Friday, 28 November 2014

Black Friday, Red Alert

Luke Thomas on an American import to a deep-rooted UK problem 

Hold on to your trollies! A relatively new American import has, for the past two years, been causing a huge stir on the UK high-street – that is, the apocalyptically named ‘Black Friday’. In the States, the Friday following the Thanksgiving celebration has ‘traditionally’ been greeted with widespread sales, deals and offers by most retailers, who take advantage of the frugal spending behaviour of shoppers in the run-up to the Thanksgiving celebration. Like the ‘traditional’ Boxing Day sales in the UK, Black Friday for many American retailers is the busiest shopping day of the year, and provides them with the greatest returns.

The promise of extensive savings – particularly on pricey electronic items - has already led to unedifying scenes of chaos in a number of shops, like this one in a London Tesco. Injuries, including broken bones, are not uncommon, and the police have been forced to intervene to keep public order in a number of cases.

Beyond the dangers to life and limb, we should all be extremely worried that yet another paean to consumer spending is taking hold so steadily in the UK, and those of us on the Left should be shouting a loud warning. But why should this be?

All that glisters … 

Increased consumer spending is not in and of itself a problem, but in the current economic context it is of enormous concern – or at least, it should be. While our fragile growth has at last restored real GDP to pre-crisis levels – 6 years after the onset of the recession! – this has heavily relied on consumer spending. The Independent’s Economics Editor Ben Chu provided this breakdown of the contributions that business investment and household consumption have made to our GDP growth over the past seven quarters.

As you can see from the chart, the ‘households’ sector (which covers consumer spending) has consistently outstripped ‘business investment’ in making a positive contribution to GDP, and in the very last quarter has leapt ahead, making over double the contribution of ‘business investment’.

It’s the Stupid Economy

When we look at consumer spending over the longer term, a few astonishing things jump out at us. This chart from the ONS shows that retail sale volumes didn’t drop during the recession, and the value of those sales climbed steadily over almost the whole period. More worryingly, after a flat period over the brunt of the recession and recovery, retail sale valuesare now climbing sharply again.

While consumers are splashing out as never before, what’s happening in other economic sectors? Sadly there has been none of the rebalancing of the economy which we so desperately need. While the service sector has carried on its inexorable climb, construction and production are in a sorry state, and were clearly harmed by the introduction of austerity measures in 2010, as ONS data shows:

Eat, drink and be merry

Enough about the economy for a moment – the really troubling data concerns the consumers themselves. It’s well known that average weekly earnings have plummeted while prices have risen, and the knock on effect is that there’s less spare cash to go around, as you can see from the following ONS chart:

The consequence of this is that consumers have stopped saving as much as they should, something which was briefly reversed during the recession as people became more wary with their money (again via ONS):

With spending rising, wages falling and savings shrinking, consumers are in a very precarious situation indeed – more precarious even than before the last recession.

The Long-term Economic Plan

The Tories will naturally point to any positive economic indicator that comes up (including the jobs growth, and rising GDP) as evidence that their plan is working. But let’s be frank – the plan had nothing to do with the majority of workers, nothing to do with rebalancing the economy away from services, and was only faintly concerned with increasing GDP as a means of winning votes. The real plan was to produce a low-wage, low tax economy that benefited the wealthy and the biggest businesses, and in this regard, their plan has been a roaring success.

To demonstrate this, I’d like to leave you with possibly the most staggering chart of all from the ONS, which shows how receipts from taxes on products and production (like VAT and excise duties), and receipts from income and wealth (like income tax and corporation tax) have changed since 1988. 

For much of the period shown the two have tracked each other closely, but they diverged during Labour’s years in power, as wealth and income taxes outstripped taxes on products and production. Since the Tories came into power, a sharp divergence in the opposite direction has happened, and taxes on products and production now contribute far more to government coffers than do taxes on wealth and income. This has been achieved by cutting income taxes at the top and bottom of the payscale, cutting corporation tax, and hiking VAT by 2.5%. The former tax cuts benefit the wealthy most, while the VAT rise clobbers the poor the most, as they spend most of their income on VATable goods and services.

To reiterate, the upshot of this is that consumers are bearing the burden of economic stability once again, while corporations and the wealthy are being let off the hook in the most extraordinary way. 

