Trash Can Radio

It’s difficult to find much on the DAB radio dial that doesn’t make you want to chew the carpet with boredom. Apart from Amazing Radio and the occasional track on Radio 1, 6Music or XFM, I don’t hear much I haven’t heard before. Most of the output is bland and repetitive. Rather than trying to do anything different, stations seem to double up. How many classic rock or oldie pop stations do you need?

Then last September, along came Trash Can Radio, a station dedicated to what it calls trashy rock n roll. What that means in practice is the mining of a vast music archive from the last 60 years for obscure stuff you’ve never heard before. True, a lot of what they play is old but that’s not the same as playing oldies. Much of it is music that didn’t get played much at the time but which became more influential afterwards.

For example, by listening to Trash Can Radio I have discovered 60s Garage Rock, a genre I was vaguely aware of but didn’t know much about. (Yes, kids, the term Garage was in use half a century ago.) It’s the missing link between the rock n roll of the 1950s and the psychedelic and heavy rock of the late 60s and 70s. Listening to this stuff helps you understand how we went from C’mon Everybody to Paranoid in little more than a decade. Many of its bands were forgotten but they are important for the influence they had on later musicians and musical styles.

Until I listened to Trash Can Radio, I had always thought this was a Dead Boys song:

The station plays rock, ska, reggae, punk and rockabilly too. Some of it is new and they are always on the look out for new bands but a lot of it is unusual stuff from music’s long-forgotten corners. Much of it, unless you are a dedicated rock n roll historian, you’ll probably never have heard before. Sure, it’s entertainment but it also feels like a lesson in social history.

Trash Can Radio was founded by Mike Spenser of the Cannibals and the Count Bishops. This video tells the story and explains why he and his friends set the station up.

At the moment, you can only pick it up in London on DAB. You’ll find it under Radio Nirvana, a channel it used to share with another station but which it now occupies full-time. If you are anywhere else, you’ll have to make do with listening on the interweb.

The trouble is, DAB radio frequencies cost a bomb so the Trash Can crew are in need of advertisers and donations. For a mere £5, you can have your own one minute slot on the station. If you can then get another 15 people to donate £1, they’ll give you a t-shirt.

Just to be clear, though, I have no connection with Trash Can Radio. I don’t know any of the people involved and I’m not being paid to write this. I’m doing it because I like the station and I want it to stay on air. I think a lot of you might like it too.

So go on, give the station a listen and, if you like it, bung the boys a few quid. There are not enough independent stations around these days and this one deserves a chance.

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What will your powerhouse do for you?

The Northern Powerhouse made it into the Queen’s Speech, giving George Osborne a good laugh when Her Majesty mentioned it. The government is pushing ahead with its plans to devolve extensive powers to city regions, starting with Manchester. Devolution to local government, an idea which was loathed by the Thatcher and Major governments, is suddenly the height of fashion and not just in Conservative circles.

The idea gained momentum after the referendum on Scottish independence. It got mixed up with the row about Scottish votes on English laws and became, all at once, an answer to the West Lothian question, a way of stimulating the growth of urban centres outside London, rebalancing the economy, allowing more tax revenues to be raised locally and making services more responsive to local needs. Or something like that. People can project all sorts of things onto what at the moment is still a blank page.

A lot of people seem to think this is a Good Thing but I’m not convinced.

Is it an answer to the West Lothian question?

No. As Vernon Bogdanor says, the only way to get round the problem of Scottish MPs voting at Westminster on things that don’t affect their constituents is to take those things away from Westminster altogether. The cleanest way to do this would be to devolve the powers Scotland has to the English regions but there isn’t much appetite for that.

[A]s long as England rejects federalism, there can be no tidy, symmetrical solution. Asymmetry is the price England pays to keep Scotland within the union.

At the moment, the government is not proposing to give English city regions the same powers as the Scottish Parliament or even the Welsh Assembly, though some people are arguing that it should. If that were to happen, though, it might make the situation worse. For example, if Greater Manchester were to get similar powers to Wales, it would have control of its own health service. What would happen if (or more likely when) a future government decided to reorganise the NHS again? Should Manchester MPs vote on a reorganisation that doesn’t affect their constituents? Devo Manc just replaces the West Lothian Question with the Bury South Question.

Will it give the regions outside London more money?

