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.

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There are essentially three ways of financing an ambitious Labour Government’s programme of public expenditure. These are through taxation, monetary credit creation, and the issue of debt securities. The sections below explain how each of these three methods works, and their respective limitations. Those limitations mean that, in the end, a Labour Government’s programme will have to be financed by some combination of these three methods. A final section suggests that financial stability should determine the degree to which any of these three methods should be used in financing a Labour programme.

Taxation

The first, and most obvious, way of paying for government expenditure, is through taxation. In most countries this covers the vast bulk of government expenditure. The remainder is the so-called ‘fiscal deficit’ that must be covered through monetary credit creation or the issue of debt securities. A programme of government expenditure in a given period that is covered by tax revenue, is called a balanced budget. Financing expenditure through taxation is a purely redistributive activity: the public in general are taxed and the money is paid back to the public that obtains incomes from government expenditure programmes (public services, health, education etc., and public investment). Business and property-owners then obtain the money as those incomes are spend on consumption goods, rents etc.

The idea of a balanced budget is very appealing to Conservatives, because it epitomises the virtues of thrift and ‘living within ones means’ that in their view makes for sustainable household budgeting. This is of course a public virtue that, on the whole, they themselves do not practice, because private means and the possession of wealth allow the rich to live beyond any earned income, and the home ownership so ardently promoted by Conservatives allows increasing numbers of the middle class to generate cash flow from the housing market by realising capital gains. Nevertheless, the government is, in this view, supposed to balance its budget. However, the balanced budget doctrine is inappropriate because it ignores the important part that government expenditure and financing play in maintaining the stability of the financial system, through the provision and absorption of liquidity and risk-free financial assets.

This balanced budget approach is often combined with two other doctrines that are founded on political prejudice rather than analysis of the way in which the economy works. The first is that taxation distorts prices, markets and incentives. If this argument is to be taken seriously, then its proponents should be advocating the abolition of the state, and all that that would entail. The possibility of getting rid of all these distortions is an anarchist dream. Even that would not be enough, since it would also be necessary to get rid of all monopolistic distortions of the price system, and that would be difficult, if not impossible, without a state to enforce competition. The policy issue is what distortions (such as free education or environmental protection) improve the functioning of society and the economy.

The other, related, doctrine is that taxation is an insupportable burden on business. But this need not necessarily be the case. This depends on the ‘incidence’ of taxation (who pays) and the programme of expenditure. A tax on wealth does not affect profits from production. In no way therefore does it reduce the incentives that profits provide to firms to invest. A tax on wealth that is used to build hospitals creates incomes for firms that build hospitals. Business circles on the whole actually like government expenditure, providing that someone else pays the taxes. The armaments industry is a particularly egregious example of this self-serving attitude towards public finance. Business too benefits from healthy, educated workers, whose capacities have been enhanced by public support, not to mention the subsidies given to employers in recent years through income support. Business also obtains revenues as welfare payments and public employees’ incomes are spent goods and services that the private sector provides.

Nevertheless, behind austerity lies the desire to reduce taxes on the rich. In combination with the doctrine of balanced budgets, this means reducing public expenditure. Fiscal austerity is therefore first and foremost a distributional argument. If this distributional argument could be ignored then a Labour Government would have no difficulty. However, the rich have power.

The other limitation of taxation is that the ability of a government to extract taxes from the economy (i.e., the ‘fiscal base’) is finite. Major expenditures, such as the war effort in the two world wars of the twentieth century, or financial operations, such as the nationalisations of the coal and steel industries and the railways by the Attlee government, were on a scale that was beyond being financed from taxation. Historically, balanced budgets have been rare. There is moreover a technical reason why government expenditure cannot be wholly covered from taxation, namely because tax revenue does not come in at exactly the same time as the government spends its (our) money. Tax revenues are usually bunched in the first quarter of each calendar year. Arrangements have to be made to finance public expenditure in the period before each New Year. These arrangements are the other two methods of financing public expenditure, monetary credit creation, and the issue of debt securities.

Monetary credit creation

Monetary credit creation is sometimes misleadingly called ‘printing money’. The term is misleading because governments on the whole do not pay in cash. Except for their remaining weekly-paid employees, who may receive a wage packet with banknotes and coins in it, virtually all government payments are by bank credit. What is called ‘printing money’ is, in today’s credit economy, the provision of loan or overdraft facilities by the central bank, the Bank of England. These come in the form of the creation of reserves at the central bank which are then transferred to commercial banks that receive government payments on behalf of their account-holders, teachers, pensioners, policemen, doctors, civil servants, and government contractors.

In recent years a view has emerged that such ‘monetisation’ of a fiscal deficit, through the creation of bank reserves, or even a parallel currency, is an effective way of financing that deficit. After all, the loan from the central bank may easily be made effectively non-repayable by being ‘rolled over’ or renewed on maturity, and any interest on the loan (minus the Bank’s costs) is added to the Bank’s profits which of course belong to the owner of the central bank, the government. In this way, monetisation costs the government and the tax-payer virtually nothing. This economical, apparently cost-free, method of financing government expenditure is of course attractive when public services, welfare and infrastructure are deteriorating in the face of austerity. But this low cost is only the case at the time of the expenditure. To understand the true efficiency of this kind of financing, it is necessary also to consider the consequences of such financing. In particular, it is necessary to understand how that money would be absorbed by the economy.

Supposing that a Labour government decided to raise expenditure on public services, the NHS and infrastructure by a total of 5% of GDP in each year of its five-year administration, and ‘monetised’ this extra expenditure. After five years, the total money stock of the country would have increased by 25% of GDP. Supposing that economic activity accelerated (in accordance with Keynesian multiplier principles) up to 3% per year, on average over the five year period. One could make the case that, with GDP 15% higher at the end of this Labour administration, ‘normal’ economic activity would absorb in the usual exchange and financing 15% out of the 25% of the increase in the money stock. But what would happen to the rest? Where would it go?

To answer this question it is necessary to look at how money circulates in the economy. The essence of a profit-making, capitalist economy, is that firms make profits and, in this way, accumulate monetary savings or reserves. Not all of course make the same rate of profit: many small businesses operate at a loss, or just break even. It is large corporations that have the highest rates of profit, due to their market power and their control over resources through their extraordinary ability to tap the whole range of financial markets. Through this economic activity, the extra money spent by the government will end up being accumulated by corporations, their shareholders, and the banking system that holds their accounts. If those corporations and banks are happy to hold onto this extra liquidity then there is no problem with the monetisation.

However, if the monetisation is done by a Labour government to finance a radical programme, then it is unlikely that big business and its allies in banking and finance will contentedly sit on their accumulations of bank deposits. To paraphrase Kalecki, the cry will go up that the situation is ‘manifestly unsound’ and they will find more than one economist to adjudicate that the increase in the money supply is inflationary. Even if there is no inflation, economists can be relied upon to provide models that will show inflation accelerating in the future. The alarm will be raised among corporations, banks and the rich, that their bank deposits are about to be devalued by inflation. In this situation there is only one thing they can do: convert their bank deposits into bank deposits in a currency deemed to be more secure (the US dollar is the traditional haven in inflationary times). The result will be a sterling crisis and the eventual devaluation of the currency. That devaluation of the currency will then cause the inflation that was the pretext for the alarm.

Monetisation of government expenditure may therefore be effective on an occasional limited basis. But a systematic policy of monetising public expenditure hands ammunition to the enemies of the Labour Party. The greater the monetisation, the greater is the mass of credit that can be mobilised by those enemies to bring about the financial crisis that its agents can blame on the ‘unsound’ expenditure, monetary practice and fiscal policies of a Labour government.

That said, it should also be pointed out there are ways in which a government can increase the ability of the financial markets to absorb larger amounts of money. This is through expanding the long-term debt financing of the government.

The issue of debt securities

With debt financing, no new money is created. Instead the existing money stock is used more efficiently in the sense that the velocity of its circulation is increased by the more frequent turnover of money in the financial markets. This may be illustrated as follows:

In the case of taxation, the government takes money from the public and then returns it to the public as the government spends the money. In the case of monetary credit creation, the government adds money to the stock already held by the public, in the hope that, for the sake of financial stability, that money will end up as private bank deposits that, the government hopes, will be spent in the economy (increasing the fiscal multiplier) or will remain idle in the bank. In the case of borrowing, the government takes idle bank deposits from the public and then returns those deposits to the public in the course of spending that borrowed money. Through taxation to pay the interest on the borrowing the government takes money again from the public, and then returns that money to that section of the public that holds the government bonds. When the time comes to repay the borrowing, the government may do this by again taking money from the public through taxation (or borrowing), and returning it to those members of the public who hold the bonds.

In effect, what the government has done in financing expenditure through borrowing, is to redistribute idle bank deposits through the economy. The procedure does not in itself increase the stock of money or bank deposits, but it accelerates the circulation of existing bank deposits through the economy and the financial system. In practice the amount of bank deposits in the economy will increase, because holders of government bonds may want to obtain their money back before the bonds mature. In that case, they can sell bonds to someone who has spare bank deposits. But they can also use the government bonds as security to borrow money from banks. In that case, the amount of bank deposit money increases. The new deposit money usually stays circulating in the financial system. However, the degree to which government bonds may be used as security for credit, i.e., the value or price of the bonds, does depend on how much confidence banks or holders of government bonds have in the future value of those bonds. If the prices of government bonds fall, then not only are their holders exposed to a capital loss, which would make them more reluctant to hold those bonds, but also the effective interest rate (the ‘market yield’) on the bonds rises, increasing the rate of interest that the government must offer if it wishes to issue any more bonds.

It is therefore vital for the stability of its financing, that the government keeps control of the prices of its bonds. If bond prices start to fall, then the government can raise them again by financial operations ‘along the yield curve’, for example through a procedure known as ‘operation twist’. In such an operation, the government issues short-term Treasury bills, usually with a three-month maturity. Since these are ready substitutes for central bank reserves, a government can issue such bills at more or less at the central bank rate of interest. The money borrowed with these bills is then used to buy long-term government bonds. Since the majority of British government bonds are held by the Bank of England, or long-term investors like pension funds and insurance companies, it does not take very much buying in the bond market to force up the price of the bonds. In this way, by operating along the yield curve (the curve showing the rate of interest payable on bonds of different maturities), the government can control the rate of interest on its borrowing. This operation was famously conducted at the end of 2011 by the US Federal  Reserve and the United States Treasury to bring down the rate of interest on US government bonds.

Needless to say, such operations increase still further the turnover of money in financial circulation or the liquidity of the financial system. This liquidity is the precondition for the ability of the financial markets to absorb new government securities and new securities issued by firms and banks. It also helps to absorb otherwise idle bank deposits that may too easily be turned to a run on sterling or a financial crisis.

Is there any limit to which government debt can be issued? In the first instance, the limit is provided by the distortions that a swelling and liquid financial system imposes on an economy, with the increased possibility that the liquidity in the system becomes unstable, leading to financial crisis. To prevent this it may be necessary to impose a wealth tax, targeting in particular holders of financial wealth, and using the proceeds of that tax to repay government debt. This would reverse the tendency of government debt to redistribute income in the economy towards wealthy bond-holders (but also pensioners). It would in effect mean a budget surplus for the government, a solution that cannot but appeal to fiscal conservatives. If the liquidity in the financial markets is regulated by government or central bank operations to maintain the stability of the financial system, the limit to government borrowing is the extent to which it is possible to tax the holders of government bonds in order to service those bonds. In this situation the limit is the scale of the political influence of bond-holders, who would resist such taxation, and the proportion of the bonds held by pension funds (whose capacity to pay taxes is not significant).

Conclusion

The balance between taxation, monetisation and debt issuance not only provides the means for financing an ambitious expenditure programme by a Labour Government, but also provides the instruments for financial control in an open economy in which financial regulation is difficult.

A future Labour government’s spending programme should be financed from taxation. However, it is unlikely that the scale of such a programme could be financed entirely from taxation. Any deficit should be covered by the issue of long-term bonds that can be risk-free assets for pension funds and insurance companies, and offer those funds a return that does not tax their solvency, as the recent programmes of quantitative easing have done. Such bonds, and government operations in their markets, can then be used to stabilise liquidity in the financial system, absorbing any monetisation to which the government may need to resort.

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The 20^th century American comedian Rodney Dangerfield had a catchphrase: “I don’t get no respect”. The public debt is the Rodney Dangerfield of government finances. It is a long term benefit treated as perennial problem.

When we change our perspective on of the nature, size and ownership of the UK public debt we can see that it poses no threat to economic stability. Its size is modest and its burden on taxpayers is minor. If we treat the national debt as an asset, we can use it as a means to end austerity. 

Give the public debt some respect and end austerity!

The claim that our public debt is excessive has been used as a major justification for austerity – cuts in spending. That massive debt, we are told, 1) must be repaid, 2) threatens our country with bankruptcy, and 3) is a burden on future generations. All these are wrong. Let me explain why.

When our government borrows it does so by selling a promise to pay, called a bond. For example, a household buys a £100 bond and our government promises to buy it back at the same amount in ten years with interest (at present 2.5% or £2.50 every year). A pound note also is a promise to pay (look at the small print near the Queen’s picture). A pound note is a bond paying zero interest.

Britain’s national currency is managed by our central bank, the Bank of England, owned by the citizens of the United Kingdom (that is, our elected government). As a result, the British government can never default on its bonds. Our government can replace maturing public bonds with new ones. Should private buyers, households and businesses, refuse to purchase the new bonds at the interest rate set by the British government, our government can sell them to the Bank of England. The option to sell to the Bank of England provides a fool-proof mechanism to prevent excessively high bond rates.

Whether the economy is strong or weak, the British government can never default on its debt. The debt is nothing more than pieces of paper that the government promises to buy back on a specific date. These pieces of paper can be bought back with new pieces of paper (new bonds) with later buy-back dates. If the private owners of the debt paper do not want the new bonds (new debt paper), our government can sell those new bonds to the Bank of England for cash and use the cash to pay the bond holders.

This buying and selling of public bonds is not the much-misunderstood Quantitative Easing (QE). QE was a one-way street – our government bought private corporate assets from companies threatened with bankruptcy. In a phrase, QE was “bail-outs” of reckless private sector financial behaviour.

The size of the public debt is not a problem

Figure 1 shows that outstanding public bonds (called “gilts” from the days when the edges of the bond had gold gilt) amounted to £1.9 trillion or 96% of GDP at the end of 2016, which was the UK gross debt.

When we look closer at the national debt, its nature changes. Public sector liquid assets (for example, cash deposits held by the central and local governments and financial assets such as stocks and bonds) reduced this to £1.7 trillion or 86% of GDP. When we subtract the government’s assets from its debt, we have the net debt, the measure of public indebtedness used by the Treasury. The gross/net distinction also applies to households. A household with a £300,000 mortgage and £50,000 in the bank has a net debt of £250,000.

Another 27% of the net debt amount (£466 billion) was held by public sector institutions, the vast majority by the Bank of England. This portion of the national debt is what the public sector owes itself. Subtracting this gives the effective debt, the debt that the UK government owes to others. In 2016, the effective debt was 62% of GDP.

 The public debt is not a burden

Who the government owes is an important factor determining whether the public debt is a burden. In the UK, the public sector itself owns 25% of the £1.9 trillion UK gross public debt (see Figure 2). The government pays the interest on this portion of the debt to itself. Thus, one-quarter of the debt and the interest paid on it are not a burden.

Pension funds hold a large portion of the 75% of gilts not owned by the government. The interest paid on debt held by pension funds is income to retired households. As such, this portion of the national debt is a source of household income, a benefit not a burden to citizens.

Debt held by the government itself and pension funds are long term holdings, rarely bought and sold. They do not represent a speculation danger that might put upward pressure on bond rates. When these are subtracted the remaining “gilts” constitute the market-active public debt, £808 billion, or 45% of GDP.

At the end of 2016, private corporate and foreign gilts holders owned 41% of the UK’s national debt. Only the £524 billion of gilts held by foreign creditors could be considered a “burden” in that the associated interest payments are from UK taxpayers to non-UK creditors. For fiscal year 2015/16 interest payments to foreign creditors were approximately £12 billion, or 0.6% of GDP – quite a small burden.

This analysis of the nature, size and ownership of the UK public debt shows that it poses no threat to economic stability. Its size is modest and its burden on taxpayers is minor. From this come the following policies to end austerity:

1. Sound management of the national debt means more public borrowing for investment and current expenditure, which is justified by the modest size of the effective debt.
2. The minor burden represented by foreign interest payments could be reduced by measures that would limit bond sales to domestic buyers (already applied in several other countries).
3. Implementing a fair and progressive taxation system will ensure interest payments to domestic bond holders don’t have negative redistribution effects.
4. Any speculative pressure on government bond interest rates can be prevented by selling bonds to the Bank of England.

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Accelerated by austerity’s inequities, the 20^th century income distribution system has broken down irretrievably in what is an era of global rentier capitalism. More and more income is flowing to a rent-extracting elite, returns from financial, physical and so-called intellectual property, bolstered by subsidies and an international architecture of institutions geared to rent-seeking. For various reasons, the returns to labour have declined and will continue to do so.

Real wages are stagnating across the OECD, not just in Britain, and are falling for the growing precariat, which is also losing non-wage benefits, access to the commons and from a punitive welfare system, fatally flawed by means-testing and the inevitable behaviour-testing that is being made vicious by the woefully misnamed Universal Credit. The economically illiterate austerity strategy has only made matters worse.

Millions of people in Britain are economically insecure and at risk of absolute poverty. Nearly two-thirds of those in poverty are in jobs or in households with someone in a job. It is a bad joke to say work is the best route out of poverty.

A new distribution system is needed. Real wages will not rise by much, full-time well-paying jobs will not become the norm, the precariat will continue to grow. Progressives should stop pretending marginal adjustments would rectify the trends and should offer a transformative economic strategy instead.

The key lies in capturing the rentier income for the precariat and others facing economic insecurities. Contrary to Keynes’ prediction of the ‘euthanasia of the rentier’, rent-seeking will not disappear in a global market economy, and stronger anti-trust regulations would only have limited effect given that much of the rent is going to multinationals. Instead, we must find ways of redistributing – or ‘recycling’ – the rent.

Sooner or later it will be seen that the only sensible way of reducing the widespread economic insecurity is by gradually building up a basic income as an anchor of a new distribution system. It is no panacea, and must be built alongside better public services and supplementary benefits for those with special needs. But the left has offered no alternative way of providing everybody with basic economic security. If it does not offer that, it will only win elections by default.

The primary reasons for moving in the direction of a basic income are ethical. If we accept private inherited wealth – ‘something for nothing’ – then we should accept the principle of ‘social dividends’ on inherited public wealth, created by many past generations. It would also compensate those without the lucky talents rewarded in a market economy, and compensate all commoners for the enclosure and privatisation of our commons. There are other justice rationales, discussed elsewhere.

It would also enhance personal freedom – something those on the ‘left’ should want, but which it allowed the ‘right’ to claim in the past century. The emancipatory value of a basic income would exceed its monetary value, unlike any viable alternative. It would also provide everybody with basic security, not only a human right but also a superior public good – you having it would not deprive me of it, and all of us having it would increase its value for all of us.

It is affordable. It should start at a low level, as the funding is built up. Unlike means-testing, which suffers from huge exclusion errors and is stigmatising, the progressivity should be ensured by clawing it back from the affluent by modest increases in income tax. By contrast, ‘targeting’ by means tests has notorious exclusion errors and is stigmatising. But the main funding should come from levies on all revenue from use of our commons, which are forms of rent, starting with a Land Value Tax, ecological levies and a wealth-transfer levy, plus rolling back the 1,156 tax reliefs paid out each year. The 209 principal tax reliefs, most of which are very regressive, amount to over £400 billion of tax revenue foregone each year.

As a long-time advocate, I am convinced there is a perfect storm of factors making it not only desirable to start building a basic income, but vital. The perfect storm includes economic insecurity, the suffering from the folly of austerity, the loss of freedom entailed in the vindictive Universal Credit that is creating incredible suffering across the land, the disruptive effects of the digital revolution and those impending robots, and the political dangers represented by a society in which growing numbers feel a sense of relative deprivation – ‘licking at the windows’, as the saying goes, of a consumerist society in which they cannot participate.

Unless progressives offer a vision of societal economic security, more people will either opt out politically or vote for neo-fascist populists like Trump, Boris Johnson, Victor Orban or the League in Italy. Fiddling with paternalistic placebos such as ‘job guarantees’ or regressive productivity-depressing tax credits will merely allow the fire to grow. It may take a journey of up to a decade to construct an adequate basic income. But there is no sensible alternative. If we are not scared by the forces behind Trump and Brexit, we should be.

And there is a lovely secret inherent to a basic income, as our pilots and other evidence have shown. A basic income would promote work that is not labour – ecological, community and care work – that we should all want, and which we need. If a basic income created a few free riders (which every transfer system does), that would be nothing compared with what exist now and it would cost far more to chase them down than let them be.

In short, I plead with friends on the left to took afresh at what would be an emancipatory policy. It would not be a panacea but should be integral to a progressive strategy to revive the Enlightenment values that are the hallmark of a good society.

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

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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. 

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From time to time, there is a surge in advocacy of a job guarantee for everyone, or for everyone ‘able to work’. It is happening again, this time from a slew of politicians and social scientists positioning themselves on the centre left, as social democrats. In the USA, several prominent Democrat senators and possible candidates for the next presidential election have said they support the idea, including Bernie Sanders, Cory Booker, Elizabeth Warren, Kamala Harris and Kirsten Gillibrand. In Britain The Guardian has endorsed it unequivocally as ‘a welcome return to a politics of work’, joining the likes of Lord Layard, Blair’s ‘happiness czar’.

The Guardian claimed a job guarantee policy ‘would secure a basic human right to engage in productive employment’. Throughout history, the vast majority of people would have found that a very strange ‘human right’. Having a job is to be in a position of subordination, reporting to and obeying a boss in return for payment. Indeed, historically the words ‘job’, ‘jobbing’ and ‘jobholder’ were terms of regret and even pity, referring to someone with a bits-and-pieces existence. Subordination and alienation have also been at the heart of labour law, which is based on the master-servant model.

The newspaper added that the job guarantee ‘would only offer employment under-supplied by the private sector’, singling out ‘environmental clean-up’ and ‘social care’. These may sound appealing on paper but represent a narrow and unattractive range of jobs to be offered. They also bear more than a passing resemblance to the menial jobs convicted offenders are obliged to undertake under ‘community payback’ schemes.

The practical objections become evident as soon as the details are considered: what jobs, who would be responsible for providing them, who would qualify to be offered them, what would the jobs pay and for how many hours, who would pay, and what would be the effects on other workers and on the wider economy?

To start with, identifying jobs to be provided and administering the process would be a bureaucratic nightmare (witness the shambles of many ‘community payback’ schemes, even though they are on a small scale and the labour they offer is ‘free’). And, when asked what type of job would be guaranteed, proponents never suggest the guaranteed jobs would match people’s skills and qualifications, instead falling back on low-skill, low-wage jobs they would not dream of for themselves or their children.

Then other questions arise. If guaranteed jobs are providing desired services or goods, and are subsidised, there must be substitution effects – guaranteeing jobs now taken by others – and deadweight effects – putting people in jobs that would have been created anyhow. If somebody is given a guaranteed job at the minimum wage, what happens to others already doing such jobs? Would the job guarantee agency guarantee their jobs as well, with no decline in wages if they happened to be higher? If the unemployed were offered a job at a minimum wage subsidised by the state, this would increase the vulnerability of others, either displacing them or lowering their income.

Ro Khanna, a California Democrat congressman, has said firms would not be allowed to hire subsidised workers if they were substitutes for previous employees. Clever employers could find ways round that. However, it would also be unfair. Why should a firm coming into a market be subsidised relative to one that has been in it for a while, giving the newcomer an unfair advantage?

The Guardian further claimed, without citing evidence, that a job guarantee scheme would not be inflationary because ‘any restructuring of relative wages would be a one-off event’. This contradicts generations of research. If all were guaranteed a job, what would stop wage-push inflation? The only restraining factors would be fear of automation and more offshoring. But it would hardly be fear, as a job would be guaranteed anyhow!

The gross cost of a job guarantee might outweigh the net gain. If the government guaranteed the minimum wage in guaranteed jobs, those in jobs paying less (or working fewer than the guaranteed hours) might quit or find ways to be made redundant, so they could have a guaranteed job instead. Social democrats might like that, as it would mean better-paying jobs for more of the underemployed and precariat. But the fiscal cost would be daunting. For example, in the UK, over 60% of those regarded as poor are in jobs or have someone in their household who is. In the USA, the situation is just as bad. It is estimated that about half its 148 million workers earn less than $15 an hour. Would they all become eligible for a guaranteed good job?

At its unlikely best, a job guarantee would be paternalistic. It presumes the government knows what is best for individuals, who would be offered a necessarily limited range of jobs at its disposal. Suppose someone was pressed to take a guaranteed job on a construction site (‘infrastructure’, a favoured area for guaranteed jobs) and that person proved incompetent and was injured. Would the job guarantee agency be held responsible and pay compensation? It should, since it put the person in that position. How would that be factored into the costing of a job guarantee scheme? Similarly, if a person put into a ‘social care’ job was negligent and caused harm or distress to the care recipient, would the latter be able to sue the job guarantee agency for compensation?

In addition, a job-guarantee scheme would spring a familiar trap – the phoney distinction between those who ‘can work’ and would thus be eligible for a guaranteed job and those ‘who cannot work’. In Britain, this has led to demeaning and stigmatising ‘capacity-to-work’ and ‘availability-for-work’ tests, resulting in discriminatory action against disabled and vulnerable people, and those with care responsibilities.

Another failing of the job guarantee route is the mapping of a path to ‘workfare’. What would happen to somebody who declined to accept the guaranteed job? They would be labelled ‘lazy’ or ‘choosy’ and thus ‘ungrateful’ and ‘socially irresponsible’. Yet there are many reasons for refusing a job. Studies show that accepting a job below a person’s qualifications can lower their income and social status for the long term. As what is happening in the current UK benefit system attests, those not taking jobs allocated to them would face benefit sanctions, and be directed into jobs, whether they liked them or not. Jobs done in resentment or under duress are unlikely to be done well.

A job guarantee would be a recipe for perpetuating low productivity. What would happen if a person in a guaranteed job performed poorly, perhaps because of limited ability or simply because they knew it was ‘guaranteed’? This was a fatal flaw of the Soviet system. If you are guaranteed a job, why bother to work hard? If you are an employer and are given a subsidy to pay employees guaranteed a job, why bother to try to use labour efficiently?

If subsidised through tax credits or a wage subsidy, a worker would need to produce only a little more value than the cost to the employer to make it profitable to retain him or her. This would cheapen low-productivity jobs relative to others and inhibit the higher productivity arising from labour-displacing technological change. If a job of a certain type is guaranteed, what happens if an employer wishes to invest in technology that would remove the need for such jobs?

Those calling for a job guarantee also ignore the fact that any market economy requires some unemployment, as people need time to search for jobs they are prepared to accept, and firms must sift applicants for jobs they want to have done. To adopt a job guarantee policy would risk putting the economy in gridlock.

Job guarantee advocates, such as Larry Summers, President Clinton’s former Treasury Secretary, argue that people without jobs ‘are much more likely to be dissatisfied with their lives’ and are more likely to be drug addicts and abusive than those with even low-wage jobs. This is bogus. I suggest there would be no correlation between life satisfaction and having a job if the comparison was made between those in lousy jobs and those with no job but an adequate income on which to live. Somebody facing a choice between penury and a lousy job will prefer the job. But that does not mean they like or want it for itself.

The polling company Gallup conducts regular State of the Global Workplace surveys in over 150 countries. In 2017, it found that globally only 15% of workers were engaged by their job, and in no country did the figure exceed 40%. One recent UK survey found that 37% of jobholders did not think their job made any significant contribution.

Summers ends his article by equivocating – ‘the idea of a jobs guarantee should be taken seriously but not literally’. He seems to mean government should try to promote more employment, through ‘wage subsidies, targeted government spending, support for workers with dependants, and more training and job-matching programmes’. In other words, he reverts to the standard social democratic package that has not done very well in the past three decades.

Besides being a recipe for labour inefficiency and labour market distortions, tending to displace workers employed in the ‘free’ labour market and to depress their wages, the job guarantee proposal fails to recognise that today’s crisis is structural and requires transformative policies. Tax credits, job guarantees and statutory minimum wages would barely touch the precariat’s existential insecurity that is at the heart of the social and economic crisis, let alone address the aspirations of the progressive and growing part of the precariat for an ecologically grounded Good Society.

The emphasis on jobs is non-ecological, since it is tied to the constant pursuit of economic growth. There are many instances, with support for fracking and for the third runway at Heathrow airport being recent examples, where the promise of more jobs has trumped costs to health and the environment. And a job guarantee policy could have a strong appeal to the political right as a way to dismantle the welfare state. Why pay unemployment benefits if everybody has a guaranteed job? In the USA, one conservative commentator chortled that ‘over 100 federal welfare programs would be replaced with a single job guarantee program.’

Finally, there is what this writer regards as the policy’s worst feature. It would reinforce twentieth-century labourism, by failing to make the distinction between work and labour. Those who back guaranteed jobs typically ignore all forms of work that are not paid labour. A really progressive agenda would strengthen the values of work over the dictates of labour. It would seek to enable more people to develop their own sense of occupation.

A job is a means to an end, not an end in itself. Economists tend to be schizophrenic in this respect. In the textbooks, labour has ‘disutility’; it is negative for the worker. Yet many economists who use or write these textbooks then advocate putting everybody in jobs. Why make a fetish of ‘jobs’? A job is doing ‘labour’ for others. What about all the forms of work that we do for those we love or for our community or for ourselves?

