Elected Lords = Emasculated Democracy

Those who repeatedly bleat about their wish of a completed elected House of Lords are asking for one of the most important checks on government power to be completely emasculated under the guise of "greater democracy". This is what happens when good intentions meets lack of political knowledge. 

A lot of people make comments about politics with little understanding of politics. For instance, they criticise the Lib Dems for "breaking election promises" on tuition fees without recognition that when you enter a coalition you have to negotiate and the result is a joint manifesto in which both sides have to drop elements of their manifesto and get to keep others. But in this case there is a real need for those campaigning to arm themselves with that political understanding, because the consequences of this particular change are particularly dangerous for the way our country runs itself.

The House of Lords is known by many other names, but one of them is as an 'amending' chamber. They possess no governmental power whatsoever apart from the ability to delay a bill passed by the House of Commons. But this power is absolutely vital. They scrutinise every piece of legislation created and if they don't feel it is right will send it back to the Commons to be redrafted.

This has all come to the forefront of our minds by the naming of new working peers by the parties over the past week which redressed the balance of peers to the point where the coalition government is in the majority, having had a Labour majority in the Lords for a long time. Opponents of the way the Lords is run have argued that this appointment by political dictat is one of the problems with the House of Lords.

The Lords consists of 26 'Lords spritiual' - senior bishops in the United Kingdom. Then there are the 'Lords Temporal' appointed by the Queens through the political parties and also called 'Life Peers'. Finally we have the 'hereditary peers' who sit in the Lord as a right of birth. Following a series of reforms under Labour we are down to 91 hereditary peers out currently 738 members, and that list will get smaller. The fact that this country has 26 Lords appointed from the church is obviously controversial given our ethnic mix, but this argument about membership is really about the temporal Lords.

Opponents of the temporal Lords argue that Lords should be elected by the population. On first sight this makes sense. Why shouldn't we the people elect them? The answer is because if they did then the government would quite simply no longer be held to account, and democracy would lose out.

Why? Because the Lords - even though many are appointed by political parties - take their roles very seriously and revel in their independence. Tony Blair's Labour government were defeated over 400 times in the House of Lords even though it there were more Labour-appointed peers than anyone else. For example, we would have 42 days detention without charge for terrorist suspects if it wasn't for the House of Lords. It is precisely because they DON'T have to rely on their party for re-election and other jobs that they will act with such independence.

There was an early Coalition Cabinet meeting when the Academies Bill was being discussed and David Cameron allegedly turned to Lord Strathclyde (Conservative Leader of the House of Lords) and asked if Strathclyde could "get his people into line on this". Lord Strathclyde's answer was "“Er, that’s not quite how it works in our place, Prime Minister.” This shows that even the most senior politicians forget what the Lords is for sometimes. 

If the Lords were elected - let's say every five years - the following would happen. They would become reliant on their political parties for money and campaign expertise and could not afford to rebel against them. The Lords, effectively, would reflect the Commons in terms of party balance and whichever party was in government would see their legislation sail through relatively unchallenged.

The Lords at the moment is made up of a far older group of people, most of whom have had actual life experience in the outside world.  As Rachel Sylvester pointed out in The Times recently - "An elected senate would not have Lord Winston, the fertility doctor, to comment on medical ethics or Baroness Manningham-Buller, the former head of MI5, to discuss anti-terror laws. It would be deprived of Lord Guthrie of Craigiebank, the former head of the Armed Forces, asking about Afghanistan, and Lord Woolf, the former Lord Chief Justice, raising concerns about sentencing guidelines. It would miss out on Lord Browne of Madingley, the former head of BP, and Lord Macdonald of River Glaven, the former Director of Public Prosecutions, and Lord Darzi of Denham, the surgeon who once saved the life of a fellow peer having a heart attack in the Lords."

The alternative is for the Lords to become elected, but basically a dumping ground for professional politicians with no experience outside politics and who had failed to get elected. I realise that on the recent list is Oona King, who has made a career out of failing to get elected so needed to get appointed....but she is an exception to the rule that the House of Lords is a good thing for this country's democracy, and until someone can persuade me that an elected Lords will improve our democracy I hope it stays just how it is.

Should we tax fat?

BBC's 'Panorama' programme this week raised the prospect of a "fat tax" being applied to junk foods that contribute to obesity in the UK. This is a fascinating debate which brings forth arguments about the justification for and effectiveness of government intervention on this issue as well as the fairness of a particular tax.

The economic justification for government intervention in this instance is that obesity has 'social costs'. This means that the cost of obesity is greater to society than the 'private cost' to the person who carries the weight. The difference between the two is the 'external cost'. Those external costs might be the extra burden on the NHS from treating obesity but also possibly sick days through related illnesses down to something as simple as the difficulties someone who is overweight may have playing a constructive role in many of society's activities.

2007: Plenty of fat to tax!

A 'fat tax' would suggest that the government feel that fatty foods are overconsumed and this is causing obesity. If the government can find a way to reduce the amount consumed then that would be better for society. If they can raise revenue from a tax to cover those external costs of overconsumption then that makes sense too.

So far, so economically rational. But does a tax on fatty foods actually solve the problem? And is there a chance it will create other problems?

I must declare an interest here because two years ago I would have been a 'target' for this tax. I am 6 foot tall and used to weigh 17 stones (107 kilogrames). I am now 14 stone (88 kilogrammes). How did I do it? By eating less calories and doing more exercise. Why did I do it? Because I was fed up of looking at a fat bloke in the mirror, because my daughter was starting to run around and I couldn't keep up with her, and because there's only so many times you can put up with being drawn as a

2009: calories in < calories out

big blob by a four year old child when on holiday with your friends' families.

Did eating less cost me less? No it didn't. It is a sad fact that eating healthily in this country is more expensive. Also, I spent a lot of money on getting the right clothes and shoes and equipment for exercise as well as gym membership.

Furthermore, I read a lot of magazines and websites about how to get fit and eat properly and I kept a daily diary of everything I ate and did exercise wise.

Put all that together and it worked. Took me 9 months to lose 3 stone and I ran a half-marathon comfortably at the end of those 9 months having not run for 18 years.

The point of this story? For people to lose weight and get fit, they need to have money, and they need to have the right information. A 'fat tax' would give them neither.

If you put a tax on fatty foods you will make them more expensive which should mean that people will swap to more healthy foods. But the difference in cost is large enough that it would have to be a large tax.  That would leave BOTH cheap fatty foods and healthier foods more expensive. Food is a need, so by making all types of food more expensive you are lowering living standards.

And this is where we get to 'fairness'. I hate to generalise, but obesity is more of a problem in this country for people on low incomes than those on high incomes. So a 'fat tax' will hit the poor harder, and is therefore regressive. The consequences of that could be uncomfortable for a government attempting to present themselves as fair and progressive.

What's more, many fatty foods are rather addictive, and quite frankly rather nice. Translated into economic terms - the quantity demanded of them would not go down anywhere near as much as the tax would take their price up. In other words, demand for fatty foods is 'inelastic'. The way tax works in this country, firms collect tax for the government - which means that taxes affect the supply of a good first, UNLESS they can pass on the entire tax to consumers - which in the case of fatty foods, they can, as demand won't fall by as much as the tax applied. So the quantity of fatty food eaten won't drop much.  What will happen is that government will get a lot of tax revenue.

Therefore, government intervention to solve the problem of obesity solely by way of a tax on fatty foods would not be effective and could result in further problems.

However, many say that the tax would be like a 'nudge' in a particular direction. Well, why not give consumers a nudge away from fatty foods and a further nudge towards healthy ones. The government could subsidise healthy foods, based upon the argument that they will gain that back through less cost to the NHS and less sick days from employees.

Also, as I said, it was information that really helped me. Government could make sure that everyone who wants to lose weight has access to the right information presented in accessible ways to help them. Much of this is already out there. But there is a lot about healthy eating, but is there really enough about the benefits of what really made a difference for me, exercise. So they can provide a lot of information about that too.

So, they could also subsidise gym membership, although the problem with that would be that people would still have to go to the gym once they are members - which has always been a problem. They could subsidise running clothes and shoes, although again the key is getting people out running.