No. Not unless they raise more tax from their residents and businesses than they do now. There is a lot of talk about regions and cities keeping more of their taxes but if Manchester and Newcastle keep more of their own taxes, then London and the South East will keep more of theirs too. That can only lead to a redistribution of tax away from the poorer regions, unless local taxes are increased to compensate. England tends to get richer the closer you get to London. If these wealthier regions redistribute less of their money, poorer regions will have to make up the shortfall by taxing their residents and businesses at a higher rate.

Screen Shot 2015-05-27 at 15.26.26 Source: Regional Gross Value Added (Income Approach), ONS, 10 December 2014

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Source: Regional Gross Disposable Household Income (GDHI), 1997 to 2013, ONS, 27 May 2015

Will it rebalance the economy?

Probably not. The UK has a regional imbalance because it has a massive international city in its bottom right hand corner. It is bigger, by some distance, than any other city in western Europe and dwarfs everywhere else in the UK. One of the world’s great financial centres, it attracts global wealth and the global rich. London contains such great wealth and earning power that it is capable of skewing the entire continent’s pay inequality figures.

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We add to the problem by keeping our government in the same city.

In some European countries, prosperity is more geographically distributed. How much of this is due to more powerful regional government is difficult to say. Germany and Italy, for example, have never been as strongly dominated by their capitals. Cities like Frankfurt, Munich, Milan and Turin have a long histories as business and financial centres.

The closest the UK ever came to this was during the nineteenth century when the industrial cities in northern England became rich and powerful. But the industrial revolution happened in unincorporated and politically under-represented cities. The business and the prosperity came first and the demands for political power followed.

The northern powerhouses of the past coincided with that brief period when the balance of wealth and population tilted towards the north. The political clout of the great northern cities and the golden age of Victorian municipalism was a result of this industrial power, not the cause of it.

Screen Shot 2014-11-05 at 17.50.43 Without new sources of income and wealth, it is unlikely that simply devolving government to cities like Manchester, Leeds and Birmingham will make them as prosperous as they once were.

As Mick Moran and Karel Williams of Manchester Business School say, it will take a lot more to fix a regional imbalance that is many decades old.

[T]he problem is historically deep-seated, which means that it is highly unlikely that devolution in its present form will give the city region of Manchester the financial resources, administrative capability and policy imagination to manage these genuinely structural problems. We could argue about what needs to be done. But the fundamental point is that ‘devo Manc’ is not doing enough if it only offers bits of money and devolved authority to an elected mayor whose role will be to manage more cuts and preside over unsolved structural problems. Centralisation has certainly disappointed, but this kind of ‘devo Manc’ decentralisation is bound to fail.

Will it make public services more efficient?

Possibly. A single body responsible for all public services in a given area might be able to direct resources more efficiently. Five years ago, the Total Place pilots found that closer local co-operation between the NHS and local government had the potential to cut costs without reducing service levels. If the new city regions are given control of the health service, they might be able to do something similar.

Or possibly not. Many people have misgivings about the ability of local authorities to run the health service. James Tout, writing in the Health Service Journal, warned:

We could be on the verge of witnessing a further balkanisation of the NHS by region. Tribal politicians will regard their new fiefdoms as playgrounds in which to experiment, while simultaneously slinging mud at their opponents when divergences start to appear, as they surely will.

You may see this as a worthwhile trade off for gaining control over the cash.

But as the Scottish referendum showed us, the NHS lends itself to being scrapped over. Anyone hoping for “no more games” with the health service can kiss that dream goodbye.

Chris Ham, Chief Executive of the King’s Fund, points out that further re-organisation, complication and ambiguity is the last thing either the NHS or local government need right now:

The main risks of the plans are that they will take time and effort away from work to address the growing financial challenges facing local government and the NHS, and that they will result in confused accountabilities. The worst of all outcomes would be further structural changes to the health service that distract public sector leaders from their core task of improving outcomes for the populations they serve.

Merging two leaky buckets does not create a watertight solution.

It is also not clear how far the government expects devolution to go. The non-metropolitan cities, boroughs and rural areas that don’t have their own devolved powerhouses may be left with the rump of nationally provided services. That will almost certainly increase the unit costs of those services. It’s not very fashionable but there is still something to be said for economies of scale. Sacrificing them for, well, we’re not sure what, isn’t something we should do on a whim.