Many forms of work that are not labour are more rewarding psychologically and socially. A regime of putting everybody into jobs, in unchosen activities, would be orchestrated alienation. Surely a progressive should want to minimise the time we spend in stultifying and subordinated jobs, so that we can increase the time and energy for forms of work and leisure that are self-chosen and oriented to personal and community development.

There is one last point, to do with the claim that a job guarantee would be politically popular. Much is made of a US poll which asked people whether they would support a scheme to guarantee a job for anybody ‘who can’t find employment in the private sector’, if paid from a 5% tax on those earning over $200,000. The result was 52% in favour. Supporters thought this was ‘stunning’. With such a loaded question, one should be stunned by the bare-majority support. After all, most respondents were being told they would not have to pay, and that there were no alternative jobs available, an unlikely scenario.

Rather than jobs per se, the primary challenge is to build a new income distribution system, recognising that the old one has broken down irretrievably. The rentiers are running away with all the revenue thrown up by rentier capitalism, and real wages will continue to lag. Putting people into static low-wage jobs is no response.

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Today the 70 year-old National Health Service finds itself in a world radically different to that in which it was born. Compulsory health insurance had only arrived in 1911, part of a reformist welfare agenda spurred by concerns over working class conditions and the revolutionary urges they engendered. As in all ages, the nature and causes of ill health were a function of the social and economic conditions of the day, as summarised by William Beveridge’s timeless evocation of the Five Giant Evils: “squalor, ignorance, want, idleness, and disease”.

Emerging from the ashes of the Second World War, the founding principles of the NHS – free to all, at the point of use, beyond the insurance principle – allowed Britain to win the peace. Universal health coverage gave succour to a sick and dispirited nation, providing the conditions in which Fordist consumer-capitalism could mature by creating a “secret, silent column” of healthy and productive citizens who helped usher in the post-war Keynesian boom. For a nation bowed but unbroken, scuttling its empire in a new age of human rights, it may have seemed reasonable for Aneurin Bevan to proclaim that Britain, with its NHS, now had “the moral leadership of the world”.

This was an era of rapid and momentous change. Little less than a year before, at the stroke of midnight, the nations of India and Pakistan achieved freedom from a dying empire; in 1948, as 4^th July turned to 5^th, the British people could dream of freedom from fear.

The NHS was the archetypal child of its ideological time. The concept of public healthcare under the NHS model sat atop a new wave of political and economic ideas. Centralised state bureaucracies and Keynesian demand management washed away the failed political economy of the Wall Street Crash and the Great Depression. As Bevan pushed through his plan for a publicly provided rather than ‘publicly organised’ NHS, a former Conservative health secretary asserted that this “would destroy so much in this country that we value”. Precisely the opposite occurred.

However, contrary to some contemporary opinion, this revolutionary turn in the role and functions of government came with broad support from across the British state. This is not to disavow the achievement, merely a reminder that the time for a profound shift in political and economic ideas had come. When it came again, in the late seventies and early eighties, the vanguard of the new order identified themselves almost in direct opposition to what the NHS stood for, the ideas that justified it, and the objective reality it delivered.

The NHS has always been the target of opprobrium from the intellectual evangelists of incongruous market liberalism. This is the case whether they are set to gain from outsourcing and privatisation, or are merely captured by the shadows on the collective cave of our economic discourse. In the case of the former, from its inception, health insurance giants watched the NHS and pumped money into proto-neoliberal think tanks that criticised all facets of Britain’s public healthcare model with gleeful abandon.

It was in reaction to an attack on the principles of non-fee-paying blood donation that the sociologist Richard Titmuss wrote The Gift Relationship, his seminal exploration of the impacts of pecuniary incentives in social policy. Titmuss warned that the unabashed introduction of markets into previously untouched areas of policy would result in a destructive, pervasive “ideology to end all ideologies”. Into what future would we now head if it was this book that British prime ministers pulled from their bags, slammed onto tables, and over which they declared “this is what we believe”?

As the post-war consensus fell, practical men, finding themselves quite exempt from intellectual influence, slaved away to deliver the assertions of defunct economists. The theoretical basis of neoliberal economic ideas considers markets the superior means of coordinating allocation of resources under conditions of scarcity. However, when applied to healthcare, market dynamics are profoundly inappropriate. This is not the case with, say, food, where you, endowed with sufficient information on which apple is appropriate for your own needs, can enjoy the benefits of a plurality of apple vendors, each optimising their products and prices to meet market demand. For serious heart problems, even a world-renowned cardiothoracic surgeon would suffer from incomplete understanding of her condition and treatment, opening up information asymmetries with the consultant sitting opposite.

It took until the nineties for the neoliberal revolution to strike the NHS. Market structures were the order of the day as the state sailed heroically into the End of History. The NHS, as with all areas of public provision, was now going to compete – by hell, high-water or penalty imposed from central government. That it has taken until now for the contradictions, inefficiencies and failures of marketisation to be recognised by elements of the political mainstream stands testament to the dangerous paucity of our policy discourse. One cannot look upon the collapse of Carillion and the eye-watering cost of the Private Finance Initiative – £310 billion for assets worth around £55 billion – without concluding that something is profoundly wrong with those economic ideas that justify such cruel, inefficient policies. Where does duty of care come in a contract that allows a private company to charge an NHS hospital £333 for a lightbulb?

The NHS under neoliberalism has failed on its own terms. Firstly, inappropriate and unnecessary marketisation has delivered waste, moral hazard, and, ultimately, exposed the system to structural risks, imposing large costs on the taxpayer through the socialisation of failure. The Centre for Health and the Public Interest estimates that the annual cost of marketisation in the NHS is in excess of £4.5 billion per year, with additional start-up costs of over £3 billion per major market reform. Indeed, the benefits of market ‘reforms’ have always been hotly contested, with opposition across academics and health practitioners, who stress a high opportunity cost in forgone patient care and clinical innovation.

Secondly, privatisation – distinct to the wasteful outsourcing of healthcare provision to private companies – has seen the loss of assets built up over decades and paid for by generations of taxpayers, a particularly vindictive, socially and economically irrational policy. For example, the coalition government famously sold 80% of the UK’s blood plasma resource company to Bain Capital for £90 million, putting the security of blood supplies at risk. Bain soon enjoyed profits in excess of £700 million when the company was subsequently sold to Chinese investors. Into the future, the government is seeking to sell large quantities of NHS land, imposing the opportunity cost of missed public investment in productive assets, such as the construction of much needed hospitals and the installation of renewable energy that could power the NHS and reduce its carbon emissions.

Thirdly, it has simply been a deliberate political choice to underfund the NHS over a period that now approaches a decade. Over the 2015/16 financial year, NHS trusts and foundation trusts fell into a combined deficit of nearly £2.5 billion, only three years after reporting a surplus of over £500 million. While the changing nature of ill health and demand for services plays a part, this gap has opened up due to a deliberate policy of underfunding: real terms increases in NHS funding were 0.9% a year between 2010-2015, in contrast to an average of 3.7% over its lifetime. There is now a near universal consensus that the NHS is underfunded and that the lack of resource is the greatest contributor to successive crises – something that even the government has begun recognised. In all, health and social care spending cuts have been linked to 120,000 excess deaths.

At best, the justifications for George Osborne’s ‘Age of Austerity’ were the spurious frenzies of a politician appealing to the polluted ideas of a discredited yesteryear to benefit wealthy vested interests. At worst, they have cost lives and halted the inexorable, centuries-long tradition of improvement in public health driven by the noble efforts of British academics and clinicians. Do not forget that life expectancy had been rising continuously for over one hundred years, a trend that has likely faltered because of the political choice to cut public expenditure, with the rate of increase in life expectancy having dropped by almost 50% since austerity began. If medical science has been of the greatest benefit to mankind, uncritical adherence to outworn economic dogma has been of the greatest detriment.

For the neoliberal experiment, as in nearly all areas of policy, has imposed a wicked cost on our health. It has damaged systems that seemed to be working moderately well in the past and eroded the institutional basis upon which we can effectively respond to the challenges of the age. Take the future of the digital technology, which could alter social and economic relations at a pace and scale not seen since the Industrial Revolution. The manner in which digital technology is integrated into healthcare in the UK is and will always be a political choice. Smart phones, ubiquitous data collection and machine learning could be harnessed by the NHS to better realise its founding principles, creating possibilities beyond the wildest imaginings of Bevan, Beveridge et al. Instead, the digital frontier is dominated by multinational monopolists and speculators pumping money into consumerist start-ups that flood markets springing up in anticipation of continued underfunding and privatisation. We can do better.

Moreover, the very basis of our healthcare model is being shaken by demographic change and a shift in the nature of ill health. Underfunding is simply unsustainable in the face of these trends. Into the future, environmental change, already described as the greatest threat (and opportunity) to public health, will determine the parameters of our healthcare imaginations. There is no room for systemic waste, fragmented private providers, and the inefficient adoption of innovative technologies in a world that has warmed by 1.5C and in which the majority of soil fertility has been lost.

What is to be done? Much of a post-neoliberal approach to the NHS must seek to repair the damage done over the last few decades. Primarily, the NHS needs to be adequately funded as part of a wider move away from the discredited policy of austerity. Ill health over the period of fiscal retrenchment has resulted from damage to the systems of the state, encompassing everything from transport to social care, that provide the foundations upon which good health can spring. It will be a tragedy if the number of lives lost during the application of these failed, pre-Keynesian ideas should not banish them forever.

The government’s recent pledge to up NHS spending by an average of around 3% a year to 2023/24 does not do this. It is below the 4.3% annual growth needed to keep pace with demand and much lower than that needed to recover from the damage wrought by the past eight years of underfunding. What’s more, the funding is delayed until next year, opening up a cavern across which the NHS must jump and into which much of it could fall, particularly if another cold winter pushes the service into collapse. The increase also leaves out public health, staff training and building and other key capital investments. It has nothing to say about the cost of debt repayment.

Marketisation can no longer be the first port of call for policymakers, as should be the case across the public sector. This includes needing to handle the growing burden of PFI debts, with options including the centralisation and renegotiation of contracts. Into the future, the social, environmental and economic power of the NHS should be brought to bear, with hospitals acting as ‘anchor institutions’ that provide a local basis for everything from the rollout of clean energy through building energy assets on NHS land, to improving employment standards by targeting local recruitment and procurement. These developments are already occurring, with, for example, some hospitals in London recycling their heat into local housing. Maximising the local socioeconomic role of the NHS could also present a more meaningfully democratised approach to decision-making.

Until then, be wise to what neoliberalism has done and will continue to do to the NHS. Born of war and strife, Britain’s health service celebrates its 70^th birthday in a bad way – bowed, nearly broken, ill-prepared to suffer the burden of continued underfunding and held together by the goodwill of staff. All the while, foreign insurance giants watch with patient eyes for opportunities arising from Brexit trade deals. The NHS is about being civilised; as we dismantle it, we become less civilised.

Over the course of the 70^th anniversary, the official celebrations shall likely focus on NHS staff. Quite right. But do not forget that the NHS is and has always been about economics, politics and power. It is about multinational corporations getting richer while sick people die in corridors. It is about bright young management consultants repeating failed economic cantations to justify inefficiency. Alone in a society brutalised by years of austerity, the NHS is increasingly the first and last line of care for people up and down the country, and is kept going by the blood, sweat and tears of its staff.

The NHS is no longer national. Fragmented and sucked dry of resources, it cannot invest in responding to modern health problems. The NHS is increasingly becoming a logo under which private enterprise may suckle on the teat of the state, growing fat off our taxes. The predicament of the NHS at 70 is the result of a concerted application of failed economic ideology. Neoliberalism’s legacy is the private ambulance provider who bungles an emergency call because their staff are under-trained and poorly equipped; it is the baby who dies in the night, away from their parents, as the private provider of an out-of-hours service fails to adequately respond. Stand this no longer. If the Labour Party are to enter government in the near future, a test of their willingness to deliver a new society will be whether they create a post-neoliberal NHS.

The NHS can be all that its staff and its patients believe it to be. A harbour in which fear is kept at bay, in which everyone maintains the right to be relieved of the pressures of ill health. In the final analysis, the crisis of neoliberalism is inherently a political crisis founded on the inadequacy of a certain set of economic ideas. In the same way that the NHS has always proven there is an alternative, the orthodox approach to healthcare policy proves that we need, now more than ever, an alternative to neoliberalism.

This essay is a modified version of an article published in the Mint.

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It hasn’t escaped many people’s attention that, a decade after the biggest economic crash of a generation, the economic model producing that meltdown has not exactly been laid to rest. The crisis in the NHS and the Carillion and Capital scandals are testament to that. Sociologist Colin Crouch wrote a book in 2011 about the ‘strange non-death of neoliberalism’, arguing that the neoliberal model is centred on the needs of corporations and that corporate power actually intensified after the 2008 financial meltdown. This power has been maintained with the help of a robust ideology centred on free markets (though in reality markets are captured by corporations and are maintained by the state) and the superiority of the private sector over the public sector. It advocates privatisation, cuts in public spending, deregulation and tax cuts for businesses and high earners.

This ideology spread through the media from the 1980s, and the media have continued to play a key role in its persistence through a decade of political and economic turmoil since the 2008 crash. They have done this largely via an acute amnesia about the causes of the crisis, an amnesia that helped make policies like austerity, privatisation and corporate tax breaks appear as common sense responses to the problems.

This amnesia struck at dizzying speed. My research carried out at Cardiff University shows that in 2008 at the time of the banking collapse, the main explanations given for the problems were financial misconduct (‘greedy bankers’), systemic problems with the financial sector, and the faulty free-market model. These explanations were given across the media spectrum, with even the Telegraph and Sun complaining about a lack of regulation. Banking reform was advocated across the board.

Fast-forward to April 2009, barely 6 months after the announcement of a £500 billion bank bailout. A media hysteria was now raging around Britain’s deficit. While greedy bankers were still taking some of the blame, the systemic problems in finance and the problems with the free-market model had been forgotten. Instead, public profligacy had become the dominant explanation for the deficit. The timeline of the crisis was being erased and rewritten.

Correspondingly, financial and corporate regulation were forgotten. Instead, austerity became the star of the show, eclipsing all other possible solutions to the crisis. As a response to the deficit, austerity was mentioned 2.5 as many times as the next most covered policy-response option, which was raising taxes on the wealthy. Austerity was mentioned 18 times more frequently than tackling tax avoidance and evasion. Although coverage of austerity was polarized, no media outlet rejected it outright, and even the left-leaning press implicitly (and sometimes explicitly) backed ‘austerity lite’.

In 2010, the Conservative-Lib Dem government announced £99 billion in spending cuts and £29 billion in tax increases per year by 2014-15. Having made these ‘tough choices’, from 2011 the coalition wanted to focus attention away from austerity and towards growth (which was, oops, being stalled by austerity). To do this, they pursued a zealously ‘pro-business’ agenda, including privatisation, deregulation, cutting taxes for the highest earners, and cutting corporation tax in 2011, 2012, 2013, and in 2015 and 2016 under a Conservative government.

These measures were a ramped-up version of the kinds of reforms that had produced the crisis in the first place. This fact, however, was forgotten. These ‘pro-business’ moves were enthusiastically embraced by the media, far more so than austerity. Of the 5 outlets analysed (The BBC, Telegraph, Sun, Guardian and Mirror), only the Guardian rejected them more frequently than endorsing them.

The idea behind these policies is that what’s good for business is good for everyone. If businesses are handed more resources, freed from regulation and handed tax breaks, they will be encouraged to invest in the economy, creating jobs and growth. The rich are therefore ‘job creators’ and ‘wealth creators’.

This is despite the fact that these policies have an impressive fail rate. Business investment and productivity growth remain low, as corporations spend the savings not on training and innovation but on share buy-backs and shareholder dividends. According to the Financial Times, in 2014, the top 500 US companies returned 95 per cent of their profits to shareholders in dividends and buybacks. Meanwhile, inequality is spiralling and in the UK more than a million people are using food banks.

Poverty and inequality, meanwhile, attracted surprising little media attention. Of my sample of 1,133 media items, only 53 had a primary focus on living standards, poverty or inequality. This confirms other research showing a lack of media attention to these issues. Of these 53 items, the large majority were from the Guardian and Mirror. The coverage correctly identified austerity as a primary cause of these problems. However, deeper explanations were rare. Yet again, the link back to the 2008 bank meltdown wasn’t made, let alone the long-term causes of that meltdown. Not only that, the coverage failed even to identify the role of most of the policies pursued since the onset of the crisis in producing inequality – such as the bank bailouts, quantitative easing, and those ‘pro-business’ measures like corporation tax cuts and privatisation.

And so it seems we are living with a hyper-amnesia, in which it is increasingly difficult to reconstruct timelines and distinguish causes from effects. This amnesia has helped trap us in a neoliberal groundhog day. The political consensus around the free market model finally seems to be breaking. If we are to find a way out, we will need to have a lot more conversations about how to organise both our media systems and our economies.

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The case for a Universal Basic Income (UBI) has rapidly become part of mainstream political debate. The Labour Party is actively considering the policy, in the US it was revealed Hillary Clinton almost included it as a manifesto pledge. Trials have recently begun across the world, including close to home in Scotland.

The policy is again in the news as the Finnish government chose not to fund an extension to their two-year basic income trial. This led to much speculation as to what this means for the policy, leading many to argue that a basic income had fallen flat. In reality, the government simply chose not to fund an extension to what was always intended as a time limited policy experiment. But this provides a useful chance for reflection on the idea of Universal Basic Income, its aims and the debate that surrounds it.

The idea of Universal Basic Income, or Citizens Income, is superficially quite simple. A monthly payment made to every adult and/or child in the population, of equal value and with no conditions attached. No need to search for or be in work, no means testing, just a condition of citizenship.

For its proponents, UBI has several benefits. It would remove bureaucracy, and therefore cost, from the system through eliminating means testing, and protects workers in an increasingly insecure labour market. This latter point is particularly important in an age where many are concerned about the impact that automation and AI might have on our working lives, and the resultant power balances between capital and labour.

These benefits, and a perceived coalition of support from both left and right, have led many to view UBI as a potentially revolutionary policy which could bring about positive change to a welfare state battered by years of austerity and ideologically driven reforms.

However, the superficial simplicity of a Universal Basic Income belies a multiplicity of versions, and raises several questions. At what level should a UBI be paid? How does it factor in children? How will it support those with disabilities or who are out of work? Will it sit alongside or replace existing social security arrangements? And most importantly, what are the economic arrangements which govern how a UBI would be paid for?

In reality, those who advocate Universal Basic Income have varied motivations for doing so, and there are also multiple versions of what a UBI could look like in practice. For instance, there is a drastic rift between those for whom UBI is about transforming the economy and those for whom it is about papering over its cracks. This acknowledgement is often lacking from the UBI debate, but should be of primary interest.

Those who seek a radical departure from capitalism see UBI as part of a radical platform to move away from a world in which work is central to our lives, identities and economies. In their book Inventing the Future, Alex Williams and Nick Srnicek argue that UBI is a fundamental part of delivering a new economy in which citizens have much greater freedom over when and if they work.

To do this, Williams and Srnicek acknowledge that UBI “must provide a sufficient amount of income to live on” so that people can refuse employment, thereby freeing them to engage in more meaningful labour, whether paid or unpaid. This is often picked on to claim that a UBI would simply be unaffordable. There is truth in this. While Williams and Srnickek have not proposed a specific payment level, modelling conducted by IPPR shows that were a UBI paid at a high enough level to meet the Minimum Income Standard (a measure of what the public think people need for an acceptable minimum standard of living), it would cost around £1.7 trillion a year – equivalent to almost all of the UK’s GDP in 2016.

What this shows is that for UBI to be a viable proposition at these levels, there would need to be a fundamental transformation in the ownership of the economy. Williams and Srnicek acknowledge this, arguing that UBI will only work in combination with large scale and collectively owned automation, a reduction in the working week and a shift in social attitudes around the value of the ‘work ethic’.

It is this level of transformation which sets the ‘post-workists’ against many other proponents of the policy. Those who argue for a basic income from a post-work platform have little in common with the tech entrepreneurs of Silicon Valley who are funding trials of UBI in the US. For this group, the appeal of a basic income lies in its ability to offset the impacts of automation and AI, whilst their creators still accrue the benefits. Here, rather than using technology to facilitate a radical platform, UBI is a capitulation to the rise of inequality in the age of the robot and AI.

This critique has been central to the argument forwarded by left wing opponents to UBI who argue that it is an individualistic policy that accepts a status quo in which capital exploits labour. These criticisms recognise that as an indiscriminate policy UBI is blind to structural inequalities in a way the labour market isn’t. As Anna Cootes notes, UBI fails “to tackle the underlying causes of poverty, unemployment and inequality”.

That there are radically different visions for Universal Basic Income is somewhat lost in a policy debate, which often presents UBI as a catch all policy which can offer both cost-effective efficiency and radical emancipation for those on low incomes. Worryingly this tension, and the myth of a coalition of support between left and right which underpins it, might see policymakers sleep walking into a position that suits very few.

In Scotland for example, the Green Party has proposed a model of UBI which could get close to being fiscally neutral. This would see much of the existing welfare system replaced by a payment of £5,200 per year for adults and £2,600 for children, alongside significant reform the tax system. In this scenario, personal allowances would be removed and combined tax and NI rates increased for all.

Citing security in the labour market as a key reason for the policy proposal, this model has been welcomed by proponents of UBI. However, at £400 a month for adults while also removing almost all the welfare state, it is unlikely to buy much economic freedom for those on low incomes or insecure and exploitative employment contracts. In reality some would see their incomes drop. For instance, in Scotland lone parents would see their monthly earnings fall by around £300 a month.

What’s more, a model of UBI paid at this level would also have notable impacts on rates of relative poverty. Were this model introduced in the UK as a whole, it would also raise relative child poverty by 17%, placing a further 750,000 children into households who earn below 60% of the median income. This is because while it would raise the incomes of those earning the least, it would also raise incomes for all but the highest income decile, lifting the poverty line higher.

Research commissioned by the Joseph Rowntree Foundation has similarly found that UBI schemes increase relative poverty for working age adults, children and pensioners. The introduction of a UBI, according to their modelling, could see the number of children in poverty rise by up to 60%.

Increasing the incomes of those at the bottom of the distribution is imperative. This is demonstrated clearly by the rise of food banks deprivation and income crisis in the UK since 2010, which is a direct result of government policy choices. However, using a UBI to achieve this, at the expense of say increases or reforms to Universal Credit and a more generous and less conditional unemployment benefit, comes at the cost of addressing, and in fact exacerbating, relative poverty.

Action on relative poverty is important, and inequality is not cost free. As Kate Pickett and Richard Wilkinson show in their book ‘The Spirit Level’, countries with higher rates of inequality perform worse against a range of social outcomes – physical health, mental health, drug abuse, education, imprisonment, obesity, social mobility, trust and community life.

The pursuit of a fiscally neutral UBI has led to a series of proposals which, if implemented, would do little to raise the material circumstance of those in poverty nor provide sufficient additional power in the labour market. In light of this, can it be really said that such proposals meaningfully fit with a progressive, radical vision for the welfare state?

The need to act in delivering a better vision for the welfare state is clear. In 2016, 22% per cent of adults and 30% of children were living in poverty. By 2019/20 the number of children in poverty could increase by 500,000. This is driven by political choices, the consequence of welfare reform and austerity. As such, it is welcome that as a society we are discussing more ambitious plans for the collectivisation of income and wealth and how it can be best deployed to support the needs of all in society.

However, unless we are to engage in a radical economic transformation which drastically increases common ownership of economy, it is unlikely that Universal Basic Income on its own will do more than lock us into our current predicament. In the meantime, we need to look for equally radical policies which make a much more material difference to the lives of those on low incomes and who suffer from structural inequalities. Proponents of UBI need to go big or go home.

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Last week, much of the economic and business community were left scratching their heads. Billy Bragg – renowned songwriter, musician and campaigner – was delivering his debut lecture at the Bank of England.

The topic of his speech? UK monetary policy, of course.

One of Bragg’s arguments – that quantitative easing (QE) should have been “directed to schools, to hospitals and to a national investment bank” – has been hastily brandished as ‘misguided and dangerous’ by some commentators.

It’s true that Bragg’s case was not articulated in the language of mainstream economics or orthodox policy making. But might his fundamental point have been right nonetheless?

In the latest policy paper for the IPPR Commission on Economic Justice, ‘Just about managing demand’, I argue that it is.

The basic argument goes like this. Since the global financial crisis, policymakers in control of the UK’s two main macroeconomic policy levers have essentially been engaged in a tug of war – pulling simultaneously in opposing directions.

On the one hand, the Bank of England has been testing the limits of monetary policy to get people to increase spending. UK monetary policy has essentially been set to ‘recession mode’ for the best part of a decade – with record low interest rates and vast sums of money pumped into the experimental policy of QE.

On the other hand, governmental fiscal policy has seemingly been set as if to dampen a non-existent economic boom, by deliberately drawing demand out of the economy in the policy generally known as ‘austerity’. In the effort to cut the budget deficit and overall national debt, government spending and borrowing has been cut back by more than 7 per cent of GDP since 2010.

To have the two major macroeconomic policy instruments working in direct opposition to one another for such a prolonged period represents a structural weakness in the way the UK manages its economy.

In fact, there are two structural weaknesses.

First, conventional monetary policy loses its effectiveness when interest rates are very low. Nominal interest rates have an ‘effective lower bound’, a minimum beyond which further reductions have little or no positive effect on spending in the economy – and interest rates in the UK have been at this lower bound for the past eight years.

Second, politicians do not in fact always act as policy makers and academics thought they would. A key assumption underpinning the Bank of England’s independence in 1997 was that governments tend towards overspending – they exhibit what’s known as ‘deficit bias’. But since 2010, governments in the UK have in fact done the opposite, favouring excessive underspending, or ‘surplus bias’.

Neither of these problems would be insuperable on their own.  But taken together, they have left macroeconomic policy dangerously ill-equipped to tackle the next recession.

The costs are non-trivial. The government’s Office for Budget Responsibility estimates that the isolated impact of government cuts was to suppress the level of GDP by around 4.5% in 2017/18 alone. That’s more than £1,400 per person.

This is only assumed away if monetary policy is thought to be working properly. But at the lower bound of interest rates we know that it isn’t. Eight years of painfully slow growth – by both international standards and the UK’s own historical record – shows how ineffective policy has been.

Since 2009, the attempted solution to unstick this policy gridlock has been QE. QE represents an attempt to get around the lower bound by creating new money out of nothing, which is then invested in financial markets to reduce interest rates on debt – thereby simulating some of the effect that would have been achieved by an interest cut in the first place.

But as even the chief economist of the Bank of England has conceded, the effects of QE are inherently uncertain and unreliable. QE has also contributed directly to growing wealth inequality, with research at the Bank of England estimating that the isolated effects of the policy have increased stocks of wealth for the richest 10% of households by tens of thousands of pounds compared with the poorest 10%. This has happened with little democratic or public accountability.

As the economist Simon Wren-Lewis has argued, monetary policy makers should regard QE just as the medical profession would regard a new drug where the correct dosage is inherently unknowable, but the side effects are powerful and dangerous. Every possible effort should be made to find a better alternative.

On average, the UK experiences a recession every 10 to 15 years. Now, almost 10 years on from the last crisis – and partly because an effective alternative to QE has not been found – the UK finds itself dangerously unprepared to combat the next downturn.

New fiscal rules, which encourage increased flexibility and investment during recessions, would help. So too would new monetary policy targets. If the Bank of England could be guided by the level of unemployment or nominal GDP as well as the existing inflation target, this would help interest rates rise above the lower bound more sustainably during recoveries.

But neither of these will be sufficient if, when the next recession hits, the UK finds itself with ultra-low interest rates and a surplus biased government, as it does today.

What is needed is a way of getting around the lower bound of interest rates in a way that is both more effective, less regressive (in a redistributive sense) and more democratically accountable than QE – but at the same time shielded from government surplus bias.

Part of the answer borrows from long standing recommendations of other organisations such as the New Economics Foundation. The first step is the creation of a National Investment Bank (NIB), independent of government but mandated to support its industrial strategy and societal ‘missions’. Such a Bank could use a mixture of public and private finance to ‘crowd-in’ further private investment in business growth, innovation, housing and social and physical infrastructure.

But the creation of such a public investment bank would also allow for a further structural innovation in the UK’s macroeconomic framework: the provision for the Bank of England to ‘delegate’ a stimulus to the NIB in the form of increased lending to new and existing projects, when interest rates are at their lower bound.

The Bank of England could calculate the value of a ‘missing’ stimulus, perhaps in terms of the size of an interest rate cut that would otherwise have taken place (such as has been argued by economists such as Tony Yates), and then ask the NIB to deliver all or part of an equivalent stimulus through increased lending.

European law prevents the Bank of England from creating new money to fund a public corporation like the NIB directly, and in any case the NIB would normally be able to fund any delegated stimulus itself by raising capital from private markets (just as similar state investment banks from Germany to Brazil already do today).

But as a backstop to ensure that any required stimulus could always be funded independently from government, the Bank of England could also choose to buy up the NIB’s corporate debts from other financial actors – just as it does through existing QE programmes.

In effect, this would follow a very similar financing mechanism to QE, only the Bank of England would know exactly where the stimulus had gone and how it was benefiting the non-financial economy.

This mechanism would also be preferable to QE on democratic grounds. The Bank of England would be able to determine the size and timing of a stimulus independently from politicians, but the investment targets and public ‘missions’ will have already been specified by elected government.

So was Billy Bragg right after all? Time may still tell. Bragg may not want to change the world, or indeed be looking for a New England – but in his own way, he may yet help the UK prepare itself for the next recession.

The post An alternative to QE: was Billy Bragg right after all? appeared first on New thinking for the British economy.

