Category Archives: Economy

Labour wisely accepts ‘anti-cuts’ rhetoric nonsensical

British Labour’s biggest problem going into the next election is that its own Leader looks as weird and out-of-touch as the incumbent Prime Minister. Perhaps his most awkward intervention before the bacon sandwich debacle was his appearance at an ‘anti-cuts’ Union rally when he tried to pretend he was with the crowd. His party confirmed at the weekend that he really isn’t – and rightly not.

 

Labour now accepts it was talking nonsense about the ‘Squeezed Middle’ and would in fact tax those on middle incomes more; and it also now accepts opposition to the Coalition’s spending plans (which see public spending rising in absolute terms but falling in real terms) is nonsense. This makes Labour a vaguely credible government – and it marginalises the ‘anti-cuts’ brigade who are, quite simply, wrong.

They are wrong because public spending isn’t actually falling in absolute terms; they are wrong because public spending reductions are not the same as ‘cuts’ (they may simply mean doing things more efficiently – to be supported, surely); and they are wrong because, as everyone now accepts, you cannot simply keep public spending ballooning when revenues are vastly lower than expected. Be very clear – anyone opposed to this is denying reality and not to be trusted.

It is worth repeating why revenues (at least over this parliament) have been so much lower than they were and, more relevantly, than they were projected to be. It is quite simply that the UK is a significantly poorer country than it was or, more accurately, than we thought it was in about 2007. Within three years of the run on Northern Rock, the UK Treasury’s revenues had fallen to 14% below where they were projected to be three years previously – the equivalent figure almost everywhere else in the West (aside from Southern Europe and Ireland, understandably) was around 5-6%.

In other words, the UK is 14% poorer than we reckoned. To sort that, we need to invest in skills, technology and innovation particularly where export-focused – as, in many cases, we are. But let’s be very clear, we cannot just spend money no one’s actually gone out and earned.

Real German lesson: say yes to austerity!

It is an incredible thing – and indicative of how it has become entirely confused – that the “Left” repeatedly used the word “austerity” and does so with the supposedly automatic contention that it is a bad thing.

This is the same “Left” of course, which rightly argues against “excess”. It is indeed an outrage that City Execs get paid 180 times the average wage; that entertainers get such ludicrous recompense on the licence payer or the commercial viewer; or even in some cases that senior quangocrats get so much. Here’s the thing – the opposite of “excess” is, er, “austerity”.

Germany doesn’t get everything right by any means, but it is hard to dispute its recent sporting and economic success. Such success is not down to chance. One of the prime reasons for it is that Germany is a vastly more austere country and society than the UK, France or Spain.

Even in football this shows. The BBC and ITV both had a main presenter, a stadium presenter, a main commentator, a co-commentator, three studio pundits and usually also a stadium pundit – eight, in total. German TV tends to make do with one presenter, one pundit and one commentator – three!

Another obvious area is supermarkets. The big Tesco or Carrefour superstores of the UK and France are replaced in Germany by Lidl, Aldi and others very similar – based on the recognition that it is pointless to pay, in effect, to pay for the privilege of looking at products you’re not going to buy in the name of “choice”. It is the austere German version which is now coming to the fore in the UK and France, not he other way around.

The same applies to housing. While the social housing argument centres around the age at which children should not share a room in the UK, even the children of German professionals often share into their teens; thirtysomething Germans may still live in single-room flats; ownership in the exception in Germany, not the norm.

This austerity works, therefore. Underlying the German social model is the notion of what suffices, not what shows off. As a result, there’s rather more to go around – because, as a direct result of the promotion of austerity as a good thing, outrageous excess is frowned upon. Even successful businesses or indeed football clubs are absolutely expected to maintain community links and loyalty.

This is of course a consequence to a large degree of German history, particularly the lessons of the last War and its immediate aftermath, in which social and economic ruin was the prospect. Whatever about that, the simple fact remains in 2024 that all of these things are good and admirable – and austere. Austerity is a good thing. In this of all weeks, there is a German lesson we can all learn.

