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Taking Jobs or Creating Jobs? The Impact of Brexit on Wages

Published by Anonymous (not verified) on Mon, 18/10/2021 - 9:36pm in

Taking Jobs or Creating Jobs? The Impact of Brexit on Wages

Jonathan Portes analyses Boris Johnson’s claim that curbing immigration should lead to a “high productivity, high wage” economy

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“Many of the big questions in the social sciences deal with cause and effect. How does immigration affect pay and employment levels?” asked the committee awarding this year’s Nobel Prize in economics.

One of this year’s winners, David Card, overturned conventional wisdom thirty years ago, when he found that even a very large influx of relatively low skilled migrants (to Miami, in 1980, because of the so-called “Mariel Boatlift”) had almost no impact on the wages or job prospects of Miami residents.

Many non-economists – and even some economists – simply assert as an article of faith that such effects must exist – usually suggesting that it’s a matter of “supply and demand.” But this is a misunderstanding of basic economics. It’s true that immigrants add to the labour supply. Indeed, it’s even true, at some level, to say that immigrants “take our jobs.” I work and live in London, and no doubt I, like many UK-born economists, have at some point failed to get a job because my prospective employer preferred to hire an immigrant. 

Overall, Brexit reduced, rather than increased, real wage growth between the referendum and the pandemic. 

But immigrants (directly or indirectly) add to labour demand as well as labour supply; they earn money and spend it. So immigrants create jobs as well as taking them.  Ignoring this is the “lump of labour fallacy” – the idea that there are only a certain number of jobs to go around, so that if an immigrant to the UK (or an old person or a woman) takes one, then a Briton (or a young person or a man) must lose out. 

But while an immigrant may “take” one job from a Brit directly, they may also “create” one job indirectly for a Brit. Similarly, wages for British workers might rise or fall. In particular, while changes to migration might well change relative wages – raising or lowering wages in some sectors – it’s unlikely to have much direct impact overall.

So the only way to find out what immigration does to jobs and wages is to look at the data. And since Card’s original paper, there have been hundreds of studies doing just that. There is now a clear consensus that Card’s result holds good across most advanced economies, including the UK, where research has generally failed to find any significant association between migration flows and changes in employment or unemployment for natives.  

Brexit Soaring Pay?

Before the pandemic, the continued buoyant performance of the UK labour market further reinforced this consensus. Despite the high immigration of the last twenty years, unemployment fell to the lowest levels since the 1970s, while employment rates for British-born workers were at the highest levels in recorded economic history. Nor is there any evidence that immigration has impacted the employment prospects of specific groups such as the young or unskilled. Crudely, immigrants are not taking our jobs.

While the evidence on wage impacts is less conclusive, there was a similar consensus – that recent migration has had little or no impact overall, but possibly some, small, negative impact on low-skilled workers. The most widely cited study, by researchers at the Bank of England, found that a 10 percentage point rise in the immigrant share – that is, roughly that seen over the 15 years leading up to the pandemic – leads to approximately a 1.5% reduction in wages for native workers in the semi/unskilled service sector; an impact the author himself described as “infinitesimal”. 

This would mean that immigration would have depressed annual pay increases by about a penny an hour. Impacts in other sectors were estimated to be even smaller. The conclusion is that while migration may have had some small negative impact on wages for the low paid, other factors, positive and negative (technological change, policies on tax credits, the National Minimum Wage) were far more important.

Based on this and other evidence, most economists argued that the ending of free movement after Brexit would be unlikely to do much to boost wages for low-paid British workers. And yet for the last few months, we’ve had a deluge of claims that the end of free movement, and the consequent reduction in migration from Europe, have led to soaring pay. Were we wrong? 


The Big Political Problem With Boris Johnson’s Wage Pronouncements
Sam Bright

Not yet. It’s been conveniently forgotten that in 2017 and 2018, there were widespread reports that a post-Brexit reduction in EU migration was leading to staff shortages and wage increases. “This is precisely why a lot of people voted for Brexit,” said Fraser Nelson, editor of the Spectator. Paul Embery gloated

“Reduction in workers from the EU is forcing British firms to pay more. Yet more evidence that an over-supply of labour caused depression of wages. Those in the labour movement who spent years denying this reality would do well to admit they got it wrong.”

Except that it was Embery who got it wrong; in fact wages in the sectors most dependent on relatively low-paid service workers, particularly those from the EU, rose about 2.5% a year in 2017 and 2018 – mediocre by historical standards (and even those rises were in large part driven not by changes in migration but by rises in the national minimum wage). Overall, Brexit reduced, rather than increased, real wage growth between the referendum and the pandemic. 

And indeed, so far, despite the headlines, there’s little evidence yet of big wage rises across large sectors. While pay for HGV drivers certainly has responded, despite widespread reports of shortages, that for workers in hotels and restaurants has not. Instead, what we’ve seen is a post-pandemic bounceback in wages; but with nominal wage increases now being eroded by a sharp rise in inflation.  

Image courtesy of Jonathan Portes

So as yet there’s little reason to change our views about migration and wages, or the impact of Brexit-induced reductions in the number of EU workers here. Unless migration affects productivity, reductions in migration simply can’t have much of an impact on the overall level of wages – rises in wages in some sectors will simply feed through into rises in prices, and hence reductions in real wages for workers in other sectors.

The main impact will likely be through lower overall employment and output; there will be no significant increase in employment for the UK-born, and there will be some, but probably rather small, increase in relative real wages for workers in the most affected sectors (offset by an even smaller fall in relative real wages for other workers who consume the outputs of those sectors).  

Productivity and Wages

If accurate, these predictions are far from the overheated rhetoric of some commentators – both those who think ending free movement will be an economic disaster and those who think it will transform the prospects of British workers.

As Alan Manning, the former chair of the independent Migration Advisory Committee, put it “neither a very restrictive approach to immigrants nor a very free approach had a significant impact on Britain’s GDP per capita.” Alan’s argument, based on the analysis above, is that since migration doesn’t affect wages of existing residents much in either direction, migration simply doesn’t matter very much (unless you’re a migrant, in which case it matters a lot). 

So, if immigration doesn’t matter that much, is Boris Johnson “economically illiterate”, when he points directly at immigration as the cause of the fundamental structural problems of the UK economy? 

“We’re not going back to the same old broken model with low wages, low growth, low skills and low productivity, all of it enabled and assisted by uncontrolled immigration.”

Perhaps not. On the question of principle, I think Boris Johnson is right, and Alan Manning and many other economists are wrong. Immigration can, and probably does, have much bigger impacts than economists (at least labour economists) tend to think. To see why, think about trade. 

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The economic impacts of trade aren’t only about reduced prices for imported food or cheap consumer goods – they also include increased competition, technology transfer, the development of multinational supply chains, and so on. That’s why economists argue that the costs of Brexit are likely to be much broader than just somewhat higher prices for some goods.

Similarly for immigration. Boris Johnson may very well be right that the economic impacts of immigration go beyond relatively small direct short-term impacts on the jobs and wages of natives but have broader, larger and more longer-term impacts on skills, investment and ultimately productivity and GDP per capita. 

But that doesn’t mean that he’s right that the effects of immigration are negative. It’s true that migration could reduce the incentive to invest in productivity-enhancing machinery, or for employers to train native workers. But there are other forces at work. 

As with trade, increased competition from migrants may give residents an incentive to work harder or train more. A deeper and more flexible labour market for employers to recruit may lead to the growth of high-productivity clusters in some sectors (it’s not hard to think of examples, particularly in London). A more diverse workforce, with different skills, backgrounds, attitudes and culture may be more (or less) productive overall. 

Back to Reality

So again, it’s an empirical question. And comparing countries, it does look like countries with higher levels of immigration do, other things being equal, see faster growth as a result. For example, IMF by researchers at the International Monetary Fund found that a 1% increase in the migrant share of the adult population results in an increase in GDP per capita and productivity of approximately 2%. 

What does the UK evidence say? In 2018, the Migration Advisory Committee commissioned not one but three papers to look at this question. They all found that higher levels of migration were associated with higher, not lower productivity.  

Image courtesy of Jonathan Portes

The striking element of all of these results – found by different papers using different methodologies and different data – is not just that immigration appears to have a positive impact on productivity growth, but that this impact is large; indeed, as the MAC said in their analysis, arguably “implausibly large”.  For good measure, two of the papers also looked at training, finding no evidence that migration reduced the amount of training for native workers. 

So what does this mean for Johnson’s vision of a “high productivity, high wage” economy? Johnson isn’t wrong to point to the long-running and deep-rooted structural problems of the UK economy, which have indeed led to persistently low productivity growth and low-paid and insecure work for many.  But his critics are right to argue that reducing immigration will in itself do little or nothing to address those issues, and may indeed make things worse. 

