Category Archives: Opinion

Why the Tories need to review the teaching of History

Posted on July 9, 2010 by John Howson| 1 Comment

Anyone would have thought that Mr Gove was the first Secretary of State to have taken an axe to school building programmes. In the great devaluation crisis that played out during the final months of 1967 and early 1968, school building was savaged just as now, along with the raising of the school leaving age from 15 to 16. Here is what Prime Minister, Harold Wilson, said to the House of Commons on the 16th January 1968:

31. Education. Next education, one of the biggest and most rapidly expanding expenditure programmes. Total expenditure is estimated this year at £1,989 million, an increase at current prices of 42 per cent since 1963–64. Here again it is a question of priorities. We have decided we have no alternative to deferring from 1971 to 1973 the raising of the school leaving age, a postponement of two years. I need not tell the House how difficult, indeed repugnant, this decision has been to my right hon. Friends and myself.

32. This decision will mean a saving of about £33 million in 1968–69, and £48 million in 1969–70, principally in the school-building programme. But the basic school-building programmes will be increased by extra starts of £8 million both in 1968–69 and in 1969–70 to ensure that comprehensive reorganisation is not held up, and to provide additional resources beyond the extra £8 million starts in each of these years announced by my right hon. Friend the Secretary of State to the House last year, for improving conditions in educational priority areas.1

Mr Gove might have done better had he been aware of the lessons of history. Firstly, he would have recognised that even in an age of austerity it is better to give as well as to take, as it helps disarm potential critics.

For comprehensive re-organisation one might substitute protecting early years’ education. Here’s how Mr Gove might have phrased part of his speech.

Education is a key priority for this government. My over-riding duty is to ensure that every child has a place available to them when they start school at age five. Indeed, this government recognises the need for places below the statutory age limit, and will do everything to ensure those over the age of three can access early learning facilities where possible, especially in our most deprived communities. Members will also be aware figures released recently by my Department show that pupil numbers are falling in the secondary sector, and will do so in most areas to 2015 and beyond.

To ensure no child goes without a school place, I have today decided to call a halt to the secondary school building programme, except in cases where local authorities and academy sponsors can show that there are insufficient school places locally for secondary age pupils. The programme will not restart until I am satisfied that primary age pupils will not be taught in over-sized classes or even turned away from schools because of insufficient places. Once we have dealt with that issue, we can return to making all secondary schools fit for the 21st century. During the next few months I expect local authorities to provide me, in cooperation where appropriate with local dioceses and academy sponsors, plans to remove surplus places from the secondary education sector and to consider what effect this will have on school building plans.

In making this announcement I can also say that I have been made aware that a few schools expressing interest in academy status are part of re-organisation schemes resulting from falling rolls in their locality. While this government is fully committed to parental choice, it cannot afford to spend money that it does not have, and the creation of new academies and even ‘free schools’ cannot be allowed if they are to be ‘prejudicial to the efficient use of resources’. We have to cut our cloth according to our means.

This will only be a temporary setback, as once the economy returns to growth, we can return to upgrading our secondary schools. Before members opposite rush to judgement, they may wish to reflect upon how the abandonment of the Further Education capital programme was handled last year.

Such a speech would have passed the difficult decisions to local authorities, recognised the priority of primary education, and prevented any back bench revolt.

Perhaps Mr Gove needs a special adviser with a sense of history. Youth has its advantages, but sometimes a bit of experience doesn’t come amiss.

Either way Mr Gove is looking clumsy, not only did the BSF list have mistakes, so too did the list of schools expressing interest in academies. There is a well establish process for checking PQs within departments that recognises that the person who starts work on a PQ may need their work checking, and this happens all the way up the line. What happened here merits inquiry; more haste, less speed might be a useful maxim for Private Office to whisper in the ear of any Secretary of State.

Is Mr Gove fatally flawed? Not yet, but he is accident prone: never a good sign in a minister. To paraphrase something Ian Fleming once wrote, ‘one is an accident, twice is a coincidence and three times becomes a habit’. Mr Gove must now negotiate the tricky summer results season and ensure no child is without a school pace in September if he wants to survive beyond the end of the party conference season. That’s assuming he can make it beyond the end of next week.

Professor John Howson is President of the Liberal Democrat education Association, but writes here in a personal capacity.

  1. http://hansard.millbanksystems.com/commons/1968/jan/16/public-expenditure#column_1578 retrieved 8th July 2010 [↩]
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How should Simon Hughes amend the budget?

Posted on June 24, 2010 by James Graham| 23 Comments

Deputy Leader of the Liberal Democrats Simon Hughes has announced an intention to amend the budget to promote fairness. He told the Guardian today that:

When it comes to the Budget next week, we will vote for the budget. But if there are measures in the Finance Bill where we could improve fairness and make for a fairer Britain, then we will come forward with amendments to do that, because that’s where we make the difference, as we will in the spending review which will follow in the months ahead.

