Ken Gibb's 'Brick by Brick'

Housing, academia, the economy, culture and public policy

Category: Public Policy

Prevention and Predictive Analytics

 

I was at a What Works Scotland seminar this morning, the latest in our joint events with NHS Health Scotland on the Economics of Prevention. Papers and slides and a summary of discussion groups will be posted at the WWS website. We heard papers from Heather McCauley on the use of predictive analytics in New Zealand, on modelling the burden of disease by Diane Stockton and using agent-based models to consider informal care and obesity by Eric Silverman. They were followed by Ian Marr who summed up, drawing on his first-hand knowledge of social impact bonds and the social impact partnership model he has been developing.

A key aspect of preventative thinking, from Derek Wanless to Campbell Christie and beyond, is the issue of understanding where the most public service spending goes and therefore targeting spending, as far as one can, to those people and needs that will otherwise generate disproportionate public cost e.g. early year intervention to prevent what would otherwise lead to, in high likelihood,  negative future outcomes such as less good education and employment outcomes, poorer health and or episodes involving the justice system. A key issue is also how to manage the disinvestment that goes with a shift to prevention.

While it was fascinating to hear Eric Silverman tall about these simulation model as safe playgrounds of policy experimentation without consequences (unlike piloting, for instance), I want to talk  primarily about Heather’s exposition of preventative predictive analytics in New Zealand. She told us about the evolution of the programme, how it works and provided detail in terms of policy spheres such as welfare benefits and children in care.

The three big lessons and challenges that arose for me were as follows:

  • Moving government to think and act in terms of the lifetime costs (on an actuarial basis) rather than the annual cash costs of a high need individual, household or client;
  • Using statistical/econometric methods to uncover the probabilities that signify the high need households and individuals – the diagnosis of where lifetime costs are very high and therefore where large potential savings can be made; and
  • Designing the optimal mix of practice and policies that allow case managers to maximise the effectiveness of intensive interventions (what works?).

All three are difficult – the third, perhaps the most challenging. Let’s look at each in a little more detail.

Heather described the need for culture change to take on the lifetime cost approach. She pointed out that New Zealand has a culture of seeking the best possible value for the public dollar and so the shift from short term to a longer, multi-parliamentary term perspective, can be made and perhaps done so more readily than in the UK or Scotland. Many of us might be comfortable with the idea of focusing on the lifetime savings made by preventing someone falling into the negative outcomes suggested above – but it does require current governments spending money now and postponing benefits to future governments.  Heather provided the example of using a helicopter to transfer a spinal injuries patient from an accident site immediately to hospital with potential long term savings in reduced future health care costs. Lifetime benefits considerably outweigh upfront (helicopter usage) costs.

Second, the New Zealand benefit figures suggest that much of their employability spend goes to job seekers who are a small proportion of the total client group compared to the higher and persistent incidence of for example those on disability benefits and lone parent benefits. They cost more in lifetime terms and represent longer term need. Modelling under certain conditions offers, to different degrees in different policy areas, a reasonable basis to diagnose where highest need is concentrated and where benefits might be maximised by effective targeted interventions. But as was stressed in the presentation, these models produce probabilities and associations; they are not causal and indeed there is a fascinating question about understanding why some highly at risk groups remain resiliently unaffected in future years – what can we learn from their resilience?

Heather rightly recognises the suspicions and criticisms open to these sorts of approaches (often relating to big data and predictive algorithms): bias, non-discretionary model creating discriminatory or arbitrary outcomes, perverse incentives, moral hazard and discrimination like cream-skimming of the cheapest easiest candidates in areas like the work programme.  Transparent models (all on line from the New Zealand government) and independent scrutiny of the models, their assumptions and how they work ‘under the hood’, is essential, as is always seeking to improve the model and to reduce negative aspects of models.

Finally, there is the classic what works question – assuming that the modelling has indicated who and where the highest need target group resides, what are the suite of policy tools and interventions that best reduce the lifetime cost and make those savings because negative future outcomes are significantly reduced? How do we assemble good practice, policies, and effective case management in the variety of policy areas likely to be developed? A sector by sector repository and on-going discussion about these tailored responses is essential.

Predictive analytics has well founded criticisms but as in so many areas, this is one where continued independent scrutiny, a commitment to transparency and a willingness to continuously improve modelling, can provide valuable prevention benefits but there I can be no guarantee that this will be so. Furthermore, there is the small question of then designing the appropriate mix of policy responses aimed at those in most need

 

Returning to the Start: Housing and Public Health

 

Housing intervention by the state started with public health challenges. Public health approaches today have much to say about the structural determinants of health inequality, spatial inequities and connections to key sites and drivers of these inequalities. Housing is of course centrally implicated both in terms of physical and mental health, but also in relation to the broader wellbeing of individuals, families and communities. Housing conditions, fuel poverty, unaffordability, all manners of indicators of unmet need are relevant.

The Scottish Public Health Network have just published a new report: Foundations for Well-being: reconnecting public health and housing. A Practical guide to Improving health and reducing inequalities (lead author Emily Tweed). It sets out to be a ‘best practice resource’ to guide the Scottish housing and public health sectors to improve health and reduce inequalities through good housing. It is well worth a look.

