There's not a lot of democracy about in Reform Ltd.

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In the light of the growing scandal around the sources of finance for Reform Ltd – an issue which seems unlikely to go away anytime soon – it looks as though at least some of his acolytes are getting restless enough to seek to depose him as leader. A report a few days ago suggested that Zia Yusuf is pitching to replace him, from an even more extreme political standpoint. Farage himself has made some noises about having considered giving up and going back to make (even more) money outside politics. If he doesn’t decide to stand aside, it’s hard to see how his company/party can replace him against his will.

There was a bit of a fanfare last year when he restructured the company to be a ‘not-for-profit’ without shareholders, which was presented as giving ownership to the members. It was a form of ownership that didn’t involve control, though. The leader can only be removed if either 50% of all members indicate that they want a confidence vote to be held, or 50% of all MPs do the same (however, that latter provision only applies if there are 100 or more MPs – not an imminent probability). As for the membership provision, it really does seem that the leader has absolute power to remove membership from anyone to whom he takes a dislike: even if it were possible to overcome the practical issues in getting 50% to sign up for a proposition, whether they’d all still be members when it was formally presented is another question.

A leadership vacancy would also expose another quirk of the ‘democratisation’ of the party. The new leader would not be chosen by the membership in a vote, but by the ruling board of the company – most of the members of which are appointed by the leader. If and when he’s ready to go, effectively he gets to choose the people who would appoint his successor. The reason he gave for this approach was that, in one of his previous parties, having an elected body in control meant that the party "became completely and utterly and totally ungovernable". That seems to be code for not doing what he told them to do. He expects, instead, "There has to be some degree of trust amongst the members in the leader…”. Democracy is fine, it seems, as long as it invests total power in one individual. That probably tells us all we need to know about the likely nature of a government led by Farage – an eventuality which, whilst it can’t yet be ruled out, certainly seems to be receding at present.

All spending is income to someone

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One of the simplest rules in economics is that all spending by one person or organisation becomes income for another person or organisation. I frequently wonder how well understood it is, but it is an unavoidable fact. And what applies to spending by individuals or companies also applies to governments – all public spending becomes income to someone, somewhere. The corollary is that any reduction in public spending cuts the income of someone, somewhere – the only question is who and where.

Yesterday, Kemi Badenoch told us that a government led by her would cut spending on benefits in order to increase spending on defence. Assuming that the cut and increase match pound for pound, then the overall total of money injected into the economy by the government – becoming income for others – would remain the same. What would change, though, is the who and where receiving that income. Income which previously went to recipients of benefits would instead become income for the likes of arms companies and military personnel from where it would flow into the wider economy as it is spent again. Benefit recipients lose income, armaments companies gain income. None of that is, or can be, arguable – it’s simply a statement of fact.

Unless, of course, you happen to be the leader of the Tory Party, who said that this wasn’t targeting the poorest members of society because the welfare system “doesn’t make any sense”. Now, she might actually have a point, of sorts, about whether the welfare system works as well as it should, or is targeted as well as it could be. But unless we choose to believe that most of the benefits – and therefore the savings she is proposing (although she hasn’t actually spelt them out) – are not in fact going to the poorest in society, then it is inevitably the case that cuts will reduce the income of the poorest. Badenoch’s statement is complete nonsense. But the problem isn’t just Badenoch – all those Labour ministers and politicians calling for welfare cuts are effectively proposing the same thing. The only way of avoiding that is if the reductions in benefits are matched by increases in income for the same groups from other sources.

It is a cart-and-horses issue. If those receiving benefits start receiving at least an equivalent amount of income from other sources (such as employment), then it doesn’t need government action to cut benefits spending: it will fall automatically. But if the jobs aren’t available, or the people can’t do them (for whatever reason), then a cut in benefits takes income way from the poorest. Put another way, the issue isn’t really about benefits at all (leaving aside some tinkering with the rules to better achieve the intended outcomes) – it’s an employment/wages problem. It’s a much harder problem to tackle – not least because our politicians are wedded to the idea that governments can’t actually do much because of arbitrary fiscal rules – but looking at benefits solely as a question of ‘unsustainable government expenditure’ is, however they choose to spin it, an argument for making some of the most disadvantaged in society even poorer. It could not be otherwise. We need to start in the right place, which isn’t about the benefits system at all.

