Heywood & Middleton: banging on about the NHS is not enough for Labour

There were two parliamentary by-elections in England last night. At Clacton Tory defector Douglas Carswell was re-elected under the Ukip banner with a massive vote. This is a very striking result, but one that was entirely expected. The Essex seaside town of Clacton has a unique concentration of the older, white blue-collar types that are Ukip’s best hunting ground, and not a few lower middle class older white Tory types that are also tempted to vote for the party. The more thought provoking result was in the other election in the Greater Manchester seat of Heywood & Middleton. Ukip came within a whisker of beating Labour.

The best place to see the result is on Wikipedia. After searching the BBC and the main newspapers, all give snippets and verbiage, but don’t present the result simply and clearly – which says much about the narcissism of modern news reporting. The Labour vote share held at 40%, and even increased by a small fraction, albeit on a reduced turnout. The Conservative and Lib Dem votes collapsed (though both parties retained their deposits, a relief for the latter party); the racist BNP did well in 2010 (7% of the vote) but did not stand this time. Ukip gathered voters from all these sources to move from 2.6% to just over 40%. Given that this was a very short campaign – Labour moved the writ before its former MP’s funeral – this is a very significant achievement.

Labour were taking some comfort from the way their vote share held up, while the Tory and Lib Dem votes fell. This pattern repeated across the country could gift them a number of Tory and Lib Dem seats. We should not be surprised that professional election strategists could take pride in winning a House of Commons majority with one of the worst popular votes in Labour’s history (as 2010’s was) – but what kind of a mandate would that give the party’s leaders? The truth is that Labour’s strategy has gone off the rails. The plan is to hang on to the hard core of voters that the party retained in 2010, and to take about half of the Lib Dem vote. That should have taken them well past 50% in this constituency. For every vote they won back off the Lib Dems (and Tories for that matter), they lost one of their core voters to Ukip. Worse: in seats were the Lib Dems are weaker, for every two votes Labour wins back from that party, another one or more goes to Labour’s main opponents. Labour’s appeal is simply to weak to win.

Labour’s campaign was one-dimensional. They banged on about saving the NHS, which they claim is being sold off to private companies. This seems to resonate with voters, even though its relationship to the truth is weak – and if Labour were in power they would not be able to help much with the NHS’s troubles. Ukip’s policies on the NHS are far from reassuring, so this seemed to be a safe strategy. So Labour did not talk about Ukip’s favoured issue: immigration. This strategy clearly failed. Labour’s core, working class voters clearly want to talk about immigration, and are feeling ignored. But Labour does not know what to say without putting off other voters, such as those from ethnic minorities and liberals, to say nothing of its activists.

The trouble is that Labour is a fragile coalition of people who are united only in their dislike of the Conservatives. As soon as Labour start to become clearer about what their programme for government actually is, the more this coalition will fragment. Worse still, their campaigning is a classic mix of dissembling, lies and the building up of false expectations. This cannot bridge the gap of trust that lies behind the rise of Ukip.

To bridge the trust gap politicians must do things that hurt – that are against the apparent interests of their party and electoral prospects. The Lib Dems seem to understand this, to give them credit – though the public is unlikely to appreciate this until after next May, and their leader, Nick Clegg, has moved on. Some Tories do too – though not their leader, who will seemingly say anything to achieve a short-term advantage. But Labour has no conception of this idea. To them bravery is simply folly.

In the highly unstable mix of British five-way politics (including the SNP), it is entirely possible that Labour will achieve an overall majority. It may turn out to be a victory they regret achieving.

A quick makeover for Thinking Liberal

At this year’s Lib Dem conference I was very heartened by the attention my blog is now getting. It was amongst the five nominees for the Lib Dem Voice Blog of the Year – although I came a long way behind the winner, Jonathan Calder’s very different, and long running Liberal England. It then made its way ) into Teads top one hundred blogs, coming in at 73, the tenth highest Lib Dem entry (and beating Liberal England as it happens).

I also got some constructive feedback – first was that the blog did not work well when viewed on a smart phone. I was also getting a bit tired of its visual appearance, with the rather dull blues of the westward view of the rocks from the Isles of Scilly. The beauty of WordPress is that doing a remake is very quick and easy. So I have adopted their latest standard template, which is more mobile friendly. I have changed the title picture to something brighter and airier  – sand sculptures in Copenhagen – supply your own narrative as to why that should be appropriate for a liberal blog. On a big screen there is also a background picture, which is only partially visible. I have picked the Berlin memorial to the Roma.

There are aspects of this format I don’t like so much. The nice serif text font (Georgia I think) is replaced by a Helvetica-style one, and the headlines are capitalised. The lines are shorter. I feel that I am being pushed into a breezier, shorter style. That’s how many blogs work – little and often. But my blog goes a bit deeper, and articles usually come in at about 1,000 words. The old font worked better for this.

