Accumulating wealth isn't the same thing as creating it

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‘Wealth’ is a strange thing. Most of us know whether we’ve got it or not, but that’s not the same as knowing what it is, or where it comes from. And that’s important when it comes to the question of taxing it, a question which has gained a lot of prominence recently. Partly because identifying what it is isn’t exactly a straightforward task, it’s far from easy to tax it; it is a great deal easier to tax income arising from it, as discussed in a previous post. There’s also a lot of confusion between being wealthy and creating wealth, as some of the reports suggesting that millionaires and wealth creators will leave the UK if they are taxed at a higher rate illustrate.

For most of us, our ‘wealth’ is almost entirely a result of home ownership: take away the ‘value’ of our homes and we have very little left. That property-based wealth certainly seems to be growing, but who is actually ‘creating’ that extra wealth? It’s not home owners – they do nothing except buy a house and watch the monetary value increase over time. Another form in which much of the UK’s private ‘wealth’ is held is stocks and shares. But those who buy shares aren’t investing in the companies – the companies don’t see a penny of the value of share sales. Most business investment comes from commercial loans, not share issues. The value of those stocks and shares might increase over time, adding to the total stock of wealth, but who is ‘creating’ that extra wealth? It certainly isn’t the shareholders, yet they are the ones benefitting from that increase in value. Most of those who can be described as millionaires in the UK are actually wealth accumulators, not wealth creators.

It means that we need to examine rather more carefully the bleating of those who claim that taxes on wealth (or the income derived from wealth) will drive wealth creators to leave the country. Most of them aren’t even wealth creators in any meaningful sense in the first place. There’s also a question about the extent to which they can really take their wealth with them. They can certainly sell their homes and their shares and take the monetary value with them – but the assets won’t have moved. It’s obvious in the case of bricks and mortar that the homes will stay in the same place under new ownership, but so, in general terms, will the real assets underpinning share values. Even in the case of a successful business built up by a successful entrepreneur (which might be a genuine case of wealth creation) who decides to emigrate and take his wealth with him, the way to realise the best value for his assets is to sell them to a new owner, not to destroy them. And the extent to which people can continue to own assets whilst domiciled elsewhere and avoid UK taxes in consequence is a matter of UK taxation policy, not an automatic result.

There are some good arguments against trying to assess and tax wealth. There are even some not-quite-so-good arguments against doing more to tax income arising from wealth. Fear that a few whingeing millionaires will emigrate just isn’t one of them.

Save the alligators!

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Americans have a saying that when you’re up to your waist (although they generally refer to a similarly-located part of the anatomy) in alligators, it’s difficult to remember that your original objective was to drain the swamp. In less expressive language, sometimes, even if people start a project with a clear objective, the practical difficulties encountered along the way can assume such a significance that the aim becomes more of a distant aspiration: killing alligators becomes an end in itself.

To the surprise of no-one except the current and previous governments, reducing net immigration (assuming one thinks that to be a problem in the first place), turns out to be rather more complex than their rhetoric has ever suggested. ‘Stopping the boats’ is really just one – and not a particularly large one at that, in the scheme of things – element of the problem. Short of starting a war with France by forcibly landing people back on French beaches, deliberately killing the occupants of the boats, or simply ignoring international commitments and regulations such as the law of the seas, there isn’t actually any way of stopping the boats at all. Once they enter UK territorial waters, the UK government has a legal obligation to ensure the safety of the occupants, and prior to that point, the French government has a similar responsibility.

Sir Warmonger’s latest wheeze to address the issue is to make an agreement with France for a ‘one in, one out’ policy, initially capped at a maximum of 50 each way per week. The mathematically competent (a category which obviously excludes government ministers) will immediately note two things about this proposal. The first is that minus one plus one nets out to nil; the proposal would reduce the total net migration into the UK by precisely zero. And the second is that 2600 a year is around 6% of the total number making the crossing; a proposal to swap 6% of those making the journey for a different 6% is supposed to deter the other 94% from even trying, presumably by encouraging them to wait to see if they can get into the select 6% who will be allowed a safe crossing. Clearly, the PM hopes that those members of the electorate salivating over the prospect of deporting people in chains are as mathematically challenged as himself.

