Winner of the New Statesman SPERI Prize in Political Economy 2016

Wednesday, 4 December 2019

Some thoughts on Labour's campaign

The importance of this election cannot be overstated. Voters have a choice between re-electing a government that since 2010 has done untold damage to this country and which will be led by someone totally unsuited to be Prime Minister, or giving a minority Labour government a chance to do better for a few years. The fact that the polls suggest the public want more of the same illustrates how close we are to becoming an authoritarian, populist (in the Jan-Werner Müller sense) right wing state where it becomes very difficult for any opposition to break through.

This post looks at some key aspects of Labour's campaign so far, in I hope a helpful fashion.

Tax and spend

One of the dangers Labour faces is that they appear to be promising too much. Voters are skeptical of manifesto promises at the best of times, even though evidence suggests that in the past most manifesto pledges are fulfilled. If you promise so much it is possible voters will just not believe you can do all this.

In contrast the Tory manifesto is positively frugal. But there is a reason for this, and neither Labour nor the Liberal Democrats have emphasized enough why that is. Labour are not used to trumpeting the results of IFS election analysis, but on this occasion they really should. That analysis shows that one economic issue alone dominates the future of the public finances: Brexit. Here is the key chart

What this chart shows is that all these give-aways do not come close to matching the amount of tax we will lose if Johnson keeps his pledge not to extend the transition period. The reason the Tory manifesto is frugal is they cannot afford to do anything with any fiscal cost and implement a hard or no deal Brexit. Both Labour and the Liberal Democrats can afford much more, because they are not planning a hard Brexit. 

Perhaps Labour and the Liberal Democrats are reluctant to talk about this because it is going over ground covered in the referendum, and most Leavers just do not believe the economic consequences of Brexit will be negative. Yet the IFS has considerable credibility, particularly in the media. Furthermore the sparse Tory manifesto is a tactic admission that, whatever they say, the Tories believe the economy will take a hit from Brexit. Labour and the Liberal Democrats should make more of this. 

Protecting minorities

Labour should not just be defensive on charges of antisemitism. These attacks on Labour over the small amount of antisemitism among members distract not only from the more extensive racism in the Tory party and its actions, as Jonathan Lis describes so clearly here. It also distracts from the rise of right wing hate-crime. That the problem is growing is pretty clear. Attacks mostly involve race and sexual orientation, but it includes attacks based on religion: mainly Muslims but also Jews. Commenting on the steady rise in ethnic or religious hate crimes Dr Chris Allen said:
“The statistics show that for the third year in succession, religiously motivated hate crimes have not only increased in number but have again reached record levels. While some try to explain this as a result of better reporting procedures, doing so is over simplistic. From our research at the Centre for Hate Studies, one cannot underestimate the impact of Brexit and the divisive rhetoric employed by politicians and others in the public spaces. Affording permission to hate a whole range of ‘Others’ – especially Muslims and immigrants – it is likely that the upward trajectory of hate crimes numbers will continue for the foreseeable future.”
The police say that the alt-right is the fastest growing terrorist threat in the UK. A third of all terror plots to kill in Britain since 2017 – seven out of 22 – were by those driven by extreme-right causes.There is nothing comparable on the left. One Labour MP was tragically killed by a far-right terrorist during the Brexit campaign, and at least one serious plot against another has subsequently been foiled. The alt-right is well organised at an international level

What has that got to do with this election? The rise of the far right did not come from out of the blue. Campaigns against immigration, and particularly for Brexit, have encouraged racists into the open. So has over the top language used by Brexiters. It has mainstreamed xenophobia, and maxed out on crude nationalism. The media, particularly the right wing media, are happy to give a voice to anti-Muslim writers.

What will the current government, if it wins this election, do when Brexit does not lead to any improvement in people’s lives, and indeed makes them worse? The Tory manifesto has virtually nothing about redistributing opportunities in a more equal way across the country, and Brexit will not help. If the recent past is anything to go by, they will blame immigrants even more than they do now, which will only increase the threat from the far right.


Do you remember pictures of Ed Miliband in Alex Salmond’s pocket? These came from the Tories towards the end of the 2015 election, when it became clear that Labour could only win with the SNP’s help. It wasn’t repeated in 2017, in part I suspect because no one on the Tory side believed Labour would do anywhere near well enough to make that attack line effective. I suspect they will not make the same mistake this time around.

The Tory attack was credited by some as helping Cameron get his majority, although I have no idea how true that is. But if Labour is attacked along these lines in a serious way in the final days of the campaign, what should they do? They shouldn’t do what they have done so far, and just say they will not do any deals. This doesn’t work because voters believe maths more than they believe politicians, and they remember the 2010 Coalition talks and the Tory give-away to the DUP.

