Neoliberalism – the set of economic ideas and policies that have dominated politics for the past 40 years – is rapidly losing legitimacy in the face of multiple crises: stagnant or falling living standards, sharply rising inequality of income and wealth, financial fragility and environmental breakdown. At this critical juncture, new ideas about the kind of society we want to live in, and the future we want to see, are needed more than ever.

‘New Thinking for the British Economy’ brings together leading thinkers to outline the broad pillars of a new economic agenda, and the type of policies that are needed to get us there. As well as more traditional policy areas such as trade, finance, housing and industrial policy, the book explores a range of areas that are not typically considered to be within the sphere of economic policy but which nonetheless play a critical role shaping our political economy – such as the media, our care systems, racial inequalities and our constitutional arrangements.

Contributors include Adam Ramsay, Andrew Cumbers, Ann Pettifor, Christine Berry, Craig Berry, Dan Hind, Johnna Montgomerie, Katherine Trebeck, Laurie Laybourn Langton, Laurie Macfarlane, Mathew Lawrence, Maya Goodfellow, Ruth Bergan, Susan Himmelweit, Thomas Hanna, Tom
Mills and Will Stronge.

Download the eBook for free – or purchase hard copies for events and reading groups

The eBook version of New Thinking for the British Economy can be downloaded for free here, or viewed in the embedded viewer below. Printed versions of each chapter are also available for £1 via Commonwealth Publishing and the Democracy Collaborative. If you would like to order physical copies, and inquire about organising author events, please contact Dan Hind or visit the Commonwealth Publishing website – www.commonwealth-publishing.com

New Thinking for the British Economy has been produced with generous support from the Friends Provident Foundation. All the authors have contributed to this volume in a personal capacity and do not necessarily endorse all the views expressed within it.

The post ebook appeared first on New thinking for the British economy.

The premise of “austerity” is that there isn’t enough money to deliver a decent standard of living for all because there was a financial market crash in 2008. To banish this idea from the political landscape we must tackle the cost of accessing the essential ingredients that allow anyone to live a decent life. That is the aim of Universal Basic Services (UBS), and our report from UCL’s Institute for Global Prosperity clearly demonstrates that this is easily and practically within our grasp.

For less than 2.3% of GDP, we showed that we can kiss austerity goodbye and welcome in a new age of joy and freedom that would make the UK the envy of the world. We already have the NHS and free education, now we just need to extend the same ethos to housing, transport, information access and food. Imagine for a moment living in a UK with 1.5 million extra social housing units, no Council Tax for the poorest, free local transport, basic Internet access for everyone, and community food programs designed and delivered locally that would ensure that no family need again be scared of not having a meal. That UK would be utterly transformed from the one we live in today: free from fear, free from destitution, and well fair to everyone.

Universal access to basic services will require substantial devolution of power and responsibility to local democracies – and that’s a good thing. But it will also require an upgrade of our local democracies. Our UBS budget included funding for 650 new local assemblies with well paid, locally elected representatives who would have direct democratic control over the administration of UBS funds. The revenue for the UBS would be collected from taxation and guarantees basic services to all citizens.

Austerity is a top-down policy from a distant national parliament that has starved local services of funding. UBS is the opposite, and restores power, money and control back to democratic institutions closest to the citizens they serve.

To make this increase in investment in our people and our lives we will need to raise a little more tax. Our report fully funded the proposals with an extra £20.42 a week net coming from the top half of all earners. This would take the UK’s total tax take to around 43% which is around the average of the EU19 countries, and less than France at 45%.

The value of the basic services is worth £126 a week to anyone who uses all of the services, which is basically like an 80% pay rise for those on the lowest incomes. People who use the services have their costs reduced, which is the same as a pay rise (this effect is sometimes called a “social wage”). With an ageing population, having adequate health and social care effects everyone. Young people need access to the same level of social services their parents enjoyed. Reducing costs for ordinary people is the key to ending austerity for ever.

If we want to escape the cyclical battles over ‘tax and spend’ policies, we need to shift the focus to the cost of living crisis. Ten years on from the 2008 financial crisis, it is time for austerity to end. We must ask a deeper question: are we willing to stop asking for more money, and start asking for a better life?

This article is part of the ‘100 Policies to End Austerity’ series in collaboration with the Progressive Economy Forum. 

The post Universal basic services: ending austerity forever appeared first on New thinking for the British economy.

What links Donald Trump, Sajid Javid and Jeremy Corbyn? Answer: over the last couple of months, they’ve all sought to capture the political energy from the seemingly endless sequence of tech giant scandals. Trump has tweeted about a supposed (unfounded) anti-right-wing bias in Google searches. In the UK, Javid has warned of tech firms’ record on child safety, while Corbyn highlighted the oversized role of social media and other platforms in our consumption of news.

All have proposed responses to these threats. Javid favours fines, which, in the practice, often amount to less than a few minutes’ revenue. Corbyn has gone further, announcing his intention to create a new public sector body to drive digital innovation and inclusion. This is an improvement on the tepid centrist playbook (and on Trump’s vague promise that this “will be addressed!”), but an adequate response requires something even deeper.

The wealth, power and reach of the tech giants into so many areas of our social and economic lives shows that a more radical approach is required. Deep, structural reform of how data is generated, governed and used is needed so that all can gain from the benefits of digital technology. This benefit can and could be enormous – from connecting people around the world on social media, through making industrial processes more efficient, to helping us understand and act on environmental change and opening up affordable, clean transport for all.

But, so far, the development of the digital economy has been dominated by a small number of powerful firms whose activities tend towards monopoly. It’s estimated that, in the UK, Facebook has 74% of the social network market share, Amazon is responsible for 90% of all e-book sales and 80% of online physical book sales, and Google has an 88% share of the desktop search engine market and 95% of mobile searches.

Critically, this isn’t the fault of Cambridge Analytica or a liberal conspiracy, but a result of the platforms’ business model and the outcomes this generates. This revenue model is simple: the extraction and interpretation of user data to generate insights that are sold for profit. These insights include everything from what you’d like to buy to how to make you angry, and so endow platforms with powerful tools for manipulating consumer, political and other preferences. In turn, insights are used to improve how platforms extract data and develop further insights, with commensurate increases in profit.

This creates a voracious hunger for data, leading platforms to enter as many new markets as possible and to then ensure users stay within the platform’s ecosystem of products. Why use a high street bank when you can send money over Facebook messenger? How great is it that you can access travel information from Google maps through Google Home? Why bother with local shops when you can order everything through Amazon? As you enjoy these services, which are often free, platforms ensure you maximise the amount of personal data given over through various devices and products, while simultaneously decreasing the chance you will leave and become the user of another platform. In all, platform firms have a universal ambition reflected in their increasingly universal platforms.

In turn, political and social as well as economic power is concentrated in the hands of the small band of data barons who run the platform monopolies. Alphabet generated revenues of $32.3 billion in the fourth quarter of 2017, up from 24% the year before, with 85% of that revenue generated from its advertising business. Apple and Amazon are now trillion-dollar companies, with the combined annual revenue for the world’s five largest companies by market value – all of them platforms in some form – already exceeding the GDP of 90% of the world’s countries. With their huge piles of cash, data oligarchs seek the development of digital technology primarily as a means of making profit from the ‘data-fication’ of as much as society as possible. As we’ve seen with recent scandals, this threatens our privacy and democratic discourse. It is also likely slowing innovation and accelerating inequality as the rewards of the digital economy flow to the data hoarders.

So, in the face of their power and limitless ambition, fines are almost irrelevant. Structural reforms are needed that target the platform business model. These reforms include changing the ownership and governance of data and that of the underlying, evermore ubiquitous digital infrastructures that penetrate our economic and social lives. Overall, as we argue in a new IPPR paper, we need to move towards a ‘digital commonwealth’ where data is a collective resource driving equitable innovation, instead of a hoarded commodity, sweated for profit to further enrich the wealthiest people in history. In turn, digital infrastructure – from the cloud to analytical capabilities – should become a public good.

We stand at a crossroads. We can either embrace these reforms to realise a world of digital plenty, in which new technologies increasingly play their role in overcoming the great problems of the day, or settle for a world in which the power of data oligarchs grows and society and economies become more fragmented, private and unsustainable. So, the next time you hear a politician bash the tech giants, see if they’re advocating radical reform. If they are not, they are advocating for a lesser world.

The post A world of digital plenty is possible, but only if we take on the data barons appeared first on New thinking for the British economy.

Facebook is being fined £500,000 by the Information Commissioner, the maximum amount possible, for its role in the Cambridge Analytica scandal. The fine is unlikely to change Facebook’s behaviour. The company is worth an estimated $540 billion, and in the first quarter of 2018 took £500,000 in revenue every five and a half minutes. Some claim the fine is symbolically important. In reality it is essentially meaningless, mattering little to a company run by a man who didn’t even bother to appear before Parliament when asked to explain his company’s actions.

If we want real change, we can’t rely on small, after-the-fact fines. Instead, we will need to undertake deep, structural reform of how data is created, governed and used to ensure all of us gain the benefits from digital technology and its revolutionary potential.

The fine is being levied for two breaches of the Data Protection Act over the Cambridge Analytica scandal. The Information Commissioner has concluded that Facebook failed to adequately safeguard the information of users and it was not transparent in how data was being harvested by others, including the apps used to extract data to build the influencing mechanisms used by Cambridge Analytica. The result was substantial and widespread breaches of privacy and, ultimately, the erosion of democratic principles and norms.

Clearly, it was a scandal. But was it also the beginning of a crisis, a moment that can generate support for deep and significant reform of both Facebook’s behaviour and how we regulate the platform economy more widely? This is less clear.

Critically, as the Information Commissioner’s analysis reveals, the deep scandal didn’t lie in the activities of Cambridge Analytica, but in Facebook’s business model and the outcomes this generates. The revenue model of Facebook and other major digital platforms is simple: the extraction and analysis of user data to generate insights that are sold for profit. These insights – from political preferences to how you react to certain emotions – are also used to fine-tune the platform and make it more effective at further extracting and analysing data for profit. Ultimately, the technologies that do this are a form of artificial intelligence. All our data is now providing the raw material for training this intelligence until it becomes mature enough to offer new products that provide extraordinary services to users, and gargantuan profits and market advantage to digital platforms.

This voracious appetite for data generates an expansive and circular dynamic of expansion and ‘enclosure’. Facebook expands into new sectors and offers new services to attract more users and acquire more data. These users are in turn incorporated into Facebook’s systems (enclosed) and analysed, generating huge profits and providing a growing data comparative advantage over data-light competitors. Why use NatWest when you can send money over Facebook messenger? Isn’t it convenient to be able to access commuting information from Google maps through your Google home speaker? The service works for you, by offering useful, free products, and for the platform, by providing a means in which you provide more and more personal data through a multitude of devices and services, all of which make it less desirable to leave and become the user of another platform. These companies have a universal ambition reflected in their increasingly universal platforms.

This business model concentrates economic power in the hands of the data oligarchs who control the platform monopolies. It puts at risk notions of privacy and democratic communication, when these companies seek to ‘data-ify’ all of society, from its physical infrastructure to our social relationships, making profit from the resultant insights. And it risks slowing innovation and accelerating inequality as the rewards of the digital economy flow to the data hoarders.

So fining Facebook the equivalent of five and a half minutes of revenue simply isn’t enough. What is required is structural reform to address the platform business model. This in turns requires rethinking the ownership and governance of data and the underlying, increasingly ubiquitous digital infrastructure of our economy and society. Whereas today the digital economy increasingly operates under conditions of data enclosure, where information is siloed and controlled by the digital monopolies, we need to move towards a ‘digital commonwealth’ where data is a collective resource that drives equitable innovation, and digital infrastructure – from the cloud to analytical capabilities – is a public good.

From regulating the tech giants as utilities, to new ways of curating and accessing public and private sector data, to strategies for building a digital commonwealth – drawing inspiration from innovative cities like Barcelona – our forthcoming IPPR paper will set out the concrete steps we can take.

We are now at a crossroads. We can either realise a world of digital plenty, with new technologies mobilised to solve the great problems of the day, or settle for one in which data oligarchs rule and society and economies become more fragmented, private and unsustainable. Small fines guarantee the latter. If we are serious about reining in the universal platforms, we need to rethink the deep institutional underpinnings of digital economy.

Mathew Lawrence and Laurie Laybourn-Langton are co-authors of forthcoming paper, ‘The Digital Commonwealth: from enclosure to a data commons’.

The post Fines are fine, but only structural reform can rein in the platform monopolies appeared first on New thinking for the British economy.

In what is by now a wholly unsurprising development, the East Coast line has once again been taken into public ownership. We have been here before: the repeated inability of private firms to actually fulfil their contracts and operate the line has been a recurrent theme of the privatisation experience.

Back in 2006, when GNER defaulted on their contract and were duly stripped of the franchise, calls for nationalisation and the scrapping of the franchising system were ignored. Whilst the former chief of GNER – rather accurately – pointed out that the franchise model was bound to ‘self-destruct’, then transport secretary Douglas Alexander was busy arguing that he would have no problem whatsoever with GNER re-bidding for the franchise they had just defaulted on!

National Express subsequently took over the line – and duly defaulted less than two years later. As a 2011 Parliamentary report made clear, ‘instead of paying the government £1.4bn over seven-and-a-half years, it paid just £120m as the contract was terminated after less than two years.’ This farcically fast failure had minimal consequences for National Express: the £120m represented less than 9% of the contract value and – once again – the Department for Transport, somewhat absurdly, made it clear to National Express that their failure would not be held against them in future franchise bids.

Following National Express’ calamitous management, the East Coast line eventually found itself nationalised under the government-run Directly Operated Railways between 2009 and 2015. The result? The line subsequently returned £1bn to the national purse, requiring the lowest levels of governmental funding as a percentage of total income.

Despite these successes, it was seen fit to re-privatise the line – this time to a consortium run by Stagecoach and Virgin – in 2015. Three years later, this franchise has now collapsed: transport expert Christian Wolmar is quite right in questioning ‘the point of franchising if the risk is never with the private company, and the promised gains to the taxpayer are clearly just theoretical?’

In response to this latest franchising failure, Labour’s Shadow Chancellor John McDonnell congratulated the Conservatives for implementing the ‘first stage of Labour’s Manifesto promise to renationalise the railways’, whilst the Labour MP Jenny Chapman called on Chris Grayling – Conservative Transport Minister – to stand up in the House of Commons and say ‘My name is Chris Grayling, and I have just nationalised a rail line.’ There are clear political reasons to make these arguments: a 2017 Legatum Institute report showed 76% support for rail nationalisation, and nationalisation is a key pillar of Labour’s renewed commitment to economic democracy.

It is crucial, however, to remain cognisant of the legislative lay of the land. In 2013, my colleagues Joe Guinan and Thomas Hanna penned a piece for this site, describing privatisation as a very British disease: what better demonstration of this than the fact that, in ostensibly nationalising the East Coast, Chris Grayling has actually fobbed it off to a different private operator? Directly Operated Railways, the public body which successfully ran the nationalised East Coast line prior to 2015 – and which will operate the line now Stagecoach and Virgin’s franchise has collapsed – was itself quietly privatised (‘Future prospects for DOR’, p. 7) by the Conservative government in 2015: the operator of last resort is now a consortium of Arup Group, Ernst and Young, and SNC-Lavalin.

When measures utilised by government as recently as 2015 no longer exist, it becomes necessary to look seriously at conceptualisations of nationalisation – and the pervasive persistence of privatisation – in the British economy. There is certainly a lot of talk about nationalisation currently, much of it characterised by disingenuous assertions and wishful thinking. Chuka Umunna’s rather spurious claim that Labour nationalised Northern Rock during the financial crisis is but one recent example of this trend. A House of Commons Research paper offers a rather different take on the matter:

The government investment into the banking sector during this period (often characterised as ‘part-nationalisation’) was always intended to be temporary and the government deliberately avoided taking any operational control over the banks which received assistance. The sales of these holdings from 2010 onwards are therefore not examples of ‘privatisation’ by any normal definition.

If this divestiture is not regarded as privatisation, it logically figures that the preceding investiture cannot be regarded as nationalisation. Indeed, the statement given by then Chancellor Alastair Darling was explicit on these points: public ownership was an option of last resort, only taken due to the rather unsurprising unwillingness of the private sector to clear up the mess, with all operational decisions ‘made by the Board with no interference from the Government’.

Bailing out banks or fixing the failures of privatised rail franchises is thus far from the nationalisation we need: privatisation – as the Ridley Plan demonstrated – was always about recalibrating power. The state stepping in to pick up the pieces when privatisation collapses does little to redress these imbalances.

Past nationalisations failed for precisely these reasons: ownership of industries might have changed, but not the distribution of power. In his study of the nationalised industries, Reuben Kelf-Cohen described how:

“[T]he ‘boss’ had not gone on 1 January 1947. He was still there but behind him there were other bosses reaching all the way back to London. It was all somewhat bewildering – well put by a miner who described working for the National Coal Board as working for a ghost.”

On similar lines, Andrew Cumbers – in his excellent Reclaiming Public Ownership – cites discussions with former miners carried out by Beynon and Wainwright:

“I can remember standing at the pit with the banners, celebrating with my father and his friends. They thought, this was it. What a surprise they were going to get. They thought nationalisation would bring everything they’d fought for. But within a very short space of time they found out that they’d swapped one boss for another. The first boss we got was a major from the Indian Army, six months later followed by Captain Nicholson… Later we had a banker!”

As Labour’s accomplished Alternative Models of Ownership report made clear, the party leadership has no nostalgia for this top-down, Morrisonian model of nationalisation. Against dissenting voices – some within the Parliamentary Labour Party – it needs to be made clearer still that nationalisation is not a mere palliative for private sector collapse, but a tool to bring about a fundamental rebalancing of wealth and power.

Under the privatisation doctrine that still prevails in Britain, even the temporary successes of the nationalised East Coast Line between 2009 and 2015 cannot now be replicated: Directly Operated Railways – the operator of last resort – is now a consortium-led, indirectly contracted service.

The collapse – yet again – of a private franchise on the East Coast validates our critique of privatisation; the government response, however, is far from the kind of nationalisation we should be supporting. Privatisation by proxy – replacing Virgin and Stagecoach with EY and Arup – is not the answer. With strong support for public ownership, it is incumbent upon us to put forward models of democratic ownership – nationalisation, municipalisation, worker-led co-operatives – which can become properly entrenched in – and fundamentally rebalance – our political economy and in so doing remain impervious to attack and dismantlement.

The post East Coast chaos: privatisation by proxy? appeared first on New thinking for the British economy.

The aim of openDemocracy’s ‘New Thinking for the British Economy’ project is to present a debate on how to build a more just, sustainable, and resilient economy. In the project so far we’ve debated policy areas ranging from trade policy and universal basic income, to childcare policy and housing .

But across Britain, hundreds of people are working tirelessly to build a new economy on a daily basis, putting new economic ideas into practice from the ground up. In a new video series, we will be showcasing some of the most exciting initiatives that are already working to replace different aspects of our failing systems with fairer and more resilient alternatives — from housing and finance to food and energy.

This week, Rhea Stevens and Shea Buckland-Jones from the Institute of Welsh Affairs discuss their work creating a practical plan for Wales to move to 100% renewable energy by 2035.

Watch the full video below:

The post Re-energising Wales appeared first on New thinking for the British economy.

The most urgent problem facing the next generation is the unaffordability of housing.  Although any solution will involve several elements, a central feature must be a major increase in public investment in social housing. To be effective, changes to housing policy must be sustained over the long-term and command wide public support to ensure they will be implemented by whichever political party is in power.

In our new report, ‘Remodelling Capitalism: How Social Wealth Funds could transform Britain’, we propose a radical expansion of the role of the state to ensure that future increase in housing supply, especially of social housing. We believe the state should be primarily responsible for ensuring there is enough land available for future housing development, building on the huge reservoir of land already owned by the public estate. The aim would be to ensure that land for public housing was available across the country, and to increase the overall supply of development land so as to reduce the cost of land, now a key element in the explosive growth of house prices.

Over the past 40 years the UK has sold off public land valued at around £400bn, but still retains considerable holdings. Although exact figures are hard to come by, the best estimate is that the UK public authorities currently own about 750,000 hectares, with two thirds owned by local authorities and public bodies like the NHS and the other third owned by central government.

Our proposal aims to create a series of regional or urban land trusts, based on consolidating and professionally managing the portfolio of existing publicly owned land suitable for development. The trusts would then hold and own this land in perpetuity. The primary aim of these regional land trusts would be to ensure that society retains what is left of publically owned  land and uses it to build the next generation of social housing, as well as other suitable developments such as social infrastructure. All public sector owners could, should they choose, transfer their operational land and property assets into the trusts. This would enable the trusts to coordinate the management of all the public land.

The local trusts could acquire additional parcels of land suitable for housing by purchasing them at existing use value. Land unsuitable for social housing, or public land in regions without demand for social housing, could be leased to the market for private housing, as well as commercial and retail development. The lease arrangement (with the income accruing to the trust ) would enable the trusts to ensure that they retain control over the character of the private developments, including the provision of adequate infrastructure and inclusion of social provision. The trusts could also specify conditions regarding maximum rent levels, maximum rent increases and/or minimum levels of security of tenure.  It would also include provisions for the forfeiture of land for non-compliance with the conditions stipulated in the lease.

The trusts would also have the power to borrow in order to acquire land, secured against its existing land portfolio, and could be given powers to acquire land banks that are being held by private developers who are not currently building housing on these plots.

Any rental income from social housing and leasing income from commercial and retail development would be used by the land trust to meet the financial obligations it incurred through borrowing to build the housing. Any additional capital would be ploughed back into the trust to further assist it in meeting its prime objective of building social housing. Where the demand for social housing has been met, the money would be ring-fenced to pay for future land acquisition and housing development.

The trusts would be bound by a number of core principles. Firstly although they would be established by the state they would operate independently of it. An independent board, which would include local people, would manage the governance of the trust and ensure that it met its social purpose and protect the assets in perpetuity from misappropriation. The day-to-day management of the trust would be conducted by property management professionals.

The title to all the publicly owned land suitable for development would be transferred to the trusts at no cost to itself or the previous owner, which would be granted temporary stamp duty relief. The urban land trust would retain ownership in order to ensure that it can develop land itself, as well as leasing land at an agreed rent for development. As it expands its land and property holdings it will generate additional income through rental and leasing income.

One of the fundamental challenges with building good quality social housing is the high cost of the land. Land now makes up the largest proportion of the cost of housing in many areas (up to 70% in some areas compared to just 1% for New Town developments such as Milton Keynes or Harlow). Building on land already in public ownership will allow the regional/urban land trusts to build social housing without needing to take into account the cost of the land. This will cut the cost of building substantially and means that the development will start to generate profit faster than private developments which also need to make back the cost paid for the land.

Utilizing the existing land that the regional/urban land fund owns, together with the newly acquired land at existing use value, should result in increased availability of housing, especially social housing, as well as dramatically lowering the cost of acquiring land for the trusts.

The advantage of adopting a local approach to this type of social wealth fund is that it is likely to get local buy-in, and could be implemented on a piecemeal basis, and would show results without waiting for many years for national social wealth funds to accumulate.

The post Tackling the housing crisis with Urban Land Trusts appeared first on New thinking for the British economy.

The aim of openDemocracy’s ‘New Thinking for the British Economy’ project is to present a debate on how to build a more just, sustainable, and resilient economy. In the project so far we’ve debated policy areas ranging from trade policy and universal basic income, to childcare policy and housing .

But across Britain, hundreds of people are working tirelessly to build a new economy on a daily basis, putting new economic ideas into practice from the ground up. In a new video series, we will be showcasing some of the most exciting initiatives that are already working to replace different aspects of our failing systems with fairer and more resilient alternatives — from housing and finance to food and energy.

This week, Paul Sander Jackson from Wessex Community Assets discusses how Community Land Trusts and other community led asset owning organisations are making communities more sustainable across England. 

Watch the full video below:

The post Community Land Trusts: creating more sustainable communities appeared first on New thinking for the British economy.

Back in February I found myself in the unusual position of being attacked in an editorial published by The Times. In a piece setting out the paper’s position on the land reform agenda in Scotland, I was named and shamed as the author of a “disturbing document” which “blithely ignores the rights of private owners and the laws that protect them”.

