Thursday, 26 March 2015

The distribution of wealth: How the system makes us poor and them rich



Andrew Fisher's speech to the People’s Parliament on 24 March 2015

Maybe some time at Christmas you played Monopoly with your family. It gets to that point, usually about three hours in, when someone is clearly going to win. They have all the cash, and all the property - they have a slightly smug demeanour. Everyone else just wants it to end.

If that person is particularly vindictive, perhaps they force everyone to play til the bitter end, until everyone's property is mortgaged, anyone else's houses or hotels have been sold back to the bank, and every last pound from every other player has been given up.

But at the bitter end of a game of a Monopoly there is a winner. In a real economy, there would be only losers - everyone else is bankrupt. Even monopolists cannot profit if every penny has been squeezed out of their customers.

What Monopoly teaches us is not to buy all we can and be the monopolist, but that inequality kills the economy.

Inequality is now systematically built into our economy:

The burden of our taxation system has gone from taxing income to taxing consumption (see tables here)

And from taxing corporations to taxing individuals.

In the labour market, we have legislated against trade unions. In the UK and across all advanced economies over time there is a clear correlation between levels of trade union membership and inequality (see UK example here).

Wage deflation has been happening in UK since 1970s - relative to size of economy. But in recent years relative to inflation meaning real terms wage cuts. Labour market deregulation has enabled this with the proliferation of low paid self-employment, agency work, zero hours contracts, fake apprenticeships, internships, traineeships and workfare.

In the housing market - there is rapidly growing private rented sector because people are priced out of buying a home and council housing isn’t being built (in fact it’s still being sold off).

Inequality that means housing has increasingly become a speculative investment class rather than a home. Evictions are at record levels, so is housing benefit. Because rents are so high and wages so low, the welfare state is now compensating for the high rents of private landlords and the low pay of employers.

Privatisation has also increased inequality. Turning necessities like energy, water, transport and communications into means of paying extravagant salaries and dividends for a few, while hiking up prices for the many.

And then we have the financialisation of our economy. The only industrial strategy we have had for the last 35 years is 'whatever the finance sector wants': the deregulation of banking and consumer credit. After 10 years as a Labour Chancellor this is what Gordon Brown was boasting about in 2007:

"Now today over 40 per cent of the world foreign equities are traded here, more than in New York; over 30 per cent of the world's currencies exchanges take place here, more than in New York and Tokyo combined; while New York and Tokyo are reliant mainly on their large American and Asian domestic markets, 80 per cent of our business is international; and in a study last week of the top 50 financial cities, the City of London came first".

Private equity firms treating companies, corporation taxes and people's jobs as their personal whim.

And that sums up where we have got to - an economy in which the super-rich control the lives of the rest of us.

Not a trickle down economy - but an economy with a very strong vacuum effect: sucking money up to the already gratuitously wealthy.

We need to recognise that inequality is the problem – manifested in the housing market, the labour market, the tax system, in the ownership of public goods, and the lack of public regulation. We a democratic economy. An economy as if people mattered – and we need the policies to deliver that.

So we need to be talking about bold, system-changing solutions: taxing wealth (for example through land value tax), capping the number of homes someone can own, a statutory living wage and restoring trade union rights, a new industrial strategy and public ownership.

Wednesday, 25 March 2015

REVIEW: Defining and tackling the great housing disaster


Andrew Fisher reviews Danny Dorling's 'All that is Solid (How the great housing disaster defines our times, and what we can do about it)', published in paperback by Penguin.

This book is an important and powerful contribution to our understanding of the housing crisis - and like all good books it also offers solutions to the problems it identifies.

The central contention is that the housing crisis is about the misallocation of resources: if Dorling had to summarise the reasons for "the great housing disaster" in one word, I suspect that word would be 'inequality'.

And this is where All that is Solid is different. It says this is a structural problem, not just a problem of undersupply to which the obvious solution is 'build more'. While "an enhanced home-building programme" is one of the ten recommendations Dorling outlines at the end of the book, it is just that: one of ten policy proposals.