This is very welcome, but what should this amendment look like? I have already been thinking about an income tax rise to replace the VAT rise, but what else might the Liberal Democrats propose? Answers in the comments below.

It is notable that Simon is leading on this, not just another backbencher – and strikingly, not anyone from the Labour benches. Isn’t it time they started making more constructive noises?

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Did the budget meet my tests?

Posted on June 24, 2010 by James Graham| 9 Comments

A brief note, reflecting on the criteria by which I proposed we should judge the budget, now it has sunk in:

  • What is the timescale? 5 years, so this is a clear Conservative victory. I am deeply concerned about this, possibly more than anything else, because I think it will damage growth over the next half decade (possibly plunging us back into recession) and thus prolong, not minimise, the pain.
  • What is the proportion of cuts to tax rises? I hear differing figures, but I think the most accurate figure is 77% cuts to 23% tax rises. That is a slight reduction on the Tories’ 80:20, but is closer to that than the Lib Dem figure of 71:29 (or 2.5:1 depending on how you want to look at it). Of course, converting it all to percentages highlights quite how close all three parties plans were (Labour were committed to 67:33). To an extent therefore, I will concede that much of the battle had already been lost before the election. But there are tax rises and then there are tax rises. Which brings me to…
  • What kind of tax rises? Leaving aside the Capital Gains Tax tweak, which only raises £1 bn (half the amount to be raised in the Lib Dem plan), the main hit is on VAT, both the higher and lower rates, to 20% and 6% respectively. There is no escaping from the fact that this is a total defeat for the Lib Dems in coalition. There are no new wealth taxes, despite the fact that large amounts of uneconomically productive wealth is locked up in land across the country, which in turn ensures that rent rises are artificially high (a problem exacerbated by the Housing Benefit cap) and contributes to the housing shortage. The Social Liberal Forum can point to one small victory however: the increase in personal allowance will not be passed onto people paying the higher rate of tax, something which we argued for at both the special conference and in our letter to Nick Clegg and Danny Alexander.
  • Will it be egalitarian? Despite the government’s protestations, the broad consensus is that the overall package will lead to greater inequality, not less. Indeed, the debacle over whether the package is fair on the poor or not has made our case superbly about the need for the Office of Budget Responsibility to be both genuinely independent (ideally appointed by parliament directly) and have inequality written into its terms of reference. If it had been, I genuinely believe that it would have lead to a fairer budget: George Osborne to his credit understands the need for transparency in fiscal policy and has taken great strides to improve this. Ensuring that they can’t spin about inequality is a very crucial part of the jigsaw puzzle.
  • Will we end up with more or less means testing? Superficially, this is a victory as the scope of means testing was not increased. With that said, the number of people facing marginal rates of tax of around 90% actually increased – despite David Cameron’s highflown rhetoric about ending this last year. If proof were ever needed of how a smaller state can lead to less freedom, this is it.
  • Will this budget lead to a fairer, greener economy? The short answer to this is: wait and see. There was very little in the budget to give us hope on this score, apart from the commitment not to cut any further capital spend. We must now look to the Spending Review to see whether all this pain will lead for a more sustainable, brighter future. Much of what is in the coalition agreement is hopeful on this score, and much of it will be lead primarily by Liberal Democrat Cabinet members: Vince Cable and Chris Huhne. But it involves convincing the Treasury that these plans are worth proper investment, and sadly the Treasury have not exactly filled me with confidence this week.
  • What will be in the budget to prevent a “double dip” recession? Again, we will have to wait and see on this score. The commitment to capital investment was at least something, as was the very small amount of help to entrepreneurs. But to suggest that taking such a large amount of money out of the economy during such a short timescale will have no impact on the recovery, is fantasy economics. Osborne and Alexander are taking a big gamble here. Only one thing is clear: if we do go back into recession, it will be very clear who is to blame.

Overall, then, I’m not convinced this is a good budget, or even a necessary one. If I were a Lib Dem MP would I oppose it? I would certainly be thinking very hard about how I might be able to improve it via the Finance Bill.

But where do we go from here: any thoughts?

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How should we evaluate the budget?

Posted on June 22, 2010 by James Graham| 6 Comments

Regardless of what Liberal Democrats might like the budget to be tomorrow, we always knew it was going to be a compromise between the Lib Dems and Conservatives in government. The Parliamentary arithmetic always meant that the Lib Dems’ game plan in coalition was restraining the Tories rather than getting them to abandon their policies altogether.

So the issue with the rumours and hints that have been flying around over the past few days is not that the party isn’t winning the argument, but that the budget that seems to be emerging represents a total abandonment of Lib Dem policy. Will it be all that bad however? The key question will be: will we be able to clearly demonstrate that this budget contains elements within it that a pure Tory budget would not?

