What next for Labour?

Originally published October 2013.

The conference season is over and it has turned out much better for Labour than I had expected - I am keenly awaiting the latest polling but expect it to show Labour back with a 5 - 10 percent lead, having had the best conference amongst the 3 main parties.

Labour succeeded in nailing down the cost of living crisis and policies to deal with it as the current differentiator between the two major parties, forcing the Tories to respond, though lamely, to Labour's agenda. The LibDems had a good conference also, though Nick Clegg's statement that he could not go into coalition with Ed Miliband could cost him his job in the long run, barring a humiliating climbdown. The Conservatives' conference was pretty lacklustre in general, though managing to avoid the temptation to indulge in triumphalism over an economy that is just managing to crawl into positive growth territory. The Daily Mail did them no favours by obscuring most of the conference with its asinine attack on Ed Miliband's father, an error which they then compounded by the crass invasion of privacy at Ed's uncle's memorial service. A new low, even for The Daily Mail. The episode only succeeded in giving Ed an opportunity to demonstrate again that he is prepared to stand up to the bullies in the media, and also humanised him in the public's eyes - ironic, as the objective was to demonise him.

The LibDems opened up some areas of common ground for a future Labour/LibDem coalition - their adoption of a policy of shifting taxation from income to assets and to green taxes is exactly in line with what I believe should be Labour's direction of travel. There has been a massive transfer of wealth from the poor to the rich since the 1980s, with 10% of the population of the UK now owning 50% of the wealth (not yet as bad as the USA though, where the richest 400 people have greater combined financial wealth than have the bottom 50% of the population combined). For too long the wealthy have been paying lower marginal rates of tax than that paid by the standard rate tax payer - a move towards higher wealth and assets taxes will redress this imbalance and make room for income tax reductions, which would have the additional advantage of reducing the in-work benefits bill. The major advantage of asset and wealth taxes is that they encourage investment in more productive assets as investors look to maintain returns to overcome the costs of taxation - so, for example, the government could combine it with tax breaks for investments in desirable industries (manufacturing, green technologies, etc) thereby focussing investment on areas where it is needed.

Further, wealth taxes encourage existing assets to be put to more productive economic use so, for example, idle development land or land which has the potential to gain planning permission would be encouraged into use by an annual cost to the owner. This was a policy actually espoused by Winston Churchill, which would present an interesting dilemma for the Tories - do they condemn it as left-wing, Stalinist lunacy or do they attempt to show it would not be economically successful - they would lose on either count. I prefer this approach to that offered at Labour's conference ('use it or lose it') as the latter can be painted as more statist, requiring the  involvement of councils and/or government, whereas achieving the same effect through taxation would encourage unilateral action by owners and hence would therefore be faster and more efficient. That said, if is Labour's intention to compulsarily-purchase land for councils to build more social housing to replace that lost since the 1980s then I am all in favour.

Finally, such a policy will also help to bring down house prices as it makes buy-to-let investment, the main driver of house price inflation since the mid-nineties, less attractive. But bringing down house prices is fraught with economic and political danger - if handled badly it will weaken the balance sheets of banks again, and it reduces the population's perceived financial wealth, therefore depressing spending. And which politician wants to be remembered for reducing the value of his or her electors' greatest financial asset? It would plainly take very careful management and a lot of political courage - I think of the three party leaders, only Ed Miliband would have the Balls to do it, but it is the right thing to do for the longer term, to eliminate speculation in the housing market and also to bring down rents, which helps to reduce the housing benefit bill.

In combination with reducing speculation in the housing market, it needs to be recognised that the major problem is on the supply side - there is no substitute for building more houses. Therefore Labour's pledge to build a million homes over 5 years is welcome and presents a clear difference with Osborne's demand-focused Help-To-Buy scheme (which should be renamed 'Lending For Landlords'). Osborne's policy will only increase house prices further and is purely designed to generate a feel-good factor before the election, hence its time-limited nature; it is the wrong thing to do for the long term health of the housing market and does nothing to help the next generation of first time buyers who will find house prices being pushed ever further out of their reach. Labour's pledge to build 1 million homes is still not enough but it is a step in the right direction.

