Uniting the People; Homes for People, Not Profiteers!

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Building Homes for People, not for Profiteers

In the depths of a housing crisis, people are divided.  History has taught us what happens when a society is divided. Those without blame each other. How convenient it is for the elite to watch ordinary people attacking each other. With the intention of whipping up hatred Cameron talks of strivers and scroungers, now we are invited to blame immigration. Anything but  admit the truth, that is that there are not enough affordable homes for people to live in.

The pensioner, mortgage finally paid off from long hours at work, has paid many times over.  He’ll tell you how he struggled with a mortgage at 15% interest rates, constantly  fearing  repossession. Maybe it was once  a people-owned-council-home, then mortgaged to a bank. Enduring poor pay and conditions the new mortgagee didn’t  dare strike, for fear he would be sacked and his family made homeless. All nice profits for the bank.

The young family find poor wages today, high childcare and extortionate rents mean that even working long hours, it is not enough to pay for a home, without Housing Benefit support. Now the awful Bedroom Tax, removes dignity from working families, and from the disabled. It adds to suffering, and  so cruelly divides people. Thatcher’s policies are to blame.

Osborne seems to want to fuel a new housing bubble which will just haemorrhage further wealth to bankers and corporations. These are policies which cannot be sustained and can only result in poorer and poorer living conditions and a free-fall to Victorian times.The housing stock sold off by Margaret Thatcher was deliberately not replenished. House prices have risen out of reach.

A third of ex-council houses are now owned by rich landlords. They can charge what they choose. The only alternative if you cannot afford to buy is to rent privately.  More nice profits for the landlord,  and the Buy-to-Let   Banks. George Osborne might be a trifle embarrassed at the £400K profit  from sale of  his constituency home. Or maybe not.

And what better to do with the profits than buy more to let, holiday homes, grander houses. Osborne will make it easier for wealthy multi property ownership with his Help to Buy Scheme.  As with Buy to Let schemes, all this will do will push up house prices further out of the reach of people who need a home.

Peopleless Homes

To Free- Market Capitalism (neoliberalism), we say, “Never Again”!

And, once Whitehall is rid of this destructive Coaltion government, and we look to build our communities again, we need to be aware of dangers and , banish those myths.

  • Myth 1.”Buying a home is an investment, as house prices increase – “. There is no guarantee that house prices will rise – in fact this approach is basically gambling, and who would gamble with their home?
  • Myth 2. “Rising house-prices is a good thing.” House price rises just mean other people are less likely to be able to obtain a home, leading to homelessness.
  • Myth 3. “People claim Housing Benefit so they don’t need to work.” Most claimants are at work, high rent prices effectively mean the only one to benefit is the landlord. Without benefits, working people could simply not survive.
  • Myth 3: “Buying a house saves money – renting costs more in the long run.” Buying a home costs much more than the cost to build, interest rates always benefit the banks and financiers. Rents are kept artificially high.
  • Myth 4: ” In a recession the government cannot afford to build homes”. The government can produce its own money for building, providing jobs, and boosting the economy, frankly the government can not afford not to build.
  • Myth 5: “Young people can stay at home with parents.” Many have no parents, their parents may have no homes, or no space. Undue pressure and overcrowding will have a detrimental effect on family relationships.
  • Myth 6: “People don’t deserve a subsidised home, I worked hard for mine.” Everyone deserves a decent home, and a job, enabling them to participate in society for mutual benefit.”

 

Today, construction workers find it difficult to find work, as ONS shows a further decline in the  Construction Industry  ( pdf January 2013)

While construction workers are  seeking work, people are homeless, and yet every day we see waste-land, already destined for homes, lying unworked because property prices have fallen since the plans were passed.  The houses are not being built, merely because there is not enough money to be made.  Profits these days come before people’s needs. There was a time when we built houses because people needed them. There was a time when a house was a home.

The political message  in 1945 was clear. Reeling from two world wars, and the defeat of fascism, ordinary British families, bereaved and broken, damaged yet determined set about rebuilding Britain.

This led  to a Socialist Labour government which promised full employment, a tax-funded universal National Health Service, a massive housing programme and the embracing of Keynesian economic policies.

Labour’s cradle-to-grave welfare state, presented with the campaign message ‘Let us face the future’ brought everyone together for common good.

