Friday, 30 January 2015

The economic architecture of inequality

Andrew Fisher, author of The Failed Experiment ... and how to build an economy that works, explains how the economy is built to redistribute money upwards

We don't have trickle-down in the UK economy, but a vacuum effect which hoovers money upwards to the rich. This is by design, and it has been built by successive UK governments. I'm going to look at five ways in which the vacuum effect architecture has been built.


Since the late 1970s there has been a shift away from taxing income to taxing consumption. By shifting the tax burden predominantly from taxes on the highest paid to taxes everyone has to pay, like VAT. The tables below demonstrate how 18 years of Conservative government changed the UK taxation system from mildly redistributive to clearly regressive.

(tables from my book, The Failed Experiment - using ONS data)

Thirteen years of Labour government didn't change that much:

Corporation tax has also been slashed from 52% in 1979 to 33% by 1997, 28% by 2010 and is 21% today. So the tax burden has also simultaneously been shifted from corporations to individuals.

Labour market

The UK labour market is a worse place to be an employee for one key reason: the decline of trade union influence. In 1980, over 80% of workers were covered by collective bargaining agreements - which meant a trade union negotiated their wages with their employer. Today the proportion of workers covered by collective bargaining agreements has dropped below a quarter.

Over the same period the number of UK workers in a trade union has more than halved from 13 million to around 6 million today. Tony Blair acknowledged that the UK had "the most restrictive union laws in the Western world" - and maintained them.

Even before the financial crisis hit in 2008, the share of national wealth going to wages had fallen from around 65% in the mid-1970s to 55%. Part of this process has been the explosion of low pay and insecure work - the proliferation of short-term agency contracts, zero hours contracts, bogus self-employment, fake apprenticeships, unpaid internships, and workfare too. We now have over five million workers earning less than the living wage, while the minimum wage has lost real value since the crash due to below-inflation increases.


The privatisation of vast swathes of the UK economy - including water, electricity, gas, railways, Royal Mail, as well as bits of manufacturing and lots of outsourcing - has driven down wages for workers and driven up wages for bosses. The boardroom pay of privatised utilities and companies has skyrocketed, while pay and terms & conditions have been depressed for the workforce.

If we look at key public service utilities like electricity, gas, water and rail we find that costs for customers (bills or fares) have risen well above inflation too. So consumers and workers alike have been skimmed so there's more cream for the fat cat bosses. In many cases too, public subsidy and generous tax breaks have helped to bolster profits in these privatised industries (see Thames Water as a case study).


In the late 1970s nearly a third of people lived in a council home. That figure is now approaching just 10%, while there has been a massive expansion in private rented accommodation or landlordism - aided and abetted for several years by generous tax breaks for buy-to-let landlords.

The sale of 1.7 million council homes between 1979 and 1992 (the peak of the right-to-buy years) did not share the wealth. One-third of those homes are now owned by private landlords, the fastest growing component of home ownership. In the last few years, and for the first time since the end of the second world war, owner occupation levels are declining - as housing has gone from being a home to an asset. The average house price in London is now over £500,000, well out of the reach of even a higher rate tax paying couple.

To subsidise the lack of housing affordability more and more of our taxes goes into the pockets of landlords - as housing benefit is now around £25 billion a year and rising - a collective gift from taxpayers to landlords.

The Banks

Too important to fail and bailed out with hundred of billions of public money, the banks have been left unreformed. Prem Sikka has commented that the bank bailout was the single biggest transfer of wealth in UK history - he may well be right.

But since then the UK banks have recapitalised by widening their margins against consumers. In short, you borrow at a higher rate of interest and save at a lower rate - and the bank increases its profit margin. A 2012 survey found that Eurozone banks offer savers higher returns and demand lower interest rates from borrowers.

