http://taxpayersalliance.org/index.php/site/index/ Fairer taxes not lower taxes en clifford@edition.co.uk Copyright 2010 2010-08-24T14:13:44+00:00 http://taxpayersalliance.org/news/bright-ideas-to-cut-budget-from-the-british-public http://taxpayersalliance.org/news/bright-ideas-to-cut-budget-from-the-british-public#When:13:13:44Z From Taiwan’s Next Media Animation, a hilarious satire of the UK’s Spending Challenge website. (h/t @BeatriceJBray) 2010-08-24T13:13:44+00:00 http://taxpayersalliance.org/news/spending-challenge-back-with-a-whimper http://taxpayersalliance.org/news/spending-challenge-back-with-a-whimper#When:09:58:57Z George Osborne is nothing if not persistent. First his much-derided Spending Challenge website was taken down after being swamped with racist and other offensive statements. Then his Spending Challenge Facebook page – announced via a much-trailed web conference between David Cameron and Facebook founder Mark Zuckerberg – was deleted after it was beaten by a goat. And, finally, Robin Hood Tax launched their own, much more sensible, alternative. But Spending Challenge is back for more. Yesterday the Treasury unveiled a sanitised version of the website – with all visitor comments deleted – and asked the public to rate more than 44,000 suggestions received. The deadline is 31 August, which, as Chaminda Jayanetti points out, gives us a little over two minutes 20 seconds to consider each idea, assuming we don't stop to sleep. Fortunately, most of the suggestions can be dealt with in rather less than two minutes. Despite the Great Cull, a disturbing number are still of the "I'm not racist but..." variety, while others are mind-numbingly repetitive, such as the hundreds calling for the High Speed 2 rail link to be scrapped. (An organised lobby? Surely not.) But some of our favourite proposals have made it through, even though we did lose the popular "Beef and vegetable casserole" recipe and a "windfall tax on Tim Worstall". So there's still time to tell government to "wait until at least three fires have broken out in the same area before sending firemen out", "divert all welfare funding to nuclear weapons" (would that induce a Lib Dem veto?), and "FORCE MAN U 'FANS' TO LIVE IN MANCHESTER". But if you only have time to vote for one idea, make it this: "Create a website where the entire population of the UK can make absurd suggestions on how the Government can save money. Allow easy access and registration so that users can create multiple accounts to vote on their own suggestions." Indeed that second sentence remains true. Astonishingly you can use the same fictitious email address to register and vote as many times as you like. The system doesn't even check your IP address to stop multiple voting from the same computer. MyDavidCameron.com had a more secure voting system than that – and that was about choosing funny posters, not deciding who should lose their jobs. Some more reasonable submissions have made it past the censors too, though, including: Privatisation costs money Support a Robin Hood Tax on banks Renationalise the railway network Don't cut public sector jobs We do not need Trident and, with startling clarity and irrefutable logic: Tax the rich more So, although Spending Challenge is devoid of legitimacy, it probably doesn't do any harm to vote for these – and what you do behind closed doors is up to you. Not that Osborne will be listening: his real consultation – the one with his City friends – also takes place behind closed doors, far from the maddening crowdsourcing of Spending Challenge. 2010-08-19T09:58:57+00:00 http://taxpayersalliance.org/news/goves-legacy-scrapped-playgrounds http://taxpayersalliance.org/news/goves-legacy-scrapped-playgrounds#When:11:20:50Z The government, worried about bad publicity, has backtracked on plans to scrap free school milk. Instead, new playgrounds will get the chop. Sorry kids, that Big Society we were telling you about just got a little smaller. And what form of words did Education Secretary Michael Gove find to announce this cut? "Play has to make its contribution to tackling the deficit along with other important programmes." My initial response would be entirely inappropriate to a post about children's play, but Tom Watson's phrase comes close enough. Gove, you miserable pipsqueak! • Watch Channel 4's news report for more details of Gove's letter. 2010-08-12T11:20:50+00:00 http://taxpayersalliance.org/news/how-soaring-inequality-fuelled-the-crash http://taxpayersalliance.org/news/how-soaring-inequality-fuelled-the-crash#When:15:15:20Z Guest post by Stewart Lansley The other case against inequality Editor's note: Richard Wilkinson and Kate Pickett's groundbreaking and influential Spirit Level has been attacked by both the TaxPayers' Alliance and Policy Exchange recently.The authors have put up a comprehensive defence and you can read the details and follow the debate at the Equality Trust website. But a second case against inequality has gained ground in recent years, highlighting its role in the financial crisis. Analysts who've made this link include Graham Turner in The Credit Crunch, Paul Mason in Meltdown, Gerald Holtham in Prospect, and Tim Lankester in World Economics. The latest addition is former IMF chief economist Raghuram Rajan's Fault Lines, whose arguments were explored by Aditya Chakrabortty in last week's Guardian. One of the most compelling and succinct summaries of the arguments we've seen recently appeared in the print version of the journal Soundings, and we're grateful to the author, Stewart Lansley, for allowing us to publish it here online. The rest of the current issue of Soundings is highly recommended too – notably Danny Dorling's "The return to elitism in education" – so do check out the Soundings website for more details. Despite a series of ‘stop-go’ crises between the Second World War and the early 1970s, the UK experienced only one very shallow and short-lived recession in this period – in 1961. In that year output fell by 0.2 per cent over two quarters.1 Since then, the UK has suffered four much deeper recessions – in 1973-4, 1980-1, 1990-1 and 2008-9. With the exception of 1991 