...a blog by Richard Flowers

Wednesday, July 08, 2015

Day 3502: Budget Summary – Conservatory Vote to Lift Ban on Shooting Labour's Foxes*


Master Gideon's it's-not-an-emergency emergency budget will be hailed as a triumph by all the usual suspects; the "living" wage announcement feted as a brilliant coup.

They'll love the Inheritance Tax cut; they'll delight in raising the Personal Allowance that goes to the well-off (and goes against everything the Coalition did); they'll relish the allowance for dividends (favouring unearned income once again); they'll thrill to the grinding oppression of the working classes.

It's a budget for rent seekers, not workers.

It's a budget for the old, not the young.

It's a budget for the dead rich, not the poor living.

In the Treasury, the Chancellor reviews those final Budget figures

The big flashy "rabbit from hat" moment was that introduction of a compulsory £9/hour "living" wage (by 2020), which – along with action on Non-Dom status taxpayers – was pinched straight from Hard Labour's 2015 manifesto. (In fact Mr Milipede was promising only £8/hour by the end of the decade, so that fox was well and truly shot).

Alongside their COMPLETE CAPITULATION on the Benefit Cap (caving in to the Conservatory rhetoric about "benefit street" culture, even though it's total Boss Hog Wash) leaves the Far Too Loyal Opposition floundering.

Even the "spending someone else's money"-ness of saying "Business must pay for a compulsory living wage!' is tres Milipede. But by foreswearing mere 1% pay rises for the public sector, isn't he saying: "Do as I say, not as I do"? (Clue: yes!)

The living wage according to the Living Wage Foundation should be £9.15 in London and £7.85 everywhere else.

So that £9 is does not sound too bad. (We cannot assume that inflation will be nothing forever, but even if it gets back on the 2% target from next year those figures are likely to be around a £9.90 and £8.50. So still okay for those not in the Capital, if a bit more squeaky for That Londoners.)

There's a sort of circularity to it all.

At the moment the (Tory) reasoning goes: the Government collects tax and then pays it back to people as Tax Credits thus subsidising jobs that do not pay a "living" wage – now they take away the tax credits but will force companies to pay more, and raise the personal allowance so that the income tax on that is well who knows more? Less? The same? All of the above?... but George will cut the companies' Corporation Tax rate to the lowest in Europe... so we are still subsidising the same companies to pay those jobs.

(Of course, I would usually point out that "not taxing" is not the same as subsidising… and that's true here too! If the companies lay off the "living" wage workers… they still get to keep the tax cut! Trebles all round!)

It's certainly not that I'm an enormous FAN of the Tax Credits system. Mr Frown invented it as a fix so that he could count it as "negative" taxation (while also Empire-building, so he could control a share of benefits from the Treasury). They ARE somewhat redistributionist, gathering up tax and giving it to lower income earners.

My main objection is that you have to fit into the right categories, you have to be deemed "worthy" by the Chancellor, in order to qualify and that strikes me as dangerous, handing largely unaccountable power to an office in Whitehall (and all the minions of the bureaucracy, with no offence to the Hon. Lady Mark). Mr Frown gained a moderate amount of infamy from the way that each year his budget would change who the "good" people were in a way that ENTIRELY COINCIDENTALLY reflected his own changing life circumstances – new baby = child trust fund; off to school = extended child tax credits and so on. That's moderately quaint. And also obviously massively corrupt.

(On top of that, I don't like that they're too complicated for anyone to understand, resulting in them going wrong all the time and causing hardship when the Government comes round to snatch back the money they've already given you.)

So I don't think there'd be anything terribly wrong in allowing the Tax Credits system to die a natural death by RAISING WAGES so much that Tax Credits became unnecessary.

What I don't think is a good idea is putting the cart as it were before the horse. And then flogging the horse to within an inch of its life.

As I said about Greece: making poor people poorer does not magically make them richer.

And the cuts to tax credits are a bit EYE-WATERING: currently there's a taper set so that you lose 41% of each pound you earn over £6,420; Gideon has upped that taper to 48% and almost halved the starting point down to £3,850. So – for those who jump through the hoops to qualify – that's an effective marginal tax rate of 48% on earnings at the bottom end, and you start paying it on a much lower wage. Compared to 45% on earnings over £150,000.