The structural problem of the UK banks is important too - they fail to lend to job-creating businesses, but are very good at lending to inflate the housing market and in speculative derivative markets. The lack of wider public interest in the finance architecture is holding back the UK economy and further driving inequality.
  • This is an amended version of the opening section of a talk Andrew gave to the Unite London & Eastern region

Monday, 26 January 2015

Labour MPs say 'No to Austerity'

Fifteen Labour MPs, including LEAP chair John McDonnell, have today signed a joint statement calling for a break from austerity

1 An alternative to the continuation of austerity and spending cuts till 2019-20

All three main parties, tragically, seem to agree that deep spending cuts must continue to be made until the structural budget deficit is wiped out in 2019-20, even though wages have already fallen 8% in real terms, business investment is still below pre-crash levels, unemployment is still 2 million, the trade deficit in manufactured goods at over £100 billion is now the largest in modern history, and household debt is now over £2 trillion and still rising.

The Tories want to continue with these cuts because it gives them political cover to achieve their real objective which is to shrink the State and squeeze the public sector back to where it was in the 1930s.

It isn’t even as though the deficit is being reduced by these savage cuts. Because the reduction in the government’s tax revenues as a result of shrinking incomes exceed the spending cuts, the deficit (which is still nearly £100 billion) is likely to rise, not fall, in 2014-15 and in future years.

There is an alternative way out of endless austerity. We need public investment to kickstart the economy out of faltering growth and to generate real job creation and rising incomes.

It can readily be funded. With interest rates at 0.5%, a £30 billion investment package can be financed for just £150 million a year, enough to create more than a million real jobs within 2-3 years. And even without any increase in public borrowing at all, the same sum could equally be funded either through the two banks which are already in public ownership, or through printing money (quantitative easing) to be used directly for industrial investment rather than for bond-buying by the banks as hitherto, or through taxing the ultra-rich by a special levy.

2 Returning rail franchises when expired to public ownership rather than subjecting them to competition

The essence of rail reform must be to reverse fragmentation, to reintegrate the system under public ownership, and to run it in the public interest. At present Britain has the highest fares in Europe. The additional costs of privatisation to public funds are estimated at more than £11 billion, or around £1.2 billion a year, so that the costs to the taxpayer are now three times as much as under British Rail.

Since 2010 rail fares have increased 25%, yet at the same time more than £200 million a year has been paid out in dividends to shareholders or overseas state-owned rail companies which now hold two-thirds of the current rail franchises. Over 80% of the public want the railways re-nationalised, which must include a significant proportion of Tories.

The most obvious and simplest way to achieve this is by letting the rail franchises expire and then taking them back into public ownership at no cost whatever to the taxpayer. To subject them to a public bidding competition with private bidders is not only wholly unnecessary but sends out the wrong signals, as though we’re not confident of our own ideology. The Tories certainly didn’t offer a competitive option when they forced through privatisation!

Anyway, the franchise process, so far from being economic, encourages the gaming of wildly optimistic passenger number projections and this, combined with huge legal contract complexity which is bureaucratic and wasteful both in time and money (except for the lawyers and accountants), has led in the past to franchise failures and operating chaos, most notably on the East and West Coast lines. From past experience public ownership has consistently worked better, and we should not gratuitously throw obstacles in our own path in getting there.

3 The need for the restoration of collective bargaining and employment rights as a check against excessive corporate power

When the Thatcher government came to office in 1979, 82% of workers in the UK had their main terms and conditions determined by a union-negotiated collective agreement. The latest figures now show that the coverage is down to just 23%. One very significant result is that the share of national income going to salaries and wages has fallen dramatically from 65% in 1980 to 53% in 2012 – a loss to employees of some £180 billion!

This has happened partly from the collapse in trade union membership from 55% of the workforce in 1979 to 23% in 2012. But it has also happened partly as a result of the anti-trade union laws introduced in the 1980-90s and partly because the state has withdrawn support for collective bargaining as part of the free market ideology of de-regulation of all markets, including the labour market. It is somewhat ironic however that de-regulation of the labour market requires the tightest regulation of one of the key players in that market, the trade union movement.

