Taking back control – if only for a day

John Lanchester has a long piece in the London Review of Books reflecting on Brexit. It’s worth making the time to read it in full but this piece struck a chord:

To be born in many places in Britain is to suffer an irreversible lifelong defeat – a truncation of opportunity, of education, of access to power, of life expectancy. The people who grow up in these places come from a cultural background which equipped them for reasonably well-paid manual labour, un- and semi- and skilled. Children left school as soon as they could and went to work in the same industries that had employed their parents. The academically able kids used to go to grammar school and be educated into the middle class. All that has now gone, the jobs and the grammar schools, and the vista instead is a landscape where there is often work – there are pockets of unemployment, but in general there’s no shortage of jobs and the labour force participation rate is the highest it has ever been, a full 15 points higher than in the US – but it’s unsatisfying, insecure and low-paid.

There’s work but it’s not like work used to be:

This new work doesn’t do what the old work did: it doesn’t offer a sense of identity or community or self-worth. The word ‘precarious’ has as its underlying sense ‘depending on the favour of another person’. Somebody can take away the things you have whenever they feel like it. The precariat, as the new class is called, might not know the etymology, but it doesn’t need to: the reality is all too familiar.

This is the story that the economic statistics don’t always show. Sure, the employment rate is at a record high and inequality has barely risen since the early 1990s but the experience of work has changed. The sense that somebody can take away what you have almost on a whim makes people feel less secure. Of course, it has always been possible to sack people and evict them from their houses but go back a couple of decades and it was a lot more difficult to do so in practice. Furthermore, people had more of a sense that they had some say in the matter and some form of redress against unfair decisions.

Many years ago, I read an article (I can’t remember where) applying the concept of property rights to jobs. It was an intriguing piece, arguing that organised labour had challenged the employer’s ‘ownership’ of a job. It was no longer his to do with as he saw fit, a part of it ‘belonged’ to the worker. This was certainly the case when it came to disposing of employees. Unions often resisted the right of employers to sack people. In some industries, such as printing, they even told the employer who to hire. The job was as much the ‘property’ of the worker as the employer.

To stretch the analogy even further, you could argue that there was even a sense of hereditary rights over jobs. Many of the large industrial organisations recruited from families. In the company I worked for at the end of the 1980s, entire extended families were employed. Fathers, brothers and sons as engineers or on the labouring gangs, mothers, sisters and daughters doing clerical jobs in billing or dispatch. Some of them rose  through the ranks to become managers. It was very unwise to slag off a manager in public because you could never be sure whether or not the people you were talking to were related to him.

The longer you had worked for the firm and the better your reputation, the more likely it was that you could get friends and family members jobs as well. This didn’t do much for workforce diversity but it did give people a stake in the system. Loyalty to the company paid off in the form of patronage. Being able to get your son or nephew a start at the works reinforced the status gained from working for a recognisable company, like Ford, or a big utility like the local electricity board.

Something similar happened with housing. Go back 25 years and most people who didn’t own their homes lived in council houses. They had secure tenancies with fixed rents. Priority was given to people who had lived in an area for some time. You can argue about whether this was fair or not but, as with jobs, there was (and still is in some places) a sense that these homes belonged to people and to their families. They might not have been people’s property in the legal sense but their residents certainly had a sense of ownership.

Underpinning all of this was a lot of talking and listening. Paul Bivand and I were discussing this just after the referendum. There were joint committees of managers and trade union reps at national, regional, local and plant level. There is much talk now of Employee Voice but there was plenty of it in the unionised workplaces. The people sitting on these bodies came from the same backgrounds as those they represented. Sometimes even those on the management side had originally come from the shop-floor. In the company where I worked at the end of the 80s, on the joint committee for the London area, the management side was headed up by a staunch Labour supporter and the union side by a member of the Conservative trade unionists.

All this began to fall apart in the late 1980s and early 1990s. Liberal legislation is sometimes blamed but really it only played a minor role. The company where I worked, for example, was criticised by the CRE for recruiting from families. It had done it for so long that it barely occurred to anyone that the practice made it less likely that people from ethnic minorities would be recruited. That said, ideas of meritocracy and the drive for shareholder value would probably have done for such practices anyway. At the same time, union power declined, due in part to government policy but also to the disappearance of many of its strongholds as industries were restructured and jobs automated or offshored. All this happened remarkably quickly. Unions which had seemed all powerful a dozen years earlier were on the ropes by the early 1990s. As Paul Mason said, in his review of the Shane Meadows film This is England 90, a lot was about to change:

I recall feeling on that day that a lot of certainties were falling apart around me: the deference and hierarchy that had kept protests self-controlled, even during the fractious 80s. The social solidarity that enforced law and order in working-class towns, the maleness and the straightness of public life were fading; recreational drug use was flaunting its smiley face across mainstream culture.