Indeed, a liberal and flexible migration policy – for a small open economy like the UK, highly dependent on high-productivity service sectors – is likely to be an essential ingredient in any credible strategy to boost productivity.

Here, fortunately, the Government’s rhetoric doesn’t necessarily match with its policies.  The new migration system represents a considerable liberalisation of immigration policy towards those coming from outside Europe. And as I wrote previously in Byline Times, migration from Hong Kong could give the UK economy a real boost.

But the broader question is whether the Prime Minister’s rhetoric was just an easy way to justify current disruption; or whether he really means it about transforming the UK’s economic model, and will put his policies – and our money – where his mouth is. On that, the jury is still out.

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A good time to end negative gearing and taxpayer subsidised speculation in housing

Published by Anonymous (not verified) on Mon, 18/10/2021 - 4:59am in

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Economy

There are many things wrong with both housing policy and tax policy, and the interaction of them predictably creates distortions in our housing market. It makes it impossible for many young people to own their own home. Politicians, unwilling to upset beneficiaries of those distortions in fear of losing votes are unfortunately generally loath to Continue reading »

Industry and Uncertainty: Crises Loom Over Boris Johnson’s New ‘Red Wall’ Strongholds

Published by Anonymous (not verified) on Fri, 15/10/2021 - 9:31pm in

Industry & UncertaintyCrises Loom Over Boris Johnson’s New ‘Red Wall’ Strongholds

Katharine Quarmby reports on the potential economic and political repercussions of the second ‘Winter of Discontent’

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The Energy Intensive Users Group (EIUG) doesn’t mince its words about the energy crisis for its members in steel, chemicals, fertilisers, paper, glass, cement, lime, ceramics, and industrial gases.

It states – pointedly – that, while it welcomes recent talks with the Business, Energy and Industrial Strategy Secretary, Kwasi Kwarteng, on the “impact of the continued, sustained and unprecedented high energy prices on the UK’s energy intensive industries”, it is now looking to the Treasury for a “equally swift response”.

The group is seeking what it calls “cost containment measures” for gas and electricity prices, as its main request. 

Dr Richard Leese, EIUG chair, said in a statement: “EIUG will work with Government to avoid threats both to the production of essential domestic and industrial products, as well an enormous range of supply chains critical to our economy and levelling up the country.”

The scale of the challenge is contained in the soaring cost of each megawatt of energy. According to Make UK, which represents manufacturers, this figure has spiked from around £50 per megawatt hour last year, up to thousands of pounds most recently. 

The EIUG’s press release, warning of threats to “levelling up” is a clear jab at Boris Johnson. It is instructive that the Prime Minister’s own rhetoric is now being deployed by manufacturers and campaigns groups to hold his Government to account, on behalf of the towns that voted for him in 2019.

Bleak Midwinter

In 2019, a raft of former safe Labour seats – mostly in the Midlands, the north of England and north Wales; known colloquially as the ‘Red Wall’ – flipped dramatically to the Conservative Party. Most of these areas had voted in favour of Brexit in 2016, and were converted by the Conservatives’ promise to “get Brexit done”.

Two years later, Brexit is now arguably biting back, contributing to supply-chain problems while energy prices soar exponentially. These crises will undoubtedly impact individuals and manufacturers in the Red Wall, which is characterised by relatively high levels of deprivation, along with a history of industrial employment.

Mary Creagh – the former Labour MP for Wakefield, a former Shadow Cabinet Minister and one-time chair of the parliamentary Environmental Audit Select Committee – has been working at the local food bank in Finsbury Park, north London. She is thoughtful about the effect of the energy crisis on her former constituency – a brick in the Red Wall that fell to Conservative candidate Imran Ahmad Khan in 2019.

“Thousands of families will lose some Universal Credit this month, petrol prices have gone up, which is feeding into the cost of living and inflation,” she tells Byline Times. “We may be seeing an interest rate rise – and then there are the rising energy costs. That’s not even an unholy Trinity; it’s an unholy pentagon.”


Who Funds Red WallConservative MPs?
Sam Bright

Looking ahead to the winter, she points out the thousands of deaths that occur every year when people turn off the heating. “The price cap on energy may help now, but it’s going to be a very challenging winter.”

“In some of those Red Wall seats, it could lead to political movement,” she adds.

The Red Wall is comprised of dozens of seats that have displayed a longstanding cultural and political attachment to the Labour Party – derived from a local history of unionised labour. This bond snapped in 2019, with 33 of Labour’s 43 Red Wall seats in England flipping to the Conservatives.

This has ushered in a new flock of Conservative MPs, many of whom have since come together through the Northern Research Group of backbench Conservatives, chaired by Jake Berry, the MP for Rossendale and Darwen and former Northern Powerhouse Minister.

Berry has made no secret of his view that state intervention in times of crisis can be helpful – while others in the group have sounded the alarm over the Government’s decision to end the Universal Credit uplift introduced during the Coronavirus crisis.

The energy crisis could be another occasion when northern Conservatives are able to apply political influence on the Prime Minister. After all, it is these MPs who risk losing their seats as the “unholy pentagon” looms.

The Trade-Off

In Staffordshire in the west Midlands, the three parliamentary seats in the city of Stoke-on-Trent are now held by Conservative MPs. Stoke-on-Trent South was gained by the party in 2017 – a sign of things to come – with the other two seats following in 2019.

“Stoke, it’s right at the centre of the kingdom; it’s the gearbox of the country,” Joe Rich, the Conservative candidate for Stoke-on-Trent before 2017, tells Byline Times. “The Midlands and the north, the steel city of Sheffield; they matter.”

He explains that Stoke’s ceramics industry is a huge business, manufacturing parts for industry – not just wedding sets and teapots. He is somewhat gloomy about the future of production in the area, despite innovative companies diversifying their sources of energy.

“What will probably happen is that some ceramics firms will stop production in Stoke and move to parts of the world where things are cheaper,” he says. “We may start seeing more ceramics made in Russia, or even Iran and Iraq, where energy is cheap.”

Rich worries about the energy crisis, but is not sure that “bucking the market” is going to solve the fundamental problems of a country that is currently energy poorer than most. 

Dan Jellyman, director of Aegean Consultants – which advises business on policy changes – is a former owner of a ceramics business in Stoke, who advises industries, including ceramics, on how to mitigate political risks.

He explains that the closure of the Rough gas storage facility in 2017 had already reduced UK gas storage by 70%, meaning the Government had only a few weeks of critical gas supply in hand, unlike many other European countries.

“All the major industries are in the Red Wall areas, the Red Wall agenda plays into this,” Jellyman observes. “In terms of ceramics, there are three Conservative constituencies here in Stoke. It will be interesting to see if the Government decides to help the ceramics industry.”

His best bet is that if the Treasury has to choose between the various energy-intensive industries – steel, glass, ceramics and paper – it will choose steel. “It’s the critical one, the foundation of the economy; there are already steel shortages and that creates risks in everything from road-building to buying new street bins.”


An Unequal KingdomThe Evidence that ShowWe Were Never ‘In This Together’
Jake Tacchi

“The Government will intervene but not all the industries which are energy intensive can be a winner,” Jellyman adds. “The ceramics industry could be hit twice, because it uses electricity as well as gas. These industries are going to have to face this fundamental challenge for years to come, as the Government goes down the green route.”

He suggests that industry needs to look ahead, investing in new energy sources such as hydrogen, but adds that the Government’s hydrogen policy is “nowhere near where it needs to be”. 

Some industrialists are already eyeing-up cleaner and potentially more reliable energy sources, such as hydrogen. Jo Bamford, the JCB heir – a company that is headquartered near Stoke – has just launched a £1 billion investment fund to finance green hydrogen projects.

The Tees Valley, meanwhile, home to 60% of the UK’s energy-intensive industries, has launched a clean industrial zone. But cheerleading for future clean energy and regional change, however welcome, isn’t going to solve the immediate problem of an energy crisis – and the knock-on effects on industry this winter. 

The Government appears to be in a fix; juggling the optics of protecting fossil-fuel-reliant industries before its crucial COP26 climate summit in Glasgow, while facing the daily wrath of unhappy industrial leaders and struggling new constituencies. But a crumb of political comfort remains in the fact that the Labour Party seems not to have worked out an easy way to make political capital out of the situation – yet. 

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How flimflam politicians cultivate a culture of business greed

Published by Anonymous (not verified) on Thu, 14/10/2021 - 4:55am in

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Economy

The outsourcing of crucial government services to private operators in the name of efficiency has often resulted in a shameless chase for profit with taxpayers left counting the cost.

Emboldened by shameless politicians, a business culture has developed in which the public purse is just low-hanging fruit.

