Showing posts with label rent. Show all posts
Showing posts with label rent. Show all posts
Wednesday, 17 July 2024
Sunday, 28 April 2024
Thursday, 16 July 2020
Thursday, 19 September 2019
Why rigged capitalism is damaging liberal democracy
Economies are not delivering for most citizens because of weak competition, feeble productivity growth and tax loopholes writes Martin Wolf in The FT
“While each of our individual companies serves its own corporate purpose, we share a fundamental commitment to all of our stakeholders.”
With this sentence, the US Business Roundtable, which represents the chief executives of 181 of the world’s largest companies, abandoned their longstanding view that “corporations exist principally to serve their shareholders”.
This is certainly a moment. But what does — and should — that moment mean? The answer needs to start with acknowledgment of the fact that something has gone very wrong. Over the past four decades, and especially in the US, the most important country of all, we have observed an unholy trinity of slowing productivity growth, soaring inequality and huge financial shocks.
As Jason Furman of Harvard University and Peter Orszag of Lazard Frères noted in a paper last year: “From 1948 to 1973, real median family income in the US rose 3 per cent annually. At this rate . . . there was a 96 per cent chance that a child would have a higher income than his or her parents. Since 1973, the median family has seen its real income grow only 0.4 per cent annually . . . As a result, 28 per cent of children have lower income than their parents did.”
So why is the economy not delivering? The answer lies, in large part, with the rise of rentier capitalism. In this case “rent” means rewards over and above those required to induce the desired supply of goods, services, land or labour. “Rentier capitalism” means an economy in which market and political power allows privileged individuals and businesses to extract a great deal of such rent from everybody else.
That does not explain every disappointment. As Robert Gordon, professor of social sciences at Northwestern University, argues, fundamental innovation slowed after the mid-20th century. Technology has also created greater reliance on graduates and raised their relative wages, explaining part of the rise of inequality. But the share of the top 1 per cent of US earners in pre-tax income jumped from 11 per cent in 1980 to 20 per cent in 2014. This was not mainly the result of such skill-biased technological change.
If one listens to the political debates in many countries, notably the US and UK, one would conclude that the disappointment is mainly the fault of imports from China or low-wage immigrants, or both. Foreigners are ideal scapegoats. But the notion that rising inequality and slow productivity growth are due to foreigners is simply false.
Every western high-income country trades more with emerging and developing countries today than it did four decades ago. Yet increases in inequality have varied substantially. The outcome depended on how the institutions of the market economy behaved and on domestic policy choices.
Harvard economist Elhanan Helpman ends his overview of a huge academic literature on the topic with the conclusion that “globalisation in the form of foreign trade and offshoring has not been a large contributor to rising inequality. Multiple studies of different events around the world point to this conclusion.”
The shift in the location of much manufacturing, principally to China, may have lowered investment in high-income economies a little. But this effect cannot have been powerful enough to reduce productivity growth significantly. To the contrary, the shift in the global division of labour induced high-income economies to specialise in skill-intensive sectors, where there was more potential for fast productivity growth.
Donald Trump, a naive mercantilist, focuses, instead, on bilateral trade imbalances as a cause of job losses. These deficits reflect bad trade deals, the American president insists. It is true that the US has overall trade deficits, while the EU has surpluses. But their trade policies are quite similar. Trade policies do not explain bilateral balances. Bilateral balances, in turn, do not explain overall balances. The latter are macroeconomic phenomena. Both theory and evidence concur on this.
The economic impact of immigration has also been small, however big the political and cultural “shock of the foreigner” may be. Research strongly suggests that the effect of immigration on the real earnings of the native population and on receiving countries’ fiscal position has been small and frequently positive.
Far more productive than this politically rewarding, but mistaken, focus on the damage done by trade and migration is an examination of contemporary rentier capitalism itself.
Finance plays a key role, with several dimensions. Liberalised finance tends to metastasise, like a cancer. Thus, the financial sector’s ability to create credit and money finances its own activities, incomes and (often illusory) profits.
A 2015 study by Stephen Cecchetti and Enisse Kharroubi for the Bank for International Settlements said “the level of financial development is good only up to a point, after which it becomes a drag on growth, and that a fast-growing financial sector is detrimental to aggregate productivity growth”. When the financial sector grows quickly, they argue, it hires talented people. These then lend against property, because it generates collateral. This is a diversion of talented human resources in unproductive, useless directions.
Again, excessive growth of credit almost always leads to crises, as Carmen Reinhart and Kenneth Rogoff showed in This Time is Different. This is why no modern government dares let the supposedly market-driven financial sector operate unaided and unguided. But that in turn creates huge opportunities to gain from irresponsibility: heads, they win; tails, the rest of us lose. Further crises are guaranteed.
Finance also creates rising inequality. Thomas Philippon of the Stern School of Business and Ariell Reshef of the Paris School of Economics showed that the relative earnings of finance professionals exploded upwards in the 1980s with the deregulation of finance. They estimated that “rents” — earnings over and above those needed to attract people into the industry — accounted for 30-50 per cent of the pay differential between finance professionals and the rest of the private sector.
This explosion of financial activity since 1980 has not raised the growth of productivity. If anything, it has lowered it, especially since the crisis. The same is true of the explosion in pay of corporate management, yet another form of rent extraction. As Deborah Hargreaves, founder of the High Pay Centre, notes, in the UK the ratio of average chief executive pay to that of average workers rose from 48 to one in 1998 to 129 to one in 2016. In the US, the same ratio rose from 42 to one in 1980 to 347 to one in 2017.
As the US essayist HL Mencken wrote: “For every complex problem, there is an answer that is clear, simple and wrong.” Pay linked to the share price gave management a huge incentive to raise that price, by manipulating earnings or borrowing money to buy the shares. Neither adds value to the company. But they can add a great deal of wealth to management. A related problem with governance is conflicts of interest, notably over independence of auditors.
In sum, personal financial considerations permeate corporate decision-making. As the independent economist Andrew Smithers argues in Productivity and the Bonus Culture, this comes at the expense of corporate investment and so of long-run productivity growth.
A possibly still more fundamental issue is the decline of competition. Mr Furman and Mr Orszag say there is evidence of increased market concentration in the US, a lower rate of entry of new firms and a lower share of young firms in the economy compared with three or four decades ago. Work by the OECD and Oxford Martin School also notes widening gaps in productivity and profit mark-ups between the leading businesses and the rest. This suggests weakening competition and rising monopoly rent. Moreover, a great deal of the increase in inequality arises from radically different rewards for workers with similar skills in different firms: this, too, is a form of rent extraction.
A part of the explanation for weaker competition is “winner-takes-almost-all” markets: superstar individuals and their companies earn monopoly rents, because they can now serve global markets so cheaply. The network externalities — benefits of using a network that others are using — and zero marginal costs of platform monopolies (Facebook, Google, Amazon, Alibaba and Tencent) are the dominant examples.
Another such natural force is the network externalities of agglomerations, stressed by Paul Collier in The Future of Capitalism. Successful metropolitan areas — London, New York, the Bay Area in California — generate powerful feedback loops, attracting and rewarding talented people. This disadvantages businesses and people trapped in left-behind towns. Agglomerations, too, create rents, not just in property prices, but also in earnings.
Yet monopoly rent is not just the product of such natural — albeit worrying — economic forces. It is also the result of policy. In the US, Yale University law professor Robert Bork argued in the 1970s that “consumer welfare” should be the sole objective of antitrust policy. As with shareholder value maximisation, this oversimplified highly complex issues. In this case, it led to complacency about monopoly power, provided prices stayed low. Yet tall trees deprive saplings of the light they need to grow. So, too, may giant companies.
Some might argue, complacently, that the “monopoly rent” we now see in leading economies is largely a sign of the “creative destruction” lauded by the Austrian economist Joseph Schumpeter. In fact, we are not seeing enough creation, destruction or productivity growth to support that view convincingly.
A disreputable aspect of rent-seeking is radical tax avoidance. Corporations (and so also shareholders) benefit from the public goods — security, legal systems, infrastructure, educated workforces and sociopolitical stability — provided by the world’s most powerful liberal democracies. Yet they are also in a perfect position to exploit tax loopholes, especially those companies whose location of production or innovation is difficult to determine.
The biggest challenges within the corporate tax system are tax competition and base erosion and profit shifting. We see the former in falling tax rates. We see the latter in the location of intellectual property in tax havens, in charging tax-deductible debt against profits accruing in higher-tax jurisdictions and in rigging transfer prices within firms.
A 2015 study by the IMF calculated that base erosion and profit shifting reduced long-run annual revenue in OECD countries by about $450bn (1 per cent of gross domestic product) and in non-OECD countries by slightly over $200bn (1.3 per cent of GDP). These are significant figures in the context of a tax that raised an average of only 2.9 per cent of GDP in 2016 in OECD countries and just 2 per cent in the US.
Brad Setser of the Council on Foreign Relations shows that US corporations report seven times as much profit in small tax havens (Bermuda, the British Caribbean, Ireland, Luxembourg, Netherlands, Singapore and Switzerland) as in six big economies (China, France, Germany, India, Italy and Japan). This is ludicrous. The tax reform under Mr Trump changed essentially nothing. Needless to say, not only US corporations benefit from such loopholes.
In such cases, rents are not merely being exploited. They are being created, through lobbying for distorting and unfair tax loopholes and against needed regulation of mergers, anti-competitive practices, financial misbehaviour, the environment and labour markets. Corporate lobbying overwhelms the interests of ordinary citizens. Indeed, some studies suggest that the wishes of ordinary people count for next to nothing in policymaking.
Not least, as some western economies have become more Latin American in their distribution of incomes, their politics have also become more Latin American. Some of the new populists are considering radical, but necessary, changes in competition, regulatory and tax policies. But others rely on xenophobic dog whistles while continuing to promote a capitalism rigged to favour a small elite. Such activities could well end up with the death of liberal democracy itself.
Members of the Business Roundtable and their peers have tough questions to ask themselves. They are right: seeking to maximise shareholder value has proved a doubtful guide to managing corporations. But that realisation is the beginning, not the end. They need to ask themselves what this understanding means for how they set their own pay and how they exploit — indeed actively create — tax and regulatory loopholes.
They must, not least, consider their activities in the public arena. What are they doing to ensure better laws governing the structure of the corporation, a fair and effective tax system, a safety net for those afflicted by economic forces beyond their control, a healthy local and global environment and a democracy responsive to the wishes of a broad majority?
We need a dynamic capitalist economy that gives everybody a justified belief that they can share in the benefits. What we increasingly seem to have instead is an unstable rentier capitalism, weakened competition, feeble productivity growth, high inequality and, not coincidentally, an increasingly degraded democracy. Fixing this is a challenge for us all, but especially for those who run the world’s most important businesses. The way our economic and political systems work must change, or they will perish.
“While each of our individual companies serves its own corporate purpose, we share a fundamental commitment to all of our stakeholders.”
With this sentence, the US Business Roundtable, which represents the chief executives of 181 of the world’s largest companies, abandoned their longstanding view that “corporations exist principally to serve their shareholders”.
This is certainly a moment. But what does — and should — that moment mean? The answer needs to start with acknowledgment of the fact that something has gone very wrong. Over the past four decades, and especially in the US, the most important country of all, we have observed an unholy trinity of slowing productivity growth, soaring inequality and huge financial shocks.
