Brexit: Balancing Scotland, the UK and the EU

 

Yesterday morning I went along to the IPPR-hosted Brexit event featuring a keynote speech from the First Minister. More on that later. First, and to set the scene, it is worth thinking a bit about the options to be negotiated.

The Institute of Government last week published a helpful briefing paper called Negotiating Brexit, by Robyn Munro. The paper, from a wholly UK perspective, does three useful things: it sets out what will be negotiated, considers the options for the ‘terms of the divorce’ and, third, discusses the negotiation over the longer term UK-EU relationship thereafter.

Munro (p.3) identifies three sets of critical longer-term questions post withdrawal that will need to be resolved:

• What would be the UK’s degree of access to the single market in terms of goods, services and free movement of labour?
• What, if any, financial requirements would remain in terms of funds going to the EU (in return for different degrees of access), and what would be the extent of adherence to EU laws, and what if any influence would the UK have over EU rules and regulations?
• To what extent will the UK continue to participate in other beneficial programmes e.g. Horizon 2020, European structural Funding and the European Arrest Warrant?

While it is recognised and indeed perhaps likely (because there is no precedent) that the UK will end up with a bespoke negotiated deal, there are four widely discussed models commonly raised when discussing the UK exit from the EU. These are summarised by Munro (p.4). To paraphrase:

1. Placing the UK within the European Economic Area (or the Norway model) – this would mean almost complete access to the single market [with restrictions on agriculture and fisheries] but in return free movement of people, budget contributions and acceptance of EU rules and regulations with minimal ability to influence those rules.
2. The UK as a member of the European Free Trade Area, plus bilateral arrangements relating to specific services (the Swiss model) – this would entail access to single market for all non-agricultural goods, plus bilateral agreements for trade in specific services. The Swiss have also accepted free movement of people, an annual EU budget contribution and adaptation of relevant national legislation to those of the EU (but no influence).
3. The UK could operate a bilateral free trade agreement with the EU (similar to that proposed for the EU with Canada and Singapore) – when these are ratified they will not involve free movement of people but will offer access to the single market in goods, less so in terms of services. They must follow EU rules and regulations but again cannot influence them.
4. The UK operating through the World Trade Organisation (the least EU-based solution). This would involve the right to negotiated free trade agreements with other WTO members including the EU but prior to ratification the UK would need to offer favourable conditions to all those it sought to trade with. UK exports would also face the EU external tariff. Completely outside the single market, there would be no free movement of people.

These are all tricky options, even if we consider the UK as a coherent single voice in negotiations. The EU has its own interests and a range of internal voices chipping in to help form their negotiating position e.g. the opposing pressures that on the one hand seek to resolve the main issues quickly to end uncertainty versus specific domestic pressures to take a tough line pour encourager les autres. Second, there is the fundamental difficulty of the multi-dimensional nature of what is at stake – the single market, freedom of movement, the rights of non-members with access to the single market the non-trade aspects, and the procedures for dismantling existing laws, rules and regulations.

The third degree of difficulty is that the UK does not have a single voice, neither within the UK government, or, more to the point, across the UK. Scotland is in the vanguard in this respect, which was why it was so interesting to be at the meeting in Edinburgh and hear the FM’s current thinking.

There is of course actually a fifth model available to discuss once we consider Scotland – the so-called Reverse Greenland. Denmark is a member of the EU but it does not apply membership to its territory of Greenland. Could this principle be reversed with the UK outside of the EU but places like Scotland, Northern Ireland and Gibraltar either wholly within or partially remaining? At first sight, this seems difficult and not symmetric at all in terms of consequences and requirements to make it work.

The First Minister focused on the interests of Scotland – economic (including the demographic necessity of freedom of movement), democratic interests (reflecting the clear position of Scotland on the EU), social protection interests (defending workers’ rights), solidarity interests (global challenges and the necessity of international collaboration) and influencing interests (e.g something we lose if we only have associate access to the single market and the infrastructure of rules and regulations supporting it). These are the tests or areas she hopes to protect in the negotiations, recognising that ‘all options’ including a second independence referendum remain as possible outcomes to the negotiation.  But can we reach a UK-wide agreement on the negotiating position before Article 50 is activated?

I found one of the most interesting things she had to say was the focus on the opportunities created by uncertainty. Apart from a few terse sentences that make up article 50 of the Lisbon treaty – there is really very little known about what might and can potentially happen next. This is why many people are coming up with new ideas and plans – some of which may not pan out or may be undesirable. But this surely is a time to be creative and innovative (and inclusive).

The other interesting thing was the stress on the need to understand why 17 million across the UK and more than one million Scots voted to leave – to understand the lack of trust and confidence in government. While this may be argued to be less of an issue in Scotland where trust seems to be higher than for Westminster government, it is the case that the FM sits at the top of an insurgency movement herself that reflects, in part, far wider forces at play (and not just in Scotland/UK and the EU). Political (and societal) norms appear to be in unprecedented flux.

Opponents argue that this is all about another independence referendum. True or not, a second independence referendum is far from straightforward. A referendum will only be proposed in the best expected circumstances and there is much work to do to overcome weaknesses in the 2014 platform, especially on economic issues; and this will be done in an increasingly hostile, uncertain economic environment. The medium term future looks much less promising if the Scottish Government’s record of economic competency is to be maintained (without at least risking more unpalatable political choices over scarce public resources). Even if new Chancellor Phillip Hammond relaxes the austerity straitjacket, any short run economic slow down or recession matters much more acutely to Scotland’s public finances than was the case before the 2016 Act. Seeking to simply govern well without mishap  through this momentous period may be the best strategy. But who is to say what further bear traps await our politicians in the weeks and months ahead?