Throughout the book, Dorling is keen to point out that there is not a crisis of supply, but a crisis of distribution. We have more homes (and there are 737,500 empty residential properties), with more bedrooms than ever spare in the homes that are occupied, and yet there is a housing crisis. Those unoccupied bedrooms are not mostly to be found in the bedroom-taxed social sector but in owner-occupied properties.

As you'd expect from a professor of human geography, All that is Solid is well-researched, and Dorling integrates numerous statistics to support his case - such as the fact that there is planning permission already to build 400,000 more homes or Britain has the highest proportion (18%) of OECD countries receiving cash allowances to support rent (housing benefit, as we call it).

The housing experiences in countries including the US, Australia, Ireland, Iceland and Spain are also used to illustrate his points. Britain's history also reminds us that for the majority of the 20th century rent regulation was a fact, and that a generation ago nearly a third of people lived in council housing compared to only 10% today.

Dorling is scathing about the policies of the coalition government, especially help-to-buy: "its aim is obvious: simply to hold up and possibly further increase prices; it is not designed to boost supply". So far, the evidence bears out Dorling's analysis.

A housing crash cannot be far off concludes Dorling and the need to get policies in place to protect people when that happens - including the right to sell and stay (something I suggested in relation to Northern Rock repossessions in 2008) - is vital. This book is therefore vital reading for anyone who wants to get ahead of the curve and to understand the coming crash, its origins and the necessary solutions.

As with so many issues the solution is "long-term planning and political courage, qualities that currently appear to be in short supply", as Dorling puts it. A statement that is true not only in a housing context. We must be that courage, and Dorling emboldens us.

Friday, 20 March 2015

"We need a long-term fair tax plan", says John McDonnell MP


LEAP Chair John McDonnell MP's speech in the Budget debate

John McDonnell MP: The Budget sets the target of raising £3.1 billion through tackling tax evasion and avoidance. The Government have identified a tax gap of £35 billion, which has remained almost static for the past few years, but one of the World Bank auditors has said it is nearer £100 billion, and the tax justice campaign and the Public and Commercial Services union, which represents the tax collectors themselves, has put it at £120 billion. So on the Government’s own figures, at best we are simply going to tackle, if successful, less than 10% of the tax gap, but more realistically less than 3%. That is a dismally low target.

In yesterday’s HMRC and Treasury document on tax avoidance and evasion, I welcome the statements around strict liability, naming and shaming, the toughening up of penalties and the tackling of serial avoiders, but it has taken five years of lobbying by the Tax Justice Network and others—and I pay tribute to Richard Murphy, Prem Sikka and John Christensen. It has also taken direct action by UK Uncut, media campaigns and public pressure to get the Government to act—in their last week. But it is not action—it is not deeds; it is further consultations. This is an appalling missed opportunity.

The right hon. Member for Somerton and Frome—who is not in his place, which I understand as it has been a long debate—referred to issues to do with accountancy firms, and I agree with him. The Government’s document of yesterday places heavy reliance on those agencies at paragraph 3.19:
“Today, the government also announced it is asking the regulatory bodies who police professional standards to take on a greater lead and responsibility in setting and enforcing clear professional standards around the facilitation and promotion of avoidance to protect the reputation of the tax and accountancy profession and to act for the greater public good.”
There is a level of either complicity or naivety here. I think this demonstrates corporate capture of this Government and the Treasury by the accountancy firms, finance houses of the City and corporate law firms.