Collectivism was implicit, everyone was valued for their contribution, mutual respect prevailed, society thrived and so did people. Working class people who grew up in the sixties and seventies benefited with opportunities their forefathers never knew.

All this was turned on its head in the eighties. The positive idea of collectivism, the interdependence of people, the power of solidarity, and of trade unionism was crushed. Margaret Thatcher’s ominous words, “There’s no such thing as society,” were destined to haunt many future generations.  That is where we began to lose touch with each other.

The Victorian working classes survived against the odds, given their appalling living conditions. Inner city housing for working class families was inferior to farm animals, and this was reflected in the very high mortality rates, and incidence of disease.. The sanitary conditions in Birmingham back-to-backs at the turn of the century are documented here.

Against this background, socialist and Labour groups campaigned for municipal housing. The homes would be owned by the people, were intended put an end to the slums.

Fred Knee secretary of the Workers National Housing Council in the 1890’s said “It is not the housing of the poor, but the housing of the people by the people themselves, that we must work for – not the herding into slums for the benefit of private enterprise, not the crowding into barracks in order to provide interest for municipal bondholders, but by a feasible honest system and plan “

Early struggles for Council Housing…and the opposition to it 1900 to 1945 (John Grayson) 

The core principle is that the houses would be decent homes, improving health and living standards for working people. The idea was unpopular with Tory Councils because some saw housing, not as people’s homes, but as a source of income. The idea of collective ownership in any form was seen as a threat.

John Grayson’s document of History of Housing from 1900 until 2007  (recommended) recounts the development of the municipal housing, and how Conservative policies deliberately targeted rents, making housing unaffordable leading to social and racial divisions.

Beveridge (Lib) had identified poor housing as one of five great evils, and it was at the forefront of Nye Bevan’s policy with over one million homes being built. However, by 1957 Conservatives had already started to withdraw subsidies, causing municipal rents to treble, and discrimination in private rental market led to racism and division.

In 1968 council housing 31% of tenants were from the poorest 30% of households nationally, 46% from the richest 50% of households. Those attracted to council house living were actually a good cross-section of working class and professional middle class families. Councils by building houses for rent were also able to attract what we now call ‘key workers’ to their areas, and provide ‘labour mobility’ .

Council housing in 1978 at its all time high, nearly a third of housing (32%), but Labour had also encouraged owner occupation (54%). 1978 was a year when there was serious housing choice. Campaigns forced Labour to pass the Homeless Persons Act 1977, and the Race Relations Act in 1976, which brought in many tenants who had been excluded. In 1979 councils were still housing in rented accommodation 20% of the richest tenth of the population.

Tipping the Balance of Society

Thirty years ago there was balanced, sustainable council housing alongside owner occupation. Because of the cross section of manual and professional workers, communities were balanced, and necessary skills widespread. Thus the Thatcherite housing policies destroyed the heart of society. They destroyed the cohesion of communities, leading to areas of great deprivation, and poverty.

Before 1979, Conservative policies allowed council tenants to take on their homes in exchange for maintaining them. Thatcher’s polices of Right-to Buy Council homes led many to buy their homes at a discounted price and with rents rising their hands were forced. Thatcher did not permit the housing stock to be replenished, leading to an acute housing shortage and glimpse back in time, to the days of unscrupulous landlords.

Unreasonably high and unaffordable rents need to be subsidised by Housing Benefit because that is the only way people can afford to live in them, despite many working long hours. Shamefully, Tony Blair’s New Labour governments did not address the housing crisis. Neoliberalism, out of control capitalism, hid behind the illusion of an ever-growing housing bubble.

People were led to believe that a society based on escalating property prices and neoliberalism could thrive. Meanwhile manufacturing industry closed down with the business emphasis on finance, mortgages and insurance. Blindly, many took on debts they could not afford. House prices rose uncontrollably and we witnessed the greed of buy-to-let mortgages which put the prospect of any home out of reach of young people. It is an impossibility for such a system to continue indefinitely, and a crash was inevitable.

