Lib Dems – Page 12 – thinking liberal

Pensions, savings: sensible steps forward

This week’s UK Budget has revealed the usual muddle amongst politicians, journalists and the public over the whole issue of pensions and savings – with opinion strongly favouring several flavours of having your cake and eating it. This masks some profound and sensible reforms carried out by the coalition government.

First version of the cake. We like people to save. But we want them to spend to promote economic growth. We worry that a large part of the population will become dependent on the state and taxes because they save too little. But when they do, as in the early part of the 2008/09 crisis, we bemoan that fact that people aren’t spending and so causing economic slump. So interest rates crash to the floor in an attempt to reduce savings and increase consumption (alongside the vain hope that companies will be encouraged to invest more).

Next version. We want people to save more to not be dependent on the taxpayer, but we also want target state spending on the less well off, and tax the rich to pay for it. So we encourage people to save, and then confiscate the proceeds.

Another version of this is that we love the idea of exempting pension saving from tax but think that people who have accumulated sufficient savings for a reasonable pension (a million pounds for a pension of £35,000, for example) are part of a rich elite whose broad backs should carry the largest burden.

There is a genuine dilemma at the heart of this of course. For that reason a lot of hope resides in get-out-of- jail-free cards. One of these is strong economic growth. But that requires lots of people to work – which means retiring later and allowing immigration. We are clearly entering an era of low growth, thanks to demographics, personal preferences (i.e. people choosing unpaid leisure over work) and the changing nature of technological advance and the global economy. Remarkably few people have tried facing up to the consequences of this. Even some intelligent economists think that “trend growth” is a law of nature. Another get-out-of-jail-free card is that rising property values will compensate for lack of saving. Collectively this cannot make sense, but it has worked for many individuals, who therefore don’t engage with wider worries about the future.

Now let’s consider some difficult facts. I have already mentioned that economic growth is likely to be much lower in future. The next difficult fact is that private pension saving has collapsed in the last 25 years. Generous final salary schemes have been replaced by inadequate money-purchase schemes. It is now use just blaming Gordon Brown’s tax raid on pension schemes in the later 1990s for this (or Mrs Thatcher’s ill advised liberalisation of pension selling before that) and some are prone to do when you mention this. This at worst mildly accelerated a growing trend. The economics of businesses supporting these pension schemes became toxic even without the tax changes. This means that, as a generality, most people will not now have adequate private sector pensions. Instead as they approach retirement they will have accumulated a few tens of thousands of pounds in probably several schemes.

The next difficult fact is that the economics of long-term saving are toxic for all but the very well off (liquid assets of over £0.5m, say). The poor face the prospect of losing entitlements to state benefits if they accumulate wealth. Everybody will see any savings eaten away by costs which, even without a host of rip-offs, will always weigh most heavily on those with smaller savings. It becomes perfectly rational for a lot of people to not to bother with pensions savings – unless you count trying to own your own home.

When you consider all this, the attraction of tax funded state pensions become clear. That is why the current government has been right to make it reasonably generous, notwithstanding criticism form the right that we can’t afford it. It was also right to make this pension independent of private saving.

Now, what about the tax treatment of savings? To simplify, there are three groups of tax privileged savings. The first is domestic property. To buy your own home you pay out of taxed income and stamp duty on the purchase price, but the gain is exempt from tax. The second is Individual Savings Accounts (ISAs), which, like property, are paid for out of taxed funds (subject to an annual limit) but income and capital gains are tax free. And third are pension plans, for which contributions are exempt from income tax, but it is taxable on drawdown.

The first and last of these are problematic. Domestic property because its tax exempt status has made it a highly attractive investment – but instead of this fuelling much in the way of building new, efficient property, it has simply driven prices up, making ownership out of reach for many younger people and driving a wedge between families with property and those without. Pensions are a problem because that particular route for providing tax exemption makes for maximum complexity. In fact they have become so hedged about in rules that most people don’t understand them.

ISAs, on the other hand, have an elegant administrative design which makes them easier to own than even taxed assets. They also have more chance of channelling investment into more productive parts of the economy.

Here’s why this week’s proposed reforms make sense. Currently money purchase pensions are forced to buy annuities, except in some carefully crafted circumstances, which tend only to apply to the better off savers. The original fear behind this annuity rule was the worry than pensioners would blow their savings quickly and then throw themselves into the arms of the state. But the state of private pensions is such that most people will rely on the state anyway, and most pension pots are so small that the amount of income that would be derived from an annuity would be derisory (and, presumably, a lot of value would be lost in administration costs). And those with larger pots are likely to be prudent with their wealth. If done properly, this will simplify the pension system, and make private pensions more attractive.

Extending the ISA allowance is more controversial. Many simply view this as benefiting the wealthy, as nobody else can save up to the £15,000 a year limit. There is some truth to this, but it will help level the playing field between financial investments and owning your own property. Since it is unthinkable to tax capital gains on homes, it may help to make other assets comparable in their tax status.

A lot of nonsense has been uttered as commentary: fears over people blowing money on cruises and fast cars – or rushing into buying property. My main worry is that the reforms will make it easier for better off people to save for their children, to pass on at death. This could reinforce the effect of inherited wealth, which is already growing. There may be mounting pressure to reduce Inheritance Tax.

But overall this looks a sensible step forward – and actually quite brave. It is surely no accident that unlike its predecessors the current government’s Pensions Minister, Steve Webb, really knows his stuff, and has been kept in post for the whole period. Liberal Democrats can take pride that he is one of theirs. There is strong political consensus in his reforms, and no party political benefit. But it is nice to feel that our party has contributed something useful to the process of government.

