You Have to Want to Change

The Global Justice Project is an initiative whose aim is "to stimulate research, policymaking, and citizen engagement to shape a fairer, more democratic and sustainable 21st century". Though a collective effort, the project has been closely identified in the media with Thomas Piketty, which has inevitably led to curt dismissal by those who either deny that wealth inequality has grown or that it is driving the erosion of democracy and the degradation of the planet, and have done so since the Frenchman published Capital in the Twenty First Century in 2013. While that mighty tome proposed a globally-coordinated wealth tax, the GJP proposes three key initiatives in line with its more holistic ambitions and the expertise of the collective: fast decarbonisation of energy systems; a shift away from overconsumption towards sufficiency, which would entail a sharp reduction in labour hours and the use of raw materials; and "a drastic reduction in inequality of income, wealth and power, between countries and within them." Parallel to this, leading progressive economists, including Piketty, have also signed up to a roadmap to "end poverty and inequalities on a liveable planet", as proposed by Olivier De Schutter, the former UN Special Rapporteur on extreme poverty and human rights.

Rather than getting into the detail of the proposals, what I'd like to consider is the political viability of such radical change and what that in turn might look like on a smaller, more domestic stage - i.e. the UK. Dan Neidle, the British tax lawyer who has become a media fixture since his retirement from Clifford Chance, largely by publishing opinion about the tax affairs of prominent individuals and shaking his head wearily at the government, dismissed the GJP, aka "Tomas Piketty and a large team", as "potty" (Noah Smith called it "total nonsense"). Neidle's central claim is that it would require "unprecedented global cooperation" and "a powerful and benign world authority", but that if such things were possible they would already exist and we would therefore already have solved the problems of decarbonisation, over-consumption and inequality. He describes this as a circular argument. In fact, what he is offering is a non sequitur. Bretton Woods (the WTO, the World Bank) was a system of "unprecedented global cooperation", but it did not raise up the developing world or restrain global warming. Equally, the US has long claimed to be "a powerful and benign world authority" (not least through the exorbitant privilege of the dollar), but sees fit to attack other countries, murder non-combatants and kidnap heads of state at will (that's just this year).

It is perfectly reasonable to be sceptical of the GJP's ambitions, particularly when you consider the track record of other attempts at global coordination of the economy and climate, such as GATT and COP. But those initiatives have run into the sand because there are competing interests between nations. The classic example is the desire of developing countries to catch up economically before the music stops and planetary constraints oblige us to move to a steady state or even degrowth. The GJP explicitly addresses this through wealth transfers (and does likewise for domestic inequality). Whether you think that is politically feasible is another matter. The point is that history is littered with examples of international wealth transfers, specifically in the form of colonial empire. What is being proposed now is a coordinated transfer of accumulated wealth (think of it as reparations plus) rather than genocide, slavery and coercive exploitation. Even on the more modest scale of regional cooperation, the flow of money between net contributors and net beneficiaries in the European Union over decades has shown that transfers are hardly Utopian. 

If we think the degree of international coordination needed to implement the GJP's proposals is unrealistic, perhaps we should return to the idea of "socialism in one country", specifically the UK. Might Andy Burnham's proposed break with "40 years of neoliberalism" offer a more realistic course towards a radical reimagining of our political economy? According to David Edgerton & Karel Williams, writing in the New Statesman, "What we have is more of the same, with added vibes, plus a reversal of policy in certain areas, at the limits of what Labour radicalism will permit. It represents something more like political rhetoric than political change: when Margaret Thatcher and Tony Blair are associated with the free market, competition and private finance, it is argued that a small reversal in policy will itself improve things." Again, the point to emphasise is not that reversing the Thatcherite/Blairite dispensation is too challenging to even consider, but that there is a lack of political will to do so. Burnham is currently making promises left right and centre to win election as an MP and potentially as Prime Minister, but he doesn't look like a man with a radical plan.

Edgerton and Williams see the foundational economy and universal basic services as the vector for more profound social and economic change: "Improving household liveability should be the focus of expenditure. This should include making essential market goods affordable, ensuring foundational services work and are accessible, and integrating policies around the goals of preventing social harm and promoting environmental responsibility and social solidarity. We need to think about expansion of domestic food production as well as reforming food distribution and consumption." They make good points, notably that radical change to our political economy must start from tax reform ("Our tax system remains stuck in the 1940s when PAYE was introduced to tax the individual male bread winner"), but I feel their focus on "the four market essentials – housing, utilities, energy and transport" misses that one of those, housing, is an 800-pound gorilla. There is also a wider problem here, which we see with mainstream commentators as well, which is to view measures to alleviate poverty in supply-side terms ("making essential market goods affordable"). 

The UK economy has proven highly vulnerable in recent years to fluctuations in energy prices, arguably more so than in the 1970s when oil-fuelled inflation triggered labour militancy to push up wages in response. Then it caused inflation, but that was more of an issue for rentiers than for working households. Today, there is no countervailing tendency to force wages to keep pace with rising household costs (despite the Bank of England's attempt to revive the bogey of the "wage-price spriral"), with the result that even relatively small increases in energy costs can trigger a cost-of-living crisis as they impact other essentials such as food and transport. But this lack of financial resilience isn't simply down to weaker trade unions but to the fact that housing costs take up so much of household income, and to the fact that the dynamic is for those costs to expand as much as possible. In other words, there is simply no slack in most household budgets. Reforming planning laws to encourage more housebuilding will not alleviate poverty so long as rents are set by the market, both because developers are incentivised to build higher value properties and because those regulatory reforms will make it easier to do so.

It would be nice to fix our sewers and reservoirs, and fully electrify our railways and modernise the NHS, but this requires a level of real resources significantly greater than can be produced domestically, essentially because of 40 years of deindustrialisation following Thatcher's misguided Monetarism and Blair's equally misguided belief in a financial services-led economy. We could import resources - steel, bricks, engineers - but this would require us to export an equivalent amount or risk a balance of payments crisis and inflation. So, if we have only limited real resources, what should we prioritise? I would suggest that we focus on social housing initially. Not only does this address a pressing need, but it also gives us the opportunity to materially affect household spending by deliberately lowering rents, a policy that would be extended to existing council houses and flats. You might argue that this will deprive hard-pressed councils of revenue, but there is a solution to that as well, which is to buy out private landlords (using central government money - essentially by issuing mortgage-backed securities) and so increase council stock and revenues (even if those previously private tenants see their rents reduced in line with council rents).

This looks like a subsidy, but in fact it is simply deferred income as the rent can be increased once the cost of other essentials come down. So long as the investment - i.e. the cost to build and maintain - is recouped over the useful life of the asset (hopefully many decades in the case of housing - most UK council houses are over 50 years old) the timing of payments is simply a matter of cashflow, and that really isn't an issue for a monetary sovereign. Just as welfare spending is an automatic stabilisier of aggregate demand in a recession, so we should flex rents to help social tenants meet spikes in the cost of basics. This is a more practical approach than capping utility bills or freezing grocery prices. That the cost of living debate has been limited to those proposals, and the predictably choleric response of market fundamentalists, tells you how wedded the media have become to the idea that the crisis is a supply-side issue rather than the consequence of inadequate demand, and specifically demand among low income families. It sometimes feels like no one at the BBC has ever heard of Keynes.

Lowering rents is functionally no different to lowering interest rates that feed through to lower monthly mortgage repayments. The difference comes down to who benefits: tenants or mortgage-holders. The state currently has limited control over interest rates, due to the self-denying ordinance that is the Bank of England's "independence", and apparently no control over gilt yields (though in reality these are tied to inflation expectations and thus other government decisions). But it has complete control, if it wishes to exercise it, over council houses and their rents. After all, without that control Right-to-Buy would never have got off the ground, and nor would the Thatcher government have been able to impose an effective moratorium on building replacements for the properties sold off. The learned helplessness of British politics means that we easily forget the power of the state to remake society, even when such changes have been made in recent memory. It is no surprise then that more ambitious changes, on a global scale, are met with derision. But we should always remember a simple truth, most recently stated by Simon Wren-Lewis: "levels of poverty and inequality are what political elites and their influencers want them to be". That we have a government elected on the promise of "change" that has decided to change little does not mean that change is impossible, but that change is simply not what the government and its primary backers want.

