Labour is acquiescing in Theresa May’s hard Brexit

Labour’s dam has broken.

For several weeks now, the party’s shadow Brexit Secretary Sir Keir Starmer has been saying that freedom of movement for European workers into the UK cannot – and should not – continue. Various Labour MPs have been lobbying along the same lines.

And now the party leader Jeremy Corbyn, who previously said he would “defend” EU free movement, has fallen into line.

“Labour is not wedded to freedom of movement for EU citizens as a point of principle,” he will say in a speech today in Peterborough. “Changes to the way migration rules operate from the EU will be part of the negotiations.”

Whatever your view on immigration and pan-European freedoms, let’s be abundantly clear what this all means. It means Labour is now acquiescing in Theresa May’s hard Brexit.

The main opposition party – a party which styles itself as a protector of the interests of ordinary working men and women – is giving the green light for the Prime Minister to pull the UK not only out of the European Union but entirely out of the single market for goods, services, workers and capital.

This is a destination that the overwhelming consensus of expert economic opinion holds will inflict severe damage on the economy and hurt the living standards of ordinary working men and women relative to a scenario in which Britain stays in the single market as, for instance, a member of the European Economic Area.

But how can we be categorical about all this? Corbyn is also stressing today that he wants “full access to the European single market” and criticising the Government for jeopardising the economy through not having a plan. Starmer slams May for dragging Britain towards a hard Brexit.

Doesn’t that show that Labour’s position is not so clear-cut as this conclusion suggests?

Isn’t there still hope?

There are three reasons why the answer is no: European political realities, weasel words and archaic ideological fantasies.

If Britain wants to remain a part of the single market, a watering-down of freedom of movement – “managed migration” as Corbyn puts it – is simply not on offer.

The German Chancellor Angela Merkel made that clear for the hundredth time in a speech in Cologne yesterday. All those who are expert in European diplomacy insist this is not a bluff or a bargaining position, but a genuine red line.

And indeed it stands to reason. Why would the 27 other nations of the EU allow Britain to enjoy all the benefits of the single market while allowing Britain to opt out of the free movement of people?

They don’t allow Norway or Liechtenstein – who are part of the single market but not members of the EU – this privilege. Both have to accept free movement in return.

Even Switzerland – which is not part of the single market but has a comprehensive web of deep free trade deals with the EU – has to accept free movement as a quid pro quo.

It’s possible to assert that Europe’s leaders will ultimately be prepared to pull down one of the fundamental pillars of the single market to suit Britain.

But it’s also possible to assert that the moon really is made of Swiss cheese. Asserting something doesn’t make it true.

By making a red line of EU immigration control, Corbyn is aping the position of Theresa May.

And sterling is falling because traders are increasing their bets that we are heading for a hard Brexit thanks to May’s insistence on immigration control.

And then there are Labour’s weasel words. Any mention of “access” to the single market should be banned. As has been widely noted, every country on earth has “access” to the single market, in that trade can and does take place between Europe and the outside world. The question is what are the terms of that access.

By claiming that he wants “full access” to the single market, Corbyn is giving the impression he wants Britain to remain a part of the single market, in the manner of the non-EU member Norway.

But in reality, that formulation gives him leeway to settle for something as weak as a Canadian-style tariff-abolishing trade deal with the EU.

Starmer is engaged in a similar legerdemain. The former director of public prosecutions is an intelligent man and will be well aware that his position on free movement means he would have to be prepared to see Britain leave the single market.

So by railing against a hard Brexit, he is implicitly redefining hard Brexit to exclude single market exit, leaving it as merely the conclusion of an unsatisfactory free trade deal.

To put it bluntly, whenever Labour says hard Brexit, bear in mind that they now do not regard single market exit as hard.

Finally, the ideology: Corbyn is arguing today that leaving the EU will liberate Britain to intervene in struggling domestic industries such as steel, something that is currently restricted by state aid rules. His team has argued in the past that exiting the single market will remove an obstacle to Britain becoming a fairer and more socially democratic state.

But this is a nonsense argument, as the existence of occasionally interventionist social democracies in France and Germany demonstrates; the EU does not prevent those states being fairer in many ways than the UK.

This spurious line of argument from Corbyn suggests he still holds the Bennite view from the 1970s that the EU is a form of capitalist conspiracy. In other words, his position today is being influenced by a fossilised left-wing ideology.

But let’s cut to the fundamental point: if you feel that Britain remaining part of the single market after 2019 is in your economic interest, do not look to Jeremy Corbyn’s Labour Party to be your champion.

This article was published in The Independent 10/01/17

#Brexit #freedomofmovement #JeremyCorbyn #KeirStarmer

Taxpayer funded social care for asset-rich pensioners is a bad joke

It’s time to connect the dots, or rather connect the news stories.

