Breakdown of the EU’s 60-year-old Convergence Machine

Saturday marked the 60th Anniversary of the Rome Treaty, with the idea of a convergent and cohesive union being a primary aim for the European project over the past six decades. A joint EU statement asserting its “undivided and indivisible” nature was symbolic of the rhetoric on show from leaders across the continent. Economically, however, the view from the White House that “shared prosperity” has been central to the project appears increasingly misplaced, with unity suffering as a consequence. Narratives of lazy Greeks and authoritarian Germans in recent years highlight how central fixing this problem is for the EU to ensure that its seventh decade isn’t its last.

In 2000, Italian GDP per capita was similar in size to Germany, and the prospect of having a common currency was perceived as being a way to ensure that both states continued to grow at the same pace. Fast forward 17 years and Italy remains worse off than it was in 2007 while Germany has seen its economic performance improve considerably. Its GDP is now 20% ahead of where it was ten years ago and shows little sign of stopping. Such circumstances are evident across Europe, with southern states facing a string of economic difficulties while the northern powers continue to surge ahead. At the centre of this divergence are the elephants in the room – the Euro and a lack of solidarity.

Let’s draw a comparison with the UK. Here London is the engine room of economic growth, and it subsidises the rest of the country as a result. The more impoverished regions of Northern Ireland, Scotland, and Northern England can utilise the structure of the United Kingdom in order to gain from London’s growth. Similarly, in the US rural areas are subsidized by New York and California. The common British and American identities allow for this, but a common European identity remains illusory, and the same solidarity in economic structure is therefore almost non-existent within the EU.

Economic union has made the situation on the continent worse rather than better, as some countries – Germany foremost among them – have gained from the common currency at the expense of others. Germany now has an undervalued currency thanks to weaknesses in the south, offering it huge trade benefits. Poland is able to ‘dump’ workers in richer states, and blocks any attempts to change the laws around this. Despite gaining from such a design, these states are unwilling to show reciprocity to southern states whose exports and economies have suffered from an overvalued currency and an austerity-driven ECB. Unemployment has exploded in the main Mediterranean states. In Spain, it has doubled from 9% to 18% in the past decade. Greece has seen the same statistic rise from under 10% to almost 25%. No surprise that young people are migrating to colder shores, then.

Yet while one balloon deflates, another inflates; Germany’s unemployment rate is at its lowest level since before its reunification. The animosity that has been visible between the northern and southern states since the sovereign debt crisis reared its head is hardly a shock.

What can the EU do to rectify this? Tax and spend? No powers to do so. Enhance educational policies? See above. Improve social welfare systems? Same again. Granting the EU such powers would equate to sacrilege in many European capitals at a time of rising nationalist sentiment. Here the lack of a shared identity is proving a roadblock to any initiatives for reform, allowing the issue to fester.

The warnings that an economic union requires a political one have an almost clairvoyant ring to them two decades on from the birth of the monetary union. Yet it didn’t have to be this way; the existence of a social cohesion fund granting €63.4 billion between 2014-2020 to more disadvantaged parts of the continent show that mechanisms promoting economic convergence can be set up. Only by being built on this economic convergence can greater social cohesion solidarity emerge. However, the convergence machine has been broken for a long time and must be repaired for solidarity to be more than just a nice buzzword.

Reopening Businesses Need Their Support Industries Reopened Too

The business events, delegate accommodation and meetings sector is worth £31.2 billion to the UK economy and employs over 700,000 people.

In the latest series of the Government’s opening-up announcements, the sector has been completely overlooked, with the term “conference centres” used to categorise a range of different businesses as being the same for the purposes of keeping them all closed beyond the 4th of July.

Could anyone really define what a conference is when asked?

It’s a broad term that gives little value to a UK-wide industry offering support services to business that range from accommodating training sessions for 10 people to 5000-delegate international conventions.

So many parts of the hospitality industry like pubs, restaurants and hotels have been given the green light to open. Yet meeting and training venues cannot be used to deliver a key service to the many businesses that need all the help they can get.

Right now there is demand to accommodate statutory legal training, exams, development courses, key team meetings, board meetings, strategy days, recruitment days and interviews. That’s before considering the requirement that businesses of all sizes have for buying in extra space day-to-day.