As Jason Furman of Harvard University and Peter Orszag of Lazard Frères noted in a paper last year: “From 1948 to 1973, real median family income in the US rose 3 per cent annually. At this rate . . . there was a 96 per cent chance that a child would have a higher income than his or her parents. Since 1973, the median family has seen its real income grow only 0.4 per cent annually . . . As a result, 28 per cent of children have lower income than their parents did.”
So why is the economy not delivering? The answer lies, in large part, with the rise of rentier capitalism. In this case “rent” means rewards over and above those required to induce the desired supply of goods, services, land or labour. “Rentier capitalism” means an economy in which market and political power allows privileged individuals and businesses to extract a great deal of such rent from everybody else.
That does not explain every disappointment. As Robert Gordon, professor of social sciences at Northwestern University, argues, fundamental innovation slowed after the mid-20th century. Technology has also created greater reliance on graduates and raised their relative wages, explaining part of the rise of inequality. But the share of the top 1 per cent of US earners in pre-tax income jumped from 11 per cent in 1980 to 20 per cent in 2014. This was not mainly the result of such skill-biased technological change.
If one listens to the political debates in many countries, notably the US and UK, one would conclude that the disappointment is mainly the fault of imports from China or low-wage immigrants, or both. Foreigners are ideal scapegoats. But the notion that rising inequality and slow productivity growth are due to foreigners is simply false.
Every western high-income country trades more with emerging and developing countries today than it did four decades ago. Yet increases in inequality have varied substantially. The outcome depended on how the institutions of the market economy behaved and on domestic policy choices.
Harvard economist Elhanan Helpman ends his overview of a huge academic literature on the topic with the conclusion that “globalisation in the form of foreign trade and offshoring has not been a large contributor to rising inequality. Multiple studies of different events around the world point to this conclusion.”
The shift in the location of much manufacturing, principally to China, may have lowered investment in high-income economies a little. But this effect cannot have been powerful enough to reduce productivity growth significantly. To the contrary, the shift in the global division of labour induced high-income economies to specialise in skill-intensive sectors, where there was more potential for fast productivity growth.
Donald Trump, a naive mercantilist, focuses, instead, on bilateral trade imbalances as a cause of job losses. These deficits reflect bad trade deals, the American president insists. It is true that the US has overall trade deficits, while the EU has surpluses. But their trade policies are quite similar. Trade policies do not explain bilateral balances. Bilateral balances, in turn, do not explain overall balances. The latter are macroeconomic phenomena. Both theory and evidence concur on this.
The economic impact of immigration has also been small, however big the political and cultural “shock of the foreigner” may be. Research strongly suggests that the effect of immigration on the real earnings of the native population and on receiving countries’ fiscal position has been small and frequently positive.
Far more productive than this politically rewarding, but mistaken, focus on the damage done by trade and migration is an examination of contemporary rentier capitalism itself.
Finance plays a key role, with several dimensions. Liberalised finance tends to metastasise, like a cancer. Thus, the financial sector’s ability to create credit and money finances its own activities, incomes and (often illusory) profits.
A 2015 study by Stephen Cecchetti and Enisse Kharroubi for the Bank for International Settlements said “the level of financial development is good only up to a point, after which it becomes a drag on growth, and that a fast-growing financial sector is detrimental to aggregate productivity growth”. When the financial sector grows quickly, they argue, it hires talented people. These then lend against property, because it generates collateral. This is a diversion of talented human resources in unproductive, useless directions.
Again, excessive growth of credit almost always leads to crises, as Carmen Reinhart and Kenneth Rogoff showed in This Time is Different. This is why no modern government dares let the supposedly market-driven financial sector operate unaided and unguided. But that in turn creates huge opportunities to gain from irresponsibility: heads, they win; tails, the rest of us lose. Further crises are guaranteed.
Finance also creates rising inequality. Thomas Philippon of the Stern School of Business and Ariell Reshef of the Paris School of Economics showed that the relative earnings of finance professionals exploded upwards in the 1980s with the deregulation of finance. They estimated that “rents” — earnings over and above those needed to attract people into the industry — accounted for 30-50 per cent of the pay differential between finance professionals and the rest of the private sector.
This explosion of financial activity since 1980 has not raised the growth of productivity. If anything, it has lowered it, especially since the crisis. The same is true of the explosion in pay of corporate management, yet another form of rent extraction. As Deborah Hargreaves, founder of the High Pay Centre, notes, in the UK the ratio of average chief executive pay to that of average workers rose from 48 to one in 1998 to 129 to one in 2016. In the US, the same ratio rose from 42 to one in 1980 to 347 to one in 2017.
As the US essayist HL Mencken wrote: “For every complex problem, there is an answer that is clear, simple and wrong.” Pay linked to the share price gave management a huge incentive to raise that price, by manipulating earnings or borrowing money to buy the shares. Neither adds value to the company. But they can add a great deal of wealth to management. A related problem with governance is conflicts of interest, notably over independence of auditors.
In sum, personal financial considerations permeate corporate decision-making. As the independent economist Andrew Smithers argues in Productivity and the Bonus Culture, this comes at the expense of corporate investment and so of long-run productivity growth.
A possibly still more fundamental issue is the decline of competition. Mr Furman and Mr Orszag say there is evidence of increased market concentration in the US, a lower rate of entry of new firms and a lower share of young firms in the economy compared with three or four decades ago. Work by the OECD and Oxford Martin School also notes widening gaps in productivity and profit mark-ups between the leading businesses and the rest. This suggests weakening competition and rising monopoly rent. Moreover, a great deal of the increase in inequality arises from radically different rewards for workers with similar skills in different firms: this, too, is a form of rent extraction.
A part of the explanation for weaker competition is “winner-takes-almost-all” markets: superstar individuals and their companies earn monopoly rents, because they can now serve global markets so cheaply. The network externalities — benefits of using a network that others are using — and zero marginal costs of platform monopolies (Facebook, Google, Amazon, Alibaba and Tencent) are the dominant examples.
Another such natural force is the network externalities of agglomerations, stressed by Paul Collier in The Future of Capitalism. Successful metropolitan areas — London, New York, the Bay Area in California — generate powerful feedback loops, attracting and rewarding talented people. This disadvantages businesses and people trapped in left-behind towns. Agglomerations, too, create rents, not just in property prices, but also in earnings.
Yet monopoly rent is not just the product of such natural — albeit worrying — economic forces. It is also the result of policy. In the US, Yale University law professor Robert Bork argued in the 1970s that “consumer welfare” should be the sole objective of antitrust policy. As with shareholder value maximisation, this oversimplified highly complex issues. In this case, it led to complacency about monopoly power, provided prices stayed low. Yet tall trees deprive saplings of the light they need to grow. So, too, may giant companies.
Some might argue, complacently, that the “monopoly rent” we now see in leading economies is largely a sign of the “creative destruction” lauded by the Austrian economist Joseph Schumpeter. In fact, we are not seeing enough creation, destruction or productivity growth to support that view convincingly.
A disreputable aspect of rent-seeking is radical tax avoidance. Corporations (and so also shareholders) benefit from the public goods — security, legal systems, infrastructure, educated workforces and sociopolitical stability — provided by the world’s most powerful liberal democracies. Yet they are also in a perfect position to exploit tax loopholes, especially those companies whose location of production or innovation is difficult to determine.
The biggest challenges within the corporate tax system are tax competition and base erosion and profit shifting. We see the former in falling tax rates. We see the latter in the location of intellectual property in tax havens, in charging tax-deductible debt against profits accruing in higher-tax jurisdictions and in rigging transfer prices within firms.
A 2015 study by the IMF calculated that base erosion and profit shifting reduced long-run annual revenue in OECD countries by about $450bn (1 per cent of gross domestic product) and in non-OECD countries by slightly over $200bn (1.3 per cent of GDP). These are significant figures in the context of a tax that raised an average of only 2.9 per cent of GDP in 2016 in OECD countries and just 2 per cent in the US.
Brad Setser of the Council on Foreign Relations shows that US corporations report seven times as much profit in small tax havens (Bermuda, the British Caribbean, Ireland, Luxembourg, Netherlands, Singapore and Switzerland) as in six big economies (China, France, Germany, India, Italy and Japan). This is ludicrous. The tax reform under Mr Trump changed essentially nothing. Needless to say, not only US corporations benefit from such loopholes.
In such cases, rents are not merely being exploited. They are being created, through lobbying for distorting and unfair tax loopholes and against needed regulation of mergers, anti-competitive practices, financial misbehaviour, the environment and labour markets. Corporate lobbying overwhelms the interests of ordinary citizens. Indeed, some studies suggest that the wishes of ordinary people count for next to nothing in policymaking.
Not least, as some western economies have become more Latin American in their distribution of incomes, their politics have also become more Latin American. Some of the new populists are considering radical, but necessary, changes in competition, regulatory and tax policies. But others rely on xenophobic dog whistles while continuing to promote a capitalism rigged to favour a small elite. Such activities could well end up with the death of liberal democracy itself.
Members of the Business Roundtable and their peers have tough questions to ask themselves. They are right: seeking to maximise shareholder value has proved a doubtful guide to managing corporations. But that realisation is the beginning, not the end. They need to ask themselves what this understanding means for how they set their own pay and how they exploit — indeed actively create — tax and regulatory loopholes.
They must, not least, consider their activities in the public arena. What are they doing to ensure better laws governing the structure of the corporation, a fair and effective tax system, a safety net for those afflicted by economic forces beyond their control, a healthy local and global environment and a democracy responsive to the wishes of a broad majority?
We need a dynamic capitalist economy that gives everybody a justified belief that they can share in the benefits. What we increasingly seem to have instead is an unstable rentier capitalism, weakened competition, feeble productivity growth, high inequality and, not coincidentally, an increasingly degraded democracy. Fixing this is a challenge for us all, but especially for those who run the world’s most important businesses. The way our economic and political systems work must change, or they will perish.
Friday, 13 January 2017
Sex-for-rent is the hidden danger faced by more and more female tenants
Penny Anderson in The Guardian
The private rented sector is broken and house-hunting is a dreadful task fraught with abject desperation. Just when you thought it couldn’t get any worse, to the list of nasties (the grasping letting agents and truculent and capricious buy-to-let owners) whom tenants confront can now be added creepy, predatory rentiers offering homes in return for sex.
In the weird swamp world of online portals, everything is so much more dangerous. Female tenants are especially vulnerable when flat-hunting, and some landlords are quite open about what they expect, while others hide in plain sight. The basic act of flat-hunting often involves wandering into an unfamiliar neighbourhood, then entering a flat for guided viewings with strangers: a man you have never met before, who could assume or imagine that signing a rental agreement entitles him to sex. Remember, too, that this man might ultimately be in possession of the key to your home, and, if he’s a live-in landlord, could occupy the adjacent bedroom.
Some ads are overtly soliciting sex, while others are coy. During a bizarre viewing tour of a tiny flat with a friend, the drunken landlord, having first claimed that he was moving out to live with his girlfriend, changed tack. He explained: “She’s not really my girlfriend and would it be OK if I visited?” I left.
An especially odious case involved a friend who moved out after her landlord offered to reduce the rent if she were “nice to him”. He then accused her of prudery and had the effrontery to pursue her for the income he lost after she escaped his lair. (And frankly, it was a lair, wasn’t it?)