Local and Global

There's a new think-tank in town. Verdant introduces itself as "A new kind of think tank for a just and green future". Let me say from the start that I'm all in favour of justice and environmental responsibility, and the initial proposals are progressive, but what I'm interested in here is the form that this endeavour has taken (implied by that "new kind"), what that says about its future trajectory, and what that might mean for Green Party policy in thorny areas beyond justice and the climate, such as social, economic and foreign policy. It would be easy to dismiss Verdant as James Meadway and a couple of eager kids in a trenchcoat, and the Guardian's framing of its initial report on efficiency savings as a "Doge of the left" was clearly patronising, though James sensibly welcomed the publicity, but what its launch immediately confirms is that there is an appetite for new thinking on the left, which reflects both the intellectual void that is the current Labour Party and the dedicated obscurantism of Your Party. The question is, what does Verdant see as the gap in the market?

I put it in those terms because what is striking is the way that Verdant has positioned itself in the mainstream of think tank culture, with its emphasis on the marketplace of ideas and its employment of generic business-speak. Again, this looks tactically astute as it increases the chances of coverage by the likes of the Guardian and even Bloomberg, which previewed the launch back in December as an "attempt to bridge the distance between party members who favor radical socialist reform, and those who recognize the UK’s dependence on international investors for its debt-financing requirements and want to swing left while keeping bond markets on-side." What this in turn suggests is that Verdant will avoid creating easy targets for dismissal and derision by the media, so don't expect dense essays on Modern Monetary Theory, let alone Critical Race Theory. What we can expect is adherence to liberal shibboleths such as pragmatism and fiscal prudence. As co-founder Deborah Doane describes it, Verdant is "a deliberate effort to build the kind of institutional power that turns positive environmental and socially just ideas – especially underpinned by sound economic thinking – into deliverable political outcomes". 

The implication of a focus on practical policy is that the Greens are on the verge of power, or at least of sufficient Parliamentary leverage to influence a future government. The emphasis on "sound economic thinking" shows that they recognise the biggest threat to the project would be to be labelled as fiscally incontinent and thus administratively incompetent, which in turn makes it clear that this will be a well-behaved left initiative - i.e. green-tinged social democracy. That Doane's opening blog post foregrounds Liz Truss is not simply to decry the pernicious influence of the Tufton Street eco-system of rightwing think tanks. It is also intended to offer reassurance to the markets. At some point, Verdant will come up against the hard constraints of contemporary political economy (constraints becoming ever more apparent with the fallout from the war on Iran), but for now the greater constraints are those of the think tank sector itself.

Chief among these is the idea that think tanks are producers launching new wares into a choosy market: "Have you considered beige, madam?" The model of policy entrepreneurship originates in the American political system and was driven by two trends. One was the growing role of market research and opinion polling in the development of policy from the 1950s onwards, and the other was the growing role of money in determining policy priorities. This combination arrived in the UK, boosted by Margaret Thatcher's cultivation of the neoliberal thought collective, in the 1970s. Prior to that, policy think tanks tended to be straighforwardly partisan, such as the Fabians and the Bow Group, or had originated in charitable endeavours concerned with social policy that acquired an invigilatory role in an expanded welfare state, such as the Nuffield Trust, King's Fund and the Joseph Rowntree Foundation. Neoliberal hegemony has meant that, regardless of their historical origins or ideological bent, think tanks today subscribe to a common style when it comes to what they deliver (the commodified report, the press release etc) and the language they employ in delivering it (the vocabulary is a mix of corporate-speak, journalese and the tropes of academic respectability).

Verdant's homepage starts by saying "We are committed to shaping inclusive policies that don’t just analyse ideas; we build them collaboratively, bringing citizens and experts together to design the next chapter of progressive politics in the UK. We want to ensure that the people most affected by policies help to shape and refine them, strengthening their legitimacy with politicians, media and the public." That is good as it emphasises inclusion and democratic legitimacy, but it is telling that the page ends with key deliverables for three groups: policymakers, journalists and funders (Bloomberg noted back in December that "It is in discussions around securing funding with philanthropic organizations and high-net-worth individuals"). Again, this is pragmatic, but it highlights the constraints of the sector: the need for money and the necessity of keeping the media supplied with "Clear analysis you can quote" (sic).

Verdant's first report - Waste Not: How the UK government can save money and support public services - further highlights the constraints of the genre. It was "developed with input from a short discussion with 10 varied members of the public from across England who had previously taken part in citizens’ assemblies and juries organised by Shared Future". You can either see this as dependence on the focus group method, which is well-known for being steered to provide predetermined conclusions (consider the Labour Party's investment in the construction of its "hero voter" by Deborah Mattinson et al and the reality of a shrinking electoral bloc), or as evidence of a real commitment to inclusion and dialogue. What I would emphasise is that the report thus appears to be generated out of rational debate, like a perfect example of Habermasian communicative reason, even though it frankly admits to using this simply as a filter for prepared ideas (not many voters will be au fait with the lessons learned from the Government Digital Service). 

What is missing here is the diagnosis that informs the prognosis. While some think tanks happily provide this within limits, e.g. the structural failings of a specific industry or public service that justifies "reform", there is an avoidance of systemic critique, e.g. why does capitalism produce poverty? You're not going to get a regular hearing in the Guardian, let alone Bloomberg, if you do that. The report does provide context for its proposals on how to reduce waste and save costs by focusing on how not to do it, specifically the self-harm of austerity and the vandalism of DOGE (amusingly, Heather Stewart's report in the Guardian mentioned the latter four times but the former not once). But this serves to obscure the gap in the analysis of its chosen areas. For example, why is defence procurement "broken" and "notoriously wasteful"? The answer surely has as much to do with defence strategy and priorities (those pointless aircraft carriers) as it does with poor government process and industry graft.

The proposal for a Chief Savings Officer, borrowed from Zohran Mandami's fledgling administration in New York, is obviously an example of corporate-speak infesting the public realm, but it is also an example of the idea that the machinery of government can be galvanised by appointing another mover and shaker with corporate nous. Given the long line of "Tsars" and "champions" appointed by the government over the years, you'd think some scepticism might be in order (on a more positive note, the report does urge a "word of caution" on the ignorant technophilia of Peter Kyle in respect of the state's adoption of AI, which rhetorically followed the template of Tony Blair's embrace of globalisation twenty years ago and has clearly learned nothing from history). The report does pay tribute to the value of tacit (i.e. shopfloor) knowledge in its proposal for an inhouse management consultancy, but it is couched in the terms of pull ("bringing it into the management consultancy and generalising the lessons learned") rather than push (worker autonomy).

Despite the growing tendency of the rightwing and centrist press to paint the Greens as loony lefties, now apparently infested with cranks and antisemites, it is clear that the party's strategy isn't to push leftwards so much as to occupy the centre-left space vacated by Labour as the latter attempts to dominate the centre-right in place of the Conservatives. This means there will be a certain amount of singing the old songs of social democracy, from nationalisation to more progressive taxation, and a lot of appeals to the mythos of the "soft left" (the relative popularity of Ed Miliband's green turn has benefited the Greens far more than Labour), but more radical proposals around wealth distribution, industrial democracy and foreign relations will probably be marginalised in order to keep the bond markets on-side. Zack Polanski has personal and political capital sufficient to argue for a more Spain-like posture in relation to the US and Israel, and to advocate de-proscribing Palestine Action, but he isn't going to be implementing BDS across government or closing airfields to US planes.

What will be interesting as we approach the next general election is the extent to which Verdant pushes the envelope of the possible in relation to Green policy beyond the crowd-pleasing vibes that distinguished its Gorton and Denton by-election victory. Its first report is a positive sign that it hopes to smuggle in some more radical ideas under cover of the think tank genre. The idea that only the government can secure public spending savings through better control of procurement and outsourcing is radical insofar as it challenges the neoliberal consensus about private sector efficiency and the wisdom of markets. Personalising this in the role of a Chief Savings Officer is forgiveable. Likewise, developing management expertise within the state is a recognition that public services have unique needs in terms of coordination and control that do not map well onto private sector models. Institutionalising this as inhouse consultancy or a centre of excellence is, again, forgiveable. 