Liberal Democrats: pragmatic policies – small steps to a liberal future

We ended the Liberal Democrat conference today on a high note. Nick Clegg gave one of his best conference speeches, in confident form. We are now learning what this “centre ground” strategy means in practice. Mr Clegg did not utter the dread words in his speech at all. Instead he talked freely about Britishness and liberal, inclusive values. He painted an optimistic, happy picture, to contrast with the sour, pessimistic one that dominates so much of politics now. This went down predictably well with the faithful, but it is a sensible strategy in the wider political debate too. It answers the question “What is the point of the Liberal Democrats”.

The centre ground bit came in the policy programme. In yesterday’s immigration debate, the party talked inclusive, but toned down official policy – for example dropping the idea of a path to legality for illegal immigrants. On the constitution we talked about the Single Transferable Vote, and job shares for MPs. Sweeping reform, including top-down devolution to the English regions, was dropped. The party no doubt still believes in the bigger ideas, but it realises they have to be achieved in small steps. We don’t call it centrist – we call it small steps to more liberal future. But centrist is what it actually is.

So the party’s rhetoric is firmly liberal and optimistic. It helps that Ukip has come on the scene to help define what the party is not. The idea that the real political battle in Britain (well, England) is between the liberal, optimistic Lib Dems and the fearful, pessimistic Ukip is, of course, fanciful – though not on the critical issue of Britain’s place in the wider world. But it helps give the party definition. The majority of Britons may not be liberals, but neither do they feel threatened by them; they are a good second choice. And since democratic politics is largely about compromise and coalition, second choice often comes out on top.

It is a long, long road to return to electoral success for the party. In May in reality it more a question of trying to stave off disaster. The party’s previous tendency to protest, and being all things to all people has lost it a lot of credibility, especially amongst working class voters. The media remains dominated by Labour and Conservative allies. But it is a start, and party activists left york in good heart.

The remarkable politcal success of Michael Gove

Shortly before the British General Election in 2010 a headteacher at a local school told me: “Well, however is the new Education Secretary cannot be worse then Ed Balls.” Mr Balls, now Shadow Chancellor, was then Labour’s Education Secretary. He had built up a reputation for political posturing and bullying, while presiding over new Labour’s muddled education policies. I have not asked that headteacher how she thinks the new education Secretary, Michael Gove, compares to Mr Balls. I don’t have to; her prediction was spectacularly wrong. Mr Gove is even more loathed by education professionals than was Mr Balls. But Mr Gove, unlike Mr Balls, counts as a political success.

Mr Gove has been in the news recently. Yesterday he gave a speech spelling out his vision for state schools; over the weekend there was a fuss over his failure to reappoint the Chair of Ofsted, the schools’ inspectorate. His spin doctors have been pushing out a story of his reforming zeal against an educational establishment referred to as “the Blob” after a 1950s sci-fi movie. This has received a lot favourable coverage in the right-wing press. More neutral observers, such as the FT as well as the BBC, seem content to faithfully report Mr Gove’s spin while not openly taking sides.

All this is in stark contrast to the government’s attempts to reform the NHS, led by former Health Secretary Andrew Lansley. The government side of this argument hardly got a look in, as the picture of chaotic reforms took hold. This negative coverage stiffened opposition to the reforms, muddling them further, so that they have ended up being the biggest blot on the Coalition government’s record – though some good may yet come out of them. There has been little public support for opponents to Mr Gove’s education reforms, however. Mr Gove, an ex-journalist, is clearly a better communicator than Mr Lansley, an ex-doctor. The education system is also much simpler than the health service. But the political skills of Mr Gove’s “Blob” are totally lacking, unlike those of the doctors and nurses opposing Mr Lansley. The teaching unions have long been a bit of a comedy act, resisting basic workforce reforms, like performance appraisal, that non-teaching professionals have long since got themselves used to. Other educational professionals rarely raise themselves beyond the minutiae to give politicians and the public a clear vision of what they are trying to achieve.

Are and were British schools in a mess? Yes and no. International comparisons show a mixture of good and bad news. Overall performance is unspectacular but not awful. We have a long “tail” of under-achieving pupils that schools give up on too quickly. There is a lot of mediocrity, especially amongst rural schools, who “coast” by getting average performance from pupils capable of much more. But over the last two decades, the Blob has pulled off one of the most spectacular episodes in school improvement in the world: the transformation of London schools. This has given the lie to the standard line of the Left that the educational prospects of poor pupils will only be transformed once other social problems, like jobs and housing, have been fixed. The Borough of Tower Hamlets, one of the country’s poorest, regularly outperforms much wealthier districts outside London.

The transformation of London’s schools remains one of the last Labour government’s greatest achievements. But politically, it is problematic. It owes nothing to the various policies pushed by politicians and think tanks, such as creating semi-independent Academies. It was largely down to good old fashioned management: officials at national and council level holding school managements to account, and replacing heads of mediocre schools. As a result politicians are strangely reluctant to take the credit.

What of Mr Gove’s reforms? They are a mix of good, bad and ugly. On the good side, Ofsted’s remit has been sharpened up a lot. Previously it had expanded into such areas as “community cohesion”, which are highly sensitive to context, and inspectors did not show any great aptitude. Now they focus much more sharply on the quality of teaching. This gets to the core of what drives school performance. Some older teachers hate this – but it really isn’t any different to the pressures that accountants and lawyers find themselves under. Younger teachers seem accept the much greater level of accountability that is expected – and respond well to it. (My evidence on this is rather anecdotal though – based on my experience as a school governor in a London primary school).

