Power to the people

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There are huge differences between Wales and Northern Ireland, and I can’t believe that anyone in Wales would really wish it otherwise, given the tragedies of the past.  The negotiations over the contentious issues are still in progress as I write this, with the deadline set coming increasingly close.  But the suggestion made in a news bulletin last night that the failure of the talks could lead back to direct rule underlines one key similarity, which is inherent in the devolution process.

Power devolved is power retained.  No matter how often Westminster politicians and others talk about – in the Scottish context – making the devolved institutions inviolable without their consent, the reality of the English constitution is that there is no recognition of any source of power other than the centre.

The National Assembly, the Scottish Parliament, and the Northern Ireland Legislative Assembly all exist by the grace of HM, as expressed through decisions of her parliament.  And what is granted through grace can be withdrawn in the same way.

Sadly, the idea that power is a top-down concept has taken hold in all of the parties in the Assembly as well; their attitude towards local government in Wales seems little different in effect from the underlying attitude of the English establishment to the devolved bodies - power belongs to those who hold it.

There is an alternative view, not often heard these days, which is that power actually belongs to all of us, and it is for us to decide where it is pooled and exercised.  That involves recognising the democratic mandate of all elected bodies at all levels, and the right of people in any area to choose a different set of policies if they wish.  It’s a concept which all the politicians seem to struggle with, but it’s the key to the meaningful involvement and participation that many of them say that they want.  A republic would be a good starting point.

Silly referendums

Tweet Last week, the idea of holding a referendum on income tax powers for Wales was branded as “probably the most stupid idea yet developed”.  Strong words, particularly given that members of all four parties signed up to holding a referendum as part of the Silk Commission.  But then coming from an academic rather than a politician, there is no need for the same restraint.  And as an ex-politician, I feel no constraint on agreeing with Roger Scully either.

But the fact that such a silly idea could ever have been agreed by all four parties tells a story in itself.  The precedent most widely used is that in the 1997 referendums, the Scots were asked two questions, whilst the Welsh were only asked one.  The difference was that the second question sought (and obtained) agreement to a limited power to vary income tax.  It’s a very poor precedent though; asking a supplementary question of detail at the same time as a much bigger question of principle is very different from asking that ‘supplementary’ question of detail in isolation.

The problem was compounded, largely by the First Minister himself, in the 2011 referendum, when in response to a woeful lack of confidence in the case for legislative devolution, he gave a commitment that devolution of income tax would not happen without a further referendum.  It was a wholly unnecessary commitment to make, and a silly one as well, as I thought at the time.  But the result is that those who opposed legislative powers will feel, with some justification, cheated if income tax is now devolved without the referendum which they feel was ‘promised’.  And since many of those are people within the Labour Party in Wales, that brings us right back to where we’ve always been on devolution in Wales – what does or does not happen is largely a result of the internal divisions of one party.

Perhaps things have moved on; perhaps the First Minister could now carry his party with him in taking the next step without a further referendum; perhaps the fact that the circumstances have changed will make it possible for him to try.  Perhaps, perhaps, perhaps.  At this stage, I’m not optimistic.  We’ve been trapped into a ‘stupid’ referendum because of the Labour Party’s internal problems, and may need to find an alternative way around it.

But if we can’t sensibly hold a meaningful referendum on this single issue, and can’t avoid it either, is there an alternative?  I’m not a fan of unnecessary referendums, but if we’re going to have one, and need to make it more meaningful, why not put together a package which offers Wales parity with Scotland on all issues and put that to a vote?  All the signs are that that would be a winnable campaign for those of us who support further change, and it would be much more meaningful than a simple vote on income tax.

How much real influence?

Tweet There was certainly something refreshingly different about the pictures of the leaders of the SNP, Plaid Cymru, and the EnglandandWales Green Party meeting in London yesterday.  Not at all like the usual pictures of senior politicians.  And I can certainly understand why the London-based commentariat, looking at things through the prism of Westminster politics, is taking more interest in parties which might, as they see it, hold the balance of power in a hung parliament after May next year.

But I wonder whether that prism isn’t giving them a rather distorted view, which looks rather different with a bit more analysis.  Paradoxically, it seems to me that the more electorally successful the SNP are next May, the less real influence they might end up wielding.  And I say that for a number of reasons.