Simply locking people up and throwing the key away doesn't work.

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There are at least four different reasons why a society might decide to imprison those who break its agreed rules, and the debate about an early release scheme – driven not by any concerns about justice or fairness, but by a lack of places in which to lock up even more offenders – doesn’t really seem to have paid a lot of attention to the balance between them.

The first is as a form of punishment, and this is the one which seems to have attracted all of the attention. Indeed, most demands for ‘justice’ seem to revolve around the length of a prison sentence handed down to an offender, with the degree of ‘justice’ delivered apparently depending mostly on the length of that sentence. And most of the outcry against the early release scheme has related to the idea that the level of punishment is being reduced.

The second reason is about public protection / prevention of re-offending. When it comes to the question of whether or not ‘prison works’, this is the one area in which one can say unequivocally that it does indeed work, because an individual locked in a cell cannot re-offend during the period of incarceration. Whether (s)he would have done so unincarcerated is much harder to answer.

The third reason is about deterrence. The underlying rationale is that if someone commits a crime and gets a lengthy sentence as a result, then it will deter others from committing the same crime. It is far from clear that this actually works, given that it assumes that the criminal is carefully weighing up the odds of being caught and found guilty before taking a rational decision as to whether to offend or not. A lot of crime (admittedly not all) is either opportunistic or committed in the heat of the moment – ‘deterrence’ is unlikely to make much of a difference.

The fourth reason is about rehabilitation / re-education – trying to ensure that offenders are unlikely to re-offend when released and can more easily re-assume their place in society. It’s an area where the UK justice system is notoriously bad – offenders are more likely to learn new ways of offending than new skills for their future.

The biggest problem with the UK government’s early release scheme is that it is primarily based on considering the category of crime committed rather than looking at all the circumstances of the offenders. So when an offender is considered by the public at large to be unsuitable for release, the government resorts to excluding all those who have committed the same or a similar crime. Even leaving aside the question about whether public rage (often whipped up by the tabloid press) is the right basis to determine whether an individual should or should not be released early, treating all those who have committed similar crimes in the way that the public demands one of them should be treated is a bit like abdicating responsibility to a mob.

Instead of debating whether we should really be locking up so many people (more than many other European countries), politicians have chosen to invent more crimes and equate ‘justice’ with longer terms in prison, competing to see who can mandate the longest and harshest sentences (in the belief that it will be popular), during which those imprisoned not only contribute nothing to society but also cost an ever-increasing sum to keep them economically inactive. Without building the extra spaces that such an approach inevitably requires. The result is a panic last minute response to a crisis of their own making which finds them with neither the time nor the resources to make a proper assessment of which prisoners should be released early and which should not. It’s a response which serves the interests of neither the prisoners themselves nor society at large. And there’s still no sign that the problem is really being recognised.

They're sharks, not vigilantes

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Talk of ‘bond vigilantes’ has risen again this week in the light of a significant sell-off of government bonds, not just in the UK but in other major economies as well. The term is one we should reject absolutely: the word vigilante makes them sound like some sort of irregular financial police, doing their bit to keep the politicians in line and on track. It’s a complete misnomer – they’re profit-hungry sharks seeing an opportunity to make more profit for themselves by extracting interest from governments.