I was startled the other day to hear a mate saying he was a bit depressed by the thought that Australia was turning into a business kleptocracy. What? Surely not. But the more I thought about it, the more I realised he was on to something.

I’ve written a lot about the failure of what lefty academics call “neoliberalism” and its quest for smaller government. Going back to the Howard government, both sides of politics have accepted the fashionable idea that, though there are plenty of services governments should continue asking taxpayers to pay for, the actual delivery of those services should be “outsourced” to the private sector.

Why? Because, as everyone knows, the public sector is inefficient, whereas the private sector is highly efficient. Because it would be so much better to have more of us working for business and fewer working for the various arms of government. The greater efficiency should lead to lower taxes.

I’ve pointed to instances where this mixture of ideology and tribalism has failed, leading to lower quality services without much savings to the taxpayer.

But is that the whole story? My mate’s looking at it from a different angle: what do the many failed attempts to hand service delivery to for-profit operators say about the ethics of business people?

That, for a surprising number of them, if you see money lying around with nobody watching, you grab it? That while ripping off customers is unethical, overcharging “the government” is a harmless, victimless crime? No human was hurt in the making of this profit?

One of the first government services to be outsourced was childcare. Before long, a single company bought up more than half the childcare centres, expanded overseas and then collapsed. To avoid leaving many parents in the lurch, government had to step in and sort it — at great expense.

Much of the sector remains privately owned. Last week, the United Workers Union reported that three-quarters of the 12,000 enforcement actions taken since 2015 were against for-profit providers.

The Rudd government drew much criticism over the deaths of several people caused by faulty installation of Pink Batts during the global financial crisis. But what does it say about all the operators using unqualified workers who flooded into the industry because they saw an easy buck to be made?

The bipartisan decisions to further open vocational education to private operators and charge fees on a similar basis to the HECS scheme attracted many new operators, some of which offered free iPads to unsuitable youngsters who signed up for “free” online courses. It cost taxpayers millions in debt write-offs.

The present government and the four big banks swore there was no need for a royal commission into possible misconduct but, when its hand was forced, we all remember how much misconduct was uncovered.

An accountants’ report for the royal commission into aged care found that, using a common definition of profit (earnings before interest, taxes, depreciation and amortisation), for-profit aged care providers in the second-highest quartile had a profit margin of 16 per cent, compared with 13 per cent for non-profits and 4 per cent for state government providers in 2018. Return on equity was 12 per cent for non-profit providers and 72 per cent for for-profit providers.

This week Sydney’s Star casino joined Melbourne’s Crown casino in being accused of turning a blind eye to suspected money laundering, organised crime and foreign interference.

And whether or not you think Treasurer Josh Frydenberg should have included in the JobKeeper scheme a provision to claw back assistance that proved not to be needed, it’s surprising to see companies announcing healthy profits while hanging on to grants.

This week, the Fair Work Ombudsman filed court proceedings alleging that the Commonwealth Bank had knowingly breached its wage deals with employees as part of a $16.4 million underpayment. The ombudsman’s report for 2019-20 said it had recovered more than $123 million for 25,000 employees.

Some of our biggest companies, including Woolworths, Coles, Wesfarmers’ Target and Bunnings, Qantas and Crown casino — not to mention the ABC — have admitted or been accused of “wage theft”.

We’re asked to believe these are innocent mistakes made by big corporations with big human relations departments and computerised payroll systems because awards are so hellishly complex. Sorry, I don’t. Much easier to believe a culture has developed that business’ contribution to the economy is so heroic that behaving with honour is optional.

How could business people have reached such a self-serving conclusion? Perhaps by observing the Morrison government’s unashamed rorting of grant programs and Saint Gladys’ sanctification of political pork barrelling: it’s not illegal and everybody does it.

This article was first published by The Sydney Morning Herald and is reproduced with permission.

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Johnson’s Hypocritical Hand-Outs: How MPs Warp Perceptions of Poverty

Published by Anonymous (not verified) on Tue, 12/10/2021 - 10:36pm in

Johnson’s Hypocritical Hand-OutsHow MPs Warp Perceptions of Poverty

The reality of deprivation in Britain is distorted by those who complain about earning more than £80,000 a year and rely on wealthy friends to pay for their holidays, says Maheen Behrana

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As a second ‘Winter of Discontent’ approaches, it is brutally evident that spiralling living costs, food shortages and inflationary pressures will afflict ordinary people – especially middle and low income earners.

But, amid all these crises, one higher earner has been singing to the tune of the world’s smallest violin and bemoaning his industry’s typical pay packet: Conservative MP Peter Bottomley, who has complained about the fact that MPs earn a starting salary of £81,932 a year – something he describes as “really grim”.

In a country where the median full-time salary is a little more than £30,000, it seems absurd that an MP would complain about earning more than two-and-a-half times the salary of his average constituent.

But Bottomley isn’t the only politician to take issue at his objectively large salary. Boris Johnson has also reportedly claimed that his prime ministerial salary of £150,000 a year is too small. Previously, he said that his £250,000 a year earnings from a column for the Daily Telegraph was “chicken feed”.

The Prime Minister is seemingly so concerned about his salary that he relies on significant hand-outs from his friends to cover leisure costs. Not only was his 2019 Caribbean holiday to Mustique funded by Conservative donor David Ross, but it seems that his current break on the Costa del Sol is being facilitated by Conservative peer and minister Lord Zac Goldsmith. That’s before we consider who exactly paid for Johnson’s lavish refurbishment of his Downing Street flat; not to mention that he was reported to have asked a party donor to pay for his one-year-old’s nanny.

Some may laugh at the fiscal ineptitude of the Prime Minister, but it is dwarfed by the seriousness of the situation he currently presides over.

Johnson and members of his Cabinet have been almost blasé about the escalating cost of living, declaring that it will be easily counter-balanced by rising wages. This is despite the fact that wage growth is artificially high as a result of depressed salaries during the worst months of the Coronavirus pandemic, while real wage growth has been confined to a limited number of shortage-ridden sectors.


The Poverty TrapBoris Johnson’sWinter of DiscontentWill Make Us All Poorer
Maheen Behrana

So, how do we square the two Johnsons? One is a man who seems blind to the crises affecting ordinary people. The other is a man who goes into panic mode over his own personal finances, which to any normal person would seem very healthy.

It is easy to paint Johnson and other prominent Conservatives as absurd figures who, having never lived a ‘normal’ life, feel that a genuinely normal income is not something they could survive on. But the reality may be more calculated and more complex.

Divide and Rule

In 2019, an unnamed man hit the headlines after his angry outburst featured on BBC’s Question Time. He claimed that Labour’s then proposal to raise income tax on all those earning more than £80,000 was an attack on ordinary earners. He revealed that he earned more than that amount and refused to accept that he was in the top 5% of earners. “I am not in the top 50%,” he memorably fumed.

While his outburst was met with derision from some quarters, it should serve as a telling reminder of how MPs and the media distort the real circumstances of most people.

Politicians rarely engage with real figures. They don’t talk about the fact that in 2018/19, the poverty line constituted a single person earning less than £147 a week. They don’t talk about that fact that for a child to be eligible for free school meals, a working family must have an income of less than £17,000.

The reality of poverty is always skirted around and never stated. The sheer extent to which a person needs to be poor to even qualify for state support may baffle many people – individuals who themselves may feel that they are struggling.

Unfortunately, sympathy is in short supply – largely also a result of Conservative economic policies. Real-terms earnings have stagnated since the 2008 financial crisis for the longest period in 200 years.

As a result, compassion for the poorest is in short supply. With middle incomes squeezed and falling, and with costs escalating, many people may lack sympathy for the worst-off, simply not realising how much worse things can get. When politicians then deliberately entrench this sense of financial conflict by talking about their high salaries as if they were mere pittances, the deception is complete.

The lowest wage earners and the poorest people are characterised as outliers and scroungers; beneficiaries of a hand-out culture that is bemoaned by a Prime Minister who happily takes as many luxury hand-outs as he can get. The goalposts are shifted, and people fail to realise the true poverty that this Government has allowed to proliferate in Britain today.

Maheen Behrana is a senior campaigns and policy officer for the campaign group ‘Best for Britain’. This article is written in a personal capacity 

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Conference speeches reveal the misery to come

Boris Johnson and Rishi Sunak make their way up the staircase of No10 Downing StreetPicture by Andrew Parsons / No 10 Downing Street on Flickr. Creative Commons 2.0 license

The ultimate, hidden truth of the world, is that it is something that we make, and could just as easily make differently.”

David Graeber

 

After two weeks of party conferences, it is clear that we are on the train to the end of the line, and the buffers are in sight, as the Chancellor committed to yet more fiscal discipline in one way or another. The Conservatives’ levelling up, addressing rising poverty and inequality, and the coming tsunami of climate change, all seem to have been put on the back burner to accommodate the false narrative of fiscal responsibility which marked Sunak’s conference speech.