Interestingly, one of the main arguments put forward by those who think that the use of force, detention, and deterrence to stop people crossing is the wrong approach has been that a better alternative is to allow safe crossing and perform a proper assessment of asylum claims before deciding whether or not to deport. The proposal looks a lot like doing exactly that, except on such a small scale as to make no difference. It’s all a form of scope creep in reverse. Reduce net migration becomes stop the boats becomes stop some of the boats becomes swap some of those arriving by boat for some others who didn’t get in a boat. Then, it can be declared to be a huge success. Just about the only certainty is that absolutely no alligators get killed in the process. I suppose the animal rights lobby might be pleased about that, even if the alligators were only ever an allusion.

But who decides the selection criteria?

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Reluctant as I am to agree, ever, with anything which escapes the mouth of Nigel Farage, he does occasionally come up with half a good point. There was an example last week with his suggestion that it ought to be possible to appoint non-politicians to positions as government ministers if they have particularly relevant experience and knowledge, along with the corollary that the act of being elected to the House of Commons doesn’t magically confer relevant knowledge, experience, or even basic ability on those elected to the extent that they suddenly become capable of running a government department.

There are at least three reasons why it’s only half a good point, though. The first is that, if being an elected member of parliament for the majority party does not confer the necessary qualifications for becoming a minister, then being the leader of such a party doesn’t confer the necessary qualifications for becoming prime minister either – he is hoist by his own argument, which ends up sounding like an argument against democracy. The second is that governments can already appoint non-elected politicians to become ministers by the simple expedient of giving them a peerage. And the third is his counter assumption that being a successful business person somehow does confer the necessary attributes for becoming a minister. That overlooks the fact that there’s a huge difference between supplying goods or services to make a profit and supplying goods and services to meet identified social needs.

One of the theoretical strengths of the US system (although, as we are seeing currently, it’s more theoretical than actual) is the clear separation between the three branches of government – the executive, the legislature, and the judiciary. It’s a distinction which the vague and not fully codified constitution of the UK fudges, leaving us with a legislature full of people most of whom are, have been, or want to be part of the executive. It’s prejudicial to them delivering critical scrutiny. A clearer separation might well lead to better scrutiny and accountability – the idea that people have to sit in the legislature in order to be scrutinised and held to account might be familiar, but it is a strange one when analysed more carefully. And a legislature which focussed more clearly on its key role of legislating might do a better job of it than one where threats and blandishments ‘encourage’ people to toe the government line. Electing the executive and the legislature separately clearly has some advantages.

But, but, but… Holding a separate election for the head of the executive and then allowing him or her to select the best-qualified people to serve as cabinet ministers only works if the elected head of the executive him or herself has the necessary attributes for the job, including the ability to select the right people for other jobs. As the US is so amply demonstrating at present, electing a narcissistic criminal sociopath to the role can easily make things worse. If the head of the executive then puts total loyalty to him or herself as the main – or only – required attribute, it’s an understatement to say that it doesn’t necessarily lead to an adequate and able cabinet.

The basic point which Farage made – that governments should be able to choose people from outside parliament to run ministries – has a great deal of merit, especially where the legislature is small, such as in Wales (a Senedd where the number of members from the party or parties forming the government is unlikely ever to exceed 50 by very much, and where all of those have been selected on the basis of an internal party popularity contest, doesn’t exactly provide a large pool from which to recruit ministers; and the more powers the Senedd gains over time, the more obvious that will become). All the objections about scrutiny and accountability of people outside parliament can be overcome if the will is there – partly perhaps by giving the legislature a strong role in confirming appointments and the right to dismiss ministers as the ultimate sanction. The problem with Farage’s proposal, however, is that it doesn’t really overcome the perceived problem of appointing people not up to the job, because it doesn’t address the key questions, namely who decides who is suitable for the job, and what criteria do they use? It would be a mistake to completely dismiss the point which Farage has raised; but as it stands it’s over-simplistic, with little sign of any intention to fill in the gaps. But then, over-simplifying complex issues is something of a stock-in-trade for him.

