Thursday 16 June 2011

Regional winners and losers

I’m grateful to Jeff Jones, who, in a comment on an earlier post, drew my attention to this report.  Jeff pointed me specifically at the table on page 28, which talks about ‘regional’ (in a UK context) winners and losers in terms of taxes and benefits. 
The table sets out to show whether, and to what extent, taxation and benefits policy in the UK over the past 30 years has been ‘redistributive’ in geographic terms.  Now, there are always going to be some estimates and assumptions behind work of this nature, but on the basis of the report’s authors’ best endeavours, they do indeed identify that there was a degree of redistribution implicit in the Thatcherite/Blairite approach.
Wales is a net gainer, as one might expect, although the biggest gainer by far is the North East of England.  London and the South East are losers – again, as one might expect – but it was interesting to note that Scotland is also a significant loser.  I’d be surprised if the SNP didn’t attempt to turn that finding to political advantage!
The point which the authors make, however, is that the cuts being implemented by the current coalition are directly undermining that inter-regional redistributive effect, and are doing so largely at the behest of those who run the financial services which did so much damage to the economy in the first place.  (And, lest anyone conclude that this supports Labour’s views on the cuts, the scale of cuts proposed by Labour would have had a mighty similar effect – and were being driven by the same people for the same reasons).
But there was much more of interest in the report than the table on page 28.
The underlying point of the authors is this:
This paper argues that the City of London has power like that of a City State in a country like the UK where financial elites dominate and competition of elites has failed. This is now a serious problem because expenditure cuts after the crisis are undermining the redistributive settlement of benefits and publicly funded jobs which were the life support of the ex-industrial areas under Thatcher and Blair. The only credible response is radical new economic policies which can usefully be launched through local and regional initiative.
That sounds initially a little like the long-standing nationalist argument that the UK Government works in the interests of London and the South East, whilst ignoring the needs of Wales, but the analysis offers far more than that simplistic conclusion. 
It makes it very clear (as most of us knew already, even though not all are willing to admit it) that this isn’t about England v Wales; most of England’s regions suffer in the same way as Wales looked at in this context.  ‘London’ really isn’t synonymous with ‘England’.
(And ‘London’ isn’t even synonymous with ‘Londoners’.  The very recent relative economic success of London has at least partly been a case of “growth com[ing] from a sweated, casualised workforce providing cheap services for a small group of working rich and their employers and… immigrants claim[ing] most of the jobs at top and bottom.”  The point here isn’t about immigration per se, merely an attempt to analyse why the apparent success of London doesn’t necessarily benefit Londoners any more than it benefits the rest of us.  And we should never forget either that boundaries are artificial; within London, there are pockets of both poverty and wealth.  It isn’t really ‘London’ which is doing well, but some individuals and groups within London.)
I’ll admit that it surprised me to learn (although it probably shouldn’t have) that elections to the City of London Corporation still allow ‘business’ votes, rather then simply residential voters – and that the number of ‘business’ votes outnumbers the residential votes.  It’s a not insignificant example of the way in which the financial sector influences political decision-making at the heart of the UK.
That London’s economy has become dysfunctional, and that those responsible for the financial industries of London have disproportionate influence are surely undeniable conclusions.  But it is the effects of that dysfunctionality and disproportionate influence on the rest of the UK which is really the issue which should most concern us here in Wales.
Solutions?  Well, there are a few suggestions in the paper, some of which I’ll return to in future posts, and some of which they admit need more work.  But they won’t come from a continuation of the Labour-Tory economic policies of the past/present.  Indeed, the report actually says at one point, “we are for the foreseeable future most probably caught in a world of elite closure where the (Labour) opposition front bench is part of the problem not of the solution”.
It goes on to say that “we need a new politics as much as new policies because radical alternatives will get nowhere until they break the metropolitan monopoly of power and knowledge”.  Not a message which will be unfamiliar to many of us, but there is also a very clear warning that those who seek to simply build a replica of Westminster in Cardiff, with policy – and particularly economic policy – confined to the straitjacket of convention – are barking up the wrong tree. 
And it seems to me that we especially need to break free of the misguided notion that because the Conservative-Lib Dem coalition is wrong, then the Labour opposition is right.  Looked at from this perspective, there really isn’t that much difference between them.  Another familiar message which some seem to have forgotten.

