Category Archives: Political

Political, Rants&Rambles

Borders

I am increasingly pessimistic about the brexit options for Ireland.

In December the UK government conceded that there were no technological solutions currently available to allow for a soft border within Ireland and under pressure from the DUP it agreed with the EU to “regulatory alignment”. It was a fudge of course because the meaning was never clearly defined but it allowed both parties to move forwards towards trade talks.

However. the UK cannot get a legally watertight transition deal until it resolves the status of the Irish border as part of a wider divorce settlement with the EU, sources have said, as  brexit talks move into an intense phase.

Senior UK and EU officials are due to meet this weekend in Brussels, ahead of an EU27 Brexit summit on Friday, when Theresa May hopes to bag the transition deal that UK business requires.

But firms will be denied certainty on the transition deal, as EU sources stress the best the UK can get in March is a political text, not a legally binding treaty giving cast-iron security for companies across Europe.

The EU have published a position paper that suggests as a fall back option setting a hard border between N Ireland and the rest of the UK, allowing N Ireland ‘special status” within the EU. Whilst certainly a practical alternative, the proposal is toxic to the Irish DUP as they see it as a stepping stone towards a re-unification of Ireland. Since the UK government is a minority government reliant upon the votes of the DUP to pass any legislation, this makes the “fall-back” option impossible to contemplate.

But no alternative has been proposed by the UK.

Let’s be clear, this is a problem that the UK have created and therefore it is the responsibility of the UK to come up with a workable solution.

The UK has voted to leave the EU in the referendum. The UK government has taken that a step or two further and decided to leave both the single market and customs union. The UK government has chosen to become a third party country. WTO rules require all third party countries to be treated on the same terms, without preference so when the UK leaves, it becomes a WTO requirement to have a hard border in Ireland unless we achieve the “holy grail” of a comprehensive free trade agreement.

Given a choice between a hard border within Ireland and one between N Ireland and the rest of the UK, it is likely that the DUP would opt for the latter despite the disastrous economic consequences for their electorate. One in three adults in N Ireland are already unemployed. A 10-20% hit to their economy resulting from a closed border would lead to a further loss of jobs. Add economic deprivation to a sectarian divide with such a recent history of violence, then the situation looks anything but good.

The alternatives, which would include Labour policy of keeping the entire UK within a customs union with the EU, effectively remove any chance of independent trade deals outside of the EU, seem equally unlikely unless the government falls and the UK electorate can be persuaded to vote Labour.

“The whole agreement on the withdrawal will be contingent on a solution on Ireland,” the EU source said to the Guardian newspaper. “And it is politically unthinkable that we would wrap up everything and that you wouldn’t have a solution on the Irish border. The Irish would never accept it, but also the rest of the union will not accept it, because it would be toying with the integrity of the single market.”

The EU has outlined three options for avoiding a hard border: a deep free-trade agreement with the UK; “specific solutions” that depend heavily on technology; or, failing both of those, Northern Ireland remaining in “full regulatory alignment” with the EU.

In Parliamentary Committee this week, David Davis the brexit Secretary acknowledged that there are no technological solutions currently available. There are no specific solutions to the border problem. In a border where a substantial number of crossings are agricultural, there will always be a need for physical inspection of livestock and other agricultural products such as milk – health and safety requirements for both countries will require a hard border.

Ireland, backed by some of the EU’s most senior leaders, is insisting the UK spells out its commitment to the fall-back insurance plan sooner rather than later, while stressing the first two options remain on the table as part of a future trade deal.

The president of the European council, Donald Tusk, said last week that London could not assume negotiations would move on to other issues without solving the issue. If that happened, “my response would be Ireland first”.

Other sources stress there is still a long way to go, with the Irish parts of the text still coloured red on an EU internal traffic light grid, rather than amber, which may allow talks to progress.

The content of the transition is less fraught for negotiators. EU diplomats expect the UK to accept the transition on the EU’s terms, meaning Britain would obey all EU rules with little or minimal say in the institutions.

Separately, a committee of MPs has warned in a report today that Britain is so unprepared for Brexit that it should consider postponing the UK’s leaving date.The Commons Brexit select committee is set to recommend that May should request an extension to the EU’s article 50 process beyond next March, the HuffPost reported.

Any extension of Brexit talks would have to be agreed unanimously by all 27 EU countries. It would be deeply unpopular with brexit campaigners within the Uk government.

Diplomats have indicated they would be open to rolling over negotiations for a few weeks, but a longer extension could run into problems. Several member states, especially France, and the European parliament, which will approve the final withdrawal agreement, have stressed that the UK should be out of the EU before the next European elections, due in May 2019.

Political, Rants&Rambles

Depressing

Politics is depressing at the moment, which is one of the reason for all of the new recipes. When in doubt, cook.

Life is depressing because it seems increasingly clear that the divisions within the government and within the country as a whole, identified and exacerbated by the EU referendum, are wider than ever. And no matter what the outcome, that means half of the electorate is left seriously angry and upset about the outcome.

Immediately after the referendum it was possible for the government to take a deep breath, pause and hold some open house meetings up and down the country to try and work out the answers to some really basic questions.

Why did people vote “leave” in such large numbers?

What exactly did they believe they were voting for, out of the EU, out of the single market and out of the customs union? All of these or just one or two?

And how much are they willing to pay for the privilege?