each of these has become successively more severe. In 2008-9 output fell by close to 6 per cent. A similar pattern applies to the world economy. The last two decades have seen a series of global financial crises – the Latin American and Asian crises of the 1990s, the dot-com bubble at the turn of the millennium and then the global credit crunch which triggered the latest global meltdown. A comparison between the post-war decades and the post-1980 period shows the former to have enjoyed higher and more sustained growth, less unemployment and lower inequality.2 The success of the post-war decades is down to the exceptional circumstances of the time - sustained post-war reconstruction along with new international co-operation and global economic stimuli - which helped create the long boom. The period since the end of the long boom has been characterised by a very different set of factors – the rise of globalisation, the freeing up of domestic and global markets and the emergence of the new global super-rich. Each of these factors has been fuelled by the wider shift in economic philosophy from one of managed global capitalism to what has become known as the ‘Washington consensus’ – the belief in efficient and self-regulating markets. The theory of regulating markets emerged out of the eventual stalling of the post-war boom and the arrival of stagflation in the 1970s – the combination of rising inflation and unemployment. It ushered in the subsequent era of privatisation, deregulation of financial and labour markets, balanced budgets and inflation-targeting. At the heart of this theory was the idea that if wages and prices were completely flexible, resources would be fully employed. But instead of the steady growth, greater stability and full employment promised by the theory’s advocates, the global economy has suffered a series of successive shocks that have triggered the greater turbulence and inferior economic record of the post-1980 decades. One of the key effects of the shift in ideology has been a steady but sharp rise in inequality, especially in the two countries that became most heavily wedded to the new economic theories – the US and the UK. From the early 1980s the central social and economic trends of the previous three decades – falling poverty, reduced inequality and spreading employment and social opportunities – were set on a reverse course. Since the beginning of the 1980s, the proceeds of growth have been much less equally shared than they had been in the post-war era. While poverty and inequality rose sharply in both the UK and the US throughout the 1980s and 1990s, middle income groups were also left increasingly behind in the battle for the spoils of rising prosperity.3 In contrast, the period brought the re-emergence of a domestic and global super-rich class, able to accumulate fortunes at levels not seen since well before the Second World War. These trends not only ushered in increasingly divided societies, they also proved to be an economic time-bomb. Widening inequality became a key – if largely unrecognised - ingredient in the growing fragility of the economy and played a central role in the build-up to the credit crunch and the subsequent recession. How the ‘profits squeeze’ gave way to the ‘wage squeeze’ Figure 1 shows that, while the share of UK national output taken in wages held its post-war level at between 58-60 per cent until the early 1970s and then reached a high of 64.5 per cent in 1975, it has drifted steadily downwards since then. In 2008 it stood at 53.2 per cent – close to its post-war low in 1996. As a result, the share of national output being taken up by profits had reached close to a post-war high just before the onset of the recession. Source: Office for National Statistics As the ‘profits squeeze’ of the 1970s gave way to the much more sustained ‘wage squeeze’ of the last three decades, real wages in the UK rose much more slowly than productivity. From 1980 to 2007, real wages – rising at 1.6 per cent per annum – fell behind productivity, rising 1.9 per cent pa. Since 2000, the gap – as shown in figure 2 - has opened further with real wages rising by a mere 0.9 per cent per annum while productivity has averaged 1.6 per cent. Source: Oxford Economics The declining wage and rising profits share were the product of the new macro-economic priorities, the deregulation of the financial services industry, the boosting of market forces and the steady erosion in the power of labour from the late 1970s that were the practical outcome of the new market philosophy. These were reinforced by a new emphasis on flexible labour markets (with the paring back of employment protection rights); increasing constraints on collective bargaining and a growing emphasis on cost-cutting in the pursuit of shareholder value. They were fuelled (though not caused) by a reduction in the demand for unskilled labour resulting from technical change and the global transfer of jobs triggered by globalisation, factors that have added to the growing bargaining advantage of employers.4 Rising wage inequality The wage squeeze has been compounded in its impact by another long term economic trend: the increasing concentration of earnings at the top. As a result, the falling wage share has not been evenly distributed across the earnings range but has been borne almost entirely by middle and lower paid employees. Thus the bottom 60 per cent of earners has faced a shrinking share of a diminishing pool. Figure 3 shows the index for the rise in earnings (for full time males) for the 10th percentile, the median and the 90th percentile from 1978 to 2008 (1978 = 100). The figures have been adjusted for inflation. While real earnings at the 90th percentile doubled over the three decades, real median earnings were 56 per cent higher and real earnings at the 10th percentile only 27 per cent higher. The earnings structure has thus become increasingly skewed towards the top end, with the gap widening sharply between the middle and the top. Source: Author’s calculations from Annual Survey of Hours and Earnings (for 1997-2008), and New Earnings Survey (for 1978 to 1996). The earnings figures have been adjusted for changes in the retail price index.