The report is a primer that sets out the context facing the different professional communities, provides useful links to data and policy resources and provides recommendations for good practice and development for both. The big health themes touched on by housing include well-being, ageing, inequality and poverty, health and care integration, community empowerment and climate change. What is helpful as an educational and professional resource is that the report provides a basic grounding or primer for either group, sets out a long list of statistics and other policy and practice connections as well as key practice pointers.  There are also useful diagrams and boxed case studies.

The report (section 2 and appendices) has a nice discussion of the complex multi-dimensional relationship between housing and health (also see a recent review of housing and health inequalities by NHS Health Scotland ). These dimensions include:

  • Bi-directional – while housing may influence health the opposite is also true with health issues constraining locational choices and housing design as well as impacting on financial constraints and employability.
  • Context-specific – impacts and strength of these connections will vary across different populations (and sub-groups), eras and places.
  • Direct and indirect dimensions – where indirect effects can include for instance burdensome housing costs reducing access to other health-benefitting activities.

As the authors say (p.15): “acknowledging these complexities helps add nuance to our understanding, but does not undermine the central fact that housing can be a powerful determinant of health and wellbeing, and of inequalities in their distribution across the population”.

Section 5 is an excellent compendium of resources for housing and public health. Just one example worth following up – a very useful public health oriented report from Wales on the prevention case for housing investment . The final section looks at opportunities for joint working, initiatives that might be taken to link data in housing and health (potentially very powerful) and specific priorities like the private rented sector and strategic joint planning around for instance health and care integration.

I would not pretend to have any background in public health other than reading about it in a housing context and occasionally debating these causality questions with colleagues. More recently through What Works Scotland and through public health colleagues in the University and beyond I have become more engaged with these important inequalities questions. A report like this one is a great practical way into these questions for researchers, students, practitioners and policy facing professionals alike. Well done.

 

Rent Reform and the Too difficult Box

 

Over the last 20 years, I have worked on at least five discrete projects about rents and rent-setting. This has included studies funded by governments and by individual providers in Scotland and Northern Ireland. A feature of this experience has been on the one hand that precious little reform of how rents are set followed on from this work (score zero for ‘impact’), but at the same time, it has been a learning curve. In this post, I want to reflect on these lessons.

First,  we are primarily interested in the pricing of social housing. By that we mean the level of the average rent, the way that rents are distributed around that average reflecting variations in, or differentiating the, quality of the stock, and, how we uprate rents each year. A fourth theme is whether these principles can be established not just for one provider but across a housing system (e.g. all social landlords), be that a local authority, a region or even a country. A fifth theme is whether rents should be consistent across the entire stock or whether pooling would not extend to separate well-defined schemes and new developments? Most of the following discussion assumes complete pooling (e.g. with a premium applied to new build should it be required).

Second, this desire to look at rents may arise because of policy seeking to remove anomalies and put rents on a more coherent basis than current perception or evidence would suggest. It may also arise because of the actions of a single landlord (e.g. taking over another landlord’s stock), it may be due to external policy challenge such as welfare reform or the sense that competitive threat makes its necessary to review the rents. It may also reflect asset management strategies and the use to which rental income is put. There could conceivably also be internal pressures from board members or tenant groups, or indeed staff groups, to address perceived shortcomings. However, we should not underestimate the ability of these groups alongside other stakeholders like lenders or the regulator – to resist or dilute rent reform proposals.

Third, what are the key principles involved? One would be consistency – that rents are differentiated on a rational and credible basis e.g. bigger properties, more space and more amenity command higher rents and do so in a coherent way. A second would be affordability (a thorny issue in its own right) but typically about securing low cost housing for low income households, especially those just above HB ceilings, often in low wage work. A third point would concern viability – does the rent allow development to take place and does it support the ongoing operational delivery of housing services thereafter?

Many readers will recognise longstanding problems of archaic rent structures lost in the mists of time, of anomalies in rent levels comparing similar properties from different landlords and inconsistencies within a given landlord’s portfolio when looking at different areas, vintages of stock and other similar problems. There is also often the sense that rent systems may be past their prime and are slipping into entropic disorder accelerating over time.  These discrepancies can be brought to light particularly during periods of new development, when stock transfers or mergers take place and when the external policy environment sheds perhaps too much light on the way rents are done.

So how to reform? I worked with one landlord who initially wanted to bring the full weight of evidence and analysis through a sophisticated formula rent. The stakeholders I mentioned earlier thought not and subsequently a much simpler model based really only on size and property type became the favoured option. Others lose their zeal for reform when they see that, as in England in the 2000s. shifting to a national formula rent (complete with local average rent convergence across landlords) requires long term adjustment over 10-15 years and also implementing protection measures for those losing out in the form of damping to lessen year-on-year effects. While the English model was relatively complex – such a process of transition and convergence could be devised for much simpler internally consistent models. But a big lesson from the English experience for me has been the unwillingness of Governments to see these sorts of policies through. The simplicity of a national formula rent, for all its problems (e.g. the financial pressure it put on landlords who had to slow down planned rent increase), fell apart after a change of Government and their desire to set off on different paths for non-market housing and required rents for new models. This was then followed up by statutory rent cuts to save on housing benefit – massively expensive for social landlords who in good faith planned reinvestment (as well as  just trying to retain the resource levels of  their landlord operations).

