Jenrick’s conjuring trick

“Just like that!”

Robert Jenrick made a big fuss about statues a couple of weeks ago. In a Sunday Telegraph article, he promised to save statues and street names from “town hall militants and woke worthies”. So great is the danger, he is proposing to change the law. Any attempt to remove “heritage assets”, he said, would require planning permission and a full public consultation.

The previous Saturday, the day before this article was published, Mr Jenrick’s department made a major announcement. It wasn’t about statues though. The new policy announcement is the Right to Regenerate – a proposal which would give ‘the public’ (in other words anyone) the right to force the sale of ‘underused public land’. It was couched in fluffy community language but it didn’t take long for the professionals to see through it.

From the Architects’ Journal, here’s Tim Sloan:

It doesn’t take long to see how misguided these proposals are. Why only public land? Why isn’t the government also going after the private developers and housebuilders allowing their assets go to waste?

It’s difficult to see how any publicly owned assets that are released won’t end up going to developers – the only people with the time and money to properly pursue councils to dispose of what they don’t have plans for themselves.

And Holly Lewis:

This proposal will further strip local authorities of vital assets with the potential of serving niche interests rather than the public good.’

Once again serving up policies that favour time and cash rich communities, this proposal does nothing for the most needy – those that local authorities should be in a position to support through creative reuse of buildings and spaces that they control.

Former RIBA president Ben Derbyshire warned of a potential horror story, describing the policy as a ‘wolf in sheep’s clothing.’

Right to Regenerate is, effectively, a land-grabbers’ charter. Well-resourced companies, deploying expensive legal advisors and geospatial surveys, would be able to identify ‘underused’ buildings or pieces of land. They would then have the legal right to force councils and other public bodies to sell them and would be given a first refusal option to buy any property they identified.

Of the two proposals, the one given most prominence on the Ministry of Housing, Communities & Local Government website is Right to Regenerate. It’s currently sitting in the ‘Featured‘ spot on the website. The statement about statues, although it came out a day later, has all but disappeared. It’s not even on the website’s menu. You need to do a search to find it. It’s clear, then, which of the two policy announcements the civil servants believe is most important and most likely to lead to policy changes and legislation.

From the media reaction, though, you would conclude the opposite. You can probably guess which of these stories got the most column inches. The Right to Regenerate barely made it beyond the trade press and was pretty much done by the middle of the week. They were still talking about statues and ‘woke mobs’ on Marr the following Sunday and there are still articles about it appearing almost two weeks later.

Notice something else though. The Right to Regenerate announcement contains no mention of a planning process or public consultation. It appears, then, that Robert Jenrick plans to give you the right to oppose an attempt to take down a statue or change a street name but when it comes to developers helping themselves to bits of your local park, you’ll get no say because that will be their ‘legal right’.

Here we see the Culture War in microcosm. You get to have your say on stuff that doesn’t really make much material difference but when it comes to matters involving money, land or other resources, you don’t get a look in.

We know, though, that most Conservative MPs don’t really care about ‘culture war’ issues. Most of them are more socially liberal than the average voter.

American political scientist Alan Wolfe famously said:

The right won the economic war, the left won the cultural war.

But that’s because the right didn’t really care about the culture war. Both Thatcher and Reagan preferred to fight on the economic front. It was far more important to deregulate the economy and tame the unions. Let the left have their diversity, discrimination laws and ‘political correctness’.

The right likes to let the left ‘win’ on culture war issues because it enables them to talk up the threat of the country going to hell in a politically correct handcart even when a Conservative government has been in power for a decade. The last thing the Conservatives want is to stop people taking down statues. You need the odd statue-toppling or street name change to convince people that the baying woke mob really is at the door.

As planning lawyer Nigel Hewitson pointed out, most historic statues are listed, so there are already significant administrative barriers to removing them. But that wasn’t really the point of Mr Jenrick’s article. Its real purpose was to reignite the war on wokeness, not to trail a serious policy. That was done the previous day.

David Olusoga described the fuss over statues as theatre but a conjuring trick might be a more suitable analogy. Conjurers use sleight of hand and misdirection to divert the audience’s attention from the mechanics of the trick. By proclaiming his defence of statues that no-one is actually aiming to pull down, Robert Jenrick diverted most people’s attention. His forced privatisation policy has barely been discussed.

In 1852, Karl Marx made an astute observation about English Toryism:

The Tories in England long imagined that they were enthusiastic about monarchy, the church, and the beauties of the old English Constitution, until the day of danger wrung from them the confession that they are enthusiastic only about ground rent.

It’s as true today. The economic war is what really counts.

Next time you hear a government politician or one of their think-tank outriders banging on about statues or some other manufactured culture war outrage, ask yourself what else is going on. It will probably be something important, something that involves actual money and resources. Follow the money. Look for the ground rent. That’s where the real story will be.

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Corporate purpose: a new dawn or a defensive ruse?

Is the corporate zeitgeist changing? After 30 years of shareholder primacy and focus on shareholder value, the language seems to have shifted.

In what may be a sign of the times, the FT has started a Moral Money Forum, focusing on long-term and sustainable business. Its authors, Gillian TettBilly Nauman and Patrick Temple-West, remarked: 

There have been so many announcements this year about the corporate world embracing ESG principles that it is temptingly easy to roll your eyes whenever a new survey drops. But sometimes, Moral Money remembers to stop being (almost) blasé and marvel about a crucial point: today’s corporate zeitgeist looks notably different versus two years ago, never mind a decade back.

Mark Carney talked about corporate purpose in his recent Reith lectures. He too senses a shift in the zeitgeist:

My sense is we’re at a stage where we have companies that in many respects are looking for pursuing purpose, but solving problems for society and, therefore, they will be profitable over the long term. 

The question is, for some, will they go further, do they actually give up some profit for broader purpose or broader means? 

His comments were in response to a question, not from a tree-hugging campaigner or journalist, but from a fund manager at Legal & General:

Now we’re seeing the rise of companies who are less interested in, I’d say, pure profit maximisation, and instead are pursuing profit with a purpose. 

BlackRock CEO Larry Fink made these comments in his 2020 letter to CEOs (emphasis from the original):

Awareness is rapidly changing, and I believe we are on the edge of a fundamental reshaping of finance.

The importance of serving stakeholders and embracing purpose is becoming increasingly central to the way that companies understand their role in society. As I have written in past letters, a company cannot achieve long-term profits without embracing purpose and considering the needs of a broad range of stakeholders. A pharmaceutical company that hikes prices ruthlessly, a mining company that shortchanges safety, a bank that fails to respect its clients – these companies may maximize returns in the short term. But, as we have seen again and again, these actions that damage society will catch up with a company and destroy shareholder value. By contrast, a strong sense of purpose and a commitment to stakeholders helps a company connect more deeply to its customers and adjust to the changing demands of society. Ultimately, purpose is the engine of long-term profitability.

Here’s Harvard Law School’s Thoughts for Boards of Directors in 2020:

2019 may come to be viewed as a watershed year in the evolution of corporate governance. The focus on stakeholder governance has shifted from the question of whether a board of directors should take into account the interests of other stakeholders, to how a board should do so.

It was even top of the agenda at the annual conference of the corporate rich in Davos, with the World Economic Forum publishing The Davos Manifesto 2020: The Universal Purpose of a Company in the Fourth Industrial Revolution:

The purpose of a company is to engage all its stakeholders in shared and sustained value creation. In creating such value, a company serves not only its shareholders, but all its stakeholders – employees, customers, suppliers, local communities and society at large.

Perhaps most surprising was the statement in 2019 by Business Roundtable, an association of CEOs from large US companies, which has generally adopted a free-market tone in the past. In 2020, Business Roundtable clearly reiterated its intention to break with its past and redefine the purpose of a corporation:

On August 19, 2019, 181 CEOs of America’s largest corporations overturned a 22-year-old policy statement that defined a corporation’s principal purpose as maximizing shareholder return.

In its place, the CEOs of Business Roundtable adopted a new Statement on the Purpose of a Corporation declaring that companies should serve not only their shareholders, but also deliver value to their customers, invest in employees, deal fairly with suppliers and support the communities in which they operate.

A number of papers have been published on this subject by business law academics in the US, interested in its implications for corporate governance and for the potential re-definition of what a company is for. Harvard professor John Ruggie concludes:

The rapid expansion of corporate globalization has plateaued; it is unlikely to be fully restored any time soon post-COVID-19. The construct of the corporation itself is in flux again. Markets are pricing in more of the external costs of corporate operations; ESG investing is becoming a market-moving factor; and leading corporates have moved well beyond traditional CSR to take more seriously the relationship between their own sustainability and that of the social and natural environments in which they operate. The repurposing debate noted at the outset of this chapter is not mere virtue-signaling; it is an indicator of directional change, even if not a final destination.