The document in question is a discussion paper that was commissioned by the Scottish Land Commission. In the paper (which is available here), I outlined how a broken land market lies at the root of the housing crisis, drawing on a recent book I co-authored on the subject.

The problem with the paper, according to the editorial, is that it “urges the compulsory purchase of land”.

Even if that was the case, it shouldn’t be controversial. In virtually every developed country on earth it is recognised that there are circumstances where individual property rights become secondary to the wider public interest, which is why compulsory purchase powers exist. In Britain these powers emerged in the nineteenth century to prevent individual landowners from blocking the construction of new railways. Without these powers, landowners could hold society to ransom by refusing to sell land for critical infrastructure and development projects.

But that’s not what the paper was about. Instead, the paper proposed reforms to enable what is often referred to as ‘land value capture’. The basic premise of land value capture is that in modern economies, especially in urban environments, the value of a piece of land depends on what can legally be built on it, and the infrastructure and amenities in the surrounding area. The granting of planning permission, or the creation of new transport links or other infrastructure, typically brings about a large increase in the locational value of the land.

The question of who should capture this uplift in land value has been at the centre of land reform debate for centuries. In many countries, the planning system or compulsory purchase laws enable the uplift generated by planning and collective development to be captured by the state – effectively enabling the costs of development to be recouped. This was also historically the case in the UK, and it was this self-financing model that delivered the New Towns.

There is a strong moral case for this: the uplift in the value of land does not reflect the efforts of landowners (who don’t lift a finger), but that of the state and the wider community who grant planning permission and develop the surrounding infrastructure and amenities. It also makes economic sense: there is solid evidence from around the world that capturing land values is an efficient way of funding new housing and infrastructure.

The early classical economists such as Adam Smith and John Stuart Mill objected to the ability of landowners to make windfall gains at the expense of wider society. They considered returns earned from the ownership of land to be unjust and inefficient – referring to these windfalls as ‘economic rent’.

However, under current legislation public authorities across the UK are prevented from adopting this method of land value capture. Legislation introduced in the 1960s, notably the Land Compensation Act of 1961 (1963 in Scotland) reinstated the principle that landowners are entitled to ‘hope value’ on any land compulsorily purchased. In practice, this means that where public authorities wish to purchase land for development, landowners must be compensated not on the basis of what the land is actually worth at the time, but on the basis of what it one day might be worth if it was granted planning permission.

Because the difference between existing use value (i.e. agricultural value) and ‘hope value’ is usually dramatic, these changes significantly increased the cost of land for development, and ended the ability of public authorities to acquire land cheaply for new housing. In other words, the changes meant that the benefits from rising land values would flow to landowners rather than the general public.

Since land acquisition is usually the largest single cost of housebuilding, this system has created a significant obstacle to building genuinely affordable housing. It has also created incentives for speculators to buy land and hold onto it as a financial asset rather than develop it.

In my paper I proposed that the law should be changed so that public authorities, rather than just the landowner, are able to capture some of the uplift in the value of land that results from collective development, unlocking significant funds for development without having to raise taxes. As I’ll return to below, I am far from the first person to propose this.

The mechanism for doing this involves making changes to the Land Compensation Act so that assessments of market value for compensation purposes do not include prospective planning permissions for land acquired for housing and infrastructure. Although this relates to compulsory purchase orders (CPOs), it does necessarily mean that more land will end up being bought compulsorily. Evidence from the UK’s own past, and from other countries, shows that the very existence of strong compulsory purchase powers can be enough to shift the balance of incentives in the operation of the land market. In the knowledge that the land could be purchased by the state at near use value, landowners would be incentivised to sell land for development at a low but fair price. Speculation and land banking would become much less attractive.

But this crucial point was lost on The Times, who presumably saw the words “compulsory purchase” and robotically deployed the usual tropes around state coercion and erosion of property rights which, as I have written about previously, aren’t coherent anyway.

But should we really be surprised by this? After all, the right wing media has consistently resisted the land reform agenda in Scotland – occassionaly resorting to hysterical headlines involving comparisons between the Scottish Government and Robert Mugabe’s Zimbabwe.

But here is the irony: The Times and the rest of the right wing press are now spectacularly out of touch with political reality – not just in Scotland but across the UK. Thanks to years of campaigning by organisations such as Shelter to Civitas, there is now cross-party political consensus on the issue of land value capture. The Conservatives quietly included proposals to reform compensation laws in their 2017 general election manifesto, and Labour recently committed to similar reforms in its new housing green paper. Politics has moved on, but the press is still stuck in the past.

Then last week I came across a new article titled ‘Rewriting a 1960s law would take us past the annual target of new homes — without spending £44bn’. Funnily enough, the article was published in The Times.

The article refers to the “growing consensus” that the land market is “quite literally, the underlying cause of our housing crisis.” It then identifies the legislation that lies at the root of the problem:

“The market takes its cue from the Land Compensation Act 1961: public bodies that force owners to sell land for development must pay prices that assume planning permission would be granted. Yet before 1961, councils had powers to buy at “existing use value”. When Milton Keynes was built, the land was bought at just 1% of the final value of a house at the time.”

The article ends by offering a solution to fix the problem. Referring to a recent study by the Centre for Progressive Policy the article explains that:

“If we fixed the land market, councils could buy plots at low agricultural or industrial values. They could give planning consent, borrow against the higher value to build infrastructure, then sell ready plots to developers, as well as small and self-builders.”

If this sounds familiar, it’s because it’s literally the exact same as what was proposed in my paper, which The Times said “blithely ignores the rights of private owners”. In fact, the author of the study cited in the article is Thomas Aubrey, whose excellent work I also referenced extensively in my paper.

I’m glad that The Times eventually decided to give land value capture a fair hearing within its pages. It’s just a shame they didn’t extent that courtesy to me.

But as the saying goes: first they ignore you, then they laugh at you, then they fight you, then…. Well, we all know what comes next.

The post First they ignore you… How the media is playing catch up on land reform appeared first on New thinking for the British economy.

The aim of openDemocracy’s ‘New Thinking for the British Economy’ project is to present a debate on how to build a more just, sustainable, and resilient economy. In the project so far we’ve debated policy areas ranging from trade policy and universal basic income, to childcare policy and housing .

But across Britain, hundreds of people are working tirelessly to build a new economy on a daily basis, putting new economic ideas into practice from the ground up. In a new video series, we will be showcasing some of the most exciting initiatives that are already working to replace different aspects of our failing systems with fairer and more resilient alternatives — from housing and finance to food and energy.

This week, Tim Crooks from Regen discuss how community energy groups can accelerate the transition to a decarbonised, decentralised and democratic energy system.

Watch the full video below:

The post VIDEO: How to create a democratic energy system appeared first on New thinking for the British economy.

The failure of privatisation is more apparent in the energy sector than perhaps any other. A small group of companies are profiteering from an essential public service, failing to provide sufficient social goods or play a fair role in the meeting the most pressing challenge of our times: climate change. For the most part, the ire has focussed on the biggest energy supply companies – collectively known as ‘the big six’ – and rightly so.

But now, the grid companies are starting to feel the heat. The regulator, Ofgem, is trying to tighten regulation and cut their profits. But more regulation and a polite request to repay money they’ve overcharged us is not enough – these are just sticking plasters for a broken energy system. It’s time we brought the whole grid network into public ownership.

The energy grids form a core part of our energy ecosystem – they distribute energy and gas around the country, keep the lights on and the gas flowing in times of high demand. Our national infrastructure is run by National Grid, and regional distribution by a network of private companies with a monopoly in their region. These are natural monopolies – it is impractical and of little value for the consumer for companies to compete to provide rival infrastructure. Like the water industry, the sector has been characterised by weak regulation, financial engineering, takeovers and bumper dividends for shareholders wanting to cash in on a business they know is too important to fail. And, like the water industry, these networks should be in public hands.

Our messy system of subsidies and regulation allows the grid companies to pass on all their costs to the consumer plus a healthy guaranteed profit, encouraging operators to cut costs and pay out to their shareholders. As customers in such a system we can do nothing about it, even though energy network costs make up around a quarter of our bill; it is risk-free monopoly capitalism at its most perverse.

There is a better solution. Public ownership of these networks would remove the commercial incentive to exploit their position – and exploit it they have. We’ve become accustomed to the idea that if you don’t change energy supplier you’ll be overcharged, but the energy grid is just as bad. They’ve overcharged customers by £7.5bn over the last 8 years, according to Citizens Advice, and run a profit margin of 19%. This is a rip-off that’s gone on too long, and one that tinkering from the regulator won’t fix.

Our energy system should have tackling climate change at its heart, but private ownership of our grids is holding us back. We know that local energy is often the greenest, but operators have little incentive to make it easy for such projects to be hooked up to the grid – it’s a process that can currently take years. Communities from Cornwall to Hackney are queueing up to connect to the grid, but the time and cost is prohibitive. A publicly-owned grid could be mandated to connect up communities fast, boosting renewables and helping us get the clean green energy we need.

The grid was designed for an age of coal, oil and nuclear. It is centralised, monolithic and privatised. The future of energy is decentralised, flexible and diverse, with community generation and local energy playing as vital a role as large offshore wind or tidal projects. This means we need a grid that is radically transformed and ready to meet the challenges of the future, which will require a long-term view that private companies are unable to take. With the grid in public hands, we can put planning for our low-carbon future at the top of the agenda, not paying out dividends to shareholders.

We Own It’s vision for energy run for people not profit is not only possible, it’s a smart investment. To build a public energy system, we’d buy back the national grid and the regional energy distribution companies. This could cost approximately £32bn, according to the Public Services International Research Unit at Greenwich University. Such a public energy system, where a newly public national grid delivers electricity and gas sold by regional supply companies, could pay for itself in ten years – principally through eliminating payouts to shareholders and benefiting from the lower cost of capital. Consumer bills will start to reduce once the  years is up, and possibly earlier if the extra investment in renewable sources contributes to a drop in energy prices.

Taking the grid into public control is a radical idea, but one whose time has come. Professor Dieter Helms’ independent review of the cost of energy for the Government recommended bringing some aspects of National Grid into the public sector, an uncomfortable home truth for a regime wedded to privatisation. Public ownership of the grid forms a core part of Labour’s plan for the energy sector, a commitment recently reaffirmed by Jeremy Corbyn. In Germany, hundreds of communities have taken back control of their energy grids. We Own It has long called for our energy system to be publicly owned, and we’re backed by the public: 77% want to see energy in public hands.

With the grid in public ownership, we can not only put an end to monopoly pricing and sluggish innovation, we can put the public interest at the heart of how these services are run. This means we can have energy system that is accountable, puts people before profit and doesn’t jeopardise the future of our planet. Tinkering around the edges is not enough. It’s time we took control of our energy future, starting with the national grid.

The post It’s time to own the National Grid appeared first on New thinking for the British economy.

The housing market seems balanced on a knife edge. In January house prices fell for the second month in a row and buyer enquiries fell for the tenth consecutive month. Some commentators are calling for governments to ‘loosen monetary policy’ and ‘reinstate tax incentives for real estate investment’ in order to head off the risk of a crash. But excessive mortgage lending and real estate speculation helped get us into this mess, and more of the same is not going to get us out. If the government (or government in waiting) is serious about fixing the housing crisis, then it must get ready to give the housing market a soft landing.

Our lack of preparedness for dealing with a downward adjustment in house prices is a key obstacle to meaningful housing system reform. Take the issue of rent controls – by far the swiftest and most effective way to address the insecurity and exploitation in the Private Rented Sector. Rent controls are commonplace elsewhere in Europe, and polls show there is broad public support for them in the UK. They could take the form of strong tax penalties for landlords who charge more than a “living rent” (say, 30% of lower quartile earnings), alongside rent stabilisation measures, which would prevent landlords from raising rents faster than price or wage inflation. To give renters the additional peace of mind that they will not have to uproot at short notice – pull their kids out of school, leave behind jobs, friends and family – we could also have minimum five year tenancies, or better still, an end to ‘no fault evictions’, as implemented in Scotland last month.

Why do these proposals have so little traction in Westminster? Vested interests and ideology clearly play a role, but for many the reluctance to improve renters’ rights is borne out of fear – of triggering a sudden flight of investors and with it a crash in house prices.

This is not an unreasonable concern to have. The Buy To Let frenzy and loose mortgage lending of the last two decades have left us in a highly exposed position, with a long way to fall: prices in London are now 22% higher in real terms than they were at the height of the 2007 bubble, and a fifth of the UK housing stock – around 5.5 million homes – is in the hands of investors. As the Bank of England has repeatedly warned, this high concentration of investors carries with it the risk of a more sudden and dramatic house price fall: houses which are primarily conceived of as financial assets rather than homes are readily put up for sale if they no longer present a good investment.

A dent in rental income will be most concerning for those landlords who are servicing outstanding mortgages – which is the case for somewhere between 49 and 77 per cent of UK landlords. If a chunk of these opt to sell, it is unlikely that the spike in supply would be easily absorbed. Quite the opposite: if there is improved security and affordability in the Private Rented Sector, many potential first time buyers could decide to postpone their purchase decision until the dust has settled post-Brexit.

Unfortunately, high levels of mortgage debt make the UK economy uniquely vulnerable to a house price adjustment. Low interest rates and weak supervision of mortgage lending have enabled loan-to-income ratios to creep even higher than they were in 2007. Thus, a price fall could push a hundreds of thousands of households into negative equity, making it difficult to either move house or remortgage. This would be particularly problematic for those coming to the end of teaser deals and facing expensive Standard Variable Rates. Mortgage defaults could in turn affect the solvency of major banks whose balance sheets are now dominated by mortgage loans.

Once prices begin their descent, the feedback loops that push prices up during a boom could quickly slip into reverse. Banks could become far more cautious about extending mortgages, and households could become far more cautious about buying, which would put further downward pressure on prices. Meanwhile, households worried about their fall in housing equity may cut back on consumer spending, leading to falling profits and dampened business confidence.

With this domino effect in sight, is it any wonder that successive governments have dragged their feet on effective housing reform?

But what if we could intervene to ensure that prices fell in a controlled and gradual way? What if we could ensure that first time buyers who bought at the height of the boom were protected from negative equity, and that houses put up for sale by investors were bought by ordinary renters and not by second home owners? In that scenario, wouldn’t a reduction in housing costs be just the ‘reset’ that our economy needs, in order to better serve the interests of society? It would mean a smaller proportion of future household budgets eaten by landlords and banks. It would address one of the major blockages on the supply side of the housing system – the high price of land. It would begin to reverse the socio-economic cleansing of neighbourhoods that has occurred over recent decades.

What might such an intervention look like? How do you burst a bubble in slow motion? One idea that might be worth exploring is a People’s Land Trust and Building Society[*] (PLT hereafter) – a publicly backed but independent non-profit institution which would buy land from underneath houses and lease it to members.

There are two groups likely to be interested in leasing land, instead of owning it. The first is highly indebted homeowners who could sell the land from underneath their homes to the PLT, and use the income to pay down their mortgage debt. This ‘mortgage rescue’ element would help to protect banks and building societies from defaults and debt write-downs.

The second is people who want to be homeowners (privately or mutually) but cannot meet the current mortgage deposit requirements. Households or housing coops could approach the PLT when they’d found a house they wanted to buy and ask the PLT to cover the cost of the land and to grant them a mortgage to cover the cost of the bricks and mortar. Since bricks and mortar can account for as little as 30% of the price of a property, this would require people to save much lower deposits than is conventionally the case. Like the first group, the new buyers would sign a lease with the PLT which would entitle them to exclusive and indefinite use of the land in return for paying a land rent.

A PLT could thereby create a pool of renters ready and able to buy as soon as investors decide to sell, mitigating the risks of a precipitous fall in prices and a sudden shortage of rental properties. We can think of the PLT as a lever for introducing ‘desirable’ sources of demand into the market as ‘undesirable’ (speculative) sources of demand are exiting the market. In this way, the PLT could make all sorts of other housing and land reforms – such as the introduction of a Land Value Tax – more feasible too.

Depending on how it was financed, the PLT would sooner or later start to run a surplus which could be used to proactively purchase land for social housing, and/or be partially redistributed as a dividend to all members who have been paying into the PLT for some minimum number of years – 25 years, say. The latter option could improve the attractiveness of PLT membership compared to the mainstream model of homeownership.

Of course, if people wanted to leave the scheme before this point they would be free to go. When moving house, members of the PLT would sell only the bricks and mortar. The land itself would remain in the Land Trust, and the lease (and obligation to pay land rent) would transfer to the new occupant.

There would be no scope for making windfall gains or unexpected losses from such a sale, because land rents would be adjusted in line with changing land values, with the explicit aim of making sure that the sale price for the bricks and mortar remained roughly stable. This adjustment is essential to ensure that changes in the value of land do not result in arbitrary rewards or punishments for homeowners who have done nothing to deserve either. However, to protect PLT members from unexpected hikes in land rents (e.g. in the case of a gentrifying area), land rent increases could be capped in relation to wage inflation and only fully adjusted when the property changed hands.

To summarise, the purpose of the People’s Land Trust and Building Society would be to:

• protect ordinary households who bought at the height of the boom from ending up in negative equity.
• make it possible for people to own their own bricks and mortar without buying the land underneath.
• improve financial and macroeconomic resilience, by reducing the likelihood of mortgage defaults and making house price adjustments more gradual.
• allow for the gradual socialisation of unearned land rents which are currently captured privately by banks and landlords.

Needless to say, there are numerous questions to resolve in relation to this proposal. Perhaps the most obvious is the question of how the PLT ought to be financed: options could include bond issue; borrowing through the Public Works Loans Board; Strategic Quantitative Easing; a Land Value Tax, or taxation of the capital gains and rental income of property investors. The form of finance will obviously have a bearing on how quickly the PLT can grow and deliver a surplus.

There are challenges to overcome in relation to the valuation of land in periods of economic adjustment. And in the case of households who wished to sell their land to the PLT in order to pay down debt, there is the added dilemma of whether they ought to be remunerated for their land at the price they paid during the boom, or at contemporary (lower) values. The former option would seem fairer in the case of first time buyers who would not have benefitted at all from the preceding boom through ownership of previous properties. But of course, if the PLT were to buy the land at its value before house prices began to decline and then charge a land rent in proportion to new lower land values, it would take longer for the land rents to cover the PLT’s initial outlay.

There is also the challenge of ensuring that the separation of land and housing does not make it difficult for people to move house, as Shared Ownership schemes have sometimes done. If a new buyer could not be found to buy the bricks and mortar and take on the land lease, one option might be for the PLT to offer to buy the bricks and mortar at a price determined by independent Chartered Surveyors, and then sell it at a discount to social housing providers.

And finally there is a question about how the scheme would operate in the case of flats, where ownership is of a leasehold, and not a freehold. Perhaps the scheme could precipitate an end to leaseholds altogether?

The purpose of this article is to not to present a perfectly polished proposal, but to stimulate discussion. There is a risk, I realise, that the complexity of the challenges presented here might induce some readers to put their heads in the sand. Some might be thinking to themselves: ‘Perhaps we can solve the housing crisis without affecting Buy To Let profits?’ This is delusional on several levels.

High rents are inhumane: they mean children growing up in overcrowded, damp and unsafe conditions, and workers wasting hours every day on the commute. High rents are a drain on public resources: every year £8 billion of public money is paid out to private landlords in housing benefit. And high rents are driving a wedge through society. Until the 1980s, the housing costs facing renters and homeowners were broadly similar. Today, average private renters hand over twice as much to landlords as mortgaged homeowners hand over to banks in interest.

There are faster or slower ways of addressing these injustices. Theoretically, a massive state-led house building programme would, eventually, reduce pressure on the Private Rented Sector and improve tenant bargaining power. But there is a huge backlog of housing need to address (DCLG estimates as many as two million households) and major skills shortages in the building sector, to mention just two of the potential hold ups. We don’t have time to wait for these hurdles to be cleared. Rent hikes and evictions are ruining lives now.

It is time to face reality and listen to the demands of increasingly organised renters – in London, Scotland, Bristol and beyond. Rents must come down, security of tenure must be improved, and we must prepare for the long overdue bursting of the UK’s housing bubble. This means finding a way to cancel the unpayable debts of homeowners in negative equity, prevent banking insolvencies, and ensure that it is ordinary renters – and not second home owners – who benefit as investors flee the market. The People’s Land Trust may not be the answer. But it is time for fresh and bold thinking in this direction – or the societal fault line that has opened up between property haves and have-nots will only continue to widen.

[*] The idea presented here was originally inspired by a draft paper from the New Economics Foundation, making the case for a gradual but mandatory separation of the ownership of land and housing. See McCann et al. (forthcoming). Modern Land Reform. New Economics Foundation.

The post Falling house prices could be the reboot our economy desperately needs. But only if we prepare for a soft landing appeared first on New thinking for the British economy.

In his first monthly column for openDemocracy, Paul Mason argues that the mission of radical social democracy must be to rekindle hope in a simple idea: that life in your community will get better. Next week Paul will discuss the issues raised in this essay at a roundtable discussion hosted by openDemocracy at Goldsmiths, University of London. A video of the event will be released shortly after. 

The earliest picture I have of my Dad, John, is a class photo at primary school, sometime around 1936. He is clearly one of the poorest kids in the school and one of the most sickly: deaf in one ear, stick thin, small for his age, struggling to smile.

When I look at my favourite picture of him, on a beach at Newquay in the 1960s, he is happy, healthy and doing OK: a lorry driver who can sight-read and sight-transpose music, and discuss the ideas of EP Thompson and Solzhenitsyn.

His income had risen steadily in the post-war decades. But his life had been transformed. The technical term for what happened to him is intra-generational upward social mobility. But it does not even begin to capture the upswing in mood, quality of life, confidence and freedom of action that his generation experienced.

During the Depression, my dad used to cling to his mother’s knees to stop her answering the door, in case it was bailiffs coming to take their furniture. Furniture you could do without; the self-esteem that went out of the door with it, to be replaced by cold humiliation, was a different thing.

Today, the ghosts of my Dad’s childhood are back. Massively indebted households; poverty deep enough for food handouts to matter; rampant domestic violence; housing insecurity, and far-right xenophobic politics.  All these are symptoms of a deeper problem which has made the idea of upward mobility in your lifetime feel impossible to many working class people and – equally important – made the fear of a downward plunge distinctly rational.

The post-war Labour government of Clement Attlee met the aspirations of my Dad’s generation so exactly that it was the political equivalent of throwing a treble 20 at darts. It made, both at the time and in their memories, a satisfying clunk.

Labour under Attlee was able to transform British capitalism irreversibly because they understood: what they needed to do, who to do it for, in what order, what the risks were, and how to overcome the resistance.

Labour under Jeremy Corbyn has clawed its way to just above 40% in the polls because it has answered some of these questions; it will get to form a majority government when it answers all of them. The same lesson holds for other would-be transformative left governments across the world.

The what, the who for, the sequencing and the mitigation of risk will the subject of this essay series for openDemocracy on what radical social democracy means during the next decade.

***

What’s the problem we are trying to fix? It was described clearly by Jeremy Corbyn in his speech to the European Social Democrats’ conference in Brussels in October: “the neoliberal economic model is broken”.

That model, like all paradigms within industrial capitalism, had a beginning, middle and an end. In a brilliant confirmation of the dialectic, the same factors that drove neoliberalism’s upswing also caused its downswing.

Globalisation expanded the world’s workforce and delivered gains from trade way in excess of any previous period of international open-ness. Smashing the power of organized labour allowed a historic global reversal of labour’s previously rising share of GDP. The globalization of finance allowed household and corporate debt to grow, apparently, without destabilizing the system.

But from the mid-1990s onwards capitalism began to regurgitate capital. From the Asian crisis, to the Russian crisis, to Long Term Capital Management and then the dotcom crash of 2000-2001 a pattern emerged: an excess of capital compared to real growth and productivity.

With the wage share depressed, consumption had to be driven by credit, forcing large numbers of people to believe they had a stake in the financialisation of everyday life.

The pattern between the mid-1990s and 2008 is repetitive: capital floods into the financial sector triggering a boom-bust cycle; central banks respond by creating more money; this floods into a new asset class or country or region – triggering a renewed financial boom and bust cycle.

