May was a near record month for UK saving

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The UK Government accepted a record level of deposits from savers during the month of May, the second highest total on record for the month of May. Savers (mostly pension and life insurance funds as well as some wealthy individuals) clearly recognised that saving with the UK government is one of the safest places for their money, because the UK government’s ability to create extra money as and when required means that they can never lose their capital. That’s one way of presenting the figures, but it’s not the way that most of the media chose to present the same information. Instead, the near-universal response (here’s one example) was to treat it as a disastrous increase in government borrowing.

The disparity serves to underline the simple and unavoidable fact that what looks like a debt to one party will always look like an asset to the other. It also underlines the way in which those who want to deliberately constrain or reduce UK government expenditure will choose to interpret the facts in the way which they believe boosts their perception – to say nothing of boosting their own financial interests. The willingness to deposit such large sums with the government suggests that the savers aren’t really against what they describe as ‘government borrowing’ at all – why would they be, when they’re the main beneficiaries? It’s more that they’re against the government spending money on services instead of cutting taxes. And – surprise, surprise – those who benefit most from interest payments on government ‘borrowing’ would also have the most to gain from tax cuts.

For the rest of us, the problem isn’t government borrowing per se, it’s the way in which paying for that borrowing ends up funnelling money into fewer and fewer hands, concentrating wealth rather than spreading it. Any meaningful attempt to decrease inequality must inevitably mean that we have to look at the way in which wealth and income are distributed within the economy. Understanding that one person’s debt is another person’s asset is one small step towards that.

By-election significance isn't about competing brands of vanilla ice cream

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With the votes counted and the dust settling, Andy Burnham won yesterday’s Makerfield by-election by a large majority. To what extent this was a personal vote for the man rather than the party (‘vote Labour to get the Labour PM out’ is an unusual campaign strategy, to say the least) is not clear. I’ve always tended to the view that personalities don’t have a huge impact on election results at parliamentary level, but all rules have their exceptions and the circumstances and extent of coverage in this case may have enhanced the impact of the individual. If individuals really do make a difference, then it certainly helped that Reform Ltd chose a walking car-crash as their candidate, a man whose past comments made him an easy target. A cynic might even suggest that Farage would prefer Labour to stick with Starmer. Whatever, the fact is that Burnham is now in Westminster, and expectations are high that the starting gun will soon be fired on either a Labour leadership contest or else a coronation for the man from Manchester. Whatever gloss attaches to the Burnham name now may well be tarnished by the forthcoming mayoral by-election, which Reform Ltd have a reasonable chance of winning based on the local council elections, even if the bookies currently narrowly favour Labour; but maybe he’ll have staged his coup before that can happen.

The media are painting the Burnham bandwagon as a virtually unstoppable force, ushering in a new government and a new era. I’m not so sure. Burnham is undoubtedly a better communicator than the incumbent, although that isn’t exactly a high bar. The question is about how different he will be in practice. On that score, the omens are not good. He has already committed to maintaining the arbitrary fiscal rules drawn up by Rachel Reeves, and the appointment of a set of deeply conservative financial advisers to support him augurs badly. It looks as though the neoliberal agenda of continued wealth concentration is likely to continue unabated, and he is tying his own hands to do little more than tinker at the edges. Those sunlit uplands aren’t getting any closer. Burnham vs Starmer is politics as ice cream flavours, except the choice is limited to different brands of vanilla.

To my mind, the more significant, not to say worrying, by-election result yesterday was the one in Aberdeen South, where the SNP lost a seat to the Tories. The significance isn’t in the SNP losing, although that’s unwelcome, or even in the Tories winning, although that goes against the run of play. It is, rather, in the basis of the political upset, which is all about the oil and gas industry. It’s an issue that the SNP have not handled particularly well, but the outcome suggests that voters in Aberdeen have fallen for the snake oil being peddled by the Tories (as well as other parties of the ‘right’), namely the idea that we can both secure the planet’s future for coming generations and at the same time use all available resources with no concern for tomorrow. It isn’t just a problem in Aberdeen. Those who would deny the evidence of anthropogenic climate change have seen an opportunity to persuade voters to support them: after all, what’s not to like about a politician who tells you that you can do what you like today and you don’t need to worry about future consequences? Aided by a dumbed-down and lazy media which reports the debate as a “he said, she said” question rather than seeking out facts and scientific consensus, alongside echo-chamber social media, they are pushing against an open door.

Perhaps our end will come not with a bang or indeed any type of sudden event, but in the fug of a long drawn-out party.

