Mrs Thatcher’s Handbag

Nobel Laureate economist Paul Krugman speaks about zombie economics – beliefs that he thought were dead, but rise like the monster from the Black Lagoon, undead, near the end of the film.  I’ve written about a couple of them myself in this blog – the idea that if the government cuts tax rates, it will increase its receipts as people work harder and earn more money (Laffing All The Way), or the notion that we solve our skills shortages by making students do what ministers want, not what they want (The Right Course).  Now, we have the King and Queen of zombie economics, the assurance that we (or our children) will have to pay off the current excessive level of National Debt, and so we must raise taxes and cut government expenditure.  I even heard it at a recent adult education class, from a sensible and bright fellow student, which is what motivated me to write this.

It’s a popular belief, of course, because on the surface it seems straightforward.  You can despair at the idiocy of conspiracy theorists, sigh at Brexiteers, curl a lip at climate deniers.  But not so much National Debt worriers.  Some call the theory “Mrs Thatcher’s Handbag”, as it stretches a comparison with domestic spending which appears to be, well, just common sense.  During the 2015 UK General Election, an audience member on “Question Time” was keen to reveal his unique understanding of economics to an MP critical of austerity. The audience clapped as the gentleman confided that he virtuously stops spending and leaves his local pub when he has no more money to buy beer.  As I noted at the time – my blog of May 2015 – people nodded wisely, without asking

  • “do you have an impeccable credit record going back to 1694 ?”
  • “can you issue money whenever required ?”
  • “is your alcoholic spending so high that when you reduce it, it causes unemployment ?”

    and, crucially

  • “Is your extra pint important to society ?  Will your decision mean we have fewer nurses in hospitals, fewer police officers on the streets, worse public transport, reduced flood defences, inadequate vehicles for the army and cuts in welfare benefits ?”

Taking these objections one by one. 

Credit record: the National Debt does not have to be paid back.  We have had one for more than three hundred years, and we have never had to pay it back.  There are, of course, interest payments to pay, and allowing those to rise too high would be unwise, taking tax money that might be better spent on improving public services.  But at the moment, that isn’t the case: in fact, interest rates are low, and have been for a decade.  Jonathan Portes, Professor of Economics at Kings College London and by no means a wild man, said the cost of the extra borrowing was small enough to be considered ‘a rounding error’ (Prospect magazine, October 2020).  Rates are being slashed right now, to the extent that a recent call for funds by government actually led to negative interest rates

Remember, too, that the National Debt is the total owed to those who lend to the government.  The public perception is that it’s money we owe to foreigners, who will send around heavily built bruisers to get the money back (as in some loathsome C5 documentary, where debtors sob as their washer and TV are carried out of the door).  In fact, three-quarters of those holding the National Debt are UK citizens and companies.  It’s in the form of bonds and bills held by savers.  If you own Premium Bonds, contribute to or receive money from a pension fund, you own a bit of the National Debt.  If it’s a government debit, it must logically be a private asset: if we are passing on a debt to our children, we are also passing on a lot of valuable assets.  And it is currently true that many savers are looking for somewhere to put their savings, and are happy to dump it with the government; the idea that this debt is ‘crowding out’ private investment (a beloved fallacy of the Thatcher years) simply isn’t true.  We have an excess of savings.  Firms don’t want to expand in a slump, and when they do, with profitable opportunities, they have no problem finding lenders.

In passing, an amusing tweak : when the government pays out interest on the National Debt to a UK taxpayer, they usually get some money back in income tax. Those with big balances of savings are often high tax payers, so as much as 40% of the interest comes straight back to the public purse.

Second point from Mr Know All from Question Time: money issuance.  The usual objection here is to say “I can’t issue money, sure. But if the government pays its debts by printing money, that will lead to inflation”.  This belief has withstood the trillions of pounds and dollars issued as ‘monetary easing’ to rescue the economy from the effects of 2008 Credit Crunch.  That did not cause inflation.  The Japanese government has run a deficit for years, and not suffered inflation or collapse in business confidence.  The billions issued to support the economy and society during the Covid 19 crisis won’t either.  On a minor point, the dine-out deal actually reduced inflation.  In the longer term, the causes of inflation are complex, but it is one issue that modern central banks and governments seem to have under control. Briefly, if more money was issued when the economy was booming, and there was full employment, prices would nudge upwards, but that isn’t the situation when Governments use the National Debt to support things during a recession.  Prices actually fell after the 1929 Crash: there was plenty of room for new spending, and no pressure on wages.  Same in 2008, same now.

Those interested in understanding where money comes from might wish to look into MMT (modern monetary theory), or they might not.  MMT enthusiasts say that government spending is not funded by taxes: spending comes first and creates the income that generates tax revenues.  Well, maybe.  The book you need to read is Stephanie Keaton’s “The Deficit Myth”.  What we can agree is that the process of actually finding money – whether from bond sales or money creation – is not currently a problem.

I said earlier that it might be prudent to ensure that interest payments do not get out of hand in the longer term, so resources can be targeted at genuine social goals.  The Economist looked at the topic of ‘how much public debt is too much’ in a brief talk you can catch here.  

The third question I asked of our saloon bar Socrates was about the economic effect of cutting back on spending in a slump.  The idea that this would help anyone is simply the opposite of the truth.  If you feel it’s important to reduce the National Debt, than the best way is to have a prosperous economy with a booming tax take.  That’s how a National Debt proportionately much higher than the current one (250% of GNP, not the current 100%) was reduced in the post-war period (plus a handy bit of inflation).  Reducing government spending and raising taxes during a recession works against this.  Cutting spending in a slump actually makes things worse, and postpones recovery: the great economist Keynes argued this after the 1929 slump – no-one listened – and then revealed his analysis in “The General Theory of Employment, Interest and Money” in 1936.  Cutting welfare, 1930s style, or raising taxes (as some nutters are currently recommending) would make things worse – like, as Simon Wren-Lewis observed, complaining the fire engine saving your home is using too much water.  Measures like that would also (ironically) make it more difficult to balance the budget, for only a recovery can do that: leaving in place the rising welfare payments and reduced tax income that apparently increase the deficit actually helps the recovery – for that reason, economists call them ‘automatic stabilisers’.  As the economy grows, the real size of the national debt – measured as a proportion of our national income – falls.  It was 200% of our income in 1945, and fell steadily to 30% by 2003.  It’s now 100% – a lower proportion of income than many people’s mortgages. 

Osborne’s austerity was not only unpleasant to the poor, its treadmill delayed the recovery in government finances two years later than predicted, and at the cost, according to the Financial Times, of higher waiting times in hospital, reduced local authority services, worse prison performance and much else. The way that austerity impacted most severely on public capital investment – better transport, IT links – caused additional damage that hampered growth.

And then, lastly, the social effects of cutting back on spending on our public services.  It wasn’t necessary to cut them in 2010, despite what the press and every faux serious commentator on TV said, but the coalition government did so with a will, talking as if the crisis of 2007/8 was due to over-high levels of public spending: the theory, as Alexei Sayle unforgettably put it, that the crisis was caused by having too many libraries in Wolverhampton.  The effect was bad.  We are learning now how damaging it was to reduce spending on health preparations. We are finding also that crime is rising.  Ministers cut technical education by 40%, and then bewail skills shortages.  Hospital waiting lists lengthen.  Poverty has been increased by pitiless reductions in welfare payments, already amongst the lowest in Europe.  Ministers needed the advice of a 22 year old footballer to face the obscenity of child hunger in the world’s sixth richest country. 

