Council Tax Reform: A Mansion Tax Wouldn't Go Far Enough

In recent years, the idea of having a 'Mansion' tax has gained considerable traction with both the Lib Dems and then the Labour Party picking it up. This has been criticised by some because it won't raise very much money and because it will have to be paid by elderly, impoverished ladies living in modest houses who have the great misfortune to live in the more expensive parts of London. Nine years ago, The Public Accounts Committee of Lewisham Council proposed reforming Council Tax in ways that would make it much more progressive and potentially raise more money than would the introduction of a simple 'Mansion' tax. It produced a report that formed the basis of its submission to the Lyons Inquiry into Local Government Funding. The report makes interesting reading, given the pressures on Local Government finances we are experiencing today. Below is a section from its submission which summarises its main recommendations:

The Committee supports the New Policy Institute (NPI) version reforming the council tax which includes changing the number of multipliers of the bands particularly splitting bands A and H, which are currently very wide, and sub dividing band G so that the progressivity of the tax could be improved. We believe that this system will be fairer for low income families as well as pensioners as they are, on average, more likely to pay a greater proportion of their income in council tax than average and high income families. 

We also support the NPI’s proposal for sub national variation (regional banding) so as to take into account the house price divergence throughout the country. Also this would prevent a redistribution of central government resources from areas with relatively high house prices to regions with low house prices. Regional banding would work well in this system, however, we are concerned about the ‘cliff edges’ debate which was discussed at the Balance of Funding Review where taxpayers in a neighbouring region are paying different council tax levels for houses of the same value. This problem could arise if the neighbouring borough to Lewisham, Bromley, which is an outer London borough compared to our status being an inner London one could potentially pay different levels of taxation despite having similar house prices. We also believe that revaluation should be more frequent (10 yearly) as to give integrity to the system. 

An important aspect that the Committee urge the enquiry to look at is the whole scale reform of the council tax benefit system. The stigma of take up must be removed. This can be done by turning it into a credit, as to appeal to pensioners. The complexity of filling the application is another reason why people are put off it.

It’s a shame that the debate on the whole issue of the iniquitous regressiveness of the current system of the Council Tax has been driven up the cul de sac of a Mansion Tax proposal. The calls for a Mansion Tax, although well intentioned, have framed the current debate in terms of those who want to protect vulnerable old people in expensive houses paying more tax and those who want to pursue the class war by bashing millionaires. We need to broaden out the discussion to explore ways of making the Council Tax more progressive and fairer. Creating more bands at both the top and bottom would seem to be an easy way of doing this, as it would not necessitate a wholesale national revaluation of properties. It is disappointing that in the nine years or so since this report was published, the issue of root and branch reform of Council Tax has disappeared into the long grass. Sadly, I wonder whether it will ever re-emerge.

Immigration. A Free Market Response At Last.

It is well known that those on the right argue that markets should be allowed to work as freely as possible, because free markets solutions maximise profits and production, minimise prices and therefore generate the most benefit to society. What I don’t understand is why those who advocate most vociferously for the free movement of capital across national boundaries can also be those who are most against the free movement of people across national borders, or immigration, as it is more pejoratively described. Surely, if you believe markets work, then they work. What is sauce for the goose must be sauce for the gander. So three cheers for the free market think tank, the Adam Smith Institute, which put up two pro-immigration posts last week entitled, Almost Everything You Need To Know About How Immigrants Affect Britain’s Public Finances and 9 Reasons To Want A Lot More Immigration. They point out some inconvenient truths for the anti-immigration lobby, some of which have been picked up in the mainstream press. Chief amongst them is that immigrants pay more in taxes than they cost in benefits, unlike UK nationals and that if we did not have them the Government deficit would be much higher. They also point out that they do not steal native jobs, they create them, countering this idea that the economy is a ring-fenced pie where there is only a fixed number of jobs to go around and some can only have more if someone else has less. Emphasising this point, immigrants tend to be much more entrepreneurial than the natives. Immigration is also much more effective than overseas state aid, as foreign workers send three times as much money home to their families as the developed world gives in aid, and this money is going straight into the pockets of the people that really need it. The most challenging reason given for wanting more immigration is that if we had a free market for labour, allowing everyone to go where ever they wanted for work, then global GDP would probably more than double.

Although all of this may come as a surprise to the general public, this will not be the case for many business people. In my small business we employ two immigrants, both of whom are brilliant and have been crucial to us being able to expand and develop over the last few years. One is American, has a Masters Degree and sadly has to leave the UK because her Visa is running out. Replacing her is going to be extremely difficult. The other is Ukrainian. She speaks three languages and, as one of my colleagues said to her the other day, ‘you are the most qualified of all of us in this office’. She can stay in the UK because her husband is Romanian and, funnily enough, he is not a beggar, Big Issue seller or criminal, but a Ph.D. student and lecturer at a prestigious London university. This employee has helped transform our business by managing our website redesign and engagement with social media. We would be lost without her and she has a crucial role in our future plans for taking the business forward. In short, immigrants have helped us generate more revenue which means earning more money for our artists, and paying more tax to the government.

I imagine that the parents of my two immigrant colleagues are delighted that their children have been able to go to another country, to pursue their life adventure and that they have found jobs in places where they are welcomed and appreciated for who they are and what they can do. As the parent of two teenage boys, I find myself feeling a great affinity with these strangers. If I am honest, I want my sons to have the opportunity to go anywhere they want in the world to study, work and make a life for them and their families. This is doubly so now that getting a university degree in the UK means taking on a vast debt and the chance of buying a home of their own can only be a slightly more likely than the odds of winning the lottery. Those of us who want sauce for our little goslings have a moral duty to argue that others get it too. Thanks to the Adam Smith Institute, and an increasing number of other researchers and informed commentators it has to be said, this should be a much easier task, as we are shown the truth that open markets for people deliver benefits just like open markets for goods and services.

London - Ukip's Waterloo.

Ukip's victory in the Clacton by-election has made it clear, if it wasn't before, that our membership of the EU and immigration are going to be key issues in the run up to next year's General Election. This may well be a good thing. Many commentators have bemoaned the fact that Nigel Farage and his party have so far had a rather easy ride from the media, being portrayed more as a particularly amusing British eccentricity, rather than a serious political party capable of governing the country. Consequently, they don't seem to have been subject to the same critical scrutiny as other parties. Post Clacton, I have noticed more articles appearing that set out the positive case for EU membership and immigration. Perhaps I just haven't been paying attention, or maybe now more people really do see Ukip as a threat and want to do what they can to stop them in their tracks. If there is a new-found willingness to take on Ukip, I hope this extends to an enquiry into what their stance is on issues other than Europe and foreigners speaking foreign languages on trains, rather like my family and I did on a recent trip to Barcelona, at least that is how the other Spanish travellers would have seen it. What is there view on Austerity, dealing with the Budget Deficit and the NHS funding black hole, for example? The Deficit is running at around £100bn a year and growing and the NHS is facing a funding shortfall of around £30bn by 2021, according to figures released this week. By contrast the UK's net contribution to the EU budget is about £6bn a year. It's not clear how withdrawal from Europe and stopping immigration will deal with these rather pressing matters, particularly as immigrant workers seem to be keeping the NHS going. Yet Ukip spokespeople don't get asked these questions in interviews. If Ukip think they are a serious political party capable of running the country, rather than just another special interest pressure group, it would be nice if the media started treating them as such.