I might want lots of things, but if it starts to cost me more money than I’ve got, I start to temper my request. People did not vote to become even poorer. They did not vote to lose their jobs.

Anyway of course this is all water under the bridge because in the shock and panic immediately after the referendum result, the one striking absence in our political life was leadership.

Most of the people responsible just ran away from the responsibility of making it work. the PM resigned. The Chancellor followed shortly thereafter. After a shocked press conference, the main leaders of the “leave” campaign very publicly stabbed each other in the back making them unelectable to the leadership they both wanted.

So we ended up with a “safe pair of hands” otherwise known as Theresa May, who I have some sympathy for still.

I can believe that she is a woman with ambitions. No woman gets to succeed in such a bear pit without ambition and a sizeable amount of competence. So she probably wanted the job at first. As did her carefully balance first cabinet. The brexit campaigning ministers David Davis and Liam Fox seemed positively cock-a-hoop with their success, as did the less than convinced by brexit Chancellor, Hammond.

But as time goes by, and in particular as the reality of a very mis-judged election have hit home, any successful outcome for brexit has retreated further and further away from achievable. The PM was not poorly advised to call an election necessarily, since her lead in the polls was convincing.

But the campaign was poorly coordinated and risked alienating anyone who had voted “remain” with its harder than hard brexit stance. We may all be parroting the “will of the people” when describing the mandate to leave the EU, but they also needed to remember the 48% of the electorate who voted remain and who either stayed home or voted with the opposition party, wiping out the government’s majority and forcing them to form an alliance with the N Ireland DUP.

The latter make any compromise agreement on the Irish border with the EU almost unachievable. The one gaping big hole in the brexit “leave” campaign “what about Ireland” suddenly comes front forward into focus. The DUP will not tolerate the idea of “special status” where N ireland becomes more closely tied to the Republic of Ireland and less tied to the Union. At the same time it cannot abide a hard border between the two Irish halves.

The N Irish electorate voted “remain” and their economy, already weak and relatively poor in UK terms is inextricably tied to it’s southern neighbour. so the UK is forced into agreeing with the EU that there will be no hard border and that we will remain in “regulatory alignment” going forward and that looks and sounds very like a customs union.

Yes, say the government A customs union but not THE customs union, and one is left wondering how thin they can slice that hair. If it looks like a duck, if it quacks like a duck etc. Because if the UK is unable to make independent trade deals with third party countries, then what on earth is the point of leaving? And a fundamental part of any customs union is centralised negotiations of trade deals with third party countries.

It’s a difficult circle to square. & with a minority government, all legislation requires the positive consent of the DUP, a party to whom this trickiest of problems is fundamental. Suggestions and hints from David Davis that the government commitments were in some way just a “fudge” were immediately knocked back by the EU who threatened to write them into the contract prior to trade negotiations.

So now here we are with a UK government about to start trade negotiations having unilaterally decided to leave the single market and the customs union, looking for a trade deal of some sort, yet unable to define that trade deal because of the conflicting requirements within it’s own party. The loudest voices on the topic are noticeably from outside the government itself, from party members who have yet to come to terms with the reality of minority rule. The loudest voices seem entirely unconcerned with what can be practically delivered.

& you have the EU basically asking the UK to simply define what they want coherently so that negotiations can begin whilst refusing to schedule time for meetings, until such clarity can be provided.

So I’m coming to the view that we will bomb out of the EU onto WTO rules, which will lead to a hard border in Ireland, not because either the UK or EU want a border, but because basic WTO rules require the EU to have a border with third party countries absent a customs union or comprehensive trade deal.

And as well as leaving the EU, we are leaving the 970 bilateral treaties the EU has with third party countries such as the US and China. It might be hoped that these would be simple agreements to transfer to a newly independent UK but at least some of the countries involved (SKorea, Chile etc) have indicated that they would want to look again at the terms. there is no guarantee that the deals will be so favourable for the UK standing outside of the EU.

It’s all a bit depressing really, just a little bit rubbishy.

Political, Rants&Rambles

A new slogan for the bus

The real price of Brexit begins to emerge as FT research shows that the weekly hit to the British economy could be the same £350m that Leave campaigners promised to claw back

The big red bus emblazoned with the words “we send the EU £350m a week, let’s fund our NHS instead” is credited as being decisive in Britain’s vote to leave the EU last year. It promised — in absolute terms — financial gains for the British public if they voted to leave, a stark counterweight to a majority of economists who warned that a departure would hurt Britain.

The pre-referendum estimates of the long-term pain ranged from a hit to the economy of 1 to 9% of national income — an annual loss of gross domestic product of between £20bn and £180bn compared with remaining in the EU yet the Leave campaign won the battle of the slogans, and the referendum.

But who is winning the economic argument?

Almost 18 months on from the Brexit vote and with 15 months of detailed UK data, it is now possible to begin to answer that important question.

Economists for Brexit, a forecasting group, predicted that after a leave vote growth in GDP would expand 2.7% in 2017. The Treasury expected a mild recession. Neither was right. The 2017 growth rate appears likely to slow to 1.5% at a time when the global economy is strengthening.

A more pressing question is to assess the impact compared with what would have happened had the vote gone the other way.

This work has started, and includes a range of estimates calculated by the Financial Times suggesting that the value of Britain’s output is now around 0.9% lower than was possible if the country had voted to stay in the EU.