The Government are now relying on these agencies once again to police themselves. On the corporate lawyers, the Law Society tax committee is populated by corporate lawyers representing firms promoting the tax avoidance schemes. On the accountancy professional bodies, the standards and policy committees comprise the representatives of the firms making billions of pounds from designing, promoting, selling and implementing tax avoidance schemes on an industrial scale, as the Public Accounts Committee said. I refer Members to Prem Sikka’s latest article. He points out that
“the Institute of Chartered Accountants in England and Wales was formed in 1880. Here we are in 2015, and not a single accountant or accountancy firm has ever been disciplined by the ICAEW even when the schemes marked by the Big Four firms have been declared to be unlawful by tax tribunal and courts.”
Then there is the question of who is going to prosecute these firms now that we are going to introduce more criminal legislation against them. Will it be the Serious Fraud Office? Its budget has fallen from £52 million in 2008 to £35 million now. It is hardly equipped to take on these mega-corporations. In fact it is now facing lawsuits for damages from botched investigations—from the Tchenguiz brothers—and is “utterly unfit” to investigate or enforce the legislation the Government are bringing forward.

The Crown Prosecution Service is “hardly visible” with regard to prosecution of big corporations, and HMRC staffing cuts have denied it the professional expertise needed. I will come back to the staffing cuts.

The Government sometimes have good intentions. We all supported on a cross-party basis the idea that if a company is prosecuted for tax avoidance, it should not then get a public contract. We all supported that in this House, but now, two years since it was introduced, not a single tax dodging entity, despite judgments by tax tribunals, has been barred from securing public contracts. What frustrates most of us in all parts of the House is precisely this non-implementation of legislation which we think could be effective and which we have all supported.

Another issue also came up. We supported the Government’s introduction of the general anti-abuse rule. We had been campaigning for years on it, and it came into effect on 1 July 2013. The Chancellor has referred to it on several occasions in various debates. The concept is good, but HMRC cannot go after offenders on its own because the Government have, in effect, put the tax avoiders in charge. HMRC needs permission from a panel, populated by the corporate tax avoiders, before it can implement the GAAR. The panel includes, for example, a partner from Baker Tilly, a firm of accountants associated with a tax-avoidance scheme used by Aberdeen Asset Management to dodge taxes on bonuses to employees, and so far the panel has not looked at a single case. It renders debates and legislative measures in this House totally irrelevant to the real world. The real issue is that no matter how many policy statements, reports and legislation we have, it is all rendered pointless if HMRC does not have the staff and resources to implement them.

I was critical of my own Government; I opposed the staffing cuts at HMRC then. In 2005, there were 92,000 staff at HMRC. By 2015, there were 62,000 and by next year there will be a planned 52,000. That is a 43% cut in the very tax collectors we rely on to chase the evaders and avoiders. For every pound spent on a member of staff at HMRC, £25 is brought back. That is not my figure, but the independent assessment. The Government have now closed all 281 local tax inquiry offices. They have brought in a centralised call system, which is struggling on every measure. HMRC’s management have gained a reputation across the civil service for belligerent incompetence, and that was displayed when the Public Accounts Committee attempted to hold them to account. Morale in HMRC is at an all-time low, which is testified to by the Government’s staff survey showing that it had the lowest level of employee engagement across all Government departments.

We have also seen, as a result of the leaked memos of four weeks ago, the HMRC management’s union-busting strategy. They have not only targeted and victimised PCS reps, but are trying to set up an alternative staff association to break the PCS. In my view, HMRC is not only not fit for purpose, but sinking. It is in need of basic reform if it is to live up to the expectations placed on it even by the report that the Treasury published yesterday. If we are really going to tackle tax avoidance and evasion and have any hope of closing the tax gap, we need a more effective, better staffed and better resourced HMRC. 

We need greater parliamentary accountability, which means: a specific Minister responsible for HMRC; and a separately established Select Committee to which it is accountable. We also need resources for organisations outside Government that can monitor it and respond to the detailed, complex Government consultations. Above all else, HMRC needs staff resourcing and the reversal of the staffing cuts on this scale that have neutered its operations. 

If we really want to tackle the tax gap, we need to ensure that it is properly staffed, that Parliament is in control and that there is proper accountability and monitoring throughout. In that way, we can tackle the tax gap, and we can start talking about the fairness of the wealth tax, the financial transaction tax and corporate tax reform. We need not so much a long-term economic plan as a long-term fair tax plan.