He said:

So, we need to fix our public finances. Strong public finances don’t happen by accident. They are a deliberate choice. They are a legacy for future generations, and they safeguard against future threats.

 

I’m grateful, we should all be grateful, to my predecessors and their 10 years of sound conservative management of our economy. I believe in fiscal responsibility, and everyone in this hall does too.

 

And whilst I know tax rises are unpopular, some will even see them unconservative, I’ll tell you what is unconservative, unfunded pledges, reckless borrowing and soaring debt, and anyone who tells you that you can borrow more today, and tomorrow will simply sort itself out, just doesn’t care about the future.

 

So yes, I want tax cuts, but in order to do that our public finances must be put back on a sustainable footing.

In those few words, you have the stark reality of what is to come. Despite the Prime Minister’s usual blustering rhetoric at the close of the Conference, which was not enthusiastically received by many outside the conference hall, he seemed to dismiss the current situation as a temporary blip on the way to better times, Rishi Sunak, on the other hand, promised tax cuts, but we’d have to wait until the public finances were on a ‘sustainable footing’.

Johnson’s better times, in that case, will mean instead that we can expect more austerity and cuts to public sector spending. Indeed, senior ministers have said that the levelling up project will likely take 10 years to complete, and they have admitted that there will be pain for voters on the way. We will see, as a result, a further rise in poverty and inequality, more suffering for those who are already having to choose between heating and eating, or worrying whether they will have a roof over their head. Levelling up and fiscal retrenchment are, in fact, mutually exclusive propositions. The incumbents of No. 10 and No. 11 are clearly not on the same page.

And worse, there was scarcely, if at all, any reference to climate change, apart from the green homes grant for which he had already cut funding. Indeed, it has been reported that the Treasury has been blocking green policies on infrastructure and home insulation.

Does this suggest, as it might well do, that the Chancellor has reservations about its affordability? In that case, so much for the Prime Minister’s rhetoric, a week or so ago, which claimed that the climate summit of world leaders in November will be the ‘turning point for humanity.’ Though, obviously, not until we’ve got the public finances under control, and the water is lapping around our feet.

The Chancellor, in his speech, referring in glowing terms to his predecessors’ fiscal credibility, has chosen to ignore the real consequences of their policies and spending decisions on the economy, and the public and social infrastructure. He has chosen to ignore the ongoing disintegration of society as poverty, food banks and homelessness have become an accepted public norm, and the responsibility of numerous, underfunded charities relying on public donations to fund their activities.

Yet again, and predictably, he is falling back on the false narratives of how the government spends and appealing to the household budget-conscious nation to accept that there is no alternative to yet more pain. Hurrah, folks, let’s celebrate! We balanced the budget but killed a lot of people along the way, and failed to secure a green, sustainable future for our children and theirs.

Sunak stated that strong finances don’t happen by accident. From his fiscal discipline bunker, he has twisted reality to suit his rhetoric. The reality is that it is not strong finances but strong economies that don’t happen by accident. They are a deliberate choice by the government and relate both to policy and spending decisions of governments of whichever political persuasion. Over the last decade, this government has consistently glossed over those consequences with political spin and deceit, by always falling back on its fiscal discipline and austerity narrative, claiming that we cannot leave it to future generations to clear up the mess.

Ironically, that same government then spent 18 months propping up an economy that had never really recovered, as a result of his predecessors’ public sector austerity, imposed in the wake of the global financial crisis, leaving a decaying public infrastructure denied adequate funding, and struggling to cope with the pandemic and its associated aftermath.

In the same way, Sunak’s claim that strong finances are a legacy for the future is yet again indulging in a false narrative of how the government spends. Today’s deficits will not lead to a burden of higher taxes on future generations. Suggesting that cutting spending now will enable future spending, in a world of supposed monetary scarcity, is yet more illusion created to keep people fearful and in their place.

The awful reality is that such austerity, as we have already experienced, will continue to lead to an impoverished future for our children and their children, or maybe not a decent future at all if the government fails to act to address the climate crisis.

As Professor Bill Mitchell noted in a blog post in 2014:

“The idea that borrowing ‘takes money from the pockets of future taxpayers’ is nonsensical. The funds to pay for the bonds originate in the government net spending in the first place.

 

 Clearly, deficits now are in part helping the current generation with income transfers and the like. But they also facilitate public education, public health and other infrastructure which provide massive benefits into the future for the current generation and their children.

 

Once you understand that, then the idea that there is a future burden will make you laugh.”

While the chancellor continues to bang on about fiscal responsibility, and the media hammers out the narrative, these illusions and their repetition keep its audience captured and compliant with Thatcher’s mantra of ‘There is no alternative.’ Frankly, it is no exaggeration to suggest that that mantra is killing us.

Indeed, wherever you look the right-wing media remains a key advocate of government’s unswerving devotion to market solutions and fiscal prudence, harmful as it will be in the current economic uncertainty. Repeat after us, they opine ad nauseam…there is no alternative to sound finance and balanced budgets; hammering it into the public consciousness to reinforce the narrative and drive compliance.

This week, the Telegraph began an article quoting Wilkins Micawber in Charles Dickens novel, David Copperfield, “Annual income twenty pounds, annual expenditure nineteen, nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.”

Comparing Micawber’s income and expenditure with that of the State is yet another example of dishonest reporting supporting the political ideology which prevails. The government’s finances bear no resemblance to Micawber’s, or indeed our own. This is because the government is the currency issuer, and the private sector, including individuals, businesses, and public institutions like local government, are currency users. The former has the power of the public purse to spend, constrained only by the productive capacity of the nation, and the latter, the currency user, is compelled to live within its income. They are not the same by any stretch of the imagination.

Let’s not beat about the bush, at this stage in the game when the stakes are high and involve survival. The currency-issuing capacity of government, not just over the last year, but during the Global Financial Crash in 2008 which bailed out the banks, is clear to see, and it is shameful but predictable that the media still continues to toe the political line with such macroeconomic nonsense. That nonsense will, in the end, prove very harmful to an economy which is far from recovering, and which, as a result, will create further economic uncertainty across the board, and most particularly, for those least able to manage.

The article (requires registration to read) is littered, as most are, with macroeconomic untruths about borrowing and debt, or building up a war chest for the future. Sunak has apparently to “cut his coat to an increasingly threadbare cloth’, must put ‘the public finances on a sustainable footing’, and work within the ‘fiscal straitjacket the OBR sets for him.

It gets worse. Against that misrepresentation of how the government spends, the article compared levels of national debt which stood at around 30% of GDP in 2006, [stands today at 98%,] and predictions estimate that in two years’ time it will peak at around 110%. Never mind that it stood at 248% in the post-war period, when the government invested in the nation’s public and social infrastructure, with not a whiff of bankruptcy in sight. Such information serves yet again to shock the public and create those perfect conditions for compliance.

The article then goes on to suggest that it would be ‘perilously close to a level, markets might reasonably think ‘unsustainable’, leaving virtually nothing in the tank to deal with future shocks, or the upward pressures on debt servicing costs that would result from rising interest rates.’

Never mind that the reality is that bond markets don’t control anything, and that it is the government that makes the rules and calls the tune. Never mind that borrowing is just an illusion, a matter of smoke and mirrors, which keeps yet again the public in tune with the messages of soaring debt, paying it down and living within one’s financial means.

As a result of this thinking, Sunak has already broken three of the Party’s manifesto commitments; the state pension triple lock pledge, a promise not to increase the rate of national insurance and breaking its commitment to spend 0.7% of gross national product on overseas aid. And with the ending of the furlough scheme last week and the £20 a week cut to Universal Credit, it is a clear indication of where we are headed.

The choice it seems is a high welfare state or a low tax economy, but we can’t have both. Under this false ‘tax pays for spending’ paradigm, fiscal discipline and balanced budgets are a moral obligation, never mind who it hurts or who dies as a result.

But let’s be clear, these fiscal measurements of an economy’s health are the wrong ones, as GIMMS has noted many times. The size of the deficit in itself tells us nothing about how well, or not, an economy is doing.

What tells us the real story is looking at the economic conditions of the time, both global and domestic, and how the government of the day responded. It points to the economic ideology that prevails when the government cuts or increases spending. It shows who benefited and who lost out.

Over decades, under successive governments, it has been working people who have lost out to this toxic ideology of market supremacy, which has created vast disparities in wealth, and placed downward pressure on standards of living, as ever-greater shares of productivity were distributed to fewer people.

The truth is that the ‘misery’ referred to in Micawber’s quote is not related, in this instance, to a government that has been fiscally imprudent, but the misery that will be caused by a government that has failed to provide the infrastructure a modern economy needs to function, and a fairer distribution of real wealth and resources, not to mention the prospect of a sustainable future. An economy which is, after all, the people that contribute to it, who have borne the cruel brunt of government policy and spending decisions.