If, in the meantime, the information technology revolution had delivered what it promised – high productivity, high wages and high growth – this speculative frenzy might have ended with a new take-off of capitalism. The problem is: information technology is real but its value-producing properties are over-estimated. It produces increased usefulness but collapses the price of everything, above all itself.

According to the Bank of England’s economists Rachel Lukasz and Thomas Smith, out of an average global growth rate of 3-4% per year, technological innovation is responsible for precisely minus 0.2 percentage points over the past 30 years.

If you look at the positive drivers of growth identified by the Bank’s economists during the neoliberal era, they reach an inflexion point somewhere around the year 2000. In the 1980s and early 1990s about half the growth comes from the expanded global labour supply and half from “growth at the frontier of productivity”: that is rising education levels, falling inequality and the long term fiscal expansion that had pushed global government debts up to 60% of GDP by around 2000.

But from around the turn of the century global productivity growth disappears, to be replaced by “catch-up growth”: poorer countries industrializing their economies, urbanizing their populations and moving into the services sector. The price is massive financial, trade and fiscal imbalances which can only be reversed through a devastating financial crisis. Paying for that crisis boosts global government debt above 90% of GDP and has left the entire world economy dependent on monetary life support.

The problem is that over the next 30 years the Bank’s economists predict that catch up growth will peter out; growth in the global workforce will be slower; fiscal expansion from a base of 93% of global GDP will be very difficult; and tech-driven productivity is nowhere.

Their projections accord with the view of Larry Summers, the former US Treasury Secretary, who wrote in 2014:

“the difficulty that has arisen in recent years in achieving adequate growth has been present for a long time, but has been masked by unsustainable finances.”

If he is right, then the brutal conclusion we have to draw is that neoliberalism was not a solution to the problems of Keynesian system: it was a work-around.

The essential problem my Dad’s generation faced after 1973 – declining productivity and rising state spending – has not been solved by globalisation, or by vastly inflating the finance system with cheap money. It was just shoved to one side.

Unless it could go on expanding private debt and the money supply forever, sooner or later the neoliberal model was going to hit the wall just as Keynesianism did. That’s what happened in 2008. The system ran on empty until 2016 and then with Trump and Brexit the multilateral global framework began to fragment. Elites all over the world discovered that human brains cannot run on empty: they need a coherent story and the neoliberal model no longer tells one.

The implications of this for social democracy should be obvious. It means you can’t replace neoliberalism with a return to the Keynesian model. It, too, was broken. The assumption of many activists on the Labour left – that if only we could nationalise more, tax more, write better industrial strategies, upskill more people, build more infrastructure and homes, we would come out with a working model of capitalism – is wrong.

Likewise – from the Bernie Sanders movement in the USA to the Left Party in Germany – the illusion that working class discontent with globalization can be fixed by offering people over 50 a return to the economics of their childhood is also false.

In power the left will have to use tools and techniques borrowed both from the Keynesian era and from the neoliberal era, but its aim must be to design a model that is different from both – with an emphasis on modelling over planning; mixed ownership models rather than straight nationalisation, massive decarbonisation, and the proactive creation of a collaborative sector – using open source software and non-profit production.

And because all governments exist within in a highly connected global system, we will have to take a lot more people with us: foreign investors, foreign governments, foreign exchange markets.

A Labour government led by Corbyn, and committed to measures similar to those of the 2017 manifesto, would take its first steps amid resistance. It would come from an almost totally hostile press – whose job would be continuous de-stabilisation through misinformation; from those parts of the London finance sector that have made the City a playground for every crook and tax dodger in the world; and from a small but viscerally reactionary section of the population influenced by the international far right, from which Jo Cox’s murderer, the alleged Finsbury Mosque attacker and the five soldiers accused of neo-Nazism were all drawn.

Against each of these adversaries, a left-wing Labour government has to deploy the powerful weapon of hope. Not long-term hope, but the short-term promise and delivery cycle that saw my Dad’s pit nationalised and healthcare made free within two years of Labour’s election victory.

The aim of a radical left government in Britain should, over a five- to ten-year period, establish a new dynamic to drive economic growth, which replaces the broken dynamic of neoliberalism.

That means: replace growth driven by asset price inflation with growth driven by productivity. If, in the process, it has to rely on growth driven by expanding the workforce or catch-up growth with more advanced economies, or even further monetary expansion, it shouldn’t flinch from that. But Labour will have to wean consumers off cheap money; wean the elite off tax evasion and rent-seeking; wean entrepreneurs off the creation of low-wage, low value businesses; and wean the private sector off reliance on outsourcing and on rent-seeking activities like PFI.

That, in one paragraph, should describe Labour’s economic strategy. People who think John McDonnell’s fiscal policy – essentially a £50 billion redistributive tax plan plus £250 billion borrowing – amounts to an economic strategy are mistaken. These are simply the fiscal conditions for beginning a much wider transformation project.

And that transformation project has to be defined around a social goal. Labour has to use the extra money, together with micro-level reforms to company law and business regulation, radically changed outsourcing rules and a limited nationalisation programme. I will explore the options in a later essay, but the basic aim is to achieve two things:

1. Tangible and rapid improvement in the real pay, housing costs and public service quality for working age adults on middle and low incomes.
2. The revival of towns, estates and communities whose economies have had the heart ripped out of them.

This means rethinking the very concept of social mobility.

So cynical have people become during this fag-end era of neoliberalism that, on the left and among community activists, it is becoming common to hear the very idea of social mobility decried as “elitist” – as if it is always for someone else.

Since Thatcherism, it’s become a code word for the “aspirational voter” – someone who wants to escape poverty by stabbing everyone else in the back and leaving them behind; someone who wants to scale the class hierarchy even as the gaps between rich and poor widen.

For my Dad’s generation, it meant something different. It meant being able to do well by working hard, while seeing your town, your community, its built environment and its commercial vibrancy rise with you.

So we need to start defining social mobility in terms of people and place. Before they resigned in frustration at Theresa May’s negligence, the government’s Social Mobility Commission produced 16 criteria against which to state the bleeding obvious: that rural areas, coastal areas and old industrial areas are seeing conventionally defined social mobility stagnate.

But only five of their criteria concerned adult life – and these criteria were almost always static: the level of the average wage, the number of homeowners, the number of managers and professionals in an area.

At best, the official social statistics of the Tories’ now-abandoned social mobility project reflected the “value added” by schools and nurseries – not changes in the life chances of adults. The subtext was that the best you can hope for in an era of wage stagnation is that the next generation escapes their parents’ no-hope towns and dead-end jobs via the education system.

This is not good enough.

If instead, the Social Mobility Commission had measured changes in the value of take-home pay, in leisure time, in the quality and speed of public transport and the affordability of housing they would, in many areas, be recording a big reversal. And that’s even before you start considering the intangibles like how safe or how crime-ridden does an area feel, how dead or vibrant the high street, or simply whether there’s an atmosphere of hope.

In 1962 the urban theorist Charles Stokes divided the world’s informal settlements into “slums of hope” and “slums of despair”. Though no government has dared apply these categories to British towns, their inhabitants subconsciously do so.

Labour’s economic policy has to be framed in a way that offers all adults at or below the median wage the believable possibility that their real pay will rise; their housing costs fall and the quality of their environment will improve. Whereas post-war governments targeted bomb damage, slum clearance and areas of extreme privation, today it is the “town of despair”, to borrow Stokes’ phrase, that should be highest on the rescue list.

One of the first things Labour needs to do is frame new metrics that will force civil servants, local councils and outsourcing contractors to judge their success or failure against these goals – and to scrap the market metrics which have been coercively applied to the public sector to justify rip-off outsourcing and PFI contracts.

People must see a future where wages rise, instead of stagnating; where servicing their debts does not swallow half their salaries; where life in towns and cities becomes easier; where the basic amenities of life become cheaper; where there is a rich and vibrant cultural life.

An important part of this story is about restoring people’s belief in public services. That means not just funding the health service, reversing cuts to education and local government but uncapping public sector pay; creating salary structures and rewarding career paths for the millions of people who work in public services; space to innovate in public service, not just to survive the week.

For all this, you need money. Labour’s 2017 manifesto promised to raise £50 billion in taxes from corporations, property speculators and high earners to fund NHS and education spending, the beginnings of a Nordic childcare system and free university education. It was the right thing to do but it is not the whole solution. That £50 billion pushed at the limits of what can be raised in a stressed economy like Britain’s.

Far more important is the £250 billion Labour has promised to borrow and spend via a state investment bank. The next time Labour goes into an election it needs to concretise how, when and where that £250 billion would be spent. Every school needs to know how much of that money it can expect; every local Labour party needs to be asked for a wish list of what their town needs.

From the conversations I had on the doorstep around the general election in 2017, my guess is that the local demand will rarely consist only of new motorways and railway lines. I had primed myself for a Brexit backlash, but even in the classic pro-Leave communities the first encounter usually involved a person pointing angrily over my shoulder at a hole in the road and asking simply: when will this get filled?

People want the fabric of their local communities restored: youth clubs, adult social services, mental health facilities, green space and thriving high streets.

One of the most depressing things about the narrative of neoliberalism was its insistence that old communities must be disrupted, their facilities allowed to rot, so that shiny palaces of uninhabited luxury flats could be built next to them. That the pubs must close so that the high streets of small towns could become lined with shops selling alcohol for consumption at home.

Labour in power has to defy the idea that public spending on skills, human capital, the urban environment and culture is somehow “not investment”. I would like to see significant amounts of that borrowed £250 billion go into human capital and urban renewal. We’re short of nurses, doctors, home care workers; we’re short of people who can design and virtually manufacture aircraft; we’re short of recruits to the armed forces. Invest in that.

But even £250 billion may not be enough to kick-start the investment needed to restore dynamism to those areas of Britain that time – and successive governments – seem to have forgotten. That’s why a Labour government should maintain and even expand quantitative easing, and broaden the scope of what the printed money can be spent on. The aim should be – as Bank of England Governor Mark Carney himself suggested at Shanghai in February 2016 – to create a bridge to the future economic model, not a “pier” that ends up nowhere.

Any government that did what I am suggesting would be an outlier in the global system. It would meet domestic and external resistance and I will discuss in a later essay how this resistance could be overcome.

But I want to finish where I started. For my Dad’s generation, the ideas of Edward Thompson and Alexander Solzhenitsyn were – beyond the complexities – distinct signifiers. Thompson taught them that the British working class has a story, and that what Labour did after 1945, and Wilson in the 1960s, was designed to achieve progress for them before anyone else. Solzhenitsyn taught them that, if there was an alternative to capitalism, if could not be the abhorrent and inhuman forced march to planned scarcity we saw in the USSR.

When they smashed my Dad’s generation of trade unionists, and subjected them once again to the humiliation of mass unemployment, the aim of the neoliberals was not simply to defeat them, but to eradicate the idea that there might be something better than the coercive, monopolized, almost penal free market system that was then imposed.

In that sense, Thompson’s history of the working class and Solzhenitsyn’s revelations about Russia shaped the framework of the social democracy I grew up in much more clearly than, say, the writings of Labour intellectuals like Anthony Crosland.

With the industrial society I grew up in long gone, this battle for a cultural narrative is going to be harder for radical social democracy, but not impossible.

To get significantly beyond its current 40% poll ratings, Labour has to punch through into two demographics that are not yet excited by the prospect of Corbyn in power: firstly, the left-behind, impoverished and sometimes bitter people from my Dad’s generation who see de-industrialisation and high migration as the reason social mobility has disappeared. And secondly, a class of private-sector employed professionals; people happier voting Tory or Liberal Democrat, but increasingly concerned at the rising costs of their kids’ education and their parents’ social care.

The Attlee governments have been mythologized. Everybody wants to remember Bevan founding the NHS, but few know or care that Labour’s chancellor Stafford Cripps once slapped a 95% tax on the super-rich, proudly telling the TUC in 1948 that only 70 people in the country were capable of luxury spending.

And while everyone knows the post-war Labour government built houses, how many understand how vital it was that these were high-quality, low-rent properties offering tenancies for life, not insecure shoeboxes built as an afterthought to luxury developments?

Neoliberalism turned social mobility into a game of snakes and ladders – with even people on middle incomes worried that redundancy, offshoring or the insolvency of a major contractor like Carillion can plunge them several rungs down the ladder.

By implementing the Beveridge Report, and creating a nigh-impenetrable social safety net, the Labour government banished that fear for a generation.

Attlee’s 1945 manifesto gave my 18-year old Dad, in his first year down Astley Green Colliery, something positive to say both to the older generation, who believed nothing could change, and to middle class voters wary of a radical break. Its last lines contain an appeal to “all men and women of progressive outlook, and who believe in constructive change, to support the Labour Party”.

Labour’s message needs to be just as clear. Alexis Tsipras may have failed in his attempt to break Greece out of its EU-imposed austerity in 2015. But his slogan – “Hope is Coming” – sums up perfectly the message Labour and the other emerging forces of the left has to deliver to voters.

John McDonnell’s fiscal policy in 2017 acted like an electrical charge for voters in many working class communities; next time Labour needs something a lot more concrete.

People will believe “hope is coming” when they know that money, investment, decent jobs and better services are coming – not just to their town or region but to their street and postcode.

Next week Paul will discuss the issues raised in this essay at a roundtable discussion hosted by openDemocracy at Goldsmiths, University of London. A video of the event will be released shortly after.  

The post Neoliberalism has destroyed social mobility. Together we must rebuild it appeared first on New thinking for the British economy.

In the light of Brexit, can a new coalition of social class and territorial interests mobilise to deliver a meaningful industrial strategy?

This week, the government published its Industrial Strategy. It is a hefty document, weighing in at 255 pages, and clearly the product of many months of analytical and policy development work. Like most such papers, it is littered with the mini-reviews, micro initiatives and small spending pots that characterize cross-departmental policy documents. The prose is occasionally tortured by the Whitehall compromises it embodies. But it has a thematic coherence, drawn from a focus on tackling the UK’s productivity problem and proposals to orient economic activity strategically towards four “Grand Challenges” of an ageing society, the transition to a low carbon economy, mobility, and AI and the data economy. This focus on societal missions, some big increases in R & D spending, and the recognition that governments have a strategic role in shaping economic growth have pleased advocates for industrial strategy. It has been broadly welcomed.

The government’s white paper follows hard on the heels of two important contributions to industrial strategy policy, the first from the Commission on Industrial Strategy, established by the Universities of Manchester and Sheffield and chaired by Dame Kate Barker whose final report was published a few weeks ago, and the second, a discussion paper from the Institute for Public Policy Research (IPPR) Commission on Economic Justice.

Each of these sets out, in different ways, the persistent weaknesses in the British economy that justify a strongly articulated, non-partisan and consistently delivered industrial strategy: poor productivity performance, low rates of business investment, regional imbalances, chronically weak export performance, and poor diffusion of skills, R&D and innovation. These are familiar and largely indisputable lists.

Barker’s Commission on Industrial Strategy refrains from describing these weaknesses as symptoms of a deeper neo-liberal malaise or characteristics of a fundamentally broken British economic model; it positioned its report to appeal to policymakers across the political spectrum and its analytical framework reflects that.

In contrast, the IPPR contribution is directly addressed to the construction of a new economic model. It believes that the UK’s economy is governed by a neo-liberal intellectual paradigm that has manifestly failed and is on its way out, in academia as much as the institutions of economic policymaking. It adduces the government’s new industrial strategy as further evidence of the paradigmatic transformation in economic thinking that is underway.

Universal Basic Infrastructure

Like the government’s white paper, both of these contributions address policy frameworks and instruments that typically fall within the ambit of industrial strategy: infrastructure investment, innovation and R & D, skills, and regions (or “place” in the government’s parlance). Perhaps the most eye-catching feature of the Manchester and Sheffield report – doubtless a consequence of Diane Coyle’s membership of the commission – is the call for the state to ensure that a Universal Basic Infrastructure is provided in every area as a social minimum offered to all citizens. In broad terms, this infrastructure would be “hard” (rail, bus, broadband) and “soft” (schools, health and care services). The proposal deliberately echoes but subverts the idea of a Universal Basic Income, which has attracted significant political attention in recent years. Infrastructure is more important than income, the report argues, in promoting the capabilities of citizens for economic development while regionally-balanced investment in infrastructure would do more to address exclusion from centres of economic agglomeration and growth than income transfers.

The UBI proposal overlaps with recent calls for Universal Basic Services, another intellectual and political route into debates about securing inclusive citizenship in unequal, open economies like the UK’s. It has some congruence too with the argument for promoting the growth of the “foundational” or “everyday” economy that has been developed in recent years by the Centre for Research on Socio-Cultural Change at the University of Manchester. Here the anchor institutions of the local state – local government, the NHS and so on – are used to underpin sustainable demand in the local economy by paying living wages and using public procurement to keep income circulating locally, in strategic partnership with non-tradeable sectors like retail, hospitality and catering. A Corbynite version of this approach has been pioneered, with some apparent success, in Preston, where procurement budgets have been used to buy locally provided services and farmed food, and where cooperatives and other forms of worker control are being encouraged.

What about the millions in low waged sectors?

It is noticeable, however, that the commission’s report says relatively little (aside from the significant health and social care sector) about the low-skilled, low-wage sectors in which millions of British people work. This is also a major lacunae of the government’s Industrial Strategy, which focuses almost exclusively on high value-added sectors. This oversight is not accidental: political economists argue that all governments have an interest in meeting the needs of high value-added businesses, but it takes particular kinds of political coalition to ensure that the needs of low- and semi-skilled workers are addressed. Whereas in Fordist economies the interests of these workers could be aligned with those of skilled workers, in post-industrial service economies these working class coalitions have broken down, often leaving the low-skilled without allies. This is particularly true of majoritarian political systems that have co-evolved with liberal market economies, in which high-skill, professional employment in services has grown alongside low-wage, low-skilled work in the non-tradeable sectors.

To its credit, the IPPR discussion paper pays much more attention to these low skill sectors, where it empirically locates the bulk of the UK’s productivity problems. Importantly, it advocates a new focus on skills utilisation, rather than familiar invocations to improve skills supply. There is considerable evidence that UK employers do not appropriately utilise the skills of their employees and do not integrate skills into the design of job roles and business capital investment strategies. In a flexible labour market with high employment rates, employers have less incentive to invest in skills training, and weak trade unions and limited coordination between firms ensure that vocational skills development and utilisation are historically under-developed in the UK, in common with other liberal market economies.

Pet schemes – or Nordic vision and lifelong learning?

In this policy area, the government’s industrial strategy is noticeably weak. It claims to overhaul technical and vocational education in terms that are wearingly familiar from official policy documents of the last forty years (and even further back). But it amounts to little more than the usual policy mélange of small funding pots for pet schemes and the reorganisation of qualifications. This is a mark of how limited Whitehall’s understanding of the political economic and institutionalist determinants of employment training in the UK remains.

In the Nordic countries, the persistence of coordinated economic management, large public-sector employment and PR electoral systems has ensured that the interests of low-skilled workers have been represented in governing coalitions (although in recent years, the rise of anti-immigrant parties has fractured social democratic political strength). Liberalisation in the labour market has been accompanied by significant rights to skills training and flexible working, and increased public and business investment in lifelong learning (see in particular, Kathy Thelen’s work on reforms in the Netherlands and Denmark in Varieties of Liberalisation and the New Politics of Social Solidarity). In contrast, in parts of continental Europe, dualism in the labour market has led to a weakening of social protection and employment regulation for lower-skilled workers in the domestic economy, while the core social bloc of the export sector interests remains politically predominant, symbolised in grand coalitions (although this is under stress, as the recent German election showed). Yet here too, skills investment and high productivity in the manufacturing and higher valued added service sectors ensures that low unemployment is combined with significantly higher per capita GDP than in the UK.

A coalition of workers’ interests?

These considerations raise important questions for advocates of industrial strategy in the UK: who will be the political agents of economic transformation, and how can broadly based coalitions that unite the interests of low- and semi-skilled workers with those of middle-class professionals be created? The decline of the industrial working class, the rise of finance and decline of the UK “national” business class in core sectors, the spread of the gig economy and the parallel growth of higher education as a social insurance policy for the middle classes, coupled with the electoral dominance of a socially conservative older population, have all made the task of constructing progressive economic reform coalitions much harder.

In piecemeal fashion, the spread of devolution may provide new openings. It is noteworthy that Wales and Scotland have PR electoral systems and strong traditions of social solidarity, and each is pursuing prototypical industrial strategies with the (still limited) tools at their disposal. And on the same day as the Commission on Industrial Strategy published its report, England’s seven metro-mayors met together for the first time to advocate for increased devolution of skills and fiscal policy. In the more complicated multi-level governance of the UK, new political coalitions could emerge.

But these developments are unlikely to generate national economic transformation of the kind envisaged by industrial strategy advocates. Brexit may yet provide the critical juncture through which a coalition for political economic change can be formed, though the task is a monumental one and Brexit hangs over the government’s industrial strategy like a dark cloud, without any silver linings. In 20^th century, transformative change was driven by the exigencies of depression, war or the exhaustion of growth models, and it was typically state-led. In the 21^st century, Brexit and the painful realisation of relative economic decline may provoke the kind of rethinking that has hitherto eluded Britain’s political-economic elites. The question is whether a new coalition of social class and territorial interests in the UK can mobilise to underpin the necessary changes. For industrial strategy advocates, the politics ought to matter as much as the policies.

The post The UK’s Industrial Strategy needs to be more than repackaged pet projects appeared first on New thinking for the British economy.

On 21st of August 2015 a police constable and a housing officer arrived at a Brixton flat after reports of a break-in by squatters. Instead police reports stated that they found a 36 year old mixed race man, Nathaniel Brophy, in an agitated state holding a gun and insisting that they leave his home^[i]. Brophy was the previous occupant of the flat and had been evicted earlier in the week due to rent arrears. Following a standoff that lasted 6 hours, Brophy was shot 3 times by armed police, hospitalised, and was later convicted for threatening officers with an imitation firearm. Police accounts of Brophy’s shooting were quickly challenged by family members and the London Campaign Against Police and State Violence^[ii]. The case eventually got shuffled out of the news cycle and in February 2017 the IPCC investigator “was satisfied that the officers’ actions were appropriate in the circumstances and it was a justified use of force”^[iii].

Potentially lethal encounters during eviction disputes in Brixton weren’t new; in 2013 a housing officer and bailiff survived being shot during an eviction^[iv], and eyewitnesses had criticised the physical force used in another eviction of a squat involving dozens of police and enforcement officers^[v]. Yet for a few weeks in the late summer of 2015, Brophy and his case was a flashpoint for activists with concerns about the way in which the racial violence of policing and the economic violence of the housing crisis were intersecting. While housing issues have never received greater public attention, the eviction process is still hidden away from view and gathers remarkably little concern. Tenant evictions in England and Wales remain high: growing since 2008 to all time high of over 40,000 in 2015^[vi]. Since 2015 they have stabilised, but we have seen roughly 8,000 repossessions in the second quarter of 2017, with the majority in the social housing sector^[vii]. The limited data made available suggests police attendance at evictions has also grown: evictions officers in Manchester attended increased sharply from 302 in 2010 to 483 in 2013^[viii]. In finding our collective way out of the housing crisis it is vital that we start to ask serious questions about the way in which the widespread and significant number of evictions that happen every year is being handled.

The front line of eviction

As part of research I conducted at Newcastle University in 2012-16^[ix], I interviewed housing officers doing rent recovery for an Arms Length Management Organization (ALMO) and the bailiff manager and a member of his team at the county court in ‘Abbeyburn’^[x] a city in the North of England, about how they conducted evictions and how they handled risks. These interviews were part of a larger study looking at eviction enforcement in the UK, and they help understand some of the internal workings of the eviction process at an everyday level. They also reveal how the frequency of evictions, and the decline of the welfare state, can increase their potential for violence.

Once possession has been awarded by the courts to a landlord, the processing of the writs and the enforcement passes to the court staff and bailiffs. It is the responsibility of the landlord to assess the risk and notify the court of any issues or dangers the bailiffs might face via a coded risk assessment system ranging from extreme aggression to verbal insults and threats. The bailiff visits the property to given notice to the tenant at least a week in advance (14 days was what the Abbeyburn court team aimed for), and adds their own knowledge from this visit to the assessment. Then they have to decide on what and who they need to take; not only police, but animal handlers, locksmiths, mental health nurses, or other specialists may be needed.

