Category: Politics and economics

Have pensions just been capped?

I’ve been trying to follow the Budget. One of the most important statements for welfare policy could be this:

“the Government will strengthen the public spending framework by introducing a firm limit on a significant proportion of Annually Managed Expenditure (AME), including areas of welfare expenditure. This will be designed in a way that allows the automatic stabilisers to operate to support the economy.” (page 3 and paras 1.61-62)

If there is a firm limit on AME and welfare expenditure, that must mean that benefits are capped. Two thirds of relevant expenditure on ‘welfare’ goes to pensioners and nearly all the projected increase in the costs of welfare is attributable to the numbers and entitlements of people over retirement age.  Here’s a table taken from the Benefit Expenditure Tables:

2012/13 2013/14 2014/15 2015/16 2016/17 2017/18
Forecast Forecast Forecast Forecast Forecast Forecast
Nominal terms £bn
            
Children 1.7 1.6 1.6 1.6 1.6 1.7
Working Age 54.7 50.6 50.6 51.1 51.8 52.2
Pensioners 109.7 111.0 114.5 118.1 121.4 124.8
Real terms, £bn, 2012/13 prices
Children 1.8 1.7 1.6 1.5 1.5 1.5
Working age 54 54.7 49.6 48.6 47.8 47.3
Pensioners 109.7 108.8 110.1 111.3 112.1 113.1

If AME expenditure is capped, it seems to imply that payments to pensioners have to be capped. Is that what the government intends?

Public employment as a protection from poverty

Working in preparation for the budget, I’ve been looking at some stats from the OECD.  I was interested to find out to what extent  public sector employment could be thought of as a way of protecting the economy, and that led me to the nearest approximation I could find,  “Employment in general government and public corporations“.  The figures don’t show any clear relationship to economic performance, but I wondered if they might show a different kind of effect.  Here is a table tracking the OECD’s listings of public sector employment and child poverty.

Employment in general government and public corporations Poverty among children, %, late 2000s
Norway 29.3 5.5
Denmark 28.7 3.7
Sweden 26.2 7
Finland 22.9 5.2
France 21.9 9.3
Hungary 19.5 7.3
United Kingdom 17.4 13.2
Belgium 17.1 10
Canada 16.5 14.8
Israel 16.5 18.7
Australia 15.6 14
Ireland 14.8 11
United States 14.6 21.6
Italy 14.3 12.2
Czech Republic 12.8 8.8
Spain 12.3 17.2
Portugal 12.1 18.7
Netherlands 12.0 9.6
Austria 11.4 7.2
Turkey 11.0 23.5
New Zealand 9.8 12.2
Germany 9.6 8.3
Chile 9.1 24
Mexico 8.8 25.8
Greece 7.9 13.2
Japan 6.7 14.2

There are reasons not to trust the figures here – is child poverty in the UK only 13.2%? – and simple statistics can mislead, but a correlation of the two columns comes out on Excel at -0.56, which is unusually high for social data. It does look as though public sector employment and job creation in the public sector are key elements protecting people from poverty.

Britain's national income: rather worse than flatlining

There’s been some controversy about the impact of ‘austerity’ measures on the UK  growth rate.   Britain’s economy has been described as ‘flatlining’, but that doesn’t take into account the erosion of the value of its currency.  I’ve been looking at the World Bank’s World Development stats.   It may be difficult to pick the trend out from money values alone, so I converted the figures for GNI per capita to index numbers, taking 2008 as 100. It makes for a neat interactive graph on Excel, but I couldn’t work out how to display it in the blog, so here’s a table instead.

2008 2009 2010 2011
Australia 100 103.47 109.79 117.65
Canada 100 96.39 99.52 104.83
Germany 100 100.16 101.91 104.24
Denmark 100 98.83 100.93 101.83
Belgium 100 98.96 101.79 101.79
Netherlands 100 99.53 99.51 101.70
United States 100 95.95 98.89 101.52
Sweden 100 93.20 96.93 101.45
France 100 101.05 100.6 101.14
Finland 100 97.04 98.27 99.6
Italy 100 99.47 99.41 98.69
Spain 100 100.91 98.74 96.99
Greece 100 103.55 97.45 90.4
United Kingdom 100 90.2 84.09 82.80

The UK performed worse in the period 2008-2011 than every other country in this list – it’s not quite the worst performance in the world, but it comes close.  Some  countries which have been castigated for poor performance – Greece, Spain and Italy – also had declines in outcomes in the later two years, but none of them has done as badly as Britain over the four-year period.   That may be because the other three are in the Euro and the value of individual incomes in the Euro zone has not been eroded in the way that they have in the sterling area.