The trajectory of corporate law and securities regulation is tending toward greater recognition of stakeholder interests.

It is tempting to dismiss all this as another fad. Those of us who have been around for a while will remember Corporate Social Responsibility, Stakeholder Capitalism, Enlightened Shareholder Value and various other concepts and initiatives that we were told were going to nudge, cajole and persuade businesses to behave more ethically. 

This time, though, something is different. More people are talking about it and those people hold more senior positions in the business hierarchy. ESG (short for Environmental, Social and Governance) and related concepts like corporate purpose and investor stewardship have been creeping up the agenda over the last half-decade and have reached the top of it over the last two years. It’s not just a few academics and thinktanks talking about this. The idea of corporations having a purpose beyond simply making profit has gone mainstream. It’s pretty clear that something is going on. Corporate Purpose is where it’s at these days.

It seems that the idea of companies having a purpose other than profit and being accountable to a broader range of people than just shareholders has become almost orthodox. This has all happened fairly quickly. After three decades or so of shareholder primacy, suddenly everyone is talking about stakeholders and purpose. It feels like one of those rapid fashion shifts we used to get. Someone going on about shareholder value now looks a bit like the bloke buying a pair of flares just as everyone else starts wearing drainpipes. 

Although the widespread discussion of corporate purpose is relatively recent, it is possible to track a shift in the mood music over the past couple of decades. The 1980s saw the high tide of Thatcherism, Reaganomics and of Milton Friedman’s view of shareholder primacy. The corporate governance reforms of the early 1990s were primarily about protecting shareholders’ interests from the greed, malevolence or incompetence of corporate managers. 

The 1990s also saw the first widespread use of the term ‘Corporate Social Responsibility’, with its implication that perhaps companies did have some sort of social duty after all. In the 2000s, the concepts of Stakeholder Capitalism and Enlightened Shareholder Value appeared. The 2006 Companies Act, while re-affirming the primacy of shareholders, placed a duty of directors to consider the interests of employees, suppliers, customers and the wider community and to take into account the environmental impact of their decisions.   

In the aftermath of the financial crisis, the sense that something was deeply amiss with capitalism saw the focus of regulation shifting to investors. In the UK, reports by David Walker and John Kay suggested that shareholders have a duty of stewardship towards the companies in which they invest, sharing responsibility with directors for the long-term development of the company. The 2010s saw the introduction of the Stewardship Code and the emphasis on Environmental, Social, and Governance (ESG) investment criteria.

Which brings us to 2020, with the drawing together of these strands into the idea of corporate repurposing and the championing of corporate purpose by academics business leaders and  large investment management companies. 

So what’s going on? Is this really, as Larry Fink says, a fundamental reshaping of finance, with the implication that the nature of capitalism is changing, or is it simply a PR exercise by corporations trying to deflect criticism in a post-crash and now post-Covid world? 

Can companies simply ignore corporate purpose and dismiss it as the latest fad? Probably not. This has a momentum behind it that was missing with CSR, Stakeholder Capitalism and other previous attempts to reform the way companies are run. You only have to look at the quotes at the beginning of this piece to see that corporate purpose is far more of a Thing than anything that went before it. Executive search firms are reporting that candidates are asking about the social purpose of the companies. As we have already seen, major investment managers are asking about it too. Might a clear corporate purpose with a social dimension and commitment to wide group of stakeholders become a prerequisite for attracting both talent and capital? 

What might the impact of the Covid pandemic be? Will companies retrench and ruthlessly cut costs as they try to rebuild their balance sheets? Or will the increased public scrutiny of organisations restrain them? I have heard the quote ‘people will remember what we did’, or variants of it, attributed to a number of senior executives. It is certainly true that many in the corporate world are keenly aware that people have paid a heavy price for this pandemic, while governments propped up economies and companies.

I also wonder about the conflation of corporate purpose with business ethics. A company producing landmines might say that its purpose is very clear but whether that fits into the WEF’s definition of serving society at large is debatable. 

And is there, as one former investment manager and business school professor said to me, a contradiction between the various duties placed on directors and shareholders?

There are deep conflicts of interest here. From the point of view of a pensioner looking for high returns, the best investment is a solid monopoly that screws the customers and passes on costs to the public. This is in direct conflict with customers, who want good value products, and citizens who want the company to behave ethically. We can’t solve this conflict by writing a better stewardship code.

The statement by Business Roundtable inevitably drew flak from the left but also from the right for “demoting shareholders” and pandering to “liberal activist investors”.  Larry Summers reckoned it might simply be a ruse to hold off higher tax and regulation. The term ‘purpose washing‘ has appeared as a descriptor for practices which, as with greenwashing, are insincere and use the concept as marketing spin.

It was this piece by Harvard Law School’s Mark Rowe that struck a chord with me though. He notes that public opinion is shifting and that anti-corporate rhetoric is a feature of both right-wing and left-wing populism.

It’s plausible to wonder, therefore, whether the Business Roundtable is recalibrating their statement of corporate purpose to help put big business lower on populist target lists.

Anti-corporate ideas are in the air, and they do not originate from the political leaders who are expressing them. They will persist regardless of how any leader fared.

All this might seem odd when the power of organised labour is at a low ebb. While there is definitely more open hostility towards some companies now, there doesn’t seem to be an immediate threat to the power of corporations or to the rewards reaped by those who run them. Perhaps the shock of 2016 and the realisation that politics now matters to business in a way that it hasn’t for the past 30 years has focused the minds of corporate leaders. Or maybe they believe they might actually burn the planet if they carry on as they have been and that, even with their wealth, they will have few places to hide. Whatever the reason, the corporate world has sniffed the air and senses a change. Whether anything changes beyond the tone of press releases and annual reports remains to be seen but, wherever it leads, something new is afoot in the boardrooms of the world’s major companies . 

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Brexit bureaucracy – it’s not a bug, it’s a feature

After four years during which Brexit dominated UK news, it still seems to have taken British businesses by surprise. As evidence of the disruption mounts, business groups are calling on the government to ‘do something’ to sort out the mess. According to the Observer, some even think we can re-open negotiations with the EU. The CEO of Marks and Spencer remarked, with typical British understatement: 

Tariff-free does not feel like tariff-free when you read the fine print.

All the talk of ‘new’ red tape and regulations betrays a fundamental misunderstanding about what happened on 31 December. These regulations are not new. They are the normal rules of trade. Membership of the EU’s customs union and single market effectively gave us immunity from these rules when we traded within its borders. The reason the EU built a trade wall around its borders is so that trade can move freely within it. Once goods are within the EU, the customs union means that they have already had their tariffs paid and the single market means that they have either been made or imported according to a common set of regulations. Therefore they can be moved around the EU without any further checks. 

By triggering Article 50, the UK set itself on a course to rip up that immunity, at which point, the normal rules of trade reappear. Somebody (I think it was Jacob Rees Mogg) said that the vote for Article 50 was a vote for No Deal. In a sense he was right because Article 50 destroyed the legal basis of our trade with the EU and left a blank sheet of paper in its place. We were left with the same trading relationship as Venezuela until something else was negotiated. What we have negotiated is better than No Deal but it is a long way from the ease of trade that we once enjoyed.

We have a Free Trade Agreement (FTA). Like all FTAs, tariff-free trade only applies to goods wholly or mostly made in the countries party to that FTA. Therefore, if your business is bringing in goods from Asia, attaching a design and logo to them, then re-exporting them to the EU, there will now be tariffs on those goods. There is much talk about tariffs being ‘slapped on’ British exports. Again, this is to misunderstand what is happening. Those tariffs are the normal terms of trade. They would apply under any of the FTAs we have agreed. Despite what our prime minister says, we have not negotiated tariff-free trade with the EU or anyone else. You can only have tariff-free trade on everything if you are inside a customs union.

This Rules of Origin question isn’t something that has been dreamt up overnight. Trade experts have been warning about it for years. Sam Lowe wrote about it in March 2018. As he explained, free trade agreements don’t actually mean free trade. 

Without an EU-UK customs union British exporters will face a new barrier to trade: rules of origin. No amount of positive thinking and innovative solutions can eliminate this problem.

In October 2019, former Australian trade negotiator Dmitry Grozoubinski produced a handy diagram to explain it.

A trade agreement, even one that eliminates all tariffs, doesn’t mean countries can do away with customs checks on shipments from one another. This is because while they have no tariffs between themselves, they may have vastly different tariffs on other countries. 

