Politics UK – Page 29 – thinking liberal

The economy is for Labour what tuition fees is for the Lib Dems

If there is something that unites British Labour Party people, from rightist Blairites, to Brownites, through to the leftist Corbynistas, it is that the Labour government of 1997 to 2010 should not be held responsible for the financial crash of 2008/09, and the terrible state of government finances that followed. They are made indignant by Conservatives (and Liberal Democrats) who go on about how Labour is to blame for the financial mess the government left the country in in 2010, when the budget deficit had ballooned to over 10% of GDP. But the public finds the Tory line more convincing. And if Labour are to throw off this albatross, it will have to move on from its air of injured innocence.

There are two dimensions to this question. The first is a question of fact, or purports to be: how much responsibility did the Labour government actually have for what went wrong in the economy? The second is what is going on in people’s heads when they think of Labour and the economy, and how the party might address it.

On the first question, Labour have quite a few sympathisers outside the party. And certainly the direct line of attack made by Tories is not all it seems. The Tory narrative is that Labour went on a spending splurge in the boom years, which then proved completely unsustainable, leaving their successors choice but to implement austerity policies. Defenders of Labour’s record point out that there was no big government deficit before the crash. It was a relatively modest 2.5% or so in 2006 and 2007, and not regarded as irresponsible at the time. Nobody foresaw the financial turmoil, which originated in American sub-prime mortgage markets.

The Labour defence against this charge is mostly true. But not quite. Gordon Brown, as Chancellor (he became Prime Minister in 2008), claimed to operate government expenditure on a “golden rule” which meant no net borrowing over the economic cycle. But he had taken to moving the goalposts rather than applying the rule strictly. Had he followed his own rules as originally intended, there may not have been a deficit as the economy turned in 2007. But that only accounts for 2% of the problem. There was another 5% that came from somewhere else, allowing for a normal cyclical swing of 3%, and which cannot be blamed on Labour profligacy.

If you take a wider view, however, Labour’s defence becomes more difficult. British government finances were worse affected than other major industrial countries, from France to the USA, and much worse than some, like Canada. There are broadly two reasons for this. The first is that Britain had a bigger financial crisis, because it had a bigger banking sector, especially in international banking, and so was more affected by its collapse. The second is that tax revenues fell unusually sharply in Britain. Both aspects have government fingerprints on them.

Take banking. Labour lauded the rise of the international banks, and celebrated Britain’s “light-touch” regulation that helped bring this about. They gave RBS’s Fred Goodwin a knighthood for no other reason than that he had expanded his bank, recklessly as it turned out – there were none of the usual good charitable works to point to as supporting a general aura of public-spiritedness, as is customary in such matters. Meanwhile, Britain’s success as an international banking hub helped drive Sterling up and manufacturing exporters out of business. Mr Brown tried to wriggle out of responsibility by suggesting that he wasn’t responsible for banking regulation under Britain’s tripartite system of financial regulation (between the Treasury, the FSA and the Bank of England). This is pretty damning, because this system was of his own design, and it was clear that overall responsibility for making sure the system was working lay with the Treasury. It couldn’t be anywhere else.

Then on taxes, Mr Brown engineered a switch from taxes on income, and Income Tax in particular, to an array of other taxes, like stamp duty, that turned out to be about milking financial bubbles. At the time, his reduction of the basic rate of income tax to 20% was lauded as a triumph. This proved a colossal misjudgement, as it has proved politically impossible to raise income taxes, even in supposed more left-leaning Scotland.

On top of this, a broader claim can be made. The world financial crisis was not some storm that happened somewhere else with unfortunate consequences for Britain. Britain was the world’s leading international centre of finance; Britain’s bankers were at the heart of it, Two of Britain’s big banks, RBS and HBoS, collapsed, not helped a Britain’s own reckless mortgage lending, which also affected smaller banks, like Northern Rock and Bradford & Bingley. These banks had all adopted highly risky business models, whose main assumption was that global banking markets would be stable. Sitting on top of one of the most prestigious finance ministries in the world, and trumpeting his own reputation as a financial manager, Mr Brown and his acolytes can’t really escape the charge of incompetence for not appreciating these risks. And these risks were plan to some, including his Lib Dem shadow, Vince Cable, whose warnings were pooh-poohed.

Labourites are on stronger ground when they suggest that, once the crisis emerged, their government handled it well. It wasn’t pretty (amongst innocent victims of the government’s shoot-first approach were Icelandic banks and Britain’s own Lloyd’s bank), but largely stands up to scrutiny. Another argument is over whether the Tory/Lib Dem coalition that took power in 2010 was too tight with its austerity policies, compared to how Labour would have handled the same situation. Many independent commentators agree with at least the first part of that proposition, though I don’t.

So, I don’t think Labour were quite as innocent as they claim, even if much of the direct criticism is misplaced. But, in politics, such arguments actually count for little. A more important question is how the public perceives things. This is where Labour’s real problem lies. What the public sees is a classic hubris to nemesis story, which is one of the oldest storylines in humanity, and takes some rebutting. Labour’s problem is their boastfulness before the crisis. Labour appealed to voters because a Labour government meant “no more boom and bust”, unlike with the Tories. And then one of the biggest busts in history happened.

And there is trust issue here. Labour’s position is a bit like that of the Lib Dems over tuition fees. The Lib Dems vowed not to vote for an increase in student tuition fees before the election, and yet later that year they supported the trebling of fees. Many Lib Dems will give you a convincing intellectual explanation as to how this not nearly as bad as it sounds, and that anyway there was little they could do in coalition. But this cuts no ice with the public, because of the way the party presented their policies before the election.

Labour are onto an equally losing wicket if they try convincing the public that the economic crash of 2008/09 was not their responsibility. Ed Miliband, their leader at the last election, was quite right not to even try. Besides, the alternative argument that Labour were the hapless victim of world events hardly counters the public’s perception of the post-Brown leadership (Mr Miliband and his successor Jeremy Corbyn) of being nice but ineffectual. The usual advice for when you are in a whole is to stop digging. The idea that if the party had come out fighting, public perception would be swayed, is pure nonsense.

The only way forward is for Labour to acknowledge their responsibility, and put forward hard economic policies that show they are capable of taking tough decisions if in power. And that means they have to stop banging on about austerity and get tough with some of their own supporters. For now, though, there is no chance of that.