Another good thing, though largely unremarked, is that Mr Gove’s Academy programme is putting private schools under real pressure. Many private schools outside the South East are now signing up to be state schools, run as academies. My local Free School is recruiting many middle class youngsters that would formerly have gone private. No doubt some on the left see this as a sinister subsidy to the middle classes – but a much higher level of social mixing occurs at these new state schools than would have occurred at private schools. And social mixing at schools helps the poorer children achieve more. It is worth noting that this policy works as well as it does thanks to two measures insisted on by the Liberal Democrats: a “pupil premium” giving extra funding for poorer pupils, and insisting on non-academic selection. Many Conservatives want to recreate academically selective Grammar Schools. These may once have been engines of social mobility, but now academic selection is simply used as a way of weeding out pupils from poorer backgrounds and reducing mixing.

The bad: there is a lot of wasted energy on changing things that don’t need changing. That particularly applies to changes to the curriculum. Mr Gove and his supporters seem to have an old-fashioned view on what should be taught in schools, to reflect a 1960s private education. Now it is true that the Blob has developed a lot of woolly curriculum ideas that don’t seem to be of lasting educational benefit (especially in “applied” qualifications), but they were gradually sorting out this mess by themselves. Mr Gove seems to have little idea as to what modern universities and employers actually want the product of a secondary education to be. A lot of the drive to turn state schools into academies seems a bit pointless, and will probably create problems of accountability in later years. It has a sinister aspect too: the Academy chains who are the main beneficiaries are politically well connected – and it is their political connections that seem to be critical in their success.

The ugly. We are getting more religiously founded state schools. Given religiously founded schools’ role in cementing toxic community relations between Catholics and Protestants in Northern Ireland and Scotland, I am very nervous about this. But it could be that making these newer schools conform to modern educational norms, and forcing them to engage with a wider civil society, will bring benefits. But I really would prefer it if our children went to schools attended by children of many faiths and none. But the alienation of some religious communities is such that they would not engage in such arrangements, and for them a state religious school is a second-best.

My verdict on Mr Gove is that he is not quite as evil as he cracked up to be. But he is wasting a lot of time and energy. What should be absorbing energy is teaching standards, establishing a broad curriculum appropriate to modern life, and establishing better systems of accountability which don’t tempt schools to game the system by neglecting “hopeless” cases. Fix these and Britain’s state schools would be world class. But alas, we are distracted by political gimmickry.

Labour are in serious trouble

Not long ago Labour supporters seemed very confident. Their lead in the polls pointed to a comfortable majority; the electoral system was loaded against the Conservatives; they (in their own minds) had won the argument on austerity. It was a good moment to move to the political left and drop the Blairite obsession with the political centre. But now Labour’s poll ratings are sinking, and the Tories catching up. The 2015 election increasingly looks like a stalemate or worse for Labour. What can they do?

And it is not difficult to see the source of Labour’s problems: Britain’s reviving economy, and rapidly falling unemployment. This is not running to the Labour script – which was that austerity policies doomed the British economy to stagnation and misery. It used to be that Labour’s Shadow Chancellor, Ed Balls, sounded easily the most economically literate of the front-bench spokesman of either side (challenged only by the Lib Dem Business Secretary, Vince Cable). Now he sounds panicky and flustered. His arguments, that the recovery is shallow because it is based on consumption rather investment and exports, is technically correct but irrelevant. Labour’s alternative policies of fiscal stimulus were promoting an equally shallow recovery. Labour has no serious ideas on how to promote investment and exports. Meanwhile, the rising economy is giving government spokesmen more confidence: Lib Dem Treasury Secretary Danny Alexander sounded more in control of the economic arguments than he has ever been on the radio this week, managing to pick apart arguments presented by the FT’s Martin Wolf. The Tory Chancellor George Osborne, always more interested in politics than economics, is not wasting any opportunity to skewer Labour using much less sophisticated arguments.

Labour started their damage limitation strategy last Autumn by their leader, Ed Miliband: to try and change the subject. First there was the “cost of living crisis”, focusing on the failure of pay to keep up with prices. Now it is the top rate of tax, where they want to restore the 50% rate rashly reduced to 45% by the Coalition in 2012. Labour’s policy is popular, and the criticism coming in from business groups is unconvincing. These lobbyists say that reducing taxes, especially on the better off, is what is need to awaken dormant business investment. And the government has duly cut taxes (that top rate, and also the rate of company tax) without investment budging. The trouble is that Labour’s policies sound unfriendly to businesses, and therefore likely to stall growth and cause general taxes to rise.

It gets worse for Labour. The energy that drives their activists comes from opposition to austerity: fighting cuts which are seen as mean-minded and ideological. The theory was that the fighting the huge government deficit should be left until later, when the economy was growing. That “later” has now arrived. So how will Labour cut the deficit? Being specific about this, as they will have to be by 2015, will cause huge angst and disillusionment amongst their core supporters.

And in any case Britain’s electoral system is not so weighted in favour of Labour as some supposed. There is a pro-Labour bias in the distribution of seats it is true, but there is also a pronounced benefit to incumbency. When it comes to asking which seats the party will have to capture to win an outright majority it looks hard going. Battersea, the seat where I live, is a case in point. The Conservatives took it off Labour in 2010, but it looks very difficult for them to win back. In the last 3 years I have heard nothing from Labour, but regularly from the Tories; residents aren’t being given the impression that Labour are in contention. The hard fact is that modern politics, with fewer volunteer workers and high postal costs, is an expensive business. Labour surely do not have the money to capture enough marginal through trench warfare tactics in the marginals. They need a national landslide effect, such as they achieved in 1997 under the hated Tony Blair.