This new fluidity meant that, when the economy recovered in the mid-90s, the labour market would become more stratified. The rungs on the earnings ladder separated rapidly, leading to sharp and rising wage inequality. It trapped the poorest but – as the free-market model found its stride – enabled the return of upward mobility by the 2000s.

If they’ve been lucky, the real Lol and Woody will be living in a nicer part of Sheffield having survived several episodes of layoff, retraining, outsourcing and offshoring. The real people I remember from the riots and raves of 1990 – mainly the clever non-graduates who populated the trade union movement – are now ward sisters, chemical engineers, shift supervisors in highly automated factories. Whatever the job title, most are working with a raw material that barely existed in 1990: digital information. The ones who didn’t escape will be living a life you know all too well from the benefit-porn documentaries: poor, hopeless and stuck; dazzled by the celebrity circus, perennially hounded by the DWP.

Many will no doubt take issue with this, pointing out that there has been no noticeable increase in inequality since the early 1990s and that, with the exception of the mid 2000s, real household incomes rose faster for those on lower incomes than for those in the upper deciles.


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Chart via Resolution Foundation: Living Standards 2016

But while that is true, it doesn’t tell the whole story. The cost of rented housing has risen faster than incomes and the proportion of the population in council housing has shrunk. As Declan Gaffney pointed out a couple of years ago, the caseload for most benefits has fallen since the early 1990s while that for working age housing benefit has risen sharply.

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Chart via Declan Gaffney

This chart tells the story of our times. The proportion of people on out-of-work benefits has been falling for the last two decades. The majority of people are now in some form of paid employment but these jobs are supported by tax credits and in-work housing benefit.

Furthermore, as the Joseph Rowtree Foundation found, a lot of people regularly move in and out of low paid work. Compared to most other countries in Europe the UK has relatively few people trapped in persistent poverty. This is because we share our poverty out more evenly. Most people don’t stay on a poverty-level income for long but typically around a third of the population will have had some experience of it during the last four years. It is no wonder, then, that people feel insecure.

This brings us to the nub of it. As John Lanchester said, the new work doesn’t do what the old work did. It feels less secure. Employment protection comes from the courts, if you can afford them, not from your own representatives. Employers may ask for your opinion and take an interest in your morale but they do so because they think it will improve productivity, not because of your bargaining power. The fact that an experiment in employee empowerment and a neo-Taylorist workplace autocracy can operate under the same corporate roof shows just how arbitrary people management policies can be. In the past, employers had to talk to worker representatives. Nowadays they do so because they think it might improve their profits. Tomorrow they might change their minds.

It’s the same with housing. The proportion of people in council housing and other social housing continues to fall. Even the secure tenancies that once went with council houses are now under threat. Those in rented accommodation have very little protection against eviction. To cover rent and bills, many find themselves relying on tax credits and housing benefit.

That sense of control, of ‘property’, over jobs and homes has gone, taking with it the sense of permanence and rootedness that employment once gave people. Nowadays there is the sense that it all depends on the favour of someone else and could all be taken away from you at any point. Even if you are in a permanent job, your employer could sack you tomorrow and you’d have to pay to go to court to sort it out. He might decide to abandon the employee engagement programme and introduce the Sports Direct approach to management. If you are on zero hours or agency employment, he might just stop phoning you. The landlord might evict you next week or the government might tell you the house you have lived in for years is no longer yours. Or it might decide to take away your tax credits and housing benefit. Just like that!

The point about all this is that it is someone else decision. The protection people might once have had, through their trade union reps or tenants’ associations, has either gone completely or is much less powerful than it once was. In short, there was a time when people had more control and a lot of them can still remember it. Whether the slogan ‘Take Control’ was a clever but cynical pitch, as John Lanchester says, or just a stroke of luck, it clearly struck a chord with people who have been feeling a loss of control for years.