Despite all this, there are still a lot of people, across the political spectrum, who think the government’s devolution proposals are a good idea or, at least, a step in the right direction. I can understand why some people might want it. Devolution is attractive to a government wanting to outsource spending cuts, to ambitious local politicians who fancy being regional minister-presidents rather than plain old council leaders and to wealthy Londoners who want to see less of their tax going elsewhere. Apart from that, though, it’s difficult to see who else would benefit.

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Inequality in the UK

Is inequality increasing in the UK?

According to last week’s report on pay distribution by the European Foundation for the Improvement of Living and Working Conditions (Eurofound), the UK has the most unequal wages in the EU. Furthermore, the level of inequality has risen since the early 2000s.

It looked at full-time equivalent pay, compared using Purchasing Power Parity, across the EU. The results show that the UK has one of the most polarised pay distributions (my emphasis):

[T]he most interesting aspect of Figure 1 for the purposes of this report is the way each bar has been broken down by Member State. This makes it possible to see how the distribution of wages in each Member State contributes to overall EU wage distribution. The bottom 20% is to a large extent dominated by eastern European Member States, which have only a very limited presence in mid to high wage levels. Still, it is interesting to see that Germany and the UK have a significant presence in the bottom 20% despite their high income levels. The UK is remarkable for its polarisation: it accounts for a very significant portion (nearly half) of the top 1% of wage earners in the EU, and yet it also has a substantial presence in the bottom two quintiles (it is important to remember that wages here are expressed in PPP).

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The UK has a lot of workers towards the bottom of the pay scale but is also over-represented among the EU’s top 1 percent of earners.

The next chart looks at the distribution of EU wages rather than the distribution of people.

Figure 2 is identical to Figure 1 except in one crucial respect: instead of representing the proportion of workers in each €100 interval for the whole of the EU, each bar represents the proportion of total wages earned by workers in each €100 interval. So, for instance, the workers earning between a PPP of €1,200 and €1,300 per month account for around 2% of the total wage mass of the EU. The most striking feature of Figure 2 is the enormous increase in the size of the bar representing the wages earned by the top 1%, which accounts for nearly 7% of the total. This is roughly the same amount that accrues to the bottom 20% of the distribution, as is also shown in Figure 2.

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Here, the UK’s skewed wage distribution becomes even clearer. The EU’s top 1 percent account of 7 percent of its total wages. The UK’s share of the top 1 percent accounts for “nearly 4% of the total EU wage mass, despite comprising only 0.4% of all EU wage earners”.

The extent to which EU pay inequality is skewed by the UK is shown in the next two charts. These use a Theil index to measure pay inequality, which enables inequality within countries to be measured separately from inequalities between countries. Some of the overall EU pay inequality is due to having different pay levels in different countries, even after allowing for purchasing power parity. The Theil index enables these differences to be separated from within country differences.

The first chart shows overall pay inequality over the last decade falling from 2004, then rising again after the recession until it is almost back to where it was.

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Now look at what happens to the same chart when the UK is excluded.

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Without the UK, EU pay inequality shows a long fall then a very slight increase in 2010 but it is still well below its 2014 level. The UK’s high level of wage inequality and large shifts in the earnings of its top 1 percent are enough to change the figures for the EU as a whole. Britain’s polarised pay is skewing the numbers for the entire continent.

That said, it is important to be clear that these charts refer to full-time equivalent pay levels not to incomes. The figures only include employees and do not allow for the distribution of work – either hours of work or periods of unemployment. When these are added in, the UK’s relative position doesn’t look quite as bad.

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Based on full-time equivalent pay, the dark blue lines, the UK has the highest Gini score and therefore the most unequal distribution.

But not everyone works full-time or has regular hours. As you would expect, monthly earnings (the mid-blue line) show greater income inequality in all countries because this measure builds in the effect of the uneven distribution of working hours.

Yearly earnings (the light blue line) include those unemployed for some or all of the year. This increases the level of inequality again but this time some countries overtake the UK. This is because Britain has relatively low unemployment and, although its pay levels might be polarised, the amount of work is more evenly distributed than in many other EU countries. Based on yearly earnings, Greece, Ireland and Spain are more unequal than the UK.

Finally, household disposable income, the white line, includes income from capital, allows for the distribution of work within families and includes the effects of taxes and benefits. Once this is taken into account, a number of countries (Greece, Spain, Portugal Latvia and Lithuania) are more unequal than the UK.

