Lower immigration means paying more for public services

“A sensible politcal debate” is surely an oxymoron. Politics is a battle of personal ambitions in which popular prejudices provide the most useable ammunition. If you catch two politicians having a sensible debate, it is away from public attention, about an issue with no real salience. Immigration is an issue of high political salience – and always has been, so we shouldn’t wonder that so little of what is said by politicians makes any sense in the round. But in the end effective policy needs to be based on reality, and a sensible debate is needed to tease that out. Immigration is a case in point.

Immigration is currently moving up the political agenda. This is in spite of the fact that the leaders of none of the major political parties would rather talk about other things, and opinion polling shows that it is relatively low on the list of public concerns. That is because a group of conservative politicians see it as an opportunity to create mischief and further their political careers. The proximate cause are statistics that show immigration at record levels – though these statistics are highly unreliable as data collection is weak. The numbers have been driven up Ukrainian and Hong Kong refugees, the need for universities (and the country at large) to extract money from foreign students, and widespread labour shortages. Each of these causes seems to be understood by most of the public. So what’s the fuss?

There seem to be two main, mutually supporting strands raised by conservative politicians (with Labour leaders happy to echo them in their bid to show their conservative side): cultural and economic. Immigrants are usually culturally distinct (we can argue whether this is true of Australians…) – with different languages, religions and customs, and often maintain distinct communities. This is blamed for corroding traditional British culture. There is more than a tinge of racism here, though it is notable that many of the the leading public conservatives are themselves from ethnic minorities, and these ideas resonate with settled ethnic minority communities. There is plenty of irony here. Immigrants are keeping the churches full and often have conservative social values. One leading conservative politician claimed that immigration was leading to the declining number of people professing to be Christian, when the opposite is true. Of course this person (Nigel Farage) was seeking to exploit the trope that Western countries were being taken over by Muslims. It is easy for cosmopolitan liberals to laugh at all this, so many are the inconsistencies, but the message resonates well with older and less-educated people. There is a real conflict here between the cosmopolitans, typical of larger and more successful cities, and nativists, typical of more rural areas (though my own rural abode of Sussex is pretty cosmopolitan, it needs to be said) and smaller towns. If you take the Brexit referendum as an indictor of how the two outlooks divide (and it is more complicated than that) – then the country is split fairly much 50/50. It currently helps that, apart from the Ukrainains perhaps, the bulk of existing migrants tack onto communities that are already well established here – Indian, Chinese and Nigerian in particular.

Because of the clash of cultural attitudes, and the need to draw support from both sides, perhaps, most politicians choose to make their main arguments on immigration in terms of economics. It is said that excessive immigration is causing public services to be overstretched, exacerbating housing shortages pushing up property and rental costs, and pushing natives out of decent jobs, or at least pushing the level of pay down. The public services argument is the least serious. Public services are often amongst the most dependent on immigrant labour, and would be under even more strain if immigration was reduced. But a local influx can cause problems, and the system can be slower than it should be to adapt.

The argument on housing is more convincing. Pretty much everybody agrees that the supply of housing is failing to keep up with supply – though new housing developments seem to be popping up everywhere I travel to. After that vested interests take over, and it is very hard to get an objective take on things. One group of people blames restrictive planning laws which stop new homes being built, especially on rural and green belt land. The other side says that this would simply give developers carte-blanche to build lots of poor quality houses in ecologically vulnerable beauty spots, together with some high-end properties to act as stores of financial value for footloose foreigners. Clearly high levels of immigration make the problem worse – but the middle ground between developers’ search for an easy profit and nimbies trying to protect the value of their existing properties is largely uninhabited – and draws little serious, well-funded research. Economists tend to side unthinkingly with the developer lobby. Politicians may talk as if they are in the middle ground, but lack well thought-out policies that might do any good, and I’m practice end up at one of the extremes. Arguments over immigration just add grist to the mill. It is very hard to understand the implications of immigration strategies for housing without having a clearer idea of about housing strategy. But it clearly doesn’t help.

What about immigration and jobs? Recently changes as a result of Brexit caused a shortage of lorry drivers. Their pay shot up as a result; training schemes were upgraded, and more locals are now taking up the work. This is exactly how conservatives arguing for lower immigration say things should work. Using immigrant labour is an easy shortcut – but we would be better off we raised pay and brought more locals in to do the jobs. This is the vision conjured up by the Tory former leader Boris Johnson at the last election. But there’s a problem. This should mean that public sector wages need to be raised to help draw more people into the workforce. And yet the government wants to do the opposite: to use inflation to reduce real levels of public pay, and use the resulting surplus to fund tax cuts. They do this in the name of reducing inflation – but offer no long term solution to the problem of public sector pay. In fact a rebalancing of the economy in favour lower paid jobs will surely result in a degree of of inflation. It may also require taxes to be raised. The issues are quite complicated here, but a limited supply of labour creates something of a zero-sum game. Raising wages for the lower-paid is going to hurt somewhere.

Politicians sometimes talk about the need to improve training so that more locals can do jobs where we currently need immigrant labour. This clearly won’t work for things like fruit-picking, but is more convincing for doctors, nurses and social care workers. The problem here, as Stephen Bush of the FT points out, is that skilled labour is mobile, and the freshly trained workers will simply gravitate to where the best paid jobs are – which are often not in the UK. It is putting the cart before the horse. As the case with lorry drivers shows, if you fix the pay issue first, training is a much easier problem to solve.

The big, unspoken issue lying behind the fuss, is the country’s demographic development, with retired people taking up an increasing share of the population, while at the same time driving up demand for public services. Immigration is the obvious answer to this problem, though not in the long term, as the immigrants themselves will retire. If immigration is not the answer, then what is? Politicians place hope on increased productivity – but for a number of reasons this will not cut the mustard. The areas where productivity needs to advance to make the sort of impact required – in health care and social care services – seem to be those with the fewest practical proposals. Indeed, health and safety worries tend to push them in the opposite direction. Big investments in hi-tech factories may be a very good idea, but they will make little difference to economic growth overall, and impact the labour market even less.

The idea that the country should limit immigration is a perfectly respectable one. But it has a cost – we must pay more for critical services that are subject to labour shortages. That will involve a rebalancing of the economy and some painful economic adjustments. It would help if more people would talk about what this, exactly, means.

A lot is staked on Ukraine’s counteroffensive

By Viewsridge – Own work, derivate of Russo-Ukraine Conflict (2014-2021).svg by Rr016Territorial control sources:Template:Russo-Ukrainian War detailed map / Template:Russo-Ukrainian War detailed relief mapISW, CC BY-SA 4.0, https://commons.wikimedia.org/w/index.php?curid=115506141

I haven’t commented on the Ukraine war since January, when the world was waiting for a new Russian offensive. That has come and gone, and now all the talk is of a Ukrainian offensive. First I want to look at the shape of things on the battlefield. Then I will take a step back and consider the situation strategically, before trying to probe how this war could end.

That Russian offensive turned out to be a damp squib. It was a series of attacks mainly in Donbas, and especially around the town of Bakhmut, the strategic value of which has been much argued over. The Russians made use of “human wave” attacks – a tactic with a long Russian history, but which led to massive casualties. Ukrainian casualties were quite heavy too, especially from relentless artillery fire. I was somehow expecting something more – the whole thing bespeaks of poor quality military leadership – apparently at all levels. What captured a lot of attention was politicking between Yevgeny Prigozhin and his Wagner Group mercenaries, and the regular military. Mr Prigozhin’s troops did much of the heavy lifting around Bakhmut, using poorly-trained recruits from prisons, and he sought to make political capital out of this. Gradually the Russian effort has fizzled out, as they moved to a more defensive stance, though they still seek to complete the conquest of Bakhmut.

Which leads to the Ukrainian offensive. This is much talked about, including by Russian military commentators. Ukraine has been preparing a number of units for this task, and equipping them with advanced weapons supplied from the West. It is hard to tell what the real game is here. The Ukrainian leadership would clearly like to keep the Russians guessing as to where the blow will fall and when – but that is hard. The talk now is of whether the effort has already started, with some attacks north and south of Bakhmut. There is a game of bluff and double-bluff, and from this distance I can’t tell what is going on.