There are plenty of opportunities to educate the public on the merits of collective ownership, particularly in respect of environmental protection, and ample (and topical) examples of the supply-chain vulnerabilities caused by globalisation that can only be mitigated by the state. What remains less certain is whether the electorate understands that reducing (let alone reversing) climate change can only be achieved by forswearing the traditional model of economic growth, and that this inevitably entails either the systematic redistribution of wealth, both intra and inter-nationally, or a war of all against all. The tension at the heart of green politics is between the competing demands and attractions of the local and the global. The phrase "Think globally, act locally" is actually an avoidance of that truth in that it neatly segregates them into parallel zones. 

Verdant's first report focuses on the local, albeit at a national scale befitting a think tank that needs to attract the national media. What will be interesting is whether it will broaden the horizon of British voters in future - highlighting the connections between settler violence in the West Bank and low pay in Blackpool, for example, not just the linkage between the Straits of Hormuz and the price of food - or whether it will keep to the comfort zone of domestic policy. Arguably, it was the failure to expand postwar public education to the international stage - a result of the UK wishing to whitewash its colonial history - that ultimately undermined British social democracy by reducing policy to a series of domestic zero-sum struggles: the fiscal (taxpayers versus claimants), the industrial (the unions versus consumers), and the social (sectional interests, aka identity politics, versus the imagined community of the nation). If I have a concern about Verdant it isn't the reliance on corporate-speak but the fear that marginalising the international dimension may go beyond tactical prudence.

Lifetime Learning

There are a number of irritating features in Gaby Hinsliff's Guardian article on student debt. The first is the framing of a "generational injustice", which plays to the idea that the young are getting a raw deal. This ignores that many young people don't have any student debt, because they never went to college, and nor did many older people. In other words, the issue relates to the difference in treatment of the 38% who currently go on to tertiary education and the 15% of the older cohorts that did so by the early 1990s. The second irritation is the claim that what we now have is a "stealth tax", which is correct only in the limited sense that the Chancellor has frozen the income threshold for repayments (i.e. a form of fiscal drag). It also ignores that graduates may eventually have their debt wiped out, which is not a privilege HMRC extends to other taxes, stealthy or otherwise. The reason why the issue is causing so much angst among the press is precisely because it is seen as an added tax on the non-wealthy middle-classes. Rachel Reeves' comment that it's "not right that people who don’t go to university are having to bear all the cost for others to do so" makes this clear from a (traditional) working class perspective.

As a good centrist, Hinsliff cannot resist the temptation to berate the irresponsible left in passing. Thus she notes that "Last week, the Green party leader, Zack Polanski, called for “a conversation about student debt forgiveness”, echoing a rallying cry among young Democrat voters at the last US election for loans to be written off faster (though he didn’t explain where he would find the billions that would cost)". I'm going to go out on a limb and suggest that Polanski didn't bother to explicitly state where the billions would come from because they can only come from taxation. Hinsliff could probably work this out for herself. The "magic money tree" of borrowing against futrure prosperity is not relevant here, despite the routine trope of further education as an investment and the youth of today as tomorrow's fiscal infrastructure. Like state pensions, state education is paid for by current workers (the Chancellor's point). The student loan scheme is anomalous not because it seeks repayment from the beneficiaries, rather than funding the cost out of general taxation, but because it expects future workers to pay for historic costs. Beneath the wails about injustice, you can spot the traditional conservative argument about not "saddling" future generations with debt. 

Hinsliff notes that graduates may face a marginal tax rate of 49% when even the highest rate of income tax is currently only 45%. As she puts it, "why are young people being squeezed proportionately harder in some cases than their bosses?" But it's no secret that the poorer you are the higher the total tax burden, when you include VAT, Council Tax and other indirect taxes. And it's also no secret that the rich can avoid paying the headline rates of income tax by converting income to dividends or capital gains. The Guardian, like other newspapers, has had to tread a fine line here: emphasising the "injustice" without admitting that it is one among many that currently characterise the UK tax system and arguably nowhere near the worst. Hinsliff suggests that "The fairest option is probably to cap how much any student should have to pay over their lifetime, so that loans bear some resemblance to what was borrowed rather than just morphing into a kind of stealth graduate tax." But she immediately dismisses this on grounds of expense, i.e. lower tax revenues, indicating that fiscal rigour still matters more to centrists than social justice. The discussion should really be about how we shift the tax burden onto those who currently pay proportionately less.

So who would those others be? Back in 2012, I noted that the proposed changes to increase the qualifying age for the state pension would be regressive because of variations in longevity (and thus years enjoying a state pension) across socio-economic groups. On average, the richer you are, the more state pension you will get in cumulative terms, regardless of lifetime contributions. A few months later, I suggested that the worries about a lack of skilled employees could be alleviated by applying differential state pension ages based on further education. In simple terms, if you left school at 16, you'd retire at 65; if you left at 18, you'd retire at 67; and if you went on to do a 3-year degree course, you'd retire at 70. This would skew the composition of the working population towards the skilled, which is helpful if you consider the adverse trend in the dependency ratio (the number working who must support those not working). As there would be nothing to stop anyone saving into a private pension, the rich might still retire at 65 or even earlier, but in aggregate across the economy we should see a staggering of retirement dates in line with education.

The moral (or "justice") case for differential state pension ages based on educational attainment is that people who started work at 16 are likely to die an average 5 years earlier than people who started work at 21. This is both a reflection of a person's socio-economic class origins and the greater likelihood that an earlier start in the workplace will have led to a liftetime of manual or routine labour and consequently greater health issues (the result of physically demanding labour, unhealthy workplaces and the long-running effects of income inequality). The fiscal case is that while manual labour is difficult to maintain into your 60s, cognitive or other skilled work is much easier. In terms of productivity, there is no significant falling off and this is reflected in a lower likelihood of a rapid downturn in earnings in the final decade of work, and thus taxes paid. As cognitive and skilled work broadly correlates with educational attainment, it makes sense to defer state pensions for that healthier, more productive and higher-earning cohort. 

That cohort's extra years in work will typically be at above-average levels of pay. The current difference in median salaries for graduates and non-graduates is about £12k per annum: £42k versus £30k. If we conservatively assume that difference generates £2.4k in additional tax from the typical graduate (i.e. at 20%, though many will actually be higher-rate taxpayers), then the 5 years of further education required for a typical degree should recoup a further £12k in revenue if the individual works till 70. At this point you might note that this is significantly less that the £53k cost of tuition fees and maintenance loans for a three-year degree. So how would we bridge the gap of £41k to match costs with income? The answer, once more, is through income tax. The follow-up question is: whose tax? Do we simply raise rates across the board? The answer to that question is no, we raise taxes on that part of the salary distribution where graduates are mostly to be found, which is above £40k.

A graduate tax is cumbersome to administer because it is geared to the persistent person rather than their variable income. The graduate who through career choice or ill-health doesn't earn enough to make repayments means that such a tax would be punitive unless waived below an earnings threshold or written off at the end of a fixed term, which is why the current loan replayement scheme has those features. A far simpler solution is to make income tax more progressive so that those on higher incomes, who will disproprotionately be graduates, pay more. You could do this by lowering the higher rate threshold to a point where it recoups an extra £15.6k over 40 years (that's the difference of £41k but at a 38% rate to match the graduate share of the working population). This would be £47,700 in today's money, which, you'll note, is significantly higher than the median graduate income. One way of implementing that would be to continue with fiscal drag. At 3% inflation, it would take only 2 years for the curent higher rate threhold of £50,270 to depreciate to £47,700.

You could argue that this would penalise successful non-graduates who earn high salaries but who never benefited from higher education, but this is to forget that they will have the option to retire at 65 on a full state pension (worth £60k, i.e. 5 years at £12k per annum in today's money). Also, bear in mind that we're not increasing the burden on basic rate taxpayers, which should please the Chancellor. The difference in tax for a graduate on the median income of £42k would be nil, because they're below the £47.7k threshold. A graduate earning £50,270, i.e. at the current higher rate threshold, would pay an extra £1,028 in income tax a year. Across 40 years, that graduate earning 50k (assuming they stay at the same relative level of income) will pay roughly an extra £41k (in today's money) in income tax. If you add in the extra £12k they can be expected to pay by working till 70, that recoups the £53k spent on their college education. In summary, differential qualifying ages for the state pension, plus an income tax higher rate threshold geared to (but higher than) the median graduate earnings, would allow us to revert to fully-funded tertiary education.