How all in it together are we?

And don't even THINK about trying to get out of poverty by working or educating yourself. In a calculated DOUBLE-SNUB to younger people, the living wage ISN'T going to apply if you are under 25 AND he's abolishing maintenance grants – adding another twenty-five grand to your student loans.

It would be TERRIBLY easy to say: "those students who wanted to punish the Lib Dems over tuition fees – how's that working out for you?".

But in truth this is just desperately COUNTER-PRODUCTIVE, undoing the GOOD that the Liberal Democrats in the Coalition tried to do for increasing social mobility, and undermining the ENTIRE COUNTRY by reducing the incentive to educate our workforce to higher-paying jobs.

Similarly, freezing all benefits for five years – billed without irony as "to allow salaries to catch up"(!) – goes against every effort that the Liberal Democrats made in Coalition to protect the most vulnerable. And slashing the Employment Support Allowance that enables people with disabilities to participate in the workforce is just going to damage not just their lives but the amount they contribute to the country.

Oh and he's chopped the cap on welfare payments from £26,000 to £20,000. For what can only be described as "reasons", we happen to know that finding an extra £500 a month is, ahem, "quite difficult" even when you're on Daddy Richard's salary. So goodness only knows how you're supposed to manage when you're on a low income and in-work benefits or no income at all.

And of course his TOTAL COWARDICE of making the BBC decide whether or not to cut the benefit of free TV Licences to the over-75s. (They decided to take the hit.) A kicking for Auntie Beeb always proving a real crowd-pleaser with the rabid right on the backbenches – not to mention the dead tree media barons.

"Hello, I'm George. Pwease can I be leader next!"

So them's the LOSERS; who's the WINNERS?

There are substantial tax giveaways… to the favoured middle-classes. The rise in the Higher Rate threshold on top of the rise in Personal Allowance is a complete reversal of the Coalition years' policy that NARROWED the band so that ALL of the benefit of raising the Personal Allowance went to Basic Rate taxpayers. Now, Higher Rate taxpayers will get TWICE the benefit of basic rate payers, plus extra ON TOP. (Combined I think they're worth about £200 a year.)

Master Gideon has also done a thing with dividends – pretty much making up a whole new tax, in fact, "Dividend Income Tax", separating the taxation of dividends from other income and giving it its own Personal Allowance. He toasted himself for saying that it would be possible to receive up to £17,000 in income without paying any tax, but a lot if not all of that would be from UNEARNED income – so it promotes "rent seeking", rather than working to or investing in creating wealth.

(On the good side, this may have slightly restored the tax credit for pension funds that Mr Frown raided back in 1998; that's good for me – or anyone with a pension – as there a better chance of them not going BUST before we retire. And it's good for City pension fund managers. But less so for the economy more widely, as money that is saved in pensions – i.e. sunk into the stock market – isn't circulating in the wider economy generating profits).

And of courses there's a million pounds free of Inheritance Tax.

It's almost as the though the Baronet doesn't WANT people to earn money. Why bother when he can get it for nothing from daddy?

On top of it all, his target for getting the budget into surplus has slipped another year (since March!) which suggests this really wasn't the time to be throwing tax away. Growth predictions are down as well – not a lot he can do about Greece or China, to be fair – but slashing capital spending on his "Northern Poorhouse" and withdrawing cash from the people most likely to spend it and giving it away to people to put in non-productive investments point very much the wrong way for growth and much more towards a repeat of 2011's short sharp STOP.

Does make you wonder where from his hat he plans to pull the EIGHT BILLION QUID he promised for the National Health Service. Again. And – in another multi-billion bung as a sop to those wingnuts on the Conservatory right – the 2% of GDP he's guaranteed to spend on guns and bombs. Maybe the RABBIT ate it?

On the whole I think it was a flashy and "clever-clever" budget, but lacking in any real substance, biased towards people who already have capital (in large supplies) and with the potential seriously to undermine the country's recovery by prolonging austerity and cutting the money being spent.