Paul Mason, Dr Faiza Shaheen, Anthony Barnett and Dr Johnna Montgomerie discuss whether radical social democracy offers a way out of the crisis of neoliberalism, and what that means for future economic policy. 

The debate is part of a new series by Paul Mason exploring what radical social democracy means during the next decade. Paul’s first essay in the series can be read here. 

* Dr Faiza Shaheen is Director of the Centre for Labour and Social Studies (CLASS)

* Anthony Barnett is co-founder of openDemocracy and author of The Lure of Greatness. 

* Dr Johnna Montgomerie is Deputy director at the Political Economy Research Centre, Goldsmiths University of London. 

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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.  

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During his time as Chancellor of the Exchequer George Osborne liked to say “we are all in this together”. But until now it has been difficult to assess the distributional effects of the tax and welfare policies of the 2010-15 coalition government and the current Conservative government. The government has refused to do the calculations, for obvious reasons.

But in November the Equalities and Human Rights Commission (EHRC) published a distributional assessment of the impact of tax and welfare reforms between 2010 and 2017, modelled in 2021/22 tax year. It did not receive much attention, and does not include any discussion or set of recommendations. But the analysis in the paper is damning. It highlights just how regressive the tax and welfare changes have been, with the greatest burden falling on the poorest, ethnic minorities, women, children and the disabled.

The researchers modelled the effects of changes in taxes and benefits – specifically income taxes, national insurance contributions, VAT and excises, benefits and social security transfers, tax credits and the national minimum wage/living wage. These are then analysed in terms of household income distribution by decile, from the poorest to the richest. The results are initially expressed in terms of effects on cash flows for each decile:

Average net cash losses are greatest for the bottom 40% of households, at around £1,500 per year. This compares to just £200 for households in the second top decile. The largest losses are due to changes in benefits and tax credits, which amount to more than £2,000 per household for the lower deciles.

These cash estimates are then converted into shares of net household income. The results are shown to be highly regressive, with the poorest suffering the greatest proportional loss:

Households in the lowest decile have seen net incomes fall by 10%. In contrast, households in the second top decile have only seen net incomes fall by 0.4%.                     

The report then looks at the impact of the tax and benefit changes on households with different characteristics. Here the results are even more striking.

Ethnic minority households have suffered more than white households, with the average loss for African, Caribbean and Black British households amounting to 5% of net income – more than double the equivalent loss for white households.

Households with one or more disabled member have seen net incomes fall by £2,500 a year. For households with a disabled child, losses amount to more than £5,500 a year on average. This compares with a reduction of about £1,000 a year for households without any disabled members.

Lone parents have seen net incomes fall by 15% of net income on average, compared to between 0% to 8% for other family groups. Women have been effected more than men at every income level, with losses averaging £940 compared with £460 for men.

By age group, the biggest average losses are for those aged 65-74 who have seen net incomes fall by £1,450 per year, primarily due to the increase in the pension age to 66 in 2021 as a result of the Pensions Act of 2011. Those in the age range 35-44 are losing £1,250 per year on average.

Households with three or more children have been particularly hard hit, with cash losses amounting to £5,400 per year. In contrast, losses for households with no children have only amounted to £500 a year.

There are currently four million children living in poverty – 30% of all children in 2015/16. Between 1998-2011 public policy took 800,000 children out of poverty, but this achievement has been reversed by governments since 2010. Some two-thirds of children living in poverty live in families where at least one person is working. 36% of all children in poverty live in families where there are three or more children, so size of family is a significant determinant of child deprivation.

It is hard to believe that a government would target its cuts on children, and especially children in large families. Inevitably the government’s policies will add to the numbers of children living in poverty, and have major consequences for the lives that children lead.

How is it possible to pursue tax and expenditure policies that have such a skewed set of outcomes? One might like to think it is simply incompetence. But despite the impact of the changes now being clear, the government has continued down the same track – irrespective of the effects on the living standards of the poorest in our society.

There have been also huge cuts in local authority funding affecting services for children, the disabled, the elderly, and targeted services such as Sure Start centres. Funding has also been cut for breakfast clubs in schools, sports and recreation facilities, libraries and education.

All of these policies cumulatively add to the pressures on those households least able to manage. At the same time, investment in social housing has more or less ceased, while taxes on corporations and the rich have been reduced.

The Government can and should be held to account for their policies. Going forward, Parliament should require a full distributional analysis to be produced for all tax and expenditure changes at the time of a Budget. The government should also have to demonstrate that all proposed changes are consistent with existing human rights and other equalities legislation. The tax and welfare changes since 2010 clearly contravene rights and obligations in areas such as child poverty and the rights of children, ethnicity and gender, and trample on the rights of the disabled.

The strategy of hammering the poorest in society in pursuit of some chimera of a reduced level of national debt has failed. Surely, we have had enough. It is time to use fiscal policy in the interests of everyone.

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It’s January, which means another winter crisis in the NHS. Last week record numbers of patients were forced to wait in the back of ambulances as hospitals in England struggled to cope with demand for treatment. On Tuesday, NHS England told hospitals to postpone non-urgent operations, leading to tens of thousands of cancellations.

The winter crisis has become an annual affair. So why can’t our health service cope?

The NHS is a complex beast, but as usual it helps to follow the money. There are good reasons why spending on health should be expected to increase over time: an ageing population means that demands on health services rise since older individuals on average consume more, and more expensive, healthcare. Demand will also increase over time as a result of the rising prevalence of some chronic conditions, improvements in access to care, and improvements in technology.

In recent decades spending on the NHS has indeed increased: since 1948, spending has risen by 3.7% each year on average (adjusting for inflation). Spending relative to the size of the economy – the most effective way to evaluate trends in health spending – increased from 4.1% of GDP in 1978/9 to 7.6% in 2009/10.

Since 2010, however, this trend has reversed. As the Kings Fund has reported, we are now experiencing an unprecedented sustained decline in NHS spending as a share of GDP.

More than anything else, the reason the NHS is under so much pressure is that the Government has decided to squeeze resources at a time when demands on the service are increasing. According to the King’s Fund, spending on the NHS must rise to at least £153 billion in 2022/23 to keep pace with demographic change and other increasing cost pressures. On current plans, however, the government will only spend £128 billion.

This funding shortfall is not inevitable: it is a political choice. The now common response that “there’s no magic money tree” is a cynical ploy. It is simply a convenient way to mask an ideological crusade to squeeze public services. For a country like the UK, financing government spending is not a problem. The truth is that the Government has simply decided spend money on other things. Like giving tax breaks to large corporations.

According to the Institute for Fiscal Studies, the Government’s corporation tax cuts since 2010 have reduced tax revenues by at least £16.5 billion a year. Then there’s the cuts to inheritance tax and capital gains tax – both of which will primarily benefit the wealthy – which have reduced revenues by another £1.5 billion.

Claims that “health tourists” are to blame for the crisis are also a myth. The Government’s own figures show that this activity amounts to no more than 0.3% the NHS’s budget.

There are undoubtedly cost efficiencies and service improvements that can be made in the NHS. But let’s be clear: the reason the NHS is in crisis yet again is because the Government has decided to spend money on other things it deems more important.

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In 2013 Thomas Herndon shot to fame when he found major errors in a widely cited academic paper by Carmen Reinhart and Kenneth Rogoff which had been used to justify austerity policies in Europe and North America.

We caught up with Thomas at this year’s Festival for New Economic Thinking to discuss austerity, the financial crisis and the future of economic policy.

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UK Chancellor Philip Hammond is likely to use his Budget speech on Wednesday to declare that the UK has turned the corner on public debt. Recent tax receipts have been higher than expected and the deficit continues to fall. As a result, we are likely to see some small but headline-grabbing giveaways to a nation weary of austerity.

He is less likely to note that the Coalition and Conservative governments have so far missed all of their self-imposed debt targets. Or that beyond the short-run jump in tax revenues, the longer term outlook is darkening: the Office for Budget Responsibility has finally conceded it has been guilty of “supply-side optimism” and will downgrade growth forecasts. Even the revised forecasts are likely to be unrealistically optimistic.

The chancellor is also unlikely to discuss a different kind of debt: that of households. Household debt, particularly unsecured debt such as credit cards and car loans, is growing rapidly. The total stock of unsecured debt has reached around £200bn and is increasing by around £20bn per year.

The relationship between deficit reduction – austerity – and the growth of household debt is remarkably stable. Adjusting for inflation, for every £2bn in public sector deficit reduction, the annual rate at which households have taken on new debt has increased by £1bn. Over the longer term, the connection between the two is surprisingly persistent – and also appears to work in reverse. During periods in which the deficit has been growing, household debt accumulation fell.

So the chancellor’s inevitable claim that the UK’s debt problem is finally under control should be taken with a large dose of salt. By squeezing incomes, rolling back crucial public services and refusing to invest for the future, governments since 2010 have consigned the UK to nearly a lost decade of stagnating wages and incomes.

The Bank of England has done what it can to make up for the shortfall in spending power but monetary policy is the wrong tool for the job. In holding interest rates at nearly zero and pumping money into the financial system, the Bank has managed to get banks lending again. Unfortunately, this lending has not been to businesses, for productive investment, but to households.

These households, facing an unprecedented squeeze on incomes, have relied on consumer credit to make ends meet. Household consumption has been the driver of economic growth in recent years. Growth in mortgage lending, in the absence of wage growth, pushes house prices up, putting home ownership ever further out of the reach of young people.

If the current pattern were to persist – a big if – and the chancellor were to achieve his “general aim” of a balanced budget, household debt would then be increasing at a rate of around £100bn per annum.

This looks unlikely in reality. The apparently stable relationship between the public finances and household borrowing may break down – as macroeconomic relationships usually do. More likely still, the chancellor will fail to achieve a balanced budget. Even he no longer claims this can be achieved within the current parliament.

Instead, the chancellor needs to concede what many of us have said all along: the public sector deficit is the wrong target for policy and austerity was a mistake – a deadly one. What is needed from this budget is plainly obvious: higher public investment. With interest rates close to zero and both public and private sector investment at historically low levels, the chancellor must reverse the policy direction of the last seven years.

A programme of public sector investment, along with a carefully implemented industrial strategy, is the most promising solution to the problem underlying most of the UKs current woes: very weak productivity. Without productivity growth, long run increases in income and declines in debt ratios – both public and private – will be impossible. Evidence is growing that weakness in productivity is the result of austerity – it is caused by lack of demand.

Such a reversal would be politically difficult for the chancellor. It would require him to admit, at least implicitly, that the austerity policies imposed over the last seven years were based on the lie that public debt is the most important issue facing policy-makers. It is clear that the public willingness to tolerate further cuts to wages, living standards and public services is exhausted. It is time for the chancellor to change course.

Paradoxically, this is likely to be the best way to reduce the level of debt. Higher investment should spur productivity growth, allowing for wage rises, increases in tax revenues and, ultimately, less reliance by both households and the public sector on debt.

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The basic income movement is growing in the UK, with Labour, the SNP and Green Party all showing significant interest. It has received a lot of discussion, but to date there has been little attention paid to the human rights aspects of it.

Though human rights are not unproblematic, examining basic income through the lens of human rights moves us into discussions about the type of society and economy we want to have, instead of hiding these real questions behind broad economic approaches and traditional cultural values.

The human rights framework can be used for discussing the impacts that basic income policies might have. Instead of simply looking at GDP growth and inflation, we can look at whether it gives more people an adequate standard of living, access to housing and education, and to work of their free choice or acceptance. Additionally, and perhaps more importantly, human rights values can help overcome cultural resistance to money which is not ‘earned’ as such.

Basic income is an idea that is both radical and simple: everyone in a society receives an income sufficient to provide for their basic needs. It is given unconditionally, with no need to qualify for it. This is unlike other welfare payments: Jobseeker’s Allowance requires someone to search for a job, and a pension recipient must be a certain age and have contributed enough over their lifetime. Most basic income proposals are also ‘universal’: for everyone in the society, including those who do not need the money, much like Child Benefit is.

Interestingly, basic income finds support (and opposition) across the breadth of the political spectrum, from communists to free market capitalists to centrist liberals. We can see the increasing popularity of basic income as a response to current circumstances, such as increasing automation and jobs being moved abroad, worsening working conditions, stagnant wage levels, precarious work, and the amount of environmental destruction we require for our current way of living.

Yet it is more than about just economics: it goes to the heart of cultural and political values about how society should be, challenging deeply held cultural notions that money must be earned and the traditional ‘work ethic’ – that hard work is morally valuable. Basic income proposals differ, but they almost all include a positive vision for how society could be. It could be part of a more just economy, enable more people to engage in politics, and give each individual a stable foundation so they need not fear falling into poverty and are better empowered to make choices about what to do with their lives and what work they do take on.

What are human rights?

Human rights are the array of rights which humans should have simply for being human, covering the breadth of our experience such as housing, education and cultural involvement. They are moral claims for things which ought to be achieved, or ‘realised’. Individual humans have these rights, and other actors – typically states – have obligations to help realise them.

They are listed in the Universal Declaration of Human Rights (UDHR), though there are also separate conventions for particularly disadvantaged groups. Despite the initial attempt to make them indivisible, international politics divided human rights into two different sets and two different international conventions. Civil and political rights, such as fair trials, free expression and privacy, have been heavily favoured by liberal democracies. Social and economic rights, such as housing, education, healthcare and food, have been favoured by socialist and communist governments.

The European Convention on Human Rights – incorporated into UK law by the Human Rights Act 1998 – only contains civil and political rights, and this reflects our cultural and political understanding. Though the UK has signed up to the Convention on Economic, Social and Cultural Rights, it does not do much more than submit reports to the international committee. So, although we have laws and provide education, housing and healthcare, these are not protected or seen in the framework of human rights.

How a human rights approach can advance the basic income debate

There are three ways in which a human rights approach helps us to discuss basic income proposals and policies.

The first is that we can see it as realising particular human rights and fulfilling obligations that states have. One is the right to social security (Article 22 UDHR), which a basic income provides. Another is the right to an adequate standard of living (Article 25 UDHR), which a basic income seeks to ensure, though a basic income would not necessarily be adequate. The right to work (Article 23 UDHR), which includes ‘free choice of employment’ and ‘just and favourable conditions’, is also very useful and will be returned to shortly.

However, although a basic income would realise these rights, it is not the only way of doing so. The traditional human rights approach is that people earn money by working. The role of the state is to support and ensure this, by providing a floor of social security and ensuring that working conditions, such as pay and unemployment levels, allow individuals to afford healthcare, education and so on. If work does not provide people with an adequate standard of living, the state must do something about this. So, although basic income is not the only way to realise these rights, it can be part of the argument as to whether states are meeting their obligations and how they ought do so.

The second way in which a human rights approach helps is in framing the discussion about the effects of basic income proposals. Instead of using crude economic measures such as GDP, unemployment and inflation, we can use international human rights standards to measure positive or negative impacts of policies.

Of course, it is not clear what the impacts would be, or whether they would be positive. Basic income is not a magic solution, nor does it exist in the abstract: outcomes also depend on what other policies there are. For example, though it may help people afford rent, basic income alone will not create a fair housing market without challenging free market approaches to housing. The same is true with healthcare, education and other public services, which is why some discussions are more focused on Universal Basic Services instead of income, though the two are not incompatible.

As most human rights are linked to resources, basic income is likely to have generally positive impacts. It could help people spend more time in education, such as working less to do part-time courses. As for the right to health, it may help people to afford healthy food. Less directly, if people choose to do less paid work, they can use this time to exercise, relax more, and partake in cultural activities, or with their children, which would benefit their development and education. Although the most obvious impacts are on social and economic rights which need money (and time), there would also be benefits for civil and political rights. It is difficult for people to engage in broader political issues when they are struggling to earn enough money to survive.

Lastly, human rights are also useful for discussing cultural values, such as the notion of work, the ‘work ethic’ and that people ought not receive money for nothing.

The Right to Work (Article 23 UDHR) is useful for reframing cultural notions of work, which focus on whether workers are working and how much they are contributing to GDP in a capitalist economy. The Right to Work is clear that what is important is not their contribution to the economy via their labour, but what work they do, and whether someone has ‘freely chosen or accepted’ the work. It could be that basic income empowers people to negotiate for better working conditions and supports people to be more creative and retrain, as they are no longer forced to work at risk of becoming homeless or starving. As an example of this, the union Unite passed a motion at its 2016 Policy Conference supporting basic income. It could also be that it subsidises corporate profits and results in lower wages. Either way, the Right to Work is useful for helping frame this discussion.

What counts as work can also be challenged: it is far more than what someone else can derive a profit from. A basic income would help support people to do work which is not economically recognised, such as caring for someone or volunteering, and which contributes to society in a different way. It would also support people to do creative work, which is often quite poorly paid, or to try out new careers or start their own business.

As well as challenging notions of work, a human rights approach can also support arguments about whether a basic income is deserved. It strives towards a society in which the inherent moral worth of all humans is recognised and realised, aiming for every individual to have a life worthy of human dignity. Human rights do not value people by their economic contribution to society via wage labour, instead recognising their existence itself as valuable. Basic income matches these values, giving people more freedom to lead their own lives and supporting people who contribute in ways beyond wage labour, such as caring for others, political engagement, artistic and creative endeavours.

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At this year’s Labour Party conference, Jeremy Corbyn stood up in front of a hall packed to the rafters with Labour faithful. Dyed-in-the-wool Corbynistas and new converts alike welcomed him to the stage with attendant whooping, cheering and, of course, chanting. Corbyn delivered a confident closing speech, where he reinforced commitments to a whole host of policies and spending pledges outlined in the Labour Party manifesto back in June.

These commitments included the creation of a National Education Service, which would breathe new life into an education system starved of money and with record numbers of teachers leaving the profession due to diminishing working conditions. They included the abolition of university tuition fees, which see graduates burdened with debts of over £50,000. They included billions more for the National Health Service, which is creaking under the pressure to perform on a shoestring budget and staring down the maw of a long and painful winter. And there was more. Renationalisation of energy, water and rail, an end to the public sector pay-cap, free childcare – the list goes on.

Sounds great, doesn’t it?

But then conventional wisdom rears its head. And it dictates that the policies outlined by the Labour Party amount to nothing short of economic illiteracy. These policies, the collective consensus dictates, while they might sound like nice ideas, simply could not work in the real world. There is no money left. It’s all gone, remember? There’s a deficit! There’s no magic money tree! We don’t live in cloud-cuckoo land! We all know the arguments.

But do we actually know if they’re right?

On 3^rd June 2017, days before the general election, The Guardian published a letter, joint-signed by 129 leading economists, articulating full support for the investment-focused economic policies outlined in the Labour manifesto. The letter claimed that the policies are designed to “strengthen and develop the economy” and ensure developments are “sustainable”. What’s more, the letter boldly claims, the policies are based on “sound estimations” – surely not a phrase to be associated with Labour party economic policy in polite conversation?

Conservative policy would on the other hand, it claimed, “slow the economy at a crucial juncture”.

The authoritative endorsements don’t end there. Nobel-prize winning economist Joseph Stiglitz lent his support to Labour’s focus on investment, claiming “It is remarkable that there are still governments, including here in the UK, that still believe in austerity.”

And it is not just the Conservative government: the (quite frankly oxymoronic) idea that we must be fiscally frugal to secure economic prosperity has taken firm hold of the public consciousness and shows little sign of letting go.

There are many possible, and probably simultaneous reasons why the austerity myth enjoys such unadulterated acceptance amongst the British public. The idea that a country’s economy works like a household budget is a confusion as old as Aristotle, but it holds a frustrating amount of traction among the population and, once that false premise has been established, the idea of spending more to improve the economy does sound counter-intuitive. There’s the deeply-entrenched Calvinistic streak that runs through us as a people, which makes us particularly susceptible to narratives that dictate we must undergo some form of ongoing suffering or penance. And we have historically been socially conditioned, through centuries of egregiously exploitative feudal, or feudalistic, systems of distribution to accept the idea that we need to work very hard for little reward. Because that’s the way it has to be.

And, of course, there is the way the arguments are framed in our national debate. Arguments in favour of austerity are augmented, while those against are hushed – often by the very people who are making them.

Labour’s manifesto was not welcomed with open arms by all economists. Daniel Mahoney and Tim Knox of the notoriously opaque neo-liberal think tank Centre for Policy Studies issued a critique of the plans outlined in the manifesto after its release, specifically criticising points around tax reform.

The piece enjoyed widespread exposure across a number of publications, all with suitably hysterical headlines: Labour manifesto would ‘bankrupt Britain’ with £250bn debt and biggest tax burden since 1950s (The Telegraph), Corbyn’s plan to bankrupt the UK with a £30billion black hole and 1.3m middle class forced into super rich tax band (Daily Mail), Jeremy Corbyn’s spending spree ‘would create £58bn black hole paid for by British families’ (Daily Express).

However, a rousing endorsement of the Labour manifesto from economist John Weeks through the Policy Research In Macroeconomics organisation enjoyed precisely no coverage in the mainstream press.

When you see the one-sided level of exposure to these competing ideas, it is not hard to understand exactly why the public are so ready to accept the idea that Labour’s perfectly reasonable investment plans are “economically illiterate”, while remaining convinced that Conservative intentions to prolong austerity represent sound economic policy.

Labour’s plans are made even more unpalatable due to the public’s strong aversion to the ‘B’ word – borrowing. Any increase in public borrowing to fund these spending plans, our friend conventional wisdom dictates, would amount to economic suicide. This argument, curiously, doesn’t count when it comes to quantitative easing. In a Herculean feat of double-think, the public seems ready to accept that half a trillion pounds pumped into financial markets is necessary and prudent. The same amount set aside for a National Investment Bank, however, is economic madness

But what about future generations? Surely more borrowing would saddle them with huge and unjust levels of debt? Here, yet again, conventional wisdom fails to take the big picture into account. Even if this argument were true, future generations would undoubtedly benefit from improved healthcare, education and infrastructure far more than they would suffer from an increased debt-burden. What’s more, as Stiglitz points out, public borrowing doesn’t necessarily have to increase debt as, “if the value of your investments […] increases, then the economy is in a stronger position for the future.”

The truth is, it is austerity that represents “cloud-cuckoo land” economic thinking and the results speak for themselves. Conservative economic policy over the last seven years has resulted in Britain having the largest real-time wage decline in the OECD (with the exception of Greece), the slowest growing economy in the G7, and the Office for Budgetary Responsibility drastically cutting productivity forecasts. This is compounded by a string of failed (self-imposed) borrowing targets.

For too long, the dictated narrative has been that more public spending, while a nice idea, is not economically pragmatic. This is simply untrue. A drastically increased level of public investment is not just morally preferable, it is economically prudent. The received wisdom that we cannot afford to invest in our future must be challenged. The truth is, we can’t afford not to.

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Creativity has been in the news quite a bit over the last week. There’s been Theresa May calling for a more ‘creative’ approach to the Brexit disaster. There’s also been a major policy report on the Creative Industries. The latter has been part of the government’s industrial strategy, one of nine industrial activities targeted for specific ‘sector deals’. The others include quantum technology, clean energy, and robotics.

The rhetorical prominence of creativity in May’s speech, delivered on the same day as this set of policy recommendations, might seem to be great news for those working in creative jobs. On closer inspection both the rhetoric and the policy reality raise major questions about the role of creative industries in Britain today. Most seriously, both rhetoric and policy are based on fundamental misunderstandings of what the creative industries are and how they operate.

The Independent Review of the Creative Industries was written by Sir Peter Bazalgette, former chair of Arts Council England. It identifies the creative industries as a potentially booming part of the economy, contributing employment and economic growth, as well as having high levels of productivity. It also sets out several challenges, including access to finance for creative businesses; creative clusters; international competition; skills shortages and the ‘talent pipeline’; along with innovation and intellectual property. These are crucial issues. These headlines from the report, about the strong growth and international reputation of British creative business, conceal a set of proposals that will do little to address the inequalities at the heart of creative industries in the UK.

The report lumps together several different occupations under the heading of creative industries, which is a longstanding issue for policy in this area. This means that high performing areas, such as database design by IT consultants, are treated as the same sector as creative and performing arts. As extensive research shows, these are very different types of activity with very different workforces and very different levels of economic performance. The report seeks to have its cake, of economic good news from technical IT activities, and eat it too, by suggesting this applies to attractive cultural occupations such as acting, art, or performance.

These latter occupations are well known for the unequal and unfair characteristics of their workforce. The report pays lip service to these issues of inequality in the creative workforce. It identifies barriers to entry associated with class, gender and race. At the same time, it is open about its position that ‘employers alone will not solve this problem’. Its recommendations suggest there is an undersupply of skills for the creative industries; that young people need more role models; and they need to be made more aware of the diversity of jobs available in the creative economy.

All of these suggestions move the responsibility for the institutionalised sexism and racism across the creative sector from employers and organisations to the individual. If we ask why the low level of women in senior roles in IT; why the constant controversies about representations of BAME communities in film, TV and on stage; or about the ‘class ceiling’ for actors, then the report’s answer is clear: women, ethnic minorities, and the working class (all of which are intersecting and overlapping constituencies) just need to try harder, be more aspirational, and work on their skills for businesses. In effect, a crucial intervention into government industrial strategy is asking those communities excluded that they must just strive harder.

It is well known that the creative industries, as currently organized, are a closed shop, open to very few that are not privileged. The irony here is that they are also a sector, as a wealth of academic research shows, that believes in meritocracy, and is left wing, and supportive of diversity. The sector is also unlikely to have voted leave and it is supportive of many social issues, such as freedom of movement or immigration, which leave voters reject. Indeed, Bazalgette’s report makes it clear that visas and immigration are a crucial element to the economic success of creative industries.

This point returns to the rhetoric of May’s speech. By calling for ‘creative’ solutions to the problem of Brexit, May is addressing a sector of British society least ideologically interested in supporting her agenda. She is also, in her pursuit of a ‘creative’ relationship with the EU that foregrounds immigration control, likely to further alienate creative workers and damage creative businesses. Taken alongside the focus on talent pipelines and skills development in Bazalgette’s report, industrial strategy may produce a creative sector that does little to encourage those from outside privileged starting points, whilst being even less likely to show support for the goals put forward by May and the Brexiteers.

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UK household real wages have just experienced their worst decade since the 1860s, and are still falling. Concern is building that a private debt crisis might threaten the UK economy. In a piece for the New Statesman, David Graeber warned ‘we’re staring into the lights of an oncoming train’.

It’s certainly true that UK households are spending more than their income at an unprecedented rate. In the first quarter of 2017, they ran a deficit of £17.5bn, an annualised deficit of £70bn (i.e. £17.5 bn *4). This means the average UK household is set to spend an astonishing £2300 more than its income this year. As a percentage of GDP in the chart below (see the green line), this is the highest household deficit recorded in over a century:

Source: Positive Money (using OBR and ONS provisional data, 4Q rolling average)

Without the benefit of such unprecedented household spending, the inconvenient truth is that the UK economy would be in recession today. In short, we need this household deficit to offset excess saving elsewhere in the economy. However, when this deficit can no longer be funded, the economy will stall. Household spending is being financed, in part, by rising consumer and student loan debt – set to increase by a record £31bn this year:

Source: Positive Money (using BoE, Student Loans company data): UK households are today accumulating £9bn pa in PCP car loans, £5bn pa credit card, £4bn other (e.g. overdrafts) and £13bn student loans.

We’ve seen this script play out before. Like stretching elastic, the more consumer debt is expanded the harder it becomes, and the greater the risk of a painful snap back. Most worrying about the UK economy today are deeply concerned about this rising level of debt. It’s alarming that total UK consumer and student loan debt will this year rise to £314bn, above its previous peak. The ‘oncoming train’ analogy is by no means inappropriate.

But what if there’s not just one train, but two? Where the second train is actually larger and so more dangerous: the risk of an abrupt fall in the price of UK household assets. The importance of asset prices, rather than just debt, can be understood using the data from the above two charts. We know UK households are set to spend £70bn more than their income this year and that higher consumer and student loan debt is set to fund £31bn of this. But this leaves a funding gap of £39 bn. Where is the money coming from?

The answer to this also helps explain an even more basic question: why on earth is the average UK household currently happy to spend £2300 more than its income this year? The answer to both is not debt, but capital gains. Capital gains on a truly spectacular and unprecedented scale.  A decades long decline in interest rates has caused the price of almost all financial assets – from houses to bonds and equities – to rise. In fact, since 1980, UK households have enjoyed an annual boost to their net wealth equivalent to 25% of GDP for over thirty-five years; this has utterly dwarfed anything they’ve been able to save out of their income:

Source: Positive Money (using ONS data)

This truly extraordinary windfall has given some lucky UK households both the motive as well as the added means to spend. After all, many can afford to run deficits when the value of their assets is rising even faster. Assuming these assets can be sold to savers (e.g. Rest of World) or those purchasing the assets using debt (e.g. mortgages), the capital gains that are released allow households to spend more than their income without so much as touching a credit card. With no red-ink left behind, this is the source of our £39bn funding gap for UK households.

The Bank of England is aware of this powerful mechanism. Straitjacketed by its mandate to generate 2% inflation, its QE program was introduced explicitly to inflate a ‘wealth effect’ to get households to spend. In Q1 2010, UK household saving peaked at £21bn per quarter. But by Q1 2017, household savings had reversed to running an unprecedented £17.5bn deficit. This swing in spending (equivalent to 7% of GDP) has been the main driver behind the UK’s moribund economic recovery.

To get households to spend a little bit more, we’ve had to make some people a great deal wealthier. But what helped to drive up household spending as asset prices rose risks driving their spending down when the situation reverses. The ratio of UK household net wealth to their disposable income ratio has now risen to an astonishing 8.6x, the highest level for any developed economy ever:

Source: Positive Money (using ONS data)

The risks of a private debt crisis are real enough. But the existential threat is that this will happen together with the bursting of the greatest asset bubble in modern economic history, just at the point when the Bank of England has no room to lower interest-rates. When consumer credit stops flowing and debtors try to pay back the money they owe, and when financial asset prices can no longer defy gravity, UK household spending will plummet. Then maybe, in a weak voice, we will ask one more question: why was no one able to foresee this?

