Wednesday, 1 July 2009

Finance and Perveristy in the UK.

Is there anything that can be done about it?

(Public Finances, that is.)

During her sermon at the millenium new year's day service (January the first, 2000, if you need a date for that) Lucy Winket, one of four Canons at St Paul's Cathedral, London, talked about "all our golden tomorrows." Today, as we face a black hole in public finances and the Liberal Democrats gleefully demanding that New Labour and the Tories "come clean" about the massive cuts they will make to vital services, it doesn't look as if we've even got a tomorrow of tarnished bronze ahead of us. But Medawar can see something gleaming -and although it's hidden and hard to spot, it isn't at the far end of the rainbow.

Firstly, there is no way that the public finances can be put right by defence cuts, no matter how bold, visionary and massive these might be in the eye of the proposer, because the entire defence budget is £39bn and the public finances have gone south to the tune of hundreds of billions. Almost entirely because the New Labour government handed responsibility for bank regulation, from the Bank of England, to the Financial Services Authority, which basically noted all the signs of impending disaster in the banking sector and did precisely nothing about it. Medawar can't say precisely what the Bank of England would have done, but even fierce words of warning, even as late as 2004, could have restricted the damage to something that the financial sector might have sorted out for itself, without the government having to mortgage itself for the foreseeable future. They might also have insisted that major banks were run by chief executives who knew about banking, because much of the damage was done by retail experts, bought in to "grow the business" which they did, without any concept of how to keep that business solvent as it grew. Almost any regulatory action would have been more efficacious than the nothing which the FSA did.

There is also the problem that cuts in services during a recession can make unemployment worse, and cuts in services during an economic recovery, which is what both New Labour and the Conservatives are banking on, to balance the books, will strangle the recovery at birth and create a very long-term depression. It's an impasse: cut now, make it worse. Cut later, make sure it never gets better!

However, it's only an impasse because there's a kind of public spending, and a kind of tax concession, which all the main political parties are blind to, because it is part of their reason for being. That is, spending and subsidies which actually make the country's overall problems worse, but which serve the interests of some group or another, which one party or the other has needed in order to gain and keep support at some stage. These are "perverse subsidies" and they are the real reason why we, as a country, cannot pay our way. Other forms of spending may appear to serve the interests of particular groups, but are not perverse if they at least do no harm, or actually do some general good.

That is, some pressure group that doesn't like policemen might regard their local police authority budget as a perverse subsidy for "fascist pigs", but there's no actual evidence that policemen are inherently damaging to the economy or society. (Corrupt policemen are quite another matter.) But if a small minority of people were getting taxpayer's money to make the rural housing shortage worse, that would be the very definition of perverse subsidy.

It might seem that a right wing government would cut away all the perverse subsidies which a left-wing government used to gain and maintain power, and the left wing government would take a scythe to all the right-winger's public subsidies, leading to there only be so much perverse subsidy at any one time. There are two reasons why this does not happen perverse subsidy has become an ever-growing cancer:

Both parties are usually winning or losing power on the turn of supporters who have no ideological committment either way. In the UK, these would be floating voters, in Israel, for example, these would be small parties that always get a particular vote, and then barter their way into a coalition government.

And it is very important that readers understand that dictatorships do not solve this problem, either, because when you rule by force, the people who apply that force on your behalf require several gravy trains, each.

The second reason is this: those minorities who benefit from perverse subsidies are neither ignorant of their position, nor mere passive recipients of passing fortune. They usually campaigned to get the perverse subsidy in the first place, and without exception they campaign to keep it, often with great ruthlessness and a great deal of "art and craft". The recipients of perverse subsidy are constantly playing the established major parties off against each other. During the Thatcher boom years, for which we are now paying, property developers and speculators were all firmly Tory. When John Major's government started to look wobbly, they began to cultivate their contacts in New Labour, and when it looked as if Tony Blair was playing the Dunblane Massacre card successfully, they defected en-mass. They are now shamelessly lining up for readmission to the Tory fold, and fully expect to pick up control of Tory housing and planning policy even as their control of New Labour's housing and planning policy passes from relevance.

So, no matter which perverse subsidy we are talking about, the only chance of getting rid of it, is by way of a thunderbolt that short-circuits the usual "democratic" process of all the vested interests alternately tilting the raft of state to one side or the other. But it has to be a democratic thunderbolt, because dictatorships are slaves to both the coercive social model and the corrupt economic model that goes with it.

To get rid of perverse subsidy, you need an elected party, new to power or comparatively new to power, which draws support from across the whole electorate rather than from a "core vote" of ideological supporters and whatever vested interest groups can be won at auction from the other parties trying the same thing. This doesn't describe the United Kingdom Independence Party as it now is, but it is a description of what it could become (and it needs to be done in less than four months) if it is to really serve this country rather than just make a point or two, however valid those points might be. Medawar doesn't insult UKIP when he wishes there was more choice than this: for most of the past seventy years we haven't had any choice at all!