The first thing that we need to understand is that for every bond which is sold, someone has to buy it. No buyer = no sale. Those selling bonds are deliberately selling at a loss; someone who sells £1,000 worth of bonds (which the government has committed to redeeming for £1,000 at maturity) for £800 is crystalising a loss of £200. If the rate of interest on the bond is 3%, they would expect to receive £30 a year in interest. Since that amount of interest is fixed, the person buying the bond will now receive £30 a year on a holding they bought for £800 – a rate of interest of 3.75% - and still expect to get £1,000 back at maturity. Not a bad deal for them. It’s worth noting, though, that for all the talk of increasing rates of interest on bonds, the amount being paid by the government each year hasn’t changed by a single penny. A fall in the price of traded bonds does not cause an increase in the cost of existing borrowing.

So why would someone sell a safe asset for less than its nominal value? Well, if they believe that the government will have to respond by paying that higher rate of 3.75% on any new bonds issued, they will end up with a better-paying asset. And in that case, for new bonds issued, the cost of government borrowing has indeed increased. Both seller and buyer have managed to increase their income from interest paid on their bonds as a result. They will have seen an opportunity to make money and taken it. In none of these transactions is there any moral or economic judgement about government fiscal policy, let alone any attempt to enforce a particular policy. Indeed, it’s almost the reverse – the impact of fiscal policy is merely to create a belief that interest rates will have to rise, and the consequent belief that ‘other people’ will seek to take advantage of that increase, causing the whole herd to move. The belief, based entirely on the notion that government funding is dependent on bond issues, becomes self-fulfilling. Far from enforcing stability and discipline, the profit-seekers positively benefit from instability and chaos.

The conventional neoliberal economists and pundits tell us that, in order to avoid those rises in interest rates, governments must never ‘upset the markets’. What they mean by that is that governments must never take any actions which might create an opportunity for the traders to push interest rates higher. That in turn is based entirely on the assumption that governments must always borrow, on the markets, any money that they do not raise in taxes – in short, the assumption that the household analogy for government finances is true. But what if it isn’t true? What if the government does not need to balance its budget and can simply run an overdraft with the central bank? That goes to the heart of the debate about what money is and how it works. What gives the bond markets their alleged power is the adherence of governments to the household analogy for government finance, not some universal law of nature. An approach to economics which recognises that the constraint isn’t the availability of money but the availability of resources which can usefully be deployed would strip that power away. Neoliberal ideology is artificially constraining governments – we should be asking who benefits.

Threats work in Trump's mind, even if they really don't

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Reports suggest that Trump is considering using the UK’s possession of the Falklands/Malvinas as a lever to compel the UK government to spend more on armaments. This post isn’t going to get into questions around the legality or morality of the UK’s continued possession of such a remote outpost; that’s a whole other subject. In any event, questions about legality or morality never enter Trump’s mind; everything is about naked power and the ability to apply it. What impact a change of US policy would have is unclear: successive UK governments haven’t exactly demonstrated a willingness to be swayed by international opinion on the question of ownership.

Trump’s end game on the issue seems to be primarily about raising UK spend on armaments, and has little to do with the status of faraway islands about which he knows nothing. Defence spending is already a hot topic in UK politics, although parties are arguing primarily about the timetable for implementing any increase. The concentration on spending as a proportion of GDP is one which I’ve never really understood. Surely, if, or to the extent that, the UK needs to up its defence capacity (another whole other subject), it’s about the nature and scale of that capacity, not about how much it costs in relation to GDP? As the UK has ably(?) demonstrated over many years, increasing defence expenditure is easy – incompetent procurement and project management can add massively to costs for no perceptible increase in capacity.

I do wonder, though, whether Trump really cares whether the relationship between arms spending and GDP makes any sense or not – or even whether he really cares about defence anyway, especially for countries other than the US. I suspect that his real concern is what it’s always been: money and power (mostly his own). He believes (with considerable justification, in the short term at least) that increasing spend on armaments primarily benefits US companies, and that means his billionaire ‘friends’ (whose ‘friendship’, in turn, is more about what they can get out of it than any liking for Trump) and donors. He doesn’t even believe that the Russians (the bogeyman being used in Europe to support preparations for war) are any sort of threat, given what he sees as his own excellent relationship with Putin.