(The NES covers GB and ASHE covers the UK.) This rise in earnings inequality over the last 30 years – with most of the rise taking place from the early 1980s to the mid-1990s - has been driven first by dramatic shifts in the structure of the workforce. The number of jobs in manufacturing fell from 7,130,000 in 1978 to 3,154,000 in the first quarter of 2008. In contrast the number of jobs in finance and business services rose from 2,795,000 in 1978 to 6,669,000 at the beginning of 2008.5 These changing patterns have brought a significant rise in the number of people working in well-paid professional and managerial jobs; a decline in the number of middle-skill jobs requiring moderate levels of education and paying moderate salaries; and a rise in the number of routine low paid jobs. In the 12 years from 1997 to 2009 alone, the proportion of the working population employed in managerial and professional occupations rose from 34.7 per cent of the employed population to 43.5 per cent, while the proportion working as plant and machine operatives fell from 9.8 per cent to 6.6 per cent.6 This has led to a steady polarisation of the jobs market with the emergence of the ‘hollowing out of the middle ’ - the steady loss of jobs once paying middle levels of pay.7 A second factor has been a sharp increase in earnings relativities between jobs. Earnings in high paying jobs have been creeping up over time more quickly than those in middle and low paying jobs. The most high profile examples are those at the very top with very sharp rises in the pay of financiers, bankers and company executives (roughly the top 0.1 per cent). Over the last decade, for example, remuneration packages for the chief executives of FTSE100 companies have risen nine times faster than those of the median earner.8 In fact, the wage share would have fallen even more sharply if allowance was made for the rise in the share of the very top earners including company executives and chief executives. As the late Andrew Glyn has argued, these are ‘really part of profit incomes masquerading as wages’.9 But growing pay inequality is not just a product of runaway pay amongst a few thousand top executives and financiers. The best paid employees in September 2009 were those working for City-based firms. The average pay at money broker ICAP, which employs 4,330 staff, was more than £200,000. Average pay amongst the 1776 staff at hedge fund group Man was £198,000. This was the double the average of five years earlier.10 Earnings amongst those working in well paid white collar professions outside of the corporate super-elite and City financiers have also been rising faster than non-professional salaries. Winners include corporate lawyers, accountants, medical practitioners, senior civil servants and top local government officials. All these jobs command salaries that are much higher in relation to the median than their counterparts 30 years ago.11 While those in the best paid jobs in the late 1970s have ended up in the fast lane of subsequent earnings growth, those in the then bottom half of the earnings distribution have mostly have been relegated to the slow lane. Although real living standards in the UK have nearly doubled over the last 30 years, some groups of workers, especially those just above the minimum wage, from fork-lift truck and bus drivers to bakers and low-skilled factory workers, have enjoyed little increase at all in real earnings over the period. Most middle and low income workers have enjoyed only small rises in real wages. Mostly it is only top executives and financiers and the best paid professionals – medics, accountants, lawyers and engineers - who have enjoyed wage rises in excess of wider rises in prosperity. These trends have been at their strongest in Anglo-Saxon economies. The US has experienced an even steeper fall in the wage share, while even more of the gains from growth have gone to the richest one per cent. Real incomes for the bulk of middle America remained static over the last two decades. The Walton family who own Wal-Mart have a combined wealth in excess of $90bn, roughly equal to that of the poorest third of the US population - some 100 million people.12 The fall in the wage share in Europe has been shallower, while most countries on the continent have experienced a lesser rise in inequality and nothing like the personal wealth boom of the UK and the US. The new economic imbalance These trends have had a profound impact on the way the economy functions. In the 1970s, Britain’s economic problems – its inflationary spiral, low investment and weak productivity growth – were exacerbated by the ‘profits squeeze ’ of the time. Yet this squeeze turned out to be temporary, the product of an exceptional set of circumstances including the oil price shock and the near-peak of the power of the trade union movement. Today the imbalance of the 1970s has been reversed. Britain has built an economy increasingly dependent on financial services and the spending power of the rich and super-rich and in which the gains from economic growth have gone disproportionately to profits. Moreover, unlike the short lived profits squeeze of the 1970s, the subsequent wage squeeze has proved much more enduring. In the process Britain has been transformed from a relatively high wage, low debt, equal society to a low wage, high debt and much more unequal society. Within this imbalance, rising inequality has played a central role in the rise of financial turbulence. This is for five main reasons. First, because of the negative effect of greater inequality on spending power. To maintain rising living standards, ordinary families, faced with a declining wage share, became increasingly indebted. As shown in figure 4, the personal debt/income ratio rose from 91.1 in 1997 to 157.4 in 2007. In 1980 it stood at 45 per cent. It was this borrowing that propped up the sustained boom of the post-millennium years. Moreover because the lending was extended and expanded to groups with few if any tangible assets, the level of default risk in the economy rose along with the fragility of