Privilege doesn't start with The Rich

 Janan Ganesh in The FT 

There is a standard-issue Russian tycoon called Dimitry on board the yacht. There is a social klutz who is something in tech. There is, in a gallant stab at originality, an arms-trading couple in the November of their lives.  

When a storm sinks this ship of fools, beaching them on an island, the dominion of passengers over crew starts to flip. You see, the rich are all thumbs when it comes to survival skills. The toilet attendant can harpoon fish and make fires. (Poor people famously attend Navy Seals camp when young.) Watch her become queen of the island. Watch a male model give her some loving for extra rations.  

Triangle of Sadness, while an unworthy Palme d’Or winner, whacks the super-rich entertainingly enough. But here’s a thing. I too have a cleaner. And that puts me in a minority of the public. I dine out most nights, and with some fussiness, which further narrows the economic company that I keep. Last month, I incurred a £25 surcharge rather than keep an appointment with a Sky crew who were coming to install a dish. I couldn’t be bothered to race home from coffee with a friend and it was losable cash. 

I am just 'upper middle class'. But my life is one of late-Roman decadence next to that of the median earner. If you are a corporate lawyer (not even a partner) so is yours. If you send your children to a private school, or live in the catchment area of an acclaimed state one, so, most likely, is yours. 

Much too much is made of the super-rich. And it is made by an upper middle class that is hardly more in touch with the national average. Take it from a social climber of some aptitude. Take it from a veteran of (I reckon) each household income decile since the age of five. The inflection point on the economic scale comes much earlier than you think. Something dramatic happens between, say, £30,000 a year and £130,000: a sharper change in the texture of life than occurs between the second number and a million. The first jump affects what you can do. The second tends to affect merely how.  

The upper middle class can rent in nice districts of world-class cities. The rich can buy there. The average can do neither. The upper middle class can fly to another continent. The rich can fly business. The average must plan and economise to do either. Having passed through the same universities, the upper middle class and the rich are often of a cultural feather. Diplomat can speak unto hedgie. How often does either befriend a nongraduate Band 5 NHS nurse? Or marry one? 

The obsession with a small overclass distorts public life in all sorts of ways. One is a sort of innumerate confusion in politics. No, you won’t fund the welfare state of your dreams by squeezing plutocrats alone. (Nordic taxes ask a lot of the merely well-off.) And no, inheriting £800,000 of property isn’t normal. 

Another is bad art, the kind that fancies itself subversive but spares most of its audience. There is always a painting or video installation nowadays about the cupidity of those able to buy it. That the curator, the agent and even the front-of-house team live lives of pure exotica next to the national average gets lost in the righteous gaze up at the one per cent of the one per cent. 

This is where Triangle goes wrong. In having to reach so far up the income scale to find bad behaviour, the film achieves the opposite effect of its intended anti-elitism. It absolves everyone south of the Coutts current account income threshold.

If Ruben Östlund, the director, thinks the mistreatment of service staff is peculiar to the super-rich, I have a film proposal for him about the cafés of London. Opening scene: the press-ganging of a waitress as auxiliary childcare by yuppie parents. When the upper middle class are rude, it is precisely because they have to try to put distance between themselves and the service class. With the richest, the gap is too obvious to need underlining. At times, it seems, good manners do cost something. 

Inflation: managing the threat to your pension

John Plender in The FT

 
Lenin, the Russian revolutionary leader, is said to have remarked that the best way to destroy the capitalist system was to debauch the currency. 

The Bank of England currently forecasts that inflation in the UK will soon top 10 per cent. This falls short of outright currency debasement. Yet we live in an economy where the capitalists are no longer a tiny group of rentiers and rich business moguls but ordinary people with savings tied up in pension schemes. 

With the general price level rising at the fastest rate since the 1970s there is a serious threat to UK retirement incomes. 

Behind Lenin’s aphorism is an important political truth, namely that inflation brings about a transfer of wealth from creditors to debtors that is unsanctioned by democratic or legal process. 

Because inflation is a monetary phenomenon, the big winners in investment terms tend to be owners of assets that act as a residual sink for the excess money created by central banks. Real assets such as property are an obvious example. So, too, are energy companies and commodities including gold. 

Some argue that crypto assets fall into the same category. Certainly they have been boosted by ultra-loose monetary policy since the 2007-09 financial crisis. But, as I argued here in a piece on the respective investment merits of bitcoin and gold in April, the record of crypto as an inflation hedge is unproven and bitcoin’s performance in recent months has been disastrous in terms of providing a haven against spiralling prices. 

The big losers from inflation are fixed-interest investments such as gilts — a core holding in British pension funds. The capital value and income stream shrink in real terms and tend to underperform equities when price levels are rising fast. 

Debtors who have borrowed on fixed-price contracts enjoy a windfall, notably the government. And since much property is financed by fixed-interest debt, property investors can experience a double win as the value of the asset goes up while the real value of the related debt goes down. 

For savers and pensioners, this underlines the importance of avoiding bonds, and shifting to real assets and value equities which tend to outperform in inflationary times. 

Where possible, it makes sense to fix mortgage rates for longer while nominal interest rates are still at historically low levels and real interest rates will remain negative in the short to medium term. 

The losers from inflation are people on any kind of fixed income — such as annuities — and householders who rent rather than own. 

No perfect answers  

But there are no perfect investment antidotes to inflation and even property is not a foolproof protection, as experience in the late 1970s demonstrated. In my book That’s the Way the Money Goes, published in 1982, I chronicled how many large pension funds incurred huge losses in real estate. The ICI and Unilever pension funds, for example, took devastating hits from their investment in speculative property development in continental Europe, undertaken in both cases in joint ventures with dodgy entrepreneurs who had been severely criticised by Department of Trade inspectors. 

Back then, pension funds were minimally regulated and not required to reveal their finances. Fund managers were panicking as the retail price index reached a year-on-year peak of 26.9 per cent in 1975 and doing inadequate due diligence in their search for havens against the inflationary storm. 

Today, there is greater transparency and funds are so heavily regulated that the risk of such accidents is lower. But management matters. Property does not lift all boats during periods of high inflation. 

Note that there were no index-linked gilts in the 1970s. Yet today, paradoxically, index-linked securities fail to provide any protection against current 7 per cent inflation in the short run. 

This is because they are driven by relative real yields rather than inflation per se. That is, when the yield on nominal gilts rises closer to the rate of inflation the negative real yield falls. So the negative yield on index-linked bonds has to shrink to remain competitive, causing the price to fall. The longer the maturity, the greater potential for loss. Earlier this week the price of the 2068 index linked gilt was down more than 44 per cent since late November — an astonishing plunge. 

Investment returns in the first quarter of this year, when investors came to distrust the central banks’ claim that inflation was transitory, confirm this broad picture around winners and losers. 

According to consultants LCP, fixed-interest gilts delivered a return of minus 12.3 per cent, while index-linked showed minus 6.4 per cent. Overseas equities delivered minus 2.5 per cent, trading under the shadow of rising interest rates and the war in Ukraine. UK equities were positive at 0.5 per cent, no doubt reflecting the energy, commodity and financial services bias of the UK stock market, while commercial property led the field with a positive return of 4.6 per cent. 

Some protection in defined benefit funds 

The impact of inflation on pension scheme members varies according to the nature of the scheme and members’ individual circumstances. Defined benefit schemes, managing £1.9tn of assets at the start of the decade, provide good protection for those still in work because the pension promise is in most schemes related to final pay. 

For defined benefit scheme members their fund’s investment performance is thus of no great importance — unless, that is, the fund is in deficit and the employer is at risk of bankruptcy. If the sponsoring company becomes insolvent and the scheme does not have sufficient assets to meet its pension commitments the official Pension Protection Fund will provide a safety net. But for many the compensation provided by the PPF will fall short of the level they expected. 