What Labour should do instead is dig out one of the quotes where Sturgeon has ruled out allowing the Tories back into government and repeat it endlessly. If any interviewer asks why that is relevant simply point out in the most tactful way that the SNP only has bargaining power over Labour if they are prepared to put the Tories in power instead, and they have ruled that out because it would be political suicide for them. Not putting the Tories in power means they have no leverage over Labour.

The last week

The SNP (and of course antisemitism and law & order) are going to be part of the Tory’s lines to take in the final week, and they are likely to throw in a letter from business leaders if they can find enough willing to sign it despite Brexit. What should Labour emphasise? There is an embarrassment of riches to choose from. They could talk about

Revitalising the economy with public investment directed at the regions

Building more social housing

A Final Say on Brexit

Nationalisation and Free Broadband


Revitalising bus services

A Green New Deal

Saving the NHS

And probably much more that I have forgotten about. Talk about them all and there is a danger nothing really hits home. More than ever before there will be an intense battle between the two major parties to get the media to talk about the topic they want talked about. In 2015 the media chose the SNP rather than the NHS which Miliband wanted to be the focus. In hindsight that represented terrible judgement by the media, but importance isn’t their key consideration.

What works best in getting airtime is to present something new. It could be a letter on the Tories climate change policy like this. It could be a new statistic on poor health service performance which should not be hard to find, or some gaffe by a senior Tory (like this). They can always use this. These are also the two obvious issues to focus on in the final day or two.

On climate change you can say that we cannot waste another five years before we take serious action. This is aimed, above all, at getting out Labour’s core younger vote. The NHS will have much greater resonance with the Tory core vote, and might discourage these voters from voting at all. On the morning of the election the newspapers most elderly people read will be full of scare stories about Corbyn, so Labour needs concerns about the safety of the NHS under Johnson, Trump and Brexit to counteract that.

Saturday, 30 November 2019

Will UK voters really vote for the Republican party and our own Donald Trump?

There is so much about today’s Conservative party that is very similar to the Republican party in the US. To establish this, there is no better place to start than our future Prime Minister for the next five years, if polls are to be believed.

Trump and Johnson are both inveterate liars. They lie when they have no need to, just for effect. To take some recent examples. He told Andrew Marr that the Tories don't do deals with other parties, when everyone can remember the Coalition government and the DUP. (Marr, as so often with interviewers, let that pass.) Johnson has said that the extra money he has allowed for the health service is the biggest boost for a generation. In fact it is smaller than the increase in spending from Labour from 2004 onwards. There are many like this. He has lied all his life, and been sacked from jobs twice for doing so. He lies about lying! No UK politician in living memory has lied like this.

A consequence of that is you cannot trust a word he says. When he and his ministers say that the NHS will not be part of any trade negotiations with the US, it means nothing. Brexit puts the UK in a very weak position because the political costs of walking away, while the costs for the US are zero. So of course the NHS and things that affect the NHS will be part of any trade deal.

When he says that he will get a trade deal with the EU in just a year he is lying. It is just not possible given the reasons the Conservatives want to leave the EU. So voters will have to decide which lie he will choose: to break his undertaking not to extend the transition period or to leave with no deal.

Like Trump, Johnson treats the economy, and the consequent wellbeing of everyone in it, as a plaything for his own ends. With Trump this involves imposing tariffs because of his 15th century understanding of economics. With Johnson he chose Brexit on a toss up about what would advance his own ambitions. He then championed the hardest of Brexits because it appealed to those who would vote him leader of his party. But there is a difference: Brexit is far more harmful than anything Trump has managed.

Where Trump wants to increase coal production in the US, Johnson wants to stop any increases in fuel duty. Johnson didn’t attend a leaders debate on climate change.

Johnson, like Trump, is totally lacking in empathy for others, and is only interested in himself. Johnson thought nothing of helping a friend beat up a journalist. His personal life matters because it reflects the kind of person he is.

Like Trump, he has no time or respect for people who disagree with him. He shut down parliament because it was getting in his way. In his manifesto he now threatens to curtail the ability of the law to stop him doing what he and his party want. Johnson and the Conservatives, like Trump and the Republicans, are a threat to democracy.

Like Trump, he and his party want a totally compliant media. They have put so much pressure on the BBC that parts of it now do what they can to flatter Johnson and the Conservative cause. They have threatened Channel4 because they put a block of ice in his place when he failed to turn up to that leaders debate on climate change.

