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.

Decanting

The Daily Telegraph had a classic example of the self-refuting headline last week, "London’s social housing problem nobody dares discuss", in which Sebastian Milbank, who sounds like an Evelyn Waugh character, proceeded to discuss at length the problem of social housing in London. That problem was narrowly defined as "council flats are wasted on poor people" (I paraphrase). The article claims that the capital's economy is constrained not by high housing costs, or too much capital stuck unproductively in property, but by social housing not being on the market: "This massive stock of housing, built on the most valuable land in the country, is permanently off the market. You cannot buy or rent any of it, no matter how hard you work, and waiting lists can stretch over decades." I'm not sure if Seb understands that council tenants do indeed pay rent. Maybe he thinks a council flat is a handout. What irks him is the high number of economically inactive people, but there's also another, sadly predictable dimension to this: "Not only do most of those who live in London’s social housing not work, around half of the lead tenants are foreign born."

After the great success of Right-to-Buy, the Tories want to implement a policy of Obliged-to-Sell. This is a shift from the demand-side to the supply-side, so it chimes with the fans of "abundance" and thereby gains the support of liberals who believe the state should concentrate on infrastructure rather than on welfare. This includes the professional YIMBYs who are prominent on social media, though they prefer to talk about the "misallocation of resources" (i.e. the economically inactive taking up space that could house a thinktank drone) rather than about how many council tenants are migrants or disabled. There is also a tendency to forget that most of the economically inactive are retirees, who are disproportionately represented because they managed to get a tenancy in the 1970s before Right-to-Buy and the de facto moratorium on council house building kicked in during the 1980s. The focus on the inactive also means a lack of attention is paid to council tenants in work. This blindspot reflects that they are disproportionately unionised public sector employees, such as transport and NHS workers, and therefore the ideological enemy.

Over the last 40 years, following the postwar dip caused by decanting to the suburbs, the inner London population grew by over a million¹. This is still lower than the peak in the early 1900s, however that is the result of slum clearance and the reduction in density (i.e. overcrowding in those slums), which nobody is seriously proposing to reverse. Far from being an inhibitor of the economy, the growth in jobs has actually outpaced the growth in homes over the last 20 years. Ironically, this reflects increasing densities (the number of people per home), after a long period of falling densities, and an increasing rate of economic activity across the population. Housing is under stress in London but this is because of high demand and constrained supply, not because of the misallocation of resources to social housing or because of a high percentage of the economically inactive among social housing tenants.

Since Right-to-Buy ran out of steam around the millennium, council housing stock has remained fairly constant in absolute terms, but that means a relative contraction as a share of total stock due to the growth in the private rental sector, which in turn reflects the growth in the total population and in the number of jobs. This can be seen clearly in the chart below. What Mr Milbank is talking about is a fraction of housing stock that is ever less significant to the total. As the chart makes clear, that growth in population has been economically captured by the private rental sector. Home owners will have seen their property prices rise, but this is notional wealth that can only be realised by downsizing or moving out of London, and increasingly these are less favoured options because of the need to provide for children who could not get on the property ladder otherwise. In contrast, rents are current income and they have been rising faster than GDP growth, hence the popularity of Buy-to-Let.

That the growing unaffordability of London property has coincided with the growth of the private rental sector is not mere correlation. Why has the sector grown? Because rents have risen rapidly, so promising greater returns to investors. The growth in rents has proceeded even during the cost-of-living crisis because landlords correctly calculate that tenants will reduce discretionary expenditure, and even expenditure on other necessities, such as food and clothing, before they consider moving to a cheaper tenancy. This makes it very difficult for young people on entry-level wages to rent, while those who can just about afford it have low disposable incomes which lowers aggregate demand. The real issue in London is not council tenancies "wasting" a resource but high rents in the private sector. 

The flip-side of the proposal that London council properties be put on the market so that they are "allocated" to the more economically productive is the decanting of the less productive elsewhere. This has in fact been happening for years, since well before Boris Johnson, the then Mayor of London, insisted there would be no "Kosovo-style social cleansing" on his watch (there was). There is an army of  service staff who live in the cheaper suburbs and face long commutes to clean offices and wait on tables in Central London, who fifty years ago could have reasonably expected to get a council tenancy. Much the same story can be told of other European cities, such as Paris and Berlin, where gentrification has produced the distinctive "doughnut" of a denuded city centre. London is by no means the worst and its history of large council estates in the heart of the city has meant it remains socially mixed, even if those estates are increasingly neglected (Grenfell Tower) or sold off to private developers (the Heygate Estate).