 

England needs thousands of miles of new motorway

England is an astonishing country for many reasons. One of those, it became obvious to me as I spent literally a full waking day in total of my holiday trapped between four particular junction of the M25, is that its M-designated motorway network has actually decreased in size this century.

Other than upgrades to stretches of already dualled A1, England has not built a meaningful stretch of motorway since the mid-’90s – the only addition this century was a small part of the M74 across the Scottish border which was already expressway. Scotland, meanwhile, has continued with the M74 extension and plans for other stretches; Ireland, of course, has built the most comprehensive motorway network in almost its entirety during that period.

In England, it is a particular grave concern because figures in late June showed it has the fastest growing population in the European Union bar Sweden. Much of that growth is concentrated in the south, within 100 miles of London. The road network there is not creaking – it has collapsed. On two separate days of my holiday it was taking people more than an hour to cover 10 miles of the M25 at more than one particular location. This is intolerable – for movement of goods and labour, and for the quality of life in general.

There is a peculiar reticence to mention the word “motorway” in England and Wales. The first toll motorway in the English Midlands was deemed a failure and plans for similar in South Wales thus abandoned. Otherwise, the very mention of the word “motorway” is avoided for fear, presumably, of sparking another “Swampy” protest.

It is nonsense of course. Few countries are more environmentally friendly than Denmark – only 20% of commuters into its capital city travel by car, and it leads the world in wind power technology. Yet it has built tens of kilometres of new motorway in a country whose population is a tenth of England’s this century – and even has plans for a new motorway bridge to Germany which it will fund wholly on its own. Denmark sees the benefit – yes, the environmental benefit – of ensuring long-distance traffic is not caught in endless jams with the fumes they create.

Motorways – specifically motorways, as they have to have limited access to focus on moving long-distance traffic quickly – are an absolute pre-requisite for a functioning economy and the UK is being left behind, with a network less than half as long as reasonable comparators (Germany, Spain, France etc). It is time not only to get over the reticence for using the word “motorway”, but to build lots of them quickly. They are, in fact, somewhat more important than high-speed rail links…

Northern Ireland’s economic day of reckoning is nigh

Last week, fresh from their various breaks over the election period and public holidays and with the ten-week summer recess looming, our beloved MLAs found nothing more important to talk about than a suspension motion against one of their own number which couldn’t possibly pass anyway. Such mediocrity really shouldn’t be tolerated, but it generally is of course.

Mediocrity

The problem is, there are real issues MLAs should be discussing – and openly. They have, in fairness, touched on health and education recently. However, a serious set of proposals to deal with the forthcoming economic and financial reality still eludes them. Yes, we have an economic strategy and some decent recent investment announcements, but that isn’t the thorough preparation for the new reality which is necessary. Indeed, we won’t notice the difference until it’s too late..

The new reality is the inevitable consequence of the Scottish referendum. This will see more powers, including financial powers, devolved to Scotland and quite possibly also to Wales, meaning that:

- the Barnett formula will be replaced by a public spending settlement much more advantageous to Wales and the North of England and much less advantageous to Northern Ireland, which will be expected to raise more of its own income;

- failure to reform welfare will see Northern Ireland have to fund an ever increasing welfare gap;

- corporation tax may be devolved, but not uniquely to Northern Ireland, rendering it much less advantageous than the existing figures (which assume lower corporation tax uniquely within the UK) suggest, to the extent that it will in fact almost certainly be a bad idea; and

- the implicit expectation by the Treasury (and in the rest of the UK, insofar as it thinks about it) will be that Northern Ireland introduces water charges, removes rates caps, reinstalls prescription fees, and doubles household rates.

The alternative will be actual cuts – i.e. not the odd public sector worker not moved up a scale and the occasional closure of a highly inefficient body here and there; but real job losses in the public sector, huge cuts in the number of quangos and oversight bodies, and mass close downs of public-funded voluntary sector organisations.

