Recent Economy Articles

Could the a Green Progressive Council Tax idea work?

by Guest     August 18, 2013 at 9:59 am

by Mike Shaughnessy

An idea in the form of a Progressive Council Tax (PCT), from the Brighton and Hove Green party, is creating a buzz around the whole Green party. It may soon become a central policy tool for Greens in local government.

To be clear, Green party national policy is for the introduction of a Land Value Tax for raising local revenue. But we also need a credible strategy at local government level where we can and do (in Brighton and Hove) run local authorities, which is more than just implementing cuts as directed by national government, as we are at the moment.

So, how does it work? First a referendum needs to be held and won in a local authority area on raising Council Tax by more than 2%, in fact much more than 2%, with the higher the increase, the less the majority will pay.

Then residents are required to apply for a reduction in the charge, which would be means tested, with around 80% of residents receiving a reduction, meaning most would actually pay less than now. For the other 20% who do not qualify for a reduction there will be steep increase in Council Tax.

This is all based on residents’ income and ability to pay, which is perfectly fair and counter to the policies of the ConDem government. Vulnerable groups will get special help to ensure they pay only the correct amount.

I’m told that this does not require any change to the law nationally, so if voters can be convinced that this a fairer way to fund local services, and for most it will cost less, then there is nothing to stop a local council introducing this approach.

PCT has a number of advantages, I think. It is fairer, because those who can afford to pay more will do so, leaving those on more modest means either unaffected or better off. It also has the potential to reduce some of the cuts to services that are required by national government reducing direct grants to local authorities, and so at least some services and jobs are retained.

Then of course there is the politics. Would Labour run councils for example, follow suit and introduce the scheme themselves? If they saw it working in Brighton and Hove, they might consider it, but if not then the Green party will have staked out an alternative approach, which to use sales parlance, would be our ‘Unique Selling Point’, offering the voters a true choice in how local services are funded.

There is probably a huge amount of detail to work through on this idea, in practically introducing PCT, but I’m sure that can be achieved, and in principle it can be justified in terms of fairness. We need to be bold as a party in these testing times. PCT’s time has surely come.

Mike blogs more regularly at Haringey Green Party Blog

In defence of Labour’s policy vacuum – Ed Miliband has a plan

by Paul Cotterill     August 13, 2013 at 2:59 pm

In a long piece, John Harris informs us that it’s all going wrong for Labour:

Labour is belatedly trying to make the running on the crisis in people’s living standards. Policy-wise, there has been talk of building new houses, putting young unemployed people back to work, coming down hard on profiteering energy firms, and more. The problem is that all this has not yet cohered into a consistent and primary-coloured message that can cut through such clunky Labour promises as “a recovery made by the many” (whatever that is).

Elsewhere, Mark Ferguson complains that activists are being “sent onto the doorstep” without a clear message. (No-one sends me. I go of my own accord.)

All this and more fits neatly with the rightwing media’s seizure of the Burnham interview to portray Labour, and Miliband’s leadership, in crisis.

And it’s all utter tosh.

It’s perfectly logical to see the Burnham interview, not as an attack on Miliband, but as a carefully placed contribution, in collaboration with the leader’s office, aimed at clearing out some media space for the upcoming conference season, so that Miliband gets more of a hearing for the more concrete policy announcements around childcare, payday lending and the NHS that he will almost certainly make. Burnham makes the point that we need to firm up the policy offer. Miliband says that’s absolutely right, and does just that – the oldest win-win trick in politics.

More importantly though, the criticism of Labour’s failure to adopt many concrete proposals ignores, in its desperation to find fault with Miliband’s leadership, that coming out with concrete policy proposals 20 months before the election is not a very good way to win that election. That’s because the majority of voters, either because of memory decay or interference, simply don’t remember what those proposals were, even over the space of a few weeks,

While Miliband may be right to throw in a few firmed up proposals at conference just to prove that he can, it makes little sense to be offering up a firm programme for government. Much better to focus, albeit against a hostile media so with limited success, on the broad message – that the economic recovery may be underway, but not in a way from that most people will benefit from.

But what Miliband’s detractors also miss – either wilfully or stupidly – is the process he and his team are actually engaged in, which will pay dividends when the time comes to set out the policy ideas.