Core voters are always shafted. Politics is made in the centre. Bad news for Lib Dems

Democracy and idealism do not sit well together. Idealists have the motivation to form political parties and keep them going. But in order to win power the party must bring on board people and, policies, that the idealists disagree with, in order to win round those less committed to politics. And these floating voters come to matter more to the party’s managers than the the idealists. Because the idealists have nowhere else to go.

In Britain, the latest challenge to this process comes from Britain’s Labour Party; in America the Republicans seem to be doing something similar. This all seems to be part of the great cycle of politics. A party’s core supporters, those that are ideologically committed, get fed up with being taken for granted and rebel. They struggle to accept that a majority of voters disagree with them – following a natural human bias that most people think as we do. They may also be enticed by the idea that they can win by accident – through their opponents’ mistakes. Sometimes such ideological parties do win an election that way – it has just happened in Poland, for example. It rarely ends well.

I know more about the Labour phenomenon than the Republican one. Labour members elected the ideological Jeremy Corbyn after the party’s general election failure last year. These members remain as fervent as ever, and indeed new members have flocked in. This burst of enthusiasm has convinced them that they have started a new and better form of politics. As they see it, the compromises used to chase the centre ground, as uncommitted voters are usually referred to, have disillusioned people with politics. Now Labour will create a sharper narrative that will go down a storm with the electorate. They equate their own disillusionment with the compromises of their party with the widespread political apathy of the population at large.

But is this is an illusion. This week Britain’s polling organisations published a report into why they called the 2015 election wrongly. They overestimated Labour support and underestimated the Conservatives’. They found this was mainly because their samples were biased towards Labour. And that was because they were biased towards the politically committed, who were much easier to reach. This is a vulnerability of the quota sampling technique that the pollsters use. The less committed, or more apathetic, voters were much more likely to vote Tory.

This leaves more thoughtful Labourites with two headaches. The first is that current polls show the Labour vote holding up compared to the general election – so that electing Mr Corbyn at least hasn’t made things worse. But if the polling bias remains (and it seems to be, based on how the samples remember they voted in 2015), then in fact the Tory lead has grown. The second headache is that the army of the apathetic non-voters is more sympathetic to the Tories than many suppose.

Which leads to an inevitable conclusion. In order for Labour to win an election they need to convert people who voted Conservative last time, or who did not vote, but lean to the Conservatives. In other words, Labour must appeal to the centre ground.

Such thoughts cut no ice with Labour’s new members. When pushed they even suggest that winning is not that important. That leaves Labour in a terrible position, and the Conservatives thinking that they have the next election in the bag. Some hope that the European referendum will split the Tories. But the prospect of whacking Labour really hard if they hold together is the best possible incentive to hold the party together.

Labour’s prospects against the SNP in Scotland are no better; the SNP have cornered the middle ground in Scotland as masterfully as the Conservatives in England, while still retaining a substantial core vote. This conjuring trick will eventually come apart – but an ideological Labour Party will not be the instrument of the SNP’s demise.

Meanwhile, sitting on the sidelines are the Lib Dems. A number of people have suggested to me that Labour’s woes present the party with a golden opportunity. But the political dynamics or the core and centre are not working the party’s favour.

The party thought that the usual rules of politics would apply to them when they went into coalition with the Conservatives in 2010. They shafted their core voters, but surely they had nowhere else to go? And meanwhile the party’s record in government would appeal to the centre ground. But a large part of what the Lib Dems thought was their core vote felt they did have an alternative: Labour. That weakened the party, and weakness is a big turn-off for centrist voters. The Conservative campaign exploited this ruthlessly, and the result was catastrophe, as the Lib Dem vote fell by two thirds, and their political clout even further.

So, somehow, the Lib Dems need to rebuild their core vote. The place to look is amongst Labour inclined voters who do not buy Labour’s new sense of direction. But the party also needs to win votes back centrist voters from the Conservatives if they are to win the all-important parliamentary seats. And that means the party must show distance from the Labour Party. So how does the party face the prospect of another coalition with the Conservatives? If they rule it out, they will lose the middle ground by giving tacit support to the ideological Labour Party. If they don’t, those Labour inclined “core” voters will think that the party has learned nothing from the coalition debacle, and leave the party alone.

This may not matter too much to the party at the next election, especially if it looks as if the Tories will win handsomely. There will be no danger of a coalition, so that awkward question can be ducked. The Lib Dems might be able to make a modest recovery based on local strength. But the strategic dilemma remains.

Probably the best thing for the party is to recognise that it is essentially of the left, and rule out any future coalition with the Conservatives. That will help the party rebuild its core. It then needs to apply thought to under what conditions it could work with Labour. But it will have to be a very different Labour Party from the one emerging under Mr Corbyn’s leadership.

Which would leave the middle ground in British politics to the Conservatives and the SNP. Which in turn means that political power will rest with them. A grim prospect indeed.

The Oregon protest shows how different America is from Europe

What if a group of armed citizens seized a bird reserve in the Lake District and proclaimed their right to cut down trees and graze cattle on public land for free? It is actually unthinkable, on so many levels. And yet this is more or less what has happened as a militia group led by Ammon Bundy seized the Malheur National Wildlife Refuge in Oregon on 2 January. They’re still there, as the law enforcement agencies deal with them gently, letting pressure from local residents undermine the occupiers’ resolve. Such incidents are rare in the US, but not unthinkable, and that reveals a lot about the difference between our nations.

Of course Oregon is not like the Lake District. In the US West the Federal government owns huge tracts of land, and regulates, and charges for, its use by farmers and loggers and many others. In our National Parks the government places onerous regulations on private landowners. But that is even worse, probably, from the point of view of the Oregon protesters. They are building their case on an American idea that citizens should be self-sufficient, and that government agencies are violation of basic rights and freedoms.

That idea, of course, comes from America’s frontier history. Back in the 19th Century, and earlier, the settlers mostly did have to be self sufficient. The whole appeal of film dramas such as Westerns builds on this. These frontiers have only formed a minority of the American nation, of course, and yet they command a special place in the American soul, for those of European (i.e. white) heritage. We may imagine how those of native American or African, and even Hispanic heritage work on a different version of how America came to be what it is. The European settlers came out to America to be free of oppressive governments. It is hardly a coincidence that movements like the Oregon protestors are white, and tend to have racist tinge.