So, what now ?  As the economy recovers, the deficit will decline and disappear.  There may then be space to reduce the national debt with increasing tax revenues and reduced welfare needs, but for the moment I can’t see the point of that.  There’s a good debate on this between Jonathan Portes and Bill Mitchell in the Prospect article I spoke of earlier. They disagree about whether tax rises will be needed in the future, but are agreed to add them on now would be madness. We have a pandemic that will destroy jobs in many industries, and who knows what Brexit will do. We must keep demand high wherever we can. And even before the current crisis, we had problems that only a buoyant public purse can cure. Poverty is still endemic in Britain, and ambitious plans are needed to level up the economy, reskill the unemployed and move to a decarbonised economy.  Let’s solve the crisis, and pay the bill later.

Cads and bounders

Governments over the world have taken vigorous action to support companies against the damage caused by the Covid19 lock-down. UK Chancellor Rishi Sunak has promised to do “whatever it takes”, laying out a mix of tax breaks, employee subsidies (‘furloughing’) as well as grants and loans to business: the Guardian[1] reported the Office for Budget Responsibility’s estimate that the total cost will exceed £100bn, with furloughing alone coming to £60bn[2]. It’s now thought to be up to £200bn. These actions have received broad support from across the political spectrum, but there is controversy about some of the recipients.

TaxWatch UK has analysed the Bank of England’s list of 53 beneficiaries of business loans, and found that 13 companies – receiving 29% of the money – had links to offshore tax havens (including Chanel in the Cayman Islands or Wizzair in Jersey), or sweetheart locations like the Netherlands (where tractor manufacturer JCB is registered). JCB paid family shareholders a dividend of £75m in 2018[3]. The BBC reports that Tottenham Hotspur have secured a low interest loan of £175m, despite being owned by billionaire tax exile Joe Lewis[4].

The Times[5] reported that two of the biggest beneficiaries of Covid emergency funding paid no UK tax at all.  CNH, which owns the Iveco lorry firm, borrowed £600m; the giant German chemicals group BASF claimed £1bn. Both companies claimed credits from the taxpayer in recent years, rather than paying in.  Another claimant, Baker Hughes, is a subsidiary of General Electric which is contesting an HMRC claim of £1bn tax fraud. “The disclosures have raised questions over why overseas corporations and wealthy individuals have been given what is effectively state aid”[6].

All of which refers back to my March post – yes, that long ago – which said we shouldn’t give help to misbehaving companies.  This preserves my reputation as the Cassandra of the blogosphere – the one who gives good advice that is never listened to. Bit like my consultancy career …

[1]  Guardian 30 April 2020 [2] Financial Times 4 June 2020 [3] Times 5 June 2020 [4]  https://www.bbc.co.uk/sport/football/52924157  [5] Times 6 June 2020 p45 [6] Times 5 June 2020 p31

Thoughts about incorporation

Introduction

This is a post for specialists – those interested in the organisation of technical and further education colleges in England.  These colleges were separated from local government in 1993, and granted legal independence.  Now, 27 years later, the government is proposing to renationalise them.  A journalist rang me to get my views, as an old codger in this field, and published a thoughtful article in FE Week magazine.  Before we talked, I did some homework, and here are my notes.  I was Principal of two colleges – Parson Cross College in Sheffield (1988-92) and then Lambeth College in London (1992-2002) – and previously worked in colleges up and down the country.  My first college (Kidderminster) was the national leader in carpet weaving; my last (Lambeth) in dental technology, with all manner of wonders in between.  I worked at colleges that trained make-up artists for Granada tv, that won the Worshipful Company of Plaisterers annual prize. Both my daughters qualified through FE. I’m not just an FE nerd, I’m an FE enthusiast.

The 1988 Education Reform Act had established Local Management of Schools (LMS) and of colleges, which was a precursor to incorporation in the increase in autonomy for institutions. It seemed to me to neatly combine local management with democratic control.  When I went to London in 1992, I found that, unlike the rest of the country, they hadn’t undergone LMS/C (it was felt to be too much on top of the abolition of the ILEA) and the difference in management style was painful.  I think the examples of bizarre and silly LEA interventions given in the Guardian’s article of 2008 refers to this time, not the ERA years that preceded incorporation.  An example – I can remember when, after the Wapping printers’ strike,  our college library was forbidden to stock Rupert Murdoch titles.

Further education had been off the government radar for years – known always as “the Cinderella service”, and it’s interesting to consider why.  FE hacks would say “because MPs’ kids never go to FE”, but it may be as simple as being a sector they and civil servants didn’t understand. One researcher puts forward the interesting idea that most of industry had survived with labour that had been unskilled and the interest in FE came from a realisation that foreign competition was now at a much more sophisticated level (see German apprenticeship system). I think that’s an exaggeration – there had been reports since Victorian days about the way foreigners were catching us up, and Mechanics Institutes had been going since the 1830s – but no doubt the alarm bells rang louder in the 70s & 80s.

What happened

The 1988 Education Reform Act, as we’ve seen,  had considerably increased the autonomy of colleges (and schools, of course).  Then came the publication in May 1991 of “Education & Training for the 21st Century” by the (John Major) Conservative government, which transformed into the Further and Higher Education Act of 1992, which stipulated

  • Polytechnics would become universities with their own degree conferring powers (previously they’d depended on a quango called the CNAA). This ended the ‘binary system’ – polys & universities – established by Antony Crosland in 1965.  I had also, by coincidence, been present at his Woolwich speech, so was there at the establishment and demolition of the binary system.
  • Further education colleges[1] would gain legal independence as ‘corporations’ independent from local authorities. They would be run by their governing bodies.
  • Colleges took responsibility for their own strategic planning – recruitment and marketing, premises, procurement, staffing, budgets and financial strength. On the latter, one salty FEFC officer said that “incorporation without bankruptcy was like religion without hell”.
  • Funding of the new sector in each country would be administered by a Further Education Funding Council (FEFC(E) – based in Coventry).
  • The FEFC was not a planning body, just a funding body. Each college had to conclude a funding agreement, specifying its output targets for the coming year; it was penalised if it fell short.  However, it did establish an inspectorate which published reports on each college every four years.
  • A common funding system replaced lots of different LEA models, often based on historic cost (i.e. you got what you had last year plus inflation minus the cuts). As a result of LEA differences, the sector comprised of colleges with sharply different unit costs that the FEFC set about levelling under a process of ‘convergence’. You may imagine which college Principals thought this was a good idea, and which did not[2].  A league table of costs and achievement was published (bad taste !).
  • There was to be a strong incentive for growth in student numbers, but these were allocated by the FEFC at a lower cost than before, thus driving down unit costs.
  • Apprenticeship funding remained with the Training & Enterprise Councils, employer led bodies that were merged with the FEFC to make a Learning and Skills Council under the Blair government.

Why did it happen ?