the banking system. Source: Office for National Statistics Secondly, this increase in risk was multiplied because rising inequality boosted financial speculation at the top. Some of the swelling profits’ pool funded higher levels of business investment. But it was the shift to profits that drove the personal wealth boom of the last twenty years, a boom which concentrated wealth in fewer and fewer hands. Higher profits were used to justify the explosion of corporate, executive and financial remuneration. They also fuelled the rise in business values and record dividend payments in private companies. So what did the rich do with their rising wealth portfolios? They went in search of quick profits. In doing so, they aped financial institutions, leveraging their wealth – sometimes by huge amounts - by borrowing. Record returns together with cheap credit encouraged the wealthy to borrow not to finance consumption but to take large speculative bets on assets that offered, at the time, big potential returns. Money poured into hedge funds, private equity, takeovers, commodities, rare art, commercial property and luxury housing. Speculative frenzy created grey markets, and heightened business and asset values. Since returns cannot outstrip the general growth rate of the economy for long, these inflated, but illusory, returns created the multiple bubbles that triggered the credit crunch and the subsequent recession. As the American economist Ravi Batra has written: ‘wealth inequality is a prerequisite for manias and bubbles. The greater the inequity, the bigger the bubble and the more painful its eventual bursting.’ 13 A similar mechanism was at work in the build-up to the great recession with, in the United States, a great surge in the distribution of wealth and in the volume of speculative loans during the 1920s. As Professor Robert Wade of the London School of Economics has pointed out, ‘90 per cent of taxpayers had lower disposable income in 1929 than in 1922 while the top 1 per cent increased their disposable income by 63 per cent and corporate profits rose by 62 per cent... rising profits went into real estate and stock markets. The stock market boomed – until October 1929’.14 The role of inequality in fuelling financial instability has long been recognised. Keynes made it clear that because of the lower marginal propensity to consume of the rich, and their propensity for speculation, wealth inequality increases the risk of financial instability and economic collapse. In his book, The Great Crash, 1929, JK Galbraith identified ‘the bad distribution of income’ and its impact on the pattern of demand as the first of five factors causing the crash and the great depression. ‘The rich cannot buy great quantities of bread. If they are to dispose of what they receive, it must be on luxuries or by way of investment in new plants and new projects. Both investment and luxury spending are subject, inevitably, to more erratic influences and to wider fluctuations than the bread and rent outlays of the $25-week workman.’ 15 It is no accident that the reduced inequalities of the post-war decades coincided with sustained growth and a much more subdued economic cycle. The global distribution of wealth today is almost as uneven as it was in the 1920s. And its speculative element and impact has been accentuated by both greater leveraging and the rise of an avalanche of footloose capital owned by the world’s nomadic super-rich. The combined wealth of the world’s richest 1000 people is almost twice as much as the world’s poorest 2.5 billion.16 The growing dependency of the global economy on the whims of a small global economic elite has fuelled the volatility arising from domestic concentrations of wealth. The latest round of global financial turbulence - the third in the last decade - adds weight to those such as Batra who have argued that the maldistribution of wealth has been associated with all the great speculative financial manias. Indeed the history of economic bubbles suggests that there is a natural economic limit to the degree of inequality that is sustainable, and that once that limit is reached, economies implode. The current recession is just the latest example of the limit arising from the relationship between extreme inequalities and macro destabilisation. Rising inequality has fuelled instability through a third route – the encouragement of non-productive activity. How much of the financial merry-go-round of the last decade has strengthened Britain’s real economic base or helped create sustainable businesses and jobs is questionable. Much of it has transferred wealth from one group in society to another. The private sector has had a relatively mixed record when it comes to long term job creation over the last decade.17 Much of the expansion in the activity of investment banks has been less about ‘risk-reduction’ than ‘risk-passing’.18 The evidence is that although the financialisation of the economy has contributed in some ways to wealth creation, its main function has been about the diversion (or in some cases the destruction) of existing wealth.19 The fourth way high levels of inequality fuel instability is via shifts in the global and domestic power nexus. Over the last three decades, the rise of the global financial elite has shifted power from nations to a small coterie of individuals and corporations. This new concentration of power blinded politicians to the impact of economic financialisation. Awe-struck political leaders stood on the sidelines as the new wealthy elite ensured what Citigroup global strategist Ajay Kapur has called ‘favourable treatment by market-friendly governments’.20 Over the last decade this elite has used its growing political muscle to guarantee weak financial regulation by the state and lower taxes on the wealthy. According to Simon Johnson, former chief economist at the IMF, a dominant ‘financial oligarchy’ played a central role in creating the crisis, making ever-larger gambles… until the inevitable collapse. More alarming, they are now using their influence to prevent precisely the sorts of reforms that are needed, and fast, to pull the economy out of