Once retirement is reached there is a hierarchy of pension winners and losers. The biggest winners are civil servants and public sector workers whose defined benefit pensions are fully indexed. Where the retail price index is the yardstick they are arguably on a gravy train because the RPI is based on an outdated arithmetic formula (called the Carli index) which official statisticians claim results in systematic overstatement of inflation. 

Where trust deeds permit, pension schemes are now required to change the indexation benchmark to the more realistic consumer price index. But there is a residue of pension scheme members for whom the RPI will continue to deliver an unwarranted bonus, creating inequality within many funds. A further complication is that neither index may be representative of a given individual’s spending patterns. 

Very few private sector defined benefit schemes offer complete indexation of benefits. They usually incorporate an inflation cap, typically up to 5 per cent, so pensioners are dependent on trustees paying discretionary increases to shore up their living standards in a high inflation environment. The ability of trustees to do this is constrained by the high proportion of assets devoted to liability matching which involves pairing the timing of pension outflows with bond cash flows around the same dates. 

The Office for National Statistics estimates that at the end of 2019 nearly 70 per cent of direct investments in private sector schemes were in long- term debt securities of which three-quarters was in gilts. This means that the return-seeking portion of these portfolios, out of which discretionary pension increases can be paid, is limited. That could be a serious impediment to such increases if inflation were to go much higher. 

Defined contribution plans at the mercy of markets 

With defined contribution (DC) or money purchase plans, investment returns are crucial to the level of pension that scheme members receive. The latest pension survey by the ONS noted that there are now 22.4mn people in DC schemes compared with 18.3mn in DB. 

This reflects the closure to new members of countless private sector DB schemes as employers baulked at the cost supporting them. They have thereby shifted the risk of pensions funding to the employees, although they continue to pay contributions into DC schemes. 

Because this switch from DB to DC is relatively recent, gross assets of DC schemes were only £146bn at the end of 2019. So 94 per cent of the total gross assets in occupational pensions in the UK are still held in DB schemes. 

Most DC money is in pooled funds. While members are offered a menu of investments from which to choose, the majority go for a default lifecycle option. For most of an employee’s career this will involve a bias towards growth assets such as equities. Much of this will be in passive funds that match market indices. So for the purpose of beating inflation, scheme members have a binary dependence on market movements and the skills of active asset managers. Then, as retirement approaches, the portfolio is rebalanced towards so-called safe assets such as nominal and index-linked gilts. 

For those in the period between de-risking and retirement this ineptly and misleadingly named de-risking process is a formula for value destruction at a time of rising inflation because interest rates rise and bond prices fall. As mentioned earlier, the scope for capital loss in index-linked gilts is considerable. 

Of course, scheme members who are about to make the shift away from a growth bias today will have the benefit of cheaper bond market valuations after the recent inflation-induced falls in gilt prices. Yet there is a strong likelihood of further falls if gilt market yields revert to anything remotely near historical norms. 

Rather than taking cash or converting their pension pot into an annuity most scheme members taking the default option will end up with a drawdown arrangement where they can take money out of their fund at times of their own choosing to suit their retirement needs. The asset allocation at retirement will usually consist of a mix of equities and bonds. 

The big worry then is whether stagflation — a combination of inflation with low growth — will play havoc with the portfolio because low growth is bad for equities while inflation is bad for bonds. The benefit of portfolio diversification may therefore be lost. 

Central bank policy switch raises big questions 

Today’s DC scheme members are substantially at the mercy of policy driven markets. After years in which asset prices have been artificially inflated by the asset buying programmes of the central banks — quantitative easing — central bankers have changed gear. In the past fortnight the US Federal Reserve and the Bank of England have raised interest rates while the European Central Bank is widely expected to raise rates in July. All three are expected to shrink their balance sheets, withdrawing their buying power from the bond markets. 

Signals from the Fed weigh heavily on global markets including the UK. According to former New York Federal Reserve president Bill Dudley the Fed wants a weaker stock market and higher bond yields to help tighten financial conditions in the face of soaring inflation. 

The move to quantitative tightening will raise a big question as to what level of yields will be needed to attract non-central bank buyers to fund high government spending after the pandemic. 

Another question is how far inflation expectations have become entrenched or “de-anchored” in the jargon. The big lesson from the 1970s was that if central banks do not act fast to curb surging inflation and expectations become unmoored it takes a bigger recession to cure the inflationary disease. Today’s high inflation numbers suggest that they have left remedial action very late. Engineering a soft landing will be an intricate and dangerous balancing act. 

Misery for annuity holders 

That brings us to the bottom category in the hierarchy of pensions winners and losers. This concerns DC scheme members who have converted their pension pot into fixed annuities over the past dozen years. In effect, they have been stiffed twice over by the central banks. First, because quantitative easing led to overblown bond market prices and thus dismally low yields from which to pay annuities. Second, by going slow in their assault on inflation the central banks have further undermined the real value of already low annuity incomes. 

Fortunately, the number of DC annuitants will be very low because so many scheme members have taken the default lifecycle drawdown option. But that will not mitigate the misery of those who, not unreasonably, sought a secure and predictable retirement income. 

However, the scope for accidents among those who have gone the drawdown route is now very high because of the uncertainties created by soaring inflation. Working out the need for cash in retirement is a challenge in non-inflationary times. Now it is even tougher, with the additional worry that a shortage of care home workers could mean that the cost of late life care will rise much faster than consumer price inflation. 

With the cost of living crisis raging, workers’ pension contributions will be harder to keep up. Former pensions minister Sir Steve Webb points out that there is a real risk that cost of living pressures may lead workers aged 55 and over to take advantage of “pension freedoms” legislation to raid their pension pot before they reach retirement age. In a letter to The Times, he says that with a growing number of workers getting no inflation protection from their workplace pension, the role of the state pension will become even more important. So will the need for next year’s state pension increase to properly compensate for inflation. 

Inflation reallocates risk 

To return to Lenin, capitalism is not at risk from today’s inflationary pressures. But the hierarchy of pensions winners and losers demonstrates the random and arbitrary way in which risk is being reallocated within society. With so many DC scheme members putting too little into their pension pots to secure a half decent retirement income even before this burst of inflation occurred, a looming retirement poverty problem will now be exacerbated. That underlines the imperative need to bring inflation back under control.

Why the panic among Boris Johnson’s allies? Because they know Brexit is unravelling

There is an air of desperation in attacks from those on the right and their supporters in the press. They fear if Johnson falls, the Brexit deception will crumble too writes Michael Heseltine in The Guardian

‘ 


Did something change this month? Having proclaimed the Brexit referendum triumph of 2016 as the unique achievement of Boris Johnson and praised his historic success in the election three years later with the slogan “get Brexit done”, did the wreckers of the European dream slowly begin to realise that if Johnson goes, it shifts the sands from beneath their feet?

I’m the president of European Movement – Andrew Adonis is chair – and between us we agreed that this link needed a public airing. Learning from the direct and simple messaging of the anti-European newspapers, we felt the phrase: “If Boris goes, Brexit goes” said it clearly enough. Adonis duly tweeted it, to the horror of the pro-Brexit press.

The past few weeks have been a torrid time for the prime minister. He designed a set of restrictions he said were of critical importance for our safety and for the ability of the NHS to cope with the pandemic. He was right to do so. But disclosures since give the clearest impression that he not only broke the rules, but that he also misled parliament.

Johnson said he would accept the findings of Sue Gray’s inquiry, in stark contrast to his treatment of Sir Alex Allan’s report into the home secretary’s behaviour in 2020.