Point is, it all goes back to each and every individual. Every time I bring up a solution I seem to be bringing up an argument against it. This is why we have ended up back at the 'fat tax', because if we can't get people to lose weight, let's at least try and raise the money from them to pay for the problems their weight causes, right?

The proof, on this issue, will be in the (gluten and sugar-free) pudding (yuk!)

The child that benefits should need it.

Everytime I find myself wondering about universal benefits, I think of the wonderful support staff at my school, many of whom work on far lower wages than I ever have, and yet are funding the child benefit  of multi-millionaires. Is this really what William Beveridge envisaged all those years ago as what the welfare state was for? I sincerely doubt it. Did he also imagine the UK would find itself over a trillion pounds in debt? Unlikely. So we can't keep harking back to what the welfare state was created to do, the country has changed. And so, surely, must benefits.

It was fascinating to watch the new leadership of the Labour Party take the bait and fall into the trap of 'over-opposition' - where they simply oppose in a knee-jerk fashion every policy the coalition come up with. Are they, the party that calls itself the progressive option, really going to justify taking money from the public purse to give child benefit to hedge fund managers? Oh yes they were. Thankfully, it may well be that opposing every cut was just a 'holding position' and now they have their shadow cabinet together we have Douglas Alexander, with the work and pensions brief, tentatively supporting Iain Duncan-Smith's welfare reform.

But back to benefits. The idea is that from 2013 those households with one person earning the higher rate of tax (at the moment this means they earn £44,000) will not receive child benefit. There is a lot to commend in this idea, but the devil will be in its' implementation.

The main argument against it was that a couple earning £43,000 each (£86,000) would not lose their child benefit (£33 a week for 2 children) but if one person earns £44,000 they would. This seemed not to make sense at first and was highlighted as 'unfair'.

But if you think about it, a couple who are both earning £43,000 a year are most likely to both be working for a reason, but are not likely to be very "rich". These couples - who would therefore have their children in full-time childcare - which is expensive - cannot be very numerous, and also there is an argument that the government would like them both to be working as productive members of society as it helps with employment numbers.

But if you have a couple where one earns over £44,000 and the other doesn't you have a large net in which you can catch the couples consisting of one who earns hundreds of thousands, if not millions, and the other who doesn't have to work as their partner earns so much. They should not be receiving child benefit, and this way they won't. So in that way it can be seen to be a progressive policy.

When I say the devil is in the implementation, I mean that the current way child benefit is collected and administered means it is not possible to automatically stop paying it. It is paid to the mother of the child, (allegedly because the father wouldn't be trusted to spend it on the child instead of drink) and the mother does not have to tell the father they are getting it. This led to an amusing discussion on air between Radio DJ Chris Evans and his wife when the news broke which was the first time he found out she actually got child benefit.

Anyway, the only way child benefit won't be paid is if someone in the household earns over £44,000, which could be found out by the Inland Revenue through PAYE if you work full-time, or your self-assessment if you are self-employed. But if it's the man who earns over £44,000 they would have to say whether their partner receives child benefit (even if you are married you have separate tax arrangements obviously) and a man could justfiably say "I don't know" then get out of paying it. They can't legally be forced to ask their wife.

Additionally, should the mother of the children earn below the threshold they might be asked whether their partner earns over £44,000, but tax affairs are private, for data protection reasons if nothing else. So the mother could say they don't know and that's that.

David Cameron suggested that the British public could be trusted to tell the truth but how far they'll go to tell the truth, given it penalises them a considerable amount of money remains to be seen.

I have no doubt we need to do something about the transfer of money from someone earning £10,000 a year to someone earning £10,000 a day. By 2013 hopefully they'll work out what to do. Meanwhile, coffee shops must prepare for a drop in machiatto sales, ballet classes might have slightly less demand, and Gymboree may have to reconsider it's entire business model.

Next stop should be Winter Fuel payments and free London transport passes for FTSE Chief-Executives and retired barristers. Oh no, wait a minute, they are old, and they vote in their droves.................