How many people is too many?

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Politicians are increasingly worried, it seems, about the low birth rate in the UK – a situation mirrored in many other developed countries. For some of them, there’s an element of racism in the argument: they are concerned that if we don’t have a locally-born workforce, the gaps will be filled by migration. The 20-year plus lead-time on sourcing new employees by increasing the birth rate is a bit of a problem, of course, but one they largely seem inclined to ignore. The other motivation is an economic one – a concern that a falling birth rate coupled with a rising population of older people means that fewer people are working to support more who are not. But the extent to which that is a ‘real’ problem, rather than one based on a particular ideological construct about economics, is a question which largely goes undebated.

There are various theories around about how many planets’ worth of resources would be needed if we were all to live at the standard of, say, the UK in 2025. There are problems with the detail of all of these, dependent as they inevitably are on a series of assumptions and guesses. The basic underlying point, though, is almost certainly true: the resources of the Earth, as currently being utilised, are inadequate to support extending the lifestyle of the richest countries to all humans. Increasing the population will only make that worse, and inequality is the inevitable result. The sort of inequality, in fact, which is one of the biggest drivers of migration.

There is an article on the Guardian’s website by Larry Elliott which challenges the prevailing consensus that a falling birth rate is necessarily a bad thing. It even suggests that a falling birth rate could be a good thing. He sets out some economic theory behind that: whilst a falling population might reduce GDP in total, it could increase GDP per head, a much more useful way of measuring economic performance as it affects individuals. He also suggests that it would require policy changes. I agree, but I’m not sure that changing a few policies such as getting more people into work will be radical enough. We also need to rethink what the economy is and how it works.

Capitalist ideology posits that there are only two productive forces at work in the economy. The most important (and therefore the one to be most handsomely rewarded) is capital itself, and the second is labour (which is what actually creates value). The political parties don’t often put it in such stark terms, but the persistent references to ‘working people’, as though the rest of us don’t count, are more than a minor clue. In such an economic system, those who provide neither capital nor labour – the young, the old, the sick, the disabled – are a ‘burden’ on those who do, who must give up part of ‘their’ wealth or income to support the non-productive.

It isn’t the only way of looking at an economy, however. An economic system is a human construct, not the result of some divine law. From an alternative perspective, the question is not how we maximise the return for those who supply capital and labour, and squeeze the living standards of everyone else to achieve that, but how successful an economy is in serving all members of the society which hosts it. If the output of an economy ‘belongs’ to all, then tax is not an imposition taking money away from those who’ve ‘earned’ it, but a mechanism for sharing and distributing the rewards of economic activity within the society. ‘Tax’ might not even be the best word to describe that. In such a scenario, a change in the age balance of the population doesn’t require a higher birth rate: that’s an answer to the wrong question. The question we need to be asking is how we shape an economy and share the benefits in such a way that it meets the needs of all. Productivity and equity are more important than demographics, but few seem to be asking the right questions based on that.

It's all about adjusting the variables

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Some websites have slider tools on them where the user can adjust one or more variables and the clever computer will calculate the value of another variable as a result. Things like loans, for instance: you adjust one slider to show the amount required, another to adjust the period over which you wish to repay and the computer tells you the monthly payments. Sir Starmer seems to be using a similar tool for what he rather dishonestly calls welfare ‘reform’.

In his case, the variable he adjusts is the number of people pushed into poverty as a result of any given proposal, and the output tells him the size of any saving to the Treasury and the size of the majority in favour in the House of Commons. He started out with a $5 billion saving, and the first answer it gave him was 250,000 more people pushed into poverty. Sadly – for him, if not for those affected – the second part of the result saw the majority slipping deeply into negative territory. He duly adjusted the slider so that ‘only’ 150,000 more people would be pushed into poverty. The savings came down by about £3 billion, but yesterday morning it became clear that the majority would still be negative. Having run out of time to play with further values in order to assess the outcome, he kicked the ball into the long grass and decided to conduct an in-depth study into possible reforms and their impact. Cue huge sigh of relief from those being dragooned into voting for the bill, and a significant majority in favour of a bill which now has a net saving of around zero – or maybe even a slight net cost.