Whilst the experience of voting for one party and getting a government of another has become commonplace in Wales and Scotland, it’s actually very much the exception in England.  The sheer size and dominance of England within the union means that, taken as a unit, it almost invariably gets the government for which it votes.  The only exception would be if the Tories had a slight margin in England which was more than balanced by an ‘excess’ of Labour MPs from Wales and Scotland.  If the SNP really do win anything like the numbers of MPs which some recent opinion polls have suggested, then the loser would be Labour, and the probability that the largest party in England would also be the largest party in the Commons becomes close to certainty.  England would get the government for which it voted.

Ah, but it might be objected, but how do they get their legislation through without a majority of the whole house?  Given that the SNP has a long-standing policy of not voting on ‘England-only’ matters (whilst there is the difficulty at times in determining which matters meet that definition, it’s pretty clear in a wide range of fields), the government of the day in Westminster doesn’t need a majority of the whole house, merely amongst those MPs from EnglandandWales, in effect.  And reaching that point looks like a much easier target for either Labour or the Tories to achieve.  It’s EVEL by any other name, but without having to change anything.

On UK-wide matters, such as defence or foreign policy, the SNP-led block would of course vote, but their votes would only count for anything if there was a significant disagreement between the Labour and Tory parties.  And on issues of war, peace, and weaponry, how often does that really happen?

Much as I’d like to believe that a hung parliament could be the stimulus for nuclear disarmament, it won’t happen.  Only a few self-deluded old stagers within the Labour Party could convince themselves that their party is really, deep-down, a party of disarmament.  It isn’t – Labour has supported (or even taken) all of the key decisions on maintaining and upgrading the UK’s nuclear weapons for decades.  And with the Tories and Lib Dems also committed to retention – disagreeing only about how the weapons should be delivered if they were ever to be used, with the Lib Dems perversely supporting a less reliable and less accurate approach to mass destruction – there is a huge majority in the Commons against nuclear disarmament.  The next election isn’t going to change that.

So what’s left to influence?  Fundamentally, only the budget.  And given that the three parties have already said that the only party they’d even talk to about that is the Labour Party, just how much would that party really have to concede to win a fairly trouble-free five year term?

Moving the pieces around

Tweet The suggestion made by Plaid earlier this week that a change in public sector procurement could lead to more jobs in Wales isn’t new.  It’s something that the party has called for for very many years.  That’s not a criticism; using the spending power of the public sector in Wales to boost rather than undermine the Welsh economy is an eminently sensible approach.  It may be harder in practice than it is in theory, which is why oppositions tend to support it whilst governments – including the One Wales government from 2007 to 2011 – make little progress in implementing it.

That doesn’t mean that it isn’t worth working on.  Every time the public sector in Wales spends our money outside of Wales, we ‘lose’ a bit of potential GDP.  Our money ends up circulating somewhere else and adding to their GDP rather than ours.  There are environmental advantages to having a shorter and more local supply chain as well.  And I have no doubt that more local procurement will boost the number of jobs here in Wales.

I’m a little sceptical, though, about the headline figure of 50,000 extra jobs.  It’s a nice round number – too nice and too round for my mathematical mind.  And, of course, ‘local procurement’ doesn’t only work one way; other areas of the UK might follow the Welsh lead and seek to procure their goods and services more locally, which would lead to a loss of jobs in Wales.  Overall, though, I’m confident that we buy more from elsewhere than we sell there, so that we’d be net gainers, even if not quite on the scale suggested.

What we do need to be clear about though is that this isn’t, whatever the headlines might say, about ‘creating’ jobs.  ‘Creating’ is a word that politicians love to use when talking about jobs, and it’s easy to present the opening or expansion of a factory or office as something which ‘creates’ jobs.  But much of it is really just ‘relocating’ jobs rather than ‘creating’ them.  Buying the same goods and services from a different and more local supplier doesn’t result in an overall increase in economic activity; it merely moves economic activity from one place to another.  Only by drawing lines on maps and looking at what happens on just one side of the line whilst ignoring what happens on the other does it look like ‘creating’ jobs.

To repeat – that isn’t a reason for rejecting the policy or for not doing more to bring it about.  It’s a policy which would bring significant benefit to Wales.  But it can never be enough.  Real job creation depends on increasing rather than just moving economic activity.