So, rather than wanting to support UKIP, Medawar thinks that someone will have to take UKIP by the balls and force it to be the non-racist, consensual reformist party that the country needs, rather than the single-issue campaign which it started as and to some extent still wants to remain.

But the chance is there, not just for a way out of the Labour/Tory impasse of when to cut something vital, like Defence or Education, but for a way to a golden future where we finance those vital things by cutting all the perverse subsidies and tax-breaks that actually create and exacerbate the country's deepest problems.

We can have Lucy Winket's golden tomorrows.

A few examples of perverse subsidy:

Council Tax concessions make it artificially cheap for rich people and speculators to buy second, or even sixth, homes. This makes it artificially expensive for those who can only afford, and only aspire to, buying or renting one home. Then we're told that even more money must be spent redressing the shortage of affordable housing that this feeds -and planning controls on greenfield developments must be heavily compromised into the bargain. It goes further than that, second homes may be in "holiday homes" areas of the country, but most of them are speculative investments, and all manner of trickery is engaged in, so that the speculator can claim a capital gains tax exemption on more than one house. There has been a scandal about Members of Parliament "flipping" which of their homes is defined as their main residence for tax purposes, but they were only copying what they saw a particular vested interest group doing. This also makes it hard to say how much public revenue is being wasted and denied this way, but it's hundreds of millions of pounds at the least, and probably several billions.

We pay people to scrap old cars in return for buying a new "greener" car, even though more pollution is released making a car than in running it for five years, or more in some cases.

We pay billions to create showcase high-speed rail-links, which benefit only a few travellers, a little, and which carry no freight whatsoever, when the most pressing transport need in the United Kingdom is for the railways to take more freight off the roads and deliver it to more of the country, faster. The second most pressing need is to carry commuters relatively short distances to work, reliably and on time and in as much confort as we can, so that they can do their jobs. Instead they are packed into sardine cans as gleaming Eurostars whizz past on prestige routes so expensive that it would probably be both cheaper and less polluting to fly the passengers there instead. In general, both freight and commuter services could be transformed by re-instating third and fourth tracks on routes where these were removed in the sixties and seventies, as part of a perverse subsidy for the road-building and road-haulage lobbies. This isn't glamorous, but it can be immediately and spectacularly effective at making things work better.

(There are currently demands for a high speed rail link to Scotland, which would be the third major railway line to Scotland. Today, the government arranged to take one of the existing two back into public ownership because there weren't enough long-distance passengers to make the service viable. Yes, people have to go to Scotland sometimes, but hardly anyone needs to go there on a daily basis, from London.)

The government has a huge advertising budget, which serves the advertising industry rather than the general good. In effect, New Labour has exchanged the support of the nation's "professional communicators" for hundreds of millions of pounds worth of adverts that largely just confuse and annoy the public and make advertising for normal businesses, more expensive.

Most of the other perverse subsidies are much smaller, or much better hidden, than this. But there are many hundreds of them and it's probably worth the bother of hunting them down and finishing them off. Because they don't just cost money, they harm the general good.

And New Labour's twenty-four hour licensing hours (for sale and consumption of alcoholic liquor on the premises) may not look like a perverse subsidy, because what the government does is give a favoured sector of the alcohol trade a licence to make money at everyone else's expense. But since this loads completely open-ended extra costs on:
The police, the national health service, local councils and any other business within a few hundred yards of a 24-hour drinking den (insurance costs, customers being too frightened to approach, etc.) And it's wiping small alcohol retailers and brewers out at the rate of several a day-

-it's forcing society as a whole to pay billions of pounds, one way or another, for a sub-section of one industry to make huge profits, in a way which makes it very hard for the police and the health service to do their normal jobs. The licensing arrangements were a direct sacrifice of the public good, for the support (and especially advertising muscle) of the biggest players in the booze trade.

Medawar knows that this needs to be dealt with, but for the Tory party to do it, would require them to turn away and reject, vested interests which many Tories see as a natural part of their constituency. UKIP may be our only choice, simply because it has yet to acquire the support of any particular clique and its support is pretty well distributed across every race, region and demographic. This may equip it to tackle vested interests that threaten to turn a future Tory government into a continuation of the New Labour disaster. Since the Liberal Democrats are the only "main" party to have run an openly racist election campaign in recent years (Cheltenham, 1992) Medawar simply isn't prepared to contemplate supporting them, no matter how much the Editor of the Daily Mail says the pavements brighten as Vince Cable scampers past.

1 comment:

Medawar said...

In case anyone gets here searching for financial advice: Medawar advises only governments and nations and does not do personal financial advice.

For the love of God, do not search for financial advice on the internet!

Especially when properly-qualified local Independent Financial Advisors will advertise in the yellow pages and Thompsons directories that are delivered free to every home in the UK.

is a good place to start checking the sort of qualifications that a proper advisor should have.

But don't search for a specific advisor on the net; there's simply too much danger that you'll finish up in the wrong hands. There is malware that intercepts certain searches and hijacks the results.

01 July 2009 20:01