How do we assess that however? Here are a few ideas:

  • What is the timescale? If George Osborne announces a clear intention to clear the structural deficit over the lifetime of this parliament, that is a definite Tory victory. The Lib Dems’ argument was always for something closer to halving the deficit over five years.
  • What is the proportion of cuts to tax rises? Again, the Tories were quite clear on this: £4 cuts for every £1 tax rise. Labour went into the election calling for £2 cuts for every £1 in extra taxes. The Lib Dems, it is fair to say, hedged it, but did include a clear commitment to raise taxes if spending cuts alone would lead to greater unfairness. It is hard to conceive how 80% cuts could possibly pass this fairness test – especially since the government appears to be working towards an even greater deficit reduction than even the Tories were pledging to do during the election.
  • What kind of tax rises? Of the Lib Dem’s main tax pledges, only the banking levy, the plane levy and the harmonisation of Capital Gains Tax survived the coalition talks. The hints are that the banking levy announced tomorrow will raise somewhere between the Tory plan for £1bn and the Lib Dem plan for £5bn. CGT harmonisation, again if the rumours are true, looks as if it will be neutered. VAT is being talked about, although in recent days the speculation on this has died down (personally, regardless of how regressive it would be, I can’t conceive of them raising this up to 20% in one step – it would be both inflationary and really hit the high street). There are heavy rumours tonight of an early start to the plan to raise personal allowance, but will this be targeted at people on low incomes or result in tax cuts for the wealthy as well? Clearly the test here is: will the tax plans take more from the wealthy than the poor overall?
  • Will it be egalitarian? The government is committed by statute to assess all its policies on the basis of socio-economic inequality. The Lib Dems supported this in the last parliament (the Equality Act 2010), but thus far the coalition has been entirely silent about how it intends to make this a reality. Instead, the emphasis has been on social mobility, social opportunity and poverty. Despite this, the question is, will the budget contain within it a clear set of policy tools to ensure that such talk carries weight, or will we just get the rhetoric? Indeed, rhetoric aside, in terms of practical measures thus far, the coalition seems to have been going out of its way to scrap youth employment schemes. How do we ensure that all this doesn’t lead to another generation left on the scrapheap (the bill for which future generations will end up paying)?
  • Will we end up with more or less means testing? Child benefit is frequently cited by journalists as a benefit likely to face the act in this budget, albeit in the form of means testing rather than abolition. Yet increasing means testing is a highly problematic measure. Fundamentally, it increases the marginal rate of tax (i.e. for every extra pound earned, the proportion that is clawed back in taxes and a loss in benefits), something which both the Lib Dems and Tories were at pains to criticise in opposition. They must also be applied for, meaning that more people will end up not claiming for the benefits they are entitled to. Reducing the taper for benefits that are already means tested, such as the Child Tax Credit, is less problematic but they are relatively inexpensive already and thus won’t save an awful lot of money. But increasing the scope of means testing will be counter-productive in the long run.
  • Will this budget lead to a fairer, greener economy? The Lib Dem plan was not just about economic recovery; it was about ensuring that the new economy was significantly different to the old one. Our vision was all about investing in green technology, reduced dependence on the financial sector and increasing social mobility. During the run up to budget day, it has been notable how lacking government statements have been in vision. Nick Clegg’s email this evening was pitching somewhere between Thatcher’s “there is no alternative” and Churchill’s “I have nothing to offer but blood, toil, tears and sweat.” The much promised pain would at least be worth it if, at the end of all this, we had something tangibly different to look forward to.
  • What will be in the budget to prevent a “double dip” recession? It is hard to see how taking the amount of money out of the economy that is being proposed can be done without plunging the UK’s fragile economy back into recession. This would be disastrous. It would add to the national benefits bill and reduce the tax intake and thus make reducing the deficit more difficult, not less. So the final crucial question will be: what will George Osborne announce which will ensure that does not happen?

Those are my benchmarks – what do you think of them? And should we be considering anything else when evaluating the budget tomorrow?

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Intergenerational equity and the perils of groupthink

Posted on June 20, 2010 by James Graham| 1 Comment

Crossposted from Quaequam Blog!

As the implications of what it appears that the coalition is about to do in the upcoming budget sinks in, I have to admit to growing increasingly concerned. No-one – outside of the Labour leadership contest anyway – denies that the structural deficit needs to be tackled or that we don’t face some unpleasant spending cuts over the next few years. But I’m mystified by the economic strategy behind what the government apparently has planned.

If the government does have a game plan, thus far it has not been spelled out. Nick Clegg’s speech on Monday was remarkably void of much of an argument, resting as it did on two points:

1. There is no alternative: “to do anything else would not only be irresponsible, it would be a betrayal of our progressive values”.

2. It is a matter of intergenerational equity: “There is nothing progressive about condemning ourselves and our children to decades of debt, higher interest rates, fewer jobs.”