The LibDems also pledged to increase income tax thresholds further with the aim of taking those on the minimum wage out of tax altogether. I support this but I would like it to go much further. Firstly, I would like to see the minimum wage replaced with a regional living wage - at present the UK taxpayer is subsidising unscrupulous employers who pay wages too low for anyone to live on. The market forces wages down and is able to do this due to what Marx called 'the reserve army of the unemployed'. The market is the Tories' god so they will do nothing to intervene - indeed they vehemently opposed the original introduction of the minimum wage. Wages have become so low that they have to be topped up by government through in-work benefits. This amounts to a subsidy of exploitative employers by Government - a direct transfer from the pockets of taxpayers to the pockets of these firms' owners. It needs to be stopped. By imposing a regionally set living wage, these employers would be forced to become responsible members of society again. "Oh, but they can't afford to pay wages that high - they would go out of business!" I hear you cry; well in that case they are not solvent businesses - they maintain their existence only by pocketing a taxpayer subsidy, so they should be allowed to go to the wall. This would have the beneficial effect of making it more attractive for companies to setup in areas of the country with a lower living wage - typically areas desperately in need of new investment; the result would be fewer opportunities in the South East but more in other regions. Secondly, I would like to see the tax threshold raised so that those on the living wage pay no tax - this would enable it to be set a lower level then if they were paying income tax, thereby reducing the overall impact on unemployment levels. This is in line with wanting a general shift away from work-deterring income taxes to wealth taxes.

As a supporter of universal benefits, for the common bonds they highlight between people from all walks of life, I welcome Nick Clegg's plan to introduce free school meals for the first 3 years of primary school, though I can't see any reason for not extending it all the way up to year 6 pupils other than cost. Money should be found to commit to this in Labour's manifesto for the next election. On a similar theme, child benefit should be reinstated as a universal benefit to demonstrate the importance we as a society place on raising the next generation. This can be looked on as a way for the baby-boomer generation to hand back to the next generation some of the financial wealth they have accumulated in the last 3 or 4 decades; it will help the next generation to bring up the children on whom we will all ultimately depend in our old age (read 'The Pinch' by David Willets for some terrific insights in this area).

On the EU referendum issue, Labour should not make the mistake of matching Cameron's pledge of an in/out referendum. Labour is a pro-European party and should not put itself in the situation of being the party that may end up taking Britain out of Europe. Vote Labour and you know what you get - a party that is committed to the European project; vote Tory and you have no idea what you might get - we may remain in Europe or we may pull out. We don't even know which way the Prime Minister will swing on this issue - a ridiculous situation which will cause uncertainty up to the next election and then beyond if the Tories win. I hope Ed has the courage to make the pro-European case and fight for it in the General Election.

And finally there is one policy I would like to see Labour steal from UKIP, it is relatively trivial but it is one of those bug-bears that just annoys people - I would like to see National Insurance abolished and have it combined with income tax. It is a tax already in all but name, so let's just get on with it - abolish NI and re-introduce a top rate of tax of 50%, to bring some clarity to the taxes we are asked to pay.

Cameron's place in history

Cameron is in a hole, and it's one entirely of his own making.  Such is the (misplaced) inner confidence and self belief deriving from his privileged upbringing and educational background that he fails to recognise the limits of his own abilities and of what is achievable.  He managed to convince himself that he really could single-handedly renegotiate Britain's relationship with the EU.  He really believed he could then go on to persuade the people of Britain to back him.  This was his historic mission after all - a political gamble to resolve a weeping sore on the backside of the Conservative Party and to guarantee his re-appointment as Prime Minister, after which he would hold the referendum and safely keep Britain in the EU where even he knows our best interests lie.  A triumph!  After all, isn't this what he was born to do?  Isn't this what his life has been building to; isn't it his birthright?  What he failed to recognise is that in the main, encouraged by his own lunatic friends in the media, the British people now want to leave the EU.  By promising to give them the opportunity to do just that he has opened Pandora's box and it will not be closed again.  He failed to recognise that he really does not carry the influence required to persuade them otherwise, that people no longer doff their caps and defer to his better judgement.  He has given the people the choice without giving them the means to choose, and the result will be an exit from Europe.  It will be a disaster.