 

 

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Don’t you know there is an election on? [Part One]

In less than three months the UK general election will come round. It may or may not produce a definitive outcome. Like 1974, we may have to do it all again within just a few months.

And it is odd constitutionally, too. In a devolved political system, not only is there a bit of distance and insulation from the election viewed from a Scottish perspective – much of the manifestos are about domestic policies in only parts of the nation. On the other hand, if the post 2010 period has told us anything about contemporary Britain it has been the centrality of economic policy, macroeconomics and the public finance dependence on the UK fiscal framework. Austerity, welfare reform and their manifestations such as food banks have become touchstones for both the independence debate and the grounds for highlighting inequality as a live issue. And, of course, there is the possibility that nationalist parties may have a role to play in the post-election negotiations over government forming.

I read Nate Silver’s excellent book (The Signal and the Noise) a year or two ago and I am now exploring a book on the history of Bayes’ Theorem (as you do). Of all the countless pieces written on the referendum and its voting outcomes, the most compelling material (and essentially right in the end) was the analysis of political betting by the bookies (i.e. those with money or skin in the game) as investigated in a series of papers and blogs by David Bell at the University of Stirling (see the Centre on Constitutional Change and The Future of the UK and Scotland websites). I imagine that, whilst I will likely remain a non-gambler, I will nonetheless be returning regularly to the bookies sites to see how the political betting is shaping up between now and early May.

The Scottish dimension remains of interest also because the polls, really since the referendum, anticipate a huge vote for the SNP and if so the defenestration of the Scottish labour party at Westminster. And, apart from the implications for the UK balance of seats in Westminster, this will also impact hugely on the parties’ planning for the 2016 Scottish elections. As someone said today in a meeting I was at, the next Scottish Parliament will be especially challenging. It will have an agenda that includes coping with the (transitional) impact of the 2012 Act (partial income tax powers, Land Building Transactions Tax, some borrowing powers, etc.) and then negotiating the Smith proposals through legislation with Westminster. Meanwhile, there will be the further unwindng, to different degree depending on May’s UK result, of further waves of austerity and welfare reform.

Devolution does not stop with the four nations. City Deals and the Core Cities now stretch well beyond England. I was at the DevoSummit on Monday in Glasgow that featured the launch of the ResPublica report: Restoring Britain’s City States. I must admit that, while welcoming the overdue focus on city-regions and also the opportunity to share knowledge and collaborate across urban Britain, I do still hanker for something a bit less ad hoc than the city deals. I also think there is a bit of statistical flummery that goes on with city boosters that is not challenged enough – we are heavily urbanized in Britain; it should really not be surprising that most GVA comes from our core cities – demonstrating the underlying causality and how it operates over the economic development process are much more difficult but interesting questions. I also worry about the marginalized in all this – 2^nd tier standalone cities or towns and larger settlements that do not benefit sufficiently if at all from these initiatives. About a third of people in Scotland live in these smaller settlements and there is an obvious danger that resource and initiative bypass them compounding inequality and disadvantage.

While the UK General Election is underway, Scotland will also have a Council Tax Review scheduled to report in the Autumn, with the outcomes expected to feature in the Scottish election. This will seek to consider alternatives to the council tax based on the usual reasonable criteria: feasibility, fairness (in terms of ability to pay), accountability to local people and mindful of wider consequences such as the housing market’s performance and overall tax burdens. The SNP have a history of supporting an income tax solution (maybe local, maybe not); while as you will have guessed, I would want to see a more efficient form of property tax. The Review also will apparently consider (as logically it should) the continuation of the so-called freeze that through the concordat fiscal arrangements with local government has operated for eight years. As I have argued before, as did the recent Strengthening Local Democracy report, this has to end and the genuinely local element of local government finances has to increase. How will the rest of the UK look to the work of this commission, underway during a UK General Election, perhaps sending signals about possible local tax reform elsewhere in rUK?

So, the UK general election has implications that stretch across the different parts of our devolved nation including our city-regions and beyond. The Scottish question directly or indirectly is going to play an important part in the outcome and the post-election party negotiations. In the paragraphs above I have stuck to questions of multi-level governance and politics. In part 2, somewhere in the near future, I will turn to housing and the election.

This is my 100^th post on Brick by Brick. It has been an interesting and educational experience. It has been almost completely positive. Thanks to readers and those who have provided feedback in various different ways. I find my working life changed by blogging and continue to enjoy it immensely. I hope the next 100 will continue to be fun but remain a good discipline. I would also hope to get to 200 a little quicker.

Policy Scotland’s Contribution to the Smith Commission Debate

 The remarkable upsurge in political engagement during the referendum has been followed by a phase in which organisations and individuals across Scotland are preparing submissions to the Smith Commission. Smith is currently engaging in a wide consultation about what powers should be transferred to the Scottish Parliament, with the aim of obtaining a political consensus across all the main parties.

 Policy Scotland’s submission to Lord Smith raises a number of areas where more information and more thought is needed on the implications of changing tax raising and transferring welfare powers. Without this, the rush for a political fix for Scotland might result in an uneasy compromise that leads to instability. As we move forward to a devo-max or quasi federal solution for Scotland, the implications for the functioning of the Union as well as for the economic and social possibilities for communities, towns and cities, regions and nations across all of the UK need to be explored, bringing together the best research and leading thinkers.