That equates to almost exactly £350m a week lost to the British economy — an irony that will not be lost on those who may have backed Leave because of the claim made on the side of the bus.

Jonathan Portes, professor of economics and public policy at King’s College London and one of the academics leading publicly funded research into the effects of Brexit, says: “The conclusion that, very roughly, Brexit has already reduced UK growth by 1% or slightly less seems clear.”

Companies are becoming more vocal over the economic hit, blaming the government’s slow handling of the Brexit negotiations for a weaker business climate. In October, the International Monetary Fund highlighted Britain as a “notable exception” to an improving global economic outlook, while the OECD, the Paris-based club of mostly rich nations, has raised concerns about “the ongoing slowdown in the economy induced by Brexit”.

Thomas Sampson and colleagues at the London School of Economics have examined the direct effect of sterling’s depreciation since the EU referendum on prices and living standards. With the pound falling about 10% following the June 2016 result, inflation has risen more in Britain than in other advanced economies.

It started with petrol prices and spread to food and other goods, pushing overall inflation up from 0.4% at the time of the referendum to 3.1% last month. When looking at prices, depending on the level of import exposure of different goods and services, the LSE study estimates that the Brexit vote directly increased inflation by 1.7% of the 2.7 percentage-point rise in the 12 months after the referendum.

And with wage inflation stuck at just over 2%, “the increase in inflation caused by the Leave vote has already hurt UK households”, Mr Sampson says. He calculates that “the Brexit vote has cost the average worker almost one week’s wages”, but adds the figure could be higher or lower if a complete evaluation of the economic impact was applied rather than just the initial squeeze on incomes from leaving the EU.

Other effects are more apparent.

Business investment grew at an annual rate of 1.3% in the third quarter, compared with a March 2016 official forecast for annual growth of 6.1% for the whole of 2017.

Exports, boosted by sterling’s depreciation, have proved more resilient. The OBR now expects a 5.2% rise in the volume of goods and services sold abroad in 2017 compared with a pre-referendum prediction of 2.7%.

Net migration to the UK from the EU fell by 40% in the first 12 months after the vote. Professor Portes last year predicted an ultimate decline of between 50 and 85% on net migration levels before the referendum. “Arithmetically, this reduction [of 40%] of net EU migration translates into a reduction in growth of 0.1 to 0.2%,” he says.

Economists working to estimate the overall Brexit impact on the economy need to build a counterfactual scenario — an imagined world in which Britain had voted to remain in the EU — to compare that with Britain’s economic performance since the vote. The counterfactual cannot be known for certain but it is possible to take a number of approaches, in three broad categories.

The first is to compare recent UK economic performance with its past. A worse performance than the UK has achieved over long historical periods or in recent years would support the view that the vote has hurt economic performance. But a shortcoming of this approach is that if the past year was always likely to be rather weak, this method could suggest a Brexit hit when there was none.

Comparing the UK performance with that of other countries is another option. Using its normal position in the G7 league table of leading economies is one possible technique, as is contrasting UK performance with the average of similar economies. A more sophisticated approach is to use a statistical algorithm to devise a historically accurate set of comparator countries, a method recently performed by a group of academics from the universities of Bonn, Tübingen and Oxford. These geographical techniques often smooth out concerns that the recent period might be unusual, but they are vulnerable to variations in other countries, such as a sudden boom in the eurozone that Britain was never likely to match.

A third tactic is to look at forecasts made for Britain’s economy before the referendum on the basis of staying in the EU and compare the actual outcome with these prior forecasts. Its weakness is that there was a wide range of pre-referendum forecasts, while its strength is that the figures reflect the best knowledge available at the time.

Jagjit Chadha, director of the National Institute of Economic and Social Research, says each of the methods are reasonable for generating an estimate of the impact of Brexit so far. “We can’t know how the [UK] economy would have responded to the news over the past 18 months, but there have not been any large shocks and the rest of the world has done slightly better than we thought likely a year ago.”

The results vary according to the comparisons made, but all show the UK economy has been damaged even before it formally leaves the EU on March 29 2019.

When the past five quarters are judged against the UK’s historical average growth rate, the 1.9% expansion in GDP achieved between the second quarter of 2016 and the third quarter of 2017 is lower than history would suggest is normal for the UK economy.

Depending on the period of comparison chosen, the UK economy would normally have been expected to expand by between 2.5% and 3.2% over the same period. The lower end of the range comes from more recent history, such as the average since a Conservative-led government came to office in 2010, while the upper boundary reflects Britain’s long-term performance in the 30 years before the financial crisis. The hit to the economy on this comparison is between 0.6 and 1.2% of national income.

Geographical comparisons produce a similar conclusion. Britain’s year-on-year growth rate tended to be close to the G7 upper range of outcomes over the past 25 years. Had that performance continued, British GDP would have grown 2.9% since the referendum. The statistical algorithm produces a significantly larger estimate of what would have been possible, suggesting Brexit has already removed 1.3% from GDP since the vote. This equates British performance to a weighted average of other countries, with the US, Canada, Japan and Hungary having the largest weights.