Like Trump, Johnson hates scrutiny. They both would much rather talk to an adoring party faithful than take part in critical questioning. In this election, Johnson has avoided questions from the press as much as he can, has avoided debates, and is avoiding an interview with one of the best interviewers around.

One reason they both hate scrutiny is their inability to concentrate on the details, the kind of details he got wrong such that Nazanin Zaghari-Ratcliffe remains in jail. This is one reason they sent Gove rather than Johnson to do the climate change debate. Johnson is as mentally unsuitable to be Prime Minister as Trump is to be President.

Republicans in Congress with few exceptions defend Trump. Conservative MPs do the same for Johnson without exception, now that the few Conservatives with some attachment to One Nation Conservatism have been driven out of the party. The Republicans never pretend to govern for the whole country, but just for what some of them call Real America. The Conservatives with Brexit have adopted the same policy. A narrow victory for Leave, obtained in the most dubious referendum ever, has become a mandate for the hardest of Brexits, and with a referendum on the final deal ruled out.

Both parties adopt divide and rule tactics, yet play the nationalist card for all its worth. To conceal and distract from far right economic policies designed to help the 1% wealthiest in the population, by a party financed by the even wealthier, they focus on attracting votes from the xenophobic and racist. The Conservatives have seen off the threat from the Brexit party by adopting the Brexit party. It was probably the votes of ex-Brexit party members that helped secure Johnson his leadership.

The Republicans play the race card and the Tories play the immigration card, something they have done since the turn of this century. Once you do that, it is inevitable that you end up with a party leaders who are themselves racist. Whatever you think about Corbyn, it is Johnson who has expressed racial slurs like calling Muslim women letterboxes, talked about black people as 'piccaninnies' with 'watermelon smiles', Nigerians as money obsessed. (Not to mention his homophobic and sexist comments, and his description of working class men as drunk, criminal and feckless, and what he originally wrote about Hillsborough victims and single mothers.)

In the US Trump gets away with his behaviour among many because of his money and fame, and in the UK Johnson gets away with it among many because of his class and jokes. Both are where they are because they were given huge head starts, Trump through inheritance and Johnson through class, and have subsequently had careers which are dotted with failure. But once you see beyond the fame and jokes, they are both authoritarians who see nothing wrong in stoking fears about minorities to get the majority to vote for them, and in abusing the constitution to get their way. You might say that it is Trump not Johnson who is threatened with impeachment, but I have lost count of the legal cases about his actions that have been conveniently postponed for this election.

What too many commentators on this election fail to see is the potential irreversibility of this decline into right wing authoritarian rule. With most newspapers pushing out propaganda for the Conservatives and the BBC successfully tamed, the Conservatives now have a sufficient block to any real scrutiny of their policies or behaviour. In the next five years their manifesto suggests they hope to tame anyone else who gets in their way.

The Conservatives have ensured that enough people in this country see and read want they want them to see and read. Soon we will see attempts to introduce nationwide voter ID simply because it helps the Conservatives. It is wishful thinking to say ‘if only we had another Labour leader they would be miles ahead’ - just remember Ed Miliband who lost an election because the media conveniently decided austerity was good economics. [1]

Next year the people of the United States will have their chance to get rid of the worst US president in living memory. We have the chance to stop our own Trump, Boris Johnson, before he gets five years in which he could do irreversible harm to our economy, our democracy, our union and our civil society. The danger in both countries is that they keep their Trump/Johnson, and get locked into permanent authoritarian right wing rule similar to what we see in Hungary and Poland.

Alarmist? Johnson shut down parliament to get his way! When Brexit fails to be the promised land Johnson has promised and when the UK’s potential fails to be unleashed, who will the Conservatives blame for their own failure? How much will they give away to get a US trade deal? Johnson, like Trump, is in the words of a BBC interviewer in braver times a ‘nasty piece of work’, whose only interest is in helping himself. It says a lot about what the UK has become that he looks like getting elected to be Prime Minister.

[1] Of course there were other reasons Miliband lost. He was unpopular, like every Labour leader over the past 40 years has been unpopular except the one who did a deal with the Tory press. And in the final days he was said to be in the pocket of Alex Salmond, even though the SNP have said they will never put a Tory PM into power so their bargaining strength is zero. The broadcast media went with the Tory's SNP story rather than Labour highlighting the (we now know very real) threat to the NHS. 