Nick Clegg and company keep emphasising how shocked they were by the state of the country’s finances, but thus far – despite all the welcome transparency – they have offered nothing to explain why they were quite as shocked as they were. The report of the Office of Budget Responsibility was mixed: it suggested that the structural deficit was worse than we’d thought but that public spending was actually under better control. Clegg himself keeps talking about this meeting he had with Mervyn King and how it made him see the light; it is almost as if he has come back from Mount Sinai carrying tablets of stone. But Mervyn King is just one man, and not one whose prognostications in the past have proven to be infallible. What is King saying in private that he can’t tell us in public? Why wasn’t it being said before the election? And how has it shattered Clegg’s and Cable’s own views of economic policy so irrevocably? I always knew that both of them were fiscally conservative, but this is radical neo-liberalism. It is the most spectacular policy volte-face I’ve ever seen.

More to the point, why does no-one else in the world appear to be pursuing a similar strategy. The UK is not in the mess that Greece is in, yet the coalition government is behaving as if it is. We know why the Tories want to do this: they’re Tories. I’ve yet to hear a single, coherent Liberal Democrat argument for why we should be going along with this.

The thing is, we do have choices here; lots of them. The government have made two fundamental choices which, on the face of it, contradict the advice of a very large number of economists and thus urgently need to be explained. Firstly, they are seeking to tackle the whole structural deficit within five years (something which the Lib Dems denounced during the election). Secondly, they are seeking to do this overwhelmingly by cutting rather than taxing (something which, to be brutally frank, the Lib Dems fudged during the election). I can see nothing in the OBR figures which suggest that such a strategy would be madness; quite the opposite. If the structural deficit is larger than we imagined, then surely there is a case for tackling it over the longer period of time, and an even greater scope for tax increases? To do otherwise would just risk damaging the economy, surely?

It is one thing to cut £6 billion this year: frankly I was pretty unfazed by that. But the numbers the government has started talking about really will risk – if not guarantee – a double dip recession. Withdraw the amount of money from the economy that we are talking about, and it is hard to see how the outcome will be anything other than negative growth. It actually looks as if, despite all the reassurances a few weeks ago, the government’s agenda is to actually engineer a new recession, seeing it as a necessary bit of pain with a view to long term benefits.

The last time that was done was the early 80s, under Thatcher. The result? In some parts of the country a whole generation was left on the scrapheap. Far from tackling the structural deficit, we’re still paying for it. That shocking welfare bill that Frank Field and Iain Duncan Smith have been given the task of slashing? A large proportion of it is due to the government plonking a large proportion of ex-miners onto incapacity benefit. The price has not just been financial; lives were shorn of value overnight; communities were destroyed; the following generation grew up with no hope and no aspiration. Social mobility fell. This is what shock doctrine economics does to a country and even the Tories pledged we would never return to it.

This brings into question the claims that such a hard and fast approach is progressive from an intergenerational perspective, and also causes us to consider some other worrying trends emerging from the government. Leaving aside David Willetts’ extraordinary views that higher education is an intolerable burden on the taxpayer, we have the fact that one of the main things the government has slashed over the past month has been youth employment schemes. Clegg’s argument that it is progressive to cut now to ensure that future generations don’t end up paying for our mistakes are only actually convincing if the future of those generations are not being curtailed by the same economic policies. Deny a graduate or teenager a chance of either employment or training now, and it won’t matter to them how high taxes are in the future because their own earning potential will go through the floor.

All of this flatly contradicts Clegg’s emphasis on social mobility, or does it? Because when he talks about social mobility, as he did on Thursday, Clegg’s emphasis is all on children. We can all agree that the most effective time in a person’s life to invest in is their early years, but this truism appears to have fallen victim to doctrinal reductionism. Simply put, it makes no sense whatsoever to invest in early years and schools while having nothing to offer people once they hit 16. What is the value in the government creating the most aspirational dole queue in history?

All of this adds up to an emerging picture of futures of the current crop of teenagers and young adults being sacrificed in the name of their younger and older generations. You’ve got to ask what they’ve done to deserve it? Equally, you’ve got to wonder if Clegg and Cameron would be quite as ready to do this if Antonio, Alberto, Miguel, Nancy and Arthur were a little older.

No-one else seems to be taking as much of a hit. Wealth taxes have been almost entirely ruled out, despite the fact that taxes on property values (or, better yet, land values) would have the least negative economic impact. And yet, far from being an economic burden, it is the 14-22 generation that we will largely depend on to make our economic recovery over the next decade a swift one. I am completely mystified; it makes no sense to me whatsoever. It seems to have been concocted by a bunch of people more concerned with sounding tough and being seen to make grown up decisions than actually steering the country down a fair and economically sustainable path. In short, it screams of groupthink; I pray that I’m wrong.

Late last week I spoke to someone on the “inside” and painted them a rosy picture. I speculated that all this doom and gloom that had been coming out of the Treasury and Downing Street over the past fortnight was a shadow play designed to placate the Tory headbangers and that what would emerge would be something surprisingly progressive and far-sighted; people like me all breathe a collective sigh of relief.