Another piece of feedback was that people found it hard to get email alerts for new postings. As I post less often than many, an email alert is good way of staying in touch. I have found a plugin, and you should see a subscription form on the top of the left hand side bar. Do subscribe – though I don’t promise it will work quite as I would like it straightaway. It should automatically alert you to new postings.

There some more things to do. Most bloggers incorporate a small picture for each article. This certainly looks much better when posting to Facebook. I need to do more of this, though finding appropriate pictures adds to the time taken. I’m not sure how the experienced bloggers do this.

There are other things. My tags are a bit of a mess, and need a bit of a rethink.

Any feedback is welcome though.

#ldconf Nick Clegg needs to be clearer on the “smart, liberal and enabling state”

The Liberal Democrat conference ended yesterday on its fifth day with the party leader, Nick Clegg, giving his speech. By then I was on the train home, wishing to save money on fares as well as arrive home at a decent hour – though I have read a text version of the speech, and seen the comments. It ended an uplifting conference for the party. While good for the spirits, has it answered doubts over the party and its leader? It is a step forward.

The doubts centre around the party clearly articulating what it stands for. To date it has been keen to identify itself as covering the “centre ground”, and to spend time justifying its role in the coalition government. The problem with defining yourself as being centrist is that that you are using other parties to define yourself. The party risks presenting itself as either or both of “Labour-Lite” or “Tory-Lite”. This is not a convincing rallying cry. Neither is a list of policy proposals; if they are popular, the other parties will steal them. The Conservatives are already “stealing” the raising of tax allowances, the Lib Dem signature policy of this parliament. Lib Dem whinging about this, and the Tories getting the credit for the economic recovery rather than them, is all rather pathetic and will win the party no credit with voters. The public does not give the party credit because they don’t know what it stands for – beyond winning the prestige that goes with being in government. The policies and the record of action are the supporting evidence for a proposition, not the proposition itself.

Lib Dem activists have a strong idea of what the party stands for: liberalism. This is not the economic liberalism of the 19th Century, but one where the state plays an active role in making sure everybody gets the opportunity to develop and fulfil their lives. That “everybody” is a central idea – it is not qualified by national, ethnic, class or other identity. This leads to clarity around a certain set of policies: human rights, written constitutions, distributed political power, strong social insurance and a degree of redistribution of wealth and income, to improve the chances of the less lucky. There is also a strong environmentalist steak.

Amongst the general public, who do the Lib Dems need to convince? There are two main groups. First are those who are liberals, but who are more convinced by other parties – mainly Labour and the Greens, as the Conservatives seem to have given up on liberals. The second group are people who are drawn to non-liberal politics, being those of identity, individualistic self-interest, or a large centralised state, but might be convinced otherwise, perhaps as a second-best. A socialist may be convinced that liberalism is better than conservatism, if Labour are locally weak.

How did Mr Clegg and his party do? Better than before. Mr Clegg’s speech contained more about liberal values and why they make sense. He called for a “smart, liberal and enabling state”. The party made a clear stand against illiberal policies of their Conservative coalition partners. The signature policy Mr Clegg chose was parity for mental health with physical health in the NHS. If this is a bit tangential to liberalism (you don’t have to be liberal to support it), it will at least serve to draw attention. It showed the party capable of fresh thinking.

But it is only a start. I would like to hear more about the “smart, liberal and enabling state” – and in particular how it contrasts with Labour’s vision of the state. Indeed I think the party is being too soft on Labour, and needs to find some “wedge” issues that will pull liberals away from it. There is a bit of paradox in political presentation; you need to get over a strong positive message, but contrast is needed for visibility, which means that attacking other parties can be one of the most effective ways of defining your own. You need to say what you are not, and how you are different. The party is doing this with respect to the Tories, and the Tories themselves are lending a helping hand. But to a Labour sympathiser it opens the question of why the party is in coalition with the Tories, and thereby letting in a host of nasty Tory policies. It isn’t enough just say that the party stopped the worst ones, and put through one or two ideas of its own. The main reason the party ganged up with the Conservatives was the hopeless state of Labour – something that went further than their electoral failure.

Labour is a loose coalition of values and interests, albeit with a strong tribal solidarity. Liberals are an important part of this coalition, alongside public sector workers, state dependents, working class conservatives, left wing intellectuals and northern city council mafias. Lib Dems need to show that this Labour coalition is unable to produce coherent policies for government, still less implement serious liberal reforms. This means developing the vision of a “smart, liberal and agile” state, and showing how this is different from the Labour and Tory versions. At this conference the policy paper on public services presented some interesting new thinking on just that. That is only one piece of a jigsaw.