It was when I read this piece by Lisa Mckenzie, a week before the referendum, that I feared the game was up. I grew up in Nottingham and I already knew from friends and relatives that there was a groundswell of opinion there in favour of leaving the EU. Lisa Mckenzie put these feelings in context. Voting for Brexit, she said, was the only way people who felt powerless could change anything.

[T]he EU referendum debate has opened up a Pandora’s box of working-class anger and frustration. It is clear that the Westminster politicos are quite unnerved by this. Even I am surprised by how the referendum has captured the attention and the imagination of the same people that only last year told me they had no interest in the general election “because ‘they’ are all the same”.

In the mining towns of Nottinghamshire where I am from, the debate again is about Brexit, and even former striking miners are voting leave. The mining communities are also worried about the lack of secure and paid employment, the loss of the pubs and the grinding poverty that has returned to the north. The talk about immigration is not as prevalent or as high on the list of fears as sections of the media would have us believe. The issues around immigration are always part of the debate, but rarely exclusively.

From my research I would argue that the referendum debate within working-class communities is not about immigration, despite the rhetoric. It is about precarity and fear.

Working-class people in the UK can see a possibility that something might change for them if they vote to leave the EU. The women in east London and the men in the mining towns all tell me the worst thing is that things stay the same. The referendum has become a way in which they can have their say, and they are saying collectively that their lives have been better than they are today.

Suddenly, people had power in their hands. The sort of decision that was usually reserved for politicians had been handed to the electorate. They could make a choice which would have a direct effect on the future of the country. That, only one month later, that choice has already lead to a complete change of government ministers and has had repercussions around the world, shows just how much power the voters were given. They voted so that something, anything, might change. Briefly, people who had seen their control over their lives ebb away were granted immense power. And they used it.

Whether it will make their lives any better in the long run remains to be seen. I think it unlikely. The damage caused by leaving the EU will almost certainly hit the poorer areas hardest. That said, I retain just enough optimism to hope that, rather than shrugging off the anger, our shaken up political establishment might pause and reflect. Rather than condemning people for doing something so destructive, shouldn’t we be asking why they were so angry in the first place?

Update

On a similar theme to this, Anthony Painter has written a good piece on insecurity and the new world of work in which he draws on data from the British Social Attitudes survey. There are a couple of particularly interesting findings here.

Firstly, the study finds an increase in feelings of insecurity among older workers and those in more routine jobs.

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The age difference might be because older workers can remember when they had greater job security than they have now and the younger ones don’t miss what they have never had.

Secondly, the sense of control over the organisation of their work has risen among professional and managerial workers but declined for those in routine jobs.

Screen Shot 2016-07-27 at 16.50.52This reminds me of a discussion I had with Chris Dillow a while back on whether workplaces are more controlled and regimented now than they were 20 years ago. I suspect that your view of this will depend on the type of work you do and how many layers there are above you in the corporate hierarchy.

In general, though, these findings suggest that working class and older workers feel they have less control and security at work than they once did.

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It’s beginning to feel a bit 2012-ish

The gig economy is back, it seems. Yesterday’s ONS employment data showed self-employment at a record high both in terms of absolute numbers and as a percentage of total employment.

Self Employment Jul 2016

Source: ONS Labour Market Statistics, 20 July 2016

For a while it looked as though the post-recession increase in self-employment was unwinding. As the number of employee jobs rose, self-employment fell. Then about a year ago the numbers began to rise again. Shortly afterwards, at around the turn of the year, the rate of increase in employee jobs tailed off.

Employment May 2016

Source: ONS Labour Market Statistics, July 2016

The slowing down of employee hiring may be due to concerns over the referendum and Brexit. The rise in self-employment may be a result of companies switching to using contractors while they wait to see what happens. It may also be, in part, a response to the increase in the minimum wage. It’s still too soon to say how far this is a temporary blip or a symptom of something longer term.

The forecasts don’t look good though. As the Resolution Foundation reported yesterday, since the referendum result most of the economic forecasters have revised down their projections for GDP growth. Some are even predicting a recession.

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Most also expect slower employment growth and their forecasts suggest a return of the pay squeeze in 2017. Average pay is still not back to its pre-recession levels and it now looks likely that it won’t be for some time. The long pay squeeze will be even longer than we thought.

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Given that self-employment incomes collapsed after the recession and there has been little sign of much improvement since, an increase in self-employment is likely to depress overall earnings even further.