There are limits to what can be controlled democratically

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If Knut had been Swiss rather than Danish, he could have called a referendum instead of having his courtiers carry his throne to the water’s edge. It wouldn’t have made any difference to the outcome, but at least he wouldn’t have got his feet wet demonstrating the limits of his authority. Some things are susceptible to human control, others less so; the difference isn’t always clear, especially when it comes to politics. On Sunday, the Swiss voted on a proposal to cap the country’s population at 10 million, a proposition which was defeated, but with a surprisingly high level of support (the result was 45%-55% on a 60% turnout). The proposition had nothing to do with the reproductive practices of the Swiss people, of course: it was really about immigration. Had the proposal been passed, the government would have found itself obliged to comply, primarily by limiting immigration. What they would have had to do if the Swiss started breeding at a rate which took the Swiss population not counting foreigners over the limit seems not to have been determined, although King Herod’s approach is the historical example which leaps to mind. Too unlikely a scenario to worry about, perhaps.

The figure of 10 million is entirely arbitrary, but the proposition was based on a fear that population growth would increase the pressure on housing etc. It’s a familiar refrain. When it comes to issues like housing, it’s inevitable that a larger population requires greater provision, and that’s true whether the growth is ‘natural’ or the result of immigration. The logical response to an increased demand for housing as a result of a growing population is to increase the housing stock. However, it seems that there are some who would prefer to evict ‘foreigners’ and deport them in order to allocate their homes to ‘natives’, even if they don’t always put it in those terms.

But ‘not always’ isn’t the same as ‘never’, and that brings us to Farage, who, at the weekend, announced his company’s new policy of evicting all foreign nationals from social housing, and deporting them if they can’t find private accommodation within three months. Evicting the unwanted from their homes and re-allocating those homes to others is not without historical precedent, as I’m sure Farage will be aware, although whether deportation is better or worse than being forced into formally demarcated ghettos is a question one might have hoped that we never had to debate. It was ‘interesting’ that, in his rant posing as an essay, Farage chose to make a simplistic distinction between ‘white British’ and ‘foreigners’. The implicit racism is both casual and revealing, and something which the use of language seeks to normalise.

Whether the UK has enough housing overall to serve all its population is a question which isn’t easy to answer; what is certain, though, is that there is a significant mismatch between the available type, location, and price of housing on the one hand and the needs of the current population on the other. I suspect the same is true in Switzerland. In either case, there’s something deeply irrational about setting out to adjust the demand (by controlling population numbers) rather than the supply (by building more homes). But then, rationality and racism have never made for good bedfellows.

Making the pie bigger isn't enough

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Politicians at both ends of the M4 place a great deal of emphasis on economic growth as a way of making us better off. It’s true, of course, that a bigger pie makes it possible for people to enjoy bigger slices – and making the pie bigger is a convenient way of avoiding questions about the way the pie is shared. Sometimes, vacuous phrases about rising tides lifting all boats are thrown into the debate, but it’s an analogy which isn’t as helpful as the initial image may appear. In the first place, only seaworthy boats are lifted – unseaworthy ones simply get inundated. Secondly, even for all the boats that are lifted, there is still a huge disparity between a superyacht and a dinghy, and rising tides do nothing to reduce that. Thirdly, at the risk of pushing the analogy too far, if the owner of the superyacht steals the sails and oars from the dinghy, the rising tide isn’t overly helpful to the guy in the dinghy.

The point is that whilst growth creates the potential to benefit all, the reality can be different: ignoring the question of distribution of benefit is akin to a belief in the magic of trickle-down economics. In the US, the proportion of GDP going to employees (through wages etc.) has fallen from a high of 58% in 1970 to around 51% today; over the same period, the proportion diverted into profit has risen to around 12%. There is a similar pattern in many other advanced economies, underlining the way in which the benefits of economic growth have been concentrated in fewer hands, leading to an increase in inequality. On the face of it, the UK is something of an outlier. According to this research, the proportions of GDP going to wages and profits have been remarkably stable in the UK, which might give us superficial hope that rising GDP will indeed benefit society more generally than is happening elsewhere.

As the research also makes clear, however, such high level statistics are hiding a pernicious growth in inequality. It’s not only the share of GDP going to ‘workers’ which matters, it’s also the way in which that is shared out amongst those workers. More detailed analysis shows an increasing remuneration gap between the lowest and highest paid workers, and that in turn leads to an increase in inequality, and means that an apparent increase in wealth is not being felt at all by many. It underlines the importance of governments avoiding a dependence on simplistic measures of ‘success’ such as overall GDP, or even average GDP per head. Growth per se is not enough. Even if growth is always possible and sustainable (which is a whole other, far from unimportant, question), we cannot ignore – as many politicians seem keen to do – the question of the way in which wealth and income are shared within society. Baking a bigger pie is not enough.