Update:  I hadn't seen this report when I posted the above.  The CRESC report is an interesting piece of work in its totality, as I noted above.  There are dangers though - which I hope I avoided - in picking out particular tables and giving them attention out of context, which is what it seems to me has happened in the Western Mail's report today.  The purpose of the table in question was not to show which households 'paid more (or less) in taxes than they received in benefits', but to show the extent to which government policy on taxes and benefits is having a redistributive effect in geographical terms, and it seems to me that the narrower meaning being given to the figures is therefore potentially misleading.

I don't always agree with spokespersons for the Welsh Government, but in this case, I think they're right to draw a distinction between the issue of fair funding on matters within the devolved areas and a taxation and benefits regime which partly addresses the question of economic imbalances.  There is a relationship between the two things, but it isn't the straight line relationship as which it is being portrayed, and I don't really think that the effect identified by CRESC can reasonably or logically be used to argue against a needs-based formula for the block grant.

But, as I noted in the original post, neither do I agree with the simplistic response from Jonathan Edwards that 'London' has had an unfair share of the increase in jobs; that's a statement which obscures more than it tells us.  Where I do agree with what Jonathan says is that benefits cuts (and I'd extend that to public sector cuts in general) will impact Wales harder than some other parts of the UK, and will, in the process, undermine the geographical redistribution which leads to the figure of £800, therefore undoing the effect which Jeff highlights.  In that sense, these figures actually strengthen the argument for Barnett reform at a time of cutbacks.

Jeff is right to draw attention to an interesting set of figures; and the implicit suggestion that financing devolved administrations needs to be looked at in totality rather than one piece at a time is something I'd support, but I disagree with his suggestion that these figures undermine the need for Barnett reform.  

There is, in all this, a danger that people simply pick on the figures which support a particular point of view rather than look at the position as a whole - and that's a point-scoring approach rather than a debate about the future financing of Wales.  We really need to look properly at the whole question.


Anonymous said...

Ten years ago, Germany had a problem. It was a booming financial economy in the West, Frankfurt being a financial centre to rival London and New York, booming manufacturing industry, yet at the same time huge regional structural problems mainly related to unresolved issues from absoabsion of East Germany, structural changes in manufacturing due to 'globalisation, and the export of manufacturing jobs to new states in the EU.

Germany passed the 'Federal Investment Act' and 'Investment Tax Act' which came into force in 2004. In effect, a business in a 'poor region' could offset or extinguish their bundesregierung (Deutsch) tax by payment of reduced regional business tax. At the time Germany was accused of 'over-regulation' of financial markets as there was a law making investment vehicles like 'hedge funds' to be backed up by real physical assets. While the UK put all it's economic eggs into the City of London and attempted to redistribute this 'wealth' to poorer regions via central government taxation.

Germany took the opposite approach and structured it's financial economy in such a way that 'wealth' was distributed to and at source. This had two effects (a) curbed the 'bubble economy' where finance was detached from real business, and (b) stimulated economic growth in poorer regions by directing investment into those regions by business taxation. In effect you had to have money in something real like car factory to gamble some of it in the city, and the best place to put that 'solid money' was in manufacturing industry in the poorer parts of the federation. This was also underwrtten by state bond.

What is Stadtkapitalanlagegesellschaft (Deutsch) in Welsh ? It would have to be dedined as a designation of an investment unit in the capital markets that are admissible for public taxation in Wales under a fiscal juristication of the Welsh Government. They have it in all parts of the German federation, and it's a more sound unit of investment than the gobshite (Deutsch) from a champagne charlie in London. Apoligies for the language.

John Dixon said...

"What is Stadtkapitalanlagegesellschaft (Deutsch) in Welsh ?"

Not a clue - and I don't know what it is in English either. But thanks for a helpful and very interesting response, with some lessons from which we can learn.

Anonymous said...

Anon 13:21: Stadtkapitalanlagegesellschaft could be translated as cwmni buddsoddi cyfalaf y ddinas/city capital investment company. Are you sure that's what they were called, because I haven't found the term on google? Of course, Germany has multiple countervailing elites which remain strong: manufacturing, the churches (very much still a power with their networks of charitable institutions and hospitals and the church tax (Kirchensteur), the unions; universities; strong federal states). Sounds as if the reports John is discussing argue that the British body politic has been captured by the one vested interest, international finance capital. John, do you know Hywel Williams' (the Welsh historian/journalist, not the Plaid MP) "Britain's Power Elites" (2006). Written just pre-crunch but makes many similar points and is a cracking read.