Wednesday, 27 November 2019

In defence of the IFS, and why it cannot tell the whole story

Our own fiscal council, the OBR, is very restricted in what it is allowed to say by the party that created it. As a consequence, it is absolutely essential that we have widely respected bodies, principally the IFS but I would also include the Resolution Foundation and the National Institute (NIESR), that are able to provide good quality economic advice at all times, but particularly before General Elections.

A good example is the Conservative manifesto published last Sunday. Without the IFS, it is quite possible that it would have made extravagant promises on public expenditure and it would have also included some tax cuts. But because the media treats the IFS as authoritative and impartial, this year they will have judged that the political costs of a manifesto like that exceeded the benefits.

So the IFS or something like it is essential. But that does not, of course, mean that it is beyond criticism. Indeed it is essential that such criticisms are made (no one is perfect). There are two types of criticism. The first are specific criticisms: it got this piece of analysis or this particular statement wrong. The second is generic: it is often wrong because of a general failing of some kind. Let me take each in turn

A specific criticism I would make is that Paul Johnson’s initial reaction to Labour’s manifesto was ill-judged in the language he used. He used three words that you will not find in the IFS’s written assessment: colossal and not credible. On ‘colossal’, the written text uses the more neutral words ‘very substantial’. More seriously, he said claims that all the tax would be raised from companies and those earning over £80,000 were not credible.

That gave the media an easy headline. For example The Times wrote “Jeremy Corbyn’s plans to raise a “colossal” £83billion in extra taxes to fund an unprecedented public spending spree are “simply not credible”, the Institute for Fiscal Studies has warned.” The Mail wrote “Jeremy Corbyn's hard-Left spending splurge is 'simply not credible': IFS ridicules Labour leader's claim he can raise £83BILLION in extra tax to fund 'colossal' giveaways JUST from the rich - warning EVERYONE will have to pay”. The Guardian wrote “The Institute for Fiscal Studies, the non-partisan tax and spending thinktank, said that it does not believe Labour’s claim that it will be able to achieve everything it plans with 95% of taxpayers not having to pay any extra in tax”

There are two issues here. The first is about the direct incidence of tax which is how everyone, apart from those with some economics, understands by the question who pays tax. It is just not clear from their initial assessment whether the IFS are claiming that Labour’s numbers on revenues are wrong in any serious way. They don’t dispute the initial figures for corporation tax (I will talk about the longer run later), and welcome the measures for capital gains and dividends tax. Yet most people reading the phrase ‘not credible’ would think otherwise.

There is of course a legitimate question mark about the final incidence of corporate tax. As I note in my earlier post, the empirical evidence on this is all over the place. True, shareholders include pension funds. But none of this in my view justifies the phrase ‘just not credible’ to the tax plans in Labour’s manifesto, particularly as Labour pledge was about initial incidence. Now interviews, particularly in the age of 24 hour news and the resulting requirement for instant reactions, are hard to get right. But nevertheless I think it is fair to say that Paul Johnson, on this particular occasion, didn’t get it right.

Is there a generic problem that the IFS are biased towards the right, or against any kind of radical manifesto. Certainly many on the left think so, but then many on the right think the IFS is in the pay of the EU because it thinks Brexit will do what pretty well all economists think Brexit will do. How you feel also depends on your perspective. If a government in a situation you think is intolerable decides to do nothing, which is a fair characterisation of the current Tory manifesto, the IFS has little to say by way of headlines besides it being ‘remarkable’ (although, as with Labour, they should have mentioned Brexit). On the other hand, the IFS is almost bound to criticise some aspect of any radical plan of the type Labour are putting forward. This just illustrates that the IFS has a very limited remit, and cannot dela with everything that influences social welfare. 

Having said that, I should note some of the things that the IFS did not say about Labour’s plans. They made comparisons with the past when talking about the size of the state under Labour’s plans, but did not (as the Resolution Foundation did do) compare that to other countries. This matters, because the IFS will know more than anyone that with any country with a state run health service the size of the state is very likely to grow over time. In addition in discussing revenue raised from Labour’s tax plans, they failed to discuss the potential Remain bonus which they had already analysed for the LibDems.

Another generic criticism is that the IFS are just bean counters. This is nonsense. For example their point about the incidence of corporation tax is not bean counting. I think the problem is more about how others use the numbers the IFS produce. For example, if you listen to the presentation of both parties’ budgets from 2017 by Carl Emmerson, you will see that they think Labour’s tax projections are too optimistic, but they still meet their fiscal rule with room to spare. Guess which number the media talked about and which they ignored. You could respond that the IFS should take that into account, but how could they do that?