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The arguments for mission-oriented industrial strategy in general, and the focus on a zero carbon mission in particular, have been well made. Historical examples – the moon landings provide the usual case – prove that it matters who is driving innovation and for what purpose. Public policy can steer the path of socioeconomic development toward solutions to the greatest problems we face, contrary to the prevailing narrative that the private sector is the only engine of innovation. Missions put outcomes first, giving socioeconomic development a more clearly defined purpose. The unprecedented threat of climate change requires global net zero decarbonisation, as recognised by the 2015 Paris Agreement, making it a prime candidate for the first national mission for the UK.

So how would a mission-oriented industrial strategy be delivered? This is a question that we at IPPR are currently grappling with, in a project linked to our Commission on Economic Justice, which is developing a new approach to economic policy.

Over the last thirty years, the orthodox approach to economic policy has precluded government intervention beyond two broad approaches:

1. ‘Horizontal’ policies that attempt to improve the general conditions for private sector investment in general through, for example, the promotion of workforce skills and the building of infrastructure
2. ‘Vertical’ policies that target interventions on particular sectors or technologies, such as support for the automotive industry or biotechnology.

As the BEIS select committee has shown, the government’s Green Paper on Industrial Strategy  proposes a primary focus on horizontal policies, with some vertical interventions in order to support energy innovation and “cultivate world-leading sectors”. This approach is inadequate.

Horizontal policies focussing on the supply side of the economy do not directly promote demand and therefore are better viewed as traditional economic policy. Industrial strategy requires an explicit focus on stimulating demand as well as improving the conditions in which firms invest. The decarbonisation of the economy cannot happen without this, particularly at a time when the British economy is suffering from a fundamental lack of demand. Thankfully, macroeconomic conditions are highly favourable for an increase in public investment, with interest rates at historic lows, increasing the value to growth. What’s more, arguments against debt-financed investment lack force when considering the need for spending now to protect generations in the future and the large returns that could result from a greener, more efficient economy.

On the other side of the government’s approach, current vertical policies do little to recognise that value chains cut across sectors. Important goods and service often don’t easily adhere to a sectoral category, as is the case with the government’s decision to define ultra-low emission vehicles – a key element in the decarbonisation of transport – as a ‘sector’ when it is simply a product. Choosing particular sectors also increases the chance of ‘policy capture’ by incumbent companies, and the promotion of policies that benefit certain firms or sectors to the detriment of others and the wider public interest.

This is where the mission-oriented approach comes in. Industrial strategy should direct investments and firms so that the economy and society develop the means by which to decarbonise. A mission to decarbonise focuses on outcomes, overcoming the narrow focus of vertical policies, incorporating the system-wide view needed to scale rapid change across the economy. A good example is the transport system. A more digital, shared transport system requires investment and policy co-ordination from local authorities, app developers, car club operators, charities and energy companies, as well as the Department for Transport and vehicle manufacturers.

In setting an objective to be delivered by the economy, government can signal the path of future demand, improving confidence for private sector investment. Much of this is already provided by the 2008 Climate Change Act, which requires governments to produce emissions reductions plans every five years, consistent with an 80 per cent reduction on 1990 levels by 2050. This gives firms a clear signal of the direction of economic development. Climate Action Tracker currently rates the EU’s nationally determined contribution (NDC) – the commitment made on behalf of all 28 members – as having “medium” ambition, meaning more work is still to be done. A net zero decarbonisation mission, particularly in the context of Brexit, would cement the UK’s role as a leader on acting on climate change. The Climate Change Act would need to be amended to enshrine the new target in law, something to which the previous government signalled its commitment in March 2016.

Public investment should then direct demand towards goods and services that accelerate the transition to a net zero carbon economy, going beyond the usual horizontal approach. This should include helping British businesses maximise their potential to provide these goods and services. Such an approach was taken to actively attract offshore turbine manufacturing and assembly firms to the UK in the years following the passage of the Climate Change Act. Industrial strategy should then seek to co-invest with the private sector to increase the total level of investment in the economy and ensure that the public sector benefits financially from its investments as well as shouldering the risk.

A mission-oriented approach of this kind would put the problems we face up front and centre in our political and economic narratives. Crucially, it would provide us with the means by which to better develop the solutions. Beyond decarbonisation, other missions could focus on some of the other major socioeconomic challenges facing Britain – from demographic change to adapting to automation and other major technological changes. A mission-oriented approach can be adopted in response to these and capitalise upon positive synergies between them, such as increasing resource efficiency in industry through digitalisation.

In all this, the narrative point is key. It is through stories that we enliven economic concepts and animate the engagement of industry and the population at large. Fifty-five years have passed since John F Kennedy promised his nation that humanity would go to the moon, that it would be done within the decade, that it would be achieved through the combined effort of the American people, and at a price less than that paid for cigarettes and cigars. This story and its eventual success remain imprinted on our collective imagination. Kennedy sought to land on the moon both because it was there and because it would establish American supremacy over the Soviet Union. We must decarbonise our economy to ensure the sustainability of our society. What other mission is more important and more captivating of the imagination? It is time to bring focus and ambition back to our economic story.

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Amir is exactly the kind of person our welfare system exists to support. He suffers from a rare neurological condition which affects his movement and has left him struggling to walk. It’s one which his GP has only encountered once before in her career, “in 1986 when I was a medical student”. Amir wants to work – not least because his girlfriend Lindsey won’t move in until he’s in work. He’s awaiting a medical procedure to alleviate his symptoms and restore some movement, but his condition is degenerative – it will get worse with time.

Yet following his work capability assessment, his Employment and Support Allowance (ESA) has been taken away. In an episode of Radio 4’s recent documentary series, The Untold, the producers followed Amir through the obstacle course that is the UK’s welfare system – a series of degrading hurdles which stand in the way of many would-be claimants. Part-way through, Amir attends a tribunal for Personal Independence Payments (PIPs), after failing the paper “mandatory reconsideration” for his ESA. He is so desperate that to prove he is sick he offers to show the panel his feet, which are primarily affected by his condition. This comes after he is quizzed on his ability to get in and out of the bath – something which has very little bearing on his ability to work in a factory.

Amir’s case demonstrates starkly the unfairness of the UK’s welfare system. It also demonstrates the sheer number of those affected. GPs are allowed to object in writing to benefits decisions which contradict their medical judgement. But as Amir’s doctor points out, she just doesn’t have time to provide this kind of support to her patients alongside the medical advice and counselling she must provide to patients like Amir (all in a ten-minute slot). When Amir catches up with her in the documentary, he is the third of her patients to have their benefits cut that week. Instead, medical judgements are left up to outsource worker with insufficient medical training, who use “decision-making software” and a points-based system to make a work-capability assessment. The tribunal is similarly inhumane. Although sympathetic, the panel simply aren’t allowed to uphold Amir’s appeal because – again – he hasn’t racked up enough “points” by the end of his hearing.

The welfare system has been under attack for decades. New Labour never sought to change the narrative of welfare dependency cultivated by two decades of anti-welfare dogma. But the crisis of claimants like Amir was compounded by 2012’s Welfare Reform Act, with which the government redoubled its efforts to end just and humane welfare provision in the UK. The Act sought to end a mythical culture of “welfare dependency” – in fact, studies suggest that less than 1% of workless households have two generations who have never worked. To put this in context, almost all of us claim the state pension – does this make us all welfare dependent? The Act struck a series of blows to the welfare system. It introduced the infamous bedroom tax, an unfair cap on the amount of benefits a household can receive, and the introduction of a single “universal benefit”, introduced to promote financial responsibility rather than to make life easier for claimants.

The results have been devastating. It deepened the trend of making it difficult for vulnerable people to claim the benefits they need. It also targeted benefits which are more likely to be claimed by those with disabilities and long-term health problems – as Amir’s case shows. The Disability Benefit Consortium (DBC) said in 2015 that planned cuts to ESA would result in an annual loss of nearly £1,500 for claimants. The government says the cut is designed to “remove the financial incentives that could otherwise discourage claimants from taking steps back to work” – a bigoted, ideological assertion lacking any evidence. As the DBC points out, those affected include people living with conditions such as Parkinson’s disease, multiple sclerosis and cystic fibrosis. In 2017, the cuts went ahead as planned. In effect, the government is washing their hands of people who rely on state support for their survival.

Since the year the Welfare Reform Act was passed, the DWP has carried out at least 49 “peer reviews” after people have died following changes to their benefits. Perhaps most well-known is the tragic case of Malcolm Burge, who killed himself after being ordered to repay an £800 housing benefit overpayment – his letter to the council explaining that “I have no savings or assets. I am not trying to live, I am trying to survive”.

These stories show that it’s time to revolutionise and re-humanise our welfare system. The idea of a universal basic income (UBI) – a guaranteed, standardised income for every citizen – was first touted as early as the 19th century. By the mid-20th century, pilot schemes had been carried out with remarkable results. In Dauphin, Canada, UBI saw more people complete education, postponement of marriage among young adults, a drop in birth rates – and only a 1% drop in hours worked. Following earlier pilots in the USA, 1969 saw Richard Nixon was poised to push UBI into law – until freemarket advisor and Ayn Rand admirer Martin Anderson used spurious evidence to dissuade the president on the day he was set to announce his plan to the people (for more on this, see the book Utopia For Realists And How We Get There by Rutger Bregman).

Such is the distance we have come (or rather lost) in the last half century, that today such as scheme is barely thinkable. But now more than ever, we need daring and progressive ideas like UBI. Today, welfare claimants are demonised as scroungers and the government is using the narrative of the last four decades as a platform to desert those most in need in our society. We need brave, bold ideas to challenge this lie, to abolish the costly bureaucracy and degrading jumping-through-hoops we force on those most in need. UBI could wipe out poverty and provide genuine equality of opportunity to poor children, who would no longer go to school hungry, whose parents would have the time to help them with their homework, and who would have financial stability in their lives. UBI wouldn’t just benefit the young – it would allow older workers stripped of work by deindustrialisation to retrain for the modern labour market.

Finally, let’s stop calling it benefits. It’s not gym membership, a private pension or a five-figure bonus. It’s social security, and a compassionate social security system is the ultimate symbol of a society that looks out for those in need – and one which recognises that tragedy can fall on any one of us at any time. If we live in a civilized society, let’s prove it, and eliminate poverty once and for all.

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Two fundamental errors block new thinking on the UK economy. The first is a failure to recognise, empirically, just how poor is the UK’s comparative, like-for-like performance. The second is an inability, conceptually, to abandon the dogma of market fundamentalism in domestic political culture. These errors not only consign the UK to a low-investment, low-productivity, low-income (but high-inequality) path. They also make it impossible to appreciate why this should be so—and what should be done to move on to a more successful (and greener) trajectory.

Innumeracy and insularity

Complacency about UK economic performance stems from a combination of innumeracy and insularity. It was encapsulated in the claim by the prime minister, Theresa May, in the Conservative Party manifesto for the June 2017 Westminster election, that ‘we are already the fifth-largest economy in the world’. As the House of Commons Library had explained a year earlier, this was the position of the UK in a league table of gross domestic product (GDP) using market exchange rates to generate common data in dollars, but adjustment of the data for differing price levels, or purchasing power parities (PPP), demoted the UK to ninth—behind, among others, India and Indonesia.

Yet this is not the biggest problem with blowing a British economic trumpet. The UK is, of course, a state with a large population and so the meaningful comparison is of GDP (PPP) per capita. On this basis, the UK falls to 21st in the world, according to 2016 World Bank data, or 24th according to the International Monetary Fund.

This is not all: the UK compensates for weak performance on GDP by a culture in a European context of long hours (engendering huge problems of work-life balance for women, given the paucity of publicly-funded childcare). So the best comparison should really be output per person per hour. This figure has flatlined since the financial crisis of 2008, after decades of trend growth, leaving the UK a laggard in Europe: in 2006 its output per hour was 109.7 per cent of the EU average; by 2016 that had fallen to 98.4 per cent. But of course the EU includes many weakly performing economies in its southern periphery and the former Soviet bloc. The following table shows how UK productivity measures up if it is placed in a set of ten northern European neighbours.

Source: Eurostat
* 2015 data, ** The Irish data are highly inflated by transfer pricing by multinationals, thereby shifting nominal output to Ireland to avail themselves of its low corporation-tax rate.

The UK is thus in the relegation zone of this mini-league. Its other members are all in the EU (except Norway in the European Economic Area), yet hardly seem hamstrung by its supposed ‘red tape’. Indeed, the UK also lags the average performance of the supposedly ‘sclerotic’ Eurozone, with its single currency, by a significant margin. And even this is not the full story: the City elevates the overall UK data markedly: disaggregated, these show that while inner London is the richest region in northern Europe, nine out of ten of the poorest regions are also found within the state.

Quite what magic can transform the fortunes of a ‘global Britain’ freed from ‘Brussels’, should the UK continue its lemming-like insistence on unilateral withdrawal from the EU, is thus hard to decipher. The real conundrum is of course the opposite: how Britain, hugely advantaged by being first mover in the industrial revolution at the birth of modern capitalism, should have engaged in such a long, slow decline to its current 21st-century economic mediocrity.

Enter the True Believers

Part of the answer is the cossetting the UK enjoyed through the era of access to protected empire markets. Part too is what the New Left figures Perry Anderson and Tom Nairn identified as the lack of a ‘bourgeois’ revolution in Britain, dismantling feudal ways. Part too is that the City dominates not only the UK economy but also economic thinking in Britain, as evidenced by how media commentary frequently anthropomorphises ‘the (financial) markets’, describing their ‘mood’ as if that of sentient beings. In a fallacy of composition, the performance of the UK economy is thereby reduced to individual market trades, as if these were barter—which, since for every  sale there is then a purchase, implies automatic equilibrium if market mechanisms are not subject to ‘bureaucratic interference’.

In his ‘The General Theory of Employment, Interest and Money’, Keynes however understood the economy as a system of production of goods and services in which labour is the source of value and investment is key. He showed that the classical equilibrium model only applied in the ideal case of full employment; in the typical context of involuntary unemployment, investment (with its multiplier effect) was required to engender sufficient demand for a full-employment equilibrium to be achieved. Look after unemployment, Keynes said, and the budget—enhanced by tax-raising and welfare-reducing employment—will look after itself. And he envisaged the ‘euthanasia of the rentier’ in an economy where public investment loomed ever larger. He argued against the statist ‘socialism’ of the USSR of his day but his economics was by no means alien to a distributed socialism of employee-owned/co-operative enterprises.

Indeed, in the absence of such a transformation of a modern capitalist economy, Keynes’ argument was vulnerable to the charge, as the Keynesian economist Will Hutton recognised, that it could take increasingly inflationary doses of demand injection to sustain a capitalist economy at full employment. And the inflationary spiral of the 1970s, while actually making the case for a more advanced ‘social contract’ rather than a market free-for-all, was used by the True Believers in the classical economists Keynes (like Marx) had criticised to make their ‘neo-classical’ comeback.

‘Market disciplines’ were applied in two devastating waves: the ‘sado-monetarism’ (as William Keegan of the Observer called it) of the Thatcher years and the unrelenting austerity imposed by Conservative-dominated governments in the UK since 2010. These have been characterised by massive disinvestment, with the deindustrialisation of capital in the first period succeeded by the devalorisation of now atomised labour in the second. In this shocking new world of zero-hours contracts, bogus self-employment and food banks, a TUC report in 2016 found that the UK had seen a steeper fall in real wages in 2007-15, still 10.4 per cent below pre-crisis level, than any OECD country except Greece. By contrast, France had seen a rise of 11 per cent and Germany of 14 per cent, over the same period.

Thus a UK economy which once boasted such household names as ICI or GEC, and associated public corporations such as British Steel or British Leyland—is now reduced to a wasteland where there are very few internationally competitive enterprises left. Hence the yawning balance-of-payments deficit, whose unsustainability brings a creeping devaluation of sterling and so further inflationary pressure on living standards. Today’s economic landscape is much more characterised by labour-sweating companies such as Sports Direct than those with high sunk capital such as Rolls Royce.

Hence the fashionable ‘productivity conundrum’ is no riddle at all. With public investment at rock-bottom, vocational training now left to the vagaries of the market, and trade unions and statutory labour protections so weakened, the UK economy has inevitably followed a directionless race to the bottom. With the high road of mutually-supporting levels of investment, productivity and income structurally blocked, the low road of casualisation and super-exploitation of unskilled labour has been opened wide. This is at the cost not only of mediocre economic performance but also of rising inequality as the Precariat expands—on top of the impact of the Thatcher interlude, whose suppression of taxes for the wealthy made the UK already a markedly inegalitarian outlier from the rest of northern Europe.

Beyond market fundamentalism

If the UK is such a poor economic performer, then it could at least seek to emulate its European neighbours and peers. Indeed, it would be foolishness to suggest—as purportedly left-wing UK Brexiters have done—that the UK would be more able to achieve economic progress outside the EU than within. In that sense the far-right-led Brexit campaign makes much more sense as a struggle for an authoritarian, ‘free-market’ British Singapore stripped of residual workers’ rights.

Such emulation involves learning three, really quite simple, economic lessons. The first is that the ‘invisible hand’—a phrase taken wholly out of context from Smith’s (incoherent) usage in The Wealth of Nations, referring to investment domestically rather than abroad—does not apply 241 years later. As Hutton also pointed out, once market interactions are financially intermediated, every purchase does not match a sale—so disequilibria become the norm, not the exception. Moreover, since the globalisation of the economy since the 1970s has been matched by its financialisation, there has been a growing volatility reflected in financial crises of increased frequency and intensity until the global crash of 2008—when it became apparent that the giant Ponzi scheme of exotic derivatives lacking any correlate in the real economy, in which companies such as Lehman Brothers were mired, had to collapse.

As John Kay has demonstrated, the vast bulk of what City financial institutions do is not to invest in the real economy: it is to speculate with other people’s money. So the investment necessary for enhanced economic performance, as well as the maintenance of demand, must be initiated from the public purse—albeit then multiplied through private sources. While the UK has squandered its asset of North Sea Oil, Norway has turned its oil resource into an enduring asset via a sovereign wealth fund. Indeed, such funds can be used, if democratically so desired, to expand the public stake in the economy over time as revenue from existing investments is reinvested elsewhere: favouring enterprises in the ‘green’ economy or those otherwise ‘eco-efficient’ in this way would be an ideal means to bring about the greening of the UK economy, which is a laggard too in such markets as for renewable-energy production. Germany, meanwhile, has its development bank, KfW, going back to postwar reconstruction, and the Landesbanken, involved in regional economic development, providing vehicles for public investment. Of course, until England stops being a European outlier in lacking regional devolution, the latter option is impossible there.

The second lesson is that public goods play an essential role. The market-fundamentalist economic discourse in the UK has completely crowded out the (economic) concept of ‘public goods’—those which are (or, arguably, should be seen as) non-exclusive and non-rival and so properly provided by public agencies democratically accountable to citizens, not privatised and subject to ‘commercial confidentiality’. Knowledge is a prime example, especially in today’s ‘informational’ rather than ‘industrial’ capitalism, as Manuel Castells has described it.

Yet in the UK the education system has been fragmented into a morass of competing providers, including obscurantist ‘faith’ schools as well as privately-sponsored ‘academies’. The performance of this patchwork is inevitably patchy, as the UK’s again-mediocre standing in the international PISA educational rankings demonstrates. The top performers in Europe are Estonia and Finland, which both have unified, comprehensive systems in which youngsters are not differentiated until age 16 when more vocational or academic paths are selected.

The UK’s former high performance in higher education is being rapidly eroded. The more technologically orientated ‘polytechnics’ became universities out of snob value and university is being turned into a ‘club’ good for students from wealthy backgrounds by the abolition of grants and spiralling fees, sacrificing the talents of poorer students. The increasing xenophobia towards foreign students and the threat to internationally significant collaborative research posed by Brexit are additional, entirely self-inflicted wounds. At the vocational level, ever since under Thatcher the industrial training boards were abolished, the fundamental appreciation that individual firms will freeride and poach rather than investing in training their own workforces has been forgotten. By contrast, in Germany firms are required to be members of their local chamber of commerce, through which training is collectively provided at a much higher level for the benefit of all. And the network of Fraunhofer institutes, supported by federal and regional funding, pursue applied research on which firms can draw.

Germany’s huge productivity differential over the UK is also a product of relative trade-union strength—yes, strength. High wages provide a ‘productivity whip’, forcing firms to innovate to enhance productivity, rather than resting on their laurels, if they wish to sustain profitability.

This is an instance of the third lesson which the UK has yet to learn—that social policy is a productive factor. ‘Free-enterprise’ ideology can only conceive of any kind of policy intervention as a ‘burden on business’—hence the ridiculous current requirement that any new regulation affecting business in Britain can only be introduced if three others are abolished.

In this cramped perspective, ‘welfare’ is a labour-protecting device which can only detract from the surplus generated by the private sector—hence it should be as selective and means-tested as possible. The UK has gone far down that route since the postwar highpoint of the measures succeeding the 1942 Beveridge report. When unemployment was (in Keynesian terms, correctly) seen as an involuntary risk, for example, unemployment benefit was graduated according to an employee’s National Insurance contributions. Now it is ideologically identified as a voluntary ‘lifestyle choice’ and so the benefit has been renamed ‘Jobseeker’s Allowance’ and is set at a universal minimum which is below subsistence and subject even then to sanctions if ‘jobseeking’ is not seen to be sufficiently assiduous.

By contrast, in the Nordic countries with broadly universal welfare states, it is recognised that high public expenditure, funded by progressive taxation, is essential to labour productivity—in terms especially of the education and health of the worker—and so to prosperity. Denmark’s ‘flexicurity’ system, for instance, deliberately has high unemployment benefits so that workers don’t hang on to obsolete jobs and active-labour-market programmes train them for new global opportunities.

This extends to a recognition that public funding for the cultural arena—Oslo’s beautiful opera house, for example—is essential to attract the specialised workers so essential to today’s economy for whom the labour market is close to global. There is also a recognition that high-salaried professionals will be willing to pay high taxes for high-standard, personalised public services rather than seek a ‘right of exit’ for private alternatives: childcare, for instance, is not only close to universal across Scandinavia but also employs a largely-graduate workforce.

It might be thought that this is all very well from a social perspective but that such a high ‘take’ by the public purse must nevertheless be a drag on the economy. Far from it: the Nordic countries tend to top the conventional leagues of economic ‘competitiveness’. And a 2012 academic study, which defined competitiveness as output per potential worker, placed the four main Scandinavians (Sweden, Finland, Denmark and Norway—in that order) among the top seven of 30 countries.  The UK, which often prides itself on being ‘business-friendly’, came in at again a merely middling 15th.

Radical?

In sum, then, the UK can only move on to a higher economic performance path if it abandons the blinkers of market fundamentalism for a more intellectually robust and evidenced approach. The latter will have at its heart a recognition that the ‘invisible hand’ turns out to be an out-of-control robot arm, that public goods such as knowledge are key to the public interest, and that social policy is not to be dismissed as ‘the nanny state’ but is a core productive factor.

None of this is rocket science. None of it is even particularly radical—though it is way moreso than Labour’s supposedly radical Westminster manifesto this year. It just requires progressives in the UK to look beyond their own shores. Which, of course, demands remaining in the EU to work collaboratively to tame the global capitalist tiger, rather than seeking to stop the world.

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When the Guardian reported that the former Chancellor of the Exchequer George Osborne had been appointed Professor of Economics at the University of Manchester, it seemed like an April fools joke or perhaps some fake news. But it turns out to be true, despite the objections from many of the economics students at the university who have for many years railed against the neoclassical teaching they have to endure. Luckily Professor Osborne is not being paid for his endeavours, whatever these may be.

George Osborne is the person responsible for the appalling state of the public finances as a result of policy decisions taken when in office during the period 2010-2016. Of course his policies were also those of the coalition government between 2010 and 2015 and thus the Liberal Democrats bear part of the responsibility for what happened during those years.

But the core responsibility for economic policy in the period since 2010 lies with the Tories, and they are now faced by a storm of problems which have their origins in their doctrinaire and misguided strategies for Britain. What they have done over the past 7 years has resembled Thatcherism on steroids, and the rest of us have had to bear the costs. These have been huge, and focused on the poorest and most vulnerable members of society. As always it is worth recalling what Thatcher said – “there is no such thing as society” – so who cares whether social and economic policies create further divisions, add to income and wealth inequality, and make the poor poorer.

Indeed, a basic mantra of the Tory government continues to be that inequality is good for economic growth and for the health of society, despite the clear evidence that this is untrue. This has been demonstrated by the experience of the Nordic countries and is fully documented in ‘The Spirit Level: Why Equality is Better for Everyone’ by Richard Wilkinson and Kate Pickett.  They concluded that, “there is a strong tendency for ill-health and social problems to occur less frequently in the more equal countries….Health and social problems are indeed more common in countries with bigger income inequalities, The two are extraordinarily closely related”.

But then whose interests are the Tories representing? Not the disabled, the sick, the single parents, the unemployed, the homeless, the increasing numbers in low paid and insecure employment, the poorly educated and inadequately trained. There was a time when the Tory party reflected the interests of British business, of those firms and industries that were productive. But as their importance has declined, the hedge fund managers, asset strippers, bankers and property developers have taken their place. The fiscal policies that have been followed have favoured the extractive and destructive activities of the unproductive rich.

Privatisation and deregulation

One of the core principles of Thatcherism is that the public sector is bad and the private sector is good. Hence the raft of privatisations of more or less everything that could be sold so that neoliberalism could be advanced. The results could have been predicted – and were – but no one in Government was listening. There is no evidence that the privatised industries have performed better than when they were in public ownership. Indeed, rather the opposite – with results that have been catastrophic.

Anyone interested in the effects of privatisation should look at the recent book by James Meek, ‘Private Island: Why Britain Now Belongs to Someone Else’. It is evident that market power has been used by former public utilities to engage in ‘tax farming’ – a process whereby prices are raised to enhance profits and with nothing consumers can do to escape extreme exploitation. Instead of creating a share owning class as promised by Thatcher we have instead industries with monopoly and oligopolistic power, often foreign owned, which are in many cases no longer public companies but privately owned and managed. The case of water privatisation speaks for the general effects of these policies, which are worse than anyone could have imagined.

In the case of housing, not only has little new social housing been built despite the huge rise in household formation, but low cost housing has been forcibly taken out of public ownership and almost all of it ended up in the private rental sector. So the supposed objective of creating a property owning class has ended up with a huge increase in the number of households who are privately renting – often at rents that take 50 to 60% of family income. Often these are properties that are poor quality and poorly maintained.

Not only do we have exploitation by private landlords (encouraged by tax concessions from the Tory Government) but to a significant degree the rents are being funded by rent support provided by the government. Thus we have a totally inadequate housing stock which is poor in quality and in quantity and increasingly in the hands of private landlords, where rents are both excessive and in part funded through the public purse. What kind of social policy is this?

All that seems to have been important for Tory Governments is that the public sector be shrunk and the private sector take its place. Indeed, the former Deputy Prime Minister, Nick Clegg, reported during the coalition years that the only concern that Osborne had when there were discussions of tax and social policy was ‘how would supporters of the Tory party react and whether they would benefit’. What kind of calculus is this for a Minister supposedly concerned about national interests?

But the costs of privatisation are not confined to the appalling consequences of the government’s failure to meet housing needs. It is everywhere that there has been privatisation – railways, energy, water and sewage, telecommunications, bus services, airport management and so on. We are only too aware of the failures of many of the private companies that now own and manage these services and of the price gouging that has happened over many years.

Regulation of former public enterprises where it exists has been nothing more than window dressing, for how else could these companies have got away with levels of service that are often poor together with high and rising profits, massive management fees and executive pay and bonuses. For the high profits to be possible, prices had to increase exorbitantly with much of the profits transferred to overseas companies often themselves in public ownership. In many cases we have swapped British public ownership for foreign public ownership. Is there any logic in this? If there is then it is hard to see how consumers have benefited by the changes in ownership and de-regulation that simply increases the profits of companies.

The banking group Santander carried out research on their customers pay and expenditure on utilities and other core outlays, and concluded that over the past decade:

“Basic household bills have increased by an average of 43 per cent in the last decade – more than double the rate of wage growth… Gas and electricity are the biggest drivers of price increases, rising 73 per cent and 72 per cent respectively in the last decade, while water bills have increased by 41 per cent – all significantly higher than inflation at 32 per cent. Council Tax has risen by 27 per cent and TV, phone and broadband prices have all risen by 24 per cent, albeit slower than inflation but still faster than wage growth (19 per cent).”

The findings are summarised in the following Table:

Source: Santander, 2017

Transport is not included, but anyone who travels frequently on trains will confirm how outrageous the fares are, and how much faster these have risen since privatisation. Railway fares in UK are much higher than elsewhere in the EU and it seems that government subsidies in practice simply bolster the profits of the train operators. Standards of service are also lamentable compared with railways in Europe, which are still largely in public ownership. Investment in the railway infrastructure has also been totally inadequate, as the 300,000 commuters who have suffered now for several years from disrupted Southern Rail services can attest. Costs of other public transport are also high – the London underground is extremely expensive – and buses similarly are also costly for regular users who are not pensioners.

That wages and prices have behaved in the way detailed in the above table is scarcely accidental, but in significant part reflects government policy. It reflects the privatisations undertaken by the Tories, together with a belief that deregulation produces the best results. For years the Tories have followed a programme of dismantling regulations, and have followed a policy of two regulations abolished for any one new regulation – irrespective of the consequences. Public resources have flowed into an organisation established by David Cameron called the Red Tape Initiative, the intention of which is to dismantle regulations as part of their neoliberal programme. This did not appear in any manifesto.