 Our argument can be summarised as follows. In the past, ad hoc and asymmetric efforts at constitutional/structural reform have left the Westminster system largely intact, even as powers have been transferred. Despite devolution, the Union of Great Britain and Northern Ireland is one of the most centralised systems amongst western democracies, with unresolved tensions between levels of government and an unwieldy system of making public choices that many people in Scotland and increasingly in other parts of the UK regard as lacking accountability.

 Arguments about ‘devolution’, ‘localism’ and ‘subsidiarity’ may have different origins and levels of support in different parts of the UK. But underlying them are the same imperatives: downward shifts of autonomy away from Whitehall and calls for a new governance of Britain focused not just on the devolved nations but also on local authorities, especially in the city-regions. The implications of the transfer of powers following the Scottish referendum are not confined to Scotland. The question for the UK as well as for Scotland is how can relations between different levels of government be shaped in a way that addresses economic and social objectives such as improving competitiveness and increasing fairness, both real and perceived, in a Union that works.

 We have submitted a working paper to the Smith Commission http://policyscotland.gla.ac.uk/new-ideas-new-time-scotlands-place-new-union/

written by Duncan Maclennan, Des McNulty and myself. We propose a programme of events and debates which will we hope produce something greater than the sum of its individual parts – a structured ideas network that will provide the space to start thinking coherently about a range of devolution and decentralisation issues that go well beyond the additional funding and spending powers of the Scottish Parliament but rather addresses the fiscal systems, decision-making and substantive choices that could operate in a more coherent decentralised and quasi-federal system of nations, regions and local government in the UK. 

This debate is about mechanisms for pooling and sharing, equalisation and autonomy; it is about recognising the responsibilities of greater financial autonomy and the consequences and choices that go with that. We live in austere times; more powers don’t necessarily mean a net increase in resources but they could deliver better processes for making choices and improving competitiveness, provided that the right choices are made and the system of distributing responsibilities between different levels of government is coherent. 

The timetable and the political focus of Smith might not give adequate time for a full investigation of the issues we think are central to this debate about greater real autonomy. But we would hope to inform Smith and what comes after – the legislative process for Scotland, the thinking about city deals and how to reform the Union by bringing together expertise from the University of Glasgow, from civic and academic Scotland, and from strong international connections to federal and decentralised governance and fiscal systems elsewhere in the world. 

We do not pretend we have the answers to all the questions about institutional design, fiscal structures and how to best promote the economic and social justice improvements we are raising. But what we will do is develop a series of debates focused on the key questions and we will publish the main findings in specific papers, audio-visual materials and in a final report in February 2015 setting a road map for further work and engaging directly with the Smith Commission outcomes. 

We will be working on a programme of events of different sizes and types. Some of these we will run ourselves and others we will co-badge with partners. We will embrace local community levels of interest, as well as local government and metropolitan regions (and we hope talking directly to the concerns of Strengthening Local Democracy), as well as the Scottish and UK nations. We will avowedly take an internationalist and evidence-based approach, building on academic and policy links to countries like Australia, Canada, the United States but also important federal models in places like India and Nigeria and decentralising initiatives underway in France. Reflecting on this evidence, setting it in context and learning lessons will be essential to the work we will undertake. 

We will publish on our Policy Scotland website details and dates for our programme of events as they emerge. If any of these discussions interest you, please do get in touch. We will also publish outcomes and other materials from each event as we go along. 

During the Referendum, Policy Scotland played a neutral role enabling debate and providing a platform for the campaigns and other voices to contribute to the independence debate. In this critical post referendum period where time is at a premium and there is so little space officially for a more thorough-going consideration of devo-max, federalism and decentralisation, especially in terms of its economic, financial design and governance implications, we believe we have the opportunity to facilitate and support such a process of knowledge sharing and development. But this will be a genuine ideas network – we do not know where the debate will take us or what the answers might be. All we are doing is honestly framing what we think are the key questions and facilitating debate with leading thinkers from civic and academic society. We think it will be both important to the future but also a rewarding experience.

Note: this post was also published on the Policy Scotland website.

Scotland votes No – initial thoughts

After a campaign that lasted de facto more than three years, and in recent months saw an incredible heightening of political engagement and awareness, the votes are cast. Just more than 1.6 million people voted for independence but in a record 85% turnout, a little more than 2 million voted No. Glasgow, North Lanarkshire, West Dunbartonshire and Dundee voted Yes but most everywhere else, including Edinburgh and Aberdeen, said No.

Much has rightly been made of the huge and profound grass roots Yes Scotland campaign that has galvanized every corner of the country (and I now suspect more should also be made of the quieter No campaign – and the behavioural biases of salience and representativeness that arise when you walk around the country and only see Yes posters).

A key issue is therefore how to maintain and galvanize that enthusiasm for politics. Those of us who have long been involved in voluntary movements perpetually struggling to find board members, etc. must be encouraged by the political awakening both in Scotland as a whole but also in our more deprived urban communities. In Policy Scotland we are working with the Reform Club in London and the new John Smith Centre for Public Service – both of whom are fundamentally concerned with sustaining and promoting political participation and civic activism. Beyond this, the more radical political perspectives of the left and environmental sustainability have also had an energizing campaign – how will they now fare and how will they maintain their initiative? A challenge and opportunity, then, to keep this momentum alight across the board.

A yes-no binary and an equally sharp hope-fear characterisation of the debate do not make for easy post vote reconciliation. But it is clearly essential for all sorts of reasons and particularly in the months ahead as the unionist parties legislate on their further powers proposals, that ways need to be found to reassure the skeptics.

I must admit I had my doubts about the 16-17 year old element to the extension of the franchise – not in principle (it is clear to me that this age group should be able to vote) but I would question the practice of piloting it in a constitutional referendum of such criticality. It should have been tested in local government or the European elections. However, it is really important that we now move ahead and extend the franchise to all other elections.

There are already emerging a number of unintended consequences attached to the result. The prime minister has already implied that this will usher in constitutional change in the rest of the UK and in particular English votes for English MPs and also further announcements ahead about more powers for English cities. How will Labour deal with that critical challenge to the future – is it conceivable for a UK government to be elected with control over reserved matters but unable to deliver its manifesto proposals in England because it has no majority of English MPs (but isn’t that what devolution implies already in Scotland)?

Federalism, quasi-federalism and more symmetrical devolution will become the Uber-subject of the next few weeks and months for the think tanks and commentariat and I suspect we will look both to federal systems around the world and reform processes already underway (e.g. France). A good place to start is David Torrance’s excellent wee book – Britain Rebooted.

Wearing my other policy research hats, I do hope that the next few months will not be completely swamped in these constitutional matters. Policy reform must continue and of course there is a degree of consensus in Scotland about the Christie Commission proposals and the ‘Scottish approach’ to public policy including the Scotland Performs framework. There are several elections ahead of us and we are crying out for alternatives to austerity and better ways of dealing with wicked often place-based problems. Let’s keep that fully in focus.

 

Resetting the Rubik’s Cube: Strengthening Local Democracy in Scotland

Last week the main report of the Commission on Strengthening Local Democracy was published.[1] This report delves into the case for root and branch reform of Scottish local governance, local democracy, finance and community participation. It is of the moment in the sense that it follows on from the Christie Commission and the Community Empowerment legislation about to go through the Scottish Parliament.

This is an area of great interest to me. My first serious research was about the poll tax and its potential impact on the housing market. This led to a continuing interest in the arcane world of local government finance. Much more recently I worked with Jim Gallagher on a (still unfinished) project looking at different dimensions of reforming local government [2]. And now I am involved for the next three years in What Works Scotland, which is focused on Community Planning Partnerships and in which local government is a key partner in the analysis of effective public policy [3].

One of the key arguments we developed in our David Hume Institute work was that local government reform and indeed functional local governance has to simultaneously fix three kinds of problem: of geographic scale (how many councils and of what size), the distribution of functions (between local and central government) and finance (how it is all paid for and what proportion is locally-raised). The problem is that fixing one dimension is difficult enough, let alone addressing all three. Hence, the Rubik’s Cube metaphor.

The new report from the Commission is quite high-level , full of plans and intent but relatively short on specific details. it agues for a further commission in the aftermath of the referendum outcome. But it is nonetheless full of interesting and thought-provoking ideas, which do attempt to wrestle with the multi-dimensionality of the different sides of local government.

The objective is to reverse the process the Commission sees of long term de-localisation of local government manifested in larger councils, reduced local control over finance and consequent distancing of key decision-making.

The Commission recommends legislative powers to guarantee a return to local governance strengthening the participative rights of individuals and communities and to sytematically reverse the processes of recent decades. Key recommendations that particularly struck me included:

1. A bottom up vision embracing deliberative assemblies, participative budgeting and empowered community planning based on legal duties to ensure the community’s role in CPPs.
2. The precise shape of the newly constituted local democracy and relationship between communities, local governments and the Scottish government should itself be the product of a wide ranging participative and inclusive process.
3. However, restoring at least 50% of tax revenues locally is deemed essential and would be supported by restoring local control over council tax and business rates but by also adding the new devolved land and building transactions tax to local government. There is a strong commitment to land and property taxation. This principle of increased taxation determined locally is viewed as essential to the accountability and meaningfulness of local democracy. The Commission also suggests limited powers for local government to set new local taxes.
4. The Commission argues that the European Charter on Self–Governance, focusing on competences of local government and the principle of subsidiarity, should be legally enshrined. The Commission also calls for an independent office of wellbeing to test and monitor the impacts of economic, financial and other social policies on wellbeing (especially in terms of inequalities).
5. A major investment committed to community learning and development and to setting up a centre for participatory democracy.

Overall, we have a strong call for localising Scottish local government, based around empowering citizens and their communities and by challenging the long term centralized financial settlement. The next stages involve a consultative participative process to take this all forward.

All in all the report raises a number of interesting points.

First, it could be viewed as local government in Scotland (since it is an important voice in the Commission) seeking reforms that will on the one hand reduce the scale and scope of local governments, increase the place and role of the citizen (thereby reducing councilor power), but at the same time offering more control over resources. These will be interesting, indeed challenging checks and balances to achieve in practice .

Second, there are two main attacks on Scottish Government orthodoxy – first of all wishing to reduce their financial control and thereby lessen the gearing effects on council tax but also making a grab for LBTT funds. Ending the council tax freeze is a prerequisite but is quite at odds with Government policy. The faith in property taxation is also against the long term position of the Scottish Government to move to local income taxes. Of course the logic of the Commission includes the possibility of a combination of property and income taxes levied locally.

Third, the approach is quite in tune with the espoused Scottish approach to public policy – of co-production, local assets, partnership and community-level institutions prioritizing policies and engaging fully in policy processes and delivery.

Finally, one thing that is not really addressed in the report is the (unknown) strength of taxpayer resistance to the sorts of things that are being called for. How, in 2014, do businesses feel about ending the principle of the uniform business rate, of granting tax creating powers to local government, to ending the council tax freeze and even I daresay revaluing the tax base as a whole? There is undoubtedly considerable opposition to rational and progressive policy reform ideas regarding local taxation. Moreover, the long shadow of the poll tax makes government remarkably unwilling to tinker with local taxes (as the SNP found out during their minority administration). Even if one was not going to pursue really radical ideas like a land value tax – the powers of conservatism are very strong in this area. Maybe it can be overcome – but it needs to be discussed fully at the very least.

So, lots to think about and one hopes this will be an on-going process that gets sufficient buy-in to allow the debate to grow and strengthen like the local democracy the project wishes to foster.

A final petty point – I really did not like the publishing presentation software that the report is based on. Maybe it was just me but it seemed cumbersome to my untutored abilities.

Notes

1. http://issuu.com/cosla/docs/final_report_august_2014?e=3578316/8937043

 

2. http://www.davidhumeinstitute.com/images/stories/publications/HOP/HOP_70_Local_Government.pdf

 

3. http://whatworksscotland.ac.uk

 

Springboards, safety nets and moving goalposts: the reform of welfare post-referendum

The second report of the expert working group on welfare reported this morning to the Scottish Government. In their report they set out a vision of a future welfare system, they propose short and medium term reform priorities and suggest different longer term routes or choices.

What is striking about this report is that it offers an (albeit incomplete) alternative prospectus for social security, work and welfare that presents a very different perspective to that of DWP. It is remarkable that this is the first such detailed joined-up approach that tries to do this in any kind of comprehensive fashion. I think this is its single biggest plus point. It speaks just as much to the UK as it does to Scotland and it also has much to say to a Scotland continuing in the UK as to one that votes for independence. For that reason alone it should have wide readership and act as an important basis for future debate.

The other thing that strikes one is the completely different tone and approach. It is refreshing to see the working group suggest that things do not need to be like they presently are. And if welfare is to be, as they envision it, personalised, fair and simple (themes that they recognise can be in tension with each other), then aspects of the present reform regime have to go:
– reinstate the uprating of benefits and tax credits with CPI;
– roll back the sanctions and conditionality of the present system with a more humane approach to active labour market policies;
– scrap work capability assessments and replace the work programme with new initiatives to help people find and stay in work;
– abolish the bedroom tax;
– uprate the benefits received by carers so they are on a par with JSA;
– shift the universal credit towards a new social security allowance which looks similar but has housing benefit hived off from it; but this would be paid out according to the wishes of the recipient and if there is a carer the cash would go to them; and
– move the public sector over the life of a parliament to a living wage model and phase in the living wage in the private sector by growing the national minimum wages, paid in part by reduced employer national insurance contributions.

In the medium term the working group argues that policy and debate marshalled by a convention and by a commission both focused on the long term development of social security. The priority is argued to be about better support for the disabled. In the long term, there is a debate to be had over the fundamental direction of welfare benefits – either a contributory principle road or one based on a basic citizen’s income.

A number of things strike me and, it should be stressed, they do so prior to any close reading of the report.

First, the key is the future performance of the labour market, the ability to improve labour market conditions at a local level and address in work poverty for, among others, the 400,000 or so Scots earning less than the living wage. I would like to know much more about the policies and the evidence with which one can marshal arguments that decent paid work can remove those hard to reach from poverty and keep them above the waterline.

Second, while there is a pleasing consistent effort throughout to cost and identify benefits from savings, etc. I still worry about the indirect, second round and behavioural evidence. We have learned for instance from the failure of DWP reforms to have the anticipated effects on the private rented sector (e.g. rents did not fall) though in other cases there is evidence that the consequences of the household benefit cap has induced people into work in London. There is a lot that needs to be done about better understanding behaviour by recipients, people at the margin and employers before racing to reform.

Third, affordable housing looms large as a basic issue. The expert working group makes positive noises about longer standard private tenancies and about holding rent increases back to inflation only increases during the life of tenancies (similar to recent UK Labour proposals). They also want more affordable housing supply that allows investment to reduce rents and hence the social security bill (though this is a re-profiling of net public expenditure between capital spend and social security which may or may not cost more depending on how it is designed). Working age social tenants (and landlords) would be helped furthermore by keeping housing benefit separate from their version of rolled-up cash benefits. This also needs to be seen in the context of ending the iniquitous bedroom tax.

Fourth, the social security allowance proposal chimes with my own view that we need to rebalance the cash benefits and specific personal housing subsidies with, to my mind, relatively more resource going to unrestricted cash benefits and a more affordability-targeted tenure-blind housing allowance being the long term goal.

Fifth, how will this be received by the wider public? How correct are they to say that the Scottish people are more willing to embrace this welcome progressive turn in the direction of welfare benefit policy? What, if anything, does the election of a UKIP MEP tell us that social attitudes survey do not? As I said at the outset the fresh approach on social security outlined by the working group also speaks clearly to the UK reforms of working age benefits and I do hope there is debate over these ideas and principles that goes beyond Scotland and reaches IDS and his team.

