every 50 years or so is enough. The party’s strategy had two main elements: to build up strength in local government, and use this to win parliamentary seats. And second to use its parliamentary presence to join coalition governments as a junior partner, and maybe one day as a senior partner. The Conservative strategist Lynton Crosby has exposed the hollowness of this strategy in his 2015 election campaign.

The trouble is that it matters who leads a coalition government. Labour supporters cannot forgive the Lib Dems for being part of a Tory-led government, however much Lib Dems claim that they moderated it. Likewise Tory voters were worried that the Lib Dems might switch sides and support Labour (and the SNP). Mr Crosby showed that that fear trumped all the excellent local knowledge and case work that so many Lib Dem MPs offered. So, it matters whose side are on (or at any rate whose side you are not on), and ultimately national politics trumps local politics.

What to do about this? I think the party has to be public about its preferences between Britain’s two main parties. The obvious way to do this is simply be to spell out its preferences. So the party could (like the SNP, the Greens and Plaid Cymru) rule out a coalition with the Conservatives. Mark and David’s research shows clearly that the potential core vote inclines left rather than right, so that is the way it has to be (much to my personal disappointment). There is an extra complication, in that the current Labour Party is becoming politically toxic amongst the party’s potential supporters. For now it would be necessary to rule out a coalition with them too. But the party can say that this view would change if Labour moves back towards the centre.

An alternative approach would be transactional. The party might make a series of core demands, and insist that it will only enter coalition with parties that sign up to these demands. But the party’s activists are likely to set the bar too high, in which case the party either becomes irrelevant, or it is forced to break its promises. To judge by the way the Lib Dem leader, Tim Farron, handled the vote to intervene in Syria, such a stand would have very little credibility. He set a number of stern conditions for his support, only to bend them to beyond breaking so that he could vote with the government.

A second strategic question the party needs to think about is the idea of electoral pacts. Britain does not have a pluralistic, proportional voting system. Our electoral system is essentially a binary one, and without preferential voting, or run-offs, parties agreeing not to run candidates against each other is the only realistic way of forming alliances. The basis of an alliance might be to change the electoral system itself – although it is far from clear that the British public would support this. Whether or not electoral reform is the subject, any pact needs to have a clearly understood common goal. Electoral pacts do not need to be universal. They can apply to different levels of election (local or national), and to only a limited number of seats. Thus Labour might withdraw candidates in a number of south western marginals, while the Lib Dems do so in Labour ones elsewhere. Such pacts have a long history within the British political system, before dying out in the 1950s (or even early 1960s?).

Preferred coalition partners and electoral pacts: these must be  elements in any future political strategy for the Liberal Democrats. Unlike the 20% Strategy, such ideas would be controversial. Good.

 

Why do governments follow austerity when orthodox economists advise against it?

It’s by turns annoying and amusing: the way people on the left complain that orthodox economics has gone off the rails, and that we need fresh thinking to inform government policies. Apart from coming up with a lot of age-old tropes that economic models do not mimic real behaviour, or take account of information asymmetries, the main item of evidence is the persistance of austerity policies in the developed world.

But the main critics of austerity turn out to be…. orthodox economists. People like Joe Stiglitz, Paul Krugman and Martin Wolf. And newspapers struggle to find economists to make the case for the defence. The Financial Times often resorts to Niall Ferguson, who is a historian, not an economist, and no match for a Nobel laureate like Mr Krugman. The British Labour party is even roping in economics professors to bolster its economic credibility.

In fact there is a brand of orthodox pro-austerity economists. These are the old “supply-siders” from such institutions as the Chicago Business School, who developed a line of “neoclassical” economics, and rebelled against what was once the Keynesian orthodoxy. This branch of thinking grew out to the economic crisis of the 1970s, but proved utterly useless when the crisis of 2007/08 hit. Neoclassical economists pipe up here and there in America, but are mostly silent, their credibility shot-through. That leaves the field nearly unchallenged for the neo-Keynesians – at least far as the public debate in newspaper columns is concerned, in Britain, anyway.

Which leaves us with a mystery. Why are governments, from Europe to America (though not Japan, interestingly), ignoring the orthodox economists? Two explanations are usually offered by their critics. One is rank incompetence or wilful blindness. The other is a political agenda that austerity plays to, usually involving making the rich richer. Neither explanation stands up to close examination.

I am wary of accusations of incompetence, especially when made about clearly intelligent people, such as most politicians and technocrats involved in government finance. This is something I learnt as a history undergraduate (I studied both science and history in my original undergraduate incarnation, long before my study of economics as a mature student). Such accusations are bandied about freely down the ages, but never stand up to scrutiny. Mostly the wilful blindness comes from the people making the accusation, who cannot entertain the idea that there is a rival point of view to their own. Modern economic policy is no exception.

The political agenda is a bit more plausible. Perhaps governments are in hoc to big business interests and those of the wealthy? But if the last 150 years of history has taught us anything, it is that if poorer members of society are prospering, the rich will prosper also, and be left in peace. This is even more true of big corporate interests than anybody else. It is harder to make money in a stagnant economy. Those malign influences are there in politics, but their effects are altogether more subtle than doing down poor people to help line the pockets of the rich.