The diagram below illustrates why this could be a problem. In it, Country B has Free Trade Agreements eliminating all tariffs with countries A and C. Country C wants to sell something to Country A, but doesn’t want to pay the 10% tariff. So it sends the shipment via Country B, avoiding the tariff.

To prevent that, Country A needs to maintain a goods border with Country B, to check that any incoming goods are actually eligible to take advantage of their trade agreement (they really come from Country B). 

So even if we have FTAs with other countries, it still doesn’t mean that we can bring in their goods and re-export them to the EU. 

This presents the UK with some difficulty because a lot of what this country exports is made from imports. As the Institute for Government (IFG) pointed out in 2017, around a quarter of the value of UK exports was accounted for by foreign components. In those sectors where the UK is more closely integrated into a global value chain, the figure is significantly higher; 44% of the value of UK car exports comes from imported products. It was always likely, then, that some of our exports would attract tariffs under a free trade agreement.

A FTA was only ever going to mitigate the effects of tearing up our EU membership. Leaving the EU’s customs union and single market reintroduces barriers to trade. As the Resolution Foundation remarked, this means that much of the economic damage of Brexit was already baked in. 

Of course, big Brexit decisions will also be taken in the coming weeks, with the OBR expecting a no deal Brexit to permanently knock another 1.5 per cent off the size of the UK economy, on top of the 4 per cent that is baked into the forecast assuming a deal is done. This means the economic scarring from the worst-case Brexit outcome would be almost double the long-term cost of the coronavirus crisis.

The trouble is most of those of working age have little experience of life before the EU. We have traded tariff-free for as long as most people can remember and free of any checks at all since the implementation of the single market almost three decades ago. The single market was in place by the time the channel tunnel opened in 1994, so the UK has traded under its terms for as long as there has been a land border with the EU. On 31 December 2020, the trade framework that existed for much of people’s working lives was torn up. It seems that many have not yet grasped what this means.

It is unlikely that any of this will change significantly. Whatever ‘sorting out’ business groups hope the government will do is unlikely to make much difference. The bureaucracy involved in our new trading agreement with the EU is not a bug. It’s a feature. It is meant to be like this. Outside the single market and customs union, things are more difficult than when you are inside them. That’s the whole point. 

Lobbying government or MPs won’t do much good as there is not much they can do about it. It’s not like before, when we could complain about EU rules and exert some influence to get them changed. This is now an agreement with an external trading bloc signed by our sovereign government. That, too, was the whole point.

None of this is new and none of it should come as news to businesses. There have been articles, videos, online panel discussions and live events, many of them free, running for the past four years. There really is no excuse for not understanding this stuff if your business is, in any way, dependent on trade with Europe. 

We have been told that the UK will prosper outside the EU because it has exceptionally creative and entrepreneurial business leaders. Let’s hope they arrive on the scene soon because, at the moment, a lot of our business leaders still don’t appear to have understood what the hell has just happened. 

In mitigation, our government has not served its companies well. Politicians have been constantly reassuring business that everything will be fine. Perhaps a lot of people believed the prime minister when he said we were going to have tariff-free-trade. As the IFG’s Jill Rutter said, there was a lot of political pressure being applied to downplay the likely downsides of Brexit. Even so, basing the fate of your company on the guarantees of a man who said ‘fuck business’ and who was once sacked for lying might not be the soundest of business judgements. Not everyone was so credulous. As Pernille Rudlin, an expert on Euro-Japanese trade noted, Japanese companies in the UK have been preparing for Brexit for years and many moved parts of their operations to the EU in anticipation.  

Nevertheless, as that great business guru David Brent would have said, we are where we are. Paul Weller’s words have rarely seemed more fitting:

What you see is what you get
You’ve made your bed, you’d better lie in it
You choose your leaders and place your trust
As their lies wash you down and their promises rust

The public got what the public wanted, or, at least, an interpretation of what it looked like a small majority of those who turned out to vote might have wanted in 2016. That involves increased red-tape, greater difficulty exporting and most likely, a lot of businesses going bust.

There really is no going back from this now. It’s not going to get ’sorted out’. Any easing of restrictions will only be temporary. The deal has been signed. This is Brexit. It is what it is and now we have to live with it.

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The outcry over LTNs is not a culture war – it’s more serious than that

Map by LiveWestEaling

We knew the latter half of 2020 would see arguments about Brexit, lockdown restrictions, masks and the US election. What we didn’t foresee was that, in many places, the row of the summer and autumn would be about Low Traffic Neighbourhoods – LTNs for short.  I had never heard of Low Traffic Neighbourhoods until June of this year, when I was told that one had been proposed for an area near where I live. Even after someone had explained it to me, I still didn’t really get it. It was only when I saw this map that I realised what Ealing Council was trying to do.

It is a very cleverly designed traffic system that ensures everyone still has motor vehicle access to their homes but makes it impossible to use the side roads to drive between any of the major routes. As with so many things, there was not much discussion about it until the day the roads were blocked. Then it all kicked off. I soon discovered it was kicking off all over London and in many other cities too

The speed at which LTNs have suddenly become topical is due to the speed at which they have been implemented. Councils were given special powers to set up LTNs with a week’s notice and to carry out the consultation period after the implementation, using something called Experimental Traffic Orders. As could have been predicted by anyone who knew anything about human behaviour, the people being experimented on didn’t like it very much. 

Local authorities came in for a lot of stick. There was a suspicion in our area that Ealing Council was using the Covid pandemic as cover to implement a radical cycling agenda, the council leader being a keen cyclist. But, while some councils might have been enthusiastic, the drive for LTNs has come from central government. Local authorities have been strongly advised to implement such schemes and told that their transport budgets may be cut if their schemes don’t measure up. The speed of implementation is accounted for by the fact that there was a narrow window to bid for government funding. Councils were therefore in a race to get financial support to implement the schemes. The losers risked a double whammy of failing to get funding and therefore seeing their budgets cut next year for not doing enough about ‘active travel’.

If that sounds far-fetched (which it did to me when I was first told about it), check out the initial statement from Grant Shapps in May:

The government expects local authorities to make significant changes to their road layouts to give more space to cyclists and pedestrians.

Followed by the detailed report, signed by a smiling Boris Johnson, in July:

There will be first hundreds, then thousands of miles of safe, continuous, direct routes for cycling in towns and cities, physically separated from pedestrians and volume motor traffic, serving the places that people want to go. 

And how are councils meant to do this?

Low-traffic neighbourhoods will be created in many more groups of residential streets by installing point closures – for example, bollards or planters – on some of the roads. It would still be possible to access any road in the area, but motor traffic would not be able to use the roads as through routes. Streets within low traffic neighbourhoods will provide clear, direct routes for cyclists and pedestrians promoting walking and cycling. 

What if the councils drag their heels?

Many schemes take too long to get started and too long to deliver once they have been started. All future funding will be conditional on work starting and finishing by specified dates.

Those councils that don’t implement enough schemes will face the wrath of Active Travel England, a new Oftsed-style inspectorate:

From next year, Active Travel England will also begin to inspect, and publish annual reports on, highway authorities, whether or not they have received funding from us, grading them on their performance on active travel and identifying particularly dangerous failings in their highways for cyclists and pedestrians. 

Active Travel England’s assessment of an authority’s performance with respect to sustainable travel outcomes, particularly cycling and walking, will be taken into account when considering funding allocations for local transport schemes. We will consult on introducing new criteria to measure local highway authorities’ performance in respect of sustainable travel outcomes, particularly cycling and walking, when considering funding allocations for local transport schemes. 

Nice transport budget you’ve got there. Wouldn’t want anything to ‘appen to it, would yer?

The government is not messing about here! It is determined to see Low Traffic Neighbourhoods implemented and it will beat councils up if they don’t comply. It’s no wonder, then, that hundreds of Low Traffic Neighbourhoods have appeared all over the country in the space of a few months.

In many areas, opinion has been bitterly divided. The vitriol on social media appears, to me at least, worse than that over Brexit. Bollards and planters have been vandalised and people have been threatened. This has led some to characterise the battle over LTNs as another front in the culture wars. It’s a compelling story – yet another divide between the Remainers and Brexiters, the conservatives and liberals, the Somewheres and Anywheres. Now we can add the petrolheads and white van men on one side and the eco-warriors and cycling lobbyists on the other. 