The solution, pretty obviously, is to build more council houses for the general population instead of treating them as a reservation for the "economically inactive" (a crude misrepresentation as most council tenants are in work). The problem is that local authorities were first constrained from building new housing, and then encouraged to pursue public-private partnerships in which "affordable homes" would be delivered by property developers (they rarely were). Once the remaining constraints on council house building were removed, local authorities then found themselves starved of funding due to central government austerity. The predictable result was even more reliance on the private sector, both in terms of "estate regeneration", with its inevitable decanting out of London, and private landlords charging extortionate rents for people that the local authority had a statutory obligation to house. This latest Telegraph initiative, with its supporting cast of manic YIMBYs, is simply picking over the bones.

1. Charts from Housing in London 2025 and London’s housing stock - London Assembly Research Unit November 2024

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.

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.

The Lessons of Grenfell Tower

The media discussion of the Grenfell Tower Inquiry Phase 2 Report has increasingly focused on the operational failures of the building firms involved, with calls for criminal prosecutions, and on the deficiencies of the regulatory regime, with dismay at the risks entailed in cutting red tape and a consequent demand for tougher government intervention. What has been increasingly lost in this orchestrated campaign is the role of the local authority, the Royal Borough of Kensington and Chelsea (RBKC), and in particular its policy towards social housing. A good example of this was the Guardian's immediate analysis by Peter Apps, a housing expert critical of the industry, which doesn't mention RBKC once. This could be justified given the tenor of the report itself. The execuitve summary, which is probably all that many journalists will have read, largely limits itself to criticising RBKC's poor oversight of the Tenant Management Organisation (TMO) that had in turn failed to "observe its basic responsibilities" towards the tower's occupants. What the report doesn't do is question the very existence of the TMO. Why was this arms-length function deemed necessary by a council that had the primary responsibility for its tenants?

It is clear from the report that the TMO existed to outsource responsibility and thereby remove day-to-day management of the tower as a concern for councillors and council officers. One telling example of what this meant in practice is the report's observation that "RBKC took little or no account of an independent and highly critical review of fire safety carried out for the TMO in 2009. It did not even know about a further independent and highly critical report produced in 2013 because the TMO had failed to disclose it to RBKC." This, like a number of other observations in the report, essentially charges RBKC with ignorance when the actual charge should be wilful neglect. The strongest criticism of RBKC's performance in the lead-up to the fire was reserved for council officers: "RBKC’s building control department failed to perform its statutory function of ensuring that the design of the refurbishment complied with the Building Regulations." In other words, there has been a scrupulous determination to avoid questioning the political logic of social housing management in the borough in favour of a focus on the regulatory regime.

Where the report cannot avoid addressing the failures of the council is in the response to the tragedy, but again the tenor is very much that this was an organisation simply overwhelmed by the challenge or unsuited to the immediate demands placed upon it: "RBKC’s systems and leadership were wholly inadequate to the task of handling an incident of such magnitude and gravity, involving, as it did, mass homelessness and mass fatalities." A telling comment is that the victims and survivors of the fire received far more effective support through community groups than they did from the council, but that this was ultimately down to the council's dismissive attitude towards the community rather than any difference in resources or competence: "one of RBKC’s failings was to make too little use of the local voluntary organisations and to fail to have adequate standing arrangements to enable them to be called on in the event of a major emergency." In other words, there was a lack of trust not only between tenants of the tower and the council, which the report could pin on the TMO, but a more wide-ranging lack of trust between the community of North Kensington and RBKC.

There are two unusual characteristics of RBKC that need to inform an understanding of the tragedy and its aftermath, both of which I highlighted in the post I wrote a year after the fire: Candide in Kensington (a critique of Andrew O'Hagan's whitewash of the council in the London Review of Books). The first is that the council is very small both in terms of population and territory. It is, in fact, the smallest borough in London by population if you exclude the oddity of the City of London. If it were to be merged with the neighbouring (also small) borough of Hammersmith and Fulham, the combined authority would still only be the sixth largest in London, about the same size as Wandsworth. A larger authority would not only have greater capacity in terms of emergency housing, but it would likely also have more officers devoted to building control and health and safety. The limitation of size has been recognised for years, however this hasn't advanced beyond the pre-fire "Tri-borough" arrangement for shared services (also involving the City of Westminster) where the focus was very much on cost-cutting during the post-2010 austerity years. There is no real justification for the separate but adjoining boroughs, but it has historically suited both main parties, with the Conservatives having exclusive control of Kensington and Chelsea (except for the northern wards) and Labour dominating Hammersmith and Fulham for all but a brief period between 2006-14.