I believe he is entitled to insist that matters are not prejudged prior to the release of the full findings of the Gray inquiry, and the completion of the Metropolitan police investigation. I do not believe in the rule of the mob.

But a great deal hangs on this. If the prime minister is found to have lied to parliament and to the people, what defence is there to the allegation that the Brexit cause – mired in similar controversy over lies and dissembling – was conducted with the same disregard for the truth?

We all have a clear memory of the Brexit campaign and what was said. That we were being run by Brussels. That European restrictions were holding back our economy and lowering our living standards. That we could keep all the benefits of the single market and customs union, while negotiating trade deals with faster-growing countries in a world that was shifting east. That we had to regain control over our borders. That there would be no new border between Northern Ireland and mainland Great Britain, and that the Good Friday agreement, having ended years of strife, would be fully honoured

Theresa May became prime minister and immediately handed important offices of state to the three leading Brexiters. Boris Johnson went to the Foreign Office. David Davis went to the Department for Exiting the European Union, and Liam Fox to the Department for International Trade. They had their hands on the levers of power for two years before Johnson and Davis resigned, claiming their jobs were impossible.

Having ousted May, they claimed that a bare-bones trade deal – without most of the benefits of the customs union and the single market – was “oven ready” and would “get Brexit done”. In a straight contest with the unelectable Jeremy Corbyn, Johnson secured his mandate.

Except their deal didn’t “get Brexit done”. Within months it had seriously frustrated trade between Northern Ireland and Great Britain, and the government threatened to tear up the very deal it had itself negotiated to safeguard the position of Northern Ireland. Lord Frost resigned from the cabinet as Brexit minister last December after less than a year, complaining of the Covid strategy but also bemoaning that, regarding Brexit, the correct agenda was not being pursued.

Characteristically, he gave no detail as to what that agenda should have been or who was holding it up, but the villains were familiar: the metropolitan elite, the civil service, the BBC, Brussels, the remoaners – more or less anybody, and now including myself and Andrew Adonis. Everyone except the actual people in positions of power.

That is why February 2022 feels so significant. The cry has been growing louder. The right wing has been circling. Letters have been landing on the chairman of the 1922 committee’s desk. Something must be done. Reshuffle the pack, create a new government department and put yet another Brexiter in charge to pluck all those low-hanging plums that proved beyond the reach of predecessors.

Anyone with experience of Whitehall knows what happens next. The nameplates will change and the same civil servants will have new titles without actually moving their offices. But they will face exactly the same questions that have now been unanswered for five years. What is Brexit all about?

Jacob Rees-Mogg, Lord Frost’s spiritual successor in his new role as minister for Brexit opportunities, has a novel approach. He told the Sun last week that he is bypassing the civil service to ask if anyone else in the country has any ideas about Brexit benefits. Sun readers are invited to write to him with suggestions and he will see what can be done. But that too is revealing. One of the first tests officials apply to new ministers is to ask if they know what they want and to assess whether they have the ability to communicate that to them. I am afraid that Rees-Mogg has not passed this test, which is all the more surprising as he had plenty of time lounging on the government frontbench, listening to suggestions from Brexit-supporting Tory MPs.

So did something happen in February 2022? Maybe it’s just a feeling, a cloud no bigger than a man’s fist, the first breath of wind before the storm when the Daily Mail and the Daily Telegraph employ two of their most renowned columnists to attack Andrew Adonis and myself, merely for making the point that their hero may have feet of clay and take the Brexit house down with him. Perhaps they have smelled the wind, just as I have.

Reasons Not to have Sex

 

Making GDP the focus of a post-coronavirus economy would be a mistake

Growth often doesn’t benefit the people who need it – a green economy could create 1 million jobs writes Carys Roberts in The Guardian

 

‘A green recovery does not mean adding on a few green job programmes to a larger, fossil-fuelled stimulus.’ Low Bentham Solar Park, North Yorkshire. Photograph: Peter Byrne/PA


The UK lockdown might be easing, but the path ahead for the economy will be long and difficult. Unemployment this quarter is likely to rise twice as fast as it did following the global financial crisis. Almost half of businesses that have taken up one of the government’s bounce-back loans do not expect to be able to pay it back.

It’s tempting in a crisis to want to do whatever it takes to get economic activity – measured by GDP – back to where it was before. But an overwhelming and singular focus on increasing GDP would be a mistake. GDP figures do not tell us who is benefitting from growth. GDP does not tell us whether environmental resources – and nature – are being dangerously depleted, and does not reflect the value of caring, much of which is performed by women.

Boris Johnson has called for the UK to “build back better”, but to use government resources and capacity most effectively and – more fundamentally – to take the opportunity to build a better kind of economy and society, we need to know what it is we want to rebuild. This is precisely the moment to think beyond a blind pursuit of GDP, about what kind of economic activity to bring back and prioritise, and what we could do without. Any stimulus package must be tailored to create not just any economic activity, but that which will serve society best. As a result, any recovery or spending plan should be scrutinised not just on its size, but what it is spent on.
This must be a green recovery. That does not mean adding on a few green job programmes to a larger, fossil-fuelled stimulus: the whole recovery package must accelerate the UK’s path to net-zero carbon and restore our natural environment, which is in crisis. Anything else risks emerging from one disaster only to accelerate headlong into another. As the government turns on the taps to boost the economy, there is a huge opportunity to fill the £30bn per year funding gap for green investment. 

The recovery must target well-paid, high-quality jobs, spread around the country. These must provide good work for those who have lost it as a result of Covid-19, as well as people previously locked out of the jobs market or at risk of being left behind on the journey to net zero. This is a more profound shift than it appears. Currently, stimulus packages aim to boost GDP, and jobs are a way to get there. But what matters is that ordinary people have access to secure incomes – both for themselves, and because this will ensure spending in the economy (people who need money are more likely to spend it) and a sustainable tax base. An alternative approach, for example, of loosening lending restrictions for mortgages, might boost GDP but would do so by increasing debt and raising house prices, benefitting the already wealthy while hurting people without wealth.

The recovery must involve a reconsideration of what is valuable in society. The pandemic has put into stark relief the extraordinary contribution of health and care workers, many of whom are women and migrants, and the essential support of key workers across the economy. The recovery must recognise that contribution in higher pay and better working conditions. So, too, the pandemic has caused conversations up and down the country about unpaid care work and who performs it. But the easing of lockdown has prioritised marketised activity over human relationships, which don’t require cash. You can visit your parents at home, but only if you want to purchase their house or clean it. The recovery should recognise and reflect what is important to people and valuable – not just economic activity.

Britons want quality of life indicators to take priority over economy

 These goals are not in conflict but instead are inextricably linked. Achieving them requires and provides an opportunity to rethink an economy that doesn’t work for so many across the country or for future generations. We estimate that close to a million good jobs could be created in this new, green economy, with many more if we choose to invest in our social care system.

Talking about and targeting the “economy” as an abstraction masks the underlying shape and nature of the activity taking place underneath. It means we miss people: who loses out, and who benefits from the status quo being restored. Lockdown has found us in a collective moment of reimagining, but this will not last for ever: we should use it to ask what economic activity we want to rebuild, and what we could do without.

Don't be fooled: Britain's coronavirus bailout will make the rich richer still

The government schemes protect asset owners, while the bulk of the costs will eventually be borne by ordinary people writes Christine Berry in The Guardian


Posters for a rent strike during the coronavirus lockdown, Bristol, 31 March 2020. Photograph: Ben Birchall/PA


Recent weeks have been profoundly disorienting, as we all adjust to life in lockdown during a pandemic. For the left, they have also been politically disorienting, as a Conservative government borrows hundreds of billions of pounds to underwrite wages.