Compelling but wide of the mark. As a proxy for the other culture war divisions, the LTN controversy doesn’t really work. The text of the article that appeared in the Observer with the ‘culture wars’ title actually went to great lengths to explain how diverse the supporters and opponents of LTNs are. My area has become, in many ways, the epicentre of the resistance to LTNs. It is from the neighbouring Northfield ward that the legal challenge to LTNs has come. Two veteran local campaigners both of whom I have got to know recently as they have been very helpful to me and my neighbours over our own local difficulties, have found themselves on opposite sides of the LTN argument. The one leading the charge against LTNs is a leftie Remain voter whose hero is Tony Benn. At 71 percent, Northfield was the 22nd most Remainy ward in the UK. Another area where there is a significant anti-LTN movement,  Lewisham, voted 70 percent for Remain. If the data is available, someone with more time than I have might want to map the referendum vote against level of opposition to LTNs. Given that most of the LTNs are in urban areas, I’d be surprised if it showed that the Remain/Leave split is much of a predictor of views on LTNs. West Ealing is not Farage country by any stretch but many of its residents don’t like LTNs.

It is also likely that social media is giving a distorted sense of the level of polarisation. Most of the people I speak to have mixed views but Twitter and Facebook seem to be split into hostile camps. Research on the discussion of LTNs on Twitter by social network analyst Jimmy Tidy found that 50 percent of the activity on Twitter came from just 20 accounts. A few very convinced and very vocal people are shaping the online debate.

The politics around LTNs are similarly complex. Ealing’s Labour council and most of its Labour councillors that have expressed an opinion are in favour of LTNs. One of its Labour MPs has criticised the schemes. Conservative councillors in Ealing and Hounslow have attempted no confidence motions against the Labour administrations, yet it is difficult to accuse councils of doing anything other than what the Conservative government told them to. The claim that many of the LTNs are poorly designed doesn’t really stand up. Yes, planters and bollards are a nuisance but that’s what’s recommended in the government report. Sure, they inconvenience people but that’s what they are supposed to do. They are meant to discourage people from driving along side roads and from making short journeys by car. The inconvenience is not a bug, it’s a feature.  Grant Shapps has flipped backwards and forwards, colluding with his party’s councillors while still trying to stick to the government line. He has admonished councils to implement LTNS, threatened to punish them for ‘poorly designed’ schemes, told them to get on with it and not be derailed by noisy opponents, threatened to reclaim the money granted if they don’t consult, then re-iterated his earlier threat to hammer their budgets if they don’t get with the LTN programme. Perhaps a man who ran businesses under assumed names finds it easy to dissemble but the mixed messages are certainly confusing for everyone else. 

Some of this will, no doubt, strike those of you with long memories as a bit odd. This is a Conservative government deliberately making it more difficult for people to use their cars. Margaret Thatcher, it is said, was not particularly interested in public transport, because ‘our people drive’. The Tories, being the party of the more affluent suburbs and smaller towns, were also the party of the habitual driver. Whatever else, this campaign for Low Traffic Neighbourhoods doesn’t sound very conservative. 

Things have changed since the 1980s though. After a fall in the mid 2000s, traffic levels are increasing again. It is likely that Covid will encourage more people to take to their cars, given that it is the only way you can move about while self-isolating.

Chart by Department for Transport

In London, the entire net increase in traffic has been on minor roads. The development of satellite navigation and associated apps have opened up streets where previously only those with local knowledge would drive. Using real-time data, powerful algorithms are diverting vehicles down whatever roads are available in a given area. Traffic has become like water, flowing along the shortest route to a given destination and automatically changing direction when obstacles are placed in its way. It is reasonable to assume, at least in London, that without sat nav, the increase in traffic would not have been possible. 

Chart by Department for Transport

This presents a problem for councils of all political colours that had been trying to reduce the level of traffic in their boroughs for some time and, until recently, thought they were succeeding. It also doesn’t bode well for the UK’s carbon emissions target.  Achieving that would have been difficult enough even with a gradual decline in road traffic. The jury is still out on whether or not LTNs have much impact on the level of traffic or vehicle emissions. Supporters will point to Walthamstow as an example but the very fact that the same survey comes up so often is indicative of how little robust evidence there is. There is some evidence to suggest that, over time,  LTNs discourage car ownership but the authors of the study carried out in London concede, “Sample size for LTN areas is small and hence uncertainty about effect magnitude is large.”

But even if LTNs were proven beyond doubt to reduce levels of traffic and emissions, I suspect it would have little impact on the debate. LTNs require a significant shift in behaviour and such things are not generally popular.

The row over Low Traffic Neighbourhoods may turn out to be a storm in a teacup. Maybe we will just get used to them or perhaps the opposition will kill the idea stone dead. The outcry does draw attention to an important question though. Most of us recognise, at least in the abstract, that we will need to change our behaviour if we are to have a hope of even slowing down the rate of climate change. The government’s emission targets will be unachievable without reduced car use. But that ‘we’ is abstract and somewhere in the future. I’m reminded of St Augustine, who is supposed to have said, “Please God, make me good, but not just yet.” Supporters of LTNs point to a survey (which I can’t find online) that says most people are in favour of such schemes. Opponents argue that a majority of people who actually live in LTNs don’t like them and point to the large turnouts at demonstrations. It is quite possible that both are right. 

When cities have been designed and lifestyles have been built based on decades of assumptions about the availability and speed of car use, it is very difficult to change behaviours overnight. Yes, I know reducing the number of short car journeys is a good idea but not in my area, or, at least, not yet. Yes, I know we have to save the planet but right now I need to get to West Ealing Sainsbury’s for my weekly shop and I’m annoyed that I have to do a 270 degree journey to get there. The row over LTNs isn’t a culture war, it’s a microcosm of a much more fundamental question. How the does a society built on fossil fuels shift its behaviour quickly enough to have an impact on the looming climate change catastrophe? It’s a question that’s not going to go away. 

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The almost-but-not-quite recovery

The latest forecast for the UK economy from the Office for Budget Responsibility shows an almost-but-not-quite recovery. It starts off v-shaped with a rapid bounceback, then becomes tick-shaped as the recovery slows. The tick has a long tail and, over the course of the forecast, it never quite gets back to where the OBR thought it would be before the Covid pandemic.

Chart by Office for Budget Responsibility

It was always likely that there would be rapid growth after the easing of the lockdown and the development of a Covid vaccine. Pent up demand delivers unprecedented growth after the unprecedented fall. The problem is how much of the economic damage has longer term effects. This is what the OBR describes as ‘scarring’.

As Chris Giles explained at a Zoom event I went to a couple of weeks ago, businesses face the problem of stranded capital – capital that was highly productive this time last year but is suddenly unable to do its job. City centre offices and passenger trains for example. The same could be said of human capital. Skilled workers in sectors like hospitality and retail are unable work. The question to which no-one really has an answer yet is how much of this capital will be permanently stranded. 

If assumptions and attitudes shift then so will employer, employee, consumer and investor behaviour. Even if there is a Covid vaccine, will the knowledge that a pandemic happened and might again make people more cautious? Will we be happy to pile onto crowded trains again, with our faces inches from someone else’s? Are we going to go back to city centre offices every day? Will we cram into crowded pubs? Will we shop till we drop again now that we have discovered we can order so much stuff while sitting at home? Our return to confidence looks likely to be almost-but-not-quite, so things never quite get back to where they were. For businesses with investments in stranded capital, this will be bad enough. For the stranded human capital – the people with skills they worked hard for but can no longer use – the impact will be devastating. Despite all the enthusiasm for re-skilling, changing sectors and occupations is a lot more difficult than it sounds.

As the OBR explains:

 The pandemic is quite likely, however, to leave lasting ‘scars’ on supply capacity. These can arise through a variety of channels, including: 

deferred or cancelled investment in physical capital and lower innovation as a result of the heightened uncertainty and increased levels of debt incurred during the pandemic; 

the destruction of valuable firm-specific capital and knowledge arising from business failures; 

a loss of human capital due to sustained unemployment as the economy restructures away from contact-intensive sectors; 

earlier retirement from the labour force prompted by the pandemic; and 

increased loss of days worked due to sick leave as it becomes unacceptable to turn up to work showing virus-like symptoms. 

The combined effect of all this is a hit to productivity, investment and employment. It is this that accounts for the almost-but-not-quite nature of the recovery:

The set-back to the recovery is deeper and more durable in our central forecast. But after an effective vaccine becomes widely available in the second half of 2021, output recovers to its pre-virus peak by the end of 2022. However, output never returns to the March path, mainly reflecting our 3 per cent scarring assumption. 