Risk assessments are vital for the bailiffs to make decisions on how to prepare, but they are also dependent on the subjective judgement of the landlord. While private landlords can have little contact with their tenants before the day of eviction, social landlords often have regular contact and are legally required to be aware of certain specific needs tenants might have. Nonetheless housing officers often depend on what they call “intuition” to inform them on what situation a person might be in when they face eviction, based on certain behaviour or emotional distress. Past behaviours and information from neighbours are leaned on when deciding what to notify the court of: “We’d use the risk indicators that we use, but also local knowledge” said Charlotte, a housing officer working on an estate in the city “So we know that someone has a history of criminality, they’ve mental health problems, or they’re known for drug and alcohol misuse, then we’d use that”. For housing officers on her estate, pursuing a tenant for rent arrears through to eviction was a constant process of phone calls, intuitive judgements, and knowledge-tethering to inform them on how to proceed.

Housing officers run the risk that this method of information gathering entrench prejudices around individuals and areas, as past treatment dictates future decisions. They knew that the reputation the estate suffered from as a backwards and deprived area was a significant problem for their work in reaching tenants and accessing support. Charlotte’s estate was well known to the bailiffs as a “hard” area to work in, and people who did not live there often avoided it. Working class housing estates often suffer from this effect, a phenomenon social scientists dub “territorial stigma”. This stigma promotes a view that certain parts of a city are inherently dangerous areas producing criminality; “brutal high-rise towers and dark alleyways that are a gift to criminals and drug dealers” in the words of David Cameron^[xi]. As well as hurting residents on an individual basis, these stigmas can impact policy and public service responses to urban poverty, and are often used to justify repressive policing measures and social cleansing^[xii].

Problems surface

Despite all preparation the day of eviction can also bring out issues that have previously been hidden. While dogs or exotic pets could often present a problem, more unusual situations could occur, such as the presence of unidentified chemicals, or the case of an evictee who had removed all load bearing walls in their house. Although the manual all bailiffs are issued with during training specifies protective vests and equipment, and suggests they conduct preliminary visits, this was minimal help. Dean, a bailiff who helped to take this training, insisted “it doesn’t matter how many times you go to the property, it’s a constant, shifting risk”. In the final instance, evictions are uncertain for those who enforce them. Once on the doorstep, it’s the responsibility of the bailiff and landlord to make a decision about when to back off and call for support from police. The bailiff manager mentioned having to make decisions about whether tenants needed the support of mental health services as he was evicting them, and housing officers knew of cases of domestic violence that had only come to light when the housing officers showed up to pursue rent arrears. Tenants often had limited contact with the housing provider once their tenancies had ended, so for some vulnerable people, eviction can be the only time they have a chance to get formal help.

Evictions can also add to their woes, and the threat alone can cause significant problems. A medical study of the ‘bedroom tax’ done in Newcastle showed that trying to avoid eviction by adjusting for financial cuts “resulted in poorer diets, inadequately heated homes and restricted opportunities for social engagement, disrupting family and community support” for tenants^[xiii]. Such conditions breed resentment. Rick, a housing officer who attended a community fun day in Abbeyburn organised by the ALMO recalled “it was like parting the red sea, nobody wanted to come and talk to us, everybody had their backs to us, everybody had the feeling they were going to be pulled up on the rent”. Ill health and social isolation, indignity and anger are shaping the everyday life of precarious tenants.

The lasting impact of eviction itself is known to be a contributing factor to prolonged homelessness^[xiv], and as the sociologist Matthew Desmond has recently argued in work on the US mortgage crisis, forced evictions exacerbate almost every aspect of poverty. The instability they cause makes it harder for people to find work, access services, and maintain social networks^[xv]. Despite Prime Minister May’s pledge to increase funding for mental health services, there is a very real danger that evictions are fuelling, and fuelled by, the collapse of Britain’s care system. As support services from domestic violence shelters to the NHS continue to struggle to cope, bailiffs and police will increasingly be the frontline of our care system. “I think now we realise the world’s changing” Dean commented “it’s becoming more dangerous out there, people are becoming more desperate, and we realise, that we know we can’t operate by ourselves”.

Society after evictions

The increasing pressure on both tenants and on the services they rely on is creating evictions that are not only more frequent than in previous decades but also more dangerous for those involved. However, evictions are by definition a violent practice, as evicting someone ultimately involves more coercion than consent. The reality is that eviction is an inherently uncertain and often dangerous event for both those in enforcement and the evicted, and bailiffs and housing officers are always working within this limitation. While in the short term, it is important that the public and policy makers continue to push for accountability and transparency regarding eviction enforcement, the long term solution is not to manage risks better, but to make eviction obsolete. Evictions are a visible demonstration of the way challenges such as social or racial stigma, economic inequality, mental health, domestic violence, and housing are interlinked. Calls for rent controls, such as those made recently at the Labour Party Conference, need to recognise that high rent is only half the challenge. The housing crisis also requires a change in thinking: from treating housing as a commodity, to seeing housing as part of a broader transformation of social care and welfare, one that removes the pressure and anxiety of renting and empowers residents.

^[i] Al-Othman, H. Man jailed for holding police in six-hour siege with imitation handgun Evening Standard 20 May 2016 https://www.standard.co.uk/news/crime/man-jailed-for-holding-police-in-sixhour-siege-with-imitation-handgun-a3253566.html

^[ii] London Coalition Against Police and State Violence. New concerns on the Tilson Gardens Police Shooting. 23 September, 2015 https://londonagainstpoliceviolence.wordpress.com/2015/09/23/new-concerns-on-the-tilson-gardens-police-shooting/

^[iii] IPCC. IPCC investigation findings following police shooting of Nathaniel Brophy. 7 February 2017 https://www.ipcc.gov.uk/news/ipcc-investigation-findings-following-police-shooting-nathaniel-brophy

^[iv] Enoch, N. Bailiff in serious condition and female colleague injured after they were both shot as they tried to evict a tenant. Daily Mail 3 July 2013 http://www.dailymail.co.uk/news/article-2354847/Brixton-Shooting-Bailiff-female-colleague-injured-try-evict-tenant.html

^[v]  Childs, S. Angry Squatters and Burning Barricades Aren’t Halting the Yuppification of Brixton. Vice 16 July 2013 https://www.vice.com/en_uk/article/av85k8/burning-bins-at-a-brixton-squat-eviction

^[vi]Savage, M. 100 tenants a day lose homes as rising rents and benefit freeze hit. the guardian 22 July 2017 https://www.theguardian.com/society/2017/jul/22/100-tenants-a-day-lose-homes-rising-rents-benefit-freeze

^[vii] Ministry of Justice Mortgage and Landlord Possession Statistics in England and Wales, April to June 2017 (Provisional) 10 August 2017 https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/636890/mortgage-landlord-possession-statistics-apr-jun-2017.pdf

^[viii] Data via Freedom of Information request

^[ix] I am grateful for the support of a PhD scholarship grant from the Economic and Social Research Council  (#1188490) in helping me undertake this work.

^[x] All names and locations of interviewees have been anonymised.

^[xi] David Cameron ‘Estate Regeneration’ 10 January 2016 https://www.gov.uk/government/speeches/estate-regeneration-article-by-david-cameron

^[xii] Wacquant, L., Slater, T., and Pereira, V. B. (2014) Territorial Stigmatization in Action. Environment and Planning A, 46(6), 1270-1280.

^[xiii] Moffatt, S., Lawson, S., Patterson, R., Holding, E., Dennison, A., Sowden, S., & Brown, J. (2015). A qualitative study of the impact of the UK ‘bedroom tax’. Journal of Public Health, 38(2), 197-205.

^[xiv] Crane, M., and Warnes, A. M. (2000). Evictions and prolonged homelessness. Housing studies, 15(5), 757-773.

^[xv] Desmond, M. (2016) Evicted London: Penguin Chapter 9

The post Is the housing crisis making evictions more dangerous? appeared first on New thinking for the British economy.

In 2017, the Labour party manifesto pledged to lay the foundations of a national care service – repeating commitments hinted at prior to previous elections. This comes at a time when experts are increasingly warning of a social care system in “crisis”. Real-terms funding has fallen despite an ageing population creating greater demand, and when the government eventually caved into enormous pressure to release more money, it provided only a small fraction of what is needed – £2 billion over three years, when more than that is needed in this year alone. But the crisis is not just one of funding. It is deep and systemic – but I believe that the “tipping point” experts say we have now reached is an opportunity to take stock and build something more sustainable, resilient and just than the failing system we have today.

The social care problem is three-fold:

• Decreasing resource at a time of increasing need. This is the funding problem.
• The fact that healthcare and social care and separate services despite serving those with the same needs. Healthcare is free at the point of use, whereas social care is heavily means- and needs-tested. This is the integration problem.
• You don’t hear much about the third dimension. Social care services are delivered by private providers in a marketplace, but this market has failed. This is the marketisation problem.

I’m going to tackle these three areas individually, but first, let’s take a look at the social care system itself.

The social care system

Unlike healthcare, social care is commissioned by local authorities (LAs), and usually provided by private agencies. Unlike our free-at-the-point-of-use NHS, subsidised care is heavily means- and needs-tested. To confuse matters further, the NHS runs a service called Continuing Healthcare – those who meet the criteria have their fees fully paid without means testing. About half of care users have all their fees paid by the LA or the NHS, and around 41% pay for their own care. The rest get some help towards their fees. Social care is paid for out of council tax and business rates, as well as central government grants such as the Revenue Support Grant.

I’m going to tackle three problems individually, but I should point out that all three are interrelated, part and parcel of the same systemic issues.

The funding problem

Fewer and fewer people are receiving the care they need. Money going into the system is dropping in real terms, even though the need is increasing as our population ages. The number of people aged 85+ grew by almost a quarter between 2001 and 2011, but according to Age UK, the number of people receiving care fell from 1.2 million in 2005/6 to 850,000 in 2013/4. According to the regulatory body for social care, the Care Quality Commission (CQC), real-terms funding was 1.5% lower in 2015/16 than it was ten years earlier, despite the ageing population. More and more, care is limited to those with the highest need, and to the minimum required.

The funding situation is set to get worse. The government is phasing out its Revenue Support Grant (RSG) to councils as it hands over 100% discretion over business rate spending to LAs in 2019/20. The government argues that this will enable councils to meet their social care spending needs, in combination with the Social Care Precept, which gives LAs discretion to raise council tax above centrally capped levels for the express purpose of spending the proceeds on social care. But organisations like the Association of Directors of Adult Social Services (ADASS) points out that this will create greater care inequality, since the areas most in need of social care are poorer ones where less money is raised through local taxation.

Funding cuts mean councils limit services to those with the highest need, and to the minimum required – often less than that. Cuts impact care workers’ pay. Median pay for care workers stood at £7.76 per hour in 2017. In residential care, it is estimated that between 160,000 and 220,000 care workers earn less than the national minimum wage. According to Skills for Care, registered nurses working in social care in 2015 were paid a mean annual salary of £25,000 – much less than their counterparts in the NHS, and without the same scope for careers progression.

Training is woeful as well. No formal qualifications are required to work in social care – making decent training all the more important. According to UNISON, over a quarter of care workers receive no dementia training, and less than a quarter of those who administer medicines are trained to do so. No wonder turnover is high, with almost a half of care workers leaving within a year in 2015, and over a third of nurses quitting the sector. Poor training and high turnover and vacancy rates have a knock-on effect on the quality of services on offer.

The integration problem

Because health and social care are separate services, many people experience a bumpy transition from hospital to homecare. Bed delays increased by almost a third between 2013 and 2015, costing the NHS about £820 billion a year, according to the National Audit Office. Largely, this was because there was no one available to provide adequate care to these patients at home.

The NHS and social care spend a lot of time and money disputing who has responsibility for the patient, because neither wants to bear the cost. This often has tragic consequences – as Ray’s case illustrates. His daughter Sally-Ann tells Ray’s story, picking up the story at the point of discharge from hospital: “He could not be left unsupervised as he was unable to do anything for himself. He was at risk of malnutrition, dehydration and pressure sores and prone to recurrent infections. None of this seemed to be defined as a health need, and it took five weeks to reach a decision about whether he was entitled to NHS Continuing Healthcare as health and social care fought over who should pay. Where was the person in all of this?”

Ray’s application to NHS Continuing Healthcare was declined. This meant the care team he and his family had become familiar with had to change, and suddenly the family had to bear the cost, which ran to a four-figure monthly sum. The community nursing team attempted a last-ditch application for NHS Continuing Healthcare, but it was turned down just 24 hours before Ray died. Sally-Ann says, “What I now ask is: why should anyone at the end of their life have to pay for their own care to die at home?”

The marketisation problem

Since the 1990 NHS and Community Care Act, the system has been run on a marketised model where care is delivered by private providers. Prior to this, LAs generally provided care themselves, but the Act recast them as “enabling authorities”. To ensure this happened, funding from central government came with the requirement that 85% of money should be spent on the purchase of care services from the private sector.

If the motive behind marketisation was the idea that a competitive marketplace would incentivise high quality at low cost, then the market has failed spectacularly. Instead of a competitive, dynamic marketplace, we have one made up of a few large providers. According to the Professor Bob Hudson in a paper for the CHPI thinktank, the 10 largest providers account for 20% of the market, the largest 20 make up 28%. In this climate of austerity-driven fee-squeezing by councils, the system has become precarious as business becomes increasingly untenable for providers. Southern Cross, which collapsed due to financial hardship in 2011, was responsible for almost a tenth (9%) of the national market, and up to 30% in some areas. There is no back-up plan to protect services should providers withdraw.

The Southern Cross example shows that the market is not only “inefficient”, to use Professor Hudson’s term, but also unstable. The government says in its guidance to the 2014 Care Act that “high-quality, personalised care and support can only be achieved where there is a vibrant, responsive market of service providers”, but places the burden of creating such a marketplace on local government at a time when a lack of funds has put it in “panic mode” (as put by Alex Fox of Shares Lives Plus), with no appetite for creating such a marketplace.

Instead, price has become the driving consideration for LAs when choosing a provider, rather than a balance between cost and service quality. This in turn encourages some providers to put in unrealistically low bids which result in poor-quality services, or end in providers handing back undeliverable contracts. LAs often adopt a coercive attitude towards providers, with providers saying that councils have already decided on a price before consultation even begins. As a weighted average, councils pay £2 less than the £16.70 per hour estimated by the UK Homecare Association as the minimum cost of care.

Providers rightly argue that profit is needed to make investments in staff and facilities and keep pace with growing demand, with one telling the Care Association Alliance that “without profits there can be NO future for this industry and certainly no reinvestment”. On the other hand, providers say they expect a 12% return on investment – which Professor Hudson in his paper notes is abnormally high for a low-risk industry such as care, where expected returns would usually be in the region of 5%. It is dishonest of providers to claim that they wish to make profits simply to reinvest them – the majority are for-profit businesses. Regardless of who is right and who is wrong, this discourse suggests that there are deep and irreconcilable tensions between private care providers and councils. LAs appear to mistrust profit-making organisations. Care providers on the other hand appear to have unreasonable expectations about the level of profit they should be making.

If the market cannot profitably provide for people’s needs, this raises the question of whether it should be there in the first place. The social care market has failed citizens, and it has failed providers. The government knows it – that’s why it seeks to balance it through regulation, such as by awarding greater powers awarded to the CQC, including the Fit and Proper Person Test to be applied to directors of CQC-registered agencies. We can keep regulating and reforming the current system until we’re blue in the face, but in the end we’ll find ourselves at the end of a dark alley, with no money and no time. Marketisation has existed for so long, and has become such a dogma, that we’ve lost the ability to imagine beyond it.

What is the way forward?

There are a number of sensible options on the table to bring us back from this tipping point, if the government would only listen. Everybody acknowledges the funding crisis and even our austerity-obsessed government has pledged extra money to help plug the gap – although the money put forward falls far short of what is needed. The government has also latched onto the buzzword “integration”, but failed to make the fundamental reforms needed to achieve this is in any meaningful way. I believe that a combination of three proposals from the King’s Fund, the CHPI and the (cross-party) Local Government and Communities Committee could tackle all three problems I’ve talked about in this article.

An integrated and fully funded system

In 2014, the King’s Fund published a report called “A New Settlement for Health and Social Care”, the culmination of work carried out by a commission chaired by Kate Barker. The report proposed a fair and sustainable alternative to the current failing system, which the government has since ignored. The report makes two central proposals. Firstly, it recommends meaningfully integrate of health and social care by bringing the two under a single ring-fenced budget, which it suggested could be administered by a single local commissioner. This it says would resolve the seemingly irreconcilable tension between the NHS and LA-provided social care, bringing about the commission’s stated aim of achieving “equal care for equal need”. Secondly, the report also recommends making social care free at the point of use to those in critical and substantial need.

The commission’s proposal would cost an extra £3 billion per year, rising to around an extra £5 billion on top of projected spending of £9 billion by 2025. This sounds like a lot, but projected growth to GDP mean that GDP-spending on social care will only actually increase by 1 percentage point. If we adopted the commission’s more radical scenario, whereby free-at-the-point-of-use social care is extended to those with moderate need as well, we would spend a total of roughly £20 billion per year by 2025, compared a projected spend of £9 billion in 2025 at current levels. The report says that this would cost an added 2p per £1 at the basic rate of income tax, although there are other ways to fund it. I should also set the figure in context – in 2017-18, the UK government will spend over £36 billion on defence alone.

Bringing together commissioning and provision

The Barker Report sets out a brilliant, radical vision of a social care system that works for all and even presents a broad-brush vision for how it can be funded and delivered in a realistic, gradual manner over a ten-year period. What it doesn’t take on is the seeming irreconcilability of the current outsource model. In his report for the CHPI, Professor Bob Hudson sets out an approach for how social care can be gradually and sustainably brought under public provision. He recommends “a gradual resumption of the statutory and third-sector role” through a mixed system which prefers providers with a social purpose in the not-for-profit or public sectors. This could happen over the ten years it takes for the King’s Fund recommendations to come in.

An integrated workforce

In their 2017 report, the Communities and Local Government Committee urges the government to work with Skills for Care to look at sustainable wage level to aid staff retention in social care. It also says the government should encourage LAs and the NHS to work together on local joint strategies to reduce competition. Social care will continue to lose out while nurses of the same skill level have better pay and career prospects in the NHS. I would go further and say that the government needs to work with Skills for Care to establish a required training path for workers in social care to ensure that everyone has a minimum level of training. This could begin by mandating the vocational qualifications which underpin existing social care apprenticeship schemes. A combination of better pay, required qualifications and a clear career path could give workers a greater sense of pride, and encourage employers to value and invest in their workforce more.

This path is ambitious, but it is realistic with a little political will and imagination. The alternative is unthinkable – a slippery slope into a world where care is denied to those in desperate need, and where many of us must lose most of what we have just to maintain our basic needs. In the 21^st century, we might not design a care service on the model of the NHS, but as we reap the benefits of that great institution’s success, we need more than ever a truly universal care system.

The post Why we need a new national care service appeared first on New thinking for the British economy.

The following is an extract from the introduction to my book, ‘There’s No Place: The American housing crisis and what it means for the UK’. The book was published on 16^th June 2017, two days after the Grenfell Tower fire. Three months later, it’s difficult to overstate the impact of the disaster. The deaths of at least 80 people (almost certainly more) have exposed not just the historic failures of housing policy, but also deeper fissures in our urban social fabric. Grenfell symbolises the conflict between housing as a private commodity, or a social asset – a dichotomy personified by Donald Trump. Before Grenfell, I argued the UK was following in the housing footsteps of the US, with potentially disastrous consequences. After Grenfell, that warning feels even more pertinent. 

I’ve worked in and campaigned on housing in the UK for many years. During that time, I’ve become increasingly conscious of the threads linking – and ultimately binding – the development of trans-Atlantic housing policy. This cross-fertilisation has, at times, appeared to define the differences between the two nations, with attitudes to housing reflecting wider cultural and political divergence. But it has now reached a critical point of convergence reflected in a common housing crisis. In both countries, plans are well advanced to detach housing, once and for all, from any semblance of public or non-profit provision and in the words of a right-wing UK housing academic, privatise the social rented stock and “allow market relations to develop”.

I argue there are five broad features of this shared US-UK housing experience:

1. Relentless government attacks on municipally-owned rented housing as part of a wider assault on public services.
2. The unchecked rise of private landlordism as part of a broader advancement of private sector, profit-seeking interests.
3. Growing corporate links between US and UK housing in the context of global speculative property investment.
4. Socially-divided cities characterised by displacement and denigration of poor and working class people and communities.
5. The ideological promotion of housing as a commodity, not a home.

The common origins of US and UK housing policy lie in attempts to alleviate the conditions of the 19^th century industrial city. When utopian, charitable and philanthropic measures proved inadequate, the American and British establishments, under mounting pressure from organised labour, reluctantly accepted the need for action. However, from this early stage, differences emerged. In 1890, the Housing of the Working Classes Act enabled newly-created UK public authorities to clear and rebuild slums, paving the way for council housing. In 1891, the London County Council began demolishing the notorious Nichol rookery in Bethnal Green, east London. Nine years later the Prince of Wales opened the thousand-home Boundary Estate, the first of its type and scale in the world, still standing as a testament to its enduring quality and still in public ownership.

Faced with the same problem, the 1901 New York Tenement House Act concluded that improving the conduct of private developers and landlords, rather than replacing them, was the route to better conditions. As Peter Hall notes, American reformers feared that:

…public housing would mean a ponderous bureaucracy, political patronage (and) the discouragement of private capital…in comparison with Europe, it was to set the cause of public housing back for decades.

From this fork in the road, both nations proceeded in a fashion reflecting their social characteristics. In the first quarter of the 20^th century, the UK continued to build council housing against the backdrop of a strengthening labour movement and periodic rent strikes which gave added impetus to creating alternatives to private landlordism. There were similar tenants’ mobilisations in the US. But the country’s labour movement struggled to recover from a vicious establishment attack in the aftermath of the Russian revolution. It was not until the crisis of the Great Depression that the US began to explore the possibilities of large-scale State intervention on housing.

From the outset, US public housing was treated as ancillary to various other policy objectives, particularly job creation, but never as a rival to the supremacy of home ownership, which has enjoyed continuous financial, political and ideological support from US governments. The same is true of the UK, but for most of the 20^th century, council housing was also part of the social and policy mainstream, providing a home to 30 per cent of the UK population by the end of the 1970s.

When the 1937 US Housing Act was introduced, it could only gain political endorsement on the basis that it would not impose Federal decree over local decision making, a tension that continues to shape US housing policy. From the beginning, there was also an absolute requirement that public housing would never be allowed to rival the private sector as the primary provider of new homes. There is something constant and fundamental in the relationship between America and property that needs to be recognised. The founding acts and principles of the nation were based on acquisition and enshrinement of land rights. These were exercised, most obviously and brutally, at the expense of Native Americans and established a commodification of land that has been ingrained in the European American psyche.

But it would be wrong to regard US housing policy as monolithic. Since the 1930s there have been several changes in emphasis which, while not approaching the UK’s post-war political consensus in favour of building council homes, demonstrate a recognition that government intervention is needed in the housing market.

The expansion of US municipal housing quickly gave way to the extension of government mortgage subsidies which became a far more embedded feature of the country’s housing policy. Initially made available to former servicemen, the scale of State support for private home ownership soon outstripped that for public housing. This spurred the development of the American suburbs and entrenched ethnic and skin colour divisions in US cities. Only white veterans were entitled to government-funded low-cost home ownership. African-Americans were effectively excluded from the expanding suburbs and consigned to neglected inner-city areas, often with appalling housing conditions. Housing has been an instrument of racism in many times and places, but has gained prolonged legitimacy in America.

Accumulating anxiety about America’s urban crisis, periodically heightened by street unrest and rebellions, has directly influenced housing policy. Concerns, often expressed in moralistic, stigmatising and racialised terms, have been visited on public housing in particular. Since the 1960s disinvestment and denigration has led to the sector being widely viewed as “the housing of last resort”. A series of stereotypes have politically, physically and socially marginalised public housing and the people who live in it.