Tax is part of the cost of doing business, not an optional extra

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Politicians of various parties seem to be lining up to support a proposal from some in the hospitality sector to reduce the rate of VAT to 10%. There’s no doubt that the sector is currently facing a number of challenges, and it’s easy to see why governments and politicians may wish to aid the sector in order to maintain levels of employment. Tax cuts are probably the easiest way for governments to provide more support, since they can do little about the other costs being faced by those businesses. There is a problem, though, with the basic premise of the campaign, based around the slogan “VAT’s the problem”. The suggestion that ‘tax’ is causing the problem is fundamentally misleading, not to say dishonest: it owes more to neoliberal ideology than practical economics.

It may well be true that if businesses in a particular sector didn’t have to pay so much tax their profits would improve. But it would also be true that their profits would improve if they didn’t have to pay for raw materials, staff wages, or the costs of their premises. It’s not one element of their costs which causes the problem, it is the fact that they are unable to sell enough of their ‘product’ at a sufficiently high price to cover all their operating costs and make a profit. In terms of market economics, any business in such a position is technically non-viable. The most basic law of economics, the one that almost everyone knows, is the law of supply and demand, and that law tells us that if competition is so intense that prices cannot be raised to a viable level, then there is an oversupply in the market. And the natural economic solution to that is to reduce the supply – capitalism requires some companies to fail in order that price levels can rise. It’s another example of supporters of capitalism failing to understand how capitalism is supposed to work.

There may well be social and economic reasons why politicians may not consider that a desirable option, and there’s nothing inherently ‘wrong’ with taking a decision to find a way of delivering subsidies. We should not pretend, though, that a tax cut in such circumstances is somehow not a subsidy. Reducing government revenue in order to cut the costs of private businesses is always going to be a subsidy, however it’s presented. VAT, in particular, is supposed to be added to the bill after the business has set the price based on its costs and profit margin: theoretically, it isn’t paid by the business at all, but by the customer. Reducing it, whilst keeping the final price constant, simply allows the businesses to underprice their product by treating the cash they are no longer handing over to HMRC as part of the revenue generated from their business activity. 

The biggest danger of all is that politicians caught up in the demand for a VAT cut end up reinforcing the neoliberal narrative that tax is in some way an ‘extra’ cost rather than part of the financial environment in which businesses have to operate.

Are productivity and efficiency always good things?

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Will Hayward drew attention this week to the rather defeatist comment by a Reform Ltd MS that “we are not very good in Wales at being efficient in running things”. There’s a sense in which we should not be overly surprised at the comment; it is, after all, in line with the general view held by the unionist parties that Wales is too small and too poor, and Welsh people too stupid, to ever govern ourselves, and that we should defer to our betters in London. For a Reform Ltd politician to express similar views is on a par with the breaking news that the Pope is a Catholic; all he’s done is to repeat a weary old trope in rather more blunt language than that to which we are accustomed.

Leaving that aside, though, the thing that piqued my interest is the inherent assumption that ‘efficiency’ is always and necessarily a good thing anyway. It may seem blindingly obvious, and be a generally applicable rule, that it’s better to achieve a given goal with fewer resources; but being blindingly obvious doesn’t make something true. I’ve been around long enough to know that what’s obvious isn’t always true and what’s true isn’t always obvious. Whilst they’re not quite the same thing, there is a clear overlap between efficiency and productivity, and coincidentally the new Welsh Government announced this week that it will be setting a national productivity target aimed at closing the gap between Wales and the rest of the UK. The announcement itself makes it clear that many of the details are yet to be determined, so it’s impossible to predict the likelihood of success at this stage. The encouraging thing, though, is that it looks as if the target is to be set and monitored at a macro level, rather than being a micro-economic target for individual businesses or sectors.

That difference between the micro level and the macro level is an important one, and brings us back to the question of whether improved efficiency is always a good thing. For any individual business, the ability to produce the same output with, say, half the input in terms of labour is a huge financial advantage, and unquestionably a benefit for that business. But for the economy as a whole, producing the same output with half the input could simply leave half the workforce unemployed, an outcome which few would welcome – even the businesses which have achieved the savings, who could find that half their potential customers can no longer afford their products. Whether reducing the number employed in existing enterprises is a good thing or a bad thing thus depends on whether – or to what extent – those freed up resources can be employed on other useful activities. That is a lot harder to plan for and achieve, and increased use of AI in the drive for efficiency / productivity gains may make it more so.