So why did he offer the referendum at all?  Well it was interesting to see Tim Montgomerie on the BBC News today describe how Cameron realised he could never resolve the split in the Tory party over Europe except by delegating the decision to the British people to settle, thereby shutting-up his warring factions up for good.  This is a tacit admission that the referendum's only purpose is party political, and not in the national interest.  Well, I guess we knew that all along but it's nice to have it confirmed.  Unfortunately it means Cameron will be remembered as the Prime Minister who was too weak to articulate and stand by an opinion of his own and instead allowed Britain to be shoved towards the EU exit door.  He may even get to be the PM who takes us through it, because however he manages to present his renegotiations and whichever side of the in/out debate he eventually comes down in favour of (presumably whichever side is playing best with the public at the time ....) the referendum will result in an 'out' verdict.  And Britain's position in the world will be gone for good, our influence diminished and our relevance to the emerging economic world powers will be zero.

Still, the fruitcakes, clowns, closet racists and swivel-eyed loons will be happy - they will have got what they wanted, even if they don't really know what that is or understand it's implications.

Thatcher - Separating fact from fiction

Originally published April 2013.

Well I have bitten my tongue and maintained my silence until the funeral is over, out of the respect and compassion we should all show toward any relative of the recently-deceased, but by God it has been hard! In the case of Margaret Thatcher, compassion and respect are the last things she deserves. Listening to the sycophantic eulogies of the past week or so, and the creeping beatification of Thatcher, I have found all the feelings of loathing and hatred I lived with during the 80s resurfacing. Feelings I thought had been put to bed post-1997 with the advent of a government with a more refreshing, progressive, liberal, tolerant, forward-looking, cooperative agenda. But the ugliness returned to haunt me and it was not pleasant - hopefully now that she has finally been laid to rest it will be gone for good, but before consigning her soul to eternal torment I would like to counter some of the more popular myths that form her legacy.

There seem to be two kinds of people currently heaping praise on her - one is those who appear to hold her in something close to sainthood, who believe that everything she did was wonderful and will brook no criticism of her; the second is those who acknowledge her flaws and yet maintain that what she did was necessary at the time and ultimately beneficial. Of these two, the former are beyond help, while the latter group are simply wrong. It's worth looking at a number of her supposed achievements from an alternative point of view.

First, the UK's economic performance under Thatcher. I have spent some time looking at the UK's annual trade balance figures for 1970 to the present day. In that entire period the UK has had an annual balance of trade surplus in goods for 2 periods only - 1970 to 1971, and 1980 to 1983. The period following the end of Thatchers first term of office right through to the current Coalition are characterised by a steady slide into an increasing trade deficit. If services are included in the numbers then the picture is only marginally better, going slightly into surplus from 1995 to 1996 but otherwise following the same trend of an increasing deficit. It is this trade deficit in goods which is the root of our current troubles (something the Coalition has correctly identified) - it has meant that since 1983 we as a nation have been spending more on imported goods than we have been earning from exports. This money is ultimately lent back to us at low interest rates by foreign banks and sovereign wealth funds, and we snap it up to buy more stuff we cannot afford. The period 1983 to 2013 has seen a tide of imports accompanied by a tide of borrowing to enable us to buy them. As a result we have mortgaged our futures, and the result has been to drive up house prices as more and more debt was created. The rot started when Thatcher slashed investment in her first term of office and decimated our manufacturing industries in the belief that liberated private enterprise would come to the rescue, which it failed to do. Though there has been inward investment our exports have never recovered. An alternative approach would have been to copy the Germans and invest in infrastructure and modernisation of the economy to enable business to make productivity improvements so the UK could remain an exporting nation. Instead, due to a combination of ideology and ignorance we got tax cuts the country could not afford and the windfall of North Sea oil was squandered; the tax that was returned to taxpayers sucked in more imports, inflated house prices and worsened the balance of trade. In the early 1980s 10% of all tax revenues were coming from oil, and subsequently there were the revenues from privatisations and council house sales; these were all cynically wasted to buy election victories. This gives the lie to any thought that she had performed some kind of "economic miracle" on the British economy - it's total nonsense. Her government diminished the manufacturing base which had previously maintained a roughly even trade balance since the war. Looked at in absolute terms it looks like a steady slide from Thatcher through to Cameron with a slight levelling off under Major (it didn't materially deteriorate much further anyway), but looked at as a percentage of GDP the numbers tell a far worse story - under Thatcher the trade deficit 'peaked' at -5% of GDP in 1989 down from a surplus of +2% in 1982. The trade balance to GDP ratio has been better under all governments since Thatcher and that degree of deficit has not been repeated, but it has still always remained in deficit. The trade deficit has again been growing under Cameron to reach -3.5% of GDP - not as bad as the Thatcher nadir but the third worst performance since 1960. Incidentally the second worst trade deficit as a percentage of GDP since 1960 was achieved at the end of the Heath administration in 1974, following the Barber boom sucking in imports. Anyone see a pattern developing here?