The Green Party is also worth a bit of attention in my view. It has moved on from a focus on environmental policies. In its current statement on values the first two of its three policy bullets are its opposition to austerity and to privatisation for public services – and only then does it cover climate change. This is no more coherent than Ukip’s policy stance. In Scotland the Greens supported independence in spite of the fact that the Yes campaign’s economic strategy depended on getting carbon out from under the sea and into the atmosphere as fast as physically possible. The party’s leader in England leader, Natalie Bennett, has also said that the party wants to avoid the responsibilities of government, and to limit any cooperation with a future government to case by case parliamentary support. All this is half-baked and could break up quite fast under scrutiny. Still I’m sure the professionals would urge that ignoring them is the best way of handling them. But they picked up a lot of liberal votes in my neighbourhood in the European elections this May.

But one thing is going for the Liberal Democrats. The main parties are concentrating on a core-vote strategy, leaving space on the centre ground. If the party can spell out its liberal vision more clearly, it can surely advance from the 7% support that it currently languishes at. It is gradually winning more respect, to judge by newspaper editorials. Its conference in Glasgow was a step forward.

 

#ldconf day 3. Cable and Clegg defend the coalition record with confidence

imageDay three of the Lib Dem conference in Glasgow and this 50-something attendee is getting a bit tired. The mood continues to be good, but the controversies are rather minor. I will offer a few highlights.

There were two important set-pieces. Vince Cable’s speech and the leader’s Q & A. Mr Cable’s contribution was more assured than Danny Alexander’s yesterday. It was largely a defence of the party’s record in government. In policy terms he stuck to the same line as Mr Alexander. A strict policy on the deficit to be softened significantly for investment in infrastructure, including housing. He claimed that the Tories were dead against this. This is welcome, and backed up by a recent research paper from the IMF. He readily got his standing ovation.

In the Q & A Mr Clegg showed off his grasp of detail. He criticised the Conservative and Labour parties for being uninterested in political reform beyond short term tactics. He may right. The question is whether they can be manoeuvred into something more fundamental by their promises to Scotland. I am not optimistic except that after the next election both parties may fall apart, opening up British politics.

Policy did not get my full attention. There was a motion on building more houses, which was worthy enough. At a fringe group Generation Rent and Crisis, housing pressure groups, urged us to present a more coherent strategy on housing and the rented sector in particular. They are right.

In the evening I attended a fringe on teaching science and maths, sponsored by the Royal Society. I spoke up to support the key role of primary schools. Interestingly a business lobbyist said that employers needed skills rather than knowledge. This is the opposite to what seems fashionable in Westminster, where they attack “soft” skills-based teaching in favour “hard” facts. Well maybe some teaching of skills is a bit soft, but this is ultimately what education is for. I was always taught that education was to teach you to think, not recite facts.

On Sunday evening, at a fringe on Liberal thinkers, veteran Scottish MP Malcolm Bruce said that he joined the party at one of its low points. It was the only way in which he could promote his liberal values. He was being urged that he had to take sides between the Tories and Labour- but he rejected this notion. Something like this idea drives the party now. It is deeply unfashionable. Many cannot forgive it for dealing with the devil in the current coalition. But these are the same old people who feel that there are only two important movements in politics and that ultimately you choose. But both the socialists and the conservatives are fundamentally wrong, and any deal with either is a matter of temporary pragmatism.

 

#ldconf Day 2. Lib Dems steadily move to the left

In an election year you can’t expect too much excitement at a party conference. Not if things are going well. And day two of the Lib Dem conference was not terribly exciting. But for those who want to read between the lines there was plenty of interest.

The big item in the morning was a motion on welfare. The progenitors of the motion were from the left of the party, or at any rate those who have been resisting the party’s flirtation with “neoliberalism”, as many on the left like to call it. I missed the debate, but apparently it faced no serious resistance. This no doubt partly reflects careful wording by the movers, but one of them told me that two years ago the leadership would have resisted a motion like this.

The morning session (technically afternoon) ended with a speech from Steve Webb, the Pensions minister, and one of the most successful ministerial appointments from any party in this government. It wasn’t very exciting and the reception was a bit muted. This was a bit of an achievement in a way. Mr Webb doesn’t do political grandstanding and the reforms he has pushed through are both radical and liberal, and yet have somehow achieved something close to political consensus. Which makes it difficult to make political capital. But it’s liberal politics at its best. It Is achievements like this that make Lib Dems feel that they handle government well – and are so much more than the chaotic protest party that it used to be portrayed as.

After lunch came the Treasury Secretary Danny Alexander, who had played a big role in the Scottish referendum campaign. He dressed casually and seemed tired. He delivered his lines flatly, failing to pause properly for dramatic effect. And yet his speech had stature. First he kept faith with his Scots co-nationals, and was determined to build on the referendum campaign, and not quietly bury it, as one suspects that many English politicians want to do. On Treasury matters he had quite a simple message. The deficit needed to be reduced to zero, importantly excluding investment. The overall national debt must be brought down. But this must be done with a “fair” sharing of the burden. By this he meant that the tax and benefit system had to retain its strongly redistributive character. In stark contrast to Conservative proposals. I agree though my reasoning may be a bit different from his. I think the days of steady economic growth may be over. In which case deficits and debt will not be as sustainable as previously assumed. But borrowing for investment is an important exception, and I hope he sticks to that in the face of Treasury scepticism. And redistribution is economically efficient in an age where the winners seem to be taking everything. Mr Alexander got a standing ovation that the speech itself probably did not deserve.

The next act was a long motion on reforming public services, following a policy paper. The scope of this may have been too ambitious, and yet the thinking behind it was at the same time radical and pragmatic. We have to move on from an over centralised and compartmentalised approach to public services. We need to solve problems rather than manage throughput. This means more devolution and local problem solving. This was the thinking behind the motion, though it was easy to be lost in the detail. A wholesale rejection of the purchaser provider split in the NHS was rejected, but an amendment that facilitated radical changes at local level was allowed. While the right continues to believe in more throughput management using private sector outsourcers, the Lib Dems are moving in a different direction.

Apart from a rather stricter view of government borrowing than many on the left think is appropriate, this all amounts to a shift leftward for the party. The social liberals are slowly winning the argument. And, as somebody who has tended to side with the right in the past, I have to admit that this looks the right way to go.

#ldconf Day one: clear vision and constitional confusion

The Liberal Democrats gather in Glasgow again for their annual conference, as we did in2013. This is not as interesting as it might have been if Scotland had voted Yes in the referendum. But Glasgow is a city that I like, for all that healthy eating seems a bit of a mystery to the locals. On the first day we were treated with a clear mission and a muddle.

The clear mission came through at the conference rally in the evening. It was greatly aided by the Conservative party’s lurch to the right, with its promise of unfunded tax cuts and attacks on human rights laws. They are avoiding a centre ground strategy, and instead they are looking for “wedge” issues that will peal away Labour’s more conservative supporters and push back Ukip at the same time. With Labour unwilling to stake out a clear ideological vision, Lib Dem activists can readily believe that their country needs them. There is clear ideological space for a liberal party. The process of rallying supporters is therefore straightforward. Whether this is enough to overcome the public’s scepticism of the party remains to be seen.

The muddle came from an attempt to reform the party’s internal voting system so that all members have a right to vote at conference and on internal committees, rather that representatives coming through a supposed election process from local parties. This was styled as “one member one vote”. This is rather overdoing it. To vote you still have to turn up at conference. It is a sensible idea because, with the weak state of local party organisation, the selection of representatives is chaotic, and largely boils down to self selection and luck. It is a far cry from democracy. The proposed system is more practical In principle. Also there is a misunderstanding about the role conference plays in the policy process. It isn’t a deliberative parliament designed carefully represent the membership, but a test run for new policies on people sympathetic to the party’s principles. Exactly who the people are in the conference hall isn’t so important. No doubt the new system will bring problems in its wake, but it is hard to believe that they will be worse than the present arrangements.

So what’s the muddle? The principle is simple but its implementation is complex. The proposed amendment was drafted in too much of a hurry and left many gaps. So we ended up approving a rather confusing motion whose impact is unclear. It’s going to take quite a it of sorting out – not ideal in a big election year. Perhaps it is a fitting verdict on modern politics. Lots of vision and sharp communication, but short of the patient detail needed to make anything actually work.

Still, with a clear mission spirits are high.

Ed Miliband is Labour’s John Major. Short term success presages long term disaster

Britain’s two big party conferences are over, setting out the battle lines for next year’s general election. I keep seeing parallels with the 1992 election, which the Conservatives won unexpectedly. In the past I have drawn direct parallels between the two main parties then and now. But in interesting ways the Labour party resembles the Conservatives in 1992: pulling off an unexpected victory, leading five years later to its worst ever defeat.

The Labour conference was shocking. This was supposed to be a party with its blood up, ready for a battle to crush those hated Tories and despised Lib Dems. Instead we witnessed a subdued Labour Party, simply hoping that the other side would lose. The plan is to win the General Election in May 2015 by default. There are three elements to this plan. First hang on to the hard core of voters that were loyal at their low point at the last election in 2010. Second, snaffle up an extra 5-10% of voters who voted Lib Dem last time and are fed up with that party. Third: allow Ukip to eat into the Tory vote. Labour strategists think that these three things will be enough to give Labour an overall majority. The party does not have to spell out a clear policy vision, just create some mood music by talking tough about the nation’s finances, and “saving” the NHS.

It could work. This kind of strategy reminds me a lot of John Major’s strategy for the Conservative Party that he led from 1990 to 1997: visionless, and relying on its opponents’ weaknesses. This led Mr Major to that spectacular and unexpected victory in the 1992 election, followed by the Tory party’s worst ever defeat in 1997. Something like the same fate awaits Ed Miliband’s Labour Party. At Labour’s conference he failed to address doubts about his leadership. His speech was a disaster. It was an overlong, rambling, whinge-fest, full of speechmaking clichés. His act of not using a script and teleprompt drew much praise the last time he tried it. This time it meant that he forgot to include some vital messages on the deficit and immigration, passages that it is hardly surprising his subconscious suppressed.

Over the four years or so of Mr Miliband’s leadership, the Labour Party has proved remarkably united, and in London at least, its local organisation looks in good shape. After three terms in power, this is a remarkable achievement, considering what happened to the Tories after they finally ended 18 years of power in 1997. But this achievement looks more like Mr Major’s clinging on to power after Margaret Thatcher was ousted in 1990. It comes at cost of not resolving conflicts within the party. In particular much, if not most, of the party’s grassroots thinks that austerity is the malicious pursuit of class warfare by the rich, and that capitalism is an utter failure. They are egged on by a collection of intellectuals untroubled by the responsibilities of ever having run anything. But the party’s leaders, who have genuine ambitions to govern, realise that this is mainly nonsense. Though they have been clear about this in their speeches (when they remember to mention it), there is no sign that their followers have actually taken it on board, such is their detestation of the current government.

And that’s not Labour’s only faultline. Labour are under attack in their working class strongholds. Ukip are taking votes from the party in northern towns, where the party is not used to being challenged. The SNP made a very successful appeal to the working class voters in Labour’s stronghold in Glasgow in Scotland’s referendum. Labour’s leaders are being urged to respond to this by sounding “tougher” on such touchstone issues as immigration and human rights, which is taken as meaning undeserved privileges to migrants, terrorists and criminals. Labour have made some mealy mouthed concessions, especially on immigration. In particular they suggest that the Labour government was mistaken in allowing free immigration of east European migrants after their countries entered the EU. This is very muddled. The tension between liberals and working class conservatives is palpable.

For now Labour are papering over the cracks. Even if they hold together until the election, there is sure to be an explosion after it. If they win, a Labour government will be utterly unable to reconcile the conflicting ideas of their supporters. They will simply pick up where the last, deeply unpopular, Labour government left off. If they lose, their supporters will be unable to understand why, given what they see as the self-evident failures of the coalition years. And if the party is forced into a coalition with the Lib Dems (if that party does better than expected), or a grand coalition with the Conservatives, the reactions of Labour’s supporters can only be guessed at.

Meanwhile the Conservatives are sharpening their knives. This party’s divisions are even greater than those that Labour is troubled with. But their leader, David Cameron, delivered a strong conference speech, setting out a very clear strategy for undermining Labour’s passive electoral hopes. This is the familiar “two-horse race” theme, so that Mr Cameron’s leadership skills can be compared favourably with Mr Miliband’s. And then there is tax. Labour’s ambivalence over reforming the public sector and benefits can be linked to the prospect of higher taxes for the majority.  Interestingly the Conservatives are making no attempt to woo middle of the road liberals, attacking the Lib Dems for stopping their illiberal ideas on civil liberties. This is no doubt part of their strategy to woo back Ukip defectors. But they may also calculate that raising the liberal credentials of their coalition partners may help the Lib Dems win back some of their defectors to Labour. This vigorous Conservative attack on Labour will put the latter under severe strain – though it is difficult to see how the Tories can win outright.

The outlook looks dire for Labour. Things are no better for the Tories. It is difficult not to think that Britain’s traditional two party politics is on its last legs.

Real devolution is about taxes

The Scottish referendum was supposed to change everything. It was supposed to have created a constitutional crisis that Westminster politicians could not ignore. Well, the Labour and Conservative party conferences have been doing their very best to resurrect a different narrative, with a rapid return to the usual political nonsense. But before long the House of Commons will have to consider further devolution to Scotland, which will bring matters back into focus. It is still worth thinking about the practical issues of devolution. And the biggest issue that needs clearer thinking is tax.

Politics is not just about creating, changing or abolishing laws. It is about balancing revenues and expenditures. In fact, in modern politics, this latter is probably the most important job of politics. How much to tax? Where to spend the money? Unfortunately, the British model of devolution shies away from the taxation side of things. Central government passes on cash grants to the devolved authorities, who have very limited tax-raising powers of their own. Devolution is about spending priorities, not about how much to spend overall. To get more money, a devolved authority has to apply political pressure to the central government, who may or may not grant it. This creates a very unhealthy tension between the various levels of government. Or, to put it another way, if the devolved government finds itself short of funding, it can just blame the central government.

And the Scottish National Party (SNP) has been skilfully exploiting this tension to undermine the union. Scotland does have a rather fudged right to vary the rate of income tax – but is has never used it. Instead, it is blaming the UK government, and hence the union itself, for imposing “neoliberal” policies on Scotland. In the referendum there was a highly mendacious, but effective, claim that the NHS would be safer in an independent Scotland – in spite of the fact that the local NHS is already run by the Scottish government.

But the ability to raise taxes is one of the essential things that defines what a government is. Meaningful devolution, whether to the British nations, regions or local authorities, must involve the freedom to tax. There are many ways in which this is done in the various systems across the world. The most extreme is in the United States, where the states have almost unlimited freedom to tax, and where local taxes are clearly separate from federal taxes. That latter point is very important to achieve democratic accountability. In other countries the freedoms of devolved authorities is much more tightly defined. It is well worth thinking about what sorts of tax it is practical to devolve.

The classic economic answer to this is that the more geographically tied a tax is, the easier it is to devolve. So taxes on property are good to devolve; taxes on financial investments and capital are not. Let’s look at the British tax system in this light.

There are four main types of property tax. Council Tax, Business rates, Stamp Duty and Capital Gains Tax (CGT). The revenue from Council Tax already goes to local authorities, but its structure is set at national level, and powers to vary it are heavily constrained (though the Scottish government has fewer restrictions). Business rates were highly centralised, but this is being released back to local authorities in the typical sort of fudged British way that makes accountability unclear. Stamp Duty and CGT are tangled up with the same taxes on highly mobile assets, and are centralised. It would be quite easy to disentangle Stamp Duty on property transactions and devolve them – but much more difficult for CGT. But we have to be careful; financial engineers can blur the distinction between property and financial investment (the property can be held by an investment trust, for example), so anti-avoidance provisions would need to be designed.

At the other extreme we have capital taxes. These are Income Tax on the income derived, Stamp Duty and CGT again, and Corporation Tax. I will come back to Income Tax. Corporation Tax is the most contentious issue. Both the Scottish and Northern Irish governments want to be able to set their own rates. But this is usually dismissed as being impractical, or leading to tax avoidance in a sort of negative-sum game. Nothing is more mobile than capital, after all, and Corporation Tax is a quintessential tax on capital. This line of argument is overdone. One idea might be to determine profits at a UK level, but allocate using some variation of the “Massachusetts formula” using property, employment and sales as the basis of regional allocation. This works well enough in the USA, and I have long advocated its use internationally too. If all a company has in Scotland is a brass plate on a registered office, the Scottish Government would not be able to tax it.

In between capital and property we have people – or more properly income earned through employment, whether directly or deferred, though pensions. These are taxed through Income Tax and National Insurance. Income Tax is the most politically accountable of all taxes, and so it is quite natural that most debate centres around how this might be delegated. But this is very messy. It is also levied on investment income, and then you have the complexities associated with rate bands and tax free allowances. It would be much better to devolve National Insurance, either just that paid by employers, or including the Employee tax too. It could be renamed “Local Income Tax”. The tax was originally set up to fund social benefits such as pensions and unemployment benefit – but the Treasury has long since broken that link. There is one important issue with it though: it is not levied on pensions. But pensions should be a UK issue that is not devolved. Regions with a high density of pensioners would suffer from a low tax base: but this can be equalised – and I don’t think it is unhealthy for regions and localities to have an incentive to encourage employment, rather than just property ownership.

Two other areas of taxation are important. First is VAT (and theoretically, any sales tax). This could be localised, but there are two difficulties. First is that with the development of online sales, it is increasingly difficult to locate a sales geographically – something that has become a big problem in the US. The second is that VAT is tangled up in European Union treaties and law. It is best left alone. The other area of taxation is natural resources, and especially oil and gas. This can be geographically isolated, though most oil extracted in English waters is landed in Scotland. This is the biggest bone of contention between Scotland and Westminster. But I would be tempted to call the Scots bluff and devolve it. After all most of the issues of infrastructure that go with resource extraction fall on the Scots government.

So what is my straw man for Scotland, or any other devolved region? First, I think a diversity of sources of revenue is a big help.  I would create a new Local Income Tax in place of or alongside National Insurance, that would initially be structured in the same way. Next I would allow Corporation Tax to be split according to the Massachusetts formula, with variable rates. I would give devolved authorities more powers over Council Tax and Business Rates. I would devolve oil taxation. I would consider establishing a new property gains tax in place of CGT on property.

A fantasy I am afraid. The UK Treasury remains the most powerful force in British government. It has no intention of conceding any of this – and would feel the state would be fatally undermined if it did. It would rather fudge something around Income Tax – the one tax that I think should be entirely “Federal”.

 

Bombing Isis: why am I so uncomfortable?

Paddy Ashdown says it’s OK. I supported the Nato intervention in Libya. As British MPs meet to consider whether the country should actively join the US and other nations in bombing the outfit that calls itself “The Islamic State”, and which I still refer to as “Isis”, this should be quite straightforward. But I have deep misgivings.

There are enough reasons why such action should be supported. Firstly Isis are evil. They represent a particular sort of totalitarianism that I detest, casually terminating the lives of anybody that gets in its way. Its attempt to appropriate the religion of Islam is as contemptible as the Ku Klux Klan’s similar appropriation of Christianity.

Secondly the action is legal under international law, provided that it stays within the boundaries of the Iraqi state, since the Iraqi government has requested it. Having said that I set less store by the norms of international law in such matters than many. It concedes too much power to sovereignty of national governments, and to the veto of UN Security Council members.

Thirdly, there is some level of direct threat. Isis has said that it wants to carry its crazy war into developed nations, including ours, through random acts of violence. It will kill any of our non-Muslim citizens that it can lay its hands on. Having said which it has not put much organisational effort into intervention in Western countries – being more interested in carving out its own statelet in Greater Syria.

I place some weight to showing solidarity with the USA. The Western powers are stronger if they act together, and we do have a very strong common interest. Still, the world view of many American politicians is ignorant nonsense, and we should not be too tied to them.

I find that my unease reflects a rather similar attitude with many on the political right to domestic politics. Actions driven by a  bleeding heart or anger can so often lead to the opposite of what we intend.

The first problem is dependency. The interventions by the USA and its allies in Iraq have led to an expectation that the Western powers will intervene to sort out any nasty problem in any neighbourhood (outside Russia, China or India, anyway). So the locals lose any incentive to sort out problems for themselves. We have seen this with Afghan government of Hamid Khazai. We have seen it with post Saddam governments in Iraq. They use the US security umbrella to carve out their own corrupt polities without any regard to their country’s long term future. They governments don’t even act as loyal allies.

The whole Isis mess was created by the failure of two governments: those of Syria and Iraq, drawing on the support of Iran and the Lebanese faction of Hezbollah. Their ineptitude created a political vacuum which Isis has exploited. They have shown themselves incapable and unfit to rule the areas that Isis now controls. But we have no other party to back, beyond the nascent Kurdish state. The US has wrought concessions from the Iraqi state, but I can’t see how these will be enough to regain the trust of the Sunni tribes. Past experience shows that as soon as US pressure is withdrawn, the Iraqi government reverts to type.

A further problem is lack of proximity. I firmly believe that the closer we as a country are to another, the more prepared we should be to intervene in its affairs. This is not just a matter of physical proximity, but also cultural. The Falkland Islands were (and are) close to Britain in that sense. Iraq and Syria are a long way off. I feel happier about our country intervening in Kosovo and Bosnia and, perhaps, Sierra Leone. If Turkey, which is on the edge of being a European nation, and is part of Nato, had chosen to involve itself in this affair, then perhaps we could make a case for helping its defence. But Turkey is staying firmly neutral.

I am not persuaded that this country’s participation in the 2003 gives us any obligation to help sort the mess out. I think responsibility for the mess lies with the Iraqi and Syrian governments. Neither is the presence of British volunteers amongst Isis’s ranks – though we should takes steps to reduce the flow of such people. However, I do think that our past involvement points towards humanitarian and economic assistance now.

And another thing. I am deeply uncomfortable with the idea that air power (including the use of drones) is some kind of morally clean way of involving ourselves in a conflict. It may put fewer of our servicemen’s lives at risk, but the death and destruction that they deal out is as real as anything that an infantryman does. And it leaves unanswered the question of who controls the ground after Isis has been beaten.

The world has a problem with failed states and power vacuums. This is what Isis exploited in Syria and Iraq. We also have Somalia, Libya and many other parts of the African continent. Post-imperial occupation by foreign powers has not proved a robust solution. Neither does the projection of Nato military might, outside Europe, anyway.

We need to find a better way. This needs to be led by the local powers, with perhaps further support as required through the UN. In the case of Iraq-Syria these local powers are Turkey, Iran and the Gulf Arab states. These powers somehow need to work out a new political settlement for the region, which, in my view, will require the redrawing of international boundaries. That Iran and Saudi Arabia have behaved in a highly irresponsible manner to date does not mean we can avoid making them part of the solution.

Perhaps President Obama’s coalition will help bring about such a resolution; he at least grasps the limits of military power better then most – though he is buffeted by the winds of US domestic politics. I would need to be convinced that this is so before endorsing any further British military intervention.

Is austerity an economic failure or a fact of life?

The British Labour Party conference proved a bit of an anti-climax. After the excitement of the last week’s Scottish referendum this was probably inevitable. All the more so since the Labour leadership did not want to talk about the important issues that referendum has raised on for the British constitution. But this conference marked in important stage in the evolution of the Labour leadership’s policy platform. They have finally, publicly and unequivocally accepted austerity as the centrepiece of their economic policy. This is rather muted, of course. The right wing press, who still set the country’s news agenda, do not want to give Labour any credit for this. Labour’s left wing supporters still think that austerity is a failed economic strategy, promoted by a “neoliberal” elite as a means of shrinking the power of government. These supporters do not want to be too vocal this close to a General Election; besides they were soothed by some diversionary promises regarding Britain’s National Health Service (NHS) and the minimum wage. But this left wing critique of austerity bears further examination.