Why Ireland's cuts are sinking them and the UK's aren't

There are many genuine, economically literate arguments against the spending cuts being imposed by the UK coalition government at the moment. Not least the issue of reducing aggregate demand through government spending and relying on the private sector to fill that gap when its' major trading partners in Europe and the USA are also struggling economically (hence the recent cap-in-hand visits by David Cameron to both India and China).

Then there some economically illiterate arguments against the spending cuts. Step forward the "look what's happening in the Republic of Ireland" brigade.

Just to fill you in, Ireland has the highest bank debt in the world of €50 billion, and a budget deficit of 32% of GNP - ten times the eurozone's deficit ceiling. More importantly for this discussion, all this has been exacerbated by the steps that the Irish government felt no choice but to make. They slashed public sector pay by 10% and are taking more than 8% of GNP out of the economy in spending cuts. The point is - the cuts seem to have made things a lot worse, ergo the argument that the UK should observe Ireland and not make similar cuts.

The reason why this is economically illiterate is because of the enormous differences between the Irish economy and the UK's.

1) The boom in Ireland was hugely accounted for by the property sector - which by the time recession hit accounted for 25% of the Irish economy, whilst it was only 10% of the UKs even after our property boom. This was unbalanced growth in the first place. Worse, it was funded by huge lending of low-interest mortgages to borrowers who required no money down. These unpaid debts are what is now holding back the banks from growing again. We don't have this in the UK, where our banks ran into problems from dud investments in dodgy derivatives.

2) Ireland is in the Euro. This means two very important things:

a) They cannot use monetary policy to reflate their economy as monetary policy is controlled by the European Central Bank, so they only have fiscal policy with which to operate their economy (hence raising taxes and cutting spending to reduce the deficit). Not being able to lower interest rates, but possibly more importantly not being able to increase the money supply through quantitative easing is an enormous restriction on the economic control of the Irish government. The irony of this is that it was the lowering of EU interest rates at the beginning of the millenium that caused the boom in Ireland - its' inflation (and that of Greece, Portugal, Italy and Spain) was already high when the ECB lowered interest rates to try and inflate the French and German economies, a good example of the problem of central monetary policy being applied without central fiscal policy

b) They cannot allow their currency to devalue in order to boost exports. Since the start of the recession, Pound Sterling has fallen in value by nearly 25% against other currencies. Ireland has seen the Euro strengthen during this time. This takes away another engine of possible economic growth which might have raised money to help with their debts.

So, the upshot of this is that the IMF has praised the actions of the UK government whilst preparations are being made for what many are seeing as an inevitable moment where Ireland will need to go cap in hand to the European Financial Stability Facility, which has already helped out Greece. Both governments have taken similar actions, but it isn't working for Ireland.

As Ed Balls has pointed out many times recently, the five tests that Gordon Brown and his team came up with that more or less ensured the UK didn't join the Euro have probably been our saving grace as we fight our way out of the mountain of debt we have.

You only have to look across the Irish Sea to see the difference that it made.

The China Conundrum

Interesting watching David Cameron attempting to negotiate his trip to China through the clarion calls for him to speak up about human rights abuses. As was rightly pointed out on 'Question Time' last night, he does have a choice between 'money' and 'human rights' in that if he wants trade deals with China right now that might lead to jobs being created in the UK through China's export demand he needs to prioritise that over the human rights issue.

There is a point to be made there that right now the priority IS jobs. We've just come out of a recession and have a large amount of unemployment and a huge deficit and we need demand to come from somewhere given the cuts in the public sector.

But actually for me this is not about David Cameron, who will probably be damned whatever he does, but about China. It is about what we in the West regard as the most important human rights, and what we in the West expect of countries who are yet to develop fully economically.

There is a lot of misunderstanding in the UK about China. First of all - they may have the World's second highest GDP but this is shared amongst such a large population that they have a GDP per capita of around $3,000 a year (World Bank estimate). Ours in the UK is over $40,000. Most of all - they have over 200 million of their population still living in absolute poverty. That means they survive on less than $1.25 a day, the amount the World Bank feels is needed to enable a person to fulfill their needs of food, water, shelter, warmth and clothing.

That is their priority. Simple as that. We can make trite comments like that of an unnamed US negotiator who returned from last year's failed Copenhagen climate conference having not achieved any kind of agreement with China and muttered that it "shows what happens when you try to negotiate with a nation of only children". Or we can understand the following:

1) China's priority needs to be developing their country to the stage where they do not have citizens in absolute poverty.

2) As part of this they need to provide jobs for their population, food for their population and energy for their population.

3) Committing to a deal to limit their carbon emissions at the expense of their development would be tantamount to a form of 'sovereignty suicide' - their first priority is the prosperity of their citizens, given they have very little security issues. Their citizens need the fruits of development and growth and need them now, far more than we do in the UK.

4) Futhermore, they may also need to import food, raw materials and energy from countries regarded by the West as 'rogue'  states. They can get those vital resources cheaply and they can provide them for a population that actually needs them to live.

5) China's idea of 'human rights' may well be the right to live. It is generally thought that democracy may not be appropriate at times of either war or where economic development needs take priority. They do take priority, so when China complain that people don't understand the concept of 'human rights' the same as they do they are probably right.

I am not an apologist for the way China treats its' citizens who ask for democracy. I am not an apologist for their actions over Tibet. I am, though, prepared to understand from an economics point of view why China acts they way it does.

Sometimes, those who complain the loudest about China  need to put themselves in the position of their leaders. Leadership is an onerous responsibility, and sometimes you have to make unpalatable choices.

Do we really have any better ideas? 200 million people would like to hear them.

Jon Cruddas - "I didn't stand because I might have won"

Today we at Latymer's JS Mill Society had the honour of welcoming one of those politicians who give the profession a good name to talk to us. Jon Cruddas MP has built a reputation as someone with the rare attitude in UK political discourse that if someone disagrees with you they are not wicked, just merely wrong. Such is his appeal across political lines that the Times, right-wing house paper of the Conservative Party though it is, endorsed him during the recent general election as just the sort of politician who should be in the Houses of Parliament.

And yet, despite his cross-party appeal, he resisted loud calls to stand in the recent Labour leadership election. I took the opportunity over lunch, and a student did during his talk, to ask him why. His answer was instructive about where politics is in this country today.

His basic answer was "but I might have won". Cruddas believes that his personal politics would make the Labour party unelectable so he stood aside so that they might elect someone that would help them back to power. This is an admirable sacrifice for someone who clearly loves his political party and he explained it well in terms of what they need to happen.

When there is a political vacuum, it gets filled. Cruddas believes that during the 1980s, when Labour retreated to the left, it left a vacuum filled by the militants and rioters we see in films of the era instead of genuine political discourse. He feels that Labour needs to come from the centre-left as the left won't be elected and he can't move the electorate on that. He felt that going on a self-indulgent journey to the leadership would not be in the best interests of the Labour party and therefore of those he wants to see represented, given he does feel Labour government is the best route to social justice.

How sad. Is it really true that Tony Blair's victory in 1997 over a crushed and dysfunctional Tory party was purely because he found a centre-left (nearing centre-right) ideology that the electorate would vote for? Isn't it more true that an opposition party led by a bunch of incoherent Giraffes would have knocked the Tory party out of power in 1997, so weak were they.

Before the 2010 election Mervyn King, Governor of the Bank of England, opined that whichever party won the election would probably be unelectable in 2015 because the chalice they would be picking up was so poisoned, and the measures they would have to put in place to clear up the economic mess so divisive that the opposition of the time would almost certainly win.

So far, King has been right. The chalice is poisoned, and the measures are divisive. This means that a Labour Party offering a credible alternative should get elected. Surely no time would have been better than now for Jon Cruddas to have been party leader. He is credible, he has an alternative and he is someone the electorate can and would relate to.

The words of Hillel come to mind..""If I am not for myself, who will be for me? But if I am only for myself, who am I? If not now, when?"

For Jon Cruddas, it was now.

'Fund our pot noodles or Millbank gets it' - The Tuition fees debate

So yesterday was the big protest about the increasing of tuition fees for university students in the future. The rise - is certainly controversial, yet, like most issues, has two sides both politically and economically.