Homes for the Future – The People’s Recovery

Instead of Cameron’s divisive Aspiration nation, Miliband’s One Nation should be aiming for full employment for everyone who can work, and allow all to participate as fully as is possible, to enjoy a decent home, and reasonable life-work balance, without debt, or impacting negatively on the future finances and environment of our grandchildren. Why, in a world where there is adequate resources for all, are people living without homes? Why are homes left empty? Where is the justice in a world where some have many homes, and others none at all?

James Murray  and the Think-Tank CLASS (Campaign for Labour and Social Studies ) have recently published “Time to Step-in”, and call for government intervention in Housing policy and and investment in publicly funded social housing initiatives. It is the responsibility of government to determine where homes are built, and the type of homes.

Murray’s emphasis of the need not to rely of the profit driven markets to deliver housing is exemplified in that the Coalition government are considering reviewing energy and disability regulations  in order to boost a building boom.

The Government plan to cut fire safety and wheelchair regulations in attempts to give the construction industry an economic boost.

Ministers have ordered an across the board review, to examine whether regulations, across energy, water, security, accessibility and whether builders should be given the option of self- regulation, should be introduced to cut costs for the industry.

This coincides with the governments relaxation on home building, David Cameron  has announced a ‘free for all’, allowing home owners to be able to extend their houses by up to 8 metres without planning permission from the local council.
Plans to give the construction industry a boost come from shocking figures that house building is at its lowest since the 1920’s, resulting in rent costs at an all time high, and potentially blocking a whole generation out of the property ladder.

It is unacceptable for housing initiatives to be merely driven by profit, and almost inconceivable that such risks to safety are contemplated.

Homes must be secure, safe and affordable, but also need to be built in areas where there is suitable employment, and where people want to live. Homes built in Ghost Estates in Ireland lie empty, never occupied. Simply pursuing policies of a profit-driven society, without consideration of employment, education and training needs, eventually lead to the social divisions we see today. This can result in a persistence of poverty in some urban areas, despite restructuring communities as revealed in the study, Why Neighbourhoods remain poor.

  • Economic restructuring, particularly the decline of the manufacturing sector in Birmingham, plays an important role in explaining this.
  • The loss of these jobs has disproportionately affected already deprived areas.
  • Birmingham is becoming a low-wage economy. Since 2001, wages have fallen in real terms and at a faster rate amongst the lower-paid.
  • Internal migration within the city has also tended to concentrate less advantaged people within already deprived areas largely due to the cost, tenure and availability of housing.
  • The availability of affordable housing – either social rented or cheap private housing – in particular areas mean that those with least choice tend to move to those places. Looking forward we must be ready for the Conservatives who will attempt to block every initiative for common ownership, and policies aimed at redistribution of wealth. We all need homes, decent ones, as we need food water, and energy, and this is why a Housing Policy must always put need before profit.

Boosting the Construction Industry 

The government’s policy of deep cuts during a recessions is more disaster politics. A massive building initiative of public building, providing jobs worked in 1945 and will work again.

We must be mindful of corruption and  insist on transparency about construction companies and ensure that they publicise any self interest and detail their finances and tax contributions. Never again should we allow public assets to be stripped away for personal profit. Here, Sir John Banham is advocating the use of pensions funds for Local Authority workers to fund housing.

 The Telegraph reports on a year-long study by the Future Homes Commission, which is chaired by City grandee Sir John Banham, proposes that money from local authorities’ pension funds should be used to create a £10 billion Local Housing Development Fund, which would build mixed-tenure housing in communities suffering from a shortage.

With the courage reminiscent of the socialist Labour Party of almost 70 years ago, with innovative design, planning and, and a commitment to improve living standards and people’s well-being, we can finally turn our back on the damage inflicted by Margaret Thatcher.

Homes for the Future

The document Homes for the Future, more affordable sustainable  2007, foreword by Yvette Cooper outlines detailed plans for communities and plans for building expansion not seen for forty years. A future Labour government must be prepared to make funds available for the investment our communities need, this time not for the benefit of private enterprise, but for people, because it is they who matter, and it is they who are the source of wealth and mutual benefit regardless of contradictions of Conservative propaganda.

Land left, unused yet fit for building should be made available for building, not left waiting to turn a profit. Investment should be made to modernise old housing stock, by retrofitting modern insulation, and fitting renewable energy micro-generation, for example solar panels.

