Clowns to the Left of me, jokers to the Right

April 21, 2012 by

Craig Berry

Image © The Prime Minister's Office

In 2010 David Cameron reaffirmed his commitment to measuring levels of happiness. There’s more to life than money, he argued. Accordingly, the Office for National Statistics included four questions on ‘subjective well-being’ in the Annual Population survey for the first time in April 2011.

This is the sound of the Conservative Party moving away, albeit very tentatively, from neoliberalism. The economic downturn has not altered but reinforced Cameron’s point of view on this. His support for measuring happiness, alongside GDP, derives instead from his profound commitment to conservative ideology.

As New Labour’s ‘accommodation’ to neoliberalism and the Thatcher legacy became stronger rather than weaker – contrary to early promises – Cameron carved a space for himself in promoting traditional English values in contrast to Labour’s fanatical modernisation.

It would be easy, and not unjustifiable, for the left to be cynical about what the government is doing. But the left’s bêtes noires of recent decades, the neoliberals, are also cynical, and in some cases incensed – see for example Helen Johns and Paul Ormerod’s research for the free market think-tank Institute of Economic Affairs. And take another look at the speech on happiness Cameron gave in November 2010. He contrasts the pursuit of happiness in public policy with three shining examples of a neoliberal agenda in action: immigration, cheap booze, and consumerism.

This does not mean there is not a major flaw in the government’s thinking. In terms of measuring social progress, the effectiveness of happiness measures are undermined by the fact that, as Johns and Ormerod point out, people always say seven. The ONS asked people ‘how satisfied are you with your life nowadays?’, ‘to what extent do you feel the things you do in your life are worthwhile?’, and ‘how happy did you feel yesterday?’; across all three questions, three-quarters of people said seven out of ten. (When the question was posed in more negative terms, that is ‘how anxious did you feel yesterday?’, the vast majority said three out of ten.)

Read more of this post

Filed under Conservatives, Culture, Economy, Labour, Parties Tagged with , , , , , , , , , , , , , , ,

Should the left be angry that new banking regulations were watered down?

September 21, 2010 by 1 Comment

Last week, the Basel Committee, made up of central bank governors from the world’s leading nations, announced new recommendations on banking supervision. The rules have been christened Basel III and will be adopted by national regulators in due course. Apparently, bankers are delighted about the rules, which could have been much tougher. They will also be phased in over several years, allowing the banks more breathing space than they were expecting. Stockmarkets around the world surged as a result.

Essentially, banks will be compelled to hold more capital to cover investment risks. More of their reserves will also have to be held in liquid assets such as gilts. In combination, the rules will make the global financial system more resilient, and it is less likely banks will require another bailout by taxpayers in the future.

But regulators could have gone further in the restrictions placed on bank manoeuvres, and by bringing in the rules sooner. The question is: should the left be angry that the banks have not been hit as hard as they could have been? The banks have caused a fiscal crisis in the UK more serious than any other in living memory. Surely the left should be campaigning for regulators to go much further in creating conditions for stability in the financial sector, so that our jobs and public services are never again placed at the mercy of the City.

Unfortunately, it isn’t that simple. As a result of Basel III – even in its diluted form – the cost of banking will inevitably rise. Mortgages and loans will be more expensive, and savings products will be less generous. Generally speaking, banks will be less profitable. Shareholders’ dividends may not be quite as high and employees’ bonuses may be slightly more politically correct – but ordinary people will suffer too. This is the price of relative stability.

The problem for the left is that the Labour government’s vision for welfare was little more than an updated version of Margaret Thatcher’s property-owning democracy. New Labour’s approach to asset-based welfare, as interrogated by Matthew Watson, was built on allusions about the housing market boom, and the notion that we could all make a fortune from investing in the stockmarket one way or another. The birth of ISAs, for instance, was consistently championed by New Labour as the hallmark of progressive financial inclusion. As such welfare for the left became fundamentally wrapped up in the fortunes of the financial sector. If banking becomes more expensive, this agenda is severely undermined.

This is not to say that the left should bemoan the end of asset-based welfare. But what is the alternative? These questions have not been discussed at all during the Labour leadership election – candidates have generally supported tougher restrictions on banks, without considering what this actually means for financial inclusion.