Some have been mesmerised by this spectacle, convinced that a socialist utopia is just around the corner. We need to snap out of this, and fast. Instead, we must ask the same questions we always should: who benefits from these interventions, and who pays? Who will be empowered and who disempowered?

The crisis itself is already exacerbating economic inequalities. At first sight, the government’s income support schemes might look as though they will help to redress this. In reality, they will achieve almost exactly the opposite. It’s been widely noted that many people remain excluded from the safety net, but the problem goes deeper than this. Where is all this money coming from – and where is it ultimately going? 

The answer lies principally in a massive expansion of debt. Wage support is being funded by large-scale public borrowing of the kind we were told was unaffordable just a few months ago (although this is now being supplemented by direct financing with newly created money from the Bank of England). Yes, this could usher in a new era of state intervention – but it could just as easily herald a new era of austerity.

Conservatives such as Sajid Javid – who tweeted that “the whole point of fiscal conservatism in normal times is to be able to act decisively if there is a genuine economic emergency” – are already trying to reconcile the crisis response with austerity politics. Fiscal hawks will be keen to draw a line under the crisis period and insist that we now need to tighten our belts again to pay for it.

Meanwhile, mortgage and rent “holidays” and guaranteed loans for small businesses require people to take on private debts that they will have to pay back when the crisis is over. One way or another, then, the bulk of the costs will still eventually be borne by ordinary people.

On the other hand, virtually no sacrifices have been demanded of banks, landlords or profitable corporations, such as utility companies. The only people in society not being asked to share the burden are “rentiers”: those who make money by owning assets they can charge others to use.

Landlords have access to mortgage holidays but are not required to pass these on to their tenants. If they do, they can recoup any missed rent when the crisis is over. Since the same cannot be said for tenants’ lost income, many will be pushed further into debt or face eviction.

Banks are enjoying government loan guarantees with few strings attached. This means that they are not shouldering the risk of extending credit to struggling businesses during a downturn – that is being borne by the state. Meanwhile, mortgages and credit card debt will still be repaid in full – or with added interest if holidays are granted.

Given all this, wage support acts primarily to protect rentiers’ income streams by enabling working people to keep paying rent and bills, and debtors to keep making loan repayments to their creditors.

The government moved swiftly to protect the interests of rentier capital but has consistently dragged its feet in protecting the interests of workers. Indeed, most support has been channelled through banks, landlords, employers and utility firms – with government simply trusting them to benignly pass it on. This is at best naive and at worst irresponsible.

Guidance innocently declares that mortgage holidays for landlords “will mean no unnecessary pressure is put on their tenants”. Unsurprisingly, emerging anecdotal evidence suggests precisely the opposite. The business interruption loan scheme has already had to be overhauled after banks failed to extend low-cost credit to struggling businesses, while the Financial Conduct Authority was forced to stop them hiking overdraft charges. Meanwhile, some large companies are still laying off workers, or at best, pocketing government support and refusing to top it up from their own coffers.

The government has built an economic bunker from which rentiers will emerge unscathed into the scene of devastation wreaked on the rest of the population. Many will find their bank balances considerably enhanced, since they have been unable to spend money in theatres, bars and restaurants. As economist Gary Stevenson points out, if some of this windfall is spent on property, the result will be to push house prices up – adding insult to injury for the low-paid renters who will have borne the brunt of the crisis. All of this is simply indefensible. 

Crises always create winners as well as losers. The bank bailouts of 2008 should have taught us that state intervention is not necessarily progressive. Back then, the state assumed the liabilities of finance capital and ordinary citizens ultimately footed the bill. Now, we are seeing a very similar story play out again – but the mechanisms at work are more subtle, the implicit subsidies for rentier interests passing under the radar.

The left must ruthlessly follow the money and ask in whose pockets it will end up. It must stand alongside those demanding that the big winners in our economic system pay their share: groups such as London Renters’ Union, demanding a true rent freeze. Wetherspoons workers, still fighting to be paid in full. The Jubilee Debt Campaign, calling for personal debt repayments to be frozen and ultimately written off.

Perhaps, as Stevenson suggests, we should also be demanding an emergency wealth tax to redress this huge tilting of the scales towards the asset-owning rich. Without such measures, we should be under no illusions: this crisis will leave our economy even more unequal and unstable than it was before.

What I learnt from being fired

Robert Armstrong in the FT

The anniversary of Lehman Brothers’ bankruptcy has prompted lots of reflection on the damage done. But there were winners, too. I was one of them: I got fired. A decade ago I was an analyst at a hedge fund. We owned some stocks, and bet against others. At the end of 2008, after five years at the fund and with Wall Street flat on its back, I was let go.

Getting sacked is not the standard way to win in a market collapse. Some will argue that, say, John Paulson, who made $4bn personally betting against mortgages, comes away looking better than I do. This strikes me as a rather conventional take. In any case, the crisis taught me two key things and, more importantly, saved me a lot of embarrassment.

The first thing I learnt is that doing the right thing only goes so far. The two portfolio managers at my fund were smart and despised risk, and they were quick to recognise that something serious was going on. As they only owned stuff that was easy to sell, sell they did, and early on. Their clients lost nothing during the crisis and the fund survived. But the clients pulled their money anyway. They needed it and we, not having lost it, had it. So expenses had to be cut, and I was one of them.

The economy — or, if you prefer, the universe — is a big machine. No matter how smart or careful you are, you might get caught in the gears. Most people learn this eventually. I’m just glad I learnt it by losing a job rather than by, for example, getting struck dead by a meteor. 

Lesson two. In a crisis, nobody knows anything. The writer William Goldman made this point about Hollywood: until you get a movie in front of the audience, no one can say with anything like certainty whether it is good or not. Most of the time, by contrast, finance is a business where the important variables are predictable to within a certain range. But when a storm comes, finance is — no matter what anybody tells you in retrospect — as mysterious and fickle as a popcorn-gobbling rabble. Because that is what, in the final analysis, it is. 

At one point in 2007 I was working with two colleagues on a simple job: determine which of the big European banks have significant exposure to US housing. But the banks were, for some reason, hesitant to answer our questions in very clear terms. In some cases they seemed oddly unwilling to answer the phone.

Nor did the thousands of pages of disclosures from the banks contain anything helpful. The annual reports that had previously appeared to me to be precise quantitative descriptions of businesses looked, suddenly, like a brittle superstructure of certainty erected over a heaving morass of unknowns. 

It is reassuring to think of this like a freshman-philosophy Socrates. Knowing what you don’t know is the beginning of wisdom, and all that. That is a comforting thought when you are sitting in a lecture hall on a crisp autumn afternoon. When you are lost in the woods, knowing what you don’t know is just scary as hell. 

I should note that internalising these two points — that I am not in control, and don’t know much — has cost me money. It has made me much too conservative in how I have my savings invested, and I’ve missed much of the current stock market rally. At the same time, though, I think it has made me a better person and a clearer writer. It is a trade-off I can accept. 

That the effect of the crisis was to make me reflective and over-cautious reveals something else. I probably did not belong in finance in the first place. The low prices of stocks after the crisis made good investors greedy. They made me contemplate the vanity of all human striving.

That is how the crisis shielded me from embarrassment. As it was, I lost my job when a lot of other people did. No one was surprised then and no one asks for an explanation now. It was just one of those things that happens. If there had been no crisis, my guess is that somebody would have got around to firing me for being useless. Which would have been awkward.

Finance, like law, is a profession that attracts a lot of reasonably intelligent, hard-working people who rather like money. People like me. Most of us are not really suited to it, though, and that makes for a lot of unhappy careers. The financial crisis saved me from that, and I am grateful.