The UK economy, like those of many other countries, still hadn’t fully recovered from the crash in 2008. A few months ago, with per capita GDP finally clawing its way back to its pre-downturn level, we were at last getting to the point where we could believe the Great Recession was over. The last thing we needed was a major upheaval like leaving the European Union.

Of course, it could be that all the forecasters turn out to be wrong. Maybe, once we ‘just get on with it’ and leave the EU, the economy will soon be back on track. The trouble is, no-one is quite sure what just getting on with it means. The process of disentangling the UK from the EU will be fiendishly difficult. As Patrick Wintour pointed out, even the simplest option, which would still not be popular with many Leave voters, is subject to 32 potential vetoes.

It’s difficult to see how this could be over quickly. The long period of limbo is likely to be a drag on the economy for some time.

We may not see a recession and, even if we do, it is unlikely to be anywhere near as bad as the one in 2008-09. But, if things are not quite 2009-ish, they certainly have a bit of a 2012 feel about them with slow growth in employee jobs, stagnating pay, rising self-employment and, as seems likely, very low growth. Let’s hope that’s as bad as it’s going to get.

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The great pensions cock-up

It must be nearly 30 years now since my boss asked me to review all the company’s standard HR letters to make sure they complied with the law and company policy. It’s the sort of project you give to a recent graduate who hasn’t the experience to do much else.

As an example, my boss showed me the standard early retirement letter. Whoever had written it had simply copied over the standard ‘congratulations on your retirement’ letter and inserted the word ‘early’. The trouble with this, my boss said, was that early retirement counted as a dismissal, even though the employee had agreed to it. “People don’t early retire,” she explained, “the company early retires them.” Therefore the letter had to contain all the usual caveats about unfair dismissal claims that would go in a normal redundancy letter.

This set me thinking. At the time, lots of people were being early retired. I began to realise that what I had at first assumed was a generous company benefit for long-serving employees was actually a way for managers to sack those they considered to be dead wood without having a difficult conversation about performance. Then I had another aha moment. Under early retirement, at least some of the payment was covered by the pension scheme, so the cost of getting rid of people didn’t hit a manager’s budget in the way that standard redundancies would. He could therefore cut his headcount and still make his numbers.

Eventually, an embarrassingly long time later I’m ashamed to say, the penny dropped. The company had been keen to push up its share price and wanted to show that it was becoming lean and mean. At that time the pension fund was fat with surplus wealth. By using some of it to cover redundancy costs, the company could make impressive cuts to its workforce without hitting its profits.

I don’t remember anyone kicking up much of a fuss about this at the time. Perhaps the unions were happy to see their members get decent payoffs and didn’t think much about the longer-term consequences. Maybe they did complain but it wasn’t considered newsworthy.

The company I worked for was far from unique though. Raiding the pension scheme to finance downsizing was not unusual during the 80s and 90s. A 1999 Cambridge University paper by Michael Pollitt noted that the headcount reductions during the privatisations of this period were achieved almost entirely through voluntarily redundancies and early retirement:

[The government] was able to compensate most of the early losers – there were very few compulsory redundancies and generous early retirement and there were voluntary severance packages for those who left privatised firms as they downsized.

Workers do not seem to have got lower salaries as a result of privatisation if they remained with the company while those who left were re-employed elsewhere in the economy (unemployment fell from 1986) or went to early retirement.

Outgoing pensions minister Ros Altman cited this as one of the reasons for the dire state of occupational pensions in a recent article on her blog:

Then we come to the role of employers. They too could not resist getting their hands on the tempting pool of assets sitting in the pension funds. They used these to hide the costs of industrial restructuring in the 1980’s and 1990’s, by giving people generous early retirement benefits (paid for by the pension scheme).

As if that wasn’t enough, companies also started taking pensions holidays, claiming that the surpluses in their schemes would be more than enough to cover the retirement costs of the future. To make things that bit worse, Nigel Lawson decided to tax pension scheme surpluses just at the point when companies should have been building them up. As  Matt Hitchens of the Intergenerational Foundation says, the term ‘pensions surplus’ was a misnomer:

What looked like surpluses were actually necessary buffers for the increased costs of scheme maturity, when there would be fewer people paying in and more taking out.

Companies were instantly disincentivised from buttressing their funding position, exactly the opposite of what should have been happening. Companies were also buoyed by the appearance of surpluses, and took contribution holidays (when they didn’t add to the pension pots) throughout the 1980s and 1990s, believing that their funding position was so strong that they could afford to do so. As it turns out, they could not.