It also worth mention the opinion of Allister Heath (editor of City AM) on Basel III. He argues, among other things, that the new rules remain tied to the ‘fantasy land of mainstream finance theory’ in at least one regard. In seeking to ensure bank assets are more liquid, Basel III encourages investment in gilts (i.e. government securities). The assumption that all government debt will retain value and saleability in the event of another crisis may be profoundly flawed. Basel III is therefore not a panacea for financial stability.

There is perhaps one aspect of Basel III that the left can rally against without reservation: the complete absence of democracy in the Committee’s proceedings. The Basel Committee is in fact an informal, advisory body with no legal status. Civil society actors have had no formal role in its discussions. Furthermore, even at the national level, there has been no public debate on the rules and their implications. Not to mention that the governor of the Bank of England is almost entirely shielded from public scrutiny, despite now enjoying immense influence over UK economic policy.

Craig Berry is a former policy advisor at the Treasury

Filed under Economy, Foreign policy Tagged with

Royal Mail privatisation: public sector pensions claim another victim

September 10, 2010 by 6 Comments

The coalition government announced today that Royal Mail is going to be privatised. The economic argument is of course no stronger than it has been every other time the sale of Royal Mail has been touted, but in an age of austerity, it is no surprise that the government wants to get this loss-making enterprise off the balance-sheet.

Royal Mail has of course been run like a business for a long time now – which is why we can even talk about its profitability. Most public services would make a loss in the private sector - that is why they are public services, to ensure public goods are delivered irrespective of market value. The fact that we pay for Royal Mail services doesn’t necessarily mean that it is a state-owned business; it could easily be viewed as a form of co-production.

The argument goes that the growth of email and social networking fatally undermines demand for Royal Mail. That is right, at least to some extent. But it doesn’t necessarily mean that the private sector would be able to cope more effectively with falling demand. In fact it may demonstrate that Royal Mail’s failings are due to exogenous factors rather than public sector inefficiencies. If the private sector is to return the Royal Mail to profitability, it will surely do so by ceasing the most costly services – typically used by people who have least access to the internet anyway. It is not hard to imagine already-strained local authority and voluntary sector organisations stepping into the breach to ensure that the most vulnerable members of society in this regard (including older people in remote areas) receive some form of mail service even if they are ignored or priced out by a privatised Royal Mail.

So, the argument on profitability is not convincing, and privatisation could lead to worse outcomes for many people. What is really behind the government’s move? The devil lies in the detail: the Royal Mail’s enormous pension scheme deficit. Figures released this year suggest that it now stands at over £10bn. This means its liabilities to pay its members’ final salary-related pension benefits far outweigh the value of the assets in the organisation’s pension fund. This has been perhaps the main reason private sector firms have been loathe to gamble on Royal Mail. For all the talk of digitalised mail, Royal Mail – which provides a vital public service for many people – is in financial difficulty precisely because of the way its pension fund has been organised and managed. Independent pensions consultant John Ralfe told the Telegraph in 2009 that the Royal Mail pension fund had been over-exposed to equity losses.

The structural problem in the pension fund, of course, is that it is paying retired former employees for far longer than it expected to when they commenced employment with Royal Mail. We are all living longer and both public and private sector pension schemes – not to mention state pensions – face long-term funding crises. The government has promised to back Royal Mail’s historic pension liabilities but does not want to risk taking on a growing deficit in the future. The debate on whether public sector pensions are legitimate or affordable could rage on and on. It just seems very strange that a public service could be sliced up and sold off for this reason. It is hard to see that privatisation is an economic answer to the pension problem. It is, however, a political answer. It means that a private company could massively reduce the generosity of Royal Mail’s pensions at a greater distance from the public gaze than the government could. Is the loss of a public service really a price worth paying for this political pensions fix?

Craig Berry is a Senior Researcher at International Longevity Centre-UK and former Policy Advisor on state pensions at the Treasury. This article was originally published by ILC-UK.

Filed under Older people, Tax and spend Tagged with

Follow

Get every new post delivered to your Inbox.

Join 1,263 other followers