The Gini coefficient of household income is the measure used by the OECD for comparing inequality in different countries and tracking changes over time. The change in inequality of household income in the UK shows a different pattern from that of pay levels. It has remained fairly flat since the early 200s and fell after the recession. The UK’s big jump in inequality came during the Thatcher years then levelled off afterwards.

CFirDrEWIAAZrGl (Chart by Ben Chu, based on OECD data.)

When compared to the recent past and to other EU countries, then, the UK’s pay levels show much higher levels of inequality that its household incomes.

Why might this be? As ever, I’d be interested to hear what people think as my knowledge of European tax and welfare systems is fairly rudimentary but it does suggest that the UK’s tax and benefit system is mitigating some of its pay inequality. For example, the fall in household income inequality since 2000 coincided with the rise in in-work benefits.

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The counter-argument, of course, is that it is in-work benefits that have allowed low wage employment to persist and they therefore fuel the income inequality they were set up to alleviate. These are also the benefits most likely to be cut in the Chancellor’s attempt to find £12 billion welfare cuts.

If the benefits which reduce the effects of pay polarisation are about to disappear, inequality in the UK might be set for another sharp rise.

Update: This chart suggests the UK’s tax and benefits system does more to alleviate poverty for households with non-standard work (part-time, temporary and self-employed) than those of most other OECD countries.

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Source: In It Together: Why Less Inequality Benefits All, OECD, 21 May 2015.

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A 1995 immigration target for a 2015 economy

2014 looks set to be a record-breaking year for immigration, according to the ONS estimates published yesterday.

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After a brief post recession dip, net immigration from the EU began to rise again in 2010 and last year, non-EU migration increased too.

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The gross migration figures in the next chart show the different patterns of EU and non-EU migration. Some of the sharp drop in net EU migration was due to people going back to their home countries whereas net non-EU migration fell because fewer people came in the first place. There is a higher churn among EU migrants because it’s not as far for them to go back home and it’s easier to come back again.

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The composition of EU migrants has changed as well. We tend to assume that most come from Eastern Europe but, in recent years, more people have been coming from the old EU15.

Screen Shot 2015-05-21 at 12.10.26 Some of this is due to the recession and unemployment in southern Europe but immigration from the EU15 has been rising since the mid 2000s. This chart from Migration Observatory tells an interesting story. Immigration from eastern Europe rose sharply after 2004 there was also an increase in net migration from the old EU at around the same time.

EU Migration

The story of EU migration, then, isn’t just an eastern European one. The UK is attracting people from all over Europe. This CityLab article explains some of the background. Europe’s population is shifting to its prosperous north-west, with London, the largest city in the EU, having by far the largest migrant population.

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As Elli Thomas of Centre for Cities points out, based on figures for NI Number registrations, 43 percent of migrants and 48 percent of those with degrees go to London.

Having a big fashionable international city that dwarfs anywhere else in the EU and a language that much of the world speaks, makes the UK a favoured destination for workers from across Europe. Young people want to come to London and London seems to have no trouble creating lots of jobs for them to do. I have no data for this but most of the young EU workers I have spoken to say that having worked in London means they can then get better jobs when they return to their home countries. Working here becomes like an extension of university. As one cohort goes home to improved job prospects another group of freshers arrives to take their place.

Against this background, getting net migration down to the tens of thousands is not going to be easy. It would mean taking it back to where it was in the mid-1990s. Migration Observatory’s Madeleine Sumption is sceptical:

Today’s figures show how difficult it would be to reduce net migration to the ‘tens of thousands’. Net migration has risen even despite new restrictions on family, work and student visas that were introduced during the last parliament.

If the cap on skilled migration does start to prevent employers from accessing certain non-EU staff shortly, then the first people it will affect will be skilled migrants on relatively low wages – those with salaries just above the minimum threshold of £20,800. One of the largest groups of these is nurses.

Today’s data indicate that it is increasingly likely that some employers – including the public sector – may find themselves unable to recruit non-EU staff over the next year. If this happens, we may see some of them turning to EU workers instead.

In other words, there may be a balloon effect going on. If you clamp down on immigration in one area, it just increases somewhere else. The migration cap on non-EU workers may just lead to more migration from within the EU.

But what if the UK negotiated restrictions on EU migration or left the EU altogether? It’s difficult to say what would happen because no-one has ever done it but it would probably just squeeze the balloon in the opposite direction. A reduction in EU migrants would increase migration from outside the EU. Either that or companies which couldn’t fill their jobs here would simply relocate those jobs to somewhere else in Europe.