That is what we should be focusing on. Not whether the government or the chancellor of the day is fiscally credible, or whether he has achieved his objectives of keeping public finances balanced. On this basis, we can understand that this current government holds its citizens in contempt. And it also holds our children, and their future, in contempt.

Professor Bill Mitchell nailed it simply in a blog this week when he wrote:

“But let’s clear a few things up first.

 

 1.

The government’s fiscal balance is not a motor car. The latter sometimes required repair when a component ages and falters.

 

There is no sense to be made of applying the metaphor to a fiscal balance.

 

One doesn’t ‘fix’ that balance.

 

One doesn’t ‘repair’ it.

 

It is what it is and should never be a target in itself for action.

 

In a modern monetary economy, the currency-issuing government should be targeting things that matter – like protecting “peoples’ livelihoods” and letting the fiscal balance be whatever is required to achieve that aim, conditional on what the non-government sector is doing with respect to spending and saving decisions.

 

Currently, that means the fiscal deficit has to be continuously large in Britain.

 

Not forever, but any notion of a fiscal surplus or balance is nonsensical, and the pragmatist would soon see the unemployed bodies piling up and be forced to do something about it.

 

2.

The future generations choose whatever public debt levels and tax structures that they will live with. The baby boomers didn’t impose any particular tax structure on our children.

 

Once they get to voting age, they can express their preferences accordingly.

 

What we have left them with is massive deteriorating natural environment, the ‘gig’ economy where their future prospects are damaged, a housing market that will preclude all but the ‘rich’ kids from fully participating, run-down educational institutions, health services that are underfunded, public transport systems that continually fail, and all the rest of it.

 

That is the burden that this “we need to fix our public finances” mentality has wrought for our children, and for us, and for the planet.”

 In conclusion to this week’s blog, it is becoming very clear where this ‘Brave New World’ promised by Johnson, at some as yet unspecified time in the future, is going to lead us. Most certainly not to a land of post-Brexit milk and honey. When a Prime Minister tells his audience that we should look at ‘the most important metric […] wage growth’, and ‘never mind life expectancy’ or cancer outcomes’, horrific as that statement is, the higher wage growth story is embellished, and doesn’t tell the whole story about the uneven nature of that wage growth and who is benefiting and why. It is time to question and challenge what those words may signal for the future.

Apart from being a crass and cruel statement that belittles people’s lives as inconsequential and disrespects those affected by such issues, it can be directly correlated to 10 years of cuts to public spending, leaving people vulnerable and our infrastructure decaying. By saying this, he is wilfully ignoring the impact of previous government choices on the nation. But admitting it, even if he thought it, would spoil the narrative he is desperate to convey of good times ahead.

At the same time, he is suggesting in his best free marketeer mode that the markets will sort it all out, if the government just steps back and allows them to do their work. At the same time, and ironically, he has also blamed businesses for not having done so.

The hands-off approach is not working, as has been demonstrated many times. This week, the army was brought in to get fuel to service stations as driver shortages continue to put pressure on supply lines. Let’s not forget either, a government that outsourced its responsibilities for the provision of PPE last year, and failed to plan for the pandemic, both with disastrous results. Or what happens to the quality of services and people’s wages and job security when public services are delivered by a greedy, profit-driven private sector. All are a clear indication of the government priority not to govern, but to shift its obligations downwards and wash its hands of any responsibility.

If Sunak gets his way and continues down the track of fiscal discipline, as Johnson exalts, as he did in an interview this week the power of the market to deliver economic miracles, then the future that is being mapped is one of total negation of the government’s role in the economy. Just as they have always wanted it. Welcome to a return to pre-second world war conditions that most of us won’t recognise or remember.

This was further emphasised by Sajid Javid suggesting in his speech to Conference that health and social care, ‘begins at home’, and ‘people should rely on their families in the first instance rather than on the state.’

When Javid talked then about his role volunteering in a care home, we can begin to envision the sort of society he is talking about. The Big Society, where charities and individuals take the place of government, which then provides the minimum in public service provision.

Frances Ryan in the Guardian was clear:

“Javid’s comments are not simply offensive – they are a worrying sign about the future of social care. It is worth reflecting on what Javid’s speech means: the health secretary believes that government should not take overall responsibility for health and social care. That is not a minor thing. It is a radical rewrite of the social contract, and an abandonment of basic ministerial duty.

 

Last month, Boris Johnson’s social care plan gave minimal extra funding to the sector, and no word on how to meet unmet care needs. Javid appears to see himself as building a repackaged “big society”, where the market and individuals rule supreme, the state collects rising taxes but delivers little more for it, and disabled and older people will be cared for as long as they do not expect the state to do it.

 

It isn’t “fixing” social care for the government to tell families to do the care themselves. It is passing the buck. Why bother solving staffing shortages or unmet care needs when you can just shift the burden on to the public?”

 

To then go on to suggest, as he did, that we currently live in a ‘compassionate, developed country that can afford to help with that’ [caring] is to deny the last 10 years of government policies and spending decisions which have pulled the carpet from under the feet of many families, leaving them to struggle to cope on their own or rely on what charity is left to help.

Those same charities are now struggling to keep afloat as a result of cuts to public spending, which have filtered down to our local communities where much of this vital work was being done. Work, which, in many cases, is mitigating for government ‘failure’ and abdication of responsibility.

So, the narrative is being constructed that we can all be volunteers or carers and work for free, to reduce the financial burden on the State.

The culture of individual responsibility, not a bad thing in itself, has been cultivated by successive governments espousing neoliberal ideology, and is being used to justify further disintegration of our public services. A do-it-yourself programme. It fails to recognise the social determinants of health, which, in turn, rely on a government whose policies and spending creates the infrastructure that allows a positive culture of independence and responsibility to thrive.

Whether it was pandemic or healthcare planning or ensuring that we had sufficient HGV drivers or social care workers, as GIMMS has pointed out before, it was the government’s responsibility to think strategically and plan for the future. Instead, it absolved itself from any responsibility, expecting a disparate, profit-led, short-term thinking market to deliver. It hasn’t, and won’t, and yet the government is still pursuing this direction.

While the public continues to accept the notion of the public finances being like their own household budgets, and accepts its fate as necessary, there can be no progress. As even more cuts bite into lives already grappling with the consequences of the last 10 years, more austerity will quite simply mean that we will all be the losers in the end.

However, on a final positive note, armed with the tools that an understanding of monetary reality provides, it doesn’t have to be that way. We can change the world with the political will to do so. It is up to us to keep pushing for that alternative vision.

 

 

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The post Conference speeches reveal the misery to come appeared first on The Gower Initiative for Modern Money Studies.

Saturday’s good reading and listening for the weekend

Published by Anonymous (not verified) on Sat, 09/10/2021 - 4:00am in

Tags 

Economy, Politics

This weekly post is a collection of links to recent articles, reports, podcasts, interviews, and notices of upcoming webinars, on political, economic and public policy issues, that may be of interest to Pearls and Irritations readers.

The vaccine’s progress

With half the population vaccinated, New South Wales is opening up (a little) on Monday. Other states are watching.

Economics

The fast train we don’t have. Labour economics in explained in two minutes. Karl Marx and the Ten Commandments.

Politics – ICAC

It’s not about Gladys: it’s about probity. We need a Commonwealth ICAC.

Other politics

Bernard Collaery has a small win for justice. The politics of Pope Francis’s popemobile.

Health and aged care

Remember that commission of inquiry? Not much has happened. And in health the states are left with the bill for the Commonwealth’s neglect.

Elections and polls

Labor still ahead. Independents are gathering pace.

Webinars

University of Melbourne and Australia Institute webinars

The nuclear French navy

French navy manoeuvrers in Singapore.

These links are on Ian McAuley’s website

If you have comments, corrections, or links to other relevant sources, we’d like to hear from you.  Please send them to Ian McAuley — ian, at the domain name ianmcauley.com

See Michael West Media for more analysis of these and other economic and political issues, and watch out for Peter Sainsbury’s Sunday environment round up.

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A Turning Tide? Johnson’s Campaign to Turn Two Fingers Up at Business Continues

Published by Anonymous (not verified) on Sat, 09/10/2021 - 1:48am in

A Turning Tide? Johnson’s Campaign to Turn Two Fingers Up at Business Continues

Mike Buckley reflects on the Prime Minister’s attempts to distract from the economic plague that the Government has inflicted on the nation

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Was it the week the tide turned? Boris Johnson’s speech at the Conservative Party Conference created headlines for – from his perspective – all the wrong reasons.