There’s quite a good debate in the House of Lords launching the second reading in 1992 here, with government aims and opposition reservations. It’s striking to read such a calm and intelligent debate. Maybe it’s because it’s the Lords, maybe just how politics was back then. The context was Thatcherite – distrust of local government as politicised bunglers, feeling that independent institutions would do better freed of bureaucratic fetters and driven to meet market/consumer need by competitive forces[3].  John Major held a reception for college Principals and Governors in the QE2 Conference Centre, getting up on his soap box to ask us all “Isn’t it great to be free ?”.  Overt arguments were

  • Build on the success of the polytechnics, which had expanded student numbers and reduced costs after removal from LEA control
  • Moving on from Baker’s Education Reform Act of 1988 to the next step of college autonomy
  • Need to increase participation in post 16 education. It had grown from 41% in 1980 to 60% in 1991, but plainly needed to go farther. This would be achieved by “powerful financial incentives to recruit additional students” (HoL debate)
  • Need for more skills to meet labour market and student demand (not always the same thing !). There had been moves in this direction already in response to a number of reports on skills shortages and the UK shortage of qualified technicians – TVEI in schools, the TECs to run employer based courses. Indeed, the chapter in Lord Young[4]’s autobiography telling of their introduction is titled of “A Dawn Raid On Education”.
  • Desire to raise quality, and introduce a new qualification framework. The White Paper was big on this, wanting to establish broad 16+ diplomas, a broader GNVQ, and full coverage of industry by the NVQ system. Like most such attempts it was a mess, and still is 38 years on. Think of T levels and cry. The power of the awarding bodies still remains, a system that I think no other advanced nation has chosen.
  • Cynical footnote – incorporation was also extremely convenient after the Poll Tax debacle, with central government keen to get lumps of spending off local government books (and local ratepayer bills). Baroness Blackstone makes this point in the Lords debate.

The results

Difficult to always separate out factors from a number of directions – for example, the coming of academies, the growth of the new universities and (latterly) the malign influence of austerity, which hit FE particularly hard (harder, I think, than any other sector of education). My views:

  • There was substantial increase in managerial autonomy, and this was on the whole a good thing (it’s rather exaggerated in the FE Week “Twenty Years celebrating incorporation” sheet, in my view, which depicts incorporation a bit like VE Day). But efficiency and flexibility improved sharply, and you only had to visit college premises to see the step change.  A management training programme was launched, and Principals had to pass their exams, much like senior police officers or football managers. Improved management information yielded information on (eg) wastage that could identify problems and target action.. I favoured strong links with local government, but much of what was said about it was true,
  • A major change came in staffing, where the power of unions was dramatically reduced. I had five strikes during my first year at Lambeth, often called just to show me who was in charge.  Until incorporation, staff contracts were enshrined (the word is not too strong) in what was called The Silver Book, which laid down inflexible staffing levels and grades. The colleges were told by the DfE to issue new and more flexible contracts – indeed, it became a condition of funding – which led to abrasive industrial relations. One year, I believe, FE was the largest source of days lost to strikes in England. The scars still lie deep, especially as the gig economy with poorly paid and insecure part-time teaching has come to FE.
  • Student volumes increased in response to the funding incentives. Some of this was iffy – for example, buying in extra students from private trainers under franchising arrangements, but much wasn’t. However, the race for volumes caused great difficulties for some colleges.
  • Quality increased sharply, particularly with the coming of a Labour government less committed to reducing unit cost and more into opportunity and progression. David Blunkett made a pact with the sector – he would deliver the funding as long as the colleges could deliver the outcomes.  His junior minister Margaret Hodge was pretty fierce about this, using the failure and drop-out rates in the sector to illustrate the unsatisfactory chances of success. The CEO of the FEFC – John Harwood – chimed in with a controversial interview on radio to the same effect.  It wasn’t comfortable, but success rates improved markedly, partly as a result of the ‘Success For All’ initiative which engaged the sector with good practice, staff training and lively learning materials. Inspection was also a push factor, as were league tables (though they could be subject to methodological objections).
  • One of the main improvements was in student services. Student surveys entered the FE world. Marketing presented the colleges with smart publicity and lively corporate images.  The Kennedy Report encouraged the sector to better meet the needs of disadvantaged learners.
  • The FEFC administered the system efficiently, if a little officiously, with a stream of Circulars specifying how student information was to be collected and how plans were to be submitted, which funds were available if you submitted successful bids for modest projects.  Some Principals had their own views on how much ‘freedom’ this represented.  The CEO, Sir William Stubbs is still around, as is his successor Sir David Melville (who’s on Twitter).
  • The withering of local collaboration was an undoubted negative. The 1992 analogy with polytechnics was false – they were national institutions, whereas colleges had grown to meet local need.  Tertiary systems – where colleges offered comprehensive post 16 opportunities, mixing academic, vocational and adult learners in a way that improved guidance and reduced costs – fell apart as schools opened sixth forms and LEAs separated their adult services. Schools often denied their pupils knowledge of 16+ alternatives, until eventually the Dept had to insist it was included in inspection reports.
  • I don’t think the employer links or in-demand skills were fostered as was hoped at the start of incorporation, for a whole raft of reasons. One of which was the funding system – if you could get more cash by expanding FEFC/LSC funded programmes, why market employer funded work ? The other fact is – brutally – students are attracted to occupations that pay well, not some patriotic idea that the nation needs engineers not hairdressers.

[1] Including sixth form colleges, which was curious, as these were effectively the sixth forms of local 11-16 schools. Rumour/anecdote has it that the Minister was asked if all colleges, including 6fc, would become independent, and he said “Yes, all of them” to the obvious chagrin of accompanying civil servants.

[2] The well-funded colleges included some that were simply inefficient, but also those working for generous Labour authorities in tough urban environments. Measures aimed at trimming the former often hit the latter

[3] It was part of the New Public Management idea – arm’s length bodies, tasked with clear goals, transparent funding etc.

[4] Lord Young was a former businessman who Thatcher valued for his can-do attitude.  He launched YTS at the height of 80s youth unemployment, for example.  “Others bring me problems, David brings me solutions” she once famously said.

Viruses and multipliers

This is me playing with the Covid figures.  Warning – I’m not an epidemiologist, gave up Maths at age 16, and stopped teaching economics in 1983.  For those reasons, and the simple hunt for truth, all and any corrections will be gratefully received and acknowledged.

So, to business. The Prime Minister’s recent speech – predicted by an enthusiastic press to herald the end of lock-down in the UK – turned out to be a damp squib – a well presented damp squib, indeed, but still a quiet phut. There’s plenty of comment about the proposals – mostly asking what precisely the proposals are – but I’ve got into a minor debate about the calculation of the alert level.  The speech was illustrated by PowerPoint slides – politicians have, after thirty years, caught up with the rest of the world – and one of them was this:

Image

A worked example follows.  Let’s assume the rate of infection is .9 (we’re told it is just under one).  This means that, on average, an infected person will pass on the virus to .9 other people. Let’s also say that 200,000 people are known to be infected. This would make an alert level of 200,000.9, using that diagram. A dramatic halving of the infection rate would take it to 200,000.45, which is no difference at all.  In fact, it’s plain daft.  What I suspect they mean is that the alert level is determined by two factors – the government’s judgement of the number of people carrying the disease and the rate of re-infection.  That’s at least logical, but not very objective.

But initially, I played with the equation as if it really were an equation, and asked how could it become something useful and sensible. Let’s change the plus sign to a times sign – and for brevity, change ‘number of infections’ to n.  What could we get from

R x n ?