So what to do? A change in leadership is out of the question, especially as the most popular alternative, David Miliband, Ed’s brother, is out of contention. A ruthless reshuffle of the front bench might help, but only if it went alongside a wider change of strategy. I think promising more money for the NHS, struggling to keep up with demand, would play to their strengths. But they would have to have credible tax policies to back it up. Taxing just the very rich won’t quite cut it. But taxing a wider body of people would totally undermine their rhetoric on the cost of living. They have dug themselves into a real hole.

Their best bet may just be to keep calm and hope the Tories self-destruct. They show every sign of wanting to do so over the toxic issues of Europe and immigration. Labour’s best chance of benefiting from this tendency to suicide is to appear moderate and centrist. Not a good moment to lurch to the left.

And what of the Liberal Democrats? About half their voters at the 2010 election deserted them for Labour. The polls that show Labour sinking do not show any real benefit for the Lib Dems. But if the contradictions of Labour’s criticism become exposed in the next year or so, then they may get their opportunity. The centre ground, though treated with justifiable suspicion by many of their activists, is a sound place for them to stick to for now.

The Chris Rennard affair: the limits of a legal system

Just when I thought things might be looking up a little for the Lib Dems, the Chris Rennard affair comes back with a vengeance. While my own views on the affair will become clear, I want to use this post to reflect on wider issues.

Lord Rennard (as he now is) was the party’s chief executive, and the ruthless leader of a number of highly successful by-election campaigns. The peak of his influence was under the leadership of Charles Kennedy and the 2005 General Election campaign. This was the party’s most successful campaign, marked by a manifesto that I personally thought was a disgrace: an unprincipled list of policies designed to appeal to floating voters. Still, successful politics requires ruthless campaigning, and we can’t wish away the dark arts.

However, it emerged recently that his conduct towards some of the party’s female candidates was open to question. Legally proved facts are in short supply here, but a number of complaints from highly credible sources emerged to the public glare a year ago. A police investigation resulted. That’s the first problem. Nothing that I had heard about the accusations suggested that it amounted to criminal behaviour. It was inappropriate by the party’s liberal values, but lots of different sorts of behaviour meet that description without being criminal. But as soon as, inevitably, the police found nothing they could proceed on, his defenders came forward to suggest that he was completely exonerated.

This, of course, is one of the oldest tricks in the dodgy operator’s handbook. How often do you hear of somebody claiming that they are “innocent of any wrongdoing”. Scratch the surface and “wrongdoing” turns out to mean “criminal behaviour proved beyond a reasonable doubt”. There is, of course, plenty of doing of wrong that falls short of this. Ethics and the criminal code are different things, and lack of evidence is not proof that something did not happen. This is a real problem. Society sends out confusing signal to its citizens. I remember hearing on the radio of how school children in tough neighbourhoods get confusing messages. At school they are told that it is wrong to lie, that they should tell the truth for the greater good of all. But as soon as they get into trouble with the police, their legal adviser encourages them to lie like mad, or at the very least not cooperate. We do not honour people who take legal risks in the cause of truth; we just think that they are badly advised and a bit stupid.

Coming back to the Rennard affair, if we push past the deliberate obfuscation between criminal behaviour and inappropriate conduct, we are still in deep water. The party’s own adjudicator recommended that Lord Rennard apologise. This he has refused to do, citing “legal reasons”, though he has offered an expression of regret. The legal advice he seems to be getting is that any form of apology increases the risk of a civil case against him. I’m not sure just how true this really is, but it highlights a second problem for society: the excessive caution of legal advice. Ask a lawyer for advice as to how to behave and they will always err on the side of caution – advise you on what to do to minimise the risks of legal action against you. This is their job, after all. So they always advise against admitting any kind of guilt or apologising. This is corrosive to workings of a civilised society. That sort of advice is made to be disregarded at will.

A further defence (Lord Rennard has a lot of friends and defenders) is that he can’t apologise because he doesn’t know what he is supposed to apologise for. This is because the party’s report into the affair is confidential, and he hasn’t seen it in full. But it emerges that he has read the witness statements, which should be enough. So far as I am aware he was not instructed into exactly what his apology would say. You would think that a politician would be able to construct something that did not admit liability. This might well be regarded as inadequate by his accusers, but many are just looking for a face-saving way out. That usually means coming up with a formula that pleases nobody.

There is a more interesting and ethical argument that can be deployed to defend Lord Rennard. It is that you should not say things you do not mean, and that he genuinely does not feel that his behaviour warrants it. But given the liberal values he espouses, and the regret he has already expressed, surely there is sufficient ambiguity in his feelings to overcome such an objection? Of course, if he really can’t understand how his conduct was inappropriate then there is a bigger problem. Though, as ever, it is hard to know the extent that he is disputing the facts or the morality of his conduct. Our adversarial legal approach, where winning or losing matters more than the underlying logic of how you get to the result, does not help us get clarity on this.