It also opens up other questions, particularly about how the benefits of improved productivity / efficiency are distributed (increased wages, reduced working hours or increased profits, for example). Changing that distribution goes beyond the current powers of the Senedd, unfortunately. It would, though, be good to see, amongst the yet-to-be-announced metrics which will be used to measure success, an attempt to at least monitor who is benefitting, rather than simply assume that an overall average increase in productivity is sufficient in itself. Sometimes, a simplistic bottom line can obfuscate rather than clarify meaningful progress.

Identifying the right problem

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There was a report of an opinion poll in the i paper a few days ago on the issue of paying benefits to young people who are not in employment, education or training. The article itself is behind a paywall, but the data is available in Table 53 in this report. The headline figure was that 56% of those questioned believed that all benefits should be stopped for such people. As one might expect, the numbers vary between supporters of different parties, with those supporting parties of ‘the right’ most likely to support the proposition. Asked in isolation, it’s easy to see why so many might support that (why, the implication is, should anyone not seen to be ‘contributing’ expect to be supported?), but I wonder whether the implications have been thought through by those responding to the survey.

For people in that ‘NEET’ category, benefits are likely to be their only direct source of income; removing it implies that those 56% of respondents are quite happy for the young people to go without food, clothing or shelter. In reality, of course, many (but by no means all) in that category will be living with their parents, who would presumably be expected to continue paying the living costs for their adult offspring. The key economic fact to note, though, is that the withdrawal of benefits from anyone means that someone, somewhere, has their own spending power reduced. Maybe it’s the individuals directly affected, maybe it’s their parents who are obliged to divert money from their own discretionary expenditure. In economic terms, it matters little to the basic conclusion: somebody’s spending power would be reduced, with a consequent reduction in overall demand. In fact, there’s a more general point which this underlines – if a government cuts spending or increases taxation in pursuit of the alleged nirvana of a balanced budget, someone, somewhere must always have their spending power reduced.

The political question is that the ‘who’ and the ‘where’ are ultimately choices being made by politicians. The claims that ‘benefits’ or ‘pensions’ are unaffordable are not the result of some iron-clad law of economics; they are the direct result of political choices as to who should pay for the entirely arbitrary need to pursue a balanced budget. Worse, they are framed in such a way as to encourage us to believe that governments have no choice but to act to reduce such expenditure, and that the impact of doing so will be felt by ‘someone else’. But if we ask a rather different question, it’s easy enough to expose the lie. That question is, in simple terms, ‘are there enough resources in the UK to provide every citizen with a decent standard of living?’ The answer, unquestionably, is ‘yes, of course there are’. That we ‘choose’ not to use those resources to achieve that aim is down to ideology, not economics.

None of that, of course, provides an answer to the problem of so-called NEETs – but then neither does simply cutting their benefits. The only ‘problem’ that that solves is how we continue to ensure that resources are concentrated in fewer and fewer hands. But that concentration of wealth is the much bigger economic problem.

Curiosity isn't enough to justify an inquiry

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There is no rule or mechanism which guarantees that members of a political party committed to the pursuit of a cause rather than merely power will be any more honest or less venal than mere careerists; nor that they will be any more resistant to temptation when it is waved in front of their noses. But, somehow, we all want to believe that ‘our’ side are more inherently honest and genuine than everybody else. As a result, the conviction, last week, of the former CEO of the SNP (and ex-husband of the former First Minister) somehow comes as more of a shock, to say nothing of disappointment, than the secret £5 million payment to Farage, or a whole host of financial scandals relating to other politicians in recent years.

Having been Treasurer of a party for five years in the 1980s, I’ll admit that I’m somewhat mystified as to how it can have happened. The level of scrutiny to which accounts were submitted back then was intense, and I distinctly remember lengthy meetings examining the budgets line by line looking for potential savings for a party which was perpetually cash-strapped. Things are different now: the advent of devolution has transformed the finances of parties which are now at the centre of events rather than eternally on the periphery. But still… The defence that the auditors had signed off the accounts looks rather weak to me. A thorough audit would surely have checked that expenditure (for large items as a minimum) was properly authorised and had an appropriate ‘paper’ trail in terms of invoices and receipts, but it’s hard to believe that to have been the case in relation to some of the items on the list. I find myself with a number of serious unanswered questions.