Well, it would be the number of people who are going to be infected by the current bunch of infected people. 200,000 x .9 = 180,000 in real money.  Going forward, we have now to distinguish between the currently infected, and the next lot of infected – let’s call them n1 and n2. Which leaves us with

R x n1 = n2

Now, the newly infected will also pass the virus on – let’s assume also at a rate of .9 people per person.  In this iteration, R x n2 = n3, the next lot of unfortunates – 162,000 of them. So how many people will suffer from Covid19 in the UK in total ? Well, it’ll be n1 + n2 + n3 + n4 … and so on.  This series will be familiar to those who have studied basic economics – it’s the multiplier effect. When business or government spend £100m on a new project, the national income will initially go up £100m, but those who receive that money will spend it, having saved some, and those who receive that second round of spending will spend their portion, having saved some.  That process, too, goes on: it will peter out in the end, but when that will happen will depend on people’s propensity to save[1]. If we save 10% of our income, then the final effect is ten times the first injection. If we save 25%, it’s just four times as much.

So, coming back to the Covid example: how many people will get the bug if there are 200,000 currently infected, and R is .9 ?  The answer is not 180,000, but many more, because of the virus multiplier.  It’s a simple progression, and if R is .9, it comes to 10, I’m afraid to say.  It adds up to a total of 2 million; every currently infected person starts a chain that leads to ten other infections. On the positive side, many will get a mild dose and shake it off quickly; it’s likely that plenty of people have done that already without knowing.  On the negative side, many won’t, especially fat old men like me.  And remember, the one thing all sides are agreed on is that we don’t actually know how many people are infected, and the current number is a considerable underestimate. If we have twice as many carriers, then there will be 4 million infections, and if the death rate is 1%, 40,000 will die. 

(Footnote: as I write, 223,000 people have tested positive and 32,000 have died. You can’t really say this means there is a 14% death rate, due to the uncounted positives in the community.  In any case, for individuals, death rates are strongly age related. There are also the Covid deaths not counted as Covid related, which is why epidemiologists are looking at ‘surplus deaths’ as the best measure of death numbers).

 

 

 

[1] In the real world, leakages from the process also include taxation (which is why additional government spending £100 doesn’t cost them £100) and spending on imports. Taxation is about 35% of GNP, and imports also over 30%.  Thus, the real multiplier is not 9 but 2 or less.

I thought this was a complication not relevant to a comparison of the economic and infection multipliers, but, on reflection, it is.  Just as we import goods, we import people. They are the source of additional foreign infections which complicate the calculation – and policy.  Several countries that have got on top of things have had to take action against new outbreaks from outside.  This is relevant to the UK, where the government and its advisers initially took a laissez-faire attitude to entrants. The Guardian tells us that 95.000 have entered the country since the emergency started, and that will provide new sources of infection. If 5% have Covid19, then an additional 47,500 people will get the disease (based on 95,000 x 1/1-.9).

They never would be missed

My last blog said “I’ve got a little list” of people who are behaving badly in the great infection. This is a reference, of course to the comic song from Gilbert & Sullivan’s “The Mikado”. Despite its brilliance (“The idiot who praises with enthusiastic tone, every century but this and every country but his own”) the original wouldn’t pass today – there’s a line about ‘banjo players and others of their race’ – but that was 1885.   YouTube provides a rich seam of modern day versions – from ENO with digs at Jeremy Clarkson and David Cameron to Eric Idle’s take in Australia.  “Bishops who don’t believe in God and Chief Constables that do” – wonderful.  The adaptations reflect the obsessions of the day, which are all less pressing than what’s going on out there as I write.  Still, it’s a verse form that can be turned to today’s awfulness, and here’s my go: as ever, any additions or changes gratefully received.

As someday it must happen that a victim must be found
I’ve got a little list, I’ve got a little list
of society offenders who might well be underground
and who never would be missed, never would be missed

There’s the policy assistant who writes Johnson’s every word
and thinks he’s cool as icebergs if he dresses like a nerd.
He tells the world we’re better if we’re treated like a herd.
I’ve got him on my list, I’ve got him on my list

And the Brexitty and Wetherspoony CEO and boss –
as long as we keep swigging beer, he doesn’t give a toss
He’d surely be no loss, absolutely no loss

Like the airline owner pleading for the government to pay
as soon as he can get his profit payment out the way.
And the tracksuit vending millionaire who opens up his shop
when he should have listened carefully to the words of Jürgen Klopp

There’s a failing politician who drones on about the Blitz
He gets right on my tits, just who elects these twits ?
And the eejits buying flowers in Columbia Rd today
who took the time to fill the car with bog-roll on the way
I’ve got them on my list, they’re right there on my list
And they’d really not be missed, they’d none of them be missed

Going viral

I am not an expert on corona virus.  In that I am not alone. There are many non-experts on the internet, but in my defence I have not yet retweeted information received from a friend whose uncle once met a medical student, and who has the key to the problem. There seem to be two lots of serious experts – epidemiologists, who are essentially statisticians who know how things spread, and virologists, who understand how the nasty little buggers behave. We need them both, and they are full of interesting but worrying information.  My nephew, a professor in this field, says that Corona is very unpleasant.  Another virologist, said it was a tiny bit of protein surrounded by thoroughly bad news, and, rather like a security expert paying tribute to the courage of terrorists, expressed grudging admiration at its ability to spread and cause damage.

I will do what sensible people say, which is keep myself to myself (with my lovely wife, with whom there is no-one better to self-isolate).  Like, I am sure, many people of my age – I’m 75 next week – I baulked at the description “elderly”.  I have no pre-existing conditions (if knees don’t count), walk in the Peak District, play golf and go to the gym reasonably regularly.  Heavens, I actually have a personal trainer.  However, I had that first look in the mirror in the morning today, and I understood where they were coming from.  Hunky has become crumpled, sadly, and some years ago, just about when incisive became grumpy.  And the facts of differential death rates can’t be gainsaid.  Psalm 90 gives us three score years and ten, and I’m already overdrawn on that account.

Which all creates a challenge (the modern cant word for ‘problem’) for the occasional blogger.  What more can be said about our crisis ?  The prospect is dreadful, and there is little to do but endure.  Media, stripped of sport and entertainment to cover, go over the same ground day after day. The government announcements can be criticised, but all go in one direction, and schools will soon shut for Easter.  It will be awful, but it will be over – maybe in a long time, but sometime.  And when it is diminishing, we will be told that ‘lessons have been learned’.

Which is where I come in.  What can we learn from the current crisis ? I think there are a number of things, which need to be considered by an independent major enquiry – a Royal Commission or some such – when the main emergency has passed.  Lessons, indeed, must be learned, and here is my list.  Others have started to add their two-pennyworth on lessons learned – here’s Polly Toynbee.  I reserve the right to add to my bit as we march in lockstep down the Via Dolorosa:

  • Outstandingly, we have discovered that austerity was a nonsense, and there is plenty of money when need arises. Corbyn’s reply to the recent budget speech was the most pallid and empty response I have ever seen from an Opposition leader, but even he could point that out.  We need to spend now to avoid an economic implosion.  In fact, we’ve needed to spend for years, to maintain the quality of our public services, especially for the vulnerable.  We’ve been told for years that there is no magic money tree, that the budget deficit or national debt is the most pressing political issue, as the police and health services and social security wither under the ‘tough choices’ that the millionaires and billionaires in government make.  Any plan to help our social services or public facilities would cause economic ruin, turn us into Venezuela or North Korea.
    Now we find the truth.  The deficit didn’t matter much, or at all – certainly not when counted against the losses from ten year’s recession, or a global pandemic.  Macron can release E300bn and promise no firm will go under.  Johnson can borrow 20% of the GDP.  Trump can find a tsunami of dollars to help the Stock Market, to add to the tax cuts for the rich. Nurse numbers can be magically expanded.  Hospitals built in two weeks, and health trust deficits eliminated.  London’s homeless can be taken from the street and housed in two weeks.  There was never any problem with any of this, and those who have spent ten years vandalising our public life by saying there was, need to hide in shame. The danger is that they won’t. They will say that we need further cuts in welfare to pay back the cost of the outbreak. For shame, for shame.
  • Support needs to help the poorest first.  15% of Britons have no savings, and a third have less than £1500.  Many work in what we have now discovered are vital jobs – care homes, cleaners, delivery drivers, checkout operators and shelf stackers, food process workers.  They will be able to keep working, we hope.  Others, many others, will lose jobs, particularly in travel and hospitality.  Give them the money, and not through impenetrable regulation filled benefit ‘entitlements’.  MPs looking for a cheap shot at the moment ask their opponents whether they could live on £94 a week.  What they should be doing is putting forward a revised tariff of welfare benefits – maybe even a move to Basic Income ideas – so that we are no longer the Scrooge of Europe.  A strong welfare state is important not just for supporting the poor, which it must, and better, but also in keeping spending up to help business.
  • Of course we must also maintain the structure for a healthy economy, and that will mean working with the corporate world, but airlines and banks have well paid, smooth people who can argue their case. Help for them must be conditional on good behaviour – pay taxes here (as the Danes insist), link executive pay to average wages, invest in innovation and training, no zero hours or gig economy nonsense, no unpaid interns, get women and workers on the board, and give us, the public, shares for our help, not an IOU. There have been stern words on dividends and executive salaries, but overall it looks increasingly as if this was an opportunity missed.
  • Small business will not be helped by soft loans.  Any accountant can tell you that borrowing to cover lost business is not a good idea.  Grants are the way to go. They can be clawed back in next year’s tax return if it turns out they weren’t needed.
  • We must learn that we cannot run public services constantly at full capacity and minimum cost.  It is striking to hear a historian on a documentary about the Black Death talk about our lack of ‘surge capacity’ to cope with a contemporary outbreak.  Hospitals must have spare beds, schools & colleges spare places.  Police can’t be cut back without affecting our sense of security and safety.  Social care for the elderly should not be subject to minimum wage workers on fragile contracts.  Staffing levels cannot be endlessly run at 100% utilisation.
    Interestingly, this debate has recently entered the private sector.  “Just-in-time” manufacturing processes that minimise financing of stocks is skating on thin ice, especially when those stocks are on a plane from Turkey or a container ship from the Far East. Passing risk to contract staff and the gig economy makes recovery harder.
  • Local government is important when things have to be held together. Of course they can be annoying and inefficient, but they are where the buck stops.  Family members who work in that area have struggled for years against budget cuts as they try to deal with troubled children, families without housing, flooded high streets, tough school catchments, choked traffic and despoiled environments. The budget cuts of the past ten years have been shameful, and even the faltering steps to restore local spending are under the control of the Treasury, not locally responsible councillors. Just treating them a bit better won’t be enough, and asking them to put in a bid that might please central government in a month’s time is just an insult. A national effort to rebuild local government, to engage them as partners in rebuilding disadvantaged areas, is essential.
  • International cooperation is essential. I’ve banged on about Brexit long enough, but this is plainly not the time to leave European disease control organisations.  And as for refusing to take part in procurement of medical supplies and ventilators, words fail me*.  Anyone who tells me ‘we survived the Blitz’ – no, you bloody didn’t, and bombs aren’t infectious. We noted during the Brexit debate that fish know no borders, and neither do terrorists, and neither does pollution. We are discovering that viruses don’t either.
    However, it may be time to look at globalisation – generally a positive factor in raising the world’s prosperity and pulling emergent economies forward. We need to recognise, though, that cheap isn’t always best.  It isn’t sensible to depend on long international supply chains for medical supplies, and it is worthwhile having local networks which give security at the cost of a few pence.  Look back in history – the support for agriculture came as a result of discovering, in 1939, how dependent we were on food from abroad.  Watches carried heavy import taxes because an industrial and military country needs skilled instrument makers.  I remember talking to a guy who worked for a US car company – Jeep – who complained of the difficulty of fixing problems when an inexpensive component was being sourced from South Korea rather than down the road.  Interesting that President Macron has come to a similar view, and even Boris Johnson wants advanced non-Chinese countries to get together to coordinate industry. Four months after leaving a grouping of advanced industrial nations.
  • There should be a school curriculum that can be studied at home, on-line, full of interesting material and stimulating lessons.  Much of it exists already, but its dissipated all over the place. We have a national curriculum, and a common approach would help teachers, help home educators, help kids who miss school for whatever reason (in my case, a motorbike smash).  If we’re worried about people missing out on education (it happens, Covid or not), then don’t cut adult and further education, the second-chance studies that so many have benefited from.  Footnote: problems with awarding GCSE and “A” level grades in a lock-down would be much reduced if we had course-work – you remember course-work, that thing that Gove and Cummings abolished.
  • And, to lower the tone of it all, let’s take a terrible revenge on those who have behaved badly.  In the words of W. S. Gilbert “I’ve got a little list”.  Richard Branson making staff take leave without pay despite his £4bn fortune, Britannia Hotels evicting staff at a day’s notice, Jhoots Pharmacy with its £20 Cal-pol, Tim “keep the pubs open” Martin, Easyjet paying millions in dividends whilst claiming taxpayer help, Philip Green with his offshore dividends and underfunded pensions likewise, and the rest. We can’t catch the little panic buyers, but we can boycott the big offenders. Please add to the list. This is not totally negative – many businesses have behaved well – Primark and John Lewis turning down government aid they didn’t need – and I’m glad people are noting them down too.

Lastly, I am flabbergasted that the government – and I guess this means any government – did not have a detailed plan for dealing with this situation, a pre-planned response that can be smoothly swung into action. We should not be having to think up ways to help minimise deaths and transmission, maintain incomes, control panic buying, resource health care, support schools and all the 1001 other details, off the cuff**.  The current crisis is unprecedented, but not unpredicted.  It looks a lot like bio-terrorism (I’m not suggesting it is, but the effects are similar). Did we truly have no plan for that ? If we didn’t, we need to make the construction of one an urgent priority for the post-Corona world, with the perils – nuclear breakdown, antibiotic resistance***, climate change – that we know face us.

*actually, they fail the government, which now says it didn’t get the message, or did get it and didn’t understand it.

** later addition – it is equally shocking that the ending of lock-down seems to have been thought up over a few days, rather than planned ahead.  Even if there had been no planning before the outbreak, the government had seven weeks to sort things out. They ended up not knowing on Sunday whether lock-down was ending on Monday or Wednesday.

***we’re looking for a trade deal with the only advanced country in the world that allows farmers to fatten livestock with antibiotics.

Footnote (9th June): Reading this back after a couple of months, the obvious lack is any reference to the disproportionate effect of the disease on people from a black or other ethnic minority background.  That’s because we didn’t know about it at the time. Even as I write, we don’t know why this effect is so striking.  The two possibilities are (a) it relates to biological differences (like sickle cell anaemia – which particularly affects African or Afro-Caribbean people, or diabetes – six times more likely in those of South Asia descent) or (b) social factors – income, living conditions, employment, health care quality.  My money’s on (b), for what its worth.  What can I say except we need to find out and sort it.