I suspect that the warmongers currently running the UK are going to increase armaments spending anyway, regardless of what Trump says, even if their own blind adherence to wholly arbitrary fiscal rules causes a degree of dithering along the way. And when they do so, even if the Trump threat over the Falklands/Malvinas has had zero impact on the decision, Trump’s simplistic mind will see a cause and effect where there is none, which will reinforce his tendency to resort to threats and blackmail. Trump’s madness and impulsiveness form a vicious circle from which there seems to be no escape.

Labour's nationalist blind spot

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There is at least one thing which unites former PM Gordon Brown with another former Labour leader, Jeremy Corbyn, and that is an astounding ability to see a huge difference between the constitutional position of Ireland on the one hand and that of Scotland and Wales on the other. It has long struck me as a curious blind spot. Brown told us last week that he sees it as entirely natural that Ireland will, one day, be reunited as a single country, but also that Scotland is “geographically, economically, socially, culturally linked to the rest of the United Kingdom”. The detailed basis for that assertion is, naturally, not detailed, but it leaves him in much the same position as Corbyn who seemed to support the right of all nations across the world to be independent unless they happened to be physically attached to England.

The argument about ‘geographic, economic, social and cultural’ links is remarkably similar to the basis which Putin uses in relation to Ukraine, although I’m sure that Brown would not welcome the comparison. There’s probably nothing that I or anyone else could say that would shift Brown (or Corbyn) from their position, because it’s ultimately not a position based on hard facts or evidence, but one based on a subjective feeling about what constitutes a nation and how we define that. To Welsh and Scottish independentistas, England, Scotland and Wales are nations, and the UK is a state, but to British nationalists, it seems that Britain and Ireland are ‘proper’ nations, whereas Wales and Scotland are some sort of ‘national region’ within a greater nation.

In truth, I’ve never been able to find a satisfactory objective definition of what constitutes a nation. Of course, things like history, language, culture, and geography play a part, but those things combine in all sorts of different ways across the world. Ultimately, no ‘nation’ exists unless its members feel it to be so, which makes nationality highly subjective. It follows that nationality (other than in the strictly legalistic sense of a passport-issuing authority) cannot be imposed on an individual, nor can an individual be told that (s)he cannot be a member of two nations (e.g. Welsh and British) at the same time. It also changes over time – here in Wales, we know that the number of people considering themselves to be Welsh rather than British has risen over recent decades, for example. Whether that reflects a change in their nationality or merely in their perception of their nationality is an interesting academic argument, but in terms of practical politics we only need to understand that it is happening.

The bigger question is whether the existence of a nation requires that nation to be an independent (in the everyday use of the term) unitary state. Nationalists (like Brown) tend to the view that it does, a tendency which tends to close minds to alternatives. Under Brown, or Corbyn – or Starmer or Burnham – Labour is very much a British nationalist party.

Referendums express disagreements - they don't create them

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The UK’s PM has seemingly managed both to acknowledge that the UK Government has a duty under international law to call an Irish unity referendum under certain circumstances as part of the Good Friday Agreement, and at the same time to rule it out. Maybe he’s practicing political contortionism in readiness for his upcoming meeting with Trump, but as a way of trying to please everyone whilst actually pleasing no-one, it’s almost a master class.

The circumstances under which a referendum becomes unavoidable are vague, of course: the duty on the Secretary of State to hold a border poll if it appears likely a majority would vote for Irish unification is hardly clear cut, and what ‘appears likely’ to one person can appear very unlikely to another, particularly if (s)he chooses to ape Nelson and hold the telescope to a closed eye. Given the history and complexities of Irish politics, perhaps the circumstances could never be other than vague, and the dangers implicit in a narrow majority either way are obvious.