Asked whether it was reasonable to judge the UK’s performance against that of Hungary, Professor Moritz Schularick of Bonn University says, “like the UK, Hungary is a European economy and integrated into the production chains, but remained outside the eurozone with a floating exchange rate and therefore could use monetary policy more aggressively after the crisis”. Estimates using pre-referendum forecasts provide a range within almost the exact same boundaries — between 0.6% of GDP and 1.1%. The larger figure is based on analysis from Economists for Brexit, which initially predicted strong growth after the vote. Professor Patrick Minford, who carried out the forecasts for the group, blames “Office for National Statistics productivity estimates, [which] are not convincing because they have made no real attempt to estimate the growth in quality of services, such as in education and healthcare”.

But all of this was known before the referendum. Companies have been critical of Theresa May’s government saying that delays in talks with the EU have hit business

Overall, 14 different counterfactuals estimated by the FT and others give a range of a hit between 0.6% of national income and 1.3%, with an average of 0.9%.

With national income of £2tn in the year ending in the third quarter of 2017, it means the UK is likely to be producing £18bn less a year than would have been reasonable to expect and this is directly attributable to Britain’s decision to leave the EU. That is just short of £350m a week.

Brexit-supporting economists say the figures are reasonable.

Julian Jessop, head of the Brexit unit at the Institute of Economic Affairs, says: “Lots of sensible Brexiters accept there will be a short-term hit and it is unarguable that the economy is weaker than it would have been, I would say between 0.5 and 1% weaker.

As for the longer term, it’s all to play for. Brexit creates lots of opportunities, it is for the government to make the most of them.” Recommended Britain has more illusions to shed on Brexit

The UK economy since the Brexit vote — in 5 charts Brexit and the Budget: Hammond pressed to go ‘big and bold’ In the referendum campaign the big red bus was making a different comparison, an incorrect one, about the budgetary costs of the EU to Britain. It suggested Britain contributes almost £18bn a year to the budget, when the net cost in 2016 was calculated by the Treasury to be £8.6bn. And this leaves one last comparison that it is possible to make. Paul Johnson, director of the Institute for Fiscal Studies, says that “for every 1 per cent of GDP you lose, that’s getting on for £10bn a year of foregone tax revenues”. If 0.9 per cent of GDP has been lost over the five quarters for which data exists, there has already been a £9bn hit to the public finances.

So even before the UK has left the EU, the referendum result is costing the UK government more than can possibly be recovered by ending net contributions to Brussels.

Political, Rants&Rambles

Trump – Feck Off

So let’s get this straight, not content with suggesting people carrying torches and marching shouting anti-semitic chants were “good folk” the president of the US has started re-tweeting racists on-line.

He’s retweeted video clips from a neo-nazi group in the UK involved in the murder of Jo Cox, one of our MPs. & I’m left trying to imagine the outrage if our leader re-tweeted the words of someone who had killed a US senator

When called on this behaviour he’s doubled down and criticised our PM.

WTF?

Not content with doubling down on being a nazi, he’s also supported Roy Moore alleged child abuser. Just a reminder of the form he has when it comes to sexual harassment and abuse:

Donald Trump’s official position, as his spokeswoman Sarah Sanders recently clarified in a White House press briefing, is that the 20 women accusing him of assault and harassment are lying. Trump has also suggested some were not attractive enough for him to want to sexually assault.

As the conversation around sexual conduct continues to evolve, and new abusers are revealed, here are the cases against the president.

“He was like an octopus … His hands were everywhere.”Jessica Leeds

Age 38 Year: 1980s Location: A first-class cabin of a plane

Leeds alleges Trump groped grabbed her breasts and tried to put his hand up her skirt. Source: The New York Times

“I referred to this as a ‘rape’, but I do not want my words to be interpreted in a literal or criminal sense.”Ivana Trump

Age 40 Year: 1989 Location: The master bedroom of the Trump Tower triplex

In a divorce deposition, Trump’s first wife used “rape” to describe an incident that transpired between them. After a settlement was reached, and the rape allegation became public in a 1993 book, Ivana softened the claim. As part of her nondisclosure agreement, she is not allowed to discuss her marriage to Trump without his permission. Source: Lost Tycoon: The Many Lives of Donald J Trump

“He pushed me up against the wall, and had his hands all over me and tried to get up my dress again.”Jill Harth

Age Early 30s Year: 1993 Location: One of the children’s bedrooms at Trump’s Mar-a-Lago estate

A former business partner, Harth alleges Trump forcibly kissed her on the lips and groped her breasts and grabbed her genitals, in what she referred to in a 1997 lawsuit as “attempted rape”. On a previous occasion, she alleges, he groped her under the table during dinner with colleagues at the Plaza Hotel. Source: The Guardian

“He did touch my vagina through my underwear.”Kristen Anderson

Age Early 20s Year: Early 1990s Location: China Club, a Manhattan nightclub

Anderson alleges Trump put his hand up her skirt and touched her genitals through her underwear. Source: The Washington Post

“[Trump] stuck his head right underneath their skirts.”Lisa Boyne

Age 25 Year: 1996 Location: A New York restaurant

Boyne alleges Trump insisted the female models walk across the table and that he looked up their skirts, commenting on whether they were wearing underwear and their genitalia. Source: The Huffington Post

“He took my hand, and grabbed me, and went for the lips.”Cathy Heller

Age 44 Year: 1997 Location: A Mother’s Day brunch at Mar-a-Lago

Heller alleges Trump forcibly kissed her on the lips in public. Source: The Guardian

“He kissed me directly on the lips.”Temple Taggart

Age 21 Year: 1997 Location: A 1997 Miss USA pageant event and in Trump Tower

The former Miss Utah alleges Trump forcibly kissed her on the mouth on two occassions, including the first time she met him. Source: The New York Times