The second characteristic is the longstanding antipathy towards the direct provision of council housing, one reason why the borough was notorious for slum landlordism up until the 1960s. Historically, it always preferred to operate at arms-length through charities and housing associations rather than directly providing and maintaining council homes. This is the root explanation of the TMO, a desire to outsource its residual responsibilities as a landlord and an implicit acknowledgement that it "doesn't do" council housing. That the phase 2 report essentially buys into this narrative of council incompetence (the recommendations are largely about training council staff up to be able to better manage its services and contingency planning) means that the political worldview behind its poor performance is not brought into the light. The borough is a stark example of social segregation, with the richer southern wards politically dominating the rump northern wards and treating the social housing residents of the latter as at best an afterthought and at worst as importunate and ungrateful (as many were characterised by O'Hagan). That the report locates this lack of trust between authority and people in the TMO is an evasion and an example of the unwillingness of public inquiries to address the political context of failures, something seen in the torturous Hillsborough saga and more recently in the Contaminated Blood scandal.

More broadly, the attitude of the RBKC points to the political elephant in the room, which is the UK's troubled relationship with housing. The fundamental problems of the UK housing market are not inadequate supply and high prices - these are merely epiphenomena - but a lack of capacity in the system, which is the consequence of the end of central planning (i.e. the expansion of council housing) and the concomitant financialisation of housing as an asset class with the take-off of Right to Buy and mortgage deregulation in the 1980s. It cannot be stressed enough, that the UK has only properly housed the population, whether owner-occupiers or tenants, during the postwar era of central planning, and then only towards the end of the era when supply caught up with demand. Basically, the late-1970s. All states make provision for spare capacity, but not always in the same areas. For example, the UK has always sought to maintain a domestic defence industry, notionally to ensure national security but also to reinforce its geopolitical delusions. Doing so entails a need to keep that industry busy, hence the easy encouragement of military adventures and the selling of arms to dodgy regimes. Continuing to build social housing capacity would have left us with a public good and fewer property millionaires; continuing to produce arms for sale has left us open to the charge of aiding and abetting genocide.

Other states are more concerned with capacity issues such as food security or medical supplies. The former can give farming interests an outsize influence on land planning and retail prices; the latter can mitigate the dangers of a public health crisis. The criticism this weekend over the poor preparedness of the NHS for the Covid-19 pandemic should be read less as an attack on the serial incompetence and cheese-paring of Conservative ministers since 2010 and more as a long-overdue recognition that the state has been reducing its capacity, and therefore its contingent capabilities, across the board since the 1980s. This, as much as formal deregulation, has been a consistent theme of all governments since Margaret Thatcher. And it is not simply a naive belief that the free market will provide, but a conscious desire to reduce the public responsibilities of the state. Of course, the state never shrinks, not just because its prime directive is self-preservation but because the reduction in provision simply promotes costly demands elsewhere. Thus the lack of council housing investment has been more than offset by the increase in the cost of housing benefit, which simply means that state resources have been diverted from the needy to rentiers.

Might there be a sea-change in government policy? Labour have certainly talked up the issue of planned capacity in some of their proposals, such as Great British Energy, but the substance to date has looked a lot like marginal or cosmetic gestures while the insistent drumbeat from both the Prime Minister and the Chancellor has been that austerity remains the only game in town. The idea that fiscal responsibility will stimulate private sector growth ("expansionary fiscal contraction") was comprehensively disproved under the Cameron and Osborne regime, but even if it proved true this time, an expanding private sector will simply compete with the state for real resources, which means the likelihood of major investment in capacity isn't on the cards. The idea that you "fix the roof while the sun is shining" is about as intelligent as equating the economy with a household. The greatest historic investments in British public capacity, in areas such as housing and transport, occurred during periods of relative economic turbulence, such as the 1930s and 1970s, as much as during periods of growth. You have to build capacity regardless, rather than waiting for a fiscal surplus that will only lead to the competing demand for tax cuts, and that means accepting that real resources must be diverted from private consumption.

It took over six years after the Grenfell Tower fire for all of the former residents who survived to be permanently rehoused, though often in inadequate accommodation, with the council reluctant to prioritise their needs and its new housing provision continuing at a snail's pace. It is hard to see any evidence that the RBKC and the TMO have changed their attitude over this time. Talking of her recent discussions with the residents, Gillian Slovo noted that "They told me about a council, the Royal Borough of Kensington and Chelsea, and its managing agent, the Tenant Management Organisation (TMO), that treated them as if they should have no voice in the way that they lived. They drew a picture of one of the richest boroughs in England ignoring them because they lived in social housing." The current leader of the council, Elizabeth Campbell (who lives in the ultra-rich Royal Hospital ward), has predictably apologised in light of the report's findings - how could she do otherwise? - but the commitment to learning and improving will be meaningless until such time as she and other politicians are prepared to address the two key characteristics of RBKC: that it is too small to be effective and that its reluctance to invest in council housing will always leave it in conflict with the community of its northern wards. Both are issues of capacity.