its nosedive. The government seems helpless, or unwilling, to act against them.21 Finally, the concentration on finance capital created by the overreaching ‘financial oligarchy’ has been to the detriment of other parts of the economy including small businesses, advanced manufacturing and parts of the regions. Consultants Ernst & Young claim that finance has become ‘the cuckoo in the nest’, crowding out industries that would otherwise have flourished. The City has sucked in the pick of Britain’s brightest mathematicians and physicists while the Governor of the Bank of England has warned of the way City salaries distort the economy by skewing the pattern of rewards for talent.22 The flow of domestic and international money into the City, encouraged by the state, also kept the pound at unsustainable levels, making manufacturing – now a mere 12 per cent of national output – increasingly uncompetitive. With rates of return on financial engineering exceeding those in other parts of the economy including new businesses and manufacturing, funding for long term success gave way to short-term, fast-buck deal-making. It was these rising returns that encouraged the much higher levels of leveraging and risk-taking in financial institutions. Increasingly Britain’s home-grown super-rich became drawn from financiers rather than traditional entrepreneurs. According to the Sunday Times, 16 per cent of the richest 1000 in 2009 obtained their wealth from hedge funds, financial speculation, private equity and other financial activity. A mere 11 per cent made zheir money from industry and engineering and 4 per cent in construction and housebuilding. Rebalancing the economy In the last 25 years, the UK’s wider economic strategy has been built around a combination of historically low average real wages, a concentration of earnings at the top and a growing burden of private debt. Supported by an adherence to ‘light regulation’, the strategy brought a short term surge in growth and prosperity. Despite the earlier warning signs, it has taken a deeply damaging recession to expose the reality of the market-driven policies arising from the Washington consensus. The debt binge on which the economy came to depend was never sustainable. Britain has also become much too reliant on rampant finance capitalism. According to the National Audit Office, bailing out the banking sector has cost £850bn, while the recession has blown a near-record peacetime hole in the UK’s public finances. Andrew Haldane, executive director at the Bank of England, has shown how bank assets – loans, financial derivates and credit advances – have soared from around 100 per cent of GDP in the late 1970s to five times output today. That is proportionately higher than any other country bar Switzerland and Iceland. The fault lines of Britain’s low wage, high debt, finance-dependent economy are now only too evident. The ‘wage squeeze’ and the growing gap between the top and the middle and the bottom contributed to the factors that led to the meltdown. Real wages were not growing fast enough to underpin final and stable demand without excessive borrowing by earners. By fuelling borrowing by households with a limited or zero asset base and encouraging rampant financial speculation, rising inequality brought unprecedented asset bubbles alongside an increasingly fragile banking system. A growing number of leading economists have warned of the impact of the low wage model. In 2006, the Nobel Laureate Robert Solow claimed that an economy that doesn’t distribute its gain more widely is ‘poorly performing’. In the same year Ben Bernanke, Chairman of the US Federal Reserve, said that corporations should ‘use some of those [ higher ] profit margins to meet demands for higher wages from workers.23 In 2007 Germany’s finance minister called on European companies to ‘give workers a fairer share of their soaring profits’.24 In 2009, Tim Lankester, President of Corpus Christi College, Oxford University, argued that: ‘In capitalism’s last great crisis in the 1970s, the declining share of profits and the rising share of wages and salaries was the fundamental problem. In the latest crisis, the distribution problem – in so far as it contributed to the crisis – has been different: too large a share of national income has gone to high-income earners and not enough to the lower paid.’25 Today the recovery is threatened by the same factors that caused it: a lack of sustainable demand and a persistence of global and national inequality. Today’s most urgent task beyond recovery is a coherent strategy to rebalance the real economy. This means plans which halt and reverse the sliding wage share, reduce the gap between rich and poor, shrink the size of the financial sector and increase the flow of funds into productive and sustainable economic activity. Real living standards should rise in line with productive capacity while rising prosperity should be evenly shared across all groups in society. Such a strategy would make the economy less dependent on debt for maintaining demand and lower the turbulence of the last 25 years. By lowering the premium available on some forms of financial investment that occurred during the boom years, it would limit the level of financial speculation, moderate the cycle of asset prices, reduce the degree of economic volatility and divert resources into more sustainable parts of the economy. Without such a strategy, the greater turbulence of the last three decades is set to continue, while recessions may become increasingly regular and deeper still. This article first appeared in the Spring 2010 issue of Soundings. The author would like to thank Richard Exell, Andrew Goodwin, Ronald Janssen, Adam Lent, Richard Murphy, Jean-Christophe Paris, Howard Reed and Steve Schifferes for helpful comments on an earlier draft. • Stewart Lansley is author of Rich Britain (Politico’s 2006) and Unfair to Middling (TUC Touchstone Report 2009), and co-author of Londongrad: From Russia With Cash, The Inside Story of the Oligarchs (4th Estate 2009). Notes 1. This is based on Quarterly GDP at market prices (ONS series YBEZ) 2. R Skidelsky, Keynes: The Return of the Master, Allen Lane, 2009 p 126-7 3. S Lansley, Life in the Middle, TUC Touchstone Pamphlet, 2009 4. see eg ‘The Globalisation of Labour’, World Economic Report, IMF, 2007 4. ONS workforce jobs by industry: www.statistics.gov.uk/downloads/theme_labour/LMS_FR_HS/WebTable05_2.xls; there was also a rise in the size of the workforce over the period. 