Let’s be clear: this isn’t an issue about consensual sex or self-empowered, independent “sex-workers”. It is exposed women seeking a safe place to live, who are then ruthlessly compelled to have sex with their landlords in order to keep a roof over their heads. Many are trying to escape homelessness – and encounter vile men offering to house vulnerable women in return for sex. And by vulnerable, I don’t just mean women who are poor, but also exploited asylum seekers, those fleeing domestic violence, care leavers and victims of “the right to rent”, where potential tenants must show documents proving they have the right to remain in the UK.
I endured some troubling encounters when using a website popular with flat-hunters, having placed a carefully worded flat-wanted ad. One response sounded positive, but when I called, the landlord was evasive about terms, thought my self-description (“professional female”) odd, and then asked if I wanted “male company”. I hung up. To my amazement, a male friend found this hilarious, doubted my story, then checked to unearth a whole new world of abuse of women (and some men) simply looking for a home.
Yet still coercive homes-for-sex is too often seen as bit of a laugh. It isn’t. It’s not merely undermining but hazardous. A friend home-hunting with her toddler was contacted by one man who offered her use of his home, eventually explaining that he didn’t require rent; rather he “enjoyed light, consensual anal intercourse”. She was both terrified and appalled.
The private rental sector in areas of high demand (especially London) is growing sleazier by the day, and many men are brazen about what they expect. A supporter of tenant support group Acorn shared one man’s response to a female flat-hunter: “Can you pay with sex twice per week?” In a moment of dark levity, a male commenter offered to provide the sex, reasoning this probably wasn’t what sleazebag-guy was expecting.
The private rented sector is broken and house-hunting is a dreadful task fraught with abject desperation. Just when you thought it couldn’t get any worse, to the list of nasties (the grasping letting agents and truculent and capricious buy-to-let owners) whom tenants confront can now be added creepy, predatory rentiers offering homes in return for sex.
In the weird swamp world of online portals, everything is so much more dangerous. Female tenants are especially vulnerable when flat-hunting, and some landlords are quite open about what they expect, while others hide in plain sight. The basic act of flat-hunting often involves wandering into an unfamiliar neighbourhood, then entering a flat for guided viewings with strangers: a man you have never met before, who could assume or imagine that signing a rental agreement entitles him to sex. Remember, too, that this man might ultimately be in possession of the key to your home, and, if he’s a live-in landlord, could occupy the adjacent bedroom.
Some ads are overtly soliciting sex, while others are coy. During a bizarre viewing tour of a tiny flat with a friend, the drunken landlord, having first claimed that he was moving out to live with his girlfriend, changed tack. He explained: “She’s not really my girlfriend and would it be OK if I visited?” I left.
An especially odious case involved a friend who moved out after her landlord offered to reduce the rent if she were “nice to him”. He then accused her of prudery and had the effrontery to pursue her for the income he lost after she escaped his lair. (And frankly, it was a lair, wasn’t it?)
Let’s be clear: this isn’t an issue about consensual sex or self-empowered, independent “sex-workers”. It is exposed women seeking a safe place to live, who are then ruthlessly compelled to have sex with their landlords in order to keep a roof over their heads. Many are trying to escape homelessness – and encounter vile men offering to house vulnerable women in return for sex. And by vulnerable, I don’t just mean women who are poor, but also exploited asylum seekers, those fleeing domestic violence, care leavers and victims of “the right to rent”, where potential tenants must show documents proving they have the right to remain in the UK.
I endured some troubling encounters when using a website popular with flat-hunters, having placed a carefully worded flat-wanted ad. One response sounded positive, but when I called, the landlord was evasive about terms, thought my self-description (“professional female”) odd, and then asked if I wanted “male company”. I hung up. To my amazement, a male friend found this hilarious, doubted my story, then checked to unearth a whole new world of abuse of women (and some men) simply looking for a home.
Yet still coercive homes-for-sex is too often seen as bit of a laugh. It isn’t. It’s not merely undermining but hazardous. A friend home-hunting with her toddler was contacted by one man who offered her use of his home, eventually explaining that he didn’t require rent; rather he “enjoyed light, consensual anal intercourse”. She was both terrified and appalled.
The private rental sector in areas of high demand (especially London) is growing sleazier by the day, and many men are brazen about what they expect. A supporter of tenant support group Acorn shared one man’s response to a female flat-hunter: “Can you pay with sex twice per week?” In a moment of dark levity, a male commenter offered to provide the sex, reasoning this probably wasn’t what sleazebag-guy was expecting.
Many platforms seem slow or unwilling to deal with such abusive posts, or else tacitly tolerate them. Shelter has picked up on the situation, noting the power imbalance and the distorted sense of entitlement: man provides home, man deems himself entitled to sex with isolated, scared, sofa-surfing young woman lacking genuine alternative options.
The answer is of course for offenders to cease and desist. But failing a mass changing of ways and renunciation of sordid sexual bullying, it seems women must take steps to ensure our own safety. So, when flat-hunting, do not go alone. Always let somebody know where you are. If possible, arrange a guided viewing with an agent (if an agent is being used to let the property). And if you are being coerced into sex, inform the police.
The internet has opened up a whole new fresh hell of sleaze and importuning. On the plus side, it’s also excellent for naming and shaming. And hopefully those women so desperate that they have felt as if there were no choice but to submit can be empowered to summon enough courage to report these abusers.
The answer is of course for offenders to cease and desist. But failing a mass changing of ways and renunciation of sordid sexual bullying, it seems women must take steps to ensure our own safety. So, when flat-hunting, do not go alone. Always let somebody know where you are. If possible, arrange a guided viewing with an agent (if an agent is being used to let the property). And if you are being coerced into sex, inform the police.
The internet has opened up a whole new fresh hell of sleaze and importuning. On the plus side, it’s also excellent for naming and shaming. And hopefully those women so desperate that they have felt as if there were no choice but to submit can be empowered to summon enough courage to report these abusers.
Thursday, 8 October 2015
The real ticking time bomb for the Tories is home ownership
Allister Heath in The Telegraph
There is not much that the French do better than us these days when it comes to economics. Housing is the glaring, humiliating exception: for the first time in a generation, France’s homeownership rate has overtaken Britain’s.
When I first stumbled upon this remarkable fact, I could almost not believe it. Isn’t Britain supposed to be weirdly obsessed with home ownership, unlike our happy-go-lucky continental neighbours who, we are endlessly told, are perfectly content to rent?
But the statistics are true: while we have been plunged into an intensifying housing crisis that has locked millions of young people out of the market and forced others to live in over-priced rabbit hutches, the French have been quietly building an ownership society that would have made Lady Thatcher proud. The desire to own the roof over one’s head, so powerfully described in the Prime Minister’s Conservative party speech yesterday, is a universal urge, shared even by voters in not so socialist France.
It is therefore shocking that just 63.3 per cent of English households now own their own home, down from 70.9 per cent in 2003 and back to levels last seen three decades ago. In stark contrast, home ownership has beenshooting up in France, rising from 60.5 per cent in 2007 to 64.3 per cent in 2013. British and US commentators who believe that home ownership is passe and that we must all join Generation Rent need to look beyond the English-speaking world.
The UK is now well below the European Union average: across the 28 member states, 70 per cent of households are owner-occupiers. This is an extraordinary reversal which goes to the heart of David Cameron’s vision for an aspirational meritocracy.
The Prime Minister’s speech was a powerful restatement of the small-c conservative case for an opportunity society, as opposed to the Left’s obsession with equality of outcomes: he wants anybody who works hard and behaves responsibly to get ahead in life, regardless of background or ethnicity. He wants renters to become owners, and employees to become employers, which is exactly what a Tory prime minister who cares about social mobility should be saying.
Yet he understands not just the extent to which modern Britain has become an aspirational, individualistic society (a reality that Jeremy Corbyn cannot grasp), but also that aspiration without hope is debilitating (a concept that the left is more at ease with). One of the most moving phrases in his speech yesterday was his description of “children with their noses pressed to the window as they watch the world moving ahead without them”.
Given the importance of home ownership to the British dream, the government must do much more to fix our homeownership crisis. This is not just the right thing to do; it is also a matter of life or death for the Conservative party itself. With Labour firmly captured by the hard Left, it is at least conceivable that a Tory party that bestrides the common ground could return to levels of support last seen in the 1980s, and win the next two general elections.
Three main obstacles lie in the way of this Tory dream: in the short-term, the party could be destroyed by the European question; in the medium-term, it could be derailed by the next economic crisis; but in the longer-term the ongoing housing crisis could kill off Britain’s ownership society, changing our national culture and shifting the electorate back into the arms of the Left.
Politics is complicated, of course, with many variables explaining how people vote; but it is clear that housing status is one of the central determinants. When YouGov surveyed 100,000 general election voters, it discovered that the Tories led Labour by 47-23 per cent among those who own their homes outright, and by 42-29 per cent among those with mortgages. But the parties were almost tied among private renters, with Labour enjoying a 25-point lead among social tenants. Another seven-point decline in the homeownership rate would cost the Tories dozens of seats; an increase could put Labour out of power for a generation.
It used to be argued that Britain’s changing demographics and Labour’s supposed stronghold on the ethnic minority vote meant that the Tories were doomed. This is nonsense: the Tories are starting to crack sections of this electorate, with one poll suggesting they may even have won a plurality of the Hindu and Sikh vote for the first time in May. Mr Cameron’s push for a colour-blind society in Manchester can only have helped build on this extraordinary achievement. The real ticking time bomb for the Tories is home ownership.
Britain’s housing crisis is one of under-supply: for the past two decades at least, far too few homes have been built. But while the problem is easy to identify, tackling it is fiendishly difficult given the vested interests involved. Redefining “affordable housing” as homes that can be owned, not just rented, is a small step in the right direction. The deal with housing associations to extend the right to buy will also help. But more is needed.
Remarkably, 354,700 new homes were built in France last year, compared with 140,880 across the UK, a pathetically inadequate number barely half of that required. The French were actually bitterly disappointed with their own performance: their recent average has been around 400,000 homes a year.
Mr Cameron is right, therefore, to be calling for a national crusade for house-building. State-owned brownfield sites must urgently be made available for development, though this will not be a panacea. A further liberalisation of the planning laws will also be required, and one final taboo tackled: we need to accept than not all Green Belt land is worth preserving.
We shouldn’t build on forests, of course, but swathes of what is classified as Green Belt isn’t even green: plenty of derelict land, quarries and ugly, unattractive sites are also wrongly protected. Some of this could be converted into parks and homes with gardens and the right infrastructure, benefiting hundreds of thousands of families. For their own sake, Tory councillors and MPs need to start embracing sensible, well-managed development: if not, the party will soon find out that it is either on the side of aspiring homeowners, or it is nothing.
There is not much that the French do better than us these days when it comes to economics. Housing is the glaring, humiliating exception: for the first time in a generation, France’s homeownership rate has overtaken Britain’s.
When I first stumbled upon this remarkable fact, I could almost not believe it. Isn’t Britain supposed to be weirdly obsessed with home ownership, unlike our happy-go-lucky continental neighbours who, we are endlessly told, are perfectly content to rent?
But the statistics are true: while we have been plunged into an intensifying housing crisis that has locked millions of young people out of the market and forced others to live in over-priced rabbit hutches, the French have been quietly building an ownership society that would have made Lady Thatcher proud. The desire to own the roof over one’s head, so powerfully described in the Prime Minister’s Conservative party speech yesterday, is a universal urge, shared even by voters in not so socialist France.