“I remember putting on my dress really quick because I was like, ‘Oh my God, there’s a man in here.'”Mariah Billado

Age 18 Year: 1997 Location: Backstage at the 1997 Miss Teen USA pageant

The former Miss Vermont Teen USA and other unnamed accusers allege Trump walked into the dressing room unannounced while teen beauty queens aged 15 to 19 were naked. Source: BuzzFeed

“Then his hand touched the right side of my breast. I was in shock.”Karena Virginia

Age 27 Year: 1998 Location: Waiting for a car after the US Open in New York

Virginia alleges Trump grabbed her arm and touched her breast. Source: Gloria Allred press event

“The time that he walked through the dressing rooms was really shocking. We were all naked.”Bridget Sullivan

Age 19 Year: 2000 Location: Backstage at the 2000 Miss USA pageant

The former Miss New Hampshire alleges Trump walked in to the dressing room unannounced while contestants were naked. Source: BuzzFeed

“Our first introduction to him was when we were at the dress rehearsal and half-naked changing into our bikinis.”Tasha Dixon

Age 19 Year: 2001 Location: Backstage at the 2001 Miss USA pageant

The former Miss Arizona alleges Trump entered dressing rooms while her fellow contestants were “half-naked”. Source: CBS News

“All of a sudden I felt a grab, a little nudge.”Melinda McGillivray

Age 23 Year: 2003 Location: At Mar-a-Lago during a concert by Ray Charles

McGillivray alleges Trump grabbed her buttock in a pavilion behind the main house in the middle of a group of people. Source: Palm Beach Post

“I was thinking ‘Oh, he’s going to hug me’, but when he pulled my face in and gave me a smooch. I was like ‘Oh – kay.’”Jennifer Murphy

Age 26 Year: 2005 Location: Outside an elevator after an interview

The former contestant on The Apprentice alleges Trump forcibly kissed her after a job interview.

“[Trump] kissed me directly on the mouth.”Rachel Crooks

Age 22 Year: 2005 Location: Outside the elevator in Trump Tower

Crooks alleges Trump kissed her forcibly on the lips. Source: New York Times

“I turned around, and within seconds he was pushing me against the wall and forcing his tongue down my throat.”Natasha Stoynoff

Age 40 Year: 2005 Location: A closed-door room in Mar-a-Lago

Stoynoff alleges Trump forcibly kissed her. Source: People

“Trump stood right next to me and suddenly he squeezed my butt.”Ninni Laaksonen

Age 20 Year: 2006 Location: Outside the Ed Sullivan Theater before an appearance on The Late Show with David Letterman

The former Miss Finland alleges Trump grabbed her buttocks during a photoshoot before an appearance on The Late Show with David Letterman. Source: Finnish newspaper Ilta-Sanomat

“When we entered the room he grabbed each of us tightly in a hug and kissed each of us on the lips without asking for permission.”Jessica Drake

Age 32 Year: 2006 Location: A golf tournament in Lake Tahoe

Drake alleges Trump forcibly kissed her and two female friends on the lips and when rebuffed, pursued her, asking: “How much?” Source: Gloria Allred press event

“He would step in front of each girl and look you over from head to toe like we were just meat, we were just sexual objects, that we were not people.”Samantha Holvey

Age 20 Year: 2006 Location: Miss USA 2006 pageant

The former Miss North Carolina alleges Trump would barge into the pageant dressing room and inspected women like “meat”. Source: CNN

“He then grabbed my shoulder and began kissing me again very aggressively and placed his hand on my breast.”Summer Zervos

Age Early 30s Year: 2007 Location: Trump Tower and a hotel in Los Angeles

The former contestant on The Apprentice has accused Trump of groping and kissing her on two occasions. She has filed a defamation claim against the now-president. Source: Gloria Allred press event

“He probably doesn’t want me telling the story about that time he continually grabbed my ass and invited me to his hotel room.”Cassandra Searles

Age 24 Year: 2013 Location: Miss USA 2013 pageant

The former Miss Washington 2013 alleges in a comment on Facebook that Trump repeatedly grabbed her buttocks and invited her to his hotel room. Source: Facebook, via Yahoo News
Political

What problem?

There is an excellent article published by the LSE which looks at the UK economy.

As the UK negotiates to leave the EU, the UK government has made much of the strength of our economy and our competitive advantage & it’s true that our growth and employment rates do not appear to have been damaged by the vote to leave the EU. Many businesses have been quick to identify potential opportunities associated with an independent approach to global trade.

But despite strong growth rates in 2016, the UK is not expected to experience GDP growth as strong as that anticipated in Europe and the US over the next several years. Our predicted growth rates of 1.6% in 2017 and 1% in 2018 are dwarfed by an anticipated 2.1-2.4% for the US and 2% in Germany. Part of this can be put down to the uncertainties of Brexit.

But slowing growth rates are also partly driven by long-standing structural issues in the UK economy.

In fact, as the Interim Report of the IPPR Commission on Economic Justice highlights, on a whole host of issues – from wages to productivity investment to trade – the UK’s economy lags behind its major competitors.

The government likes to boast that the UK has recently achieved record levels of employment. But this has been accompanied by the growing insecurity of the labour market.