Taxes and entrepreneurs

Tweet One of the themes running through Tory economic policy is that, as the party’s leader in the Assembly put it a few weeks ago, “Low tax economies are more competitive, more attractive to job creators and are where small businesses are most likely to prosper.”

But where is the evidence for this being a causal relationship?  Note that their approach to taxation is to reduce personal taxes on income, a policy which disproportionately reduces the tax bill of those with higher incomes.  It also shifts the emphasis of taxation from progressive income based taxation to more regressive forms of taxation such as VAT.  But where is the evidence that lower income tax either attracts people to set up businesses, or makes those businesses more likely to succeed?

There are some things to note about these people called entrepreneurs: 

·         Some of them are extremely successful, and earn huge amounts of money as a result.  They’re a small minority of the total, but they’re a minority for whom the small differences in taxes being proposed are little more than small change.

·         There are other entrepreneurs who are running small to medium businesses very successfully.  I’m sure that they’d like to have more money in their pockets (who wouldn’t?), but a tax cut isn’t really going to make that much difference to their entrepreneurial activity.

·         And then there are a large number of them who barely make a living from their economic activity, and for whom the sort of salary at which higher rate tax cuts would start to make a significant difference is but a distant dream.

·         Entrepreneurs tend to be hugely (and often overly) confident.  Their business idea is invariably brilliant – to them at least – and a certain route to earn them a fortune. 

From none of these perspectives does it seem likely to me that a cut in higher rate taxation is going to make any significant difference to the level of entrepreneurism in Wales, which is the stated objective of the policy.  That’s not the same as saying, though, that it’s a policy from which no-one will benefit.

When we look at the higher paid people in Wales – those who would benefit from this sort of reduction in personal taxation – very many, perhaps most, of them are high paid public sector workers.  (Now, it might be argued that that is a problem in itself, but that’s an argument for another day.  Let’s just accept that things are as they are for a moment.) 

How likely is it that any of those people will wake up one morning and say “Oh look, I’m going to pay less income tax.  So I’ll throw in the day job and go and start a company”.  It doesn’t immediately strike me as an obvious reaction.  Far more likely is “Let’s have another holiday this year”.

Now of course, enabling people to have another holiday adds to GDP if they spend their money in the local travel agent (although it doesn’t have quite the same effect if they book online; and a lot of that GDP leaks out of the country to the foreign hoteliers and airlines), but if the result of those tax cuts is cuts to public services, it isn’t so much ‘extra’ GDP as ‘redirected’ GDP.  And, above all, it’s a switch in effective spending power from those at the bottom to those at the top.

So if it doesn’t seem likely to achieve the stated objective, and on the not wholly unreasonable assumption that the Tories know that as well as I do, what is the real aim?  It couldn’t possibly be to try and buy the voting loyalty of the better off could it?

The roots of permanence

Tweet One of the recommendations of the Smith Commission in Scotland was that the existence of the Scottish Parliament should be enshrined in law in such a way that it can never be abolished by Westminster.  Similar suggestions have been made in the past in respect of the Assembly.  It’s a suggestion with which it’s easy to agree, but rather more difficult to implement.

Whilst there is nothing to prevent Westminster passing laws which apply “henceforth and for ever” – they have, after all, had a few centuries of practice at it – making even such a sweeping phrase stick is another matter entirely, given the constitutional convention that no parliament can ever bind its successor.  Whatever can be done by a parliament which believes itself to have absolute sovereignty can always be undone on the same basis.  I wouldn’t be at all surprised to find that, in legal terms, the UK Parliament has the theoretical power to revoke Australian independence (although such a move might be rejected on the minor issue of being utterly impossible to enforce).

Would it be different if the UK had a formal written constitution?  At one level, maybe not; a constitution brought into existence by a parliament which believes that it has absolute sovereignty can be abolished or changed by the same route, although it might be a little harder politically.  They key element which needs to be changed is that core belief, that underlying principle, that the UK Parliament has absolute sovereignty.  Changing that element demands that we get rid of the constitutional fiction that power is something which comes from the top – in the case of the UK, from God via the monarch to parliament.