UK council housing has been the target of similar treatment since the 1980s. In both countries, the winding-down of direct State housing investment and provision has been accompanied by a variety of devices for advancing the role of the private sector, with significant trans-Atlantic mimicry. Both US and UK governments have used the camouflage of so-called partnership and regeneration to achieve the privatisation of public and council housing respectively. This ideologically-driven assault has sought to create a more diverse range of housing providers and funding mechanisms, leading to increasingly complex and misleading definitions of affordable and social housing.

While this book will focus on the growing resemblance between US and UK housing, there remain some fundamental differences. Perhaps the biggest of these is the extent of legal entitlements to housing. In the UK, certain categories of people – notably parents with children – can still present themselves as homeless to a local authority which then has a duty to house them (however inadequately). No such protection exists in the US. Although housing rights in the UK, particularly for the homeless, have been substantially reduced, the most vulnerable still have a safety net that doesn’t exist across the Atlantic. Furthermore, a substantial part of access to low cost housing in the US is controlled and administered by a voucher system which enables eligible tenants to find housing in the public, or more likely, private rented sector. UK Housing Benefit (HB) is increasingly acting like a voucher system, but is part of a wider system of welfare benefits which doesn’t exist in the US. Similarly, although council and housing association housing sit within the wider context of the UK welfare state, they have never been considered “welfare housing” as their US equivalents often are. Access to public and other non-market housing in the US is rigorously controlled by means-testing, with rigid income limits and rent calculated as a proportion of income. Until the advent of the Housing and Planning Act in 2016, this was not the case in the UK.

Historically, the private rented sector has been far more sizeable in the US. This has changed dramatically in recent years. Private renting fell steadily in the UK during most of the 20^th century – in inverse proportion to the rise of council housing – and settled at around eight per cent. That trend has now reversed. UK private renting has doubled in the last decade and is fast approaching US levels of 30 per cent, while social housing has fallen to 16 per cent, of which council homes make up only half.

This book will describe and explore a host of local issues illustrating that US and UK housing are morphing. The transnational force driving them together is the increasing economic reliance of both countries on the so-called FIRE sector of finance, insurance and real estate (or property). This in turn relates to structural economic changes over the last four decades through the deregulation of global investment markets. The result is the increasing commodification of housing, now a speculative investment vehicle for vast flows of global capital, the volatility of which brought repossession and homelessness for many in the sub-prime crisis of 2007-8. The grip of the international property machine has intensified since the great recession. Its primary targets are the high value areas of US and UK cities where over-heated housing markets are transforming, traumatising and trashing local neighbourhoods, particularly those with high concentrations of non-market housing.

The cross-fertilisation of US-UK housing was graphically demonstrated in October 2015 at a London convention of global property developers. The three-day MIPIM-UK event billed itself as a “gathering of professionals looking to close deals in the UK property market”. Sixteen US-based companies were represented at MIPIM-UK and among the subjects for discussion was The American Way. The US template of large-scale institutional investment in private renting was fawned over and illustrated in the conference brochure by a picture of the road to a house paved with dollar bills.

The post The 51st State of Housing: The American housing crisis, and what it means for the UK appeared first on New thinking for the British economy.

openDemocracy economics editor Laurie Macfarlane sat down with Real Media to discuss the roots of Britain’s housing crisis, the polarising effect it is having on society, and what can be done to fix it.

Via Real Media

The post Video: Laurie Macfarlane discusses Britain’s housing crisis appeared first on New thinking for the British economy.

The UK, along with many other advanced economies, is facing a major housing affordability crisis. Average house prices are now on average nearly eight times that of incomes across England and Wales, and up to 39 times in parts of central London.

A whole generation finds itself priced out of the market, struggling to make ends meet in the face of eye-watering rents. Over the past 15 years’ levels of home ownership have been falling sharply, particularly among young people. Homelessness is rising fast.

How did we get here? A popular explanation is ‘we’re not building enough homes’. While this is part of the answer, it is far from the whole story. At the root of the problem lies something that has for a long time been overlooked: the role of land in the economy.

But the issue of land goes far beyond the housing shortage. It lies right at the heart of many of the key challenges facing modern economies, from mounting inequality and financial instability, to intergenerational conflict and poor prospects for sustainable development.

To understand land properly, we must take a cross-disciplinary approach – we need a bit of history, a bit of economics and a bit about power and the law.

Theft and freedom: the paradox of property

Land is essential for all activity to take place, and indeed for life itself. Nobody ‘created’ land, it just exists. And we can’t create any more land, even if we wanted to. Land is not simply soil, and its economic uses are not simply agricultural. In economic terms, land is better understood as a set of legal rights over physical space.

Land first began to be treated as tradable, private property in the 16th century, triggering the birth of modern capitalism. But this transformation gave rise to a tension. On the one hand, landed property empowered people by providing physical and economic security, including collateral to leverage credit, which helped drive economic growth and technological advancement. But at the same time, private property in land was inherently exclusionary: by its very nature, granting some people exclusive rights over what was previously a common resource involves taking away the rights of others. Millions of people were driven off the land, often violently. Those who were allowed to stay found themselves having to pay rent to landlords to access what had previously been available for free. Landowners became the gatekeepers to an essential resource, a role which meant they were able to absorb much of the value that was being created in the economy in the form of higher rents.

The introduction of private property therefore brought economic power to some and dispossession to others – a paradox that was perhaps best summed up by the anarchist Pierre-Joseph Proudhon, who said that property was both “theft” and “freedom”.

Fast forward to the 21st century and this paradox is alive and well, it just manifests itself in different way: this time through the housing market.

Land in the Twenty-First Century

Today the value of the UK housing stock stands at £5.5 trillion – around 60% of the entire net wealth of the UK. This has increased from just over £1 trillion only twenty years ago.

As the Office for National Statistics acknowledges, this rapid increase is largely the result of soaring house prices:

“The increase in the value of dwellings was largely due to increases in house prices rather than a change in the volume of dwellings.”

But the price of a property is made up of two distinct components: the price of the building itself, and the price of the land that the structure is built upon. We don’t know the exact breakdown between these two components (bizarrely, there is currently no reliable public dataset on the land market in the UK) but the available data implies that land under homes is currently worth around £3.7 trillion – nearly 70% of the total value of the housing stock. This makes residential land the UK’s most valuable asset, even in today’s high-tech economy.

So why is land so valuable? And why have land values, and thus house prices, increased so much relative to incomes in recent decades?

Land values increase naturally over time as economic growth and a rising population increases demand for a resource that is inherently fixed in supply. Public and private investment in infrastructure and amenities also increases the value of land, making some locations much more valuable than others. For example, new transport links or being in the catchment area of a good school can dramatically increase the market value of nearby land. As a young Winston Churchill said in a famous speech to Parliament in 1909:

“Roads are made, streets are made, services are improved, electric light turns night into day, water is brought from reservoirs a hundred miles off in the mountains – and all the while the landlord sits still. Every one of those improvements is effected by the labour and cost of other people and the taxpayers. To not one of those improvements does the land monopolist, as a land monopolist, contribute, and yet by every one of them the value of his land is enhanced.”

There is also good evidence that as economies mature, the demand for land relative to other consumer goods increases. Land is a ‘positional good’, the desire for which is related to one’s social status. In economics jargon, land has a ‘high income-elasticity of demand’ – people will stretch their incomes to consume it. This goes some way to explaining why the rise of information technology and globalisation has not meant ‘the end of distance’ as some predicted, but has driven the economic pre-eminence of a few cities that are best connected to the global economy and offer the best amenities.

But this is only part of the story. The land economy is most decisively shaped by the laws and regulations that govern the ownership, trade and use of land. In other words, the rules of the game matter. But these rules have very little to do with economics, and much more to do with politics and power. They have varied immensely over time reflecting the evolution of power and class relations in society.

From a place to call home, to a financialised asset

After the end of the Second World War, council housing provision, tight mortgage regulation and taxes on property kept supply up and house prices (land prices) under control. The Labour government’s 1947 Town and Country Planning Act 1947 kept land in private hands, but nationalised the right to develop it – meaning that landowners and developers had to apply to their local authority for planning permission to build new property. Strong compulsory purchase powers enabled land to be acquired at low cost for housing development. This system was perhaps most successfully embodied in the New Towns programme which began in 1946.

For each New Town, a public development corporation was established which purchased land compulsorily at agricultural prices, drew up a comprehensive masterplan for the town, and then built the necessary infrastructure using money borrowed from the Treasury. They granted planning permission on the sites they owned and sold them to private house builders, using the uplift in the value of the land to repay the loans. This combination of low-cost land acquisition, strong plan-making and the power to determine planning applications proved to be a powerful means of delivering affordable housing.

But beginning in the 1960s this began to change. Taxes on property were removed, beginning in 1963 when the ‘Schedule A’ income tax, a tax on imputed rental income, was abolished. When capital gains tax was introduced in 1965 an exemption was made for primary residencies. Subsidies for buyers were also introduced: in 1969, the government introduced mortgage interest relief at source (MIRAS) which provided tax relief for interest payments on mortgages. Court judgments on compensation (particularly the Myers case of 1969) reinstated the principle that landowners should be able to claim ‘hope value’ on any land compulsorily purchased. This increased the price of land and ended the ability of public authorities to capture land value uplifts to fund new development – the model which had so successfully been used to build the New Towns.

With the arrival of Margaret Thatcher, the government withdrew from large scale house building, and councils were forced to sell their housing stock through ‘Right to Buy’, and prevented from building more. There was a shift away from supply side subsidies of ‘bricks and mortar’ towards demand-side subsidies of paying housing benefit to boost households’ incomes to enable them to access accommodation. Whereas in 1975 more than 80% of housing subsidies were supply-side subsidies intended to promote the construction of social homes, by 2000 more than 85% of housing subsidies were on the demand side aimed at helping individual tenants pay the required rent. Today the UK government spends an eye watering £25 billion on housing benefit.

Perhaps the most significant changes came with the liberalisation of the mortgage lending market. Before the 1970s, mortgage lending was mostly carried out by building societies. But beginning with the Competition and Credit Control Act of 1971, restrictions on lending were removed, and banks were incentivised to become active players in the mortgage lending market. This unleashed a flood of new mortgage lending into the economy, which increased from 20% of GDP in the early 1980s to over 70% before the financial crisis. An ever increasing supply of credit interacted with a fixed supply of land, fuelling a house price boom. In turn, households were forced to take out ever larger mortgage loans to get on the housing ladder. Thus, a feedback loop emerged between mortgage lending, house prices and ever increasing levels of household debt. The changes in credit supply conditions have been described as the ‘elephant in the room’ when it comes to understanding the behaviour of house prices, land prices and consumption in advanced economies.

The normalisation of double digit house price growth, combined with the expectation that house prices will continually increase, fuelled demand for houses as financial assets. Whereas fifty years ago houses were mostly regarded as simply somewhere to live, today homeownership is viewed as a means of accumulating wealth and long-term security in the face of stagnating wages and dwindling pensions. Although attempts to widen access to the benefits of homeownership succeeded for a while, eventually a tipping point was reached: prices are now so high that a whole generation finds completely itself priced out of the market, and levels of homeownership have been falling for 15 years.

The Great Divide

In recent years there has been a growing public debate about the causes and consequences of the widening gap between rich and poor, and the impact it has on our societies. In his bestseller ‘Capital in the Twenty-First Century’, Thomas Piketty argues that the rising inequality observed in recent decades is explained by a tendency for the rate of return to wealth to exceed the economic growth rate, causing a growing accumulation of wealth among those who already have it (a relationship he describes as r > g in notational form). When the return on wealth significantly exceeds the growth rate of the economy, Piketty states that inherited wealth grows faster than output and income.

Seen in the context of the UK, this explanation would appear to carry some weight. In recent decades growing economic inequality has been accompanied by a rapid increase in the amount of wealth relative to national income (the so-called ‘wealth-to-income’ ratio). Following a significant decline in the first part of the twentieth century, the ratio began to rise the 1950s and saw a marked increase after 1970. The return on wealth has significantly exceeded the growth rate of the economy for many decades now.

However, on closer inspection Piketty’s dataset indicates that much of the increase in the wealth-to-income ratio observed since 1970 is the result of capital gains from housing – or more accurately, from rising land values. Once the effects of housing are removed, the underlying wealth-to-income ratio has actually fallen significantly in the UK since 1970.

The implications of this are vital for understanding the dynamics of growing inequality in recent decades. It means that the increase in the wealth-to-income ratio observed in Piketty’s data, which has underpinned the rise in inequality, has been driven not by skills or technological advancement, but rather by increasing residential land values which have manifested themselves through rising house prices.

Some economists defend rising inequality on the basis that some people getting richer is not a bad thing, so long as nobody else is being made poorer. But in Britain this is not what has been happening, because housing wealth is fundamentally different to other forms of wealth.

When the value of land under a house goes up, the total productive capacity of the economy is unchanged or diminished because nothing new has been produced: it merely constitutes an increase in the price of the asset. For those who own property, rising land prices generate an unearned windfall gain which increases net wealth. This provides immense benefits to homeowners – housing equity can be converted into income via home equity withdrawal, increasing spending power for a new car or holiday, or it can be used to leverage up further, perhaps buying a second-home, or entering the Buy to Let market.

But rising land prices also has a corresponding cost: those who don’t own property see their rents increase, or have to save more for a deposit. This cost is not captured in wealth data such as that compiled by Piketty, because under current national accounting frameworks only the capital gain feeds through to measures of wealth; the present discounted value of the decreased flow of resources to those who don’t own property is not captured.

The reality is that the housing ladder is rather like a zero sum game. Much of the wealth that has been accumulated in recent decades has come at the expense of current and future generations who do not own property, who will see more of their incomes eaten up by higher rents and mortgage payments. The key dividing line running through society today is not wealth accumulation from entrepreneurialism or hard work, but ownership of property and the ability to capture unearned windfalls from rising land values. The paradox of property is back with a vengeance, and it is driving society apart.

As spiralling house prices render homeownership increasingly unaffordable for much of the population, this divide is set to grow larger. In some lucky cases, people will be rescued by Mum and Dad as housing wealth is passed onto some of the next generation via inheritance. Already the ‘Bank of Mum and Dad’ has become the ninth biggest mortgage lender in the UK. But many others will miss out.

Not only is this not particularly fair, it’s also not particularly efficient. Rising land values suck purchasing power and demand out of the economy, reducing spending and investment. The availability of comparatively higher returns from relatively tax free real estate investment crowds out productive investment, both by the banking system itself and non-bank investors. This may help us explain – at least in part – the great ‘productivity puzzle’.

The forgotten factor

The early pioneers of political economy – Adam Smith, David Ricardo and John Stuart Mill –acknowledged that land had unique qualities, distinct from capital and labour. They recognised that land was a free gift of nature, and considered returns earned from the ownership of land to be unearned – referring to these windfalls as ‘economic rent’. They believed that the ability to extract economic rent was so powerful that landowners could effectively absorb much of the value created in an economy. It was feared that this could undermine the political legitimacy of the private property system itself, and so they sought to limit the extent to which landowners could make unearned windfall gains at the expense of the rest of society.

Since then, the concept of economic rent has been expanded to cover any excess returns derived purely from the possession of a scarce or exclusive resource, unrelated to the costs of bringing it into production. Today a good deal of economic regulation exists to limit economic rents that arise from monopoly power, for example in the water, energy and rail sectors, because it is recognised that these rents are both inefficient and unjust. Strangely, however, the original and largest source of economic rent – that arising from land – gets a free ride.

Over the past hundred years land has been increasingly marginalised from economic discourse in the developed-world. Today’s economics textbooks mostly neglect land as a distinct factor of production, instead conflating it with capital in the still dominant ‘two factors of production’ models. Meanwhile, theories of distribution still follow the tenets of ‘marginal productivity theory’ which states that ‘income’ is understood narrowly as a reward for one’s contribution to production, whilst wealth is understood as ‘savings’ from deferred consumption.

Although presented as an objective theory of distribution, marginal productivity theory has a strong normative element. It paints a picture of a world where, so long as there is sufficient competition and ‘free’ markets, all will receive their just reward in relation to their true contribution to society. But marginal productivity says nothing about the rules around the ownership of factors of production – not least land – which are essentially political variables. For economists who see their discipline as a ‘value free’ science which is separate from politics, this is uncomfortable territory. The result is that unearned windfalls resulting from land ownership – the largest source of economic rent – are overlooked.

But these windfalls play an enormous role in a country like Britain, where much of the wealth accumulated in recent decades has come from housing. The classical economists would have viewed this as the accumulation of unearned economic rent; a transfer of wealth from the rest of society towards land and property owners. But in Britain, these windfalls are celebrated — house price inflation is hailed by economists and the media alike as a sign of economic strength. The cost this imposes on the rest of society is ignored. As John Stuart Mill wrote back in 1848:

“If some of us grow rich in our sleep, where do we think this wealth is coming from?  It doesn’t materialize out of thin air. It doesn’t come without costing someone, another human being. It comes from the fruits of others’ labours, which they don’t receive.”

Putting land back into economics and policy

How then to deal with these challenges? Firstly, the teaching of economics and related disciplines needs to be reformed to reaffirm the role of land. Practitioners across the field should seek to highlight land’s role as a distinct factor of production separate from capital, and a set of legal rights over the use of economic space. The role of economic rent should be placed squarely into theories of distribution and taxation, and the interaction between the value of land and the macroeconomy must be taken more seriously.

When it comes to policy, there is no quick fix. Because legal frameworks are essential for land to become property at all, any analysis of the land problem that starts from the premise of minimising state involvement cannot succeed. There can never be an entirely free market in landed property. Instead, policymakers need to start getting their hands dirty.

Compulsory purchase laws should be changed to enable public authorities to purchase land at agricultural prices, enabling the planning and development uplift to be captured for public benefit once again. A new National Land Bank should be established and made responsible for developing and leasing land, acquiring idle and vacant land for resale, and developing more New Towns. Planning authorities should be given more resources and stronger powers of plan making or zoning so that planning can be a ‘market maker’ rather than a market stifler.

Housing policy should seek to level the playing field between tenures, in terms of taxation and subsidies, so that people are not incentivised to invest in property over more productive assets. The stock of non-market housing, like social housing and community-led schemes, should be expanded in order to lessen dependence on the volatile market in land and homes. Taxation should be used to capture the unearned windfalls landowners currently pocket at the expense of society at large. This could be achieved by replacing council tax with a tax on the unimproved value of land.

Bold steps should be taken to break the positive feedback cycle between the financial system, land values and the wider economy. This should involve wide ranging changes to the regulation, ownership and structure of the banking sector to direct lending away from property and towards the productive real economy.

The long term-aim must be to return to a society where houses are viewed as somewhere to live, not as vehicles for accumulating wealth. This can’t happen overnight, and it won’t be easy. The task involves taking on the unholy alliance of private developers, banks and – most difficult of all – ordinary homeowners, many of whom now view ever rising house prices as normal and just.

This may seem ambitious. But the alternative is growing polarisation in society, ever increasing levels of household debt and bleak economic prospects. If we are to create a fairer and more sustainable economy, then we must start taking land a lot more seriously.

‘Rethinking the Economics of Land and Housing’ (Zed Books) by Josh Ryan-Collins, Toby Lloyd and Laurie Macfarlane is available at Zed Books and Amazon.

The post To solve the housing crisis, we need to fix our broken land economy appeared first on New thinking for the British economy.

When British prime ministers go into negotiations with the DUP, they find themselves giving undue consideration to some very skewed priorities.

Back in 2006, Tony Blair was brokering the deal between DUP and Sinn Fein that would become the St Andrew’s agreement. The DUP brought him what would become known as a “shopping list” of demands that they wanted to see implemented if they were to go into government with their former enemies. Amongst their concerns about legacy issues arising from the Troubles was an obscure request about a proposed development at the Giant’s Causeway.

The aspiring developer who wanted to build a new visitor’s centre at the tourist attraction was a man called Seymour Sweeney. A constituency planning matter brought up in an international peace settlement seemed like a rather minor request, but it would lead to a scandal that would bring down Ian Paisley Senior as First Minister, barely a year into the job he’d worked towards his whole life. Sweeney’s ambitions were a direct threat to plans to restore the National Trust visitors’ centre. UNESCO were alarmed when it was revealed that Paisley Jnr had falsely claimed that they had personally told him that they were happy with Sweeney’s proposals. Northern Ireland’s only World Heritage site was now under threat of being delisted.

It would turn out that Sweeney was one of Ian Paisley Junior’s closest friends and business associates, although Paisley was at first rather coy about their relationship.  In a foretaste of the expenses crisis that would engulf Westminster a year later, it transpired that the Paisleys’ joint constituency office was costing the taxpayer £56,000 a year in rent, and that Sweeney was a director of the company that had been set up to buy the building and act as landlord to First Minister & Son.

The intervention on behalf of Sweeney’s business interests during negotiations to secure peace for Northern Ireland was inferred by many as patronage in return for services rendered.  This public perception was enough to trigger the palace coup that installed Peter Robinson in the Rev Dr’s place.

It was the memory of this affair that led me to cast a sceptical eye over the Conservative-DUP financial agreement as soon as it was released. I knew that there could be potential threats to environmental justice.

What immediately jumped out wasn’t much of a surprise, but could amount to an attack on Belfast’s urban working class. You see, apparently Northern Ireland’s suburban commuters need to get to work faster. That’s the first item on the agenda of the financial settlement attached to the agreement announced on Monday 26 June 2017.

This is the cost of needing to negotiate with the Northern Ireland parties when you need something from them. Not that we don’t need our fair share of help from the UK government. Like every other part of the country, Northern Ireland is suffering from a chronic shortage of adequate housing for our poorest citizens.  Just like in Great Britain we are failing to provide the minimum standards of breathable air for the residents of our towns and cities. All this costs money, and solving these problems is incompatible with austerity.

Yet Theresa May has been negotiating as a priority the upgrading of Belfast’s urban motorway, instead of finding the money to stop another Grenfell. Northern Ireland is one of the poorest areas of the UK, and we desperately need more cash. But the first real problem with this financial settlement is that so much of the money coming our way will go on this one tiny stretch of road, when every previous attempt to use new infrastructure to ease Belfast’s chronic congestion has given us only temporary respite.

Eventually the lanes will clog up again – as they did on the Westlink in the noughties – and the idling traffic will spew even more unlawful quantities of nitrogen dioxide, particulate matter, and climate trashing carbon dioxide into the air, mostly affecting some of the country’s most economically deprived communities. Belfast has two of the ten most congested thoroughfares in the UK. It has been emptying of residents for decades, and yet tens of thousands of us still need to do our jobs in the city centre every day.

Our uniquely permissive planning system let too many of our citizens build their homes in the open countryside. This isn’t just a legacy of the Troubles, but a reflection of a polity whose environmental and planning governance are far behind the rest of the UK. A dispersed, hyper-suburbanised population cannot easily be connected via mass transit to a highly centralised economic hub, and so our politicians and civil servants are locked into a 1960s vision of transport, with the needs of the private car trumping all other means of conveyance. It is this mindset that the DUP brought to their negotiations with Theresa May.

The perimeter of the city centre is already blighted by a grey donut of multilane roads cutting through what used to be tight lattices of streets that fostered cohesive inner city communities who felt connected to the beating heart of Belfast. The remnants of those communities now sit on the wrong side of the tarmac, feeling the city turn their back on them. They suffer disproportionately from the exhaust fumes of the suburban and rural dwellers who drive past them every day. Of all the things that the DUP could have negotiated on our behalf, the facilitating of unsustainable settlement patterns and transport policy was certainly not in the national interest.

I have no doubt that prioritising the rights of commuters is environmentally unjust. I am also sure that another key item in the new “shopping list” is potentially disastrous. The term “Enterprise Zones” evokes a Silicon Valley vision of tech start-ups and disruptive innovation.  This is not what they’re likely to mean for Northern Ireland.

A similar sounding idea was first floated during the lead-up to the G8 summit in County Fermanagh in 2013. During a meeting with David Cameron at Downing Street, First Minister Peter Robinson, and deputy First Minister Martin McGuinness announced their plans to introduce “Special Economic Planning Zones.” What this meant in practice was that OFMdFM (the Office of the First Minister and deputy First Minister) could draw a circle right in the middle of County Tyrone and declare it, for example, a gold mining free-for-all. A deregulated klondyke for anyone living nearby, with all the usual protections of the right to participate in the planning system suspended.

A planning bill that was passing through the Assembly at the time was hijacked by Sinn Fein and the DUP with amendments that would have made these special powers a reality. Then environment minister, Mark H Durkan, was forced to withdraw the entire bill from further passage through the Assembly in order to prevent this power grab from progressing. Could these “Enterprise Zones” be yet another attempt to experiment with hyper-deregulation? Is Northern Ireland going to be a guinea pig for the complete suspension of environmental rule-of-law?

What we do know is that the Conservative-DUP confidence-and-supply deal was agreed by a prime minister desperate to defend her position after a shock election victory, and that she was negotiating with a team of seasoned deal-makers who have a history of coming at these discussions sideways.

I cannot say from what I’ve seen so far if there is any sectarian imbalance in the financial settlement, and I doubt strongly that the DUP or the Tories would make the mistake of letting this happen. There is already enough concern about how this deal threatens the British Government’s status as a neutral arbiter in the ongoing peace process, without scoring the own goal of handing more goodies to one side than the other.

Concerns like this distract us from looking out for other potential hidden agendas in the new governing arrangements at Westminster. We should not cry foul about an extremely impoverished part of the UK getting a sudden injection of cash, or keep caricaturing the DUP as Cromwellian fanatics and killjoys. But we do need to cut through the murky detail, to the hidden background of this deal.

It took multiple Freedom of Information requests in 2007/8 to uncover the St Andrew’s scandal. It is incumbent on all the citizens of the UK to be sceptical and vigilant as the new supply and demand regime beds in at Westminster.

The post Why the Conservative-DUP deal spells bad news for the environment appeared first on New thinking for the British economy.

This election comes during a remarkable period in British economic history. Over the past ten years real wages have suffered a larger decline than in any other advanced country apart from Greece. Mark Carney, Governor of the Bank of England, recently said that Britain is experiencing its “first lost decade since the 1860s”.

Faced with an unprecedented squeeze on living standards, families across the country have resorted to desperate measures. The number of people using food banks in the UK reached 1.2 million in 2015-16 – up from just 26,000 in 2008-09. Unsecured household debt – credit cards, overdrafts and other forms of consumer borrowing such as payday loans – is set to reach record highs.

Years of austerity has pushed public services towards breaking point. A steep decline in funding relative to GDP has left the NHS facing a “humanitarian crisis”, while cuts to school budgets have forced head teachers to axe staff and raise class sizes. Decades of underinvestment has left the UK lagging far behind other advanced economies. British workers are now 22% less productive than workers in the US, 23% less than in France and 27% less than in Germany. Precarious jobs and zero-hours contracts have grown throughout the labour market.

Now, with Brexit on the horizon, things are likely to get worse before they get better. According to the Office for Budget Responsibility, a combination of stagnating wages and cuts to working-age benefits means that real earnings will be lower in 2020 than they were back in 2008. According to the Resolution Foundation, we are on course for the biggest increase in inequality since the days of Margaret Thatcher. Never before has the outlook for living standards been this bleak.

But this period of economic decline is not the result of “natural” forces. It is the result of a faltering political and economic order that has reigned supreme in Britain for four decades. A system which has put blind faith in market forces, and tipped the balance of power towards capital and away from labour. A system which has prioritised London’s status as a global hub for financial services, while leaving other regions to suffer at the hands of industrial decline. A system which has allowed wealth to flow upwards by rewarding value extraction more highly than value creation.

In 2008 this system came crashing down when the poster boy of deregulated market fundamentalism – the financial sector – failed catastrophically, taking the whole economy down with it. But without a clear alternative to take its place, the response was to double down on a broken model.

Nearly ten years on, and the economic recovery has been the slowest on record. In fact, when measured properly, there has been no economic recovery – output per head of population still remains below the pre-crisis trend. Interest rates remain stuck at zero, while the Bank of England has relied on £435 billion of quantitative easing to keep the economy afloat. Despite the upbeat rhetoric from the government and right wing press, the reality is that Britain’s economy remains on life support.

It is within this context that the political upheaval of the past twelve months – both at home and abroad – must be viewed. If an economic model delivers stagnating living standards, rising inequality and growing insecurity, it should not be surprising when citizens revolt.

In different ways, both Theresa May and Jeremy Corbyn are symptoms of this faltering economic model. Despite backing Remain in the EU referendum, Theresa May’s reign as prime minister is a direct product of the Brexit vote. While the reasons for Brexit are complex, evidence shows that geographical distribution of living standards, industrial decline and exposure to austerity played a key role in determining how people voted.

Since becoming prime minister, Theresa May has made a concerted effort to appeal to Brexit voters. Rather than tackle the root cause of genuine fears – a failing economic model – she has played into a toxic narrative which attributes blame to immigrants. In both style and substance, Theresa May’s Conservative party is bearing an increasing resemblance to Nigel Farage’s UKIP: a party hell bent on pursuing a hard Brexit, obsessed with reducing immigration, and nostalgic for archaic remnants of a bygone era – from fox hunting to grammar schools.

But despite the rhetoric of “an economy that works for everyone”, the Conservatives’ manifesto offers nothing new in the way of economic policy. Instead, we are presented with more of the same: more cuts to welfare and public services, lower taxes for corporations and the well-off, slashing “poor and excessive government regulation” and Orwellian rhetoric around a “strong economy”.

Where new polices do appear, their effect is usually to make peoples’ lives worse, not better. The commitment to reduce net immigration to “tens of thousands” is not only steeped in xenophobia, but is an act of gross self-harm. Even the government’s own forecasters say that reducing immigration to the tens of thousands will seriously harm growth and increase government borrowing by up to £30 billion. Combined with scrapping of free school lunches, the means testing of winter fuel allowance and the now famous ‘dementia tax’, the direction of travel is a continuation of the status quo, but slightly worse.

Jeremy Corbyn’s Labour party, meanwhile, embodies the mood of discontent and a hunger for something different. After twenty years of politics dominated by spin, sound bites and triangulation, millions of people viewed Corbyn’s sincerity and honesty as a breath of fresh air. Initially written off by the political and media establishment, his resilience in the face of constant attack has gradually won over sceptics. But it is not personality or persona that is Labour’s secret weapon – it is policy.

Corbyn’s unashamedly social democratic manifesto represents a marked departure from the politics of recent decades, and contains many sensible policies. A new National Investment Bank would provide long-term patient finance to upgrade physical and social infrastructure across the country. Taxes would be increased on the wealthy to pay for struggling public services. Key utilities would be brought back into public ownership, student tuition fees scrapped, corporation tax increased and workers’ rights strengthened.

Unsurprisingly, the right wing press decried that the manifesto would “drag us back to the 1970s”. But none of Labour’s flagship policies are remotely controversial in Germany, which is the most productive and dynamic economy in Europe, or in the Scandinavian countries, which consistently sit at the top of global rankings on socio-economic development. The hysterical response from the media shows just how detached Britain has become from the mainstream of European economic thinking.

Labour’s proposal to double the size of the co-operative sector – supported by the introduction of a “right to own” policy – is a bold and ambitious way to reinvigorate enterprise and democratise ownership of capital. The proposal to break RBS up into a network of local public banks would create the kind of mid-tier banking system that is the lifeblood of Germany’s industrial power. The pledge to utilise the public sector’s £200 billion spending power in procurement to help create good local jobs, protect the environment and reduce inequality could be transformative. The promise to introduce a financial transaction tax would put a break on harmful financial speculation, and help return finance to its rightful place as the servant, not the master, of our economy.

Many commentators have been quick to judge party manifestos on the basis of whether each individual policy measure has been “fully costed”. Journalists get excited about the prospect of tripping up politicians with questions about “where the money will come from”. Unlike the Conservatives, Labour made a noble attempt to the cost their manifesto. But as many economists have already pointed out, obsessing over specific policy “costings” may be good journalism, but it is bad economics. It makes little sense to obsess over whether each item of addition spending is matched to a measure to raise additional revenue, because this is not how government spending actually works.

Moreover, assessing individual policies in isolation overlooks the dynamic interactions which determine the health of the economy. Taken as a whole, Labour’s manifesto would reboot the economy by kick starting the positive feedback loop between investment, productivity, wages and tax revenues. It would also help to rebalance the economy away from London and towards other parts of the UK.

But while Labour’s offering is a welcome step in the right direction, it is no panacea. There are many areas for improvement. Addressing the housing affordability crisis means not only building more homes, but fixing our broken land market. An ageing population and growing intergenerational needs a bolder approach to social care and inheritance. Moving towards a low carbon economy requires a systematic greening of the economy, not just targeted investment. Automation, big data and the changing nature of work demands a more radical rethink of welfare policy, and a more sophisticated debate about ownership in our economy.

The media has failed to engage in this debate, or even acknowledge the scale of the challenges we face. That’s why at openDemocracy we are bringing people together to get to grips with the long running economic crisis unfolding in Britain, and figure out a new economic programme.

Join the conversation, and help us build an economy to meet the challenges of the coming century.

The post We have a real choice between different economic futures appeared first on New thinking for the British economy.

The UK has a grossly financialised economy, heavily overbalanced towards the South East. Our industrial sector is uncompetitive, we have uncomfortable and dangerous levels of inequality, and whole sections of our younger generation are virtually excluded from the housing market. Our National Health Service is struggling to cope with current and increasing demand on its services.

If this wasn’t enough, we also have to cope with the uncertainties of Brexit and the looming and inescapable problem of climate change. Against this context, the current neoliberal emphasis on shrinking the state is quite misplaced, if not dangerous. Instead, fixing these issues requires a new approach to our economy. Here are six policies that would help kick start the necessary transition.

1. Introduce a Land Value Tax

The introduction of a tax on the value of land and property would tick many boxes. Land provides a huge taxable base – it is the classic commodity that cannot run away. Taxing land would have an immediate effect taking the heat out of the South East property bubble, so helping to correct regional imbalances. It would also have a big impact on land hoarding, and could be tailored to discourage non-resident holders of land, or holders of land who are not natural persons

2. Reform public procurement

Public procurement is now widely recognised as being the driver of new technology and innovative high tech companies – witness how the US has directed its public procurement programme to transform our world and its own industrial base. But this doesn’t just happen naturally. It is not enough to go to the private sector with lots of money. Instead, what is required is intelligent procurement: that is, actively identifying the needs, and driving the development process, (either within the public sector, or in close relation with the private sector), until the new innovations are ready to be rolled out.

This is the opposite of how the UK’s hollowed out state conducts public procurement. Initiatives like PFI have resulted in financial innovation for the benefit of the financial sector, often not even based in the UK. Instead, we need a new technology based policy focused on transforming the UK economy. One of the key priorities should be developing technologies related to addressing climate change.

3. Invest in new infrastructure

With so much focus on financial services and the South East, far too little attention has been paid to our island’s need for good transport and port provision. Much greater infrastructure investment, in transport and communications particularly, will be key to correct imbalances within the UK and reduce the cost of exporting. Anyone who looks, for example, at the inadequate state of Scotland’s ports, or the inadequate roads and rail links to Cairnryan, the UK’s shortest sea crossing to Ireland, would realise that the present system is not working. At the other end of the country, the constant blockages at Dover need to be addressed.

There should be a national infrastructure plan, linked to a strategic vision of how the country should be operating. Where private owners of key infrastructure (for example, the owners of privatised port facilities) are not providing adequate investment they should be incentivised to do so under threat of renationalisation.

Taking a strategic view will be even more important given that shipping patterns will likely change with global warming and the retreat of Arctic ice.

4. Reform Regulatory Asset Base (RAB) pricing

Another vital aspect of infrastructure investment is how it will be funded, and here the UK has got things disastrously wrong. Much of our key infrastructure – rail, airports, water, electricity transmission and gas – is ultimately funded by charges on the user or passenger, calculated on the basis of what is known as regulatory asset base (RAB) pricing.

RAB pricing is a version of current cost pricing, where the charges on the customer go up in line with inflation. But when RAB pricing was introduced in the wake of the Thatcher privatisations, the general public was not made aware of its flaws.

Under the old fashioned system where the funding of infrastructure was based on fixed interest loans, the effect of inflation was to erode the real value of charges through time. Inflation was the consumer’s friend. With RAB pricing, however, prices keep on rising with inflation. Far from being immaterial, the difference matters immensely. In the long run, prices for the consumer are much higher under RAB. This price differential can be, and is, extracted by the asset owners in the form of a windfall capital gain. If you want an explanation for high rail fares in the UK, or high utility prices generally, as well as huge company dividends – RAB pricing is a major factor.

All of this was glossed over when RAB was introduced. But the important point is that RAB is not an essential adjunct of privatisation. Changing the pricing model for utilities and privately funded public infrastructure onto a more rational basis could still enable investment to be fully funded – it would just remove the current excess windfall profits for the utility owners. And there would be further benefits to rationalising RAB pricing. For one thing, it would strike a major blow against the current culture in the UK in which financial interests dominate: finance should be our servant, not our master. Reforming utility pricing would also make the eventual renationalisation of utilities much easier as the private owners would no longer have today’s large windfall profits to defend.

5. Establish a State Investment Bank

A new state investment bank (SIB) would have two main functions. Firstly, after the reform of RAB, there will be opportunities for investment in infrastructure and utilities. A SIB would borrow, at low public sector borrowing rates, to provide funding for such investment. The existence of such a funding source would provide the ultimate counter argument to any of the present utility owners who might otherwise argue that they could no longer afford to invest, given the reformed pricing structure for utilities after the changes to RAB.

Secondly, the SIB would put in funding to selected new tech start-up companies – for example, those being spawned out of the proposed reform of public procurement, and those addressing climate change. This SIB funding would come with an important proviso in the form of a golden share, which would ensure that the new company could not be sold out and taken over without the approval of the government. Equity investors in promising new tech start-ups in the UK have been too keen to sell out at the first opportunity – with the effect that the new companies are taken over and their intellectual capital lost from the UK. SIB funding would ensure that this could not happen.

6. Reinvigorate Freedom of Information

Full information on the costs and performance of services is absolutely central to efficient government and the proper assessment of policies. Unfortunately, given the trend towards the privatisation of services in the UK, there has been a great decline in the accessibility of information. Forces of reaction have carried out a successful rear-guard action against the Freedom of Information Acts.

This process has been helped by the failure of the private bodies which carry out so many functions of the state to recognise the spirit or the letter of Freedom of Information. Freedom of Information should be revisited to make it absolutely clear that if the Government pays for a service, then all the information about that service will be publicly available, even if the actual provider is in the private sector. For example, this provision would cover the full details, including the contracts and financial projections, of Public Private Partnership schemes.

The post Six policies to transform Britain’s broken economy appeared first on New thinking for the British economy.

The outcome of the coming election will be determined by the electorate’s view of which party will best negotiate the optimal Brexit deal. The danger is that with so much attention being paid to Brexit per se, not enough thought will be given to what we want for the future. Brexit should be taken as an opportunity to ask and answer the question ‘what sort of economy and society do we want to see developing in the nations and regions of the UK over the coming decades?’. The timescale will be decades because the imbalances that currently affect the UK have taken decades to unfold and the remedies will not be quick although the shock of Brexit could help galvanise more radical change.

Questions regarding the future direction of the economy and society are not confined to the UK and recent political developments in other parts of the EU and the US point to an electoral  reaction to economic and social changes that have adversely impacted many since the start of the millennium or even earlier. In the UK it has taken the Brexit vote to reveal the strong undercurrents of discontent that have been simmering for years. The causes of this discontent started well before the financial crisis of 2008 but that crisis had a cathartic effect on the thinking of many and its economic impact continues to be felt. Official forecasts for the UK suggest that GDP per adult in 2022 will be 18 per cent lower than it would have been had national income grown by 2 per cent a year since 2008 – broadly the rate of growth at that time[1]. Put another way the UK economy by 2022 will be some £360bn lower than trend and the corresponding loss of tax revenue roughly £100bn at unchanged tax rates. Given the growth in the demand for public services arising from the ageing of the population, public spending will be under severe and increasing pressure.

These trends were usefully summarised in a report by the OBR earlier this year which concluded that ‘in the absence of offsetting tax rises or spending cuts this (trend) would widen budget deficits over time and put public sector net debt on an unsustainable upward trajectory’[2]. There are few signs of the loss of capacity in the economy being clawed back and thus the impact of the crisis will be long lasting and the consequent economic losses make the actual cost of rescuing the banks pale into insignificance.

Given the loss of potential growth and flat productivity it is hardly surprising that after seven years of austerity, public spending is broadly back at the pre-crisis level when compared with national income.

It can be argued that in the second half of the twentieth century many people, particularly those on lower incomes, acquiesced to the market based capitalist system because it delivered for them and their families: delivered in the sense that they could look forward to ever rising standards of living and had a reasonable expectation that their children would, in the future, enjoy a higher standard of living than theirs. Such a promise was an effective counterweight to concerns regarding the inequities and other drawbacks of the economic and political system. Will this acquiescence now prove to have been a Faustian deal for too many people? Recent political developments in the UK, the rest of Europe and the US indicate that the deal may now be broken.

Average real wages in the UK have fallen by about 10 per cent over the last decade and productivity has stagnated. Superficially a bright spot has been the rise in employment rates but many of the jobs created have been insecure and poorly paid. For example, the number of workers across the UK on zero-hour contracts has grown from 120,000 in 2005 to over 900,000 in 2017[3]. Put simply the UK economic model, if such a thing exists, relies excessively on growth in low paid, poor quality jobs.

 Put simply the UK economic model, if such a thing exists, relies excessively on growth in low paid, poor quality jobs.

Citing statistics and trends for the UK as a whole fails to reveal many issues felt more acutely in many parts of the UK. Examination of regional disparities shows the overwhelming dominance of London and the South East of England. GVA per capita in London is 172 per cent of the UK average while it is 71 per cent in Wales and 75 per cent in the North East of England. The UK business model has over many years been one where power, both political and economic, has concentrated in London and the surrounding region. London has for centuries been the dominant centre but since the decline of extractive and manufacturing industries in the second half of the last century, this dominance has become even more pervasive. A major factor behind this increasing dominance has been the explosive growth in financial services. From 1970 to 2008 UK finance grew twice as fast as UK national income and most of this growth, particularly at the high value end, took place in the City of London[4]. As memorably described by Adair Turner, former Chair of the FSA, much of this activity is ’socially useless’ but it has distorted the economic balance of the UK to the detriment of other sectors such as manufacturing and also geographically with the concentration of financial services in London. As a result of this concentration both sectorally and geographically successive governments have been in danger of being captured by special interests. In 2012, four years after the financial crisis, more than 2,500 bankers in London were earning more than £1 million per year[5]. Given that 27 per cent of income tax is paid by the top 1 per cent  (300,000) of earners one can understand the nervousness of politicians in seeking to curb excessive dependence on banking and the power of the banking lobby.

What should be done to start answering the question I posed: ‘what sort of economy and society do we want to see developing in the nations and regions of the UK over the coming decades?’ Here are some modest proposals to rebalance the UK economy both sectorally and geographically:

1. Accept that Brexit will mean a reduction in financial services activity in London. The UK government should be bold and be prepared to negotiate away some advantages in the financial services sector in return for protecting other key sectors such as manufacturing and food. While posing some short-term challenges weaning the UK off its overdependence and overexposure to the financial service sector will enable the government to shift its priorities to other sectors and crucially to the other nations and regions of the UK.
2. Oblige banks to concentrate more investment into business other than real estate. According to the Bank of England bank lending in the UK is dominated by mortgages (65 per cent of total lending) followed by commercial real estate (14 per cent) and consumer credit (7 per cent). 14 per cent only of bank lending is to business for non-real estate investment i.e. investment in wealth generating capacity. Given such a skew in investment priorities it is hardly surprising that house prices have boomed and that business investment has lagged our international competitors. A way of nudging banking in the right direction would be to require more capital to be set aside for real estate lending compared with industrial investment. Such an approach could help productive business investment while also cooling down the overheated property markets both commercial and private.
3. Rather than concentrating on a further lowering of corporation tax across the UK why not discount the rate in poorer regions with the loss of revenue being offset by a higher rate in the more prosperous areas? Companies wishing to claim the discount would have to demonstrate economic activity in the region concerned. Corporation tax liability would depend on the allocation of business activity. Many countries have well-tried formulae for allocating tax bases across regions. One way is based on an enterprise’s headcount at various locations[6]. The current government believes that lowering corporation tax is a powerful tool for helping business: let us use that power geographically to help rebalance the UK economy.
4. If the UK is to overcome the current malaise the issue of low productivity needs to be addressed. Productivity is key because in the medium to long term prosperity is determined by productivity: growth in real wages is a function of growth in productivity. A number of factors drive productivity growth including; education levels; skill levels; pay structures; R&D; business investment; and infrastructure. In the case of skills which many employers consistently complain are in short supply, we must stop neglecting the 60 per cent or so of school leavers who do not go on to university and ensure that they get a fair deal in terms of financial support for acquiring relevant skills. Note how much time and attention is devoted by politicians to those who do go to university and to such related issues as tuition fee policy. As recently as the end of the 1970s 100 MPs came from manual working class backgrounds and fewer than a third of Labour MPs were graduates. The number of graduates is now close to 90 per cent[7]. Young people not going to university are largely forgotten by our politicians who overwhelmingly are graduates themselves and are divorced from the interests and needs of young people not going on to university. This neglect in turn starves industry of the skills needed to expand.
5. It is widely agreed that infrastructure investment can facilitate productivity growth and wealth creation. At a time when interest rates are still at historically low levels the government should be bold in increasing infrastructure investment but it needs to be directed to stimulating growth in the poorer areas of the UK. This requires the UK government to stop being so London focussed. An example of this is HS2 which an analysis of the economic impact showed it brought most benefit to London and not to the Midlands and North of England whilst at the same time disadvantaging Wales, the South West and East of England[8]. If the government is serious about a geographical rebalancing it would invest in HS3 joining up the cities of the north of England and dump HS2. London with Crossrail and other investment has taken too large a share of transport investment. Public expenditure per head on transport in London was 272 per cent of the level in the North East of England in 2014-15[9]. Wales is one of two countries in Europe which does not have a single kilometre of electrified railway track. At a strategic level the government should embark on a major infrastructure investment programme of the order of an additional 1 per cent of GDP for each of the next five years making a total additional investment of more than £100bn. Interest rates are at historically low levels, often negative in real terms, which invested wisely could bring a short-term stimulus to the construction industry and in the medium to long term help boost efficiency and productivity.

This list is not meant to be definitive. It simply illustrates that Brexit as well as being a formidable challenge to the status quo could be a catalyst for fresh thinking and implementation of policies that more effectively address the needs of those who feel let down by the current system. Failure to address these issues could well lead to further disruptive politics in the years ahead.

Eurfyl ap Gwilym.

[1] IFS. Briefing Note BN199. May 2017.

[2] OBR. Fiscal sustainability report. January 2017.

[3] ONS quoted in Financial Times. 15 May 2017.

[4] Between Debt and the Devil. Adair Turner Princeton 2016.

[5] European Banking Authority, High Earners, 2012 Data quoted by Adair Turner.

[6] Independent Commission on Funding & Finance for Wales. July 2010.

[7] The Road to Somewhere. David Goodhart. Hurst 2017.

[8] KPMG. September 2013.

[9] Public Expenditure Statistical Analyses 2016. Cm 9322. HM Treasury. July 2016.

The post The five things the next government must do to rebalance our economy appeared first on New thinking for the British economy.

The Iffley Open House in Oxford provides space for homeless people, and a challenge to the

On the 17th February a possession order was granted to evict those who squatted Iffley Open House, a project which has housed twenty homeless men and women since New Year’s Eve. The building had to be empty by the 27th February so that Wadham College, who own this old VW garage, can begin pre-demolition works. By the start of the academic year 2019, the site will have been transformed into 135 rooms for second year students at Wadham, a college in the University of Oxford. The defendants had no formal representation – four of us sat at the back – and the court was adjourned within five minutes. The lawyer felt somehow obliged to state to the judge that ‘the application is of no disrespect to them,’ but was needed only to ratify that if resistance should be met the bailiffs would respond in kind.

This lack of resistance was strategic. That the occupation won the time it did is down to the support it garnered from the wider community. Students put pressure on Wadham, and consumers on the Midcounties Co-op, who have been paying a lease on the disused garage for the last two years. It was felt that resistance might alienate the wider community, whilst endless legalities would burn out those who cared to undertake them. More importantly, the homeless residents of the building did not want to wage their precarity on putting up the barricades. But it was only on the 30th January that the leaseholding Co-op, responding to consumer threats, granted permission to stay until April of this year. On the 17th February, Wadham – while brandishing their status as a ‘charity’ – effectively drew a line through this. How, then, will a strategy of compliance pay off, when priorities are so transparent and so uninterested. Wadham, or whoever else, will continue to pretend that it is ‘profoundly sympathetic to the plight of homeless people in and around Oxford’ (sympathy or a cognate appear a total of five times in the five statements the college have made on the squat), while it continues to (re-)file for possession. The truth is that power structures do not have sympathies. Except, of course, for those they privilege.

But this pretence can be manipulated. Indeed, the subversive quality of Iffley Open House lies in its twin demand: it is both a shelter and a critique. For it shelters some of those excluded by a failed housing system, whilst simultaneously enacting and articulating a politics that condemns the agents which perpetuate that failure. In the case of Oxford, the University has both a need and the power to house its students, who spill out of college accommodation. Thus, rent is on a par with London, as opportunistic landlords monopolize a market which the students will continue to grease. Local communities stand little chance faced with this exorbitant trainwreck, and homelessness escalates. The University knows it has responsibility in power. As such, here it does not foment some moral panic of delinquent squatters, but – with pressure from the student body – expresses its sympathy for the cause, says please and thank you, and then, naturally, calls the demolition man.

Since power is not simply about particular actors and so rarely about ethics, this should come as no surprise. As Wadham’s bursars put it in an open letter to I.O.H, ‘As a charity, the College has to fulfil its obligation to protect its assets, including this building which is intended to be developed as a home for our students.’ The statement makes perfect sense. It is implied that the University – as a charity and/or a business – will support shelters for the homeless just until these conflict with its own interests. Meanwhile, the councils will be as squeezed as any to implement the new homelessness reduction bill, and plans are already in place to ‘decommission’ – austerity speak for destroy – two of the biggest homeless shelters in the area by April 2018. So the situation is clear and predictable: the University will perpetuate privileged access to space in the city, because it is hardwired to do so. Hopefully, then, Iffley Open House can begin to articulate an anti-capitalist message to the broader community – and not least the students – that it is only through resistance and continued pressure that the University will begin to materialize a sympathy for the homeless that will otherwise remain a mere pretence.

As this squat is demolished, what happens next? It has a symbolic value, fostering a public image which is not entirely useful. For it was only on the basis of a big concession at court that the building agreed to limit capacity to twenty people, something of an affront given how big the building actually is. This was also, in part, exigent, as the work needed to keep the space clean and organized was exhausting for those responsible. But it seems probable that aspects of the less politicized support for the project were conditional on a veneer of charming functionality that is at best unrealistic and at worst pretty exclusionary. For charity always wants to be sure that it can keep its giving hand clean. Yet the psychological effects of homelessness are themselves not always clean, and trauma and addiction regularly attend them. Of course, small scale solidarity projects will not always have the material or affective resources to deal with these, but it is only on the basis of their acknowledgement that they can be worked through at all. Squats such as these aren’t – and shouldn’t be – idyllic enclaves, but they are social and affective and as such could be truly supportive. They are an opportunity for people to begin to care for one another on a level that is conditional upon nothing except a minimum of care itself.

Even though the current iteration of Iffley Open House has been short lived – just under two months – it has already provided a platform to connect different communities in Oxford and begin new conversations. As already stated, some students have come out in support, as well as locals from across the political spectrum. At the same time, the local activists who squatted the building have shown a way to confront the stigmas around homelessness, which ordinarily compound the effects of a form of injustice which is fundamentally objective with isolating moral narratives. Against the logic of charity which is always impersonal and hierarchical, the squat offers a solidarity based on connection and mutual aid. When people come out in support of those around them in this way, the ways in which the whole community is in a sense responsible for one another are revealed, and new – empowering – relations can be built upon a collective will. Evidently, spare coins will not ultimately resolve homelessness – even as they can be useful in the meantime – but one can imagine that a movement based on a real intersection of the residents in Oxford – those with homes and without – could wield enough pressure to force the University to let it be solved. All the Vice-Chancellor would need to do is squat a few big buildings. Someone should tell her that the VW garage which has just been demolished could have mathematically provided enough shelter to eliminate street homelessness as it currently exists in Oxford, and maybe more.

The post On homelessness and squatting in Oxford appeared first on New thinking for the British economy.

Why was social care missing from the Chancellor’s Autumn Statement? It seems government fears the issue is just too big to tackle, or assumes someone – normally women – will always step in.

There is a crisis of social care in England. This is increasingly a consensus among researchers and campaigners. In the lead up to the Chancellor’s Autumn Statement, campaigners, policy experts, trade unions, academics, politicians from across the political spectrum, NHS chiefs, and even the care regulator –  the Care Quality Commission, called on the government to put in place measures to address the sustained under-funding of the sector. These calls appear to have fallen on deaf ears. The Chancellor’s Autumn Statement failed to even mention it, let alone outline measures to tackle the situation.

It’s not that there hasn’t been enough information available for the government. In recent months, the issue has been highlighted in a range of reports including the Kings Fund and Nuffield Trust report into the home care sector. In September, Age UK reported on the increased costs facing an ever-growing number of older people self-funding their care and a report from the United Kingdom Home Care Association highlighted the low rates paid by local authorities to home care providers which was prompting some providers to hand back contacts to local authorities. October’s Care Quality Commission’s 2016 State of Care Report provided a damning indictment of government policies that have seen successive funding cuts to social care provision for older people. November has seen the Local Government Association report on adult social care funding stressing that funding for the sector has reached crisis levels – due to both current austerity related cuts to local government block grants and the historic underfunding of the sector. UNISON has also continually reported on the dire state of working conditions in social care sector and this month launched a Save our local services campaign that highlighted cuts to social care.

Now, a new report – Towards a New Deal for Care and Carers published by the PSA Commission on Care – has added to the growing clamour for addressing this crisis. It has been put together by a consortium of researchers and campaigners and the Universities of Warwick and Sheffield, the Fawcett Society and the Women’s Budget Group. In it we bring together the analysis of the crisis of care with the crisis of caring. It emphasises the diversity of needs of different groups of care receivers and care givers including Black and Minority Ethnic communities and migrant care workers.  Moreover, the report points to the specifically gendered impacts of the social care crisis. The ‘gender norms’ of caring mean that women are the group most likely to have to step in and care for family members, neighbours and friends in need of care. And this matters, because it appears that the ability of successive governments to cut social care spending reflects, ultimately, assumptions that the family (and women in particular) will always step in to fill the social care gap.

There is little acknowledgement anywhere that women’s paid work will become increasingly difficult to reconcile with unpaid caring responsibilities and will also increase the costs of the health and well-being of women carers who engage in the double burden of care work and paid employment. The 2011 UK census identified that 6.5 million people are carers – an increase of 11% since 2001. At the same time, an increasing number of carers are themselves old and in need of support, with their own care needs. Women have been disproportionately affected by cuts to funding care because of their role as the main providers of unpaid and paid care and also as they are more likely to be users of care services.

In the report we also examine both a privatisation process, whereby publicly financed care is outsourced to private providers, and a marketisation of care, whereby public commissioning as well as individual purchasing of care has been accompanied by the entry of a range of commercial providers into the market. There is also an increasing gap between publicly financed provision of care and the growing need for care services at home and this has seen a transfer of responsibility onto informal, unpaid domestic care by family, friends and neighbours. Again, this is trend that disproportionately impacts women and has implications for the ability of carers to combine paid and unpaid work.

Now, as Brexit unfolds, the report also reflects on the role of migration and precarious labour on the working conditions of carers. Just under a fifth of the adult social care workforce in England was born outside the UK and over a quarter of these workers were born in the EU, making the sector heavily reliant on migrant labour. So, urgent questions facing the care system are how far and in what ways changing immigration patterns are affecting changes in paid care work in England and how would a shortage of care workers affect care-users’ ability to participate in the labour market?

So why isn’t social care a political priority? Possibly, because of a number of interwoven factors:

1. The size of the problem is seen by many as too big to tackle. There is a view that it is financially unaffordable to provide good quality care for all who need it, instead of a recognition that a failing care system is very costly in social and economic terms.
2. There is an assumption that someone will step in to keep the system going, and specifically, that women will step in to do unpaid caring or work – particularly if they are migrants, or unemployed – for low pay and under poor conditions.
3. The lack of value placed on the lives of older people and carers. Despite talk of the ‘grey vote’, the concerns of older peoples are overlooked through a lack of cross-party political consensus on a way forward.
4. The assumption that ‘anyone can care’ leads to caring being regarded as low status and unskilled work, not requiring training and continuous professional development.

Building on this analysis, we would make several recommendations:

1. Establish a National Care Service which gives social care equal status with the NHS.
2. Invest in social care infrastructure rather than pursuing austerity policies
3. Professionalise and support the care workforce by establishing a national policy on recruitment and training of domiciliary and residential care workers, with a new qualification which will bridge the gap between care workers and nurses to deal with increasing complex care needs.
4. Recognise and support unpaid carers by establishing and promoting a national source of information and guidance for individuals and family members about entitlements, availability of different services, and assessments.

The crisis in the social care sector is happening now, and future scenarios are looking even bleaker. The failure of successive governments to tackle this issue for so long is striking – but the negligence shown by our current government and the previous coalition government is particularly alarming. On Wednesday, both Theresa May and Philip Hammond faced question after question from MPs on the lack of funding for social care – but failed to explain why no further funding would be forthcoming. This to our mind raises deep questions about the value that our government places on the lives of older people and those that care for them.

As it stands now, social care provision is only accessible to those with the most severe needs and, for many, it is easier to rely on unpaid family carers than to attempt to navigate complex systems to access care. And, as the bill for social care steadily increases, Councils are cutting services that served to support older people and their carers – like lunch clubs, library services and respite care.

Fundamentally, as a society we need to provide for older people – not only for economic reasons but to secure a fair and caring society where everyone gets the support they need, irrespective of their colour, class or creed. As our report makes clear, we have some way to go in attaining this goal.

The post We need a New Deal for social care appeared first on New thinking for the British economy.

Last week the government was found guilty of failing to get to grips with lethal and illegal levels of air pollution for the second time in as many years – if it is serious about turning this around its response must begin with the phasing out of diesel cars.

The UK is facing a public health crisis of the highest order. Thousands of people are suffering from preventable conditions such as bronchitis, asthma, stroke, cancer, and heart disease caused as a result of invisible gases such as nitrogen dioxide (NO2) and particulate matter (PM). These are largely produced by diesel cars, buses and vans.

The government has known about this issue for some time but it has failed to do enough about it. In 2014 the Supreme Court ordered the government to introduce new measures to bring the UK within legal limits of air pollution ‘as soon as possible’. Unfortunately, it has taken the government 18 months to respond and the set of proposals they have produced do not go far enough. Last week the High Court agreed with this conclusion and ruled that the government must now step up its action to bring the UK into compliance with air quality regulations.

Research by IPPR has shown that it is not possible to adequately address air pollution over the next 10 years whilst diesel cars are on the road. Although our research was focused on London, this is true for all cities across the UK. Therefore, in response to the High Court ruling the government must make an explicit commitment to phase-out diesel vehicles (with a few notable exceptions e.g. vans) over the next decade. The key question would then be how to deliver such a seismic shift in the car fleet in such a short space of time. At IPPR, we believe there are three key steps.

Firstly, the government should pass a new Clean Air Act to replace and update EU regulation. This is crucial because without EU legislation it would be impossible for organisations like Client Earth to hold the government to account for legal limits. Britain’s vote to leave the EU does not give the government a mandate to relax environmental regulations. Andrea Leadsom, Secretary of State for Environment, Food and Rural Affairs, must now ensure that this does not happen.

Secondly, we need to create clear financial incentives to encourage people to buy cleaner alternatives to diesel cars by reforming our vehicle excise duty (VED) regime. At first this reform should simply take an ‘anything but diesel’ approach but over time it should ramp up the cost of all non-zero-emissions vehicles. This should be complemented by a policy to compensate people for getting rid of their old cars through the introduction of a national scrappage scheme for the most polluting vehicles.

Finally, the government, which has so far only mandated five cities across England to introduce new Clean Air Zones, should expand the number of cities required to put in place new policies to address air pollution. Cities should be use these zones – alongside the offer of devolved transport powers – to not only phase out diesel vehicles but also revolutionise the way in which we travel, promoting cars clubs, public transport as well as walking and cycling.

Elsewhere in Europe, leaders have read the warning signs and acted accordingly. Germany and Norway have moved to ban not just diesel, but also petrol cars, a policy that makes sense in terms of both public health and climate change objectives. It is now time for leaders across the UK to step up and follow suit.

The post No more excuses – it’s time to bin diesel appeared first on New thinking for the British economy.

Why didn’t Transport for London (TfL) invent Uber – and would Londoners be better off if it had done? The issues raised by this question are important and go beyond both transport and London and make us ask who and what the digital revolution is for.

In the jargon, Uber is a digital platform that facilitates peer-to-peer transactions between clients (in this case passengers) and providers of a service (Uber drivers). This allows Uber drivers to increase the use of an under-utilised asset (their vehicle) with little to no transaction cost beyond that imposed by Uber, provider of the platform that makes all this happen.

Platforms such as the one provided by Uber could prove useful in helping us make London a cleaner, more efficient and prosperous city. More shared transport could reduce car use and ownership as people recognise the ease and relatively low cost of jumping in another person’s car. Less ownership and a more efficient use of the remaining vehicles may also lead to reductions in air pollution, CO2 emissions and congestion, and, without so many roads, allow us to change the city’s layout to make living and working easier and healthier.

Platforms like Uber could also do the opposite, increasing the amount of traffic and adding to existing air pollution and CO2 emissions. This is a future in which London’s roads are swamped by private hire vehicles as a precarious job market pushes more people to become Uber drivers. The danger that this model leads to the erosion of labour rights is already with us, an issue that was at the heart of a recent court ruling to block Uber classing its drivers as self-employed. Uber is also famously set up to avoid tax, posting £22,000 tax on a £866,000 UK profit in 2015.

The societal, economic, and environmental effects of peer-to-peer transport platforms such as Uber are only just starting to emerge. Despite the potential for some short-term benefits there may be longer term problems that are difficult to reverse once these platforms become fully integrated into society and the economy.

A major concern is whether the commercial objectives of those who have developed and own these platforms align with the public interest of cheap, clean, efficient transport, and if they do not, whether there are appropriate levers for improving the situation. This brings us back to the twin questions of whether the public good would be maximised (or protected) if Uber were invented by TfL, and, if so, why TfL didn’t invent it.

TfL’s job is to deliver the Mayor’s strategy and commitments on transport, which presumably involve improving transport in the public interest. If peer-to-peer transport platforms could help realise these commitments, then one could argue it was well within the purview of TfL to invent one for London, linking the ability to list yourself or a company to certain conditions, including standards on environmental impact, passenger safety and labour rights.

A TfL app could have also raised significant revenue, an issue that is increasingly pertinent for TfL as it will lose its day-to-day running grant from 2018. London will then be the only city in Europe without a transport subsidy and TfL will likely have to increasingly commercialise or sell its assets.

There are many reasons why TfL may not have wanted, or been unable, to invent a peer-to-peer platform for London. Primarily, TfL raises its revenues from the public transport network it runs and so a platform that could encourage people to jump in cars instead of heading underground would raise questions around the effect on revenues, as well as the unproven environmental outcomes.

Presumably the black cab lobby would have had a lot to say, though it’s possible they could have benefited from being able to list their services on a platform that wouldn’t see them as competition to defeat, as Uber does. A lack of resources for innovation and future thinking may have also played a part. TfL has, and continues, to battle at the forefront of transport innovation, but we should ask whether its current and future resources enable it to continue this battle in a world increasingly disrupted by digital technology.

Beyond just TfL, the attitude toward the role of the public sector and of the state is important here. For the last few decades, political narratives and economic thought have been dominated by the assertion that the public sector is inherently inefficient and wasteful, leading to decisions that inevitably validate this assertion.

In reality, the time for TfL to invent a peer-to-peer transport platform along the lines of Uber has now passed. But the next opportunity is already with us. Around the world, a number of companies and public bodies are developing the idea of ‘mobility as a service’. These platforms build on the concept of Google Maps and Citymapper by offering a monthly subscription for all transport use – imagine a mobile phone contract but for mobility, where you pay, say £300, and get unlimited use of tube, bus, Santander bikes, taxis, and car share within zones 1, 2 and 3. Suddenly, getting from A to B involves seamless mapping and payment, and, if the car share market develops, means you will never need to own a car.

The knock-on effects could be enormous. If TfL were to develop this platform for London it could have some control over these effects. TfL could decide that companies like Uber would only be able to list services on the app if a proportion of their vehicles were electric, for example, or if their staff were entitled to certain employment rights. Presumably the app would become the go-to for getting around London and so it would be in Uber’s commercial interest to do so.

If TfL doesn’t develop this platform, a private company may do so. If this enabled the platform to be developed and that platform helped deliver good environmental and other outcomes, then so be it, some will say. But this would mean that TfL would lose the ability to drive outcomes directly and, assuming the UK government’s ideas don’t change for some time, the scope for regulating the private sector’s actions is limited. London’s mobility as a service platform could then end up like Spotify, for example, where advertising and other conditions are the norm unless users pay for a premium account. One could imagine a future where the owner of this platform could, say, cut a deal with McDonalds and so your taxi ride would go via the drive-thru unless you pay for a premium subscription.

To limit the chance of this world emerging, TfL should invent an app that turns London’s public and private transport network into a service. Considering why TfL didn’t do this in the case of peer-to-peer platforms like Uber helps us understand the barriers to realising the full potential of the digital disruption of transport. It also helps us pose a more fundamental question. Digital technology could enable unprecedented opportunity to remould transport for the public good; will that good be maximised, or even possible, if digital infrastructure is wholly private?

The answers to these questions will have an impact far beyond the transport sector. They are a cautionary tale for the future of our political economy. In short, the digital revolution is disrupting large swathes of society and economy and the pace of this disruption is accelerating. With it comes the potential for great negative as well as positive outcomes. The state – our means of steering these outcomes – is smaller, more under-resourced and more discredited than ever before. This is very dangerous. In developing our response, we must decide whether to be the architects of the future, or its victims.

The post Uber X TfL? Turn peer-to-peer transport into a public service. appeared first on New thinking for the British economy.

It’s déjà vu all over again.

This malapropism is usually attributed to Yogi Berra, a famous baseball player in the early 1960s. It also seems to be appropriate now when thinking about international economic policy in the UK. I could have written ‘analysing’ rather than ‘thinking’ but that would suggest that current policy is the outcome of a serious discussion of options and estimates of the costs and benefits of alternative possibilities. Unfortunately policy makers seem not to have any understanding of the history of Britain’s recent relations with Europe and seem intent on unravelling what has been put together in recent decades irrespective of the impact on both the UK and our partners in Europe. The following will hopefully throw some light on the how and why of where we are presently but is in no sense intended to be other than a personal account of past events that ought to have some weight in current policy development.

I joined the Treasury in the mid 1960s during Harold Wilson’s first government and had a remit that focused on international economic policy. At that time the Government Economic Service was truly professional and was headed by professor Alec Cairncross who was highly experienced in government and very insightful about economic policy. Other economists on the staff included Wynne Godley who subsequently became professor at Cambridge and his close collaborator James Shepherd. There was a depth to economic analysis and policy discussion across Whitehall that has subsequently been eroded in part through the appointment of special advisors who are essentially political aides rather than economists. This weakening of the policy making process is unfortunately only too evident and in part explains the cumulative failures of recent years – not least the deadweight-losses and distributional costs of Osborne’s austerity policies.

The Labour government had a majority of 4 when it took office in 1964 and had inherited a balance of payments in significant deficit. The previous Tory Chancellor (Maudling) had been advised to reduce domestic demand in the 1964 budget but had chosen to ignore this advice and instead cut taxes in advance of the autumn election. But preparatory work went ahead in the Treasury so as to have a range of measures in place to deal with the expected sterling crisis which would inevitably occur given the forecast balance of payments deficit. Wilson chose not to devalue the exchange rate and chose instead a temporary import charge which reduced over time the level of imports. But the underlying position of an overvalued exchange rate continued until the UK was forced to devalue in late 1967 under conditions that were extremely costly for the Treasury and the country.

This background is relevant in that by the 1960s the UK had reached the end of the line in respect of international trading relationships. The Commonwealth which in the 1930s had sustained the British economy had ceased to provide growing and dynamic markets for UK exports in the post war period and indeed had to a degree held back the industrial regeneration that was needed. Thus Tibor Barna demonstrated in an influential paper that dependence on slow growing Commonwealth markets was part of the problem and that shifting exports to faster growing markets would generate more competitive production. The UK had grown slowly during the 1950s in part because of the constraints of the balance of payments (a stop/go economic cycle) and had lagged behind our European competitors. New trading relationships were thus seen as essential if the UK was to break free of the constraints of the balance of payments but there was disagreement about what to do.

On the one hand there were those who wanted to maintain the Commonwealth relationship of essentially protected trade dependent on a set of defence and other preferred relations. This despite the fact that such markets did not display the patterns of demand that were essential if the UK was to develop new and growing industrial capacity. Hence the dispute that went on for ever within the Tory party about sustaining the Commonwealth ties despite the fact that the latter were themselves developing new markets for their output/exports. As we shall see below some of these arguments reverberate today given the belief of some of those supporting Brexit that there exist alternative markets which could easily replace access to the EU single market. The question becomes whether such markets exist and whether the UK would be competitive in the face of for example Chinese, Indian, and Vietnamese products.

In 1957 the six European countries signed the Treaty of Rome establishing the European Economic Community. At that time the UK would have been welcomed as a member but chose not to join and instead formed a rival bloc of seven small countries (EFTA – the European Free Trade Area). It was hoped that EFTA would provide some of the trade growth that UK so desperately sought without the various obligations involved in the EEC whilst allowing the UK to sustain the Commonwealth relationship. EFTA was never a realistic alternative to the EEC and this soon became apparent even to the Tory party that was in office throughout the 1950s and until 1964 when Wilson won the election. Macmillan had by the early 1960s decided that Britain should join the EEC but faced problems within his own party and also from the French. De Gaulle had decided that the UK was simply a ‘trojan horse’ for the USA and after the Nassau agreement on nuclear weapons essentially an American colony.

Charles de Gaulle, by fr.politique.wikia.com/

By the mid 1960s, the UK had run out of options. The Commonwealth couldn’t provide the market growth that British industry needed; EFTA was too small a market to generate the industrial economies of scale needed if the UK was to compete with the Germans, and the French were not prepared to let the UK join the EEC. Wilson when he took office realised that the future of the UK lay with the EEC and he took up the UK application to join in the later 1960s but continued to be rebuffed by the French. Internal economic assessments in Whitehall showed quite clearly the costs and benefits of membership of the EEC with overwhelming support for the gains from membership. Opponents of membership of the EEC within the Cabinet still persisted in supporting the Commonwealth option and some Labour ministers even proposed setting up a free trade arrangement with the USA. As we shall see below the UK tried to address the concerns of the French and these were to a degree easier after the changes in UK defence policies when Wilson abandoned its East of Suez commitments.

But it was left to Edward Heath when he took office in 1970 to actually engage with our European neighbours and he signed the Treaty of Accession in 1973. So finally the UK, having tried all of the various options, had concluded that the EEC was the best and it signed on the bottom line. Of course one of the consequences of joining the club was that the table had been set in the interests of the original members, and the UK had more or less no option but to accept arrangements some of which were definitely not in the British interest such as the Common Agricultural Policy. Herein lies part of the problem with the EEC since its structure wasn’t ever set in the interests of the UK but of the founding members. Mrs Thatcher managed to get the famous fiscal rebate to reflect that fact that the UK was contributing excessively to the EU budget, and has increasingly sought opt-outs from policies that supposedly do not meet British needs. This increasingly semi-detached relationship has not endeared the UK to its EU partners and one would not expect them to be falling over to please Brexiteers in any negotiations as and when these begin in 2017.

A digression – or is it: Concorde

There was great secrecy surrounding the development of Concorde and although public funds were used to support the project from the early 1950s it was not until December 1962 that parliament was allowed to have a debate. Attempts had been made to try and get the USA to share the costs of development but they turned down the opportunity having a totally different view about market opportunities for aviation growth. Proponents of supersonic aircraft made sure that the project was kept as far as possible away from Treasury oversight even though development costs had already vastly exceeded the estimates originally produced. In the end the development costs were no less than 15 times the original estimates.

Tory governments during the 1950s were keen to take forward Concorde in part so as to support the British aviation industry which was reeling from the failure of the Comet aircraft. In part the problem was an engineering one – how to design a plane which could carry enough paying passengers and not make operational losses in the process. This was never resolved and the plane often flew with only half of the seats occupied. There were also the severe environmental issues – of noise and pollution – which were never solved and exercised the minds of many of those affected by the plane in urban settings. While back of the envelope projections were made in the Ministry of Aviation of a market for the aircraft of between 150 and 500 planes only 16 were ever produced. These were acquired by British Airways and Air France which were both national carriers at that time either at discounted prices or for free. Both airlines were also given guarantees by their respective governments against operational losses.

The Macmillan government having been rebuffed by the Americans turned to the French and discussions started about a joint venture in 1959 and finally in 1962 an agreement was reached on funding and development of Concorde. What is remarkable about this agreement is that no market assessment was ever made and no one ever approached the main airlines to ask whether they would buy a supersonic aircraft. Furthermore it was agreed that if either partner pulled out of the project then they would have to fully compensate financially all of the costs incurred by the other country.

Why was the British Government so committed to Concorde? Well the answer to a degree relates to the discussion above that UK had by the early 1960s decided that its trading future lay with the EEC. The joint development of Concorde with the French as a full partner was supposed to demonstrate two things. Firstly, that UK would bring to the EEC a viable and high tech aviation industry to rival the dominance of the USA, and secondly that it was now committed to a European market as represented by the Economic Community. Macmillan was not of course committed to the vision of Europe of Monnet and Schuman who saw economic arrangements as a stepping stone to broader political integration. Rather, Macmillan’s decision in 1962 to apply to join was essentially economic and herein in part lies the genesis of the problem in the longer term.

Unfortunately for Macmillan the French were not convinced that the UK was ready to join the EEC and De Gaulle rejected the application in January 1963. When the Wilson Government came into office in the autumn of 1964 it looked at the agreement with France and at the costs of developing Concorde and tried to cancel the project. They were appalled at the fact that no commercial assessment had been made of the market for the plane and that cancellation by either partner would lead to compensating the other for all of the costs incurred. Labour decided it was simply easier to continue with the project rather than cancel it. Furthermore, as noted above, Wilson became convinced that joining the EEC was the only viable strategy so he took up the application that was still on the table and engaged the French government in further discussions. Concorde was part of the background to the discussions but in itself proved insufficient to get the French to change their opposition and Pompidou again rejected membership.

The best and easiest accessible analysis of the tangled web of events relating to the development of Concorde is to be found in the Atlantic Monthly, Jan 1977 (Supersonic Bust by Robert Gillmann). It’s a sorry story and an example of the far too many appallingly bad public investment decisions made by British governments over the past 50 years. The project was hugely expensive – estimated by David Henderson who was chief economist at one stage at the Ministry of Aviation at £4.26billion in 1975 prices. The Concorde project furthermore tied up the scarce engineering and design capacity of the British aviation industry for decades at a time when the global market was expanding rapidly. Allowing this hugely profitable market to be captured by the Americans who had rightly seen no future in supersonic flight.

And then there is Hinkley Point C

Hinkley Point nuclear power stations, by Richard Baker.

The parallels between  Concorde and the decision made in September by the May government to go ahead with the building of the first nuclear power station for many years is truly amazing. It is as if the British have a preference for investments that are white elephants, and are determined to go ahead with immensely expensive projects despite the evidence that they are not the best solution to national needs. The French, Chinese and British governments have agreed jointly on the building of Hinkley Point C at an estimated cost of £18billion. This is despite the fact that the technology is untried and that the 2 plants presently under construction in Finland and France are years behind schedule and well over budget. The Finnish plant was due to come on stream in 2009 and is now 5.2 billion euros over budget while the French plant is 6 years late.

As with Concorde, the government has chosen a technology that is risky when other alternatives are available. The government has itself confirmed a report from the National Audit Office (July 2016) that by the mid 2020s that large scale solar and onshore wind power would generate electricity more cheaply than that produced by Hinkley Point. Indeed, the government estimates are that sustainable sources of energy would be half the price of nuclear. Furthermore there would not be any need for the price guarantees given to the Chinese and French developers in the contract (the latter are expected to add very significantly to the electricity bills of consumers over several decades and have been estimated by the National Audit Office as up to £30billion). There also remains the complex issue of responsibility for decommissioning the nuclear plant and who bears the cost of this huge and unpredictable expenditure. Notionally this will fall on the developers but the contracted costs look as if they will be far below the actual cost and the huge excess will fall on UK taxpayers.

So why would the British government choose nuclear over the available alternatives? The technology is untried, the costs of construction are inevitably going to be billions more than estimated and the project delayed by many years, and the costs of operation greater than competing sustainable energy alternatives. There will be ongoing subsidies to operators and the clean-up costs impossible to predict but inevitably huge (the present estimate is up to £7.2 billion but they will be many times that figure). There are so many elements here that parallel the case of Concorde and in the final analysis the costs will again fall on the UK tax payer.

Where are the benefits?  Well these seem to lie in the nebulous and unlikely possibility of access to the Chinese market for British exports, and an ability to draw down Chinese direct and financial investment in the UK. In the case of exports of goods and services to the Chinese these are already possible under WTO rules so what would be gained by the Hinckley contract? Similarly in the case of Chinese investment where the Chinese will make rational decisions on where to put their savings and this will depend on the usual assessments of financial return and profitability. Of course the investment in Hinkley Point may generate further opportunities for Chinese nuclear contractors in the UK but this is highly uncertain given that nuclear will be a high cost option relative to other sustainable energy.

In large part the British are going ahead with Hinkley because of the market disruption caused by Brexit. The loss of privileged access to the EU market for goods and services will mean finding alternative markets – and the Chinese market is huge and is growing. But as noted above, for most products, the Chinese are a much lower cost producer than the UK. So where would the market opportunities lie? The British current account is already in large deficit and has been for many years and has been financed by capital inflows – some of it from China. The hope presumably in government is that it will continue to be possible to draw-down Chinese savings to finance the ongoing deficit – a deficit that will probably widen after Brexit. But this is a highly uncertain strategy and one that no sensible government would find attractive given the political structure of China and instability in Chinese/Western relations.

Where to now?

Membership of the EEC and subsequently the EU has been immensely beneficial to the UK. There have been large and ongoing economic benefits as was predicted in the early assessments undertaken in Whitehall in the 1960s and subsequently confirmed by innumerable economists. The recent Treasury assessment of the cost of Brexit of a reduction in British GDP of between 5.4% and 9.5% looks only too realistic, and represents an estimate of the gains to GDP that the UK has had from membership of the Community.

There have, of course, been non-quantifiable benefits which have been just as important not least the opportunity to draw on highly skilled and professional labour from across the EU over many years. Not least of the benefits has been an awareness over time that the future of the UK lies in cultural and social integration with our partners in Europe – recognised most fully by the youth of Britain who overwhelmingly voted to remain in the EU in the June referendum.

There is no realistic alternative to the EU available to the UK out there – a world of supposed ‘free trade’ which has been always a fiction in the minds of a few classical economists and naive Tory politicians. As we have seen above in the brief history of our accession to the EEC and subsequently the EU there is no alternative, as even Mrs Thatcher finally realised as she signed the Treaty of Maastricht.

What we now have is a world of managed trade where membership of a large trading bloc such as the EU is essential for access to global markets on reasonably fair terms. There is no way the UK could freely compete with the low wage economies of East and South Asia in most manufacturing products. Rather the future of the UK has to lie with products and services that embody high levels of education and technology. These are precisely the capacities that are developed and sustained by ongoing membership of the EU.

Brexit, if it ever happens will cause deep economic and social costs and is totally avoidable. It would be yet another example of policy decisions of which there have been far too many examples in recent British history and which have been disastrous in their impact on the population. If Brexit is persisted with by the present government, not only will it reduce GDP, cause high and unnecessary unemployment, and social distress but it will probably also lead to the breakup of the UK.

Why would any government choose to go down this path?

The post From Concorde to Hinkley: The EU and Britain’s trade and investment policy appeared first on New thinking for the British economy.

The claim that unfettered markets are the most efficient means by which to organise human economic activity should invoke incredulity in the wake of the 2008 economic crash. Yet the ideology underpinning the belief in the rationality of the market continues to shape society, despite its deleterious effects on everything from public services to our most intimate relationships.   

In the face of ideologically motivated attacks on state services, much of the left’s energy has understandably been expended defending the crucial services it provides millions of people. Yet, at times this has been at the expense of developing and experimenting with both non-state and non-market alternatives.

58% of the population believe they have no influence over the British economy and 59% feel they have no control over big business. The sharing economy opens up new opportunities for people to self organise and develop services that better reflect the particularities and needs of their communities. Recent developments in technology mean such alternatives can operate at a pace and scale previously unimaginable.

In our efforts to foster the potential of the sharing economy for a New British Economy, we cannot assume its rise is an automatically progressive development. Airbnb and Uber are reminders of how it can just as easily develop on a model of corporate rent-seeking. It also has the capacity to constitute ‘Big Society’ style ideological cover for market failure and cuts to welfare provision. With this in mind, the sharing economy must develop in coordination with an ‘entrepreneurial state’, of the sort envisioned by Mariana Mazzucato and championed by Labour’s John McDonnell.

One of the most exciting, progressive examples of the sharing economy has been the rise of time banks, through which members offer knowledge, skills or services to one another. The shared currency is time and crucially, each hour of a person’s time is worth the same whatever they are offering. All races, professions and ages are welcome and considered equal.

Each time bank, and the services it offers, is an expression of its members, so it ends up reflecting the particular interests of the neighbourhood in which it is based. This, of course, is something in constant motion; time banks are flexible, ever changing, a work in progress and very much alive.

Time banks are not limited to groups of friends and neighbours, but also exist in association with larger institutions, including state services such as the NHS. Paxton Green time bank in London was created by the local GP surgery as a means of assisting people with mental health issues, in preference to an over-reliance on anti-depressant medication. 

Time banks offer not only practical, material help to those unable to afford goods and services via the capitalist market, but also reduce feelings of alienation and isolation. Studies have found that time banks are successful at engaging socially excluded and vulnerable groups of people, involving them in community activities, often for the first time. The schemes help boost confidence, social networks, skills and well being, creating spaces where values not recognised by the market, such as equality, prevail.  

As Paul Mason argues in his book ‘Post Capitalism’, the left needs to relearn to do positive things. This means building alternatives within the system and using governmental power in a radical and disruptive way to secure a transition path, rather than offering fragmentary defence of random elements of the old system. Time banks, cooperatives, credit unions, peer-networks, subcultural economies, unmanaged enterprises all signpost the way toward a potential post-capitalist future. Rather than regarding these examples as quaint experiments, they should be promoted with regulation as vigorous as that which capitalism transformed eighteenth century England.  

In our haste to challenge the market’s debasement of daily life, we must avoid reifying the state as the sole route through which to deliver positive socio-economic change. The state should be interventionist and ‘entrepreneurial’, but it can also empower by providing spaces for genuine human flourishing. A national investment bank network as envisaged by John Marlow would allow the state to fund and regulate exciting new projects across the country, whilst leaving the bulk of decision making to ordinary people. These projects would reflect the particularities of each community and empower individuals hitherto caught between the vagaries of the market and a too often one size fits all state. The potential of the sharing economy needs to be recognised and nurtured by Britain’s progressive social forces. If not, it risks becoming merely the latest avenue for corporate exploitation and handy ideological cover for those intent on rolling back hard-won welfare state provisions.

The post Nurture the sharing economy: A time bank in every community appeared first on New thinking for the British economy.

It can take a thousand years to form an inch, which can be washed away in a moment. It provides 95% of our food, and yet we allow it to blow off in the wind. Civilisations rise and fall on how they treat it, and we treat it like dirt. I am talking, of course, about soil. Researchers at Sheffield University concluded two years ago that Britain’s fields are so depleted that our earth had a hundred harvests left in it. So make that ninety eight. Other stats are even scarier. According to New Scientist magazine, if we don’t slow the decline, all farmable soils in the world will be gone within sixty years.

There are lots of simple things which the government really should be doing to combat this. It has a unique opportunity to rethink our approach to farming, as Brexit will remove the UK from the EU ‘Common Agricultural Policy’ (CAP), repatriating regulatory powers. The government should better regulate or indeed curtail disastrous maize farming. It should encourage more crop-rotation and upland tree planting; support wetland restoration and beaver-reintroduction; ban heather burning on grouse moors; minimise soil compaction from livestock and machinery, and invest in a mass switch to organic farming.

But it seems to me that, whilst all of these policies are necessary, they are insufficient to tackle the global scale of this crisis. Adjustments to conventional farming methods help – but they don’t tackle another great problem: that the extensive land use required by such practises means eating into ever more wilderness, wiping out ever more species. So as well as reforming our traditional land farming, we should look into alternative agricultural solutions, which will allow us to feed ourselves without asset-stripping the planet and dooming future generations to food scarcity.

Hydroponic and aquaponic farming allow for the growth of vegetables in water enriched with nutrients (in the latter case, through the presence of fish). Famous largely for its use by cannabis growers, many other kinds of crop can equally flourish without soil. It’s not a new idea: Francis Bacon referred to ‘water culture’ in his 1627 book ‘Sylva Sylvarum’, and there was an eruption of research immediately afterwards. Studies in the 1960s showed it to be no more efficient than growing food in good quality top soil. But with less and less good top soil around, those figures get more and more appealing. And that’s without mass investment in research and development that could make these methods even more efficient.

Similarly, 3D ocean farming offers the opportunity to grow much more of our food in the seas, whilst at the same time replenishing our life-bereft maritime ecosystems. Seaweed doesn’t currently form a significant part of the European diet. But it is delicious, and can also be used as livestock feed. As the soil crisis hoves into view, it seems likely that new farming techniques along these lines will see ever greater demand. And just as those countries who got ahead of the game in renewable energy twenty years ago are reaping the rewards now, it seems likely that government backing for such agricultural innovations will reap long term dividends on the global market.

But if we are going to go down this road, it’s worth asking another question: If the 1909 allotment act gave each of us the right to land on which to grow food, why not update it to give every family access to a space in a shared hydroponic tower? What about our numerous impoverished seaside towns? Why shouldn’t councils lead investment into ocean farming co-ops?

And if much large-scale modern agriculture is done by carefully programmed machines, why can’t we equally automate the growing of our own food? Why can’t Britain be the country which develops the technology by which your own veg, or seaweed, or shellfish, grown in your community allotment, can be picked by your community’s automatic harvester and delivered to your home by a community-owned self-driven car or drone? Ownership of Britain’s agricultural land is astoundingly unequal, and new technologies offer an opportunity to democratise food production, beginning to tackle a food poverty crisis whose icon has become a growing array of food banks.

The food and drink supply chain is the UK’s single largest manufacturing sector. It accounts for 7% of GDP, employs 3.7M people and is worth £80Bn per year. Because of CAP, it has been protected from the global market for decades. As Britain leaves the EU, we must decide what role it will play in the future of our economy. We can allow it to be asset stripped like most of our industry, or we can accept that at a time of fast technological change and vast environmental challenges, we will have to embrace the former if we are to survive the latter.

The post Invest in farming technology appeared first on New thinking for the British economy.

Public promotional banks are used in many countries to provide cheaper credit to infrastructure projects and businesses. Given that investment in these areas has been endangered by austerity, setting up a national investment bank seems like a sensible move to help shield capital investment from opportunistic government cuts.

But let’s not just set up a bog-standard promotional bank. As I discussed recently, the results of these initiatives tend to be underwhelming. We should be more ambitious. We should set up a decentralised and locally accountable “National Investment Bank Network” with branches at the municipal level; a network of Regional Investment Banks. These would be public services working closely with municipalities and county councils, local companies and local initiatives. They would help to identify and develop investment opportunities and provide tailored finance to support the economic revitalisation of communities across the UK. They should:

Support small businesses directly: The usual practice of lending to other banks “for on-lending to Small and Medium-sized Enterprises” is just a cheap way to hit targets – there’s no way to know how much SMEs really benefit. A public service investment bank should invest in municipal-level branches and local client relationships to support small businesses directly.

Package funding with technical support: This would unlock investment opportunities, local municipalities, businesses and social enterprises need advice and support. Matching funding with technical support can have a larger macroeconomic impact than just trying to lower costs and maximise volumes.

Support the cooperative economy: We need not just investment in businesses, but a different way of doing business. Corbyn’s Digital Democracy Manifesto proposes that the national investment bank will be used to support platform cooperatives. Indeed, all kinds of cooperatives and social enterprises such as housing associations should be prioritised, helping to bridge the funding gap for coops and providing backing such as guarantees for cooperative P2P financing. 

Be radically democratic: We need to explore and develop a new public service model that moves away from top-down command management and fosters accountability to workers and the communities they serve. This model would be based around four principles of organisation (1) Run the local branches like cooperatives, so that managers are selected and accountable to the whole workforce and not the other way round. This already helps to reflect the public interest and keep managers honest. (2) Vest branch ownership in local authorities and make them accountable to those authorities, if not directly to citizens. Branch workers should decide operational matters (e.g. which projects are worth funding) and local communities should set the policy priorities (coops or housing or renewables…?). (3) Confederate these branches to create each Regional Investment Bank, like a coop of coops, each with a with a regional HQ to provide services to the network and support pan-regional operations. (4) Coordinate the actions of these regional banks at a national level. This way the whole system becomes radically democratically accountable, and very hard for the national elite to capture.

The post Set up a national investment bank network appeared first on New thinking for the British economy.

The push for public ownership of vital services should not be about a return to top-down state industries. We can’t go back to the past – and we want the public ownership of the future to be better than ever before. But also because the public ownership of the future must explicitly involve a new dimension: local public ownership. Of course, national level services like the NHS and the railways are absolutely key. But local public ownership – of energy, water, buses and council services – is just as important.

Public ownership should mean more accountable, efficient services, whether that’s at the local, regional, national or international level. Locally, this involves councils running or taking over strategic public assets or contracts for services, and it has huge potential.

Extreme government pressure on budgets has led to council cuts and privatisation – what Polly Toynbee calls ‘the retreat of the human face of the state’. At the same time, there’s an exciting countertrend towards more local public ownership, not just in conversations happening within Labour, but also globally and in the UK.

170 German municipalities have bought back their energy grid since 2007. 235 cities worldwide, including cities like Atlanta and Houston in the US and Paris in Europe, have taken water services into public ownership since 2000. APSE research has shown that dozens of UK councils have brought services like recycling in-house to save money and improve quality. 12 municipal companies provide excellent bus services in places like Reading and Edinburgh. We now have Robin Hood Energy in Nottingham, the first council-owned energy company.

It’s no surprise that there’s been a global surge of interest in public ownership at the local level. Prices for basic needs like power and water keep rising, and private providers are often inadequate. But local public ownership is also exciting because of its potential impact on the wider economy and society. Here are five reasons to embrace it.

• Many people feel a lack of control over their lives in the UK today. At least one reason for the Brexit vote in June is that a large group of people had a sense of political powerlessness channelled into anti-EU feeling. Local ownership brings people closer to services, restoring people power and accountability.       
• Local ownership provides an employment boost. While nationwide unemployment dipped below 5% in mid-2016, unemployment remains high in some cities and regions.  Local ownership could be a part of a jobs strategy for these centres.      
• Strong local public services boost local economies through the multiplier effect. Councils who spend money on in-house services or local procurement will boost the money in the pockets of local employees and providers who re-spend a high proportion within the same area.
• Local ownership produces an important stream of revenue. Some compensation or payment is required at first to secure local ownership. But after an initial investment, local ownership builds the asset base of local government, which can be used to pay for public services or reduce debt
• Local ownership improves social cohesion and local pride, mobilising people to take action in their own lives or to be more involved with politics. Scottish community energy projects have boosted awareness of the benefits of renewables. It’s also a bridge to other forms of community ownership. Danish windfarms have succeeded through a combination of local ownership, national ownership, and cooperatives.

Privatisation often costs us more – in shareholder profits, fragmentation and higher interest – while evidence shows that it’s not more efficient. Local ownership gives us a clear alternative that would also boost local economies and communities across the UK. Let’s take it local.

The post Put public services into the hands of local governments appeared first on New thinking for the British economy.

London’s Garden Bridge will cost £60m of public money, and may even require a public bailout upon completion. Meanwhile, museums in Derby, Lancashire, Jarrow and Durham face closure. The cost of keeping them open is a tiny fraction of the public money funnelled into the Garden Bridge.

Of course, the problems with Britain’s economy don’t begin and end with the Garden Bridge, but it is a fantastic symbol of how skewed the nation’s economy, culture and infrastructure investment are towards London and the South East. It’s also an explanation for the resentment people living outside of London feel for the national overemphasis on the capital.

The first thing to address when it comes to rebalancing the economy is George Osborne’s idea of ‘Northern Powerhouse’. This was marketed by the then Chancellor as a way of rebalancing the economy and fueling economic growth in the North. But, as Daniel Bailey wrote for the Centre for Labour and Social Studies: “there is a great incongruence between the soaring rhetoric of devolution and the actual policy content of City Deals, such as the one in Sheffield, where only modest budgetary powers have been handed down. Moreover, an analysis of the specific powers being transferred speak to Whitehall’s existing objectives rather than an enabling of any deeper sense of decentralisation.” The emphasis on Whitehall has been demonstrated in farcical news stories about over 200 Northern Powerhouse jobs being moved from Sheffield to London.

In short, the Northern Powerhouse initiative is an exercise in devolving blame but centralising power. City deals mean British regions will get the choice over how they spend an ever-decreasing pot of money, and may even end up undercutting one another if business rates are also devolved. This doesn’t devolve power, it just outsources austerity. It’s not a solution to the problem of a London-centric economy; it is part of the problem.

What the UK needs is a proper industrial strategy to develop communities across Britain. This would involve investing more in the manufacturing industries so that there are plenty of well-paid skilled jobs in areas that have previously suffered industrial decline. Part of this industrial strategy would be to invest heavily in research and development to ensure the technology Britain develops can be exported to other countries, and the revenue used to invest in the country’s future.

A proper transport strategy is also needed to balance the economy away from London. By improving transport links and reducing commuting costs, the government could create a metropolis encompassing many northern cities – like a spiderweb of different economies across the north. This would be a far better solution to Londoncentricity than HS2, which is essentially a project to make commuting to London easier.

Finally, some national institutions should be relocated to the north. Parliament could be moved to Newcastle, taking many journalists and lobbyists – and the money they spend – with it. The BBC already has a huge media centre in Salford, but this could be expanded further. National newspapers could be offered peppercorn rent for opening regional offices outside of London. The financial, political and media hubs of the US are spread across the country. It is absurd that the UK crams all of them into the same city at the expense of everything else.

These are just a small number of ideas for a balanced economy. The government must think of more, and make enacting them a priority. London can no longer be allowed to remain Britain’s black hole, sucking in all the resources in its vicinity.

The post Rebalance the economy away from London appeared first on New thinking for the British economy.

The obvious thing we need to fill this gap is new, properly affordable, homes to rent. At social rents for the lowest paid workers in shops, cleaning and delivering, and at a ‘living rent’ (around a third of take-home pay) for those the wages paid to people in the public sector. Both are essential groups of workers currently priced further and further away from our city centres.

The big problem is that new housebuilding projects with a combination of social and affordable rented homes aren’t top of the list for the big companies doing most of the big development schemes in our cities. But they’re a hugely important goal for housing associations, councils and long-term investment funds like pensions, and for the growing number of people getting together proposals for a new generation of co-operative housing. The government should work with such groups to promote the growth in affordable housing. In our cities there is public land that is ideal for these low- and non-profit sectors, much of it near transport services and stations. In the capital, Transport for London has already identified over 120 hectares of land in large plots, and is working on the next tranches of medium and small sites around its network and depots.

The post An ‘Affordable Urban Density Fund’ to build homes appeared first on New thinking for the British economy.