This has left companies with huge pension deficits. According to Oxford University’s Brian Bell, it is costing employers £42 billion a year to shore up underfunded pension schemes. The amount they are having to pay to keep their pensions afloat has almost doubled since 2003. This, he says, accounts for much of the decoupling of wages from productivity and overall employee compensation. While the amount of total compensation may be keeping pace with productivity, once the pension schemes have taken their cut there is precious little left for pay increases.

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This means that very little of the rise in overall compensation goes to those currently employed:

[T]he increase in non-wage compensation may provide no, or few, benefits to the currently employed. Because a substantial part of these payments are to cover deficits in pension schemes for past workers and those already in retirement, current workers benefit little from these payments.

He uses British Airways as an example:

BA spent £55 million funding a deficit in a scheme that provided a benefit to only 2.5% of their UK employees. If this money had not been required and had instead been distributed across the entire workforce as a pay increase, it would have represented a 3.8% rise. Some have ironically described the airline as ‘a pension deficit with wings’.

As the Resolution Foundation remarked, in its Intergenerational Commission report published yesterday:

The fact that younger workers have very limited access to the generous ‘defined benefit’ occupational pensions that were standard for many workers in previous generations may feel unfair in itself. But the impact runs deeper still. The circumstances that led to these schemes closing – consistent underestimates of rising life expectancy; low stock market returns; a long-term decline in interest rates; and overconfidence on the part of both companies and the government (meaning that both raided pension funds for other projects in the 1980s and 1990s) – resulted in large funding gaps. As a consequence, many firms now have to set aside large sums of money from today’s revenues to fund yesterday’s promises.

Importantly, a substantial amount of this money will form the retirement income of past workers and those already in retirement. In other words, billions of pounds each year is being extracted from the productivity (and therefore the potential earnings pots) of today’s workers to pay the retirement incomes of yesterday’s. While a similar principle underpins the State Pension – each generation’s taxes pay for the retirement of previous generations – the fact that younger workers are much less likely to hold defined benefit pensions means that this private sector generational transfer won’t be repeated.

Pension raids and contribution holidays, together with some bad planning and short-sighted tax policy, have left pension funds with a massive gap. Companies are now trying to cover this using money that might otherwise go towards pay rises. Those they employ are working to cover the cost of benefits they are unlikely to see themselves while seeing their own pay stagnate. The FT reported earlier this week that, because of the hit share prices have taken, Brexit will only make this worse.

The gains from the pension raids mostly went to swell the bonuses and share options of senior executives who have long since retired. Even the later baby boomers who came after them may not be so lucky. There is already talk of cuts to retirement incomes. According to the FT, one sixth of private pension schemes are close to insolvency and “will almost certainly end up in the Pension Protection Fund.” In other words, the liabilities will end up with the state and the pension incomes will be reduced. For those younger still, the likelihood of retiring with any sort of defined benefit scheme looks remote. Some of the middle managers who were sending out those early retirement letters in the late 80s will be coming up for retirement around now. Little did they know that every one was drilling a tiny hole in their own pension pot through which the funds would eventually leak away.

To call this the Retirement Heist, as one US journalist has described similar happenings over there, makes it sound more coherent and planned than it was, or, at least, than the British version was. What happened in Britain was as much cock-up as conspiracy, a mix of a bit of greed and a lot of short-sightedness. A few people did very well out of it. Many more benefitted from comfortable retirements, rightly because that is what they were promised. The rest of us won’t be so lucky.

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Leave vote may do more damage to the poorer regions

On the weekend after the EU referendum, the BBC asked a middle-aged Welsh voter whether he was worried about Wales losing its EU money. The man replied that it was “our money anyway”.  Presumably, by this, he meant that the UK contributes more to the EU than it gets back so the money could be said to have come from British taxpayers in the first place.

But will Wales get that money back after the UK leaves the EU? The Welsh government has said that “every penny” of the lost EU money must be replaced by the UK government. David Cameron’s response was not encouraging. Whoever succeeds him as prime minister, he said, would not be able to guarantee that funding.

It is now looking very likely, as the IFS warned before the referendum, that the economy, and therefore the tax take and the public finances, will be severely hit by the Brexit vote. As a result, there will be less money available anyway. Just as worrying for the regions outside London, though, is that the call for devolved powers for London are getting louder. Amidst the silly noise around the idea of London to become a city-state, there are serious proposals for the capital to have more control over its own finances and the newly elected mayor is putting his weight behind them. A majority of Londoners were in favour of more devolution before the referendum. The Brexit vote is likely to harden that opinion.