A more credible generic criticism of the IFS is that they do not do macroeconomics. I have in the past made this point. If you listened to the 2017 presentation I linked to above, you will see some discussion (13.02 minutes in) of the supply side of each party’s policies. Labour have a plus (more infrastructure spending) and according to the IFS negatives (higher minimum wage, higher corporation tax, more bank holidays), and the Conservatives have a negative (less immigration), so they assume both parties will have no long run impact on output! Now it is just possible the plus and minuses for Labour cancel out, but just one negative for the Conservatives cannot equate to zero. They also assumed the multiplier from a balanced budget fiscal expansion is zero. They clearly don’t want to do macro.

Does this matter? Yes for two reasons. First sometimes macro has a critical influence on their overall assessment of plans, and as my illustration in the previous paragraph suggests it is not good enough to wish them away. Another example is in their analysis of Labour’s 2019 manifesto, where higher public investment under Labour will almost certainly outweigh any impact of higher corporation tax on investment. It is better to be humble about ignorance than pretend to take it into account and then do nothing, and better still to do something more rigorous on macro. Second, as the media takes the IFS as definitive, it means macroeconomic aspects tend to be ignored, which - as with 2019 - is very unfortunate.

The IFS have a real problem here. Their basic funding is for microeconomic analysis of tax and spending changes, and not for macro. For the Green Budget this year they teamed up with Citi who did the macro analysis. In an ideal world they would team up with a respected think tank that is known for its macro analysis, like the National Institute (NIESR). In the meantime we need to look to the Resolution Foundation, that clearly has macro expertise.

In 2019, many of the key issues are macro, or are not addressed by the IFS analysis. To see that, read the letter in the Financial Times yesterday from scores of economists. Issues of stagnant productivity, lack of real wage growth, regional inequalities, the state of public services and the need for a green transformation of the economy are all key issues influencing peoples’ welfare, are addressed by Labour’s manifesto but are not part of the IFS’s analysis. That does not mean what the IFS does should be ignored - as I suggested at the start it is vital work they do - but just that what they do is not everything that matters to peoples’ wellbeing.

Postscript (28/11/19)

The IFS's full analysis of each party's plans, released today, avoids some of the criticisms I make above. One chart below illustrates exactly the key point I'm making, which is that there are many more important things about each party's plans than whether their tax plans match their spending plans. In this case its Brexit, and it is to the IFS's credit that they showed this.

The chart shows that even though Labour's large investment programme raises debt, as it should do, this is dwarfed by the impact of a possible/likely Conservative No Deal Brexit. 

Saturday, 23 November 2019

Is Labour’s economic plan credible?

Labour have a huge set of spending proposals, many of which are unequivocally good like extra spending on the NHS, some are open to debate like abolishing student loans, and only one that I think is foolish (keeping the state pension age at 66). It would be good if all the debate was about these spending pledges. However the standard excuse for why you cannot have these things has always been about paying for them.

There are actually two issues here. The first concerns current spending, around £80 billion each year or about 4% of GDP, and public investment, expected to rise by about £50 billion a year or over 2% of GDP. Labour's current spending increase is financed £ for £ mainly by higher taxes on corporations, capital gains and high earners, while the investment is financed through borrowing. Let me take each in order,

The figure for the increase in current spending and taxes is large. I personally would not call it colossal but it is large. I would argue that reflects the extent of the squeeze we have seen on the public sector since 2010. But what about the argument that it makes the share of government current spending in GDP the highest since the 1970s? A much better comparison is to look at other countries, as the Resolution Foundation has done here.

What Labour’s plans do is to move the UK from the bottom of the league table in terms of the size of the state to somewhere around the middle.

I think this is a key part of the Corbyn project. Under Thatcher, but particularly since Cameron and Osborne, the UK has pretended it can have a state only a bit bigger than the US. But of course the US does not have a universal health service free at the point of delivery. So a key goal of this manifesto is to move us from the bottom to the average in terms of size of states. Another way of putting it is that the UK will become closer to the European average, and further away from the US/Canada level.

The reason why comparisons with the UK’s past are misleading can be summed up with three letters: the NHS. For reasons I have talked about in the past, spending on health has been increasing as a share of GDP since WWII. Every time the Conservatives try to halt this we get growing waiting times. That means that the share of the state in GDP is bound to rise over time, unless there is some offsetting component of public spending. In the 90s there was - lower military spending following the end of the Cold War - but now there is nothing. So the size of the state is bound to rise over time.

Who is going to pay for getting us to the average of European countries. Under Labour’s plans it is the rich and corporations. I think Paul Johnson in his initial TV comments on the manifesto confused two things, and as a result said some things which were very open to misinterpretation. (Initial reactions to complex documents are often hard to get right,) There is no ‘black hole’ in Labour’s costings. The IFS say the corporation tax numbers are realistic, and I know Labour have tried hard to make them so. Johnson’s point is that companies are not people, and some people will pay this tax. The question is who.

On this issue it has to be said that there is no settled view from the empirical evidence. At one end you have the studies presented in a recent IPPR report (p11). This suggests that most of corporation tax changes fall on shareholders. Now some of those shareholders will indeed be pension funds, but that might influence those who hold those funds rather than those who hold none. Other evidence suggests a 50/50 split between shareholders and workers, and some suggest workers end up paying an even greater share. The honest answer is we do not know what the incidence will be.

There also seems to be a legitimate difference of opinion over the longer term impact of higher corporation tax. The IFS say it will reduce investment and therefore profits. My own view is that corporation tax plays a pretty small roll in investment decisions. The most important factor for investment in non-traded goods is the future level of demand, and here Labour’s strategy is very positive. For exporting firms that are more mobile, factors like the skill base, ease of exporting and political stability play a big role, which is why leaving the EU is so costly.

I have no doubt that a few of the tax increases proposed by Labour will not yield as much as they hope. But most analysis misses the elephant in the room, and that is Brexit. I think it is highly likely Brexit will not happen under Labour, and even if it did it would be far less costly than either the Tories plans, or the effects embodied in the OBR base numbers that many people use. For this reason the LibDems have talked about a ‘Remain bonus’ (in the incredible event they could form a majority government). Labour will also get this bonus.

As to the investment part of the programme, the key issue is once again whether the investment is needed and well spent. We should not be talking about whether it is safe to borrow it. There is virtually no chance that this money will not be available at low long term real interest rates. No one should be scared of investing in the future of our economy and the planet, whether its by adding 2% or more to the deficit.

Much more interesting than the ‘do the numbers add up’ question is thinking about the macroeconomic impact of Labour’s plans. If you read some people there will be an immediate run on sterling as capital takes its money out of the UK. Of course if enough people believe this nonsense it might happen, for a day or two. But the one area where Labour are not radical is macroeconomic policy design. We will have Bank of England independence and a solid state of the art fiscal rule. As soon as that becomes clear any depreciation will be more than reversed, and I suspect there will be an appreciation from day 1. Sterling will appreciate on the expectations of an end to a hard Brexit and rising interest rates.

Why will interest rates rise? The large increase in public investment alone represents a large fiscal expansion. So does the increase in current spending, because a lot of the tax increases will come out of personal or corporate savings. A big injection of demand in the economy will require an increase in interest rates to prevent inflation rising, although the appreciation in sterling will provide some temporary cushioning.

An appreciation in sterling is likely to raise the real wage of every worker in this country. Is an increase in interest rates a problem? For some it may be, but of course for every borrower there is also a saver. From a macroeconomic point of view an increase in interest rates is long overdue. It is a sign that that after a wasted decade we are finally getting the economy moving. You thought the economy was already strong? Just more Conservatives lies. 2010 to 2018 has been the weakest period in terms of growth in GDP per head since the 1950s.  

In the unlikely event of a majority Labour government a stimulus of this scale might lead to shortages of skilled labour that would mean some plans may be delayed. More realistically that problem would be less severe in a minority government where some of the manifesto might be blocked by coalition partners. But either way, a Labour government implementing all or the major part of this manifesto will mean the economy as a whole will end a decade of low output and wage growth that has stifled UK innovation and productivity growth.

We should ignore the tired old discourse about whether we can pay for it, and focus on the benefits each individual spending increase or investment project might bring, and on the revitalisation of the economy that this manifesto will generate.

Wednesday, 20 November 2019

How to disguise a really big lie? Put it on a bus.

The Tories, and particularly their leader, lie all the time. It is quite shameless. But there is a corollary to this. If your whole campaign is based on one big huge lie, make it your main slogan. Because, even today, many voters still think you wouldn’t dare lie about something so important. Unfortunately recent history suggests otherwise.

We all remember the £350 million for the NHS lie in the 2016 referendum. It was famously on a bus. Except it seems that a good part of the voting population has forgotten the reason that slogan is notorious. It was a huge lie, the opposite of the truth. The have forgotten because the Tories have a new bus with a new slogan that a lot of voters appear to believe. In reality it is as big a lie as the one made during the referendum.

Also consider the key Tory slogans in the last two elections. In 2015 it was “Strong Leadership, A Clear Economic Plan And A Brighter, More Secure Future”. Within a year the ‘strong leader’ had resigned, businesses were unable to plan and the UK’s future was anything but secure. In 2017 who could forget “Strong and Stable”. May lasted two years but no one would call those years stable.

In 2019 we have “Get Brexit Done”. I can confidently tell you that this is in the true tradition of the earlier slogans. A more truthful slogan would be “If you liked the last three years of Brexit deadlock, vote Tory”. Here is why.

It is true that Johnson will get enough MPs to pass the Withdrawal Agreement (WA) if he wins the General Election. But the truth that much of the media has hidden is that the WA was always going to be easy if the UK government was prepared to put a customs border in the Irish Sea. Johnson got that agreement because he capitulated on a red line that he, his fellow MPs and the DUP had forced on Theresa May. Why did the ERG allow Johnson to get away with that? Because they saw a brand new opportunity for a No Deal exit at the end of 2020.

What the WA does not specify is the nature of the trading arrangement between the EU and the UK excluding Northern Ireland. This relationship has always been the sticking point in getting the WA done, and why it has taken so long. The WA does nothing towards saying what that relationship will be, except that it is unlikely to involve being in the EU’s Customs Union or Single Market. Johnson says he wants a Free Trade Agreement (FTA) with the EU, but FTAs normally take over 5 years to negotiate.

Johnson has given himself just a year, until the end of 2020. On that date the transition agreement, where we stay in the EU in everything except name and voting rights, comes to an end. Johnson has pledged to not seek an extension beyond 2020, even though one is on offer. That pledge was the basis for getting Farage to withdraw his candidates from Tory seats. The problem is that no one will be able to negotiate an FTA within a year.

Here is the ERG’s big hope, and why Farage withdrew. If Johnson keeps to his word, we face a new cliff edge at the end of 2020. Unless he breaks his word, we will drop out of the EU with no FTA at all. (The great Michael Dougan puts it very clearly here, although I’m not sure about the shirt.) This would be disastrous for the UK economy, but it is what the ERG have been trying to get since 2016. If he breaks his word expect all hell to break loose within the Tory party. If he decides on No Deal, all hell will break out in the Tory party, and parliament might well try to force an extension on him. In other words the next year will be just like the last three.

More generally negotiating an FTA is difficult and time consuming stuff, because it involves UK interests of various kinds that will be trying to get the government’s attention. It will mean that Brexit remains constantly in the news and taking up politicians’ time. This is partly because the government has not thought a lot about how to deal with the many difficult problems an FTA presents, preferring as usual to pretend any difficulty does not exist. Once again, as Chris Grey notes, the EU are much better prepared.

I know I go on about the media a lot, but all this should be common knowledge beyond those who research these things. It clearly is not, with plenty of voters prepared to vote Conservative despite all Johnson’s failings because they believe he will end the Brexit turmoil. This is not about journalists taking sides, but stating facts. I have heard plenty of journalists ask Conservatives whether it is credible to get an FTA done in 1 year, but with little or no follow up.

As just one example, I heard a Conservative MP (I think it was Vicky Ford. Chelmsford) defending the FTA in a year nonsense by saying most of the deal was already done, with no follow-up by the interviewer. What she appeared to mean is that we currently trade with no tariffs with the EU so that will be the basis for negotiations. But of course that is nonsense. The negotiations will start as if the UK was a country with No Deal with the EU, and the UK will have to make the case for moving towards our current position as a member of the EU.

That case will involve all kinds of complications which Tory ministers will find it hard to resolve. For example zero tariffs will only be possible if the UK agrees to adopt all the regulations the EU has which could influence competition, which is most EU regulations. The Tory government wants to get rid of many of those regulations. That means the UK cannot have zero tariffs, because the EU cannot allow an outside country to undercut their own producers because of weaker labour or environmental regulations.

Then there are all the specific thorny issues, like fishing. Tony Connelly brilliantly fillets the complexity here, but in essence the UK cannot exclude other countries from its waters (the dream that led many fishermen to vote for Brexit) and still expect to sell most of its fish to the EU tariff free.

So as far as Brexit is concerned passing the WA is the beginning not the end. If you really want the issue over with, Labour are the much better option. The deal Labour are likely to negotiate within 3 months of taking office will be much softer: almost certainly staying in the EU’s customs union and something close to being in the Single Market, if not in the Single Market. That is why it can be negotiated quickly. We then have a new referendum on that deal within six months.

The contrast between Labour and the Conservatives is clear. Under Labour Brexit is settled by the people in the Autumn of 2020. Under the Conservatives we face a new cliff edge at the end of 2020, and possibly negotiations for another five or more years, or alternatively a No Deal Brexit with all the consequences that will bring. If you want to get Brexit done, don’t vote Tory.

Saturday, 16 November 2019

The Tories will never undo the impact of austerity

One of the impacts of 2010 austerity we saw again last week. Widespread flooding ruining hundreds of homes, and costing a life. Can we say those floods were caused by climate change? Not with certainty, but climate change has made this kind of flooding more likely. Can we say the lack of spending on flood defences under a Tory government made the recent floods worse? Not with certainty, but lack of spending has increased the damage flooding does more generally.

In 2007 the Labour government commissioned from Michael Pitt (no longer available on a government website, but available here) which stated:
“The scale of the problem is, as we know, likely to get worse. We are not sure whether last summer’s events were a direct result of climate change, but we do know that events of this kind are expected to become more frequent. The scientific analysis we have commissioned as part of this Review (published alongside this Report) shows that climate change has the potential to cause even more extreme scenarios than were previously considered possible. The country must adapt to increasing flood risk.”

The Labour government responded to this review by substantially increasing central government spending on flood prevention. It reached a peak in 2010/11, the last year of the relevant spending review. Subsequently the coalition government, as part of its austerity policy, cut back on spending, going directly against the spirit of the Pitt review. (More details can be found in my book, The Lies We Were Told.)

Flooding is a very visible example of what happens when a government cuts back on spending communities desperately need. There are hundreds more. Cutting Sure Start centres leading to growing pressure on the NHS. Squeezing local authorities so they cut provision for young people, together with less police officers, helping the spread of knife crime. Squeezing the NHS and local authority health provision leading to premature deaths. And so on.

Sajid Javid and Boris Johnson want people to believe they have begun to reverse the disaster of Osborne’s cuts. They have plans to return the number of police officers to 2010 levels, which leads to good headlines because the media always neglects to account for population growth, with the odd laudable exception from where the chart below comes.  

The number of GPs per head of population have also been falling in most of the UK, when they should be rising to cope with people living longer. Here is a chart from the Nuffield Trust.

Again the Conservatives have announced plans for more GPs, but they have done that before and they have failed to materialise. The basic problem is that they are failing to train enough doctors, too many doctors go overseas because of poor pay and working conditions in the UK (remember the doctors strike), and their hostile environment policy and Brexit discourages doctors coming from abroad. I could go on and on.

But it is worse. We have to have severe doubts that the Tory spending plans, inadequate though they are, will be fulfilled. There are two basic reasons. The first is Brexit, which I talked about in a recent post. The second is taxes. Tories hate putting up taxes in any way people will notice, and really like cutting taxes. During the austerity period they cut income taxes and corporation taxes. This is simply no longer possible.

The reason why is health spending. The trend in health spending per person, or as a share of GDP, is relentlessly upwards. The trend in the graph above illustrates this. It reflects many things which cannot be reversed: not just increasing life spans but also technical progress in what can be treated, and the fact that the better off we are the more in proportion we want to spend on our health. For a time this upward trend was offset by the peace dividend reducing military spending, but that has come to an end. It has nothing to do with a free at the point of use system being inefficient - in fact the opposite is true.

Both factors, Brexit and taxes, reflect the influence of extreme neoliberalism in today’s Tory party. There are some Brexiter MPs who really just want to return to the days of Empire, or who just don’t get the idea of shared sovereignty, or want to keep foreigners out. But the key reason for the dominance of Brexit in today’s Tory party is a belief that a society free as far as possible of taxes and regulations and state ‘interference’ in the economy is a good society, and the EU is a barrier to that. The same ideology wants to reduce the size of the state way beyond what most of the public wish, and still calls for slashing red tape despite Grenfell and while greatly increasing red tape for trading firms because of Brexit.

Their neoliberalism has become extreme because they have, with Brexit, started working against the interest of UK business. The party of business has become the party that ignores business. The Tory neoliberalism has become so extreme that they think they know what is good for business even though they are told by business that it is disastrous. A former Tory business minister writes “I was aghast that a Conservative government, of which I was a member, had brought the world of business so low.”

Should we be grateful that the Tories have finally agreed to end years of growing cuts and in some areas start to reverse austerity? They really had little choice. I think we should credit the new Chancellor with stopping Johnson announcing tax cuts (at least for now), and for increasing public investment. But for the reasons I have outlined the Tories will never be able to substantially reverse the damage they did with austerity, because they remain wedded to an extreme neoliberal ideology.