The next day’s newspapers remarked on its lack of policy announcements, while think tanks and business leaders from across the political spectrum decried its detachment from economic reality with the outside world facing long queues for fuel, higher prices, and the threat of black-outs over winter.  

The Prime Minister’s speech was “economically illiterate”, according to the right-wing think tank, the Adam Smith Institute.

“The public will soon tire of Boris’s banter if the Government does not get a grip of mounting crises: price rises, tax rises, fuel shortages, labour shortages,” observed Ryan Shorthouse, director of Conservative think tank Bright Blue. 

Even pro-Brexit business leaders spoke out.

The chief executive of Next and Conservative peer Lord Simon Wolfson said that the Government’s post-Brexit immigration policy was causing “chronic” problems for a range of sectors including restaurants, care homes, small businesses, hospitals, fruit farms, and warehouses. Johnson’s call for businesses to fill labour gaps by paying home-grown workers more risked “a 1970s-style inflationary spiral”, he said.

They were each in their own way responding to Johnson’s claim that labour shortages created by Brexit are part of a Government plan to force employers to raise wages and invest in British workers. “We are not going back to the same old broken model,” Johnson said, “with low wages, low growth, low skills and low productivity enabled and assisted by uncontrolled immigration.”

“The answer to present stresses and strains,” he continued, “which are mainly a function of growth and economic revival, is not to reach for that same old lever of uncontrolled immigration. The answer is to control immigration.” 

Johnson’s claims make little economic sense. He “can battle business but he can’t ignore economics”, said the Financial Times. Meanwhile, Torsten Bell, chief executive of the Resolution Foundation, argued that Johnson mistakenly believes that “a migration policy is the same thing as an economic strategy”.

Overall, cutting immigration makes people poorer, Byline Times columnist and economic professor Jonathan Portes said. In economic models, reduced immigration means that “real wages and productivity of residents will fall, on average” and it is not “credible to claim that Brexit – seen as a set of new restrictions on migration – will somehow shock us onto a path of higher productivity [and] real wages”. 


Brexit to Blamefor Lorry DriverShortagesVoters Say
Sam Bright

Yet, that is exactly what Johnson claimed to a packed hall of Conservative devotees. In all likelihood, the Prime Minister is aware that he will not be able to create a high wage, high productivity economy. Rather, his purpose was to make a virtue out of a crisis – to claim that labour and goods shortages now afflicting Britain are part of the plan.

All ministers care about is “polling and votes”, said one business executive, adding: “These are transparent tactics. They have retrospectively decided that the reason for all these crises is the need to reboot the economy, and now they need an enemy to blame.”

“Where is the party of business?” asked Craig Beaumont, chief of external affairs at the Federation of Small Businesses. “The media were apparently to blame for the fuel crisis, then it was consumers to blame, and now business is to blame for low wages and supply chain shortages,” he added.

Business leaders are increasingly exasperated by the Government’s adversarial position and its unwillingness to recognise the added costs imposed by Brexit, alongside proposed increases in national insurance and corporation tax. Confidence among companies in the UK has fallen sharply, risking future investment as the UK seeks to rebuild after the pandemic.

A Permanent Problem

But business leaders are not the audience whose approval the Government seeks. Its eyes are firmly on voters – who, for the moment, are still giving Johnson the benefit of the doubt.

Opinion polls still put the Conservatives ahead of Labour, by nine points in the latest YouGov poll for The Times. James Kirkup, director of the Social Market Foundation think tank, reports that few Britons now believe that the Government should make the lives of businesses easier anyway.

But public patience may not last forever.

Shortages are not a temporary blip; they are a permanent consequence of Brexit. “Britain is a net importer of almost everything a modern society needs to survive,” says economist Umair Haque. “Brexit has placed so many hurdles in the way – from paperwork to tariffs to red tape to backlogs – that many European businesses have simply decided not to supply Britain at all. That means that Britain has done something genuinely incredible: it’s created a long-term supply shock for its own economy.”

Unlike shocks resulting from war or natural disaster, this one will not disappear swiftly. Brexit trade barriers will not be undone, at least not in the short-term. Shortages are here to stay. The Government will try to source goods from elsewhere but, as it is already finding, the rest of the world has little interest in meaningful trade deals with Britain, as evidenced by US President Joe Biden’s swift refusal to even open the conversation during Johnson’s recent trip to America.


Fixing A Chaotic StateHow Should Labour Tackle Brexit?
Mike Buckley

The situation is likely to get worse if, as seems increasingly likely, the EU imposes sanctions over Britain’s failure to implement the Northern Ireland Protocol and Withdrawal Agreement. The EU feels, quite rightly, that the rights of one of its member states are being disregarded. Meanwhile, France is incensed by Britain’s refusal to implement agreed fishing rights for French boats. 

“Enough already, we have an agreement negotiated by France, by Michel Barnier, and it should be applied 100%. It isn’t being,” said French European Affairs Minister Clement Beaune. 

If the EU applies tariffs to UK goods entering the single market, as is its prerogative, added costs and burdens will be applied to UK businesses. The end result will be higher inflation, lower productivity, and lost jobs. If the French cut-off energy supplies to the UK, as has been threatened, winter power cuts and price spikes will become more likely.

In such circumstances, public patience will surely run out, and the Government will run out of people to blame. The result could be a swift reckoning for Johnson’s Conservatives. 

Saving Graces?

However, there are perhaps three factors that could save the Prime Minister, at least for some time.

The first is the lack of an alternative. Few politicians are willing to speak out against Brexit, fewer still to argue that it was a project bound to cause deep economic harm and to make all Britons poorer. 

Second is the Coronavirus pandemic. A spike in infections over the autumn or winter, made more likely by the Government’s refusal to require even basic mitigations, could give Johnson cover for Brexit harms – as it has done for the past 18 months. 

Finally, Leave voters do not believe that they made the wrong decision. In polls, Labour and Remain voters are far more likely to blame Brexit for the recent shortages than Conservative and Leave voters. Until that changes, Johnson’s 40% poll rating will stay fairly secure. 

Nevertheless, this week felt like a turning point. The fact that so many business leaders have spoken out could embolden opposition politicians and the media. The route is clear for Labour to assume the mantle of the party of business – not in opposition to the interests of workers but in their defence – for without viable businesses there are no decent jobs. And as Johnson continues on his quest to f*ck business, Labour can rebuild its economic credibility.

But, for that to happen, Labour will have to contend with the core feature of Johnson’s programme: Brexit – to call out its failures and propose a better settlement with the EU. The public deserves to know the truth. It is Labour’s job, along with the media, to explain it to them. 

Mike Buckley is director of the campaign group ‘Labour for a European Future’

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The post A Turning Tide? Johnson’s Campaign to Turn Two Fingers Up at Business Continues appeared first on Byline Times.

Three Key Reasons Why Boris Johnson Isn’t Serious About ‘Levelling Up’

Published by Anonymous (not verified) on Fri, 08/10/2021 - 12:37am in

Three Key ReasonsWhy Boris Johnson Isn’t Serious About ‘Levelling Up’ the UK

Behind the gags, the Prime Minister’s plan for regional redistribution is woefully lacking, says Sam Bright

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The Prime Minister delivered his Conservative Party Conference speech yesterday, conveyed in prose that appeared to fuse a newspaper column and an after-dinner speech – his natural professions.

A common theme throughout, and one that will likely carry the Conservatives into the next general election, was “levelling up” – ostensibly the effort to rebalance wealth and opportunities in the UK, primarily focusing on left-behind areas in the so-called ‘Red Wall’.

“The idea in a nutshell is that you will find talent, genius, flare, imagination, enthusiasm everywhere in this country, all of them evenly distributed, but opportunity is not,” Boris Johnson said.

The underlying conviction is a noble one. The economic dominance of London, and the wider south-east, has incubated vast economic equalities within and between different regions. According to Professor Philip McCann, a regional development specialist, the UK has the highest levels of regional inequality among the other 28 advanced OECD (Organisation for Economic Co-operation and Development) countries. “In many ways, the economic geography of the UK is reminiscent of a much poorer country at an earlier stage of economic development,” he says.

However, while Johnson’s intentions may be sound, the prospects of left-behind towns – and the Prime Minister’s own political prospects – will not be enhanced by his stand-up routine. The UK’s regional inequalities are all-pervasive, and Johnson will not be able to solve the problem simply with bravado.

So far, even among Conservatives, there has been an overwhelming sense of disappointment following Johnson’s speech. “No policy in the whole speech. Nothing of substance. Plenty of untruths. Will get written up as successful because that’s the world we live in,” wrote Sam Freedman, a former Department for Education advisor to Michael Gove.

The Adam Smith Institute – not commonly quoted on these pages – was even more scathing, calling the speech “bombastic but vacuous and economically illiterate”, adding that levelling up “so far consists of little more than listing regions and their local produce”.