For at least the next five years, lots of people, especially the young, will want to come to the UK and this country’s employers will continue to find work for them. Any attempt to take the immigration level back to that of two decades ago, during the life of this parliament, would require drastic action. What that would do to our economy and our relationships with other countries is anybody’s guess but it would probably be very damaging. The UK’s economy has changed a lot in the last 20 years. Trying to wind the clock back is unlikely to do us much good.

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How different is Scotland?

Scotland is another country, according to the Evening Standard, the New York Times, the Guardian and half my Twitter stream. It is different from the rest of the UK and certainly different from England. When you look at the electoral map, it’s hard to argue with that.

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Then again, when you look at the electoral map, Scotland looks different from the rest of Europe too. In most of the world’s older democracies, the main political divide is between the conservative right and the liberal or social democratic left. The extent to which these parties dominate varies. In the US, no other parties get a look in but even in countries with more proportional systems and more parties, the two biggest ones are usually centre-left and centre-right. In the European Parliament, this pattern is replicated in the groupings of national parties. Regardless of their electoral systems, most countries in the developed world have a big red party and a big blue party. The Americans have the colours the other way round but the division is essentially the same.

So what happened in Scotland? It seems to have neither.

First to go was the big blue party. Scotland, more Conservative than the rest of the UK in the 1950s, had almost abandoned the party by the 2000s.

Scottish-Conservatism-1950-2010

Is this because Scotland has become a socialist or social democratic country? Could it really be that a country which, within living memory, was largely Conservative, has shifted irretrievably to the left and no longer has a right wing? If so, it would be unlike almost anywhere else. Where have Scotland’s conservatives gone?

Some of Scottish Conservatism’s demise, says Nick Pearce, was due to a gradual decline in working class identification with Protestantism and the empire.

[A]s the foremost historian of modern Scotland, Tom Devine, argued in his magisterial work The Scottish Nation (1700- 2007) the Conservative Party began to lose support in Scotland when its role as a Protestant party of the Union and Empire waned in the early 1960s. In 1964, it dropped the title Unionist, in favour of the anglicised Conservative. As Devine recounts, it steadily lost the skilled Protestant working class, as Britishness and sectarianism lost their appeal, while its Clydeside industrial class leaders were replaced by anglicised lairds and aristocrats.

In other words, as Ian McWhirter says, the nature of Scottish patriotism has changed. Most countries have a patriotic right but in Scotland, Britishness and unionism have become less important to that sense of identity. At least some of the Scottish Tories, he says, turned into Scottish Nationalists.

But how can that be? Isn’t the SNP left-wing? Not really, or at least, its economic policies are not. As the IFS said, its policies on public spending cuts are, if anything, slightly to the right of Labour. Until 2 months ago, the SNP was proposing cuts to corporation tax and, since 2010, it has cut NHS spending in real-terms. It is, says John McDermott, a lot less radical than you might think. It has its socially conservative wing too. Some of its members were bitterly opposed to gay marriage and a few of its MSPs voted against it.

The SNP hasn’t moved that far to the left because, as Alex Massie says, a lot of its supporters are quite right-wing.

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This isn’t really surprising. Surveys of social attitudes keep showing that there is very little difference between Scotland and the rest of the UK. Like everywhere else, Scotland has its socialists, social democrats, economic and social liberals, fiscal and social conservatives, big staters and small staters. The only odd thing about Scotland is that all of these manage to co-exist within the SNP.

Notwithstanding what I said earlier, there are some democracies where there isn’t a big red party and a big blue party. In a few cases, there is democratic one party rule. This is usually where, due to a liberation struggle or other national trauma, one party has become identified with the nation. Japan’s Liberal Democrats, Mexico’s Institutional Revolutionary Party, South Africa’s ANC and, closer to home, Ireland’s almost ideology-free Fianna Fail, dominated their countries for decades.

Scotland now has the look of a liberation state. The SNP has pulled off that ‘we are the nation’ trick. As John McDermott says, “Scotland has become a democratic one-party state.” Like other national liberation parties, the SNP has subsumed divisions of class, religion and region into a sense of nationhood. This enables it to adopt an essentially centrist position while pulling in support from both left and right.

Will Hutton puts in succinctly:

The potency of Scottish nationalism is that it has combined a vision of Scotland’s alleged particularity (the besetting sin of all nationalisms) with a vision of deploying the co-dependency of private and public as the route to a fairer society and more dynamic economy.