Surveys suggest that as much as 8% of the workforce is now under-employed – that is, wanting to work more hours than they do. The number of people on zero hours contracts has increased more than five-fold since 2007, to more than 900,000. Self-employment has increased from 13% of the workforce in 2008 to 15% today, yet self-employed people earn less on average than they did 20 years ago.

This insecurity is linked to the ‘flexibility’ of our labour market, which is ranked 8th of 140 in the World Economic Forum’s rankings, achieving the same score as the United States.

Normally, economists would expect high levels of employment to lead to increases in average real wages. But the reverse has happened. Indeed, the decline in UK real wages since the financial crisis has been the largest of all developed countries apart from Greece, Mexico, and Portugal.

Between 2007 and 2016, annual real wages grew 10.8% in Germany, 9.5% in France and 6.4% on average across the countries of the OECD. In the UK, however, they fell by 2.6%. If inflation continues to erode nominal wages for the next four years, as projected by Office for Budget Responsibility, the period since 2007 will rank as the longest period of earnings stagnation since the 1860s.

The low-pay, insecure labour market that exists in the UK is partly responsible for our poor performance on productivity. Measured by output per hour, productivity in the UK is 13% below the G7 average, and productivity growth has more or less completely stalled in the last decade. The disparity between the UK’s productivity and those of our major competitors is sometimes expressed in the form ‘it takes the average British worker five days to produce what a worker in Germany, France, or the US produces in four’.

But of course this is nothing to do with how hard people work: it arises from the much lower levels of investment in physical and human capital in the UK. Public and private investment is around 17% of GDP in the UK, more than 5% below the OECD average.

Corporate investment in the UK is much lower than in most of our major competitors. Corporate investment in fixed assets (not including construction) fell from 11% of GDP in 1997 to just 8% in 2014, compared with (for example) 12% in the USA. This is much lower than the rate of depreciation, meaning that the stock of capital in the UK is actually declining. This disparity is partly accounted for by the lower share of manufacturing in the UK economy, but is still lower even when this is taken into account. And it is especially reflected in the lower share of research and development investment, which is of particular concern given the importance of innovation in driving future growth.

The sectoral make-up of the UK’s economy has also led to the emergence of a large current account deficit: our trade deficit has exceeded 2% of GDP for 15 of the last 16 years. This is at least partly due to the decline of our manufacturing base, which, though familiar to most of the developed world, has been far more acute in the UK than in competitors such as Germany and France.

The depreciation of the pound which followed the EU referendum has helped to raise exports somewhat – but not by as much as might have been expected, because the UK is particularly reliant on a small number of exporting sectors (of which financial services is much the largest) and many exports are made up of imported components. The UK’s trade performance is a consistent indicator of the weakness of UK productivity and competitiveness.

As such, it is hard to accept the government’s view that the UK economy is in a strong position to cope with the challenges of Brexit. Underneath the headline figures it is actually much weaker than most of our major European competitors. And Brexit will make many of these weaknesses more difficult to address. That is why the IPPR Commission on Economic Justice is calling for a fundamental rethink of economic policy in the UK.

The first step is to acknowledge that we have a problem.

Political

Expense

In order to balance the books, the UK government can either raise more money through taxes or cut the amount of money it spends. For the last few decades, the emphasis has all been on cutting costs, in particular the cost of welfare though the emphasis has always been placed on culling “undeserving poor” rather than pensioners.

Screen-Shot-2014-11-25-at-08.34.32-600x326

The overall breakdown of spending lumps a great deal together under the heading “social protection” which needs to be broken down further in order to understand where the money goes.

Other large areas of expenditure are health and education but these are difficult to cut without offending great swathes of the population.

Public-spending-460

Government departments are essentially organised to manage these budgets.

The welfare budget total is temptingly large and yet political sensitivities make it difficult to cut. It’s also important to remember that the UK spends less on welfare relative to other developed countries.

The charts show that about half of welfare goes to pensioners, a very sensitive group since they are sensitive to small changes and tend to vote in significant numbers. The next largest amounts go to families with a disabled person, and support and housing for low income families,the majority of whom are in work.

Less than 1 in 5 households receive any housing benefit. Unemployment benefits make up a very small percentage of all social spending.

Currently UK pensioners are guaranteed a state pension the increases in line with the so-called triple lock, the lower of 2.5%, any increase in living costs or any increase in average wages. The amount paid is not generous at just £6,200 but still, there is no rationale for setting a minimum of 2.5% in times of low inflation and flat salaries unless you believe pensions are too low.

As a demographic group, pensioners are no longer the worst off in UK society so I would look to abandon the triple lock and reduce it to the lowest of either inflation (living costs) or salary increases.

Inflation is currently running at 0.6% whilst salaries are flat. Abandoning the commitment to 2.5% increases would save the government around  £1.3m (1.9% of £70m) in the first year and potentially every year thereafter.

The story of the left ought to be a narrative of hope and progress. The greatest problem with the academic left is that it has become fundamentally aristocratic, writing in bizarre jargon that makes cliches seem abstruse. If you can’t explain your ideal to a fairly intelligent 12-year-old, it’s probably your own fault. We need a narrative that speaks to millions of ordinary people. It all starts with reclaiming the language of progress.

So we are moving into an age where people may or may not work, due neither rhyme nor reason within their own control. Jobs are increasingly temporary, precarious and either multiple or absent. Think of the technology changes that have brought us uber as a working model.