Here’s what this process boils down to:

1. Acknowledge that overall spending must be affordable in 2015 in order to give off the economic competence vibe;

2. But also stress that proper recovery requires investment;

3. Start with a focus on investment in physical infrastructure, which even the Tories now accept is needed;

4. Over time, subtly change the way the term infrastructure is defined, so that it becomes inclusive of ‘social infrastructure’ such as childcare (here’s Lucy Powell doing just that)

5. Develop careful cost-benefit analyses to work out what social infrastructure investments have an overall positive effect e.g. what £5-7bn per year on childcare will actually do to the economy;

All this is happening steadily, behind the scenes. As the months go by, it will be less and less behind the scenes. At the right time, it will all emerge as a carefully costed plan.

Now, of course I disagree with the overall strategy, which I would describe as In the Black Labour with Brains; I would much rather have seen an earlier, more explicit rejection of this need for overall fiscal balance, because even in the medium term fiscal balance in a properly functioning economy is simply not needed. But that required a political momentum the left as a whole lost in the 2010-11 period, and it’s silly to blame Miliband’s leadership for that.

And I also think the managerialist culture inherent in such IPPR-style cost-benefit approaches to the resolution of ‘social problems’ creates dangerous perversities, but that’s for another blogpost (see Stumbling and Mumbling for sense on this overlooked but important issue in socialist politics).

But within the parameters set both by the Labour leadership and the left as a whole,, Miliband’s getting his strategy, and his timing, spot on. It’s just a shame that John Harris and the others are so focused on Miliband’s leadership messaging and leadership qualities – largely an irrelevance at this stage – that they’ve not actually noticed the work that’s been going on.

I don’t have any sympathy for whiny savers

by Left Outside     August 10, 2013 at 1:54 pm

Whiny is the word that comes to mind when I think of savers. But that’s unfair. They can’t have nice things and that’s not nice. None of us can have nice things and the reason savers can’t have nice things are similar to the reason I can’t. It’s all about time travel.

Frances’ newsnight debut yesterday [watch it! This cuts straight to the panel] was all about savers. Savers are, understandably, annoyed. For a couple of decades they have been able to save cash in banks, they money has been perfectly safe and they’ve got a healthy return.

All that changed 5 years ago. First everyone thought they might lose everything. This gave well to a slow realisation that they were going to lose something, just less dramatically, slowly through inflation.

This has led to faintly ridiculous complaints from people like Save our Savers and others that savers are being “punished for a recession they didn’t create” or expropriated or swindled or denied a risk-free return by the malfeasance of central banks.

I want to make three points.

First, this is another example of those hard done by, but not the worst off getting the press and attention. If you’re sparing a thought for savers then you’ve a spare thought too many. Nobody likes to think of the pensioner having their savings eaten away, but lots of pensioners haven’t even got any savings.

Second, in no sense are savers being punished by central banks. They’re being helped as much as the rest of us (which is still not enough, of course). There is a scenario where savers get a large positive return following a depression. It’s called use, decay and obsolescence,

Without central bank support savers would get a bigger return…eventually. After banks collapse, firms go bust, machinery rusts and hands lie idle eventually we’ll begin to need to replace and rebuild. Once we hit rock bottom savers will receive a very handsome return. It’s just they might not have much of their savings left by the time we get there.

My third point is the most important.

The framing of saving is all wrong at the moment. Money allows us to move purchasing power through space. I make a coffee, you give me money which I use to buy a haircut. That all happens almost simultaneously. What if I want to make a coffee now and have a hair cut in 5 years? Well then I’d have to save up. Saving allows us to move purchasing power through time.

But saving isn’t just a thing you hold like money, it’s a process, and this is where the framing of saving needs to change. To move purchasing power through time you have to buy something now which will be worth something in the future which you can sell. It might look like the same £10 I end up spending on a future haircut, but it’s not.

Most saving ends up invested in structures, but some of it could be in intellectual property, a private business, or anything tangible. Cash doesn’t cut it. If you’re saving cash, you’re really lending money to a bank who then goes out and buys something with it. If you’re holding physical cash then someone else is doing this for you and you’re riding on their coattails.