I still like to think that is a distinct possibility, but my source didn’t seem to find my theory anything more than charmingly off the ball. If they would at least offer us an actual economic argument, it would be something. Instead we just get echoes of Thatcher’s There Is No Alternative.

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Gove a ‘romantic idealist’?

Posted on June 20, 2010 by John Howson| Leave a comment

Plans for so-called ‘free schools’ announced by the Secretary of State recognise the need to improve the education for all pupils; harnessing the enthusiasm of new groups offers the chance to widen community involvement in education.

But, like a 1960s child of the flower power revolution, Mr Gove seems more intent on letting a 1,000 flowers bloom than on ensuring a school system fit for purpose and offering value for money in a time of austerity.

Schools in England have always been run by a diverse group of bodies ranging from faith groups to livery companies. Letting teachers take charge in the same manner as other professionals who would routinely expect to be free to run their own organisations offers new opportunities that can significantly reduce differences in attainment levels between different groups in society.

Assisted by a Liberal Democrat inspired pupil premium funding model, we could be on the verge of creating a high quality education system for all for the first time in a generation.

However, any new opportunities must be cost effective in a period of austerity, and must operate within a clear framework of accountability that covers all schools.

Pupils will still miss school, some will be expelled, others will develop special needs and many will move homes each year. Creating new schools is the easy part, developing the framework that allows them to succeed alongside other successful schools calls for more vision and knowledge than the Secretary of State has so far displayed.

As a Liberal Democrat, I believe in striving for excellent education for all; nothing less is acceptable. But, schools cannot exist in isolation from each other without the risk of some of the very pupils Mr Gove is concerned about slipping through the net.

Announcing ‘free schools’ and ‘grant maintained academies’ is the easy part: the hard slog of achieving success for all now starts. I am sure that Liberal Democrats will play their part in the coalition as the goals espoused by Mr Gove fit our aspirations. But, he will need to demonstrate how his ideas work for every child, and not just the few.

John Howson is the President of the Liberal Democrat Education association. He writes here in a personal capacity

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Stop wasting money Mr Gove

Posted on June 15, 2010 by John Howson| Leave a comment

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Ideology rather than efficiency seems to be the Watchword in Sanctuary Buildings, the home of Mr Gove’s Department for Schools. Not content with wasting money on changing the name of his department, the only minister to do so, Mr Gove has rushed out his Academies Bill, or Grant Maintained Schools (Academies) Bill as it ought really to be known. For the Tory academies are really only grant maintained schools with another name.

The present Chief Secretary to the Treasury has the advantage of coming from Scotland where, although the relations between the parliament and local authorities can be fraught, there is a clear recognition of where the responsibility for education lies. He ought to look carefully at the Academy Bill and ask what the potential financial effect of the proposed legislation is.

Apart from the obvious diseconomies of scale if local authorities are left with an unpredictable number of schools not willing or able to take the opt out route, and why would a school that spends more than the local average want to do become a GMA if it lost income in the process, there is still the need to plan for the future, to regulate, to chase up parents who don’t send their offspring to school and to deal with excluded pupils.

The Funding Agency for Schools, the body responsible for GM schools last time around, made it clear in one of its final reports that there would be a shortage of secondary school places in parts of London; and so there was early in this century as no one body had overall responsibility for planning. Such a nightmare will result unless a new planning body is established for GMAs. For this reason alone, the Bill deserves to be shelved until a more comprehensive look at schooling, including plans for both new providers and a pupil premium as a method of funding can be discussed. It would be plain daft if a school was given money on becoming a GMA only to have it taken away under the new PP formula. But, perhaps that’s Gove’s real aim, to protect schools that won’t see any funding gain under a pupil premium, and might lose money if the Chancellor cannot find extra money for schools as the Liberal Democrats pledged.

GMAs will join their Labour counterparts in becoming free from national pay scales. Experience to date has shown that such a freedom, as exercised by Labour’s academies, has had an upward pressure on salaries. Some leadership teams in particular have benefitted significantly from enhanced salaries with little or no monitoring as to value for money. The lack of regulation can produce an ‘unacceptable face of capitalism’ as governments down the years have discovered.

Individual schools need to fit within a coherent framework regardless of who runs each separate institution. Too many Tory advisers don’t understand this, and their local government colleagues have failed to be robust enough with their Westminster colleagues.

Liberal Democrats place a high value on education, and cannot afford for scarce resources to be wasted during this period of austerity government. The Academies Bill should never have seen the light of coalition government, and should now be shelved. There may need to be a fresh look at education in this country, but a rushed Bill is not the way to do it; it should be dumped.

Sign the petition.

John Howson President of the Liberal Democrat Education Association and has advised various Liberal Democrat education spokespersons over the past 13 years. He writes here in a personal capacity.

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Will we get fairer taxes under the coalition?

Posted on June 10, 2010 by James Graham| 4 Comments

LibDem_Tory_Bombshell

The Liberal Democrat's campaigned explicitly against a VAT increase in the 2010 General Election.