Working poverty is going to be increasing feature of our lives. Rather than rushing to reinforce a rather Calvinist view of all paid work as morally good and uplifting, in and of itself, whilst totally disregarding and undervaluing the unpaid contributions of carers everywhere, let’s reinvent the model.  How? Universal basic income.

Every adult in the UK should be paid the equivalent of the standard pension ie. currently £6,200 with unto £2,000 paid for people also looking after children.

It isn’t a huge sum for an individual to live on. It is set at the amount of pension, just below the JRF estimate of a living wage (about £7,000 per person per annum) for purely political reasons: it would be impossible to justify paying more to the unemployed of working age, than to the unemployed post-retirement, even though the latter should probably be enjoying a life post mortgage with greater disposable income.

No one of working age is going to want to live on such a small amount alone. People will still find plenty of reasons to work. It is no more than a safety net that should work in our brave new precarious world.

To be practical, it’s a benefit that could only realistically be offered to British citizens, the pull factor from poorer countries would just be too big to offer it as an unconditional benefit. Currently everyone in the UK reaching the age of 18 is given a national insurance number, a universal identifier that in theory allows our tax and benefits system to work efficiently and personally. The universal income could therefore only be paid to those people living in the UK with a national insurance number, which would be dependant upon either being British born and turning 18 or living and working in the UK.

Personal taxation would require companies to pay national insurance contributions to cover the universal basic income (say £6,200) for each and every job, probably through 50% deductions of salary. At this rate an individual would have to earn £ 12,400 to cover their welfare cost.

An individual earning the equivalent of today’s average salary £27,000 pa, would more than cover any cost of this benefit for themselves – they would receive £6,200 from the state and £20,800 from their employer directly, subject to income tax rules.

The rates of tax would have to change.

Without change, the new universal credit would be deducted pre-tax, then a £10,000 tax exempt band applied and only then  would the 25% tax rate be applied to  £10,800. They would pay (net) just £2,700 tax rather than the current tax liability of £4,250 which would be unaffordable. If basic rate tax was increased to 40%, the tax paid under the new system would end up being much the same ie. £4,320 after receiving £6,200 from the state directly, plus £10,000 from the employer tax free, plus £6,480 taxed (£22,680).

Although an individual ends up paying very slightly more in tax, they have a lot more certainty in their income thanks to the universal income.

People are no longer able to work themselves out of the poverty they were born into. Reforms? Let’s reinvent the welfare state and eradicate poverty for good – now that’s an investment that will pay for itself.

This could be the basis of a fundamental change to the way we look at work and welfare, possibly the only practical, humane response to the changing work patterns we are seeing in the developed world. It could form the basis of a positive, socialist message, one that could be the basis of an ongoing and constructive engagement with the electorate.

Efficiency, Productivity? That should be the point of centre-left socialist policy.  Every pound invested in a homeless person returns triple or more in savings on care, police and court costs. Let’s imagine what the eradication of child poverty might achieve. Solving these kinds of problems is a lot more efficient than “managing” them.

But first, the underdog socialists will have to stop wallowing in their moral superiority. Everyone who believes themselves progressive should be a beacon of not just energy but ideas, not only indignation but hope, and equal parts ethics and hard sell. Ultimately, what the underdog socialist lacks is the most vital ingredient for political change: the conviction that there truly is a better way.

Money, Political

Income

The UK Government income is based around tax receipts, typically:

  1. Income tax (main tax rate is 20%)
  2. National Insurance
  3. VAT (20% most goods and services)
  4. Corporation tax (main rate 21-20%)
  5. Council Tax (local government)
  6. Business rates
  7. Excise duties (alcohol, cigarettes)
  8. Other taxes include (stamp duty, carbon tax, airport tax, inheritance tax, capital gains)

Screen-Shot-2011-11-17-at-10.04.06-500x327

Most tax is collected by HM Revenue and Custom.

However, the central government also get revenue from other sources which can be identified through {public sector finances at ONS (less detailed). Total tax revenue was around £90 billion.

Since the UK government has mainlined on balancing the books, and we live in an ever more expensive world where we all want more and more “stuff” including the government, then essentially every UK government is faced with either cutting spending or increasing revenue.

Since taxing more is unpopular, the emphasis has always been on trying to cut spending but we have had quite a few stealth taxes, increases to the lesser know or lesser observed taxes such as national insurance. One other wheeze is to push expenditure off onto local government, whilst limiting them to raise additional taxes through the local Council tax thus making local government the villain of the piece.

So if I was in charge of the government, what would I think about doing?

Honesty. Transparency. Fairness.

Let’s start with openly combining income tax and national insurance. In peoples minds they monitor the former very tightly and the latter barely at all and yet, they are all essentially the same tax, used interchangeably.

tax_3270762b

So although the headlines focused on raising the tax limit for income tax to above £10,000, it totally ignores the NI contributions payable from £8,060. Although the base rate of tax discussed is said to be 20%, taking into account NI means the lower effective rate of tax that most people pay is actually more than 30%.

We should be honest about this.

Honest. Transparent. Fair.

Income tax in the UK is largely taxed at source, deducted from pay packets before people have access to it and therefore for most people entirely unavoidable. It is essentially a progressive tax which takes a bigger % of income from higher earners. It is therefore also a fairly redistributive system.