When it comes, the big question will be how tough and resilient will be the Russian troops on the receiving end. They are poorly trained and led, but their leadership is trying hard to steep them into the tough no-surrender traditions of the historic Russian military. If successful, even poorly-trained men will slow the Ukrainians down. Still, even though he Russian army is large by 21st Century standards, they have a lot of ground to cover, so they must be spread quite thinly. Another imponderable is ammunition supply. The Russian way of war is to use ammunition prolifically – and there are clear shortages. But ammunition supply is a major issue for Ukraine too. The Western powers’ ability to maintain stocks of ammunition for the weapons they are supplying is in question. Probably the reason for the regular waves of Russian missile and drone attacks is to run down Ukraine’s stocks of anti-aircraft munitions – especially since American intelligence leaks indicated that these were running low.

One area that Ukraine has been pressurising its allies on is the supply of advanced fighter aircraft like the American-made F-16 (though these aren’t top of the range weapons in the most advanced arsenals, they will out-perform the Soviet era equipment Ukraine has been using to date). The allies appear reluctant – as these aircraft require substantial logistical support, and any bases would become a natural Russian target that would be hard to move. The Economist points out that Sweden’s Viggen aircraft would be much more appropriate, as it doesn’t need big bases – but there aren’t enough of these around. A significant force of F-16s would undoubtedly give Ukraine more options, however, but they clearly cannot arrive before their offensive gets under way.

Which brings me to strategy. There is something rather curious about this war: the Russian don’t refer to it as a “Special Military Operation” for nothing: it is important to them to minimise its impact on the daily life of Russian citizens. This is a far cry from the total war idea we saw in the Second World War – but it is very much the way the Western powers have tried to conduct their wars, from Korea to Vietnam to Iraq. Ukraine is having to play along with this, and restrain their attacks on Russian territory, and even on Crimea, which is widely recognised as theirs. They have more to lose from an escalation. And so we have a paradox at the heart of the Russian strategy – the conflict is claimed to be an existential battle with the West for Russian values, and yet the Russian commitment to it is restrained. The Russians hesitate to mobilise further troops, or force their population to endure major shortages as more economic heft is devoted to the war. The Russian leadership has, in fact, been remarkably successful in insulating their public. But it limits any attempts to overwhelm Ukraine – and is ceding the initiative on the ground.

Vladimir Putin, the Russian president, apparently feels that he has long-term advantages. Ukraine is dependent on Western succour, and this cannot last indefinitely. The leading Republican presidential candidates in America, Donald Trump and Ron DeSantis, seem reluctant to maintain American commitment – and the presidential election is only next year. European commitment can be seen as a glass half-full or half-empty, like so much of what Europeans do. Meanwhile China might start to come through as an ally, providing vital logistical support. Furthermore there are questions about how the Western powers can keep the supply of munitions going in the long term – it is hard to ramp up production volumes. So the Russian strategy looks to be to weather the storm from the upcoming Ukrainian offensive, and then slowly take the initiative back, until America in particular wilts.

Will this work? It is rather of the nature of war that the leaders of each side tend to under-estimate their opponents – and both sides in this war have been guilty of that. I think Mr Putin is here. But neither should we underestimate his grip on power in Russia, and nor his ability to keep the Russian war effort going. All of which is a grim prospect.

How might things end? The signs are that Russia could settle for keeping most of their territorial gains. They are likely to choose to do this through a ceasefire, followed by a frozen conflict, of the sort already ongoing before the 2022 assault (or those in Georgia and Azerbaijan – or Korea). Of course there would be talks toward a longer term settlement, but these would get nowhere. The conflict might then be reignited later if the balance of power shifted. Ukraine’s ambiguous status would prevent it from entering NATO. This seems to be more or less the sort of resolution China wants to achieve.

It is obvious enough why the Ukrainian government wants to avoid this outcome. They would lose much territory permanently, and the threat of re-ignition of the conflict would be constant. And yet it is difficult to see that the war will end in any other way. The Russian regime cannot admit that the war is over and that they have lost. Even if Mr Putin is replaced, it is highly unlikely that any replacement will renounce his expansionist narrative. The regime is tapping into widespread popular beliefs. This means that Ukraine must retake as much territory as possible before a ceasefire is forced on them.

This would put a priority on territory south of the Dnieper river up to the Sea of Azov. This forms a land bridge between Russia and the Crimean peninsula. This is, naturally, where Russian defences appear to be thickest. As the offensive moves from advance to stalemate, the Ukrainian leadership will then come under huge pressure to settle for a ceasefire accompanied by peace talks.

Once we get to a ceasefire and move to a frozen conflict, the pace of changes slows. This can go in roughly two directions. The worst case scenario is that Russia follows North Korea, and is gripped by a totalitarian regime that is an economic failure, but where the regime’s grip is secure. The alternative is that we follow the Cold War, where the Russian leadership’s economic and other failings lead to a loss of confidence and political implosion… and ultimately a new settlement with the West. Ukraine, meanwhile, embraces the West and the European Union, and enjoys economic success as it rebuilds. Such rebuilding efforts usually surpass outside expectation – and the manner Ukraine’s military and civic success in beating off the Russians bodes well for its economic development, just as the Russian security elite’s tightening grip bodes ill for Russia’s.

But first this summer’s events will shape who controls the ground. Alas that means that there will be many thousands more deaths before we can approach some kind of resolution.

Anti-Tory pacts – lessons from Wealden

Analysis: Matthew Green thinkingliberal.co.uk

Such is the paradox of the information age. Massive amounts of information from across the globe is at our fingertips, and we can now use AI tools to retrieve it with startling efficiency. But news reporting, especially local news reporting, has collapsed – so many, many interesting things are liable to escape our attention because they will never get into to the accessible database. There has been a wealth of reporting on last week’s local election results in England. But many interesting, and important, local stories remain unremarked. Such is the case in my local area, with the district council elections of Wealden in East Sussex – and arbitrary bureaucratic agglomeration of villages and small towns, whose main centres are Uckfield, Hailsham and Crowborough, each of roughly equal size.

The first point to make about this is that I wasn’t involved in these elections, in spite of being a party member. I haven’t talked to any of the actors since long before the campaign started. My reporting is based simply on the results published by the council. I hope to find out more later – but I’m not minded to harass exhausted newly-elected councillors who have important decisions to make about running the council. I’m a blogger, not a journalist.

It was the first British public election since 1979 in which I did not vote for the Liberal Democrats, or one its predecessor parties. That was because they did not field a candidate in my ward. There were only three candidates: a Conservative, a Green and an independent who did not put up much of a visible campaign. I voted for the Green candidate, Christina Coleman, who won with 64% of the vote against the Conservative incumbent councillor, Roy Galley, who had won in 2019 with 59% of the vote, against just a Green candidate. Ms Coleman increased the Green vote from 523 to 1,107, while Mr Galley’s vote sunk to 545 from 749. As I searched through the results, I found that this outcome was not untypical. The Conservatives contested wards opposed by typically only one other party. And they lost badly, sinking from 34 councillors (out of 45) to just 9, behind both the Lib Dems (13) and Greens (11). This was a shocking result in a part of the Blue Wall that is so blue that most people don’t regard it as politically competitive. This bespeaks serious trouble for the Conservatives. It is hard to exaggerate the degree of disgust with the party amongst most of my neighbours, whom I would describe mostly liberal conservatives. One Conservative inclined neighbour is even more unforgiving of the Liz Truss episode than I am.

But that is unremarkable. It has been picked up by the main media commentary. What is remarkable was the degree of cooperation amongst the Conservatives’ opponents, and how well this worked. To put a bit of substance behind this story I have analysed the detailed results in the table above. This is all my own work and it’s possible the odd error has crept in. First, some basics to help understand the figures. There are 41 wards, four of which elected two councillors, and the rest just one. One was uncontested – the Conservatives were elected unopposed. The Conservatives contested all the wards except one (where an independent stood, and lost, against a Green). In the analysis I have tried to exclude candidates without serious backing or a campaign. I judged these to be independents who did not manage to gain 100 votes, and minor parties (though in one ward there was a Reform UK candidate, and in a another a pair of Ukippers, all of whom received over 100 votes); I have left in all of the Labour candidates, although one failed to reach 100.