It is therefore shocking that just 63.3 per cent of English households now own their own home, down from 70.9 per cent in 2003 and back to levels last seen three decades ago. In stark contrast, home ownership has beenshooting up in France, rising from 60.5 per cent in 2007 to 64.3 per cent in 2013. British and US commentators who believe that home ownership is passe and that we must all join Generation Rent need to look beyond the English-speaking world.
The UK is now well below the European Union average: across the 28 member states, 70 per cent of households are owner-occupiers. This is an extraordinary reversal which goes to the heart of David Cameron’s vision for an aspirational meritocracy.
The Prime Minister’s speech was a powerful restatement of the small-c conservative case for an opportunity society, as opposed to the Left’s obsession with equality of outcomes: he wants anybody who works hard and behaves responsibly to get ahead in life, regardless of background or ethnicity. He wants renters to become owners, and employees to become employers, which is exactly what a Tory prime minister who cares about social mobility should be saying.
Yet he understands not just the extent to which modern Britain has become an aspirational, individualistic society (a reality that Jeremy Corbyn cannot grasp), but also that aspiration without hope is debilitating (a concept that the left is more at ease with). One of the most moving phrases in his speech yesterday was his description of “children with their noses pressed to the window as they watch the world moving ahead without them”.
Given the importance of home ownership to the British dream, the government must do much more to fix our homeownership crisis. This is not just the right thing to do; it is also a matter of life or death for the Conservative party itself. With Labour firmly captured by the hard Left, it is at least conceivable that a Tory party that bestrides the common ground could return to levels of support last seen in the 1980s, and win the next two general elections.
Three main obstacles lie in the way of this Tory dream: in the short-term, the party could be destroyed by the European question; in the medium-term, it could be derailed by the next economic crisis; but in the longer-term the ongoing housing crisis could kill off Britain’s ownership society, changing our national culture and shifting the electorate back into the arms of the Left.
Politics is complicated, of course, with many variables explaining how people vote; but it is clear that housing status is one of the central determinants. When YouGov surveyed 100,000 general election voters, it discovered that the Tories led Labour by 47-23 per cent among those who own their homes outright, and by 42-29 per cent among those with mortgages. But the parties were almost tied among private renters, with Labour enjoying a 25-point lead among social tenants. Another seven-point decline in the homeownership rate would cost the Tories dozens of seats; an increase could put Labour out of power for a generation.
It used to be argued that Britain’s changing demographics and Labour’s supposed stronghold on the ethnic minority vote meant that the Tories were doomed. This is nonsense: the Tories are starting to crack sections of this electorate, with one poll suggesting they may even have won a plurality of the Hindu and Sikh vote for the first time in May. Mr Cameron’s push for a colour-blind society in Manchester can only have helped build on this extraordinary achievement. The real ticking time bomb for the Tories is home ownership.
Britain’s housing crisis is one of under-supply: for the past two decades at least, far too few homes have been built. But while the problem is easy to identify, tackling it is fiendishly difficult given the vested interests involved. Redefining “affordable housing” as homes that can be owned, not just rented, is a small step in the right direction. The deal with housing associations to extend the right to buy will also help. But more is needed.
Remarkably, 354,700 new homes were built in France last year, compared with 140,880 across the UK, a pathetically inadequate number barely half of that required. The French were actually bitterly disappointed with their own performance: their recent average has been around 400,000 homes a year.
Mr Cameron is right, therefore, to be calling for a national crusade for house-building. State-owned brownfield sites must urgently be made available for development, though this will not be a panacea. A further liberalisation of the planning laws will also be required, and one final taboo tackled: we need to accept than not all Green Belt land is worth preserving.
We shouldn’t build on forests, of course, but swathes of what is classified as Green Belt isn’t even green: plenty of derelict land, quarries and ugly, unattractive sites are also wrongly protected. Some of this could be converted into parks and homes with gardens and the right infrastructure, benefiting hundreds of thousands of families. For their own sake, Tory councillors and MPs need to start embracing sensible, well-managed development: if not, the party will soon find out that it is either on the side of aspiring homeowners, or it is nothing.
Tuesday, 15 September 2015
Prime minister Jeremy Corbyn: the first 100 days
Chris Mullin in The Guardian
Thursday 7 May 2020. The polls have closed and, to general astonishment, a BBC exit poll is predicting a narrow victory for Jeremy Corbyn’s Labour-Liberal Democrat-Green alliance.
From the outset, it is clear that there has been a huge increase in turnout among the young and the disaffected. As one commentator puts it: “Generation Rent appear to be taking their revenge on middle England.”
As usual, Sunderland South is the first seat to declare, less than an hour after polls close. Unsurprisingly, the Labour candidate is returned, but the swing is modest, causing commentators to suggest that perhaps the exit poll is mistaken.
The first sign that the earth is about to change places with the sky comes just after midnight when Labour begins picking up home counties seats it hasn’t held for a decade. Ipswich, Harwich, Harlow, Dover, the Medway towns and Plymouth Sutton fall in quick succession. Two Brighton seats and one in Bristol go Green, along with the hitherto safe Tory seat of Totnes.
At dawn, the result remains unclear. Most of the traditional Tory strongholds have held firm. In Surrey, Sussex, Hampshire and North Yorkshire, Tory MPs are returned with increased majorities. The outcome hangs on what happens in the 40 seats in which Labour, the Liberal Democrats and the Greens have agreed not to oppose each other.
2am: All eyes are on Islington. Upper Street has been blocked since early evening by crowds chanting “Jeremy, Jeremy” and “Jez we can”. Of the Bearded One, there are only intermittent glimpses: at the declaration of his own result and, later, when he appears on the steps of Islington town hall. His demeanour, as ever, is downbeat and, as is his habit, he joins in the applause. “We must await events,” is all he says, before disappearing back inside. A large screen outside the town hall relays the results. The cheering and the chanting intensify with each new gain. By dawn, a delirious crowd is blocking the entire street from Highbury Corner to the Angel tube station. Large screens relaying the results have been erected at intervals along the entire length of the street. The atmosphere is more Glastonbury than Islington.
Meanwhile, commentators who only hours earlier had been predicting a Labour meltdown are now opining knowledgably on the causes of the earthquake. There is general agreement that the Tories overdid austerity. The collapse of just about all non-statutory services, the outsourcing of parks, the boarded-up theatres and youth clubs and the sporadic outbreaks of inner-city rioting have finally triggered a political backlash beyond the Labour heartlands. That, plus the growing realisation that an entire generation of young people have been priced out of the housing market by overseas investors and ruthless buy-to-let landlords.
There is general agreement, too, that attempts by the Tories and their tabloid friends to paint Corbyn as an agent of Hamas and Hezbollah have spectacularly backfired. Not least as a result of the revelation that MI6, with ministerial approval, has been talking to Hamas all along.
The tabloid press has gone bananas. “BRITAIN VOTES FOR LUNACY”, screams the Sun, without waiting for the final result. “STARK RAVING BONKERS” is the Mail’s considered opinion. The broadsheet press is only mildly less hysterical. The front page of the Telegraph is headed “CIVILISATION AS WE KNOW IT: THE END”. There is much talk of assets being evacuated. Florida seems to be the preferred destination.
From Chelsea to Chorleywood come reports of panic buying. Cue TV cameras panning empty shelves in the King’s Road branch of Waitrose.
Only on Friday morning, when the rural results come in, is the outcome clear. Former Lib-Dem strongholds in Devon, Cornwall and Northumberland have returned to the fold, along with Richmond Park and Twickenham, which declared overnight. Corbyn’s controversial decision not to contest these seats has paid off.
By noon, it has become clear to everyone that Corbyn is in a position to form a government. In Tatton, Cheshire, an ashen-faced George Osborne is shown on TV conceding defeat. “I have just telephoned Mr Corbyn to congratulate him,” he says through gritted teeth. A statement from the Scottish Nationalists, who have retained all but three of their seats, welcomes the outcome and says they look forward to working with the new government.
An hour later, Corbyn, looking cheerful and well-rested makes his way with difficulty by bicycle through the crowds in the Mall to the palace, where he is to be annointed. In deference to the occasion, he is wearing a smart sports jacket with a red-flag lapel button, but no tie. His majesty, unlike many of his courtiers, is said to be not too distressed by the outcome. In fact, say some, he is positively gleeful. Indeed, there are rumours that he has for some months been engaged in private correspondence with the Labour leader on a range of issues.
The sun shines. From all over the country there are reports of impromptu street parties.
Friday, 1pm: Corbyn, hotfoot from the palace, enters Downing Street pushing his bicycle. By now, he has acquired a police escort that, with difficulty, carves a path through the crowds to the door of No 10. “The dark days of austerity are at an end,” Corbyn says, before chaining his bicycle to the railings and disappearing inside.
News of his government trickles out slowly over the weekend. Many of the names are unfamiliar, but there are some surprises. Chuka Umunna is to be chancellor of the exchequer. Immediately the share index, which had been plummeting, stabilises.
Week one: In a statement to the House of Commons, the new defence secretary, Major Jarvis (as the press have taken to calling him), announces that plans to renew the Trident missile system are to be scrapped resulting in a saving to the public purse of many billions. Part of the proceeds will be invested in equipping and expanding conventional forces. He is at pains to emphasise that there are no plans to leave Nato. Major Jarvis adds that a modest expansion of the armed forces is to be undertaken in anticipation that British forces will have an increased role to play in UN peacekeeping. Immediately, a retired field marshal and a number of retired generals pop up to say that this represents a long overdue outbreak of common sense. Which largely trumps the howls of outrage from the military wing of the Tory party.
Week two: the King’s speech. Some observers affect to notice a spring in his majesty’s step. Among the highlights is a media diversity bill that places strict limits on the share of the British media owned by any single proprietor. As expected, the railways are to be taken back into public ownership, at no cost to the public purse, as the franchises expire. A state energy company will be established to compete with those in the private sector and a state investment bank will be set up with a mandate to invest only in productive and environmentally friendly activity. Plans to renationalise the energy companies are to be put on hold “for the time being”.
The flagship of the legislative programme is to be a housing bill reintroducing rents controls, and encouraging local authorities to build affordable housing. There is to be an indefinite moratorium on the sale of public housing.
Finally, a bill to enact reform of the House of Lords. Life peerages will be converted to terms of 12 years; likewise, the remaining hereditary peerages will be converted to a fixed term, allowing the hereditaries to die out. To sweeten the pill, former peers are to be allowed life access to the club facilities. Resistance, however, will not be tolerated. If necessary, up to 1,000 new peers will be created to force through the new arrangements.
Week three: the new chancellor’s pre-Budget speech. Words such as “caution” and the phrase “fiscal responsibility” feature frequently. Behind the scenes, there are reported to have been some differences between the prime minister and his chancellor, but come the day they are all smiles.
The new chancellor devotes some time to mocking the efforts of the previous administration to deal with the deficit. “The right honourable gentleman,” says Chancellor Chuka as he points an accusing finger at the former prime minister Osborne, “promised to pay down the deficit in five years, then in nine, then in 10, and all he succeeded in doing is collapsing much of the public sector while leaving half the deficit unpaid.” Osborne shifts uncomfortably. Gone is his trademark perma-smirk.