An incoming Labour government should choose to enhance the role of trade unions because trade union rights are human rights, a trade union presence creates more just and equal workplaces, and trade union collective bargaining is more redistributive than statutory wage setting and will assist on the road from austerity. We should therefore actively promote sectoral collective bargaining and strengthen the rights of trade unions to recognition, and of their members to representation.

Diane Abbott
Dave Anderson
Katy Clark
Jeremy Corbyn
Fabian Hamilton
Kelvin Hopkins
Ian Lavery
John McDonnell
Michael Meacher
Ian Mearns
Grahame Morris
Linda Riordan
Steve Rotherham
Jim Sheridan
Chris Williamson
  • Come to the Left Platform meeting on 7 February to discuss and organise for the alternative to austerity

Saturday, 24 January 2015

Did they know the 'Big Bang' would lead to the big crash?

Andrew Fisher, author of The Failed Experiment ... and how to build an economy that works - a book about the UK's failed economic model - asks whether the Big Bang's architects knew what they were doing.

If there's one moment that summed up the financial liberalisation, 'greed is good' mentality of the Thatcher government it is the 'Big Bang' deregulation of the City of London in 1986.

Papers released by the National Archives under the 30 year rule reveal that there were some concerns expressed in the heart of the Thatcher government.

A memo by future Tory minister, and then policy adviser, David Willetts, appears prescient - warning that: "If it leads to scandals and liquidations it will be labelled the unacceptable face of unpopular capitalism".

Willetts further warned of a rise in "fraud" and "unethical behaviour". But his concerns were dismissed by his boss John Redwood (then head of the No.10 Policy Unit and a future Tory minister) who said, "The basic common sense of the British public ... will not be tempted into Get-Rich-Quick Limited".

The Cabinet Secretary (a senior civil servant) also wrote to Thatcher, reporting that "People are saying that they doubt whether it really is good enough any more to leave the policing of the City to self-regulation."

Nigel Lawson, as the Chancellor, was the driving force behind the reforms and in the white paper outlining the deregulation warned against "hobbling British banks with excessive regulation".

Lawson was not a dogmatic Friedmanite true believer in free markets being the handmaiden to utopia. Unlike John Redwood, who, according to the FT "reassured Mrs Thatcher that there would be a new principle of fair dealing, a duty of skill, care and diligence, and a duty of disclosure". Note only a principle, not a law or regulation.

While Lawson didn't belong to the delusional world of Redwood he was both aware and content of the risks his policies entailed. He and Cecil Parkison (the Minister of Trade and Industry) had, earlier in the 1980s, squashed attempts by the Office of Fair Trading to investigate the City of London arguing that the City should be allowed  to reform itself (in other words remain a law unto itself). Self-regulation was enshrined in law in the Financial Services Act 1986, which established self-regulatory organisations (SROs) to oversee the City.

Writing in his memoirs six years later, Lawson reflected that "the SROs did not always prove as vigilant against fraudsters as might have been hoped". Of course City regulation before and since the 'Big Bang' has always been specifically designed to be lax - hence the

Lawson himself attributed it only to some temporary exuberance, writing "it was inevitable that a time of boom and optimism such as the second half of the 1980s should see such an upsurge in financial fraud". As I wrote in The Failed Experiment, "it is hard to imagine a senior government minister ever being so blase about benefit fraud".

Lawson's position is perhaps most aptly reflected in his comment that "a financially deregulated economy, while more efficient and dynamic, is also probably less stable".At least he was right about less stable.

They knew the risks to the economy, they took them, their successors endorsed them, it crashed the economy, yet most of them still keep the faith: 'whatever the finance sector wants is good for the economy'.

Wednesday, 21 January 2015

Davos delegates don’t care about inequality or your debt

Prem Sikka

The world’s rich and powerful are gathering for the World Economic Forum at the Swiss ski resort of Davos to discuss, and hopefully find solutions to, the world’s economic and social problems. The 45th meeting will be attended by kings, princes, presidents, prime ministers, leading politicians and controllers of large corporations. Amidst mutual back-slapping they will deliver set-piece speeches and soothing words at various seminars and workshops to support solutions to the world’s ecological, economic, security and social problems.