Thursday, 19 March 2015

Analysis: Short-term economic shambles


Andrew Fisher assesses the 2015 Budget and finds George Osborne's hubris doesn't hide his failure

The Chancellor was in hubristic mood on Budget Day 2015, with some bold claims to open his remarks. "Living standards will be higher than when we came to office" he informed the Commons, yet they won't.

"Out of the red and into the black – Britain is back paying its way in the world", Osborne continued, except its not.

On living standards, LEAP Chair John McDonnell MP tweeted during the Budget speech:


And indeed they don't bear much reality to the available data either as the chart below via the Resolution Foundation shows.


On only one measure 'might' living standards be back to their 2010 level - and that's on a deeply flawed measure that banks the rise in people's house prices. On the main two measures we remain some way behind and, as the blue line shows, for the median household there is some way to go.

Median wages are down in real terms by more than 5%, which makes George's proposed "savings revolution" a little hard to believe. All the more so when you consider Osborne's growth model is based on rising household debt - which will rise to levels last seen at the point of the crash, and go beyond them by 2020:

After seven years of wages falling in real terms, the recent respite has been due to falling oil prices rather than any successful policy of the Chancellor. To date, wage rises have not discernably picked up.

So is Britain "walking tall" and paying its way in the world? Whichever way you interpret it, no. We are borrowing £90 billion this year, which the OBR confirms is down 41% in cash terms (not eradicated like Osborne once said it would be), and so we are still running a large deficit, adding to the debt.

More commonly the phrase 'a country that pays its way' is used to describe a country that is a great trading nation. As Newsnight's Evan Davis pointed out to a rather battered Treasury minister David Gauke, the UK has a trade deficit of 6%, which has risen over the course of this Parliament (as the chart below shows)


One claim of Osborne's that can't be disputed is that the UK economy is growing again - even though that's not translating into wage growth for everyone - and that growth is sustained. In fact the OBR revised its growth forecast upwards. And what coalition policy from the genius of Osborne has provoked this optimism? The OBR explains, its because the government continues to miss its immigration target.  

The economy will grow stronger because of increased migration ... don't expect David Cameron or Theresa May to be proclaiming this from the rooftops, and it's doubtful Mr Farage will mention it either!

Back in 2010, Osborne's plan - the long-term economic plan (that Tory folklore would have us believe Osborne has doggedly stuck to in the face of Labour heckles and Lib Dem resistance) - suggested that the UK's debt to GDP ratio would be 67.4% in 2015/16. Instead, Osborne announced we actually have a debt ratio of 80.2%.

One significant change in this Budget was the marginal easing in the level of cuts so that instead of taking us back to 1930s public spending levels (as proposed in the 2014 Autumn Statement), instead we'll only be transported back to 1964 - though with the bizarre spectacle of acute cuts in the second and third years of the next Parliament, before significant easing in years four and five.

The OBR described this as a "rollercoaster" and a particular scary one since it involves "a much sharper squeeze on real spending in 2016-17 and 2017-18 than anything seen over the past five years". So intensified austerity in the early years of the next Parliament, which will be sharper than in the first years of this Parliament when austerity crashed the economy again. But what is the point of this rollercoaster - they are fun at the theme park, but who wants an economy run like that?

Overall though we should not overstate the relevance of this Budget. As the OBR stated, "The Coalition Government's policy decisions in this Budget are not expected to have a material impact on the economy"... if only that was true of the previous five budgets.

This was ultimately a budget to spin a bad record, a short-term political manoeuvre rather than a long term economic strategy. It was, like much of Osborne's tenure in 11 Downing Street, a shambles cleverly spun. 

However, while the general election in May makes all this subject to change, unless we the electorate deliver a sharp change in direction, austerity and the dodgy spin that accompanies it will remain.

Wednesday, 18 March 2015

LEAP press release: Brutal cuts hidden behind 'unreal rhetoric'


PRESS NOTICE:

FOR IMMEDIATE RELEASE:

Budget 2015: Brutal cuts hidden behind 'unreal rhetoric'

In the last Budget of a Chancellor under whom the wealthiest have got wealthier and the poorest have got poorer, yet again it is the poorest who will suffer as a result of today's Budget with £13bn cut from public services and £12bn further benefit cuts.

