I spoke on the Today programme at about 6.48 this morning. The discussion focussed on John McDonnell and his tax pledge to 95% of British people, leaving just those earning more than £80,000 a year as the only apparent group facing tax increases post the election if Labour win.
I was debating with Faiza Shaheen of CLASS, who I both like and greatly respect, so the listener may on occasion have had difficulty differentiating our positions. Faiza welcomed what John McDonnell had to say as a correct move in the direction of tackling inequality. And, of course, I agreed.
But my concern, developing ones discussed here yesterday, was that John McDOnnell had made a political mistake by announcing this policy now and in a void. Doing so suggests that tax is important in its own right when that's not true: tax is important for what it does.
In addition, making this announcement now without any of the mechanisms that might be used to fund essential investment constrains Labour to play a game of book balancing to which it has already foolishly committed itself. When we can all see the impact of that all around us, from the NHS to education and beyond, this unnecessary and self imposed constraint to effectively live within the Tory determined current spending limits is in my opinion a mistake when the reality is that that the country not only needs more public borrowing but has a savings glut that needs to be put to use by creative use of pension and other savings.
What I am suggesting, not for the first time, is a coherent economic alternative for the left aimed at creating investment, secure jobs right across the country, a green future and a serious attempt to provide UK business with the funding it needs to increase productivity and create the new products that can transform society without delivering pointless consumerism.
That's why I suggested changes to the rules on pension investment yesterday.
And why I have suggested the creation of new ISA backed investment funds for the UK's regions as well as specific policy areas so that people can save and at the same time know their money is being out to use for social advantage.
Global capitalism has taken away people's power. I am saying it's people's own money - from their pension to their rainy day fund that can, if securely invested in government backed accounts as is allowed post-Brexit - reclaim people's power for their local economies.
It's not rocket science.
It's not a revolution of the left or right.
This is just about common sense joining up the dots in a world where the economy has ceased to make sense.
Make money local.
Deliver change using people's own money.
Give them control over what it does.
Add a dose of government backing to make it secure.
And that way turn a savings glut resulting from the massive insecurity the Tories have created for people into a wall of money for investment.
Is that really so much to hope for?
I don't think so.
And John McDonnell still has time to put it in the manifesto.
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What happens if your locality is poor, with probably fewer than ten or twenty percent of its population having any kind of private pension or savings whatsoever?
East Grinstead and High Wycombe will do fine, Merthyr Tydfill and Middlesbrough not so much.
Yet the investment needs to be greater in the latter than the former areas.
What’s your solution for this inherent problem with localism?
And even if those issues could be ironed out by some national authority (whither localism then?), doesn’t it encourage further privatisation?
I’m not saying these are the only answer
We need a national direction as well
But local is about ownership
And that is vital
If you spend your money locally, it stays in the community. If you you buy elsewhere, you may get a better deal but the money is lost to your community.
That’s why we have to insist, for example, that license money collected by the BBC should be collected, or allocated, locally and then each country/region can negotiate with the BBC about which programs they want to produce themselves or buy in, if that’s their choice.
London weighting means that a bigger proportion of the overall pot of taxpayers money is paid to those in London doing the same job as those elsewhere. This has a knock-on effect on in the private sector. They say that it’s because it’s more expensive to live there, but that argument gives rise to a positive feedback loop – more expensive, more pay, so more expensive still – – –
Apparently the Tories have not given up entirely on the idea of negative weighting – it’s just so cheap to live where you are so you could be paid less for doing the same job. So less taxpayers and private sector money into your community and a negative feedback. In the meantime second homes where you live can be bought by those who live in richer areas – and guess where the rent goes.
etc
If I might be so bold: roughly 75% of Uk housing performs badly in the eenrgy efficiency stakes with respect to building fabric – this applies as much in Merthyr as in High Wyck’. The solution is a national house insulation campaign delivered locally (i.e. with local gov as the guarantor of quality) using local SMEs as the delivery mechanism.
Funding could be a mix of pension funds and I am sure ISAs would have a role and perhaps gov as well. Re-payment would be through reduced energy bills. A large-scale programme would lead to cost minimisation i.e. the cost per house for a rennovation would be reduced due to volume – the more you do the cheaper it is.