Then, radiating calm, the chancellor proceeds to announce a “carefully managed” programme of quantitive easing to help revive the main public services. “I am advised that this will result in a small increase in inflation, but – to coin a phrase – that will be a price worth paying in order to repair the damage that the right honourable gentleman and his friends have inflicted on our social fabric.” He goes on: “There will be no more deficit fetishism. The remaining deficit will be ringfenced and paid down over 20 years, as one might repay a mortgage.” At every point, he is careful to announce that he has acted in close consultation with the new governor of the Bank “and other leading economists”.
To the relief of the southern middle classes, the chancellor announces, with a sideways glance at Corbyn, whose expression is studiously neutral, that there is to be no increase in the top rate of taxation. And plans for a mansion tax have been abandoned. Instead, there will be “two and possibly three” new council tax bands, raising much-needed revenue for local government.
The budget is well received in most quarters. In the City, relief is the prevailing sentiment. Share prices remain buoyant. The pound regains some its earlier losses against the dollar. Talk of relocation to the far east has faded. Only the Barclay brothers, following news of a review of their tax arrangements, announce that they will be abandoning their rock in the Channel Islands and relocating to Tuvalu.
As for the Tories, they remain shellshocked. George Osborne has announced his resignation. A long and bloody leadership election is anticipated.
To general astonishment, among the early visitors to Downing Street is a grim-faced Rupert Murdoch. He is closeted with the new prime minister for more than an hour, at the end of which the following announcement is made: “Mr Murdoch has asked the government to allow 21st Century Fox to extend its holdings in Sky PLC. I have agreed to this subject to two conditions. First, that the Broadcasting Acts are amended, requiring Sky to compete on a level playing field with the main terrestrial TV channels. And secondly, that he relinquishes control of all his British newspapers which will, in future, be managed by a trust in which no single shareholder will have a controlling interest. Mr Murdoch has accepted these conditions. Our discussions were amicable.”
And so it came to pass that Jeremy Corbyn, serial dissident, alleged friend of Hamas, scourge of the ruling classes (to say nothing of New Labour), was seamlessly translated into a saintly, much-loved figure. Much to the new prime minister’s embarrassment, mothers began to name their sons after him. Corbyn-style beards became fashionable among men of a certain age and waiting lists for allotments shot up, following a much-praised appearance on Gardeners’ World. How long the honeymoon would last was anyone’s guess, but it was wondrous to behold.
Most astonishing of all, in an interview to celebrate 100 days of the new administration, was this testimony: “I guess I was wrong about Jeremy. Perhaps we all were.” The author? No lesser figure than Tony Blair.
Thursday 7 May 2020. The polls have closed and, to general astonishment, a BBC exit poll is predicting a narrow victory for Jeremy Corbyn’s Labour-Liberal Democrat-Green alliance.
From the outset, it is clear that there has been a huge increase in turnout among the young and the disaffected. As one commentator puts it: “Generation Rent appear to be taking their revenge on middle England.”
As usual, Sunderland South is the first seat to declare, less than an hour after polls close. Unsurprisingly, the Labour candidate is returned, but the swing is modest, causing commentators to suggest that perhaps the exit poll is mistaken.
The first sign that the earth is about to change places with the sky comes just after midnight when Labour begins picking up home counties seats it hasn’t held for a decade. Ipswich, Harwich, Harlow, Dover, the Medway towns and Plymouth Sutton fall in quick succession. Two Brighton seats and one in Bristol go Green, along with the hitherto safe Tory seat of Totnes.
At dawn, the result remains unclear. Most of the traditional Tory strongholds have held firm. In Surrey, Sussex, Hampshire and North Yorkshire, Tory MPs are returned with increased majorities. The outcome hangs on what happens in the 40 seats in which Labour, the Liberal Democrats and the Greens have agreed not to oppose each other.
2am: All eyes are on Islington. Upper Street has been blocked since early evening by crowds chanting “Jeremy, Jeremy” and “Jez we can”. Of the Bearded One, there are only intermittent glimpses: at the declaration of his own result and, later, when he appears on the steps of Islington town hall. His demeanour, as ever, is downbeat and, as is his habit, he joins in the applause. “We must await events,” is all he says, before disappearing back inside. A large screen outside the town hall relays the results. The cheering and the chanting intensify with each new gain. By dawn, a delirious crowd is blocking the entire street from Highbury Corner to the Angel tube station. Large screens relaying the results have been erected at intervals along the entire length of the street. The atmosphere is more Glastonbury than Islington.
Meanwhile, commentators who only hours earlier had been predicting a Labour meltdown are now opining knowledgably on the causes of the earthquake. There is general agreement that the Tories overdid austerity. The collapse of just about all non-statutory services, the outsourcing of parks, the boarded-up theatres and youth clubs and the sporadic outbreaks of inner-city rioting have finally triggered a political backlash beyond the Labour heartlands. That, plus the growing realisation that an entire generation of young people have been priced out of the housing market by overseas investors and ruthless buy-to-let landlords.
There is general agreement, too, that attempts by the Tories and their tabloid friends to paint Corbyn as an agent of Hamas and Hezbollah have spectacularly backfired. Not least as a result of the revelation that MI6, with ministerial approval, has been talking to Hamas all along.
The tabloid press has gone bananas. “BRITAIN VOTES FOR LUNACY”, screams the Sun, without waiting for the final result. “STARK RAVING BONKERS” is the Mail’s considered opinion. The broadsheet press is only mildly less hysterical. The front page of the Telegraph is headed “CIVILISATION AS WE KNOW IT: THE END”. There is much talk of assets being evacuated. Florida seems to be the preferred destination.
From Chelsea to Chorleywood come reports of panic buying. Cue TV cameras panning empty shelves in the King’s Road branch of Waitrose.
Only on Friday morning, when the rural results come in, is the outcome clear. Former Lib-Dem strongholds in Devon, Cornwall and Northumberland have returned to the fold, along with Richmond Park and Twickenham, which declared overnight. Corbyn’s controversial decision not to contest these seats has paid off.
By noon, it has become clear to everyone that Corbyn is in a position to form a government. In Tatton, Cheshire, an ashen-faced George Osborne is shown on TV conceding defeat. “I have just telephoned Mr Corbyn to congratulate him,” he says through gritted teeth. A statement from the Scottish Nationalists, who have retained all but three of their seats, welcomes the outcome and says they look forward to working with the new government.
An hour later, Corbyn, looking cheerful and well-rested makes his way with difficulty by bicycle through the crowds in the Mall to the palace, where he is to be annointed. In deference to the occasion, he is wearing a smart sports jacket with a red-flag lapel button, but no tie. His majesty, unlike many of his courtiers, is said to be not too distressed by the outcome. In fact, say some, he is positively gleeful. Indeed, there are rumours that he has for some months been engaged in private correspondence with the Labour leader on a range of issues.
The sun shines. From all over the country there are reports of impromptu street parties.
Friday, 1pm: Corbyn, hotfoot from the palace, enters Downing Street pushing his bicycle. By now, he has acquired a police escort that, with difficulty, carves a path through the crowds to the door of No 10. “The dark days of austerity are at an end,” Corbyn says, before chaining his bicycle to the railings and disappearing inside.
News of his government trickles out slowly over the weekend. Many of the names are unfamiliar, but there are some surprises. Chuka Umunna is to be chancellor of the exchequer. Immediately the share index, which had been plummeting, stabilises.
Jeremy makes his way through the cheering crowds to his meeting at the palace.
Hilary Benn is to be foreign secretary. Dan Jarvis, a former major in the Parachute Regiment, defence secretary. The Green MP Caroline Lucas will be secretary of state for the environment. Tom Watson becomes deputy prime minister and secretary of state for culture, media and sport. John McDonnell, who two years earlier had been dramatically deposed as shadow chancellor in what came to be known as Corbyn’s night of the long knives, takes education while Diane Abbott gets local government. The ever affable Charlie Falconer, a veteran of the Blair administration, is to lead the Lords.
It is, however, the subsequent non-political appointments that cause the most comment. The US economist and Nobel laureate Paul Krugman is to be governor of the Bank of England. The new head of Ofcom, the media regulator, is to be the former Lib Dem MP Vince Cable.
The name of Jeremy Corbyn appears in the in-tray of President Trump at 8am Washington time. The president at once convenes an emergency meeting of his closest advisers. He is not a happy bunny. “I thought you assholes told me that this couldn’t happen ... So, what’s your advice? Sanctions? Do we send in the marines?”
The head of the CIA replies: “Cool it, Mr President. It’s early days yet.”
This result is the following statement by the White House press secretary: “The United States respects the will of the British people and looks forward to working with Mr Corbyn.” Her facial expression suggests otherwise, however. Later, it emerges that the US ambassador to London has been recalled for urgent consultations.
Having named his cabinet, the new prime minister spends Sunday afternoon tending to his allotment. Monday brings the first trickle of policy announcements and they prove popular with middle England. The proposed high speed railway, HS2, is to be abandoned in favour of investment in existing railway lines and the reopening of some scrapped by Dr Beeching. The expansion of Heathrow and Gatwick airports is also to be abandoned. “Demand management, rather than predict-and-provide, is the future of aviation policy,” says the accompanying statement. Squeals of outrage from the vested interests are largely lost in the accompanying celebrations. Suddenly, Corbyn has friends he didn’t know he had, in deepest Buckinghamshire and parts of Sussex hitherto off-limits to the Labour party.
Hilary Benn is to be foreign secretary. Dan Jarvis, a former major in the Parachute Regiment, defence secretary. The Green MP Caroline Lucas will be secretary of state for the environment. Tom Watson becomes deputy prime minister and secretary of state for culture, media and sport. John McDonnell, who two years earlier had been dramatically deposed as shadow chancellor in what came to be known as Corbyn’s night of the long knives, takes education while Diane Abbott gets local government. The ever affable Charlie Falconer, a veteran of the Blair administration, is to lead the Lords.
It is, however, the subsequent non-political appointments that cause the most comment. The US economist and Nobel laureate Paul Krugman is to be governor of the Bank of England. The new head of Ofcom, the media regulator, is to be the former Lib Dem MP Vince Cable.
The name of Jeremy Corbyn appears in the in-tray of President Trump at 8am Washington time. The president at once convenes an emergency meeting of his closest advisers. He is not a happy bunny. “I thought you assholes told me that this couldn’t happen ... So, what’s your advice? Sanctions? Do we send in the marines?”
The head of the CIA replies: “Cool it, Mr President. It’s early days yet.”
This result is the following statement by the White House press secretary: “The United States respects the will of the British people and looks forward to working with Mr Corbyn.” Her facial expression suggests otherwise, however. Later, it emerges that the US ambassador to London has been recalled for urgent consultations.
Having named his cabinet, the new prime minister spends Sunday afternoon tending to his allotment. Monday brings the first trickle of policy announcements and they prove popular with middle England. The proposed high speed railway, HS2, is to be abandoned in favour of investment in existing railway lines and the reopening of some scrapped by Dr Beeching. The expansion of Heathrow and Gatwick airports is also to be abandoned. “Demand management, rather than predict-and-provide, is the future of aviation policy,” says the accompanying statement. Squeals of outrage from the vested interests are largely lost in the accompanying celebrations. Suddenly, Corbyn has friends he didn’t know he had, in deepest Buckinghamshire and parts of Sussex hitherto off-limits to the Labour party.