The Resolution Foundation summed it up succinctly:

The UK economy is set to shrink by 11.3 per cent this year, the biggest decline in over three centuries. Welcome news on vaccines means the economy will bounce back, but the recovery will be ultimately incomplete, with the economic ‘scarring’ leaving it permanently 3 per cent smaller, or £1,400 for every adult in Britain. 

But wait, there’s more. The forecast assumes that the UK will conclude a ‘typical’ free trade agreement with the EU. If, instead, it leaves the transition arrangements on WTO terms on 31 December, the growth path looks even weaker. 

Chart by Office for Budget Responsibility

Coming on the back of the pay stagnation after the financial crisis, the outlook for earnings is horrendous. The OBR’s forecasts see real average employee earnings not getting back to their 2007 level until 2026. That is nearly two decades of pay stagnation.

Chart by Resolution Foundation

As Resolution Foundation chief executive Torsten Bell remarked, what we are seeing here is the effect of three once-in-a-generation economic shocks. The combined effect of the financial crisis and its aftermath, Brexit and the Covid pandemic have left our economy permanently scarred. 

Covid has provided a smokescreen to cover up pre-existing problems. (This is true at company level too.) Things that were going wrong before the pandemic can easily be blamed on it. Were it not for Covid, we would have been discussing the fact that the economy had stalled and, most probably, gone into a mild recession during 2020. The economy hit the buffers during 2019 and shrank on Boris Johnson’s watch.

By February 2020, it was slightly smaller than when he took office and, under the threat of Brexit, showed no sign of recovering momentum. It might seem a bit mean to say it, given that the prime minister was very ill with the disease, but, in some ways, Covid got the government out of a hole. It can now blame the almost-but-not-quite recovery on the virus when at least some of it is due to the weakness of the economy beforehand and the self-inflicted wound on Brexit on top of it.

This is what the three once-in-a-generation economic shocks look like in a historical context. Per capita GDP growth for the first quarter of the 21st century will be lower than the preceding three. It looked almost as bad as this based on the forecasts before the pandemic because much of the damage had already been done.

Source: Bank of England and OBR Economic and fiscal outlook – November 2020

The 2008 recession wiped out most of the growth of the early 2000s and the economy never really recovered. After the pandemic, we will get a glimpse of what post-recession growth used to be like before we return to the per capita 1-1.5 percent GDP growth that seems to have become the norm.  

For an economy still based on the assumption of post-war growth rates and a population which still believes that, somehow at some point, we will get back to that again, this is going to present some significant challenges. The government will get away with blaming Covid for a while but it can’t get do that indefinitely. Eventually, people will notice that things aren’t ‘getting back to normal’. They will see it in their pay packets, living standards and job prospects. 

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The recovery won’t be V-shaped

Last week’s GDP figures showed the depth of the economic contraction during the lockdown and the extent of the bounceback afterwards. The decline was unprecedented but so was the subsequent growth. This is what happens when you switch the economy off then switch it back on again.

By most accounts, the recent figures were disappointing. Much of the bounceback was due to the partial recovery of the hospitality industry, aided by government subsidy and fine weather. The resurgence of the Covid virus and renewed restrictions in some parts of the country don’t bode well for the prospects of a continuing recovery.

Aside from Lockdown 2, though, there are other reasons to suspect that talk of a V-shaped recovery might be over-optimistic. The big scary slump on the ONS chart draws attention away from what was happening before the pandemic. Zoom in on the two years before the lockdown and it is clear from the most recent data that GDP growth hit the buffers well before March 2020. The economy had already shrunk on Boris Johnson’s watch and it was smaller on the eve of the lockdown than it had been a year earlier.

Source: ONS GDP Monthly Estimate

The Institute for Fiscal Studies and the Resolution Foundation published reports over the summer showing the state of pay and employment just before the pandemic. For living standards, the picture was dismal. Average pay, having just hit its pre-crisis level, was on the slide again and household incomes had fallen slightly in 2018-19. The only bright spot was continuing high employment without which, as the IFS remarked, the picture would have been even worse.

The only thing good about the UK’s economic performance after the recession was record high employment rates and even that now looks likely to fall victim to the pandemic. Today’s release by the ONS shows the impact of the crisis feeding through into the headline employment numbers. All the indications suggest that, even with continued government support, unemployment is set to rise sharply, with the lower paid suffering the biggest hit.

The government is making much of re-skilling. There’s a set of parallel narratives going on at national, organisational and individual level which depicts the pandemic as just what we need to shock the country, its companies and its people into new ways of working. The post-Covid economy will look very different but companies will pivot to take advantage of new opportunities. (Everybody’s pivoting now and if you’re not you really need to get with the programme.) This will shock the economy into renewed high productivity as zombie companies go under and the workforce reskills to take advantage of the new jobs available. That’s why the government is so keen on reskilling – hence its new advertising campaign showing shop-workers and ballet dancers retraining as cyber experts. Company failures and redundancies are re-framed as opportunities. This is just the kick up the backside you/the company/the country needed to move on to something bigger and better.

It’s a great story. No doubt older readers will remember something similar from previous recessions. Governments always pledge to help those people displaced by economic restructuring to re-skill and take on new jobs. I have long suspected, though, that the main beneficiaries from such initiatives are the companies awarded the contracts to run the schemes. 

The cold reality is that workers don’t tend to re-skill when they lose their jobs. As recent Resolution Foundation research showed, very few people change occupation and even changes in the same occupation between sectors are unusual. For the most part, when people lose their jobs, they move down the occupational hierarchy rather than up it, accepting lower paid and lower skilled jobs.  Even before the pandemic the IMF cast doubt on the ability of workforces around the world to re-skill quickly in the face of automation. Assuming that rapid re-skilling is possible, it is likely to require massive government investment. The recent record of employers on training provision is pretty poor. A few might put resources into retraining but, if previous behaviour is anything to go by, most won’t. Beware of government skills-washing. A great re-skilling is unlikely.

What we are likely to see, then, is significant displacement of people, similar to that which occurred in all previous recessions apart from the 2008 one. This will reduce demand, increase feelings of insecurity and slow down the recovery.

As Philip Inman said last week, the underlying problems with the UK economy are still with us. It is still beset by dismal productivity and a lot of its high performers of the past are in decline. Chris Giles noted two years ago that the UK’s leading edge companies and sectors are no longer as leading edge as they were. 

To make matters worse, hard on the heels of Lockdown 2 we will be switching parts of our economy off again as those firms dependent on exports and cross border supply chains will be hit with new trade barriers. Various estimates have been made as to the economic impact of Brexit but, whatever happens in the negotiations, trade will get more difficult and that is bound to impact on economic growth. The UK is the only country in modern times that has pursued a policy of making trade more difficult. A questionable policy at the best of times but bordering on the insane during an economy-wrecking pandemic. 

Add all this to the continuing fear of the virus which, as the IFS noted in its Green Budget today, is still significantly suppressing demand, and the V-shaped recovery is looking very unlikely.

I particularly liked this quote from Ruth Gregory at Capital Economics:

We expect the new Covid-19 restrictions to mean that the economy does little more than move sideways in the final three months of the year, leaving economic activity marooned 7.5% short of its pre-crisis level.

Moving sideways is a succinct description of what is going on. Some sectors are booming, while others are collapsing. A few workers may transfer from the collapsing ones to the booming ones but most won’t. Some firms will do very well but the overall aggregate is an economy which will remain smaller than it was for some time.

All of which suggests that the recovery, such as it is, will be more tick-shaped than V-shaped. Even the IFS’s most optimistic scenario doesn’t anticipate the economy recovering to its pre-pandemic level until the beginning of 2022. 

Chart from IFS Green Budget

An already weak economy has been flattened by a pandemic and then hit while on the ground by a self-launched missile from three years ago. There are serious doubts about the UK’s ability to recover from this and it is unlikely that we will see much improvement soon. It looks like we could be in for a long and grim haul.  

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The end of the furlough and the new social divide

“It’s begun,” said Resolution Foundation chief executive Torsten Bell, as the increase in unemployment fed through into the labour market statistics for the first time. He also reminded employers that there were 45 days to go until the end of the Job Retention Scheme, so consultations for any large scale post-furlough redundancy programmes would need to start now.

Until recently, the ONS labour market releases have had a slightly out-of-time look to them. Employment was still shown as being at record levels when we knew it wouldn’t be for much longer. The claimant count was rising but the employment numbers barely moved. The time-lag in labour force data and the furlough keeping many people employed, at least on paper, concealed the extent of the Covid-19 impact on jobs. (The Resolution Foundation did an excellent explainer a couple of months ago on why the employment figures seemed to be giving conflicting messages.)