John McDonnell MP, LEAP chair, said:

"The Chancellor issued a blitz of statistics claiming living standards are rising, but they bear no relationship to the reality of peoples' lives.

"His miniscule £5 billion target on tax avoidance is less than 5% of the total tax gap, but he proposes to hit us all with £30 billion of cuts to public services and benefits. Ordinary people will continue to pay to protect tax avoiders"
 
Andrew Fisher, LEAP co-ordinator, said:

"In 2010, Osborne claimed the debt would be 67.4% of our economy by 2015, but today he confirmed it will be 80.2%. Osborne has failed on his own terms, yet caused real pain.

"There has been no recovery for most workers or people out of work - and won't be for several years yet. Austerity has driven down wages, increased homelessness, and cut public services and benefits. Nothing the Chancellor said today will build an economy that works for all.

ENDS

UK labour market update - March 2015


A brief analysis of the ONS Labour Market Statistics published on 18 March


Unemployment

ILO unemployment:                                          1,856,000
Claimant Count:                                                816,800


Underemployment

Temporary workers wanting permanent work:     573,000
Part-time workers wanting full-time work:           1,322,000
Economically inactive, wants a job:                     2,247,000


Vacancies:                                                       723,000


Ratios

Unemployed : vacancies                                    2.6:1
Underemployed/unemployed :  vacancies            8.3:1                  


Commentary

Unemployment has fallen in the last year, but there is still considerable underemployment, with many people looking for additional work.

While the headline figure of 2.6 people unemployed for every vacancy is low; the number of people actually wanting work is over 8 for every vacancy.

There are also signs that the unalloyed job growth of recent quarters is slowing with unemployment rising in the East of England and Scotland in the last quarter. In South East England unemployment was unchanged from three months ago.

UK unemployment is at 5.7%, far lower than the EU average, but still higher than other major economies like Germany (4.7%) and the US (5.5%).

Public sector employment is at its lowest level since records began in 1999 at only 5.37 million (representing 17.4% of the workforce). Public sector pay is only rising by 0.7% a year; whereas private sector pay is rising at 2.0% (2.1% including bonuses).
 
 
 

Tuesday, 17 March 2015

Minimum wage to rise to £6.70 - where does that leave Labour's £8 by 2020?


... Andrew Fisher crunches the numbers

Six months ago, we crunched the numbers on Labour's pledge that they would, if in government, ensure that the minimum wage was at least £8 per hour by 2020 (see our analysis here).

But with the announcement that the minimum wage will rise in October by 3% (3.076923% to be precise) to £6.70 per hour - where does that leave the relative merits of £8 per hour by 2020?

If we assume 3% rises are here to stay - and in fact I've been precise and used 3.076923% rises in each of the following years - then by 2020 the national minimum wage rises to £7.80 (see table below):


By contrast, the Labour pledge would imply an annual increase in the minimum wage of around 3.6% every year after 2015 to get to £8 per hour in 2020.

In terms of pounds in your pocket, that extra 20p per hour translates into nearly £400 extra per year if working full-time at the minimum wage.

Apprentices

There is some better news for apprentices from October 2015, they will receive a 20% increase from the pitiful insult that is £2.73 per hour to a whoppingly generous £3.30 per hour. N.B. when the minimum wage was introduced in 1998 it was set at £3.60 per hour.

While this is a nominally big increase in the apprentice rate, it is woefully insufficient to tackle the problem of 'fake apprenticeships' - employers calling short, regular on-the-job training 'an apprenticeship', simply to dodge paying the going rate (see our post on wage avoidance).