Escaping responsibility

(This was written before the Corona virus fully struck.  That will have the effect of totally masking the economic effects of Brexit, but my point remains, indeed is more important.  Now is not the time to be vandalising our international trade relationships and imperilling our companies.  I truly hope those Brexiteers who said they were prepared to eat grass in the quest for real independence don’t have to).

 

The storm of the Brexit debate has passed.  From the leaver side, there is a desire to ‘move on’, for everyone to be friends again as long as they enthusiastically support their policies.  This is unlikely to be successful.  Remainers came to their views, after all, because they believed that remaining in the EU was the best choice for the prosperity and development of the UK.  There’s no reason to change your mind just because others disagree: as Keynes once enquired when asked to fall in line on another issue – “You mean, because they won’t listen to sense, you want me to talk nonsense ?”.  Of course, there are different views within those that voted to stay.  On one wing, some people were exaggeratedly enthusiastic followers, praising the EU for preserving peace – no, that was NATO – or who feeling that all EU policies were beyond criticism, or believing that EU policy was made by the European Parliament, and so on.  Most, I guess (and I include me) were not at that extreme: just people who felt that, for all its faults, the EU offered the safest prospect for the future of the country.  Both groups on the Remainer side, however, expect that Brexit will not turn out well.  There are already indications of slower growth, or companies shifting plants and finding trade barriers to be, well, barriers.

This has created a sense of schadenfreude, a feeling that public opinion will turn against the Brexit decision as the adverse effects become ever more evident.  The Leaver side are crowing at the moment that there are no lorry jams at Dover, no shortage of medicines or problems in the food chain. It’s true that nothing has substantively changed, apart from Anne Widdicombe and Nigel Farage losing their pay as MEPs (the only consequence that is an unmistakeable plus).  However, we are in a transition period.  Just wait.  Economic growth will stall (by 5% according to the Treasury), prices will rise, government receipts will slow, our overseas links will become fewer and more difficult.  Michael Gove is already telling us that his assurances of friction free trade are not going to be secured.   Cock-ups will happen, often unexpectedly.  The day-to-day advantages of EU membership – cheaper mobile phones, light travel controls, common health entitlements, no pet passports and so on – will slip away.  And when that happens, we are assured, the populace will realise they were conned and will rise against their oppressors.

Sadly, they won’t.  Don’t get me wrong.  The Brexiteers were not right.  The country will be less prosperous than it would have been under EU membership, because of trade disruptions.  Companies will move activity elsewhere, and invest less in the UK.  This will lead to a reduction in the resources available for wages, or for government services.  Money will be wasted in border bureaucracy.  In addition, though less important in the bigger picture, the common inconveniences will be a pain.  It’s already happening, as this recent – hilarious and not parody- tweets  shows.  Friends on holiday in Spain report that husband (Irish passport) is getting easier admission to tourist sites than wife (English passport).  Attitudes to foreigners, to refugees and migrants will be sourer.  The people returned to power by the 2019 election will take miserable decisions, like refusing child refugees.

My reservation is that the bad things will not be blamed on Brexit, for four big reasons.  First of all, because it is extremely difficult to attribute reductions in GDP growth to specific causes, and even more difficult to link individual or family prosperity to changes in the trend growth of national income.  A recent example: austerity is acknowledged by most economists to have reduced the nation’s living standards.  The Resolution Foundation’s estimate, quoted by the BBC, is that the average wage earner is £141 a week worse off than they would have been had growth continued at its pre-2008 rate.  But few lay people have noticed that their family is £1,000 a year down; even fewer that it was conscious government policy that caused them to miss an annual rise, to lack a promotion opportunity.

What’s more,  when Brexit-related problems arise, we’ll be told – and many will believe – that they have other causes, or none. The coronavirus will become the sole cause of slower GDP growth, and in no way associated with the idiocy of tearing up trading relationships just as a worldwide recession hits.  It will turn out, as now, that falling motor jobs are due to a world recession, or the decline in diesel cars.  Lack of nurses or fruit pickers will be attributed to the idleness of the young and social security claimants.  Transport difficulties will be due to companies failing to plan ahead.  Governments have always been good at evading responsibility.  Oldsters like me will recall when the trebling of unemployment from 1979-81 was due to world factors, not Thatcherism (though the later recovery was due to Thatcherism, not world factors).

Secondly, even if they had noticed that Brexit is costing us an arm and a leg, we’ll be told it will be a price worth paying for our independence.  In reality, of course, we have less control and less independence outside the bodies that make the decisions and set the standards about international matters, but even if they saw that, it would make no odds.  It’s almost as if a damaging policy, like a nasty medicine, must be doing us good.  There is a masochism in the voter that is hard to eradicate.  Again, remember austerity – the idea that we had to put up with pain to pay for debt, a notion which had few expert supporters at the time, and which has lost such academic support as it had, yet still carries extraordinary weight with the voter.  The cuts they voted for have led to more deaths amongst the poor, to catastrophic floods.  Nevertheless, it seems, it was a price worth paying.  It’ll be the same with Brexit.

Thirdly, confirmation bias.  Once they have taken a stance, people reject evidence that they got it wrong, and snatch at straws that might say they got it right.  They rarely change their mind; to do so is seen as a sign of weakness rather than rationality.  Some leavers have switched, but pitifully few, given the obvious problems, costs, risks and inconveniences of Brexit.

Lastly, and supporting that, any bad things that do happen, and are obviously linked to Brexit, will be the fault of the wicked EU, not any inherent flaws in the leaver argument.  Those assurances that we’ll be able to stay in the single market will have been frustrated because the EU is being needlessly restrictive in its negotiating stance.  Why else can’t we stay in the single market without obeying the rules of the single market, obdurate foreigners, that’s why.  Dominic Raab has already told us that is the explanation.  All the more reason to have nothing to do with foreigners and their machinations.  And, tell you what, problems are also the fault of the Remainers.  If only they’d accepted Theresa May’s deal, none of this would be happening. Don’t laugh, that’s already doing the rounds.  Yes, that’s it, the problems found in leaving the EU are not due to the ERG’s intransigence, but down to those who told us not to leave the EU.

And voters have short memories.  Three years after Suez, the previous holder of the UK’s Worst Foreign Policy Decision, the Tories romped home in a massive win.  So, as ever, the guilty will be exonerated and the innocent will be punished.  ‘Twas ever, sadly, thus.

The right course

One dispiriting aspect of writing a blog is how you find yourself criticising ideas that you thought were dead and buried.  I’d love to spend my time with positive and lively explanations of stuff I’m in favour of, but … but … but.  Just this July, I found myself having to explain why the Laffer Curve is such tosh.  And before that, in June, why funding education on results – and especially funding vocational training on employability success – is unwise.  And then in March, pushing back that public policy version of false memory syndrome suffered by those who drone about how Britain stood alone in 1940 (or that you can make sensible decisions on today’s world based on what happened in a war 75 years ago, even if you understood it).  Riffle back through my oeuvre, and you’ll find essays facing up to nonsense about the wonders of grammar schools, or the common sense of austerity.  What these ideas have in common is not just that they’re wrong, but that they will not die.  You think that no-one can believe this nonsense any more (austerity was knocked on the head by Keynes in bloody 1936, for heaven’s sake) but they keep coming back, like the zombie at the end of the horror movie that arises from the swamp just as you think it has been consigned to the depths of the black lake forever. (Since writing this piece, I’ve learned that Paul Krugman’s latest book, on austerity, is called ‘Arguing With Zombies’).