The issue hasn’t gone away, though. And nor has the basic approach. Whatever fine words are spoken, they’re still asking the same question, which is, in essence, ‘what is the maximum number of people which we can push into poverty and still ensure that enough Labour MPs will vote for it to get it through the House of Commons?’ The review is little more than a cover for spending more time playing with that slider. It’s just going to take a little longer to discover the tipping point of the conscience of individual Labour MPs.

Benefit cuts are not really about country vs party at all

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There is a mantra much-loved by politicians about ‘putting country before party’. It sounds pretty lofty and principled, but when broken down is ultimately meaningless, as we’ve seen over the benefit cuts being proposed by Sir Keir Warmonger’s government. The claim is, in essence, that the party doesn’t want cuts, but the country requires them because of the allegedly parlous state of the national finances. The reality is that Sir Warmonger is motivated first and foremost (like all PMs that I can remember) by what he thinks will win him the next election. His definition, when push comes to shove, of ‘the national interest’ is the continuation of his government. And for all the apparent disagreement with his own backbenchers, they also are motivated by the same thing. I’m prepared to accept that they honestly and sincerely believe that a Labour government is better for the UK than a Tory government, but in that sense, the interests of party and country, in their eyes, will always coincide.

The debate isn’t about any conflict between party and country, it’s about which approach is most likely to see the return of another Labour government at the next UK election. In that sense, party always comes first. That doesn’t mean that there is no serious disagreement, it just isn’t really about the substance of the proposals, it’s about their impact on voting intentions. The PM and those around him really seem to believe that their best hope of winning involves appealing to those who think anyone receiving benefits is a shirker and layabout, and are happy to see such people be pushed deeper into poverty as a result. The revolting backbenchers think that their best hope of winning involves placating those constituents who are besieging their offices and mail boxes with complaints about the proposed benefit cuts.

Whilst there’s surely no doubt that what the rebels are saying is closer to what many would see as traditional Labour values, it doesn’t necessarily follow that it is those values which are motivating them rather than a desire to save their own electoral skins. It’s a tragedy for the Labour Party that debate about visions for a better future has been replaced by venal considerations about which particular cohort of electors they need to attract. It’s an even bigger tragedy for those who will lose out that the proposed compromise isn’t about whether they’ll lose out or not, but which of them will lose out and by how much.

What makes a target meaningful?

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There is a mantra in management circles that anyone who has more than three priorities actually has none. ‘Three’ is entirely arbitrary, of course, but the basic point is that having too many priorities makes effective management impossible. We can substitute ‘targets’ for priorities, and the same mantra applies. Yet governments love setting targets, preferably for other people, as a means of measuring something or other, but it’s far from clear that they are actually measuring what they think they are measuring. Targets can often provoke behaviours which are more about demonstrating success than about achieving the aims underlying those targets.

I once sat through a meeting which was led through a spread-sheet detailing 93 key performance indicators for an organisation. Some were being met, many were not, and one or two were even being exceeded. Since the purpose of the discussion was to identify ‘efficiency savings’, part of the discussion turned on those targets which were being easily surpassed. It was an obvious opportunity: reducing performance down to the target level would lead to a saving in money and resources. On another occasion, I heard a suggestion in a discussion on primary school league tables that schools could improve their overall attainment levels in standard assessment tests by identifying the small number of individual pupils who were just below the target score and investing more time and effort in helping them. Two classic cases of the way in which setting targets can sometimes encourage the ‘wrong’ sorts of behaviour.