It is right that such events should exist – no nation can solve the problems on its own. In the aftermath of the banking crash and weak economic recovery in Europe, the agenda of the Davos summit is to restore trust in capitalist system and build global institutions for a better future. But this is easier said than done, especially as Davos is often far removed from the concerns of ordinary people.

The grand narrative of previous summits has been that we must not do anything to upset the rich because a nation’s salvation depends not on having a good system of education, healthcare, pensions and transport, but on keeping people happy even though their wealth is built on the sweat and blood of ordinary folk. Economic policies are increasingly formed to appease financial markets where vast amounts are gambled everyday though they produce little tangible economic activity.

In this narrative there is no space for workers, trade unions, industrial democracy, or people who want to live fulfilling lives. Markets are supposed to serve society but people are increasingly forced to dance to their short-term financial tunes. How are governments going to develop long-term economic and social policies? There is little sign that the latest summit will signal a much needed change of direction.

Previous Davos summits have carved out policies for the rich to advance their own interests and done little to check inequalities. Past failures are evident from Oxfam’s latest report which states that very soon 1% of the world’s adult population will own more than the rest. In the UK, the richest 1,000 people have doubled their wealth over the past five years to £519 billion. At the same time, millions of people have seen a real decrease in their income and lack the resources to stimulate the economy. Indeed, rising income inequality in developed economies are forcing even people in paid employment to rely on food banks.

Political leaders at Davos will deliver their ritual affirmation for greater economic competition. Yes, competition gives people choices, but its present state is a cause for concern as corporations are frequently able to hold governments to ransom: “give us what we want or we are off” has become a familiar call from companies to discipline governments.

The top 500 transnational corporations control 70% of the worldwide trade, 80% of the foreign investments, one-third of all manufacturing exports, 75% of all commodities trade and 80% of the trade in management and technical services. Only four companies account for between 75% and 90% of the global grain trade. Breaking up these global behemoths and making them accountable to the public is not on the Davos agenda.

Political leaders will talk about tackling public debt, a cue for more austerity, reduction in public expenditure and further privatisation of state-owned enterprises, often at knock-down prices resulting in huge wealth transfers. Even in the western world, the neoliberal experiment for the last 35 years has failed to deliver full employment economic stability or equitable distribution of wealth. Still, politicians won’t rock the boat, though some of the NGOs attending the summit will raise uncomfortable questions.

Despite the financial crisis, western nations remain addicted to light-touch regulation and supremacy of markets. Despite the biggest banking crash, there has been little effective reform of the financial system as governments seem unwilling to upset the financial wheeler and dealers.

Low-interest policy has been used to persuade ordinary people to borrow money and stimulate the economy. Personal debt in the UK alone is around £1.432 trillion, just short of one year’s gross domestic product. What if people can’t repay this? It would be good if Davos leaders could on reflect on the consequences of huge personal debts.

International forums are increasingly essential to solve global problems, but they can’t be addressed by pursuing the interests of the 1%. A radical shift is needed to develop policies that place the interests of the 99% at the heart of the debate.

Friday, 16 January 2015

TTIP "bigger than the Common Market agreement"

Below is the full text of the speech in the TTIP debate on Thursday 15 January 2014 by LEAP chair John McDonnell MP:

John McDonnell (Hayes and Harlington) (Lab): In my traditional role as the last Back-Bench speaker, I thank my hon. Friend the Member for Swansea West (Geraint Davies), as others have done, for bringing the subject before us.

These Back-Bench debates enable us to come to a view on a particular matter. It does not look as though there will be a vote today, apart from a shouted vote, in favour of my hon. Friend’s proposal, which aims for some element of democratic involvement in the process. For the record and for my constituents, if there were a vote today with regard to TTIP, I would vote against it. I think the majority of Members would vote against it because it is a pig in a poke. We do not know what it is.