Descendents of the Europeans who stayed behind have an utterly different outlook – though that racist tinge is there too, overlaid by an often intense nationalism, which has been subsumed by American nationalism in their descendents. For us government is part of our everyday lives. For some it represents the democratic will of the people; for others it a perhaps regrettable necessity. But we crave the order governments create, and feel that such things as welfare safety nets are part of what it means to be civilised.

And this is as true of the English as it is of their French and German cousins. Some English like to think that they are culturally apart from the rest of Europe (a delusion that their Scots compatriots in Britain tend not to share). We hear talk about common law and Anglo Saxon freedoms. And it is true that the English and British are different in many ways from other Europeans. But then so are the French, the Germans, the Danes, the Spanish, the Czechs, and so on. The idea that the British are uniquely different is a misconception. And a huge amount of history and culture binds us together as Europeans, and separates us from the United States in particular. Our attitude to the role of the state demonstrates that more clearly than anything else. Remember that many Americans feel that free ownership of military weapons is a fundamental right, and a vital protection. Europeans think that’s nuts.

That gulf between Europe and the US is clearly seen in US politics. Republican politicians only have point to Europe or Canada (which follows many European attitudes) to scare their supporters. To them these places are self evidently awful places to live in. Which puzzles, Europeans and Canadians profoundly. What is so wrong which lower levels of poverty, better health outcomes, longer holidays, and a lower chance of dying a violent death? We (and they) just don’t get it.

But two notes of caution for Europeans. First is that the US is not monolithic. I have already pointed out that many Americans do not share this anti-state vision – and the proportion of non-whites in the country is rising. That, perhaps, explains much of the violent polarisation in the country’s politics at present. Most Americans think that the Oregon protestors are crazies; that includes most people who live near Malheur. It’s always a good rule to avoid national generalisations; that is as true of Americans as it is of anybody else.

The second note of caution is that there is a positive side to this American idea of self-sufficiency, alongside its delusional aspect. It makes Americans more entrepreneurial and innovative. Americans can rightly point to their extraordinarily strong economic performance. And I think it helps to question what state agencies do and what they are for – though, I should add, I don’t think that US government agencies are any less inefficient than European ones. Closer scrutiny does not necessarily lead to improved performance.

But personally, I am very comfortable in my European skin, much as I admire so much about America. And those Oregon protestors sum it up why quite nicely.

The Trade Union Bill – the unions are the authors of their own destruction

The House of Lords considered the Government’s Trade Union Bill yesterday. It briefly made the headlines because a report was released suggesting that the Labour Party would lose £6 million in annual funding as a result. Coverage was quickly buried by news of David Bowie’s death. At least we shouldn’t accuse the Conservatives of orchestrating that.

Because they didn’t need to. There has been little public interest in this legislation, which has been quietly making its way through the legislative process since last July. That is remarkable because it is politically tendentious, and could change the political balance profoundly. Instead of fighting this legislation tooth and nail, the Labour Party is focusing its energy on making up its mind about Britain’s nuclear deterrent. This is yet another example, if one was needed, of how Labour is now suffering from political insanity.

What does the Bill try to do? Those headlines were about changing how trade unions carry out political funding. At the moment the unions have political funds which its members can opt out of, but usually don’t. The government wants to change this to opting in, which it is thought that many fewer will do, given how few trade unionists actually vote Labour. The other main change is to make it harder for unions to take strike action by requiring a minimum turnout of 50% for a strike ballot, and the support of 40% of registered members in the public sector.

At first pass neither of these proposals looks unreasonable. The opt out rule on political funding creates a corporate influence by the unions on the Labour Party that undermines democracy. Labour gets the lion’s share of its funding this way, and the their influence on the party is growing – they gave decisive logistical and moral support to Jeremy Corbyn’s leadership campaign, for example. Unions play a vital role in our society in balancing the unhealthy inequality of power in employment relationships, not least in the public sector. But politically they are conservative. This is illustrated by their support for Britain’s nuclear deterrent. This not based on any arguments of high principle, but by the short term influence of any policy change on jobs. Just about any reform designed to make the economy or the public sector more efficient will be opposed by the union bosses for purely short-term reasons. The opt in principle would (probably) reduce the amount of money they deploy, as well as making union bosses more accountable for their political views. Politics should be about people, and not intermediated by corporate interests.

So what’s wrong? The reform is unbalanced. Trade unions are not the only malign corporate interest around – businesses also provide parties with funding, and especially the Conservatives. This is unhealthy too, though thankfully things are not as out of hand in Britain as they are in the United States. But it does help counter the malign political influence of the unions. This not just a question of allowing the Conservatives to oppose Labour. Labour itself was more politically balanced and electorally appealing when it took a higher proportion of corporate donations, under Tony Blair. Whacking union donations without some kind of equivalent reform of other corporate donations is simply a partisan attack on Labour that will probably do more harm than good. Labour certainly has a good case to make to the public on this.

There is something similar going on strike ballots. It is not unreasonable to ask for a substantial mandate for such action, rather than let a minority of activists decide things. If the union case for strike action is a strong one, they will get the support, as has been shown repeatedly. The problem is that the government refuses to modernise the way strike ballots are carried out. This has to be by post, which is not only expensive, but it gets swamped by junk mail, leading to low response rates. Most organisations that cary out mass ballots now do so electronically, or at least supplement the post with online. There are risks, of course, but they are manageable. Allowing unions to do this would be a completely reasonable quid-pro-quo; refusing to consider it is an attack on workers’ rights.

If I were a trade unionist, this shocking state of affairs would give me pause for thought. Because the unions themselves have helped bring this situation about. Firstly, their conservative influence on the Labour Party has helped make them less electable. In 2010 they were decisive in making sure that Ed Miliband got selected as leader. And their hysterical opposition to austerity prevented Labour from developing a coherent and electorally convincing economic policy. Secondly their tribal attack on the Liberal Democrats for having the temerity to form coalition with the Conservatives helped weaken a vital bulwark against Tory hegemony. If Labour voters had rallied to the Lib Dems in the South West, things might have turned out differently.

And the end result is that Labour, as it turns out, is more interested in other things than union rights. Meanwhile the unions have no other friends across the political spectrum. The SNP have shown more interest in the fate of English foxes than union rights. How hard should Lib Dems fight their corner when the unions done so little for them?