We mustn’t celebrate Black Friday as any sort of indicator of the economic health of the UK; we should be sounding a very loud red alert of the devastation ahead.

Thursday, 27 November 2014

When fiscal credibility and xenophobia collide ...

Andrew Fisher on the contradictions at the heart of the Conservative-led government

Research published earlier this month showed that migrants made a net contribution of £25 billion to the UK in the last 10 years (see UCL press release).

With George Osborne having spectacularly failed to clear the deficit by next year - and the deficit rising again this year (during a recovery!!) - the Tories should welcome the news that net migration has increased by 260,000 in the last year.

The recent past, as the best guide we have, shows these migrants are likely to contribute more in taxes than they take out - and therefore help to narrow the deficit.

This government has staked its reputation on fiscal credibility - yet five years of austerity are now set to become ten, as their 'long-term economic plan' has failed, and so become the rather less catchy 'much-longer-term-than-we-expected economic plan'.

But alongside this, the government also pledged to bring net migration down "to the tens of thousands".

Net migration 2010-present (ONS data)

What the chart shows is that government immigration policy has probably had little or no impact on migration flows. As Osborne's intense austerity sent the economy into stagnation and increased unemployment, net migration flows declined, but since he relaxed and extended austerity causing the economy to pick up and unemployment to fall net migration has increased.

These two pledges expose the crisis at the heart of the Conservative Party - the neoliberal wing in conflict with the nationalist wing (with the latter increasingly flying off in the direction of UKIP).

In some respects, the fact that net migration to the UK has risen should be a cause for Conservative jubilation. They could credibly spin as a narrative that "the UK economic recovery - in contrast with the Eurozone - means that our shores are an attractive destination for migrant workers to come here and contribute".

However the contradictions inherent in the Conservative creed, exacerbated by the rising UKIP threat, mean they cannot do that.

What does this mean for the Conservatives? It means they made two very stupid promises that they were unable to keep on the deficit and migration - and that may ultimately be as or more damaging than their coalition partners' broken promises.

It also means the space is there for Labour to offer an alternative to the flawed policies of the Conservatives. Yet just as the Conservatives become increasingly discredited on two of their historically strongest issues (the economy and immigration), Labour has decided that imitating them on both is the sensible course - promising to stick to Tory austerity (Balls) and pandering to anti-migrant sentiment (Cooper / Reeves).

And that is why there is a real need for political debate in this country in place of the consensus of the stupid in Westminster.

Wednesday, 26 November 2014

Why I back the Mansion Tax ... and LVT too

Andrew Fisher, author of The Failed Experiment ... and how to build an economy that works, explains why he backs the Mansion Tax

Now that the Mylene Klass saga has died down (#klasswar), it's time for a rational assessment of the tax. Though just to put that '£2 million garage' in London in perspective, West End property specialists LDG told the Evening Standard:
"purchasers can still pick up a three or four-bedroom mansion flat for under £2million in Bloomsbury and Fitzrovia"

The Mansion Tax would only affect people who own properties worth £2 million or more who would pay £250 a month (based on a £2-3 million property) if they're a higher rate taxpayer, earning £42,000 a year or more.

For those earning less, the tax is rolled up and paid off when the property changes hands (i.e. is sold on or it effectively becomes a form of inheritance tax if the owner dies).

According to property website Zoopla, 110,000 properties will be eligible (less than 0.5% of total UK housing) of which around 80% will be in London.

I favour wealth taxes for the reasons set out by Thomas Piketty - they are the only way to address the gaping inequality that destabilises our economy. In the UK inequality has widened in part because our taxation system has stopped being progressive. Since some point in the 1980s the poorest started paying a higher proportion of their incomes in tax than the richest.
(tables from my book, The Failed Experiment - using ONS data)

This regressive change in personal taxation, alongside other processes, has meant income inequalities have built into substantial inequalities in wealth over the 31 years of Thatcherite government.

But are there better options? Tax campaigner Richard Murphy seems to think so ...

Reluctant though I am to ever disagree with Richard Murphy - especially on a question of tax - I do. Well, sort of. Like Murphy, I back a Land Value Tax - I advocated introducing one in The Failed Experiment. The question for me isn't an either / or (and I suspect it may not be for Murphy).

Council Tax is indeed a regressive wealth tax with those with the most valuable properties only paying around 3 times as much as those living in the cheapest. So despite the fact a central London mansion could easily be worth 10 or 20 times a central London bedsit, the tax is effectively capped at 3 times.