We should invest in new-builds; well-designed homes, effectively insulated by modern building materials, truly sustainable homes powered by renewable energy and if these are to be collectively owned it would provide a win-win situation. Planning should encompass existing communities, equipped with the facilities residents need, and of a sustainable design. Such communities will be infinitely more suitable than building dense housing devoid of any infrastructure in order to maximise profits.

Rather than “investment” in homes, and a mortgage which feeds hidden bank accounts in tax havens around the world, this would be a real investment in the future and for which our grandchildren will thank us. The result would be a better, happier life for everyone.

References and Further Reading   

  1. The Guardian: The Bedroom Tax is an intrusion into the most private family space. 
  2. Daily Mirror:  A third of ex-council houses are now owned by rich landlords
  3. Metro:  Buy-to Let “Tax Avoiders” Shackle first time buyers
  4. George Osborne’s 400K profit on constituency home. (Telegraph)
  5. George Osborne pins hopes on Housing Boom (Telegraph)
  6.  ONS Figures for Construction Industry Jan 2013  (pdf)
  7. 1945 General Election – 
  8.  From warfare to welfare:
  9.  Living Back-to Back, by Chris Upton, published Phllimore
  10.  Grayson History-Housing: pdf document John Grayson
  11. CLASS: Think Tank:  Piece Time to step in 
  12. Government reviews energy and disability regulation in order to boost building boom
  13. Why Neighbourhoods Remain Poor 
  14.  Use pension funds to boost housing report, Telegraph 
  15. Communities and Local Government : Homes for the Future, more affordable more sustainable
  16. Poor Brum, Think Left
  17. Time to consider brick bonds , Think Left
  18. This isn’t Dickens, It’s Today: Winter’s Cold, Homeless and Hungry, Think Left
  19. Shelter: The causes of Homelessness
  20. Homelessness kills – Executive Summary An analysis of the mortality of homeless people
  21. No Green Coalition Efficien-City -Interactive Link , Greenpeace, Think Left
  22. The New Housing Plan is Flawed, Think Left
  23. Richard Murphy: The Courageous State

This Ghastly Bedroom Tax spreads Fear… #bedroomtax

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The Ghastly Bedroom Tax spreads Fear

By Jim Grundy

This is a transcript of a speech I gave at Ashfield District Council last night when I moved a motion calling upon the Government to scrap the appalling Bedroom Tax.

I, for one, wish that the whole ghastly Bedroom Tax was the product of some bizarre administrative error. But the fact is that from 1st April 660,000 households, two thirds of whom include someone with a disability, and nearly 1,000 within this District alone, will face having to find hundreds of pounds or even more each year just to stay in their own homes. And that is why this motion calls upon the Secretary of State, Iain Duncan Smith, who benefits from living in one home rent free courtesy of his wife’s rich family and another subsidised by the Tax Payer, to scrap the Tax.

So, what are the stated aims of the ‘Under-Occupation Charge’ or ‘Spare Room Subsidy’ as the Coalition insists on referring to the Bedroom Tax?

Ministers claim that it will cut the cost of Housing Benefit and increase the supply of larger family homes to help meet the demands imposed by growing housing waiting lists.

Noble aims that no-one would argue with. But is the introduction of the Bedroom Tax the right remedy for the problems it claims to address?

The simple answer is ‘no’.

Bedroom t95_n

The Bedroom Tax will achieve neither goal but it is already spreading fear amongst people bewildered at what is happening and already facing other cuts, particularly those with caring responsibilities. So why is the Housing Benefit bill going up? It is really quite easy to understand.

Average household incomes are falling; fewer people are able to buy their own homes; and more are obliged to pay the high rents charged within the private rented sector. As many people now rent their home from a private landlord as they do from their local authority. But the Government doesn’t seem to have noticed any of that.

It much prefers to end the development of genuinely affordable housing, hold down pay and to cap or cut benefits whilst leaving private landlords free to charge rents at levels that are anything but affordable. Therefore, having disposed of the bogus Housing Benefit-related justification for the Bedroom Tax, let us now consider the issue of under-occupation.

Is social housing under-occupied to such an extent that inefficient allocation policies have contributed to a shortage of affordable housing?

The Government’s own ‘English Housing Survey’ shows council and housing association properties are already the most efficiently allocated of all. It shows that, whilst 10% of social housing includes properties with a ‘spare’ room that figure rises to 16% in the private rented sector and 49% for owner-occupiers.