Week one: In a statement to the House of Commons, the new defence secretary, Major Jarvis (as the press have taken to calling him), announces that plans to renew the Trident missile system are to be scrapped resulting in a saving to the public purse of many billions. Part of the proceeds will be invested in equipping and expanding conventional forces. He is at pains to emphasise that there are no plans to leave Nato. Major Jarvis adds that a modest expansion of the armed forces is to be undertaken in anticipation that British forces will have an increased role to play in UN peacekeeping. Immediately, a retired field marshal and a number of retired generals pop up to say that this represents a long overdue outbreak of common sense. Which largely trumps the howls of outrage from the military wing of the Tory party.
Week two: the King’s speech. Some observers affect to notice a spring in his majesty’s step. Among the highlights is a media diversity bill that places strict limits on the share of the British media owned by any single proprietor. As expected, the railways are to be taken back into public ownership, at no cost to the public purse, as the franchises expire. A state energy company will be established to compete with those in the private sector and a state investment bank will be set up with a mandate to invest only in productive and environmentally friendly activity. Plans to renationalise the energy companies are to be put on hold “for the time being”.
The flagship of the legislative programme is to be a housing bill reintroducing rents controls, and encouraging local authorities to build affordable housing. There is to be an indefinite moratorium on the sale of public housing.
Finally, a bill to enact reform of the House of Lords. Life peerages will be converted to terms of 12 years; likewise, the remaining hereditary peerages will be converted to a fixed term, allowing the hereditaries to die out. To sweeten the pill, former peers are to be allowed life access to the club facilities. Resistance, however, will not be tolerated. If necessary, up to 1,000 new peers will be created to force through the new arrangements.
Week three: the new chancellor’s pre-Budget speech. Words such as “caution” and the phrase “fiscal responsibility” feature frequently. Behind the scenes, there are reported to have been some differences between the prime minister and his chancellor, but come the day they are all smiles.
The new chancellor devotes some time to mocking the efforts of the previous administration to deal with the deficit. “The right honourable gentleman,” says Chancellor Chuka as he points an accusing finger at the former prime minister Osborne, “promised to pay down the deficit in five years, then in nine, then in 10, and all he succeeded in doing is collapsing much of the public sector while leaving half the deficit unpaid.” Osborne shifts uncomfortably. Gone is his trademark perma-smirk.
Then, radiating calm, the chancellor proceeds to announce a “carefully managed” programme of quantitive easing to help revive the main public services. “I am advised that this will result in a small increase in inflation, but – to coin a phrase – that will be a price worth paying in order to repair the damage that the right honourable gentleman and his friends have inflicted on our social fabric.” He goes on: “There will be no more deficit fetishism. The remaining deficit will be ringfenced and paid down over 20 years, as one might repay a mortgage.” At every point, he is careful to announce that he has acted in close consultation with the new governor of the Bank “and other leading economists”.
To the relief of the southern middle classes, the chancellor announces, with a sideways glance at Corbyn, whose expression is studiously neutral, that there is to be no increase in the top rate of taxation. And plans for a mansion tax have been abandoned. Instead, there will be “two and possibly three” new council tax bands, raising much-needed revenue for local government.
The budget is well received in most quarters. In the City, relief is the prevailing sentiment. Share prices remain buoyant. The pound regains some its earlier losses against the dollar. Talk of relocation to the far east has faded. Only the Barclay brothers, following news of a review of their tax arrangements, announce that they will be abandoning their rock in the Channel Islands and relocating to Tuvalu.
As for the Tories, they remain shellshocked. George Osborne has announced his resignation. A long and bloody leadership election is anticipated.
To general astonishment, among the early visitors to Downing Street is a grim-faced Rupert Murdoch. He is closeted with the new prime minister for more than an hour, at the end of which the following announcement is made: “Mr Murdoch has asked the government to allow 21st Century Fox to extend its holdings in Sky PLC. I have agreed to this subject to two conditions. First, that the Broadcasting Acts are amended, requiring Sky to compete on a level playing field with the main terrestrial TV channels. And secondly, that he relinquishes control of all his British newspapers which will, in future, be managed by a trust in which no single shareholder will have a controlling interest. Mr Murdoch has accepted these conditions. Our discussions were amicable.”
And so it came to pass that Jeremy Corbyn, serial dissident, alleged friend of Hamas, scourge of the ruling classes (to say nothing of New Labour), was seamlessly translated into a saintly, much-loved figure. Much to the new prime minister’s embarrassment, mothers began to name their sons after him. Corbyn-style beards became fashionable among men of a certain age and waiting lists for allotments shot up, following a much-praised appearance on Gardeners’ World. How long the honeymoon would last was anyone’s guess, but it was wondrous to behold.
Most astonishing of all, in an interview to celebrate 100 days of the new administration, was this testimony: “I guess I was wrong about Jeremy. Perhaps we all were.” The author? No lesser figure than Tony Blair.
Saturday, 22 August 2015
Death of buy-to-let: landlords wake up to Osborne's 150pc tax
Richard Dyson in The Telegraph
Hundreds of thousands of landlords and their accountants are digesting the impact of George Osborne’s shock tax change unveiled in the summer Budget on July 8.
The tax increase, on which there was no consultation, will be phased in from 2017 and fully implemented by 2020.
The change was unexpected, and the new regime is highly complex, so investors and their tax advisers are only now fully grasping its effects. Many investors remain unaware of the change, or underestimate its severity.
All higher-rate taxpayers who own buy‑to‑let properties on which there is a large mortgage will pay substantially more tax. Some current basic-rate taxpayers will also be hit, because the change will push them into the higher-rate tax bracket.
Those who are worst affected will see:
● the actual tax they pay on their investment rising twofold or more;
● the tax rate payable rising above 100pc, meaning that more than all of their profit is paid in tax;
● a degree of tax that pushes them into loss, making their investment financially unviable and forcing them to increase rents sharply – or sell.
Scroll down for a worked explanation of the changes.
What is also becoming clear is that worst hit will be those modest, middle-class savers who have prudently chosen to invest in buy‑to‑let, often alongside pensions and Isas, as a means to supplement their income.
The mechanism of Mr Osborne’s tax attack is the removal of landlords’ ability to deduct the cost of their mortgage interest from their rental income when they calculate a profit on which to pay tax.
So very wealthy landlords who do not need mortgages are untouched.
• Comment: This Alice in Wonderland tax sets a new benchmark in financial absurdity
In effect, the Chancellor wants to tax landlords on their turnover rather than their profit, meaning that tax will be payable on nonexistent income. This explains why tax rates will, for some, exceed 100pc: landlords will have to pay all of their profit in tax, and then pay more tax still.
As landlords absorb news of this shock tax attack, many have turned to online forums to vent their dismay. Some are writing to their MPs and directly to Mr Osborne.
More than 14,000 have signed an online petition calling for the tax to be withdrawn.
Other buy-to-let investors, though, remain unaware of the tax bombshell poised to wreak havoc on their finances. Accountants, mortgage lenders, brokers and other professionals are themselves still working through the ramifications.
Tina Riches, tax partner at accountancy and investment firm Smith & Williamson, said: “We are contacting all of our clients who have mortgaged property which they let, and we want to speak one-to-one with those worst affected. It is going to have a significant impact.”
Smith & Williamson has calculated that any higher-rate taxpayer landlord whose mortgage interest is 75pc or more of their rental income, net of other expenses, will see all of their returns wiped out by 2020.
So mortgage costs above 75pc of rental income will mean the buy‑to‑let investments become loss-making.
For additional-rate (45pc) taxpayers, the threshold at which their investment returns are wiped out by the tax is when mortgage costs reach 68pc of rental income.
The investors worst affected are therefore likely to be those who have bought recently with large mortgages. Low-yielding properties, such as those in London and other parts of the South East, where rents are comparatively low relative to property prices, will also be exposed. That is because rental income is likely to be lower relative to investors’ mortgage costs.
“It will be very difficult for middle-income borrowers to get into buy‑to‑let in future,” Ms Riches said. “It won’t end overnight, but existing investors will sell and far fewer will buy. Buy‑to‑let may well waste away.
“The wider worry is that the Government can make such radical changes without any consultation. What other areas will come under attack?”
Connie Cheuk owns 5 Properties - Photographed at her home in Littlehampton. Photo: Philip Hollis
Read how Connie Cheuk (pictured above), a landlord with five properties, will see her tax bill rise by almost 40pc. She is even contemplating giving up her 18-year career as a teacher as a means of reducing the tax impact
Britain’s big mortgage banks are reluctant to comment and appear to want to downplay the impact, perhaps to reassure their shareholders. But a senior executive at a top-five buy‑to‑let lender admitted privately to Telegraph Money: “For a group of customers there is a challenge, a potential for their cashflow to turn negative. They will be loss-making. Overall, this move makes it substantially harder for investors to generate a net income from buy‑to‑let.”
Of the many landlords to contact us, several are considering selling. This would enable them to pay off mortgages and limit the tax damage. Others will evict tenants and refurbish properties so they can be re-let for more.
One landlord described how a property currently let to a single mother of four, who is on benefits, will “not wash its face” once the tax starts to bite. If he converted the property into two units he could increase the current rent to cover the tax. The council would have to rehouse the family, he said, “and there is already an acute shortage of housing in that area”.
Another landlord described a £110,000 property, on which there is a £68,000 mortgage, let to an elderly couple at “about two thirds of the going market rent”. It generates an annual £1,100 profit, which would fall to £370 after the tax change.
“The property needs a new boiler, which would wipe out profits for years,” the landlord said. “My options are to increase rent significantly, which the tenants can’t afford, or evict them and sell up, or convert the property into smaller units.
“The Chancellor doesn’t grasp the misery he’ll cause – or doesn’t care.”
When George Osborne announced the change, he implied that the extra tax would hit only higher-earning landlords.
It’s true that every mortgaged landlord who pays 40pc or 45pc tax will indeed pay much more under his proposals.
But some basic-rate taxpayers will also pay more tax – because the change will push them into the higher-rate bracket.
In fact, contrary to Mr Osborne’s suggestion, the only buy-to-let investors who will not be hit are the very wealthy who buy property in cash and who don’t need a mortgage.
At the heart of the change is landlords’ future inability to deduct the cost of their mortgage interest from their rental income.
In other words, tax will be applied to the rent received – rather than what is left of the rent after the mortgage interest has been paid.
Here is a worked example assuming you, the landlord, pay 40pc tax.
NOW
Your buy-to-let earns £20,000 a year and the interest-only mortgage costs £13,000 a year. Tax is due on the difference or profit. So you pay tax on £7,000, meaning £2,800 for HMRC and £4,200 for you.
2020
Tax is now due on your full rental income of £20,000, less a tax credit equivalent to basic-rate tax on the interest. So you pay 40pc tax on £20,000 (ie £8,000), less the 20pc credit (20pc of £13,000 = £2,600), meaning £5,400 for HMRC and £1,600 for you. Your tax bill has therefore gone up by 93pc.
Now, say Bank Rate – and in turn your mortgage rate – rises by a small fraction, lifting your mortgage cost to £15,000, while your rent remains at £20,000.
You will have to pay £5,000 tax in this scenario, so you make no profit at all.
Hundreds of thousands of landlords and their accountants are digesting the impact of George Osborne’s shock tax change unveiled in the summer Budget on July 8.
The tax increase, on which there was no consultation, will be phased in from 2017 and fully implemented by 2020.