Of course no real trade union leader will come anywhere close to such reflections. They still think that the Tories are the spawn of Satan who must be excluded at all costs, and that austerity, understood to include any initiative to make the public sector efficient, is based on lies – and that the public will be convinced of both these things if only they were proclaimed loudly enough.

For liberals the attitude is clear – it is to welcome the government’s reforms, but to fight for others to curb the malign influence of big (and not so big) businesses on political funding, and to allow trade union democracy to be modernised. It is hard to shed tears for such political dinosaurs as Britain’s current union leaders.

What will 2016 bring? Remain will win and the Tories will stay together

New year predictions are not something this blogger has indulged in before – but it seems to be a universal obligation for the first blog of the year. There is little to be said for it at face value: predictions are either banal continuations of current trends, or depend too heavily on events that are unpredictable. Still, they may reveal something interesting about the way the blogger sees the world- so here goes.

The most important event of 2016 in British politics (and that will be my main focus) will be a referendum on UK membership of the European Union. This is not certain for 2016, but nevertheless looks more than likely. I predict a comfortable majority (in the region 60-40) for the Remain campaign – I am not joining the crowd who suggest that it will be very close, or that Leave will win.

Unlike fellow Lib Dem blogger David Boyle, I don’t think the referendum campaign will be a repeat of Scotland’s independence campaign. Not because I think that the status quo supporters will be any more inspiring or less negative. There are routine calls for Remain supporters not to repeat the “mistake” of Scotland’s No campaign, which failed to make a positive case for the Union. This rather overlooks the fact that No won in Scotland, in spite of a brilliant Yes campaign. There were signs of ineptitude on the No side – but that more applies to the minor tactics, which were dictated by a Scottish Labour Party whose lack of political skill was shown to all in this year’s General Election, when they were reduced to a single seat. I expect the Remain campaign will manage things better.

But the main reason why the EU referendum will not be like the Scottish one, is that their is no equivalent of the SNP-organised Yes campaign. They managed to motivate their supporters through a very positive, inclusive message, which appealed to young people. There are people in the Leave EU campaign that think that life outside the EU is a fantastic and positive opportunity for Britain, but they look very unlike the Scots Nationalists. For a start many of these are businessmen who think that leaving the EU means deregulation, so that they can screw their employees, customers and the environment even harder. They are fundamentally unconvincing when they suggest that this will make more than few people better off – there is no economic card equivalent to Scotland’s oil.

But a deeper problem for the Leave side is that most of their supporters are of the stop-the-world-I-want-to-get-off type. To them the EU represents the intrusion of the modern, globalising world, and leaving it will enable the country to put up stronger barriers to the world. Especially when it comes to the free movement of people. This is a striking contrast to the Scotland Yes campaign. The Leave campaign are (mostly) convinced that immigration is their trump card – and many Remain supporters agree, and are duly worried. Most people outside London are convinced that immigration is too high and one of the main problems that Britain faces. But I don’t think this will be as easy a card to play for Leave. First I doubt whether the public quite has the courage of its convictions on the issue – on the same principle that most voters talk about how much they distrust established politicians, but then keep electing them anyway. Second, the referendum will not change Britain’s political class, and the public doubts its will to deliver lower immigration, even outside the EU. Perhaps these two points two sides of the same coin.

So Remain will win. What will that do to British politics? The conventional wisdom, which I have supported, is that this will tear the Conservative Party apart. But I have changed my mind on this. Europe has been a defining issue for many Tory activists, and they will be upset that the referendum was lost. But we must remember two things about the Tories. First: their party is not “democratic”, by which I mean that its members don’t control things through electoral processes, as they do in the Lib Dems and Labour (sort of, in both cases). The controlling elite has huge power over party direction and can weather the odd storm. Second, the party has the prospect of political power before it. They are in power, and the opposition is weak; too many people, with too much money, will not want to throw away the opportunity to hang on to that power. The example of Ukip, now a chaotic, busted flush, is not encouraging to rebels. The main threat to the Tories comes from who they choose to succeed David Cameron as leader. But this is quite tightly controlled by the parliamentary party, who have an instinct for survival. No equivalent of Jeremy Corbyn is in the wings.

What other predictions? Jeremy Corbyn will remain leader of Labour, and consolidate his power. Labour’s Sadiq Khan will win London’s Mayoral election. Labour “moderates” will bide their time; setting up a rival party is unrealistic on so many levels. And the Lib Dems? They will achieve some local successes, which will be enough to convince insiders that they are making a comeback, but nobody else. The SNP dominance of Scotland will continue in the Scottish parliamentary elections, but I will be surprised if the Conservatives manage to overtake Labour.

And the economy? I think that trouble will strike before 2020; the economy looks too much like its old self in the days of Blair and Brown. How will it come about? Britain is vulnerable to events elsewhere in the global economy. Perhaps foreigners will start pulling out of the London property market, causing developers to get into trouble, and then whoever is lending them money. This could spark off a long term decline on Britain’s property values, quite opposite to the conventional wisdom that prices are driven by excessive demand, rather than excessive finance. And yes, that process could start in 2016.

What about elsewhere in the world? Perhaps 2016 will produce an unexpected drama in the US elections, but I expect the winner to be a Democrat. Hillary Clinton looks a shoo-in, but could she be derailed by something in her back history?

And Syria? The civil war looks like a stalemate until Saudi Arabia and Iran decide that they need a rapprochement. Continued low oil prices could force that. A coup within Islamic State to produce a new regime that seeks alliances with other actors should not be ruled out. – and less sponsorship of outside terrorism. But terrorism will go on.

Of course the last three paragraphs have enough escape clauses to not count as serious predictions. But that will have to do for now!

Why I’m sceptical about the Citizen’s Income idea

There is growing interest in the idea of a Universal Basic Income (UBI), also called Citizen’s Income, to replace means-tested benefits. This was given a lift last week by the think tank RSA. The Lib Dems are also reported to be looking at it as part their review of welfare. The idea already has some totemic value on the left – it is part of the Green Party policy pitch. It is an interesting idea, but my scepticism is growing. But it has along pedigree: I first remember it being advocated by Paddy Ashdown in the 1990s.