Friday, 13 March 2015

An ecosystem not an accounting ledger


Andrew Fisher, author of The Failed Experiment ... and how to build an economy that works, writes that we should conceptualise the economy as an ecosystem not an accounting ledger

One of the most nauseating aspects of this pre-election campaign is the ubiquity of policy statements along the lines of "we will introduce [insert policy here] by raising £3.72bn from a tax on [insert thing to be taxed]" or "we will cut [insert bad thing here] by x% to pay for [insert good thing here]".

The rigorously independent IFS has also created an online app to allow you to feel a bit like [insert tedious politician here] and play 'How would you balance the books?'

This is reductive simplism - and bears only limited resemblance to what would happen in real life: you cannot treat economic policy like an accounting ledger. The economy is not static but dynamic - like an ecosystem.

If you make changes they have knock-on effects. In the context of ecosystems we are comfortable with accepting this, we know the effect of deforestation or of hunting top predators to extinction. That nice Mr Attenborough on the BBC has spent decades patiently explaining to us - even if you dozed off during GCSE Geography or Biology.

The economy works similarly - cutting funding or raising taxes (and vice versa) has knock-on effects.

To use a real-life example to illustrate my point, take Iain Duncan Smith's much vaunted (usually by himself) welfare cuts. He has achieved nowhere near the overall reduction in benefit cuts that he promised and that was set out in detail.

This is not an issue of failing to deliver. Despite an unprecedented level of brutality - with benefit caps, freezes on increases, punitive assessments, sanctions and all the rest - the failure to fix the labour market or housing market has meant increased eligibility for tax credits and housing benefits because wages don't make ends meet and rents are so high.

On a micro level, on paper the bedroom tax should have saved considerable amounts (leaving aside any question of fairness). However, through the dynamic impacts of discretionary housing payments, and the lack of available housing to downsize into, it has not saved anywhere near its projected amount.

The accounting ledger approach really falls down when it comes to proposed investment (whether funded by increased taxation or borrowing). And this is why politicians find making the case for borrowing tricky - because they can't say definitively quantify those knock-on effects.

What we do know is that if we spend billions on, for example, building council housing then it creates good skilled jobs - and benefits supply chains. The workers employed will pay income tax and spend their wages in the economy. The people who move into those homes will want to furnish and decorate with a knock-on boost to the economy. The rents they pay will also provide an income to the council that - history tells us - more than compensates for the cost of maintenance; and for those tenants who don't work the housing benefit is lower because council rents are lower (and is merely being recycled within the public finances).

Of course there are even more tricky to quantify economic benefits - such as the health benefits of new higher quality housing, less overcrowding, the benefits of stability of tenure on children (compared to the disruption that housing insecurity can have on children's education), etc.

Despite the complexity of an ecosystem approach to the economy, it has two distinct advantages. The first is the tally with reality; and the second is it then becomes easier to integrate economic costs and benefits with social and environmental benefits. We look at the big picture, think more broadly and put our economic policies in a social and environmental context.

This second advantage is a key component for governmental economic policy-making. Private businesses externalise their costs, e.g. labour costs can be driven down because employers don't have to pay the costs of unemployment; and environmental pollution is acceptable because those costs (e.g. to air quality) are also socialised.

Government should not think it this reductive accounting ledger frame. We must set out our economic policies in their full social context - as part of the ecosystem - and if that means we can't in all honesty put a precise price tag on it then perhaps that's better than the fake certainty of the accounting ledger approach.

We should embrace the complexity of the ecosystem and reject the dumb simplicity of the accounting ledger. Or as the subtly-chosen photo illustrations suggest, think like Attenborough not Duncan Smith!

Thursday, 12 March 2015

Analysis: Syriza's challenge


Andrew Fisher, author of The Failed Experiment ... and how to build an economy that works, reflects on the challenges facing the Syriza government

Only a few weeks have passed since the Greek people rejected the austerity consensus and a Syriza-led government was formed. It seems as though much more time has gone by.

It was the famous assessment of Chinese Premier Zhou Enlai of the French revolution that it was "too early to tell". He may have been a little over-cautious, but it's certainly too early to for any final analysis of Syriza - and this post won't attempt it.