The change was unexpected, and the new regime is highly complex, so investors and their tax advisers are only now fully grasping its effects. Many investors remain unaware of the change, or underestimate its severity.
All higher-rate taxpayers who own buy‑to‑let properties on which there is a large mortgage will pay substantially more tax. Some current basic-rate taxpayers will also be hit, because the change will push them into the higher-rate tax bracket.
Those who are worst affected will see:
● the actual tax they pay on their investment rising twofold or more;
● the tax rate payable rising above 100pc, meaning that more than all of their profit is paid in tax;
● a degree of tax that pushes them into loss, making their investment financially unviable and forcing them to increase rents sharply – or sell.
Scroll down for a worked explanation of the changes.
What is also becoming clear is that worst hit will be those modest, middle-class savers who have prudently chosen to invest in buy‑to‑let, often alongside pensions and Isas, as a means to supplement their income.
The mechanism of Mr Osborne’s tax attack is the removal of landlords’ ability to deduct the cost of their mortgage interest from their rental income when they calculate a profit on which to pay tax.
So very wealthy landlords who do not need mortgages are untouched.
• Comment: This Alice in Wonderland tax sets a new benchmark in financial absurdity
In effect, the Chancellor wants to tax landlords on their turnover rather than their profit, meaning that tax will be payable on nonexistent income. This explains why tax rates will, for some, exceed 100pc: landlords will have to pay all of their profit in tax, and then pay more tax still.
As landlords absorb news of this shock tax attack, many have turned to online forums to vent their dismay. Some are writing to their MPs and directly to Mr Osborne.
More than 14,000 have signed an online petition calling for the tax to be withdrawn.
Other buy-to-let investors, though, remain unaware of the tax bombshell poised to wreak havoc on their finances. Accountants, mortgage lenders, brokers and other professionals are themselves still working through the ramifications.
Tina Riches, tax partner at accountancy and investment firm Smith & Williamson, said: “We are contacting all of our clients who have mortgaged property which they let, and we want to speak one-to-one with those worst affected. It is going to have a significant impact.”
Smith & Williamson has calculated that any higher-rate taxpayer landlord whose mortgage interest is 75pc or more of their rental income, net of other expenses, will see all of their returns wiped out by 2020.
So mortgage costs above 75pc of rental income will mean the buy‑to‑let investments become loss-making.
For additional-rate (45pc) taxpayers, the threshold at which their investment returns are wiped out by the tax is when mortgage costs reach 68pc of rental income.
The investors worst affected are therefore likely to be those who have bought recently with large mortgages. Low-yielding properties, such as those in London and other parts of the South East, where rents are comparatively low relative to property prices, will also be exposed. That is because rental income is likely to be lower relative to investors’ mortgage costs.
“It will be very difficult for middle-income borrowers to get into buy‑to‑let in future,” Ms Riches said. “It won’t end overnight, but existing investors will sell and far fewer will buy. Buy‑to‑let may well waste away.
“The wider worry is that the Government can make such radical changes without any consultation. What other areas will come under attack?”
Connie Cheuk owns 5 Properties - Photographed at her home in Littlehampton. Photo: Philip HollisRead how Connie Cheuk (pictured above), a landlord with five properties, will see her tax bill rise by almost 40pc. She is even contemplating giving up her 18-year career as a teacher as a means of reducing the tax impact
Britain’s big mortgage banks are reluctant to comment and appear to want to downplay the impact, perhaps to reassure their shareholders. But a senior executive at a top-five buy‑to‑let lender admitted privately to Telegraph Money: “For a group of customers there is a challenge, a potential for their cashflow to turn negative. They will be loss-making. Overall, this move makes it substantially harder for investors to generate a net income from buy‑to‑let.”
Of the many landlords to contact us, several are considering selling. This would enable them to pay off mortgages and limit the tax damage. Others will evict tenants and refurbish properties so they can be re-let for more.
One landlord described how a property currently let to a single mother of four, who is on benefits, will “not wash its face” once the tax starts to bite. If he converted the property into two units he could increase the current rent to cover the tax. The council would have to rehouse the family, he said, “and there is already an acute shortage of housing in that area”.
Another landlord described a £110,000 property, on which there is a £68,000 mortgage, let to an elderly couple at “about two thirds of the going market rent”. It generates an annual £1,100 profit, which would fall to £370 after the tax change.
“The property needs a new boiler, which would wipe out profits for years,” the landlord said. “My options are to increase rent significantly, which the tenants can’t afford, or evict them and sell up, or convert the property into smaller units.
“The Chancellor doesn’t grasp the misery he’ll cause – or doesn’t care.”
When George Osborne announced the change, he implied that the extra tax would hit only higher-earning landlords.
It’s true that every mortgaged landlord who pays 40pc or 45pc tax will indeed pay much more under his proposals.
But some basic-rate taxpayers will also pay more tax – because the change will push them into the higher-rate bracket.
In fact, contrary to Mr Osborne’s suggestion, the only buy-to-let investors who will not be hit are the very wealthy who buy property in cash and who don’t need a mortgage.
At the heart of the change is landlords’ future inability to deduct the cost of their mortgage interest from their rental income.
In other words, tax will be applied to the rent received – rather than what is left of the rent after the mortgage interest has been paid.
Here is a worked example assuming you, the landlord, pay 40pc tax.
NOW
Your buy-to-let earns £20,000 a year and the interest-only mortgage costs £13,000 a year. Tax is due on the difference or profit. So you pay tax on £7,000, meaning £2,800 for HMRC and £4,200 for you.
2020
Tax is now due on your full rental income of £20,000, less a tax credit equivalent to basic-rate tax on the interest. So you pay 40pc tax on £20,000 (ie £8,000), less the 20pc credit (20pc of £13,000 = £2,600), meaning £5,400 for HMRC and £1,600 for you. Your tax bill has therefore gone up by 93pc.
Now, say Bank Rate – and in turn your mortgage rate – rises by a small fraction, lifting your mortgage cost to £15,000, while your rent remains at £20,000.
You will have to pay £5,000 tax in this scenario, so you make no profit at all.
Tuesday, 2 September 2014
And so the Great British Railway Rake-Off rolls on
Network Rail’s £34bn debt has helped private companies to make huge profits. And now we’re ordered to pick up the bill
Congratulations, dear reader! As of this morning, you have racked up an extra £539 in debt. No, you haven’t just bought a new wardrobe. You haven’t made a deposit on a winter break. And it’s not because of that heavy eBay session where you overbid for a signed Bulgarian copy of Wet Wet Wet’s first LP.
Nor are you alone. I’m another 539 quid in the red too – as are each of the other 63 million Britons. Put all those sums together and the entire country has just lost £34bn. How did we manage that? The short answer is that some statisticians made it so. The Office for National Statistics has decided that, under new accounting rules, Network Rail can no longer be called a private company. It was always borrowing on the state’s behalf, and if anything went wrong with Network Rail, it was always going to be taxpayers who would be on the hook. So as of this week it goes on the public balance sheet, its £34bn of debt now indelibly inked next to our names.
Nor would you be alone if you haven’t heard about these extra tens of billions taken out in your name. It hasn’t come up much in the papers, or on the BBC. You might think that strange, given the huge amount involved and all those vows made by George Osborne about getting public debt down.
Then again, the hush fits perfectly with what that £34bn represents – because it’s hush money. It’s part of the secret subsidy that you, me and everyone else in Britain has handed over to the train operators to keep them in business. For years, Network Rail has been shelling out for new railway lines and stations refurbs using public money. The fruits of our generosity have been enjoyed by the private train businesses.
On this very page last August, Ian Birrell attacked critics of rail privatisation for not seeing the commuting miracles wrought. “When I travel from London to watch my football team, Everton, play at home, the average journey time to Liverpool is now 37 minutes quicker than when rail was privatised.” Well, yes, Ian: that’s because taxpayers paid £9bn for the privilege.
What’s more, Network Rail has also been keeping down track access charges – the rent that Arriva, TransPennine and the rest pay to use our railways. All this, by the way, is on top of the cash the government hands out directly to each of the firms.
Imagine having a landlord who did up your flat, chucked in a wetroom and some top-of-the-range white goods – then reduced your rent, so that he was really paying you to live there. You have just dreamed up Britain’s privatised rail network. Except it’s not all that private. Instead, you could call it the Great British Rake-Off: the state makes the investment; the train firms and their shareholders rake off the cash. And if the sums don’t work out, an operator can do the business equivalent of binning a runny baked Alaska by walking away – just as GNER did with the east coast main line.
For the rest, there are some lovely returns. Last winter, I asked academics at the Centre for Research on Socio-Cultural Change to tot up how much firms such as Virgin and First Group were making. They reported that in the financial year ending in March 2012, for each pound train operators invested, they were making £2.47 back. As I said at the time, find a bank account paying you that. That stupendous return on capital employed, as accountants refer to it, tells us that train companies invest very little but get a lovely flow of cash to send back to shareholders.
We’re meant to get into a choreographed huff about train fares. I can see why, when they’ve gone up 25% since Cameron took office. But to me, this is the greater scandal: the way we’re paying for private companies to make millions. The final kink in the system is that, from Arriva Trains Wales to London Overground, more and more of Britain’s train services are now run by German, French and Dutch state rail companies, who presumably direct the revenue from our fares back home. So taxpayers and commuters in the UK are paying for rail users on the continent to enjoy lower fares and better services.
If this is privatisation, I’m Richard Branson. All that’s happened this week is that the ONS has decided to end the charade. But what convolutions Labour and Tory politicians have gone through to stave off this day. Rather than criticise Network Rail bosses as they got stuck into the bonus trough, transport secretaries have kept mum so as not to demonstrate any public control over this pretend-private entity.
Rather than take democratic control over our money, the public is relegated to the role of a bystander. Despite embarking on a £38bn public-spending programme, despite heading for £50bn debt, Network Rail has no shareholders, and little parliamentary oversight: it is run by a small board who are supervised by 51 unelected lay members. This is of a piece with the manner in which Gordon Brown’s government practically killed itself to save RBS and Lloyds – then put its stakes in the arms-length UK Financial Investments, headed by a succession of bankers on sabbatical.
So, the Great British Rake-Off. It’s got TV potential: a true saga of how an entire political class pretends it has privatised the railways, even while pouring public money into the pockets of the privateers, then pretends otherwise to the public. Promises, pretence, subterfuge. And a ruddy great mess at the end.
Tuesday, 12 August 2014
Crony capitalism a big threat to countries like India, RBI chief Raghuram Rajan says
MUMBAI: Reserve Bank of India governor Raghuram Rajan has warned against crony capitalism which he said creates oligarchies and slows down growth.
"One of the greatest dangers to the growth of developing countries is the middle income trap, where crony capitalism creates oligarchies that slow down growth. If the debate during the elections is any pointer, this is a very real concern of the public in India today," said Rajan while delivering the Lalit Doshi memorial lecture in Mumbai on Monday.
The last general election was fraught with allegations of the nexus between politicians and business groups.
RBI governor Raghuram Rajan (left) with finance minister Arun Jaitley.
Rajan extolled the virtues of India's democracy before turning to its darker aspects. "An important issue in the recent election was whether we had substituted the crony socialism of the past with crony capitalism, where the rich and the influential are alleged to have received land, natural resources and spectrum in return for payoffs to venal politicians. By killing transparency and competition, crony capitalism is harmful to free enterprise, opportunity, and economic growth. And by substituting special interests for the public interest, it is harmful to democratic expression. If there is some truth to these perceptions of crony capitalism, a natural question is why people tolerate it. Why do they vote for the venal politician who perpetuates it?"