For most practical political purposes in terms of the sort of legislation passed by political parties which have chosen to limit their ambition largely to what is achievable by minor incremental change, the question of the fundamental underpinnings of the power structures in the UK is irrelevant.  A constitutional monarch does as (s)he is told, and there are more important priorities than abolition.  But when it comes to some constitutional issues, challenging the basis on which that power exists is an essential pre-requisite.  And the ‘permanence’ of the Scottish Parliament or Welsh Assembly is such an issue.

Only in a state where power is formally recognised as belonging to the people, on a bottom-up rather than top-down basis, can the rights of parliament to legislate be properly and fully limited.  It’s hard to see how that can really be done without abolishing the rights of kings – something which the establishment parties are unlikely to tackle.  And that, I suspect, is at the heart of the reason why the UK doesn’t have, and is unlikely to have any time soon, a written constitution.  It raises too many difficult questions which they’d have to answer.

Back to Smith, and I expect that the parties will find some convenient form of words to pretend that they’re making it impossible to abolish the parliament.  But the only real guarantee that the Scots (or the Welsh) can have is by making it impossible in practical terms rather than in legal terms.  And I’m fairly certain that we’ve already reached that point, even if Westminster hasn’t yet fully realised that fact.

When is a debt not a debt?

Tweet The Chancellor proudly told us last week that the UK was finally going to pay off the debts incurred in order to pay for the First World War.  But it was, in reality, more of a headline than a fact.

It’s certainly true that the particular bonds issued retrospectively to pay for the war are to be repaid.  But the money to repay them is coming from new loans, and taking out a new loan to pay off an old one isn’t exactly what most of us mean by “paying off debts”.  It may not even involve switching lenders; it’s perfectly possible that at least some of those lending the ‘new’ money to the government will be the same people to whom the government has ‘repaid’ the old debt.

That doesn’t mean that it’s necessarily a bad move.  Taking out a new loan at a lower rate of interest to pay off an old loan at a higher rate is a very sensible approach.  And with interest rates at record lows, it makes a great deal of sense for the government to borrow while it can, even if that isn’t what they say.  And it’s worth noting one small point which the Chancellor somehow omitted – interest rates remain at a record low precisely because the economy is in poor health.  He’s merely taking advantage of the silver cloud.

It’s also worth noting that accountancy rules being what they are, for someone to benefit from switching from a high interest loan to a low interest one, someone else has to be the loser.  In this case, that would be the holders of the bonds which are being repaid.  To the extent that those holders are fat cats and foreign governments, most people will not be unduly concerned.  We shouldn’t forget, though, than an awful lot of bonds are held as the ‘safe’ part of the investments made by life insurance and pensions funds in which most of us have a stake.

“We” through the UK government may well owe a vast sum of money, but much of it is owed to “us” as current or future pensioners.  The debate about government debt isn’t as simple as it sometimes appears.

It's about politics, not economics

Tweet Later today, the Chancellor will make his autumn statement.  There’s plenty of speculation about what will be in it, along with a great deal of pre-announcing as the government tries to maximise the impact of the good news bits.  There seems little doubt that his message will be, in essence, that the current account deficit has not gone down as planned, but that there’s money available for some gimmicky giveaways and re-announcements.

He will, of course, blame factors beyond his control for the first part, and claim all the credit for the second.  (Whilst his coalition partners will claim that the second is all down to their moderating influence)

The real announcement is the one that he won’t make, which is that he’s known all along that current account deficit reduction is not as important as he told us it was.  In fact, it hardly matters at all.

In that sense, the Tories have pulled off a political master stroke.  They’ve succeeded in persuading the media and the other parties to obsess endlessly about how to reduce the deficit, whilst they carry on running one.  They’ve used the excuse of the deficit to mount an ideologically motivated attack on the welfare state, and managed to get the main opposition parties to commit to continuing largely the same policies.  Even if they lose, they win.  And we let them.

Enemies and opponents

Tweet When senior politicians die or retire, it is traditional that their opponents find something nice to say about them.  It often succeeds in conveying the impression that for all the nasty things they say about each other in Westminster, the place is really a jolly little club, where they all have more in common with each other than they do with the rest of us.  Sincerity is an optional extra.  So when David Cameron “leads the tributes” to Gordon Brown, no-one is in the least surprised.