I agree with my right hon. Friend the Member for Warley (Mr Spellar). It is a good job that he is not here, as he would probably have a heart attack hearing that. He described TTIP as the establishment of the biggest institutional trade agreement since we joined the Common Market. That is true. If one considers the scale of this agreement, the population that it covers and the immensity of the world trade that it covers, it is bigger than the Common Market agreement. I cannot understand why we are not going through the same process. When we entered the Common Market, we went through a lengthy process. There were Green Papers and White Papers. There were consultation papers that went to every household, and there was eventually a referendum because we thought it had such significance for the sovereignty of the people of this country.

The TTIP agreement passes over economic sovereignty on a scale that is equivalent to the establishment of the Common Market and the European Union, so I cannot understand why the Government are allowing that to happen without the full involvement of the people. Well, I think I can understand it, because most people have guessed it by now. This is about the corporate capture of policy making in this country and in parts of Europe. The only direct response MPs have had from the Government dates back to last September, when our constituents started contacting us. Eventually we got a letter from the Secretary of State for Business, Innovation and Skills trying to assuage the anxieties expressed to us by our constituents. He went through a series of points.

We need to start having a real debate with our constituents on the points that the Secretary of State made. He argued that there would be immense economic benefits. We heard that today—at least £10 billion of increased trade as a benefit to this country, and a significant number of jobs. The bizarre thing about it is that the work commissioned by the Government and the Centre for Economic Policy Research states that there is a risk of a million jobs being lost in this country overall.

Each point the Secretary of State made is now contested. On small businesses, he argued in his letter that the trade agreement would be good for small business in this country. That is contested by the small business lobby in this country and right across Europe in every sector, particularly agriculture. On deregulation, the Secretary of State tried to allay fears about deregulation and said that there would be a levelling up rather than a levelling down. We heard today from a range of speakers. I commend my hon. Friend the Member for Heywood and Middleton (Liz McInnes) and the hon. Member for Richmond Park (Zac Goldsmith), who went through a series of areas where there is a risk to the standards we have set in this country across the provision of services.

With regard to the NHS being under attack and the assurances that we have been given, the person who said that TTIP would cover the NHS was not on the Opposition Benches. It was the right hon. and learned Member for Rushcliffe (Mr Clarke). He was asked whether the NHS would come within the ambit of the agreement and he confirmed that it would. We have had assurances since then, but the hon. Member for Banff and Buchan (Dr Whiteford) pointed out that since those assurances, if we look at the detail of the paperwork provided to us at last, it demonstrates that there is a series of caveats. That means that the NHS is still at risk.

We come to the main issue at stake, the ISDS process. This is a transfer of power and decision making from democratically elected sovereign bodies to a group of corporate lawyers sitting in private and in secret. This country might not have lost cases, but in countries where this process has operated and where sovereign Governments have made decisions about the provision of public services, the countries have lost out, and it has cost them billions. In some instances, it has impoverished whole countries and whole sectors of a particular industry.

TTIP presents a huge risk. I hope that if we pass the motion today unopposed, the Government will recognise that there needs to be a democratic process in place, not just for this House to scrutinise at each stage, but for the people of this country to be involved in the process. That is why I commend all those who pressurised us to have this debate today.

Read the full debate here

Wednesday, 14 January 2015

Vampire capitalism is prospering, but sucking workers dry

Andrew Fisher on understanding modern capitalism
"Now the lessons of the past were all learned with workers' blood,
The mistakes of the bosses we must pay for" - Billy Bragg, There is Power in a Union
Profits flow

New ONS data today shows the profitability of UK companies has reached new highs.

Service sector companies (not including the finance sector) had a net rate of return of 16.8% in Q3 2014, the highest rate on record (this data has been published since 1997). So the service sector is booming again.

If we look across the economy, the overall 'private non-financial corporations’ profitability' measure is estimated at 12.0% in Q3 2014 (the best since the last quarter of 1998).