Most commentators seem to agree that the employment situation is about to get quite a lot worse. Rising redundancies, falling vacancies and figures from HMRC that indicate a drop in the number of employees suggest that the labour market outlook will start to look a lot grimmer as we go into the autumn and the furlough comes to an end. No doubt newspapers already have their Halloween Horror headlines ready to roll when the Job Retention Scheme ends on 31 October.

There is already evidence that the lower paid sections of the workforce were most adversely affected by the lockdown. They are likely to be hardest hit by the coming employment contraction.

Source: Resolution Foundation, The Full Monty, 29 June 2020.

The speed at which organisations were able to make changes during the lockdown has whetted the appetites of some senior executives for further rapid and radical restructuring. Changes that would otherwise have taken years were implemented in weeks.  My data for this is anecdotal but I sense that a certain amount of ‘opportunistic restructuring’ is likely. Now that the initial shock the pandemic has subsided and managers are no longer as focused on simply keeping things going, some are looking at ways the crisis might give them an opportunity to re-design their businesses. This is perhaps borne out by the latest CIPD Labour Market Outlook, which shows an increase in the number of companies expecting to cut staff.

Meanwhile, many of those in managerial and professional roles are planning for a future in which they spend a lot more time working from home than they did before the pandemic. The reluctance to go back to the workplace is particularly strong in places with long commutes which are dependent on public transport, like London and New York. Some financial and professional services firms are preparing to make working from home the norm.

Recent data suggest that, even though the furlough is unwinding and people are returning to workplaces, many of those who have been working from home are not in any hurry to go back to their previous commuting patterns. Before the lockdown, only 7 percent of UK employees worked from home. Companies are now reporting that close to 40 percent of their employees are working remotely and that figure hasn’t fallen by much even as the lockdown has eased.

Chart by Resolution Foundation

In its April report on the economic impacts of the coronavirus, the Resolution Foundation divided the workforce into four sections:

  • Key workers in public-facing roles;
  • Workers in shutdown sectors;
  • People working outside the home – in other words, people who carried on working but couldn’t do their jobs from home;
  • People working from home.

That third category has been the least remarked upon throughout the crisis. We clapped the NHS staff and other frontline workers but there were many who were less visible, working to keep things going. The effort from manufacturing and distribution was particularly impressive. After the initial panic buying, we rarely ran short of much. Companies increased production to restore the supplies of food, soap, toilet paper and other products to the supermarket shelves.

It now looks as though this divide will solidify. It is unlikely that we will have any permanent solution to Covid-19 for some time. Frontline workers will continue to be at risk, many office workers will avoid returning to work and some of the shut down sectors will remain shut down. It may be that the Resolution Foundation has identified the new social divide of the 2020s.

Last autumn I participated in a number of discussions about the future of work, which tended to look at it in terms of changes over the next five to ten years. Now it is difficult to envisage what workplaces and employment might look like a year from now. The Covid pandemic has changed our assumptions and, as Edgar Schein told us, when assumptions change, culture and behaviour changes. As a result, some parts of our economy will not go back to normal. Some of the jobs that people used to do that we thought of as part of everyday life will no longer exist. It’s difficult to see how this will play out but the divide identified by the Resolution Foundation may be an indicator. By next year, we might have settled into a pattern  – the frontline workers, the workplace workers, the home (and occasional commute) workers  and the displaced. The implications of all this for the management of people, social cohesion, living standards and, for some, basic survival, are subjects I will return to as this story unfolds. As ever, though, it is likely that, whatever the re-ordering of work looks like, it will bring most pain to those at the lower end of the income distribution.

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Britain’s reputation trashed for the sake of a three word slogan

Theresa May was horrified by the idea of a trade border between Great Britain and Northern Ireland.  “No United Kingdom prime minister could ever agree to it,” she said. No sovereign state, least of all one that still claimed world power status, could allow a part of its territory to be severed from it and governed, even if only on matters of trade, by someone else.

Two years later, though, a UK prime minister did exactly that. He agreed to a customs and regulatory border in the Irish Sea. He then sold it to the electorate as ”a great new deal that is ready to go” and enthusiastically recommended it to parliament, which duly voted it into law. A matter of months later, the flaws in the plan and its inherent threat to the unity of the UK have become clear. What Theresa May saw immediately, Boris Johnson has only belatedly acknowledged.

The UK leaving the EU meant that there would have to be a customs border somewhere between the UK and Ireland, either on land, between Northern Ireland and the Republic, or in the sea, between Great Britain and Northern Ireland. Once the UK was outside the single market and customs union, there would have to be import/export paperwork, border formalities and checks somewhere between the two.

Trade experts explained this soon after the Brexit vote. There was no way for the UK to leave the Single Market and Customs Union and avoid a trade border. David Cameron’s aide, Matthew O’Toole, saw this coming before the referendum but his warnings fell on deaf ears. The government was always going to be faced with the Brexit trilemma. It could pick two but it couldn’t have all three. Something had to give and in the end it was circle number 3, so we ended up with Option A.

The Brexit Trilemma

 

The EU made it clear early on that it would not sanction any agreement with the UK that recreated a land border of any sort in Ireland. Once it had committed to that line, there were only three ways there could be a Brexit arrangement that applied to the whole UK. Either the UK stayed in the single market and a customs union with the EU, the BRINO or EU Minus option, it stayed in a customs union and had a single market arrangement for goods only, the Jersey Option suggested by Sam Lowe and John Springford in 2018, or it left altogether with no deal with the EU on anything, a relationship similar to that of Venezuela.

It is, with a little imagination, possible to envisage a way in which the government might just have pulled off an all-UK clean-break Brexit. It would have needed some clear guiding principles and a well thought out strategy to match. It would have required a long lead time to build up the infrastructure and staffing necessary to cope with a No Deal trading relationship and to prepare UK organisations for the level of change. A declaration of intent in 2016 to leave the EU at the end of the budget period on 31 December 2020, or possibly even later, would have given a breathing space in which to prepare. Above all, the government would have had to level with the public about what was to come.

There would have been an outcry. The Northern Ireland peace process was very much an international effort and there would have been widespread disapproval of anything that threatened it. Even so, the UK government could have constructed a reasonable argument to say that the Good Friday Agreement is over 20 years old and was concluded in very different circumstances. It would be unconscionable for such a treaty to prevent a sovereign nation from leaving a trading bloc when its people had expressed their wish to do so through a democratic vote. There would have been complaints about the UK breaching a treaty but the government could have put forward a moral case for doing so. It would not have convinced everyone but it would have been good enough for many.

This, though, would have required a government with strategic capability, moral principles and candour. It would have required planning, preparation and honesty about trade offs, with the UK public and with international partners. Unfortunately, this government lacks all these qualities and capabilities.

Instead, it signed a deal handing over part of its territory to the partial jurisdiction of an external power, while trying to pretend it hadn’t and telling its voters that everything would be pretty much the same. When the reality of what it had agreed became clear, it then pretended that the bill it had signed into law a matter of months earlier was a terrible idea and introduced legislation to renege on the deal. Therefore, instead of making a reasoned case for repudiating a treaty the country signed more than twenty years ago it is now making a hasty case for repudiating one it signed little more than twenty weeks ago. Instead of possibly being found guilty of breaking international law, it is now such a dead cert that the government has already admitted it in parliament. While some in the international community might have seen the UK’s point of view if it had made a reasoned argument for an all-UK Brexit and taken the time to make its case diplomatically with allies and trading partners, doing it this way makes us look ridiculous and offends even this country’s closest friends.

Peter Foster reported in the Financial Times on an unpublished civil service document, which warned the government some of the ways in which the Withdrawal Agreement would affect Northern Ireland.

Under the Northern Ireland protocol, which was agreed to enable Brexit without creating a hard border on the island of Ireland, the UK agreed the region would follow EU state aid law for any matter that affected goods trade.

However, civil servants warned ministers in the January briefing document that Article 10 of the Northern Irish protocol that covered state aid could give the EU power over state aid to UK companies operating outside Northern Ireland.

A decision to subsidise British companies servicing Northern Ireland clients might fall within the scope of the agreement, or granting aid to any company in Great Britain exporting to Northern Ireland or with a subsidiary in the region.

Kit Malthouse was on BBC Breakfast earlier today warning that exports from Great Britain to Northern Ireland could become illegal when the Northern Ireland Protocol is implemented. He’s right, at least in theory. If UK food standards were to diverge significantly from the EU’s, some exports might be banned. Were that to happen, though, UK exporters would also be locked out of the entire EU so they would have a lot more to worry about than not being able to sell to Northern Ireland. It’s an unlikely scenario. Perhaps Mr Malthouse was only using it to illustrate a point of principle. The trouble is, his prime minister conceded that principle at the end of last year.