There is another question posed by this affair, however, that does not reflect on Lord Rennard, but on his accusers. Why are they making such a fuss, and why now, so long after the events occurred? As I wrote when the affair originally broke, to a media frenzy, it is easy to detect some political ulterior motives. More deeply, is this part of a “victim culture”, where people are encouraged to blame their troubles on others, rather than trying to take control of their own fate? Some female critics of Lord Rennard’s accusers (I will not call them his defenders) seem to think so. Victim culture sells newspapers and does seem to be quite prominent – but it isn’t good for mental health, however justified it might look. This is a difficult issue though. It is not a good idea to ignore unacceptable behaviour. The more responsible journalists (like Radio 4’s Martha Kearney) have used to affair to discuss the whole issue of acceptable conduct at work – and that is surely a good thing.

We should not confuse right and wrong with the judicial process, and legal advice can cross the boundary into the unethical, and we should disregard it when it does. Slightly ambiguous apologies are one of the essential lubricants of social conduct. We should not ignore issues of wrongdoing, but we should know when to let go. This affair has gone on for too long; the longer it continues the worse it reflects on the main protagonists.

Nick Clegg is right to aim for the centre ground

This morning I got a grumpy email from the Social Liberal Forum, a left-inclined pressure group within the Liberal Democrats. It complained about the apparent support the party is giving to the Conservative policy of aiming for a balanced budget, and so a continuing diet of austerity. It criticised this idea for being economically illiterate. It went on that the policy was

Cold comfort … to the people having to choose between heating their homes and eating this Winter, to those forced to go to foodbanks to feed themselves and their children, to families struggling with the cost of living crisis

They also criticised the party leadership aiming at a “mythical place known as “the Centre ground””, and of being closer to the Conservatives than Labour.

All this illustrates the disarray on the British left on economic policy following the unexpected turn for the better the economy has taken. Previously the left could unite around the proposition that the government’s austerity policy was “too far, too fast”, causing hardship amongst society’s least well off. They took immense comfort from the support of many Keynesian economic heavyweights, who said that, in the absence of growth, the state should disregard the government deficit and stimulate the economy to get it moving – or at least stop making the situation worse through cuts. Hence the government’s supporters being “economically illiterate”. Yes they said, the government should tackle the deficit, but not until growth has been restored.

Though some might not realise it, that fox has been shot by the economic upturn. It isn’t that those economists were wrong, or that “too far, too fast” did not have economic validity at the time; it is that circumstances have changed. If the economy is growing, it is not a good idea to add further stimulus to it. And the “later” when the government should start to tackle the deficit issue has started to arrive. The awkward question that much government expenditure before the crisis was unsustainable, and would have to be cut in due course, cannot now be dodged.

In response the Labour party has changed the subject. Instead it is focusing on a “cost of living crisis” which they blame on badly behaving businesses, from energy companies to house builders. They are proposing a series of populist but economically naïve policies to change these companies’ behaviour. They appear to have no macroeconomic strategy, and the Shadow Chancellor, Ed Balls, is conspicuously floundering.

Politically, Labour’s strategy is interesting. Instead of following political conventional wisdom by chasing voters who float between the main parties (which is what is meant by the “Centre ground”) they seem to be chasing left-inclined or working class voters who will never vote Conservative, but who do not currently vote at all. Centrist voters are worried about the management of the economy, and seem to think that the Conservatives have the stronger case on that front. Instead of trying to reassure these voters by making it clear that they would continue with austerity policies to bring the deficit under control, they are chasing other voters.

What is even more interesting is that the Conservatives are also showing little interest in the Centre. Centre voters are worried about “fairness”, and the state of public services, where they trust Labour more. But instead of doing much to reassure voters here, they are stirring up headlines on immigration and the European Union, where they are proposing policies that are just as economically naïve as Labour’s. Again, quite apart from fighting off the populist challenge presented by Ukip, they seem so be after right inclined people who are not voting, but would never vote Labour if they did.

So if there is no serious contest for the Centre, and if both of the two bigger main parties are pursuing populist but foolish policies, there is surely an opportunity for the Liberal Democrats. Nick Clegg, their leader, is right to make a bid for this, which his party is doing with its “Stronger Economy, Fairer Society” slogan, which epitomises the centre ground. The critics within the party of this strategy are right to point out that this is not ideological secure space, and will do little to built the party’s weak core vote. But if the party is to hang on to its representation in Parliament it will need the support of floating voters.

And so to economic policy. George Osborne, the Conservative Chancellor, is wrong to make a fetish of budget balance – and perhaps deserves to be called economically illiterate to do so. But it is economically sensible to manage the public’s expectations on what the state can afford. It may be that some economists are right, and that a “trend rate” of economic growth of 2-3% per annum is there for the taking in the medium to long term, as everybody seemed to think before 2007. But there are good reasons to suppose that they are wrong, and that much slower growth is “the new normal”, once a bit of catch-up growth is over. If so we will have to get used to a much smaller state and a less generous benefit system. Floating voters sense this, and will not vote for the Liberal Democrats if they think that they might help the Labour party take risks by reversing austerity. Nick Clegg may or may not be economically illiterate, but he is surely right on that one.

Labour can win in 2015. A disaster beckons in 2020.

Is it just me, or can I see a certain spring in the step of Britain’s national politicians? Ever since the party conference season last September they have been focusing on one thing above all: winning the General Election due in May 2015. The perplexing state of the country is now simply a source of ammunition to batter the other side. Actually solving the problems can be left until afterwards. What a relief!

The Labour leader, Ed Miliband, is having the better of it, if the relentlessly superficial media chatter is to be believed. This is quite a turnaround, since the same chatterers had him as toast as late as August. He has abandoned his party’s “too far, too fast” criticism of the government’s austerity policies, which helped rally the faithful (and rattle Lib Dem activists) but cut little ice with the country at large. The recovery of the country’s economic statistics has not invalidated their argument, but it has made it far too complex a proposition to argue, especially since their rhetoric had placed far too much reliance on these “flatlining” statistics in the first place. Instead they are focusing on living standards, and things, like fuel bills, which affect them.