Sensing that these explanations don’t work, many on the left build up an idea of “neoliberalism”. This is a philosophy based on the old supply-side or neoclassical economics that may be waning in academic economics, but still holds a grip on the lesser mortals who staff finance ministries and banks, and other parts of the “elite”. But this too is inadequate as an explanation. Certainly it is possible to identify a series of beliefs and biases amongst policymakers that equate to economic liberalism. But they do not explain austerity as a macroeconomic policy. And besides, we need to understand why the hold of these beliefs is so strong. Clearly some on the left think that an outdated economic orthodoxy is to blame. But surely such theoretical constructs cannot by themselves have such a grip on so many intelligent and practical minds?

Instead of a conflict between different types of theory, what is really going on is a conflict between theory and practice. The theoreticians may be gung-ho about fiscal and monetary stimulus, but the people who implement policy are acutely aware of the practical problems and risks. There are three particular practical issues about which the theoreticians are dismissive, but which weigh heavily on the practical types: economic efficiency; public investment; and financial markets.

First take economic efficiency. Pretty much everybody agrees that, ultimately, living standards depend on economic efficiency, or productivity. This piece of orthodoxy could be challenged, but that is not what most on the left mean (traditional Greens being the exception, along with liberal voices in the wilderness like mine) when they call for fresh thinking. They see slow economic growth as a sign of failure as much as any conservative does; and that ultimately is based on productivity. But economic efficiency is hard work politically. Both businesses and workers like to protect their patches with taxes, government agencies and regulations that keep the winds of change at bay. This is especially the case in Europe and Japan. And yet, in order to achieve long-term growth, these vested interested must be tackled, and reforms enacted. This has been shown in countless contexts in both developed and developing world. Mostly reforms have an economically liberal character – but only because this approach genuinely unlocks long-term efficiency.  Far-sighted politicians and officials want to use every possible chance to advance reforms. That includes the pressures created by economic hard times. Theoretical economists might suggest that boom years are the best time to push through reforms, or that reforms can be covered by macroeconomic leniency. Politicians know that the opposite is the case – it too difficult to muster the political imperative in easy times, or if short-term macroeconomic policies take the heat off.

Reform and austerity are not necessarily the same thing, but they almost always are.  This debate, of course, dominates discourse in the Euro zone, where economic hardship is concentrated in less efficient economies. Critics of austerity there offer no way forward for improved efficiency, beyond the hope that public infrastructure investment will deliver the growth they seek.

Which brings us to the difficulties of public investment. To theoretical economists this is the magic bullet. Public investment in infrastructure both yields gains to long-term efficiency, and a short term fiscal stimulus. The economists are exasperated that so few governments seem to follow their advice. And yet public investment is a graveyard of roads to nowhere and white elephants. When the imperative to  invest is political, the choice of project becomes political too. It is very hard to make sensible choices. China was much lauded for its infrastructure investment programme following the crash. This has now turned into a major headache, as so much of the money was wasted on empty cities and useless infrastructure. Something similar happened in Japan in the 1990s. Finance ministry officials are rightly wary.

And then there are the financial markets. If I’ve heard one economist here in Britain suggest that now is a fabulous time for the government to borrow, or even “print”, money, I’ve heard it from a hundred. With so much demand for government bonds in the markets, and inflation looking mortally wounded, just what are you worrying about? But none of these economists work at the sharp end of government finance. If they did, such sanguinity would remind them of the sort of thinking that got the world’s banks into the disaster in the first place: a reckless confidence that markets would behave in future as they do now.

Alas life is much more complicated than that. Grounds for confidence in the financial markets is stronger in some places than others. Japan has a massive export industry that sees to all its foreign currency needs, so that the state can borrow and even print the Yen with reasonable confidence. Which is what it has been doing, in prodigious quantities, for the last two decades, although to little apparent effect. The US is another country that can feel reasonably secure, even though its balance of trade is less benign than Japan’s. The dollar is the world’s de facto reserve currency. The United Kingdom, however, shares neither of these strengths. It needs to draw on overseas institutions and businesses, and its own private sector, in order to finance its significant current account and trade imbalances. This is not a problem that printing the Pound can help with. The state has been extraordinarily adept at handling this risk over the last few decades. But that is because of the conservatism that is currently attracting so much criticism.

To me the theoretical economists, the practical policymakers, and most of their leftist critics are all trapped by an orthodox way of looking at the world through economic aggregate statistics. This means that they are failing to take on the deeper problems that society faces: economic and environmental sustainability, alienation, and the gravitation of wealth to successful people and places. That has very little to do with the politics of austerity. People on the left who call for fresh thinking should be careful what they wish for.

 

The Troubled Families Programme shows the way forward for public services

I was interest to read about the British Government’s Troubled Families Programme (TFP) in last week’s Economist. Now I don’t find the Economist particularly reliable on British social policy – their coverage of education has shaken my faith in the paper, with its uncritical adoption of rightwing wonkery. So I thought I had better get an alternative view. That proved a bit more difficult than I imagined, since the programme attracts little public attention. I did come across one piece in the Guardian, though, from last November. This turned out not to have a great deal to say. Nevertheless, I think that the TFP is an exciting idea that is a potential model for future social policy – unlike so many of the government’s other ideas.

The TFP was set up by the Coalition government in 2011 in response to the riots that year, which set off one of our ruling elite’s bouts of moral panic about the lower orders. The programme targets the families that are creating the most problems for public services, initially 120,000, and appoints a key worker, who then works with the family to put them on the path to solving their problems. The key workers bring in other public services as required. The programme was extended to 400,000 families in 2014.

David Cameron, the Prime Minister, has lent his personal imprimatur to the programme, and claimed a virtually 100% success in “turning around” these families. This claim is examined by the Guardian, which unsurprisingly finds it wanting. Success is judged by rather unconvincing criteria, and includes families knocked off the list because they were found to not to be as “troubled” as first thought. Perhaps it is too early to judge the programme, as one of the Guardian’s contacts suggests, but that looks equally dubious. To me the programme is simply commonsense. No doubt there are many ways in which it can be improved, but we are better off seeing this as a glass half full than half empty – because its approach runs counter to so much of current government practice.

The problem with the normal approach to public services is that it compartmentalises them: social work, probation, police, mental health, housing, employment and so on. But the most persistent problems involve people that have multiple problems that feed off each other. Mental health, joblessness, housing, drug abuse, criminality is a common trail of destruction, for example. This leads to the classic paradox of public services (and many other dysfunctional organisations), where everybody is working hard and doing their job well, but the overall result is underperformance and failure – and constant demand for more “resources” as social policy types like to call taxpayer funding. Solving the complex problems that lie at the heart of so much demand for public services requires looking at the person at the heart of it and supplying leadership. This tackles two of the most difficult aspects at once – the lack of confidence or chaotic nature of the people involved, and the need to coordinate and access a multiplicity of services. That is what the TFP does. It intermediates the public services with a human professional who can adapt their actions to the circumstances – and provide personal coaching. That key worker may be the first person in public service that the troubled individuals have talked to who is interested in them as people, rather than through the narrow scope of their role.

This is interesting, because it takes public services in the opposite direction to most attempts to “reform” them, since Labour’s Tony Blair suggested that public services should learn from the private sector in the late 1990s. What followed were many attempts to make services more streamlined, and to intermediate them through dumbed down interfaces with low-skilled staff and workflow systems, which are quite unable to deal with human complexity. It turns out that the private sector gets by by avoiding the difficult cases and telling them to go somewhere else.  It also doesn’t like actually soving people’s problems – it want them to keep coming back for more. There is still much that the public sector can learn from the private – but not nearly as much as Mr Blair and his Conservative emulators think. The public sector needs operating models of its own – and the key worker idea is one. There is another around building self-helping communities, but that’s a story for another day.

And, to be fair, criticism of the TFP is limited. A lot is directed against Mr Cameron’s rhetoric, which talks about addressing the “twisted moral code” of troubled families. In fact it turns out that most troubled families do not engage in crime. But this is about creating political cover for the idea to readers of the right wing press – a bit like covering community cohesion initiatives with the label “British Values”. Nonsense, perhaps, but politicians of the left should learn from it in order to broaden public support for their ideas.

Then there is the old leftist trope that such policies address the symptoms of trouble, and not the root causes, such as inequality, injustice and many other of the abstract nouns beloved of the left. But this line of criticism is simply designed to provide cover for mediocre public services. It underestimates what humans are capable of given the right motivation and support.

In our world of polarised politics, this sort of criticism from the left is as close to praise as a Tory government will get. In fact there are two more substantive criticisms. The first is the rather obvious one: the government is pulling in opposite directions. The TFP may be a good idea, but it needs access to decent public services to do its job, and these are being run down  – especially local council social services and mental health facilities, both of which are critical in this context.

The second criticism is that TFP is subject to the government’s payment by results (PBR) policy, another signature idea from Mr Cameron. This means that the work is farmed out to non-government agencies, who are paid bonuses depending on their success rates. Using outside agencies is not necessarily a bad idea in itself, though anathema to the left. But PBR leads to two problems. First is that by subjecting the payments to risk, they will drive away many potential agencies, including smaller social enterprises, which are usually the most innovative. Instead they draw in a list of larger organisations, who tend to hollow out rather than add much value. They are able to do this because of the  second problem, which is that defining success criteria leads to arbitrary targets that can be gamed. It is the same regime of false incentives as the discredited target culture, beloved of Mr Cameron’s predecessor, Labour’s Gordon Brown.

In my mind this is the wrong way round. Key workers should be at the heart of the publicly managed service that commissions services from elsewhere: public, private or third sector, depending on how they meet client needs. This “care management” model has been very successful in social work, for example – although few councils now use it, with the pressure on short term costs leading to them to replace qualified staff with cheaper personnel with narrower remits. (Disclosure: my wife is one of the few remaining care managers, in adult social work).

But credit where it is due. Mr Cameron has hit on an idea that has real mileage: a people-centred approach to public services. This idea must be built on.