The tribute by Peter Mandelson was rather more nuanced – but what else would we expect from that direction?  My favourite part was that the two big things that Mandelson claimed Brown got right are perhaps the two where history may come to tell quite another tale.  He said that “…he did get the big things right – notably when it came to saving our banks after the financial crisis and saving the union when it looked as though Scotland was going to go independent”.

One of the problems in trying to write history – and particularly the hagiographic variety – too soon after the events is that the longer term consequences of those events have yet to become fully clear.

There is little doubt in my mind that the action taken by the Labour Government under Brown to save the banks was a necessary immediate step at the time.  But the reason that they needed to be saved was down, in part at least, to successive governments’ willingness to turn a blind eye to the risks that were being taken.  I’m not sure that putting out a fire which he was at least partly responsible for starting is much of a commendation.  And taking a purely short term approach to solving the immediate problem has left us with a banking system which is likely to repeat the mistakes of the past.

And if his role in saving the banks is questionable, his role in saving the union is even more so.  Certainly his last minute intervention had a touch of drama about it.  Probably he had a significant hand in brokering the ‘Vow’ which seems to have had an effect on the outcome; although we may have to wait many years before the precise mechanism by which the vow came about becomes clear.  But at this stage, the buoyancy and enthusiasm of the ‘defeated’ side in the referendum is such that it seems likelier that his intervention will come to be seen in the long term as a tipping point which helped to bring about Scottish independence later.  (Which, incidentally, means that those of us who favour independence may yet end up holding a more favourable opinion of him, even if for the ‘wrong’ reasons.)

Given Mandelson’s reputation for spin, it is, of course, entirely possible that he well understands all of this and is deliberately trying to ensure that Brown is remembered for two major events which will turn out to look rather different in the end.  That would serve to remind us all of the dictum that those in the party opposite are merely opponents – it’s those on your own side who are the real enemies.  And it’s opponents who are most bound by the convention of being nice.

Mathematics and politics

Tweet I’m not over-impressed by the response of either Carwyn Jones or Kirsty Williams to Plaid’s claim that Wales would have £1.2bn extra per year if funded on the same basis of Scotland.  Calling it a bizarre figure and claiming not to understand where it has come from are not exactly grow-up responses.  Comparing it with the figure of £300m arrived at by the Holtham Commission is simply not comparing like for like; the figures are the result of calculating two very different things.

The Holtham Commission set out to calculate by how much Wales was losing out as a result of the inbuilt unfairness of the Barnett formula, and came up with a figure of around £300m a year.  There’s a sense in which it’s a ‘snapshot’ figure, and of course, it can change over time.  It’s the result of calculations based on a range of factors which are not themselves constant, but it’s a figure which is widely-accepted, and an entirely reasonable basis for debating change to the underlying formula to come up with a needs-based distribution.

The figure of £1.2bn, however, is something very different.  Scotland is, it is generally accepted, over-funded compared to what the situation would be under a needs-based formula, but there is nothing inherently unreasonable about estimating how much better off Wales would be if we were over-funded in the same way as Scotland.  As a mathematical exercise, it’s an interesting and novel way of highlighting the extent of the unfairness built into the system. 

I’m rather less sure about the politics than the mathematics, though.  On what basis is it reasonable for any politician to argue that Wales should be over-funded just because Scotland is?  Asking for a sum in excess of a needs-based share is a huge jump from a wholly reasonable demand for fairness.  And whilst the facts that Scotland gets more than it should while Wales gets less might, in mathematical terms, be just two different variables in the same equation, giving attention to the Scottish part rather than the Welsh part seems a strange approach, more likely to persuade people of the need for a downward revision in Scotland than an upward one here.

Perhaps that’s the intention.  It is natural for those getting a bigger share of the cake than an assessment of needs would determine to seek to protect their special treatment; and there is always scope for considerable debate about how need is defined and measured.  And those are the two big problems which need to be addressed in any reform of Barnett.  But they do need to be tackled, and any revision to the formula will inevitably mean a reduction in Scottish over-funding, which is precisely why the parties at Westminster are avoiding the question.  From a Welsh perspective, however, and for as long as the devolved administrations are funded through block grants, I really can’t see any basis on which we can reasonably demand more than our fair share.