The implications of the Northern Ireland Protocol were always clear. The EU even published a set of slides to explain it. In Part VI, the fact that Northern Ireland will still be governed by EU legislation on product requirements, agricultural production and state aid is spelt out.

It also sates that:

Northern Ireland can be included in the territorial scope of the UK’s independent trade policy, provided that this does not prejudice the application of the Protocol.

It’s glaringly obvious what takes precedence here.

The Withdrawal Agreement makes Northern Ireland, in many ways, a separate country. It is a partial surrender of sovereignty over part of the UK’s territory. Even the DUP, surely the stupidest political party in any European legislature, spotted this in the end. Late in the day, it finally dawned on them that the project they have been getting excited about for years isn’t going to include them. The rest of the UK is quitting the EU but their bit is being left behind. As Tom McTague said, the price of Brexit is Northern Ireland.

There is now no way out of this which doesn’t involve all the problems we would have had from a properly planned No Deal exit, together with the complete shredding of our international reputation and the probability that no-one will take this country seriously again. Even as he insists that songs celebrating the old empire are sung at the Albert Hall, Boris Johnson has set England on a course to where it was before the empire began: a peripheral European country walking a delicate line between stronger world powers. He accuses the EU trying to break up the UK. The truth is that Boris Johnson has already done that. His agreement and the treaty that he promoted have cleaved the UK into separate jurisdictions. His attempt to backtrack on the deal may further threaten the UK’s unity. If the country is becoming a rogue state, it adds weight to the arguments of those who want to leave it. Polls are already showing rising support for Scottish independence. ‘Let’s leave the ship before it sinks’ could be the sentiment that finally seals it.

Twelve years ago, the UK provided global leadership in the financial crisis. It may be a stretch to say, as some did, that Gordon Brown saved the world but the world came to London, at his invitation, to work out what to do next. Since then, first David Cameron, then Theresa May, have thrown away much of this country’s diplomatic capital. Boris Johnson is now hell-bent on destroying what is left. If he pushes ahead with his plan to renege on his own agreement even our closest friends will distance themselves from us. No one is going to listen when British politicians bang on about the Mother of Parliaments or the Rule of Law. Like the songs at the Last Night of the Proms, it will look like a façade from the past. Peel back the curtain and there is nothing there. We used to joke about the Perfidious Albion tag. It’s not funny any more.

Boris Johnson left Northern Ireland under EU jurisdiction so he could get the Withdrawal Agreement signed and claim he had got Brexit done. The details of the agreement were always clear and it was obvious that it would mean a trade border in the Irish Sea. His attempt to row back on the deal in a matter of weeks fools no one. He is destroying this country’s international reputation for the sake of a three-word slogan. That tells you all you need to know about his government.

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Why Conservatives love the culture war

I bet Dominic Cummings did a little happy dance when someone scrawled graffiti on the Cenotaph during a Black Lives Matter protest. He probably opened a bottle when the Archbishop of Canterbury announced a review of statues in churches. These are the sort of things that annoy people, capture headlines, cause a storm on social media and thereby get him off the hook. One minute there was outrage from lockdown-fatigued voters over his flouting of the rules and the preposterous stories he made up to justify it. The next, everyone was talking about statues and there was fighting in the streets over which ones should be dumped and which ones defended.

Right-wing politicians love a good culture war. It’s no coincidence that the terms ‘political correctness’ and ‘woke’, both originating on the American left, have been eagerly seized by the right. They know it is an ideal way of stirring up indignation and deflecting attention from things they’d rather not discuss.

Some research published by UK in a Changing Europe earlier this week throws some light on why these tactics work. Using data from the British Election Survey and plotting voters’ views on two scales –  the economic left v right and the social/cultural conservative v liberal – they show on one simple chart why the right loves the culture war.

Labour and Conservative MPs, councillors and activists fall more or less where you would expect them to on both the social and economic scales. Labour fall into the socially liberal and economically left-wing quadrant while the Tories in the opposite one. The voters don’t split that way though. As we have seen from a number of studies, British voters tend towards the economically left-wing and the socially conservative. In general, they are more aligned with Labour on economics and more with the Conservatives on social issues. It’s no wonder, then, that the Conservatives like to fight on the cultural front.

The other interesting piece to emerge from this research is the gap between MPs and voters on the same side. Labour MPs are more socially liberal than Labour voters but on the same scale, Conservative MPs are way adrift of their voters. In fact, they are more socially liberal than the average voter.

So, if they are that liberal, what are they doing in the Conservative Party? The clue comes when you look at the positions on the economic scale. Here the Conservative MPs are some way to the right of their councillors and activists and well to the right of their voters.

The right-wing, free-market, shrink-the-state libertarianism that gained the upper hand in the Conservative Party during the 1980s has always been an eccentric viewpoint. It looks mainstream because it has a number of well-funded think-tanks pushing its agenda and its adherents are over-represented in politics and the media. We are used to hearing about radical deregulation, state shrinkage and privatisation because these ideas are espoused by some very wealthy, powerful and influential people. The voters are really not interested though. They never have been. Despite relentless propaganda, all the small staters have managed to do is increase the proportion of the population that thinks taxation and spending should stay the same and reduce the proportion that thinks it should increase. Even that is shifting the other way again now. Support for cutting the size of the state has never gone above 10 percent.

Attitudes towards taxation and public spending, 1983-2017

Chart by NatCen Social Research

The voters, then, are not that keen on right-wing economics. So why do they keep voting for politicians who are? That’s where the culture war comes in. Get people worked up about political correctness, persuade them that woke liberals will take the country to hell in a handcart and at least some of them will vote for you even if they don’t like your rich men’s economic policy.

For Conservative politicians, the culture war is also an incredibly cheap way of getting votes. People still think you are socially conservative even if there is quite a lot of evidence to the contrary, which means you don’t actually have to deliver anything.

That most right-wing of prime ministers, Margaret Thatcher, did very little for the socially conservative voter. As James Ball noted after her death:

The legacy of Thatcher’s social conservatism is modest: Britain is, by and large, a nation marrying less, more accepting of homosexuality, and more accepting of people of other races.

In the 1980s the Conservatives even shied away from illiberal legislation that would have been overwhelmingly popular, such as the re-introduction of capital punishment. The liberal policies initiated during the 1960s, and the social changes that went with them, continued apace. Conservative politicians may have railed against ‘political correctness’ but they didn’t do much about it. Racist and sexist language that would have passed unremarked in 1979 was considered unacceptable by the time John Major left office. Margaret Thatcher might have talked tough talk on immigration but she did little to change the existing laws. Corporal punishment in schools was abolished by her government in 1987.

I’ve had some interesting arguments about that last one. People still find it difficult to accept. It must surely have been the Labour Party and its PC policies that did for corporal punishment. Which brings me to the other reason the right likes the culture war. It works even when you are in power. You can persuade people that a rising tide of wokeness has driven the country to ruin even when you have been running the show for a decade.

Being able to gain votes from social conservatism without having to implement any socially conservative policies suits Conservative MPs just fine because most of them don’t believe in it anyway. When it comes to crime and punishment, for example, they are, on average, to the left of Labour voters. As the charts above show, the money side of things is far more important to them. It has been for decades. In the 1980s, it was almost as though a tacit deal was done; you can have diversity, minority rights and discrimination laws if we can have privatisation, deregulation and tax cuts. Breaking the unions and selling off the state was always what mattered. Who cared if your company had to have an equalities policy and you couldn’t watch Love They Neighbour any more?

Could the Conservatives pull off the same stunt in 2020? The Daily Mail seems to think so, as it gleefully reports a Tory plan to declare a ‘War on Woke‘. Would such thing work now? After all, as Kenan Malik said just after the last election, the idea that there is a mass of reactionary working class voters has probably been overdone. Voters have become less socially conservative in recent years. The most recent British Social Attitudes Survey bears this out.

As former Downing Street pollster James Johnson said, most voters in what used to be the Red Wall couldn’t care less about statues:

Some have suggested that No 10 is actively looking for a fight on cultural and identity issues, seeking to drive a distinction between Tories and Labour for red wall voters – whether on statues, trans issues, or the right to tell offensive jokes.

On the surface, this approach feels like it might work. Paula Surridge of Bristol University has shown that 2019 Conservative voters are united in their social conservatism, while Labour is more vulnerable as its voters are split.