The Landlords Party

In this week's episode of What Have Labour Gone Back On Now?, Lisa Nandy has reaffirmed the party's support for Right-to-Buy and its aversion to rent controls. She linked the latter to "untargeted mortgage relief" (as advocated by various Tory MPs of late), which at first sight might appear a little odd. As Labour List's Tom Belger helpfully explained, "There are understood to be concerns [that] rent controls while mortgageholders’ costs are soaring risk exacerbating a shortage of rental properties if more landlords sell up." In other words, this is about protecting the Buy-to-Let constituency, which is well-represented in the House of Commons, and as such is an example of targeted mortgage relief. You'll also notice the claim, which has become canon among this constituency, that if landlords are obliged to sell their properties this will lead to a shortage of rentals. In fact, those properties will either be bought by other landlords with larger portfolios who aren't so exposed to interest rate changes or they'll be bought by people who want to buy houses for their own use, many of whom are currently renting. They don't get mothballed. As ever in discussions of housing in the UK, actual interests are obscured by myths.

Nandy's thoughts on Right-to-Buy are similarly questionable, insisting first that it was originally a Labour policy and that where it went wrong was "the decision of the Thatcher Government to fail to replace the council housing stock that was sold, pitting the rights of the individual against the rights of the community." This fails to explain why Labour's idea never got off the drawing board and why the Thatcher government precluded adequate replacement. There wasn't a formal moratorium on council house builds after 1979, there was simply a lack of money which became more pronounced over time, and that lack was a result both of Thatcher's war against the larger urban authorities and the generous discounts on sales. As the article linked to above goes on to note, "Inside Housing deputy editor and author Peter Apps argued it was not possible to back Right to Buy but oppose depleting social housing stocks. While Labour promise to replace homes sold, “it’s just not that easy to get new council housing built, but it’s very easy to sell it at a massive discount”." 

In imagining that you can both offer Right-to-Buy and avoid running down council stock, Lisa Nandy forgets that Labour's original plans, from Hugh Gaitskell's manifesto promise in 1959 to Jim Callaghan's more considered review in 1977, foundered because full replacement would require selling at close to market prices, which most tenants couldn't afford. In the 1950s it was still plausible to imagine Aneurin Bevan's ideal of mixed social housing, where "the doctor, the grocer, the butcher and the farm labourer all lived in the same street", but by the 1970s council housing, in particular "sink estates", had become associated in the popular mind with the lumpen elements of society. The reality was much more of a patchwork with tenants in skilled manual work now often much better off than twenty years previously and much of the newest council housing stock being low-rise and often indistinguishable from private estates. But this in turn meant that any programme of sales would initially deplete the stock of better properties, as proved the case in the 1980s. 

The Tories cut the Gordian knot by both offering massive discounts (averaging 44% and rising to as much as 70%) to buyers and gradually strangling the number of new starts by councils. This made it a one-way bet. You could buy cheap and then sell dear once the price went up, allowing you to buy somewhere bigger and perhaps cheaper beyond the city. Alternatively, you could wait to inherit your dear old mum's flat and either sell at a massive profit or realise your ambition to become a landlord. This was a completely rigged market, not to mention an exercise in social engineering - two things the Conservative Party claimed to oppose. It's worth emphasising that these two measures went hand-in-hand. It was only by artifically driving up house prices generally, through limiting council starts and easing mortgage financing, that the Tories could buy off their existing homeowning constituency who would otherwise have looked askance at subsidies for the less well-off. Rising house prices allowed remortgaging for conservatories, extensions and (in time) equity release for new cars and expensive holidays.

Because limited council housing in recent decades has been (rightly) prioritised for vulnerable families, the vast majority of tenants still don't have enough income to buy at anywhere close to market prices, so a revival of Right-to-Buy would require a repeat of the scale of discounts seen in the 1980s. This in turn means that one-for-one replacements could not be funded through receipts, even assuming councils were allowed to keep all the money and earmark it for new builds. You would need massive central government funding to make up the shortfall. This clearly isn't going to happen, not simply because Labour's masochistic embrace of "fiscal responsibility" will rule out borrowing but because the alternative would mean funding new council houses through the taxation of existing homeowners and renters, and neither of those groups would consider that a fair deal. The latter might be assuaged by the promise of access to secure council tenancies at reasonable rents, but that presumes a massive expansion of social housing over the term of a parliament (which would incidentally hammer the private rental sector), and nothing Labour has suggested explains how this could come about. The trick the Tories pulled off in the 1980s, of creating more winners than losers in the short-term, cannot be repeated.

The fundamental problem with Right-to-Buy, which has been there since the 1970s, is that there is a mismatch between the prospective buyers (council tenants) and their means. The people who could potentially buy council houses at market prices are currently paying rent to landlords in the private sector. We know they could afford a mortgage because their rent often covers the actual mortgage repayments for the property (i.e. it's a Buy-to-Let rental). Even where the landlord does not have mortgage debt they are likely to pitch the rent at the market level, which is clearly determined by the landlords who do have mortgages on their properties. In addition, the rent covers the landlord's profit. This means there is another mismatch: between those who can afford mortgages (renters) and those who have access to mortgage capital. The latter is now commonly described in terms of "saving for a deposit" and the "bank of mum and dad" but this obscures that for many landlords the first link in the chain that allowed them to raise deposit capital was the profit made on selling an ex-council property. 