Rajan continued by saying, "One widely held hypothesis is that our country suffers from want of a 'few good men' in politics. This view is unfair to the many upstanding people in politics. But even assuming it is true, every so often we see the emergence of a group, usually upper middle class professionals, who want to clean up politics. But when these 'good' people stand for election, they tend to lose their deposits. Does the electorate really not want squeaky clean government?
Finance minister Arun Jaitley (left), with RBI governor (second from left in front) during a meeting.
"Apart from the conceit that high morals lie only with the upper middle class, the error in this hypothesis may be in believing that problems stem from individual ethics rather than the system we have. In a speech I made before the Bombay Chamber of Commerce in 2008, I argued that the tolerance for the venal politician is because he is the crutch that helps the poor and underprivileged navigate a system that gives them so little access. This may be why he survives."
The governor's warning against crony capitalism and oligarchies is a reiteration of his statements four days before the Lehman Brothers collapse in 2008. In a speech at the Bombay Chamber, Rajan had highlighted that India had the highest number of billionaires per trillion dollars of GDP after Russia. While excluding NR Narayana Murthy, Azim Premji, and Ratan Tata as 'deservedly respected', Rajan had said "three factors — land, natural resources, and government contracts or licenses — are the predominant sources of the wealth of our billionaires. And all of these factors come from the government."
"One of the greatest dangers to the growth of developing countries is the middle income trap, where crony capitalism creates oligarchies that slow down growth. If the debate during the elections is any pointer, this is a very real concern of the public in India today," said Rajan while delivering the Lalit Doshi memorial lecture in Mumbai on Monday.
The last general election was fraught with allegations of the nexus between politicians and business groups.
RBI governor Raghuram Rajan (left) with finance minister Arun Jaitley.
Rajan extolled the virtues of India's democracy before turning to its darker aspects. "An important issue in the recent election was whether we had substituted the crony socialism of the past with crony capitalism, where the rich and the influential are alleged to have received land, natural resources and spectrum in return for payoffs to venal politicians. By killing transparency and competition, crony capitalism is harmful to free enterprise, opportunity, and economic growth. And by substituting special interests for the public interest, it is harmful to democratic expression. If there is some truth to these perceptions of crony capitalism, a natural question is why people tolerate it. Why do they vote for the venal politician who perpetuates it?"
Rajan continued by saying, "One widely held hypothesis is that our country suffers from want of a 'few good men' in politics. This view is unfair to the many upstanding people in politics. But even assuming it is true, every so often we see the emergence of a group, usually upper middle class professionals, who want to clean up politics. But when these 'good' people stand for election, they tend to lose their deposits. Does the electorate really not want squeaky clean government?
Finance minister Arun Jaitley (left), with RBI governor (second from left in front) during a meeting.
"Apart from the conceit that high morals lie only with the upper middle class, the error in this hypothesis may be in believing that problems stem from individual ethics rather than the system we have. In a speech I made before the Bombay Chamber of Commerce in 2008, I argued that the tolerance for the venal politician is because he is the crutch that helps the poor and underprivileged navigate a system that gives them so little access. This may be why he survives."
The governor's warning against crony capitalism and oligarchies is a reiteration of his statements four days before the Lehman Brothers collapse in 2008. In a speech at the Bombay Chamber, Rajan had highlighted that India had the highest number of billionaires per trillion dollars of GDP after Russia. While excluding NR Narayana Murthy, Azim Premji, and Ratan Tata as 'deservedly respected', Rajan had said "three factors — land, natural resources, and government contracts or licenses — are the predominant sources of the wealth of our billionaires. And all of these factors come from the government."
Saturday, 5 July 2014
It's time to revive public ownership and the common good
Despite its dire record, privatisation is rarely questioned. We must push for our shared interests to take precedence
Ed Balls on The Andrew Marr Show, where he said: 'I don’t want to go back to the nationalisation of the 1970s.' Photograph: Jeff Overs/BBC/PA
It might sound like an oxymoron, but this is a positive article about public services. So effectively has the coalition rebranded an economic crisis caused by private greed as the consequence of public ownership, that nationalisation has come to be seen as a universally discredited hangover from bad old Labour. So while current Labour is considering taking back parts of the rail network into public ownership the shadow chancellor, Ed Balls, last weekend was intoning the neoliberal catechism: "I don't want to go back to the nationalisation of the 1970s."
But bringing outsourced services into public ownership isn't about looking back: it's about moving forward, and is a popular idea (66% of respondents in a poll last year supported the nationalisation of energy and rail companies, including 52% of Tories). For today, in the face of the combined bungles of G4S, Serco and Atos, not even the slickest PR-turned-politician can sustain the myth that private equals efficient.
Yet privatisation is touted as a panacea and cliches are trotted out about the evils of the "nanny state". We need to develop a new language to talk about public ownership, one that detoxifies it and taps into the wide recognition that natural resources and essential public services should not be treated as commodities.
Instead of talking about the state, Hilary Wainwright, in a powerful new booklet – The Tragedy of the Private, the Potential of the Public – describes water, health and education as "the commons" – an excellent term. What's remarkable, and hitherto fairly undocumented, is how all over the world a quiet process of remunicipalisation is taking place. Wainwright gives examples from Newcastle to Norway. In the UK, she found over half of 140 local councils bringing services back from the private sector. In Germany, by 2011 the majority of energy distribution networks had returned to public ownership. Even in the US, a fifth of all previously outsourced services have been brought back in-house.
The case of water is a particularly powerful one: to most people the idea of privatising it is alarmingly similar to the privatisation of air. Wainwright tracks struggles to resist the privatisation of water and defend it as a public good in Brazil, Uruguay and Italy.
What makes all this heartening is that new social forms of ownership are emerging in which public utilities are run by coalitions of workers and service users. Theirs isn't just a defence of public services but an attempt to democratise them so they are not the top-down bureaucracies of old or simply job-saving strategies (important though these may be). They become what Wainwright calls "new forms of collectivity" – unions and public managing common resources together for shared benefit.
There is a palpable momentum to these ideas. Last summer saw the formation of the We Own It campaign, which is lobbying for a public service users' bill. This would promote public ownership as the default option for public services and give the public a say in whether services are privatised. This week, a New Economics Foundation working paperalso set out alternatives to the marketisation of public services.
These constitute a challenge to the fatalistic there-is-no-alternative narrative that has dominated political discussion. In his recent book, Does the Richness of the Few Benefit Us All?, sociologist Zygmunt Bauman argues that the alleged "musts" of political discourse "are nothing other than various aspects of the status quo – of things as they do, but in no way must, stand at the moment".
Wainwright observes that austerity in the aftermath of the second world war applied to everything except the welfare state, which saw generous investment. In a decade or so, will we come to view the privatisation of public utilities as a brief historical interlude of market madness, of ideology trumping not only human values but also value for money?
Wednesday, 26 March 2014
Leasing out Pakistan
Najam Sethi 
TFT Issue: 21 Mar 2014
TFT Issue: 21 Mar 2014
The Saudi Kingdom has granted $1.5b to the Nawaz Sharif government. Another such donation will accrue in due course. A quick fix of $3b is a lot of free money for Pakistan’s forex-strapped economy that is struggling to cope with significant international debt payments and a rising trade gap that is putting pressure on the rupee and fuelling inflation. Indeed, the Saudi injection has reversed the rapid fall of the rupee, proving that the finance minister, Ishaq Dar, was not bluffing when he warned exporters six weeks ago not to hoard their dollars. Why then all the hush-hush about the Good Samaritan who has eventually bailed him out?
Significantly, the PMLN government has been at pains to hide the Saudi largesse. But after we discovered that the cause of the sudden reversal in the fortunes of the rupee was due to an uplifting shot in the arm of the State Bank, we were told not to ask about the “friendly” source and amount of funds. Then, after we found out about the donor, we were told that the Saudi “donation” was a measure of the personal relationship between our prime minister and the Saudi monarch. That is when our happy surprise turned to suspicious incredulity and the game became crystal clear.
A clutch of high-powered Saudis, including the Crown Prince, has descended upon Islamabad in recent weeks. The prime minister and the Pakistan army chief have made unexplained flying visits to the Kingdom. In due course a joint statement or communiqué was issued from Islamabad stressing the demand for a “transitional” government in Syria while emphasizing that there was no change in Pakistan’s position on the issue. Indeed, the foreign office spokesperson, an apparently haughty lady, was quite aggressive in ticking off inquiring hacks who argued that the demand for a transitional government amounted to a veritable “regime change” in Syria and smacked of a definite policy about-turn. Mr Sartaj Aziz, the de facto foreign minister, has also executed some verbal gymnastics to try and obscure the truth. But we, the public, are not stupid or ill-informed. We are not ready to buy this story hook, line and sinker. We know there are no free lunches, let alone free feasts, in relations amongst nations. So what’s the $3b quid pro quo?
The truth is that Pakistan has agreed to supply, among other weapons, anti-aircraft and anti-tank rockets to the Saudis. Mr Aziz says the End-User Certificate conditions will guarantee that these are not used outside Saudi Arabia. This is a load of nonsense. Why the Saudis should suddenly turn to Pakistan for these weapons when traditionally they have tapped the US and Europe has, however, given the game away. These potential game-changing weapons are clearly meant for use by Saudi-backed Wahhabi-Salafist rebels in Syria who are fighting to overthrow the Baathist secular Asad regime. The Americans haven’t supplied the Saudis because they don’t want such radical Islamist forces any more than Al-Qaeda to succeed in Syria and are therefore having serious second thoughts about regime change in Syria. Indeed, the Saudis’ sudden embrace of Pakistan portends shifting sands in the Middle-East.
The Saudis and the Emirates-Gulfdoms are feeling insecure because of the Shia revival in their heartlands. This is because the restless Shias are sitting on their oil reserves. Iran, too, is unremitting in opposing Saudi influence. Iraq and Qatar, two competitive energy suppliers, are not playing ball either. Egypt and Libya haven’t bought into the Saudi Islamist line. Worse, the Americans are seeking negotiated nuclear solutions in Iran instead of succumbing to Saudi pressure for military action. And American self-reliance on shale gas is the first definite step against continued dependence on Saudi oil.
On the heels of the Saudi VVIPs now comes the King of Bahrain to Islamabad. The PMLN government claims that foreign investment deals are in the offing. But the small print betrays the real motive behind “renewed manpower exports”. The Bahraini Emir wants well-trained and equipped Pakistani military mercenaries to beef up his police and security forces to repress the rising democratic impulses of the majority Shia populations. It is as simple as that.
It is the same old treacherous story. Since independence in 1947, the Pakistani ruling classes and military establishment have lived off rents from leasing out their “services” to the highest foreign bidder instead of standing on their own feet and not meddling in other peoples business. In the 1950s, 60s and 80s, they sold their services to the Americans, first against the USSR and then against the Taliban; now, in the 2010s, they are rolling up their sleeves to stir the Middle-East cauldron at the behest of a rich “friend”. The extremist Sunni blow back from the first lease to the US in the shape of the Taliban, Al-Qaeda and Lashkar-e-Jhangvi is now primed for escalation and blow back during the proposed second lease to the Saudi-Emirates network. We are making another irrevocable blunder, so help us Allah.
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