It’s true, as some of the SNP’s opponents have suggested, that the guilty plea means that those questions will never be aired in open court. That’s a pity – as much for the members of the party, who are the victims here, as for the wider public – but the idea that that justifies some sort of public inquiry is a strange one. I can see the attraction to the SNP’s opponents of demanding such an inquiry; keeping the scandal running for as long as possible has its political attractions for parties which have been unable to make a serious dent in the SNP’s popularity. But public inquiries are not cheap, and if one were to be set up for every resolved crime that left the curious with some unanswered questions, there would be an awful lot more public inquiries being held. Good news for the lawyers, I suppose, but probably not for the rest of us.

Whether the initial investigation was politically-motivated or not isn’t entirely clear – but the way it was handled, with a ‘murder tent’ outside the house and so forth, certainly looked a lot like a political act. Even the stated cause for the investigation, that money had been raised for one purpose and then spent on another, looked more than a little dodgy; the idea that specific pounds and pennies would somehow be locked away in a special account doesn’t look like a realistic expectation. It seems, though, that they found a real crime, even if it wasn’t quite the one they were looking for. It’s a disappointment, of course – but to return to my starting point, there is no rule which guarantees honesty, even amongst those apparently committed to a cause. Clay feet can appear even where they’re least expected.

Five million unanswered questions

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Labour’s decision to report the alleged hacking of Farage’s phone to the police is a gimmick, of course. Given the reluctance / inability (delete as applicable) of the boys in blue to investigate a whole host of crimes, diverting resources to a crime which the ‘victim’ himself has not seen fit to report is an unlikely prospect. But if the objective is to keep the story about Farage’s receipt of a £5 million gift running for a day or two longer, it is at least an effective gimmick. It’s reasonable to suppose that the attempt by Farage to turn the story into one about an illegal action performed against him was itself an attempt to divert attention from the £5 million, a generous gift which he continues to maintain is an entirely personal matter between friends.

But the ‘hacking’ story raises more questions as well. Farage is claiming that the ‘hacking’ was the result of a spear-phishing exercise. Assuming that to be true, then it wasn’t really what most of us would call ‘hacking’ at all: it means that he was conned into giving the attackers access to his phone and/or data. Still a crime, of course, just not quite the one which is being alleged. We’ve not been told what the messages were which induced him to part with the access codes to his data, but the possibility that revealing them might just be embarrassing could be one explanation for his coyness in involving the appropriate authorities. We also don’t know who the cyber-security experts were who have concluded that it was a “hostile state actor” behind the plot but, again, those experts seem not to have been the ones employed by the British state precisely to counter such actions against politicians and others.

It’s easy to see why, tactically, Farage might want to blame Russia. Given the suggestions that he and his party are too friendly by far towards Putin, putting some distance between him and the Kremlin looks like a reasonable plan. But hold on a moment – let’s look at this from the other side. Why exactly would Russia want to bring down Farage (and it’s reasonable to suppose that to be the aim of the leak of information)? Looked at from the Kremlin, the best chance of getting a more Russia-friendly government in the UK at the next General Election is through getting Reform Ltd elected, and all the conventional wisdom suggests that is more likely under Farage than under any alternative leader. That must surely be as obvious to Putin as it is to me, so why sabotage the campaign?

There are still far too many unanswered questions about that mysterious £5 million and the events surrounding it.

Irrelevance may be infectious

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If there is a single UK politician who should understand what political irrelevance looks and feels like, it is surely ex-PM Tony Blair, and it’s tempting to dismiss his critique of the way the UK is becoming irrelevant under the leadership of his own party on that basis. That would, though, miss the point, because for all the robust rebuttals of that critique by current-day Labour figures, the whole episode serves to emphasise not the difference between the Blair generation and the Starmer generation but the intrinsic similarities.

It is clear, for instance, that both what Blair had to say and what Starmer has been doing are predicated on an idea of the UK as a great global power, with influence way beyond its size and economic importance to the world. It’s a sort of post-imperial delusion on the part of people who can’t quite get their heads around the idea of the UK as a medium-sized offshore European archipelago, and expect the rest of the world to somehow take them at their own evaluation of their relevance.

Some have been surprised at the similarity between the responses of Burnham and Streeting, with their insistence that the idea of inequality is missing from Blair’s response. But both men, like Blair himself, are wedded to the neoliberal economic creed that ‘the markets’ can solve every problem and that governments must do, fiscally, whatever they interpret the bond markets as demanding. Increasing inequality is not only baked into that creed, it is its main driving force. In his failure to pretend that he thinks it important, Blair is simply being more honest than either. There is no great ‘battle of ideas’ going on between the Labour leadership hopefuls, just a beauty contest between two over-ambitious wannabe Messiahs. Irrelevant is quite an apt description.