Scrutiny of the policy has been relatively limited since its inception during the 2019 General Election campaign – a symptom of the Coronavirus pandemic, the media’s over-concentration in London and Westminster, and the longstanding apathy among those in power towards regional inequality.

However, there are three unambiguous signs that Johnson is not serious about the agenda.

Funding

The Centre for Cities has recently estimated that ‘levelling up’ will require an investment of £2 trillion from the Government – double its total annual expenditure.

This figure is based on the amount of money invested by the German federal Government following the unification of East and West Germany in the early 1990s. Germany was forced to amalgamate the richer, capitalist West with a bloc that had suffered from the privations of Soviet occupation. Even despite this, regional inequalities in the UK – in particular the economic divergence between London, the south-east and everywhere else – are now more more profound than the gap between East and West Germany.

Naturally, it is not possible for a trillion-pound investment programme to take place in just four or five years – especially given the economic pressures wrought by the pandemic. Regional unification has been a 30-year project for Germany, and the task is still incomplete.


The Exams Algorithm Scandal Exposes theSham of Conservative ‘Meritocracy’
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However, the sums pledged by Johnson’s Government are paltry, by any measure. While it is expected that HS2 will cost in excess of £100 billion – an infrastructure project that many speculate will simply entrench London’s dominance – Johnson has pledged just £4.2 billion to fix local bus and train services.

Meanwhile, the Government’s flagship Levelling Up and Towns funds – designed to plough investment into more deprived parts of the country – amount to £4.8 billion and £3.6 billion respectively. Greater Manchester alone has asked for £1 billion from the Government in recent days, to invest in the area. For additional context, the Government spent roughly £15 billion on procuring personal protective equipment during the Coronavirus crisis, and has so far spent £20 billion on its ‘test, track and trace’ scheme.

What’s more, the Levelling Up and Towns funds have been plagued by accusations of political discrimination. In March, it was reported that 39 of the 45 places to receive a share of the first £1 billion in funding are represented by Conservative MPs. Notably, Chancellor Rishi Sunak’s relatively well-off constituency was placed in tier 1 of the levelling up fund, ahead of other, more deprived areas.

Devolution

A similar theme has emerged in relation to devolution – the distribution of state powers to nations and regions.

The Government has recently unveiled plans to change the voting system for English mayoral elections from the existing supplementary vote system – in which the public ranks their two favourite candidates – to the first-past-the-post system used in Westminster elections. Currently, Labour holds 11 of the 13 regional mayoral positions in England, and it is expected that reforming the voting system will make it more likely for Conservative candidates to be elected in future.

The evolution of the levelling up agenda – and the expansion of devolution – seem to rest on the Government’s white paper on levelling up (essentially a policy document that will set out proposals for future legislation), set to be released later this year.

The Conservative Party committed to “full devolution across England” in its 2019 Manifesto, though the precise details of this plan are yet to be released. In particular, criticism has been mounting for years over the current nature of regional devolution in England – via city-region mayors – given their relative lack of powers. It is unclear how the Government will ensure that local areas have a meaningful say on the levelling up agenda, or whether jurisdiction will remain in Whitehall.

The Conservative Party’s rhetorical commitment to devolution and regional rebalancing also hasn’t been matched by its actions since 2010, namely its decision to cut the local government budget in England by more than half from 2009/10 to 2015/16.

These cuts were particularly acute in Labour areas, and in some of the Red Wall seats won by the Conservatives in 2019. Of the 50 councils worst hit by austerity, 28 were Labour-run in 2010. Overall, Labour councils saw their spending power reduced by 34%, while the average Conservative council suffered an equivalent decline of 24%. The average council in the north-east of England also suffered a spending cut by 34%, significantly more than the average council in the south-west or the south-east of England.


Who Funds Boris Johnson’s‘Red Wall’ Conservative MPs?
Sam Bright

Parliament

A man with an aptitude for wordplay and an allergy to detail, Boris Johnson is an effective political exponent of slogans and symbolism.

Yet, he has shirked the one symbolic gesture that may actually have a material impact on regional inequality: the location of Parliament.

Indeed, all staff currently based in the Houses of Parliament are set to move out by 2025 for a six-year period – allowing the rat-infested corridors of power to be renovated, at an estimated cost of between £12 billion and £20 billion (markedly more than the levelling up budgets).

The House of Commons will consequently decamp to Richmond House, a Government building just a short walk away from the Palace along Whitehall, while the House of Lords will sit in the QEII Centre adjacent to Westminster Abbey.

The renovation of Parliament provides a perfect opportunity for the locus of political power in Britain to be redistributed away from London – either on a temporary or a permanent basis – invariably dragging civil servants, journalists and businesses away from the all-consuming capital.

Johnson’s administration had previously planted rumours suggesting that the Lords could be shipped to York. In August 2020, the body in charge of Parliament’s restoration said that moving the Lords out of Westminster was a matter for MPs and peers. However, after the decision was delegated to parliamentarians, the BBC reported that a temporary relocation had been “effectively axed” – meaning that it didn’t carry enough support among the largest party in the House of Commons, the Conservative Party.

If the political system isn’t willing to detach itself from London’s elite districts, it surely isn’t truly invested in the economy at large dispersing to long-neglected regions.

Sam Bright’s book, Fortress London: Why we need to save the country from its capital, will be published in April 2022

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The post Three Key Reasons Why Boris Johnson Isn’t Serious About ‘Levelling Up’ appeared first on Byline Times.

Another week of handbag economics

Black handbagPhoto by Middlesex University Fashion Collection on Flickr Creative Commons 2.0 licence

“The objective should be to organize the economy around human needs and well-being. If toward this end we decommodify key goods and services, or legislate longer product lifespans, use-value will clearly increase even if GDP declines. We must focus on what matters”.

Jason Hickel, Economic Anthropologist

 

Whether we admit it or not, we are living in perilous times. From the climate crisis to the ongoing obscene disparities in real wealth and income, which affect billions of people around the world, they are the outcomes of a distorted economic system. A system which is underpinned by exploitation of labour and the natural resources which sustain its greedy search for profit, no matter the actual costs to the planet or human lives. This distortion is upheld by a false narrative about monetary scarcity, and from 2010 onwards led to the Conservative government claiming that without action we faced bankruptcy, and prescribing austerity with the destructive consequences we are living with today.

The arrival of the pandemic over eighteen months ago challenged that notion, as governments around the developed world loosened the purse strings to accommodate the consequences of the pandemic on global economies. But now, even though we are not yet out of the woods, and the climate crisis continues to bear down upon us, politicians are doing their best to reclaim that redundant narrative of fiscal discipline.

This week has been yet another example of macroeconomic ignorance, idiocy and callousness coming from both sides of the political spectrum.

First up, this week at the Labour party’s conference in Brighton we learned what the future might hold in the unlikely event that Labour wins a future election. The shadow chancellor, Rachel Reeves, boldly pledging £28bn of capital investment to be spent on tackling the climate crisis, then went on to stress the party’s commitment to the straitjacket of fiscal responsibility, by imposing fiscal rules that would both ensure that tax revenues matched day to day public expenditure and that the ‘burden’ of public debt would be on a downward trajectory. Although, to be fair, whilst she said she saw them more as principles rather than binding constraints, and that a permanent mechanism would be introduced to suspend those rules in the event of ‘exceptional shock’, the context of her speech was very much in line with the economic orthodoxy of borrowing, raising revenue through taxation to fund spending, and being fiscally responsible, even if at the same time, unlike the Tories, promising that it would not be ‘on the backs of working people.

Putting aside for the moment the facts about how government really spends, that taxes play no role in that spending, and that the ‘burden’ of public debt is illusory, as an Editorial in the Guardian made clear this week, capital investment whilst vital, must be considered within the context of whether it is achievable in real resource terms. In simple language, the question is never ‘is there enough money’, but do we have enough people and other real resources to deliver and service that capital investment? As the Editorial put it, ‘a better approach to policy would be to focus on how much is needed to accomplish a stated public purpose and work out whether the economy can absorb that amount of spending without price pressures.’

It is the real resources that are finite, and which need to be managed by the government to deliver public purpose and a fairer and more sustainable planet. As such, the choices to be made are not financial, but resource led. The power is in the hands of the government, through its taxation policies, to appropriate the resources it needs to deliver its policies from the private sector. The collection of taxes has, therefore, no funding purpose, and serves quite a separate set of objectives linked to equity, as a tool for controlling inflationary pressures, and driving behavioural change.