So how do we solve this problem? The solution is to take private landlords out of the equation and replace them with local authorities. This could be done through compulsory purchase, rather than expropriation, the funds being created by selling the mortgages to the Bank of England. In other words, this would be a form of quantitative easing but one in which the assets acquired by the bank would be mortgage-backed securities (MBSs) rather than its own gilts. This is, famously, the model of Fannie Mae and Freddie Mac, the two government-sponsored enterprises (GSEs) that provided secondary mortgage financing in the US (buying mortgages from lenders with cash that is then used to issue more mortgages). It should be emphasised that the sub-prime crisis that peaked in 2008 was not due to this model itself being problematic but due to the deregulation that led commercial banks to expand into "private-label securitization". Insofar as this approach would be problematic, it is that it would be counter-cyclical, i.e. boosting demand at a time when the Bank wants to dampen it. The solution to that would be to pay the landlords with bonds, rather than cash, recognising that most would want to invest/save rather than consume.

This approach would allow rents to be brought into line with the council norm (usually much lower) and tenants given secure agreements with more reliable maintenance and repairs. The rents paid would continue to service the mortgages but the repayments could be reduced, so the lower rent receipts matched them, by extending the mortgage terms. If a tenant then wished to exercise Right-to-Buy, this would simply return the repayments to their previous level and term (but without the need for a deposit). As multiple mortgages will have been bundled-up, the repayment period effectively becomes open-ended, much as the national debt has been for centuries. In fact, this is just national debt. But unlike operational debt that depends on tax receipts to be paid down, and which is therefore subject to bond market sentiment, this has the advantage of the guarantee of future tenancy income and the proven calibre of the stock. Again, to emphasise the point about the 2008 crash: the problem wasn't simply handing out mortgages to people who could never realistically keep up with the payments but an over-supply of speculative property (notably in Florida) that required mortgages being issued promiscuously in order to keep the construction industry growing. That isn't a problem the UK is likely to face any time soon.

This might sound radical, even a bit "out there", but it is simply a scaling up of what the Labour Party proposed in 2019 (see page 9 of its Housing Manifesto): "To get our council housing programme off to a flying start, we will introduce a council buy-back scheme, with additional loan funding for councils to purchase properties from the private rented sector, with a focus on those properties sold through the right to buy, but now in the hands of private landlords. We will provide funding for the purchase of at least 5,000 properties a year throughout the next Parliament." In retrospect, that seems both sensible and pitifully unambitious, but in the current context of the Labour Party it might as well have been a call for the liquidation of the kulaks. In contrast, Nandy's rallying cry appears to be that "private patient capital" can be relied upon to fund council housebuilding, which sounds like PFI but also suggests that building will be at a pace that suits the construction industry. The difference between 2019 and 2024 will be that Labour's policy will be embedded in the market, rather than bypassing it, and high finance will get to wet its beak. Most importantly, landlords will be reassured.

Should We Repair Our Sewers?

It's not obvious that we should repair our sewers and leaking water pipes, and not because of any scepticism over the impact of twenty years of neglect or disagreement over who should "pay" for the work. What is required for investment in the public fabric is not money but real resources: labour and materials. As Keynes put it, "Anything we can actually do, we can afford". If those resources are not available, the money buys nothing. This means that the key question for public investment is not "How will we pay for it?" but where will those resources come from? In practice (for tasks of significant scale) this means what else will we forgo. That foregoing might be limited to the public sector (e.g. we upgrade the sewers instead of building new hospitals), or it might be concentrated in the private sector (e.g. a moratorium on private housebuilding), so we effectively transfer resources and thereby grow the public sector's share of GDP. Framing the debate as one of money ("There is no magic money tree" etc), and implying that money is somehow a real thing that is naturally limited (reification), is a way of avoiding this choice and thus simply a way of advocating the status quo.

Feudalism recognised the categorical difference between resources allocated to specific tasks (e.g. the corvée) and resources that could be exchanged (whether via money or barter is immaterial). In a pre-market society where money was in short supply, because it wasn't generally needed as a means of exchange and specie was naturally limited, "public works" - i.e. infrastructure of general utility, such as roads or bridges - could only be effected through such an allocation of real resources. This was possible because the seasonality of agriculture meant that there were predictable periods of labour time available for non-subsistence activities. Industrialisation, or more precisely proletarianisation, did away with the corvée and other feudal remnants through the move to wage labour. This also meant that resources for public works were now part of the market system, which in turn meant competition with private interests for labour and materials. The important point here is that the expansion of the market has always been in tension with public works. The result was that industrialisation and its consequent social ills produced not the Nightwatchman State but an expansion of government with a central role in appropriating and allocating real resources.