Geography is interesting concerning policy trajectories over rents. Alongside the English experience since 2000, Northern Ireland’s social sector appears to have had quite a lot of discretion though in fact almost all social landlords base their rents on some version of sorts of the dominant (Housing Executive) landlord’s rent points policy from the 1980s.  Again, this has gradually become less recognizable over time (and average rents remain lower for Housing Executive properties). In Scotland, on the other hand, despite earlier research studies examining the merits of a more national system of rent-setting, there has been absolutely no interest from those who would champion rent reform. And as a result, Scotland probably has the least coherent and comparable rents in the social sector across the UK. Yet no-one gets that excited about it, other than in terms of the starting rents required for new build, and the impact of LHA caps on rents and rental income received.

So, does viable, affordable and consistent pricing of rents matter? At one level, of course it does. But more broadly, surely it still makes sense for tenants to be able to make rational, informed judgements about price and quality both within a landlord’s stock and between different landlords? Arguably the growth and encroachment of private renting into the non-market housing sphere is another reason for more not less transparency. But if the regulator is tolerably happy with the situation, if tenants are not too despondent about annual rent increase (outside of England), and if providers are up to their necks in operations and crises, unless the policy environment forces it on them – rent reform is not going to be coming anytime soon. Like so many public policy reform questions, the rationality and benefits of rent restructuring are outweighed by their time, resource and political costs (and it is of course a nontrivial process) – but like council tax reform, not making the necessary change will only in due course make things worse.

 

 

Revisiting the Scottish National Performance Framework

 

The purpose of the Scottish Government is to focus government and public services on creating a more successful country, with opportunities for all of Scotland to flourish, through increasing sustainable economic growth’

In 2007 the first minority Scottish National Party Government established the Scotland Performs framework based on a core national purpose (2016 version above), five strategic objectives, a series of (currently) 16 high level national outcomes, and a set of 55 national indicators that operate at high level but can also drill down to clusters of indicators within specific sectors. This approach has been widely acclaimed internationally (it was initially, in part, the product of drawing on a similar model in the Commonwealth of Virginia in the United States) but has also undoubtedly found sceptics, critics and critical friends.

The Scottish Government is now consulting over the framework, its outcomes and indicators and is undertaking a large-scale stakeholder discussion exercise to support this process . Last week they started with an academic roundtable in Glasgow co-organised by What Works Scotland [link]. The session was held under the Chatham House Rule and involved an historical contextualisation of the origins of the framework, a presentation on the outcomes approach to public policy by Ailsa Cook (shortly to be published by WWS) and a detailed discussion on the structure, format, uses and functions of the framework. Below are my personal reflections on the meeting.

The framework sits at the heart of the so-called Scottish approach to public policy, one that stresses pursuit of agreed high-level outcomes consistent with the national purpose and the application of these objectives down to local level through agreeing objectives with each community planning partnership across the country. It is also about a decisive shift to prevention, stressing partnership working and co-production, community empowerment, inclusion and the breaking up of departments and silos in the way Government is structured and led. The touchstone document for all this is the 2011 Christie Commission on the Reforming of Scotland’s Public Services.

One person commentated that we know, for all the critique that may justifiably exist, that Scotland is ahead of the curve on this accountability-outcomes-performance nexus of public policy. How do we now go forward to better work with the complexity of governance and public service reform rather than adding to it?

A first point that came out of the discussion was an exploration of the implications of the different and not necessarily consistent elements of the national purpose. Economic growth, inclusion and sustainability all feature and may well in normal circumstances represent a series of trade-offs – i.e. increasing one may be at the expense of the others. So, how do you determine the weight to be attached to each element and how does that accord to societal preferences? This quickly moved into a conversation about Kenneth Arrow and social welfare functions in economics and the wider appeal of Sen’s capability approach (which is the underlying normative framework used in much of the work of What Works Scotland).

A second theme was that while there was a perhaps surprising degree of consent around the table for an outcomes-focused approach, recognising that there remains little rigorous evidence at a national level about the impact such an approach has on wellbeing, there was much more concern with the relationship between outcomes and indicators that act as performance proxies. As one commentator noted, there is world of a difference between attributing performance to a conscious service or intervention approach and recognising that it may contribute to it (and that this is located in a credible theory of change).

The critique of performance indicators in general is well known – cream-skimming, parking, only counting ‘what can be counted’, focusing on the indicator rather than the broader outcome or purpose, the scope for a wide range of other perverse incentives that undermine a service or intervention. The meeting also discussed the need for consistently rigorous, generalizable, valid and reliable evidence and operational indicators with which to make meaningful judgements. There is often quite a gap between the outcome statement and the indicators in terms of specificity and measureability.

This would seem to make a case for 1. a greater investment in the evidence and data audit required to build better indicators and 2. a comprehensive attempt to ensure minimum indicator quality. On the latter point, I have always taken the view that there is nothing intrinsically wrong with performance indicators, or with the use of sharper incentives or indeed (as came up in the discussion), the use of payment by results mechanisms – what matters is the appropriateness of their design and the careful assessment of how they are used and concern for unintended consequences.

Perhaps this suggests that Government might consider the creation of an independent review group who could support the performance team, comment and propose amendments to the indicators, evidence and data used? Academics and independent researchers could play a potentially valuable role (and the potentially complementary relationship between quantitative measures and qualitative evidence on the ground was stressed by different speakers). This could be an opportunity from the top of Government down to evangelise the use of evidence in accounting for government and public service performance against desired outcomes.