The Lib Dems put up 23 candidates, doubtless so that they could claim that they could theoretically win a majority on their own. But they were opposed by the Greens in only three cases, and Labour in one, with “serious” independents in four. Eleven of the Lib Dem candidates faced no other serious opponent than the Conservatives; they were all elected – but only two others were. The Greens put up only 14 candidates – nine of these faced only one serious opponent (well, 10 if you exclude a weakly supported Labour candidate) – all (ten) of these were elected, along with one other. Three Labour candidates out of 11 were given a clear run against Conservative candidates; none were elected. Two Labour candidates were elected in three-cornered battles with Conservatives and independents (including a split result in a two member ward) – their first councillors in the district. The independents are by their nature not a coherent party, so the analysis means less – but their 18 serious candidates were involved in only four straight fights – three against the Conservatives (which they all won) and the lost fight with a Green. There were 13 three or four cornered contests: the Conservatives won six of their councillors here. These six, the two straight fights with Labour and the one uncontested ward were all the councillors they won. They won no contest in a straight fight with Lib Dems, Green or Independents. In two case of the more complex contests, the Conservatives prevailed with under 40% of the vote. In only three cases Greens and Lib Dems ran candidates against each other – the Conservatives won in two of them (with under half the vote), with the Greens winning the third comfortably with the worst Lib Dem performance of the day.

So far as I know there were no formal pacts – if there had been, the picture would have been a bit tidier. But cooperation is evident, and, as a device for winning against Conservatives, it proved highly effective – but less effective where Labour were putting up the candidate. How far can we extend the conclusions to a general election? Local and national elections are different – but the main problem for the Tories in Wealden was their unpopularity at national level. Their Wealden administration is not particularly unpopular, though no especially popular either. This suggests to me that an electoral pact between the Greens and the Lib Dems could turn some seats in the Blue Wall unless the government can seriously scare voters about the prospect of a Labour-led government. Wealden borough closely corresponds to a parliamentary seat, also called Wealden, which is very safely for the Conservatives (the Lib Dems edging ahead of Labour into a distant second) – but this all changes when new parliamentary boundaries come in. Such a pact would follow one made in 2019, but could be much more effective if voters are less scared of Sir Keir Starmer as Labour leader than Jeremy Corbyn.

But it would be very hard to bring Labour into such a pact. Many former Conservative voters will vote for the Lib Dems or Greens (somewhat ironically since the Greens are closer to Corbyn’s Labour than Starmer’s), but draw the line at voting Labour. So there is much less in such a deal for Labour than the other parties, and it would be a major distraction from Labour’s main campaigning focus. Also Sir Keir is setting his face against electoral reform (which would be another distraction for him), which reduces the attraction of Labour to Lib Dems and Greens.

In the right circumstances electoral pacts work. Given the severe distortions imposed by the current electoral system I would have no qualms about my party entering into such a pact.

Dominic Raab and Diane Abbott shine light into some dark spaces

Politicians have to navigate two worlds: that of politically correct official policy and the respectable disagreements with it, and the world of their committed supporters where more extreme views are common currency. This happens in all parties. Liberal politicians have to restrain and suppress views on such topics as Brexit and immigration, for example. This does not stop politically incorrect views being widely disseminated in mainstream media, of course, but politicians must be very wary of publicly supporting any such views. Two episodes which broke over the weekend illustrate this.

The first was that of Dominic Raab, who resigned as deputy prime minister and Justice Secretary, after a report into accusations of inappropriate behaviour – bullying – in the management of civil servants, which upheld some of them. Mr Raab came out swinging: he suggested that the threshold set for bullying was set too low, and would make the task of ministers implementing their promises to electors impossible. He also suggested that some civil servants were undermining the government because they disagreed with its policies. These complaints were taken up by parts of the press, notably The Telegraph. It was soon being suggested that the complaints were orchestrated in order to remove a politically contentious but hard-working minister – and that others would receive the same treatment.

The prime minister has remained silent on the issue; opposition parties have piled in to condemn Mr Raab, with the Liberal Democrats even suggesting that he resign as an MP. On the face of it, Mr Raab’s arguments are hard to sustain. Most of the specific complaints made by civil servants (six out of eight) were not upheld – but there were two examples that the report’s author, employment lawyer Adam Tolley, viewed as too extreme. It would be easier to accept Mr Raab’s assertion if all the complaints had been upheld. The bar Mr Raab seems to want is high indeed – physical intimidation. Others point out that Mr Raab’s record of achievement in office is weak, compared to others with similar politics. I have spent many years in a professional management environment and have no sympathy with what Mr Raab is suggesting. There are good and bad ways of getting the people you work with to do what you want; Mr Raab clearly opted for the bad far too often. I am pretty obsessive about fonts and formatting (apparently one of the issues that Mr Raab complained about) – but as a manager I just had to let go, as the topic didn’t matter all that much in the end.

Still, Mr Raab is getting a sympathetic hearing in many places, and not just The Telegraph. But this is not politically mainstream. One survey suggests that most people claim to have experienced bullying by their superiors at work. I have worried that bullying behaviour by managers is so commonly portrayed in television and film dramas that people think it is how management is done – but this is doubtless trumped by direct personal experience, where people meet good management technique as well as bad. The FT’s Stephen Bush suggests that political careers tend not to provide such exposure to good management practice, though, and perhaps that is why politicians so often fall into Mr Raab’s trap. It is easier to see how the idea of the civil service undermining government policy has currency, though. The idea of a civil service “blob” is popular amongst conservatives; doubtless socialists who have made it as far as government office feel similarly. Passive-aggressive behaviours are common in all organisations, though, and the more radical your ideas are, the more of it you will get – as I know full well from direct experience. It is something competent managers develop techniques to manage, and less competent ones get paranoid about. But such conspiracy theories are the currency of activists and not the political mainstream.

Diane Abbott’s case is perhaps a bit more interesting. Ms Abbott is a long-standing Labour MP, elected in 1987, as the first black woman elected to parliament. While she can be a bit eccentric, she is clearly an intelligent person, and one who has suffered mountains of misogynistic and racial abuse. Her problems arose from a letter to The Observer newspaper, in response to this article by Tomiwa Owolade. It is worth getting the context of this episode right. Mr Owolade led off with this anecdote:

I was a sixth-form student and talking to a girl who told me with utter confidence that “white people can’t be victims of racism”. Racism is about power and privilege. White people have power and privilege. Black people and Asians don’t. This means that only the latter group can be victims of racism; racism is the exercise of power and privilege against people of colour.

Tomiwa Owolade, The Observer 15 April 2023

He describes how at first he accepted this point of view, but that he came to reject it: life is much more complicated than that (‘not black and white” as the title to the article has it). In evidence he discussed a recent survey of people’s experiences of racist abuse. This found that both Jews and Irish Travellers, people often defined by black people as “white”, were more likely to experience such abuse than black or Asian people. The survey even found that white Irish people suffered more racial abuse than black Africans or Asians. He also pondered the fact that in the survey most black and Asian people did not claim to have experienced racial abuse at all. Of course a survey such as this is not conclusive evidence by itself, and actual experience of abuse is only one explanation of the way people answer such questions: but it is clear that Jewish people, and especially Irish Travellers, experience a lot of abuse.

This was, apparently, too much for Ms Abbott, who clearly agreed with the girl in Mr Owolade’s anecdote, and defines Jews, Travellers and Irish as white. She has since withdrawn the letter (and apologised for its content which she described as an early draft sent by accident), and I haven’t found a version of the full text to link to. These are the sentences that have been most widely quoted:

It is true that many types of white people with points of difference, such as redheads, can experience this prejudice. But they are not all their lives subject to racism. In pre-civil rights America, Irish people, Jewish people and Travellers were not required to sit at the back of the bus. In apartheid South Africa, these groups were allowed to vote. And at the height of slavery, there were no white-seeming people manacled on the slave ships.

I hope I don’t need to point out that highly selective nature of Ms Abbott’s historical examples (Jews and Gypsies sent to death camps in Europe; British ruling classes shrugging off mass starvation during the Irish famine, and so on): her words clearly reflect common talking points amongst certain groups of political activists – and I do understand why black people in particular are reluctant to accept terms of reference set by a white-dominated establishment. But in the wider political context such ideas are incendiary – and much more politically incorrect that Mr Raab’s views on what constitutes bullying. The Labour Party is just emerging from a very damaging row about antisemitism – which the leadership of Jeremy Corbyn was accused of not doing enough to combat. Mr Corbyn’s line was different to this one though – he suggested that antisemitism was just another form of racism, and didn’t merit special treatment. But Ms Abbott’s letter suggests that antisemitism is on a par with prejudice against redheads. She was immediately suspended pending investigation. It is hard to understand how such an experienced politician allowed such a letter to go out under their name – and very hard to see how she can come back from it.

Alas a sensible debate on racism and antisemitism is impossible to have in the current political climate. Pretty much any view is going to create offence somewhere – and spark accusations of some form of racism or denial. Nuance is crushed as every scrap of evidence is mobilised to support one or other fixed view. It is clearly is a complicated issue, but no respectable politician can afford to challenge the conventional wisdom. I rarely discuss it on my blog, since the risk of my remarks being misinterpreted and misused is so high.

Still some writers, such as Mr Owolade (who writes for the New Statesman) do try to explore the nuance. Perhaps one day we can move on. At least with workplace bullying and the role of the civil service we can have a bit more of an open debate.

Only higher taxes can save the NHS. That will require serious political reform

Dr Chris Morris on the picket line. Picture: BMA

For once it is not the usual journalistic hyperbole to suggest that Britain’s National Health Service is failing. Waiting lists mount as the service is racked by strikes. With little sign of an end to these severe workforce issues, it is hard to see how the service is going to recover from the stresses placed on it by the covid pandemic. Indeed, things just seem to be getting worse. But Britain’s politicians are not being honest with the public about what is required to bring the service back to an even keel.

Just how bad are things? Workers and their union representatives have an interest in painting a bleak picture to support their pay claims; journalists suffer their normal bias towards the sensational and the bad; so it is hard to get a clear objective picture. Parts of the service appear to be operating reasonably well. Recently my household, in East Sussex, has had cause to use local primary care services, and cancer treatment. Neither service has been up to where we wanted it to be: it very hard to get a face-to-face appointment with a general practitioner, and the 8am scramble to get an appointment of any sort is both farcical and painful; there are delays of weeks in the cancer service. But neither service has fallen below the acceptable – and when you get the it, the service is excellent. We are not signing up for private services yet – though we have done this for dentistry and optometry. But there are places – such as apparently to the east in Kent – where things are more desperate. Reported waiting times for ambulances and at Accident & Emergency in hospitals are starting to alarm. The unions paint a picture of a workforce crisis – with high vacancy rates, and staff leaving the service either through burnout, or to better opportunities outside the NHS, including in Australia. Statistics back these claims up, and nobody is seriously challenging this narrative, not even the government. For that reason I largely accept it – though I suspect that in some parts the country NHS staff may be paid generously by local standards – though this is unlikely to apply to doctors, who are much more mobile.

It is the strikes that are the greatest cause for concern. High inflation comes on top of many years in which real levels of pay have been squeezed. Nurses, ambulance operatives and other more junior staff may be arm-wrestled into accepting pay that does not meet their longer term concerns. But the doctors are only getting started in their campaign, and are taking a very aggressive line indeed. There are no settlement talks. Throughout these disputes both sides seem to be talking at cross-purposes. The unions are trying to address a workforce crisis that has been building up over years; the government talks about a year of temporary hardship in order to combat inflation and meet government financial targets. This mismatch goes to the heart of the issue.

The main problem is that the NHS has an effective monopoly on employment for the key medical skills – what economists call a monopsony. This allows them to frequently get away with paying below what should be a market rate for the job. The Treasury ruthlessly exploits this market power in its annual attempt to make its budgeting work. Longer term issues are always tomorrow’s problem. The NHS as an institution is very popular with trade unions, but the dirty secret is that a privatised system would almost certainly pay its workers more, at least in most parts of the country. The government suggests that higher rates of pay can be contemplated if workers become more efficient. It’s generally not hard to find inefficiencies – but much harder to address them in such a complex environment, There is no evidence that I am aware of to suggest that the NHS is inefficient by international standards – the opposite in fact, although greater “efficiency” may be a function of low pay. Besides, efficiency gains are overwhelmed by rising demand and medical inflation. Meanwhile high staff turnover only makes the financial squeeze tighter.

But what about affordability? Here again it is very easy to get caught in a cross-purposes argument. The NHS budget is a major headache for the government, as it is almost entirely funded from taxation. But health care is a major priority for people, and given the ability to choose, people would spend a lot of money on it. More money, almost certainly that the country now pays for its health services. And since it does not require much in the way of imports, there is no good reason that the country can’t spend a lot more on the NHS, and less on nonsense and luxuries. That doesn’t help the government, as its budget does not cover nonsenses and luxuries, which are for private choice. It can only square the circle by raising taxes. To spend more without raising taxes would be inflationary, the last thing the economy needs right now. The Chancellor of the Exchequer, Jeremy Hunt, is quite right about that, though he somehow fails to explain that it wouldn’t be inflationary if he raised taxes.

What is needed is a long-term workforce strategy for the NHS, covering both pay and recruitment, showing how the country intends to sustain the workforce required. I have heard that the government is working on such a strategy, but somehow it keeps being delayed. That would not be surprising, as surely there is hole in the heart of it. The government is adamant that it wants to cut rather than raise taxes. Labour is no better. It is terrified of being painted as the party of high taxes, especially as inflation has put many people under financial pressure. It comes up with a few tax-raising gimmicks (taxing non-domiciled residents more; taxing private schools; and so on). These aren’t enough to do the necessary heavy-lifting. Besides, in order for extra spending on staff not to be inflationary it is necessary for any tax rises to reduce consumption. The sorts of tax gimmick Labour are proposing are more likely to affect the savings rates of the wealthy, and not have much impact on domestic consumption; it would help public debt, which is just a statistic, but do little for inflation. Other opposition parties (the Lib Dems, the Greens, the SNP, etc.) are no more convincing.

What happens if the NHS is not given more funding? People will spend more on private health care. This would create a doom loop, as the private sector competes with the NHS for staff, making its workforce problems and waiting lists worse. This is what has happened to dentistry. And a growing a private sector creates a whole variety of inequities and inefficiencies, with the system as it now is.

There are perhaps three ways that the circle might be squared, and the pressure on taxes reduced: economic growth, reducing demand, and private/public integration. Economic growth is, of course, every politician’s favourite answer. Readers of this blog will know that I am growth sceptic – the demographics and deeper economic dynamics are against it. Still, Britain has some particular issues that might allow the country to be more economically efficient: more affordable housing; trade integration with the European Union; looser immigration rules. For various reasons these are all politically unacceptable. Liz Truss has shown how politically unpopular a growth agenda can be – though her biggest ideas about achieving this (tax cuts, for example) were laughable. Meanwhile deteriorating health is acting as a brake on growth – though it is hard to tell how much the NHS workforce problems are part of this.

Could we reduce stress on the NHS by moving to healthier lifestyles? Reducing consumption of processed foods; healthier relationships with drugs and alcohol; better approaches to mental health? Good luck with that.

My third suggestion is more integration between the NHS and private care. That would mean things like hospitals accepting “co-payments” – supplementary payments for higher standards of care or non-essential treatments. But that would undermine the egalitarian ethos of the NHS, which is again considered politically toxic.

So every way of tackling the NHS crisis hits a political roadblock. It is at this point that I could suggest that this is not the fault of our politicians, but the public itself. It refuses to confront the tough choices required. But that isn’t fair on the public. Many suspect that tax rises are on the way – and there is widespread sympathy for NHS staff. But our political system forces politicians to concentrate on narrow groups of marginal voters, who dictate the political weather. All parties have concluded from this that it is suicidal to have an honest debate on tax and the NHS. No party can, say, try to make a case for higher taxes, which convinces, say, 25% of the electorate to create a substantial block in parliament, which would in turn force other parties to deal with it to form a government.

Instead our politicians throw insults at each other in the hope of influencing a minority of voters in a minority of parliamentary seats. And there is no momentum for serious reform.

The moral high ground is not good politics

An earlier example of low political advertising from the 2016 referendum campaign (c) Vote Leave

Labour’s national campaign HQ must be beside themselves with glee. They put out an online advert claiming that the prime minister, Rishi Sunak, wants sex offenders to roam free rather than spend time in prison. This dominated the news agenda over the whole four-day bank holiday weekend, with the party leader, Sir Keir Starmer doubling down with an article in the Daily Mail on Monday. Many (probably most) of their party’s loyal supporters were unimpressed with this descent into gutter politics. The Guardian‘s Marina Hyde was vicious in her criticism. But that only served to stir the pot some more. This has all the hallmarks of an orchestrated campaign, and in its own terms it was an outstanding success.

I’m not repeating the ad here, as it has benefited enough from extra exposure by critics and neutrals. Instead I give an earlier example of this type of campaign advertising – this time from Vote Leave in the 2016 referendum campaign. Turkey was, and still is, a candidate country to join the European Union, so Vote Leave could claim some tangential factual accuracy. But there was no actual prospect of its application succeeding, and Britain could have vetoed its accession anyway (though, to be fair, the British government wasn’t inclined to, unlike the government of France and several others). But the ad played to fears of a new wave of immigrants under the EU’s freedom of movement rules – and olive-skinned Muslims at that. The Labour ad’s facts are just as tangential, and it is even more fundamentally untrue. But the Vote Leave ad was regarded as a big success, for all the furore (in fact partly because of it), and so the political professionals seek to emulate it. These professionals have Sir Keir’s ear and they are doubtless very pleased with themselves.