But it would appear that Ukip's anti-immigration message is gaining traction everywhere. Except, that is, in the area that has arguably experienced the most immigration of any place in the UK. Who can forget the rather sulky, petulant reaction of former Tory councillor Suzanne Evans who defected to Ukip and then lost her seat in the recent local government elections. Whilst polling around 25% in the local elections nationally, Ukip only managed 7% in London. She put her new party's lack of success down to London's 'cultural elite', who were young and 'more media savvy and educated' than the rest of the country and therefore couldn't understand the heartache felt by the rest of the country.

I think many of us Londoners found this explanation rather bemusing. Anyone who has lived in London for any length of time will know that there is more to this world city than The City of London, the Westminster Village and the West End. Lewisham is just as much a part of London as Mayfair, and you don't have to go far from the richer parts to see that London is still very much a working class town. I doubt very much if anyone considering the whereabouts of the capital's metropolitan elite would begin their search in Catford, New Cross or Deptford. A far more plausible explanation for London's rejection of Ukip is the fact that London is a multiracial town at peace with itself and the fact that it has been so for a long time, especially in its poorer areas. The schools I went to in Lewisham in the 1970s and into the early 1980s were ethnically mixed. They had a large number of West Indian pupils, mainly Jamaican, with a sprinkling of Asians and Cypriots. The Nigerians starting arriving towards the end of my school days. Later generations of Lewisham school children could talk about the arrival of the Vietnamese, the Somalis and others from the world's trouble spots. My children have grown up during the time of the arrival of the Eastern Europeans.

Generations of white Londoners have grown up living amongst and going to school with other Londoners who were different to them, yet who were in many ways exactly the same. They have eaten with them, drunk with them, played football with them, chatted up their sisters and fancied their brothers. They have taken the mick out of them and been the butt of their jokes. For many ordinary Londoners, a negative attitude towards immigration would be a denial of their own history and experience. Now I am not suggesting that ordinary Londoners are living their lives trapped in some kind of perpetual performance of that song and dance number, 'We're all on this together', from High School Musical. Rather, I think that their everyday mundane experience of life has left them inured to the notion that immigrants, and by implication the EU, are the nation's bogeymen and to the idea that we would be a lot better off if we could return to a Britain that racially looked like it did in the 1950s.

PS Can I be the only person who thinks of Toad of Toad Hall when he sees Nigel Farage?

Can Public Services Be Sustained In London If House Prices Continue To Rise?

As far as the sustainability of public services in London is concerned, there seems to be a number of non budgetary factors at work, many of which are related to the affordability of housing, or rather the lack of it. In Lewisham we have started to notice that schools are finding it difficult to recruit Head Teachers. I think this has been a problem in the past across the country, but this was due to teachers not wanting to take on the extra responsibility and stress. Now it seems that part of the issue is that suitable candidates are not applying because they know that they couldn't afford to move here if they were successful. My sense is that this has been an issue for recruitment to senior posts in public services in London for some time.

But house prices are not just preventing good people from coming to London to further their careers, they are also pushing people out. People are leaving London because they can't afford to buy a house here, even though they are in good jobs with good career prospectives. Even those who own their own homes are having to move away because they can not afford to trade up and buy a property big enough to raise a family. People are willing to endure a 90 minute to two hour commute each way, in order in keep their job in London, but also have a modest family home, while their partners give up their London job and look for something local. Others leave the London job market completely. The other force pushing people out is the desire of those lucky enough to have a family home, to cash in on what they consider is a housing market bubble. They have seen the price differential between London properties and those elsewhere expand so far that the trading opportunity is just too good to pass up. I have seen both forces at work in Lewisham.

The good thing about churn at the top of the job market is that it provides opportunities for those lower down to move up, and the more the churn, the more opportunities there are. During the time I visited the primary school that my sons went to in Lewisham, I was struck by how many very young teachers there were by the time the youngest left, compared to when the eldest started. In the couple of school visits I have made since becoming Lewisham's Cabinet Member for Children & Young People, I noticed how many young teachers there were. I don't think this is just a false perception brought on by my own ageing! I know from the people in their twenties who I work with at Hales Gallery, that these young workers are Generation Rent. They tend to be living in rented accommodation with their partners and/or friends and they are childless. I don't know the data on the age profile of employees in public services in London and how it may have changed over the years. However, I suspect that there are an awful lot of Generation Rent employed in our schools, our social services and the NHS. What will happen when this cohort decide to have children? Will we see a slow motion, mass exodus of young doctors, nurses, social workers and teachers from the Capital in the coming years? Who will care for and teach those who remain?

I, of course, am particularly worried about the effect that our dysfunctional housing market is going to have on our schools in the coming years, especially as the situation is being exacerbated by increasing numbers of children needing places and budget reductions. However, I think the situation in adult care may be much worse. We know that the number of elderly people is going to increase in the coming years, and their needs will also increase as they live longer. Thankfully, they have been spared Iain Duncan Smith's welfare reforms so they are not being forced to move to Chatham or Broadstairs to escape the bedroom tax. So in London we are going to have growing demands on adult health and social care that will have to be met by a NHS whose funding was effectively capped at 2010 levels of need, and the social services departments of local councils whose budgets are been drastically cut. And all this will be happening at the time of a possible recruitment crisis.

As I say, I don't have all the data and am just extrapolating and speculating. However, I think the bottom line is that you have to question the viability of a City where a modest family home is out of the price range of young professional people working in the public sector.

London's School Places Challenge - Can Boroughs Solve It On Their Own?

Last week, London Councils published Do the Maths 2014, London's school places challenge. It outlines the problem in the first page of its introduction:

London has been facing an increase in demand for school places for the last seven years, and this demand continues to grow. A combination of rising pupil populations, spiralling building costs and lack of available land is putting increasing pressure on London boroughs to provide places for pupils. These challenges have been compounded in the capital by an ongoing lack of sufficient funding from government to provide adequate pupil places.

The scale of the problem in daunting. London will need to create 112,158 extra primary school places and 20,994 secondary school places by 2018. Currently, individual educational authorities are tasked with planning for and delivering their required additional places at their own borough level. The report makes a number of very interesting points of fact which leads me to think that the only viable solution is one that is centrally planned and pan-London, even regional in nature.

Firstly, the problem is not evenly distributed across the Capital. At one extreme, you have Camden where pupil numbers are forecast to grow by about 6% between 2012/13 and 2017/18, while at the other you have Croydon with growth forecast at over 35%. 