As an advertising feature called "What Did the Liberal Democrats Ever Do For Us?" I think this is a work of crazed genius. As a programme for recovery… well, I hear Yanis Varofakis is looking for a job

The proof of the pudding will be in how we all feel in a year's time when we'll know if he's killed growth stone dead. Again.

Or in 48 hours' time if it implodes the way his "Omnishambles" budget did.


*Yes, they tried to bury an announcement on lifting the hunting ban too.

Tuesday, July 07, 2015

Day 5301: Speaking Out Against Extremism


As a member of an ethnic community (namely white people*), it has been brought to my attention that we're in danger, as a community, of "tacitly condoning" extremist language from my fellows because they are "people like me".

These people prey on young British men and women, trying to persuade them to travel to foreign countries thousands of miles away, to perform acts of terrible violence with high explosives.

I mean, of course, people like Mr Michael Fallon, Secretary of the so-called Ministry of Defence (by which we mean Attack) who thinks we should be exploding things in Syria.

There seems to be something about Syria that EXEMPTS politicians from remembering what actually happened. If it's not Mr Milipede claiming he "stood up to President Obama" (when in fact he and Mr Balloon basically cancelled each other out with very similar "let's bomb Syria" motions) then it's Mr Fallon saying we should "think again" about attacking people who we were never thinking of attacking and defending the people who we WERE thinking of attacking!

I think there's a name for how this happens: it's called "lazy journalism" – "Oi! Newspapers! Look at the record and CHALLENGE people when they MAKE this STUFF UP!"

Of COURSE things are more COMPLICATED than just "bombing people bad".

Our history – in the last ten years, or a hundred years, or a THOUSAND years(!) – is one of sticking our fluffy noses into the Middle East and making a mess. So we've got RESPONSIBILITIES and AMENDS to make.

And the Not-Islamic Not-a-State terrorists (should we call them NINAS to keep the Prime Monster happy?) are, as far as I am able to judge from their actions, among the most horribly evil people on the face of the planet, and if they come anywhere near us then we would be quite right to fight them off with the full might and power that the West could deploy.

But they AREN'T anywhere near us. And we certainly do not seem willing to deploy enough might and power to defend the people in the region that we say are our friends. And deploying only the tiny fraction of the full might and power that we can be bothered to send – while still fully capable of flattening large areas of any Middle-Eastern country – doesn't half badword off the survivors!

If you want to intervene, then (a) get a UN mandate and (b) send enough troops actually to do the job. Lobbing bombs in the general direction of people you don't like just so you can feel better… that's what TERRORISTS do!

We have in the West an "ultimate weapon" that for all the undoubted impressiveness of all that might and power is INFINITELY more successful than ANY amount of ordinance: it is called PEACE. Sometimes it is called prosperity.

It is why Ukraine is willing to stand up to Vlad the Bad. It is why hundreds of thousands are willing to throw themselves in leaky boats to cross the Mediterranean.

So I KNOW it's COMPLICATED, but can we at least START from a position of HUMBLY accepting that we keep messing up and that SWAGGERING around THREATING to EXPLODE people is, to say the least, not helping.

Today is "7/7". We should remember. And we should do BETTER.

*white ELEPHANT people, thank you.

Wednesday, July 01, 2015

Day 5295: Making a Drachma out of a Crisis


Featured on Liberal Democrat Voice

The badly-wounded Greek economy lurches between survival and final total collapse.

When the Greek Syriza Government – elected on an unfulfillable promise to end austerity AND settle with their creditors – hit the brick wall of reality, they abdicated responsibility, punted it back to the people in a referendum where not even Nobel Prize-winning Economists understand the choice, and seemingly killed any chance of a last-minute rescue.

But now, as he's already over the brink, Prime Minister Tsipras appears to accept the demands of the people trying to save him.

Update: or would he rather his people voted no, and carried on into the abyss?

How can this rescue the Greek economy?

How much does a Greek... oh, you've heard it

This is what a taste of Economic Armageddon looks like: their banks are closed; their Euro lifeline is suspended; they've missed a payment to the IMF – though the IMF, obviously unwilling to pull the trigger, declares that they're "in arrears", rather than "default"; and they've managed to piss off most of their neighbours by apparently playing silly-beggars over this referendum…

There appear to be two – equally heartfelt – responses to the crisis unfolding in Athens and engulfing the Greeks.