The collapse of effective fire regulations has in part been the direct consequence of this policy, together with the underfunding of local government (including the fire service). Unfortunately, it is not surprising that the disaster at Grenfell Tower happened given the general dismantling of local government responsibilities and the subcontracting of housing development and management to private companies. Where private profit dominates and regulation is weak, standards will decline. This is only too evident in relation to social housing.

Cutting Public Sector Employment and Pay

As a direct consequence of Treasury policy under Osborne and now under Phillip Hammond, there have been enormous cutbacks in employment across huge area of the public sector. The fire service and the police have lost thousands of jobs, with consequences for the effective response to emergences and a reduced ability to monitor terrorists and to be able to respond to attacks. Similarly, in education and health there have been budgetary cutbacks and reductions in staff which have had knock on effects on the quality of teaching in schools and colleges and health care in the NHS.

But the government seems largely uninterested in the effects of its policies, and despite the evidence continues to ignore the pressure to reverse their policies on the funding of public services – including those for the disabled and the mentally ill. There is a pressing crisis in social care, as demographics increase the pressure on services that are increasingly inadequate.

Years of pay restraint have been key to the Treasury’s policy of reducing the funding of the public sector. The public services are big employers, much of it highly educated with professional skills and experience that have taken years of training to acquire.  This last point is important: it is not sensible to simply compare wage trends between the public and private sectors since former as a whole has a more educated and better trained labour force.

So the argument often trotted out by Government and others that public sector pay should not increase faster than that in the private sector has no merit given the differing composition of the two sectors and quite different needs with respect to recruitment and retention of labour.  At the present time key public services such as the NHS are losing skilled and experienced workers at all levels, and are facing a crisis in recruitment both as a result of underfunding and of Brexit. Both of these factors are reversible by government through increasing funding in real terms and issuing guarantees to EU staff with respect to their rights to remain in the UK.

There has been a freeze on public sector pay for many years, and this has reduced the real value of pay for employees across the public sector. The scale of this has recently been documented by a report from UCL and the NIESR for the Office of Manpower Economics which advises Government on pay. That there is now a crisis in recruitment in the public sector is unsurprising given the erosion of the real pay of workers since 2010 which is directly as a result of government policy.

The following table gives a picture of what has happened over the period 2005 to 2015 for a selection of occupations.

It is worth emphasising that these changes in real earnings are annual rates and the cumulative fall in the period since 2010 has been substantial across all of the occupations listed in the table. Thus, in the case of doctors the loss in real earnings per hour 2010-2015 is 22% ,for nurses 7.5% and for police officers some 10%. In practice the decline has been greater than estimated in the table since it does not take account of the losses of real earnings since 2015 – in part caused by the fall in the value of sterling which itself is largely a result of the policies of Government together with the continuation of the pay freeze.

Fiscal austerity – a veil for neoliberal policies

Osborne was responsible for the conduct of fiscal policy from 2010 until he was removed from office by Mrs May in 2016. During this period fiscal policy was lamentable both in its detail and in its effects on the aggregate performance of the economy. In the period immediately before the financial crash in 2008 fiscal policy under the Labour government was in reasonable balance, with the deficit close to that which had prevailed during the post war years. Even the IMF subsequently confirmed that the destabilisation of the budget was due to the cost of bailing out the financial system which was facing collapse in 2008, and was not caused by financial recklessness on the part of the Labour government.

The mantra of the Coalition and subsequent governments from 2010 onwards that the problems with the deficit were caused by the Labour Government is simply untrue. The destabilisation of the budget was the inevitable cost of rescuing the banking system, but the subsequent fiscal policy choices were exactly that – choices by the Coalition and subsequent governments under the economic leadership of Osborne and now Philip Hammond. The current Chancellor has pushed the achievement of the Government’s fiscal targets into the future, and public expenditure is expected to be more or less flat for the next few years rather than continuing to fall as forecast by Osborne. But Hammond is as determined as Osborne to establish a balanced budget in the near future independently of the state of the economy.

While public sector debt as a share of GDP rose sharply between 2008 and 2017 this was largely caused by bailing out the banks, plus the subsequent contraction of GDP which in large part was caused by the tightening of fiscal policy. Even with a much higher level of public sector debt as a share of GDP, now approx 90% compared with 30-35% prior to the financial crisis of 2008, there was still capacity for additional borrowing in order to finance government expenditure, and thus avoid the unnecessary losses of output that ultimately occurred.

Osborne chose to set targets for the fiscal balance which had no foundation in the needs of the economy, but reflected a preference for a smaller state – a level of state activity that reflected neoliberal objectives irrespective of the consequences for public services and the performance of the economy overall. There was a sharp fall in GDP after the financial crisis and subsequently GDP growth has been weak and well below trend. The fact that there has been such a weak recovery is in part the direct result of the fiscal policies pursued by Osborne.

VAT was raised in 2011, which is highly regressive, and while an expansionary fiscal policy was needed to re-establish economic growth Osborne chose to follow the opposite in pursuit of the chimera of a small state and a balanced budget. One of the obvious results of the fiscal contraction was economic growth that was well below trend and tax receipts that lagged.

Not even Milton Friedman, the economic guru of the right, would have applauded this policy stance, and he well recognised the need for fiscal and monetary policy to behave counter-cyclically. This is precisely the opposite of what Osborne did and, not surprisingly, the target for fiscal balance moved further and further into the future as the economy limped along with extremely low growth rates. Aiming for fiscal balance irrespective of the state of the economy is something Friedman would never have supported, and neither would Keynes or most other macroeconomists of note.

The other key aspects of Osborne’s fiscal strategy were also counter-productive, both individually and in the aggregate. It is worth quoting the Resolution Foundation in their overall assessment of tax policy:

Such tax cuts have obviously helped to support living standards for different parts of society, but they have also come at a cost to the Exchequer. Using OBR estimates of the costs of income tax, corporation tax and fuel duty giveaways at the time they were made,…..the total cost is set to add up to £45 billion by 2021-22, which is almost three times the expected size of the deficit in that year. Indeed, in the absence of this suite of tax cuts, public sector net borrowing would be in surplus by 2018-19.

It is worth noting the Foundation’s estimates of the cumulative costs of the various tax changes between 2010-2021/22. The cuts in corporation tax are estimated at £72bn, changes to the personal tax threshold at £132bn and the freezing of fuel duty at £62bn. There are specific arguments that can be marshalled against all of these tax changes plus the cut in the top rate of income tax from 50% to 45%, but it is essential to note that the changes were in all cases discretionary, and were made by Osborne irrespective of the general state of the economy.

Corporation tax has been reduced from 28% in 2010 to 20%, with the aim of reducing it to 17% by 2020. By then the UK will have the lowest rate of any major country and will be well below the OECD average of 25%. It is hard to see the economic case for reducing the rate of corporate taxation other than a determination to undercut our competitors. The result is simply to add to the fiscal deficit while at the same time doing more or less nothing to increase the level of private investment which has remained weak over the whole period since 2008. Cutting corporation tax is not an effective way to increase the rate of investment – there are more strategic tax incentives that are less costly in terms of revenue lost. A considerable share of the cuts in tax will have accrued to foreign owned enterprises.

There is clearly no economic case, quite the opposite, for the fuel duty changes. From Spring 2017 a litre of petrol is 28 pence less than it otherwise would have been under the previous tax regime. Clearly the primary aim of fuel duty taxation was to raise revenue and this has partly been reversed. As a secondary objective increases in the rate would have achieved something towards reducing the impact of carbon emissions and thus contributed to targets relating to air quality and climate change. Policy has therefore made the achievement of these targets even more difficult despite the evidence that transport is a major source of CO2 emissions. Clearly policy was driven by purely political objectives, since cuts in the real level of fuel duties will have been popular with corporations and with those voting for the Tory Party.

The uprating of tax allowances seems in principle to have been a sensible strategy and it was certainly popular – not least with the Lib Dems who pressed hard for the changes. The target is to take the level to £12,500 by 2020, which would be some £4,000 higher than if just uprated with inflation. As we can see from the data above, the changes are extremely costly for the Exchequer and although some of the gains will have been received by those on low incomes in practice most of the benefits go to those in the higher rate bands since the tax free sum would have been taxed at a higher rate. In effect this is a very expensive way to help those with low incomes, and more targeted tax and expenditure changes would have achieved better outcome at much lower cost for the Treasury.

The losses to the public revenue due to the discretionary changes in tax rates, together with a fiscal policy that was deliberately contractionary in its impact, became essential to the case being made by Government for austerity. But there really was no case for austerity, and the setting of arbitrary targets for the deficit together with tax cuts had no merit. Indeed, austerity was and is a veil for other economic and social objectives – to roll back the state to a target level of 30% of GDP irrespective of the effects of such policies on what makes the UK a civilised and caring society.

Assessing the Costs of Austerity

Discretionary tax increases and spending cuts by Government since April 2008 are around 10.6 % of national income – some £200 billion at 2017 prices. Of this fiscal tightening, 16% were net tax changes and 84% reductions in public spending, with some two-thirds of the fiscal contraction achieved by 2016-2017. Policy decisions were taken which loaded the fiscal adjustment on expenditure cuts with a much smaller role for tax changes in the conduct of fiscal adjustment. Most of the tax changes benefitted the rich, especially the cut in the top rate of income tax. During this period the share in total government receipts rose sharply for council tax, VAT and NICs, and fell for Business Rates and Corporation Tax.

The increase in VAT and council tax were highly regressive with the impact much greater on those with lower incomes. One of the most egregious changes was the imposition of the so called ‘bedroom tax’ on households with a ‘spare room’, despite the fact that there existed no alternative social housing for those affected.

It is also clear that in the early stages of the coalition government that the impact of fiscal adjustment on the real economy was much greater than the Treasury had assumed. It has been estimated that the loss of GDP between 2008 and 2016 was £5,700 per head. This represents a permanent loss in part due to the collapse of the economy after the 2008 financial crash, and in part due to the weak recovery afterwards which had superimposed on it the contractionary fiscal policy of the coalition government. This loss of per capita income was much greater than in previous economic downturns in the 1970s and 1990s when management of the economy was much better aligned with economic needs.

It is worth detailing how drastic the changes in government policy have been since 2010, changes which reflected policy choices and a determination to reduce the size of the public sector irrespective of its impact on the social, economic and political system. It is evident that many people in government do not understand the critical role that that state plays in a modern economic system. Not least the fact that much of public current expenditure has a significant investment element both directly and indirectly. This is most evident in the case of education and training, but the same is true of investment in housing and in health, in the legal system, and social services as well as in infrastructure. Much technical innovation originates in state supported research programmes, often undertaken by universities.

The swingeing cuts we have seen in recent years in public expenditure have nothing to commend them. In the period between the 1950s and 2010 government spending increased in real terms at an annual rate of 2.9% and the UK had a level of public expenditure relative to GDP comparable to most other OECD countries. Since 2010 the increase in government spending has fallen to an annual rate of 0.3% with the result that per person real spending per head has been flat. By 2020/21 per person real government spending per person will have fallen by 4% compared to 2010 when the coalition took office.

Within government there have been catastrophic cutbacks in departmental spending (17% overall) with cuts to education (14%), defence (18%) and Communities and Local Government (25%). The NHS has had an increased level of funding (5%) but this is totally inadequate to meet demographic growth and the needs of an ageing population. Welfare spending per person (excluding pensioners) has fallen 10% in real terms since 2010. All of the increases in child benefit made between 1999 and 2009 have been reversed, and job seekers allowance is now lower than at any time since 1992.

It should also be noted that public investment has fallen to levels not seen in the post-war period, with results that are everywhere apparent in terms of a crumbling infrastructure. The gap between needs and performance is most evident in the case of housing where investment by government has more or less ceased despite the recommendation of the Barker Commission that we needed an annual investment of 250,000 houses to keep pace with demand.

Government rejected the advice of many economists who said it should expand its investment programme during the post 2008 downturn so as to expand demand at a time when borrowing costs were extremely low. The enormous shortage of affordable housing in the UK has its origins in the failure of government to undertake the required public investment.

One of the consequences of the cutbacks in Government spending has been an enormous loss of jobs in the public sector. In Local Government the cuts have been about one-third, with a loss of critical services for which there is no private sector provision such as libraries, parks, children’s and youth services etc. Overall General Government (including Local Government) now has total employment below 5million for the first time this century, with an estimated loss of jobs of about 500,000 since 2010. The biggest workforce cuts are health and social services (35%), armed forces (25%) and police (22%). How could anyone defend such an erosion of public sector employment and the associated services?

Along with the losses in employment have gone cuts in the real pay of employees. Public sector pay was frozen in 2011 until 2013 and then was subject to a 1% cap thereafter. As we have seen above this has massively eroded the pay of employees and it is unsurprising that many key sectors face major problems of retaining and attracting labour. It has been reported that since 2011 25% of newly qualified teachers have left the profession on account of low pay together with excessive working hours. Average public sector pay was £26,780 in 2009 and is projected to be £25,430 in 2020 – a fall of £1,300 which can be compared with a rise of £1000 for average private sector pay over the same period.

The Tories have tried to create an ideological shift against the public sector by diminishing public employees as ‘bureaucrats’ or ‘penpushers’. The denigration of experts that has taken place is part of a longer trend in under-valuing technical expertise and paying those with engineering and other technical skills much less than in competitor countries such as Germany. We are now witnessing the consequences of these attitudes and policies as the quality and quantity of public administration has fallen dramatically. Not least in the capacity of central government to deal with the complexity of Brexit and all the activities that are affected by the ‘planned’ withdrawal from the EU.

A final summary statistic that strikingly portrays the failure of Osborne’s strategy is that real household per capita income was a mere 1% higher in 2017 than it was a decade ago. In the years before 2007 the average annual increase in household real per capita income was 2.6%, however since then it has fallen to a mere 0.3%. This has to be the worst performance by any post-war government in the UK.

The economic consequences of Mr Osborne

In 1925 Keynes wrote a very powerful analysis of the failures of government economic policy which he published in a book entitled ‘The Economic Consequences of Mr Churchill’. The decision that Churchill took at that stage to return to the gold standard at an over-valued parity directly led to massive unemployment which contributed to the Great Depression of the 1930s.

It is evident that when Chancellor Mr Osborne knew nothing about the effective conduct of economic policy. As a result the UK looks set to experience a decade or more of insecure employment and stagnant real incomes within a society that is deeply fractured.  At the same time, the rich will get richer.

The UK is a deeply unequal country and one that is getting more unequal by the day. There was a remarkable rise in inequality from the 1980s, with the Gini coefficient increasing from 25% in 1979 to almost 40% in 2010. It is remarkable that the Gini in 2016/17 was higher than in all the years since 1961 except for the short period of 2007-2010.

The Resolution Foundation in ‘The Living Standards Audit 2017’ concluded that:

“In 2015-16 the share of income going to the top one per cent reached 8.5 per cent, broadly returning to pre-crisis levels although below 2009-10’s record peak of 8.7 per cent. Both these years of high income shares reflect, in part, income being shifted between years in response to tax changes.”

So the rich not surprisingly managed to protect themselves from austerity while incomes for the other 99% at best stagnated after the 2008 financial crisis, with a further widening of regional income inequality. And how successful has the Osborne strategy been in reducing the risks faced by the economy? A report from the OBR in July concluded as follows:

“A decade after the outbreak of the financial crisis and recession, net borrowing is well down from its peak. But the budget is still in deficit by 2 to 3 per cent of GDP – as it was on the eve of the crisis – and net debt is more than double its pre-crisis share of GDP and not yet falling. As a result, the public finances are much more sensitive to interest rate and inflation surprises than they were.”

This doesn’t sound like much of a success story, and its unsurprising that the population have had enough of austerity and the government and political party responsible. One could add that the public finances are also subject to a wide range of other risks including the economic meltdown caused by Brexit and the high probability of another financial crisis. The UK is now in a much worse state to deal with imminent risks than it was before 2008, not least because of a decade of failed economic and social policies.

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“The important thing for Government is not to do things which individuals are doing already, and to do them a little better or a little worse; but to do those things which at present are not done at all”

— John Maynard Keynes

On 20 July 1969 Neil Armstrong and Buzz Aldrin set foot on the moon. 48 years later, the lunar landing remains one of humanity’s greatest achievements. But the “giant leap for mankind” wasn’t merely a symbolic event – it had major repercussions for life back on earth.

When John F. Kennedy announced the goal of sending an American to the Moon in 1961, he kick-started a frenzy of innovation across the US economy. NASA’s pioneering work led to major technological advances in areas such electronics and computing, which generated spillovers across the economy. Without the research and development that went into the moon landings many of today’s top tech companies may not have been founded, and the world would likely be a very different place.

The moon landing is a successful example of ‘mission-orientated’ policy. Rather than focusing on particular sectors – as in traditional industrial policy – mission-oriented policy focuses on overcoming a specific societal challenge. It involves strategic thinking about the direction we want to move towards, and the kind of institutions and technologies we need to get there.

The importance of mission-orientated policy lies in the fact that innovation has both a rate and a direction. The direction can be left to the invisible hand of the market, or it can be actively steered by policymakers to shape new futures. Had the US government not set the goal of putting a man on the moon, the technology that took us there would likely never have been developed, and certainly not within the same time frame. Guided by the logic of profit maximisation, there was no incentive for the private sector to take up the task. The resources required, and the risks involved, were simply too great.

Economists typically hail private enterprise as the engine of innovation. But when it comes to the major technological breakthroughs of the past century, the reality is that most of the heavy lifting has been done by the state. As Mariana Mazzucato has highlighted, many of humanity’s boldest advances – from the internet and microchips to biotechnology and nanotechnology – were only made possible by early stage public sector investment. In each of these areas the private sector only entered much later, piggybacking on the technological advances made possible by long-term, high-risk public investment.

But for decades policy in Britain has been guided by an assumption that the market knows best. Not only has this resulted in a weak and unbalanced economy, but attempts at innovation have often focused on finding ever more sophisticated ways to extract value — not create it. While in the late 1960s the world’s brightest minds were inspired to work in space exploration, by the 2000s many had been seduced into the world of financial wizardry. A huge amount of brainpower was devoted to cooking up incredibly complex and “socially useless” financial instruments. These inventions – though undeniably innovative – fuelled a global financial crisis, and ultimately ended up destroying more value than they ever created. The “innovators” reaped huge rewards, while the taxpayer was left to pick up the tab. The lesson here is that the direction of innovation matters, and so we should steer our resources – both human and financial – towards activities that help solve real societal problems.

Today we face many challenges, but perhaps none are more urgent than climate change. The age of fossil fuels and mass production has generated an unprecedented amount of wealth, but rising levels of carbon dioxide in the atmosphere has led to a warming planet. If we allow the average temperature to rise over 2˚C above the pre-industrial level, then the result will be devastating and irreversible damage to our environment and ecosystems.

Unlike the moon landings, overcoming these challenges is not merely a matter of scientific curiosity or ideological supremacy – it is crucial for the survival of life as we know it. But like the moon landings, the challenge is a technological one. More than anything else, overcoming it means finding a way to delink our economy from fossil fuels without impairing living standards. Policy should therefore be orientated around a new mission —  to make a rapid transition to a zero carbon economy.

To succeed, there needs to be huge investment in research and development and a radical transformation of our energy, transport and economic systems. As before, the speed and scale of the task means that it must be state-led. But in Britain four decades of neoliberalism has hollowed out the public sector’s capacity. Steps should therefore be taken to rebuild existing public sector institutions, and increase their capacity to think and act big. But we also need to establish new ‘mission-focused’ research institutions to lead the technological transition. One of these could be tasked with accelerating the energy revolution, focusing research on renewable generation, storage and smart grids, while another could be given a broader remit to research new technologies which minimise material and energy use. Modelled on NASA, these bodies would be encouraged to experiment and take risks, and must be generously funded to ensure that they can attract top talent.

Incentives and partnerships should be established to ensure that the private sector plays a complimentary role in the commercialisation and deployment of new technologies, with rewards appropriately shared with state. Households should be subsidised to decarbonise homes within a certain timeframe via green retrofitting and new energy installations. The benefits of this wouldn’t only be environmental – a systemic decarbonising of the entire economy would create thousands of new high skill, high pay jobs across the country.

All of this will have a significant cost. Mission-orientated policy requires not just any type of finance but patient, long-term, committed finance. But where will the money come from, particularly when public budgets are squeezed and private finance is retreating from funding the real economy? Here there is much to learn from other countries.

In China, Germany and Brazil, mission-oriented public funding is increasingly coming from state investment banks. One example is green energy tech, where state investment banks are now the largest funders of the deployment and diffusion phase of renewable energy, outpacing investment from the private sector. In Germany, the KfW state investment bank has played a key role supporting the Energiewende policy to attain energy security and mitigate climate change through the greening and modernisation of German industries and infrastructures.

Learning from successful examples around the world, a new British Investment Bank would leverage public capital into a major source of long-term, patient finance. This would be channelled into public and private sector initiatives which help facilitate the transition.

Of course, Britain can’t tackle climate change alone. But there is no reason why we can’t lead the way. Two things stand in the way: an attachment to outdated economic dogma, and an aversion to courageous public policy. It’s time we overcame both.

Laurie Macfarlane is economics editor at openDemocracy, and an Associate Fellow at the Institute for Innovation and Public Purpose at University College London – a new institute which focuses on how public policy can be used to direct innovation to tackle societal and technological challenges.

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A great deal has been written in recent years on the topic of inequality. The books of Thomas Piketty and the late Tony Atkinson are just two recent examples. It is hard to believe that anyone can be unaware of the issues and the possible explanations of why there has been such a massive shift in income and wealth distribution in both rich and poor countries. And yet it is still possible to be surprised at what is going on at the highest echelons of business. Here is just one example, as reported in the Guardian earlier this month:

Burberry is to hand Christopher Bailey shares worth £10.5m next month when day-to-day management of the luxury goods retailer switches to a newly recruited chief executive. Bailey is to receive 600,000 of the 1m shares he was awarded in 2013, at a time when the company was concerned he might be poached by a rival. Bailey will receive the rest of the 1m shares at a later date and at the current share price of £17.65 the 600,000 that he will receive are worth about £10.5m.

 

The annual report published on Tuesday shows that Bailey was paid £3.5m last year – up from the £1.9m the previous year. While he waived his entitlement to any annual bonus for the year, his total was boosted by a £1.4m payout from a further award of shares in 2014. ….In 2014 the company had endured a bruising annual meeting with its shareholders, who voted against its remuneration report to protest about Bailey’s pay. His pay deals also include a £440,000 allowance to cover clothes and other items.

 

Bailey’s salary will remain at £1.1m when he becomes president next month, following a year in which underlying profits fell by 21%.

Burberry isn’t exactly at the forefront of technical innovation and nor is it a company supplying a product that most of us would consider essential to life and limb. It caters of course to the global rich and its success until recently in expanding sales has depended on precisely the shift in income and wealth that has been measured by Piketty and others. But relative to average wages in the same company and to median household income in the UK, the scale of the payments to Bailey seem unreasonable. This is someone who has presided over a 21% fall in profits, and yet is still rewarded by a huge set of payments. What does this say about corporate governance and any supposed relationship between payment and performance?

It is perhaps unsurprising that in the land of Thatcherism the UK comes out very unfavourably in international comparisons of income and wealth distribution. In the UK the top 10% of households have disposable income 9 times that of the bottom 10%. But the level of inequality is much higher for original pre-tax incomes where the top 10% is 24 times higher than the bottom 10%. It is even worse than this within the top 10% where the level of inequality is greater; the top 1% of households on average had an income of £253,927 and the top 0.1% had an average income of £919,882 in 2012. The UK is the 7th most unequal country in the OECD, and the 4th most unequal country in Europe.

In the case of wealth, inequality is even greater. The richest 10% of households hold 45% of all wealth and the poorest 50% have 8.7%. Within the OECD countries the UK has a gini coefficient for wealth inequality a little higher than the rest of the members [73.2 compared to 72.8].

In an interesting paper in 2012 the Bank of England argues that more or less every citizen gained to some degree from the fact that monetary expansion after the 2008 crisis generated additional demand and growth in GDP of 1.5 to 2.0%. Perhaps, but more importantly quantitative easing (QE) both directly and indirectly increases asset prices, and since ownership of financial assets is skewed most of the capital gain accrues to those with the largest holdings. Thus it is the top 5% of households in the UK hold 40% of financial assets who gained the most.

This is equivalent to the top 5% each receiving £128,000 as a result of QE in the years prior to 2012. Since QE has continued to be central to monetary policy in the UK since then, the richest have continued to be the main beneficiaries. It is reasonable to assume that in the 5 years since the Bank made its estimates that another £130,000 or so has been added to the wealth of each of the top 5%.

It is also worth noting that the UK has had massive property price inflation in part as a result of the liquidity generated by QE. Again, the greatest benefit will have accrued to the richest segment of the population. This gain is an additional transfer to the top 5% since real gains on property were excluded from the Bank’s estimates. The scale of the rise in house prices both has been enormous. Nominal house prices on average increased between 1975 to 2016 by more than 800%, while real house price growth (after inflation is considered) was 333%. The following chart from Nationwide the biggest UK lender for housing finance maps the trend over the whole period since 1975.

What we face in the UK and elsewhere in the EU is a situation of deep and growing income and wealth inequality which in part has its origins in globalised trade but also in trends in technological development that substituted precarious work for previously well paid and secure employment. But we also witness governments both in the UK and across the EU following tax policies that are increasingly regressive in their impact, with greater dependence on indirect taxes and reductions in the degree of tax progressivism in income taxes.

In practice corporate taxes are increasingly easily to avoid, which also raises the returns to owners of capital. Meanwhile, the power of labour organisations has weakened which has enabled capital to grab a larger share of net product and hence a higher share of national income and wealth. To these forces we have also identified the actions of central banks who through their activities have directly and indirectly caused further income and wealth inequality.

Present levels of inequality threaten social, economic and political stability. It is now generally agreed as to what to do, but the problem is that years of increasing inequality have embedded the interests of the rich and powerful such that governments more or less everywhere have been captured and are no longer representative of their populations. But the structural forces at work will make it difficult for governments to continue with present policies, and they will have little option but to change direction. Populism and the rise of extreme parties of the left and right will inevitably lead to change, but why wait for this to happen?

The broad outlines of policy reform are clear:

1. Monetary policy needs to revert to its more traditional role with a much reduced level of dependence on QE. Savers need to be offered higher real rates of interest and credit needs to be brought under more effective control. Banks and other financial intermediaries need to be effectively regulated and their stability should be the focus of the monetary authorities. Where QE is continued it should be used to serve the interests of the country and not the rich few, and this would mean using monetary expansion for financing public investment in a sustainable way – both social and economic investment.
2. Fiscal policy needs to be given a much greater weight and needs to become much more progressive in terms of tax structure. The current regressive nature of the tax system needs to be reversed with much greater reliance on income taxes and much less on indirect taxes. Corporate taxes need to be increased and loopholes closed so that the effective tax rate is moved closer to historical levels. In particular corporate taxes should be based on where revenue is received rather than on profits so as to make it much more difficult for companies to avoid taxation. Wealth taxes need to be made more effective and loopholes closed especially in relation to the passing of wealth between generations which is presently a major avenue for processes of inequality to persist and deepen over time.
3. Political reform is essential so that the role of money and corporate power is removed from the political process. This has become even more critical now that it is evident that social media such as Facebook have been infiltrated by organisations that manipulate data and information in the interests of the rich and powerful. Political systems have become corrupted and urgently need reform.
4. Wages are too low and this threatens economic stability. It is critical that real wages be increased in part through changes in wage policy in respect of public sector employees where there has been wage restraint, and in part through policies to strengthen organisations representing the interests of labour. The insecurity of work especially in the so called ‘gig’ economy needs to be addressed via regulations which require workers to be treated as employees and not as self-employed. The weakening of the bargaining power of unions should be reversed through public policy since this is an effective way to raise wages and reduce the dependence of workers on debt and fiscal transfers from government. The shift in the shares of national income to capital has to be reversed so that employment incomes can be raised and with it increased consumer expenditure. Economic growth nearer to long term trends is essential if employment and income levels are to be restored.

Will the above reforms happen? Time will tell, but the clock is ticking. If structural reforms are not undertaken by government then we will all reap the consequences – and these will not be pleasant.

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The new DEFRA Secretary Michael Gove MP will be staring at a blank page when it comes to replacing the old European Common Agricultural Policy (CAP) with a new system of support for UK farmers. The Treasury will be gazing hungrily at the fat budget (over £3 billion) that farming currently accounts for. Which way will Gove swing?

As one of the most complex, costly, and widely disliked common EU policies, Brexit presents a once in a lifetime opportunity to end some of the absurdities and harm of the CAP – a system which has failed to support farms effectively, failed to stem the huge loss of farm diversity and failed to protect wildlife and services such as flood mitigation.

But what will Gove replace it with? I explored some of the key issues in an earlier blog. Maintaining and improving standards in areas such as environment and animal welfare will matter massively. The National Farmers Union (NFU) “believes it would be wrong for imported food to be produced to different standards than those adhered to by British.”  They have also recently surveyed their members and it appears their confidence has taken a severe knock.

Improving our food security so our farmers can feed us healthily, affordably and sustainably really matters. The lamentable level of domestic fruit production – just 1 in 10 pieces of fruit eaten here is grown here – is just one example. But this should change.

Governments across the globe have adopted widely different systems to subsidise and promote farmers, from New Zealand’s complete removal of all financial support for farming in 1984, to the Swiss model that is one of the costliest in the world. Gove should understand that  neither extreme looks suitable for a future UK system. We need a clever, affordable, workable system that is suitable for a wide range of farms and landscapes, but which also looks after the health of the four nations. Each nation needs to design its own scheme, suitable for its industry, environment and population.