The timetable to independence

The Scottish Government has published a timetable for independence, under the title Scotland’s future. There have been some rather weak arguments on both sides, such as the daft idea that Scotland should refer to climate change in a new constitution, the claim that Scotland could not receive English television broadcasts (the Belgians do), the idea that Scotland could become independent in the same way that East Germany was unified in the Federal west (it’s hardly the same process) or that England could stop Scotland from using the pound (money is money: look at the countries round the world that use the American dollar).

The objection has been made that there is too many points to be negotiated for independence to be possible in the time frame. The point about independence is not however that all issues have to be decided – Alan Trench has pointed out that Czech Republic and Slovakia are still negotiating agreements, 18 years after separation – but that there has to be a government capable of negotiating them, and carrying the authority and legitimacy to implement new rules. That, not the settlement of all issues, is what the timetable needs to relate to.

There would need to be negotiations about assets, land ownership (who owns the military bases?), preservation of rights (such as licences for oil production), the division of the National Insurance fund and so forth. Where there is a need for negotiation, however, it would not imply that the process of independence needs to be slowed; if anything, it would imply that it needed to be speeded up, to avoid any doubt about the status and authority of the negotiating parties.

Protecting the self-employed

Self-employment covers a range of circumstances – not just independent operation, but freelancing, contract work and the evasion of labour rights by employers. It does reflect a change in the character of the labour market, and that in turn presents challenges for the design of benefits. Figures from the TUC show that the rise in ‘jobs’ is actually a rise in self-employment. The numbers of people in employment fell from 2008 to 2010, but have nearly recovered 2008 levels; the numbers of self employed have increased, and 40% of new jobs since 2010 have been in self-employment.

There are three main ways to provide social protection for people who are self-employed. The first is social insurance. The Beveridge scheme largely excluded the position of self-employed people, but it was designed to respond to part-time, casual and flexible working. Unemployment Benefit used to pay people for days not worked – anyone who earned more than £2 as day lost the benefit for that day. The difficulty of extending that kind of provision to self-employed people is that their time cannot be allocated in that way; it is not practical to treat someone who is marketing, training, ordering supplies or preparing materials as if they were unemployed.

The second is the approach in Tax Credits and Universal Credit, which is to supplement income. Tax Credits have had some odd effects; a tradesman who buys a vehicle and reports a loss can get more benefit than someone with lower takings who could not afford to buy a vehicle. The White Paper argued that “Universal Credit will match more closely the structure of today’s labour market, where part time jobs and flexible working are much more common than they once were.” UC is supposed to match benefits to income on a monthly basis. The Institute of Chartered Accountants thinks this is impractical – self-employed people often don’t know what their net income is, and may not have the resources to work it out. The government has decided that self-employed people will be treated as if they have a full-time minimum wage – which blows a hole in the side of any attempt to match support sensitively to income.

The third option is to try to stabilise income, rather than to respond to it. There are not enough benefits that are paid like Child Benefit at a steady rate, regardless of changes in circumstances. If the government is serious about responding to the demands of a flexible labour market, there need to be more.

Scotland in Europe

In a perceptive article, Michael Keating points to a series of misconceptions behind David Cameron’s position. Given the options that Cameron is proposing, which lie between moving half-way out of Europe or wholly out of it, Michael suggests that people in Scotland who are pro-European may need to vote for independence if they want to remain in the EU.

At the same time, various European officials and politicans have been lining up to say that Scotland can’t expect a smooth passage into the Union. That seems to me misjudged – and arguably contrary to European law. The Scottish Government has been denied access to political negotiations, but another route may be open to them. I’d be interested to know the view of the European Court of Justice on any proposal to remove European citizenship from the people of a successor state that is currently entitled to it.

Europe: I’ve already voted

David Cameron has committed his party to a referendum on Europe. He proposes to renegotiate the terms of Britain’s membership; the subject of that renegotiation will be put in a referendum to the British electorate, who will be able to decide whether or not Britain remains in the EU. Those are much the same terms on which the previous referendum took place in 1975.

There are some common misconceptions about the 1975 referendum. I voted in that referendum, and being a dreadful hoarder, I still have copies of the leaflets and posters from that campaign. I can remember no point at which it was ever suggested that this was about nothing more than trade. The Government’s pamphlet, Britain’s New Deal in Europe, explained that the aims of the European Community were

  • to bring together the peoples of Europe
  • to raise living standards and improve working conditions
  • to promote growth and boost world trade
  • to help the poorer regions of Europe and the rest of the world
  • to help maintain peace and freedom.