The Nationalists have got away with this because the other parties have let them. The Conservatives had enough votes in England for their demise in Scotland not to matter and Labour didn’t believe the SNP could annex its turf. Now, though, in their exasperation, both parties are colluding with the myth of Scottish exceptionalism and considering changing their names north of the border. If Scotland had completely different party names from England and Wales, that would only further emphasise the difference.

Some Conservatives want to be shot of the whole place. Boris Johnson was talking about a federal state as the results of the election became clear. This is a formula for keeping the the flag, the submarine bases and the seat on the UN Security Council while limiting the influence the Scottish politics might have over the rest of the UK. Keeping the appearance of the Union while ring-fencing the Scots on their own reservation.

But, while Scotland’s map shows an almost clean sweep for the SNP, much of this is due to our first past the post electoral system. The party’s support is distributed in the optimum way to deliver the most seats. It took fewer votes to elect an SNP MP than it did for any other party. 50 percent of the vote was enough to turn the map yellow.

This map of second placed parties, produced by Crooked Timber, gives a glimpse of how Scotland used to vote.

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Peel away the SNP wallpaper and we see old Scotland, with its red central belt, Conservative south and north-east and Liberal highlands. While the SNP has conquered enough of Scotland’s political left, right and centre to give it the look of a one-party state, there is enough opposition left to suggest that it might be a bit early for the other parties to throw in their towels.

Just because people voted SNP, says Gideon Rachman, it still doesn’t mean they want independence.

Last week’s general election results, in which the SNP won all but three of Scotland’s 59 seats, has created the impression of an irresistible surge of support for independence. But, even now, only about half of Scots actually voted for the party.
Expressing nationalist sentiment in a general election is a risk-free way of venting emotion. Voting for independence would be quite another matter since it would raise — once again — difficult questions about currency unions and tax revenues.

It’s easy to emphasise difference. Talk to foreigners, though, and they will tell you how similar they think we all are. As Chris Deerin puts it, the same people but with different accentsThe political map makes things look more different than they really are. There is nothing to suggest that Scotland is a different country other than the electoral performance, under a skewed system, of a party that has promoted that exceptionalism almost unchallenged. If it isn’t challenged, though, it will become true. If Scotland believes it is different it will eventually become different. The other parties seem to be accepting this almost without question. If they carry on like this, Scotland really will become another country.

Update

Jan Eichhorn of Edinburgh University shows that there has been no increase in feelings of an exclusively Scottish identity among people in Scotland. If anything, the reverse is true. The proportion of Scots rejecting the British identity and seeing themselves only as Scots is lower now than it was a decade ago.

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The SNP’s victory cannot, therefore, be attributed to a rising sense of Scottishness as defined in opposition to the rest of the UK.

To just make the point absolutely clear: Scottish identity or sentiment has not been increasing, but decreasing gradually since the advent of devolution. There has not been a higher relative level of emphasising Britishness in Scotland than in the year when the referendum on its independence was held.

[T]his tells us an important message about SNP support: The SNP has not gained voters because it could increase the feeling of national identity, but has done so for other reasons.

Crucially, commentators need to stop painting a picture in which the majority of Scotland predominantly base their political decision making mostly on their national identity. There has been no rise in nationalistic sentiment in Scotland. As we (amongst others) have repeatedly shown in our research, the strongest determinants of both independence and SNP support were pragmatic evaluations about economic prospects, trustworthiness and political personnel. For most people in Scotland the SNP is a normal party, that they like, hate or are indifferent to, but those evaluations for most are based on whether people agree with their policies and how they evaluate their representation.

If commentators want to understand why the SNP is successful, they need to make a greater effort at properly understanding how public attitudes are formed in Scotland. Suggesting that it is down to sentiment is lazy at best, but actually misrepresenting the majority of Scottish voters. For political parties trying to challenge the SNP, first and foremost Scottish Labour, a similar message applies: to have a chance of engaging them successfully, they need to stop focusing mostly on high-level questions about different types of nationality. Instead they need to challenge the SNP on concrete policy debates around issues that affect people’s lives and which voters in Scotland are much more likely to base their votes on than identity-driven arguments.

In other words, SNP support has very little to do with an increase in Scottish nationalism and a lot to do with the failure of the mainstream parties. If Scotland does become another country, it will not be because the SNP won it but because our political establishment lost it.