But it was the rationale for taking the option off the table which caught my eye. Referendums, according to Burnham, are inherently divisive, and he uses those on Brexit and Scottish independence as evidence to support the argument. It is a simplistic analysis, though. A referendum might crystalise and put arithmetical numbers to a divergence of opinion, but they don’t make that divergence appear in the first place. After all, if there’s no pre-existing difference of opinion, there’s nothing on which to vote. As a corollary, avoiding holding a vote doesn’t make the difference of opinion go away. Whether the issue is Brexit, Scottish independence, or Irish unity, there are strong and deeply-held opinions on both sides. Whether a referendum is the best way of determining a majority view or establishing the ‘settled will’ of a population is a valid issue for debate, as are the timing and circumstances of any vote. But denying a population any democratic means of deciding between two views, and insisting instead on adherence to the status quo (which is what Burnham’s appeal to concentrate on cost of living issues amounts to) carries its own dangers.

On constitutional matters (much like on economic matters), Burnham – despite all his rhetoric about change – seems deeply committed to a belief that the status quo is the natural and inevitable order of things. It’s a fantasy; in the real world, the long reach of history shows how human-made boundaries and institutions are constantly changing and evolving. Those who attempt to stand against the tide of history eventually get swept away by it.

Intergenerational fairness is a long term issue, not a short term one

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The idea that providing a decent income to pensioners is an example of intergenerational unfairness depends in large measure on the assumption that people will take a very short term view of the economics. The argument starts from the assumption that working people lose out by having to pay for pensions of those who have retired. Even assuming that the economic basis of that (i.e. that all the wealth created in society belongs only to those in work and those who own the capital) were correct, it’s still far from true. If the triple lock means that pensioner purchasing power rises at a faster rate than the purchasing power of those still in work, the wonders of compound interest mean that those who benefit most from the triple lock will be those who have not yet retired and are unlikely to do so for some time. The corollary is equally simple: if the purchasing power of pensioners is allowed to progressively decline instead, the biggest losers won’t be today’s pensioners, but those who retire in the future. Anyone currently in work who falls for the argument for reducing the proportion of GDP spent on pensions will give them a boost in the here and now is implicitly accepting that their own position as pensioners will be even worse than the position of today’s pensioners.

The questions which the politicians and economists seem unwilling to debate are simple ones: what is the ‘right’ level of the state pension in relation to earnings, how do we get there, and what mechanism should be used to maintain the relationship thereafter? At the ‘right’ level, there should be no need for anything like the triple lock; a straightforward mechanism for maintaining parity will serve the needs of all current and future pensioners. The reason for avoiding the question of the ‘right’ level is also very simple: the answer is likely to be along the lines of ‘rather more than currently being paid’. To the extent that they are willing to debate the issue at all, the debate normally starts with a question about how much pensioners ‘need’ to live on. It’s a question which carries within it a whole series of subsidiary questions and assumptions about the life style pensioners should be ‘allowed’ to lead. And the supplementary question raised is ‘what about those pensioners who get other income on top of their state pension’, but that’s an issue which a progressive taxation regime should deal with.

A properly working economy, serving the needs of the society in which it operates, should be able to provide a decent standard of living for all, without forcing people to reduce their standard of living when they hit retirement age. It is the neoliberal economics of the UK’s main political parties which perpetually seeks to divert attention away from that. To know why, we have only to ask the question which Roman senators were encouraged to ask: “Cui bono?”

Arbitrary priorities don't solve the lack of housing

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It might be best to simply ignore any half-baked policy proposals put forward by Reform Ltd, given their recent slide in the polls. But in the great political game of snakes and ladders, those who slide down a snake one day may yet ascend a ladder the next, and it is not beyond the bounds of possibility that the Farageists could still be in contention come the next UK general election. The Burnham Bounce may end up being followed by the Burnham Deep Dive – and probably will, based on recent political history.