Secondly, the Big Society, quasi 'Free-market' approach favoured by the DfE under the now departed former Secretary of State for Education, Michael Gove, isn't going to help much. Whatever you may think about free schools, the report makes clear that they are not being set up in the areas where there is biggest need for extra places.

In addition, many of the boroughs with relatively high forecast growth rates are next or near to others with much lower expected growth. Lewisham, for example, is expected in the next 5 years to see an increase in pupil numbers of nearly 20%, whereas for neighbouring Bromley the figure is just over 10% and for nearby Bexley its only around 7.5%. Bromley and Bexley are outer London boroughs where London Council's estimate the unit cost of building a school place is about £9,000. In inner London boroughs like Lewisham it's around £15,000.

Lewisham has been dealing with a rising primary school roll for the last 6 years. We have found the extra places in the main by expanding our existing schools, either through adding bulge classes or expanding 2 form entry schools into 3 form entry schools. We have done this because we have so few sites on which we could build brand new schools, even if we had the funding to do so. Bromley and Bexley are far less urbanised than Lewisham and it is therefore hard to believe that they are as pressed for sites as we are.

Some people seem to think that children should have the right to go to a local school, by which they mean one that is just down the road, so expecting parents to allow them to schools in neighbouring boroughs is unreasonable. I think there are a number of points to make here. The first is that parents in London tend not see borough boundaries as restrictions, especially if you live close to them. Parents who live in Lee may see Woolwich, the home of Greenwich Town Hall, as something of a foreign country, but many see Thomas Tallis school, which is in Greenwich Borough and only about a mile or so away, as their local school, especially as the 2 nearest Lewisham secondaries are faith schools. Good transport links are another reason parents are opting to send their children to schools outside the borough. There can be no surprise that parents are happy to allow their children to go to school in Bromley or Bexley or as far away as Dartford in Kent, by train when, if you live in Blackheath or Lee, the journey is quicker than a bus ride to a Lewisham school in New Cross or Forest Hill. Indeed, around a quarter of Lewisham secondary pupils go to schools outside the borough.

I accept that parents are less willing to send their children to a primary school that is not down the road, although this may be more to do with the fact that they have the practical requirement to get them there and bring them back, than it is about an emotional desire to keep their offspring close to the family home whilst at school. However, as I have already said, a neighbouring borough is not another country far away of which we know nothing. From where I live in Lee I can get into my car and be out of the borough and at a farm in Bromley, quicker than I can drive to the Town Hall in Catford.

I don't know the situation in other parts of London as well as I know the issues in Lewisham, but I suspect that there are many similarities. Therefore, it seems pretty clear that the London problem can not be solved by each individual borough trying to deal with its own challenge. But can we expect a solution that involves the outer boroughs and the home counties coming to the aid of the inner boroughs, particularly when in many cases this requires Tory authorities assisting their Labour neighbours by building schools on currently green field sites, to come through a route of cooperation and mutual assistance? I think that whoever is Education Secretary after the next Election is going to have to intervene and direct local government to take action to bear their neighbours' burdens, however much this goes against the grain and whatever the backlash. The problem just seems too big for the current structures to deal with in a way that secures the best outcomes for all the children involved.

Why Are The Poor Paying More Tax Than The Rich?

Last week the ONS produced the latest version of its statistical bulletin, The Effects of Taxes and Benefits on Household Income, 2012/13'. What this shows, if we needed reminding, is that we do not live in a country with a progressive tax system and an excessively redistributive benefits system. The facts in this paper are squarely at odds with the assumptions of many on the right that the country's economic growth is being held back by high taxes on entrepreneurs and wealth creators and by a culture of benefit dependency amongst the poor:

The richest fifth of households paid £29,500 in taxes (direct and indirect) compared with £4,700 for the poorest fifth, though both groups paid a similar proportion of their gross income (35.1% and 37.4% respectively).

It is an inconvenient truth for many in the Coalition that even after large rises in the income tax threshold designed to make work pay, the poor pay a larger proportion of their incomes in tax than the rich. I suspect that the figure for the rich reduces more further, the further you go up the income distribution. That is, the richest 10% pay even less than the richest 20%, the richest 1% less than the richest 10% and so on. If my memory serves correctly, even Adam Smith thought that the fairest system of taxation was one where everyone paid the same proportion of their income in tax.

The main reason that the tax burden has been driven down the income distribution on to middle and lower income earners is because, over the years, more and more tax revenue has been generated from indirect taxes rather than from direct taxes like income tax. As the ONS explains:

The amount of indirect tax (such as VAT, and duties on alcohol and fuel) each household pays is determined by their expenditure rather than their income. The richest fifth of households paid just over two and a half times as much indirect tax as the poorest fifth (£9,100 and £3,500 per year, respectively). This reflects greater expenditure on goods and services subject to these taxes by higher income households. However, although richer households pay more in indirect taxes than poorer ones, they pay less as a proportion of their income. This means that indirect taxes act to increase inequality of income.

Thus, in 2012/13 the top 20% of households paid only 14% of their disposable income in indirect taxes while the bottom 20% paid more than twice as much – 31%, and this is up on what it was in 2011/12.

This has, of course, not happened by mistake. Rather, it is the result of a deliberate policy pursued by consecutive Tory governments going back to Geoffrey Howe's first budget in 1979 in which he raised VAT to 15% and cut income tax rates.

The other major cause of the tax burden being driven onto the less well-off is inequality of income growth, as even if everyone's taxes rise by the same percentage increase, but incomes rise faster for the well-off relative to the rest, then the tax burden on the rich reduces relative to that borne by everyone else. Welcome to the UK post 1977, as the ONS says:

However, incomes have not grown evenly across the income distribution. The average disposable income for the richest fifth of households in 2012/13 was just over two and a half (2.53) times higher than in 1977, once inflation and household composition were accounted for. The average income of the poorest fifth of households has also grown over this time, but the rate of growth has been slower (1.86 times higher in 2012/13 than 1977).

This is what this looks like graphically:

Growth in equivalised household disposable income, 1977 to 2012/13

So the richer are getting richer and paying less tax while everyone else is getting a smaller slice of the pie and paying more tax. And it may surprise some to know just how little the poorest households receive in benefits, relative, that is, to the richest 20%. In 2012/13 the poorest households received on average £7,154 in cash benefits, but the richest households received £2,666. When it comes to in kind benefits like health and education the gap is even narrower, with the poorest receiving £7,646 and the richest £5,403. This doesn't seem like redistribution gone mad to me.

If we have a problem in this country of a tax and benefits system that stifles hard work and free-market capitalism, then looking at these figures one wonders how much more of the tax burden currently borne by the rich will need to be passed onto the poor before the 'entrepreneurs' get up and do their thing.

PS.  Here are two ONS infographics on taxes and benefits:

 

It's Official. Austerity Is Failing.