Why the interest? Well the benefit system has become fiendishly complex, with entitlement hedged around by all kinds of rules. Applying for benefits is often demeaning, and the bureaucracy involved is arbitrary. Although the government is trying to reduce the complexity of benefits with the introduction of Universal Credit (UC), which is phased out as income rises, this brings its own nightmare. To work, it needs up to date information on what people are earning. The systems difficulties associated with this have led to repeated delays in its introduction. Some of these problems may in the end prove insoluble; the project has borne many of the hallmarks of over-ambitious failed technology projects, though the bad press has eased over the last year.

A UBI would replace these benefits, including the old age pension, child benefit, unemployment pay and the tax free allowance on income, with a single system of payments to everybody. This would doubtless have to be age-related. The RSA version suggests a low rate for children (payable to parents), and a high one for the elderly. Extra allowances would need to be made for those with certain types of disability. This cuts through the current complexity.

Of course the first big design issue is affordability. How high would taxes have be to pay for it? Consider the basic maths. If the allowance was set at the mean level of earned income (spreading the income from those that work across those that don’t) across the economy, then tax on income would have to be 100%. On top of that you would have to pay for the NHS, defence, schools, the police, and so on. If it was set at 50% of average income, tax would have to be 50% just to pay for it, and so on. So any design has to push the boundaries of how low can you get away with. But how low can the entitlement be and still be able to realistically provide a sole income for the unlucky? The RSA version can only get through this conundrum by sidestepping the rather central question of housing costs.

After you have navigated that rather central problem of scale, more problems await:

Incentives to work. If the income is going to be sufficient to sustain people through unemployment, might it not encourage a frugal lifestyle of people who never work (legally, anyway), reducing the tax base? This would be parasitic, and surely seen as such. Which then leads to the toxic politics of people who suspect that this is the case of their neighbours, minorities, and the like. The experience of places where something like the UBI currently works (Native American reservations with gambling or natural resources income, for example) is not particularly encouraging: too many people can lapse into a hopeless, dependent lifestyle.
Housing is a harder problem than just affordability, as it varies so much from place to place. But, to be fair, this is a problem with the current system too. A whole new approach is needed to housing policy, and that would need to work alongside this reform. This encompasses such issues as the availability of social housing, regulated the private rental sector, and the access to housing finance which seems to be too easy, so pushing up prices needlessly). This, for my money, is a more urgent problem.
Who is an isn’t entitled? At what point do people coming to live in the country become entitled? At want point do people choosing to move overseas lose entitlement? This is one area where being in the EU, with its multiplicity of benefits systems and no-discrimination rules, makes things harder.
Enforcement. There is an invitation to fraud here, as people will be tempted to create claims for fictitious people, or the deceased, etc.,and that points to the use of some kind of central registration. The RSA suggests linking to the electoral register. This sits uneasily with British traditions of keeping the state at arms length.
Taxes. There is a need to roll in personal tax free Income Tax and National Insurance allowances to make it pay. That means all income is taxable. This could involve quite a lot of extra administration as more people are brought into the scope of taxation.

There are no doubt many more design issues. The problem is not so much that these difficulties are insuperable, but that the idea is revolutionary. And revolutions usually fail, because it is impossible to foresee consequences. All the modelling is based on the idea that behaviours will not change very much – when they are bound to. If possible change should be in smaller, evolutionary steps.

But I have a deeper, philosophical problem. This all reeks of a Big Idea to be dropped from a great height on people by central government. Liberals are rather prone to this. They love the idea of universal righst and entitlements, because they think they are empowering. But the alternative view is that such grand, centrally designed systems are dehumanising and create dependency.

My view is that instead of such systems of legal rights and entitlements, we need to give the state a human face. That means that individuals in difficulty have access to intermediated services and support which tie together, physical health, mental health, social support, housing and so on. These would in packages that are designed to move people onto a sustainable path, and also conditional on to some extent on how the individual engages. Universal income is based on a heartless idea of “Take the money and you’re on your own.” Of course intermediated services might be considered illiberal, because they place considerable discretionary power in the hands of agents of the state. I think that can be managed through stronger local accountability. And I think that current British society has the civic strengths to pull it off. Though even here, I must beware of my own Big Idea to be dumped on an unknowing public.

But Citizen’s Income is supported by a lot people I respect. No doubt the idea is worth exploring further. But I will take a lot of convincing that this is the best way forward for welfare reform.

The tide is turning against Heathrow expansion

Last week the British government decided to defer its decision on whether to expand London’s Heathrow airport. This has been roundly condemned by people the media calls “business”, referring to self-appointed lobby groups of large companies. But what is all this about? Now it could be what the lobbyists claim, which is weak government pure and simple. Or it could be a straw in the wind for a much more interesting change in attitudes in the political economy.

The story so far. Heathrow has long been operating at near capacity. London’s second airport, Gatwick, is approaching capacity too. If you believe that air travel must increase for a healthy economy, then something must be done to expand capacity. In the long view this conventional wisdom is open to question: but as a good liberal I must accept that the freely made choices of my fellow citizens point to further growth in air travel. The politics, however, are toxic. Airports in the prosperous south east of England are not popular with those that live nearby, whatever benefits they bring. Since Heathrow is quite close to the London conurbation, that adds up to an awful lot of people. Many of these people live in marginal constituencies.

Nevertheless the Labour government prior to 2010 supported an extra runway at Heathrow. But both the Conservatives and the Liberal Democrats, spying opportunities in these south west London seats, were vehemently opposed. The Conservative leader, David Cameron, went as far as to say: “No ifs, no buts, there will be no third runway at Heathrow” (or something like it). When these two parties turned Labour out in 2010 and formed a coalition, the existing expansion plan was thrown out. Instead the government set up an Airports Commission to evaluate the alternatives, to conveniently report after the next General Election, in 2015. It duly reported in the summer, recommending a new runway at Heathrow, in a different place to the previous plan. By then the Conservatives had crushed the Lib Dems and were in government on their own. It would have been a good moment to show decisive leadership and accept the Commission’s results. They would have been able to steamroller opposition from their London MPs.