People at work want to interact face-to-face. Businesses have functioned for months with the various forms of online platforms for meeting that we have all had to adapt to. There will be a continued place for the “who’s zooming who” approach as many businesses rationalise and change post-Lockdown. But we know for sure there’s nothing quite as productive as a live, in the flesh performance being involved!

The impact of the Lockdown will lead to a greater need for meeting venues, when teams that have moved from the office space to working permanently from home need the face to face to interaction. For the trying times ahead, allowing us to play our part right now really could create a win-win in the longer term.

How is it any different to sit in a socially distanced meeting room for an exam, training or team meeting than to go to a restaurant or a wedding reception for 30 people?

People are more likely to get close at a large social gathering when spirits are high than at a meeting. Ask yourself, when did you last feel the need to hug or touch a colleague or fellow delegate when you meet up to discuss business?

There are obvious double standards that are adding to the sense of injustice too. For instance how can hotels be open and actively marketing meeting spaces on the basis of providing accommodation which puts them an immediate advantage over the dedicated sectors whilst the specialists are themselves ordered to stay closed?

None of us want to see any business disadvantaged further. We are pleased that hotels and restaurants will reopen. But when they are clearly seen to be aligned to what we do, it seems arbitrarily unfair and nonsensical that the wider range of support businesses cannot reopen too.

More often than not meeting venues are very large and able to offer safe and robust re-opening plans that can adhere above and beyond to social distancing guidelines. As it is industry standard to register delegates and visitors individually, we are well equipped to support the NHS Test and Trace service without the controversy that may arise when punters are asked to register for a visit to the local pub!

Like the many other businesses overlooked and forgotten, the Events & Meetings industry is right at the brink and now being pushed to limits. For us it feels like it will be impossible to survive.

An optimistic estimate is it will take at least 12-18 months to recover if we could reopen now. Whilst “conference centres” remain closed, we can only wonder at the message the Government is really giving to the many sectors and industries that desperately need support services like ours.

British business need us open and available to help give them confidence that they really can return to business as usual.

We are ready and willing to do whatever it would take to open on 4th July. Instead are being left behind.

Read The Backbencher Opinion on this HERE

Emma Jennings is Co-Founder and Director of The Studio Venue Company and a guest writer with The Backbencher

Let’s demand a better British agricultural system post-Brexit

With Brexit looming, the time to discuss the future of British agriculture is now. “Britain’s farmers will need help” says the Financial Times; “Farmers who vote leave now in deep regret” claims the Independent. But don’t worry, there’ll be some provision, promises Theresa May’s government, in some form, and at some time. But what do we really want and, more importantly, need to see in the coming months of negotiation?

Well, The National Trust has called for a total reform of the subsidies programme, and that is a fantastic place to start. It is time to tear back the basic income support system and consider the work of our farmers in an environmental market context. As it stands, the current system sidelines successful arable methods, crushes incentives to innovate, and wraps agribusiness in regulatory red tape.

Subsidies, and the broader government approach to farming, entirely fails to account for the negative externalities created by the industry that effect not just the UK, but contribute massively to the global climate change dilemma. Ignorance is no longer an option for us, we cannot continue to ignore this pressing issue, no matter how politically inconvenient it may be.

Once upon a time, subsidies for agriculture made a lot of sense. When you have inelastic demand for goods and an inelastic supply of produce, you need to be able to stay in business and produce even when you have a bad year. But a lot has changed since then: our crops are much hardier now, and more controversially, we pump our cattle with so many chemicals and antibiotics before killing them off within just a few years that we overwhelmingly over-supply animal-products. This means that the British consumer has access to British milk and Angus steak at a cheaper price, but  is not paying the full cost. The subsidised price does not take in to consideration the environmental implications that the product has had throughout the process.

The peculiar thing is that no other industry is still subsidised this way, because when an industry struggles and fails, we don’t tolerate it. Instead we import from another country that has a comparative advantage in that sector. In this sense, protectionism over free trade has very serious consequences for our environment and the taxpayer.