I've paused a long time to write this - knowing that the issue isn't going away, and allowing for the dust to settle on the more excitable reactions to Syriza's election and first confrontations. So this is about a sober analysis of the realpolitik facing the first government since the end of the Cold War to be elected in Europe on a genuinely social democratic platform - and in the worst of circumstances.

No one should be under any illusion about the challenge facing the Greek people and their government. The new Greek government elected in late January faced the legacy of years of austerity that have collapsed the economy to only three-quarters of its pre-crisis size, unemployment around 25% with youth unemployment nearer 50%, and then there are the fundamental issues of building an economic strategy and tax collection system from very weak foundations, that were weak even before the crisis.

They immediately implemented some of their key pre-election pledges, including: raising the minimum wage, re-employing sacked government cleaners, restoring collective bargaining, restoring electricity to around 300,000 homes that had been cut off, and reversing a scheduled increase in VAT.

But these significant (to those affected by them) yet economically relatively minor issues were merely hors d'ouevres for the big showdown with the 'Troika' - the name given to Greece's creditors, the European Commission, ECB and IMF.

The European Union vs Syriza showdown

The media has framed this as a macho confrontation between Alexis Tsipras and the leather jacket-clad Yanis Varoufakis on the one hand against Eurogroup President Jeroen Dijsselbloem and Angela Merkel on the other.

Most of the post-match analysis has focused on Syriza's retreat - with right wing commentators cheering the left wing upstarts being put in their place, while critics on the left have wheeled out the hackneyed cry of betrayal, and the overlap between the two cynically telling us all 'I told you so'.

However, such post-match analysis betrays a lack of pre-match analysis. The Greek economy is fucked. Its banks are bankrupt. The government is borrowing from external creditors to stay afloat. It is in a state of debt peonage, as David Graeber might describe it. It is in absolutely no position to impose a programme and survive the resultant reaction from its creditors.

Domestic democratic mandates count for little in the international arena - military and economic might (individually or as part of alliances) count for far more and Greece has little of either. That is the realpolitik, and Greece has no allies in European governments - quite the opposite, at least for now.

Nevertheless, what the Greek government gained was a little relief, some flexibility and breathing space. This - combined with its modest reforms - is far more than New Democracy and Pasok governments had achieved, and this is why the Greek electorate continues to reward Syriza with 60%+ approval ratings.

"Kicking the can down the road" as Newsnight's Duncan Weldon described it, is not necessarily a bad thing. It buys time for a new government to build the institutions it needs (most notably of tax collection, which is dysfunctional), to make some domestic reforms to kickstart the economy, and to hope for political changes elsewhere in Europe to bring them some allies.

The EU's rigid monetarist rules contained in the stability and growth pact - and the inevitably common and collectively enforced rules that logically flow from monetary union - are not helping Greece's new government or giving it the flexibility with policy that it could do with.

This poses a big question in Greece and within Syriza. Those such as Costas Lapasvitsas (a professor of economics and newly-elected Syriza MP) have argued that Greece must pull out of the EU if it is to implement the programme on which it was elected (read more of Lapasvitsas' view here).

But pulling out of the single currency and almost certainly the EU in so doing would not be simple or painless. Democratically, Syriza was also elected on the basis of remaining within the EU, and such a stance was supported by around 80% of the Greek electorate at the time of the election.

Grexit

However, if the Troika does not relent and give Syriza the space to implement its programme - then calls for a Greek exit (Grexit) are likely to intensify.

But Grexit would be no panacea. A new currency would cost money to implement, and the insolvent Greek banks would still be insolvent and nationalised, with capital controls introduced.

It is also unclear what the response of the EU would be - would Greece immediately be able to negotiate the sort of agreements that non-EU states like Norway and Switzerland have achieved, or would the Greek government be punished - especially following a debt-repudiation.

A new currency would be devalued and the economy would still be in ruins. Imports would be expensive (with rationing for some goods probably necessary) and exports would still be weak. At some point Grexit, however brutal and painful, may be the lesser of the evils but such a point has not been reached - not by a long way in either the minds of Syriza or of the Greek people.

