Category: Politics and economics

Youth unemployment

The trend is clear in much of Europe: young people are much more vulnerable to exclusion from the labour market than older people, and as economies have faltered the differential is growing. The response has often been interpreted in terms of ‘activation’, emphasising the preparation of unemployed people, and at a discussion I was at yesterday, considerable emphasis was put on employability. But employability is not the problem. The preparation of young people for the labour market is not worse than it was ten years ago; in many places it is better. The fundamental problem is that there are not enough jobs. No amount of preparation is going to change that.

Changing young people is not the way; we have to change the job market, or employers, or the economy. There are arguments for all of those, but I’d argue that the core problem rests in the job market. Entry-level jobs are limited; middle-grade opportunities, that make it possible for people to develop their experience and opportunities, are disappearing. This is not going to improve spontaneously; it implies that governments have to act to develop jobs for people to do. That implies some expense, but as Keynes argued, long ago, it is better to waste some money doing something useful than to waste a lot doing nothing.

Universality: a simple point

In reports from today’s Liberal Democratic conference, both Nick Clegg and Don Johnson have queried why the Winter Fuel Payment should be available to rich pensioners. The same argument is frequently heard about other benefits, including Child Benefit, and it could be extended to any non-means-tested benefit – health care, pensions, social care and so forth.

There are several arguments for universality – social inclusion, avoiding deterrents and so forth – but the simplest one is this. At present, everyone is already subject to one test of income: the tax system. The easiest way to manage any benefit is to pay a fixed sum and then to claw it back from tax. If there was to be a separate test for benefits like Winter Fuel Payment, everyone who might qualify would then be subject to a further test of income. Testing people’s income repeatedly is a recipe for unnecessary administration and intrusion. Why would anyone want there to be more tests than we need?

Universal Credit implementation

The BBC reports this morning that it has been able to view evidence about growing concern on Universal Credit. That should not be surprising, because the evidence to the Work and Pension Committee is public: it is available here.

There are valuable comments on the process of implementation from UNISON, South Lanarkshire Council and East Riding of Yorkshire Council. The Institute of Chartered Accountants also makes an important point I have to admit I’d not much thought about before – the situation of self-employed people, small businesses and independent workers means they will have to return their books monthly when currently many struggle to do it annually.

Much of the evidence consists of apprehension either about principles or about elements of the scheme which have not been settled. There is a growing sense, beyond that, that the problems that have to be resolved cannot be tackled in the time-scale that is planned, and that we are heading for a crash.

Using median income as a measure of poverty

Earlier this year I had a paper published about the use of 60% of the median income as a measure of poverty (Why refer to poverty as a proportion of median income?, Journal of Poverty and Social Justice, Volume 20, Number 2, June 2012 , pp. 163-175.) I suggested it would be simpler, and easier to justify, if the reference figure was 50% of median earnings instead. According to recent figures in the HBAI series, 60% of median income fell from £259 in 2010 to £251 pw in 2011. By contrast, 50% of median earnings fell from £250pw to £249 pw.

The case for transaction taxes

James Mirrlees, the chair of the IFS review on taxation, is reporting as criticising the Scottish Government’s proposal for a property transaction tax. His review in 2010 described property transactions taxes as ‘highly inefficient’ and argued that there should be an annual tax on housing services, based on up to date valuation of property. That’s all very well, but no such valuations exist; the current information is more than twenty years out of date. The problem faced by the current Scottish Government, then, is that there is no mechanism in place to do what Mirrlees recommends, and it will take years to create it.

The Scottish Government is inheriting a complex, rather obscure system. For example, there are some twenty-five different reliefs; three or four do all the heavy lifting, and about 15 are hardly claimed at all by anyone, but by the same token those reliefs don’t actually cost anything, and the Government can be sure that if they abolish them, there will eventually be protests. The system makes little sense, but it more or less works (largely because all property transfers are registered and solicitors enforce it). That’s an argument for incremental change at best.

Changing the CPI

This may be one of the most obscure technical points I ever mention in this blog. The Office for National Statistics is consulting on a new version of the Consumer Price Index – the document is here. The CPIH will be intended to take housing inflation into account. That does not have any direct implications for policy, but indirectly it seems more than possible that those elements of the CPI which are used to reflect housing issues will ultimately be geared to CPIH rather than the existing CPI. And that matters because benefits, pensions and other issues are being uprated according to the CPI, which does not currently take housing into account, rather than the Retail Price Index, which does. It was recently announced, for example, that the Local Housing Allowance – the local limit on Housing Benefit – will be uprated according to the CPI. There will be a strong argument for moving this to the new CPIH.

The calculation of the new CPIH is not, however, going to reflect what people actually pay for housing. The consultation proposes to take into account the imputed rent of owner-occupiers, measured in an unrepeatably obscure way by drawing parallels with private rental values. This method is called “rental equivalence”. The concept was used long ago for taxation, and it suffered then from an obvious problem – information about rental values is hard to come by, and what we have is dominated by the social rented sector. I can’t tell as things stand whether this will lead to a higher or lower rating for the CPI. However, it does seem undesirable to produce figures that will influence benefit levels by jiggery-pokery, rather than straightforwardly measuring what people actually spend.

Why refer to poverty as a proportion of median income?

This is the abstract of a paper I’ve just had published in the Journal of Poverty and Social Justice, vol 20(2) pp 163-176 – the paper is not online yet but I have received a paper copy, so it will appear shortly.

“The most widely used indicator of poverty refers to a threshold set at 60% of median income. This paper reviews the implications of this approach and the conceptual problems it raises. The threshold relates to inequality and ‘economic distance’ rather than need. Though it was initially intended to be simple and comprehensible, the indicator causes considerable confusion, and successive refinements, including adjustments for disposable income, housing costs and equivalence, have limited the accessibility and use of the figures. Referring to median earnings would be a simpler, more practical approach.”

Poverty, democratic governance and poverty reduction strategies

I have given a presentation today at an International Symposium in Istanbul, Turkey, organised by Fatih Sultan Mehmet Vakif University and Sosyal Politikalar Dernegi.  The argument was this:

The Poverty Reduction Strategy Papers have become a significant experiment in world governance.  Poverty is a complex, multidimensional phenomenon, and responses to poverty need to be adapt to a wide range of circumstances.  In the belief that deliberative democracy is the route to prosperity, international organisations have directed governments around the world to undertake a process of strategic planning, based on participative development and negotiation of policy with stakeholders. However, the emphasis in the PRSPs seems to have fallen more on the methods they use than the substance of the strategies.  Democracy is not valued only for its process; it matters what it achieves.   If PRSPs are to help the poor, they need to extend their focus, moving beyond procedural issues towards substantive policies that stand to benefit the poor.

Here is a copy of the slides and a copy of the paper.

Symposium in Istanbul

Saving for a rainy day

Why don’t public sector agencies have any savings to protect them against unforeseen events? The answer is, simply, because they’re not allowed to. If government agencies were able to decide for themselves when or what to spend, the Treasury would not be able to control public expenditure at any particular time. And public sector agencies aren’t allowed any slack, which is viewed as “waste”. They’re not generally permitted to transfer money between specified budgets, or across financial periods (a process known as “virement”). Danny Alexander, the Chief Secretary of the Treasury, has announced that the Treasury is winding down its contingency funding, and that government departments must now set aside 5% of their funding to meet contingencies. This presumably means that they must be prepared to reallocate budgets – which is equivalent to having no contingency funding at all. It also means that the capacity of every department to deal with major events is conditional on its own resources, rather than risks pooled across the sphere of government. Perhaps this is prudent housekeeping, but I can’t see how.

The impact of Work Experience

In February, I wrote to the UK Statistics Authority to express concern about some uncheckable claims being made about the benefits of work experience. The Minister for Employment, Chris Grayling MP, had published an open letter to Polly Toynbee on Politics Home, claiming that “a significant number of placements turn into jobs, with the employer getting to like the young person and keeping them on. … so far around half those doing placements have come off benefits very quickly afterwards.” In the Times on 24th February, he also claimed that “half those young people stop claiming benefits after taking part.” (p.32) This was referred to in BBC’s Question Time on 23rd February as evidence that the scheme was working well. The only evidence, however, was based on a first cohort of 1300 people on placement from January 2011 to March 2011, when by the time of the statement the scheme had been extended to more than 34,000 people.

The DWP has now published more data, this time covering 3490 people in the scheme from January to May 2011. It shows an increase in employment, by comparison with a group of non-participants, from 27% to 35%. There are two main reservations to make about the figure: that it still relates only to an early cohort, who may (or may not) have been easier to place than later cohorts, and that there is no explanation of what being “in employment” might mean in terms of hours or duration (the only test seems to be that the employer has sent a return to HMRC). It is also a lot less than the 50% originally claimed.