As well as encouraging more students to go to college, and thereby help boost the long-term productivity of the country, putting the burden of student debt onto higher-paid and older graduates (and to an extent on higher-paid non-graduates) has the advantage of going with the demographic flow as the population ages. We are approaching a wave of graduates in their 60s, most of whom incurred no student debts, reflecting the expansion of higher education starting in the 1990s. More broadly, this approach helps redress the bias of the last 40 years that favoured the (now) well-off elderly - who benefited from lower housing costs and better private pensions as well as free education - relative to today's youth. And it does so without penalising poorer older people, who will disproportionately have left school at 16 or 18 and are dependent on the state pension. 

The sketch I've outlined here is simplified and not meant to be definitive, but it does prove, I think, that a fairer and more efficient method of funding higher education is available if we get away from the cursed idea of student loans and view it in terms of working lifetimes and the returns to income arising from higher edcuation. At heart this means reverting to the time-tested principle that today's dependents are paid for by today's workers, whether they be pensioners or schoolkids (no one is proposing student loans for A-levels, after all). The impediments to this are not economic but political, and at their root is both the persistent anti-intellectualism of a public discourse that assumes many degrees are "worthless" and a government culture that prefers universities to operate as commercial enterprises rather than as sites of dissent and crtitique.

A Touch on the Tiller

Apparently, some people are asking "What is the point of Labour?" Of course, this is a question that has been asked pretty much constantly for the last 100 years. Even during the halcyon days of the postwar Attlee government the party was roiled by existential doubt, triggered by mundane but symbolic issues such as prescription charges. A constant refrain has been that other anxious question "Is this what a Labour government should be doing?", which implies a catechism of correct policy as much as the more nebulous "Labour values" that are regularly invoked nowadays. Martin Kettle is the latest to wonder what is the point of the party, but he undermines his own analysis at the start by describing Rachel Reeves as "a traditionally social democratic, centre-left Labour chancellor". This highlights that the problem in defining the point of a Labour government is that there is no agreement on what constitutes social democracy any longer, let alone the "centre-left". Reeves' own view was expressed in 2015: "We are not the party of people on benefits. We don’t want to be seen, and we’re not, the party to represent those who are out of work. Labour are a party of working people, formed for and by working people."

Kettle's diagnosis is that "Labour is now an alliance of positions, interests and instincts rather than a party with a unifying direction or a leader who clearly articulates an overarching plan for government. As a result, Labour has become several small parties in one." But 'twas ever thus. Labour has always been a coalition of interests and factions, and its leaders have necessarily been skilled at managing the resulting tensions. Even during the New Labour years, when policy went with the grain of wider developments (neoliberalism, neoconservatism, weak communitarianism), there were substantive disagreements on social, economic and foreign policy. Kettle's real point is that the party never fully embraced the secular shift of the electorate: "The essential fact is that Britain is significantly more middle class, better educated, more outward-looking and more liberal. Yet Labour still struggles to adapt to, never mind to lead, this intricate, nuanced and continuing change." In other words, the failure of the SDP to supplant Labour in the 1980s, and the willingness of the party to return to its Labourist comfort zone after 2010, which is what Reeves' words really indicated, has left it facing in too many directions.

The chief problem with this analysis is the assumption that Labour's blue-collar electorate is fundamentally illiberal and backward-looking, which is why they have been attracted to Reform. This suggests that Kettle himself has failed to evolve his thinking since the 1980s. Even a brief glance at the opinion polls indicates that Reform have prospered primarily at the expense of the Conservatives, while Labour is losing support mainly to the Liberal Democrats and Greens, with the latter now acting as a proxy for "the left". The latter drift has been characterised as mainly among under-30s, which is probably accurate, and by what Kettle describes as Labour's "more ideologically driven supporters", code for self-indulgent, middle-class lefties, and which is likely wide of the mark. If it is true that Labour is losing progressive voters while Reform is obviously attracting Tories, this leaves you wondering where the working class has gone to. For Kettle, it simply disappeared with deindustrialiation. The sociological reality is that today's working class is increasingly made up of young, insecure renters in precarious employment. In criticising Labour, Kettle does so through a mental model - the blue to white-collar shift - that has been out of date for decades.

In this, liberal commentators of a certain age find common cause with Blue Labour nostalgists such as Julian Coman who believe that things started to go wrong for Labour when "From the 1980s onwards, the cutting edge of progressive thought became overwhelmingly preoccupied with the rights and freedoms of the individual." This is a gross misrepresentation of the history. The rise of the feminist, anti-racist and LGBTQ+ movements were collective endeavours, not the triumph of the neoliberal monad. Coman's prescription is "a collectivist politics that preserves the ethical insights of universalism, but that also foregrounds the values of social cohesion, collective obligation and communal wellbeing – and is willing to negotiate tensions that might result". Predictably, he espies this turn in both Shabana Mahmood's desire for "order and control" over immigration and in Andy Burnham's wish to overcome "the subjection of democracies to the arrogance of rootless international capital" (Burnham actually spoke of the need to "stop being in hock to the bond markets", which isn't quite the same thing and certainly lacks the whiff of xenophobia.)

A better way of understanding what is the point of Labour is to ignore the vibes-based commentariat and look at the government's fiscal policy, which inevitably tells us whose interests they think they are working for. Chris Dillow makes the important point that what matters in the coming budget is not how much money is raised, or how that is done, but whether it will reallocate the real resources necessary to improve public services and to boost the long-term trends for investment and productivity. Labour's historic reputation, in the sense of justifying its existence rather than just staying in office, has been based on two periods of goverment: 1945 to 1951, and 1997 to 2010. The former was notable for a period of austerity, when consumption was deliberately depressed in order to invest in industrial rebuilding and the securing of foreign markets for exports. This was made harsher than it needed to be by the heavy investment in defence, but it obviously succeeded in improving the fabric of the public realm. The New Labour years saw a significant uptick in public investment, funded by a benign economy, albeit one built on the insecure foundations of financialisation.

In that first period, Labour clearly advanced the interests of the industrial working class through high levels of employment and comprehensive (if not particularly generous) welfare. Social reform took a back-seat until the 1960s and foreign policy preserved too many illusions for too long. In the second period, Labour had a more national and less class-based appeal and focused largely on public services management, leaving economic policy to the markets and an "independent" Bank of England. Its reliance on outsouring and private finance has proved to be a strategic mistake, on a par with its failure to control the finance sector. If in the first period the party clearly represented the interests of labour, in the second period it conceded the government's role in the allocation of real resources to the interests of capital generally and the City in particular. That's a pretty profound change and truly remarkable in the context of the party's history. The pushback after 2008, both the return to a Labourist comfort zone under Ed Miliband and the evocation of a revivalist social democracy under Jeremy Corbyn, attempted to redress this in favour of labour. 

To date, the Starmer government has indicated a marginal preference for capital but has also tried to support labour. So in last year's budget there was a modest increase to the national minimum wage and also a rise in capital gains tax rates (though not to parity with income tax). The true significance of the rise in employer NICs, along with the higher NMW, is that it should act as a stimulus for capital-labour substitution, particularly among low-wage jobs, and thus a rise in productivity. But as with the rest of the budget, it was a half-hearted measure rather than part of a core strategy to shift real resources from consumption to investment. All the signs are that next week's budget will be more of the same: tinkering at the edges with fiscal drag providing the chief means to fund increased public spending. This suggests that the current Labour administration remains trapped in the same worldview that hobbled the Blair and Brown governments: a belief that left to its own devices capital will deliver growth and higher wages, and this in turn will generate higher tax receipts for public spending.

The pointlessness of this Labour government then is not down to Keir Starmer's lack of vision or his inscrutability ("His innermost beliefs are a mystery even to the cabinet", according to Rafael Behr), any more than it is to the inadequacies as Chancellor of the woman dismissed by her patronising critics as "Rachel from Accounts". The lack of point is the point. This is a government that was engineered by the politico-media caste to thwart the left, eject the hapless Tories before they did any more damage, and otherwise just sit tight until something turned up to give the economy a boost. Possibly AI, possibly better trade deals with the US and EU. This is a government that refuses to publicly choose between the interests of capital and labour and believes it can steer a course between the two. But each touch on the tiller simply enrages more people, now on one side, now on the other. The result is a general collapse in support. Perhaps we will all be surprised on Wednesday and the pre-budget leaks and briefings will turn out to have been a cunning diversion, but I suspect that what will see is another timid exercise that will satisfy few.

Reforming the Tax System

The framing of the budget due on the 26th of November has largely focused on two aspects. First, the government's fiscal "black hole", i.e. the assumption that taxes must rise and/or public spending must be cut to minimise borrowing and thus satisfy the bond market; and second, the need to stimulate growth so that future revenues may provide the means to reverse those tax rises and/or spending cuts. The metaphor is meant to be terrifying, a forbidding gravity well that will drag us to our doom, but it actually works best in the sense that no information can escape from this conceptual void, most notably the actual size of the hole itself. This currently lies, depending on who you believe, somewhere between £20 and £50 billion.There has also been a change in the term used to describe the government's operating contingency, from "fiscal space" to "headroom". What the language indicates is that the technical analysis of the state's finances has adopted a more emotional register, even if planetary extinction and bumping your head are not on the same level. The consensus is that as the public's tolerance for spending cuts has reached its limit, tax rises are now inevitable.

While there may be profit to be made speculating on the Chancellor of the Exchequer's plans in the financial markets, there is little point wondering about the budget's political economy. Rachel Reeves' speech will, I confidently predict, not mark a radical departure from the neoliberal consensus of the last 50 years. Both tax and welfare will be presented as necessary evils. There will be more parsimonious benefits and tighter sanctions. More funding will be announced for the NHS, with the quid pro quo of more "reform". Growth will be invoked in the abstract, but the concrete measures will be pitiful when not delusional. No doubt there will be more funding to make the UK a "leader in  AI". If the rumours are to be believed, there may be a penny on income tax and the same off NICs, green levies cut to lower energy bills, and the abolition of stamp duty. Or maybe these are all distractions intended to leave us relieved that she hasn't changed much at all.

It is in this context that a number of UK think-tanks have come together to present a series of proposals to reform the tax system. These reforms can, they say, be revenue-neutral. Rather than increasing receipts, the idea is to make the tax system more efficient and remove anomalies and disincentives, which should encourage growth. You don't have to go to the extremes of a flat tax or the Laffer Curve to understand the ideological link between tax "simplicity" and rightwing economics, but that is not to say that complexity is necessarily good. The question as ever is cui bono?, and you can get a pretty good sense of that by considering the think-tanks involved. The group is presented as spanning the "political spectrum", from the Adam Smith Institute to the New Economics Foundation, but the centre-right bias is pretty obvious, down to including Labour Together, which is more known for factional plotting in its namesake party than developing economic policy. 

The proposals are none-the-less interesting because of what they tell us about the presumed limits of the possible. Some will have been watered down for palatability, and to avoid any one proposal crowding out the rest. For example, a land-value tax (LVT) would be supported by a genuinely wide spectrum of economists (as would a UBI), but that is replaced here by the abolition of stamp duty (SDLT) and a revaluation of Council Tax bands. That the reform of property taxes is the first item on the agenda is indicative both of the dysfunction of this area but also of the propertarian assumptions of the think-tanks. There is no suggestion that the amount of capital wrapped up in domestic property is a problem for the economy and a reason why domestic investment in production is low. The second proposal is to extend VAT to more goods and services but lower the headline rate. It's typical of the report, which is only 8 pages long and has little in the way of evidence or justification, that it doesn't explain why VAT only applying to half of all spending is a problem. There's also a whiff of naivety in suggesting that we add VAT to food and kids clothes in the midst of a cost-of-living crisis.

The proposal on income tax is about smoothing the cliff-edges that occur with marginal rates and the withdrawal of subsidies, such as for childcare. This is certainly a real problem, though the idea that it disincentivises people from taking pay rises or coming off benefits is questionable. There's certainly evidence for the latter, but that simply highlights the poor design of the benefits and the reliance on means-testing. At no point do the report's authors suggest that benefits could be made universal in a revenue (and expenditure) neutral way, which would certainly simplify the system and do away with most of the sanctions regime. The fourth proposal is to "Tax all income from work equally", which translates into merging NICs with income tax. Few would object to this, but the report's shallowness (apart from a reference to the 2010 Mirrlees Review) obscures the significance of that "from work" qualifier. The major issue in not that NICs become regressive for salaries over £50k but that there is a lower tax rate on dividends and capital gains, which leads to disguised employment.

The fifth proposal returns to property with the suggestion that landlords should be able to fully expense mortgage costs, which they can only do today by setting up a company, and to levy NICs on rental income. In other words, this is directed at petty landlords, in particular the buy-to-let variety who are mortgaged to the hilt. The separate packages are meant to be standalone, but clearly if both #4 and #5 were implemented, the net result would be a tax cut (through 100% mortgage relief) for petty landlords. How that is meant to help GDP growth is not at all clear. Perhaps the most amusing part of this is the revenue neutrality rider: "This would be through adjusting headline Income Tax rates in whichever direction is appropriate." There's an obvious conflict here with package 4 ("Adjust Income Tax rates to achieve revenue neutrality"), inasmuch as the same adjustment is unlikely to to achieve neutrality for both income from work and income from rent. A choice would have to be made between the interests of landlords and those of the working population. Less than 5% of the population are landlords, while 13% of MPs are. 

The sixth proposal continues the property theme, but here in the form of equities and other financial assets. The package includes a capital gains allowance to offset fluctuations in interest when borrowing to invest; an end of "rebasing" on death for CGT calculations to disincentivise people holding onto assets rather than passing them to others who may make better use of them; and (the highlight in the press) the application of an exit tax (aka "settling-up") that would require CGT to be paid on domestic assets when leaving the country for good. The revenue neutrality rider for this package is: "Headline CGT rates should be adjusted in whichever direction is appropriate for revenue neutrality", which is worth noting because it emphasises that this group of think-tanks presumably do not agree that capital gains (along with inheritances) should be treated as income and taxed as such. The differential between income tax and CGT rates (and Dividend Tax rates too) will remain.

The final package concerns Corporation Tax. The proposals are to allow full expensing of all up-front business spending (not just capital expenditure on fixed assets) and to remove the limits on loss deductions, "with appropriate safeguards against abuse". This would certainly simplify matters, but as that last clause hints, it would require a new raft of regulations and checks to ensure that businesses won't simply defraud the Exchequer, or criminals pose as business owners. The experience of the Covid-19 pandemic does not inspire confidence. There are good arguments that capital expenditure should get tax relief to encourage investment in productive capacity, but the idea that we should have no qualification rules for the sake of simplicity seems naive. Offsetting the cost of new technology on the shopfloor may help improve productivity, but it's less obvious that fully-expensing company cars will do so given that their usage won't change.

What this report suggests is that the think-tankers who routinely applaud themselves for thinking radical thoughts aren't expecting much in 3 weeks time, but they will be ready to go on TV and explain why if only the Chancellor had been brave enough to adopt their suggestions long-term growth would be assured. The subtext is that Reeves needs to be more generous to business and to investors, for they alone are the wealth-creators. For all the emphasis on revenue-neutrality, the packages taken together would probably be implemented in a way that shifted more of the tax burden onto consumers and less on savers and (domestic) investors, despite secular trends requiring the opposite (fewer working-age adults, more well-off pensioners, greater wealth inequality). And they are probably justified in thinking that both Reeves and Starmer will be sympathetic to that tilt, just as they have shown themselves to be sympathetic to watering down employment rights and green levies under similar pressure from business.

Society of the Lanyard

The latest round of the national ID debate had hardly got underway before pundits and commentators were hurling insults. Particularly amusing was the sight of Lewis Goodall being community-noted on X for insulting X users' poor grasp of the subject while being married to an employee of the Tony Blair Institute. Leaving aside his consdescending tone and alledgedly offensive wife, Goodall did make one useful point, though without perhaps fully understanding it, when he accused the debate of being "insular", pointing out that other countries have had ID cards for years with little issue. This is correct, but it misses that the government, and lobbyists like the TBI, are also reluctant to actually examine the use of such schemes in other countries. One obvious reason is that they do not provide evidence for many of the beneficial claims that are habitually made. For example, we know that national IDs will not deter asylum-seekers because those camped out around Calais have already passed through multiple countries with ID regimes which didn't deter them either. Likewise, none of the countries that insist on IDs for employment have managed to do away with the shadow economy.

Deterrence is a common theme across arguments in favour of national IDs: it will deter illegal immigration, it will deter illegal employment, it will deter benefit fraud. But this is no more convincing than the deterrent argument used to justify any criminal law. Making something a crime does not stop it happening, it just clarifies the consequences. The more positive argument for a national ID, that it will improve citizens' access to public services, is nowadays more likely come with citations about how easy it is to report a collision to your car insurer in Poland using the national ID app. I'm pretty sure Poland doesn't have nationalised car insurance, more's the pity, so this is stretching the definition of public services. In other words, the boundary between a digital citizen and a digital consumer has already been erased. Across the EU, national ID schemes have been captured by commercial interests over the last twenty years, which is why they have moved online. Being able to access your bank account securely with your national ID is a greater benefit for the bank than it is for you. 

A typically-breathless report in the Guardian on the subject states that "Estonia claims e-ID saves citizens about five days a year of pre-digital administrative hassle." In other words, it was the digitalisation that reduced the admin overhead, not the national ID. Nobody in the UK is currently spending five days a year routinely negotiating public services online, and obviously the introduction of an ID scheme will not reduce the amount of time you spend sitting in a hospital waiting room or queueing for a bus. One argument you don't hear from the Tony Blair Institute, or anybody else for that matter, is that a national ID scheme will increase the take-up of benefits, by identifying people who are eligible but currently don't claim. It's estimated that UK benefit fraud (some of which is actually just DWP error) amounts to over £6 billion a year while unclaimed benefits are almost four times that at £23 billion. The intersection of national IDs and benefits is always about "efficient allocation", "better targeting" and the prevention of fraud.

The UK's feudal legacy is not to be found in the monarchy or Morris Men - both largely invented traditions of the modern era - but in its parcellised approach to public services, which is reflected in the multiple and not always overlapping identification schemes from NHS numbers to driving licences used to organise it. That may seem strange given that cars are obviously a modern invention and the NHS dates from only 1948, but the point is that the state in its broadest form has always been more fragmentary and blinkered than either its advocates or critics have allowed, and the roots of its disaggregation go a long way back. The welfare state may have offered an embrace from cradle to grave, but it was never the same arms doing the embracing over time, while the dystopian nightmare of an intrusive state ignored the reality of administrative disconnection (the totalitarian fears of Geroge Orwell originated from his experiences in the very exclusive and parcellised environs of Eton and the BBC).

The worry that a national ID scheme would lead to Larry Ellison or Peter Thiel controlling our personal data is a classic case of closing the stable door after the horse has bolted. Partly because of the parcellised nature of personal identification in the UK, they have already scooped up many of our demographic assets with minimal democratic oversight and zero public agreement. For them, the promise of a national ID is the ability to exploit the linkages between the datasets that they already control: the primary key to all the mysteries, if I may be permitted a techno-literate joke. But whether that will lead to greater insight is moot. It's easy enough to sell the state on the vision of making the population ever more legible, but the experience of Big Data has proved underwhelming, particularly in the area of public administration. The fundmental problem is one of triviality: that there isn't much to be learned by extending a particular NHS patient's record to include their driving licence. Even in aggregate, there is unlikely to be a statistically significant correlation between being entitled to ride a motorbike and suffering from shingles.

If the government wanted to implement a national ID card on the cheap it could simply issue everyone who doesn't have one with a driving licence. In these cases the card would simply have blanks on the reverse - i.e. you wouldn't be licensed to drive anything. In many countries, such as the USA, a driving licence is the standard form of (non-compulsory) ID and in the UK plenty of teenagers already use a provisional licence for proof of age in pubs and clubs. But this pragmatic approach, infomed by international practice, isn't what the likes of Lewis Goodall are seeking when they criticise British insularity. Their vision is of a common online identity whose utility to the state is almost incidental to its utility to business. And what particularly attracts journalists who face derision on social media is the prospect of doing away with online anonymity altogether. As they gather at the Labour Party Annual Conference in Liverpool to fret about Starmer's lack of vision, what they see when they look around the conference hall is actually their own vision: a society of the lanyard.

A Taxing Issue

The United Kingdom is richer today than it has ever been, both in the material sense of stuff (the conversion of natural resources into useful things) and in the accounting sense of the ratio of measurable wealth to GDP. It is estimated that household wealth is now six times GDP, having risen from four times before the millennium. There has been a clear trend since 1980 of rising household wealth, to a large extent property and to a lesser extent financial assets (shares, savings etc). This rise has mainly been passive - i.e. the result of rising property and asset prices rather than any increase in direct productivity or trade. Average household density is actually in decline. Together with rising rents and mortgage costs, this means that "housing services" now cost much more, even allowing for inflation. Meanwhile, houses and flats are exportable only in the sense that a foreigner can buy one, but this does not lead to the production of more houses over-and-above domestic demand, because those properties are typically recirculated into the rental market. 

It is generally accepted among economists that we should tax wealth more than income, essentially because the one is potentially inactive (if not invested in productive use) while the other is invariably active (you must be producing value to command a wage). In other words, wealth may be a wasted opportunity and tax is a way of incentivising its productive use. The problem arises because wealth is also a way of building financial reserves for future use, whether in the form of anticipated capital projects or a fund for future expenditure. This is why we give tax-breaks for certain types of saving as well as for investment. The problem that bedevils the discussion of the taxation of property is the extent to which it represents a simple store of value, like gold, versus a savings account. In other words, is your house (in whole or in part) a luxury good or is it your pension? 

The foundation of popular neoliberalism has been the financialisation of both domestic property and precautionary savings. The first has meant treating your home as an investment in the hope of rising property values, which has inexorably led to a political consensus that has constrained housebuilding while loudly claiming to be in favour of more homes. The second has meant excising the role of the state in providing collective insurance, instead relying on the individual negotiating with impersonal markets, which at the margin leads to an appetite for high-risk/high-reward shortcuts such as crypto. The two intersect in the idea that your house - or your other house if you're a buy-to-let landlord - is also your pension, though one of the things declining household density tells us is that many older couples, notably those who secured defined benefits pensions before the shutters came down in the 1990s, are in no hurry to liquidate their prime asset and downsize.

Despite this massive increase in the nation's wealth, we are repeatedly told that the current Chancellor of the Exchequer is "desperate to find money". Because of the government's promise not to increase income tax (perhaps the only promise it will keep over the life of the parliament), attention has turned to the taxation of wealth, first through inheritance and now through property. The candidate mechanisms being discussed include the replacement of Stamp Duty Land Tax (SDLT) with an annual levy proportionate to value and the extension of capital gains tax (CGT) to the sale of higher value properties. Inevitably, there is also talk of finally fixing council tax, whether by folding it into the annual levy or simply revaluing the existing property bands to address the current inequities. Many of these ideas have emerged from the centre-right of the political spectrum where there is clearly anxiety that without reform more radical measures may become popular (a land value tax, equalising CGT with income tax etc). But unpicking the Thatcherite dispensation takes delicacy, because of the intersection of property and savings.

Tim Leunig of the think-tank Onward is one of the leading lights of this tendency, proposing a "horizontal split" between local and central government tax receipts. The former would be funded by a local tax based on property values up to a maximum of £500,000 - i.e. a house worth £1 million would be assessed for tax as £0.5 million. Owners (not residents) of properties over that value would additionally pay a national annual levy based on the most recent sale price, the receipts of which would go to central government. This would be immediately advantageous to owners of high-value properties in terms of a lower local tax. In theory, that gain is more that wiped out by the national tax, but that depends on when the property was last sold, leading Leunig to propose a further supplement to balance the tax burden in the case of properties not sold (e.g. repeatedly inherited). At this point it becomes obvious that there are too many potential loopholes, and too much reliance on adjustment by HMRC, which creates opportunities for the tax advisors of the wealthy to exploit.

Leaving aside its chances of adoption, the notable feature of Leunig's scheme is its crude division of society by wealth into two classes. His attempt to justify this by splitting the receipts between local and central government is hardly convincing given that the latter still has to fund the former through grants: no local authority is wholly self-financing. The Thatcherite dream of full accountability to local taxpayers, which drove the Poll Tax, was always in tension with the desire to emasculate ideologically hostile councils through Whitehall diktat. The fundamental problem for our society remains the anticipated decline of income tax receipts as a share of government revenue due to demographic change: more elderly and fewer working-age people in the population. The secular growth in wealth, and the potential to tax it, offers the only real solution to address this trend as further taxes on consumption (e.g. VAT, fuel duty etc.) would be inflationary and hugely unpopular. Worrying about the division of receipts between local and central government is a distraction.

Others have taken a more overtly divisive tack. For example, Phillip Inman in the Guardian sees it in generational terms as the boomers versus the rest. That many boomers are not wealthy, while some millennials are (often due to inheritance), does not lead him to qualify the explicit threat: "If boomers cannot bring themselves to act collectively and patriotically for the greater good, as seems unlikely for many reasons, then it will be legitimate for the government to pursue their lottery winnings with higher property and pension taxes." This is unhelpful because it personalises the issue of wealth ("lottery winners"), though it should be said that Inman's critics fall into the same trap in talking about virtue. The reality is that boomers were simply those in residence when the financialisation of property and pensions took off: some benefited, some didn't. That unearned wealth will now pass down the generations. To address that inequity means addressing the wealth, not blaming the individual.

Wealth can be divided into two classes: land and money. The former is easy to tax because it is immobile and relatively straightforward to value. The latter takes two forms: accumulated money (e.g. a bank deposit) and transacted money (e.g. a payment or a receipt). Accumulated money is difficult to tax because it can be hidden or offshored. Transacted money is relatively easy to tax at the point of the transaction, hence our reliance on VAT, PAYE, CGT, SDLT etc. The problem with this is not the levying of tax but the rates chosen. For example, we levy higher rates on earned income (income tax) than we do on unearned income (CGT or dividends). The rationale for this differential is to avoid discouraging transactions, but that makes little sense in the real world. The reason we don't put VAT on food is not because we think doing so would lead to everyone dieting. Likewise, investors who rely on capital gains to provide an income aren't going to sell up and take jobs instead. After all, who would they sell to?

The obvious solutions to the Chancellor's problem are a land value tax (LVT) and the extension of income tax to all unearned income, e.g. capital gains, dividends and inheritance. The first would give us a more efficient tax system: receipts would be predictable (SDLT is not); avoidance minimal (assuming the government doesn't grant exemptions); and the tax itself progressive (on the reasonable assumption that there is a correlation between land ownership and wealth). The second would also have the advantage of simplicity; would discourage avoidance (e.g. individuals masquerading as a company to treat wages as a dividend); and would also be progressive (the people who make capital gains and earn dividends tend to be wealthier). Neither has any realistic chance of being adopted, precisely because they would shift more of the burden of tax onto the truly wealthy. The most realistic outcome at present remains a revaluation of council tax as this would spread the pain across most of society. We remain trapped in Thatcher's legacy, despite the obvious failures of popular neoliberalism.

What Determines Rent?

The popular discussion of economics divides into macro and micro, with those familiar with the former tending to adopt a slightly patronising attitude towards the latter (the legacy of Keynes' de haut en bas style), which in turn sees them map onto a left-right spectrum. This is misleading, not only because macroeconomics has historically been an attempt to reconcile classical liberalism with the reality of the state as an economic actor, thereby excluding the need for a socialist or Marxist analysis, but because it tends to omit large swathes of the real economy. A famous example was the lack of attention paid to finance and banking as a systemic vulnerability prior to 2008. But an even more prevalent omission in the popular macroeconomic discourse, which was once central to economics in the days of Adam Smith and David Ricardo, is the role of rent.

Smith laid out the basic proposition: "The rent of land, therefore, considered as the price paid for the use of the land, is naturally a monopoly price. It is not at all proportioned to what the landlord may have laid out upon the improvement of the land, or to what he can afford to take; but to what the farmer can afford to give." Ricardo formulated this as a general law, to wit that the rent of a piece of land will equal the additional monetary gain of its productive use relative to the production of a rent-free piece of land. In other words, tenant farmers will desert high-rent land if the rent exceeds the marginal loss they would incur by farming a rent-free piece of land. 

This theory was useful in an era when many people were tenant farmers and when colonialism was bringing marginal (i.e. rent-free) land into production, so the idea of farmers upping sticks to find a more economically advantageous plot wasn't as unrealistic as it seems to us today. Obviously the externalities of colonialism were ignored while rent was seen as a product of natural endowment - the gift of heaven -  and the industry of white colonisers (cf Locke). Subsequent attempts, e.g. by Marx, were made to focus on the capital investment of land, its improvement in Smith's terms, and how natural endowment in reality gives rise to rentierism, i.e. monopoly exploitation, notably in the area of patents and technical innovation (as theorised by Joseph Schumpeter).

The one area of rent that has tended to receive far less attention from economists, in terms of explaining what determines its price, is the rent of property, and specifically houses and flats. This might seem odd given how large rent looms in our lives. Even if you have bought a property or are currently paying a mortgage to do so, you are subject to rent insofar as house prices will always reflect the equivalent contract rent - i.e. what you could get if you let it over the same period as a typical mortgage (hence buy-to-let). Many people assume that the dynamic of this relationship works in the opposite direction: high house prices lead to high rents, and that rising house prices are simply the consequence of demand outstripping supply, hence the arguments that we should ease planning restrictions or curtail immigration, but this ignores that there is no shortage of empty or under-occupied houses and flats across the country. So what determines rent?

The law of supply says that more goods will be produced at higher prices. In other words, if demand for a commodity grows, thereby pushing up the price, producers will increase output to take advantage of the larger demand and thus fatter profit margins. The law of demand says that at higher prices demand falls. So once supply of that commodity exceeds demand, following that increase in output, prices will fall back to their notional equilibrium level. This simplistic model obviously ignores a lot of real world frictions and contraints. For example, not all commodities can be rapidly produced at a higher rate, e.g. by adding shifts or converting existing production lines. Likewise, if the market is cartelised there may be a reluctance among producers to increase output excessively. OPEC is the obvious example here.

In the case of housing, there are real constraints such as restrictive planning regulations and limited real resources (builders and building materials), but the biggest determinant is the reluctance of volume builders to over-supply the market and so depress prices. In this context, the state is a volume builder that has taken a self-denying ordinance to maintain house prices, both for owner-occupiers and landlords, which is why the UK government is so reluctant to build council houses despite the pressing need, and why US liberals like Ezra Klein and Derek Thompson argue that "abundance" can be achieved by simply rolling back regulations and striking out building codes, which provides an easy excuse to ignore capitalist realities in favour of a technocratic can-doism.

The "law" of demand is also undermined by necessity. In other words, there are certain things we have to buy, at least at a minimal level, such as shelter, food and clothing, lest we risk injury or death (self-sufficiency is not a practical strategy for most people and a return to a subsistence economy would result in mass starvation). We cannot realistically choose not to buy shelter, preferring to spend our money on first editions or champagne, so demand cannot fall to such low levels that prices must drop. Equally, we cannot easily cut back on the amount we spend on shelter, unlike certain other necessities such as food or clothes. We can skip meals or wear socks with holes in them, but we can't decide to move to a cheaper flat for a month and then back again to ease our cashflow.

When we talk of "the housing market" (singular) we are dealing in a fantasy. In reality, there are hundreds, if not thousands, of geographically limited housing markets, which estate and letting agents understand only too well. Goods (i.e. houses and flats) cannot be moved from one market to another, so prices must always reflect local circumstances. We also cannot easily choose to buy from alternative suppliers in cheaper markets. If I work in London but can't afford the rent, there's no point renting a flat in Sunderland. And if I got an equivalent job in Sunderland, it might not pay well enough to allow me to rent there either.

When house prices or rents do fall, that is typically because of a relative over-supply in a limited geographical market. But when this happens it is rarely because the quantum of supply rapidly increases. Instead it is because the quantum of demand rapidly falls. The obvious examples are all around us: areas that saw deindustrialisation in the 1980s with the result that the population shrank. But the fall in house prices and rents in those areas also reflects the lower average income of the remaining population: deindustrialisation typically took away above-average wage jobs, and they were above-average in most cases due to the strength of trade unions in heavy industries like coal, steel and shipbuilding. Outside these geographic exceptions, house prices and rents rarely if ever fall, something that cannot be explained away as price "stickiness" or the lower bound of a zero return on capital.