Another of Thatcher's 'triumphs' was the apparent 'conquering' of inflation. People appear to believe that the high inflation of the 1970s was quelled by Thatcher's policies alone. They do not appear to take into account that due to the oil price shocks of the early 1970s inflation was high in all developed economies and would abate naturally. They also neglect to take account of the impact of globalisation and technology in enabling production to be moved to where it can be most cheaply deployed - in this case the shift to Asia and the Far East where cheaper labour led to lower prices and falling inflation; there are far fewer inflationary risks today despite massive QE, precisely due to intense global competition. They also neglect to mention that Thatchers attempts at controlling the money supply (a policy started, incidentally, by Denis Healey under the previous Labour administration) were abandoned subsequently as a failure. Inflation has come down and stayed down due to mainly to globalisation and freer movement of capital. This is a global process not attributable to Thatcher. As a side note, her record on inflation is not even that good - when she came into office it was 13% and when she left 11 years later it was back up to 10%, due to the Lawson boom caused by irresponsible tax cuts at a time when the economy was already overheating. Those tax cuts of course also led to the subsequent house price bubble and bust, with its associated negative equity in the early 90s. As a consequence of this poor record in managing inflation, her record on interest rates is also poor - bank base rates were 14% in 1980 and finished higher, at 15%, when she left office. Where is the economic miracle in the above? In between times, North Sea oil tax receipts, revenues from privatisations and from council house sales were given away in unsustainable tax cuts while the public infrastructure fell into disrepair and our industry withered. If that's a miracle I'm an egg-whisk.

In general though people tend to ignore Thatchers poor economic record and concentrate on her supply-side reforms. These were undoubtedly beneficial - liberalisation of employment laws, reduction of union influence on the wider economy, removal of trade barriers, elimination of the closed shop. All good things. The question though is whether it needed to be so painful - the same changes were happening the world over in every developed economy but only in Britain was it pursued in such a divisive and destructive manner. These changes would have happened whoever was in power, in the same way that command economies would have crumbled with or without Thatcher - the rise of technology and consumerism required a more efficient allocation of resources and capital in order to compete, so diminution of union power and a lessening of state involvement in enterprise were an inevitable evolution. Other nations didn't have a Thatcher and they seem to have managed just fine.

In my view Thatcher frequently showed poor judgement more influenced by bigotry and prejudice than any kind of rational thought process - for example, by backing the South African regime by resisting sanctions and condemning Nelson Mandela and the ANC as terrorists (as did members of the loathsome Federation of Conservative Students) she put herself on the wrong side of history. The Poll Tax was another example - how could anyone be so stupid as to think that was ever going to work, or was even a good idea. Well, she believed it and it is because her peculiar view of society reduced it simply to financial relations; no concept of the common good or common cause, or the strong looking out for the weak. She seriously thought it was just and fair that everyone pays for the services they use regardless of ability to pay. She once famously stated that "there is no such thing as society, just individuals and their families". That single quote tells you all you need to know about her thought processes and her sad, narrow view of our country. How must someone view their friends, colleagues and fellow citizens to discount them so blithely - to feel they have no obligation to them or dependence on them; to reduce every relationship to a financial transaction. To those who are shocked by the reaction her death has received I would ask "What did you expect? You reap as you sow". To my mind she represented the worst kind of small-minded, lace-curtain-twitching suburban Conservatism - for example, on gay rights she must have thought she was living in a bygone era when she introduced Section 28; how utterly ridiculous that looks today. Another example of a mistaken but frequently lauded policy was that of council house sales; the sale of council houses to tenants was a previous manifesto proposal of the Labour Party and also previously of the Tories under Heath, but in both cases it was to be mandated that new social housing would be built to maintain the level of stock. This was obvious and sensible. However, Thatcher in her private-ownership obsession banned councils from replacing the lost housing stock. We can trace the current housing crisis and the huge housing benefit subsidy to private landlords back to this perverse decision, though it has to be said that Labour did little to rectify this while in office. It does illustrate though how her policies were frequently formulated based on prejudice rather than on thought and common sense.

She is also often praised for her "strength", but I just can't see it. A strong leader would show some magnanimity in victory, would see both sides. They would realise they govern for all of the people not just "our people". They would recognise the efforts and concerns of opponents doing their job in defending the interests of their constituents whose local economies and communities were being destroyed. But she showed none of these qualities. Instead we got triumphalism, gloating, ridicule and an utter lack of compassion. She made her appeal to the basest instincts of avarice, greed and self-interest. I personally will never believe that self-interest is the only force that can propel society forward; but then she didn't believe in society anyway.

My judgement on Thatcher is that she was in the right place at the right time to take advantage of a period of major political, economic, technological, and social upheaval taking place the world over. She didn't cause these changes, she didn't even create the conditions for them. In fact her contribution was to make their consequences worse than they ever needed to be and to ruin millions of lives in the process. Hopefully now we can all look back and agree that in retrospect the Tories in the 1980s, led by Thatcher, were an absolute disaster for this country. Now that she's dead and buried let's move on.

The 2015 General Election is far from over

Originally published March 2013.

Labour are in deep trouble even if they don't yet know it. They may be consistently and significantly ahead in the polls but if they are complacent enough to think that the next election is in the bag they need to wake up quickly. Ten-point-plus leads held throughout the lifetime of a parliament can quickly evaporate when the electorate come to focus on the choice before them. Only two words should be needed to remind Labour of this - 'Kinnock' and 'Sheffield'.

Firstly, Labour are in trouble on the economy. Ed Balls and Alistair Darling may have been proved right with regard to the overly aggressive fiscal tightening embarked on by the Coalition, but 'I told you so' will not be a sufficient argument at the next election. Nor will it be enough to offer to do the same as the Tories only slower - if the voters have accepted the need for cuts (which so far they have) it is likely they would prefer get it over with sooner rather than later when faced with the choice. Nor is offering tax cuts and bankers bonus taxes enough. There needs to be a clearly articulated and demonstrably different approach on offer to persuade the electorate to change course. Though Ed Balls favours short term borrowing to finance a fiscal stimulus, and to his credit has consistently stuck to that line since the election, Labour has ceded too much ground to the Coalition on this and allowed the argument to be framed in Cameron and Osborne's terms. Balls was right when he argued that Labour should have been shouting the case for stimulus instead of allowing a policy vacuum to develop since the election, but that moment has been lost now. The debt is now projected to hit 85% of GDP; 100% is the tipping point at which it is generally accepted it begins to destroy growth, so to start demanding extra borrowing for stimulus going into the next election is going to be difficult (note though that Japan finally took that route, after decades of stagnation, despite their debt massively exceeding that of any other developed nation).

Labour are also in trouble on welfare. The current government's policies may be unfair, may hurt the poorest the most, and may be based on deliberate misinformation from the government and from their supporters in the right wing press, but hacking back the welfare budget is popular amongst the 60% of the population who are net losers or net no-difference from the taxes they pay and the benefits/services they receive. Labour need to be able to demonstrate how they will reverse the attacks on the very poorest without, in the process, alienating swing voters in the marginals, who largely see welfare as overly generous and wasteful. It will be very hard to reconcile these attitudes with those of 'traditional' Labour voters who see welfare and redistribution as the measure of a decent, progressive, coherent society.

Labour are in trouble on tax and spending. The government have managed to persuade the majority of the electorate that uncontrolled government borrowing was the cause of the financial crisis. This is untrue, but the fact is that at the last election government spending was around 50% of GDP, this is scheduled to fall to the lowest in the G20 at around 26% (from memory) by 2016/17  though the absence of growth may scupper that. To change these plans and preserve public services Labour are going to have say where they will raise taxes. Borrowing to fund services is out of the question (it would be electoral suicide); more/better services requires taxation, plain and simple.

And Labour are also in trouble on education. Gove's reforms may be a shambles and may have forced secondary schools to opt for quasi-privatisation to protect their budgets but nonetheless people do like the idea of choice and diversity, even if they do not have access to sufficient information to make an informed choice. It will not be easy for a 'consumer' of education to switch 'providers' midway through their child's education; so any such consumer pressures improving outcomes (the Tories preferred model for education - parents 'voting with their feet') will be felt over a number of years of intakes, not within a single child's education, so the model is somewhat broken. I feel that the public do sense this to some degree, but still, Labour need to demonstrate a vision for education that takes us on from SATs and league tables. Planning to reverse Gove's reforms is not enough.

But above all Labour are in trouble with Ed Miliband as leader. He may be popular amongst Labour activists but I have met no-one else, and I mean no-one, who believes Ed is prime ministerial material. This will be disastrous for Labour come the election, given that the Tories will fight a presidential campaign based around Cameron. Ed has been putting in some much improved performances of late, but the public are making their mind up about him NOW - unless he begins to articulate an alternative vision (and by that I mean with policies, not just slogans) to change public perceptions before they have formed their opinion then I think the die will be cast. He will put up a good fight, but he will lose.

Sad to say, and unfashionable though it may seen currently, my money is still on a small Tory majority in 2015. UKIP will fade, the LibDems are toast, some small semblance of growth will have been restored to the economy. The Tories will ask for 5 more years to 'see it through' (by which they covertly mean completing the dismantling of the welfare state), and I believe the public will give it to them. That is, unless Labour can come up with a radical game-changing manifesto that discards the failed approach of the last 30 years - more on this in a later post.

Chancellor downgrades Moodys downgrade

Originally published February 2013.

As predicted in an earlier post (4th Feb - "Cameron's 'hard-won economic credibility' is a sham") the UK has lost its AAA rating with one of the three major credit rating agencies. It is unlikely to be the last. The reasons cited by Moodys are poor economic performance (zero growth) and high and rising debt levels. In a bizarre response by the Chancellor he used the Moodys statement as a justification of the Government's current policies. Despite the fact that he had previously claimed that the loss of AAA status would be 'humiliating' and 'a disaster' for the previous government (which it, by the way, managed to avoid) he appears to believe that this downgrade is confirmation that the economy is 'on the right path'. Apparently loss of confidence by the agencies is only a disaster for Labour administrations. Osborne's response failed to even mention the lack of economic growth as a factor. Instead he again focused on the need to reduce debt. This is complacent and short-sighted in the extreme - without growth there is no chance of reducing the deficit and paying back the debt. Without government spending to stimulate growth the only option in the end will be to implement punitively high levels of taxation on the income and existing assets of the UK's taxpayers, and to reduce welfare to a rump.

No-one should be surprised that Osborne continues to choose his current path rather than that of fiscal stimulus - this is where his political prejudices naturally lead him. Keynesian stimulus is anathema to him. He is quite happy to use this crisis as an excuse to further his political objective of winding down the state. He firmly believes that if he simply 'gets the Government off the backs of the people' the markets will take care of the rest. Hence he is on course to reduce government spending to the lowest percentage of GDP in the G20 by 2017 (around 27% of GDP versus around 50% in 2010 - lower even than the United States, a byword for poor public services). Anyone who still thinks he is really only trying to pay off the debt needs to think again - make no mistake, this is a political mission and he appears not to care who gets hurt. And with reductions on this scale a lot of people will get hurt.

If Osborne's priority was really to restore health to the economy he would look at capital measures to stimulate growth, such as a concerted house-building programme, and at measures to mobilise the wealth tied up in property and land. The massive amount of wealth transferred from poor to rich over the last 30 years needs to be redistributed so that it is spent rather than it being idly hoarded, in order to create economic activity. Closing the gap between rich and poor will be healthy for the economy as the poor tend to spend the money. Unfortunately this won't happen - the Government's reduction of the deficit 'by a quarter' is almost entirely down to capital spending cuts so these are unlikely to be reversed (and smoke and mirrors with 4G auctions and QE proceeds - the deficit in current spending has actually come down by only 6% so far; so the real pain is still to come). And Osborne has ruled out any form of land or wealth taxes.

So, as admitted by Clegg, the capital spending cuts were a massive mistake but the Chancellor will continue to plough on with his wrong-headed policies and the public will continue to buy it. But not, I suspect, for all that much longer.