You cannot escape the fact that you are buying something now, to sell in the future (minus some financial frictions)[1], this is the physical process behind financial saving. At most times, because we are getting richer we can buy durable stuff now and expect it to be worth more in the future. But that doesn’t hold during a depression or steep recession.

When times are hard we cannot expect people to get a good return. This is because more people want to buy safe assets now which pushes up their value, because the value of assets in the future becomes more uncertain (and hence less valuable) and because financial intermediation becomes less efficient at times of economic stress.

If we could travel through time this problem wouldn’t exist. I could make a coffee now and get my haircut in the future. Our alien barber from the year 3000 could come back, because coffee has been rendered extinct by global warming and we wouldn’t need to worry about saving or structures as above. But we can’t travel through time so we do need to think about how we physically save.

There’s no way savers can get a good return at the moment because the process which physically enables it is blocked. The best for everyone is for a reflationary central bank to boost demand and return to normality. We are the 99% and we have a shared interest in full employment.


[1] It’s this phrasing of saving and financial intermediation that eventually led me to stop being an obsequious leftie and to take FIRE seriously.

Why Zero-hours contracts should be banned

by Natalie Bennett     August 8, 2013 at 9:02 am

Imagine you get a phone call at 6am each morning, to tell you if you’ll get any work – or pay – each day. You’re awake, dressed, waiting, then it’s “stand down”. That can happen five days in a row, and you’ll get to the end of the week without a penny coming in to your pocket.

Imagine you’ve got to arrange childcare whenever you have to go to work – and you only get a couple of hours’ notice that you have to go to work. That’s not a situation that far too many British workers have to imagine – that’s their reality.

All of those cases I was told about by audiences to whom I’d been speaking about zero-hours contracts. And they’ve strengthened my conviction that these contracts should be banned.

It’s an issue that I’ve been addressing since I was elected Green Party leader almost a year ago, and I’ve noticed a trend. When I first asked meetings “do you know what zero-hours contracts are?”, I’d get lots of head-shaking, and would need to explain. Yet in the past month or two, that’s rare – in part no doubt because of publicity about the issue, but also it seems because the employment practice is spreading fast.

It’s still most common, and most known, in the sectors in which it began, in retail and care. And defenders of zero-hours contracts, like this Telegraph leader, which claims “many people have to take uncertain, unskilled jobs is because they lack the training to do anything else”. And many of the high-profile cases that have emerged in recent days, McDonald’s and Subway, and Sports Direct, have been in retail.

But – ignoring the question of whether caring for vulnerable elderly, disabled or young people really is something that should be regarded as an “uncertain, unskilled” job (or for the fact that other countries treat retailing as a proper career) – that’s a misunderstanding.

For these contracts are spreading like a disease among a wide range of workers, from academics, to IT professionals, to accountants, to lawyers, to doctors and nurses.

One claim often made about these contracts – indeed it was made yesterday morning by Ruth Porter of the Institute for Economic Affairs when we debated the issue on BBC Radio Ulster– is that they are desperately needed by struggling small businesses. But that’s belied by the facts – it’s 23% of workplaces with more than 100 employees that are using them, and only 6% of the businesses with fewer than 50 employees.

Yes, there are a few workers who these contracts suit perfectly, and they might be disadvantaged by a ban (by everette at testsforge). But the cost of having them available to employers, and used with abandon, far exceeds any benefit.

Flexibility can be maintained without leaving workers trapped, as Larry Elliot in the Guardian said, in a digitised version of the early 19tt century dockers line-up. Seasonal contracts, contracts with guaranteed hours that are flexible about when those hours are worked and allow staff to take other jobs as well, we might look at the German model which demands that a maximum of 25% of a contract can be flexible hours.

The Green Party is calling for zero-hours contracts to be banned, as part of a broader shake up of our labour laws. What we need from our economy are jobs that workers can build their life on – that pay a living wage.

Then workers can rent homes, start families, think about mortgages – or at the very least be certain of being able to pay for food and essential bills at the end of the week.

Is the UK in recovery? Not if you look behind the topline figures

by Frances Coppola     August 7, 2013 at 9:10 am

The ONS has some good news about UK industrial production.