This is an old refrain, but as I once said at a Council Budget Meeting, it's the good old tunes that get the people up dancing. Last week the ONS reported that the Government had to borrow £24.2bn in the first 2 months of this financial year. As ever, you could be forgiven for missing this as it didn't get much attention. This is about £2bn more than forecast and makes it harder for the Chancellor to hit his borrowing target of £96bn for the whole of 2014/15. Whilst we can quibble about a few months' figures, the bigger picture is clear – the Coalition Deficit Reduction Plan is failing to deliver. The fact that deficit reduction has stalled is pretty clear from this chart I've pinched from one of Jonathan Portes's tweets:

When the Coalition came to power in May 2010, the deficit was around £157bn. By November 2011, some 18 months later, they had managed to get it down to around £120bn. Today, 2 and a half years later, the deficit is about £107bn. This is very far from 'eliminating the structural deficit by May 2015, otherwise we will turn into Greece', story we heard so much about at the beginning of this Parliament.

What's more, the 25% reduction in the deficit that was achieved in the early part of this administration was due to the massive cuts in public capital spending, that's things like flood defence, schools and social housing to you and me. This is something that is now generally seen as a mistake.  Again, this chart I have taken from www.economicshelp.org speaks for itself. 

The reason I keep going on about this is that, although Austerity has failed to deliver deficit reduction, it hasn't failed to deliver hardship for many of the most needy people as the rise in the use of food banks and insecure employment, amongst other things, demonstrates. What's more there is far more to come. Local government is only about halfway through its cuts programme. In Lewisham, this means we made £95m worth of cuts between 2010-14 and will have to make another £95m worth between 2014-18. This second wave of cuts will have to be made from a base budget of £268m, half of which is spent on children's and adults' social services.

I won't labour the cuts message. What I will say is that it would be one thing if the Coalition had belatedly decided to protect its capital spending and told us in local government that we needed to cut our spending instead. If we were now halfway through our cuts programme and had seen the Budget Deficit halve from £157bn to less than £80bn as a result while capital spending was protected, and there was therefore a realistic prospect of eliminating it by 2018 when the programme was complete, then we might feel regrettably that Austerity was a price worth paying. However, we are not in that place. On the contrary, our cuts appear to have been for almost nothing as far as reducing the deficit is concerned. It is, therefore, particularly soul-destroying to go through it all over again, knowing that the reward is unlikely to be worth the pain. I leave you with this well known and, I think, apt quote:

The definition of insanity is doing the same thing over and over and expecting different results.

Why Am I Poorer Than My Parents?

Over the last few weeks, some commentators have been saying that the housing market has been cooling. They make the argument that, although prices have gone up, activity is dropping off as buyers are baulking at what they are being asked to stump up. I suspect that this view is being put about by market insiders who are desperate to try and stop the Bank of England taking action to take some of the heat out of the market. Just before the onset of the Great Recession, Chuck Prince, the then Chief Executive of Citigroup, famously said:

When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing.

I think mortgage lenders and estate agents in particular are determined to try and keep the music playing for as long as possible. If you believe in capitalism, then why complain? Markets know best after all. Self-regulation is the best form of regulation. Profit maximising companies are the best generators of social value and there will be a lot of social value created when, as the ONS announced today, house prices in the UK went up 9.9% in the year to April 2014, up from 8% in the year to March 2014. London is particularly blessed as prices rose 18.7%.

Meanwhile, back on planet earth, ordinary people wonder where this is all going to end. What do the Very Serious People mean when they talk of a slow-down? If the annual rate of increase in house prices in London falls by 50% this year, will there be no need to worry? Is a rate of growth of 9.4% more sustainable than one of 18.7%, in the way that one bullet between the eyes is less lethal than two? If the market is slowing, no one has told Foxtons. Yesterday we received another letter asking if we wanted to rent out our property as they have 'Corporate tenants urgently seeking properties'.

It's hard to get a sense of how far the world has changed, especially in London, and how far people's life chances have diminished and inequality has risen, by simply looking at house price rises. I think you get a much better idea when you look at the lives of your parents. My Mum and Dad came from Deptford. My Dad left school with no qualifications and was a white collar member of the working class. He worked for about 20 years as an assistant transport manager at Lovell's Wharf in Greenwich. The docks were in decline and pay for the office staff was always poor as, unlike the dockers and drivers, they weren't unionised. Nonetheless he was able to buy a small three-bedroom Victorian terraced house in Crofton Park with, I believe, a mortgage from Lewisham Council (times really have changed!) Just before Lovell's closed for good he managed to get a job at Lloyds Bank because at this time, the late 1960s, they were looking for 'mature men with business experience'. He worked there for just over 20 years when he was forced to take early retirement. He never rose very far, finishing his working life running the section that dealt with staff mortgages at the staff branch at a Head Office centre in London. Yet about 15 years after buying his first house, he was able to buy a 3 bedroom 1930s semi-detached house, with garage and big garden, down the road in Ladywell. When we all lived there our neighbours were a BBC technician and his family, teachers, nurses, the man who ran a small greengrocers in Ladywell village, and the postman. 

Sadly Mum and Dad both died. We sold the house just under two years ago for about £350,000. This puts this kind of basic property completely out of the reach of ordinary working people who could afford them with relative ease in the early 1980s when my parents bought their's – I think they paid around £36,000. My parents never had a great deal of money, yet they could live a life of comfort and security in their own good-sized yet modest property, a life unimaginable to many of today's much better educated, professional young people, let alone those on average earnings. Oh, and by the way, a similar house in an adjoining street has just gone on the market for £650,000.

When today's young people, today's Generation Y or Generation Rent, realise that they have no chance of living a life as good as their parents, and that an economic recovery, however robust, won't remedy the situation, I wonder what their response will be.

UK's Recent Economic Performance: Reality Check

There has been a lot of fuss in the media about the UK economy's return to rapid growth. We are told that the UK is experiencing one of the highest rates of growth of any country in the OECD. The Coalition is spinning this as evidence that Austerity has worked.

Yesterday the ONS published a chart which I think puts these claims into context:

Its own description of the UK post-2008 performance is worth quoting in full:

The subsequent economic recovery has been the slowest in post-war history and has also been one of the weakest in the G7 (Figure 1). UK real GDP increased by just 1.2% per annum between 2009 and 2013, the third lowest rate in the G7, and remains 0.6% below its pre-downturn peak while all other major economies have surpassed this milestone, with the exception of Italy. 

The UK economy has grown a measly 6% from it's recessionary low. The US, Canada, Germany and even Japan, have grown by more than 10%. The US economy is now some 7% bigger than it was at the start of the Great Recession, while we are still smaller. Surely the question to the Coalition is not, 'How have you managed to generate such stellar performance since 2013?', but 'Why has the economy performed so badly, by comparison to others, since 2010?'

So when you hear the next story about the UK's economic turnaround, have another look at the chart.

Can We Build A Coalition To Defeat Inequality?