Ultimately, there are two points to take away from this discussion:

First, this is a golden opportunity to do something about the disaster that agricultural subsidies have become. The system is a cesspit of government failure, and it is draining obscene quantities of money that can be better spent elsewhere. Brexit provides not only the opportunity to reevaluate the system, incentivise innovation in farming, and put the free market first… but it presents the chance to save billions.

Second, it is time to start talking about agriculture in the environmental context that is the unfortunate reality. Pastoral agriculture is the leading cause of water pollution, deforestation, and emissions contributions globally. We need to internalise those externalities, and we can do so through the free market price mechanism and allowing producers to embrace consumer demands.

This is a big discussion, and one that is long over due. However, we have a very real opportunity to demand a better system that not only helps the industry and consumers, but helps the environment.

Are ‘care pensions’ the way ahead for social care?

An insurer’s policy paper, advising the introduction of a ‘care pension’ is gaining some traction. It aims to help tackle the continuing, worsening crisis the country faces in paying for care services.

Treasury officials have expressed interest in the idea, devised by Sir Steve Webb, former pensions minister under the 2010-15 coalition government and now director of policy at the insurance company Royal London.

The plan would allow people approaching retirement to take money from their pension pot – without paying income tax – as long as they use that money to pay premiums on a new form of insurance for long term care costs.

Return of the cap?

In order to be effective, the government would need to resuscitate their scrapped policy to cap care costs for individuals. Much like a train on an ailing rail franchise, the policy was repeatedly delayed before finally being cancelled, with no indication of an alternative.

Back in 2013, Jeremy Hunt, announced a cap on care costs at £72,000. This would mean that after £72,000 the government would pick up the bill for people’s care. The policy was finally meant to come into effect in 2020.

It was scrapped in December 2017, following the Conservative’s general election disaster. A disaster which was largely blamed on what Labour and many Tory backbenchers called a ‘Dementia Tax’. This was the name given a separate policy that could see anyone with assets over £100,000 selling their homes to pay towards the costs of their care.

Without a cap on care costs, insurers could face bills running into hundreds of thousands of pounds. This has made them far too wary to introduce any packages to cover the costs of care in later life.

How care pensions could work

The ‘Care Pension’ would utilise the existing ‘drawdown’ reforms. These currently allow people to draw money from their pension pots to spend or invest when they reach age 55. In a policy paper setting out the proposals, Royal London state that: 1. introducing a care cap and 2. Making drawdowns for care funding tax free, would remove the barriers preventing insurance providers from introducing policies specifically to cover care costs.

Rather than being marketed as care insurance, Royal London’s policy paper suggests policies could be classed as ‘inheritance insurance’, because they would prevent people digging into savings and assets to fund their care.

The policy has received the blessing of Damian Green MP, yes the one who supposedly downloaded pornography at work. Mr Green is working with the Resolution Foundation think tank on a project to address aging issues.

Prior to his ejection from government in the furore surrounding porn-gate, Mr. Green was responsible for heading up the work of multiple departments on the social care green paper, which is set to be published in summer 2018. This makes the former minister a potential window through which we can view the general direction the green paper was heading, at least until his departure on the 20th of December 2017.

Speaking on BBC Radio 4’s Today Programme, Mr Green said: “We need to look at the way people contribute on a personal basis in what is effectively an insurance policy.” He suggested that those who are now nearing the end of their working life could “put aside” money to fund care, while those aged 35-40 should consider making their own investment to “fund the potential for social care in later life.”

The MP for Ashford also said that he hopes the green paper, now under the supervision of Jeremy Hunt’s department, would “throw up some radical ideas” and urged “serious public debate” on care funding.

This has been floated before…what were the challenges?

This is not the first time insurance has been touted as the key to solving the crisis in social care funding.

After the original care cap policy was formulated in 2013, ministers had believed that a new market in care insurance would develop. But when the government put the feelers out in early 2015, the insurance companies’ responses were lukewarm to say the least. What were the problems then and what challenges would a government face in adopting a model like this in 2018?

What is capped?

Firstly, insurers complained that the care cap did not factor in food or accommodation costs. This scepticism was strengthened when local authorities said they would only count costs incurred in what they defined as meeting “reasonable care needs”, rather than looking at the actual, total fees that individuals are paying for care services.