Members will be well aware that there is a huge debate about what is and is not a ‘spare’ room. Many disabled people, their carers, disabled children too, need a room of their own on clear medical grounds, grounds that the Government completely ignores with its own definition of how many bedrooms any household requires.

But despite the relative efficiency with which social housing is allocated, who is being targeted by this Government? Yes, once more the poorest, the most vulnerable.

Indeed, one of the crueller ironies is that one of the leading Ministers dealing with the Bedroom Tax, Lord Freud, has 11 spare bedrooms of his own – eight in his own country mansion (but we’d better not mention a Mansion Tax tonight) and three in what is euphemistically called his ‘town house’ in central London..

The other central issue is whether there are enough smaller homes to move people into to help them avoid the Tax and free-up a larger home?

Again, the answer is simply ‘no’.

Ashfield Homes estimates that it could, at best, move 40-50 households each year into smaller properties. But there are nearly 1,000 households affected by the Bedroom Tax in Ashfield, so even if we could somehow ensure that no-one’s circumstances changed from now on it would still take us around 20 years to help place people in what the Government says is the right type of property.

If we cannot move people within our own stock, can’t we just move them into smaller, privately rented homes? With rents so much higher in the private rented sector, even for small properties, such a move would actually increase costs.

All that pain, uprooting people from their homes, from their families and friend support networks and for it all to actually cost the country more. What a perverse outcome that would be. But we are dealing with a perverse Government that punishes the least well-off at every opportunity whilst rewarding the most fortunate.

What else can we conclude when at the same time as the Bedroom Tax is introduced, which threatens to make thousands homeless, millionaires get £100,000+ Income Tax cuts and existing home owners are offered funding to buy another home.

Taxing the spare bedrooms of the poorest. Subsidising spare homes of the richest. Is there any more blatant demonstration of this Government’s priorities?

Groucho Marx once said that, “Politics is the art of looking for trouble, finding it, misdiagnosing it, and then misapplying the wrong remedies.”

For the benefit of any members of the Coalition, that is satire not the way to run a country.

Please support the motion.

Please also see: The Bedroom Tax: The unkindest tax of all. (Jim Grundy)

Bedroom Tax Song: You Cannae Have A Spare Room in a Pokey Cooncil Flat

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Bedroom Tax Song: You Cannae Have A Spare Room in a Pokey Cooncil Flat

Published on Mar 27, 2013

LYRICS AND INFO
A song about the Bedroom Tax, written for the demos all over the UK on Saturday 30th March, 2013, the Glasgow one in particular. Set to the tune of 1960’s folk song “The Jeely Piece Song”, by Scottish singer-songwriter Adam McNaugton.

LYRICS

I’m a welfare state wean, we live on the bottom flair
But we’re no allowed to even live there any mair.
They say we’ve got too many rooms, in our social rented flat
We’ve an eight by ten foot boxroom where you cannae swing a cat

Chorus:
Oh ye canna have a spare room in a pokey cooncil flat
Ian Duncan Smith and Co have put an end tae that
They say “live in a smaller house”, they say that is their plan
When the odds against you finding one are ninety-nine to one

Noo ma auntie’s in a wheelchair, but these Tories dinna care
They say they have a deficit, she got to pay her share
£60 a month they’ll take, then leave her tae her fate
Whilst gieing millionaires a tax cut, cause they say they’re due a break

Noo that Buckingham Palace looks a pretty roomy gaff
And the ludger there gets benefits at rates that make me laugh
A civil list, plus tax perks, near ninety million pounds
With her other dozen mansions lying empty a’ year round

Noo those MPs doon in Westminster must think that we’re ‘a dense
Wi their second home apartments, where the public pays their rent
They’re even get a food allowance, two hundred quid a week
But they’re claiming we’re the scroungers, is their arse up in their cheeks?

So we’ve formed a Federation and we’re gonna have our say
The Bedroom Tax it has to go, and we ain’t gonna pay
We’re gonna march on London tae demand our civil rights
Like nae mair Tories and their Liberal shite

A Mother’s Work

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A Mother’s Work

First posted on March 24, 2013

This is naturally worded towards the female gender, by virtue of tradition. However, if you are a man with whom any of this resonates, I hope you will consider yourself automatically included where relevant.