First, it is vital to explain what is being proposed. This has sometimes been obscured by people who do not wish to have a proper debate, so it's worth making it clear.

The proposals allow universities to charge up to £9,000 per year, raising the cap from its current level of £3,290. The government would continue to loan students the money for fees. The threshold at which graduates have to start paying their loans back would be raised from £15,000 to £21,000.
Graduates would pay back 9% of their income each month above that threshold.The subsidised interest rate at which the repayments are made - currently 1.5% - will be raised. Under a "progressive tapering" system, the interest rate will rise from 0 for incomes of £21,000, to 3% plus inflation (RPI) for incomes above £41,000. If the debt were not cleared 30 years after graduation, it would be wiped out.

Right - so let's break this down:

The argument against tuition fees being raised

1. Education is vitally important to UK society. How much do we value having our citizens university educated? A well educated population should be more productive, which should lead to aggregate supply being increased without population increasing, which should allow for there to be sustainable economic growth without inflationary pressure.

2. University education is also a force for social mobility, so should we not pay for as many of our population as possible, whatever their background, to go to university, with the cost being no obstacle to them going?

3. The cost of free university education is a few billion a year, which is small compared to how much the UK spends on items which are surely worth less to British society, such as for instance aircraft carriers that will never be used?

4. Taking 9% of someone's income when they leave university will stop them being able to build up a deposit to get on the housing ladder, so this policy distorts the housing market.

5. Universities train our doctors, our nurses,our teachers and other vital members of our society. They should not be discouraged from these noble professions by the cost of it.

The argument for tuition fees being raised

1. Something has to be done about the deficit, and therefore the government has to be careful about what it is spending its' money on. Universities need to be properly funded, and asking those who benefit from it is surely the best way to do that.

2. Those who go to university benefit from it. Those who don't do not. So is it right to ask someone who earns a little bit more than minimum wage and thus pays a little bit of tax to fund the attempts by others to get themselves a higher wage? So this makes the taxpayer fully funding university a regressive tax.

3. How can tuition fees stop poorer people going to university? You do not pay it back UNTIL you are earning £21,000, which is close the median wage of the country - putting you already in the top 60% of earners. So you ONLY pay it back should you "benefit" from it in terms of future income - which will mean you aren't "poor" any more. Should your income fall below £21,000 you don't have to pay it so it is NOT like a mortgage. So it is actually progressive

4. Universities that charge over £6,000 would have to undertake measures, such as offering bursaries, summer schools and outreach programmes, to encourage students from poorer backgrounds to apply. Difference being they would have the money to be able to offer these schemes properly.

Some thoughts

It is interesting to look at the way that this gets organised in terms of the political continuum. Students tend to be left-wing. Why? Well, being left-wing is being optimistic in some way and looking for a utopia, which is fine. But just about everybody on that march yesterday have never paid a penny of tax, and it is often said that people get right-wing as they get older, and one of the main reasons is that they see tax literally taking the food off the plate of their children and being spent in dubious ways and they want it controlled. Students don't have these worries.

But actually, I think this could be more about what a university education actually does. Jon Cruddas, the highly-respected Labour MP who came to Latymer this afternoon was asked about this issue and he told the story of his family. 5 children - all with degrees, 2 PhDs and 2 Masters added to those. All without paying a penny. They didn't do those degrees for money, they did them to gain knowledge and wisdom and having inhabitants of our country with knowledge and wisdom is surely in the interests of society.

It's interesting the mess that the Liberal Democrats have got into over this. The problem with being a small third party in opposition is that sometimes you practice opposition for opposition's sake, thinking you will never get into government so it doesn't matter. To insist on full opposition for tuition fees in the middle of a massive receession without providing an economically sensical alternative runs the risk of exactly what has happened, which is that you may end up in power and having to act responsibly.

It's difficult for me, I got my university education free. I wish all my students could get one too. If this causes even one bright student not to go to university when it would have been right for them then I have a problem with the long-term consequences of that for the UK's prosperity. I go back to basic economics here - the opportunity costs of providing free university education could be large. The opportunity cost of not could be even larger.