6. ONS, Labour Force Surveys, first quarter 1997 and 2009 7. Lansley op cit, section 4 8. www.leftfootforward.org/index.php/2009/08/17/campaign-launched-for-high-pay-commission-as-executive-pay-continues-to-increase/ 9. A Glyn, G-24 Policy Brief, No 4, 2006 10. J Finch & S Bowers, Guardian, 14 September, 2009 11. Lansley op cit, table 1 p 13 12. T Judt, New York Review of Books, 6 December, 2007 13. R Batra, The Great Depression of 1990, Dell, 1988 p 138 14. Ibid 15. JK Galbraith, The Great Crash, Penguin, 1992, p 194-5. 16. D Rothkopf, Superclass, Little Brown, 2008 p xv 17. www.innovations-report.com/html/reports/economy_finances/report-78670.html 18. S Lansley, Do The Super-Rich Matter?, TUC Touchstone Pamphlet, 2008,, section 4 19. See, for example, Augar, The Greed Merchants, p 84 20. Ajay Kapur et al, ‘The Global Investigator: Plutonomy: Buying Luxury, Explaining Global Imbalances’, Citigroup Equity Research, October 14, 2005 21. S Johnson, ‘The Quiet Coup’, The Atlantic, May 2009 22. IFSL, Banking 2008, March 2008, chart 25 23. New York Times, 20 July 2006 24. Financial Times, 28 February 2007 25. Tim Lankaster, ‘The Banking Crisis and Inequality’, World Economics, Vol 10, No 1, Jan-March 2009 2010-08-11T15:15:20+00:00 http://taxpayersalliance.org/news/gove-fails-to-respond-to-our-freedom-of-information-requests http://taxpayersalliance.org/news/gove-fails-to-respond-to-our-freedom-of-information-requests#When:08:55:35Z On 6 July we sent the Department for Education three Freedom of Information requests relating to its relationship with the New Schools Network. By law the DfE should have responded “promptly” – and by 5 August 2010 at the latest. It is now in breach of this – and we have sent a gentle reminder. If we don’t get an answer, we can ask for an internal review and, if still unsatisfied, complain to the Information Commissioner. But it’s not just us who have been kept waiting. Labour MP Lisa Nandy is waiting for answers to 15 parliamentary questions she has sent to Michael Gove’s department. Standard protocol is to answer within seven days – yet some were sent back in June. She did, however, get the chance to question Gove directly at the Education Committee. It will be interesting to compare his responses here with the written answers (eventually) supplied by the DfE. Lisa Nandy: I shall be very quick, as the Chairman is glaring at me, and he is very close. I am interested in the advice that is provided to groups that are interested in setting up schools. I want to ask several questions. First, did you take the decision to award the contracts for that advice to the New Schools Network? Secondly, are you aware of who else provides funding to the New Schools Network? Thirdly, have you personally had any contact with any of the donors who provide funding to the New Schools Network? Michael Gove: The New Schools Network was the stand-out organisation. It had experience beforehand in providing support and advice to people, and it has organised a number of events to which a variety of teachers, many of whom I have already mentioned here, have come along. Lisa Nandy: Did you make that decision? Michael Gove: Yes, I did. There are other organisations that support school improvement. Some, like the Specialist Schools and Academies Trust, receive significantly more than the New Schools Network, so I took the decision that it was an appropriate organisation to which to give a grant. Before a grant was given, I asked for a business plan to be produced so that we could know exactly how the money might be spent to ensure that the work was done. It is fair to say-the permanent secretary may say more-that the relationship between the New Schools Network and the Department has been fruitful and productive and that the network has been able to do work that the Department would not have been able to do with the same degree of speed and depth. I do not know who all the other funders of the New Schools Network are, but I do know that it has among its patrons, governors and trustees Sir Geoffrey Owen, the former editor of the Financial Times; Professor Julian Le Grand, an adviser to the last Government; Sally Morgan, again, a political secretary to Tony Blair; and Paul Marshall, a leading donor to the Liberal Democrats. Because the network is all-party-indeed, non-party-and properly constituted as a charity, I presume that its funding is in accordance with charity law. There are people whom I have met who will have given money to the New Schools Network - I am sure of that. How much they have given, and under what circumstances, I don’t know, but there are many people I’ve met who have given money to the academies network. Chair: I’m sorry, Lisa. I’d be pleased if you could find other avenues to follow this up. Lisa Nandy: Could I just say that I have 15 questions in on this that are overdue for answers, so if you could get answers for me that would be appreciated? Michael Gove: I certainly will. 2010-08-06T08:55:35+00:00 http://taxpayersalliance.org/news/red-pepper-countering-the-cuts-myths http://taxpayersalliance.org/news/red-pepper-countering-the-cuts-myths#When:22:40:09Z The new issue of Red Pepper magazine includes an essential guide to debunking the myths used to push public service cuts. You can download the guide for free in pdf form (or read it online at Red Pepper) – and I urge readers to distribute it far and wide. But why not do your bit to stimulate the economy by investing in a Red Pepper subscription too? The latest issue includes much more on fighting the cuts. Visit www.redpepper.org.uk for details. Download Countering the cuts myths (pdf format) Much of the research for the Red Pepper guide was done by Dr Alex Nunn of Leeds Metropolitan University, whose own paper is worth reading for its additional analysis and data. 