The latest of the company’s policies is a proposal to give priority for social housing to young workers born in the UK. That appears not to be the only category given priority, though – they also want to prioritise “former military service personnel and married couples with children”. The implications are wide-reaching and not entirely clear. Where, for instance, do former military service personnel born outside the UK (and there are some) fit into the priority list? And if the aim of the last part is to support families and give children a decent start in life, what about non-married couples with children? Or young widows or widowers left to bring up children alone? Not only are they wanting, apparently, to set the state up in judgement on the marital (or not) arrangements of citizens, it seems that getting a decent start in life is to be reserved to those who pass the artificial morality test.

Imagine, just for a moment, the nightmare of managing a housing waiting list which has to hold information about the place of birth, marital status, and number of children of each applicant, and then set out whether an unmarried ex-serviceman born in, say, India, who has a partner and two children, ranks ahead of or behind a single male born in the UK. And what about a ‘worker’ who may be temporarily unemployed? Does someone who loses his or her job due to redundancy and struggles to find another then lose his or her home as a result? And does the ranking change depending on whether the available accommodation is a flat or a three-bedroom house? I was a member of a local authority housing committee for a number of years, and I know how fraught the process of determining priorities is when there is a long waiting list, without Whitehall setting out additional priorities to over-ride any carefully and painfully developed points system.

The worst part of all is that this is a blatant attempt to avoid doing the one thing which would resolve the shortage of social housing: build more. They have talked about building an additional 50,000 homes a year across the UK: an inadequate number with no indication of how it will be achieved. Both Reform Ltd and the Tories seem to believe that evicting foreign-born tenants from social housing will make the homes occupied by them available to their priority categories, but unless there is alternative accommodation available for the evictees, that merely shifts the problem to another part of the system. Assuming that they have enough decency not to simply turf people out onto the streets (and I wish it were possible to say that that is a reasonable assumption), what do they plan to do with those people who have been kicked out to make way for others?

The whole thing carries echoes, horrible echoes, of times gone by when those deemed undesirable were expelled to make way for the favoured. And I’m not sure that that is either accidental or down to a simple lack of awareness.

Why single out taxes?

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There have been reports that UK Ministers are planning to change the planning rules around pubs in order to make it harder to close them, with developers to be required to prove that there is no reasonable prospect of keeping a pub afloat before a change of use can be considered. Talking of the causes of pub closures, the Guardian says “Pub and restaurant bosses have blamed the employer national insurance increase, the higher minimum wage and food price inflation as well as high business rates”, the BBC blames “taxes and employment costs”, whilst the Sunday Times (paywall) says the closures are “largely as a result of rising costs from the increased rate of employers’ national insurance contributions … and high VAT and business rates”.

It’s true, of course, that if the costs of a business increase, it can be harder to keep that business viable without an increase in prices. That’s just Economics 101. The corollary is that if one element of those costs could be reduced whilst leaving all other factors unchanged, then the business will become more profitable. So, if the government stopped collecting taxes on pubs, those pubs would become more profitable. But it’s equally true that those same pubs would become more profitable if the breweries stopped charging them for beer, or the wholesalers stopped charging them for food. Taxes are just one element of the costs of a business, rather than some sort of special extra cost. The bottom line isn’t that taxes are causing pubs to shut, it is that the demand for the services of those pubs at the prices required to make a profit is insufficient. And the ‘rules’ of capitalism tell us that a business which cannot sell its wares at a price which enables it to cover its costs and make a reasonable profit is a non-viable business, which should close, with the demand then concentrated on a smaller number of businesses.

I wouldn’t actually advocate that – pubs perform useful social functions particularly in rural communities and there may be good reasons for subsidies or other forms of assistance to keep them open.

The point, though, is that blaming taxes tells us more about the ideological stance of those making the claim than about the economics of the pubs sector. Successful businesses depend on a supply of suitable trained and educated workers; they depend on those workers being healthy and fit for work; they depend on the infrastructure required to get their supplies delivered and the customers to their door. What, exactly, is the argument that those are not in themselves business costs, even if indirect? And a business which cannot pay its employees a living wage has no basis for remaining open anyway.