Sixth, the working group have suggested that the long term shape of benefits will be the resolution of a struggle between either contributory or non-means tested philosophies. I thought the recent contributions promoting more (modestly) contributory benefits from Demos (Something for Something, June 2013) in part unconvincing – especially proposing to fund it by switching to more private mortgage protection insurance. On the other hand, basic income and negative tax ideas have major funding issues to confront if they are to be adequately provisioned. Many of the basic income proposals being discussed are actually rather modest and do not really scale up to the level that surely they ought to be striving to achieve. But the fact that there might be justifiable scepticism on either side warrants further debate and analysis – perhaps we must start by accepting that the welfare funding required for the good society will cost something in terms of tax or foregone growth but that it is a price well worth paying.

The working group’s report is a useful contribution to the wider welfare reform debate. I am not sure what its impact will be on the referendum, but I hope it will be a positive weapon to shift the often toxic welfare debate in a more positive way that might ultimately matter for those in poverty in or out of work right now across Scotland and the rest of the UK.

Brown in Motion

As part of my day job at Policy Scotland we have been hosting and co-badging a series of events about the independence referendum. We are neutral in this endeavour and the objective simply is to put evidence into the debate. We have to that end hosted events by both sides and a series of ‘what if’ scenario debates. We had a lecture by John Swinney, a session by Douglas Alexander, a debate on the currency options were there to be a yes vote, and last night we had Gordon Brown.

The Chancellor of the University, Sir Kenneth Calman, introduced the event and said some nice things about Policy Scotland. Gordon Brown spoke for 45 minutes before taking questions for about a further 25 minutes.

I have seen him speak before. In 1997, as part of the devolution referendum, a series of Labour ministers flush from the landslide election victory came to Hamilton to talk up voting yes for a Scottish Parliament. I remember him being impressive, quite academic and almost scholarly in his speech. But perhaps he also benefited from following a less impressive John Prescott?

Last night he was speaking in the University Charles Wilson lecture theatre – a remodelled church with a steep banking of seating but a place I always like going to for these kinds of events. His name and reputation brought a big crowd, media and a buzz of anticipation for a rare sighting of the former PM. The large audience were generally very warm and supportive. The only heckler of note actually wanted to turn the unionist clock back to the position before 1999.

I thought I might use this post to talk about the rhetorical style he deployed rather than the substantive details, most of which had been widely trailed in the media before and after the talk. He remains an impressive speaker, building his argument and working the crowd hard.

He started in the classical style with three or four jokes. This included quite a good line about Universities and their stressing of integrity and rationality. All the virtues, he noted, that were left behind when he went into a career in politics. He made the usual jokes in favour of the host city he was speaking in at the expense of other cities and Universities.  The lines were well-delivered and often quite funny. He can be a bit ‘clunky’ but somehow it still all works as a package.

I was also very struck by two distinctive features of the presentation. First he had, no teleprompter, notes or aide memoire but rather performed something of a feat of memory including plenty of statistics, stories and historical evidence. Second, rather than stand at a lecturn, he spoke by prowling from one side of the stage to another with a large banner behind him that stated ‘strength, stability, security’. Throughout the evening he was in perpetual motion and this rhythm seemed to be a key to working his way through the structure of his speech.

A further key to the speech was that familiar rhetorical trick of repeating the same phrase again and again till it was independently bouncing around inside your head. How many times did he say ‘pooling and sharing’ fundamental social and economic rights? I think this is a standard part of his speaking style but it was particularly striking.

Like 1997 he drew a lot on the historical record, such as the key role of Tom Johnston during the war promoting the case for a nationalised NHS against the majority of the war coalition cabinet. During the Q&A he argued that there was not anything uniquely or more radical about the Scottish political position relative to others in the UK – but that there is a myth of a Scottish progressive tradition that can be built on.

And those jokes? Some were old but they were still generally effective. Two examples:

A new Chancellor of the Exchequer receives four sealed envelopes from his chief advisor on the grounds that they are only to be opened in consecutive order in times of real crisis. Things eventually do go badly wrong – the first says ‘blame your predecessor’, the second says ‘blame the statistics’, the third says ‘blame the EU’, the fourth says ‘write four letters for your successor’.

Richard Nixon travels to Ghana for its independence celebrations when vice president in 1959. He goes into the crowd and asks everyone he meets how it feels to be free. The third person he asks says ‘how should I know, I come from Alabama’.

In the end, those committed to the opposing sides of the debate will make up their own mind on the merits of the arguments Gordon Brown deployed and I was not surprised to see a wide range of reviews from the media present at the lecture. I am sure people will consider the significance of his intervention and the apparently wider role he appears to be taking in the referendum campaign. However, even if you disagree entirely with his position, we were given the rare opportunity to witness the effective rhetoric of an old-fashioned political speech made by a senior politician who can still unquestionably ‘do the business’.