The involvement of local gov would also mean that solutions could be tailored to local needs (in terms of both social and private housing). The Tories will never ever deliver on this – they are functionally incapable. Oddly, the Euros are starting to get their act together wrt energy efficiency/building fabric – but there is far too much focus on financing and not enough on delivery mechanisms/crank up the volume (in terms of numbers of buildings/dwellings rennovated..
Agree with all if that
Smart metering could make it work
That sounds great.
But why should it require local private funding, as opposed to Government simply spending the money?
It has to be a partnership
Thoroughly agree that “local is about ownership”. And owning things locally will as you suggest gradually empower people. This would have the subsidiary effect of making local people feel much more valued.
But the only ‘local’ people who actually have the private savings, and therefore the ability and the ‘risk-on’ desire to invest, will be the same, well-heeled, owning class, who are already ’empowered’.
Meanwhile, those without savings, and the potential to invest, will not share in this empowerment, or feeling of value.
In fact, they will just be the rent-payers, or consumers, of local investment projects, and their rents and fees will be paying the investment returns to those wealthier residents who were able to make the investments in the first place.
So the rich just get richer on the backs of the poor, as usual.
I deliberately included pensions
These spread a bit wider
And savings spread across 50% of the population
I’m well aware of their absence elsewhere but let’s not ignore the problems tat those savings do create and solve it
Maybe there could be mechanisms whereby the wealthier parts of the country transfer a % to the poorer ones (as I believe theoreticslly happens in the US). And the central government could assist by locating national programmes in the poorer regions to create ‘proper’ jobs paying a decent wage.
It’s a new Barnett formula
Yes, of course. I’d forgotten about that.
I agree overall, but what worries me is using housing as an investment vehicle as that has already been bubbled to extinction of the economy and the ruination of peoples lives and hopes. I can’t see how looking for ‘return’ on housing is appropriate these days when you can’t push it further.
Don’t need house prices to plummet and a national plan to bail out those least able to cope with the negative equity?
The ‘housing as pension plan’ model seems dead to me.
So you don’t want new social housing?
And is 3% such a bad return?
The only type of return on Investment that makes sense to me if if the return IS the reduction in rents and prices, so that Billions of disposable income is then freed up from the rentier set up:
I think my friend Mike Parr has worked out a plan for community energy trusts where the investment return IS the lowering of the prices over time.
In the case of housing , this would only work in combination with a negative equity bail out so that those who have bought into the ‘house as piggy bank’ nonsense do not lose disproportionately. As for the rentier landlords…it was their class that stymied the Liberal’s attempts to push through Land Value Tax a hundred years ago.
Just a thought experiment.
Social housing would sensibly be the focus. You can also build on a balanced housing strategy for home ownership that has started to be layed out in the recent white paper for housing in a way that’s sustainable without generating a destructive house price crash – https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/590464/Fixing_our_broken_housing_market_-_print_ready_version.pdf
Along with this required house price stability, the appropriate type of ‘steady’ wage inflation economy is needed to functionally water down the strain of the overly high mortgage/income ratio in the housing market over the long term. This does require counteracting the imperious wage deflating forces of the current libertarian approach to globalisation (the other way of looking at the same thing behind the protest vote driving Brexit).
Derek, in the ares I live in there are house price/income ratios of 19/1 ! Without some engineered lowering of house prices how will wage inflation do the job? Salaries in these areas woul have to increase at least 6 times.
Absolutely support your local savings ideas. Government guarantees and incentives are vital because investors are normally told to diversify their portfolio to spread risk.
At the same time investment requires confidence in the economic future of our communities at a time when employment has never been more insecure. The answer must be a gradual move towards an unconditional basic income in the longer term. The threat of climate change provides an ideal opportunity to make a move in this direction. A truely radical Labour policy would be to adopt a Carbon Tax and Dividend, with equal payments being made to every legal UK resident over 18. This would not only accelerate investment in local renewable generation and energy efficiency, but also establish the principle of a basic payment to every citizen, which could be extended over time.
This policy might not only prove popular with voters, as it reflects attampts to redistribute wealth equally to citizens in every part of the country, but would also help Labour transition from policies focused on mass employment (the clue is in the name!) to a true socialist party which equally values the contributions of unpaid work to our society.