The first is: Why should we (or at least Europe) continue to throw good money (raised from EU taxpayers) after bad when Greece has already been treated with incredible generosity – more than half of their debt was written off and the rest was effectively nationalised by the EU in the immediate aftermath of the global meltdown – while they have failed to do their part in reforming their pensions, government or tax collection?

The Greeks are seen – largely legitimately – as the authors of their own downfall:

  • their now notoriously-generous pensions (retire at 55, receive £1000 a month for 14 out of 12 months a year… it seemed too good to be true, and guess what… it WAS!); a welfare system that appear to involve generously paying grannies to make sure their kids are all right: Greece has a population of 11 million, 2.6 million (24%) of whom are receiving their pension. No wonder the system is still going bust!
  • their kleptocratic government (who fibbed their way into the Euro, and, with the help of Goldman Sachs, were hiding some rather substantial "off-balance-sheet" debts until they were uncovered as the whole sub-prime derivatives market unravelled in disarray);
  • their cripplingly-expensive loss-making 2004 Olympic vanity project that left Athens bedecked with new ruins of abandoned stadia;
  • and their basic unwillingness to pay taxes (with tax evasion estimated to run at 40%-50%!); their spending has gone up with their post-Euro-entry GDP, but they are still collecting roughly the same amount of tax as they were in 2001.

It's not that Greeks do not work harder than Germans – if anything, the reverse is true. It's not even that they all retire at 55 to sit on an Aegean beach. It's because Greece is a small country largely dependent on a service sector economy.

80% of the Greek economy is in service sector jobs. To be fair, so is Britain's! But unlike Britain, where high-value financial services are by far the biggest part of that sector (40% of service sector; 30% of the total economy – don't look smug; that's why our economy was nuked in 2008), in Greece those services are TOURISM and SHIPPING, both of which pretty obviously take a hit during a global recession (when fewer people can afford to take a holiday and fewer goods are being bought and sold and therefore moved about) and both of which are given a relatively low value (while huge banking hubs like London are RARE, there are PLENTY of OTHER places to go on holiday or OTHER boats to ship your goods in).

The pre-existing infrastructure for manufacturing in Germany (or for finance in London) put Greece at an inescapable disadvantage. Nor do they have the massive population of a China or an India or a Brazil and even if they did certainly not one willing to accept the low standard of living that lets those countries (currently) undercut on cost of labour. Hiking their minimum wage probably didn't help, but really they were never going to go low enough to be cheaper than places where people live on a dollar a day.

They wanted all the benefits (and some) of a Northern European economy. Without the Northern European economy to support it. So they elected Governments who gave them what they wanted but paid for it on tick.

And by electing Syriza, who were committed to spending even more money that they don't have (and have already made a start by re-hiring 15,000 civil servants), the Greek people have given a pretty obvious gesture to their creditors.

The other response is to see this as tyranny, even cruelty, an immoral "moral crusade" by faceless, foreign, unaccountable, "neoliberal" (see my button eyes roll), capitalist bankers overruling the sovereign wishes of a democracy. If it's NOT the Greeks fault – they are hardworking but geographically unlucky – then it must be someone else's, it must be the sinister cabal of capitalism!

This view says that the conditions imposed on Greece – in particular the demand that the Government slash spending to the point where they were able to run a surplus – were (indeed still are) not only utterly unachievable, but actually at the root of why Greece's recession has persisted for six years. Making poor people poorer doesn't magically make them richer.

Great Britain, they remind us – no matter how smug Gideon is about our superior growth rates – has moved out of recession while continuing to run elephant-sized deficits and thus stimulating not smothering our recovery (though that's largely thanks to Liberal Democrat amelioration of the more insane Tory austerity plans).

But Greece HASN'T been running a surplus either – they've just not run ASTRONOMICAL deficits the way Great Britain or Americaland have; with Greek debts already 175% of their GDP they've had no flexibility to do so.