But polling on these issues sets up a divide that might not be at the front of people’s minds. Britain is not the US, where polarisation among politicians has translated into polarisation among the public. In focus groups I have conducted over the last few years, statues, transgender toilets and no-platforming barely register. Most people do not know what “woke” even means.

He’s right about voters not caring much about these issues but they tend to blame the left when such things make the news. A few left-wing activists can usually be relied upon to give the right-wing press the ammunition it needs by doing or saying something silly. Even a poorly considered comment or rebuttal can lead to stories that run for years, like Baa Baa Green Sheep and Winterval. On the basis of one person writing ‘racist’ on Winston Churchill’s statue, Boris Johnson has been able to cast himself as the defender of a monument that is not under any serious threat. He was at it again yesterday, attempting to spice up his lacklustre speech with a promises to defend the “statue of our greatest wartime leader” from, well, no-one really.

The problem for the left is that some of this stuff lands. It makes otherwise quite reasonable people cross. And it doesn’t need to make many of them cross. There were only 330,000 votes between Theresa May’s humiliation and Boris Johnson’s triumph. All it needs is enough people in the right places.

Anand Menon, one of the authors of the report, says that Labour would be well advised to avoid getting embroiled in the War on Woke and should, instead, maintain a laser focus on economic issues. As he says, whoever gets to set the ground on which the next election is fought will be at a distinct advantage. This isn’t just about winning the arguments, it’s about deciding which arguments you are going to have in the first place. A government already on the ropes over coronavirus and with very little idea about what to do afterwards should be an easy target. From what I have seen of Keir Starmer so far, my guess is that he won’t fall into the trap of fighting the War on Woke but that won’t stop the government and its allies from pushing it whenever they are given the opportunity.

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This recession could be long and deep

If, like me, you have spent some of your lockdown time catching up with stuff you recorded earlier in the year, you will have experienced that strange sense of watching something from a bygone age. The adverts, in particular, feel like they belong in a different world. Was it really only February when we were still going to pubs and restaurants and getting excited about major football, rugby and racing events?

The official employment statistics issued earlier this week had a similar feel. Because of the time lag in collating survey data, the most recent figures are from the January to March period, only the last 2-3 weeks of which were affected by the coronavirus lockdown. They showed a joint record level of employment, at 76.6 percent, in line with the previous trend of rising employment rates. What would have been worthy of comment only three months ago was barely mentioned. It was a snapshot of the olden days. We know things aren’t like that any more.

Fortunately the ONS also started reporting on HMRC data a few months ago and this gives us some more up-to-date information. The rising employment of the last half decade has come to an abrupt halt and the beginning of a collapse in employment is already visible.

Chart by ONS

The claimant count data gave a similar picture, showing a sharp spike at the beginning of April, taking the numbers above those we saw during the last recession.

Chart by Resolution Foundation

Next months data, showing the position in April and early May will be even worse as the full impact of the lockdown becomes visible.

It was a similar story for the GDP data published last week. The ONS release has a series of charts showing the economy contracting sharply in March.  This, too, is likely to look even worse in next month’s figures. 
Chart by ONS

The revised data for the previous quarter show that the economy had already stopped growing in the final months of 2019. The coronavirus lockdown poured cold water on a fire that was already going out. This doesn’t bode well for a bounceback once the lockdown ends. Last month’s optimism about a V-shaped recession, with a sharp downturn and a rapid rebound, was short-lived. Even the chancellor is now saying that it is “not obvious there will be an immediate bounceback”.

It is likely that pent-up demand will lead to a short-term economic bounce once the lockdown ends. Maintenance tasks that have been on hold will finally get done. People will get their hair cut, fix the car and call in the plumber. Companies will carry out a backlog of routine but necessary activities. Beyond that, though, the extent of the recovery depends on how confident people are about the future. Will people commit to major purchases like houses and cars? Will companies risk major investments? The fact that things were staring to slow down in the months before the coronavirus outbreak suggests that they might not. If they decide to wait and see the recovery is likely to be slow.

The big problem forecasters face is the unpredictable impact the coronavirus and the lockdown will have on human behaviour. Recessions and recoveries are, for the most part, caused by shifts in human behaviour. Confidence plays a big part. The last recession started when people lost confidence in certain financial instruments. This one has started because we have lost confidence in our ability to move around without catching a life-threatening infection.

It was Edgar Schein who explained to us, 35 years ago, that culture is a pattern of shared basic assumptions and beliefs. Because these are unspoken, those who share them don’t realise they are doing so. They just carry on assuming. They only stop assuming when the beliefs they have taken for granted are challenged. Even then, they will cling to these beliefs even in the face of powerful evidence. These assumptions and beliefs underpin the behaviour that produces the unwritten rules, the rituals and the visible artefacts that define the society. This is why changing culture is so difficult. Long-term behavioural change only happens when the assumptions and beliefs behind that behaviour change.

What we are seeing now could become a major cultural shift. Apart from those in particularly exposed occupations, most of us in the developed world, with clean water, clean living space and good sanitation, went about or daily business on the assumption that we were not likely to be infected with anything. Like all deep rooted assumptions, it was so deep rooted that infection barely crossed our minds. If we worked in city centre offices, we would get off filthy trains, go to work at our keyboards, pop out and buy a sandwich, sometimes (but not always) wash our hands and then eat the sandwich while bashing away at the keys we had been touching all day. We would then go to meetings where we would shake hands with, or even kiss, colleagues who had been doing the same thing. We knew, intellectually, that we would probably get a cold at some point during the winter yet it still came as something of an irritation when it happened. If we were unlucky enough to get flu or a stomach bug, we would respond with indignation. ‘How the hell did I get this? I bet it was that restaurant we went to at the weekend.’

That assumption has now been turned on its head. We leave the house now under the assumption that there is a good chance we will catch something and that, if we do, it is likely to be extremely unpleasant or fatal. This risk may be lower than a lot of people think, especially for younger age groups but, for the moment, that is beside the point. People fear this disease and that fear has changed our assumptions. When we leave the house, we react to people in a different way. We get a taste of what it is like to live in a dangerous neighbourhood. We look upon strangers with suspicion and are wary even of people we know. Suddenly, we see other people are a risk in a way they weren’t a few weeks ago. We applaud the bravery of essential workers because, in the course of their jobs, they are going out and mixing with people in a way that would scare the hell out of a lot of us. As we clap, many of us are thinking, ‘Thank God I don’t have to do that.’

Though this shift in assumptions has been rapid, the reversion to previous assumptions, where we once again do not see other most other people as a risk, is likely to be very gradual. Even if we find a vaccine for the coronavirus, which may not happen, or if it becomes less potent over time, there will always be the question, ‘What if there is another one out there?’ After all, this one seemed to come from nowhere. How long will it be before people are prepared to get on crowded trains or aeroplanes? Will people shake hands again? Will they happily sit together in offices and meetings? I’d be willing to bet that the (relatively recent in the UK) practice of kissing one greeting will cease. Even if people do relax their guard and decide that the risk has passed, they will do so gradually and one-by-one. Some people may never do so.

The return to normal, then, is likely to be a slow process even if scientists tell us that the serious risk has passed. One of the details that seems to have got lost in the discussion of the lockdown that people began to change their behaviour before the government told them to. A study by the Centre for Cities showed that the proportion of people travelling into city centres for work and leisure fell significantly during the week before the lockdown.

Studies from the US have produced similar findings. To an extent, then, people started locking themselves down before they were told to. Many will be reluctant to return to normal until they are sure the coast is clear. That is not likely to happen for some time.

The trouble with a modern economy, though, is that it only works if a lot of things work together at the same time. Supply chains and public transport are obvious examples but schools are a crucial part of the dependency map too. People are showing some reluctance to go back to work or to send their children back to school. The planned opening of schools on 1 June now looks doubtful. And if the schools aren’t open a lot of people simply won’t go back to work.

The longer this goes on, the more difficult it will become for many organisations to restart operations. Skills will atrophy and the team cohesion needed in the workplace will start to dissipate. The threads that hold an organisation together are difficult to maintain remotely and the task becomes harder over time. Video conferencing and remote contact can only go so far. We are facing a gradual loss of organisational capital.

The return of the economy to anything like its pre-crisis level looks like it will take a long time. It was already showing signs of weakness before the coronavirus pandemic and the shift in our cultural assumptions, even if it is temporary, will make the revival a slow and piecemeal process. We didn’t get a bounceback after the last recession and it is unlikely that we will see one this time. If I had to predict the shape of the downturn I would go for a bath-shaped recession, a similar shape to the last one, with a sharp fall, a bump along the bottom and then a very gradual recovery. Only this time the bath will be a lot deeper.

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