Public Benefit Company to replace Public Limited Company

Three-quarters of British voters want our rail, gas and water renationalised but it’s expensive – there is a business model that offers the best of both worlds


Will Hutton in The Guardian

Public ownership is fashionable again. Turning over Britain’s public assets, lock, stock and barrel into private ownership and relying only on light-touch regulation to ensure they were managed to deliver a wider public interest was always a risky bet. And that bet has not paid off.

Recent polls show an astonishing 83% in favour of nationalising water, 77% in favour of electricity and gas and 76% in favour of rail. It is not just that this represents a general fall in trust in business. The privatised utilities are felt to be in a different category: they are public services. But there is a widespread view that demanding profit targets have overridden public service obligations. And the public is right. 

Thames Water, under private equity ownership, has been the most egregious example, building up sky-high debts as it distributed excessive dividends to its private-equity owners via a holding company in Luxembourg, a move designed to minimise UK tax obligations. As the Cuttill report highlighted, at current rates of investment it will take Thames 357 years to renew the London’s water mains: it takes 10 years in Japan.

Equally, BT’s investment in universal national high-speed broadband coverage has been slow and inadequate, while few would argue that the first target of the rail operators has been quality passenger service – culminating in the most recent scandal of Stagecoach and Virgin escaping their contractual commitments. Most commuters, crowded into expensive trains, have become increasing fans of public ownership. Jeremy Corbyn’s commitment to renationalisation surprised everyone with its popularity.

The trouble is, it’s expensive: at least £170bn on most estimates. Of course the proposed increase in public debt by around 10% of GDP will be matched by the state owning assets of 10% of GDP, but British public accounting is not so rational. The emphasis will be on the debt, not the assets, and in any case there are better causes – infrastructure spending – for which to raise public debt levels.

And once owned publicly, the newly nationalised industries will once again be subject to the Treasury’s borrowing limits. If there are spending cuts, their capital investment programmes will be cut. What voters want is the best of both worlds. Public services run as public services, but with all the dynamism and autonomy of being in the private sector, not least being able to borrow for vital investment. It seems impossible, but building on the proposals of the Big Innovation Centre’s Purposeful Company Taskforce, there is a way to pull off these apparently irreconcilable objectives – and without spending any money.

The government should create a new category of company – the public benefit company (PBC) – which would write into its constitution that its purpose is the delivery of public benefit to which profit-making is subordinate. For instance, a water company’s purpose would be to deliver the best water as cheaply as possible and not siphon off excessive dividends through a tax haven. The next step would be to take a foundation share in each privatised utility as a condition of its licence to operate, requiring the utility to reincorporate as a public-benefit company.


Regulators, however good their intentions, too easily see the world from the view of the industry they regulate

The foundation share would give the government the right to appoint independent non-executive directors whose role would be see that the public interest purposes of the PBC were being discharged as promised.

This would include ensuring the company remained domiciled in the UK for tax purposes and guaranteeing that consumers, social and public benefit interests came first.

The non-executive directors would engage directly with consumer challenge groups whose mandate is to be a sounding board for consumer interests but at present are little more than talking shops, and deliver an independent report to an office of public services each year, giving an account of how the public interest was being achieved. It is important to have an independent third party: regulators, however good their intentions, too easily see the world from the view of the industry they regulate.

Because the companies would remain owned by private shareholders, their borrowing would not be classed as public debt. The existing shareholders in the utility would remain shareholders, and their rights to votes and dividends would remain unimpaired. So there would be no need to compensate them – no need, in short to pay £170bn buying the assets back. Indeed, the scope to borrow could be used to fund a wave of new investment in our utilities.

But the new company’s obligation would be to its users first and foremost, and would be free to borrow free from any Treasury constraint. Nor would any secretary of state get drawn into the operational running of the industries – one of the major reasons Attlee-style nationalisation failed. Inevitably decisions get politicised. 

The aim would be to combine the best of both the public and private sectors. If companies do not deliver what they have promised, there should be a well-defined system of escalating penalties, starting with the right to sue companies and ending with taking all the assets into public ownership if a company persistently neglected its obligations. But the cost would be very much lower, because the share price would fall as it became clear it was operating illegally.

Britain would have created a new class of company. Indeed, there is the opportunity to start now. If Virgin and Stagecoach are unable to fulfil their contractual obligations on the East Coast line, the company should be reincorporated as a public benefit company. The shareholders would remain, but the newly constituted board would take every decision in the interests of the travelling public guaranteed by the independent directors, empowered consumer challenge groups and the office of public services – so that the taxpayer can trust her or his money is spent properly. Corbyn and John McDonnell have a way of delivering what the electorate want – and still keeping the industries off the public balance sheet. The circle can be squared.

Why do people care more about benefit ‘scroungers’ than billions lost to the rich?

Robert De Vries and Aaron Reeves in The Guardian


The Paradise Papers have once again revealed the ingenuity and energy the super-rich are willing to deploy to keep their money away from the taxman. By illuminating the scale of this injustice, journalists have provided an invaluable service. And yet the revelations do not seem to have generated the level of public outrage that might have been expected.

At a time of staggering global inequality, it is perhaps surprising that people are not more animated by the determination of the ultra-rich to avoid their obligations to support our roads, hospitals, soldiers and schools – when regular citizens are unable to take advantage of such arrangements. However, this relative lack of concern is consistent with research on people’s attitudes towards tax avoidance.

Last year’s British Social Attitudes survey asked Britons about their feelings on this issue. Our analysis of this data (with Ben Baumberg Geiger of the University of Kent) revealed that the British public believes tax avoidance to be commonplace (around one third of taxpayers are assumed to have exploited a tax loophole). In moral terms, people seem rather ambivalent; less than half (48%) thought that legal tax avoidance was “usually or always wrong”.

By contrast, more than 60% of Britons believe it is “usually or always wrong” for poorer people to use legal loopholes to claim more benefits. In other words, people are significantly more likely to condemn poor people for using legal means to obtain more benefits than they are to condemn rich people for avoiding tax. This is a consistent finding across many different studies. For example, detailed interviews conducted by the Joseph Rowntree Foundation in the wake of the 2008 financial crisis found that people “tended to be far more exercised by the prospect of low-income groups exploiting the system than they were about high-income groups doing the same”.

This discrepancy is reflected in government priorities. Deep public antipathy towards benefit “scroungers” has been the rock upon which successive Conservative-led parliaments have built the case for austerity. Throughout his premiership, David Cameron, along with his chancellor, George Osborne, kept the opposition between “hardworking people” and lazy benefit claimants right at the centre of their messaging on spending cuts. Though gestures have been made towards addressing widespread tax avoidance by the wealthy, very little has actually been achieved. This stands in stark contrast to the scale and speed with which changes have been made to welfare legislation.

Will the Paradise Papers shift the public’s focus? The leaks alone are seemingly not enough. The 2016 British Social Attitudes survey was conducted just four months after the release of the Panama Papers. Even then, the British public remained more concerned about benefit claimants than tax avoiders.

Fundamentally, the Paradise Papers are about numbers – vast sums of money disappearing offshore that could be spent on public services here in the UK. However, as the former chair of the UK Statistics Authority, Andrew Dilnot, has often pointed out, people are bad at dealing with numbers on this scale. Unless you are an economist or a statistician, numbers in the millions and billions are just not particularly meaningful.

The key is to link these numbers to their consequences. The money we lose because people like Lewis Hamilton don’t pay some VAT on their private jet means thousands more visits to food banks. The budget cuts leading to rising homelessness might not have been necessary if Apple had paid more tax. Fewer people might have killed themselves after a work-capability assessment if companies like Alphabet (Google) had not registered their offices in Bermuda, and the downward pressure on benefits payments was not so intense. 

The causal chains connecting these events are complex and often opaque, but that does not make their consequences any less real, especially for those who have felt the hard edge of austerity.