But Mr Cameron didn’t. He dithered. Why? There seem to be two nakedly political factors. The first is that Zac Goldsmith, the Tory MP for Richmond Park, had threatened to resign and cause a by election if the government supported Heathrow expansion. That ordinarily would be a little local difficulty – but he is the Conservatives’ candidate for London Mayor in 2016. A split would be messy. The second is that Mr Cameron’s “No ifs, no buts” promise is weighing on him. He fears a “Nick Clegg moment”, referring to the collapse in the Lib Dem’s leader’s public standing when he decided to reverse a pledge on student tuition fees after 2010. And Mr Cameron needs all his political capital to carry through his referendum on the European Union. Perhaps this is enough to explain last week’s announcement to defer the final decision until next summer, after further reviews of the implications for air pollution. By then the Mayoral election will have happened, and so might the EU referendum.

But there may be something deeper. It could be that the tide of conventional wisdom is moving against Heathrow expansion, recognising that the terms of reference of the Airports Commission were flawed. If that is the case then the delay is a process of gathering more evidence against Heathrow, so that a decision to expand Gatwick instead will be better proofed against judicial review.

Why might the tide be turning? Well, the case for Heathrow is based on 20th Century economics. The idea is that to make a big airport even bigger is more efficient that building up smaller airports. Time was when the concept of economies of scale was so baked into the conventional wisdom that this logic would not have to be seriously examined. But for airports it does have to be questioned. For a start, any air traveller knows that larger airports are less efficient for point to point travel. Every stage of the process takes longer than for a smaller airport. I remember vividly that taxiing to the terminal after landing at Schiphol airport took as long as the flight itself.

But there is a clear benefit of a running a large airport: that of making connections. This is referred to as being a “hub”. There are two aspects to this. The first is that hub airports can consolidate short distance flights into long distance ones, in a configuration that allows demand for long haul journeys to be met more efficiently. The second is that the presence of a lot of people waiting around in hub airports is an economic opportunity for the host country: it can sell them things. It is on the benefits of the hub operation that the Airports Commission’s recommendation is based: expanding Heathrow will generate bigger benefits to the British economy as a whole than would expanding Gatwick. This can be challenged, however.

The first point of challenge is on the efficiency of the hub model as the best way of managing long haul traffic – or of a hub based in London. One argument is that technology is moving against this. Smaller, efficient long haul aircraft are being developed that allow the alternative, point to point model to be more viable. The second is that the Arabian Gulf is emerging as an alternative airport hub location, and one which has a clear comparative advantage, if not an out and out absolute advantage. Pumping up a London hub is fighting the laws of global economics.

The second point of challenge is on the business of running a hub: the shops and restaurants. The London economy is already overheated, as shown by very high property prices. There really is no need for the extra income. If the hub was in the north of England, that might be a very different matter. The fact that the airport is so unpopular locally gives a clue to this.

And on top of these direct challenges there is a strategic tide. Politicians and economists are worried that economic growth in developed countries like Britain is bypassing most people, and ending up in the pockets of large multinationals and a tiny elitesof people that run them and provide supporting services such as tax avoidance advice and banking. The penny is dropping that this may largely be down to the excessive market power of large businesses, extracting monopolistic profits. And yet the Heathrow business case seems to be a paean to this form of monopolistic capitalism. And those business lobbyists provide an unwitting confirmation of this.

Before the Commission reported, it was arguments such as these that induced me to predict that Gatwick would win over Heathrow. The Airports Commission was a blow; but I am holding to my prediction yet.

The left is failing. It must confront reality

Pity the French Socialists. Last weekend they managed to stall the Front National at regional elections – but only by supporting the centre-right Republicans. The collapse of the left and centre-left in France offers lessons to the British left – in the Labour, Liberal Democrat and Green parties. But they are not listening.

Now remember that only three years ago the French Socialists were triumphant. François Hollande won the presidency, and parliamentary elections confirmed the party’s ascendancy, along with left wing allies, including the French Greens. France was in an anti-capitalist mood; this was no victory of the centre ground. The Socialists promised tax hikes on the very rich, and the reversal of many of the centre-right’s reforms on public services. It is probably as close as we will see in Europe to a triumph of the British Labour Party under Jeremy Corbyn – right down to a leader that did not follow the conventions of personal charisma.

But the Socialists lost their way almost immediately. They put through a few token left wing changes, but have been following the political centre ever since. The left wing programme proved unworkable. The electorate could not see the point of the party. Working class voters defected to the Front National, offering another mix of un-keepable promises, alongside its defining xenophobia. That France’s fractious centre-right was able to recover and provide the main challenge to the FN completed the humiliation of the left.

The problem for the left is that it is happier protesting and airing their “values” rather than governing. And a lot of its protest turns out to be very conservative. Many on the left seem to see their mission, not as improving the lot of the disadvantaged, but as protecting (“defending”) this or that public institution from attempts to reform them. Alongside this they protest at “injustice”. But there is no clear and consistent picture of how to make things better. There is an idea that you can raise taxes harmlessly by aiming at the wealthy, and then using the money to pump up public services and benefits without asking whether they are doing the job they are meant to be doing. And as for foreign affairs, it seem to be largely making a noise about various victim groups, and then doing practically nothing about it.

One example of political failure is dealing with racism. Look at this article from Kehinde Andrews in the Guardian. He is commenting on the 50th anniversary of the Race Relations Act. He points out how some forms of racism have been driven back in the 50 years, but then points at the racial minorities still suffer discrimination, and are disadvantaged on a wide variety of measures. The failure is clear, but what to do? All Mr Andrews can say is this: “Britain must acknowledge the uncomfortable history and reality of racial discrimination and be prepared to consider solutions that transform the conditions faced by oppressed groups”. Note that he has moved to language of victimhood and oppression. And the complete absence of thinking about how on earth to solve this intractable problem. To be fair, Mr Andrews is not a politician. But I hear all too often the language of victimhood and difference amongst leftist politicians who address ethnic minority issues. Everything is always somebody else’s fault.

As Tony Blair put it in a recent article in the Spectator:

Right now we’re in danger of not asking the right questions never mind failing to get the right answers. All of it is about applying values with an open mind; not boasting of our values as a way of avoiding the hard thinking the changing world insists upon

This leaves the left with two big problems. First is trying to present themselves as a convincing party of government. This is what Labour failed to do in this year’s General Election. But the French Socialists showed that you can still win, if your opponents are even more distrusted than you are. Then comes the second problem: what do you do when the left achieves power. Does it “stay true to its principles” and push through a populist left-wing programme, attacking independent businesses, and cosseting public sector workers, including an expanded nationalised industry. Recent examples of this approach are Argentina under the Kirchners, Brazil under Dilma Rousseff, and Venezuela under Hugo Chavez. In the end the government cannot escape economic reality, and the economy turns sour. Interestingly this approach seems to be much more difficult in Europe than in South America. No doubt European institutions are stronger – making wilful suicide much harder. France cannot print its own currency, for example. The other choice is simply to U-turn, as the French did, and implement policies that most people cannot distinguish from those of the centre-right. This leads to an existential crisis for the governing party.

In Britain we can see that with the second party of the left, the Liberal Democrats. They entered coalition with the centre-right, the Conservatives, in 2010. Activists and members fled; the party felt as if it was imploding. It was vilified from across the political spectrum for selling out. Mostly this was because they dared to face up to the compromises of government – although it was also tangled with the toxicity of working with the Conservatives.

Rather than confront the realities of government, the left indulges itself with the language of protest, usually constructed in abstract terms (“austerity”, etc.) that means little to people they are supposed to be helping. And that leads to two problems. The first is losing working class voters to the populist right. British leftists have had some luck here. Ukip is the only credible party fishing in these waters, and they are not adept. But the popularity of movements like Britain First shows that there is a ready group of white working class (and not a few middle class) voters who are ready to take this direction. The second threat is the centre-right. If this group has an organising philosophy, it is economic liberalism, using a conventional wisdom that has built up since the 1980s. It is well past its sell-by date, and yet it is more credible than the non-offering of the left.

To reverse this, I think the left will need to do three things:

Develop a new policy framework that addresses the challenges of the current world. That is the main focus of this blog, so readers should have some idea of what I mean. It needs to focus on sustainability, local networks and public services coordinated around the needs of users, not providers.
Develop a better language with which to frame its ideas to those currently disillusioned with politics. I suspect this is better done through local, community politics than clever brand building by Westminster operatives.
Develop alliances across the parties of the left, and move away from destructive tribalism. This will need to be underpinned by political reforms that make such collaboration easier (proportional representation, for example). There are some good ideas bubbling up across all the parties, alongside the nonsense.

There is, alas, almost no sign of progress on any of these three lines. But I will not give up hope.

Success in Oldham deepens denial among Labour left

Last week BBC Radio 4’s Thinking Aloud ran a piece on research showing how people assume that most other people think like them. This is, apparently, particularly strong at the political extremes. We don’t need academics to tell us this, of course – it explains many of history’s major political misjudgements. Prime candidates at the moment are supporters of the Labour leader Jeremy Corbyn, who are in deep denial about how difficult it will be for their party to win elections. In this, if nothing else, they resemble the supporters of Donald Trump in the US.

Of course, being in denial is something that, as a Liberal Democrat supporter, I know something about. Throughout the Coalition years we were told that our party faced oblivion at the next election. We refused to accept this, but alas we were wrong. Denial is always easier to see in others. The main problem on the Labour left is that they assume that most Britons share their view that the Conservatives are out only to line the pockets of the rich, and that “austerity” is evil. Now I’ve written before that this outlook will doom the Labour Party to failure, and that one of the first tests of the Corbyn leadership would be the Oldham by election. Well that election was last week, and it was a triumph for Labour. They increased their percentage share of the vote, though with less votes overall. A challenge from Ukip failed to materialise: they increased their vote (by 3%), but by much less than the Conservative vote fell (over 9%). Is this vindication for the Corbynistas?

Up to a point it is. It shows that all the chatter that Labour’s lurch to the left has affected the party’s electoral standing is just that. There is little decent data on this result, analysing who did and didn’t support each party, so we can’t say for certain what happened. But as Alistair Meeks points out in politicalbetting,com, the result is completely consistent with previous by elections in the area. Nothing much has changed. There is much for Labour supporters to take heart from here.

The first point is that Ukip look like a busted flush. The party was supposed to be picking up disillusioned white working class votes, and presenting a major threat to Labour in the north of England. They nearly won one of those previous nearby by elections. If Mr Corbyn did not play well on Oldham’s doorsteps, as the chatter suggested, Ukip’s Nigel Farage played no better. He used to be a media star, and regarded as “authentic”, but he seems to have lost his credibility. The Ukip result in the May General Election was disappointing, as they were mugged by the ruthless Tory election machine. Mr Farage’s shenanigans over whether he was resigning as leader may have had the same sort of effect on his public standing as Nick Clegg’s U-turn on university tuition fees. The party needs to dump him, but probably won’t. The transition from a Tory breakaway in the shires to being a party of working class protest is too much for it.

The second cheering point for Labour is that their challengers to the left are thoroughly neutralised. The Greens achieved barely 1% of the vote. The Lib Dems put in a major effort and still lost their deposit, and tried, unconvincingly, to draw comfort from the fact that their vote did not actually fall from a mere 3.7%. In this environment at least, these parties are treated as a complete irrelevance. In living memory the Lib Dems were capable of pulling off a stunning wins almost anywhere. There are some signs in local by elections of a Lib Dem bounce back, but it is highly localised and bypassed Oldham.

All this bodes well for Labour’s prospects in May 2016, the next big local polling date, when there are also elections to the Scots and Welsh parliaments, and London’s Mayor. Labour’s candidate for London Mayor, Sadiq Khan, has every chance of wresting the position back from the Conservatives. In Scotland, though, prospects look dire for Labour as the SNP machine looks dominant. It is even possible that the party will drop to third place behind the Conservatives. But London’s political class seems to have written Scotland off.

So why am I suggesting that Labour activists are in denial? Because May’s result in the General Election was terrible for them and there is not the faintest sign of it getting better – only that it is not getting worse. Their prospects in Scotland are not the sort of irrelevance that Londoners seem to assume. Scotland is one of the most important battlegrounds in British politics; it has been for at least five years. If Labour can’t engineer a recovery there, they will be locked out of politics in Westminster. Interestingly, the success of the SNP was a key piece of evidence for the Corbynista thesis – that the public was really angry about austerity, and Labour’s big mistake was not to be angry enough. But Scots voters turned on Labour because they thought they were incompetent, and did not stick up for Scotland. Mr Corbyn’s election does not improve their standing on either count, to put it generously.

Labour may be standing up well enough in the north of England, in spite of a cheeky challenge by the Conservatives to win back support there, but there is no sign that Labour can win back those politically sceptical middle-England voters that they progressively lost after Tony Blair stepped down as party leader. To do that Labour activists must break free of the notion that most people share their political outlook, deep down. Meanwhile a dangerous rift between the parliamentary party and the leadership reinforce a general air of incompetence, the most fatal thing in politics.

I have heard a number of people suggest that the real winners of Oldham are the Conservatives. It is hard to disagree.

Osborne uses an accounting trick to implement People’s QE

When Jeremy Corbyn, was running his successful campaign for the leadership of Britain’s Labour Party, he floated the idea of “People’s QE”. “QE” stands for Quantitative Easing, the means by which central banks try to loosen monetary policy in an economy without reducing interest rates – handy when interest rates are near zero. It attracted quite a bit of attention from economists, much of it quite approving. That is because the idea touches on one of the most important aspects of modern economic policy: the suggestion that governments can sustain quite big deficits simply by “printing” money. In the end we find, not for the first time, that the current Conservative government acts much further to the political left than it talks, as did its Conservative-Liberal Democrat predecessor.

Back in the 1980s, when monetary policy first became the height of fashion, we had uncomplicated views about what it was about. Although most money was in bank accounts, economists painted a picture as though it was all in notes and coins, and the various actors behaved as if they were kids spending pocket money (and even then was probably too simplistic…). They talked of a “money supply”, which could be manipulated, and the size of which affected spending behaviour. We are older and wiser now, though many economists and journalists still talk about “printing money”, even though physical money has almost no role to play, and bank accounts are different in very important ways. Even trained economists who should know better sometimes trip themselves up in this way. For example there is much excited talk about how commercial banks create money rather than the central bank – which turns out to be a red herring on reflection [That link from Paul Krugman includes a broken link to a masterful essay from James Tobin in 1963, read it here]. It is better to look on monetary policy as a series of policy instruments under the control of the central bank, which have not entirely knowable effects on the economy at large.

The most important of these instruments is the short-term interest rate the central bank charges to commercial banks in their interactions with it. These ripple right through the economy. But when they are very low, as they are now in the UK, it is very hard to lower them further. Some European banks are using negative interest rates without the sky having fallen in, but these negative rates aren’t very high – fractions of a percentage point. So how to “loosen” policy – that is encourage a greater level of economic activity? Here the invention of QE comes in, pioneered, as so much of modern policy, by Japan in the 1990s and early 2000s. This is often talked of as if it means printing physical money and handing it out to the kids to spend on sweeties. What it actually means is that the central bank goes into the market and buys bonds, usually government bonds, like British gilts.

How does that help? Well the people who held the bonds now hold cash instead, which they should spend on something else – which might include new capital investment, after it has changed hands a few times. And it might reduce bond yields, which will reduce long term interest rates right across the economy, and increase asset prices. This creates a “wealth effect” that might encourage the mass affluent to spend a bit more money on stuff that people make. Or all that could happen is that there is a merry-go-round of money chasing various flavours of pre-existing asset to create an asset price bubble. It’s not very clear what has happened to the Bank of England’s QE over the years. The bank produces various statistical associations as evidence that it has helped stimulate the wider economy. Others are sceptical.

Which is where People’s QE comes in. What if, instead of buying government bonds in the market, the money went into extra government spending, such as infrastructure investment, or even current spending. Because the Bank controls the currency in the UK, it can fund the government’s deficit without the need to borrow money from investors. It borrows money from itself. This amounts to supporting looser fiscal policy (i.e. government tax and spend), which should provide a more predictable stimulus to the wider economy.

Mr Corbyn’s advisers developed the idea with the suggestion of administrative structures to channel the extra money into infrastructural investment. This puzzled some economists. There is no need for such engineering. All the government has to do is spend the money, increasing its deficit, issue bonds as normal, which the Bank of England then buys in the existing QE programme. If the Bank is buying bonds, the government is less beholden to the bond markets. In Japan, which has been practising QE on a massive scale, the government now issues little net debt to the bond markets, making large deficits sustainable.

But how does this work? Surely it is something for nothing? The answer to that is that it only works if there is slack in the economy, and the government steps in to create demand because businesses are investing less than the public is saving, creating an imbalance. If this is not the case, you can get inflation, which is what happened to Germany and Austria in the 1920s, Zimbabwe more recently, and is happening in Argentina now. Alternatively you get a asset price bubble. Which in the modern, globalised financial and trading system is in fact more likely for developed economies – though this seems to be a blind spot for many economists, who think that asset markets are too efficient for that.

But in the developed economies, including the US, the Eurozone and Japan, as well as the UK, there does seem to be scope to do this kind of stimulus. There is a lack of business investment, while, it appears, too much money ends up in the hands of rich people, who don’t spend it. Nobody knows how long-term this problem is, but it does look as if large government deficits are much easier to sustain than before. If the bond markets refuse to fund all of the deficit, then central banks can simply “print the money” as the popularisers would put it. Prominent British economist (Lord) Adair Turner (whom I am something of a fan of) suggested that this could be a long term policy in a recent book.

In Britain there is an accounting wrinkle which is having an important impact. The Bank buys government bonds, but it holds them rather than cancelling them, so that it can sell them should it want to tighten policy. So the government still pays interest on the gilts the Bank holds, and this used to count towards the publicly declared deficit. But the Coalition government changed the rules, so that it does not count the interest on the Bank’s holdings against the deficit. That reduces the fiscal deficit and allows the government to spend money on other things instead. Also the effects of QE on longer term gilt yields reduces the deficit projected by the Office for Budget Responsibility (OBR), which plays such a pivotal role in longer term government spending plans. According to the FT’s Chris Giles £22.4bn of the £27bn that the Chancellor, George Osborne, “found” to allow him to loosen austerity measures in the Autumn Statement resulted from these accounting tricks. This boils down to People’s QE, and Mr Osborne used it to fund his U-turn on tax credit cuts, amongst other things.

The problem, as Mr Giles points out, is what happens when the Bank feels the need to tighten policy in, say, a year or two’s time? Then the whole thing goes into reverse. Politicians have seen gain in blurring the distinction between fiscal and monetary policy. That could return to haunt them, at both ends of the political spectrum.