Those examples came to mind when I read Farage’s comments about scrapping the Welsh Government target for one million Welsh-speakers by 2050. He surely has a point, doesn’t he, when he talks about many government targets being meaningless and never being met? Both the date and the desired number of Welsh-speakers look to be essentially arbitrary numbers. In truth, the million Welsh-speakers has always looked like more of an aspiration than a target: a worthy aspiration, of course, but unless backed up by a detailed and achievable plan with adequate resources set aside over the next quarter of a century, it will be little more than a stick with which opposition politicians can regularly beat the government of the day for its lack of progress. And I see no sign to date of a plan which might actually stand a chance of delivering.

The first problem with Farage’s words comes not with his proposal to abolish what he, and many others, might legitimately see as a meaningless and arbitrary target, but with the lack of any meaningful alternative. His vague words about protecting and encouraging the Welsh language are even more meaningless than the target he seeks to abolish. He has no plans, and no interest in the matter. The second problem concerns the extent to which his aversion to targets is specific or general. It seems unlikely that he is going to abandon his own targets for zero net migration (or zero net migration of poor people anyway; the rich are, apparently, welcome). His aversion to targets seems to relate only to things that he doesn’t like. The Welsh language is clearly one of those.

Not so very different after all

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They told us that it would be so different. After the chaos and confusion of a series of Tory PMs who all seemed to think, to a greater or lesser degree, that compliance with the law was optional (especially in the case of Johnson) the new Labour PM was a completely different animal. A man with a long and honourable background as a human rights lawyer, a man for whom the rule of law was part of the very essence of his being. The promise didn’t age well.

When it came to denying power, water and food to the people of Gaza, his initial response was that Israel had a right to self-defence, and he swatted away any suggestions that that right did not extend to mass killings of non-combatants, including children. Perhaps it stems from that other attribute of an experienced lawyer, obliged by the rules of his profession to take on either side in any case, and find the way of prosecuting or defending which gives his client the best chance of winning. From that perspective, whether or not what Israel is doing in Gaza amounts to genocide or not is a matter of opinion which can only be settled by a court case; whether bombing of hospitals was deliberate or not (and therefore whether it amounts to a war crime) is just an allegation until proven at a trial which is unlikely to happen any time soon. For a good lawyer, there is almost always some wiggle room in law, even if not in morality.

When we come to the bombing of nuclear installations in Iran, however, it’s difficult to see how any reputable lawyer could find a way to argue the case in favour of Trump and the US. The prohibition on attacking nuclear installations is there, in clear terms, and the miscreants have actively boasted that the targeting was entirely deliberate. There simply is no wiggle room; it’s a war crime, pure and simple. The government’s attempt to avoid answering the question as to whether they believe it to be a criminal act or not is shameful. The statements by Sir Warmonger after the event, claiming that the outcome (preventing Iran from developing a nuclear weapon, even though there was no real evidence that they were trying to do so) is a good thing is not so much a legal argument as an ‘end-justifies-the-means’ argument.

Even if it were true that preventing one insane man from joining the club of other insane men who already possess such weapons is such a good outcome that it justifies a blatant breach of international law, we don’t know – and won’t for some time to come – what the real outcome of Trump’s decision is. The destruction of the bombed facilities, even if it’s as complete as is being claimed (and the history of previous military adventures suggests that might turn out to be a dubious claim at best) is only one, short-term outcome. Nobody knows what comes next, but the idea that a single military attack can be considered and judged in isolation from both what went before and what will come after is just another form of madness.

It seems that even a long career upholding the rule of law doesn’t prevent a lawyer who transitions into politics abandoning that commitment in pursuit of the simplistic goal of not upsetting His Orangeness. The rule of law turns out to be considered optional after all.

Chickens, eggs, and overseas aid

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A number of different versions of the saying, “There go the people. I must follow them, for I am their leader” have appeared over the years. It’s usually attributed to Alexandre Auguste Ledru-Rollin, although it’s unclear whether he actually said it or not. Its origin isn’t really important, but it does express a particular political issue very well. Is it the job of politicians to follow, or to lead? One of the attributes of populist politicians is that they attempt to discern what people think, and reflect that back to them (albeit frequently in a distorted or exaggerated form) in an attempt to gain and exercise power, which is really their only objective. Politicians who are part of a movement seeking to change society are more inclined to set out their beliefs and try to persuade people of their merits. But parties don’t stay in one place, and the Labour Party is a classic example. Founded to change the world, it has ended up meekly following whatever it believes the latest trend in public opinion to be.