Sustain – an alliance of 94 organisations with a combined public membership of several million – believes that a focus on high volume, low standard production is not the answer. Leaving farmers with no public support (which currently represents a significant part of many farmers’ income) could create a highly polarised system with a small number of huge, intensive specialised farms and some high nature farmland protected by charitable grants. One can imagine the death of small and family farms.

Farming is undoubtedly a business, but it is also so much more. Sustain’s new proposals, consulted on with our alliance and others, recognise that farming can also provide much wider public outcomes and benefits including thriving rural communities, valued farm workers, safe food, good nutrition, a protected and nurtured environment and high animal welfare. Any new deal should help farms achieve this.

The Sustain alliance, which contains a broad range of organisations concerned with food and farming, has proposed a practical way forward and a basis for debate once the election dust has settled. The Government will need to find common ground between the industry, the Treasury, our future relationship with the EU, and those groups championing the rural economy, conservation, public health and development.

The alliance recommend that the next Government should retain taxpayer support for farmers after Brexit, but replace the old two pillar EU system with a new four-part deal for farming based on:

1. Payments for public goods – shifting payments from large landowners and biofuel production to supporting resilient farming, nature and animals, creating more rural jobs and growing our own healthy 5-a-day fruit and vegetables, in a new Land Management Scheme;
2. Support for demonstrably sustainable business needs such as marketing hubs or micro-processing units, farmer innovation, facilitation funds for setting up cooperatives via capital grants, loans, and business advice;
3. A new publicly funded programme of low cost advice and support for a farmer-to-farmer advisory network; and
4. Wider policy measures to ensure farmers can thrive such as extending the Grocery Code Adjudicator’s powers to ensure fair trading practices from supermarkets and their suppliers, keeping high standards including worker standards and organic legal rules, and requiring an increase in the purchase of local and sustainable food for public-sector organisations such as schools and hospitals.

A key but potentially contentious proposal is that payments to farmers and land managers should be front loaded, with Government tapering or capping payments to use taxpayers’ support wisely and ensure the diverse mix of farm businesses can thrive, not just the largest.

The alliance also suggests we need special support for fruit and vegetable production as there is a real chance for import substitution and getting more of our ‘five-a-day’ grown sustainably in the UK. Supporting new entrants into farming and encouraging agroforestry – a great carbon fix and wildlife haven – should also get special attention in any new allocation of funds.

Underpinning this policy structure should be a core set of principles within a clear strategy, which is something that we are severely lacking right now. Key to this will be effective targeting of financial and other support and basing allocation on the principle of public benefits (widely defined) for public investment. The Sustain alliance emphasises that all policy must be underpinned by effective regulatory and enforcement systems based on the precautionary principle in order to protect people, the rural economy, environment and livestock.

The final principles refer to trade deals, the responsibility of Gove’s colleague Liam Fox MP, which must not undermine the delivery of this vision in each of the UK’s devolved administrations and should enable other countries to deliver their own food sovereignty.

Future farm policy is going to be a long and detailed discussion. Sustain’s proposed four part deal is a good starting point, and many more ideas will no doubt be put forward. Public involvement in this debate is notoriously difficult but essential – not only as citizens affected by the farmed environment, but also as consumers eating the food and taxpayers who are providing the financial support. Getting the policies right matters not only for the farming sector, but for health and wellbeing across the UK.

The post To feed ourselves well after Brexit, we need to change the economics of farming appeared first on New thinking for the British economy.

The economist Steve Keen was one of the few to predict the 2007/8 collapse. We interviewed him about how to avoid the next one.

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The Chancellor painted a rosy picture of a robust UK economy enjoying strong economic growth and low unemployment. He also talked about how the government is helping ordinary working families and building an economy that works for everyone.

That’s far from the reality facing most people this morning. Here are five things he forgot to mention:

• We are facing an unprecedented lost decade in living standards

Since 2007 real wages – income from work adjusted for inflation – have fallen by 10%. Wages in Britain have fallen further than in any other advanced country apart from Greece. This represents the longest sustained decline in British living standards since records began.

According to the Office for Budget Responsibility’s (OBR) forecasts which were published alongside the budget, we face another year of wage stagnation in 2017. The OBR expects that the weaker pound caused by Brexit will push up inflation, eroding the purchasing power of any wage increases.

While the OBR does expect moderate earnings growth beyond 2017, this will not be sufficient to make up the loss ground. In fact, the OBR expects that in 2020 real earnings will still be lower than they were back in 2008. The implications of this are stark: we are facing an unprecedented lost decade in living standards.

But these aggregate figures mask varying fortunes across the income distribution. The problem of low wage growth is further compounded by the government’s cuts to working-age benefits which will hurt the incomes of those at the bottom of the income distribution.

In a report published last week, the Institute for Fiscal Studies projected that while most households can expect moderate income growth over the next five years, the incomes of the poorest 15% of households will fall (after adjusting for housing costs and inflation). As a result, income inequality looks set to increase.

• Private debt is ballooning, putting our economy at huge risk

Mr Hammond said that yesterday’s Budget was about continuing the task of “getting Britain back to living within its means”. He also said he will “not saddle our children with ever-increasing debts”.

He was of course referring to reducing government spending. Yet when we look at the consequences of the Chancellor’s Budget on private households, the government’s own figures show no signs of progress towards any conception of a society that is living within its means.

The below graph is taken from the OBR’s latest set of forecasts which were published alongside the Budget. It shows what has happened to household debt relative to income over the last decade or so, and what they expect to happen over the next five years:

So, the government’s own forecasters think household debt relative to income will increase dramatically in the next five years.

What’s going on here? Firstly, the OBR is forecasting that mortgage debt will continue to rise as house prices grow more quickly than incomes. With UK house prices already nine times average incomes – a consequence of financial deregulation and ill-thought out housing policy – this is a worrying sign.

Secondly, in recent years the UK economy has become increasingly reliant on household consumption spending. With wages failing to keep up, households have only been able to increase consumption by borrowing more or drawing down on savings. And with a government determined to curb spending, a trade deficit that is a drag on economic activity and sluggish business investment, the only way that growth can plausibly be achieved is through debt-fuelled consumption. This is not sustainable – eventually, an economy which relies on households spending beyond their means will crumble.

• The NHS isn’t getting the funding it needs

In his Budget speech Mr Hammond declared that “we are the government of the NHS”. This comes amid reports of a “humanitarian crisis” in hospitals, while doctors have warned that mounting pressures on the NHS are putting lives at risk.

The Chancellor said that he is committed to making more funding available, but by simply reeling off big numbers – “an extra £10 billion” – he obscures the underlying reality.

The most effective way to evaluate trends in health spending is by comparing it to the size of the economy. There are good reasons why health spending should increase relative to the size of the economy over time. An ageing population means that demands on health services rise since older individuals on average consume more, and more expensive, healthcare. Demand will also increase over time as a result of the rising prevalence of some chronic conditions, improvements in access to care, and improvements in technology.

Over recent decades spending on the NHS has indeed increased: in 1970 total UK health spending was 4% of GDP, rising to between 5% and 6% through the mid-1990s. From 1997 until the financial crisis in 2008 there was a steady increase, reaching nearly 8% in 2010.
Since 2010 however, this trend has reversed. As the Kings Fund has reported, we are now experiencing the largest sustained fall in NHS spending as a share of GDP in any period since 1951.

The extra money announced for social care in the Budget may help to alleviate pressure on the NHS by freeing up some beds. But the inescapable reality is that the NHS needs much more funding. Where this money should come from is an important question.

According to the Institute of Fiscal Studies, the corporation tax cuts since 2010 have cost the government £10.8 billion a year in tax revenue. In the Budget the Chancellor confirmed that he plans to reduce corporation tax even further to 17% by 2020. This is money that could go a long way to fixing the problems in the NHS.

At a time when the NHS is in crisis caused by lack of funding, slashing corporation tax further seems grossly irresponsible.

• What about the housing crisis?

The Chancellor failed to mention housing even once, despite the fact that we are in the grip of a serious and escalating housing crisis. One of the things fuelling that crisis is the fact that the government is insisting on selling off public land rather than using it to help deliver more genuinely affordable housing.

At the current rate, the new homes target on sold-off public land will not be met until 2032, 12 years later than promised. And the majority of homes being built on the land sold are out of reach for most people — only one in five will be classified as ‘affordable’. Even this figure is optimistic as it uses the government’s own widely criticised definition of affordability. If the government ended the public land fire sale they could use that land to partner with local authorities, small developers and communities themselves to deliver the more affordable homes people need.

According to the latest Nationwide House Price statistics, as most people cannot afford to buy now even with a mortgage, cash buyers such as second homeowners and buy to let landlords are propping up the market. Things are getting worse for people left at the mercy of this failing market. The Chancellor could have put a stop to the fire sale of public land yesterday, but instead he acted as if there were no housing crisis all.

• The Chancellor quietly ducked acting on the environment

With the nation’s cities gasping for clean air and ever-louder calls for politicians to act on dirty transport, the Chancellor had been widely expected to announce a new scrappage scheme for diesel cars – but he didn’t.

Pollution from traffic is the biggest factor in the 40,000 early deaths in the UK every year from dirty air, of which diesel vehicles are the biggest culprit.  New research shows that a scheme to incentivise trading in dirty diesel cars for cleaner new models would be popular and successful, as well has helping support the Government’s broader industrial push to be a global hub for making low-emission cars.  But the Budget documents deferred the decision on the scheme until later in the year, and Mr Hammond made no mention of the country’s air pollution crisis at all.

This Budget had little time for anything environmental. Previous promises that it would see an announcement of post-Brexit subsidy plans for renewable energy were also ducked. Yet there was the usual succour for the country’s fossil fuel producers, already basking in the “unprecedented support” of successive Budgets. This time, they will help design a tax change that will encourage smaller companies to wring every last drop of oil from the UK’s declining North Sea – despite the Government admitting most of the world’s fossil fuels will need to be left in the ground.

Today the Chancellor faces a growing backlash over National Insurance rises and whether it constitutes a breach of the Conservative’s 2015 manifesto. But yesterday’s Budget represents a wider failure.

This was a moment to take the first steps towards an economy that really puts people in control and to prepare Britain for life outside the EU. Instead, the Chancellor ducked the big issues and dodged difficult choices.

This piece first appeared on the New Economics Foundation blog.

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On Budget day, Ed Mayo has a proposal for the Chancellor: cut controversial tax breaks for high earners and invest in co-operative ownership that will help create the inclusive economy the government says it wants.

The welfare state has not gone away, but it has been redirected. Some commentators say that tax cuts on capital gains, coupled with generous allowances, have acted as a line of welfare support for senior executives. They have also helped to fuel pay inequalities.

In Co-operatives UK’s submission to the Treasury for today’s Budget we have turned a spotlight on some of the allowances that have been running, and how the money could be better used – to widen business ownership and share profits more inclusively.

One is the Employee Shareholder Status, which has been primarily used for tax planning by high earners, rather than a scheme to spread employee ownership in a co-operative way to all of the workforce. In the Autumn Statement, late last year, the Chancellor, Philip Hammond agreed to suspend new entrants to the scheme and to bring forward plans to close the loophole completely. Over the next five years, this will save £115 million in welfare payments to the wealthy.

A second is Company Share Option Plans and a third is the Enterprise Management Incentive, which together award £220 million a year in tax breaks to just 40,000 high earners. These are expensive and exclusive schemes that benefit less than 1% of the workforce.

If they were all abolished, together that would release over £1.2 billion over five years. This is money that could be invested in a far more democratic way, with the same underlying goal of encouraging business ownership.

Here is the billion pound proposal that we are making: these funds should be reallocated to create a UK Employee Buyout Fund and a Co-operative Entrepreneurs Programme.

The Employee Buyout Fund is designed to address the growing challenge of business succession, in the context of Brexit. The option of foreign investment when home grown firms get to a certain size has long carried the risk that capital and employment will end up being offshored. But if foreign investment dries up, the need for a solution to the succession and growth challenges of thousands of firms each year becomes an urgent one.

The second proposal is a Co-operative Entrepreneurs Programme and is designed for a different group, which may get left behind in the economic shifts around Brexit. This progamme would be designed to help entrepreneurial people on low and middle incomes, coming together to own and control their own livelihoods through co-operatives and social enterprises.

There is already a working version of this – The Hive, a business support programme for co-operatives, which we run in partnership with the Co-operative Bank. It operates at a far smaller scale, but has already supported 100 co-ops to start or grow over the last year, with 150 more in the pipeline.

These are co-ops like Leeds Bread Co-op. They formed in 2012 as a worker owned business to create decent work and to provide people across the city with high quality bread. With just two members of staff five years ago, the co-op now employs 16 people, bakes over 5,000 loaves a week and delivers to more than 60 businesses around the Leeds area.

Or co-ops like Choices4Doncaster, a group of micro-providers of social care which have come together and formed a co-op of small organisations that can offer a personal and responsive service able to compete with larger players. In a chronically under-funded sector, it is creative and co-operative approaches to care such as this that can make all the difference.

Or co-ops like Harcourt Pre-School, a well-loved nursery in Bristol. When its owners decided to sell-up the staff feared their jobs and a valuable community resource was at risk and so, rather than waiting on the side-lines, set up a co-op in order to buy and run the nursery themselves together.

The co-operative sector is strong, dynamic and resilient – twice as many co-operatives survive the difficult first five years than other businesses. With more support available we could see far more people benefiting from co-operative ownership.

There is a benefits cap for those in need, which is expected this year to affect around 88,000 households across the UK. Is it a good time now to cap allowances for those who are well off, and redirect the resources towards a more inclusive economy? It is a billion pound question.

The post Stop Brexit capital flight: invest in worker ownership appeared first on New thinking for the British economy.

Toby Lloyd from Shelter, and Josh Ryan-Collins and Laurie Macfarlane from the New Economics Foundation have a new book out helping us get to grips with what’s gone wrong and how to fix it. I had a chat with Laurie in the NEF offices to find out more – enjoy.

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If you had £200 to spend on food each year what would you spend it on? That is roughly how much each family of four spends on current subsidies for farmers and the food sector. Has anyone asked taxpayers how they want that money spent?

Clearly that would be a bit foolish without a decent discussion and information about what that money pays for now and what it could pay for.

After 2020, EU-designed farm support will end. This amounted to £3.2 billion in the UK in 2015. As the farm and food industry prepares for life after Brexit in terms of prices, trade and markets so too the way we as taxpayers support farming will need to change.

Some may think we should just remove all that support and treat the sector as any other. I don’t subscribe to that view. There is a strong case for support for the land based sector – from the need to ensure public ‘goods’ such as protected rural and natural environment, water, soil, (paying for afforestation to provide natural flood management for instance), through to supporting rural economies. Many argue we must also guarantee some food production so we don’t leech land and water from other parts of the world or become entirely dependent on the world market.

As markets fail to recognize many of these ‘goods’ we get from farming there is a case for intervention. But what should that intervention look like when we leave the EU and how much would it cost?

Seizing the opportunity to test new approaches would be ideal – a transitional phase where we maintain a level of support but undertake regional pilots that address nature, animal welfare, market and research questions.

Public benefits aside, as we are leaving the EU family and its Single Market and Customs Union, the level of support we give our farmers will come under significant World Trade Organisation scrutiny. And that means getting to grips with some of their terminology. The ‘green’ of my title refers to a way in which farm support is categorized according to how trade distorting it is. If it is not linked to production directly or it’s considered minimally distorting, it is allowed under a ‘green box’ status. More ‘coupled’ types of farm subsidy and support – which are linked to production and affect prices and trade – are given ‘blue’ and ‘amber’ status and are restricted.

This is a complex area – rife with politics and horse-trading – that the UK government, industry and others are beginning to grapple with after some years of neglect under the umbrella of EU trade negotiations and competence. The £3.2 billion (or more or less) will be under significant scrutiny alongside new tariff regimes which we will be negotiating.

Assessing the ways in which a government could support its farm sector (alongside regulation) has now become a live exercise. Some schemes focus on insurance mechanisms or Bonds to give farms protection from market shocks. Other proposals are for greater investment in local infrastructure, such as abattoirs, and in skills and training to prepare farmers for the challenges ahead, and possibly more investment in public sector food. The latter could deliver a triple win of increasing the market for high standard British produce, as well as healthier diets and reducing the burden of diet-related disease on the NHS. These could benefit rural livelihoods, communities, the economy and in the long term reduce taxpayer spend. Global Justice Now and nef have outlined a novel approach I’ve not seen elsewhere – the concept of a universal income for all farmers.

Many designs share a commonality in approach largely based on ‘public support for public goods’. Most proposals advocate ditching the current system of direct area payments and advocate linking payments to outcomes in some way – from an enhanced agri-environment scheme approach to tradable markets for services such as flood protection (DEFRA Minister George Eustace). People Need Nature outlined a framework for future support in A Pebble in the Pond, as have CPRE and the National Trust based on taxpayers paying public subsidy to farmers only for outcomes that the market won’t pay for but which are valued and needed by the public. They stress that any payment should be conditional on meeting demonstrably higher standards of wildlife, soil and water protection.

The Landworkers Alliance agree with ditching area payments but place stronger emphasis on securing healthy sustainable UK food supplies, jobs in farming and the smaller farm sector as well as democratizing decision making.

The big question is what outcomes does the public want? Sir Don Curry speaking at the recent Sustain AGM spoke of the Big Prize at the end of all this. What is it? I would feel happier if I felt we had time to discuss this and could involve all stakeholders – including customers and taxpayers – and good evidence on policy efficacy.

What about governance? We need strong regulations and priorities and direction set at national (devolved) level. But could more of the decisions be made at a local level? Sounds good but what are the risks? Who decides what nature is protected and how?  We need to be sure experts are to hand and that we don’t get outcomes suited to those who shout loudest or who have time to turn up at local meetings…

Workers rights must not be lost in designing a remedy. Some argue for shifting subsidies to the relatively unsupported fruit and vegetable sector to reduce the massive trade gap and fruit and vegetables, deliver healthier produce and, maybe, reduce the heavy environmental burdens of imports and meat consumption. Horticulture however requires considerable labour and as such has some of the worst record in low wages and gang master abuse often of migrant labour. Would subsidies ensure better wages or for mechanization and robots as the answer?

Or is a return to scale, for more local and regional markets, mixed farming and market gardens and a better return from the market place (which means regulation) a better solution? Could we pilot both and see which delivers the most public goods?

Good policy design needs the right input and needs testing. And the design process can be useful in itself. Whilst DEFRA needs to move quickly to set the framework for what future policy aims to do, the process of designing it must be transparent and involve all stakeholders. Sign up to the Sustain farming mailing list for more developments and debates in these areas.

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In the wake of Brexit our agricultural policy is suddenly up for grabs. This could be a chance for a ‘new deal’ for our food system – helping struggling small-scale farmers, restoring the environment, revitalising local economies and creating new jobs. Yet at the moment it appears that the agriculture and environment minister, Andrea Leadsom, prefers a ‘get big or get out’ approach that will continue to damage the planet.

Since 1973, the UK farming sector has been shaped by the EU’s Common Agricultural Policy (CAP) and its subsidies, but the original postwar purpose of CAP has long since been played out and there is a broad consensus that it has become a disaster on many fronts.

One of the biggest criticisms is that it hands wealthy landowners millions of pounds from public funds, while smaller farmers receive little or nothing. There are also strong environment criticisms, and attempts to bring environmental factors into CAP have been grossly inadequate. As a result, a system of large-scale industrial agriculture is rewarded while small-scale ecological methods are largely ignored.

Instead, a progressive subsidy system would ensure that public money is used for public goods. A report by Global Justice Now and the New Economics Foundation proposes a system that would:

1) Give each active farmer with at least one hectare of land a universal payment of £5,000

The payment would be conditional on a meaningful active farmer requirement, basic environmental stewardship such as prevention of soil erosion, animal welfare standards and some other minimum standards on a ‘do no harm’ basis. The amount is slightly higher than most farmers currently receive, and would be a significant redistribution, levelling the playing field. However this would actually save the taxpayer money because much less would go to large landowners.

2) Offer grants for medium-scale, regional infrastructure, including processing facilities and local business development programmes

This would allow local supply chains to be strengthened and maintained, while supporting new business models and small-scale producers.

3) Offer subsidies for the provision of specific public goods

Public goods could include environmental benefits around climate change, soil quality, landscape, wildlife and agricultural biodiversity. They could also include social benefits such as job creation and support for small-scale farmers, healthy good food, resilience, democratic accountability and support for local economies.

While the first element above incorporates ‘do no harm’ standards, this element would be for things that make an active, positive contribution. It could include restoring natural habitats, creating natural flood protection, preserving and passing on skills or knowledge that are important to our heritage, reducing local unemployment, increasing healthy eating, along with many other areas.

Decisions on which public goods to prioritise and how to allocate budget would be devolved to regions, thus also helping to support local democracy.

In contrast to this a recent speech by Leadsom made no firm commitment to continuing significant funding for agriculture beyond 2020. Instead, in the name of cutting red tape, she wants to cut the standards and regulations that help to protect our environment, food safety and public health – public goods that we should instead be strengthening.

In the past Leadsom has supported phasing out most support for farmers, something that New Zealand did in the 1980s. The effect there was a polarisation and emptying out of viable small and medium sized farming. The big players were able to compete but others either left farming or scaled down and took other jobs to support continued farming as a side enterprise. Loss of agricultural jobs was exacerbated. Faced with a drive to cut costs environmental concerns were dropped and the country is now facing increased problems with soil degradation and pollution from farming.

It is important to ensure that a new system of agricultural subsidies in the UK does not have unintended damaging impacts on the global south. Subsidies have long been controversial and particularly when linked to exports can undermine livelihoods in the global south. However complete removal of subsidies is unlikely to benefit small-scale family farmers in the global south – the experience of New Zealand illustrates how agribusiness moves in to take up any slack arising from loss of subsidies. More fundamentally, the majority of food that feeds the world is produced by small-scale farmers and is traded in local, regional and national markets, and there is widespread recognition of the importance of supporting domestic agriculture, both here and in the global south. Farming subsidies have a role to play, in a carefully designed, progressive system, although they cannot solve all problems on their own. A progressive subsidy system needs to be dovetailed with wider trade rules and aid policies. These are currently driving production towards a large-scale, intensive agribusiness model dependent on expensive technologies, chemicals, poor environmental practices and low wages for employees. We cannot simply use subsidies to correct that model – we need to change it.

The choices made at this point about the policies for the UK to follow, will be vital – for farmers, the environment and the public.

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How can a universal basic minimum income be made compatible with socialist principles and avoid inadvertently furthering a neoliberal agenda?

More than one in five UK workers, over seven million people, are now in precarious employment according to this analysis of official figures by John Philpott. Since 2006, the numbers on zero-hours contracts has grown by three-quarters of a million are and over 200,000 more are working on temporary contracts. My own recent research has found that some two and a half million adults in the UK may be working for online platforms like Uber, Taskrabbit or Upwork at least once a month, with about 1.2 million people earning more than half their income from this kind of work. A growing proportion of the population is piecing together an income from multiple sources, in many cases making even the concept of a fixed occupation anomalous.

Large numbers of worker do not know, from one day – or even hour – to the next if and when they will next be working. Yet we still have an anachronistic benefit system based on the principle that any fit adult (and, under the current regime, many who are less than fit) must either be ‘in work’ or ‘seeking work’. The old Beveridgean welfare state model is, in short, bust. What is left of the old welfare safety net is fundamentally incompatible with a globalised just-in-time labour market in which workers are increasingly paid by the task.

The victims of these incompatibilities are among the most vulnerable in our society – forced to take any work that is going but often unable to claim benefit when none is available. They are caught between the rock of harsh sanctions regimes and the hard place of capricious and unreliable employers, often with no dependable source of income whatsoever. And the numbers of these people missed by the safety net keep growing. The use of food banks has increased more than forty-fold since 2008, the estimated  number of rough sleepers has risen by 55% since 2010 and the number of children in poverty rose from 3.7 million in 2014-2015 to 3.9 million a year later – an increase of 200,000 in just one year. Something is clearly terribly wrong and the increasingly urgent question is how to fix it.

This is part of the problem to which the concept of a universal basic income (UBI) now presents itself as a solution to an expanding range of analysts. UBI is not only promoted as a way to update the benefit system to bring it into line with new labour market realities. It is also seen as a way to reward carers and others who carry out unpaid reproduction work in the home, to support artists, enable lifelong learning or give more autonomy to disabled people. This once-marginal idea is now seriously espoused in the UK by the Green Party, the Scottish Nationalist Party, some trade unions and sections of the Labour and Liberal Democrat parties and Plaid Cymru. Further afield is also actively promoted (including setting up experimental schemes) in Finland, the Netherlands, India, South Africa and, at the neoliberal end of the spectrum, by high-tech entrepreneurs in Silicon Valley.

At the headline level, indeed, UBI can seem to represent some sort of magic bullet that will solve all these problems simultaneously, and is often promoted as such. But a closer examination of the various models proposed reveals considerable differences between them. If these are not recognised, attempts to operationalise it could lead at best to risks of unintended consequences and at worst deep political fissures that could even exacerbate some of the problems UBI is intended to address. Most attempts to model how UBI could be implemented in practice in the UK (for example by Howard Reed and Stewart Lansley, Malcolm Torry and Gareth Morgan) have looked at it in what might be called a policy-neutral context, in which all other features of the economy and the tax system remain unaltered. But of course the reality is that any change in government policy that could lead to the introduction of UBI would be part of a much broader political upheaval that would transform many of these other features. Abstracting UBI from its broader setter in this way makes it harder to see such potential hazards.

For people who believe that the world’s sixth largest economy should be able to protect its citizens from penury, and are committed to (re)developing a welfare state that reduces social inequality and enhances choice and opportunity for its citizens, perhaps the time has now come for a serious debate, not just about the pros and cons of UBI in the abstract, but about which other policies it should be linked with to ensure that these objectives are met. This involves grappling with some difficult questions. Here I look at four of the risks that could arise if a UBI is introduced without such policy safeguards.

[title above="" h1="false" center="true"]The risk of driving down wages[/title]

In the abstract, the relationship between a UBI and wage levels can be argued to be either positive or negative. Some argue, quite plausibly, that a guaranteed minimum income would enable people to be much choosier about which jobs they accept, giving them options to turn down really exploitative wage rates and perhaps even providing them with the equivalent of strike pay to enable them to negotiate more effectively with employers without their dependents suffering.

An alternative view draws on the experience of tax credits (and now, universal credit) to point out that providing an income top-up is, in effect, a subsidy to employers who pay below-subsistence wages. In 2015-2016, this subsidy was estimated at about £30 billion. Had this been paid out by employers as part of their wage bill then this would also have led to an increase in national insurance and tax revenues. These credits therefore represent a factor which, whether inadvertently or not, increase inequalities between those who rely on their wages for their livelihood and those who derive their incomes, directly or indirectly, from corporate profits.

If a UBI is not to exacerbate this state of affairs, it is imperative that it is linked to a high minimum wage and one, moreover, that can be linked to systems where workers are paid by the task, not just to hourly rates.

The risk of undermining collective bargaining for employer-provided benefits

An important argument against UBI comes from social democratic parties and trade unions, especially in parts of continental Europe with a strong tradition of sector-level bargaining, who argue that its introduction would undermine their efforts to make employers pay into schemes that provide negotiated benefits, such as pensions, health insurance or childcare. A UBI provided by the state would, they contend, shift the burden of paying for it from employers to the general taxpayer. As Richard Murphy has shown, ‘the poorest 20% of households in the UK have both the highest overall tax burden of any quintile and the highest VAT burden’. This shift would therefore exacerbate inequalities, rather than reducing them, at a societal level.

To avoid this risk, it is therefore important that the introduction of UBI should be accompanied by measures that support trade unions’ abilities to bargain with employers at company and sector levels for benefits for their members, by protection for existing company pensions schemes and by other measures that ensure that employers continue to contribute their share of the cost, for instance through employers’ contributions to National Insurance.

The risk of undermining collectively-provided public services

By giving everyone cash, neoliberal models of UBI play along with the grain of an increasingly marketised economy in which services are individually purchased from private providers. There is therefore a risk that UBI could become a sort of glorified voucher system, undermining collectively provided public services that are designed by bodies democratically answerable to the communities they serve, under the guise of offering individual choice. Quite apart from the considerable risks that this poses to democracy, social cohesion and the quality of services, this could disadvantage individuals with special needs who require more expensive and/or specialised services than the average, exacerbating inequalities even while purporting to offer everybody the same.

It is therefore imperative that the introduction of a UBI should be embedded with policies that protect the scope and quality of public services and their collective and universal character.

The risk of creating racist definitions of citizenship

If a UBI is defined as a right of citizenship, then this raises the question of entitlement: who is, or is not, a citizen? And on what basis is their right to UBI established? A final serious risk associated with the introduction of UBI is that it could become linked to a narrow definition of citizenship from which some people (for example refugees, asylum-seekers or residents who do not hold UK passports) are excluded. In addition to the support this could give to racism and xenophobia this could also lead to a two-tier labour market in which people who are not entitled to UBI become an exploited underclass.

The introduction of UBI must therefore be integrated with humane and well-thought-out policies on immigration and citizenship, perhaps by linking entitlement to the place of residence, rather than nationality.

Conclusion

I have highlighted here what I see as four major challenges that need to be confronted if UBI is to be introduced as a genuinely progressive initiative that can restore some dignity and security to the most vulnerable members of our society, enable a flexible labour market to function in ways that avoid exploitation while encouraging entrepreneurship and creativity and reduce social inequality. In doing so, I do not wish to pour cold water on the very idea. On the contrary, I think that, at this moment in history, it is crucially important – so important that what is needed now is a debate, not about the abstract idea of a UBI, but about how it could be introduced in the real world in a way that is genuinely compatible with social-democratic and feminist ideals and starts to rebuild the train-wreck that is currently all we have left of the 20^th century welfare state that so many people worked so hard to create.