(Green line QonQ figures; black line rolling 4Q trend)
Although this may seem like grist to the mill of George Osborne's recovery, the Chancellor is likely to barely, if at all, acknowledge this fact.L ikewise the CBI and others - which you might expect to be trumpeting this from the rooftops will be similarly subdued.

This is because - like vampires of lore - it's not the done thing to proclaim your bloodlust. It scares the villagers, and ruins the benign image you have carefully crafted for yourself.

We know from multiple reports that retail - a large part of the service sector - claims to be experiencing tough conditions with profit expectations downgraded (we noted this for Tesco earlier this month). The ONS itself notes that 69 profit warnings were issued by UK companies - the highest level since 2008.

These figures are also another indicator that the service sector is performing more strongly than other sectors - hammering another nail into the coffin of George Osborne's rebalancing.


So it seems a mixed picture that profits are on the one hand at record levels, but on the other lower than expected in a large number of companies.There is also retail price deflation occurring in many sectors as retailers compete for the consumer pounds of squeezed households.

Mixed pictures tend to suggest that trends are not sustainable and this one clearly is not. So have we reached peak-profitability? To answer that we need to understand what has caused this rise in UK profitability.

Looking at the chart, the unabated rise of profits under the coalition government might be assumed to be due to the slashing of corporation tax, from 28% in 2010 to 21% today, but the profit figures are pre-tax.

With sales volumes relatively stable and consumer demand still suppressed, we must look elsewhere.

"The blood is the life!"

But if the profits are back, why aren't the wages? Economists will point to historical models showing that as the economy picks up and profitability returns you get real wage growth. But these models assume an automaticity and that other factors still endure today.

My theory - and it is only that (alternatives are welcome in the comments) - is that wages have not recovered because there is little real pressure on employers for them to do so. If they can get away without doing so they will - and if there are stronger countervailing pressures (e.g. demands of shareholders for higher dividends or senior management for higher wages or bonuses, or pressure from competition) then workers will be squeezed.

Trade union membership in the private sector remains incredibly low - with just 14.4% of workers organised in unions. Although the number of unionised private sector workers has increased in recent years, that is only in line with a growing private sector labour market.

By comparison in the early-mid 1990s trade union membership in the private sector was around 3.4 million compared to around 2.5 million today. In percentage terms density has fallen from 21% in 1995 to one-third less today.

But the decline in trade union membership is only one factor - alongside it, perhaps because of it - has come the deregulated labour market with temporary agency workers, zero hour contracts, bogus self-employment, low skill apprenticeships, and workfare.

Even before the post-crash recession hit, workers were not sharing in the proceeds of growth - their share of the national income was declining. In Marxist terms, the rate of exploitation was increasing - and that trend is now intensifying.
"Capital comes dripping from head to foot, from every pore, with blood and dirt" - Karl Marx
This vampiric capitalism though is not  only sucking the lifeblood of the workers, but its own lifeblood since those workers are consumers. The theory fits: wages are suppressed; as are retail sales; and more competitive markets as a result of consumers becoming more judicious (e.g. see the supermarket sector where shifting consumer habits are clear). Higher profits from lower wages are creating a shift in consumer behaviour that is also impacting on some established corporate players.

The solution sounds Blairite - stakeholder capitalism - one in which the workers have a stake ... that they drive through the cold heart of corporate culture. I'll put some meat on the bones of that proposal in a future post.

Andrew Fisher is author of The Failed Experiment ... and how to build an economy that works. See also:

Friday, 9 January 2015

Shooting Tory Fish in the Twitter Barrel – part 2

Luke Thomas takes aim again at the Tory Twitter fish ...

In the second of my series of posts taking aim at Tory Party tweets, I’m going to briefly discuss the UK’s trade figures, released by the ONS this morning. The Conservative Party press office took to Twitter in its usual Orwellian way, and described the figures like this:

They should perhaps avoid linking to the real report, since the devil is always in the detail, and in this case the devil is Beelzebub himself.

The trade balance is the difference between the goods and services we export worldwide, and those that we import from the rest of the world. A deficit means that we have imported more than we have exported, while a surplus means we have exported more.