The trouble is, if London keeps more of its tax revenue, then the rest of the UK will get less. Given that the pot is likely to be depleted anyway, that could have a serious impact on other parts of Britain.

A report by Centre for Cities published today found that the UK is even more dependent on taxes from London than it was a decade ago. London now accounts for 30 percent of the country’s tax revenue. A report in 2014 by the Centre for Economics and Business Research found that, taking account of revenues and public spending across the UK, London and the South-East were subsidising the rest of the country.

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Those in Scotland may argue that this does not take account of the oil revenue but that’s an argument for another day. For Wales and the English regions, though, London keeping more of its tax revenue would have severe consequences.

The regional household disposable income figures published by the ONS in May showed the proportion of income coming from social benefits in each region. This figure includes pensions so you would expect it to be higher in areas where people have retired but even so, the difference between London and elsewhere is marked. In London, 12.6 percent of income comes from social benefits. In the North East it is 23 percent, in Wales 24 percent.

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The ONS definition includes charities and colleges (the NPISH sector) which most people would not consider to be households. The Family Resources Survey, albeit with a smaller sample size, concentrates on households only. It also breaks out state benefits and private and occupational pensions. The resulting picture looks even worse.

Bens & Pens

Source: Family Resources Survey, 2014/15 , published 28 June 2016

On top of the reliance on state benefits, around 10 percent of household income in some regions comes from occupational and private pensions. Much of this is the legacy of deindustrialisation. The factories, mines and steelworks may have gone but their ghosts are still there in the form of their pension schemes, still topping up the local economies of the areas where they used to employ people. In some local authorities, pensions account for a quarter of the area’s income. The jobs of people in the shops, pubs and cafes depend on pensioner spending. But many of those generous pension schemes are now being wound up. In an area where a high proportion of income is from state benefits, what happens when those occupational pensions have gone?

The bitter irony of all this is that, on the whole, the areas most dependent on social benefits are those that voted most strongly to leave the EU.

Leave & Social Benefits

Sources: ONS Regional gross disposable household income, May 2016 and Electoral Commission EU Referendum Results. England & Wales, NUTS3 regions.

This is not really surprising, given that older and poorer voters were most likely to vote Leave. It does mean, though, that those areas where the Leave vote was highest may be among the worst hit by the consequences of leaving, or even just preparing to leave, the EU.

The Guardian reported recently from Ebbw Vale, a town which voted overwhelmingly for Leave but which has few immigrants, high unemployment, severe economic problems and is heavily dependent on EU investment.

It’s a town with almost no immigrants that voted to get the immigrants out. A town that has been showered with EU cash that no longer wants to be part of the EU. A town that holds some of the clues, perhaps, in understanding quite how spectacularly the Remain message failed to land. There’s a sense of injustice that is far greater than the sum of the facts.

And a town which my well have just voted to trash its own economy.

With the local economies of many parts of the country dependent on what the ONS describes as non-productive sources, a worsening of the country’s fiscal position is likely to  hit them hard. If Londoners, a majority of whom voted Remain, decide they want to keep more of their money in London, that will only make things worse. When you start talking about ‘our money’ you raise the question, what do we mean by ‘we’, ‘us’ and ‘our’?

To answer the Welsh voter interviewed by the BBC, what used to happen was that the EU took a lot of money from rich Londoners and gave it to poorer parts of Wales. There is now no guarantee that those rich Londoners will keep on handing that money over. On top of the deep divisions brought out by the referendum, a recession might make us that bit more selfish about what we do with our taxes. Sadly, that means the poorer parts of the country are likely to suffer the most.

 

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No reason to cheer as George’s ship sinks

As soon as Theresa May said she was ready to ditch the deficit target I knew the game was up. Sure enough, a day later, George Osborne announced that he was abandoning the 2020 budget surplus target. A Brexit vote was always going to be fatal to the goal of eliminating the public deficit. It was tough enough even after the chancellor gave himself an extra year to do it. The weak economic growth and disappointing tax revenues forecast by the OBR in March made it look even more of a tall order. Now, with even the most optimistic projections showing that Brexit will do serious damage to the public finances, the 2020 deficit target is beyond reach. The flagship policy which has defined the Conservative Party for the last eight years and on which two election victories and the trouncing of the Labour party have been based, has been sunk by the Brexit vote.