A great irony has occurred over the last few decades. Time was that the working mother was frowned upon and her ‘latch-key’ children pitied. Today, societal expectations and governmental policies have instilled a sense of guilt in the woman if she doesn’t want to work while her children are actually children. She is found wanting, accused of not pulling her weight; not showing a good work ethic to her offspring; not contributing to the justification of her monetary worth. Why? Because she makes her children her primary purpose: her occupation – her career? This development is just as insidious and detrimental to the well-being of children, mothers and Community as the spiteful, reverse demonisation of those who worked in the Seventies and Eighties. But for the working mother and particularly the lone parent, her guilt is in the eternal catch-22: that of either spreading herself too thinly, thus feeling inadequate in both spheres of life, or, just as likely, pretty much neglecting one sphere in favour of the pressure from the other.

The accelerating pressures of our lives can have done little to assuage this guilt and yet it has been pushed to one side by the theorists, the Media and consecutive governments who have fallen over themselves to endorse the mythical status of the perfectly accomplished woman: the woman who can do everything and be everything, brilliantly. Really? Isn’t that just crazy talk? I mean: yes, of course women “can have it all” – but surely not all at once? Not successfully?

I’d rather we didn’t insist on mothers being stay-at-home types or force them out to work. One size doesn’t fit all and why would we want it to? That just leads to unhappy, less effective people. And yet this is exactly what our government is achieving. And yet again, it’s the poorest and the least powerful who find themselves without a choice. Yet again the Conservatives, the so-called party of family and strong moral compass, are destroying the very fabric upon which such values are built.

The next generation are the future, the continuum of the human race and your children are your personal legacy. Could there really be any task more worthy or vital? Now, I don’t think it’s wrong to work just because you have children: this isn’t about denigrating working mothers; but neither is it inaccurate to see your parenting as highly valuable work. Wanting to be the default carer and guide for your own children is most certainly notsomething to be ashamed of. After all, they’re not called dependants for nothing. If it doesn’t matter who raises them; if it isn’t healthier to have diversity; if the mother doesn’t know her child best, we might as well just grow them in anonymous incubators, stamp them with a code and send them off to processing plants.

As I’ve written, previously:

Where is the sense in a society that forces single parents out to work for such low wages that they still require top-up benefits so that someone else, who may not be your idea of a suitable surrogate parent and who may not even like the job, can also be paid a pittance to look after your children? The same society which frets about family breakdown, quality time, modern pressures, neglected kids…

[‘Welfare Reform Scapegoats’ http://julijuxtaposed.wordpress.com/2013/02/02/welfare-reform-needs-scapegoats/ ]

I wonder… Wouldn’t that pittance of a wage be better offered directly to the primary care-giver as a modest stipend for not needing all this bitty but generic and expensive childcare? It would give lone parents and low-waged couples, a viable option. It would say that we value not just the child, but the parent too. And the childcare business that survived would probably be of a better, more personal quality. It’s short-sighted to view this as something for nothing. It is not. Society complains constantly about its breakdown; about the poverty that initiates and exacerbates its ills, only to resist the most obvious solution and go for yet another false economy. It’s hang-wringing followed by pettiness, followed by some complicated new policy which is ineffective and always costs more than its budget, followed by more hand-wringing. Well, perhaps some things are worth throwing money at because, at the very least, the alternatives are unthinkable. If it could just be accepted that the Hearth Stone is as essential to Humanity as good planetary stewardship is to Earth’s ecosystem – that would at least be a good start.

Does paying big bonuses result in higher performance?

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Does paying big bonuses result in higher performance?

First posted on March 23, 2013 by 

The issue of bonuses is quite a divisive issue (divisive in the sense that most people think they have got way out of hand, while a small minority think they are needed to attract the best people). George Osborne placed himself in the latter camp when he flew to Brussels recently to argue against imposing a cap on bankers bonuses of 200% of their annual salary. But is there any evidence that paying high bonuses results in those incentivised by them achieving higher levels of performance?

Now most people who have taken any sort of course in economics will have had it drummed into them pretty early on that people (referred to as consumers) always act rationally and seek to maximise their utility. Often economists use models to help them predict what will happen in certain situations that are based, in part on these assumptions. But there is a branch of economics known as behavioural economics which does not just accept these assumptions as facts, and actually try to set up scientific experiments (a novel idea I know) to see how people actually behave in certain situations.