This is the choice which is coming, without any doubt at all. If we wish to maintain public spending at anything like current levels, we will have to raise far more of it ourselves in the new quasi-federal UK. Where are the preparations? Where is the demand for them? We won’t notice there weren’t any until it’s too late…

I’m no “economic conservative”

I was accused a few months ago of being an “economic conservative”. While it is true I generally find myself more in line with the economic policies of the Conservative Party than the Labour Party, I would dispute this description.

Simply, here’s why:

Warren

The above is for an American audience of course, but I agree with every word – whereas “economic conservatives” don’t.

No, I am an “economic realist”. Where economic conservatives argue automatically for low taxes, I argue that the culture of a civilized society determines the tax it pays – thus there are successful low-tax societies but also successful high-tax societies. If anything, I would argue that high-tax societies (most obviously the Nordics) tend to do better – hardly the position of an “economic conservative”!

Indeed, in Northern Ireland I have consistently argued for the implementation of water charges, the re-introduction of Prescription Charges and the removal of the Rates Cap – all tax rises. I am quite open about this. But again, it is hardly the position of an “economic conservative”!

However, I have argued countless times that the amount of tax we raise in Northern Ireland, and in the UK generally, is pretty much the maximum we possibly could raise without implementing taxes or charges which people simply wouldn’t accept. People in the UK simply expect the basic rate of income tax to be in the 20-25% range with another 10% of National Insurance on top (with the top rate about double that and corporation tax much the same); they expect VAT to be around 15-20%; they are used to TV licences but have an aversion to road tolls; and so on. No party enters elections in the UK advocating significant tax rises or tax cuts; indeed the highest rate of tax has been consistently higher under the current centre-right government than under the previous centre-left one; and it was the centre-left one which consistently nudged down the basic rate of income tax. I’m not sure, therefore, who is supposed to be “economically conservative”.

Ultimately, however, I am concerned at the unwillingness of the people of the UK to pay more tax openly, while at the same time demanding ever increasing public spending. This means inevitably that we get hit by stealth taxes; and it also enables some smaller parties to present “bogey men” at election time – such as the suggestion we could raise NHS funding “simply by stopping all tax evasion and avoidance” (leaving aside that in fact the UK has the best record of any comparable country at actually collecting its taxes and that tax avoidance is legal and actually almost everyone does it). There is an inherent dishonesty on both sides – the “right” pledges to protect public services which it cannot possibly afford; the “left” pledges not to raise taxes even though it has to in order to protect public services; thus both “sides” end up making the same basic, dishonest, offering to the electorate.

I think it would be helpful if, in the English-speaking world, we entirely re-assessed tax precisely along the lines Elizabeth Warren suggests. Tax is not a giveaway from our own income; rather, our own income is a product of our ability to earn which itself exists only because of taxes paid to support us. Once you look at it that way round, perhaps the case for a bit less consumption on random stuff and a bit more tax on targeted public services could begin to be made. Some “economic conservative”, huh?!

Republic’s high wages are a problem, not a solution

The Belfast Telegraph is to be commended for having a front page on wages rather than Haass this day in January (not that I could find it in the online version). It noted that “wages” (actually, annual salaries) are £8,000 higher in the Republic of Ireland and £5,000 in Great Britain than in Northern Ireland. However, the obvious assumption that high wages are a good thing needs challenged.

Currently, the Germany is seen as the star pupil of the European economic class, while Ireland is seen as one of the problem children. How different it was ten years ago! What changed?

Essentially, the problem up to around 2003-4 was that German wages were too high. This meant that it was easier, even for German companies, to out-source jobs elsewhere. Audis came to be assembled in Spain, Volkswagens in Slovakia, Siemens call centres even sprang up in England. The response – actually of Gerhard Schroeder’s government although Angela Merkel has ended up with most of the political credit – was to reduce unemployment benefits and use the savings to help people up-skill and find new jobs. In turn, this put downward pressure on German wages, which have barely risen in real terms over the past decade. However, this also put downward pressure on the cost of living, and made Germany a much more attractive investment location – hence a current unemployment rate of around 5%, with even youth unemployment well under 10%.

That high wages can be a curse rather than a blessing is demonstrated the other way around too. In Ireland, the second stage of the Celtic Tiger boom saw wages soar an unbelievable 50%. This is turn put upward pressure on public sector salaries and drove up the cost of living (most obviously property prices). However, unable to devalue its currency (because it didn’t have one of its own any more), this made Ireland an incredibly expensive place to employ anyone. What happened was the reverse of what happened in Germany – unemployment reached 15% and even that was shielded by emigration levels reaching astonishing levels (in fact coming close, comparatively, to those of Northern Ireland’s at the height of the Troubles). The glee with which the Irish Government recently borrowed money at an interest rate of 3.3% is misplaced, as this is far higher than is affordable (with economic growth still low), and already the cost of living in Dublin is soaring alarmingly – in part due to wages being at a still unsustainable level. Thankfully it is not all bad news, as Irish exports (the only way of creating wealth to pay off the country’s vast debts) are improving.

The lesson is that, to be sustainable, wage levels must reflect the value of the work produced. In Northern Ireland, there is a mix of bad and good news here. The bad news is that our private sector wages do remain far too low, a consequence largely of a (deliberate but thankfully now abandoned) policy of promoting Northern Ireland specifically as a low-wage investment location. In fact, low wages by European standards make it impossible to compete on wages against truly low-wage economies (obviously China), but also make it impossible for businesses here to recruit competitively either against the public sector here or against the private sector in neighbouring jurisdictions – it would be interesting to see the effect on the corporation tax debate of businesses promising to use any reduction to increase wages. The objective in fact is to compete on quality, which is where we have the good news. We are now doing the right things on skills to enable our workforce to contribute more value to the economy and thus increase wages sustainably – including a huge expansion in STEM undergraduate places, a key ICT Action Plan, a currently on-going Review of Apprenticeships and other measures introduced in the past three years targeted specifically at the needs of the modern economy. We must now begin doing similar things in our schools, where still too much esteem is given to professions which do not create wealth – something we must do if we are to compete globally and continue to afford the free health and comprehensive welfare systems we rightly cherish.

The Belfast Telegraph is entirely right to start the debate, but we must also be aware that comparatively high wages are not necessarily a good thing. Wage levels must be sustainable in the longer term. To do that, we need to focus on education and skills – areas in which Northern Ireland is now beginning to do the right things and has the potential, before long, to excel.

We are overplaying the “Brain Drain”

A recent survey by the Belfast Telegraph indicated that most young people living here see their future elsewhere. It was automatically assumed this was a problem. It may not be.

There are three assumptions here which are all flawed – first, that we are losing people without gaining any;  second, that once they have gone they are useless to us; and third, that the scale of the problem is unprecedented and irreversible.

First, to be clear, Northern Ireland is a small place. It is home to significant skills areas – in biotechnology, in the screen industries, in food processing, in aspects of astrophysics and so on. No doubt we wish to gain more, and we will do (the screen industries have developed here only in the last decade). However, it will never be home to every conceivable skills base – other countries and regions will always be ahead of us in some sectors (probably including finance, small vehicle manufacturing; certainly including wine growing, sun tourism and so on). It would be an awfully skewed education system which covered only the former and not the latter, therefore it is inevitable that we will lose some people to industries we do not have here – just as it is inevitable that we will gain people in the industries in which we excel.

(This applies, by the way, even in areas of public administration – we are experts in micro-surgery and even in doctor training here, but if you want a bone marrow transplant you go to Bristol and if you want a specialised children’s hospital you go to London.)

Second, “losing” people is not something you want to do unnecessarily, but it is not necessarily a bad thing either. A diaspora is not a bad thing at all. The aforementioned development of the screen industries in Belfast relied to some degree on people from Northern Ireland resident in London and even Los Angeles. It is in fact quite a useful thing to have people from Northern Ireland in major economic cities. They do tend to act as advocates of Northern Ireland, and often then to re-invest here. For example, Nicky Kinnaird opened Space:NK in London (having studied in southern England) but chose her native Belfast as her next location – creating employment which probably would not have been created here had she never moved to southern England in the first place.

Third, the scale of the problem is absolutely not unprecedented. As I noted last week, in 1972 63 more people left Northern Ireland than arrived here every day; that figure is now 2. Furthermore, I will predict that this trend will soon become negative (i.e. more people will come to Northern Ireland than leave) because property prices are being squeezed so ludicrously in southern England that many people (not least in the aforementioned diaspora) will see that their quality of life would be greatly enhanced by moving (and investing) here.

For young people, as for any people, it is quite normal for the grass to look greener outside. Good. Young people should travel and broaden the mind. If they find employment elsewhere, all well and good. But sometimes once you broaden the mind you realise Northern Ireland ain’t so bad – nowhere are people less cynical about their politicians, nowhere is the Health Service better managed overall, nowhere is quality education cheaper. Many places are great to visit, but once you’ve a four-hour round-trip commute just to earn enough money to pay double the mortgage, suddenly this place doesn’t look quite so bad…

PS: I myself was in London yesterday and on one day last week on business. It’s only an hour’s flight…

“Call Centre” jobs are positive, not negative

It so happens a good friend who works at Concentrix had tipped me off about the 1000 new jobs announcement at the very moment I wrote this, but it rather demonstrated my point! Twice in the last few months an announcement of 1000 new jobs for Belfast has come; such announcements are almost unknown in comparable cities in England outside London and the Home Counties.

There is a tendency to “chide” call centre jobs. That tendency is an example of the negativity I speak of. Actually, Call Centres are highly pressurised environment; teamwork is essential; IT skills are necessary; managers are consequently comparatively well paid; and in many cases language skills are also necessary (with an added salary bonus there too).

Furthermore, they may be below average salary level but they offer a clear skills progression route particularly to people starting out in work. In an era where “starter jobs” such as check-out attendant are in dramatic decline, we have to be forceful to fill the gap. These are 1000 jobs which had to go somewhere. They could easily have gone somewhere else – to Cardiff, or Newcastle, or Bristol. They didn’t, they came here. We have to compete for such jobs to create that skills progression route, and compete successfully. In this case and others, we have managed that.

All of this is not to mention that Concentrix derives from Owen Lamont’s “GEM” firm, so is to a degree a story of local entrepreneurial success as well.

It’s all good! So let’s say so!

Northern Ireland leads the way on skills

I noted last week the usual vague Twitter rantings from the usual vague Twitter suspects about how good things are good, bad things are bad, and we need to “invest in skills” and stuff.

Here’s the good news – we already are. Of course, when you do invest in skills, the results are not seen overnight – it may take years, decades even. But yet again, we in Northern Ireland should stop talking outselves down. There can be no question that Northern Ireland is doing all the right things in this area.

Here are a few:

  • tuition fees are frozen maximising access to higher education (we already have the highest social mobility rates in the UK);
  • we have added 1350 additional Undergraduate places, all in STEM subjects;
  • next year, we will have delivered a 60% increase in relevant PhD places over a four-year period, all in economically relevant subjects;
  • we have focused not just on academic places, but also on wage subsidies for younger people in work (as well as reviews of Apprenticeships and Youth Training Schemes);
  • we have trained 8000 people in customer care in tourism and hospitality;
  • we are assuring the delivery of skilled workers for inward investors via bespoke training programmes.

These are impressive reforms which will inevitably work through into a vastly improved economy prepared to create wealth (and thus jobs) by focusing on the most relevant areas – an economy which works well both for indigenous businesses and inward investors.

One more thing for those vague ramblers on Twitter – you can only deliver such things if you’re in government

Stop kidding ourselves: we don’t care about the poor

What really lay behind the refusal of some to countenance that the average public sector worker needs to make a contribution to our recovery after the Great Recession wiped off 10% of our overall wealth as a society (see yesterday’s piece and “Defending the Public Sector isn’t Defending the Poor“) was the common lack of solidarity towards poorer people. This is far from unique to public sector workers – but in the same way that it is often church goers who are most uncharitable, it is often the “Left” who are most unwilling to countenance doing anything themselves or making any sacrifice to help the poor in a meaningful way.

This takes us back to a truth which underlies this entire blog is this: we don’t care about the poor (we really don’t), in the same way, as I wrote last week, we don’t actually care about democracy. We only care about what suits us.

Sure, we like to think we care about others. We talk a good game. But we really don’t. In fact, inherently, we think they deserve it – as one correspondent put it in defence of public sector pensions: “Sure, why should a barman be as well paid as me?”

Just look at the raft of policies which have gone through Stormont, or been pursued by parties claiming to care about the poor:

  • Rates caps – the working poor person struggling to get by in a house valued at 120k pays 100% of their rates, but someone living in a house valued at 800k pays only 50%;
  • Prescription charges – the working poor person now has to look on as health services are cut to pay for the medicines of high earners and wealthy who could easily afford a tenner to pay for their own;
  • Water charges – the working poor person has to accept that water infrastructure is paid from the taxes they struggle to pay (i.e. from cuts to other public services), whereas wealthier home owners who would be paying directly for that infrastructure elsewhere in the UK get away without spreading the cost on to poorer people here;
  • Selection – the working poor person has no chance of paying for coaching for the transfer test, and thus their children are at an inherent advantage from age 9 to those whose parents can afford coaching (in practice paying for it, when you can, is almost obligatory);
  • Free Transport – the working poor person has to pay every bus and train fare, quite possibly merely to make their daily commute to work, while the wealthy working person aged 60 travels for free;
  • Winter payments – the working poor person’s taxes also go to winter payments for wealthy pensioners who do not even want them; and
  • Pensions – the working poor person is almost certainly in the private or voluntary sector (perhaps a support worker, a carer in a care home, a customer-facing retailer, a community worker or some such) and probably has no pension, but was almost going to look on as the Assembly took £1 billion from their public services over the next Assembly term merely to guarantee the pensions of those on higher incomes (thankfully, sense prevailed on this one).

Is that list not shocking?! Of course, well organised professional people’s lobbies will always get their way – on rates, on education, on payments and whatever. The working poor person who has to spend what little time they have working overtime or caring is left with the sharp end every time. Do we not care? I wonder…

Here’s the thing: I am clear that I am not poor and that thus I should pay prescription charges, water charges, and for my own pension; when I’m older I shouldn’t expect early retirement funded by others, nor even free public transport or random winter payments; others (because this doesn’t apply to me, but I’d say the same if it did) should pay full rates regardless of house value, should not benefit hugely from being able to afford to coach their children through tests, and so on; and by the way I am also clear that we will all have to work to 70 at least, changing career to do it if needs be – teachers will become college lecturers or inspectors; nurses will become Health Board workers or trainers; some of us will have to work check-outs or take tourists around the sites to top up our income (many already do, after all).

Fundamentally: that means we will all have to look after our health, we will all have to save some of our money, and by the way some of us will have to give up on second holidays or second homes to put more into the system to aid those who can’t afford one holiday or one home without going into massive debt. After the Great Recession, that’s the reality.

But are those of us who are not poor prepared to do that? I doubt it! Some of us simply deny we’re not poor, even when we’re among the top 15% of earners! For others, whatever we say, deep down what we really believe is that there’s something wrong with those who can’t afford one holiday or one home. Even if we really really don’t believe that, we will still find some excuse for suggesting that this is all for someone else to deal with and not us because even if others cheated their way to wealth, we ourselves indisputably deserve what we’ve got and frankly that holiday villa on the Mediterranean is really an investment for later in life…

And that’s just the poor in Northern Ireland. What about the Chinese workers building iPhones on a couple of dollars an hour (16 hours a day) so that we can afford them; or making toys for a quarter of the wage of a graduate Civil Servant so that we can “boost retail” at Christmas? Are any of us campaigning for them to be paid “Living Wage”, or to have pension rights funded by us the Western consumer in return for their willingness to work for so little? Of course not. The thought hadn’t even crossed our mind!

And of course, as noted last week, we can stuff everyone in Crimea, so long as it protects our energy sources and property prices.

We should stop kidding ourselves. We don’t really care about the poor – and certainly not enough to sacrifice anything to help them.

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