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As health campaigners, we’ve been researching and discussing what to do about PFI for several years now. Having the new Royal London on our doorstep, and with struggling Barts Health NHS Trust paying out £2.4m a week in unitary payments to Innisfree and Skanska, PFI is way up our campaign agenda.

But, until now, we haven’t come across a solution we could wholeheartedly support. However you look at it, the most widely-discussed options – renegotiation of the contracts, centralisation of NHS debt and buy-outs – all have serious flaws. But now we think there’s a solution – and it could be applied to all PFI deals, not just in the NHS.

Let’s nationalise Special Purpose Vehicles

If we’re serious about taking back the public sector, we need to challenge the PFI model in its entirety. We could do this by nationalising the companies, known as ‘Special Purpose Vehicles’ (or SPVs), that have been set up to operate the PFI contracts.

Unlike any of the other ‘solutions’ to PFI, this would allow us to take back control over public assets from private finance companies. It would put an end to the securitisation of public assets like hospitals. They could no longer be used to create inflated debt and profits.

What’s wrong with the other proposals?

• Renegotiating contracts: PFI contract holders have no incentive to renegotiate or abandon them. There’s no danger of default through bankruptcy, because PFI debts are guaranteed by the government. By contrast, nationalising the SPVs would cut through many of the contractual difficulties and come without costly renegotiations or buy-outs. Plus, we’d get back control over our public assets.
• Centralising PFI debt: Shifting responsibility for repayments to the Treasury might relieve hospitals in the short term, but it fails to challenge the PFI model or stop new PFI projects. It would leave our hospitals in private hands and other PFI deals, including those for schools, housing and social care, intact. Importantly, there would be nothing to stop the government from selling on the debt – as it plans to do with part of the student loan book.
• Buy-outs: Buying out existing contacts might return assets to the public sector, but a study of the Hexham buyout proves you can end up saving little.

Why target Special Purpose Vehicles?

Special Purpose Vehicles are central to the PFI process. They are set up by the consortium that wins the PFI contract. The consortium typically consists of a construction company and an investment company.

Loans to pay for the PFI project are raised through the SPV: 90% raised through the bond markets (‘senior debt’) and 10% raised as equity loans (‘junior’ or ‘subordinate’ debt’) direct from the equity holders – the companies behind the SPV.

The hospital or other public body pays a regular unitary charge to the SPV, which has two elements.

• The ‘availability’ charge, which repays the debt, the principal, a nominal rent for leasing back the asset and ‘lifecycle costs’ to maintain the value of the asset – around 60% of the unitary charge.
• The ‘service’ charge for services like maintenance, portering, catering and laundry that are bundled in to the contract – around 40% of the charge.

How SPVs profit at our expense

Drop the NHS Debt and People vs Barts PFI have studied the profits made by the main shareholders in the SPVs for The Royal London, Lewisham, Queen Elizabeth Woolwich, Princess Royal and Bromley Hospitals. We found eight ways that excessive profit is being extracted from our frontline services and withheld from the public sector.

1. Equity holders receive 10-15% interest on their loan to the project (while senior bondholders are typically repaid at LIBOR + a given percentage + RPI).
2. They get dividends from any profit made by the SPV. These can be substantial because there’s often a big difference between amount a hospital pays for a service and the amount the SPV pays the contractor.
3. They get various directors’ fees and ‘administration’ charges.
4. They can sell on their equity – with the average annual return running at 29% between 1998-2012. These gains are not shared with the hospital.
5. They can refinance the original 90% to get cheaper loans and are allowed to pocket 50% of the gain. (But, in practice, only half of the gains anticipated for the public sector have materialised, because of the way refinancing has been defined in the code of conduct.)
6. Service providers under the contract make profits – in some cases, providing sub-standard services, while cutting wages and jobs.
7. SPVs benefit from having public bodies locked in to long service and finance contracts, which are hard to break. Just five companies are now sole or major equity holders for more than 50% of the capital value of PFI projects in the health sector.
8. And, surprise surprise, many equity holders and SPVs are registered in tax havens.

PFIs aren’t just bad contracts or examples of privatisation, they are emblematic of the global trend towards financialisation. PFIs are a tool to harness our public assets as investment vehicles for accumulated capital, in order to maximise private profit. If we’re serious about protecting public services like our NHS from the excesses of neoliberalism, surely we have to do more than just pay up in a different way?

How we propose nationalising SPVs

1. An Act of Parliament could nationalise all SPVs as a matter of principle, or a series of Acts could be passed as individual debts became unsustainable. The Act would set out how much it expected payments to reduce.
2. A national body could be created to own the assets of the SPV companies. It could operate like the German government’s ‘Treuhand’ agency in reverse.
3. The national body would:

• pay all dividends and directors’ fees paid back to the public body making the unitary payments
• return any service profits to the public body (or let the service provider keep them in return for higher standards and better wages and working conditions for staff).
• transfer ownership/control of the assets back to the public body, and
• negotiate compensation.

The above would remove every opportunity for future profiteering.

What about compensation?

The amounts of equity invested are small relative to the size of the project. They could be compensated for in full for simplicity and speed. Negotiations on compensation for loss of revenue would take into account the fact that this revenue is a profit on turnover. The senior debt could be compensated through a bond swap – bonds in the PFI loan would be swapped for government bonds.

And furthermore, compensation for the 10% of the total loan provided directly by the equity holders would depend on the amount of interest already paid. A variety of possible ways to offer compensation could be considered.

How we could start to take back services

In addition, to take back services privatised under the SPV, we would favour legislation to set minimum service conditions for all public sector workers – whether employed directly by the public sector or not.

Zero hours contracts would be illegal, levels of training for all cleaning, catering and maintenance staff would be set, and wages should be set at levels where it is possible to live without claiming any benefits. Firms that failed to comply could be compulsorily purchased.

This legislation would make services a lot less profitable. Private service providers might just walk away – an ideal end to a less than ideal chapter in NHS history.

Let’s talk

We hope you will read the full paper, which sets things out in more detail. With the NHS in such dire financial straits and with a new-look Labour Party that has vocal critics of PFI at the helm, we think there has never been a better time to sort out this appalling mess.

We would like to thank Dr Helen Mercer for developing this new approach to ending PFIs, as an active member of People vs Barts PFI and Drop the NHS Debt. Also, Dexter Whitfield for invaluable comments and advice.

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Today’s budget really crystallised something for me. Since 2008 there has been an incessant demand for cuts. This was accepted across the media and leadership of most political parties.

The argument went that the UK’s national debt was too high and that cuts would allow us to pay off this debt. Both those assumptions were wrong. The national debt wasn’t too high. And cuts would never help us pay debt off.

Parties and politicians who made the argument that this was wrong were laughed out and shouted down. Journalists and economists (even those with Nobel prizes) who made this argument were marginalised. There was to be no space for alternatives to austerity.

The reality has been that cuts removed demand from the economy, reducing tax take and actually increasing debt.

People have starved to death because of cuts to social security. Our world-leading renewables industry has lost almost all support. Jobs have been destroyed and lives ruined.

Then Brexit came and put intolerable strain on this economic-political settlement.

And it’s this point that has crystallised for me today. The Chancellor, Philip Hammond had abandoned the target date to get the economy into surplus. Yet those who silenced the politicians, parties, journalists and economists who objected to austerity are themselves now strangely silent.

What struck me is that it is now entirely clear that they never believed in austerity for the reasons they said they did. It was never about debt or deficit. It was always a tool to discipline the poor. And now there’s a much better tool. Which is the full power to dismantle the social rights associated with, and protected by, European structures.

Those rights were, of course, always limited and came with deeply undesirable regulations appearing to require privatisation and tendering of services. Procurement is a nightmare not helped by European regulation.
But nevertheless the European institutions were perceived, especially by elites, as a major hurdle to dismantling protection for workers and the poor.

It’s infuriating that the stick used to beat the social democratic consensus has been dropped so rapidly and with so little contrition from those who both used it so vigorously and who have now so swiftly moved on.

And are we now seeing a move from one strategy to another? From the use of austerity to create the imperative to shrink the state to another strategy that uses Brexit as the pretext for attacks on workers? And how do we respond to that?

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The Labour party first discussed the idea of a universal basic income in the 1920s. The proposal has recently been resurfaced as a potential solution to the deep seated poverty crisis within the United Kingdom by politicians from across the party spectrum, like John McDonnell and Jonathan Reynolds. With the (relatively) new leadership of the Labour party elected on an explicitly socialist platform, there has never been a better time for the party to adopt a policy in favour of a universal basic income.

A universal basic income has five key components. It is universal, and every citizen is entitled to receive it. A person does not have to work, or show any willingness to work, in order to receive it. It is not dependent on family size or household numbers. It is periodic, and it is delivered in cash, rather than a voucher that can be exchanged for food or services, and it is up to each individual how they wish to spend it.

There is a moral argument for UBI that cannot be ignored. This should form the foundation for any proposal for a UBI policy to be adopted by any major political party. With rising levels of inequality and poverty in the United Kingdom, new and innovative responses are needed to address this. Measures to eliminate in and out of work poverty needs to be a key component of any political party’s next general election manifesto. Crucially, the fight for social justice should not end at providing a roof over someone’s head and food on the table. We should be fighting for more than the right merely to survive.

Early partial UBI schemes were usually linked to an obligation to perform some form of socially valued work. A true UBI is unconditional and is not linked to any other form of benefit or any “obligation” or willingness to work. A homemaker, a student, a pensioner, and a CEO are equally entitled to it. And this is at the heart of the financial and economic case for UBI. When humans aren’t working all hours of the day just to make ends meet, they can spend more time and energy developing their own projects; inventing, innovating and experimenting with new ideas, and technologies and business enterprises. This basic level of security would unlock the innovative potential of the whole population, which would otherwise be wasted. This is all the more important in an economy increasingly dependent upon technological and creative industries.

Furthermore, over-work is related to a whole host of mental and physical illnesses. A reduction of these work-related conditions would promise to hugely lighten the burden on the NHS. UBI frees people up to invest more time in their own health, and the health of their families. And moreover, having access to a reliable income means that people will reliably be spending, rather than saving or scraping by with little access to funds. This means that demand in an economy remains stable. Other kinds of welfare payments (such as housing benefit and jobseekers’ allowance) don’t play such an important role in stabilising levels of demand in the economy, as they don’t stay in the pockets of those who are most likely to otherwise have an unstable income. It can be used to top up wages, but it is important that it is not restricted to this role, and should be enough for a person to live on. In turn, this would hopefully push employers to ensure workers are given suitable conditions of employment as an incentive to continue working.

A basic income needs to be funded. But how? In the UK, the simplest way to pay for the system would be through a system of progressive taxation. Any taxation package would also need to include legal measures to close the existing loopholes that exist for the wealthy to funnel their income to tax avoidance schemes. It is a basic tenant of UK society that the rich should pay more tax, relative to their income, in order to redistribute wealth to the less well off in society.

In most proposals concerning UBI, a stripping back (or abolition) of existing means-tested benefit and welfare support is also included. While benefits such as job seeker’s allowance could be abolished, non means-tested disability benefits and non means tested child benefit would still need to exist to support those members of the community. Additionally, any disability benefit that is to be taken up by as many disabled citizens as possible must be simpler, less bureaucratic and discriminatory than that which currently exists in the UK. Existing working tax credits, already being dismantled by the Conservative government, would no longer be necessary — the UBI each citizen would receive would help bridge the gap between low wages and a decent quality of life.

Parents of children should be entitled to a non means-tested child benefit until the age of 18, at which point the child will receive the UBI. If for any reason a child or young person has been estranged from their family or needs to receive the UBI from an age earlier than 18, there should be clear procedures in place to enable a young person to apply to receive it at an earlier age.

Any measure like UBI needs to be accompanied by a process that will enable those residing in the country through illegal or unrecognised systems of migration a simple method of gaining citizenship, or permission for long term residency. The citizenship requirement of UBI is one that is contested — should it be limited to legal citizens? Or should it include those with a right to residency for a certain length of time? Are students included? Migrant families of legal citizens? These are issues that need to be addressed. The worry remains that for politicians within the UK, racist fears may have precedence to principles.

The uptake of a UBI scheme is likely to be higher under a system whereby every citizen receives it. Removing the stigma and shame that currently accompanies benefits in the UK would be a huge step forward. Research has found that stigma has a demonstrable impact on health, and these measures would go a considerable way to reduce the stigma associated with governmental benefits.

UBI would also address the unemployment trap generated by low-paid, insecure work. When this is combined with extortionate childcare or disability costs, for many people it does not make sense to take on work that will not pay. As UBI would not stop if a person began a waged job, there would be less of a risk to undertaking paid work, particularly if it is temporary. The solutions to this problem lie in creating well-paid, secure, accessible work. This is in sharp contrast to the solutions proposed by the Conservative and New Labour governments; preferring to keep governmental benefits at below-poverty wages. The argument, steeped in the ideologies of the Poor Laws of the nineteenth century, holds that anything above what is needed for basic survival provides a disincentive to work. Under a UBI system, you are given the income regardless of your economic circumstances. Therefore, it is indisputable that you are bound be better off financially if you’re working.

Our generation’s experience of work is radically different to that of our parents. In a world dominated by insecure work and temporary contracts, the need to provide citizens with stability of income and increased protection for low paid workers is paramount. A UBI must be implemented in collaboration with measures to secure and defend the welfare state, a properly funded education system, and public services like the NHS must stay free. A UBI is inevitable — but socialist political parties must shape the public discourse on the issue if it is truly to help those most in need.

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In just three years, the UK has shifted from having no understanding of labour exploitation to a point where, finally, real progress could be made in preventing the abuses that fuel exploitation. As a new labour inspection system is ready to be tested, this is the point where rhetoric meets reality. In 2013 Theresa May, then home secretary, proposed a ‘Modern Slavery Bill’ to tackle exploitation in the UK. When introducing the Draft Bill, she announced that the UK was to become a “world leader” in the fight against ‘modern slavery’. But this resolve was not extended to the more everyday experiences of workplace exploitation; those that may not fall under the definition of ‘modern slavery’, but are nonetheless abusive and detrimental to the wellbeing of workers. While the government’s ambitions to abolish slavery were publicly lauded, their work to deregulate the labour market, to the detriment of vulnerable workers, was well underway. The ‘red tape challenge’ advanced by the Department for Business Innovation and Skills and the Cabinet Office was aiming to make a bonfire of labour regulations, including many labour protections, supposedly to free up business to grow the stuttering economy. This policy stance is wildly self-defeating. By casting aside labour protections in the name of supporting businesses, the government was creating the perfect conditions in which modern slavery might flourish.

The Union of Construction, Allied Trades and Technicians (UCATT) warned that many regulations governing construction site safety had been lost and that those in already precarious employment, such as the bogus self-employed, were now at real risk of harm. As part of the red-tape cutting agenda, labour regulation agencies – the Employment Agencies Standards Inspectorate (EAS) and the Gangmasters Licensing Authority (GLA) – suffered major budget cuts. EAS was defunded to the point of near extinction. During the passage of the Modern Slavery Bill through parliament, Focus on Labour Exploitation (FLEX) and a number of cross-party politicians highlighted the disconnect between the Home Secretary’s modern slavery agenda and the rampage through labour regulations, meaning some small reversals were made. EAS had its budget reinstated and a commitment was made to review the GLA, ostensibly to see if it should be expanded in role and remit.    

The promised review of the GLA came at the end of 2015 with the outcome a new Gangmasters and Labour Abuse Authority (GLAA) that reports to a new director of Labour Market Exploitation. The new director will oversee the GLAA, EAS and the HMRC national minimum wage teams. There is logic to coordinating the work of the UK’s disparate labour inspection authorities, yet early indications are that there is a woeful lack of resources to do so. While the government heeded calls from FLEX and others to extend the remit of the GLA, to cover a wider range of labour sectors, as yet it has nothing like the funds to do this – so far securing only a £0.5M increase to its already meagre £4.5M budget. The new director is also tasked with producing an annual review of risks in the UK labour market, a herculean task which will require heavy resourcing. Despite missed opportunities for a world class labour inspection system, resourced to match the scale of the problem, some recent thinking within government and parliament is encouraging.

The new labour inspection set-up comes alongside increasing attention paid to people in precarious employment in the UK. In just the last month, the Prime Minister has commissioned a review of employment practices and the Parliamentary Select Committee for Business Enterprise, Innovation and Skills has launched an inquiry into the future world of work and rights of workers. After two years of high-minded proclamations on tackling modern slavery, there is now a chance to address the messy reality of the problem which is widespread labour abuses as a result of a complex, fragmented labour market and a government that has abdicated its responsibility towards workers.

While the new labour inspection architecture is still finding its feet, there is an opportunity to make real progress on labour protections, or at least to reverse some of the erosion that has taken place. Meeting this challenge will require the new Director of Labour Market Enforcement to have expertise in labour rights and first hand experience with low paid and vulnerable workers and the will to establish strong engagement mechanisms with charities, trade unions and migrant community representatives.  

Once the new director is in post at the end of this year she should take the following first steps in her role to make inroads on labour exploitation in the UK. Firstly, she must find a way for labour inspectors to truly reach abused workers, helping them access the information and redress they need. She would do well to look to countries like Belgium and Brazil who have innovative systems to reach marginalised workers. As the GLAA broaches new labour sectors, she should reflect on lessons from over a decade of successful licensing and apply this proven model across the labour market and demand the resourcing to do this. Critically she should initiate an assessment of the offence of illegal working established in this year’s Immigration Act on vulnerable workers, asking if this and other ‘hostile immigration’ measures have driven workers underground and in so doing increased the likelihood of labour abuses, as FLEX suspects. This role has the potential to add some real meat to the debate on ‘modern slavery’, to look at patterns of abuse that emerge in both informal and formal labour sectors. This is fertile ground, labour exploitation remains little understood, and few countries have cracked strong response mechanisms. If we take our new prime minister at her word then we have the political will. So now it is for the new director and the inspectorates she guides to show the way.  

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Britain’s economy has deep, structural problems.

Investment

The proportion of GDP invested by the UK is lower than almost anywhere else in the world. Excluding intellectual property, the ratio for the last quarter of 2015 had dropped to 12.7%. The world average is about 24% and in China it is little short of 50%. Fixed asset depreciation in the UK is running at about 11.5% per annum, so our net investment as a proportion of GDP is barely 1%. Just to avoid our accumulated capital assets being diluted down by our rising population we need to invest approximately 4% of our annual GDP. Furthermore, of the very low total we do have, barely a quarter is spent on machinery and technology, which are the only real drivers of increased output per head. This is why productivity in the UK is almost static.

Deindustrialisation

The proportion of UK GDP arising from manufacturing is now barely 10%, having been almost a third of GDP as late as 1970. Almost all low- and medium-tech internationally tradeable manufacturing activity has been wiped out. As a result we have lost very large numbers of good quality blue collar jobs; we have enormous regional imbalances in incomes, wealth and life chances; we have lost out on the productivity gains which manufacturing is much better at producing than services; and – perhaps most crucially of all – as most of our exports are goods rather than services, we do not have enough to sell to the rest of the world to enable us to pay our way.

Balance of Payments

Partly because of our large and rising trade deficit, we have the biggest balance of payments deficit of any advanced industrialised economy. It is not just our trade performance, however, which is a problem in this regard. We also now have a very substantial negative investment income position with the rest of the world, further aggravated by large transfers to the EU, net remittances abroad and on our aid programmes. By the last quarter of 2015, our balance of payments deficit was running at 7% of GDP and it appears still to be on a rising trend.

Debt

Both as a nation, through our government and as individuals, we are piling up debt far faster than our capacity to repay it. Our balance of payment has to be financed by the UK either selling assets or borrowing more money and we have been doing both. A major reason for our worsening balance on income from abroad is that every £100bn deficit financed by the sale of assets or borrowing – typically at the rate of about 5% per annum – adds another £5bn to our income deficiency cumulatively each year. Because the government deficit is largely the mirror image of our trade deficit, there is no prospect of the government ceasing to have its own very large deficit unless our foreign payments position is brought back under control.

Growth

What relatively little growth we have achieved in recent years, compared with the experience in many other parts of the world, has been driven very largely by ultra-low interest rates and asset inflation pushing up consumer demand rather than by growth being led by net trade and investment. We have seen a welcome reduction in unemployment but no increase in average incomes, partly as a result of our rising population and partly because any increase in household expenditure has been financed by rising debt.

The questions which need to be addressed, in the light of these imbalances, are:

1. Are current slow growth trends sustainable or is there – at best – going to be a long period of very low GDP increase, especially per head of our rising population, leading to static living standards for the foreseeable future or – at worst – a downturn in performance making conditions for many people even worse?
2. Are there any policy prescriptions which could reverse the imbalances, to enable the UK economy to perform much better? Would it be possible to do this without getting investment up from well under 13% to perhaps 20% of GDP or more? Could we get our balance of payments position into manageable condition without something like 15% of our GDP coming from manufacturing? What would a model of the main UK economic aggregates look like if we were to aim to get back to a sustainable growth rate of 3% or 4% per annum?
3. If the economy is to be rebalanced, how are the financial incentives to make this happen going to be created and what should the role of government be? How much would depend on demand side changes being made on monetary, fiscal and exchange rate policies and how much on supply side initiatives on training, planning. Would this need to be accompanied by some kind of industrial strategy?

–

Keep a look out for our upcoming pieces examining how to rebalance the British Economy.

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David Clapson died alone in his flat eighteen days after being sanctioned by the Department for Work and Pensions. The coroner found that he had no food in his stomach. David was starving when he died. He was a diabetic, and could not afford to keep his fridge running to store insulin, his bank account showing he had less than £4 to his name.

Last week, the Behavioural Insights Team set up in the early days of the Cameron administration released a report distancing itself from the Tories’ punitive sanctions regime. It stated that the vastly expanded use of “mandatory behaviour requirements” was likely aggravating “anxiety and feelings of disempowerment” among those subjected to them.

The report’s use of the word ‘disempowerment’ is notable here. As it stands trying to make a claim on our social security system can be a crushing experience. Sanctions are administered by a distant ‘decision-maker’, while front line staff are under immense pressure to deal with cases quickly and through strict application of a punitive regime. Individuals must navigate a complex and obscure maze of strict procedures, with few avenues for independent support. These measures are premised on the assumption that poverty is a pathological problem; a result of the flawed character of the individual experiencing it. Punishment is administered as a corrective. The recently released film I, Daniel Blake is a moving depiction of the destructive effect of this lie.

One could argue that the social security system has always been isolating for those who encountered it. The rise of claimants’ unions in the late 60’s can be seen as a direct response to the paternalistic approach to managing the safety net of that time; one which also left the claimant in a weakened position – alone confronting the state’s gatekeepers. The increasing use of sanctions now leaves some both alone and destitute.

A solidarity social security system should start from a different principle; that people are strongest when they work together to improve their lot. On this basis, one of its aims must be to encourage and embed collective action into the process of claiming entitlements.

These days claimants’ unions are few and far between. A decades-long reactionary offensive has eroded the belief that we all have a stake in our social security system, and diminished a culture of communal action to access entitlements. The question then of what a collective approach to social security might look like seems ever more pressing, spurred by the rise of a radical left opposition party.

Many across the political spectrum are calling for a Universal Basic Income, to overcome the fraudulent separation between ‘taxpayer’ and ‘claimant’. But, in lieu of UBI, a solidarity social system could be advanced on two further fronts.

One proposal would be to fund a national programme of peer support, by employing people with direct experience of the social security system to bring claimants together into local groups, offering each other advice and guidance to better navigate the system. This would amount to a network of claimants’ unions, with access to state resources that fostered a culture of solidarity between claimants, reduced isolation, and acted to improve the current poor take up of benefit entitlements.

But what about benefits themselves? Many of the current entitlements are built to support individuals back into traditional jobs. Given Labour’s increasing interest in promoting co-operative models, perhaps a solidarity social security system could look to incentivise more co-operative job opportunities.

Currently, the DWP’s ‘Enterprise Allowance’ provides unemployed people with funding and advice on starting their own business. A solidarity social security system could provide a ‘Co-operative Allowance’, encouraging people to set up co-operatives and providing them with expertise and income while they go about doing so.

When taken alongside each other, these two proposals would both bring people together through their shared experience of claiming entitlements, and provide them with an opportunity to generate a living together co-operatively.

Clearly, whatever happens next, our current, punitive social security model must be challenged. The space for drawing up a positive, left platform has also widened, bringing new possibilities for a solidarity social security system into view.

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The recent annual conference of the British Conservative party has been widely described as a break from the Cameron years. This is hardly surprising; David Cameron’s six-year tenure as prime minister of the United Kingdom ended in spectacular failure, and Theresa May, his successor, would naturally want to portray herself as betokening significant change. But her premiership may represent more than just an abandonment of David Cameron’s legacy. May and her new brand of “centre ground” Toryism may represent a significant departure from the legacy of Margaret Thatcher herself. Perhaps more importantly, May’s embrace of nationalism, statism and nativism may signal that her party is willing to abandon – or at least qualify – a forty-year commitment to hard-line neoliberalism in response to the right-wing populist surge. If that is the case, then May’s arrival could signal not just a major change for the Conservatives themselves, but the first major defection from the free-market consensus that has defined the contemporary centre-right. The Tories may become the first mainstream party in Western Europe to adopt the nationalism and protectionism of that consensus’ most vocal opponents.

Firstly, what do I mean by the “neoliberal consensus”? Neoliberalism has many definitions. Some relate to what neoliberals do – Naomi Klein associates them with her “shock doctrine” and specific policies, namely “deregulation, privatization and austerity”. David Harvey describes neoliberalism in terms of whom it benefits, as a “as a political project carried out by the corporate capitalist class as they felt intensely threatened both politically and economically towards the end of the 1960s into the 1970s.” Philip Mirowski suggests that neoliberalism involves having a sort of quasi-religious faith in the market’s ability to allocate resources and produce optimal outcomes. At the same time, capital reserves the right to suspend the markets and invoke state aid in times of crisis, a concept he identified with Carl Schmitt (“sovereign is he who decides on the state of exception”).

From this, I offer two closely interlinked definitions of neoliberalism. The first is that it is an ideology which deems the markets the most efficient and most ethical means of allocating resources, and assigns the state the role of enforcing and extending their rule. The other, pace Mirowski, is that capitalists, in the sense of people who own capital, possess the right to allocate resources and to structure the state, usually (but not always) through markets. The first definition locates sovereignty in the market; the second in capital owners. I think both these models coexist in practice; on the one hand, capital owners can and do suspend markets to save themselves, as they did in the 2008 bailouts. On the other hand, the neoliberal globalization model has created a world-spanning market that may be beyond anyone’s ability to suppress.

Thatcherism itself contained a tension between Thatcher’s commitment to the sovereignty of markets and her commitment to the sovereignty of the nation. Mark Vail argues that the party tried to reconcile these tensions by casting the European Union as a national enemy, in part because they saw it as social democratic and collectivist. (Vail also notes that this became increasingly incorrect, but that Cameron continued the Eurosceptic tradition as a way of binding together the winners and losers of his austerity policy.) Perhaps the Thatcherites saw the EU as a “government,” and the nation-state as a sort of “individual,” a rational economic actor in a world of other “individual” nation-states that looked like the domestic market. In any case, the Conservatives remained mostly loyal to neoliberalism domestically; the Cameron-Osborne era was defined by austerity, another word for Klein’s cuts, as well as privatizations. The Conservative-led governments of the Cameron era also reduced workers’ access to protective regulations; for example, they imposed costs for bringing cases to employment tribunals.

So how much of a departure is May, and why is it important? Perhaps the most consequential statement May has made was her statement that she would sacrifice full access to the single market in favour of reintroducing border controls and escaping the jurisdiction of the European Court of Justice. This signalled that she was placing a specifically national interest above that of either markets or large parts of the capitalist class. Much of the latter would prefer to retain access to the single market.

Admittedly, many hard-core Conservative Thatcherites want to be completely shut of the single market to avoid bothersome EU regulation and create some sort of export-warrior, buccaneering into Chinese markets. But that would not include much of the financial services sector, which is a key – perhaps the key – component of the neoliberal economic and political order.

Furthermore, May and her government have made a number of signals that they want to abandon other neoliberal shibboleths. Free-marketeers have a variety of views on migration, but are generally quite open to that of students and skilled immigrants, who after all are showing adaptability to market demands. May’s home secretary, Amber Rudd, nevertheless proposed restricting student numbers and considered compelling businesses to reveal how many foreign workers they employ (though this was later abandoned). The new chancellor of the Exchequer, Philip Hammond, eased – but did not end – the austerity policies he inherited from George Osborne. Both he and May discussed increased infrastructure spending, especially in the regions; Hammond went so far as to admit that “fiscal policy may also have a role to play,” implying at least a mild break with orthodox Treasury economics.

Among May’s weightiest departures from the neoliberal consensus have been her attacks on the primacy of domestic business elites. May has proposed binding shareholder votes on executive pay. More radically, she has proposed worker and consumer representation on corporate boards. To give you an idea of the scope of that departure, the last time anyone suggested this, Jim Callaghan was prime minister. Her government may prevent mergers designed to allow the newborn corporation to avoid taxation.

So it is clear that May is interpreting the Brexit vote as a rejection not just of the European Union, or of immigration, but also, to some degree, of neoliberalism and even liberalism full stop. The late 20th-century saw the emergence of a global liberal consensus, especially in economics, though also in terms of some social liberal values, such as an acceptance of the intrinsic legal and moral equality of persons and the primacy of individual rights over collective orders, traditions and hierarchies.