Wealth taxes especially on land or property are hard to avoid. It's hard to claim your property is actually in the Cayman Islands when it's visibly on a London street. So the mansion tax should be an efficient and effective tax targeted on a tiny elite - and that is the truly sharp divide: the 99% vs the 1% as the Occupy movement coined it.

A reformed council tax system might be too arbitrary - which would lend a Mylene Klass-style argument much more weight. A higher tax rate on those with £400,000 or even £600,000 houses would really include those who bought relatively average homes a couple of decades ago, but due to house price inflation in London and the South East now have high value homes. The average London house price is now £514,000, compared with UK average of £272,000.

So if the Mansion Tax is effectively an appropriate high value surcharge additional to council tax, then what role for a Land Value Tax (LVT)?

LVT is useful because it taxes land - not property and as such is a spur to bring disused on unused sites into use. It incentivises the owner to make use of the land in order to generate rent or create value in order to pay LVT. The practice of 'land-banking' could have a significant financial cost if a LVT was applied.

So I would argue that LVT could be applied in addition to Council Tax and Mansion Tax by city councils (or the Greater London Assembly in the case of London). This could include some offset against National Non-Domestic Rates (NNDR) or be a replacement for it, or could only be introduced only (in full or at all) on undeveloped land and commercial property.

Does the Mansion Tax tackle the housing crisis - a crisis of both supply and affordability? No, but it does begin to redress another flaw in our economy: the gross inequality in wealth. And for that it should be commended.

Saturday, 22 November 2014

Update on TTIP

Andrew Fisher listens to War on Want's John Hilary at the Betty Sinclair Winter School in Fermanagh

TTIP is sold to us as response to global recession, but it's actually a political programme that dates back to 1990s.

The EU and the US meet behind closed doors alternately in Brussels and Washington. There is a 30 year ban on seeing the documentation relating to TTIP negotiations - and even MPs have no access to it.

They claim that TTIP will boost the UK economy by £10 billion a year and create jobs. But the figures claimed pre-NAFTA turned out to be bogus. Actually there was a net loss of jobs. And a leaked calculation says 1 million will lose jobs in EU and US as a result of TTIP.

TTIP represents the single biggest transfer of power to transnational business we have seen for a generation, and is seen as a template for all future trade deals

There are three main pillars of the proposed deal:
  1. Deregulation - there are very few tariff barriers between the EU and US, so TTIP gets 'beyond borders' and tries to harmonise labour rights, environmental standards. In the EU 1300 substances are  banned from cosmetics, but only 12 are in the US, which allows lead in lipstick. Similarly, GMOs and bovine growth hormone (found to be carcinogenic) are allowed in the US, but financial services standards are tighter in the US. A 'Regulatory Co-operation Council' would be formed as a living body as part of the treaty to vet any future regulatory proposals 
  2. Privatisation - this would open up local procurement in US - which currently allows for 'Buy America' and 'buy local' clauses; but in the UK would mean the opening up of the NHS and public services to US corporations too.
  3. ISDS mechanism - the Investor-State Dispute mechanism would give big business the same status as a nation state. Under ISDS decisions would not be made by tenured judges, but by appointed corporate lawyers instead; this power included in other bilateral trade agreements - which has resulted in Philip Morris suing the Australian government over plain packaging on cigarettes; Germany said from 2022 it will be nuclear free, now Swedish corporate suing Germany for 3.7bn euros of lost revenue; and Veolia sued the Egyptian government for raising minimum wage.

Can we defeat it?

The Multilateral Agreement on Investment (MAI) was defeated in the 1990s. They tried again through the WTO, and again were defeated. The political breadth of opposition to TTIP is much wider than ever before in opposition.

Once negotiations are finalised, the European Parliament will get the first vote. Then it will go to national parliaments for approval.

All major British trade unions are against - and the TUC has position of "outright opposition". The ETUC is in favour as are some Nordic trade union confederations, but most other national confederations are against including the German DGB. In the European Parliament, the Left and Green blocs are against, while the Social Democratic group (PES) so far in favour.

The French government has recently said it will not sign TTIP with ISDS included. The US government wanted it through by end of 2015; and so one option the US is looking at is to take a compromise 'bank what they can' by the end of next year - and then come back for more in the future.