 

 

Housing Benefit: The Devil in the Devolution Detail

IPPR has suggested that in the event of a ‘no’ vote, further devolution should include transfer of Housing Benefit (HB) to the Scottish Government. This work by Guy Lodge and Alan Trench was trailed in the Scotsman last weekend and published by IPPR on Tuesday (Devo More and Welfare: Devolving Benefits and Policy for a Stronger Union) and is a proposal receiving support and consideration in many quarters. The point is made that housing policy is devolved but in one respect it is not – the welfare payments that are so important to rental income. Cannot housing be dealt with more comprehensively if wholly devolved? At the same time, the widely recognised dislike in Scotland of the Coalition Government’s welfare reforms, especially the bedroom tax, has galvanised opinion and interest in welfare policy reform both from those who favour independence and those who do not.

The essence of their proposal can be summarised thus:

1. There is no strong argument for devolving those benefits which are a core of the UK’s social union.
2. But devolution of some aspects of welfare benefits could improve social and economic outcomes by among other things providing more joined-up policy.
3. Housing benefit should be devolved because it is so closely linked to social housing policy and the housing element of Universal Credit should be separated where such HB devolution has occurred.
4. The Work Programme and the child care element of Working Tax Credit could also be devolved, as could Attendance Allowance.
5. Devolved governments might also be given a general power to supplement UK welfare benefits funded from devolved budgets.

Clearly one needs to accept the authors’ fundamental position on the referendum i.e. the position of devolution-plus and the social union. I think that their argument for devolving the work programme and attendance allowance – integration of funding and service delivery and joined-up programmes, most of which are already devolved – make a lot of sense. But I remain unconvinced about what they propose for Housing Benefit although it is more developed than was the SNP’s pledge to devolve HB in 2011.

The authors persuasively argue that devolution of welfare has to meet a series of internally consistent criteria. They accept that HB is to an extent counter-cylical but put this is wholly down to rents going up in the Private Rented Sector. They contend that social housing policy and property tax policy is devolved (or will be shortly) which helps their ‘integration’ case. They also build on the wider IPPR housing policy proposal that devolved governments (or local authorities) that makes a case for combining supply subsidies and HB in a single grant which can then be used with discretion to meet housing need – and thereby reverse the decline in supply subsidy relative to demand subsidy. They also propose that the devolved government should have the power to supplement HB funded from devolved funds.

I would make a number of responses to the report. First, if the cyclical element of HB is primarily down to the rental market why not just devolve HB for social housing – would that not fit better with the integration of social housing policy? Second, I agree that devolution can breed policy innovation that can have wider UK-level benefits so reform should support that capacity. Third, providing supplementary powers to add to welfare benefits (and potentially reduce too?) is interesting but is paid for directly out of the devolved budget. By the same token, the Scottish Government will need to effectively negotiate the change to the Block grant or increase in assigned tax revenues or tax powers that would fund long term changes associated with greater welfare benefit powers. This is a one off decision with long term consequences and not in any sense a straightforward calculation.

I have three more critical points to make. First, on balance I disagree that housing is quite as devolved as is suggested. In particular, mortgage lending and lending to social housing is not devolved; neither is the wider tax treatment of home ownership or that of private renting. I do not think we can talk about integrated policy if we are only looking at one sector of an inherently interdependent system. Second, I fundamentally disagree with the idea of combining benefits and supply subsidy and providing it locally. I think this will lead to a proliferation of local means tests (like it has in England with council tax reduction and in higher education) and there are massive transitional issues for benefit recipients. I would have thought the experience post 2010 of attempting to implement redistributional welfare reform should be a cautionary tale.

Third, we need a different big picture or vision about benefits – and I think that requires a  radically recast HB and would be done so in order to overcome its remaining major structural problems that were there before IDS and are still there now. My own end point for welfare benefits would be a more generous general cash benefit and a much more constrained housing allowance. But that is about a radical change in direction. Ironically, UC could be the precursor to the cash element. I do not, however, for a moment think that my proposal could or should be rapidly introduced. It needs to be phased in, transitional effects damped, and would emerge after a consensual political process designed to develop a comprehensive approach to the relationship between general cash benefits and specific housing support. We presently rely on housing benefit to do two things that seem increasingly problematic: allowing for a miserly cash benefit by meeting all eligible housing costs for the poorest and, increasingly, playing a role compensating for low wages for the poor in work. Neither of these outcomes makes for a better housing system or ‘make work pay’. A substantially larger cash allowance and a more targeted tenure neutral housing allowance aimed at affordability considerations would be a better goal.

Finally, I should declare an interest. After the 2011 Scottish election, Mark Stephens and I wrote a short paper on devolving HB for CIH/SFHA as a result of the SNP’s election manifesto pledge. We argued that it is not sufficient to simply move the responsibility of a welfare benefit, the point is to actually develop a more efficient and progressive form of income-related housing subsidy. We argued that simply working with the same level of HB funds in a context of austerity greatly reduces the scope to do something worthwhile with these new powers; otherwise, there will be an invidious combination of winners and losers. Clearly, IPPR have considered this via their proposed supplement but it is not for me really enough. Instead, Mark and I argued that rather than seek to use such an opportunity to ameliorate the bedroom tax or otherwise tinker with benefit levels at the margins of budgetary discretion, we should consider what is required to make a systematic step change.

The IPPR report is a thoughtful and considered contribution from the devo-plus perspective. I think it moves us forward even if I have specific issues with key aspects of what they propose. While I might not agree with the specific housing subsidy proposal I do think we should be thinking more boldly and debating wider reform as a result of both the DWP reform programme and the opportunities created by the constitutional debate. Yesterday, Vince Cable gave a lecture on the economics of the independence vote at the University. I asked him what he made of the IPPR proposal and he indicated in principle support for devolving tax and benefits subject to  proper assessments of their individual impacts and a sense of thinking though their unintended consequences.