From a campaigning perspective, this change of tack is astute on at least two counts. First, it appeals to direct personal experience, rather than the ephemeral world of economic statistics, to which the country’s GDP growth statistics belong. Second, it is such an intractable problem that the government is unlikely to be able to neutralise it. All that remains is to find some eye-catching policies to embarrass the government and keep the political debate on their ground. The centrepiece of this is the pledge to freeze energy prices for two years if Labour takes power, while they put in place a longer term fix to limit the damage inflicted by the greedy energy businesses they blame for the problem. A second push has been to enforce a “living wage” significantly higher than the legal minimum wage, through government procurement, and a tax break for employers who raise their wages.

In this line of attack Mr Miliband is the first of our national politicians to make political capital out of one of the most important developments in the British economy, along with many other developed economies, notably America’s. For the majority of people, wages are not keeping up with growth in the wider economy. In Britain this trend was clearly established, I read in this piece by Chris Giles in the FT, 2003/04; since 2010 (i.e. when the current government took over) wages have not even kept up with average prices. The benefits of growth are going to mainly to a privileged elite, while government interventions tend to be focused on the other end of the spectrum: the very poor. While the main economic issue is slow growth of pay, the main flashpoints are in taxes (especially for things like fuel) and energy costs.

There is, however, a snag. How on earth to actually fix it? This does not seem to bother Mr Miliband too much. His policy proposals are at best ineffectual, and at worst will actually make things worse. In the field of energy Britain is being overtaken by a crisis, as old nuclear and coal-fired power stations are shut down, and replaced by renewable energy sources that place wholly different strains on infrastructure. What the country badly needs is investment, in new capacity, and, especially, in distribution infrastructure (e.g. moves towards a “smart grid”). Just how Labour’s attack on the energy companies is going to solve this problem is, to say the least, unclear. And, if some of what I read is true, the pressure will break out into real problems in two or three years time. Labour’s living wage policies are no better thought through. Using government procurement to do heavy lifting in this area, along with many others, risks weighing it down with compliance costs – a process that tends to push out smaller businesses, as well as inviting scandal and fraud. The tax break looks totally unsustainable and an invitation to unscrupulous companies to manipulate the system.

The Conservatives are planning their counterattack. There is growing talk of 1992 (which this blog has long been banging on about), when a well-funded late campaign destroyed what had seemed to be an inevitable Labour victory. They will focus, probably, on frightening voters about the economy and taxes; their newspaper allies will concentrate on personal attacks on Mr Miliband to undermine his credibility as a prime minister. The Lib Dems are crafting a “centre ground” campaign, no doubt hoping to benefit from the damage the big parties will do to each other.

I have urged my readers not to underestimate the Conservatives. That advice still applies. But my current instinct is the Labour will weather the storm enough to form a minority government. That is when Mr Miliband’s problems will start. The country will face electricity shortages; clever schemes to enforce the living wage will unravel; living standards for the majority will stay under pressure; Labour activists and trade unionists will be on the government’s case to raise benefits and expenditure. The calamity that has struck Nick Clegg and the Lib Dems will visit Labour, for very similar reasons. I understand Labour’s strategy for winning in 2015; how on earth are they going to win in 2020?

One cheer for Ed Miliband

The focus of British politics is now clear. The prospects of the different parties at the General Election due in May 2015 dominates everything. No doubt it is with relief that the political elite and their coterie of journalists and commentators focus on this question, rather than the much more difficult one of how to make this country a better place for its citizens. The defining event of this year’s conference season so far has been Labour leader Ed Miliband’s speech. For good or ill, he seems to have set the political agenda. But does this tell us anything about whether Labour really would do a good job of running the country?

To read the commentaries, Mr Miliband has made a decisive shift to the left. He did this by focusing his ire on big business, and threatening them with government action. There were two signature policies. One was forcing energy companies to freeze their prices while the government reconfigured the regulatory regime to squeeze them more permanently. The second was forcing private sector developers to “use or lose” their land banks to build houses. All this in an attempt to reverse the decline in living standards that the bulk of the population has suffered since the economic downturn started in 2008.

Commentators of the right and centre, such as the Economist’s Bagehot column, interpret this as Labour vacating the decisive “centre ground” of politics, where elections are won and lost. This is the ground which the Liberal Democrats’ Nick Clegg is trying to push his party into, in spite of grumbles by older activists. The Conservatives’ David Cameron is likely to stake his claim there too, and ignore the voices of his party urging him to adopt right wing populism to fend off the threat from Ukip. They will attack Labour’s policies as unworkable, and part of a failed socialist outlook. Mr Cameron will offer tax cuts as a surer route to improving living standards; Mr Clegg will offer tax cuts too, though rather narrower ones, and something about tackling barriers to social mobility (affordable child care, better schools, etc.).

Commentators of the left, like the Guardian’s Jonathan Freedland, do not deny Mr Miliband’s leftward lurch and seem quite content. His new policies are popular with the public, and have lifted Labour’s poll ratings; there may be many more populist left wing policies, bashing bankers and big business that will go down well electorally. With a large chunk of the previous Lib Dem vote going to Labour, and the Conservatives struggling with Ukip, the next election is Labour’s to lose.