Here are the summary points from its statement:

  • Production output rose by 0.6% between Q1 2013 and Q2 2013. Manufacturing rose by 0.7% over the same period.
  • By far the largest contribution to the quarterly growth in production came from manufacturing, which increased by 0.7% following a decline of 0.2% in Q1 2013.
  • Looking at the broader picture, production output was 1.2% higher in June 2013 compared with June 2012, reflecting a 2.0% rise in manufacturing; 7.8% rise in water supply, sewerage & waste management; 4.4% fall in mining & quarrying; and 3.3% fall in electricity, gas steam & air conditioning.
  • Production rose by 1.1% between May 2013 and June 2013. Manufacturing rose by 1.9% with reported rises in all of its sectors. The highest contributor to the rise was the manufacturing of transport equipment, which rose by 5.3% and contributed 0.7 percentage points to the rise in manufacturing.
  • The preliminary estimate of GDP, published on 25 June 2013, contained a forecasted rise of 0.6% for production in Q2 2013. This release of data also estimates production rose by 0.6% between Q1 2013 and Q2 2013 and therefore has no impact on the previously published Q2 2013 GDP estimate.

Looks great, doesn’t it? I must admit, I was impressed


Fortunately someone was sharper than me:

It seems things aren’t quite as rosy as ONS implies. Production is actually significantly below where it was in the same quarter a year ago. The “good news” is only an improvement in one month’s figures.

But in fact it’s much worse than that. This chart from the ONS’s release shows how far UK industrial production has fallen since the financial crisis

(larger version here):

What appals me about this chart is not the collapse of production in 2007/8, awful though is, but the fall in production since 2010. Even with the upturn, total production is now below the level that it was in the 2009 recession, and manufacturing has also fallen significantly since 2011.

There must have been some kind of serious negative shock to production in 2010/11 to cause such significant falls.

I have previously argued that double-digit inflation in domestic and industrial energy prices delivered a significant supply-side shock to the economy in the last quarter of 2010 and thereafter. I suggest that this chart supports my case, although others have alternative explanations.

However, whatever the cause of the evident shock to production in 2010/11, the fact remains that UK production is way below even its 2010 level, let alone its level prior to the financial crisis. The slight upturn this month, while encouraging, is certainly not the “UK recovery” that is being trumpeted.

There must be a much more substantial and sustained rise in both manufacturing and production indices before we can really claim that that the UK economy is on the mend. There is still an awfully long way to go.

Don’t blame the UK’s stagnation on the Eurozone – the evidence doesn’t stack up

by Richard Exell     August 1, 2013 at 12:47 pm

One constant theme in the Chancellor’s speeches has been that his austerity would be working wonderfully if it wasn’t for those pesky foreigners. There’s one problem with this: if they are holding us back, how come they’re mostly doing better than us?

There’s no mystery about why the Chancellor is looking for scapegoats.

Last week’s preliminary estimate for GDP (the one that showed 0.6% growth since the previous quarter) revealed that, between the second quarter of 2010 and the second quarter of 2013, the economy had grown a magnificent 2.1% – about a quarter of the trend rate.

The chart below shows GDP growth rates (comparing each quarter with the same quarter a year before) and the government ought to be very embarrassed by it.

Within six months of the government’s election, our economic growth had been cut off, with a downward trend that may (let’s hope) have come to an end in the most recent figures:

Growth rate v1

So you can understand why Mr. Osborne would like us to believe that it would have been higher if it hadn’t been for depressed European and US economies, making it difficult for us to export to them.

And that is the line he has stuck to.

A year ago, Mr. Osborne told us he was exasperated at the failure of Eurozone government to sort out their problems, which “would do more than anything else to give our economy a boost.”

Delivering the Autumn Statement, he told us “we face a multitude of problems from abroad. The US fiscal cliff, the slowing growth in China. Above all the eurozone, now in recession.”

By the time he got to this year’s Budget in March, he worried that the problems Cyprus was experiencing showed that “the crisis is not over, and the situation remains very worrying.” In June, it still wasn’t over, and his speech on the Spending Review returned to the theme:

But while we’ve been acting, the challenges from abroad have grown. A eurozone in crisis. Rising oil prices. The damage from our banking crisis worse than anyone feared. And the truth is Mr. Speaker, we have to deal with the world as it is, not as we wish it to be. So this country has to continue to make savings.