Questions for 2014

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

Policy Debating, Rhetorically Speaking

A few weeks back I read a post by Alex Marsh, which adopted the ‘rhetoric of reaction’ argument originally developed by Albert Hirschman. This involves the development of the thesis that reactionary political thought as rhetoric can be understood from three perspectives: perversity, futility and jeopardy. I was so taken by this that I went back and read the original book published in 1991. It speaks also to our contemporary policy debates

Hirschman is most famous probably for his ‘exit, voice, loyalty’ framework but this little book is also a tour de force. He sets out his three theses of reactionary argument set against three paradigmatic progressive-reactionary debates: the meaning and effects of the French revolution, the struggle to extend the franchise to universal suffrage and the more contemporary debate about the impact of the welfare state in western economies. It also helps to recognise that his book was developed at a time of the ‘end of history’, the collapse of the Iron Curtain and the triumph of neo-conservatism under Reagan and Thatcher.

An argument that helps us deconstruct the nature of reactionary rhetoric is not just useful as an academic exercise – perhaps it can also instruct in terms of contemporary politics, both in the current stalemate of the US Congress but in a couple of major cases closer to home.

Let’s set out the argument. Hirschman says (p.7, original emphasis) ‘According to the perversity thesis, any purposive action to improve some feature of the political, social or economic order only serves to exacerbate the conditions one wishes to remedy. The futility thesis holds that attempts at social transformation will be unavailing, that they will simply fail to “make a dent”. Finally, the jeopardy thesis argues that the cost of the proposed change or reform is too high as it endangers some previous, precious accomplishment.’

Thus, a combination of rhetorical arguments are used to rebut progressive proposals on the basis that they will either make the things they wish to improve worse in some sense, or that in fact these efforts will make no difference (often because of immutable laws of nature or society). Third, it is considered that the reform would threaten prior, valued achievements. These are clearly not mutually consistent – but this is the cut and thrust of political debate after all.

Do note that Hirschman is quick to recognise that these three devices are not the monopoly of reactionaries but may be used by the very progressives hitherto attacked, again for rhetorical effect. But they are characteristic of the kinds of arguments used by reactionaries in the face of calls for social reform.

An interesting facet of the book is that as Hirschman develops his argument he in fact comes to the conclusion that reactionaries and progressives can all too easily inhabit a world of political extremes where their arguments rule out any accommodation with the other side – what he calls the ‘rhetorics of intransigence’. He sets this up nicely by counter posing three sets of arguments (p.167):

“Reactionary: the contemplated action will bring disastrous consequences.

Progressive: Not to take the contemplated action will bring disastrous consequences.

Reactionary: The new reform will jeopardize the older one. 

Progressive: The new and old reforms will mutually reinforce each other.

Reactionary: The contemplated action attempts to change permanent structural characteristics (‘laws’) of the social order; it is therefore bound to be wholly ineffective, futile.

Progressive: The contemplated action is backed up by powerful historical forces that are already ‘on the march’, opposing them would be utterly futile.”

Initial views, values and the fundamental way in which different groups recognise data as legitimate and what that evidence actually means – completely sets the two parties apart and never the twain can meet. The final example above is particularly striking. In response to the fundamental worldviews of the reactionaries (e.g. the Pareto principle or Burke’s desire to conserve long-established institutions) the opposition put forward contrary explanations of how the world is – Marxism being an obvious example.

Hirschman concludes by seeking to move us beyond these intransigent postures to a more democracy-friendly debate. He astutely recognises that it is a likely to be a ‘long and difficult road’ (p.170). Nonetheless, this engaging text ends by reflecting on the fact that what started off as a critique of reactionary thinking and how it espouses its argument ended up a ‘more even-handed contribution – one that could ultimately serve a more ambitious purpose’ (ibid).

Sadly, since at least the mid 1990s and particularly since 2010, the breakdown in the middle ground in American politics, the more extreme political discourse and the disavowal of evidence in political debate – all suggest that Congressional and presidential politics have slipped much more into the mire of the ‘rhetorics of intransigence’, as the recent brinkmanship around the budget and the debt ceiling showed so alarmingly.

But this shift is also, I think, apparent in the UK debate on welfare reform, on incentives and the ‘fairness’ of benefit cuts. The Government and the wider advocates of the policies inhabit a different world and sense of what constitutes legitimate evidence compared to those who oppose the policy reform. This is undoubtedly also true of several other aspects of Coalition policy.

However, the conclusions of the Hirschman rhetoric of reaction model are also I think a useful way of thinking about the two poles in the Scottish independence referendum. Increasingly one feels that the two sides cannot really enter into any meaningful debate at all because they have completely opposing conceptions of what would be the reality of an independent Scotland or a continuing Union. This colours how they interpret almost any new piece of evidence lobbed into the debate. Of course, there is a locked-in rhetoric especially on the part of the no campaign, who do not feel the need to make much of a positive case at all. At the same time the yes campaign increasingly present a case, which is to them wholly self-evident, such that it is hard to see how one has any real kind of debate at all. Would Hirschman recognise the Scottish debate as a democratic-friendly one or as one of intransigence?

Albert O Hirschman (1991) The Rhetoric of Reaction: Perversity, Futility, Jeopardy. The Belknap Press of Harvard University Press: Cambridge, Mass.