But rather than evaluate these calculations at face value, let’s pause and step back for a minute. All this looks like the narcissism of small differences. All three parties remain firmly embedded in much same policy space. Mr Miliband would have made a decisive step to the left if he had outlined a policy of increased public spending, funded by extra taxes. In this way he might be able to halt and even reverse the relentless squeeze on benefits and public services. But he has decided not to; instead his party will have to make something in the region of £26 billion of cuts in the next parliament (a number I have culled from this perceptive article by the Resolution Foundation’s Gavin Kelly in the paywalled FT). He has said nothing about where these cuts, or increased taxes, will fall. The Conservatives would be making a radical shift to the right if they were proposing to make deeper cuts to the state, which they can only do if they cut the NHS (or rather make the public pay for more of its services) and old age pensions. There is no sign of that.

And there is something else. None of the parties is embracing more than gradual or token decentralisation of power from Westminster. Instead they argue over this, that or the other centralised tax, subsidy or regulatory regime. This can be seen in the season’s signature policy ideas. Mr Clegg has announced free school meals for English school infants; all of them, everywhere, because it looks like a clever idea based on a couple of pilot schemes. Mr Miliband wants to bash energy companies through central regulation: but how does this help solve the country’s slow path to reducing carbon emissions? And what on earth is the point of the Conservatives’ tax break for married couples?

But Mr Miliband deserves credit for one thing. He, alone amongst the three party leaders that I can see, has pointed out one of the two central challenges of the British political economy. That is that the benefits of economic growth are bypassing most people. This is nothing new, but economic stagnation is making it hard to gloss over. It arises primarily from technological change, and its effect on manufacturing industry and office work, helped along by the rise of globalisation. The problem isn’t that our tax and benefit system is failing to redistribute wealth, it is that increasingly wages are too low in the first place.

But there Mr Miliband’s insight seems to end. He seems content to blame big “predator” corporations, and offer the hope that better regulation will help. He didn’t even mention the second great challenge, which is that real terms funding for public services and benefits will fall rather than rise in the years ahead. He offers palliatives rather than solutions. Britain’s right and centre are no better.

What is the solution? In my view there are three interrelated elements. Improve the education system so that skills better balance where the jobs are in future. Redesign public services and benefits so that they can be tailored to individual and community needs. Strengthen local networks to counterbalance the effect of the rise of centralised, winner takes all networks. These three require a radical decentralisation of power. How long will it take before our political classes start to realise this?

The battle the Lib Dems’ soul

On Saturday the Liberal Democrats’ main annual conference starts, this year in Glasgow. As this parliament moves from mid-term to end-game, the party’s professionals will no doubt want us to focus on the fight for survival at the next General election, scheduled for 2015. I am more worried about the party’s soul.

Being part of a coalition government has been a searing experience for the party. It remains strong in some areas, but it is much weaker through most of the country, as members, activists and supporters have drifted away. In national opinion polls the party languishes at about 10%, or about half the level it achieved in the last General Election in 2010. It used to be that the party was ignored as an irrelevance. That problem has been solved, at the cost of it coming under relentless attack from all sides: from the party’s coalition partners, the Conservatives, from the Labour opposition, and less attached observers generally. Most of this criticism is not particularly fair, but that’s politics. It is a necessary stage in the party’s evolution if is ever to be a major political force. But it is not entirely clear that the party will survive the experience. If it is to survive, the party will need to have a clear idea of what it is for: otherwise it will fail to recruit new activists and win back the people that have drifted away.

The party’s leadership, and its professional staff and advisers, seem to concentrating on another question, however. And that is the case that the party needs to present to voters in 2015. There is some clarity on this, as suggested by the party’s slogan: “Stronger Economy in a Fairer Society”. Framed positively, it is actually a double negative, contrasting with Labour’s alleged economic irresponsibility, and the Conservatives’ focus on making lifer better for the rich. This is fine as far as it goes: negative messages have a wider appeal than positive ones, and it should help the party benefit from the negative campaigns the other parties will wage on each other. But it is not enough to rally the faithful. Firstly because many are not convinced that the Coalition’s economic policies have been right, and secondly because, without spending more on public services and benefits, it is not clear to many how society is to be made fairer.

And here, I think, we come to a much wider crisis in British politics. Politics is increasingly the domain of a professional political class who have spent their entire working careers in politics or at its fringes. They pick up their ideas on policy from a series of lightweight think tanks and university politics departments. Their main concern is to compete with each other to attain the status and prestige of office. They operate within a series of assumptions about what government is and how it works: that it is about adopting the right policies at the centre of government, passing the necessary laws in parliament, and then getting the civil servants to implement them. Missing from this are two things: any clear idea of how power can or should be devolved away from central government, and practical skills in the design and implementation of policy. It seems to be quite fashionable amongst political types to blame the civil service for policy failures at the moment. And yet civil servants are often asked to implement policies that have not been thought through, and which are often contradictory. The politicians and their advisers don’t seem to see it as their problem to resolve the contradictions, as this carries political risks.

And this criticism applies to the Liberal Democrats as much as it does to the Labour and Conservative parties. The party’s MPs are mainly professional politicians with little experience in either the outside world, or even in local government. They are surrounded by like-minded professionals who want to be MPs themselves. They are charming, intelligent people – but do they really understand how to make things work? Or what motivates the army of amateur enthusiasts that the party needs to keep going?

What I think is needed is for politicians to hold a different model of government in their heads: one that pushes political power away from the centre so that local communities can solve problems for themselves. That sounds like advocating support for motherhood, but it means rejecting generations of accepted social democratic wisdom, which sees issues in terms of generic problems – crime, healthcare, unemployment, etc. – rather than people. The old Liberal Democrat idea of community politics is a very good place to start this revolution – and no other political party has a better tradition to build on. But neither the party’s national professionals, nor, I am afraid, its younger activists seem to have much idea of what this is all about.

