thinking liberal – Page 42 – Matthew Green's blog

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:

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:

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.
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.
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).
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:

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.
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.
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.
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.

Saving tax credits means raising taxes. I’m OK about that.

The current political storm over the British government’s proposed scaling back of tax credits is not showing politics at its best. On one side a cynical Conservative government is pushing through changes will make the poor poorer and reduce social mobility. On the other we have opposition grandstanding that has no interest in suggesting alternatives. I despair.

First of all, what is the fuss about? Tax credits were introduced by the Labour government in 2003. They are a way of providing means tested benefits to those already in work, but on low incomes, and especially those with children. They are designed to taper off as income grows, so that claimants will always benefit from any increase in earned income. They are copied from a US idea, but they have been Britannicised so that they can operate within the country’s system of taxation at source, PAYE. In America claims are made at the end of the tax year when tax returns are filed; the UK use a monthly system.

Originally the problem with tax credits was the operation of the monthly calculations. Inevitably the information they used was often out of date, and so many claimants were faced with clawback claims, for which they were not prepared. We hear much less of this these days. Nowadays the problem is the cost. Claims about this vary, but it was always expensive, and, with low paid jobs multiplying, it has grown sharply. And yet they are well targeted to those most in need, especially families. They do not penalise work, so many means-tested benefits do, while costing much less than universal benefits.

During the coalition years of 2010 to 2015 the government trimmed back tax credits, in particular they tapered off the withdrawal more sharply. Previously incomes up to around £40,000 (from memory – this figure may well be incorrect) could claim something, but this has been reduced. Now the government proposes to reduce tax credits even more harshly, and especially for larger families. It estimates that the savings will be between £4bn and £5bn. That will cause real hardship for many families that include working people. In fact, the very “hard-working families” that we got so sick of hearing about from politicians at this May’s election. The cuts will also be a setback for attempts to give children from poor families a better start, and so reduce inequality.

For all that there is a certain honesty about the plan from the Conservative Chancellor George Osborne. The government’s financial deficit is running at about 5%, far higher than it should at this stage in the economic cycle. During the election the Conservatives made it very clear that they wanted to balance the budget. They also made it clear that they would do so by making cuts to benefits. They were very coy about where these cuts would fall, and even suggested that child tax credits might not be affected – but there really is no other way to make their plans work. This is what politicians do in a democracy: vaguely promise “tough” measures before an election; implement them soon after, and hope the fuss has blown over by the time the next election comes around. A lot of publicity has been attracted by a Conservative voter saying that she felt very let down – but I’m afraid that’s political naivety. If the issue was that important to her, she should have voted for somebody else.

The government are honest, by the standards we have to apply to politicians (no truly honest politician would get elected), but misguided. But a lot of the opposition is a nonsense. It amounts to no more than a collective yelp of pain, and wishes for the government to “reconsider” without offering any kind of escape route. This is particularly annoying from Conservative MPs. They offer no alternative. The various mitigations proposed, such as raising the minimum wage, or tax thresholds, are badly targeted and won’t help much. Tax credits are the most efficient way of doing what they do. Any change is going to make things worse. There is no clever wheeze that will make the problem go away.

The opposition parties: Labour, the SNP and the Lib Dems are at least a little more honest than the Tory moaners. Labour initially got itself into a tangle, but soon put that right. I personally dislike the way these parties (and especially Labour) treat the status quo as a sacred thing to be “defended”, and any change that makes people worse off as tantamount to robbery. It’s still somebody else’s money. If systems of benefits, or public services, aren’t doing what they are supposed to, they should be changed, even it makes some people worse off. Still, that’s what politicians do. And in this case I think they are right. There is so much evidence that poverty in early life ruins chances later, which is why benefits focusing on families are a good idea. The system could be improved, no doubt, but not in a way that makes it any less expensive.

But these parties still should be clearer on what they think the government should do instead. All three of those parties have said they want the fiscal deficit reduced. They make an exception for capital spending – but tax credits is patently not that. Neither are they advocating cuts anywhere else (with exception of nuclear weapons systems, in some cases, but they usually want to increase spending on conventional forces instead).

Neither is it realistic to appeal to economic growth. This is not something that can be turned on and off like a tap by politicians. If it was the Conservatives would have that tap in the “on ” position already. Keynesian stimulus, which may have been relevant in 2010-2012, does not apply at this point in the economic cycle.

The only way to convincingly square the circle is to raise taxes. Of course the far left think they have the answer here: to crack down on tax avoidance and evasion, and to reform corporate taxes. Closer examination reveals these ideas to be chimerical. That still leaves the idea of taxing the rich harder. But the rich are slippery. There are still some things that can be done: taxing land, in particular, and tightening inheritance tax, rather than loosening it, as the Conservatives are doing. I wouldn’t bet on these ideas yielding much new money quickly though.

To have real credibility in “defending” tax credits, the NHS, local government spending, the police, or any other aspect of expenditure, politicians will not carry conviction unless they are prepared to raise one or more of the big three taxes: Income Tax, National Insurance, or VAT. Alas on this all parties are silent.

But such is the importance of tax credits to me, that I would indeed support the raising of one of the big three to keep them in being at current levels. I just wish the governments’ critics would say so too, and so start some real debate about the country’s fiscal priorities.

The SNP’s strategic problem is that independence equals austerity

For much of 2010 a barrel of Brent crude oil sold for under $80.

Then it started to take off, so that in early 2011, it reached $125. Around this time, perhaps not coincidentally, the Scottish National Party (SNP) achieved a stunning victory in the Scottish parliamentary election, allowing them to govern on their own, in spite of the proportional voting system. In the following three years the oil price held at around $110, and it seemed quite reasonable for the SNP to assume that prices would stay there for its financial projections for Scottish independence for the referendum in September 2014. But by the time that referendum was held the price was in free fall. And, again perhaps not entirely coincidentally, the SNP lost the referendum. Now Brent crude trades at under $50. It may be stuck there for some time. Hold that thought in your mind; it is the most important thing to understand about Scottish politics. Scottish nationalism has always been closely linked to oil.

After reviewing the fortunes of each of Britain’s major parties after their Autumn conferences (and one minor one: my own Liberal Democrats) it is the turn of the SNP. Notwithstanding the loss of the referendum, the SNP’s dominance north of the border looks complete. The only way from here seems to be down, but when, on earth, is that going to be?

Commentators on Scottish politics from London, of which I’m one, are notoriously bad at understanding Scottish politics. As, indeed, are English politicians. But surely the same laws of physics apply on both sides of the border? We must try to understand what is happening, and where things might go.

First we need to understand how the SNP achieved its dominance. Nothing could be sillier that the narrative I have heard put about by English leftists that the SNP achieved its success through tapping a popular, anti-establishment mood, and in particular anger at “austerity” to become “a broadly based social democratic party” as one article put it. This is silly not because it is entirely untrue, but because it is so incomplete that it might as well be. The SNP has achieved its success because it has convinced Scottish voters that it is the best party to look after their interests. This is not based on any particular policy stance, but through an appeal to national identity.

First they destroyed the Conservatives, who used to be a major force in Scottish politics. They were aided in this by the complete ineptitude of successive British Prime Ministers, Margaret Thatcher and John Major. They managed to make the English look like an occupying power. The SNP were nicknamed the “Tartan Tories” by Labour, because of their appeal to right of centre voters. Their leader of the time, Alex Salmond, sounded distinctly neoliberal, with his wish to turn the country into a corporate tax haven, like Ireland.

But Labour fared better. In New Labour days, that party’s domination of Scots politics started well. The party delivered devolution and won the first two Scottish parliamentary elections, governing in coalition with the Liberal Democrats, who also performed respectably. It no doubt helped that one of New Labour’s architects, and its second Prime Minister, Gordon Brown, was very much a Scottish MP. But doubts were raised about the party’s commitment to Scotland. Its best politicians seemed much more interested in pursuing a career in Westminster than in Holyrood. The party struggled to find a convincing leader after Donald Dewar, Scotland’s first devolved First Minister, died in 2000. Labour’s Westminster “strategists” (as politicos like to call their tacticians) took Scotland for granted. The party’s seats in Scotland were mostly quite safe; there was little understanding of how to handle political competition.

The first cracks showed when Labour lost the Scottish elections in 2007 (by a single seat), allowing the SNP to form a minority government. But the party would not, or could not, understand the implications of giving the SNP such a lift in credibility. After all, Labour did well enough in the 2010 British general election in Scotland. But they should have understood the strategic implications when the party fared badly in Scottish elections of 2011, allowing the SNP to achieve that majority, and a mandate to hold an independence referendum. Labour continued to flounder. To be fair, the party was facing such deep strategic problems after losing power in Westminster in 2010 that it was difficult for them to do other than paper over the cracks and hope for the best. The party’s lack of political skill in Scotland, however, became evident to all in its incompetent leadership of the referendum campaign. The party really seemed to be only about providing careers for talented politicians in Westminster, local jobs for the others, and no use to Scots voters at all.

The SNP, of course, managed to use the referendum to generate a surge of interest in an optimistic brand of politics based on Scottish identity. Its leaders then made a brilliant switch. Mr Salmond stepped down as leader, and handed over to his deputy, Nicola Sturgeon, who had the reputation of being more left-wing. Ms Sturgeon duly turned the focus onto Labour voters. She used the mantra “austerity” in her messaging, to demoralise Labour activists, fed up by their leadership’s more careful line on economic policy. Labour collapsed to just one seat in Scotland (the same as the Lib Dems and the Conservatives) in May’s British general election.

The Labour left hoped that Jeremy Corbyn’s ascent to the Labour leadership, amid a tide of new members, and his supposedly refreshing brand of “straight-talking, honest politics”, would change the party’s fortunes. Alas no. Scots voters deserted Labour because the party was useless to them. The party has merely turned itself from one form of uselessness to another. A chaotic debating society more interested in policy than power is not an improvement. The next Holyrood election is in 2016. Everyone expects the SNP to increase their majority, mainly at Labour’s expense (the Lib Dems were already crushed in 2011; the Tories have quite a robust core vote).

A further departure from the London lefties’ idealisation of the SNP is that the SNP conference was as far cry from the “new politics” they espouse. The Observer columnist Andrew Rawnsley said that it reminded him more than anything of a Conservative conference under Mrs Thatcher. The SNP are ruthless politicians, managing their message with discipline, and extending their hegemony to as many parts of Scottish life as they can. There is no open debate of party policy. This is not good for the quality of government there, but the party can and do blame any problems on the Westminster government. The SNP’s record is not all bad, though: the Scottish economy is more buoyant than any other part of the UK outside London and the English South East. Whether that arises from the SNP’s neoliberal tendency, or from its social democratic one, probably depends on who you talk to.

The SNP’s successful discipline arises from a clear, unifying purpose: their quest for Scottish independence. And therein lies their biggest strategic problem. That $50 oil price. That leaves little left to tax. It causes collateral damage to the oil industry based in Scotland. It makes much of remaining oil beneath the North Sea unviable. This knocks a huge hole in the SNP’s economic plans for independence, which handed out goodies to all interested parties.

The low oil price is a product of America’s shale revolution, and increased energy efficiency. Meanwhile Iran will re-enter that oil market, and demand from China is tailing off. That $50 price could be around for quite a while. The “peak oil” theory is dead and buried. There is no sign that the SNP have any idea how to plug the gap in their plans for independence between $50 and $110.

And here’s the thing. In spite of this price collapse in oil, the Scottish economy is performing well. It is diversified, and the non-oil bits are doing taking up the slack. The tax revenue damage is being taken by the UK as a whole, which unlike Scotland would be on its own, is big enough to absorb it. You could not have a better illustration of why the Union makes such good sense for Scotland. It acts as a wonderful economic shock absorber. And, as Greece and others have shown, joining a currency union does not solve this problem. Before long, Norway will be providing a clear illustration of the challenge an independent Scotland would be facing. Independence means austerity.

Ms Sturgeon used the conference to manage down her party’s expectations of a second referendum soon. But with a low oil price and deteriorating demographics 2014 may have been their best shot. Unless Britain is mad enough to vote to leave the EU, the case for independence will be more difficult to make in future. It will take some time before the penny drops. But surely the SNP’s days of hegemony are numbered?

But for their different reasons, Scotland’s other parties are unable to exploit the SNP’s strategic weakness. Paradoxically, though they may have won the argument on independence, it may not help to make too much of their unionist views. Just as England’s middle ground voters are not averse to austerity, Scotland’s middle ground clearly prizes its national identity, and isn’t scared of independence talk. Perhaps the tactic should be to concede the idea of a future referendum, especially in the absence of a proper federal settlement. That might clear the field to examine the SNP’s actual record. But that might take a higher calibre of leadership amongst Scotland’s opposition parties. For now the SNP does not face a serious challenge.

Are Eurosceptics suffering from the boiled frog syndrome?

Within two years the United Kingdom will have a referendum to decide whether or not it stays in the European Union. Despite a fair amount of noise in the media, the serious political campaigning hasn’t started yet. But the Ins seem to have the edge. This is an interesting turn of events.

It helps to put your passions to one side to make any sense of the emerging campaign. I heard one commentator suggest that the electorate is split into three roughly equal shares: those who are firmly for In, those firmly for Out, and those who are floating between the two. I don’t know how accurate the numbers are (the firm Ins sound a little high), but it’s a good way of looking at it. The campaign will be decided by the floating third, and these voters do not have the emotional investment in the issue that of either the Europhiles like me, or the Eurosceptics. The arguments the committed supporters on either side find convincing will cut little ice them. The In and Out campaigns will have to concentrate on the sort of arguments that will sway these uncommitted voters, and not those that have already made up their minds.

I think that this is giving the Europhiles the edge. Until recently the Eurosceptics have had the field to themselves. They dominated the media with their passionate arguments about sovereignty, over-regulation, and the general incompetence with which the EU is run. Europhiles were in despair; we never heard somebody coming up with a really convincing argument about why we should stay in – just some rather soft stuff about trade and peace and international prestige. We were losing the argument, it seemed. The Outs raced ahead in the polls. But they also became over confident in the strength of their own arguments. The Europhiles, on the other hand, were forced back to a more realistic assessment what they had to do – and they realised that the main thing going for them was sheer bloody inertia. Passion would not win the day for them.

But the Eurosceptics, or too many of them, still think that their passion and argument is what is needed. But this is no good for the cold, hard job ahead. That they can’t agree to form a single umbrella organisation shows that they haven’t understood this – discipline among the passionate is hard. It reminds me a little about the fable of how to boil a live frog. The story is that if you throw a frog into hot water, it will just jump straight out of the pot. But if you put it into cold water and slowly heat it up it will not notice until too late. I hope nobody has tried this out on real frogs, and it almost certainly wouldn’t work if they did. But makes an important point anyway.

The Eurosceptics have been placed in a favourable media environment, like the frog in cold water. But ever so gradually it has become less favourable. The turning point was probably when the Prime Minister, David Cameron, decided to call his bankbenchers’ bluff and hold a referendum. Then it was clear that leaving was no longer a theoretical proposition, and the quiet voice of inertia started to speak. It was certainly no great push by the In camp in the media. The polls slowly but surely turned against the Outs, though in the last month the Ins have dropped back, after Europe struggled with the refugee crisis. Too many Eurosceptics haven’t noticed how the climate has changed, and are failing to adapt.

This is especially evident with attitudes to Mr Cameron’s “renegotiation” of the UK’s membership terms. This clearly an important part of the In strategy. He plans to flourish some impressive achievements to the electorate as a clinching argument to the floating voter group. This could be a decisive move, but only if he manages to exceed expectations. So a subtle Out campaign should be trying to raise those expectations. Instead most of them pouring scorn on the whole exercise. The Europhiles are egging them on by also playing down expectations – but that is in their interests.

To be fair, some of the Outs understand the problem. Lord Bamford, a notorious Eurosceptic, has reserved judgement on Mr Cameron’s renegotiation, and is wisely holding his fire for now. This was flagged by some of the Eurosceptic newspapers yesterday. That is better than slagging off the whole exercise, but still not quite the position they should be taking.

But things are far from hopeless for the Outs. Three things might work for them. The first is if they can focus anti-establishment anger on the EU. The establishment – mainstream politicians and big business leaders – will largely rally behind the Ins. And yet the public is suspicious of these figures. Anti-establishment-ism played well for the SNP in the Scottish referendum, though it still wasn’t enough. But that was a very different situation.

The second thing that could play well for the Outs is panic about immigration. Free movement rights within the EU is one of its great glories, and has been of enormous benefit to Britain – and Britons make use of it themselves with glee. But immigration makes most Britons nervous. If this nervousness is raised to panic proportions, the Ins have no really convincing answer. Unfortunately it makes no difference whether or not the panic is actually relevant to Britain’s membership of the EU. The media storm over migrants at Calais earlier this year had nothing to do with British EU membership (the situation would be just the same, perhaps worse, if Britain was out) – but it still dented people’s confidence in EU membership.

And the third thing is chaos within the EU itself. This might arise from the ongoing refugee crisis, or from another Euro zone crisis. It makes no difference that both these crises show that Britain’s already-negotiated opt-outs allow us to stand on one side. It still reduces the comparative advantage of staying in over leaving.

For all that the Ins need to hold their nerve. The best case for In is an unspectacular one. Britain has prospered by and large in its years as part of the EU (even if you can’t prove it would have been worse off out); EU processes are deeply embedded into our way of life – as the passport controls when travelling to EU countries shows. Leaving the EU would create a colossal mess which would, incidentally, put the Union at risk. It is up to the Outs to make a convincing case that life would be actually better outside. Not that things wouldn’t change much. And in concrete terms that affect daily lives, not in terms of abstract ideas like parliamentary sovereignty. That will be more than hard for the Outs to do.

So that is why I’m not that bothered that the launch of the In campaign this week was a bit anaemic, and is chairman a bit colourless. The task in hand is bit like that of a defence lawyer: not to prove his clients’ innocence, but to make the prosecution stew. in its own contradictions. Like that boiled frog.

David Cameron: master of the middle ground

After diverting my readers with the fringe entertainment of the Labour Party, and the even more eccentric fringe of the Liberal Democrats, it’s time to look at the politics that really matters: Britain’s Conservative Party. They had their annual conference last week, and this gives us some idea of what to expect in the next five years.

The speed with which the Tories, led by David Cameron, have assumed the ascendency in British politics is astonishing. Not six months ago I, along with many others, thought that they would be unable to win the General Election in May, and that they were so toxic to the other parties that they would have difficulty in forming a new government. But they succeeded in securing a narrow but decisive victory. I had failed to understand how England’s centrist voters regarded the political scene, and how cleverly the Conservatives were able to exploit those voters’ anxieties.

And as if that result wasn’t good enough for the Tories, the subsequent left-wing takeover of the Labour Party has removed the principal opposition party from the field for the time being. The Labour leadership’s priority seems to be to consolidate the left’s power in the party, rather than take on the Tories. Meanwhile the Liberal Democrats have been crushed, and even Ukip, the Tory’s rivals to the right, look like a busted flush. Only the SNP look in fighting form, and they are confined to Scotland, which is of minimal electoral importance to the Tories. The next General Election is due in 2020, and at present nobody can see that it can produce anything other than another Tory victory, and quite possibly a landslide.

How the Conservatives take things from here is therefore the most important question in British politics. The first thing to note is that the position of its leader, David Cameron, looks secure. The vultures were circling for his expected failure in May, so his triumph is a very personal one. And he has earned his strong position. He has a powerful instinct for the middle ground in English politics (which extends to much of Wales too, though he seems to have little grasp of Scotland’s politics). What he understood in a way Labour politicians did not is that this middle ground, the floating voters who decide elections, had not moved to the left, as it was fashionable to suggest. These voters accept much of the economic conventional wisdom that the left dismisses as “neoliberal”. They do not want higher taxes; they think that the previous Labour government spent too much on benefits and public services; and above all they fear the loss of private sector jobs that might arise from a new economic crisis. These are concerns that Labour failed to address, because, as we now see, much of its core support disagreed. Middle ground voters in England became so afraid of the consequences of a Labour government (and especially one dependent on the SNP), that they happily ditched the Lib Dems, who were also trying to pitch for their votes.

But Mr Cameron understands other things about these middle ground voters, which make both Labour and Lib Dem politicians uncomfortable. They are suspicious of the European Union, but open to pragmatic arguments for staying in. They are nervous about immigration, especially (whisper it) of those from Islamic countries. But they also don’t want to be racist. Mr Cameron treads this ground with skill.

What the conference made clear was Mr Cameron’s strategy for his party, shared by his chief ally, the Chancellor George Osborne. He plans to set up a fortress in the centre ground, much as the Labour leader Tony Blair did for his party, to secure its hegemony over British politics. He will continue to push through his largely neoliberal economic policy, and in particular a dramatic rolling back of tax credits. They hope to reduce the overall cost of the state to a historically low level, by making further cuts – though trying to preserve the beloved National Health Service. Within this overall framework Mr Cameron and Mr Osborne want to tackle three important issues: the European Union; the economic weakness of northern England; and the country’s overheated housing market.

On the EU, Mr Cameron aims to “renegotiate” Britain’s terms, and then present the country with an in-out referendum. This is a bold enterprise, not least because his party cares deeply about it, and mainly disagrees with him. It could profoundly change the party he leads; it could even destroy it. Losing the referendum (i.e. taking the country out of the EU) would cause his whole project to unravel.

On the north, the duo’s approach is to devolve and invest. This will be very interesting to observe – their approach is surely sounder than previous attempts to address the issue. They hope that it will revive the party’s fortunes in the north, much as Mr Blair revived Labour’s in the south (ground that Labour has now lost).

On housing Mr Cameron seems to be surrendering to the conventional economic wisdom – that is a simple game of numbers, and that setting targets for new homes, and taking a firm hand on planning delays, will help ease the crisis and make home ownership more widely available. Social housing plays no role in their thinking; neither is there a recognition of the pernicious role of cheap finance. Few feel that their strategy has sound foundations. Housing looks like something of a Tory blind spot – they draw too much support from owners of homes who enjoy the sky-high prices. They may yet surprise us though.

The biggest problem with Mr Cameron’s plan to establish Tory hegemony is his wish to step down as party leader and Prime Minister before the close of the parliament. None of his possible successors has his touch. Mr Osborne is a better strategist, but the public will find it harder to trust him. Theresa May, the Home Secretary, is playing to the party’s right, endangering her centre-ground credentials as she does so. Boris Johnson, the London Mayor, has flair but lacks depth. A messy transfer of power could easily upset the project.

Two other hazards await, just to deal with the known unknowns. The first is Scotland. The SNP’s dominance remains unchallenged. Mr Cameron has not played his cards well here, with a particularly foolish bid for “English votes for English Laws” made too hastily of last year’s independence referendum. He does not like to fiddle with the British constitution, and yet some kind of federal settlement, involving much such fiddling, looks to be the only way to seize the initiative. If the SNP were to secure a second referendum and win it, it would be catastrophic for the Tories – who set much prestige on the union, even though it actually makes life harder for them politcally. Just fighting them off could be a massive distraction.

The second hazard is the economy. All looks well for now, and yet the growing problems in “emerging” economies threaten the developed world’s financial system. This could cause a new financial blow-up just as the US sub-prime market did in 2007 and 2008. That could dent the government’s reputation for economic competence, which is core to its appeal.

But such is the weakness of Britain’s opposition parties, that it is hard to believe that even these troubles could stop the Tories. But things can change quickly in politics.

And this demonstrates a political truth that all should ponder. Political success requires both a strong core vote and an appeal to middle ground voters. It is a hard conjuring trick. Labour failed to, or were unable to, understand and appeal to the middle ground. The Lib Dems failed to develop and retain a core vote. Mr Cameron has pulled off this trick for the Tories. He successor may fail. And that would make British politics very turbulent indeed.