This not only addressed real needs but it opened up a new site for exploitation in the interface between government and private contractors and would create a new class of public assets ripe for rent-seeking. There were three notable trends in public administration over the course of the twentieth century in response to this. The first was the national or regional consolidation of many public services, such as health and utlities. The second was the gradual conversion of government from a primary employer of real resources to a contracting party of private suppliers through privatisation and outsourcing, which meant both the creation of de facto monopolies in the private sector (e.g. water and rail) and increasingly the limitation of local government graft to property development, i.e. exploiting the public asset of planning approval. The third trend was the move to more regressive taxation as working class incomes grew, which was consolidated in the 1980s both nationally (the increase in VAT and cuts in top-tier income tax) and locally (the introduction first of a poll tax and subsequently a household tax that hasn't kept pace with the inflation in high-end property values).

These three trends have meant that people today feel increasingly alienated from public services and regard local government as little more than a property developer that is unresponsive to local needs and vulnerable to graft. The first development has led to both falling levels of satisfaction and increasing antagonism towards the status quo, hence the renewed popularity of nationalisation, while the latter has led to growing disillusion with local authorities and the relative flourishing of independents and maverick parties, many focused on limiting housing development. While any individual "NIMBY" might be selfish and short-sighted, NIMBYism clearly reflects the tension that now exists between local democracy and local government. Meanwhile, the water companies have become national villains not simply because they have polluted our rivers and beaches with sewage but because they have come to symbolise the regressive legacy of Thatcherism in which the poor face disproportionately higher bills while the priority of the business is to deliver dividends to shareholders.

Repairing our water pipes and sewers is attractive for a number of reasons but three are worth focusing on in the context of the above. First, it would be a national programme, which would obviously open up the question of full nationalisation. Second, it would be democratic. All households could expect to benefit from lower water and sewerage bills and most people would consider the improved utility of clean beaches and rivers to be of value. Third, it would be a less contentious use of real resources than housebuilding, and more specifically of private housebuilding in suburban and exurban areas. However, unless there is a rebalancing between the public and private sectors, it would also mean denying real resources to other public works, such as public housebuilding in urban areas. Constructing inner-city council flats would be more popular than building on the green belt and is the only way in which we'll see any movement towards addressing under-supply, which is an issue of location and tenure more than capacity, and (eventually) a reduction in house price and rent rises, which Keir Starmer is now on record (if that means anything) as saying he wants to see.

It's worth noting that the UK public fabric in other respects is quite healthy. Contrary to the "private affluence and public squalor" trope of old, we have built a lot of new public works over the last forty years, from hospitals to the Elizabeth Line. But while governments since Thatcher can take credit for this, the legacy they have burdened society with is the regressive Thatcherite model of financing in forms such as PFI and privatisation, while some of the greatest successes have come when that model has failed so badly that renationalisation (or takeover by regional authorities) has proved unavoidable. The problems of the NHS, social care and poverty aren't due to a lack of buildings or infrastructure but to low wages restricting spending power and leaving vacancies unfilled. These really are areas where a magic money tree (i.e. money creation in the manner of QE but directed to social rather than financial assets) would work wonders. That said, there are obvious opportunities beyond sewers and council flats for public infrastructure investment, notably improvements to rail transport in the North of England and an accelerated transition to renewable energy. In sum, there's a lot that could be done but we need to recognise that this would entail a change in the relationship of public and private activity.

In other words, we need a comprehensive programme of investment in public works that would significantly expand the public sector. This can be done without shrinking the private sector by a comparable amount, but only if we expand the key resource of labour, which doesn't mean getting disability benefits claimants to harvest potatoes but encouraging migrant labour. Otherwise, we must transfer resources from the private to the public sector, which is not only anathema to anti-state Tories but also conflicts with Labour's somewhat incoherent commitment to growth through business expansion and raised productivity. Were we to increase migration, the demand for non-labour resources would also increase, however that ought to be an opportunity for import substitution in many areas. That in turn highlights how such a programme of public works would necessitate a formal industrial policy by which the state could intervene to direct capacity planning and even private investment. Is this politically feasible? The short answer is no. 

Not only has Labour made clear that it will be "fiscally responsible" (and if you think they'll change their tune in government you obviously don't understand who they are), but it has already indicated that its priority is to make Thatcherite taxation less obviously regressive, but not to otherwise change the model. Nationalisation has been ruled out while the suggestion that shareholders who have reaped decades of dividends should be expropriated without compensation is simply not up for discussion (at best you'll hear demands for "equity injections"). Labour and the Liberal Democrats have both talked of making the water companies foot the bill for repairs rather than the taxpayer, despite taxpayer funding being more progressive than additions to water bills. If recent history is any guide, the most likely outcome is an increase in charges to consumers obscured by new, more stringent targets for repairs by the water companies and larger fines for spillages (though in practice with Ofwat being ever more reluctant to impose them).