Rents then will always reflect "what the market can bear", which is a polite way of saying that landlords will push prices up to their maximum: the point where tenants can just about afford them, assuming they're willing to limit expenditure on other goods, which may be discretionary, such as entertainment, but may also be necessities, such as food and clothing. The "cost of living crisis" due to the recent spike in food and energy costs shouldn't distract from the fact that the prices of these other necessities are, in real terms, a fraction of what they were 50 years ago. That rents have grown over this period is not because people have felt that housing was a better choice for their discretionary expenditure, despite the relentless media propaganda, but because landlords have, in Smith's words, constantly recalibrated what the tenant can afford to give.

Everything Must Change For Everything to Remain the Same

We've reached that stage in the political cycle where commentators are beginning to wonder why the government keeps screwing up. The immediate prompt for this was the passing of the latest welfare bill, which generated a minor backbench revolt and a "dilution" that means it isn't as stunningly mean-spirited as originally intended. Beyond the theatrics of Westminster, the government continues to pursue its programme. Not the one it was elected on, but the one it intended to enact all along, which bears an uncanny resemblance to the received wisdom of twenty years ago, hence ideas such as a national ID card have resurfaced while a rebranded Sure Start has got Polly Toynbee trilling with delight. 

There are obviously tonal differences between Blair and Starmer, and these have even been offered as an explanation for the current government's struggles. For example, Stephen Bush has decided that the Prime Minister has no real interest in policy beyond justice and security, which was a useful insight when made by Oliver Eagleton in The Starmer Project in 2022 but seems otiose now. Starmer's brief was to recover the Labour Party from the left. That he then won the general election was a bonus, but it's churlish to condemn him for being narrow-minded and dull when those were the qualities necessary to fulfill the original brief. There is a hint in Bush's reading of Starmer that the chief cock-ups, notably the Winter Fuel Allowance imbroglio, can be laid at the door of the Chancellor of the Exchequer.

Simon Wren-Lewis is baffled that the government didn't recognise that tax rises were inevitable immediately on taking office. He doesn't mention Rachel Reeve's crap impression of Captain Renaud, shocked to discover what a mess the Tories had left, which would have reinforced the point, perhaps because he wishes to find an explanation for the Chancellor's behaviour that doesn't highlight her cynicism (if nothing else, those tears mean everyone will try not to be mean to her for a week or two). The best he can come up with is: "that they accepted that George Osborne was correct: the size of the state under New Labour was too large, and he was essentially right to shrink it. This meant Labour in government would be a more competent version of a post-Osborne Conservative government." 

But rather than accept the charge of the left that there is an ideological congruence between this government and that of the 2010-16 period, Wren-Lewis insists that this was simply a political misjudgement. Likewise he attributes the government's attempts to outbid Reform on immigration to error: giving undue salience to the issue and echoing Nigel Farage's lies about the impact on public services. At this point you might wonder if telling "lies" is evidence of misjudgment or maybe something else. Starmer's track record of deceit and dissimulation in his ascent to the party leadership can lead one to assume that he has no fixed beliefs, but you don't accidentally employ the language of Enoch Powell unless there is some base sympathy.

Simon's prescription for the government to turn round its unpopularity is to be more honest about the need for tax rises, to "plausibly argue that while everyone is promising lower immigration, only they are doing so in a way that doesn’t damage the economy", and finally to start admitting that Brexit has been a mistake. The latter should be emphasised not only because it is true, and will become more evident to voters over time, but in order to remind voters that Farage was one of the chief authors of that calamity. For good measure, he also suggests pointing out that the chaos of the Trump administration is a harbinger of what we could expect from a Farage premiership. 

In his final analysis, Wren-Lewis is pessimistic, anticipating that the government will not raise taxes sufficiently, that they will continue to ape Reform on immigration and that they will fail to be open and honest about the costs of Brexit. Given that he set out to explain why Labour have made these mistakes in office, you might feel a little short-changed. Insofar as he points the finger, it is to suggest that Morgan McSweeney may be less clever than his mates in the media suggest and that Starmer hasn't understood "the difference between being in opposition and government". But naivety on the part of Starmer is no more explanatory than the trope of the king's evil advisor.

Andy Beckett, whose modus operandi is to ask innocent questions, focuses not on the economic logic for tax rises but on the moral case for redistribution. He often overdoes the disingenousness. Thus he is correct to point out that "Creating a more egalitarian society and politics – which by definition means redistribution from the powerful – was Labour’s original purpose", but there are surely few people, even in the party itself, who imagine that egalitarianism continues to be a motivating force rather than a mere shibboleth. The mantra of New Labour, and centrist political parties in most other developed countries from the 1980s onwards, was that growth would deliver improved public goods, and thus ameliorate inquality, but that we must therefore prioritise wealth creation and so coddle the wealth creators. 

It was, in effect, the centre-left version of trickle-down economics, with the state providing a more concrete presence than the invisible hand of the market. The problem, evident to all since 2008, is that underlying growth was anemic, artifically amplified by financial speculation in the preceding decades. The steadily-encroaching climate crisis has called into question whether growth is even viable, and we may find ourselves struggling to stand still as decades of under-investment cause the fabric of public life to start falling apart. If the cake can't be rapidly enlarged, then inevitably politics will turn to the question of how big our relative slices should be. 

The answer to the question "Why is Labour so afraid to admit that we must tax the rich?" is therefore quite simple. It remains committed to the idea that wealth must be coddled. To that end, public goods must be rationed so that the state's share of GDP doesn't rise and ideally falls. What Beckett describes as New Labour's strategy of redistribution by stealth (the minimum wage, family tax credits etc), but which would be better called "trickle down", is no longer viable because economic growth will not produce tax revenues sufficient to address the growing demand for public goods. The reforms suggested to boost productivity, such as deregulating planning, are hopelessly inadequate, while the one available change that would boost the economy quickly - completely reversing Brexit - is politically unpalatable.

The Blairite Philip Collins thinks that we are facing an era of small party politics and thus of coalition government. The fragmentation of support in the opinion polls is real enough, but we shouldn't imagine that this reflects a greater volatility among voters. The British system was built on two mass parties that acted as informal coalitions: the "broad church" in Labour's case. Together with the trope of the swing voter, this gave the impression of structural stability and marginal shifts. Underneath was a wide variety of views across the electorate and often vicious contests within the parties themselves. What has happened since then is that both main parties have become narrower and more intolerant of dissent, largely due to Brexit (the Conservatives) and the war on the left (Labour). The inevitable consequence is that voters look elsewhere.

Collins's future preference is for a grand coalition of Labour, the Conservatives and the Liberal Democrats, though with the implicit rider that the Tories return to the sensible centre, leaving the crazies to Reform and the lefties fragmented and ineffective across the Greens, various independents and whatever vehicle Corbyn and Sultana manage to launch. What this daydream ignores is that so long as MPs are elected on a first-past-the-post basis, Nigel Farage is more likely to be a king-maker than Ed Davey. Indeed, a Labour-Reform coalition is far from being improbable. Collins may be right that Labour supporters are "inveterately hostile to a deal with Reform", but that doesn't apply to the PLP. 

As this point it is worth recalling that Simon Wren-Lewis saw the government echoing George Osborne and apeing Nigel Farage as misjudgements, as evidence of Starmer's political naivety. The troubling reality may be that just as there has been an ideological congruence between Labour and the Tories on the need to privilege wealth since the 90s, so there is now a meeting of minds between both parties and Reform on the need to lower immigration and welfare rolls. And don't expect the Lib Dems or Greens to mount an effective opposition to that emerging consensus.

We're facing a future in which no one party can command anywhere near a majority of the electorate, not because there aren't policies that command public support but because the cartel isn't prepared to put them to the vote - most obviously a meaningful wealth tax, but also nationalisation of utilities - and will happily fragment the party system if it means the same people can stay in power through increasingly squalid coalition deals. In Lampedusa's The Leopard the famous maxim is that everything must change for everything to remain the same. In reality, it was a change in outward forms, the compromise of the fading aristocracy and the emerging bourgeoisie, not a change in the fundamental class relations of capital and labour. To maintain the privileges of wealth, the British party system will be broken apart.