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Labour lost the economic argument 5 years ago

Pundits will be picking over the results of this election for years and there are many reasons why things turned out as they did. For Labour though, in one respect, this election was lost in the aftermath of the last one. The opposition parties kept repeating the story of Blair and Brown spending with gay abandon and running up a massive debt. In the months after the 2010 election Labour never managed to nail that story. By the time they tried, it was too late.

As Simon Wren-Lewis says, there wasn’t any evidence to support it. True, Labour ran a deficit in the last decade but that wasn’t what caused the big jump in the debt-to-GDP ratio. By the time of the recession, the deficit was falling and was almost yesterday’s news. As this chart from Economics Help shows, the highest borrowing came in the year before the 2005 general election, yet the deficit was barely mentioned during the election campaign.

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This was because it wasn’t really seen as a big deal. People were asking for an improved NHS, more police and more teachers. You could argue that Gordon Brown should have funded this from taxes, rather than borrowing, especially during a period of growth. It was also true that most other advanced economies were reducing their deficits by the mid 2000s but they had more reason to do so because their debt was much higher. The UK had the lowest level of debt in the G7 before the recession.

As the OBR pointed out in its detailed analysis of the public finances over the last decade, some of the deficit was simply due to the sort of poor forecasting that afflicts governments from time to time.

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This pattern of unexpected surpluses followed by unexpectedly large deficits was similar to that seen under the previous Conservative Government from 1987 to 1993.

So, while it might have been better not to have funded so much spending with a deficit, at the time no-one thought it was a major problem. If spending really had been out of control, Michael Howard and David Cameron would have harangued Tony Blair and Gordon Brown at the despatch box every week, warning of the dire consequences and making as much political capital as they could. But they didn’t.

The deficit and, as a consequence, the debt only shot up with the financial crisis. And it shot up everywhere. The reason UK debt rose more quickly than that of other countries is because its tax revenues fell more sharply, largely due to its dependence on finance, the very industry that had caused the crash.

Major Economies Debt

If this was a Brown Debt, it must also have been a Bush Debt, a Sarkozy Debt and a Merkel Debt because most countries found themselves with a similar problem.

It was at this point that the government’s day-to-day spending came adrift from its tax revenues. It’s useful to look at this both in cash terms and as a percentage of GDP. Spending continued to rise, as is to be expected in a recession, but tax revenues fell. The fall is less pronounced on the 2nd chart because GDP was also falling but the first chart shows the big gap opening up between spending and receipts 2008.

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Source: ONS, Public Sector Finance, Longer-term trends

One could argue that the Labour government should have curbed spending in 2007 as a downturn was inevitable at some point. The OECD did give a nudge in that direction in one of its reports. But very few people saw the recession coming, let alone the extent of it. In March 2008, about half way between the collapse of Northern Rock and the demise of Lehman Brothers, the great and good of the economics world were forecasting continuing growth, albeit slightly slower than in the earlier part of the decade. No-one came close to predicting what really happened.

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Source: OBR, Crisis and consolidation in the public finances, October 2014

The Conservatives certainly weren’t sounding the alarm. In late 2007, George Osborne was still promising to increase public spending. It was over a year later, after Lehman had crashed and it was clear the economy was contracting, that the Conservatives abandoned their policy of matching labour spending plans and started warning about a ‘borrowing bombshell‘.

It was canny politics. In the mid 2000s, the Conservatives knew that public spending was popular which is why they agreed to match Labour’s plans. The recession and the associated jump in the public deficit, gave them something with which to beat Labour. Link this rise in debt to earlier spending and a generalised charge of profligacy and they could make the effects of a global catastrophe look like incompetence. There was just enough in the way of continued deficits (albeit low ones by later standards) and the odd comment from the IFS or OECD to give a plausible sounding back story, even if it was one that the Conservatives had failed to notice at the time.

It worked. Labour lost the election though not by enough to give the Conservatives a majority. But while Labour went into a bout of introspection, the Tories kept hammering home the message of Labour spending, debt and fiscal incompetence. Labour, pre-occupied with its leadership election, failed to challenge the narrative and so it became part of the accepted version of the financial crisis. Liam Byrne’s ‘no money left‘ note might have been a joke but it was incredibly naive and only helped his opponents. The image of an empty treasury was powerful and enduring.