I’m an old further education hack, and so try to keep in touch with the ideas of those in charge of our post-16 system.  Some commentators think we live in a time of some hope.  After years of cuts – 40% since 2010, according to one estimate – FE is beginning to get mentioned in government education briefings and House of Commons debates.  However, alongside this welcome concern is an unwelcome zombie from the lake – the idea that we must determine what sort of courses students are allowed to study in our technical colleges.  Too much media studies, not enough engineering is the usual cry.  Just yesterday it came from the head of Ofsted.  A few days before, Twitter (@FEweek – a reliable source) reported on the keenness of bureaucrats to tell colleges what courses they should run, and which ones they shouldn’t – choices backed by the budgetary power they hold over the poor bloody infantry in the colleges and training companies actually doing the job.  The argument is that colleges should concentrate on running courses for which there are good employment outcomes and waiting vacancies.

Sounds really sensible, doesn’t it.  A recent article pointed out that there is a mismatch between the numbers doing particular courses, and the numbers of likely jobs in the economy when they leave.  15% of youngsters want to work in entertainment and sport, a sector that provides just 3% of jobs.  By contrast, accommodation and catering need almost seven times as many workers as there are students expressing an interest. But before we run off with this policy, let’s look at the reservations:

  • The delivery of the policy seems a bit foggy. Let’s be clear of the difficulty here: the proposal is that colleges should stop running courses students want to study, and instead offer courses people currently do not want to take.  This depends on persuading someone who wants to be a sports journalist, or a beauty therapist, to do something entirely different (the usual candidate is engineering).   You may have a different experience of persuading teenagers – or even adults – that they can’t do what they want than I have had, but I think success here is unlikely.  Blaming colleges for the situation – as some have done – is weird.  Believe me, they do not throw applicants on the floor and slap them around to change their desire to be a mechanic into a sullen acceptance of hairdressing.  They provide what customers want.  And as budgets are dependent on recruitment, if they didn’t, they’d soon go bankrupt.
  • Some of the debate seems to follow strange ideas about what is a ‘proper job’. I sat through a conference speech whilst an education minister said there was too much media studies and not enough engineering. I was Principal of Lambeth College. The Post Office had just shut down its last factory and apprenticeship scheme in the area.  However, the National Theatre, Brixton Academy, London Weekend Television, the second biggest training video company in the UK, the National Film Theatre (etc etc) were providing our students with entry level jobs.  Media provides a chunk of GNP, more so than the fishers and farmers Brexiters weep for.  It’s almost as if doing a lively job you enjoy is some betrayal of the our economic future.
  • Young people are preparing for a working career that stretches ever longer as life expectancy increases. We need to prepare them for the next forty years, which suggests maintaining a good general education rather than an ever limited number of training choices.  I would argue that media studies is an important part of such a general education.  We live in a world of fake news, where much of the information is filtered by newspapers owned by rich tax exiles, where the internet berates “MSM” whilst being even less accurate.  Even vocational courses need a generalist flavour. Volkswagen once found that, ten years in, technical change meant that those who had taken its apprenticeships no longer used most of what they learned. Nor do we want nurses or doctors wedded to twenty year old practice. We need courses that build study and research skills, and well-funded continuing education. (Note: as a result of austerity, participation in, and spending on adult and continuing education has fallen sharply in recent years).The allegedly fancy-dan courses that Ministers and civil servants decry can provide the skills we need.  Look at higher education.  Historians and classicists go into accounting.  William Hague did PPE and then worked as a management consultant.  The same applies in the FE sector.  As one Twitter correspondent wrote: “I’ve got an A level in dance – did I think it was going to lead to a glitzy career on stage? No. I did it because I loved it, it allowed me to be creative, gave me bags of confidence, and as a bonus, I made friends for life.”
  • How sure are we that we know what jobs will be around in ten, twenty, thirty years ? The Chief of the Association of Colleges said recently “I’m sceptical about anyone who believes they can determine what courses are needed to make the labour market more efficient”, and he’s right to be sceptical. My son-in-law joined the cutlery industry when he left school – an industry in which Sheffield was a world leader. He, er, no longer works in that trade.   There have been mistakes in predicted jobs.  In the sixties and seventies, students in computing were told to leave software development alone and concentrate on hardware design.  Nowadays, almost all devices are made in the Far East, and the cost of computing capacity falls every year.  On the other hand, western economies have lively companies based around making the digital economy work. My stepson runs one.  (Personal confession on job prediction: I remember dissuading a young woman from working towards a career as a footballer.  Women’s professional sport – what could be so ridiculous ?)
  • The proposal seems out of kilter with the desire to have a market economy. In fact, it’s pretty Stalinist.  Markets are supposed to work not via administrative fiats, but via signals – mostly price signals.  The way to get more engineers (or catering workers, care workers or hospitality sector employees) is for employers to offer higher wages and more interesting jobs.  The fact that they haven’t done so over the past fifty years suggests that that enthusiasm for those sectors is stronger in ministers’ hearts than in the guts of the labour market.  A personal note: I remember visiting Leeds College Of Building during enrolment week, just as the stories about plumbers earning fortunes hit the press.  There were queues literally round the block. Price signals work.  A famous economist once said that the principles of economics amount to one thing – if you give people incentives, they will use them.   Give them the wages and they will come.
  • Oh, and finally – have you noticed how this proposal is restricted to students at further education colleges. It is not intended to extend it to universities.  If Jessica and Ollie want to study History of Art (like Kate and William), or Classical Literature (like Boris Johnson), well, that’s OK.  The proportion of art historians or classicists required in the labour force is not mentioned.  For that cohort – still, despite recent progress overwhelmingly middle and upper class – will continue to enjoy freedom of choice, despite the argument being pretty much the same.

None of which suggests we should do nothing.  We don’t want students leaving college to find there is no call for their skills.  Nor do we want the demand for courses to be led by crazes and fashion. There was a boom in forensic science when CSI and similar TV programmes became popular.  “Ally McBeal” encouraged more people than was sensible to want a lawyer’s life.  Jamie Oliver briefly made it cool to be a celebrity chef.  So, what to do ?  Well the obvious place to start is the demand side, not the supply side.  Don’t forbid providers from offering what people want, make people’s choices better informed.  This implies a bigger role for careers education.  Much more information, much more discussion and interviews are needed, with a well-funded, expert and sustained (and, please, not out-sourced) service in every education area.  It should include aptitude tests, work placements, and should include adults as well as teenagers.  Detailed and accurate information on earnings and vacancies would be useful too.  They have this service in Germany, where there is much less of a mismatch than in the UK.

The other need is for a well-funded and organised continuing education service.  Jobs will change, and so will people.  It would be worth avoiding failed past attempts, such as the loans for adults that were an expensive cock-up under Blair.  There’s a case for splitting of costs, with subsidised fees – but not via privatised credit farming.  The House of Commons auditors discovered that more than a third of the £300m cost was lost in fraud.  And don’t “put employers at the heart” of the project.  When I taught evening classes, few of my students wanted to improve skills for their current employer.  They were seeking a way to promotion, or a different industry altogether, and that isn’t what employers would support.  Let employers pay for their own training, not the taxpayer.  But let’s not leave adults adrift – establishing an entitlement to counselling and learning, linked to previous education and the employment service, would be an important component.