The Institute for Fiscal Studies informs us we are entering the age of inheritance. The number and value of individual bequests is set to dramatically increase in the coming decades, largely thanks to soaring house values. The share of elderly households who expect to leave at least £150,000 in inheritance to their lucky offspring is 44 per cent, up from just 24 per cent a decade ago.

Meanwhile, we are also entering the age of inflated elderly care costs. Demand for care – help for frail older people with basic tasks such as washing and dressing – is rising as the population ages. In England the system is already in a well-publicised financial crisis.

The new higher minimum wage is pushing up costs for private providers and councils, who pay for the care, are strapped for cash due to major cuts in central government grants since 2010. Hundreds of thousands of elderly people are not getting the care they need as councils restrict access to provision to save money.

The pressure on the system will only grow. The Office for Budget Responsibility has projected the public costs for the social care system to almost double from 1.2 per cent of GDP (around £20bn a year in today’s money) to 2.3 per cent by the middle of the century thanks to demographic pressures.

So how to pay for this ballooning social care bill? At the moment councils have a means test, which ensures a substantial private contribution. Pensioners with more than £23,250 in assets, including the value of their house, must fork out for their own care. And the Government has established a scheme whereby councils will pay for an individual’s care up front but recover the money from the proceeds of selling their house when they die.

The means test is unpopular, as such tests tend to be. Polling suggests that a majority of the elderly think the state should fund social care in the same way that it funds health care. Influential newspapers scream that it’s an outrage that some elderly people have to sell their homes to pay for their care – even if the property is only sold after they die. The elderly charity sector is demanding more central resources to fund the system. The Kings Fund think tank and the Labour Party want social care folded into the NHS and made free at the point of use.

That would certainly make things simpler. But let’s be clear what this implies financially and socially. It would constitute progressively larger transfer of resources from all taxpayers to pay for elderly care. Moreover, scrapping the means test without any corresponding increase in property or inheritance taxes would leave the elderly with significantly more property wealth to pass on to descendants, with the largest bequests going to the already well off. In other words Robin Hood in reverse: the poor handing over money to the rich.

The Government is resisting folding social care into the NHS, despite the lobbying. Yet regressive reform is nonetheless on the way. A report for the Coalition by Andrew Dilnot in 2011 recommended a £35,000 cap on total out-of-pocket payments for individual care recipients and an increase in the means test threshold to £100,000. The Government settled for a £72,000 cap instead, to be introduced in 2020 and a major increase in the upper means test threshold.

This is all predicted to cost around £6bn to the public purse over five years. And remember: those billions of pounds would otherwise have been extracted from the property assets of pensioners.

The unfairness should be obvious. The incomes of the over 65s have held up well since the financial crisis, largely thanks to government protection of the value of the state pension. This age cohort is now less likely to be in poverty than the working age population. They have also been the big winners of the UK’s generational property lottery. In sharp contrast the incomes of the young have been crushed this decade and most are priced out of the property market.

Yet now, adding insult to injury, the dismal politics of the social care fiasco is herding politicians into a position where they will be requiring younger taxpayers to pay more in tax to fund the care of the asset-rich elderly.

It’s important to stress that it’s not the pensioners themselves who will primarily reap the rewards but their children. This will substantially benefit those expecting to receive hundreds of thousands of pounds in bequests from their elderly parents.

Let’s imagine an old person is one of the 10th of over 65s whose care needs will add up to £100,000. Imagine they also have a £250,000 house. Under the old system they would have paid £100,000 out of their property assets, leaving £150,000 of house to their children. Under the new system they will pay a maximum of £72,000 and be able to bequeath £178,000 of house to their children. That’s a £28,000 boost to the inheritance of the children, ultimately courtesy of the taxpayer.

No one disputes that the social care system urgently needs to be reformed. The system is indeed grossly underfunded – plainly a false economy since this is creating expensive havoc in the NHS as the elderly cannot be discharged from hospitals in good time because they often have inadequate domestic care in place.

Yet the idea that the solution to the crisis is to scrap means testing and to load more costs on to taxpayers in order to protect the inflated housing inheritances of the already well-off ought to be laughable at a time when we’re all supposed to be anxious about rising wealth inequality. Instead, we find it to be something close to the conventional wisdom. Why? Blame a failure to join up the dots.

This article was published in The Independent on 8/01/17

#inheritancetax #socialcare

Did Mao really do more good than harm?

The Beatles understood that the Chinese dictator was a major turn-off. “If you go carrying pictures of Chairman Mao, you ain’t going to make it with anyone anyhow,” sang John Lennon in “Revolution”. John McDonnell has learnt that lesson the hard way after his stunt at the Despatch Box last week, in which Labour’s shadow Chancellor thought it would be funny to wave a copy of Mao Zedong’s “little red book”.