Unimpressive returns

Speaking generally, care insurance does not represent the most lucrative market to insurers. What percentage of people who pay for car, home or mobile phone insurance actually make a claim? Not that many, this is how insurance companies make their money.

Compare this to how many people who took out a care insurance policy would need to cash it in. This is the difference between accidents and inevitabilities, insurance companies prefer to deal with the former.

Changing perceptions

Over the past few years the media have highlighted the critical shortage of funding for social care, alerting more and more people to the issue. However, most people still have an ingrained view that care in later life is something funded by the state, like the NHS. How this would affect demand was a concern of insurance companies in 2015 as it will be today.

The current criteria for care funding, the hypothetical situation under a cap and the one that might incorporate an insurance component are all complex, in terms of how people’s ability to ‘self-fund’ is assessed and what proportion, of which element of care, the government will fund.

Overcoming this complexity and making it clear what people need to buy, will require considerably bold messaging from government, in the face of attacks from those who feel that a hypothecated tax is the answer to the care funding crisis.

Can it work

Potentially it could, assuming the hurdles above are overcome. There would need to be a combination of new social care policy, creating a healthy environment for a new insurance market. This market would need robust regulation of policies and pay-outs, while all concerned would need to supply strong messaging to drive the message home the situation is changing for the better.

Overall however, it sounds like a rather lightweight solution to a heavyweight problem. This particular proposal amounts to not much more than people increasing to their pensions to fund care in later life.

This could help ameliorate the care funding situation in the future, but do nothing from the situation currently. As Sir Steve Webb admits: “It is not about solving the problem of today’s 85-year-olds – it’s too late to solve that. This is about the next generation, people who are around the age of 60 and now making choices about their pension pot.”

To tackle the care funding crisis now and to do so for the population as a whole, a mix between new modes of insurance for those who can afford it, with greater taxation to help those who cannot, is what will be required. The options for taxation are themselves varied, from a full strength hypothecated tax to semi-hypothecated and the kind of local taxation which has already been tried, albeit to little effect. Perhaps indicating which option the government should go for.

The task to reform social care and sources of funding is a mighty one. Years of ignoring problems have exacerbated them. The forthcoming green paper will need to take a holistic approach and properly formulate each policy and function to work correctly with one another. It will need to have a long term vision to transform care into everything it can be. The solutions will, as Mr. Green says, need to radical and far reaching, much more so than this most recent proposal from Sir Steve Webb and Royal London.

A National Investment Bank? Come off it Corbyn

It seems almost everyone thinks that the Tories have this election in the bag. With the latest ComRes poll giving the Tories 50% of all votes, it’s not hard to see why. But perhaps there is good reason for this. Labour leader, Jeremy Corbyn is not just a friend to controversy, he also seems to flirt with very silly ideas. One of many is the idea of a national investment bank, which he says would enable £500 billion worth of investment in infrastructure and industry. This would allegedly create one million new jobs, which might seem like a nice thing until you remember that unemployment in the UK is now hovering around 5% – the best it has been in a long while.

Corbyn’s idea seems even more preposterous when you also consider the current national debt of 1.6 trillion. But the idea of a National investment bank is not just unnecessary, it is foolish. The track record of the idea is really rather shocking. Tony Benn’s similar National Enterprise board in the 70s threw money at all kinds of wacky things. From British Leyland motors, to British leather, money was spent where it would create no wealth. Meanwhile private industries in the tertiary and quaternary sectors grew and those industries that Benn’s National Enterprise Board tried to protect simply fizzled out.

There is no reason that a rebranded version of Benn’s failed project would do any better. It would just lavish taxpayer’s money on projects run by those with political connections, creating arbitrary jobs in Labour seats. And even if you concede that the National Investment Bank’s job creation is a good thing, the kind of jobs that it aims to create are not going to help the kind of people who need helping. Gone are the days when building roads required hard unskilled labour. The kind of people who are likely to be employed to build infrastructure nowadays are engineers, operators of technical machinery, and other skilled and educated individuals who are unlikely to be unemployed.

A national investment bank has the potential to really hurt private investment too. The enormous amount of borrowed money required to pull it off would mean issuing extra bonds, which in normal times means competing with private firms for investment funds. Private firms would have to pay more to borrow, or re-consider their own investments – meaning less private capital spending on factories, machine tools, training, R&D, and housing. So when the government borrows to fund its own investment, private investment has to fall. Occasionally government investments are worth it, but boondoggles like the Millennium Dome are de rigeur. When even the most switched on venture capitalists find it difficult to pick sound investments, technocrats with no commercial experience are likely to find it impossible. Because of this, the national investment bank is not just unnecessary, but completely unworkable.

The Carillion Problem

This week has seen the fall of the ‘sick old man’ that was Carillion. The UK’s second largest construction firm, which holds hundreds of government contracts and employs tens of thousands of workers has finally collapsed. The fall-out will, I have no doubt, be immense and raises some important if troubling questions.

First, there is the question what will happen to the hundreds if not thousands of small businesses Carillion has contracted to undertake some of its private sector contracts? Some are, it has been revealed, owed payments totalling millions of pounds, which the company has been unable to pay due to its continuing financial difficulties. Some firms have already had to begin redundancy processes, having resigned themselves to the all too clear fact that Carillion will take the money they are owed down with it. There is, for what its worth to both Carillion’s employees and former contractors, to be an investigation into the conduct of the company’s bosses. The questions that need to be answered are all to apparent: for one, why Carillion continued to take-on new contracts despite profit warning as early as summer last year?

But then, why was a company with such a crippling hole in its pocket given them in the first place? This is a particularly potent question when it comes to the government contracts the company was allowed to retain and continued to be given throughout the period of financial difficulty. It has been quite clear for months that the company was likely to, in some way falter financially yet ministers still saw fit to award it a myriad of contracts. Its like asking a builder who you know might very soon go bust, to renovate your lounge, upgrade your bathroom, re-design the kitchen and build the new conservatory; with your help of course! The folly in such actions is evident and no sane individual would take such a blatant risk, particularly with public money. Yet, our esteemed government seemed to think such reckless action on a macro scale advisable…

Indeed, the fact that the government gave Carillion so many contracts over the past few years also in itself raises issues. For one, what happened to the notion of competition? By handing the same rather precariously balanced construction firm so many contracts, the government effectively hamstringed itself, and will now have to take them over, and in the process recoup and money used for the task…… we hope. But why were so many contracts handed to Carillion? What was the nature of the relationship between ministers and the walking corpse that was seemingly their bed-fellow? The selection process must come under scrutiny, but I have little doubt this will be resisted by ministers who will want to contain the cataclysm as much as possible, particularly if its roots are within government.

But what of the future? The Carillion problem really does speak volumes to the way government have handled public-private partnerships. In shackling themselves so closely to one large firm, ministers in essence created the leviathan that collapsed on Monday. This case should serve as a warning to future ministers over how not to handle such contracts, and makes plain the notion of having many contractors, both competing and carrying out work is both more effective and safer for the government. Indeed, this debacle also has the potential to re-open the already seeping wound that is the question of public works. The fall of Carillion will most certainly be utilised by those wishing for increased public investment in infrastructure projects. I don’t blame them. Its easy to see why many believe public projects to be the answer to issues such as those Carillion highlights. But, with the Tories in power, the chances of change in this respect are virtually nil. A party so ideologically bent on privatisation and far to close, in bed even, with large firms like Carillion will never change course: the humiliation would be too great.

The death of Carillion has been slow but certain, it isn’t the first and won’t be the last, I only pray that lessons are learned.

Tackle Tax and let the UK Prosper

Tackle Tax and let the UK Prosper

In the 2019 General Election, Jeremy Corbyn’s taxation policy was radical. He wanted to raise an extra £82.9bn by increasing Income Tax for those earning above £80,000 to 45% and 50% for those with incomes above £125,000. Corporation Tax was set to rise from 19% to 26%, and the introduction of a second homes tax was planned at some 200% of the Council Tax bill. The list goes on.

Keir Starmer is likely to be more reserved, especially as his popularity is on the up. In his leadership campaign the new Labour Leader was deliberately ambiguous about his ideological position and took care to distance himself from the radical Left, whilst simultaneously doing the same from the Blair years and the right of the Party.

Starmer has shown that he is ostensibly a left of centre Liberal, and we can speculate that his fiscal policy will certainly be less radical than that of his predecessor.

The general view on taxation amongst centrist Liberals is that a percentile or two extra on tax rates will provide more funds for our public service, whilst having little effect on commerce and the economy. But does this idea really hold true?

The Government and a vast majority within the Tory right would disagree.

Indeed, the alternative view would be that If you want to provide longevity to the prosperity of an economy a tax increase is not the solution, no matter how miniscule the percentage rise might be.

Taxation, no matter how small, will have a contractionary effect on the economy. The level of that contraction will not always be directly proportional to the percentage of the change. But the fact remains that the economy will still be constricted either way.

Tax Increases may provide short term revenue to the Government. But in the long term it will only decrease the amount of tax procured to the State.

Across the Pond in the United States, The National Bureau of Economic Research state how “an exogenous tax increase of 1pc of GDP lowers real GDP roughly 2 to 3 percent.” This is a fitting illustration of the effect of Taxation on an economy. More tax leads to a lower GDP, leading to less tax receipts, less Government revenue and therefore it leads to less money being available to spend on vital services for our communities.

An increase in tax today will lead to a loss of future tax receipts and Government revenue. We have been here before and the figures speak for themselves:

In 2010, Alastair Darling raised the top rate of tax to 50% of income after it was predicted that such a move would raise £3bn. In the short run it only raised £1bn towards address the debt accumulated due to the 2008 Bank Bailouts. In George Osbourne’s 2012 budget the top rate of Tax was lowered to 45% and a later HMRC report indicated the cut raised an additional £8bn.

The figures speak for themselves. Tax increases will provide short-term revenue, but that revenue will ultimately fall as the economy continues to be constricted.

With indications that the Chancellor is considering Tax rises as a step to offset the Lockdown debt, the Government may not be giving adequate consideration to the real financial issues the Country faces. An increase in tax today will not help our prosperity in the long run.

Government must avoid seeking yet another quick fix. They must take the difficult decisions that will be beneficial in the long run.

It should be a no-brainer. Let’s reduce Tax and let Great Britain prosper.

A Libertarian Approach to Student Debt

Both the Tories and Labour Party have attacked the current higher education funding system for leaving thousands of students in debt that they can never repay. While Corbyn admitted he could not promise to wipe debt, Theresa May has launched a review into student debt and tuition fees. At the moment, fees are capped at £9,250, but come with a punishingly high interest rate of 3%above RPI. This interest begins to accrue from the day that students start university. How can we ensure equality of opportunity for young people of all backgrounds without leaving the next generation of workers in enormous debt?

Reducing Interest Rates

The simple fact is that the loans offered to students are too expensive, with three quarters expected to never repay the full amount. The burden of paying back this debt therefore falls onto the taxpayer, so that those who never went to university are paying for those who did. A true libertarian approach would cut interest rates to be in line with market values.

Senior economic advisor at PwC, Andrew Sentance, argues that 2018 could see interest rates triple, due to high inflation and global economic growth. To charge students an extra 3% above inflation is creating unnecessary debt. This is caused by state intervention rather than the invisible hand of the market.

Diversifying the Market

The UK has one of the highest tuition costs in the world, largely due to an unfree market. Almost half of school leavers now go to university, even if it isn’t the right option. For a genuinely free market to keep costs down, there needs to be a wider range of options.

This can be achieved through the use of apprenticeships or work placements for those who thrive in a vocational sector. Not everyone is suited for university, but many see it as the only option. Furthermore, many courses are charging the same amount despite varying in costs. Different courses should set different prices according to market forces.

Encourage Private Sponsorship

The most effective way to lower costs and the debt burden on students is for the state to be rolled back. Instead, private companies should provide sponsorship and bursaries where they see potential in students. More debt reduction and consolidation companies may enter the market in order to further ease the burden without the need for state intervention.

Successive governments have done a great disservice to our young people in the way they fund tertiary education. Interest rates should come in line with the market and private companies should be given greater freedom to sponsor students. By diversifying the education market for over 18s, overall costs and therefore debt can come down.