So, in Glasgow next week, I will not be paying so much attention to the grand set-pieces – though I will still follow them with interest – but I will be looking for any signs of bigger ideas taking hold: ones that will shape the party’s soul, and offer the country at large real hope.

The battle for Britain’s political centre

The idea of a centre ground in politics, where elections are won and lost, is a persistent one, especially here in Britain (and England in particular) and in the United States. Winning politicians are said to “triangulate” a political position in this centre ground; notable exemplars of this idea were Bill Clinton and Tony Blair. David Cameron is supposed to have rescued the Conservative Party from oblivion using this strategy in 2010 to turning it into the UK’s largest party, if not outright victory. Now, in Britain, there is a lot of talk about it, and what political strategy each of the three established main parties (Conservative, Labour and Liberal Democrat) should be; take this article, Both the Tory and Labour leaders need lessons in politcal geometry by Andrew Rawnsley. What to make of this?

This all starts with the idea that political views can be placed on a spectrum with the left at one end, the right at the other, and ground, the centre or middle, in between. Over the years I have repeatedly heard people claim that this idea is no longer a helpful analysis of modern politics. But it is remarkably persistent, and it appears to have been helpful to Messrs Clinton, Blair and Cameron. What seems to define the left-right spectrum is attitudes to social solidarity and the state. On the right there is a strong view that individuals are responsible for their own wellbeing, and that the state should do the minimum to help them, because such help is counterproductive. This view unites social conservatives, distrusting socialist values, and economic liberals. On the left there is a feeling that most people have little influence on their social outcomes, especially poorer people, and that they should band together, organised by the state to tilt the odds back in their favour.

And for all the talk about the differences between the political parties disappearing, it is very easy to see this fault-line separating the core followers and activists in the Conservative and Labour parties. Think of the last Labour government’s attempt to get state supervision, through Primary Care Trusts, local authorities and other agencies to take a broader role in achieving social outcomes, like reducing “health inequalities”. Compare this to Tory ministers who delight in dismantling this infrastructure in the name of austerity.

But elections are clearly won and lost by floating voters, who aren’t convinced by the true believers of either party. Appealing to these voters makes the two main parties look very similar in terms of their election promises at least. Strange then that both parties seem currently more concerned to shore up their core votes and activists, rather than make a play for the centre. By this stage before Mr Blair’s victory in 1997, he and Gordon Brown were challenging the party’s core supporters by, for example, signing up to the Conservative austerity policies and promising not to raise income tax. Similarly Mr Cameron was doing photo ops in the Arctic with huskies to show his concern for global warming well before the 2010 election.

But the political priorities have changed. Neither party has made its activists so desperate for power by being out of office for a decade that they will sign up for anything. Labour needs to nurture the anger felt its supporter by the current government’s austerity policies, especially amongst those claiming benefits and those employed, or formerly employed, in the public sector. The Conservatives are shaken by the rise of the distinctly right wing Ukip, who are stealing away its core activists, even if they are also pulling in actual votes from elsewhere too. Both parties will need its foot-soldiers when the next general election arises in 2015.

But there may also be a bit of a problem for those chasing votes in the centre: the centre itself is fragmenting. This is suggested by some survey work reported in The Economist a couple of weeks ago, here. On the one side are those whose living standards are being squeezed (one definition of the “squeezed middle” of which much has been talked). These people are not just those in the direct line of fire of cuts, but those who were not particularly well off, and are now finding that their income is frozen while prices keep going up. These voters are open to Labour’s rhetoric about the government’s failed economic policies, and ideas for kick-starting it with things such as a temporary cut in VAT. A second group of centrist voters are not badly affected in their personal living standards, and are much more convinced by the government’s line that austerity is a necessary evil, following the irresponsible profligacy (by both government and individuals) that occurred under the last government. Each side seems to be doing a reasonable job of appealing to one of these two groups, but not headway in appealing to both. This does not add up to a winning majority for either party.

The big unknown is how the economy will be faring in 2015, as this could influence the balance between these groups. The Conservatives hope that the current fragile recovery continues, inflation falls and people feel that things are getting better; they will then be less willing to risk any change in economic policy. If economic stagnation predominates, Labour narrative might get stronger, though. No doubt both parties are keeping their powder dry to see how things shape up. The Conservative fall back will probably be to persuade the squeezed middle that Labour’s policies will mean higher taxes for them. Labour might do a Blair and say that they will adopt the government’s current spending plans except for some carefully chosen minor exceptions, and so reassure the better off middle. Of these I think the Conservatives will be the more credible, and combined with Mr Cameron’s politically well crafted policy on Europe, the party will do much better than people currently expect.

And what of the Liberal Democrats? They do not have a heartland in either left or right, but it is wrong to suggest, as Nick Clegg is prone to, that it has an ideological affinity to centrist voters, as the centre is not a coherent ideological group. The big problem for them is that they are very much on the government side of the economic debate, and will struggle to appeal to the squeezed middle, though banging on about raised income tax thresholds is meant to neutralise this. But the collateral damage that the Labour and Conservative party’s do to each other in the campaign could help them. They can try to develop the idea that centre voters are better off backing a centre party, which moderates the left or right through coalition, rather than trusting the main party ideologues to stick to their manifestos. So far though, that line of argument seems to be getting little traction.