The aim of the ad isn’t to persuade people that Mr Sunak actually thinks that child sex offenders shouldn’t go to prison, or even to persuade people that Labour would be much different. It is to neutralise Conservative attempts to paint Labour as soft on crime. It draws attention to the government’s generally dismal record on public services, which certainly includes the police and the courts, to point out that Tory claims on law and order don’t add up to much. If readers cynically shrug and say “They’re all the same”, then the ad will have done its work. Complaints by liberal types only go to show that the Labour leadership is made of different stuff. Indeed to be complained about by Guardian readers is a badge of honour that the leadership of both main parties seek as free and welcome publicity. This is utterly depressing for people on the left of politics.

Some are suggesting that this tack by Labour might backfire, though. The New Statesman reports one Labour adviser as saying “…it won’t work because we won’t win from the gutter – our biggest problem is not failing to attack Rishi, it’s lacking a positive alternative vision – and because dredging up past records won’t end well for Keir. The Tories will go to town with his DPP record.” But that is to misunderstand the strategy. Labour is defending a very healthy poll lead; all it needs to do is prevent the Tories from changing people’s minds, and either staying at home or voting for Labour as the lesser evil. The party will doubtless throw in abundant positive stuff about green growth and so on later in the campaign. But for now they are more worried about Tory negative campaigning and feel that the best way of neutralising this is in negative campaigns of their own. The Tories are going to go to town on Sir Keir’s record as Director of Public Prosecutions anyway.

Another worry for some is that Labour ranks are divided about these tactics, right up to shadow cabinet level. Yvette Cooper, the Shadow Home Secretary, is being briefed against, and is keeping her head down. Instead Labour fielded Emily Thornberry, the shadow attorney general, for media interviews as she evidently wants Ms Cooper’s job. I’m not sure this matters too much if Sir Keir is clearly in charge. Ms Cooper will go quietly out of loyalty – a pity because she probably has more of the sort of administrative competence that Labour will need badly once in power.

And, of course, Labour have no convincing solution to Britain’s law and order crisis without promising more public spending, which they won’t do for fear of Tory attacks on tax rises. Ms Thornberry collapsed spectacularly when pressed on this by her BBC interviewer on the World at One radio programme on Monday; “We’re optimists,” was the best she could do. No marks to the BBC for tamely following Labour’s manipulation of the news agenda, but full marks for its challenging Ms Thornberry robustly. But Labour seem to have got away with it.

Taking the moral high ground is not a successful political strategy. Nothing attracts sneering political and media criticism more. The Lib Dem leader Nick Clegg tried it in the 2010 general election; it generated a brief spurt of popularity, but ultimately turned him into the most hated person in British politics. Jeremy Corbyn, Sir Keir’s predecessor as Labour leader also tried it. This brought him some success in the 2017 general election, against Theresa May, a slightly more scrupulous Conservative leader. But against the entirely unscrupulous Boris Johnson Mr Cornbyn fared hardly better than Mr Clegg. Sir Keir seems to have flirted with the high ground (as Ms Hyde pointed out in her Guardian article), but has wisely decided against it.

It is possible to overdo the negative. The Conservatives are widely thought to have done this with their attacks on Tony Blair in 1997, though these were particularly inept. But this seems hard to do. Britain’s electoral system makes this worse: it encourages a focus on small groups of swing voters, where persuading the other side’s supporters to stay at home is part of the game. Loyal supporters provide campaigners and foot soldiers, but are ignored otherwise. Labour’s grassroots are repeatedly being trodden underfoot by their leadership, and may be unwilling to put much effort into the political ground campaign. Doubtless Labour’s strategists feel they are dispensable – and that enough of them will seek the tribal reward for beating the Tories (and Lib Dems) to do what is needed.

Are we condemned to this sort of politics forever? The public may hate high-minded politicians even more than the regular low-life, but they don’t like politicians generally. If Labour flounders in government, this could generate a backlash against politics generally. If this could be channelled into political reform (with the country’s flirtation with populism evidently exhausted by the Brexit saga), and electoral reform in particular, this might lead somewhere. This did happen in New Zealand in the 1990s. But I wouldn’t bet on it.

Seeing through the hype and reality of artificial intelligence

The 1968 movie foresaw threatening general AI in 2001

Last week a group called the “Future of Life Institute” published an open letter urging governments to pause research on artificial intelligence so that a new worldwide regulatory framework can be agreed to prevent the technology taking a highly destructive route. There are quite a few distinguished signatories, of whom the most commented upon is the technology entrepreneur Elon Musk. On the same day the British government published a paper on AI strategy suggesting a minimum of regulation in order for this country to gain a technical edge. The first development bespeaks fear and panic amongst intellectuals, and the second the political reality of countries wanting to win the race. Is the world going to hell in a handcart?

The text of the letter is here. The core of it is this series of fears:

Contemporary AI systems are now becoming human-competitive at general tasks, and we must ask ourselves: Should we let machines flood our information channels with propaganda and untruth? Should we automate away all the jobs, including the fulfilling ones? Should we develop nonhuman minds that might eventually outnumber, outsmart, obsolete and replace us? Should we risk loss of control of our civilization? 

from “Pause Giant AI Experiments: an Open Letter” – Future of Life Institute

Now let’s take a deep breath. AI is important and will have a profound effect on human life. recent progress has been dramatic, and its most recent capabilities have astonished. But its impact is not necessarily benign, and there are some serious risks attached to its development. But to describe current AI capabilities as a “mind” and to suggest that it is on the road to replacing humanity in general understanding, judgement and control is to misunderstand what it is – it is classic anthropomorphism of the sort that imagines your cat to be a scheming villain. If you want to unpack this a little, a good place to go is this blog piece by Melanie Mitchell an AI academic. The interesting question is why so many intelligent people are being let astray by the hype.

For a long time, people have dreamed of building intelligence that can replicate the autonomy, command and ability to learn new tasks in such a way that any human rôle can be replaced by it. This is referred to as “general AI”. Once you leave behind the understanding that humans, and indeed animals, are animated by some form of supernatural spirit, you are left with the logical possibility of humans building something lifelike in all its capabilities. It’s just atoms and molecules after all. And of course, if we can do that, then we can make robots stronger and better than the original because we can engineer it that way. This has particularly appealed to the military, who can develop robot-powered weapon systems to replace frail soldiers, sailors and airmen, and doubtless spacemen too. And such is the confidence of modern humans, that it is widely assumed that doing so is not so hard. During the Cold War both America and the Soviet Union worried that their opponents were close to developing just such a capability, doubtless promoted by people in search of funding. Such is the grasp of military “intelligence”.

And people continue to believe that such an ability is just around the corner. In their film and novel 2001, a Space Odyssey, published in the 1960s the author Arthur C Clarke and fim-maker Stanley Kubrick speculated that out-of-control general AI would be developed by 2001. In the 2010s it was widely assumed that self-driving cars would be on the road by the early 2020s. But in 2023, instead of mounting excitement about its imminent rollout, there a silence. And now generative AI, which can manufacture very human-sounding bullshit from minimal instructions, is sparking this panic. Each wave of AI generates astonishing advances, and then seems to stop at the bits its promoters assumed were mere details. Researchers and technologists have a strong incentive to hype their latest achievements, and one of the most effective ways of doing this is to claim that you are close to bridging the gap to general AI. The people with the money often have little idea of what is or is not technically possible – not that the developers often have much idea themselves – and investing in the first successful general AI project sounds like a good deal. Just how hard can it be, after all? General AI occurs naturally.

Behind this lies a striking failure to understand what humans are. It is assumed that humans are naturally-occurring robots – machines created by an intelligence to fulfil particular tasks. Back in the days when I followed evangelical Christians there was a popular idea called “intelligent design”. This posited that the world, and animals and people in particular, were far too clever and complicated to have been created by dumb processes like natural selection, so they must have been designed by an intelligence – God. It seems that most people instinctively believe this, even if they disregard the divine revelation of the Abrahamic religions. We create god in our own image. Evolution is often described as if it were an intelligent process; DNA is described as a blueprint; and so on. Man has created God in his own image, and assumed he (well, maybe she) would create things in the way that men would. But the most important thing to understand about humans and the world is that there is no intelligent creator; there is no thread of intent; no design. It just happened. Over a very long time. It follows that trying to reproduce human intelligence through a process of intelligent design is going to be at best slow and frustrating, and at worst not feasible. Indeed a lot of breakthroughs in AI design, such as neural networks, are based on the idea that the thing should build itself, rather than be designed. But that has limits. Development is not going to be an orderly progression of achievements.