The return of mercantilism? Libertarians and Trump’s trade war

It is a generally uncontroversial tenant of economic liberalism that free trade is a ‘good thing’. This
idea can be traced back to one of liberalism’s founding thinkers, 18 th century economist Adam Smith,
whose famous The Wealth of Nations was written to make the case for free trade and against the
then common mercantilist practice of states imposing tariffs to lower imports and stimulate exports.
With President Donald Trump turning on free trade and embracing the mercantilist outlook that
Smith opposed, the obvious conclusion is that liberals and libertarians should be in uproar.

 

Not quite.

The Trump administration’s recourse to tariffs imposed especially (but by no means exclusively) on
Chinese goods is certainly misguided, and must be called out as such by Smith’s successors. But it
has also opened the way towards a much needed discussion of the real mercantilist threat, namely
Chinese economic practices. For this, liberals can be grateful.

President Trump’s tariffs rest on the general premise that globalisation has hurt the US, and a more
particular one that the ‘unfair’ Chinese approach to trade has done this. The first is deeply mistaken,
and acting on it will only harm the economy. The second cannot be dismissed.

 

The modern form of globalisation resulted from capitalism winning the Cold War. As the economies
of communist states collapsed, and their ideology was discredited, the late 1980s and 1990s saw
free markets embraced from Eastern Europe to Asia. But as trade barriers lowered and work was
outsourced to new capitalist states, the US manufacturing industry declined and those it once
employed began to call for tariffs to turn back the clock and save their jobs. Cue President Trump.
The idea that globalisation harms the American economy and tariffs are the solution flies in the face
of everything liberals and libertarians believe. Not only did the benefits of outsourcing outweigh
their costs, but statist attempts to stimulate local manufacturing help no one and harm everyone.
Take the Trump administration’s imposition of aluminium and steel tariffs. In the short term, the
resulting rise in steel prices is will undoubtedly benefit US metal producers and their employees, but
in the long term automation means there will be fewer jobs available in such industries anyway.
Meanwhile, the gains from global supply chains that lowered prices for everyone will be undone. As
US companies reliant on these metals for their own products are forced to raise prices to
compensate for their own increased expenditure, it is the majority of consumers that will be hurt.
The administration’s tariffs, alongside retaliatory ones from US trading partners, already threaten to
increase the costs of products ranging from Coca Cola to washing machines to housing.

It is as though the Republican Party has forgotten one of its most cherished arguments against state
intervention: that, in the words of libertarian thinker Henry Hazlit, it is necessary to think about the
consequences of any given economic policy ‘not merely for one group, but for all groups’.

President Trump’s particular targeting of China as a threat to US employment, however, rests on
much more legitimate concerns and cannot be similarly dismissed. Among the states rejecting
communism in the 1980s was China. In China, however, it was the ruling Communist Party itself that
was responsible for the change, turning to a mercantilist state-led form of capitalism that threatens
more liberal economies. Under Communist Party rule, state-owned firms benefit from subsidies in
order to ensure particularly high production of products such as steel, while foreign firms are forced
to hand over their technological as a condition of trade with China. All of these policies serve the
traditional mercantilist aim of stimulating Chinese exports, in this case taken to the extreme with
hopes of Chinese global economic dominance under the ‘Made in China 2025’ plan.

So while his response remains an act of economic self-harm, free traders should not dismiss the
genuine concern that underpins President Trump’s tariff policy. It is the mercantilism in China, rather
than the more limited form in the US, that is at the heart of current threats to free trade. Liberals
must be prepared to engage in the debate on China that President Trump has opened if the
globalised capitalism they champion is to survive.

Budget 2017: Social Care Forgotten

“Over a million of our elderly aren’t receiving the care they need and over £6 billion will have been cut from social care budgets by next March. I hope the honourable member begins to understand what it’s like to wait for social care stuck in a hospital bed, or for other people having to give up their work to care for them.”

Intemperate words from Jeremy Corbyn yesterday, bellowing across the dispatch box, in response to a budget that has been greeted with widespread disappointment and which made no mention of social care, despite the continuing crises in the system.