A couple of weeks ago I wrote about the regressive alliance seeking to undermine the new coalition government at every turn.  If that seemed vague and abstract then, it certainly doesn’t any more.

We should at least respect the Daily Telegraph’s candidness; it’s attacks on David Laws and Danny Alexander have been explicitly linked with their specific campaign to prevent the coalition’s agreement to harmonise Capital Gains Tax with income tax and to destabilise the coalition more generally.  What is more unfortunate is seeing numerous people within Labour and on the left joining in, perceiving in some vague unspecified way that Laws’ misguided attempts to protect his private life and Alexander’s significantly less misguided decision to only pay the amount of tax he was legally obliged to were somehow the moral equivalent to the more eyewatering examples of house flipping that Labour ministers got up to in the last parliament.  It is encouraging however that, overall, the media reaction has been relatively muted.  The Telegraph’s ability to blackmail and strong arm the political establishment to do its bidding seems to be fading by the day.

But in terms of Capital Gains Tax, there is a risk that the damage has already been done.  There’s no denying that the Tory right have been incredibly quick off the mark on this and caught supporters of the tax change unawares.  Even before David Laws’ resignation, the former Chief Secretary and George Osborne were already making warm noises in response to John Redwood’s “compromise” proposals.

This is something we simply cannot allow to let pass.  If, after just a month in government, the coalition reneges on one of the few concessions on economic policy that the Lib Dems managed to secure in the agreement, then the long term damage will be immense.   Give Redwood, Davis and company an inch now, and they will go on to take a mile.  It would set an appalling precedent and cast a shadow over the whole agreement.  What’s worse, the case against the tax harmonsation is incredibly weak and largely based on misconceptions about who pays and how Capital Gains works in practice.

The first thing to remember about the Capital Gains Tax policy is quite how little it is expected to raise in relative terms.  The big ticket taxation policy the Lib Dems campaigned on in the general election was limiting tax relief on pensions to the equivalent of the basic rate of income tax.  That (entirely reasonable) measure was to have raised £5.5bn.  Capital Gains harmonisation, by contrast, was only budgeted to raise £1.9bn – significantly less than the equivalent of a single penny on income tax.  From reading the more effervescent articles in the Telegraph and Mail, you could be forgiven for thinking that this simple adjustment alone would pay off the entire national debt!

An article in the Telegraph last week about how the policy could affect the tax burdens of “hundreds of thousands of old people in care homes” is a particularly good case in point.  Strictly speaking that may actually be true, depending on the timescale you are looking at and depending on whether you feel that a tiny, barely noticeable increase actually counts.  To put this into perspective, Capital Gains is only incurred on the homes of elderly people in care homes who have lived away from home for more than three years.  What is more, it only counts against a proportion of the capital gain accrued since the asset ceased to count as a primary residence – and even then only as a proportion of the capital gain accrued since 1982.  So, for example, a pensioner who has lived in a house since May 1970, moved into a care home in May 2007 and sold in May 2010 would only pay CGT on 1/444th of that capital gain.  If they sold next year, they’d pay CGT on 13/456ths, and so on.  Assuming the capital gain was £400,000, that CGT personal allowance was dropped to £2,000 and that the CGT rate was raised to 40%, that tax burden would go up by £0 or £3,526.77 (£234.63 to £3,761.40) respectively1.  A £3.7k tax on a £400,000 profit (less than 1% overall) sounds reasonable to me – and the homes of most elderly people in care are typically sold well within three years.

The bottom line is, if the coalition government lacks the strength to make this modest tax adjustment, then how can it be trusted to make the much tougher decisions regarding the deficit.  Thus far, despite Nick Clegg’s reassurance of “progressive austerity” measures, the vast bulk of spending cuts have been predominantly targeted at the poorest and the young.  It is frankly incredible that young people’s futures are being put at risk while the government rules out even considering cutting free TV licenses for the wealthiest of pensioners (something which, to be fair, Labour are unwilling to contemplate axing or even moderating either).  How can we capitulate over CGT, claiming that it would risk the economy, whilst axing youth employment schemes and pricing people out of higher education and thus harm the very workforce we depend on to drive the economy forward?  The rhetoric is simply not meeting reality at the moment.

Indeed, the rhetoric of progressive austerity is at odds of a lot of the economic policy emerging from the coalition at the moment.  For one thing, it currently looks as if the Tory policy of addressing the deficit with 80% spending cuts and 20% tax increases will be pursued – something which inevitably will almost inevitably put the coalition’s actions at odds with the Liberal Democrat manifesto commitment to ensuring that spending cuts do not have an adverse impact on fairness2.  While we should not repeat the mistake of signing up to any docrinal and artificial split between cuts and taxation, it is crucial that Liberal Democrats both inside government and out to continue to make the case for a greatest burden to be paid by the wealthiest.  The case for this is not merely moral; it is rooted in hard economics.  Even if you ignore the growing evidence that more equal societies perform better, you cannot escape from the fact that increasing absolute poverty while leaving vast swathes of unproductive wealth untouched will only make the recovery that much harder.