None of that come as a surprise to me but the reaction of some on the left did. They seemed to be claiming this is some kind of victory.

That’s politics, I suppose, but make no mistake, George Osborne did not drop his cherished deficit policy because he suddenly realised the left had been right all along. He dropped it because the hit to the public finances from Brexit will be so big that even he won’t be able to brazen it out any more. Furthermore, the woman most likely to be his next leader made it quite clear she wouldn’t back him if he tried.

This isn’t a triumph for the left. It’s as much of a disaster for Labour as it is for the Tories. Another recession, or even, at best, more of a slowdown than we thought, means less tax revenue. That means less money for public services and social security. Sure, the government may borrow more than it might otherwise have done but it will only do so to plug a gap we didn’t expect and to forestall a recession that is almost entirely self-inflicted. Over the next few years, this will create more pressure on the public sector. Any thought of taking public spending back to what it was in 2010, which was always the left-wing mirror image of the right’s deficit pipe-dream, has gone from being highly unlikely to damn near impossible.

IFS Director Paul Johnson remarked:

We’ll have a few more years of more borrowing, but my guess is this is not the end of austerity, actually this means austerity will just go on for longer because we’ll probably have the spending cuts and tax rises right through the 2020s to pay for this.

In other words, if we get a Labour government in 2020, it will be in the fiscal doldrums too.

The pressure on public spending hasn’t gone away. The rising demands on public services, stubbornly high benefit costs, low productivity and low tax revenues are still there but the brutal arithmetic of public spending just got that bit worse.

Right now, I’d trade where we are now for where we were a couple of months ago. Growth chugging along at a lacklustre 2 percent for the rest of the decade and the chancellor pretending he is suddenly going to eliminate the deficit in 2020 but no-one really believing him, suddenly looks like a rather benign scenario.

It may be fun to laugh as George Osborne’s flagship sinks but there is no joy here for anyone, left or right. The next few years are going to be even tougher than we thought.

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37.4% – not even enough for an overtime ban

Yesterday evening, at the first CIPD employment law update since the referendum, Darren Newman pointed out that the decision to leave the EU has been taken on the basis of a vote that wouldn’t pass the threshold of the new trade union laws. 52 percent of a 72 percent turnout only gives you 37.4 percent, well short of the 40 percent needed for any form of industrial action in important public services to be legal. As he said on his blog:

[A]s far as this Government is concerned, a ballot where 52% support strike action on a turnout 72% would not give sufficient democratic legitimacy to justify train drivers introducing a work to rule or teachers holding a one-day strike. However we are about to put our economy, security and place in the world in jeopardy to give effect to a referendum where, on a 72% turnout, just 52% voted to leave.

And whose voice was loudest in demanding this new law? Why Boris Johnson of course. Strikes “called on the basis of a very small proportion of the relevant workforce” are “unfair” and “put a terrific psychological burden on people who don’t want to take strike action,” he raged. Legislation should be the ‘Day one‘ priority of a new Tory government, he demanded.

Allister Heath also thinks it’s a good thing:

The proposed reform to strike laws would make it much harder for unions to disrupt essential services and to hold the public to ransom. Under Tory plans, unions seeking to call a strike in health, education, fire and transport would need to convince 40 per cent of the workforce to turn out, as well as convince a majority of those who actually vote. This would prevent most strikes. All of this makes a lot of sense.

Michael Gove is keen too, as is Dominic Raab:

What you can’t have is a very militant minority inflicting maximum damage in vital public service infrastructure on the hard-working majority, when it’s got such little support.

Well we couldn’t have that could we? Inflicting huge costs, massive inconvenience and psychological trauma on the say-so of less that 40 percent of those entitled to vote.

Except that is exactly what has just happened. The Brexit vote has already had a far greater impact than any strike. It’s ramifications will last for years. Even the most optimistic scenario puts the cost to the public sector at an extra £16 billion a year, even allowing for not having to pay EU contributions. The eventual cost to the economy will be huge.

Then there’s the impact on Britain’s standing in the world. Whatever happens after this our power and influence will almost certainly be diminished. And if Boris is worried about the psychological impact of strikes, what the hell does he think things like this are likely to do?

Under the new trade union law, enthusiastically promoted by some of Brexit’s cheerleaders, 37.4 percent wouldn’t be enough for an overtime ban or a work-to-rule, yet it is enough to wreck the economy, destroy the country’s standing in the world and throw 40 years of government policy into the dustbin of history.