It is expounded with some clarity in today’s Guardian by the journalist Seumus Milne: Austerity has failed, and it isn’t only Labour’s core voters who want change. To start with Mr Milne points out that Labour’s core voters, working class people, are unhappy and Labour can’t take them for granted. In Scotland they defected en masse to the SNP’s Yes campaign – and its claim that Scottish independence meant that they could roll back austerity. In England Ukip is making inroads into Labour’s core vote. Labour can’t simply take these voters for granted and then go after the “centre ground” voters who are liable to be swayed by the right wing press. This is perfectly true, of course, but not very helpful in its own right.

He then goes on to the familiar critique of austerity (cutting back public expenditure), which is that it has failed both in Britain and elsewhere in Europe. In Britain, growth is based on shallow foundations: unfunded consumer expenditure; average living standards are still sinking and many poorer people are suffering real hardship. In other European countries, notably France, there is no growth at all. This critique builds on that of Keynesian economists. In the earlier years of the government’s austerity programme they suggested that by cutting demand, or refusing to stimulate it, austerity simply created a doom-loop of shrinkage – or failed to ignite a virtuous circle of positive demand. The cuts were simply too early. This critique was eagerly seized on by the left. The trouble is that in Britain it has been overtaken by events. Growth has returned, mainly as the result of increased consumer borrowing, but also through higher business investment. There is not need to use public money to stimulate the economy further. Now is the “later” that the Keynesians were talking about when they said the cuts should be made later. It is does not matter that the initial spurt of growth was based on shallow foundations, as Keynesian fiscal stimulus is open to exactly the same criticism.

In fact the government’s application of austerity never lived up to the rhetoric. The cuts have been relatively modest, and as a result the deficit (excess of government expenditure over taxes and other income) has not been reduced by anything like as much as the original plans. The government finances still look very shaky and unsustainable. To a large extent things have been propped up by the Bank of England buying up government debt (“Quantitative Easing”, or “printing money” as some economists would have it). This only works when inflation is not a serious threat, and the Bank has indicated that continued purchases are no longer sustainable.

Things get worse when you look at the details more closely. The Economist points out that the country’s tax revenues are not keeping up with the country’s growth rate, making the deficit harder to cut. The reasons are not entirely clear, but two contributory factors should cause those on the left to worry. The first is that the government has been rapidly advancing tax free allowances, a flagship policy of the Liberal Democrats. This has helped relieve the economic pressure on the oft-forgotten marzipan layer of Britain’s poor. Those who are working and do not qualify for state benefits. But it also means that if wages are stagnant the government sees little benefit from growth. The second, related, factor is that Britain’s tax take is heavily dependent on the very rich. The Economist says that the top 1% of earners are thought to contribute 28% of income tax receipts. The position of other taxes may not be so very different. That means that pressure on the very rich, and notably the banking sector, is choking off tax receipts. All this suggests that raising taxes without hurting the ordinary working classes will be very difficult to achieve.

The serious economic case against austerity is not quite dead, though. The FT’s Martin Wolf, for example, suggests that prolonged fiscal (and trade) deficits may be required to counterbalance the insistence of some countries, notably China, to run export surpluses, and so create a surplus of savings. But his suggestion is that state funded investment is the best way of achieving this, not the continued propping up of the benefits system and a high volume of public services. That still leaves the most painful aspects of austerity intact.

The fact is that some very powerful forces, global and local, are bearing down on economic growth. These include demographics, the evolution of the Chinese economy (reducing the supply of cheap exported manufactured goods – so important to developed world living standards in the 1990s and 2000s) and (perhaps) by a focus amongst the slightly better-off on quality of life rather than income maximisation. It was once thought that any well-functioning developed economy could grow at 2% a year. That now looks infeasible. Which makes the management of government debt (and private debt for that matter) a serious long-term problem. It gets worse, as to achieve any sort of growth requires the economy to become more efficient, not least in public services. This involves the sort disruptive changes that the left’s core supporters hate most of all.

To be fair on the left, though, one of the causes of low growth is the excessive accumulation of wealth by the very rich – and this can only be tackled using an agenda that looks leftwards. But chasing down this wealth is increasingly a global problem, that needs global solutions, and not socialism in one country. This is ironic, as one of the symptoms of working class disillusion is a rejection of internationalism. It is no coincidence that the right wing press is happy to undermine international institutions, though.

Mr Milne calls for some kind of post capitalist economic reform, with increased state intervention. It is hugely unclear what this reform agenda would comprise, and whether it could work. The last country to vocally reject capitalism was Venezuela, whose oil wealth allowed it to cock a snook at the capitalist world. That is ending in utter economic and social disaster. Starvation and oppression in North Korea, and terminal economic stagnation in Cuba offer no better way forward.

The world is changing, and many Britons hate it. But with large trade and fiscal deficits Britain must embrace change or face economic catastrophe. That is the truth that Labour’s leaders are facing up to – and it is not a spineless surrender to the forces of big business.