There are few things for which I’d give Blair, Brown, or Cameron any credit, but the move to boost overseas aid to 0.7% - set as a target by Blair/Brown, in accordance with international targets, and achieved and legislated for by Cameron – is one of them. To their shame, both parties have been equally complicit in reversing the decision – Sunak took it down to 0.5%, and Sir Warmonger has further reduced it to 0.3%. And both have diverted significant sums from the overall total to expenditure within the UK on handling refugees and asylum-seekers. Both blamed a ‘lack of money’, and in both cases that was based on the fallacious argument that there is a finite amount of money available, and we have to make choices about how to use it.

Today, a Labour Trade Minister has told us, by way of justification, that the public no longer supports the idea of foreign aid. It’s a chicken-and-egg question, though. Have the public spontaneously turned against the idea of providing foreign aid allowing the politicians an excuse to cut funding, or is the change in public attitudes a result of years of propaganda telling people that the UK ‘cannot afford’ to help others? It’s probably best described as a vicious circle, with the original driver as unclear as whether the chicken came before the egg. The notable thing, though, is the lack of any effort by self-styled ‘progressive’ politicians to attempt to break out of that circle by showing some leadership. Following public opinion is just another excuse.

Making people poorer really isn't 'compassionate'

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There is a traditional image of a vicious headmaster, about to deliver a good thrashing to one of the boys in his ‘care’, declaring that ‘this will hurt me more than it hurts you’. It’s not true, of course; and it looks like an effort to turn the abuser into an unwilling victim of circumstance, in his own mind at least. I doubt that any of the recipients of such ‘loving care’ ever believed it, and if it doesn’t work on terrified boys, there is no reason to believe that it will work on adults. It is, though, the chosen strategy of the Labour Government when it comes to welfare cuts. They want us to believe that driving people deeper into poverty is something that they really and truly don’t want to do, but are left with no choice because … well, because of an arbitrary financial rule which they themselves invented, and which magically doesn't apply to spending on weapons and destruction.

This week, the Work and Pensions Secretary told us that reforming the welfare system is an act of ‘compassion’, which will restore ‘opportunity and dignity’ to those relieved of benefits to pay for their food and housing. She also told us that, “Unless we reform [the social security system], more people will be denied opportunities, and it may not be there for those who need it”.  In plain English, which it’s easy to understand why she would want to avoid, that amounts to saying that the government will deliberately choose to see some people going without the basics of life in order to save money on the budget. There is nothing inevitable or pre-ordained about that; driving more people into poverty is a wholly deliberate choice that the government is willing to make.

There is nothing wrong with some of the specific elements of the proposals: helping more people to find suitable work and easing the transition from benefits to employment are sensible investments, although they don’t differ greatly from what governments of all colours have been claiming to have been doing for years. But what previous efforts have taught us is that it isn’t as simple as looking at numbers in a spreadsheet might suggest. People have complex needs, which are often only obvious when looking at individuals, and looking at individuals rather than numbers is not what governments do. There’s also an element of distraction: the changes to Personal Independence Payments have little or nothing to do with getting people back into work, yet government statements seem to be deliberately conflating the two.

It would be hard to fault a government which came up with serious and specific proposals to reduce the need for welfare payments by matching more people with suitable and worthwhile employment, and which was prepared to follow through on those in the hope that the welfare bill would be reduced in the end. That isn’t what they are doing, however: they are starting with an arbitrary target for the amount of savings that they want to make, building those savings into their forward budgets, planning to cut payments to achieve that, and then assuming that enough people will either move into employment or be deprived of the essentials of life. Maybe they have polling evidence telling them that such an approach would be ‘popular’, but when Sir Warmonger talks about doing the ’right’ thing, it’s not at all clear that he understands that there is a difference between the two words.