What we certainly must not do is allow our most progressive measures get bastardised in government.  During the run up to the election, along with most Liberal Democrats, I enthusiastically supported the Liberal Democrat policy to raise personal allowance.  There is much to admire about this policy, but it was always part of a wider, redistributive package.  Frustratingly, the coalition agreement has retained the commitment to raising personal allowance while dropping most of the new taxes that were needed to pay for it.  This means that to pay for it we will either have to impose even greater cuts on public services or introduce alternative, potentially regressive forms of taxation.

Cutting services for the vulnerable or raising VAT simply to hand the wealthiest a £700 tax cut would be nothing less than a scandal.  This doesn’t mean dropping the policy, but it does mean looking at ways to make it more affordable.  The simplest way to do this would be to drop the 40% income tax threshold by the same amount that personal allowance is raised.

Of course, it is to be hoped that Nick Clegg and Danny Alexander have similar proposals in mind and that we will all be pleasantly surprised on budget day (22 June).  But it has to be said that, the most abstract of rhetoric aside, they have not publicly been offering us much, while hinting that they will be siding with the Tory right over capital gains.  If they are to pull a progressive rabbit out of their hat in two weeks’ time, some reassurance that this might be on the cards would be timely.

The Social Liberal Forum Executive is holding an emergency consultation to ask what people think should be included in the coalition government’s upcoming emergency budget. Have your say on the SLF social network.

  1. I am indebted to Matthew Turner for helping to explain this to me, as I am to the HM Revenue and Customs website – all mistakes are my own [↩]
  2. The exact wording in the manifesto reads as follows: “Over and above our planned new levy on the profits of banks, we will seek to eliminate the deficit through spending cuts. If, in order to protect fairness, sufficient cuts could not be found, tax rises would be a last resort.” [↩]
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Profit motivation versus purpose motivation

Posted on June 4, 2010 by James Graham| Leave a comment

An interesting short film from the RSA about what really drives people and motivates them to do good jobs.  It turns out that what motivates us is less the prospect of profit and more chance to make a difference.  That finding challenges a lot of the preconceptions of both capitalists and socialists, although it has to be said that for menial tasks it turns out there is a profit motive.  So, we should be giving factory workers financial incentives (and should be taxing demerit goods) but shouldn’t be rewarding managers in a similar way.

I’m increasingly finding linkages between the various social benefits that come along with reducing inequality and the creative commons/open source culture.  It looks like a path worth exploring in more detail.

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The coalition of ideas is needed more than ever

Posted on May 22, 2010 by James Graham| 12 Comments

Back in September I co-authored an article in the Guardian with Neal Lawson, Chair of Compass, about the need for a “coalition of progressive ideas” between Liberal Democat and Labour members.  In truth, Neal did most of the heavy lifting on this, but I had no trouble signing up to it.  In particular, I was keen on how we defined this so-called coalition:

Progressives in all these parties are committed to greater equality and dealing with the challenge of climate change, but the binding value is pluralism. We recognise the value of difference, distinct histories and tradition but are using them to develop a shared project that is stronger because it is based on consensus-building. What we seek is not a big tent – that has been tried and failed – but a camp site where we keep our independence but grow stronger within common boundaries. This is not a coalition of parties and votes but of ideas and hope.

For many, the events of the past fortnight render talk of a progressive alliance as naïve at best and even contemptable.  For a lot of people on the “left,” the Lib Dem-Conservative coalition represents little more than a betrayal, and of the Lib Dems “selling out.”  The Lib Dems will spend the next five years as little more than the puppets of an ideologically-driven Thatcherite Conservative Party, dazzled by the prospect of a handful of cabinet posts and a referendum on the Alternative Vote.

Not only do I think that narrative is factually wrong, but I worry that it is dangerous. In terms of the facts, everyone in the Lib Dems I have spoken to is all-too aware that junior partners of coalitions rarely do well out of the deal: we really aren’t getting into all this because we think the party itself is going to do especially well out of it, if at all.  The majority of people would have preferred a Lib-Lab coalition; we just had a bottom line that Labour were not willing to match.  Few seem to genuinely question the fact that such a coalition was both arithmetically difficult and lacked a significant degree of political will on the part of the Labour Party; nor does anyone seem to genuinely believe that a Tory minority administration would be either more progressive or provide the country with the stability it needs at a fragile time.  And while cynicism about the deal abounds (much of which, it has to be said, may turn out to be well founded – nothing about this deal is risk-free), very few people seriously disagree that the concessions Nick Clegg and his team wrung from David Cameron were very considerable indeed.