The aim is to focus on the savings and investment side of the equation – because it does, of course, exist and should be highlighted
I think linking the tax break on pensions to how the money is invested is an excellent idea.
We are always told that savings are virtuous but there is no virtue if the savings are not put to productive use. Mostly we only see savings driving asset price inflation which only helps those with existing assets and adds nothing to overall prosperity.
Are you suggesting only a tax break on pensions invested in a National Investment Bank?
I am suggesting tax breaks for pensions that meet the 20% investment criteria
This would not need to be in a state investment bank
But that would be a way to meet it
As for savings, the intention here is to make them virtuous when right now they are dead money
It meets a need in society for a safe place for saving and it funds investment. What’s not to like?
“As for savings, the intention here is to make them virtuous when right now they are dead money
It meets a need in society for a safe place for saving and it funds investment. What’s not to like?”
But if the Government deficit spends, isn’t that effectively the same thing?
However, picking up the ball and running with it, what if some local areas are gung-ho and up for local investment bonds, and others aren’t?
It seems to me that there will be an enormous mis-match between those local areas that have an excess of private savings that the inhabitants are willing to invest, but there exists no great need, and those areas where there isn’t a population with the resources to invest, but an urgent need for investment nonetheless.
If you’re back to an agency overseeing national re-distribution of private investment funds, why duplicate the functions of Government?
I know our current Gov won’t spend what it should, so if this is sort of stop-gap policy to try to subvert Gov-imposed austerity using local private investment initiatives as a last resort, then I can see why it’s fair to consider.
I still worry about fair inter-locality distribution, who would be tasked with it, and whether or not it was a contradiction in terms to ‘nationally’ administer local investment programs.
This makes deficit spending acceptable and portrays it for what it really is – which is saving by other parts of the economy
And I’m not duplicating – government always needs agencies for delivery
I also agree re redistribution – but that’s an issue to bear in mind, not an impediment
You could say then some of the deficit spending (by successive governments over decades) on pension contributions went into financing and supporting the tax evading multinational corps. This re-orientates away from that towards investing in the country where those savers live. That would enhance the argument that deficit spending can be constructive to the country’s economy.
Perhaps allow local credit unions to hold local ISA’s which would give them a bit more income and allow them to lend at better rates and so spread the ISA benefits a little further down the chain?
Sounds good to me
Richard, isn’t the fall in private savings an issue here:
‘The Bank of England have forecast a fall in the savings ratio during 2017 because of the effects of depreciation in the Sterling pushing up prices. If the forecast is correct it could push the savings ratio down to levels not seen since 2008 — just before the pre financial crisis.’
The debt to GDP ration of private debt is reaching 90%
Doesn’t this indicate that the Government deficit spending is probably the best solution here rather than private savings -unless you are thinking of corporate savings which are, of course, on another trajectory?
Let’s be clear: government deficits and private net savings are eventually one and the same thing.
If there’s deficit spending it’s because the UK private sector, the overseas sector and investors combine not to spend and so the government has to borrow. This is why the deficit is not directly within government control whatever politicians say and why I am deliberately explaining that government deficits are private savings: that simply needs to be understood
I understand that but what I was trying to get at was that you seem to be suggesting the private savings are there NOW to achieve these aims PRIOR TO PUBLIC SPENDING in which case the savings aren’t there YET.
So I take it what you are saying is:
1) deficit spend and sizeably so people can pay of their debts and save
2) use this money for social purpose (housing etc) in investment via pensions. national investment bank etc.
That time sequence wasn’t clear from what you said.
But then this raises Mr. Shigemitsu’s point again: Why not just let Government spend it direct to the businesses that will carry out this work -especially given that the deficit spend will take time to bring the private debt down sufficiently to allow people to save, even more so given house/renting price levels that will not fall any time soon?
I hope someone with the influence to affect policy change in the Labour party is reading this blog…
Smiley emoticon!
Mind you looks like the opportunistic Tories are coming unstuck with the energy bill cap which they loadly condemned as ‘Marxist’ and even ‘Stalinist’ when Labour proposed it.
I think Labour should throw that back at them at high volume (but they probably won’t…piss-up and brewery?).