And, if those Eurozone economies and the USA had been growing more slowly than us, there might have been something to that line. But that isn’t the case. In the table below I’ve used OECD data (*) for GDP in the second quarter of 2010 and the first quarter of 2013 (there is no Q2 2013 data for most countries) and calculated how much it has grown or shrunk for the UK, all the Eurozone countries the OECD covers and the USA.

Eurozone GDP growth v1

If slow growth abroad is holding us back, why have our first, second and third largest export markets grown faster than us? I’ve also included a column giving each country’s share of UK exports in 2011 (the most recent I could find, using HMRC data).

You can see from this that, while there is a group of Eurozone countries that has done worse than us, they only account for 15% of UK exports.

Problems in the Eurozone won’t have helped the UK’s recovery, but we can’t make it the main explanation for our stagnant economy.

There is NO evidence that Britain is recovering and we should say so

by Sunny Hundal     July 26, 2013 at 3:11 pm

The media narrative is that the economy is recovering and George Osborne’s stock is rising.

This has given Tories a spring in their step and made some in Labour jittery about what this means in political terms.

The politics of this are irrelevant because Britain is not recovering and Labour should not let the Conservatives get away with saying it. Here’s a brief explanation why.

1) Falling disposable incomes
As the Telegraph reported last month, ‘Recovery far off for families as disposable income sees biggest drop for 25 years’

The report points out that the next election is likely to be the first since 1931 when living standards are lower than at the last one.


2) Averages wages are falling and showing no signs of recovery
Inflation is rising faster than pay so real wages have fallen since crisis, and there is no sign of recovery there.


3) A flat GDP per capita
This graph by the Independent’s Ben Chu shows that while GDP as a whole may be rising slowly, the actual impact on households is virtually nil. The GDP per capita is flat


4) Investment into the UK is still in the doldrums
This chart is also by John Van Reenen at The Economist

The Conservatives are talk about a recovery for which there is no evidence whatsoever.

The only impact this will have is make them look more out of touch with people’s actual experiences. By the time the election comes around in two years time, hardly anyone will believe Britain is improving thanks to Osborne.

The UK is going through an alarming low-pay recovery

by Guest     July 15, 2013 at 9:30 am

by Anjum Klair

A new TUC reports shows that seventy-nine percent 77% of net job creation since June 2010 has taken place in industries where the average wage is less than £7.95 an hour. Just over one in five new employee jobs created since June 2010 have been in the highly paid computer programming, consultancy and related services industries, where the average hourly wage is £18.40.

In the middle paid industries, which account for nearly three quarters of the UK workforce and where the average is between £7.95 and £17.40 per hour, there has been no net job creation since June 2010.

The shift towards a labour market which is characterised by increasing levels of low wage jobs is worrying, and risks damaging our economic prospects in the long run. While job creation may be better than unemployment this still leaves households struggling with little money to spend in order to aid the recovery.

The report also looks at change over the longer-term in industries we have defined as low paid, middle paid and high paid since 2005.

Employee jobs in low paid industries Dec 2005 – Dec 2012

Untitled 1

Low-paid industries experienced the sharpest jobs decline during the recession. There was a reduction in the net number of low paid industry employee jobs particularly during December 2008 to March 2009; but there was then a jobs recovery with a real sharp increase in employee jobs towards the end of 2011 which has continued to beyond pre-recession levels.

Employee jobs in middle paid industries December 2005 – December 2012

Untitled 2

The net number of jobs in middle paid industries fell dramatically from December 2008 to 2009, and has stagnated at around that level ever since. Jobs in middle paid industries have never recovered from the recession and a significant jobs gap of 599,000 remains.

Employee jobs in high paid industries December 2005 – December 2012


In contrast jobs in higher paid industries never really felt the impact of the recession. There was a very small fall in net numbers from December 2008 but employee jobs levels in higher pay industries then continued to grow to above pre- recession levels.

While it remains too early to determine the extent to which this shift represents a structural change, without strong economic growth it is likely to characterise our jobs market for at least several years to come.