This is not to say that a big plan won't be mooted, but that without a firm ideological underpinning (let's call it "socialism") a public works programme and industrial policy are both likely to be captured by capitalist interests, much as the previous attempts to repair the UK's fabric during the New Labour years were captured by the financial sector and business consultancies, and much as the Labour Party institutionally has been recaptured by business since 2019. The suggestion that the Labour leadership's priority is to revive social democracy, rather than restore the authority of the state and the credibility of the establishment, is laughable. The ultimate choice for Labour is not what gets done (Bevan's "The language of priorities is the religion of socialism" is not a statement that bears much scrutiny) but who gets to do it: the public sector or the private. So long as Labour prefer the latter, which is clear in everything from their burbling about "choice" in the NHS to the lack of substance in the proposed Great British Energy company, then the outcome will continue to fall short of popular demands. 

The sewage crisis is simply an appetiser (if you'll excuse the metaphor) for the main course of the housing crisis. The government-mandated moratorium on council housebuilding from the early-80s onwards represented the largest privatisation of the last half-century. It is often forgotten that privatisation means shifting provision from the public to the private sector, and not just the sale of public assets such as state-owned businesses or individual council houses. Insofar as the Conservative Party has ever managed to shrink the state, it is in this movement of housebuilding activity from a mix of public and private (almost 50/50 in the late-60s and early-70s) to exclusively private. Fixing the housing crisis requires a reversal of this, moving real resources from the inefficient building of car-oriented starter homes in the exurbs to building energy-efficient flats for social renting in cities. But it won't happen. There will be no moratorium on private building and what limited social housing is funded by the state will be parasitised by private developers. Stopping sewage leaks and spreading the cost of doing so over a decade of water bills is the limit of our ambition.

The Capability of the State

The coronation has inevitably led to many state-of-the-nation essays and none has captured the essentially sombre and fearful mood more than Ian MacIlhagga's claim, in the relatively obscure US magazine Palladium, that "Britain is dead". This comes from a technocratic and centrist political space concerned with effective governance (the non-profit American Governance Foundation), so it is impeccably liberal in its reasoning, but being a foreign perspective means it avoids the usual self-congratulation and personalism that mars domestic liberal analyses. Boris Johnson is mentioned only in passing while Dominic Cummings is cited as an ultimately defeated reformer of the Civil Service whose intentions were laudable. In a useful corrective to the dominance of the popular narrative by historically and sociologically illiterate controversialists like Matthew Goodwin, the author is under no illusions about who composes the governing elite, even if his routine declinism is questionable.

MacIlhagga's charge is essentially a rehash of Martin Wiener's thesis, in the 1981 book English Culture and the Decline of the Industrial Spirit, 1850-1980, that the UK's steady fall from economic and geopolitical dominance can be traced to the continued social pre-eminence of aristocratic values (anti-industrial and anti-mercantile), which first seduced the industrial bourgeosie in the nineteenth century, persuading them to buy landed estates and chase honours, and then infected the emerging middle class in the twentieth, as seen in the persistence of private schooling and a general flippancy towards governance ("a culture of amateurism"). Despite this liberal lineage, there are also odd bits of the Anderson-Nairn thesis in the essay - the "premature death" of the "modernizing class" after the Glorious Revolution - though the paradox of an anti-industrial aristocracy that embraced capitalism isn't really addressed, suggesting MacIlhagga's reading didn't extend to Ellen Meiksens Wood.

But while there is little novelty in this thumbnail history, what is of the moment is the focus on the state's capability, which McIlhagga defines negatively as "the British elite’s profound inability to prevent national decline". In a litany of failed reform, that amusingly links Cecil Rhodes to Cummings, MacIlhagga acknowledges that this wasn't a tale of steady and comprehensive decline - "The pressures of the following two world wars forced the British state to retain a high level of capacity and an ability to mobilize effectively" - but he insists that the established habits led to an under-performing economy and poor scientific productivity from the late-1940s onwards. Again, he appears not to have read the scholarship on the subject, notably David Edgerton's The Rise and Fall of the British Nation. The result is an inescapable pessimism: "In the end, every technocratic policy fix has been recuperated into managed decline. Buoyed up by soft power and high-paying financial services, even the UK’s would-be reformers drastically underestimate the human capital problem that affects every layer of society".