A third element of the story is the fit between local and national level approaches. With single outcome agreements and now with local outcome improvement plans, local community planning partnerships sign up to specific goals which nest into the national performance framework. On the one hand, this provides for a clear place-based representation of these ideas in localities all over Scotland, but it also brings with it the danger of compounding the performance indicator problems and the over-zealous focus on indicators discussed above at the level of the local authority and below.

There were other useful points highlighted. First, make distributional or social justice outcomes and indicators more explicit and more benchmarked consistently with other nations (in the way for instance economic productivity performance is measured against OECD quartile scores). Second, presentationally, the refreshed set of national outcomes  should be discussed and part of the public policy discourse in their own right,. This should be quite distinct to and separated from the mechanism that seeks to use the best practice theory of change and credible analytical evidence (which is valid, reliable and generalisable) by creating high quality indicators of the journey towards the outcomes (and unlike at present – those indicators should nonetheless be mapped on to the outcomes they seek to measure).

At the end of the roundtable I said I thought it had been a valuable exercise on the criteria that I had both learned a lot and we had produced a genuinely multi-disciplinary conversation – economist shall speak unto sociologist, etc. I think the Scottish Government team also felt there was genuine value from the day and I wish their endeavours well.

 

Accountable? Transparent? Budgets and Public Finance in Scotland

 

‘Exceptionally complex and opaque’ and ‘without precedent internationally’. Fraser of Allander Institute on the Fiscal Framework, quoted by the Finance Committee, Scottish Parliament in their 2017-18 draft budget report

I found myself reading the Scottish Parliament Finance Committee’s draft budget report  the other day in part to prepare for teaching on public finances in Scotland. I was struck just how non-transparent the fiscal framework is and how difficult it is to communicate the consequences of the rules of the game in terms of Scottish policy intentions and budgetary implications. It is as if the designers in Holyrood and Westminster were seeking to be rewarded for fiendish inventiveness rather than designing a set of financial rules that were clear, transparent and fostered accountability. In that respect, the Finance Committee’s report is remarkably helpful (along with the recent SPICe briefing on the budget).

I will get into the main points that struck me shortly but it also raised a second related question. In the year of the council elections in Scotland, there is a near equivalent lack of transparency regarding the local government settlement and the consequences for local decisions on tax and spend. This has, if anything, been exacerbated by both the implementation of the recent council tax reforms and the controversy over what the draft budget means for local spending by councils. We need more transparency here too and perhaps a local fiscal framework (something being pursued by the Scottish Greens) that makes explicable and straightforward how local tax and spend works, how it is impacted by Scottish ministers and what decisions mean for tax bills and spending choices.

What is it that makes the new national fiscal framework so difficult and why is it so significant? The devolution of new tax powers reduces the size of the Block grant. Critical to how this will operate is,  how the Block Grant adjusts, which comes down to a series of decisions, firstly, about the baseline reduction that is determined by revenue in the year prior to the devolution of the tax in question. Thereafter, the second critical question is how accurately tax revenues for the now devolved tax are forecast in terms of playing into public spending planning and control decisions and the risks of over-estimation. Third, there is the contentious question of how to uprate the block grant adjustment for the devolved taxes in subsequent years. This concerns the extent to which Scottish tax revenues grow relative to UK tax revenue growth and  (and this is where the controversy exists between the two governments) then how adjusting for relative population growth between Scotland and rUK operates.

These Byzantine and head-hurting rules are incredibly important. If Scotland can grow its tax revenue quicker than rUK, the block grant and the size of the fiscal cake expand. This fundamentally depends on relative tax policy changes, which currently benefit Scotland because we are not raising the threshold for the higher rate of income tax by as much as HM Treasury – and other things equal we should grow tax revenue per head more than rUK. But it is also driven by relative population change, relative economic and productivity growth (and these presently all look less favourable from a Scottish perspective). As the Finance Committee stress, the Scottish Government have taken on considerably more responsibility and the technical requirements for forecasting future tax, economic growth and in specific sectors too (e.g. land and buildings transactions tax depend on housing and commercial property markets) – and they have done so in a period of remarkable uncertainty, austerity and Brexit.

The Scottish Government is presently consulting over the Scotland Performs National Performance Framework. In the light of the above maybe they need to change the absolute or top line purpose of Government to maximising relative tax revenue growth?

One might conceivably say ‘well, these risks are what happens with more responsibility and that is what real devolution is all about’. My view however is that what we might be seeing is actually the outcome of bargaining over an inherently complex system and one that consequently is difficult to predict, manage and base fiscal plans on. I am sure the Scottish Government will step up to the plate – they have to get this right and must invest the necessary resources and capacity in doing so. Specific forecasting expertise by the Scottish Fiscal Commission will also become much more important in the future. Moreover, the plan is that in less than 5 years the whole basis of the fiscal framework will be reviewed and the indexing methods and other fundamentals may well be substantially revised. Let’s hope for less haste and that a simpler and more durable set of negotiated outcomes is the result.

Then there is the controversy over the local government settlement. There are several accounts of what is happening to local government spending, depending on what you compare it against (draft or final budget in 2016-17), how wide you draw local government activity, and, if you do include other elements, that you know what these extras are worth. SPICe estimates that local government spend in 2017-18 may either fall (compared to 2016-17) by 1.6% to 3.2% in real terms, or if you just look at the core grant (including non-domestic rates), it may fall by between 4.5% to 5.8%. However, speaking to the local government committee of the Scottish Parliament, the Cabinet Secretary argued (para 273, Finance Committee Report on the 2017-18 Draft Budget) that ‘when wider spend on local services, including funding for health and social care integration and from council tax reform is considered, there is an increase in expenditure on local services by local authorities of £240 million or 2.3 per cent.

Clear as mud. And then there is the interaction between grant, non domestic rates and council tax – we (i.e. tax paying voting citizens of Scotland) surely need to clearly understand how all this works together so that we can make sense of the financial and service outcome implications of different political platforms? Can we not do better?

 

Evidencing the Scottish Approach to Public Policy

 

Back in August I attended a roundtable hosted by the Carnegie UK Trust and the Alliance for Useful Evidence (AFUE) in Glasgow about the extent to which we can discern a Scottish approach to evidence that would underpin the so-called Scottish approach to public policy. The findings from that event has now been put together in a helpful discussion paper by Pippa Coutts and Jenny Brotchie.

What Works Scotland (WWS) is a multi-disciplinary programme of work carried out by the Universities of Glasgow and Edinburgh, supported by its many partners and funded by ESRC and the Scottish Government. I am part of the WWS team. WWS is fundamentally concerned with the use of evidence to inform and support public service reform in Scotland and different dimensions of the Scottish approach to public policy, as exemplified by whole place based policies at community planning partnership levels (and also disaggregated down to local community or neighbourhood levels).

How might we characterise the Scottish approach to public policy? The discussion paper stresses the combination of the outcomes focus of the National Performance Framework estsblished in 2007, the impact of the Christie Commission and its emphasis on the four pillars of empowering people, shifting to preventative spend, promoting partnership and more efficient public services. The Scottish approach stresses integrated, joined up and cross–sectoral co-produced working. Subsequent developments have included espousing greater government openness, legislating on community empowerment and with further decentralising proposals proposed for the current parliamentary session. The discussion paper describes this approach as emergent and the summary states (p.2): ‘whilst we understand these intentions may not be matched in implementation, we think the Scottish approach offers exciting opportunities’.

The discussion paper goes on to argue that the system or modes of evidence required to support the Scottish approach is not yet in place. What is required is a system-wide production and use of mixed forms of evidence rather than concentrating on specific sectors or programmes. The paper argues that the evidence base for greater collaboration and co-production across the research producer and user community in Scotland needs to be strengthened and needs to better involve citizens in that process. At the same time, evidence, from whatever sources (quantitative or qualitative), should be rigorous and seek to minimise bias. The paper speculates that there are lessons and evidence from participatory research and directly from communities (e.g. undertaking participatory budgeting exercises or other forms of deliberative decision-taking) that could improve policy effectiveness.

What needs to happen? The road map suggested by the Carnegie UK Trust and the AFUE involves first, strengthening the national performance framework and promoting its use coherently at local level. Second, they contend that there should be investment in research on co-production. Third, high quality evidence should be embedded to support decision-makers at all levels. Fourth, there  would be value in brokering and developing boundary-spanning relationships across professional, academic and third sector communities to enable them to better work together. Fifth, there is much to learn from outside of Scotland and also a duty to share the Scottish experience more widely.

The paper is an interesting read and one that cannot be adequately captured in a short blog post. Experience from What Works Scotland (see outputs on our website) leads me to make the following points. First, the game-changer for me is how to embed evidence systematically into working practice at local level in all localities. We know that presently there is considerable variety of experience, capacity, resource and use of evidence. At the same time, second, there is actually something of a crowded landscape of providers of profiles and indicators from national levels to the local and there is clearly much interest in how this could be better co-ordinated and more locally contextualised. Third, the Scottish approach is clearly evolving and parts of it have to be refreshed. The Scottish Government is currently consulting widely over the National Performance Framework including its local dimensions and we in WWS look forward to contributing to that process.

Finally, I strongly concur with one of the roundtable participants who stressed (p.13) the importance of learning from failed projects, from what does not work: ‘There’s also something for me about….it’s a kind of form of publication bias, because we only ever hear about the success stories….you don’t send ministers to visit the failed projects’. Indeed.

 

True Grit – Ken Loach and the reality of welfare conditionality

 It has been quite a week. I saw ‘I, Daniel Blake’ in the cinema, there has been considerable media scrutiny of the new lower benefit caps and their impact, the DWP has produced a controversial green paper on the future of Employment Support Allowance and the Scottish Parliament debated the effects of sanctions and welfare conditionality, in part as a result of the ongoing ESRC programme which includes the excellent work of my colleague Sharon Wright.

The new lower benefit cap moves the likely burden from very large working age households or people often only in high cost housing reliant on benefits to many more households and often with children right across the UK. From 7th November 2016, the lower benefit cap begins to be rolled out. For couples and single parents, it will fall from £500 per week to £384.62 outside of London and for single people it falls from £350 to £257.69 outside of London (higher costs in the capital mean the reduction in the cap is less there). The benefits primarily affected are housing benefit, universal credit (and its components) and other working age benefits but also things like child tax credits and child benefit. The Guardian reported that 116,000 households would be materially affected.

The Green Paper (Improving Lives) is focused on increasing economic activity among the sick and vulnerable.  It is critically summarised by Paul Spicker in a blog this week who said: “It proposes to extend to those for whom working is least viable the kind of regime that has so signally failed for people in the ‘work related activity group’. If people who are sick cannot find ways to engage with the labour market, why should we imagine that people who are  sick and vulnerable should fare any better?”

The conditionality debate in Parliament highlighted the strength of feeling among our politicians about the impacts of sanctions and the problems they pose for welfare policy and people affected. In a piece for the Daily Record Sharon Wright summarised the key difficulties evidenced in her research:

  • Sanctions led to short term crises and long term debt repayment problems.
  • They were associated with rent arrears, the threat of eviction and possibly homelessness.
  • Sanctions often come without warning – and if people don’t know about the sanction how can it effect the DWP’s desired behavioural change?
  • Sanctions had profound negative wellbeing effects on those directly affected and in the end it was support to help people into work that mattered not sanctions – carrots not sticks.

And what about the film? ‘I, Daniel Blake’ was highly-charged and emotional. I will long remember the complete silence in the cinema when the credits abruptly come up. People looked stunned and many were upset. The film uses highly plausible scenarios to document the descent into poverty of normal people who are dealing with  common human circumstances like sudden ill health or family break-up. Engaging with benefits and systems like Employment Support Allowance and ultimately conditionality, is overwhelming for those less skilled in the world of digital by default and coping with the abrupt shifts into conditionality, as also reported by Sharon in her research. Vulnerable people can be forced to turn to food banks for resources and the black market and illegality for income. There is a strong Kafka-like feeling in the film as Job Centre Plus officers repeatedly use the ‘decision maker’ as the disembodied arbiter of whether or not one gets the benefit they are applying for.

It is a great piece of fiction but one that has a real sense of authenticity. It is well acted and brilliantly made. I did however think the Job Centre Plus staff were with one or two exceptions a little two dimensional, especially the nurse ratchet character and the general demeanour of the staff who were ‘just following orders’.

Thinking on the big themes of the film, I think a complete overhaul of the employment support allowance is needed and the DWP has to end the byzantine and often impossible choices created by the system facing the lead character who was turned down for ESA and can only apply for JSA when he is patently not fit for work. Paul Spicker’s views about these matters as suggested in the new Green Paper seem to be a good place to start. Second, there can be no basis or situation where individuals and especially children in families face destitution as a result of sanctions. This has to end. Third,  the film stressed the confusion and lack of help available to vulnerable people so that they have some chance to navigate (consistently) the arcane complexities of this obtuse and often dehumanising system. There must be a clearly stated rapid assistance system 24/7 on the end of a phone or for working hours  in a town centre office that offers clear and independent advice across all of the UK. Or if it already exists, people must be clearly directed towards such support and this should be done at the earliest possible point in the journey.

Community-led Approaches to Reducing Poverty

 

What Works Scotland held an event in Clydebank Town Hall this afternoon – a workshop of about 40 people from the public and voluntary sectors, plus a few academics and councillors. The focus was on reviewing the evidence and practice concerning specifically community-led approaches to reducing poverty.

Ostensibly, this was an opportunity to showcase Richard Crisp (Sheffield Hallam University) who led a team of researchers who carried out a formal evidence review for the Joseph Rowntree Foundation. Organised and convened by my colleague, Claire Bynner, this was also a chance to share the work with our What Works Scotland  case study colleagues in West Dunbartonshire and also hear from other speakers including Bruce White from Glasgow Centre for Population Health. I was the rapporteur at the end of the event.

The first speaker was the deputy leader of West Dunbartonshire who set the tone for the day. He emphasised the priority of effective anti-poverty measures and championed the evidence of effective grassroots ‘voice’ and the importance of real life stories found in the JRF research we were discussing. He also, however, stressed that poverty is also (and always) political. For me, that latter point reminds us that even in such straitened times, governments still make choices over what they prioritise and could come to different conclusions about progressive taxes, about the mix of redistributive and more untargeted policies.

Bruce White (GCPH) presented important demographic and other trends relating to different dimensions of poverty comparing Glasgow and West Dunbartonshire. Bruce highlighted the utility of powerful infographics using aggregate and especially disaggregate data. One could not fail to be struck by the significant gradients across neighbourhoods often displaying massive differences from the most to the least affluent areas when looking at child poverty, fuel poverty, proximity to vacant and derelict land, to life expectancy and healthy years’ expectancy. He also illustrated the value of the bespoke community profile created for West Dunbartonshire.