The trends also demonstrate the importance of securing strong jobs growth in middle paid industries if household incomes are to see a significant rise over the medium term. While it is important that policy debate focuses on mechanisms which will increase rates of pay for workers across low and middle paid industries this analysis demonstrates why it is equally important to focus on measures which will seek to reduce the share of low paid jobs across the UK economy.

In the current context it is also clear that tax credits and other benefits will need to continue to play an important role in boosting the household incomes of those who can only find work in low paid sectors.

cross-posted from the Touchstone blog

Ed Balls is also giving an important speech tomorrow

by Sunny Hundal     July 9, 2013 at 3:06 pm

For the first time since the general election, one of the Eds is giving a major speech on climate change.

Tomorrow, it will be Ed Balls, rather than the former climate change minister, who will break the silence, but this is still important.

It seems even more significant that he will be doing it framed around infrastructure investment and in discussion with the FT’s Martin Wolf.

I wrote a few months ago that Labour should use the business community and infrastructure investment to take on the Tories on climate change.

For three years campaigners have had to bang the drum on the environment alone without the support of Westminster or the media. I hope that Ed Balls’ speech will be part of a change of attitude within Labour and not just lip service.

Green Alliance, who are hosting the discussion, say getting to a low carbon future is worth £200 billion of our planned infrastructure. We’ll have more of the data around this tomorrow.

But the point is that ‘green investment’ is an easy way, and the right way, for Ed Miliband and Balls to point out how weak (in standing up to backbenchers) and unwilling to invest the Tories are.

Cameron knows he’s wrong on the issue – that’s why he (quietly) opened a big offshore wind farm last week. But he is basically turning down British jobs to suit the prejudices of his backbenchers who are against green investment such as wind farms.

This is an open goal for Balls – a chance to show he is a tough economist who recognises the importance of green energy and investment in Britain’s future. It’s about time they started using it to score some points.

Why it’s Simon Danczuk who is ‘economically illiterate’

by Chris Dillow     July 4, 2013 at 1:54 pm

In the Times (£) Simon Danczuk says lefties such as Owen Jones are "economically illiterate." He misses the point that, in many respects now, it is not the left that's economically illiterate but rather centrists like him.

 - It is economically illiterate to ignore the massive evidence that unemployment is a huge source of misery, and to talk instead of the minority of scroungers.

 - It is economically illiterate to complain about crony capitalism, as Danczuk does, without recognizing that basic economics tells us that crony capitalism is the only likely form of capitalism.

 - It is economically illiterate to think the unemployed can be incentivized into work when there are 4.9 officially unemployed people for every vacancy, and 12.1 unemployed if we use a wider definition of joblessness.

– It's economically illiterate to believe that the macroeconomic cost of scrounging is anything other than very small.

 - It is economically illiterate to speak of the "benefits of getting people into work" as Danczuk does, but then accept the Tories' tight fiscal plans for after 2015 – especially if you don't raise the inflation target.

 - It is economically illiterate to think the government is in control of its finances, and that fiscal policy alone is sufficient to reduce the deficit, without recognizing that deficit reduction requires a decline in the private sector's net financial surplus.

 - It is economically illiterate to think a jobs guarantee for those who have been out of work for more than two years is anything close to an acceptable employment policy, when these account for less than one-fifth of unemployment, and when helping them into work might well displace the shorter-term unemployed.

 - It is economically illiterate to ignore the evidence that there's very little that governments can do to much improve the economy's medium-term growth rate.

 - It is economically illiterate to ignore the fact that, throughout the west, there has been a long-term collapse in demand for unskilled work.

 - It is economically illiterate to ignore the possibility that preferences are endogenous. Insofar as some unemployed are lazy, their laziness might not (just) be a cause but rather an effect of their unemployment: why make yourself unhappy wanting something you can't have?

I don't say all this to attack Mr Danczuk, but rather to make a broader point. The phrase "economically illiterate" has long been used to smear leftists as unrealistic utopian dreamers. And I'll concede that the description fits many of the soft left. But this tactic ignores a nastier fact. At the current juncture of capitalism, what is  really economically illiterate is the belief that capitalism is compatible with decent employment prospects and living standards for all workers – especially if you limit your policy options to those that are acceptable to Paul Dacre.

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