Taking a look at the report from the ONS, it’s certainly true that the trade deficit has shrunk by £0.8bn since October, but this still leaves a trade deficit of £1.4bn. The real problem with the Tory’s triumphalism is detailed by the ONS in the very next bullet point of the report:

So our shrinking trade deficit is not the good news that the Tories would want us to believe it is, but represents a wholesale shrinking of trade overall.

What’s even worse for Osborne’s so-called ‘march of the makers’ is that the composition of our trade has shifted even further towards services, and away from goods.

This gap between service exports and goods exports is simply a symptom of a long-term trend in the UK of our shrinking manufacturing base, while letting our service sector balloon – particular the financial services of the City of London. This ‘financialisation’ of our economy has given the UK a particular weakness when it comes to the boom and bust cycles that have hobbled capitalist economies since the 70s. We simply have little else, economically speaking, to fall back on when the financial sector suffers a crash.

Whatever the Tories may claim about the rebalancing of our economy away from services to manufacturing, they have done nothing to halt or reverse the financialisation of our economy introduced by Thatcher, stewarded by Major, and embraced wholesale by Blair and Brown.

Thursday, 8 January 2015

Tesco: Lower profits? Shaft your workers!

Andrew Fisher finds that when it comes to falling profits, every little attack on workers helps ...

Bad sales

Tesco is in the news again today as it reports its sales figures for the most recent Christmas period. In common with other major retailers - including Sainsbury's earlier this week - it has, as expected, reported a slight dip in sales.

Tesco and the other big three retailers (Sainsbury's, Asda and Morrisons) are very much the 'squeezed middle' of retail - squeezed both by the rise of discount retailers like Lidl and Aldi, and by the fall in real incomes that UK households are experiencing. Tesco sales over Christmas were down 0.3% compared with the previous year (though up 0.1% if fuel sales included). However, comparable sales for the three months to the beginning of January were down by 2.9%.

But still profitable

It's hardly news that Tesco has been rocked by scandal due to some dodgy financial statements. According to the BBC it overstated its half-year profits by £250 million, "almost a quarter of its expected profit for the period". So while it was expected to make £1 billion it actually only made a profit of £750 million - or just over £4 million a day, every day.

However, with sales higher in the second half of the year, Tesco still forecast full year profits of £2.4 billion (down from an earlier estimate of £2.8 billion). So Tesco makes a profit of roughly £6.5 million a day.

In other words, despite the misleading statements, mismanagement and recent slight dip in sales volumes and profit levels, Tesco remains a highly profitable company.

Cuts, cuts, cuts!

Shoppers can expect a bit of a supermarket price war as the big four try to recover the ground that they are losing to the discount retailers.

However, Tesco has also announced that it will close 43 'unprofitable' stores across the UK - 1.3% of its total stores, and mostly Tesco Locals - which will create more 'food deserts' in the poorest parts of UK. It will also mean the loss of several hundred jobs. The job cuts won't only be from closed stores though - Tesco says it wants to reduce its overheads by 30% and cut another £250 million (the exact amount by which it overstated its profits)

But workers who survive the jobs cull are not immune as Tesco has announced that it will close its staff pension scheme - a defined benefit scheme. Presumably Tesco will not introduce a new scheme, simply meet its statutory obligation to provide a workplace pension (defined contribution).

The Guardian notes these cuts announcements have been well received in the City, sending Tesco shares up 7% to 195p. The gods are appeased: workers have been sacrificed for higher profits and dividends.

See also:

Saturday, 3 January 2015

The honesty deficit and Tory election posters

Andrew Fisher on dodgy deficit claims

So the new year has only just started and already the shops are trying to flog us easter bunnies and the Tories are trying to sell us their pre-election spin (see 'Exhibit A' below).