This was followed by Richard Crisp’s evidence review. There were a number of things about this work worth noting:

  • He was clear that community-led approaches do impact on poverty and do so in different helpful ways – but they are modest in comparison to the scale of the problem.
  • He presented a useful typology of community led approaches: voluntary action (e.g. food banks); community organisations (e.g. neighbourhood clean-ups); social action (e.g. living wage campaign); community economic development (e.g. social enterprise); and, community involvement in service delivery (e.g. participatory budgeting).
  • He distinguished between material and non-material forms of poverty. The former concern reducing the costs of housing or energy, providing access to affordable credit or creating employment opportunities. The latter encompasses health and well-being, the quality of housing and the physical environment and wider social participation. The framework used also distinguished three types of positive impact: pockets (immediate respite or support ‘felt in the pocket’), prospects (approaches that help people exit poverty) and prevention (approaches that mean people do not enter poverty). I thought this was a good way of carving up and analysing the evidence. They then moved on to see whether attractive approaches had potential scalability or reach.
  • The research team used this framework and found considerable variety in impacts, their depth and scalability. Little evidence was found of approaches that might be called prevention-based.
  • I was a little concerned initially about the use of the terms scale and spread but Richard, to my mind, correctly, pointed out that specific approaches have to be situated and contextualised and then assessed as to whether they are adaptable to different settings. It is also the case that local or community-level policies have to be set in the wider sub-regional or regional economic context.
  • Finally, there was a powerful point made in the conclusion. Despite the good things evidenced in the report and seen in different parts of the UK every day in local communities, if national politicians thought that the community, the third sector and the big society would step in to fill the gaps created by austerity and deliberate policy change – they were wrong. The scale of the shortfall and its consequences for increased and deepened poverty need a sustained large scale response.

It was not all speakers speaking – there was plenty of active and varied interaction and participation from the delegates. This was a genuinely stimulating event and it was great to see that the JRF’s UK research spoke so clearly to west central Scotland. Tomorrow the caravan heads to Dundee and I am sure it will be similarly relevant there.

Scottish Council Tax Banding Reforms

I was back giving evidence this morning at Holyrood. The Scottish Government has drafted a statutory instrument that seeks to increase the weight and consequent charge applied to properties in Band E, F, G and H. They have also proposed an amendment to the means-tested Council Tax Reduction Scheme (CTRS) such that those households on below median incomes who do not currently receive CTRS will be eligible for all of the increase being met by the CTRS if they are in the higher bands. The extra £100m that this will generate will be hypothecated to support the national priority of closing the educational attainment gap. Finally, it is proposed that the long standing council tax freeze will be replaced by a cap allowing up to 3% increases in annual average council tax bills.

There are wider related issues as well concerning ongoing consultation over localising a share of income tax receipts so as to promote local economic growth.  Second, the Government is also consulting over taxes that encourage the reuse of vacant and derelict land and tax development. Finally, councils will be given the power to charge the full council tax on second homes.

The whole process around the Statutory Instruments and related immediate changes is highly truncated with the rapidly approaching new financial year, changes to CTRS, the new cap – and of course local elections thereafter in 2017.

The proposals are the outcome of the process begun by the Commission on local tax reform. The proposals need to command a majority in Parliament. Not everyone in Holyrood agrees with this current band-tinkering direction of travel (e.g. the Scottish Greens).

There is interesting written evidence on the site, not least from David Bell and form the former minister and co-convenor of the Commission, Marco Biagi.  In the section below, I paraphrase the main reflections in my written evidence.

Reflections on Reform and Beyond

Is the proposal package more progressive (i.e. ‘fairer’)? It makes a regressive tax less regressive and offers significant exemption and hence compensation (albeit through a means-tested route) to all of those on below median incomes. The changes proposed do not appear on reflection to be massively difficult for councils to implement though there will inevitably be opportunity and transaction costs. However, I think there are wider questions and concerns.

While there was not complete consensus on the Commission for the action recommended there was agreement on the need to end the council tax and the freeze. What is being proposed, especially given the absence of a general revaluation, is clearly what the Scottish Government, in carrying through manifesto pledges, feels it can do. But what is maximal for them is less than the minimum in the context of the reasonable expectations generated by the Commission. My worry is that without further commitment to substantive reform we will back in five years saying here is a property-based tax which sets values on market levels from 30 years in the past. The weighting may be more fair but the values that place properties in bands will be in most cases wrong and increasingly illegitimate. It is hard not to see this as a political fudge which does not resolve the underlying problems indicated above.

A second point is that fairness with property taxation is complex. It is not just about tax in relation to current income (important as that is) but it is also about the importance of inequality transmitted and reflected in the housing market and the relative failure to tax housing as an owner-occupier investment. While we repeatedly hear of the importance of social justice and tackling inequality, one of the key sources of that inequality (as well as damage through market volatility to economic productivity) is apparently sacrosanct. Moreover, as John Muellbauer at the University of Oxford pointed out, there are other ways to support low income households pay their local taxes, such as through allowances (like the Greens proposed), deferred payments as well as well-designed benefit systems.

Third, while the CTRS reform is in many ways a neat solution to compensating those in low incomes in higher value properties, it does add a further layer of means-tested complexity, and it is not clear at this point what will be done to ensure the highest levels of take-up. This is all the more germane given that the exemption would go much further up the income scale to immediately below median net incomes. There is a tension here with government policy elsewhere which will likely lead to councils setting full council tax on second properties on the basis to bring properties into more efficient use, yet at the same time CTRS is being used to help households stay in properties that are often only marginally affordable, if that.

