Questions for 2014

by Ken Gibb

A series of questions arise over the next 12 months (though some of them are always with us). These are things I have been thinking about over the break and will undoubtedly continue to do so throughout 2014. They are certainly not exhaustive and I don’t claim to have any great wisdom to offer but hopefully some of them at least are worthy of attention.

1. What are the political implications of the European elections?

Relative UKIP success is expected and also that in turn it will be bad for the Conservatives. The logic is that this will further stress the weak ties that bind the Coalition together and, would, one expect, help UK Labour. However, this scenario is, by many, anticipated to not help Labour in Scotland. Indeed, many of the ‘Yes’ campaign see a strong UKIP showing thereafter leading to more anti-EU rhetoric by the Conservatives and view that as something of a gift to the independence campaign just a couple of months before the Scottish vote. There are a chain of assumptions operating here (any one of which may not occur or indeed lead to the presumed causal effect) but it does highlight a real cleavage between UK and Scottish party politics on the one hand and constitutional issues regarding the UK’s future and that of the UK in Europe..

2. How will the Scottish referendum pan out?

In September, we have the referendum and while every poll has shown a consistent  ‘no‘ majority, there is some evidence of things tightening up. If the vote is a clear no vote, the constitutional issue will be put in the long grass but it should not be imagined that this will also determine the next Scottish election. Labour has a mountain to climb if it is to win back even a share of power; and, the SNP will be in government for another two years. If they can sustain their momentum after a no vote and hold on to their reputation for competence, there is no reason that they could not retain power. If there should be a narrow yes vote then we are into the uncertainty of independence negotiations and all bets are off. For instance, would it be possible to hold the planned UK general election in the spring of 2015 if the Scottish seats are to be terminated and independence negotiations are in full swing? Would a narrow no vote be similar to the Quebec outcome in the sense that the victorious side have successfully kept it off the practical political agenda ever since? Again, this may in part be decided by the outcome of the eventual UK election as, if there is a Conservative Government or another Coalition, this could be poisonous for a divided Scotland. Whatever happens it will be exciting and it will be messy.

3. How will the new accession country migration issue work in practice?

I am no migration expert but one worries about how this is going to go in the popular media and wherever else rabbles are to be roused. There appear to be wide variations in the expected numbers coming in from Bulgaria and Romania and I think the only reasonable answer is that no-one really knows and that the supply of net migrants from a given place is not well understood, nor is the identity and the relative size of the main drivers (nor its true impacts on economy and society). But in many respects it is not the numbers but the tone, assumptions and language of much of the debate that is so depressing (see the recent post by Alex Marsh on January 3 and in Mainly Macro on January 1 [1]). It will play out differently across the UK but it should be recognised as a complex and multi-layered set of issues that defy simple solutions. Unfortunately it will likely be a (or the) primary political battleground over the next few months and, I regret, will be a race to the bottom for many of our political leaders. I suspect it will also feature more prominently in the housing debate too.

4. Will the Bank of England and other interested parties intervene in the housing market?

While we may reasonably expect to see house prices rise along with transactions, lending and building – there will be little accompanying improvements in underlying affordability (Help to Buy excepting). Will the Bank step in and try to control ‘excessive’ real house price inflation or perhaps target those regions where the problem is most serious? Other Bank decisions on interest rates and forward planning are at least as important as any capacity to intervene and until they are consistent with a desire to stabilise the housing market, purposeful aligned intervention is probably not going to happen and certainly not impact in the short run. Even sensible price stabilising policies on the demand side will only work slowly and unevenly – but they have to start somewhere and must appear credible and long term. The evidence thus far points to wide regional variations underpinned by a multi-speed UK economy. If regional house price variations are primarily symptoms of regional economic inequality, is that not where policy needs to be properly developed as a necessary condition for a more stable housing market?

5. How will the welfare benefit reforms fare in 2014?

While the bedroom tax is the frontline of the battle over welfare reform, the latter will in the end turn on the universal credit’s workability and acceptability over the next few years (and indeed beyond the current Parliament). That said, as we move into the 2nd year of the charge on spare rooms, the effects of the wider changes as a whole are increasingly apparent: low wages, inequality, food banks and evictions. Will this change the political balance that appears to still (often uncritically) support the reform programme as a whole? Apart from the ongoing practical mitigation work, a better quality policy debate with reform proponents is urgently required.  This debate needs to be one where critics pick better fights (e.g. the working poor’s plight, children in poverty, fit to work tests, and the disabled), as well as accepting where there are strong grounds for criticism of the (pre-reform) status quo. It would be good to also encourage more progressive alternatives (myself included). Back with the bedroom tax and Raquel Rolnik will reappear this year with her final report for the UN on UK housing. That will be interesting.

6. Why is housing supply in the UK so unresponsive?

You cannot spend more than a little time investigating housing without being confronted by this large tusked animal sitting across from you. Few would disagree that housing supply is woefully inadequate. There are of course things that need to be done to make the demand side work better but it is this nexus of land, the planning system, greenbelt issues and the industrial economics of the house building industry – that combine to produce chronic under supply. And yet despite the Barker Review, the work of many eminent economists and specialists, there remains a surprising lack of consensus about what the main drivers are and their relative contribution to supply inelasticity. Put simply, to what extent is it down to greenbelt and similar planning restrictions, the NIMBY effect, withholding land from the market, delays in approvals or because of basic inefficiencies in the house building sector? We cannot really expect to prescribe sensible solutions till we have a diagnosis that is widely accepted. I suspect we need to go back to old-fashioned detailed regional housing market case studies to unpick what is really going on. Is this a fundable PhD?

Six questions. They are far from independent of each other; indeed, quite the contrary. Scottish and UK political decisions and choices are now closely bound up. In particular, UK views on Europe and the wider world will matter hugely for the referendum and that in turn has a huge bearing on the immediate future of UK elections. Yet somehow one feels that this has not really percolated up or down. Economic futures will also help shape voter decisions in 2014, 2015 and 2016. Discrete policy areas such as welfare reform, migration and housing (themselves closely connected to each other) will play supporting roles but they could and should be at the centre of our public debate (at least in a more informed way).

It is going to be quite a year.

Note

See posts:

http://www.alexsarchives.org/peace-and-trust-can-win-the-day/

http://mainlymacro.blogspot.co.uk/2014/01/economics-and-immigration-debate.html

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