2010-08-05T22:40:09+00:00 http://taxpayersalliance.org/news/goat-embarrasses-government http://taxpayersalliance.org/news/goat-embarrasses-government#When:09:13:58Z Last week, we reported on how the government’s crowdsourced Spending Challenge website had descended into farce. Days later, the Treasury pulled the plug on the project, deleting the genuinely funny suggestions along with the hateful racism. All that is left is a bog-standard web form. The government has decided it prefers Web 1.0 to Web 2.0 after all. But what of Spending Challenge’s spin-off Facebook group? It was announced earlier this month to a great deal of hype. David Cameron said: “We are giving people an opportunity with Facebook and I am sure that they will take it.” He even discussed the idea in a video conference with Facebook founder Mark Zuckerberg. But alas, as of this morning, the government’s Facebook revolution had gathered a mere 82 followers. We know what you’re thinking: a goat could do better than that! In fact a goat did do better than that – and we are grateful to our friends at Liberal Conspiracy and Political Scrapbook (from whom the above headline is shamelessly stolen) for helping us test the hypothesis. So if the government gets on your goat (sorry), sign up now. 2010-07-23T09:13:58+00:00 http://taxpayersalliance.org/news/hedge-fund-manager-and-other-non-jobs http://taxpayersalliance.org/news/hedge-fund-manager-and-other-non-jobs#When:10:33:40Z The Guardian recently published a good article on the reality behind public sector “non-jobs”. But one of the comments below it – by “broink” – is well worth requoting for its perfect riposte to TPA non-job nonsense: “Consider a hedge fund manager. Sounds very useful. What do they do? To someone who had no idea, you might guess that they looked after the money to fund the maintenance of the vital ecosystems in Britain’s hedgerows. But actually the nature of their non-job is that they bet vast amounts of other people’s money on numbers going up or down, ruining lives willy-nilly and making millions of pounds for themselves which they can then squirrel away off-shore so they don’t have to pay any tax. If that isn’t a non-job, I’m at a loss to think what is. Ah, but of course they aren’t employed by local government.” Any other suggestions for private sector non-jobs? 2010-07-22T10:33:40+00:00 http://taxpayersalliance.org/news/new-schools-network-goves-next-fiasco http://taxpayersalliance.org/news/new-schools-network-goves-next-fiasco#When:18:21:34Z What a curious beast is the New Schools Network, the "independent charity" that championed the plans for "free schools" now being rushed through Parliament by Education Secretary Michael Gove. Click on the group's online form to "Sign up for more information" and a message appears: "We may pass relevant details to the Department for Education so they can provide assistance. If this is a problem please email us on info@newschoolsnetwork.org." How many other "independent charities" pass your details to government unless you email to object? Then again, how many other charities get £500,000 from the government to implement the very policy they've been lobbying for? At a time when the Treasury promises to scrutinise – if not eliminate – every penny of spending, it seems incredible that this grant received so little attention, not least because NSN director Rachel Wolf, who set up the organisation just nine months ago, is a former advisor to Michael Gove. No wonder NSN cheerleaders were ecstatic when Gove got the education portfolio. A few journalists, though, have raised questions. Tom Clark highlighted the network's lack of transparency in an excellent report rather buried within Education Guardian, which prompted an angry response from supporter Toby Young. And Jonathan Freedland, exploring the Coalition's weak points, wrote: "There's more gold in them there hills. I wait to hear Gove face questions on the hefty £500,000 dollop of public money he just ladled on to the plate of the New Schools Network, a six-person thinktank run by one former special adviser to Gove and "helped out" by another. The NSN is meant to give advice to parents looking to set up their own "free school" – Gove's ideological pet project – but it's hard to see how their guidance could be wholly impartial." We'd like some answers to those questions too, and have made the following Freedom of Information requests. The Department for Education has until 5 August 2010 to reply. DfE relationship with New Schools Network 1) Please send me a copy of the business case with costings presented to the DfE by the New Schools Network (referred to in your letter here: http://bit.ly/9ziO9o) 2) Please declare whether tenders were sought from other organisations for providing these services. 3) Please confirm whether you assessed the NSN's funders to ensure that there was no possibility of a conflict of interest with the DfE's work (eg to establish that none of the funders had a commercial interest in promoting free schools). If so, please supply a list of NSN's funders. • The Anti-Academies Alliance newsletter has more about free schools and the New Schools Network. 2010-07-21T18:21:34+00:00 http://taxpayersalliance.org/news/the-elephant-in-the-macroeconomy http://taxpayersalliance.org/news/the-elephant-in-the-macroeconomy#When:10:28:13Z Guest post by Richard Murphy At a recent Smith Institute debate on the budget, I was surprised to find myself agreeing with Mike Devereux of the Oxford Centre for Business Taxation. In essence he said that the debate between the parties was largely inconsequential on deficit reduction. All parties say it has to be done; all say it has to be done reasonably soon, and all think a combination tax increases and spending cuts are essential. The difference between Labour’s preferred 65% cuts / 35% tax and the Tories 80% / 20% is 1% of GDP in reality according to Mike. And as he put it, candidly, either way more than enough was being done to meet the requirements of the markets – if the promises are delivered. And yet Mike, in making that comment, ignored the elephant in the room: that this uniformity suggests there is