But there is, to finish, a point about choice and liberty.  If someone wants to train as an actor, dancer or journalist, in the full knowledge that the rewards are low and jobs rare, let them. A lifetime of regret, of if-onlys and what-ifs, is rarely happy.

Laffing all the way

It’s pretty difficult to pick on one of the many dishonesties that flew around the Tory leadership campaign. The more idiotic concerned EU Brexit – a bad idea made much worse by the layers of lies laid across it.  But an old friend raised his head, with that appealing combination – ideology pretending to be science. The bloody Laffer curve, now called ‘boosterism’: Boris Johnson thinks his proposed tax cuts won’t reduce government receipts. He says it, and Trump agrees.

I guess you’ll have heard of the idea that if we cut tax rates, the government will actually raise more tax revenue, because it will increase the willingness to work harder (and reduce the incentive to engage in elaborate tax avoidance measures).  The Laffer curve comes from a back-of-the-envelope drawing by Arthur Laffer himself (actually, back of a napkin).  You start with a graph that has tax rates, 0-100% on one axis and tax yield, say 0-100% of GNP (or sums of money), on the other. Your line starts with a 0% tax rate, which raises no tax (obviously).  Increase the tax rate, and you raise more tax.  Up shoots the line. However, it can’t go on forever.  Charging 100% tax will raise virtually no tax at all: why should anyone work or provide products for free ?  Just look at what happened when a poorly designed tax change meant doctors were being asked to work for nothing.  So there must be a turning point at which increasing tax rates actually reduces the money government gets, where the line linking rates to yield begins to flatten, and then turns downwards.  And if we are at that level, reducing the percentage tax rate will actually boost the Treasury’s receipts.

It’s superficially appealing.  Like the left’s view that modern monetary theory, or catching multinationals, or both, mean we can spend what we like on public services, it offers the attractive option of spending more without paying more.  But what did your old Dad tell you about things that sound to be good to be true ? Yep, this is one of them.  Because:

  • the theory assumes that people have the ability to choose to work harder – more hours, I guess – for more pay. It would be interesting to know for how many people this is true.  Certainly not the vast bulk of employees.  Your police officer, nurse, road-mender, assembly line worker, bank clerk and so on can’t decide to work more hours. They work what is in their contract.  They may welcome some extra take-home pay, but they won’t be filling the government’s coffers.
    The subsidiary argument – that people in these positions will work harder to get a promotion or upgrade if the rewards are greater – is even flakier.  A firm may gain from its employees crawling over each other on the way to the top, but no extra tax will come from people working harder at a given grade or salary.  Promotions are rarely available, and if person A gets it, person B won’t. The tax-take will be unaffected by who pays it. And experience suggests promotion seeking behaviour is, hmm, sometimes less than optimal for output and the real economy.
  • Self-employed people, however, can sometimes work longer hours or more intensively. Many of them, of course, are already eager for more work.  They would like more clients right now, and this is unaffected by tax rates.  It is also possible that tax cuts could make them work less hard, as a hairdresser or taxi driver can make their target income, the income needed to keep the family going, with fewer hours of work.  In the jargon of economists, leisure becomes less costly, and less costly things are consumed in larger amounts.  But work becomes more lucrative , so how does it balance out ?  Research on taxi-drivers in USA suggested there is a modest increase in hours offered, but you then get into arguments about elasticity of supply.  Will a 5% tax cut release 5% more hourly earnings ? If its less, then the whole things doesn’t work.
    It’s sometimes claimed that a UK tax cut on top earners, from 50% to 45%, by the incoming 2010 Conservative administration raised receipts.  This particular rabbit has been run down its burrow. What happened was this: when the lower taxation rate was announced, financiers deferred their bonuses till the following tax year, when the reduced rate would come into effect.
  • Much tax is not income tax. Laffer considerations just don’t apply to things like Council Tax. For some – airplane tax, insurance tax, tourist tax – it’s hard to believe there is a disincentive effect.  For others – fuel tax, alcohol, tobacco – the effects of tax rises are known and factored already into government decisions. In some cases – like the sugary drinks proposals – we actively want a disincentive effect.
  • A Laffer inspired tax cut would need to know accurately where the curve turns. The UK’s 98% tax on investment income in the 1970s was indeed an invitation to evasion, but that doesn’t mean that any reduction will be profitable. The accepted estimate by most economists for the turning point is around 70%.  Currently, no western income tax rate for the common worker comes anywhere near that.
  • Effects on tax avoidance are assumed by Laffer fans to be a strong part of their argument. Others are not so sure.  Here’s Wikipedia: Furthermore, the Laffer curve does not take explicitly into account the nature of the tax avoidance taking place. It is possible that if all producers are endowed with two survival factors in the market (ability to produce efficiently and ability to avoid tax), then the revenues raised under tax avoidance can be greater than without avoidance, and thus the Laffer curve maximum is found to be farther right than thought. The reason for this result is that if producers with low productive abilities (high production costs) tend to have strong avoidance abilities as well, a uniform tax on producers actually becomes a tax that discriminates on the ability to pay

The killer point is that tax cuts for incentive have been tried, and have failed.  Reagan tried it, and the budget deficit soared.  Trump is trying it, buoyed by the same predictions – “some proponents … even argued that its macroeconomic effects would be so large that the bill would actually increase revenues” – but, sadly, punished by the same result.  The latest predictable report can be found here.  The state of Kansas provides perhaps the most egregious case-study: its Republican legislators cut its taxes in 2012, promising ‘an adrenaline shot in the arm for the economy’[1].  Laffer himself assured them they would make more money that way.  They didn’t: of course they didn’t. The result was close to catastrophe.  Tax receipts fell $700m in the first year.  Road repairs stalled.  Health care in rural areas declined.  The courts ruled that the cuts to the schools system (some had to close one day a week, and subsidies to poorer areas were abolished) were alarming enough to be unconstitutional (the governor promptly tried to defund courts ruling on such issues). This makes the original mistake the more deeply worrying.  Instead of saying “we got it wrong – let’s return to the original tax base”, the right will say “the budget is out of balance – we can no longer afford the current level of public services.” First in line is usually social benefits: last will be defence. It will happen under Trump: watch this space.

(Added January 2020:Image

So, an idea that doesn’t work, and will worsen public finances.  I’m far from the only person saying this – see another blog,  by Richard Murphy, a tax expert that the BBC invited to their studios but decided not to use.  It’s truly striking how unalarmed conservatives are by all this.  Centrist or radical government causing the same deficit by more generous social benefits, better schools and transport, shorter hospital waiting lists would get both barrels from party and press about fiscal irresponsibility. But deficits caused by tax cuts for the rich, not so much.

[1] An independent study showed that higher taxed districts had been growing faster than lower taxed districts in the previous 8 years.  But the Kansas Republicans, like Michael Gove, had had enough of experts.

God Save … Er, Who

A minor, but enduring point to make about the current Brexit farrago.  The current Parliamentary impasse has revealed a grave weakness in our political system – namely the inability of a constitutional monarchy to resolve a historic deadlock.  As we descend into chaos, the head of state is nowhere to be seen.  It is hard to believe that the heads of state in other countries – especially those with non-executive Presidents – would not have taken decisive action to knock heads together – or insist on a new election. An elected President would have the authority a hereditary monarchy lacks, and a personal mandate to neutralise the idea that there is a unanimous ‘will of the people’ for a tendentious policy.

As it is, we are left with an icon, not an actor.