It seems unreasonable to charge anyone more in tax than they are able to keep. Something feels unreasonable or unfair about the idea of taxing more than 50% of a person’s efforts but looking at the graphic above, it seems clear that aside from some very minor tweaks when child benefit is taxed and allowances lost, the highest effective rate of tax is just over 40%.

So what would happen if we set the basic rate threshold at £10,000 for the new combined all-income tax (income tax + NI) setting the rate at the current effective level of around 32%? This would be with a view to tweaking the rate up or down once people had got used to the combined all-income tax and the effects could be quantified in practice.

More of the poorest people should be taken out of tax entirely by avoiding NI contributions. Most people would pay slightly more at the lower rate (£600×32%- £192) which would hopefully pay for the lost NI income

And then suppose we leave the higher rate threshold unchanged but set the higher rate of combined all-income tax at 50% ie. higher than the current effective rate of 42% but not gouging. We should abandon all the claw-backs for child benefit and lower tax thresholds. The system would be simpler and easier to understand. It feels honest, transparent and fair.

Although the income tax system is progressive, other taxes are more regressive.

At 20% VAT tends to be more regressive. People on low income have a higher marginal propensity to consume. Therefore, the VAT they pay is a higher % of their total income. People on high income will spend more and will pay more VAT, but they will have a lower marginal propensity to consume (People on high incomes can afford to save a higher % of income). Therefore, VAT will be a smaller % of income spent. The regressive nature of VAT is slightly compensated by the fact that in theory, necessities like food (e.g. cold pastries, cabbages) don’t have VAT. VAT is supposed to be targeted at luxury goods. It’s also worth noting that a significant amount of income received by people on low income comes from the state in the form of benefits.

Other taxes like excise duties on cigarettes and taxes on alcohol are much more regressive. Smoking rates tend to be higher amongst people with lower incomes. Also, it will be a much bigger % of income than for rich smokers. We persuade ourselves that these taxes are for the health benefit of the individuals involved.

We could therefore consider intruding a sugar tax, on similar grounds, that high-sugar foods, especially those targeted at children are bad for their health. This is likely to be highly regressive since obesity is more commonplace amongst people on low income but it’s also likely to be popular with the voting public because of it’s health benefit.

Council Tax, a UK tax on domestic properties, can also be quite regressive and arguably unfair. People living in expensive areas end up having high housing costs, but also a higher council tax band. Arguably a fairer method of collecting local tax would be a local income tax but there are sizeable barriers to implementing any change. the minute a widow is forced out of her large (and expensive) house to pay her tax bill, is the minute a government gets into trouble.

Business rates are the property taxes charged on non-domestic problems and have recently been amended to allow local government to retain 50% amount raised rather than paying into a central pot and having money allocated back.

Inheritance tax raises a relatively small amount of money each year, at around £4.6 million a year but obviously this is in part because of significant tax planning for large scale landowners. The new Duke of Westminster will inherit control of an estate (held in trust) worth in excess of £9billion and pay no tax whatsoever.

It is not the business of the government to encourage the build up of inherited wealth within the hands of the privileged few. Any inheritance should be taxed as a receipt by the beneficiaries in the year in which the gain is realised, as part of the combined all-income tax. For people on low income, an inheritance would be subject to the standard tax bands and rates, treated as a top layer of income.

Since of most people the bulk of any inheritance is property, and the capital gains on houses are not the result of any intrinsic hard work or merit, it seems unreasonable to encourage windfalls for the next generation through any tax system.

It also seems unreasonable to ask the state to fund care in old age in order to preserve any such inheritance for the next generation. Treating any inheritance as windfall income should reduce the temptation to preserve wealth at the expense of paying for a decent standard of living, including care costs in old age.

Another much discussed problem with the UK tax system is the scope for having offshore accounts and avoiding paying tax through tax avoidance schemes.  Tax avoidance is often easier by people with high incomes. Unfortunately it is also perhaps the most expensive problem to address since high income people can afford high fees for good advice.

So my no doubt incredibly unpopular suggestions for change on the “income” side of the puzzle include:

  • Combining Income Tax and National Insurance
  • Set the threshold for basic all-income tax at £10,000
  • Set the tax rate for higher rate tax payers for the new all-income tax at 50%
  • Abolish the various tweaks re: child benefit and removing nil bands
  • Introduce a sugar tax
  • Abolish inheritance tax and treat any inheritance as a windfall to be subject to the all-income tax as a top layer of income.

Not going to happen.

Political

Morning Glory

Every morning this last week, I have woken up, and switched on the news over my first cup of coffee, half expecting to hear that Trump has declared war on N Korea via twitter.

Most recently I heard he had not ruled out military action against Venezuela.

And yet this is a man strangely unwilling to call-out the terrorist actions of a white neo-nazi in America, driving his car into the ranks of anti-racism protestors. Even though he felt no compunction about wading into the furore surrounding a British guy who similarly drove into pedestrians half way across the world in my home city, at around 6am US time.

And since I subscribe to the NYT, I’m struck by the number of comments in a liberal NY newspaper suggesting that someone has to tackle NKorea, sooner or later, so maybe Trump should just go ahead.

Actually, no. No.

There is no benefit to starting a nuclear war early. None

Starting a war with a country as piss poor as N Korea might seem cheap but then you have to take into account it’s neighbour and ally, China. You have to take into account the millions of people living in SKorea who will be killed as a result of Amercian aggression.