Tweeters and every major news outlet immediately picked up on the dubious claim of 'deficit halved'. Fraser Nelson, in the Tory-supporting Spectator, has been a regular puncturer of Tory cant, and rapidly rebutted Cameron's poster claims. (Others have more flippantly commented on a 'road to nowhere' and the fact it looks more like the driveway of a stately home than a UK road - where are the road markings?).

Loyal Tory MPs have responded by peddling the line that the deficit has been halved as a percentage of GDP, which is true. But it's not what they promised in 2010 - as this OBR table (June 2010 pre-Budget forecast) shows:

So by the end of this financial year (2014-15), the deficit should have been £71 billion, a little over half of the £155 billion Osborne inherited in 2010-11. As a percentage of GDP the deficit was predicted to fall from 10.5% in 2010-11 to just 3.9% - so to fall by nearly two-thirds (62%).

Claiming the deficit has halved today is shifting the goalposts, when they said it would be down two-thirds as a percentage of GDP, and more than halved in cash terms.

Far from eliminating the deficit, Osborne's austerity programme has succeeded only in driving down living standards and racking-up ever higher debt (both government and personal debt).

The Tory poster is inadvertently appropriate - a road to a recovery with no homes built, no end point in sight, no alternative routes, and people don't feature in it either.

Thursday, 1 January 2015

Books to look forward to in 2015

Andrew Fisher, author of The Failed Experiment ... and how to build an economy that works (published in 2014) selects the new books he's looking forward to in 2015

The Cost of Living Crisis: Time to End Economic Injustice, by Michael Calderbank 
(published by Comerford & Miller in February 2015)
One of the big issues of the past couple of years has been the driving down of wages and incomes more widely, and the focus on growing inequality. So this is a timely book published in advance of an election which Labour is keen to frame as the 'cost of living crisis' election. With Michael you are always guaranteed well-researched data to back up bold arguments - so I look forward to reading it.

n.b. Michael is being published by Comerford & Miller under the Radical Read imprint, as was my book last year

Migration: Economic Change, Social Change, by Christian Dustmann
(published by Oxford University Press in May 2015)
This has been one of the biggest political issues of recent times, and will be a huge issue in the 2015 general election. Unlike that debate, this book will be based on fact and rational discourse. Dustmann edits together essays by respected academic researchers on the social and economic impacts of migration. You may not have heard of Professor Dustmann but the research he has led at CReAM will hopefully be familiar to you: finding that migrants have made a net contributionn of £25 billion to the UK in recent years. The UK political debate on migration is platitudinous at best, and bigoted at worst, this book promises to be antidote ...

Postcapitalism: A Guide to our Future, by Paul Mason
(published by Penguin in Spring 2015)
Channel 4 News' economics editor, Paul Mason is one of the few genunine intellectuals as well as a great reporter. Expect this book to be a genuinely thought-provoking and challenging read for the left - drawing, no doubt, on Paul's experiences reporting on new left movements like Syriza in Greece and Podemos in Spain - but looking, more importantly, looking at the technological and cultural impulses that are driving us towards Postcapitalism.
Watch video of Paul Mason presenting some of his ideas

The Joy of Tax, by Richard Murphy
(published by Transworld in March 2015)
Richard has been threatening to write this book for some years and I cannot wait to read it. Murphy really cannot be praised enough for basically being one of the founding fathers of tax justice (alongside others like John Christensen). Richard's previous book - The Courageous State - was a strong defence of the emancipating power of the state. Expect this to be an equally compelling and forceful case for that most vital element underpinning any vision of the good state: tax.

The Essential Keynes, by Robert Skidelsky
(published by Penguin in April 2015)
Although not a Keynesian, I admit to sharing the frustration of those who are at the frequent misrepresentations of Keynes' theories - from both left and right. So what better way to connect with the real Keynes than a collected works put together by Keynesian Lord Skidelsky, who writes an introduction. It also features previously unpublished pieces. An essential purchase for anyone who wants to understand arguably the most influential economist of the twentieth century.

What other books are you looking forward to reading in 2015? Tell us in the comments section. See also our LEAP Books of 2014 for the best books published last year