The Paradise Papers have dragged the murky world of offshore finance into the spotlight. However, calls for change may founder against the British public’s persistent focus on the perceived crimes of the poor. That is, unless we – as academics, politicians, journalists and others – can articulate how the decisions of the very rich contribute to the expulsion of the vulnerable from the protection of state-funded public services. Quite simply, people get hurt when the rich don’t pay their taxes.

The myth of the benefits cheat is a sign of unkind times

Zoe Williams in The Guardian

Some things are easier to see from far away, and a collective slide away from empathy and common sense, towards pearl-clutching judgmentalism, is one of them. At the start of August the co-leader of New Zealand’s Green party, Metiria Turei, was forced to resign, following an outpouring of opprobrium that threatened to poleaxe her party’s prospects in September’s elections.

The crime for which this tide of hate would have been proportionate is hard to imagine: in fact, it was spurred by her admission that she committed benefit fraud in the early 90s, a confession she made freely to highlight how hard it was then, and is now, to raise a child as a single parent under New Zealand’s notoriously punitive welfare system.

More than half of all that country’s benefit claimants owe money to their work and income department, in what appears to be a version of Gordon Brown’s working family tax credit overpayments, where you identify the country’s poorest families, pay them slightly more than you intended by a metric you haven’t really explained, then saddle them with a debt they have no hope of repaying. When you get to the point that these debts affect 60% of claimants, this is no longer a glitch in the system: this is the system.


Families on benefits are now 40% short of what a citizens’ jury thinks they need to live a decent life

As the journalist Giovanni Tiso described in a moving essay, “once the blood was in the water, the sharks had to do as nature commanded them” – her admission of guilt was deemed not quite penitent enough. The media set out to “investigate” the extent of her fraud, and found that she had also had support from family members when she was young, so couldn’t possibly have been as destitute as she claims.

The prevailing view landed on the fact that she was a thief: she had stolen from the great, honest taxpayer, that creature of myth who needs nothing, takes nothing, works only to support others lazier than himself. Turei had to go. The fact that she created something miraculous – a stable home for her daughter, a law degree, a performance art troupe, a political career – from a standing start of grinding poverty and no qualifications was overlooked.

An incalculably valuable thing – a person in politics who knows what it is like to rely on the systems politicians create – has been righteously thrown away like contaminated sharps.

And for what? The maintenance of the narrative: benefits claimants are inherently suspect, because if they were better people they wouldn’t be on benefits. You have to watch them like hawks, and if you spend more money on surveillance than you could ever save from the detection of the fiddles you lie awake imagining, so be it – our own Department for Work and Pensions sanctions system is fantastically expensive, a fact of which the government seems perversely proud.

The idea that need should come with a badge of shame is not new: the 1697 Poor Act laid down in law that those in receipt of parish aid should wear some blue or red cloth.

Yet it is relatively recent that a competing theory has been overturned. Even in the darkest days of me-first Thatcherism, the social security conversation hinged on whether or not the dole was enough to provide a decent life. State benefits were compared to the median income, and to similar systems in Europe: the question of fraud rarely came up, because the conditions of the 97% not committing it, living honestly on money to which they were entitled, were thought more important.

Simply by changing the frame, pointing attention towards the dishonest, the government managed to render whole swaths of normal social inquiry – what is life like for those at the bottom? – irrelevant. Ask not what life is like for those at the bottom; ask whether they really are at the bottom, or have a cash-in-hand window-cleaning job that puts them nearer the middle. Ask what mountain of fecklessness prevents their escape from the bottom.

Yet when people engage seriously with the concept of social security, different attitudes emerge. The minimum income standard is a research method where small groups, drawn from every social class, calculate what a person needs to live on: they consider the impact of not being able to afford Christmas presents, as well as council tax. They ponder how often one might need a new toaster. They come up with a ballpark figure that, currently, according to a report released by the Child Poverty Action Group, a huge number of people fall short of.

A household of two adults working full time for the minimum wage is 13% shy of it; a single parent on the same wage, 18%. Families relying on benefits, through a combination of inflation and the benefits freeze, are now 40% short of what a citizens’ jury thinks they need to live a decent life.

When you consider these figures as a lived experience, the picture is bleak: yet there is a thread of optimism in the minimum income standard itself. The ostentatious parsimony of the state has not cut through. People still have a conception of decency that goes well beyond mere sustenance, and wish it for one another. All that remains is that we remember how to fight for it.

The myths about money that British voters should reject

Ha Joon Chang in The Guardian


Illustration: Nate Kitch


Befitting a surprise election, the manifestos from the main parties contained surprises. Labour is shaking off decades of shyness about nationalisation and tax increases for the rich and for the first time in decades has a policy agenda that is not Tory-lite. The Conservatives, meanwhile, say they are rejecting “the cult of selfish individualism” and “belief in untrammelled free markets”, while adopting the quasi-Marxist idea of an energy price cap.

Despite these significant shifts, myths about the economy refuse to go away and hamper a more productive debate. They concern how the government manages public finances – “tax and spend”, if you will.

The first is that there is an inherent virtue in balancing the books. Conservatives still cling to the idea of eliminating the budget deficit, even if it is with a 10-year delay (2025, as opposed to George Osborne’s original goal of 2015). The budget-balancing myth is so powerful that Labour feels it has to cost its new spending pledges down to the last penny, lest it be accused of fiscal irresponsibility.

However, as Keynes and his followers told us, whether a balanced budget is a good or a bad thing depends on the circumstances. In an overheating economy, deficit spending would be a serious folly. However, in today’s UK economy, whose underlying stagnation has been masked only by the release of excess liquidity on an oceanic scale, some deficit spending may be good – necessary, even.

The second myth is that the UK welfare state is especially large. Conservatives believe that it is bloated out of all proportion and needs to be drastically cut. Even the Labour party partly buys into this idea. Its extra spending pledge on this front is presented as an attempt to reverse the worst of the Tory cuts, rather than as an attempt to expand provision to rebuild the foundation for a decent society.

The reality is the UK welfare state is not large at all. As of 2016, the British welfare state (measured by public social spending) was, at 21.5% of GDP, barely three-quarters of welfare spending in comparably rich countries in Europe – France’s is 31.5% and Denmark’s is 28.7%, for example. The UK welfare state is barely larger than the OECD average (21%), which includes a dozen or so countries such as Mexico, Chile, Turkey and Estonia, which are much poorer and/or have less need for public welfare provision. They have younger populations and stronger extended family networks.

The third myth is that welfare spending is consumption – that it is a drain on the nation’s productive resources and thus has to be minimised. This myth is what Conservative supporters subscribe to when they say that, despite their negative impact, we have to accept cuts in such things as disability benefit, unemployment benefit, child care and free school meals, because we “can’t afford them”. This myth even tints, although doesn’t define, Labour’s view on the welfare state. For example, Labour argues for an expansion of welfare spending, but promises to finance it with current revenue, thereby implicitly admitting that the money that goes into it is consumption that does not add to future output.

 ‘It is a myth that, despite their negative impact, we have to accept cuts in such things as disability benefit, unemployment benefit, child care and free school meals.’ Photograph: monkeybusinessimages/Getty Images/iStockphoto

However, a lot of welfare spending is investment that pays back more than it costs, through increased productivity in the future. Expenditure on education (especially early learning programmes such as Sure Start), childcare and school meals programmes is an investment in the nation’s future productivity. Unemployment benefit, especially if combined with good publicly funded retraining and job-search programmes, such as in Scandinavia, preserve the human productive capabilities that would otherwise be lost, as we have seen in so many former industrial towns in the UK. Increased spending on disability benefits and care for older people helps carers to have more time and less stress, making them more productive workers.