Inequality in wealth and income has slowly grown over recent years until it has become a major political issue of our age. I first became aware of it a few years ago when a friend of mine recommended that I read, 'Winner Take All Politics'. This book, by Jacob S. Hacker & Paul Pierson, first published in 2010, tells the story of How Washington Made the Rich Richer – And Turned Its Back on the Middle Class, to quote its subtitle. We have learned that this is not a phenomenon restricted to America, but one that is common to the emerging countries and much of the developed world, led by the Anglo Saxon economies. The recent publication of French Economist Thomas Piketty's magisterial Capital in the Twenty-First Century has created a stir among academics and commentators that has injected new impetus into the issue. Only last weekend, the Sunday Times led with a story entitled 'Rich double their wealth in five years. Top 1,000 worth record £519bn'.

The story of inequality is not just one about income and wealth. It's also about the collapsing of social and occupational mobility that has gone along with it. As Piketty points out, growing inequality is not just about the tremendous rewards that capitalism can give to a few top CEOs and entrepreneurs. It's becoming more a story about inherited wealth. How can the son or daughter of, say a postal worker, get the same life chances as the offspring of an oligarch, particularly when public services are being cut and many people in power don't see equality of opportunity as important?

In the 1950s my father-in-law, the son of a lorry driver and living in an agricultural labourer's cottage in rural Hertfordshire, won a place to read history at Pembroke College, Cambridge. He went on to become a factory manager for Cadbury's. Have the chances of something similar happening today, some sixty years later, increased substantially? I doubt it.

In 1983, I won a place to read Economics at Cambridge from Brockley County, a comprehensive school in Lewisham. At the time, I attended what was called the Lewisham Sixth Form Centre. This was based in Ladywell on the site of what was then called Lewisham Girls' School. It took pupils from our two schools plus Roger Manwood School in Forest Hill. Also in 1983, a fellow student from this school won a place to read Science at Oxford. These three schools went on to amalgamate to form Crofton School. I don't know how many students from Crofton have won places at Oxbridge, but I suspect that 1983 was something of a high water mark.

When I was at Cambridge, I have no doubt that some found my working class demeanour and Cockney accent irritating. However, no one ever said anything to my face. I think this was because it would have reflected badly on the person doing so, such were the social norms at that time. Recently I heard a state school educated female comedian talking about her first days up at Oxford. She recounted a story of how she had gone along to a social gathering, feeling rather nervous but keen to meet new friends, only to be greeted by a cocksure, 'braying public schoolboy', who bounded up to her and in a loud voice said, 'I hear my parents paid for your education!'. I think she is around twenty years younger than me. Whereas in the 1980s the children of the well-off felt somewhat embarrassed and apologetic about what they considered to be their privileged upbringing, today they seem far less troubled by such sensibilities.

In the last few years, we have seen revolutions in Tunisia and Libya, civil war in Syria and latterly riots in Turkey. It's generally accepted that high and rising inequality played a role in igniting these uprisings. We have also seen violent demonstrations in European periphery countries like Greece and Spain, as people fought back against what they saw as the injustice of the EU's Austerity policy. In June 2011, in an article entitled Society will not suffer huge pay-offs for ever, the former editor of the Daily Mail, Max Hastings, writing in the Financial Times said:

It seems rash to assume that the majority will indefinitely acquiesce in such an extraordinary concentration of wealth, which is even more emphatic in America.

Riots came to the UK a few months later.

Shouldn't we be raising this issue again now that 3 years have passed and inequality has got worse not better? Andrew Sullivan, a prominent US conservative blogger, is doing just that. He is worried that there comes a point where inequality becomes so large that it destabilises society. He thinks they have reached that point in the US.

I think this is is an extremely positive development. This is because if sensible people on the right come to see the reduction of inequality as imperative, if only to preserve civil order, then there is the real possibility that a consensus on this issue can be built. This is vital because I don't think that those of us on the centre left are going to be able to deliver greater equality without the support of many of those on the right. After all, although it was a Labour government that created the Welfare State after WWII, it was doing it in a political environment where it was generally agreed that something of the sort needed to be done, if only to stave off communist revolution.

Is A Housing Bubble Inflating?

Many people are asking if we are experiencing a bubble in house prices in London. The problem with bubbles in asset prices is that they are only normally identified to everyone’s satisfaction after they have burst. In the run up to the bursting of the dotcom bubble at the end of the last century, many were arguing that share valuations that proved ultimately to be irrational froth, were justified on the basis that new technology had created a ‘new normal’. The Internet was seen by these people as an innovation that had created a step change into a new advanced phase of our economic progress. What actually happened at the end of 1999 was a general collapse in dotcom stocks that led to a fall in equity markets across the globe from which it took years for them to recover. The Dow Jones Industrial Average, for example, did not get back to the level it reached in December 1999 until almost the end of 2006.

Here’s my own contribution to the catalogue of London housing market anecdotes. At Christmas, I was talking to my Brother-in-law about the London property market. I said that I thought that our modest 3 bedroom Victorian terraced house in Lee a million. When I said this, I had in mind some time in the middle of this year. He was shocked, comparinGreen, South East London, was probably worth around £450,000, judging by the asking prices for similar houses in the area that were on the market. I said I thought it wouldn’t be long before its value passed halfg as he was this value to house prices in Falmouth where he lives. However, it’s what happened next that is the really shocking thing.

Early in the New Year, a house in our road that is smaller than ours, was put on the market for £500,000. Shortly afterwards two houses very similar to ours in the next street were put on the market for £600,000 each. Both were sold quickly. A month or so ago, a house around the corner from ours that was much smaller also went on the market for £600,000 and was sold. Two 3 bedroom Victorian terraces nearby have just come onto the market. For one, the estate agent is asking for offers over £700,000 and the other has a guide price of £750,000. Could it be possible that my house could have increased in value by maybe as much as £250,000, or over 50%, in about 5 months? Could such a market reasonably avoid being described as ‘overheating’? There certainly seems to be plenty of willing buyers out there, judging by the short period of time property remains on the market and the number of estate agent letters we get through our letterbox, asking if we are thinking of selling.

So it came as no surprise to me when I read that:

New figures show that there has been a 59% increase in working people claiming housing benefit since 2010.

George Eaton writing in the NewStatesman went on to say that, based on new research by the House of Commons library, the additional 386,265 working people claiming housing benefit, had added an extra £4.8bn to this particular welfare bill, pushing the total cost to the taxpayer to over £24.3bn. Remember this is not an additional cost generated by the unemployed or the supposedly work-shy and feckless. Rather, it is working people who are generating increasing welfare claims. And these figures are for the country as a whole, not just London.

These figures have to be clear evidence that pay is not rising in line with rising rents, especially in the private rented sector. Who can be surprised at this if property prices, which determine rents, are rising so rapidly?