According to Cameron, “today the main, over-riding aim of the European Union is different: not to win peace, but to secure prosperity”. That doesn’t look so different to 1975.

Cameron argues: ‘Put simply, many ask “why can’t we just have what we voted to join – a common market?” ‘ Is that what we voted on? The European Community of the time was clearly a federalist project, and the European Peoples’ Party, which the Conservatives were aligned with for many years, was federalist in principle. The leaflet for the “Yes” Campaign, delivered to every household, has admittedly only one very oblique reference to “European economic and political integration” (in a quotation from the Australian Prime Minister). The leaflet for the “No” campaign, however, was much more direct: the Common Market, they argued in the second sentence of a long pamphlet, “sets out by stages to merge Britain with France, Germany, Italy and other countries into a single nation”.

Neither of these pamphlets is available anywhere else on the Internet, so I’ve scanned the text and included them here: Why you should vote YES and Why you should vote NO. It’s striking how little the arguments against have moved in nearly forty years.

Another way to pay for welfare

The veteran US journalist, George Will, has commented that there seems to be a new political consensus in the US: that “we should have a large, generous welfare state and not pay for it.” There is an uncomfortable truth in that observation, and it prompted me to think about whether there might not be ways to square the circle – to provide welfare without seeming to pay for it.

There are lots of ways of raising money besides taxation: they include mutualist contributions (many welfare systems are non-governmental), voluntary payments (e.g. lotteries), nationalisation and sequestration (governments can, and do, claim or confiscate resources), and raising other government revenue (e.g. returns on investment, profits on government enterprise, or the sale of resources). The last of these categories is possibly the most interesting: if governments can make a profit, for example out of banking, energy or telecommunications, the money can be used for the common good. The Alaska Permanent Fund – possibly a model for Scotland – has allowed the State of Alaska to save resources for the long-term benefit of its people. It appears to be a principle that even American Republicans can accept. But we seem in Europe to have set our face against the idea that a government can legitimately take profits in order to benefit its citizens.

Merkel misses the point on welfare

Angela Merkel, in an interview for the Financial Times, suggests that Europe has to spend less on welfare to be competitive. “If Europe today accounts for just over 7 per cent of the world’s population, produces around 25 per cent of global GDP and has to finance 50 per cent of global social spending, then it’s obvious that it will have to work very hard to maintain its prosperity and way of life.” She cites the problem of competition from other countries: “Other models have long since emerged: China, India, Japan, Brazil, and they will be joined by other countries that are working hard and proving to be innovative.”

She’s missing something important. All the countries she’s mentioned are committed to social support as well as economic development. Japan has long established networks of solidarity; China, Brazil and India have all been extending their systems of social protection. So have other countries she doesn’t mention, such as South Africa, Mexico and Indonesia. Developing security, reducing vulnerability and improving welfare is a large part of what prosperity is for.

Leveson: How not to write a report

I’ve struggled with the Leveson report; there are 1817 pages of text without the appendices, and it’s a model of how not to write. The problems include:

  • an executive summary that weighs in at 46 pages – the length of a report in itself – but which mainly summarises evidence instead of summarising the arguments and the options
  • lengthy, unstructured repetition of evidence
  • wordy, self-indulgent prose
  • judgments divorced from the sections which they refer to – for example, the evidence for the failure of previous enquiries comes more than a thousand pages before a firm statement that giving the press one more chance will not be acceptable, by which time readers will probably have forgotten how strong the case is
  • lack of an adequate cross-referencing system
  • the lack of clear, concise statements of arguments, options and intermediate conclusions, and
  • lack of prioritisation – the reader cannot tell where the important points are without ploughing through the lot.

This is a pity, because there are lots of good things buried in there somewhere. The objection that this could all be done by using the criminal law is squarely tackled in volume 4. The position of new media, which Leveson has been accused of ignoring, is considered in several places. There are short but effective arguments for treating press regulation differently from other professional regulation, explaining why that redress for privacy cannot be effectively protected in the same way as redress for defamation, or making a distinction between statutory underpinning and statutory regulation. Leveson, as a judge, seems to think that his main brief was to establish the true facts – which often he cannot do – rather than identifying options for action. He does recognise the advantages and disadvantages of different options, intelligently and often well – but he smothers the critical arguments under the weight of too many words with too little shape. He needed an editor.