Fourth, I was surprised that it was deemed unnecessary to carry out an equality impact assessment for the CTRS and that no wider assessments were required for either the tax change or the CTRS. The £7m figure for the additional cost of the CTRS must have assumptions about take up rates – it would be interesting to know more about these – as I think there would be grounds to think that rates might be relatively low. Additionally, aren’t the lessons from the land building transactions tax introduction that these sorts of tax changes do have market effects at the upper end of the housing market and that this is likely to have some degree of impact on when people decide to move how and could conceivably affect the labour market decisions of higher net worth households. I would have thought that was something working looking into.

Fifth, while ending the freeze and giving councils back the power to charge full council tax on second homes provides more discretion locally, this is offset by the implementation of hypothecation the extra £100 million to a national government priority.

Following the evidence session this morning, a few final thoughts struck me.

First, the truncated nature of the process has left a few uncertainties. There was a lengthy discussion this morning about the mechanism by which the £100 million for education will be managed and allocated locally. Second, we are unclear about the timeline and practical proposals for the localising of income tax receipts. Third, there is clearly no appetite for revaluation within the Scottish Government but the underlying problem and entropy of increasingly non-credible valuations will not go away. Fourth, there may be other unintended consequences and transaction costs if many high band property households seek to have their homes revalued down to lower bands – though I do not know the scope in practice for people to do this.

All in all, to paraphrase Marco Biagi, concerning the council tax, few people would have started from where we are now but equally on reflection how many will be happy with where we have ended up?

The Future of the US Mortgage Market

“The trigger for the most recent crisis remains the part of the global financial system that has been least reformed”. The Economist, August 20, 2016.

There is a thorough and thought-provoking diagnosis of contemporary US mortgage markets in the USA in the new edition of the Economist. You may ask why this is a significant issue worth attention. First, the proximity of US mortgage securitisation to the global financial crisis and the extent to which earlier structural and other challenges have been repaired is important for the world financial system not least because the rest of the world owns trillions of dollars of US mortgage debt. Second, the US market has had a lengthy and difficult period which has had all manner of knock-on effects for housing, communities and the economy. Third, there is the key question of the future – how stable, resilient and sustainable is the current system and also proposals for reform. Finally, how relevant is any of this to the UK’s mortgage market?

The article argues that despite the rebalancing of Wall Street banks since 2008, alongside the banks sits the mortgage sector, which creates almost as much credit as the banks but unlike them the housing credit sector is much less capitalised and only just in profit. US mortgage debt is of the order of $11 trillion. The Economist argues that the taxpayer subsidies the system to the tune of $150 billion a year (tax breaks but also the indirect effect on interest rates of the Fed purchasing mortgage bonds). This is in part because of the conservatorship of Fannie Mae and Freddie Mac, or de facto nationalisation of the great majority of the US mortgage sector (at least 2/3 of new mortgages originate from agencies of government). The economist concludes that it is not the market but ‘administrative fiat’ which determines mortgage volumes, the structure of loans and attitudes to risk.

The collapse after 2008 led to major changes in the regulation, ownership and practice operating in the mortgage lending sector. The Economist stresses the withdrawal of traditional lenders from mainstream new home loans to be replaced by specialist orginators. Second, the Government’s rescue of the system between 2008-2012 left them in control of large parts of that system and in particular of securitization of mortgages. Third, although the old derivatives market has been largely removed, it is still the case that the ownership of mortgage assets is still widely distributed across the banks and internationally.

This is where the Economist’s argument gets a bit schizophrenic – they argue that on the one hand there is too little regulation of the new originators of mortgage loans is too loose but at the same time the rest of the mortgage market is far too regulated – with 10,000 pages of law and rules that tighten up who gets loan, what kinds of property and loan types are eligible. Yet loan to value ratios are weakly controlled and 95% LTV loans are increasing (25% of new loans in 2012) and down payment regulations have been loosened.

The upshot for the authors is that the US mortgage system seems to be playing two roles – providing liquidity in the mortgage bond market but also using implicit and explicit subsidy to boost home ownership. What is to be done –the Economist is not keen on just leaving it alone (which itself is a common response after the shocks of 2008 and thereafter). Instead, they want a market solution but also note that with the status quo remaining because of the dominant role of the state, a future default crisis in the mortgage market will need to be bailed out by the taxpayer and this might be huge.

What is the market alternative? Force mortgage lenders to recapitalise like the banks on Wall Street and at the same time raise fees to create profit signals and incentives to take risks (and bear their costs). Administrative control and subsidy would be reduced and mortgage rates would probably go up a bit too. The Economist reckons this would require about $400 billion of new capital.

There are however difficult political economy barriers to such reform: the Government currently receives income from its conservatorships (but does not have their debts on its books) and of course the twin reduction of subsidy and higher interest rates (plus potentially sounder market criteria and regulation for lending) does not win support from the middle classes.

This all sounds like the policy reform problems we have discussed many times before – important coalitions and stakeholders who thwart reform even when it is in society’s long term interests. Figuring out ways to build consensus or use opportunities to act while sorting out the design and implementation of system wide reform, and indeed to compensate or mitigate the impacts on losers from reform – is a challenging mix. Default to inaction is made all the more likely by the need to get new enacting legislation through a partisan Congress.

While one may not necessarily agree with the precise policy thrust in the article, the problems are real enough. While not accepting the prognosis we still have to confront how to make policy well in a complex and uncertain setting. For those thinking about wishing to tilt the UK mortgage market to or from further regulation, it is worth considering the experience of the different and distinctive US setting.