And indeed, each phase of AI development comes with inherent limitations. Generative AI, the current craze, requires massive computer processing power, and a huge database of knowledge in digital form. It is easy to see how this might be useful; harder to see how it leads to general AI. The battle over modern AI seems to revolve around training data and computer firepower. One of China’s advantages is that it has access to cheap labour to produce training databases. There is a paradox there. The idea is that in due course that the robots will find and produce their own training data – but problems abound. Indeed for AI to be useful (including self-driving cars) I think it will be necessary to simplify the the world so that it can be represented more accurately in training data. But that makes it of limited use in the wild.

And so the hype cycle goes on. At each turn we will be distracted by the prospect of general AI rather than tackle the more important issues that each iteration throws up. In the case of generative AI it is how to deal with the misinformation and prejudice lurking in the training data, that the technology won’t be able to recognise – when its “reasoning” is so opaque that it can be hard to spot what is causing the problem.

And what of the British government’s AI strategy? I haven’t read it so I can’t comment with authority. Generally I am suspicious of politicians jumping on bandwagons – and any call to invest in this or that technology because otherwise we will be left behind in the global race is suspect. Economic advantage usually accrues either from developing things in areas where people are not already heavily invested, or from copycatting after somebody else has done the difficult bits. But in seeking to develop a light-touch regulatory advantage while the European Union and the US are tangled in moral panic, and China over fears of loss of party control, it might be onto something – though it is hard to see that the US will in the end be weighed down by over-regulation. On the other hand the US and China have advantages in access to finance, computing power, and data – while the multilingualism of the EU perhaps offers an advantage to them. Britain may simply become a base for developing intellectual property owns by others.

Anyway, a it is hard to see what a six-month pause could possibly achieve. Humanity may reach general AI in due course. But not for a while yet.

Tax and immigration will be the key issues between Labour and the Conservatives

Graphic: Statista.com

After Jeremy Corbyn, Boris Johnson and Liz Truss, and the post-2017 version of Theresa May, most Britons have been yearning for a time when their main party leaders were ordinary competent politicians. But now Sir Keir Starmer has taken over the Labour Party and Rishi Sunak the Tories, that day has come. Both men had less political experience than their leadership positions normally warrant, and accordingly had uncertain starts, but now both are now hitting their stride. It promises to be a fascinating, if unedifying, contest, at least for those who follow politics as a spectator sport without worrying too much for the consequences for the country.

Sir Keir matured first. Indeed earlier this year he decided that he had to hammer Mr Sunak’s apparent weakness as hard as he could. I was uncomfortable with this: it didn’t matter to Sir Keir whether the attacks were well grounded or not – he ruthlessly went for the man rather than the policy. It seems unpatriotic to keep undermining your country’s prime minister just for the hell of it. But that’s politics – Mr Sunak would not hesitate to do the same if the roles were reversed.

Mr Sunak has survived this, and it is Sir Kier who has lost momentum as a result. The turning point came with his renegotiation of the Northern Ireland Protocol that had been spoiling relations with the European Union. This was a thoroughly competent piece of statecraft that moved things along. Few doubted that this deal was the best that Britain could get – and opponents seemed to be the sort that did not really want resolution at all. Better still, Mr Sunak was successful in selling this to his own party. Only 22 MPs voted against it in parliament – with many formerly troublesome Eurosceptics lining up behind Mr Sunak. That both Mr Johnson and Ms Truss were amongst those 22 underlined just how little threat his predecessors now pose. The deal has not convinced the Democratic Unionist Party to rejoin the Stormont government – but most observers thought that nothing was going to pass that test that would not cause even bigger problems in the province. In UK terms the DUP is very isolated.

That’s a good start. Mr Sunak had earlier set out five priority areas for his administration: inflation, NHS waiting lists, growth, national debt and “small boats” – the influx of illegal migrants across the Channel. It was widely assumed that his specific pledges on these issues were designed to be easy to pass – but with the economy poised on an awkward knife-edge, this should not be assumed. He needs to do two things if he is to a reasonable chance of winning the next general election, widely assumed to be in the autumn of 2024. The first is to win back the Brexit-voting, conservative working class and lower middle class voters that flocked to the party in 2019 – many of these are telling pollsters that they will abstain or vote for a protest party such as Reform UK. To these he needs to show that he is true to the Brexit vision, and especially on immigration; these voters, who tend to be older and retired, may be not so sensitive to the economy, but they are sensitive to the NHS and crime. The second thing is to win back or win over Labour- and Liberal Democrats-inclined floating voters with a less conservative political outlook, who generally voted Remain, but who were put off by Labour under Mr Corbyn. For these voters a display of competence is critical.

Sir Keir Starmer starts ahead, with substantial poll leads, following the Johnson and Truss fiascos. He may also have had a stroke of luck in Scotland. Scottish seats used to be critical to Labour’s success, but the party was wiped out there by the SNP in 2015, and then they struggled against resurgent Conservatives. But now the SNP seems to be imploding after Nicola Sturgeon’s resignation as leader. To watchers from south of the border this episode has all the hallmarks of a bloodletting and collapse after a long period of imposed stability – all Britain’s main parties experience this from time to time. Things are always a bit different in Scotland. Pro-independence voters don’t have many convincing alternatives – Alba and the Greens each have issues of their own. But the case for independence will have taken a temporary knock, and Labour is prevailing over the Conservatives in the anti-independence camp, with a stronger appeal to independence-waverers. A resurgence by Labour there would be doubly good news for Sir Keir. It makes winning an overall majority in the UK much easier for him, and it reduces the risk of the SNP holding the balance of power in a hung parliament – which would be a nightmare outcome, and a prospect that might scare the voters too. But for all this lead, Sir Keir knows that a lot can go wrong, and that the electoral system is in many ways tilted against him.

A lot of how the battle will play out is obvious. Labour will attack the government for incompetence on just about any issue that comes up, regardless of how justified the complaint may be. The Conservatives try to divert the blame onto world events and cast doubts on Labour as being soft lefties. Most of this be just noise to voters and unlikely to change minds. Beyond this I think there are two issues where voters’ are more open, and which could cause a shift in balance between the parties: tax and immigration.

Tax-and-spend arguments are as close as we’ll get to a debate over economic strategy. We will not get any kind of sensible discussion of economics, of course – even though there is an interesting debate to be had between the parties. Labour’s approach tends to focus on macro-economic policy. The priorities for them are ensuring that aggregate demand is sufficient to ensure low unemployment and decent bargaining conditions for workers, and getting decent headline figures for investment. The Tories rather focus on microeconomics – the idea that prosperity must be based on the efficiency of businesses and public agencies and how hard we work – where the question of incentives and competition loom large. Instead of that, the Conservatives will accuse Labour of wanting to dramatically increase public spending, leading to higher taxes and a less productive economy. They remember fondly John Major’s success with the “Tax Bombshell” campaign in the last week or so of the 1992 general election, when fortunes suddenly turned in their favour. The problem for Labour is that almost all public services are crying out for more spending, and it is very hard not to criticise the government without suggesting a substantial increase. Which leads to the question how you pay for it. This question is dealt with as if a nation’s budget operated like a household one, which is far from how it actually works. But it is too hard to try to explain that extra public spending might simply lead to better use of the economy’s resources and higher wages, and not necessarily to higher taxes. This argument is in any case a lot shakier when inflation is taking hold, as it is now.

The obvious answer is for Labour to try and sell the idea of higher taxes in order to have more effective public services at a time when the ratio of working people is falling. The tax burden may be at a historical high as a proportion of national income, but it is still moderate by European standards. There is even polling evidence that this has majority support. But Labour still carry the scars from 1992 (and indeed 2019) when the Conservatives successfully scared many floating voters with the prospect of higher taxes. Instead they want to follow Tony Blair’s and Gordon Brown’s strategy of 1997 of promising to hold back taxes and spending – and then increase both after the second term, when people are more used to the idea of a Labour government. Meanwhile they will try to dream up a number of painless taxes on other people to pay for selected areas of higher spending – non-doms, oil companies and so on. Against this the Conservatives will try to promise that better public services can come without higher taxes; since many voters are under financial stress, they will not relish the prospect of higher taxs. The arguments of both parties are unconvincing, and it is hard to see which way the public mood will swing.

Neither party is convincing on immigration either. There is panic over the number of people trying to cross the Channel in small boats, and then claiming asylum. Actually this is a real enough problem: overall numbers may be modest by the standards of international refugee flows, but it is placing public resources under pressure, and and it is a bit of a slam-dunk for organised crime. Immigration is not a top issue for voters according to opinion polls in the way it has been in the past. But both parties know that with the chaotic situation in the Channel, it can be pushed up the agenda easily enough. Housing the refugees (and others) while their claims are processed is creating stresses right across the country. Mr Sunak knows that he needs to do two things. To motivate conservative working class voters (and a lot of conservative middle class ones come to that), he needs to promote a tough line that will be hard for Labour to follow. The second thing is that he needs to make a substantial dent in the numbers making the crossing – to demonstrate competence, and woo back more liberal floating voters, as well as convincing those conservative voter that he isn’t just grandstanding. The first of these things is going well enough. The Home Secretary makes a good hate figure for liberal types, who make all the noise that Mr Sunak needs to demonstrate his toughness. But few understand how he is going to achieve much in the way of actual results, though. The much vaunted scheme to deport migrants to Rwanda does not look remotely adequate to deal with the sort of flows that we are seeing, even after the government has bulldozed the legal objections.

The Tories can sense Labour weakness here. Sir Keir has one sensible idea – to make legal routes for refugees more accessible, and the processing quicker, and so reduce demand and the numbers having to be put up in temporary accommodation. This means increasing legal flows of refugees, which will annoy many – but it does tackle the disorderly aspect of the current situation, which is what is most dangerous. But it is a stretch to think that this will stop the flow of channel boats by itself. The incentives for people traffickers remain strong. The only thing that might work there is rapid return of the migrants to France or elsewhere in Europe. But why would the Europeans agree to that? Only a substantial change to legal routes for refugees might possibly unlock that. that would be too brave.

It is hard to discern public attitudes to immigration post Brexit. There are two competing visions. The first is the Japanese one: that any immigration disturbs the cultural identity of the country and undermines social cohesion – as well as placing stress on housing and public services. So numbers of immigrants should be kept low, and definitely reduced. Or there is the Canadian/Australian vision, which accepts the desirability of substantial flows of immigrants, including refugees (at least in the case of the Canadians) – but wants the flow to be orderly – and abhors the idea of queue-jumping by unregulated arrivals. The small boats are abhorrent to both – but there any agreement ends. Both visions seem to have substantial support, and it is hard to see which way the zeitgeist will go. Labour seem to be more clearly pitching for the Australian/Canadian position, which is popular amongst the immigrant communities themselves – while the Conservatives are trying to play both visions at once. And as with tax, it is hard to see which side will end up on top.

There is a third issue which has the potential to sway voters: the environment. This covers not just the mission to reduce carbon emissions, but also threats to the countryside through habitat loss and pollution (and especially sewage overflows). The government is under attack for competence, as well as its heart not really being in it. But Mr Sunak has left it out of his five key targets – so presumably his party’s polling shows that this is not a critical issue. Labour are making a lot of the idea of green growth – but this may be more to motivate their core supporters than to win points over the opposition.

It will be an interesting contest. My guess is that sir Keir will prevail decisively. Whenever I try to write “Sunak” my computer changes it to “sunk”; I think he is, such is the low regard his party is held in by the voters..

Banking crisis: are we in 2008 again?

The US Federal Reserve.
Picture: By AgnosticPreachersKid – Own work, CC BY-SA 3.0, https://commons.wikimedia.org/w/index.php?curid=6282818

The more people pop up to say that the situation in financial markets is not like 2008, when the Great Financial Crisis got going, the more we will worry. But while a crisis like that of 2008-10 looks unlikely, a prolonged period of wealth-destruction is in prospect.

The current bout of nerves comes from the collapse of two mid-sized American banks, and from a globally big one: Credit Suisse. Technically Credit Suisse hasn’t gone bust – it was taken over by Swiss rival UBS. But shareholders were bought out very cheaply, and some bondholders were wiped out in a move that has raised a lot of eyebrows. This follows a period of tightening monetary policy, responding to a period of inflation – after a prolonged boom based on very low interest rates. There are many parallels here with 2008. But the differences are striking too.

It’s worth taking a deep breath, stepping back, and trying to get a broad view of what is happening. At issue is the financial system – the world of money, rather than the “real” world of things and services – though there is quite an element of the real directly tied up in finance, which is a substantial employer in many economies. Money is a means to an end, and not an end in itself – in principle anyway. Because of this, economists, especially the macro sort, tend to ignore it, or treat it in a very cursory way with very basic models for money supply. And yet money is essential to the modern way of life; we can do little without it. If the financial system seizes up, disaster strikes. The episode that looms most over economists is the Great Depression of the 1930s, when some little local difficulties within the financial system were allowed to explode, causing mass unemployment. In a depression, lots of people want to work, but can’t; and lots of people want to buy goods and services that employ people, and can’t either. It is a colossal social waste – and one that in the 1930s fed into racism, fascism and ultimately war and genocide. The financial system matters.

At the centre of the financial system are banks. In the days of Henry VIII the monetary system was controlled completely by the state, which had a monopoly on minting coins – and the state has always played a central role in the financial system. But these days money means bank accounts – the role of notes and coins is negligible. Because of their critical role, banks are heavily regulated, with a central bank, accountable to the state, playing a keystone role. Banks provide access to money, but what do they do with it? They can just park the money with the central bank, but they will make no profits that way. So they find various ways of lending it out – further, they may create money through their lending. They make loans directly to members of the public and businesses and to governments, sometimes on a short-term basis, sometimes for terms of many years. This creates a source of instability – if the the public withdraw their deposits, the banks may not be able to liquidate their loans fast enough to give them their money back. But this “maturity transformation” is generally profitable, and it is at the heart of a healthy economy, which allows resources owned by people that have too much to be used by those that have too little.

So far, so good. This is as far as classical economists got. Interest rates are set by a process of supply and demand between lenders and borrowers, spiced up by credit risk. More modern economists then added in a role for government/central bank intervention – monetary policy. By one means or another the government could tighten or loosen monetary conditions, mainly through setting interest rates, or through “quantitative easing” (QE) – the creation of money by the central bank buying bonds through its reserves. In many accounts monetary policy brings back the idea that the government/central bank controls money like Henry VIII and the Royal Mint. The process of QE is often referred to as “printing money”. This conjures up a happy picture of a world of governments, consumers and businesses buying things with banknotes, with banks making loans to cover investments in houses or industrial machinery, or to smooth ordinary cashflow fluctuations of businesses and the public. It is at least easy to visualise this world, but, alas, too many people who should know better seem to get stuck in it.

The trouble is that we don’t use banknotes any more. And banks lend to a range of financial intermediaries rather than to “real” people and businesses; businesses and governments don’t borrow directly from banks but via these intermediaries, often through tradable instruments – “securities”. This creates the modern financial system, and instead of being a simple machine for the transmission of funds from “real” lenders to “real” borrowers it becomes a merry-go-round of speculation fuelled by the chance to make money from trading securities. Money becomes an end in itself, rather than mere lubricant. One spectacular example of this are fans of cryptocurrencies such as Bitcoin, touted as alternatives to “fiat money” created by central banks. They meet scepticism with the rejoinder “Have fun staying poor”. The point for them is to make money as intermediaries, not facilitate financial transactions. The money merry-go-round becomes a complex frenzy when monetary conditions are loose – when banks have more deposits than they know what to do with, either because there is a lack of serious lending opportunities, or because of “liquidity risk” – the risk that depositors will suddenly withdraw their deposits. At this point banks seek out opportunities for short-term speculations based on securities or short-term loans to financial intermediaries.

This was the situation in the run-up to 2008. Monetary conditions had been very loose. The narrative on why this was so varies. Many of a libertarian bent blame irresponsible monetary policy by the developed world central banks trying to fight deflation while asset prices were in a bubble. This was through low interest rates – only in Japan was there serious QE. Others point to the entry of China into the world trading and financial system with its huge excess saving. It brought in vast quantities of funds from its exports, and only used a proportion of these to buy imports, depositing a surplus of money in developed country financial markets. An oil price spike added to this with oil producers generating a similar financial surplus. Banks then had the headache (though mostly they thought of it as an opportunity rather than a problem) of where to put this surplus money and how to make a profit. Quite a lot of money went into sub-prime lending in the US property market. German banks, and others, happily lent money to the Greek government, which had entered the Euro and was fiddling its financial statistics. There was a frenzy of securitisation as banks sought to evade their regulatory straitjackets. It was like picking up pennies from in front of a steamroller. One thing I find striking from reading up my observations at the time was how much “risk management” featured in the jargon of bank professionals. They gave the impression that they had sophisticated risk models which meant that the massive profits they were making were simply the result of increased global productivity from the more efficient use of resources. There are still commentators that look back at the statistics of the mid-noughties and ask why productivity growth has slowed since then – insert pet theory here. It was a work of fiction – the trend in lost productivity growth in the developed world goes way back to way before the financial crash. Massive amounts were being lent off bank balance sheets supposedly to long-term investors like insurance companies. In fact the money was going round in circles amongst thinly capitalised intermediaries which often came back to haunt the banks themselves.

It couldn’t go on forever. Central banks increasingly felt they had to do something about loose financial conditions, especially as that oil price spike was causing headline inflation. In early 2007 the US sub-prime market started to show strain. Then in August 2007 the financial system broke when the interbank market – banks lending to each other to manage daily fluctuations – froze over. The complexity of financial securities meant that nobody knew who owed what to whom. I wrote this in September:

The ship has hit a reef below the waterline.  There isn’t much visible sign at first; the ship slows down; it has a slight list, perhaps.  But the crew looks worried even as the captain voices reassuring words to the passengers.  Will the watertight compartments limit the damage until the ship makes it to port for repairs?

The ship limped on for more than a year, as market professionals and commentators went through the process of denial and then attempted to negotiate with their fate. And then the collapse of Lehman Brothers in October 2008 created a free fall. If governments had not indulged in massive bailouts of the system, the 1930s might have been repeated with institutions essential to our way of life going down. Alas that meant many undeserving people made out like bandits. The crisis kept going for two or more years, with the drama moving to the Eurozone in 2009.

So how do things compare in 2023? We are similarly in a period of monetary tightening following period of very loose policy, this time featuring the heavy use of QE in every major developed country market. Things were loose before the Covid pandemic struck in 2020, but this stayed the hands of central bankers, and unleashed a flood of fiscal intervention by the government to offset the effects of lockdowns as well as the direct impact of the disease. And then Russia started a war with Ukraine which completely disrupted the markets for oil and natural gas, forcing yet more fiscal interventions. This loose policy similarly unleashed a riot of financial speculation. But it is different this time. Banks are better regulated, though regulation of mid-sized banks in the US is still too light. There seems to be a lot less off-balance sheet lending. Paradoxically it is good thing that banks don’t tout sophisticated risk management these days – in 2007 this was justification of excessive risk. But inflation is much higher, and nominal interest rates have gone up much more, with big losses on government (and other) bonds that was not evident in 2007-08. This played a critical role in the demise of Silicon Valley Bank. Others presumably have similar exposures. There may be no substantial sub-prime market in the US, but many are worried about US commercial property lending.

And then there is the madness of cryptocurrency. I have not written much on this craze of the last few years. It is such deep, multi-layered nonsense that I couldn’t bring myself to take it seriously enough to write about it. The problem is that more respectable institutions started to take the phenomenon seriously and lent money to facilitate speculation. One of the biggest blots against current British prime minister and former Chancellor Rishi Sunak is that he wanted to make Britain a crypto hub. This is going predictably badly – an idea billed as an escape from the the tyranny of fiat money turns out to be even more dependant on fiat than fiat money itself. I understand that it contributed to both US bank collapses.

But the biggest difference between now and 2008 is that in 2023 we are in the shadow of the Great Financial Crisis, which remains in recent memory to those in charge. This is evident in the extraordinary level of intervention by the US Federal Reserve, in effect guaranteeing all bank deposits, even those outside the scope of deposit insurance. This has prevented such spectacular events as the freezing of the interbank market which led to my holed below the waterline image. A more apt image is the one conjured up by FT columnist Megan Greene: Schrödinger’s cat. We don’t know whether the system is stable or not – so it is both at once.

The striking thing is that with each crisis in the financial system the power of the central banks seems to grow. At the start of the 20th century the Americans didn’t even think they needed a central bank. Now the west seems to be converging with communist China in the use of both formal and informal state power. But power does not necessarily mean control, and the Federal Reserve especially is confronted with a series of very difficult choices. Inflation remains rampant but the banking system is fragile.

As I reflect on this the more it seems to me that the modern banking system is not fit for purpose. Steadily essential parts of the system are being nationalised. We are slowly moving to a system whereby deposits are in effect placed with the central bank – something which is happening rather rapidly in the US as the Federal Reserve gives support to money market funds. How, then, do banks fund loans? This is a role that central banks are ill-equipped to perform and should not be nationalised beyond a few specialist agencies. I guess they will need to provide longer term investment products – but the transition is bound to create casualties – and destabilise the banking system.

For now though we must expect this period of wealth-destruction to continue. Bank deposits may be safe, but inflation is eating their value away, as the prospect of positive real interests diminishes. Bond markets are undermined by the cessation and reversal of QE. Share markets need a growing economy. A weakened financial system will undermine property prices. And yet unemployment is low, minimum wages are in place and there are strong social safety nets. It is, surely, the wealthy that are being squeezed. That is not a bad thing.

Guest post: AUKUS – more than just submarines

US Virginia class nuclear submarine.
Picture: By U.S. Navy photo by General Dynamics Electric Boat – This image was released by the United States Navy with the ID 040730-N-1234E-002 (next). https://commons.wikimedia.org/w/index.php?curid=8224242

By Cllr Noel Hadjimichael

More than 100 years ago, Liberals were often the party challenging military spending, security and defence of the realm. We took Britain into the First World War in defence of an invaded Belgium and served in the 1940s Churchill Government. We got defence and voters knew it.

In the Cold War, we were champions of pluralism, liberty, decolonisation and western values. This was in opposition to USSR state centralism so loved by many current day dictators. We were, and remain, realists: radical but responsible.

This week’s announcement on a tripartite (Australian, American and British) submarine deal is not the subject of this blog. However, the framework, context and geopolitics behind the announcement is. Progressives, social democrats and liberals should take notice. 

What has made three of the Five Eyes [also including Canada and New Zealand] turn so purposefully and publicly in this direction? The answer: defence science, capacity building, capital investment and operational structures. Realigned, tweaked and reinforced for today’s threats.

It is more than just the behaviour of Russia, China or Iran. It is a breakdown of the liberal world order that has positioned Britain poorly in this post Brexit era. There is a new global security setting that was unleashed by the pandemic: rogue states undermining democracy, leading to peer to peer warfare. 

Neither the Conservatives nor Labour have a monopoly on patriotism. Serving personnel and their families (as well as veterans) are a sizeable demographic in many constituencies. Not just the South West shires, Norfolk, the Midlands or natural cities like Portsmouth. In every region of the United Kingdom, there is an increase in voter concern about our security (food, logistics, technology or military). 

The war in Ukraine has heightened our focus. But so has the poisoning in Salisbury and the cyber attacks on our critical infrastructure. 

The AUKUS framework is a long term and strategic pressure point to revisit our defence stance. We should ask ourselves: how do we protect our people, communities and institutions? 

We don’t do borders well. Just ask the Government about its frustrating failures on Ireland or the Channel. 

We don’t have the luxury of being the dominant global leader. But we still rank highly in critical capabilities: soft power, science and technology. 

Our people are universally respected for professionalism, training and creativity. They deserve our resolve to get the politics correct.

Our new aircraft carriers have effective and demonstrable reach to the western hemisphere, the Straits of Hormuz, the Asia Pacific and beyond. Our airpower is critical to NATO and the European friends and allies many of us yearn to be closer to. Our Army is still seen as having the punch needed in the field. It has also offered Ukraine best in class training. We count. We matter in this space.

Understanding the new challenges and being the adults in the room come naturally to LibDems. We think, talk and debate. 

We also often come down on the side of evidence, experts and the engaged voter. 

Conference at York this weekend will deal with the nuclear deterrent. A sensible and suitable proposal. Those serving deserve our thanks and gratitude for their commitment. We as active party members must also play our part. We should reassure millions of LibDem voters that we understand the current global landscape.

As it is. Not as we may want it to be. 

AUKUS is part of that landscape, as is an effective and continuous at sea deterrent. 

Question it, challenge it but don’t ignore it. It is the same with our Conference. A liberal Britain is worth defending.

More on this can be found on nlcdefence.org.uk

Noel is Chair of the Defence & Security Circe of the National Liberal Club London. He is also a Liberal Democrat councillor on the London Borough of Kingston-upon-Thames