Days before the budget, 90 MPs, over a third of whom are Conservatives, wrote to the Prime Minister demanding cross-party action on social care, telling the PM that “the need for action is greater than ever.” Perhaps the plea did not find its way next door to number 11.

Repeated failures

None of the government’s half-hearted attempts to close the care-funding gap have been successful.

Early this year the Financial Standards Authority criticised the Better Care Fund in the harshest possible terms, saying that it had “failed to meet any of its objectives.” The Local Government Association recently said that the Fund “has lost credibility and is no longer fit for purpose.”

The Social Care Precept enabled local authorities to choose to raise council tax to help fund social care. It has been widely adopted by desperate councils. But because the precept depends on council tax, and therein property values, many decried it as benefiting poorer areas least, ironically those areas where local authority funded care is most necessary.

The chancellor would likely point to the £2 billion ring-fenced for social care in this year’s Spring Budget, to be spent over the next three years, some of which has already been allocated to councils. This, coupled with the Precept has seen social care funding rise by 3% this year, an increase of £556 million, the first year on year increase since 2009/10.

However, as funding is increasing so is demand, and the latter is still outstripping the former. By 2019-20, The King’s Fund estimates that social care will still face a funding gap of £2.5bn, despite these measures to increase funding. With a current average of 5,000 new requests for care every day in England, this is as daunting as it is understandable.

Councils on the brink

Separate research by the Local Government Association predicts that caring for the elderly, other vulnerable adults and children, will consume almost 60p out of every £1 of council tax by 2020, a 41p increase since 2010/11.

The LGA is sounding the alarm that the costs of social care are taking more and more money away from day-to-day services, such as repairing potholes, keeping streetlights on, parks clean and so on. Councils could be forced to ration essential services if the care-funding gap persists.

The way councils raise money is also undergoing a radical change. The largest source of central government funding; the Revenue Support Grant is being phased out. In return, councils will retain more of the money raised through business rates, from 50% in 2015 to a targeted 100% by 2020.

However, the changes to business rate retention were not included in the Queen’s speech, nor cited in the budget statement this week, leaving councils uncertain about how concrete this measure is and how they will be funding services in years to come.

Bigger thinking

Addressing the immediate crises in social care will require additional funding. However, the long-term solution for elderly social care provision in the UK requires deeper thinking. The endless, circular arguments about social care funding are reminiscent of many debates in our country when it comes to social services, where any form of insurance scheme is anathema.

One of the fundamental goods of the NHS is the ability to receive all manner of treatment without any form of point of use payment, this is a social service provided by general taxation, akin to policing, firefighting and national defence.

We could choose to fund social care through central taxation, as we do with the NHS. But can we honestly say with confidence that this would ensure sustainability and drive up outcomes long term? When answering this we should pay attention to the current crises faced by the NHS itself.

When it comes to social care, other options should at least be open to consideration. Our society and ways of life have changed. We all know that we are living longer and unlike in bygone eras, it is rare for elderly relatives to live with their sons and daughters. Because of these deep societal changes and others, we need to think rationally about the best way to fund social care, not with the sole aim of cutting costs, but to improve services, make the system sustainable and a guarantor of dignity and wellbeing in later life.

Another option to fund care services in the future is to move towards an insurance-based model. Take the example of the ultra-liberal, egalitarian Netherlands, where insurance schemes for social care, run by not for profit agencies, are compulsory. However, even systems like those in the Netherlands, which combine compulsory insurance and central taxation, are encountering their own funding shortfalls.

That familiar green glimmer on the horizon

Poor economic performance and the fact that care funding has already been increased – however lacklustre that increase has been – may have led the chancellor to believe he could ignore social care, as so many chancellors and minsters have in the past.

Phillip Hammond’s attitude may have been buoyed by the announcement that the long awaited green paper on care and support for older people will be published by summer 2018. Indeed the timing of the announcement, two days before the budget, was probably a pre-emptive defensive manoeuvre. For some time now, the green paper has been the go-to get out of jail free card for any minister or prime minister facing a grilling on social care.

Hope then, springs eternal. Truly effective policies are what everyone desires from the green paper. Accomplishing the shared goal of improved care, which is sustainable and affordable, will require data driven decisions, original approaches and perhaps just as important; political will and personal courage.