remarkable agreement on the role government has to play in the current phase of this financial crisis. The implicit agreement is that it should exit the economy, stage right. And this is where I fundamentally disagree. People may (or may not) intuitively think that government has been overspending and must rein back now – as Tory MP Kwasi Kwarteng claimed during the debate – but this sentiment was more than adequately and accurately described long ago by Lord Keynes, who called it the paradox of thrift. In essence, the instinctive reaction of households in the face of crisis, uncertainty and increasing debt is to scale back expenditure and to increase savings. That reaction is entirely rational, but it does, despite that rationality, create the crisis we now see – to which none of the speakers referred. That crisis is that individuals are doing just what Keynes suggested they would do. They are saving more (even if that saving is evidenced by paying down their mortgage faster than strictly required whilst interest rates are low, because that qualifies as saving in these terms). This graph from the Office for Budget Responsibility shows it: The UK household savings ratio has risen since the financial crisis developed, and is expected to stay high. That means people are not spending. That means there is a shortage of spending in the High Street. And that means companies will not invest. As Martin Wolf has pointed out, the UK private sector savings surplus is running at something like $200bn or £135bn a year as a result now (give or take is good enough here). This means, because these funds have remarkably little use elsewhere since all countries are all in the same boat right now, that these funds are being used to finance our own deficit, almost in its entirety, which is why 90% of our debt is owned in the UK at this time. In other words – the real macroeconomic issue of the moment, the one the whole panel ignored and which the whole debate is ignoring – is the astonishing fact that we are quite able to fund our current scale of government spending and are doing so without difficulty, but the mechanism we are using to fund it is not called tax right now. However, if we don’t want to call the current funding of the deficit tax – instead thinking of it as saving – then the real debate is not about whether we need cuts, since it is apparent that the deficit is being funded and will continue to be funded for some time to come, but is instead how we actually use those funds we are choosing to lend to the government. The Coalition plan is to spend that money on unemployment benefits since it is readily apparent that they want to put 1.5 million or more out of work and that the consequence will be a spiraling paradox of thrift with the result that we will move to depression from recession. The alternative is that we make a very different choice. We could choose to spend that money on investment in our economy. We could do the Green New Deal – the only industrial strategy for the UK written in many a long year but the exact missing part of the equation that is required now. The Tories presented a budget that assumes we want a small state. I guarantee that this sentiment in the country will change very rapidly and very soon when people realise what this really means. As one astute observer put it today, very few people in the UK realise just how dependent they and others are on state services and how much their absence will affect the quality of their lives – even if they still have a job. I do not believe people want a small state. But equally I do not think we will get the state we want by hoping for it or by playing with some minor change to corporation tax rates or allowances. We will only get it by breaking the current epidemic of thrift that is ensuring we can pay for the deficit, but which is also going to be squandered on current expenditure which will provide no chance of paying a return on the debt. An industrial policy will create jobs. It will stimulate the economy. It will send cash back into the private sector. It will encourage spending. It will recreate the tax base. It will reflate government revenues. It will close the deficit. It will create new jobs. If it’s a Green New Deal it will ensure we have enhanced energy security, so supporting the value of the pound as well as earning long term returns. And there will be jobs. This is what macroeconomic policy is. Arguing about tax rates is little more than glorified micro. Or to put it another way, the debate reminded me rather uncomfortably of the rather odd people who came to see me when I was a practicing accountant. They wanted advice on business structures and tax planning for their profits from the business they were about to start which was going to make mega-bucks. But when you asked them what it was going to do they didn’t know – they were going to get the structure right first, they said. That genuinely happened occasionally. And that is what economic debate is like in this country right now – focused on getting the structure right for business – but no one has the faintest idea what the business might be. Those potential clients who asked me those questions were destined to never make money. And the UK is destined to never get out of recession unless we know how we are going to earn the tax base which can restore government revenues. George Osborne, Vince Cable and Alastair Darling have not addressed that key question. And they're also ignoring the glut of savings we currently have – which need a productive home. So, as Gordon Brown's former special advisor Chris Wales said during the debate, we need a discussion on how big the state should be (much bigger than the Tories think is the answer) and how we should pay for it (more tax is the answer) but first we have to get people working. The lack of an industrial policy is the elephant in the room right now. And I’m happy to offer the Green New Deal in the absence of alternatives. • Richard Murphy is an adviser to the Tax Justice Network and the TUC on taxation and economic issues. This article is cross-posted from his blog, Tax Research UK. 2010-07-16T10:28:13+00:00