The last myth is that tax is a burden, which therefore by definition needs to be minimised. The Conservatives are clear about this, proposing to cut corporation tax further to 17%, one of the lowest levels in the rich world. However, even Labour is using the language of “burden” about taxes. In proposing tax increases for the highest income earners and large corporations, Jeremy Corbyn spoke of his belief that “those with the broadest shoulders should bear the greatest burden”.

But would you call the money that you pay for your takeaway curry or Netflix subscription a burden? You wouldn’t, because you recognise that you are getting your curry and TV shows in return. Likewise, you shouldn’t call your taxes a burden because in return you get an array of public services, from education, health and old-age care, through to flood defence and roads to the police and military.

If tax really were a pure burden, all rich individuals and companies would move to Paraguay or Bulgaria, where the top rate of income tax is 10%. Of course, this does not happen because, in those countries, in return for low tax you get poor public services. Conversely, most rich Swedes don’t go into tax exile because of their 60% top income tax rate, because they get a good welfare state and excellent education in return. Japanese and German companies don’t move out of their countries in droves despite some of the highest corporate income tax rates in the world (31% and 30% respectively) because they get good infrastructure, well-educated workers, strong public support for research and development, and well-functioning administrative and legal systems.

Low tax is not in itself a virtue. The question should be whether the government is providing services of satisfactory quality, given the tax receipts, not what the level of tax is.

The British debate on economic policy is finally moving on from the bankrupt neoliberal consensus of the past few decades. But the departure won’t be complete until we do away with the persistent myths about tax and spend.

I'm glad to see David Davis 'still hasn't looked into' the economic impact of Brexit

Mark Steel in The Independent

Some people are concerned we aren’t prepared for this Brexit situation, so it was heartening to hear Minister David Davis explain what happens if we don’t manage a deal with the EU, by saying he “hadn’t looked into it yet.”

This shows a steady hand, rather than someone who rushes into things by looking into stuff within the first nine months of a job specifically created to look into exactly that stuff. What’s achieved by panicking like that? Because Davis is only Minister for Brexit. How is he supposed to find out anything about Brexit, on top of all the other things in his title?  

The government should create other specific posts to try and match Davis. They could create a Minister for Desiccated Coconut, so that after nine months they can say: “I won’t lie, I haven’t given a passing thought to desiccated coconut.” At least campaigners for  leaving the EU were honest. Before the referendum, supporters of the Leave campaign like Davis always explained that if we left, they didn’t have the slightest idea what would happen, and even came up with the slogan “nine months after the result we’ll confirm we haven’t looked into it”, which as I recall they put on the side of a bus.

Theresa May has insisted that “no deal is better than a bad deal”, which introduced a philosophical edge to Brexit. Because how can anyone know whether it will be better or worse if we haven’t yet looked into it? It’s like saying you have no idea what’s on the other side of the universe, but whatever it is, it’s better than a donkey.

But Davis went even further, explaining: “You don’t need pieces of paper with a number on it to make an economic assessment.” Of course not, an economic assessment isn’t about numbers. When you apply for a mortgage, the bank asks how much you earn, and you say “a bit”, then the bank manager has a think and says: “In that case you’re allowed to borrow a yellowish amount, that reminds you of the sea.” So you ask: “How much will I have to pay back every month?” and they say: “Come back in nine months, by which time I won’t have looked into it yet.”

Asked whether British citizens will continue, after Brexit, to get free healthcare in the EU, Davis said they probably wouldn’t, but added reassuringly: “I have not looked at that one.”

There’s a man on top of his brief. Anyone can be clueless on the general direction of Brexit, but it takes dedication to be even more vague on each specific detail.

Hopefully the foreign health authorities will adopt the same attitude, and when a British citizen arrives at a Spanish hospital with appendicitis, they’re met by an appendicitis doctor who tells them to wait nine months, then they’ll be given a letter saying: “Do you know, I haven’t got the slightest clue about appendixes.”





Davis agreed that UK producers of dairy and meat will face tariffs of up to 40 per cent, conceding: “The numbers in agriculture are high.” It’s a shame he let his side down there, because acknowledging “high” is a bit too specific. Ideally he’d have answered the question by saying: “How long’s a piece of string, mate? I tell you what I do know about meat, I’ve got a lovely recipe for a liver casserole. The ingredients are a chunk of liver, an unspecified volume of stock and in indeterminate degree of vegetables. I won’t give you a piece of paper with exact numbers as that spoils a recipe.”

Asked how Brexit is likely to affect the border between Northern Ireland and the South, he explained it will be “light, not hard”. That was as much detail as he gave, so I expect he means the customs officers will always wear gloves before they put their fingers up your bottom.

This shows the problem Hammond made with his Budget, he gave out exact numbers. He should have said: “The borrowing requirements for the coming year as predicted by the Office of Budget Responsibility are a bit salty and not as soggy as you might think. To this end, National Insurance contributions for the self-employed will be curlier than they have been, and taste of cucumber.” Then he wouldn’t have had to change his mind and look an idiot.

But Davis was impressively consistent. Asked: “Would financial services lose passporting rights to trade in the EU?” he replied: “I expect so, that’s an area of uncertainty.”

Hilary Benn, who was asking the questions on behalf of a parliamentary committee, nodded, which shows how aloof he’s become. Because anyone normal would have gone: “Oh that’s the one area of uncertainty is it? That’s one small zone of ambiguity amidst a sea of poxy certainty with your definite super-accurate answers such as 'oh blimey I haven’t the foggiest idea' is it, Mister David 'Atomic Clock' Davis?”

The committee could have asked if he was a man or a woman, and he’d have said: “In these days of binary non-specific gender types it’s not easy to say, especially as I haven’t looked into it yet.”

You can understand how he was caught on the hop, because the campaign for Britain to leave the EU has only been going on for around 40 years, so they’ve hardly had a moment to consider what to do if they got their way.

But it brings politicians nearer to the common person, because Davis sounded like any random passer-by on a vox-pop for local news. When he finally presents the final treaty, it will just say: “Blimey, phhhh, dear oh dear, there’s all sorts to think about isn’t there? Does anyone know anything about olive oil?”

Basic income is the latest bad political idea that refuses to die

John Rentoul in The Independent



The zombie policy of the universal basic income is the first to rise from the grave of well-intentioned impractical ideas in 2017. Labour-controlled Glasgow city council is the latest to announce that it intends to investigate a pilot scheme.

There is a reason why the basic income is the eternal news story. Someone, somewhere, is always saying what a marvellous idea it is. Some local government, or much less often a national government, is saying that it is going to look at it, or going to bring in a pilot scheme or even, every now and again, actually bring in a pilot scheme, which usually involves something which is nothing like a basic income.

Last year Elon Musk, John McDonnell and the Scottish National Party said what a marvellous idea it is. Fife council in Scotland is also looking at it. Two Canadian provinces are said to be interested, Ontario and Prince Edward Island, the second of which is normally useful only for pub quizzes.

But the big one is Finland, an entire country, which is going to do a pilot, selecting 2,000 unemployed people at random and giving them a monthly income of about £500, which is more than unemployment benefit but less than a living income. After two years, they will find out whether the scheme has encouraged people to work, given that the participants will be able to keep every euro cent that they earn (after tax).

The idea behind the basic income is lovely. It is that, if the state gives every citizen enough to live on as a right of citizenship, they will accept irregular, part-time or precarious work because they won’t lose welfare benefits if they do so. It is particularly appealing to people who think that the world of work in the future is going to be irregular, part-time and precarious, with people taking portfolios of jobs and being encouraged to become entrepreneurial risk-takers by the safety net of the basic income.