And yet, taxing to spend still forms the basis of all Labour’s future proposals, as Reeves also promised that instead of increasing National Insurance to fund the NHS and social care, she would be looking across the board for sources of revenue, which included increasing taxes for the wealthy and tax reforms. But she also told the Financial Times that she wanted people to know ‘that there are fiscal anchors, and that there will be restraints and [for] everything that Labour commits to we will explain where the money will come from’. When, in reference to Labour’s economic policy under Jeremy Corbyn, she was asked about the ‘magic money tree, she responded that she didn’t believe there was one. Liam Byrne’s note in the treasury has left a lot to answer for in terms of Labour’s mediocre response, tied to sound finance rather than delivering real public purpose. It makes for painful listening when you know something about monetary reality.

Reeves then went on in the same vein to challenge the Conservatives to set out a costed plan to meet its green pledges. While the planet continues to burn and people’s lives are wrecked by government policies, it seems to be a game of household budget one-upmanship between the main parties about who can be the most fiscally responsible, with the eternal question ‘where will the money come from?’

However, the question in itself is borne from Margaret Thatcher’s handbag economics, which has dominated public policy and spending decisions since that time. This is not progress. It’s going backwards. The chink of light shining at the end of the tunnel, as financial caution was set aside to save economies from collapse, and which revealed the real possibilities for a fairer and sustainable future, is now less bright. As the incumbent at No.11 and his shadow opposition dig in their heels, anxious to reinforce their fiscal credibility, what is at stake in a continuing uncertain economic environment is our future, that of our young people and those yet to be born.

As the activist Malcolm Reavell pointed out in a social media post this week, in response to Rachel Reeves speaking at the Labour conference:

‘[…] we are doomed as a species if the monetary society in which we live is continually fed the “taxpayers’ money” trope. Nothing will change. The inequality we experience is caused by a deeply embedded false economics, supported by education, media, and politicians. There are few politicians who are willing to stand up to the establishment and call out the lies about currency creation, least of all those who seek personal gain from the perpetuation of the lies.’

Whilst Labour, whatever they are promising in terms of policies, continue up the one-way street to nowhere except the maintenance of the status quo, the Conservatives are way in front having led the way.

Research published this week by the Health Foundation think tank indicated that the NHS and social care services will need more than a million extra staff over the next decade to keep up with growing demand. It was estimated that government would need to invest around £86bn into services to deal with the consequences of an ageing population, a rise in chronic illness, and the backlog of healthcare caused by the pandemic.

To put some context to this report, we are already 100,000 short of health workers which includes nurses, doctors, and other healthcare professionals. We have a chronic shortage of social care workers with over 300,000 people on waiting lists, and social care provision on the brink of collapse due to financial and staffing issues.

This is not accidental. It is related to a decade of public sector spending cuts that have stripped out public services to the bone and shown a complete disregard for the role of government in long term strategic planning to ensure the nation’s needs are met. Every aspect of our public and social infrastructure has been whittled away, government employment and other policies have been responsible for a decline in living standards, poverty wages and precarious working practices, which, in turn, have affected people’s health and well-being. And now, with the ending of furlough and the £20 a week Universal Credit uplift, along with price hikes in energy and food, and the ending of the suspension of evictions, the government is condemning people to further hardship and uncertainty, with its continuing emphasis on sound finance.

Rishi Sunak’s hasty announcement in which he promised ‘to throw the kitchen sink’ at resolving his crass decision to remove the uplift, turns out to be a measly £500m grant to provide support on a discretionary basis to families facing emergency situations, and was described as ‘crumbs off the table.’ The Joseph Rowntree Foundation called it ‘an eleventh-hour attempt to save face’, saying that ‘it does not come close to meeting the scale of the challenge facing millions of families on low incomes as the cost of living crisis looms. By admitting that families will need to apply for emergency grants to meet the costs of basics like food and heating through winter, it’s clear the chancellor knows the damage the cut to Universal Credit will cause.’

At the heart of these problems lies a government fixated on a market-led economic ideology, which combines with its associated balanced budget narratives to form the basis for the policy and spending decisions that have led us here.

In short, and to put it proverbially, ‘a stitch in time could have saved nine’, albeit on a far larger scale. For the narrative of monetary scarcity and the primacy of the market, we are now paying a hefty price in terms of human, economic and planetary health. This will continue unless this government or future ones rethink their priorities.

Putting it right is possible. At its heart, it will require huge investment in infrastructure and the people who will be needed to restore our public services to a functioning system. It will also demand consideration about how we organise society’s priorities for today and the future, in light of the climate emergency.

We seem, however, a very long way from that, and as if on cue, the government this week announced plans to cut the graduate salary threshold for paying back student loans, as the taxpayer bill is deemed too high.

David Willetts, a former universities minister who oversaw the switch to the £9000 student loan in 2012, backed up the plans saying that it was ‘in the interests of students that universities are well funded. But that should not come at the expense of taxpayers.’ He also said that it would save the government nearly £3bn a year. Yet more economic bilge from one of the supporting acolytes of Conservative austerity.

Apart from the fact that taxpayers are not footing the bill for unpaid loans, because as we should know by now, the government doesn’t need taxes to spend, it also won’t save a penny of future government spending or release funds for other priorities. It represents a continuing part of the ongoing smoke and mirrors that keep people in ignorance, divided and under the control of the ‘how we pay for things’ narrative.

Worse, it will further affect the incomes of those who are just starting to build a future for themselves, and who will suddenly find themselves burdened, unless they come under the repayment threshold being set, or their parents can foot the bill in advance. Under such a proposal, we will be continuing to enslave our young people to a rotten, stressful, debt-ridden system of social control, at a time when we need to harness their youthful energy and nurture their creativity and imagination to see a better way forward. We should be investing in our young as only a currency-issuing government can do, not burdening them with debt.

GIMMS would like to give the final words in this week’s lens to Ellis Winningham, who responded on social media to Keir Starmer’s question posed in his essay ‘The Road Ahead.’ It applies equally to the Tories as it does to Labour and should be the starting point for challenging the wrong-headed notions about how the government spends. It shows that contrary to public belief, it is never about monetary scarcity and always about political choice, and such choices, in their turn, are dependent on real resources and how they are employed and shared for the wider good, or not. The future of the planet and our children’s children hinges upon this fundamental knowledge. So far politicians have failed to embrace it, so the challenge remains for the modern money movement to keep passing that baton of knowledge to as many people as possible, until those holding the reins of power can no longer ignore it.

“Why when government departments are funded by taxpayer money are we so lax about ensuring that money is spent appropriately?” – Keir Starmer, “The Road Ahead”

 

Starmer is obviously out of his depth here. We know this because were he not, he wouldn’t be asking the question. Little do people realise that inside this simple question lies the root problem of nearly all of the economic and social problems we see today. The answer to Keir’s question is simple, and here it is:

 

Government departments are not funded by “taxpayer money.”

 

The funding occurs when Parliament decides that a department must be funded and then settles on the appropriate figure. The BoE then credits the spending account with the figure Parliament desires, and the funding is complete. In other words, the UK government does not spend “taxpayer money;” it simply creates the money and then spends what it created. All government spending is “money creation” from the moment that Parliament decides to spend.

 

Now then, when the Tories decide to spend departmental funds inappropriately, giving their friends handouts, the bank accounts of their friends are credited, and the BoE credits the reserve accounts of those banks to ensure that the payments will clear.

 

Many people in Britain want to know why the government could find the money to bail out banks and so forth but cannot seem to find the money for the things which ensure the public’s well-being. The explanation above is the answer to their question. It’s not a financial thing; it is a political thing. The government can always afford anything priced in GBP, so it can always “find the money” to fully-fund things like the NHS, care services, education, full employment, Social Security, and pensions. Parliament simply chooses not to fully-fund the NHS, care services, education, full employment, Social Security, and pensions.

 

But what happens to “taxpayer money” if the government doesn’t spend it?

 

It is deleted from the banking system upon receipt and replaced by new money when the government spends again. What is vitally important to realise here is that the government always spends prior to collecting taxes. Spending places GBP into circulation, and taxation removes GBP from circulation.

 

To correct Starmer, it is never a question about spending “taxpayer money” inappropriately. It is always a question of spending newly created public funds inappropriately. And concerning the issue of spending public funds inappropriately, Starmer is right to question it. The Tories create the money they wish to spend, and then spend it for whatever they choose because they know there is always more money to be had. If departmental funds are running low after giving their friends and pet projects most of the money, the Tories will create more money to spend. I definitely question that.

 

So, yes, there is a “magic money tree” as many of you might have heard, but it is not exactly the Bank of England as some would think. The “magic money tree” is Parliament itself. Currently, the Tories are in command of the “magic money tree,” and they are only interested in that which benefits corporations, the financial sector, and the rest of their wealthy benefactors.

 

That is why the Tories seem so lax about ensuring that the money they authorised to be created is spent appropriately.

 

Ellis Winningham

 

 

 

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The post Another week of handbag economics appeared first on The Gower Initiative for Modern Money Studies.

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