The worst thing about this “Con-Dem” narrative is that it plays into the hands of another coalition: the regressive alliance.  While you won’t see the likes of Nadine Dorries and John Reid penning joint articles in the Telegraph any time soon, the fact remains that there is a very real force in British politics which deplores political pluralism and enlightenment values and has a very considerable amount of influence within both the Conservatives and the Labour Party.

The Con-Dem narrative suits the purposes of headbanger mentality in the Conservative Party because the more it is encouraged the stronger it will be.  If people on the centre left leave the Liberal Democrats in droves (something which, a small trickle notwithstanding, does not appear to be happening), then the junior coalition partner will be weakened and will struggle to hold its own in the inevitable battles for the heart and soul of the coalition government over the next few years.

But this Con-Dem narrative also helps the headbangers in the Labour Party.  The last thing these people wanted was a coalition with the Lib Dems (which is why so many took to the airwaves to derail the Lib-Lab talks), the price of which would have been a reversal of Labour’s very many authoritarian policies and electoral reform.  As far as they are concerned, if the Lib Dems can be crippled over the next few years, the return of two-party pendulum politics will be all-but inevitable.

A lot of progressive Labour members and supporters currently buy into this idea as well.  They are making a huge mistake and one which, if they let their anger and frustration continue for much longer, they will live to regret.  The key lesson to be learned from the electoral politics of the last 100 years is that pendulum politics always favours the right, even when there is a clear left consensus.  Jo Grimond understood this.  Roy Jenkins understood this.  Even Tony Blair, before he got seduced by his headbanger wing and the prospect of a huge majority, understood this.  Not only does the electoral system work against us, making the whole election contingent on a handful of swing voters in marginal constituencies, but the rightwing media get to call all the shots.

The dangers are there to see.  The tone of the current Labour leadership debate has, thus far, been extremely depressing.  Candidates seem to be lining up to out-compete each other in terms of who can be more right wing on immigration and workfare.  Jon Cruddas, a man who has plenty of sensible and progressive things to say about both, has ruled himself out.  And of course Labour has just spent the past couple of months attempting to portray the Conservatives as soft on crime.  With Labour politicians saying very little about the economy and tax beyond some somewhat exaggerated hand wringing about the Tories’ promised £6 billion cuts in non-frontline services, there is currently very little to distinguish them as a progressive party at all.

It will be a tantalising and disturbing irony to have the Lib Dems spend the next five years preventing the Tories from lurching to right only to have Labour pushing in the opposite direction.  Yet as things stand that is a very real prospect.

Fundamentally, what does Labour achieve by ensuring that the Lib Dem “sell out” becomes a self-fulfilling prophecy?  It won’t help a single person on a low income.  It will only undermine the public services Labour claims to want tp defend.  And it won’t make the Conservatives any less electable in five years time, who will be seen as the dominant force in the coalition.  The lack of a Lib Dem force in the 2015 election may make the public’s choice that much simpler, but it won’t make Labour’s job of winning any easier.

What can be done to prevent this?  Fundamentally, we need to keep talking.  This needs to be done at both a parliamentary level and at a grassroots one.  From Labour, the rhetoric needs to change.  Instead of dismissing the coalition as a victory for the right, Labour ought to be challenging its claim to be progressive.  A smart Labour leader will not wallow in the comfort zone of oppositionism but instead focus on finding new ways to tempt Liberal Democrat backbenchers into supporting positions that the Tory Taliban will find beyond the pale.  The word on every Labour politician’s lips should not be “condemnation” but “lovebomb”.  That’s if they are interested in long term strategic gains rather than the sort of short term tactical populism that became so discredited under the Gordon Brown era.

One important factor appears to have been missed by the political commentariat: while the new government is certainly centre-right, the House of Commons itself will be centre-left.  With the Lib Dems’ rightwing disproportionately now sitting on the government benches (with a few notable exceptions such as Steve Webb), the select committees – set to be stronger than ever under the Wright reforms – are likely to disproportionately include Lib Dem MPs from the left.  This is likely to be the most scrutinised government and most powerful parliament in living memory.

The progressive majority has not been shut out of power in this Parliament.  It is dominant in the Commons and exerts a restraining influence on government.  If these two factors can be combined, we will see nothing less than the realignment of the left that so many have fought for for decades.  But to achieve that, people within both the Lib Dems and Labour need to look beyond mere party interest and move beyond the simplistic dividing lines that tend to dominate British politics between “government” and “opposition”.  In a hung parliament, this is a false dichotomy.

If the opportunities are great, the risks are greater still.  If the experiences of the eighties, nineties and noughties have taught us anything, it is that Labour cannot win alone.  Not without going further along the road to becoming a conservative, reactionary party more concerned with power than fighting for its concept of the Good Society.  Triangulation always ends up backfiring on you in the end.

There are some siren voices within Labour itself for whom that would be an unequivocally good thing.  For the progressive majority within Labour, the time has come to stand up to such pernicious small-mindedness.

In short, to all my Labour friends: you really need to get over it. And fast.

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