By the time Labour challenged the Tories version of events it was too late. As John Hutton and Alan Milburn said earlier this year:

It is understandable that the Conservatives, under George Osborne, the guileful chancellor, and Lynton Crosby, his election guru, should make this their mantra. What is less understandable is that Labour, under Ed Miliband and Ed Balls, his shadow chancellor, has been hesitant to rebut this charge. They have worked harder to distance themselves from New Labour than to defend its record. This hands the Tories a needless advantage.

In one of the TV debates, when Ed Miliband tried to explain why the public debt wasn’t due to Labour’s overspending, no-one was listening. It was too late by then. Too many people had accepted the government’s version of events and saw any denial as a lie. Since then, a number of economists have backed Miliband up on the question of debt and spending. But they have been doing that since 2010. Lots of articles were written about this but it really didn’t matter what the economics said because Labour had already lost the politics. That Labour went on a spending spree and ran up a massive debt bill is one of those things that “everybody knows”.

James Bloodworth tweeted this earlier today:

He’s right. Whatever the economics of the Labour spending and debt story, the Conservatives handled the politics deftly and a stunned Labour Party let them get away with it.

If Gordon Brown had not run deficits in the early and mid 2000s, the public debt might now be a little less, but not much. Most of the sharp increase debt came about as a result of the recession. But politics is just as important as economics and the Conservatives won the politics hands down before Labour had realised what was going on. A lot of people are still convinced that the Blair and Brown governments were responsible for the rapid increase in debt in the late 2000s. It will take a long time for Labour to persuade them otherwise. If it ever does.

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The deficit: much tougher than it looked

A friend asked me, earlier this week, “If you’re saying David Cameron and George Osborne are not dedicated state shrinkers, and they’re not stupid either, why would they commit themselves to such a big reduction in public service spending?”

Because, when the Conservatives first promised to eliminate the deficit, they had no idea how big a task it was going to be.

To be fair, they weren’t alone. In 2010, most people assumed that the economy would eventually grow again in its usual post-recession pattern, starting with a big jump to counteract the big slump, then settling into steady growth. That would have boosted employment, increased wages, raised the tax take and lowered welfare costs.

In the event, that didn’t happen. The government’s growth forecasts in the early years of the Coalition turned out to be way too optimistic. Even after the ONS’s revised GDP estimates (black line on the graph), growth fell well short of expectations. As the OBR points out, the government projections were not that much different from those of most outside forecasters. In 2010, no-one expected the economy to perform so badly.

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Source: OBR Forecast evaluation report, October 2014.

The result of the poor growth was poor tax revenues and stubbornly high welfare costs. At each budget and autumn statement, the forecasts had to be revised, in the wrong direction.

The tax take was disappointing:

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Source: EY Item Club

While the welfare bill stayed high:

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Source: OBR Welfare trends, October 2014

If tax revenues are poor and welfare costs rise, more of the burden of deficit reduction has to fall on public services. As time went on, therefore, the level of public service cuts needed for the elimination of the deficit increased.

Giles Wilkes produced this chart a couple of weeks ago based on public service spending forecasts over the past five years. Each time, public services get squeezed that bit more to compensate for lower than expected taxes and higher than expected social security costs. By the end of 2014, the cuts needed to eliminate the deficit were about £80 billion more than George Osborne envisaged in 2010. Even to achieve Labour’s current (as in day-to-day) spending surplus will require Ed Miliband to spend less on public services than George Osborne originally thought he’d be spending.

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The problem, then, is very straightforward. To get rid of the deficit, if the economy doesn’t grow by as much as you thought, the amount that has to be cut from public services must increase by more than you thought.

David Cameron and George Osborne had no intention of slashing public services by as much as the OBR projections now suggest. Eliminating the deficit looked difficult but do-able in 2010. The problem now is that the weak economy has left them with much more to do than most people predicted five years ago. It implies more public service cuts in the next three years than we saw in the whole of the last parliament.

It may come right, of course. Perhaps the OBR growth forecasts are now too pessimistic and we will see a boost in productivity and GDP. In which case, the deficit may disappear without the need for even bigger public service cuts. At the moment, though, the recovery is looking anaemic and a sudden pick up in growth seems unlikely. Unless a lot more of us start getting paid a lot more, welfare costs will stay high and tax revenues will stay low.  The IMF believes the UK will still have a deficit at the end of the decade. Whatever happens today, the deficit will be as big a headache for the next government as it was for the last one.

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