It’s no wonder the rest world thinks we have taken leave of our senses.

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In praise of can-kicking

We’ve voted to leave the EU. What happens now? Well no-one is quite sure and that is already causing problems.

Early signs suggest that some businesses will respond by freezing recruitment, postponing investment and relocating jobs out of the UK. How much of this will happen is anybody’s guess but as the period of limbo drags on, it is likely that many firms will decide that life would just be easier for them somewhere else. This uncertainty, says Duncan Weldon, is poisoning our economy. Many economists are predicting a recession.

The trouble is, it is very difficult to see how this is likely to end. There are a number of options for designing Britain’s new trade relationships with the rest of the world but all of them have their problems. The Norway (EEA) and Switzerland (EFTA) models, while giving us access to the single market, would still allow freedom of movement which is what many Leave voters thought they were rejecting last week.  Beyond that, any option which restricted freedom of movement would almost certainly also involve restrictions on trade. Were these options put to a referendum, it is unlikely that we would get a majority for any of them. All of them will be unpopular for different reasons.

Whatever deal is hammered out with the EU will also take time. Anything which is agreed then has to be ratified by at least 20 member states. As this BBC graphic shows, there are a number of fences at which the deal could fall. Even the first one is proving hard to jump as British politicians, from both the Remain and Leave camps, insist they will not invoke Article 50 until they know what the deal will look like and EU leaders are saying they won’t start negotiating until the UK invokes Article 50. That is an indication of how the negotiations are likely to go.

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Given the standoff, it is difficult to see the process starting soon. David Cameron has already passed the decision onto his successor. It is likely that, whoever gets elected, will insist on seeking a fresh mandate before taking such a momentous decision, so we are probably looking at another election and the selection of new ministers before anything happens. Once the party conferences are out of the way and the Conservatives have organised a no confidence motion in themselves, which they now need to trigger an election, it will be getting close to Christmas. No-one likes autumn elections, especially not late-autumn ones. And after Christmas everyone is off skiing….

Well you can see where I am going with this. There are plenty of plausible excuses good reasons for putting off Article 50 until at least the spring of next year. Even then, it may be that no-one actually has the bottle to do it. As the ramifications of leaving the EU become clear, the thought of being the politician who took the final decision to wreck the economy might be too much even for Boris Johnson. As Janan Ganesh said, he and Michael Gove looked terrified after the result of the vote was announced:

[O]n the morning after the referendum, the two men wore the haunted look of jokers at an auction whose playfully exorbitant bid for a vase had just been accepted with a chilling smash of the gavel.

David Allen Green said last week that, the longer Article 50 is put off, the greater the chance that it will never happen.

The fact is that the longer the Article 50 notification is put off, the greater the chance it will never be made at all. This is because the longer the delay, the more likely it will be that events will intervene or excuses will be contrived.

As he said in his FT piece, there is now a stalemate:

Nothing can force the UK to press the notification button, and nothing can force the EU to negotiate until it is pressed. It is entirely a matter for a Member State to decide whether to make the notification and, if so, when. In turn, there is no obligation on the EU to enter into negotiations until the notification is made. There is therefore a stalemate. If this were game of chess, a draw would now be offered.

It is possible, then, that this may simply become a feature of British politics.

It is not impossible to imagine that the Article 50 notification will never be made, and that the possibility that it may one day be made will become another routine feature of UK politics – a sort of embedded threat which comes and goes out of focus. The notification will be made one day, politicians and pundits will say, but not yet.

It’s rather like West Berlin during the Cold War. The longer time went on without a Russian invasion, the less likely it seemed that there would be one, even though the threat was still there. Eventually the city went back to business as usual.

Until Article 50 is triggered, the UK remains a full member of the EU. We could therefore go on like this for some time. Britain may still be about to leave the EU in 2020.

None of the non-EU models look particularly attractive or would have majority support among the voters, so can-kicking might actually be the best option of all. Over time, as the possibility of leaving looks less and less likely, Britain will return to business as usual. The certainty of Brexit uncertainty will become the new normal. The longer that goes on, the more businesses will settle down and start recruiting and investing again. Many will decide that the aggro of relocating isn’t worth it after all.

So here’s to fudge, avoidance, muddle, procrastination and a bit of good old British pragmatism. It may yet save us from oblivion.

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