Where MacIlhagga most obviously shows the influence of Wiener is in his belief that the British malaise is essentially cultural, and by that he means the culture of the elite: "After a multi-generational failure by the British state to assess its hard constraints and build up a materially productive social order, its elites appear to have fundamentally lost interest in governance". This is supported by predictable criticisms of the utility of elite education, notably the Oxford PPE course, and the generalist bent of the upper reaches of the Civil Service. What it fails to do is acknowledge that there are plenty of people in the UK who have not lost interest in governance but that they are effectively denied access to power by a politico-media establishment in which the purpose of elite education is to preserve that elite, not to equip recruits with appropriate technocratic skills (James Schneider is the one interviewee to correctly note that education is a red herring). This leads MacIlhagga to frame "an absolute decline in state capacity" and "a breakdown among colleagues of the basic trust in each other to get things done" as essentially a HR problem.

The dominant motif in British politics is the idea that there are major areas of public policy that the state cannot effect. This is not simply the neoliberal idea that the provision of the means of social reproduction, such as health and housing, should be left to the market, but a more profound belief in the incapability of the UK state in the context of historic decline. In other words, declinism is a interpretative choice that excuses inaction. The idea that areas of national life, from the monarchy to "rural England", should be preserved - that we shouldn't risk change and should "prefer the tried to the untried", as Michael Oakeshott put it - is obviously central to conservative thinking, but this has to be allied with the progressive impetus of modernity - the ceaseless appetite for novelty, the relentless exploitation of resources etc. In Britain this has produced a schizophrenic political culture in which the rhetoric of modernisation and growth coexists with a profound aversion to meaningful change.

An outside observer might wonder at the tactical nous of the Tories banging on about the "small boats" of asylum-seekers in the Channel, given that this is an intractable problem for which the only outcomes are relative degrees of failure in the eyes of the rightwing press. But this would be to misunderstand the spectacle. The outsourcing of asylum processing to Rwanda isn't simply an "out of sight, out of mind" manoeuvre. It serves to highlight the limited capability of the UK state, which is the governance analog of the claim that "We're full up" and that public services lack the capacity to accommodate immigration. Likewise, the same observer might be nonplussed by the lack of ambition on display from the Labour Party when there are so many obvious areas for improvement. While Starmer and his front bench have emphasised reform, this is very much in the sense of a continuation of the work of the New Labour years. There will be no nationalisation of the water companies, private providers will be further entrenched in the NHS and the state will limit itself to producing targets and metrics.

This cross-party consensus on the limited role of government is perhaps most obvious in housing. The state's role in the provision of accommodation was the emblematic social policy of the twentieth century, from the "Homes fit for heroes" demand after World War One to the priority of housing starts in the Labour and Conservative parties' electoral offers after World War Two. The roots of the current "crisis" go back beyond the Thatcher government's introduction of Right-to-Buy to a cross-party consensus on the need to reduce the state's role in housebuilding that began to emerge in the mid-1970s as part of the neoliberal shift. It was the Callaghan government that first considered a national policy of allowing tenants to purchase their council homes but shelved it due to concerns over its "indiscriminate" nature, the management of which would have required significant state intervention. Thatcher cut the Gordian Knot by the simple expedient of adopting a free-for-all policy that privileged occupiers and forcibly removing local government from supply.

The problem today is not that we haven't built enough homes but that property is unequally distributed, both in the sense of who owns or occupies what and in the sense that too much capital is tied up in it and thus unavailable for more productive investment. The long inflation in house prices cannot be divorced from the accelerated decline of British industry in the early-80s any more than deregulation of mortgage financing in that decade. It was the combination that diverted (initially domestic) capital and savings into property. The demand for a more holistic view of housing than simply how to get more first-time buyers onto the ladder is correct, but it doesn't go far enough if you don't perceive the housing problem to be one of the allocation of real economic resources, and that in turn raises questions about the role of the state in economic management. The narrative of relative decline ignores the absolute progress of society: despite the inadequate housing conditions of the poor, we have fewer slums today, fewer people sharing beds or bedrooms, and tenants have far more rights than they did a century ago. 

As David Edgerton noted more broadly, "declinism took to explaining what never happened with explanations that didn't work." The retreat of the state in the 1970s was not the product of either intrinsic weaknesses in British elite culture or of structural forces such as imperialism's neglect of domestic industry (the left critique) or the democratic indulgence of the welfare state (the right critique). Rather it came about because of a conscious decision to limit the agency of the state, a decision that had its roots in the liberal struggles over the expansion of the state in the first quarter of the twentieth century. Samuel MacIlhagga is right to trace the paralysis of the British elite back to the little-known Coefficients dining club formed by Sidney and Beatrice Webb in 1902, but he misses the point that the attempt to unite the "progressive" Webbs with liberal and conservative politicians such as Richard Haldane and Alfred Milner highlighted the exclusive nature of the British political elite: the club. It is this exclusivity that remains the fundamental problem in British governance and everything that has occurred in politics since 2015 suggests its defence remains paramount.