The practice, however, is very expensive. One rudimentary scheme worked out for the UK by Malcolm Torry – and remember that he is an advocate of the basic income – proposed an income of £8,320 a year, to replace all benefits except housing and council-tax benefit. That is hardly a generous annual stipend, and yet if it is to be funded through the income tax system it would require the rates of income tax to go up from 20, 40 and 45 per cent to 48, 68 and 73 per cent. That means anyone on today’s average full-time earnings of about £27,000 a year would lose out, because although the £8,320 a year would make up for losing the income-tax personal allowance, every pound of earnings would be taxed, and more heavily.

And that proposed scheme doesn’t even abolish housing benefit. One of the reasons it cannot is that housing is so much more expensive in London that to set the basic income high enough for the capital would make the scheme unaffordable at any tax rates.

The alert and sceptical reader will have noted that the Finnish scheme isn’t even remotely a basic income, because it is limited to unemployed people. It is therefore merely an experiment in the incentive effects of paying higher unemployment benefit.

The problems of the basic income have been explained again and again, by people who have actually worked on social security policy making and implementation. But journalists and politicians naturally seize on ideas that seem to offer neat and plausible solutions to difficult problems. Elon Musk says robots mean we will have to have a basic income, because traditional salaried jobs will disappear. That doesn’t follow, and besides, most workers in rich countries still work in traditional salaried jobs and will go on doing so for the foreseeable future. John McDonnell, the Shadow Chancellor, says “we can win the argument” on a basic income. And yet he hasn’t even begun to try.

None of which would matter very much, except that it would be good for the democratic health of this country to have an opposition that came up with practical policies rather than pie in the sky. The worst thing about the basic income is that it is a tragic misdirection of a compassionate, egalitarian and libertarian impulse: to do something about the often counter-productive interaction of the benefits system with the world of employment.

If only the advocates of the basic income in Britain would devote their attention to the cuts in tax credits that are still pencilled in for remainder of this parliament (Philip Hammond refused to do anything more than soften them slightly at the edges in his Autumn Statement). If it’s grand, universal reform of the benefits system you want, study the everlasting disaster of the Universal Credit system and devise a practical way to make that work, instead of diverting your energies into campaigning for the schemes of impractical dreamers.

In Brexit Britain there will be no benefit caps for the multinationals

Aditya Chakrabortty in The Guardian


Take back control. Those three words now govern our politics. They sum up why Britain is leaving Europe, and they make up the yardstick by which Theresa May will be judged. Yet already, in the past few days, their hollowness has been exposed.

This story moves fast – and begins with a threat. Not a subtle moue of displeasure from behind an expensive pair of cufflinks, but a bluntly put, publicly issued ransom. At the end of September the boss of Nissan, Carlos Ghosn, goes to one of the car industry’s biggest annual events, the Paris Motor Show, and declares to reporters that Brexit means the UK now has to cut him “a deal”. If cars made in Britain are to face tariffs on export to Europe, he wants “some kind of compensation”.

Extraordinary: one of the biggest manufacturers in Britain effectively wants danger money to carry on investing here. Even more remarkably, Nissan has behind it the full might of the Japanese government, which sent 15 pages of demands on behalf of some of the country’s biggest businesses – along with the veiled threat to pull out of the UK.

Faster than you can say Micra, Ghosn is invited to Downing Street. Within two weeks he has a face-to-face with the prime minister. The UK has just opted to sever four decades of relations with its biggest trading partner, the government has no fiscal policy and her own party is in turmoil – yet May still clears her diary for the Nissan boss.

Then, a few days back, Ghosn announces Sunderland will not only carry on working, but will now make the new-model Qashqai. The obvious question is: what did his company get from our government? Yet business secretary Greg Clark refuses to divulge any detail of how much or even what kind of taxpayer support has been offered to Nissan – after all, it’s only our money. Instead, he waves off the deal as just a slightly prickly chat in the senior common room.

“One can overcomplicate these things,” he airily tells MPs at the end of October. A mere month after Ghosn made his initial threat, what apparently changed his mind was the government’s “intention to find common ground and to pursue discussions in a rational and civilised way”.

To say this doesn’t add up is beside the point: it’s not meant to. Clark and May obviously don’t want a rival carmaker or any other multinational operating in Britain to know how far they will go to keep them onshore. But if the multimillionaire boss of a £33bn auto giant only wanted a “rational and civilised” discussion, , he could try a Melvyn Bragg podcast. The Qashqai has been a massive seller for Nissan; the company would not have opted to make the next model out of Sunderland merely on the basis of some comforting ministerial purrs.

A source tells Reuters that “the government gave Nissan a written commitment of extra support in the event Brexit reduces its competitiveness”. The carmaker itself acknowledges that its executive committee made its decision upon receiving the “support and assurances of the UK government”. And the former deputy prime minister, Nick Clegg, warns that such deals could cost the taxpayer “colossal amounts of money”. How much? Were the EU to slap on 10% extra on British-made cars, the tariff bill for Nissan UK alone would come to just shy of £300m a year. If May and Clark were to try to cover half of that, they would be extending an unprecedented level of subsidy to just one company. Now imagine those same terms replicated for the other big car exporters: Toyota (which before the referendum warned of cutbacks if Britain left the EU), Honda, Jaguar Land Rover …

What you’ve just seen, then, is a foretaste of the way big business will deal with the government in Brexit Britain. First the threat, then the bargain, and finally, with unministerial haste, an expensive handshake behind closed doors. Each time, the public will be none the wiser, even as their government commits them to perhaps costly support for some company or sector, each one claiming strategic importance. And don’t think it will stop at cars.
Within 48 hours of the Brexit vote, the National Farmers’ Union was preparing for an extraordinary meeting of its council to draw up demands for Downing Street. Top of the list was the £2.4bn in subsidies that farmers get each year from Brussels. Within weeks, the new chancellor Philip Hammond was promising to carry on the handouts until the end of this decade. He made similar offers to universities and businesses reliant on EU grants.


Almost inevitably, the British state becomes even more of a milch-cow for big businesses

Put these numbers in context. Starting this week, the government will cut the benefits it gives to 88,000 families. That is huge turmoil – and it will cut just £100m from the welfare bill. Yet at the same time, billions are being committed to keep sweet businesses from the pharmaceutical giants to the landowners of the south-west.

These are businesses that have already done very well out of taxpayers. Consider Nissan UK: Kevin Farnsworth, lecturer in social policy at the University of York and an expert on government subsidies, calculates that over the past two decades it has taken £782m in loans, grants and handouts from the British and European public. In upfront cash transfers alone that comes to £130m.

Farnsworth has calculated this figure by combing Nissan accounts as well as the grant documents from the British government and its various agencies. He has compiled a database for other major businesses, to be found at corporate-welfare-watch.org.uk.

Where this takes you is to the dirty secret of the British business model. From Margaret Thatcher onwards, successive governments have lured multinational investors by promising them access to the single market, a cheap, biddable workforce and a bunch of corporate sweeteners. It was the same offer Dublin made to the tax avoiders of Silicon Valley and – within its own narrow confines – it worked. As Farnsworth points out, Britain has reliably taken in proportionately more foreign direct investment than most of its competitors.

The problem is that now the UK can no longer guarantee access to 500 million European consumers, it will need to make its workers cheaper and even more flexible and offer more handouts.

Surveying this debacle, it strikes me that Lord Acton got it wrong. It’s not power that corrupts; it’s powerlessness. What do you bargain with, when three decades of deregulation and weakening of local and central government mean you have hardly any cards left in your hand? Almost inevitably, the British state becomes even more of a milch-cow for big businesses. Forget about foreigners coming over here and taking our benefits; now think about multinationals cherry-picking our benefits. That trade-off isn’t rhetorical: it’s real. That money will come from our social security, our hospitals, our schools. Brexit Britain: a soft touch for corporate welfare. Is this what was meant by control?