Housing benefit is a demand led budget, or part of the government’s annually managed expenditure (AME), to use the official parlance. This means that it is not subject to any cap or restraint. The Treasury will just automatically fund the claims that are made, whatever they add up to. One wonders how big the bill will need to be, (£30bn a year, £40bn?), especially when the increase is being driven by claims made by people in work, before sensible people, regardless of political affiliation, will say something must be wrong with the system. Let’s hope this time comes soon and when it does, that there will be general agreement that part of the solution will be to build more Council housing.

Against Austerity. Been There. Seen It. And Hoping To Get The T-Shirt

During my time as Lewisham's Cabinet Member for Resources, I have taken every opportunity to make the point that the cuts that the Coalition has imposed on local government are part of an Austerity policy that isn't working. I went on about this so much that last year, after my speech on the Council's Budget, my opposite number on the Lib Dem benches, having become rather tired and emotional, pleaded with me to 'change the record'. Shouldn't I take his advice now that in the last quarter the UK economy has grown at an annualised rate of over 3%?

Well, not according to former US Treasury Secretary Larry Summers. In a recent article for the FT entitled, British austerity is no model for the rest of the world, he explains, as others have done, that in fact Austerity was abandoned some time ago. He also says that the UK's recent fast growth can be explained by the greater scope for catching up to pre-crisis levels that exists in the UK. US GDP, for example, is now well above the level it reached at the end of 2007, unlike that of the UK. He also makes the interesting point that the US economy grew at 9% a year for a number of years after the low point of the Depression in 1933. Such high growth was a reflection of the depth of the crisis from which the economy was recovering. As he puts it,

No one has ever taken the pace of the US recovery from the Depression as evidence for the austerity policies that helped to induce it.

By way of illustration, below is the chart I took from Simon Wren-Lewis' blog that I reproduced in a post I wrote back in December entitled, The Return Of Growth – The Celebration Of A Tragedy.

Here you see how far the UK economy's GDP person has fallen below its trend and therefore how much ground it needs to make up to get us back to where we started when the crisis blew up in 2008. You will also see that higher than average growth rates occurred in the UK as the economy recovered from the recessions in the 1980s and 1990s, catching up lost ground to get back to achieving trend growth. The experience of my business is instructive here. During 2009/10, we had the highest growth rate in sales ever. This was because business virtually dried up for a time in 2008/09, so as we recovered from next to nothing our sales growth looked spectacular in percentage terms, even though total volumes were well down on 2007/08 levels. Looking back, my business partner and I didn't celebrate this as a great achievement. What reasonable person would? As Simon Wren-Lewis has pointed out, if all you really want is growth, then you could just close half of the economy's productive capacity down one year, then fire it up the next. Sometimes it's not speed that matters, but total distance travelled in the right direction, as anyone who has taken a wrong turn involving a motorway will know.

In a recent article in the Guardian, the economist Ha-Joon Chang develops this theme. People talk about the 1990s being Japan's 'lost decade', as far as economic growth is concerned. But Ha-Joon points out that in Japan between 1990 and 2000, GDP per person grew by 10.5%. However, in the UK between 2007 and 2013, GDP per person fell by 6.6%. As he says,

This means that, unless the UK economy miraculously grows at around 5% a year for the next four years (factoring in population growth rate of around 0.7% a year), it is going to have a decade that is even more "lost" than Japan's 1990s.

Put another way, real wages in the UK, which saw some the the biggest falls in the OECD, have a long way to rise before they get back to the levels they were at the start of the Great Recession.

So, I have decided to stick to my guns and keep spinning that old 'Anti-Austerity' cracked record. Been there. Seen it. And I have put in a request for the T-shirt for Father's Day.

I'm Sticking My Snout Back In The Trough!

Last week, I returned from a short Easter break to find a letter from the Council waiting for me. It was from the Borough’s Returning Officer informing me that my nomination to be a candidate in May’s local elections had been accepted. If I am re-elected for Labour in New Cross Ward and serve a full term, that will mean that by 2018, I would have been a Councillor continuously for 20 years. This will make me one of the ‘Old Lags’, as a fellow councillor puts it, which I take to be a term of ‘endearment’ used to describe the longest-serving Councillors.

We are constantly reminded that when it comes to popularity and public respect, politicians, like Cardiff City, are struggling at the foot of the table. This is a position we share with estate agents and probably bankers. I am not sure if people had their local councillors in mind when they offered this judgement to the pollsters. I would guess that most people don’t think about the fact that they have a local councillor. By and large people don’t know who their Councillors are. Plus they tend not to vote for them. Turnout in the Deptford constituency in the 2010 General election was 62.1%. Most wards across the Borough struggled to achieve half that in 2006, with some seeing turnout languishing below 25%. Yet following the expenses scandal that engulfed Parliament in 2008 and has simmered away quietly ever since, the public have shown a tendency to tar us all with the same brush. I think many of us have experienced the attitude, particularly when out campaigning, that we are only interested in being elected to the Council to feather our own nest, because the salaries are so high and the allowances so generous.

Whilst doing a bit of de-cluttering at home before the builders came in the other week, I found a copy of The Report of the Independent Panel on The Remuneration of Councillors in London. The panel, chaired by Professor Malcolm Grant, published this report in February 1999, having been asked to look into the issue by the Association of London Government in December 1998. The recommendations were broadly adopted and formed the basis of the Members’ Allowance schemes introduced by London Boroughs and operated to this day. There are a few key points I would draw attention to:

• They found that the average councillor spends over 80 hours a week on the job. 
• They believed this was too much and should be reduced to 60 hours a month. 
• The believed that the first 20 hours that councillors devote to their role should be considered voluntary, to reflect the element of public service involved in being a councillor. They, therefore, thought that this time should not be remunerated. 
• They recommended that the remaining 40 hours should be paid for at the mean London white collar wage. They believed that at the time, this implied a standard backbench allowance of £7,500 per annum. (This has grown over time so that in Lewisham it currently stands at £9,812). 
• Extra allowances should be paid to those councillors with additional responsibilities which require them to spend more time on their duties than allowed for in the 60 hours covered by the basic allowance. 

Lewisham’s scheme of allowances can be seen here. There is a column in the table that records the expenses that Councillors have claimed. In 2012-13 the Mayor and elected Members claimed £655.91. That’s altogether. That’s an average claim of less that £12 per individual. Councillors have also recently been expelled by Eric Pickles from their Council’s pension scheme, bearing in mind that our membership of it was on terms and conditions that were less generous than those which applied to staff.

In short, an ordinary backbench councillor is expected to work for free for at least a third but maybe as much as half of their time, whilst accruing no pension entitlement. Or, to put it another way, Councillors are engaged by the electorate on terms and conditions that, if the Council they serve on sought to apply them to other staff, it would be breaking the law.

I am not trying to drum up sympathy, but I think it is fair to say that most reasonable people would concede that the remuneration of Councillors is not lavish. Those who are privileged enough to be elected on 22 May are likely to be rather more public spirited and less self interested than the prevailing view of politicians in general might suggest. Oink, Oink!

My London Marathon Homily

Yesterday, I ran the London Marathon for the Lavender Trust (donations still being accepted here). I managed to get round the course in 3 hours 54 minutes and 41 seconds – a personal best, or PB as we experienced athletes prefer to say. I have only ever run London and it is a great one to do because it's pretty flat and you have tremendous crowd support, plus it's brilliantly organised. The only downside is that those in the Mass Start run in such vast numbers that every runner does a lot of weaving. This sounds rather trivial until you realise how much it adds to the distance you run to cover the course. This year for me it was an extra 0.4 miles. Two years ago, when I last did it, it was an extra half a mile. The phrase, 'Insult to Injury', does spring to mind, as you stagger up towards Buckingham Palace, look at your Garmin and see you have covered the official course length of 26.2 miles but still have what seems like an eternity to go.

The other great thing about the London Marathon is the results page on its website. Anyone can log on and call up anybody's result. You can see not only their finishing times and where they were placed, but also their times and speeds at 5km intervals and at the halfway point. You can also look at photographs of each runner at various stages on the race. If you look at Ed Balls and me, you will see 2 middle-aged men in agony, running with heads bent over, looking like a couple of tramps scanning the road for discarded cigarette ends. Sadiq Khan on the other hand looks like he is out for a gentle jog around the park, smiling and looking perfectly relaxed. I can't believe those photos of him with his medal are taken at the end. He looks as fresh as a daisy.

You can also search the results by age group and gender, and this is the real purpose of this post. I have run 6 London Marathons now and after every one I, like thousands of other finishers, have logged onto the results page to see their own result and compared it to others they know have taken part. This would include friends and family, celebrities and the elite runners. What has always interested me is how I did relative to the older runners in the field. I think this comes from a desire to keep my own achievements in perspective, but also to give me inspiration and a sense of what is possible in my later years. So, although this year I ran my best time and feel a bit smug because I did a faster time than certain people, this is what I feel I really need to note:

I was beaten by 126 men in the 60-64 age group.

I was beaten by 47 men in the 65-69 age group.

I was beaten by 8 of the 138 men over 70 who completed the course!

I was beaten by 7 women in the 60-64 age group.

I was beaten by 5 women in the 65-69 age group.

I did manage to beat all 33 women over 70 who completed the course.

This year, to beat the fastest man in the 60-64 age group I would have had to knock well over an hour off my time (his actual time was an amazing 2 hrs 48 mins 46 secs) Incredibly, if I had wanted to beat the fastest man over 70, I would have had to run better than 3 03 50! What's more, this was 10 minutes faster than the fastest man in the 65-69 age group (3 13 50). 

That so many older people are achieving such remarkable times in the arduous discipline of marathon running, comes as an instructive counter to the familiar story that rising obesity, lack of fitness and ill health are gripping the nation. You can't run sub 4 hour marathons at any age without prolonged, regular training involving long (13 mile plus) runs. If you run seriously, you will know that up and down the country, running clubs are putting on well organised, competitive running events every weekend over various distances. Each event will normally have hundreds of participants, of all ages and all shapes and sizes. More and more people seem to be catching the running bug.

Perhaps we need to raise our expectations of what we can physically accomplish in our later years and change our view of 'old age'.

The Re-Return Of The Master. Keynesian Stimulus Is Back On The Agenda.

Today, excitement is being generated by the IMF’s announcement that it expects the UK economy to grow by 2.9% this year, the fastest rate of any G7 economy. This is the latest instalment in the, ‘Rejoice! Britain is recovering!’ narrative that has become the received wisdom over the last few months, something that I have observed with increasing bemusement. As a Labour politician, I would be expected to rubbish this message and the Coalition’s attempts to get it across, albeit a rather easy task with so much of the media on their side. There are plenty of opportunities here. For example, this would be fairly modest post recessionary growth, if our experience of previous recessions is anything to go by. Plus much can be said about this growth being generated by rising debt, falling savings rates, and housing market bubbles, together with our worsening trade balance. However, as a businessman and investor (of my own modest pension pot), my self interest lies in being scrupulously objective when assessing what is likely to happen to the economy over the short to medium term. I need the economy to do well for my business to provide me with a living and for my savings to grow and provide me with an income in retirement. But if I do think this recovery is too good to be true, then I need to take action to protect myself. Consequently, I spend a lot of time trying to get behind the headlines and discover the reports that, although freely available, don’t get talked about very much. My hope is that I might stumble across a canary in a coal mine, as I did in 2006-7, and save myself from financial loss.

Over the last few days, I came across a number of such reports. The first was this one on the BBC website, which said that the Chinese government were going to embark on yet another round of fiscal stimulus, as they were so concerned about the slowdown in their economy. Then later the same day the BBC reported that Christine Legarde of the IMF was calling for more fiscal stimulus because she was 'concerned that the global economy could be heading for years of 'sub-par growth''. A few days later, former US Treasury Secretary, Larry Summers, writing a piece in the FT entitled What the world must do to kickstart growth, called for fiscal stimulus in the US to counter slow growth, what he calls 'secular stagnation'.

Can you see a theme emerging here?

The UK economy doesn't exist in a vacuum. Is it rational to be so optimistic about its prospects when it is widely believed that the global economy is so fragile that action by governments is needed to ensure that healthy growth is sustained? Moreover, the likelihood of generating the political will necessary to achieve this in the US and Europe must be pretty slim. This is not least because the Very Serious People, to borrow a phrase from the economist Paul Krugman, at the IMF, ECB, EU, etc, have been enthusiastic proselytisers for Austerity for the last 4 years. Things would need to get very much worse than they are now for such a humiliating about-turn to take place.

The mouth may speak what the heart is full of, but if you want to know what someone really believes, then look at what they do with their money. I am seriously thinking that when it comes to my small nest egg, it may be time to consider following that old stockbroking adage, 'sell in May and go away'.

Council Cuts Haven't Affected Services, Have They?

Local Councils have borne the brunt of the Coalition Austerity cuts as services like education and health have been ring fenced. In Lewisham, following the setting of our Budget for 2014/15 in February, we have agreed savings of around £97m so far. Most of these have been implemented, with the rest due over the course of the next 3 years. On top of this, our current best estimate is that we will need to make savings of a further £80m between now and 2017/18. But this should be fine because to date, cuts to Council budgets have led to increases in customer satisfaction. At least this is the message that has been put about in the media and seems to have taken root in the minds of the public. I think this is a myth, akin to the one which blames our current national debt woes on the profligacy of the previous Labour Government.

The origin of this myth were various reports by the BBC, eagerly seized upon by David Cameron and other media organisations, based on a poll they commissioned from ICM that was published in October last year. An example was a report by Mark Easton, the BBC's Home Editor, entitled, Public Service Cuts – did we notice?, published on the BBC's website on 9th October 2013. He opened with this:

Many people in the UK think the quality of public services overall have been maintained or improved in the past five years despite government cuts, 

before going on to elaborate with this:

It is five years since the bail-out of the banks marked a new era of austerity in Britain amid warnings that deep cuts to state spending would see the standard of public services plunge.

But today's poll by ICM suggests six out of 10 people think service quality has been maintained or improved.

At the time I thought this research told a rather different story and that the claims being made based upon it would soon be seen to be going a bit too far, to put it kindly. Silly me. Nearly six months on and this tale of 'cuts, what cuts?' remains the received wisdom. I would offer 3 points that I think undermine this claim.

Firstly, many of the services that the pollsters enquired about are in the education and health sectors and are therefore delivered by services that have had their budgets protected.

Secondly, despite Austerity, during this Coalition administration, many public services are seeing improvements including the completion of investment programmes, that stem from the policies of the previous Labour Government. In Lewisham, for example, we have spent the last 3 years rebuilding and renovating many of our schools, libraries and leisure centres and improving our housing stock. We are also currently in the middle of replacing all our street lights. This is due to the resources made available by the last government.

Thirdly, the BBC's presentation of the poll results was extremely subjective and, when judged against the actual data, I would say, biased. If you look at the results as they appear in the full report (you don't have to look far – it's on page 1), you will see where the BBC got its 6 out of 10 figure from. ICM posed the following question:

Thinking about public services overall, do you think the quality of public services has got better or worse in the last five years, or has it stayed the same? Is that much or a little better/worse?

In response, 3% of people said got much better, 12% said got a little better and a whopping 42% said stayed the same. So 57% is rounded up to 6 out of 10. What the BBC didn't say was that 20% said got a little worse and another 20% said got much worse, with 3% saying they didn't know. Wouldn't a fairer headline have been:

40% of people think that government cuts have reduced the quality of public services'

followed later by the perfectly fair point that,

Yet, remarkably, 15% of people think that service quality has actually improved.

Perhaps I am in danger of disappearing down a wonkhole here but surely I can't be the only one who thinks that, presented in this way, the piece would have generated a very different reaction?

What Was Really Behind The Pension Reforms In Last Week's Budget?

Chancellor's decision in the Budget to release people from the obligation to use their pension pots to purchase an annuity has been broadly welcomed. The Coalition have portrayed it as a blow for individual freedom and evidence that they trust people to make the best decisions when it comes managing their own money. In fact, what it may be is an attempt to release a vast reservoir of previously protected funds, allowing the financial services industry access to it so it can sell new products to people designed to provide them with the money required to pay for the social care they will need in their old age. In other words, the government's policy response to the Dilnot Commission is a deregulation of the pensions industry that will leave people arguably less protected and more vulnerable to the marketing departments of large financial institutions. I came across this blog post from John McDermott of the FT. It's only short and well worth a read. He quotes a section from the Treasury's post-Dilnot formal consultation document entitled Freedom and choice in pensions. This basically says that the government spoke to the big financial firms with a view to coming up with a market solution.

'The review identified that the financial products most likely to develop in the short term will leverage the assets people have, specifically housing and pension wealth'.

McDermott says that the pension changes announced in the budget... 

'...will provide a source of money for the financial products the government wishes to see developed for those in need of social care'.

Given the track record of the financial services industry over the last decade or so, I think it is fair to ask if we have witnessed the origin of the next major miss-selling scandal that will rock the nation in ten years time.

Have The Tories Given Up On Winning The Next General Election?

Last week's Budget seems to have been very well received, albeit by a predominantly conservative (deliberate small 'c') leaning media. It was, after all, a budget for the prosperous, benefiting as it did those with large pension pots who now won't be trapped in low-yielding annuities at retirement and those who can afford to save £15,000 a year in ISAs, or NISAs as they have become. This has been seen as a masterful piece of political craftsmanship, establishing the ground for a rally in Tory support in the run-up to next year's General Election. George Osborne's reputation as a political tactician par excellence was further cemented by a YouGov poll commissioned by the Sunday Times that showed that a surge in Tory support following the Budget had cut Labour's lead in the opinion polls to 1% from 8% just 7 days ago.

I must confess that when I heard the Budget on Thursday my first thought was that the Tories had given up on any chance of winning an outright majority in at the next Election. The Tories currently have 303 seats in the Commons and need another 23 for an outright majority. No doubt they have a list of their top target seats. They can't surely believe that there are people in these places with large pension pots and £15,000 every year to invest who didn't vote for them last time but will now thus be making all the difference? Nor can they believe that 1p off a pint and halving the tax on Bingo halls will persuade enough people to switch their voting intentions, thus pushing them over the finishing line. I can only think of two possible explanations for this particular Budget. The obvious one is that it was an attempt to shore up their support and prevent their voters from switching to UKIP. 

The other is that the Tory High Command is so out of touch with ordinary people that it seriously believes that there are far more well-off people out there than in fact exist. That is, that most people are really like them, so policies that appeal to them will appeal to everyone else. And as for the lower orders (Cor Blimey Mary Poppins), then they will be satisfied with cheaper beer and Bingo. 

This theory is not as fanciful as it appears. We did after all have Grant Shapps singularly ill-judged tweet, saying that the Conservatives were 'helping hardworking people do more of the things they enjoy' by cutting the Bingo tax and beer duty. More telling I think was the Michael Ignatieff's experience, as he retold it on BBCR4's Start The Week Programme a fortnight ago. In short, while pursuing an academic career at Harvard, he was persuaded to enter Canadian politics, eventually becoming the Leader of the Liberal Party, where he led them to their worst ever defeat in the elections of 2011. He made the point that during that election campaign he thought he was doing really well so his trouncing came as a tremendous shock. The reason he was sure he was doing well was that he spent all his time with people who supported him, campaigning in places that supported him and attending rallies full of people who adored him.

Ignatieff's experience was not an isolated incident. It was, in fact, a forerunner to that of the Republican Party in the 2012 Presidential Elections where Obama comprehensively defeated Romney. There are loads of great You Tube clips showing Republicans making grand and sincere claims for a Romney landslide and then showing their bewilderment and disbelief as the results come in showing an Obama victory. Here's Karl Rove embarrassing himself, and here is Sarah Palin doing it with knobs on. If you view these you will see a whole host of other suggested things to view that demonstrate how disconnected the Republicans were to the majority of ordinary Americans.

As for that bounce in the opinion polls, I had a closer look. The headline figure is Labour on 37% and the Tories on 36%. Yet for those voters living in households with incomes less than £25,000, then the figures were Labour - 42% and the Tories - 29%. Even in those households with incomes between £25,001 and £39,999, the figures were Labour - 42% and the Tories - 33%. These people account for the vast majority of voters – UK median household income in 2011/12 was £23,200 according to the ONS. I am not qualified to write knowledgeably about polls. However, what this tells me is that the Labour Party has everything to play for. But we must do two things. Firstly, we need to stop wasting resources campaigning in safe seats where all we are doing is working to increase margins of victory. Second, we must concentrate our efforts in campaigning and above all getting our vote out, in our target wards.

In any event, the local and European Elections in May will probably tell us a very interesting story.