Hans-Georg Betz pointed out, this created economic winners and losers. The “modernization losers” – the people who lose out from globalization. Usually, these are the less educated; males; working-class or lower-middle class; authoritarian; and in some countries, found in peripheral areas. Often, they are involved in occupations which are highly routinized. The “modernization winners,” very broadly, are the middle classes, divided on occupational, socioeconomic, and values grounds, alongside some parts of the working classes that have jobs that allow them to compete in the globalized economy.

Typically, the modernization winners support the mainstream centre-right or various parties of the mainstream centre-left, while modernization losers grow increasingly loyal to populist, anti-system parties, mostly on the radical right. Those parties that favour the neoliberal mainstream have become increasingly distinguishable from those that do not. Recent German elections have shown such a pattern – the right-populist Alternative fur Deutschland notches up 10-25 percent of the vote in Land elections, while mainstream voters flit between the Christian Democrats, Social Democrats and Greens, selecting whichever seems most electable. In the UK, of course, these working and lower-middle class voters form the core of UKIP voters. They may be former social democratic or communist voters, or former conservatives, or non-voters expressing protest votes.

Populists embrace a variety of economic models, and some right-populists favour neoliberalism if they perceive welfare as mainly benefiting immigrants or the lazy. Geert Wilders’ Party for Freedom (PVV) is pro-austerity, at least at the moment. Increasingly, however, right-wing populists (and all left-wing ones) defend the welfare state. Instead, they focus on a protectionist, statist model which would see greater state investment and state preference for native workers; trade and capital barriers; and the securing on welfare services for the non-immigrant population as a matter of (ethnic) citizenship.

We can start to see the outlines of a political division based on the conflict between two models. The first, the neoliberal model, assigns the market primacy. It embraces globalization; resists collective identities; opposes redistribution except in very targeted, limited forms; and is comfortable with a certain degree of social liberalism and individualism. Many social democratic and green parties offer, or end up administering, neoliberal policy models: the “Third Way” accepted market primacy, even if it placed more emphasis on certain forms of public investment and anti-poverty programmes.

The other model is what we might call the national or nativist protectionist model. It gives primacy to the nation, and is strongly populist (in that it doesn’t refer to classes or interest groups – think of the constant refrain about the “ordinary working people”). It defines the nation in nativist, ethnic or cultural terms, and is hostile to immigration; opposes globalization, or at least seeks stronger defences from its consequences; and often favours some sort of reconstitution or preservation of the welfare state. Given the working-class base of many populist parties, it is unsurprising that the national protectionist model bears some resemblance to social democracy; with the decline of actual social democracy, the old inclusive welfarist model is being reformulated in national terms.

What is unusual about Britain is that, here, the mainstream conservative party was historically split over the question of European Union membership. Elsewhere in Europe, neoliberalism and EU membership go together neatly; in Britain, the Conservatives either saw the EU as not sufficiently committed to the idols of Hayek and Friedman, or too consensual in their politics, or simply as foreign. That division created a common ground between a mainstream centre-right party and the modernization losers that doesn’t exist elsewhere. The first-past-the-post system also militates towards the reconciliation of these two camps.

What was unexpected was that May would break with neoliberalism – admittedly, so far gingerly – to do exactly that. In contrast with the Republicans in the United States, who were overwhelmed by a protectionist surge from below, May is attempting a top-down synthesis of Conservative mainstream thought and right-wing populism, perhaps drawing on the “one-nation Tory” tradition. Vail cites the continued relevance of this heritage in his work, noting that Cameron felt bound to draw on it rhetorically even as he constructed an iron cage of austerity around the public sector. Anthony Barnett describes her premiership as a shift from the neoliberalism of the Murdoch press to a sort of class-less populist nationalism in line with The Daily Mail. We have seen mainstream parties appeal to anti-immigrant sentiment before, for many decades – Thatcher did so in the late 1970s. But May’s departure from neoliberal orthodoxy assails some of that orthodoxy’s chief interests: She is attacking some of the elites and interests that are central to the Thatcherite project, or at the very least rendering their demands (especially those of the City) secondary to those of the “ordinary working people.” This is perhaps a first for a centre-right party in Western Europe.

This means that May is in fact very different from the other female leader to which she is compared. Angela Merkel has made very few moves to accommodate anti-immigrant and right-wing sentiment. Rather, the appropriate comparison, albeit from the opposite side of the mirror, is with Marine Le Pen. Her policy of “de-diabolisation” can be read as an attempt at reconciliation between modernization losers and the liberal mainstream from the camp of the excluded, one which adopts elements of liberal philosophy and rhetoric.

Will this work? It is worth remembering that both Labour and the Conservatives have made repeated attempts at overtures to the socially conservative and the working classes. Contrary to popular belief, Labour pursued plenty of restrictive immigration legislation while in power, and Ed Miliband promised to control immigration. In both cases, these overtures had limited success. And the Cameron-era Conservatives could occasionally make gestures towards social solidarity, such as the “national living wage” legislation last year. The idea of the Conservatives being “the party of working people” predates the Brexit referendum; Robert Halfon has been a big advocate of this branding.

The key question is whether the Conservatives can make a credible play for the Brexit voters and, especially, UKIP voters. Cameron, Osborne and Miliband could never connect with UKIP voters and much of the working- and lower-middle classes because they were forever seen as part of the elite. This may be partly because their attempts at reconnection mainly focused on restricting immigration; it was too easy to see them as insincere, and too easy for UKIP to “own” anti-immigration policies, as radical-right populists tend to do. By making a wider assault on neoliberalism, and by proving her credentials with some variety of “hard Brexit,” May could convince globalization’s victims that she feels their pain. She shares an advantage also held by Blair and Thatcher before her, a weak and divided opposition. UKIP’s recent application to join the Ultimate Fighting Championships can only help.

Whether it does or not will come down to a battle between two groups within the Conservative coalition – the neoliberals/Thatcherites who once cheered Osborne, and the working-class and lower middle-class Brexit voters who suffered at his hands. Should the latter win, the neoliberals will be effectively homeless, given the decline of the Liberal Democrats and the leftward shift by Labour. Their American counterparts might shelter under Hillary Clinton’s wing; the Thatcherites will simply become marginalized in their own party.

If May can pull off a hard Brexit, and if she and Hammond can give themselves enough flexibility in fiscal policy to avoid a recession, she might manage to bridge the gap between the mainstream centre-right and the modernization losers. This could cement their hold over a large working- and lower-middle class constituency, perhaps the largest they have ever managed to mobilize. More consequentially, it will mean that a key Western European party, and a major Western European economy, has rejected the neoliberal model of open borders and globalization. The nationalist alternative will have won its first major adherent, both in the universe of mainstream right-wing parties and in the set of major European economies.

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It is evident that special factors flowing from the decision on BREXIT affect British economic policy, but the UK is not alone in having relied on monetary instruments to stabilise its economy after the financial crisis of 2008. Both the US Federal Reserve and the European Central Bank have pursued a similar path and all the key Central Banks now face the same set of problems. In the UK a policy of fiscal austerity was imposed by government whereas the Eurozone countries were required to operate within the discipline of the so-called Stability Framework. The latter restrained the use of fiscal policy as an instrument of economic stabilisation and as a result many countries in the euro zone have had years of anaemic growth and high levels of unemployment.

Apart from the Guardian most commentators expect the economic situation post BREXIT to worsen. Exactly why the Guardian has taken the rather rosy view of the impact of BREXIT is unclear although one of its most informed commentators (Will Hutton) has outlined in ‘Don’t be fooled. There will be damaging fallout from Brexit’ exactly why the country faces severe and worsening economic conditions due to BREXIT. In this respect Hutton is very much in line with the Bank of England which in its August 2016 Inflation Report set out its analysis of the effects of BREXIT and announced changes in monetary policy. The Bank concluded, ‘the outlook for growth in the short to medium term has weakened markedly…[with] a downward revision of the economy’s supply capacity… and eventual rise in unemployment’.

The Bank predicts little growth during the second half of 2016 with further declines in business investment and weaker levels of personal consumption. Business investment was already falling prior to the EU referendum and continuing uncertainty is expected to depress it further. Against a background of continued weakness in the balance of payments where in Q1 of 2016 the deficit on the current account was 6.9% of GDP and likely to worsen further in the coming months. Furthermore the fall in the exchange rate will have an impact on disposable real income due to rising import prices and their effects on domestic costs of production, and thus depress domestic consumer expenditure.

Given this economic scenario what has the Bank proposed? In summary it is the following:

The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. At its meeting ending 3 August 2016, the MPC voted for a package of measures designed to provide additional support to growth and to achieve a sustainable return of inflation to the target. This package comprises: a 25 basis point cut in Bank Rate to 0.25%; a new Term Funding Scheme to reinforce the pass-through of the cut in Bank Rate; the purchase of up to £10 billion of UK corporate bonds; and an expansion of the asset purchase scheme for UK government bonds of £60 billion, taking the total stock of these asset purchases to £435 billion. The last three elements will be financed by the issuance of central bank reserves.

What is one to make of these proposals? Inflation is presently not a problem although the effects on prices from the fall in sterling against other currencies will inevitably feed through into costs and prices at some point. More worrying for future levels of inflation is the impact of Quantitative Easing [QE] where a further expansion of £60 billion is proposed on top of the enormous increases since 2009 – taking the total to £435 billion. Furthermore the purchase of corporate bonds and the new Term Funding Scheme to reinforce the cuts of Bank Rate to 0.25% will also add to domestic liquidity.

It is also worth noting that in July the Bank announced further cuts in banking reserve requirements so as ‘to lower the countercyclical capital buffer rate from 0.5% to 0% of banks’ UK exposures  [which] will support lending to households and companies’. The effects of all this monetary easing are totally unpredictable and the Bank’s rationale unconvincing in the light of recent experience.

On QE the Bank has written that, ‘cash injections lower the cost of borrowing and boost asset prices to support spending and get inflation back on target’. Possibly it does to a degree but does one really believe that the economic benefits of QE derived through changes in asset prices are worth the potential future cost in terms of inflation? QE has certainly been a major factor in house price inflation where the cost of housing (both to buy and to rent) is massively out of line with incomes, with all sorts of negative externalities (including increasing rates of homelessness and massively increased expenditure by the state on housing support). Households are as a result having to pay a much higher percentage of their income on housing.

No one (apart perhaps from the Bank) really believes that a worthwhile expansion of domestic demand is feasible and desirable through the wealth effects of rising asset prices as stock markets have also boomed due to QE and house prices rocketed. If one wants to boost domestic expenditure so as to increase demand then fiscal policy is surely the preferred instrument of policy and not the blunderbuss of monetary easing.

The other key change is the further reduction in short term interest rates which were already at historically low levels. It is hard to believe that a further cut of 0.25% is likely to lead to any increase in long term business investment which has been generally depressed since the financial crisis of 2008/9. In the conditions of market uncertainty, intensified by BREXIT, it seems highly unlikely that firms will want to borrow and invest with major and continuing consequences for growth and for employment. Indeed there is doubt about whether the cuts in Bank Rate will actually be passed on by financial institutions which is the rationale for the new Term Funding Scheme which is to ‘reinforce the transmission of Bank Rate cuts.’

The evidence of past behaviour by banks would leave one sceptical about any cut in Bank Rate leading to a fall in lending rates especially given the current pressure on bank profits. Financial institutions are much more likely to pocket the cut in Bank Rate rather than pass it on to their customers – both business and private. After all QE itself puts downward pressure on bank profits. Many important institutions are facing severe financial problems directly as a result of current monetary policy, with pension funds experiencing severe deficits and increasingly exploring risky investment strategies. For pensioners this will mean much reduced pensions compared with what had been expected with levels well below what are considered adequate for retirement.

Another key question is how will households respond to the cut in Bank Rate assuming that this in part is passed on in lower lending rates. Here there is also great uncertainty in part because falling output will further depress employment which will have some negative effect on disposable income. Much more important will be the direct and indirect impact of rising import prices on real disposable incomes as the 10% fall in sterling exchange rates so far feeds through into prices. These depressive forces will be strengthened by the impact of even lower interest rates on savings which are already so low as to have adversely affected incomes, especially of pensioners, and thus have added to the slow growth in domestic demand in recent years.

The Bank argument that falling interest rates will lead to dissaving looks very unconvincing given the general uncertainty created by BREXIT and savers are likely if anything to cut back on expenditure rather than spend. Even more worrying is the effect of continued extremely low interest rates on the whole culture of savings in the medium to long term since it must surely be an objective of policy to encourage savings for retirement rather than have these costs fall on the state. There can be no doubt that current policies have had significant distributional effects since continuing low interest paid to savers have in effect subsidised borrowers thus inducing a growth in both secured and unsecured debt that is unsustainable.

Also imponderable is how will personal borrowers respond to yet another cut in short term interest rates – whether there will be a greater demand for both secured (mainly mortgage debt) and unsecured credit (on bank cards and so on). It can be assumed that the last thing the Bank wants to encourage is yet further speculation in housing funded by lower interest rates on mortgage debt and easier access to it as a result of QE (which expands bank and building society deposits – assisted by the new Term Lending Scheme). Given the more or less fixed stock of housing and the excessive pressure already in some regions (London and the South East) more mortgage financed expenditure which will merely raise housing costs even further.

Many households since 2009 have been encouraged by low interest rates on mortgages and their plentiful supply to take on large amounts of additional debt so that the ratio of mortgages to income is now extremely high. Any increases in interest rates are thus likely to cause immediate problems with repayments and thus lead to possibly catastrophic falls in house prices. This is a potentially significant effect of any shift in monetary policy away from low interest rates, and yet the Bank may be forced by the state of the external balance to raise these so as to finance a continuing current account deficit by encouraging capital inflows.

There are already some signs that parts of the housing market are feeling the negative effects of BREXIT (especially luxury flat purchases by foreigners who now face much more exchange rate uncertainty and greater probability of property price declines). One would anticipate that domestic borrowers are not likely to take on much more mortgage debt given the existing excessive ratio of borrowing to income and the much greater uncertainty about the path of personal incomes and future house prices.

How about unsecured borrowing? Here it needs to be recalled that total unsecured debt in the UK by households (excluding mortgage debt) rose by £48 billion in 2012-2015 to a total of £353 billion in 2016. So during the years after the financial crash when personal incomes were squeezed and real  wages fell in the UK (more than in all the other OECD countries other than Greece) households responded by taking on additional debt. The scale of the problem is such that a report by the TUC found the following:

Overall, 11 per cent of households holding any form of unsecured debt are estimated

as over-indebted in 2015, more than double compared to the 5 per cent in 2012. Of

the over-indebted households, half are extremely over-indebted and so paying out

more than 40 per cent of their income to their unsecured creditors. In total, 3.2 million households or 7.6 million people are over-indebted, an increase of 700,000 or 28 per cent since 2012. On this basis nearly one in eight of all UK households are currently over-indebted. Likewise, 1.6 million households are in ‘extreme debt’.

It seems highly unlikely and highly undesirable as an object of economic policy to encourage yet further borrowing by a personal sector that is already highly leveraged. So where is the domestic demand growth going to come from if the economy is not to enter a deep recession? As noted above the business sector faces such uncertainty and such weak demand growth that they will not seek to expand their stock of fixed assets. While there might be some demand [net] as a result of the fall in the exchange rate this will depend on the trading arrangements finally concluded as a result of Brexit and be highly uncertain. Monetary policy under present conditions mirrors exactly the state that Keynes wrote about in the General Theory where there exists a ‘liquidity trap’ such that easing monetary conditions simply leads to the holding of excessive balances and a weak demand response [at best].

Key Policy Choices for UK

What needs to happen? Firstly, the British government needs to make it clear now that it will seek a permanent and ongoing trading relationship with the EU that as far as possible retains the existing set of arrangements. Anything else will leave the economy floundering in a world of uncertainty that will lead to falling output and rising unemployment – both avoidable. The EU referendum has already worsened the economic performance of the UK and economic policy needs to be re-set so as to sustain output and employment. We already have lower interest rates than other countries so there is no mileage in further cuts into negative territory for reasons marshalled above.

Secondly, the government needs to re-establish growth through a fiscal and industrial strategy that meets the needs of the country rather than one which is ideologically based. If the UK is to be able to compete in a globalised world then it needs public investment in both infrastructure and in human capital. It is precisely at a time of historically low interest rates that the government should expand its investment expenditure, through borrowing mainly and through higher taxation on the top 1%. The UK cannot possibly compete with China and the rest of Asia in terms of labour costs and cuts in nominal [and real] wages on the scale needed to do so are infeasible. So there is no choice but to invest in skills, training and education if UK is to remain a major trading country.

Finally, the argument that increasing the public debt will be inflationary has been shown to be a fable. During the period of the Cameron government, fiscal policy was a significant drag on the economy – totally unjustified in terms of constraints in financing borrowing in the capital markets. One consequence of neo-liberal fiscal policy was a major cutback in the level of public investment which is so essential for inducing and supporting investment by the private sector. It is unsurprising that productivity slowed further since the financial crisis of 2008/9 given the setting of fiscal policy which was based on rolling back the state. Yet the activities of the state are so critical for inducing productivity growth directly through its investment in people and in infrastructure.

Conclusions; policy choices for Europe

The key question now facing all of the Central Banks is how to re-establish more normal monetary conditions and when to do so. Clearly at some point rates of interest will have to be ‘normalised’ in all of the main countries but how to bring this about and what levels should be established are matters of judgement. The attempt by the Bank of England recently to establish a new lower rate of interest (noted above) was largely frustrated because insurance companies and pension funds (and other institutions) did not want to exchange existing holdings of government debt for cash. So it is not obvious how easy it will be through open market operations for Central Banks to actually move to higher interest rates and the process of trying to do so will probably bankrupt them. Currently the Bank of England and the European Bank are holding huge stocks of debt that they have purchased and in order to push up interest rates they will have to sell this debt with capital losses.

Perhaps more important are the effects on economic and social systems of moving to higher levels of interest rates in the near future. In part Central Banks have been using changes in the level of rates as a means of influencing their exchange rate – a beggar my neighbour policy that is generally condemned, but that doesn’t prevent countries from doing it. Of course shifting to higher interest rates has the potential for causing widespread  economic and social distress. To what extent other countries in the EuroZone will be similarly affected by rising interest rates is unclear but there would inevitably be widespread economic disruption. Given the already high levels of unemployment in Italy, Spain, Portugal and France any further fall in demand caused by higher interest rates would be disastrous.

There is, finally, the question that has been raised by Larry Summers which is whether we are facing in the US and Europe a set of structural conditions where for years to come output and incomes will grow much more slowly than in the past. A similar set of predictions were made during the Great Depression of the 1930s but the expected impact never materialised.  As we have argued many countries are now locked into such a trap and it is not at all clear how they exit and what role monetary policy needs to play. Clearly there is no case for the current fiscal straightjacket that the UK and the Euro Zone have imposed on themselves and the case for injecting demand through budgets has been made by many eminent economists – most notably Paul Krugman.

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A Citizens’ Wealth Fund is a state investment vehicle that invests a chunk of a community’s public wealth in global financial markets for a return. The returns of these funds provide an additional revenue stream for the state that can be used for a range of policy goals including tackling inequality, kick-starting growth or investing in local infrastructure. Thus, the public reaps the benefits of investing public assets. 

But to fully count as the citizens’ wealth, people must be able to directly influence the management of the fund as well as the use of its income. The UK’s recently announced ‘Shale Wealth Fund‘ looks set to become one of the world’s first fully-fledged citizens’ funds, with its commitment to localism, where citizens both retain control over and benefit from the fund. If realised in practice, Britain will be a pioneer of this citizen’s wealth fund model, offering a blueprint for the rest of the world to emulate.

Around 80 governments worldwide already have a version of these funds, known as ‘Sovereign Wealth Funds’. Yet, the assets of sovereign funds are rarely described or managed as citizens’ wealth. This is despite the underlying capital of the funds originating from different types of collective state property. Whether natural resource revenues, privatization proceeds, fiscal surpluses or central bank reserves, all such windfalls ultimately belong to the people. But unless citizens directly benefit from, and exert control over the funds managing these windfalls, their assets remain sovereign rather than citizens’ wealth.

There are certain exceptions that, if not fully-fledged citizens funds, are at least promising steps in that direction. Israel’s newly created citizens’ fund for its natural gas revenues is a semantic exception. Created in 2014 and due to commence operations by 2020, it is the first fund in the world to explicitly label itself a ‘Citizens’ Fund’. But time will tell if it actually operates as such. The deal itself, as well as the disputes over the ownership of the natural gas fields, cast doubt on that possibility. Alaska’s ‘Permanent Fund’ can also claim citizens’ wealth status by virtue of its unique annual distribution of a portion of its investment returns directly to Alaskan citizens. These examples aside, no existing sovereign fund boasts mechanisms for direct community influence over both fund management and spending.

Until now. In 2014, the UK became the first country to embrace the term ‘Citizens’ Wealth Fund’, when Boris Johnson proposed combining the UK’s 39,000 public pension funds to create one large investment fund for Britain to invest infrastructure. Those plans have stalled. But the UK is still trail-blazing with another citizens’ fund.

The Chancellor’s 2015 Autumn Statement set out plans for a £1 billion Shale Wealth Fund, seeded with a portion of tax revenues from shale gas production in the country’s Northern and midland counties. A key purpose of the fund is to benefit communities where shale gas sites are located and to engage the views of community members on how best to distribute that benefit to ensure that the industry leaves a positive legacy.

A government consultation is under way on the design and governance of the shale fund. Encouragingly, the consultation is heavily focused on issues of local control and benefit. Public views are sought on a range of questions around how the government can ensure local communities benefit from the Shale Wealth Fund and that decisions are directly influenced by local residents. This includes whether the fund should make direct payments to households; what decision-making bodies, new or existing, would be the most appropriate to oversight and administer the fund; and what level of community (local or regional) should be the primary beneficiary of the fund’s activities.

Setting aside the thorny issue of whether the UK should pursue fracking at all, the drive to ensure residents of affected communities have a direct say on how the proposed shale fund is designed and managed, and how they can directly benefit from its operations may be a world-first. Almost twenty years after Britain became one of the first countries to grant its central bank operational independence, the UK is once again assuming a leadership role in the institutional innovation of key economic architecture. British citizens must not waste this opportunity to help shape their economic future, and the first genuine citizens’ wealth fund.

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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.

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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.

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Technology has changed everything, now politics – and how we relate to each other – needs to catch up. Whether you call it post-capitalism or ‘fully automated luxury communism’, the essence of this remains the same: that technological gains, rather than enhance the profits of those who own the means of production – the industrial robots and intellectual property, as much as the factories and the mining drills – should lead us to a society of leisure; that the dividend of new technologies – AI, robotics, and synthetic biology – should redound to the benefit of human beings. This, then, is the vision for a left politics which remains comprehensible to social democracy, we might have a twelve hour work week for instance, but which also transcends it.

The present nightmare at the heart of this dream is all too familiar. Right now innovation means greater precarity in work, just ask an Uber or Deliveroo worker, as well as technological unemployment and falling real wages. What Keynes got wrong in his visionary ‘Economic Possibilities for Our Grandchildren’ is that technology, under capitalism, can never mean less work. After all, that doesn’t generate higher profit or allow businesses to stay competitive.

Last year Andy Haldane, the Bank of England’s chief economist, spoke of how fifteen million jobs in the UK could be lost to technological change in coming decades. The spectre of mass technological unemployment, nothing new but now set to be a deluge – especially with AI and advanced robotics – is fast approaching. What we now need to understand is that this is not a threat, but the path to an upgraded civilisation.

Marx was making precisely that point when he wrote, “Through this process (automation) the amount of labour necessary for the production of a given object is indeed reduced to a minimum, but only in order to realize a maximum of labour in the maximum number of such objects. The first aspect is important, because capital here – quite unintentionally – reduces human labour, expenditure of energy, to a minimum. This will redound to the benefit of emancipated labour, and is the condition of its emancipation.”

Emancipated labour? That is a post-work world, one where we need only engage in waged labour for a few hours a day. Getting there requires a new kind of politics – both in and beyond government – as well as necessitating a cultural shift in understanding that work isn’t a unique source of spiritual nourishment. Attendantly, it will also require people to figure out how best to flourish under conditions of post-scarcity. How to live, as Keynes put it, “wisely, agreeably and well”. That is probably the biggest question of all, given that such conditions are entirely without precedent in the history of our species.

But how do we get there from the here and now? After all, fully automated luxury communism is a long way from a mixed-market economy that is increasingly high-tech and low regulation. Well, alongside introducing a guaranteed social wage and ensuring that public goods like housing, health, education and maybe even public transport are free at the point of use, I’d also have a government-sponsored ‘incubator’ – call it ‘FALCvest’ – that examines parts of the economy that can be transitioned to full automation. Such an incubator would trial solutions and find whether they were scaleable and safe. Self-driving ambulance drones? How much labour time would they save? And would they deliver better services? What conditions would have to be met for their adoption? 3D printed social housing? How effective, and beautiful, would the houses be? Could we also guarantee soundproofing and total energy insulation? How many hours would be saved?

In essence, then, FALCvest would offer venture post-capitalist solutions. It would undertake feasibility studies in regard to automating certain parts of the economy, calculating post-capitalist returns on investment, that is to say the time saved for workers – who would still be paid through the guaranteed social wage, and who would still work a few hours a day regardless.

But as well as doing feasibility studies – in collaboration with service users, workers and citizens – undertaking trials and experimenting with new technologies and processes in moving to full automation, FALCvest would also operate a Venture Deflation Fund. Technological progress, it increasingly appears, is price deflationary in nature. The aim of the fund would be to offer seed capital to inventors and entrepreneurs to create new technologies, platforms and products which take goods and services out of commodity circulation and into the commons. These products would, again, be free at the point of use and maintained by an ecology of volunteers (don’t forget that guaranteed social wage) and public sector employees – on a significantly reduced working week, of course.

Over time, as technologies continued to improve: as the cost of data and energy storage, as well as bandwidth and computional power continue to plummet, FALCvest would seek to find further efficiencies in the economy, ensuring that the advances of technology, consistently, are at the service humanity rather than profit.

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The phrase ‘municipal budgeting’ conjures up an anaesthetised and jargon-laden world of bureaucracy, a process of directing taxpayer money into communities in line with upstream policy directives. Given that, ‘participatory’ is perhaps the best word you can put in front of ‘budgeting’ – and for good reason.

Under participatory budgeting programmes, citizens of the municipality decide how and where to use the money spent on their behalf. It’s an immersive process and often a creative one, through which citizens take control of their immediate local area. This process allows citizens to learn about the wider processes involved in ensuring that their area flourishes, and about the realities of their neighbours’ lives. It’s historically led to the breaking down of cycles of poverty and inequality, the exorcising of preferential treatment of special interest groups and a cementing of local identity and purpose.

In 1989, the Brazilian city of Porto Allegre embarked on the first and perhaps most comprehensive city-wide participatory budgeting (PB) programme in the world. In Porto Allegre, participatory budgeting involves neighbourhood meetings, thematic assemblies – discussing water, sewage, public spaces, schools etc – and city-wide coordinating sessions. After the city has published the available budget, citizens propose initiatives that are voted on in person or online. These initiatives are later deliberated with the help of experts in ‘great assemblies’ held in churches, school gyms, clubs or circus tents. Over the years, the populace has been granted an increasing share of the public budget and participation has increased enormously, with up to 50,000 people a year deciding up to 20% of the budget. This widespread involvement has been coupled with a with a dramatic decrease in inequality and poverty.

There are now more than 1,500 similar projects worldwide, delivering billions in public funds in the name of people-powered community cohesion and development. Paris gave control of tens of millions of euros over to citizens between 2010 and 2015, with €500m to be spent before 2020. New York, Toronto and the Indian state of Kerala are other notable examples in which public money has been ring-fenced for projects like public housing, food-banks, social care and arts projects. While individual initiatives differ, citizens have often been given a considerable say in which prospective investors and businesses to invite into the community. The people of Porto Allegre, for example, turned down a 5* hotel’s bid in favour of a public park and community centre.

In the UK, small portions of local authority budgets have been put aside for participatory initiatives in select regions for a decade. Cumulatively, tens of millions have been spent, but small grants seem to be the model – whether they be from local authority budgets, primary care grants, police authorities or housing associations across the nation. Scotland has been taking participatory budgeting most seriously, the SNP proposing recently that 1% of Glasgow’s budget, £100m, be cordoned off for PB, with a sizeable portion dedicated to grassroots decision-making.

While participatory budgeting seems a perfect fit with the government’s ‘Big Society’ philosophy and program of ‘devolution deals’, the rarity of large-scale proposals like Glasgow’s – as well as the scrapping of the government’s PB Unit in 2012 – suggests the government is only dipping its toes into the water (and getting cold feet), failing to fully take advantage of what could be transformative experiments in democracy. As Jez Hall, Director of Shared Future CIC and PB expert put it to me, PB is about “creating deliberative space between politicians, service managers and citizens”. UK government reports have highlighted the potential of PB to increase turn-out in council and general elections, but it could have more systemic impacts. PB is a framework for a more direct democracy. The town of Frome, the birthplace of the revolutionary Flat-Pack Democracy, has recently announced its intent to implement PB.

PB isn’t free from challenges. Some, including the World Bank, have criticised the participatory process as excluding of so-called ‘hard-to-reach’ poorer community members. However, as Mr Hall outlines “the real ‘hard-to-reach are finance officers in the town hall, the people who think they have the right and power to make the decisions.” Opening a city’s or region’s finances to a radically transparent and deliberative process allows for the possibility of partner projects like co-production – in which citizens (or ‘service users’) help plan the development and delivery of local public services, often leading to cost-savings, and reduced long-term demand for policing and health interventions while alleviating alienation and loneliness.

Rather than an option for last-resort experimentation in an age of austerity and post-Brexit uncertainty, PB is an opportunity with a strong international track record to collectively form a common identity and engage in the long-term reimagining and recreation of how we wish to live. We’re lagging behind in what’s considered best practice worldwide and it’s high time we catch up.

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