There are a FINITE amount of lenders to go around, If EVERYONE is running deficits because of the recession, OUR deficit – looking like a safer bet – has probably sucked up international lending making it harder for Greece to attract another sugar daddy. In fact, their membership of the Euro may have actually SAVED them by forcing this role upon the otherwise-unwilling Germans.

Eurosceptics (and idiots) insist that membership of the Euro effectively locks Greece into an unsustainably high exchange rate that continues to draw money away from the Mediterranean countries and into Germany, and they should crash out and devalue to regain competitiveness.

These are usually the same people who celebrate Mr Frown's intransigence in keeping Great Britain out of the Euro, saying "look, look how badly Greece and Spain and Italy are doing!" even though – by their exact same argument – the huge financial centre of London would have sucked money into the UK making us huge winners from the deal.

There IS some truth in saying that single currency areas need to make revenue transfers back to their economic peripheries – in the UK (sterling single currency area) payments go from London and the South East to other parts of the country; in Americaland (US dollar single currency area) payments go from the coasts to the central States.

European debt-forgiveness has achieved something like this but in a half-hearted and haphazard manner.

However*, the REAL impact of Euro entry saw Greek GDP per capita go from $12,000 in 2001 (when they joined the single currency) to $32,000 in 2008 (when the market hit peak just before the crash) and has so far fallen back to $27,000. So anyone who says that the Euro has been a bad thing for the Greeks is totally talking out of their hat; and anyone who thinks that things there are as bad as they could get has wilfully blinded themselves to just how much further the Greek economy could fall.

The great fear of Germany (and everywhere else), apart from being stiffed with the bill for all this, is "moral hazard" or the "how many people can you pull into your lifeboat before it sinks and you ALL drown?" problem.

Greece may (still) end up defaulting. And if they DO, they may "get away with it", that is, see their way through to an economic recovery.

Iceland did something similar a few years ago. Their banks went bust and their government simply refused to pay up and when they refused to pay their debts it meant that somewhere else a lot of people's money ceased to exist. Iceland "got away with it", and have seen an economic recovery. That recovery was largely paid for by YOU, the British Taxpayer, because a lot of that money that ceased to exist was ours. Lured by ridiculously generous interest rates that, as it turned out, like the Greek pensions, really were too good to be true, lots of people had put their saving into Icelandic banks. And several councils had put really silly amounts of money there too. And the Treasury forked out to cover those losses, paid for from your taxes.

Those losses were a lot easier for sixty million Britons to bear than three-hundred thousand Icelanders.

If Greece defaults, European governments – mainly the German one – will fork out and eighty million Germans will find it easier to bear than eleven million Greeks.

But where does it end?

Because if Greece can "get away with it" – goes the worry – what's to stop Ireland or Portugal or even Spain or Italy defaulting? At SOME POINT we will HAVE to draw a line. So draw it here and now, they say.

So how do we get these two views? And how do we resolve them?

Well, I think (and it may seem perverse) that the first view is the OPTIMISTIC people, who think that Greece's problems COULD be solved (if they'd just do something about some of them!).

The second view is from people who think Greece's problems are UNSOLVABLE, and therefore want to bung the problem to someone else (someone with enough money to cope with it – meaning Germany… but… moral hazard…).

In a way this is because there are really TWO problems: lack of LIQUIDITY (i.e. no cash in the banks) v lack of SOLVENCY (i.e. expenditure exceeds – all possible – income).

What we NEED to do is SEPARATE the unsolvable problem (the ever-expanding debt that is soaking up all the money) from the (possibly) solvable one (the imbalance in the Greek economy).

So step one: quarantine the existing debts at zero interest. Postpone any further repayments by Greece.

Step two: rather than the random method of letting them borrow willy-nilly and then cancelling some arbitrary chunks of the debt, agree revenue streams from the EU that will allow Greece to BALANCE THEIR BOOKS in return for them implementing reasonable controlling of their spending (and tax raising).

Step three: be aware that every other country in Europe is going to want in on this scheme and immediately begin the work to create accountable democratic control, otherwise Germany will secede from the EU even before Britain manages to vote in Mr Balloon's daft referendum.

*Bite me, Michael Gove (the goft that keeps on goving)