Democracy vs capitalism

But what Syriza's election highlights is the way in which the question of the economy has been removed from the democratic sphere - to the extent that even a national elected government cannot implement changes that interfere with the economic system.

The structure of the euro enhances these tensions - but they exist outside of it too - as they have in many nations in debt peonage to the IMF and World Bank in past decades under Structural Adjustment Programmes or the acutely euphemistic and misnamed Poverty Reduction Strategy Plans.

Ancient Greece was the crucible of democracy; what Syriza-led modern Greece could be is the crucible of bringing the economy into the democratic sphere. In the material circumstances of modern Greece that is a challenge under which even Heracles in Greek mythology would have laboured.

For those of us who want a democratic economy, Greece deserves our solidarity.

Monday, 2 March 2015

Sanctioned benefit levels hit new high - up 3,000% since 2009/10


Andrew Fisher on the astonishing rise and rise of sanctions in the benefit system

New figures out earlier this month showed 150,003 sanctions issued to jobseekers for the last three months (Jul-Sep 2014), down from 160,282 in the three months prior (Apr-Jun).

So is the rise in punitive measures that has seen sanctions increase by 137% under this government compared with the last (see Robbing from the poor ...) finally over, given a 6.4% decrease in the total number of sanctions?

The number of claimants has declined over that period from an average of 1,038,367 (Apr-Jun) to 975,433 (Jul-Sep). This represents a 6.1% decrease in the average number of claimants - meaning the sanction rate has stayed roughly the same.

So while many commentators have rightly been highlighting the rise in the number of sanctions, how does the rise in sanctions correlate with the claimant count, i.e. has the sanction rate increased dramatically?

The chart below shows the rise in the number of sanctions seemed to accelerate with the passing of the Welfare Reform Act 2009, although this period also coincided with rising unemployment.


So if we now look at the sanction rate (the number of sanctions issued per month compared with the monthly claimant count) how does that chart now look?


So sanction rate shows us that the 2009 Act itself seems to have little immediate effect. If we compare the sanction rate in the last 52 months of Labour government with the 52 months of Conservative government for which data is available, it shows the sanction rate of JSA claimants has increased by 62%.

In the two years after which the sanction regime was tightened further in October 2012, the sanction rate of claimants has nearly doubled from the last period under Labour, rising by 86%.

But the main issue with the sanctions regime post-October 2012 is not the increase in the number of sanctions, but the length of sanction that is imposed: a minimum of four weeks for a first offence, rising to 13 weeks for most subsequent offences - although penalties of 26 weeks and even 3 years are possible (over 2,000 sanctions have been issued for 3 years).

The last time we analysed the data (in November 2013), we found that "in cash terms, the figures are even more stark: in 2009/10, £11 million of jobseeker's allowance (JSA) benefits were sanctioned, but in first six months of 2012/13 alone it was £60 million" (source here).

Our estimate (using DWP data) is that in the last year (Oct 2013 - Sep 2014) the value of JSA payments sanctioned is £355 million.

This represents a more than 3,000% increase* on the value of JSA sanctioned in the last year of a Labour government - which explains why the issue of benefit sanctions has become such a big political issue, and have caused such hardship and rising food bank usage.

As Professor David Webster has said, "benefit sanctions are an amateurish, secret penal system which is more severe than the mainstream judicial system".
enefit sanctions are an amateurish, secret penal system which is more severe than the mainstream judicial system - See more at: http://www.crimeandjustice.org.uk/resources/benefit-sanctions-britains-secret-penal-system#sthash.knfJ9wI4.dpuf
enefit sanctions are an amateurish, secret penal system which is more severe than the mainstream judicial system - See more at: http://www.crimeandjustice.org.uk/resources/benefit-sanctions-britains-secret-penal-system#sthash.knfJ9wI4.dpuf

It is no wonder then that claimant activists are protesting on 19 March in a National Day of Action against Sanctions.

 *This is what a 3,000% increase looks like: