Battleground 2015: Protecting our standards of living

A few weeks ago, we learnt that inflation has increased to 2.7 percent, whilst the Bank of England said that it expects inflation to exceed the three percent mark at some point this year. Meanwhile, the growth of pay has been just 1.3 percent and most social security benefits are either frozen or limited to a one percent rise over the next three years. The squeeze on living standards remains a very real issue, and the growing disparity between social security, the rate of inflation and low wage increases means that living standards are put under severe strain. This is despite growing awareness for things like the Living Wage Campaign that have sought to re-focus efforts on dignity in employment. Coupled with low overall economic growth (coasting at pretty much nil since 2010, and achieving only 0.3 percent in the last quarter) the consequences have been alarming for working people.

George Osborne’s recent Spending Review has reinforced those trends and, given the fiscal commitments he has made, the Coalition has now set the terms of debate for the 2015 election. It will be, as the Institute for Fiscal Studies claimed, an ‘austerity election’ because successive governments will have to impose further spending cuts of £23bn between 2015 and 2017. This is a contentious agenda, which will see public expenditure plunge below 40 percent of GDP – and below that of the US, Germany and Japan. Public spending will fall by over 6 percent between 2012 and 2017; in the US, it will fall by just 1.26 percent. The UK is therefore rebalancing its economy in a very drastic way in a short time period compared with other major economies. Labour must challenge this agenda. But it must also ask a basic question about its raison d’être: what is the purpose of the left in a period of austerity, in a period of low economic growth, and in a period of declining support for the welfare state?

From the mid-1990s, Labour could rely on economic growth to redistribute wealth – in other words, correct the problems caused by capitalism without dealing with the cause itself. Looking towards the horizon of 2015, this is clearly not possible from an economic perspective, nor desirable because popularity for the welfare state has waned. It means that Labour must support social justice and equality – both central to achieve fairness – in a different way. Labour can no longer focus on a large state and solely on the redistribution of wealth to achieve its goals. Things such as working tax credits have perpetuated market inequalities, where the government spends billions to essentially subsidise companies for low pay. This is one of the central reasons that we must turn towards a living wage to support people in jobs. The living wage is as much about economic equality as it is about social justice. Labour was founded on such a principle, aiming to improve social cohesion and fighting for the right for every person to have an opportunity at a good life. This was a founding aim for guild socialism, co-operatives and trade unions. We must remember that greater economic justice is not an end in itself, but the mechanism by which we can achieve a better society – a society in which we, as communities, can determine our collective fate and in which we, as individuals, can pursue our conceptions of happiness. Unfortunately, this seems so have been forgotten sometime after the Second World War, possibly somewhere amidst the creation of a bureaucratic welfare state. The Labour Party focused too much energy on correcting the faults of the capitalist economy: it focused on tidying up inequality, rather than challenging its causes.

Labour would do well to look to the principle of living standards as a central guiding force for policy. The protection of living standards is the belief that all individuals have a right to a minimum standard of living through dignity in work, good mental (as well as physical) well-being and reasonably priced public services available for all. In other words, life should be affordable and not a daily struggle for survival. The Coalition government has entirely abandoned these aims: the cost of essential goods has increased by 25 percent since 2008 without ameliorative efforts. Living standards are now at their lowest level since at least 2004-05, and the IFS has concluded that: ‘Prospects for living standards are […] bleak – further falls are likely to be followed by a weak recovery, leaving average income growth even lower in the 2010s than in the 2000s’. [1]

Labour’s alternative to austerity must be a return to the principles of a decent standard of living. Living standards resonate with people, so long as it is associated with the beliefs of dignity in work, social security based on a contributory principle, and a distribution of wealth based on just deserts. The idea of a ‘squeezed middle’, scoffed at by so many a couple of years ago, was a bold move that has since become an important reference point for debates around austerity. It requires the following commitments from Labour:

  • A minimum living wage. This, beyond anything else, will be a test for Labour. The Party must commit to the introduction of a living wage across the country. There are calls for the national minimum wage to be raised to become the living wage, which I would echo. [2]
  • Protection of basic economic rights. Calls from Conservatives suggest that austerity may cause the repeal of employment rights. Tory europhobes, too, want to repeal rights in order to create a more ‘flexible’ labour market. If anything, these need to be strengthened to ensure basic rights for workers.
  • Regulating prices. Our utility companies are hardly subject to competitive frameworks. Water companies have monopolies over certain areas, and energy companies make it difficult to switch to cheaper rates. [3] This must be challenged through a regulatory framework, coupled with a green investment strategy.
  • Social investments. For example, we need to continue to invest in education at all levels (from pre-school support to post-graduate funding). This will balance equality of opportunity as social mobility will increase, and it will also act as an incentive for further investment from businesses.
  • A strategy for growth. Social security benefits are rising because our economy is not growing. A growing economy – that is rebalanced towards sustainability, with regulative frameworks in place – has the opportunity to not only lower social security, but also to strengthen dignity in work.

Labour can be radical in its approach towards living standards. It speaks to a positive vision for what economics is for. It is an approach that moves Labour away from the falsely constructed ‘strivers versus skivers’ debate. Ultimately, this is also not about austerity. This is about using the resources we have to achieve radical outcomes for greater social justice and equal opportunities for all, without the need to necessarily increase public expenditure.

mg

[1] Institute for Fiscal Studies (2013) Living Standards, Poverty and Inequality in the UK: 2013, London: IFS, p.28. Available here.

[2] A living wage is important because it would ensure dignity in work for the employed, it would boost the spending power of individuals (gross earnings would be up by £6.5bn) and it would ensure a more productive workforce. Crucially, it would also allow the Treasury to achieve gross savings of £3.6bn if universally applied. See this report by the IPPR and Resolution Foundation for more details.

[3] The Power Book, presented by Caroline Flint at the last Labour Annual Conference was a step in the right direction. For more, see: Local Government Information Unit (2012) The Power Book, London: LGiU.

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Breaking Britain

On 04 April 2013, Mick Philpott was sentenced to life imprisonment for manslaughter. The man caused the death of six of his (many more) children by starting a fire. The Daily Mail’s headline read: ‘Vile Product of Welfare UK’. But it isn’t just the Daily Mail with that view. George Osborne, with the support of the Prime Minister, attributed a role to the welfare state to the rise of Philpott. He said that: ‘I think there is a question for government and for society about the welfare state, and the taxpayers who pay for the welfare state […] subsidising lifestyles like that’. Readers of the tabloids, and many politicians besides, strongly believe that the majority of those claiming benefits are either foreigners or fraudsters. This is not surprising, given that citizens are consistently fed myths about those who rely on benefits. The TUC/YouGov Survey from December 2012 is hugely revealing. For instance, respondents believed that 41 percent of the entire welfare budget is spent on unemployment benefits. In a second example, respondents believed that 27 percent of the welfare budget is claimed fraudulently. It therefore comes as no surprise that 59 percent of all respondents of the poll agreed with the following statement:

Britain’s current welfare system has created a culture of dependency, whereby many people, and often whole families, get used to living off state benefits; the system needs to be radically changed to get such people to take more responsibility for their lives and their families.

The persistent myths spread by the media have therefore had a huge impact to entrench divisions within society about the nature of welfare (despite the fact that the same respondents also believed (by 54 percent) that the media does not give an accurate account of welfare expenditure or the people that claim social assistance). Here is a pie chart on how the welfare budget is actually spent [1]:

Expenditure of Welfare

What it shows is that less than three percent of the welfare budget goes on Jobseeker’s Allowance, and fraud is estimated to cover roughly 0.8 percent (although ‘fraud’ by definition may not be estimated accurately). What is hugely important to note is how widespread the welfare state supports British families: from young families to pensioners, from the sick and disabled to those on low income. Roughly 64 percent of all families receive some kind of social assistance.

The very idea of ‘welfare’ is now under siege. For many people, the term has connotations of big state, dependency and laziness. It is now even used as an insult, when it was once a source of pride. To take the headline from the Guardian, a ‘war on welfare’ has begun. This ‘war’ is fought amidst growing divisions in British society, in which welfare is linked to the rise of ‘shirkers’ (demonising the unemployed) and connected to the rise of immigration (with consequent rises in xenophobia). These are just two examples of a pervasive trend in an attempt to turn the public against social security in order to legitimise the Coalition’s austerity agenda.

As with the ‘debt versus growth’ debate, the Coalition are winning the argument. The terms of debate have shifted significantly: ‘welfare’ is no longer about supporting those in need; it is now about a ‘culture of dependency’. Setting the agenda in such stark terms means that the Conservatives have been able to pose a particular problem of the welfare state that implies a particular solution: cut welfare and you cut dependency. This narrative has proved to be very powerful – regardless of its faulty analysis. The policy consequences are as radical as the narrative has been powerful. However, the austerity agenda pushed by the Coalition has done far more than changed attitudes to welfare. It has had significant material consequences. A recent report by Oxfam showed that more than 500,000 people are reliant food aid. This is a failure of the social safety net to ensure that families have access to sufficient income to feed themselves adequately. This is a worrying trend, but most disturbingly of all it is almost entirely unopposed. The centre-left, on the whole, has relinquished ownership over the debate on welfare, and the vacuum has allowed the Conservative-led Coalition to fill it. Even Polly Toynbee has given up.

This is despite the fact that the austerity agenda will, as many have already pointed out, disproportionally affect the poor. Analysis by the Institute for Fiscal Studies backs this up, epitomised by the following graph [2]:

photo

The inevitable rise in inequality is hugely damaging. It was only a few years ago when the idea of ‘equality’ had a resurgence through the popular book by Richard Wilkinson and Kate Pickett, The Spirit Level. Inequality will have a negative impact on public health, crime and violence, happiness levels, mental health, work ethic and education. [3] Their persuasive arguments were at the top of the political agenda, having the support of David Cameron, Michael Gove, Ed Miliband and Jack Straw – to name a few figures that have publicly quoted the book. Of course, since then, the very idea of ‘equality’ has come under attack. In The Spectator, for example, the book was called ‘junk food for the brain’.

The Conservative Party’s agenda has been hugely effective. It has divided the public and portrayed the Labour Party as squandering public resources on ‘wasteful’ benefit claimants. The story has become one characterised by ‘unfairness’ to hardworking families for the benefit of the lazy. However, this strategy also presents an opportunity for Labour. Using Cameron’s own term of ‘Broken Britain’, which he first coined in 2009, Labour has the opportunity to argue that the Conservatives have further intensified social divisions. Ironically, it is the Conservatives that are ‘breaking Britain’, which Labour must articulate in three important ways. First, it must shift the language from ‘welfare’ to ‘fairness’. This must demonstrate the unfairness of the austerity agenda. Second, it must emphasise the squeeze on living standards and that the Labour Party will protect living standards in a period of low economic growth. Third, Labour must articulate a narrative that unites the public. One Nation Labour must be more than a buzzword; it must show substantive commitment to equality and well-being.

Slowly, the Party leadership has begun to take on this challenge. Last week was hugely important for Labour, and Ed Miliband’s speech was one that delivered. Although nuanced, it hit the right chord for many. Labour cannot win by solely presenting ‘the facts’ of welfare. As Miliband’s speech demonstrated, the Party must be committed to welfare reform with a narrative on social justice (epitomised by the return to the contributory principle), living standards (Miliband once again vowed to push forward with the living wage) and a commitment to equality. This is emblematic of what One Nation must stand for, and it is something that Labour has begun to articulate.

mg

Notes

[1] Taken from A. Coote and S. Lyall (2013) Mythbusters: “Strivers v. skivers: the workless are worthless”, London: New Economics Foundation. Available here.

[2] R. Joyce and D. Phillips (2013) Tax and Welfare Reforms Planned for 2013-14, London: Institute for Fiscal Studies. Available here.

[3] R. Wilkinson and K. Pickett (2009) The Spirit Level: Why equality is better for everyone, London: Penguin.

Pressure on the High Street?

It was not just the fact that HMV announced that it was going into administration that caused me to reflect about the state of British high streets. A few weeks ago, I also took a stroll through Broomhill, in Sheffield, where a countless number of shops had closed and a local coffeehouse was being turned into a Costa. Additionally, I found out my great granddad’s pub had closed down. The stark message appears to be that the high street is slowly dying. What is to blame for this morbid future of town centres?

The changes on our high streets have been accelerated by the economic downturn from 2007 onwards, and probably worsened by the economic policies of George Osborne. However, the long-term cause lies in a much broader shift in consumer culture that has moved from the high street towards larger, out-of-town shopping centres and towards the Internet. Earlier this month, in addition to HMV, we have seen Jessops and Blockbuster go into administration. This follows a number of other businesses including: Woolworth’s, JJB Sports, Clinton Cards, Optical Express and so on. This is a very small and selective list, but it shows that there are a wide variety of shops that are closing down. More generally, the number of town centre stores fell by almost 15,000 between 2000 and 2009 with an estimated further 10,000 losses over the past couple of years. [1] Without doubt, traditional high streets are in decline, which has seen the emergence of ‘ghost towns’ and ‘clone towns’ across Britain. [2] It means that, first, our high streets are dying and, second, those that remain all look the same, with a generic number of national outlets.

There are those that have little qualms about the decline of shopping in town centres; if anything, ‘clone towns’ have made shopping more convenient (you know what you’re getting from your Starbucks and your H&M wherever you are across the country), and better still, online shopping means you don’t even need to leave the house (hush about the tax avoidance from the likes of Amazon.co.uk though). Ultimately, however, high streets do matter. This is not just about nostalgia for an age of butchers, bakers and candlestick makers; this is about a vibrant local economy (although I do love a good cake). The problem is that national retailers suck out economic capital in town centres and take it straight back to their headquarters. Rarely do profits return to the local economy. The growth of tax avoiding retailers has further reduced the tax base for investment, which is further exacerbating the problem. Whether town and city centres are labelled ghost towns or clone towns, it damages the local economy. Communities become dependent on state-led investment, something which would be less likely in a locally independent economy where small- and medium-sized businesses work interdependently. [3]

A more fundamental point, however, is that British high streets are about public space. The space of the town centre is becoming marginalised and soulless – which may sound rather fuzzy, but is based on the idea of social capital. The problem facing our high streets has surpassed retail. It is also about our ability as citizens to contribute to the public spaces we occupy, which suggests that we need to reclaim town and city space. In other words, strong town and city centres matter because they contribute towards a dynamic economy, and they also help to strengthen and maintain a sense of social capital. We must recognise that the role of high streets has changed from a pre-dominant retail role towards one that should emphasise a social one. It entrenches a sense of belonging and localism, which is preached by both the main parties in their own ways [4]. As Jan Gehl points out:

Wanting to go into town is different from wanting or needing to shop. It is about an experience. It is about sociability and relaxation, creativity and being part of something you cannot get at home or work. [5]

To echo the points made by Mary Portas’ independent review from 2011, high streets should be bustling with people, services and jobs. They should be vibrant places that people choose to visit. They should be destinations. This is not about nostalgia – it is about social capital and sustainable economic growth.

The question, therefore, revolves around how we can improve the confidence and strength of high streets. ‘Localism’ has become a key word for this to happen. Local councils have always been marginalised in the British political system, for a range of reasons that go beyond this article’s remit. The broad point, however, is that local politics must matter to people; and the best way to do this is to empower local councils. [6] Local councils need to be at the heart of local decision-making, which includes the local economy – something which has been hoarded by central government for too long. Councils need to think more creatively about parking spaces, improving public transport and improving consultation with local businesses. The success of Business Improvement Districts is one important development (mechanisms where local businesses contribute to joint business plans), which demonstrates that working together is an important dynamic of the future. [7]

In terms of economic policies, a number of choices are available:

  • First, the model of business rates is out-dated and out of proportion. For example, the business rates for an ASOS distribution centre in Barnsley is around £40 per square metre; for a unit in a Rochdale shopping centre, this is £1,080 per square metre. This has led one commentator to question if business rates are taxing the high street out of existence. Business rates need to change.
  • Second, big businesses need to be regulated so that smaller, independent shops can grow. A diverse high street means that large supermarkets and hypermarkets must be limited in space and size, and regulated in terms of products. Changes in planning law should reduce the power of the likes of Tesco, Asda-Walmart, Morrison’s and so on. [8]
  • Third, the introduction of a ‘Small Business Saturday’. This has been introduced in the United States, and proven to be highly successful. Figures suggest that more than £3.4 billion were spent that day in 2012. This idea was sponsored by social media and supported by celebrities. It suggests that there is a lot of potential for this to work in the UK.

These are just three ideas, and many more should be looked at – reducing red tape, creating local enterprise zones, and setting up a Post Office Bank. However, none of these measures will be enough. The national economic policies of the current Coalition government are preventing the growth that is desperately needed. Austerity is simply not working. We are now on the brink of a triple-dip recession – an unprecedented and bleak outlook for the future that must be tackled. All of this makes the emphasis on local, sustainable growth even more important.

mg

Notes

[1] Department for Business, Innovation and Skills/GenEcon (2011) Understanding High Street Performance, Leeds: GenEcon, paragraph 21 (available here).

[2] See New Economics Foundation (2005) Ghost Town Britain, London: NEF (available here), and New Economics Foundation (2005) Clone Town Britain, London: NEF (available here).

[3] See, for instance, New Economics Foundation (2002) The Money Trail: Measuring the impact on your local economy using LM3, London: NEF (available here).

[4] The Conservatives, for example, have focused much on the ideas of the Big Society: see among others: D. Cameron (2011) Speech on the Big Society, London (available here). See also: Conservative Party (2009) Control Shift: Returning power to local communities, London: Conservative Party. The Labour Party has focused on One Nation as its main alternative starting point for localism. See J. Cruddas (ed.) (2013) One Nation Labour: Debating the future, London: LabourList (available here).

[5] J. Pehl, quoted in M. Portas (2011) The Portas Review, London: BIS, p.15 (available here).

[6] See J. Wilson (2012) Letting Go: How Labour can learn to stop worrying and trust the people, London: Fabian Society.

[7] Portas, p.21.

[8] New Economics Foundation (2011) Ten Steps to Save the Cities, London: NEF (available here).

The Tragedy of European Union

For someone with a German heritage and who regards himself as a social democrat, it is with a heavy heart that I have become sceptical about the future of the European Union. Europe is a place very close to my heart – the cafe culture, the sense of shared values and epistemic communities, the diverse range of identities, the beer, the excellent little patisseries and bakeries (just food in general really) are truly wonderful European things. In other words, I love Europe. But I believe that the dream of European Union leaves me, more and more, with a sour taste. This is particularly soul destroying given that, around 14 months ago, I was full of enthusiasm about a closure of the EU’s ongoing crises. That enthusiasm has waned, and no one has taken up European leadership like I had hoped.

Right now, there are two colossal problems facing the EU: first, the eurozone crisis, which has spiralled out of any proportion imaginable. Second, any sense of democratic input to decision-making has withered away. In other words, the input legitimacy of European institutions and the output legitimacy of European policy-making have vanished, which have turned the EU into an illegitimate beast. [1] Here’s some more depth:

  • Output Legitimacy. The output policy-making role of the EU has not worked. People are usually relaxed about the authorities so long as they do their job well. The EU, however, has spectacularly failed, which means that the preferences of European populations have not been enacted. Ergo, there is an output-based legitimacy deficit. It is not just that the Euro has been a disaster: the Common Agricultural Policy is uncompetitive, the Common Fisheries Policy has culled fish stocks, and bureaucrats are wasting huge resources by travelling to and fro from Brussels to Strasbourg (for not doing all that much). These are just three examples of many. Policy-making in the EU is simply not working.
  • Input Legitimacy. Mario Monti in Italy and Lucas Papademos in Greece were both installed as heads of government without being elected. These are very stark examples of how the European Union has undermined the principle of democracy. The European Commission (EC) and European Central Bank (ECB) have also imposed austerity measures on other governments, such as Portugal and Spain, without a sense of accountability. Unelected leaders have begun to govern across the continent. So, the contribution of the demos to policy-making (through elections) has been destroyed, which has caused an input-based legitimacy deficit.

Using the idea of legitimacy shows us how deep the problems of the European Union have become, and tells us something troubling about its future too. Current reform proposals do not intend to increase input legitimacy, but rather hand more power to the ECB. Furthermore, the discourse of ‘austerity’ and ‘marketisation’ (that has until now failed to work) is still a course that the EU is pursuing regardless of its consequences. The crisis is going to get worse. The dream of a European union has turned into a tragedy, which leaves us with two options: either the EU must be dismantled, or the entire system must be rebuilt from scratch.

The big question is this: what should Europe be for? The European Union has achieved a great deal, not least safeguarding peace and ensuring economic growth through the single market. It has added to the global power of all member countries through the EU as a trading bloc at the World Trade Organisation, and made an impact on joint foreign policy initiatives. Finally, the EU encourages the spread of democratic values, at least in principle, through the European Neighbourhood Policy (ENP). These values should be maintained, but the priorities must change. First, the EU needs to do more than preach democracy, it needs to practise it. Some examples include a directly elected president, a Commission drawn from the European Parliament, and the EP itself to be given more powers. Second, the EU should be guided by two policy-making principles: economic prosperity and subsidiarity. This means that the single market must be protected and the EU budget must be reformed – far less money must go to the CAP and other protective measures. Instead, the EU should provide investment for national economies and support the spread of knowledge (fostering apprenticeships, training, university funding, and so on). These two areas of reform point to one thing: a looser relationship between its members. We must turn away from ‘union’ towards a ‘partnership’. The EU must be governed democratically, through a consort of a president and strong EP, and its focus must be economic growth and educational investment. If the EU cannot reform itself into a democratic, economic centre, then it is doomed to fail and its members should consider a hasty leave.

At this point it is worth mentioning the British angle. British interests are closely linked to that of the European market: it accounts for 54 percent of British export alone. This means that we have a clear interest in shaping European institutions. Additionally, Britain benefits hugely from the bargaining power of the EU trading bloc at the WTO, and even in other areas of foreign policy. To go it alone would risk marginalising British influence on the world stage – politically and economically. As David Clark summarises very well: “Britain will stand little chance of remaining influential at a global level if it cannot be strong and influential in its own neighbourhood”. [2] Ultimately, there is no halfway house with the EU, although this is always something that Britain has craved. [3] Britain needs to take a decisive step and, whilst I’m probably being naive, I have hope that the United Kingdom can take that decisive step to lead Europe – because sitting in the ‘EU waiting room’ has become untenable, and leaving the European project would be an act of national defeatism.

There are three key things that must happen. First, the European project must be democratised, which means that the EU must ‘slim down’ its priorities and reinvigorate the principle of subsidiarity. Second, policy-making must move away from neo-liberalism towards decentralisation and fostering equal opportunities. Third, and most importantly, EU members must be given a referendum on membership once the new constellation of decision-making has been settled, no sooner or later. The combination of these three things are the last chance that the EU has to become a legitimate focal point for democracy and economic prosperity. If the EU fails on this, then I would prefer for Britain to leave the EU (and, indeed, for the entire project to take the final bow). [4]

mg

Notes

[1] Legitimacy here is based on Fritz Scharpf’s definition of: i) input legitimacy as reflecting the will of the people, derived from their authentic preferences and a sense of proceduralism, and ii) output legitimacy, which means that political choices are legitimate if and because they effectively promote the common welfare of the constituency in question. See F. Scharpf (1999) Governing in Europe: Effective and Democratic?, Oxford: OUP, p.6.

[2] D. Clark (2012) ‘Labour’s Next Foreign Policy’, in J. Denham (ed.) The Shape of Things to Come, London: Fabian Society, p.111.

[3] A. Gamble (2012) ‘Better Off Out? Britain and Europe’, Political Quarterly 83:3, pp.468-77. Also, anyone know current policy on the EU? It’s all very confusing with the government: first Cameron vetoes policy proposals to save the EU, then Osborne demands action to save the euro.

[4] These are some hints as to the future direction that the Labour party must take when they are thinking about their stance on Europe. It does not pay to call for EU budget cuts only to humiliate David Cameron – Labour must spell out an alternative, and this little article hopes to show one way towards a social democratic alternative.