As the media, inevitably, rushed to uncover further evidence of Maoist sympathies among the Labour front bench a television clip of Diane Abbott in 2008 resurfaced in which the shadow International Development minister argues: “I suppose some people will judge that on balance Mao did more good than harm. You can’t say that about the Nazis.”

More good than harm. It’s a line that does sound rather similar to the official verdict of the Communist Party in Beijing, which states that Mao was “70 per cent correct” in his decisions. Orville Schell and John Delury in their recent book on China, Wealth and Power, offer a revisionist take on Mao’s society-shredding Cultural Revolution of the 1960s and 1970s. “Like a forest fire that clears the way for new growth it may have prepared the way to usher in spectacular new economic growth,” they argue. Schell and Delury are not Communist diehards but two senior fellows of America’s respected Asia Society.

In a Channel 4 documentary on China a couple of years ago the right-wing historian and official biographer of Henry Kissinger, Niall Ferguson argued along similar revisionist lines about the Chinese dictator. Explaining the reasons for China’s phenomenal economic progress in recent decades, he informed viewers “the key thing to grasp is the indispensable role played … by Mao’s system of mass mobilisation”.

It has become an increasingly respectable argument to assert that, despite the tens of millions of Chinese who were undoubtedly done to death under Mao, he prepared the ground for the country’s economic modernisation with his “Great Leap Forward” and his “Cultural Revolution”. Is this a reasonable conclusion? Did Mao really do more good than harm? The answer is no, it is not a reasonable conclusion. Mao’s terrorisation of the Chinese population in the Cultural Revolution did not create the conditions for China’s economic take-off in the late 1970s. We can say that with confidence because we know it’s possible for poor countries to experience rapid industrialisation without Mao-style terror. Japan showed that in the 19th century, when it transformed from a largely medieval society to a modern Victorian economy in a matter of decades.

And, more pertinently, Taiwan and South Korea demonstrated it in the 1950s and 1960s, when their growth far outstripped that of Maoist China, having begun from similar poverty-saturated starting points. While the regimes in Taipei and Seoul were hardly liberal democratic utopias (both were ruled by rather unpleasant military strongmen) they experienced nothing akin to Maoism.

In the Cultural Revolution families were ripped apart as young children were brainwashed by the Mao personality cult and encouraged to persecute their own parents for being insufficiently committed to the twisted ideology. Millions of young town dwellers were uprooted and sent to the countryside to “learn from the peasants”. The old culture of China was ruthlessly attacked, and the population cowed by hordes of violent and bigoted “Red Guards”. The economic success of countries such as Taiwan and South Korea (and China’s parallel failure) sprang not from such grotesque “mass mobilisation” but from sensible economic policies.

Development economists and historians disagree on how precisely poor nations become rich nations. But one of the most coherent and plausible theories from an East Asian perspective is that land reform is an essential first step. The aristocratic estates that keep the vast majority of the population in debt bondage and on the verge of serfdom must first be broken up in an egalitarian drive. After being given their own decent-sized holdings peasants become enthusiastic market gardeners. They successfully grow enough crops not only to feed their families but also to generate a surplus to sell on. State direction of the farmers’ savings, through a controlled national financial system, into protected, yet export-oriented, new industries turns the wheel of industrialisation in a virtuous economic circle. Growth and living standards take-off.

This is a pattern that links all the major East Asian states that successfully grew into rich countries in the post-war era. And what characterises those that failed to make the leap – Thailand, Malaysia, Indonesia – was their failure to enact proper private land reform. As for China, Mao did break up the rich rural estates in the Great Leap Forward of the late 1950s. But he then insisted on collectivising agriculture, abolishing private property and forcing the peasantry into communes.

In terms of agricultural productivity Mao’s Great Leap Forward was an unparalleled catastrophe, resulting in one of the worst famines the world has ever witnessed. The historian Frank Dikotter estimates that 45 million Chinese were worked, starved or beaten to death between 1958 and 1962. It was only when the agricultural collectives disintegrated into a host of household plots after Mao’s death in 1976 that the Chinese peasantry began to work the land with any effort. Yields exploded. Farmers traded their surpluses and rural entrepreneurs set up new business. Then the familiar East Asian development model kicked in, with the new leader Deng Xiaoping welcoming foreign investment and expertise, while keeping the domestic financial system under tight control.

Post hoc propter hoc explanations are beguiling but they are usually fallacious. China’s development did not take off because Mao’s brutal zealotry had handily wiped the slate clean. As well as destroying millions of lives the ignorant monster held the entire country back for decades.

Mao prevented China’s population from attaining the prosperity that it could have begun to enjoy far earlier. Mao and his little red book were nothing but a big economic disaster.

#OrvilleSchell #littleredbook #MaoZedong #JohnDelury #landreform