A recent series of blog posts on Robert Nielsen’s site led me to a book by behavioural economist Dan Ariely called “The Upside of Irrationality“. His earlier work establishes the evidence that people are not in fact rational in the way many economists assume they are, and actually act irrationally in many situations. In The Upside of Irrationality (which I recommend to anyone), Ariely outlines some of his experiments into this irrationality. Chapter 1 of the book is called “Paying more for less: Why big bonuses don’t always work”, and its conclusions are very interesting.

Ariely and his team set up an experiment where volunteers would be asked to perform a series of tasks requiring varying levels of skill in return for payments based on performance (examples of tasks included remembering and repeating a sequence of flashing lights and throwing balls at a target). Each task had thresholds for performance. There was a good standard and a very good standard which would results in a bonus if achieved, but if participants failed to achieve the good standard, they would receive nothing.

Participants rolled a dice to determine the size of the bonuses they would be playing for – either a maximum of an equivalent of a days pay, two weeks pay or five months pay (the experiments were done in India where wages are very low).

So what were the results? Did those playing for the highest bonuses perform the best as we might expect? After all their incentives to do well were the greatest. Actually no. What Ariely’s researchers found was that although there was not much difference in performance between those playing for the low and medium-sized bonuses, those playing for the largest bonuses performed considerably worse. Such was the pressure they were under, they choked when they needed to perform. Note though, that the people in this group actually received the most money, but the “bang for the buck” was much lower than for those receiving lesser incentives.

Another interesting element to the research was that initially, they wanted to give the participants the money up front and then take it back if they failed to reach the required levels. Arguably, this reflects the reality of banker’s bonuses in that they have come to expect these large payments regardless of performance. For example, RBS recently announced it was paying bonuses of  £600m despite making a loss of £5.2bn. The researchers had to abandon this early on though after those playing for the big bonuses either failed utterly, or cheated by running off with the money after failing to perform well!

What does this show then? It seems that the evidence shows that paying very large bonuses is unlikely to maximise the performance of staff, and that they can in fact worsen it significantly, particularly if they those receiving them come to expect them in all situations. What was found in subsequent experiments though was that big bonuses did result in improved performance when the tasks being performed were mechanical in nature.

Research was conducted with MIT students where they were asked to perform two tasks, two times each, once for a small bonus, and once for a large one. The first task was just clicking keys on a keyboard, the second involved solving maths problems. The results showed that in the key clicking task, students performed better when a high bonus was offered, but in the other task, where some brain-power was required, as above, the higher bonus had a negative impact on performance. As Ariely writes:

“The conclusion was clear: paying people high bonuses can result in high performance when it comes to simple mechanical tasks, but the opposite can happen when you ask them to use their brains – which is usually what companies try to do when they pay executives very high bonuses. If senior vice-presidents were paid to lay bricks, motivating them through high bonuses would make sense. But people who receive bonus-based incentives for thinking about mergers and acquisitions or coming up with complicated financial instruments could be far less effective than we tend to think – and there may even be negative consequences to really large bonuses.”

The results then seem clear, those currently receiving large bonuses would probably perform better if their bonuses were much lower, while those currently receiving no bonuses (low-skilled workers) would perform much better if the were. The sky will not fall in if bonuses within the EU are restricted, and shareholders of these big companies would do well to appraise themselves of Ariely’s research before approving large payouts for company employees.

I’ll end with this quote Ariely cites in his book from US Congressman Barney Frank, who in a speech to in 2004 to an audience of bankers said:

“At the level of pay that those of you who run banks get, why the hell do you need bonuses to do the right thing? Do we really have to bribe you to do your jobs? I don’t get it. Think what you are telling the average worker – that you, who are the most important people in the system and at the top, your salary isn’t enough, you need to be given an extra incentive to do your jobs right”

Hear, hear.

The 2013 Budget and Public Sector Net Bollocks

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The 2013 Budget and Public Sector Net Bollocks (PSNB)

by MarxistNutter 

Chancellors have a distinct advantage on budget day as only they (and who they have leaked it to) know what’s in the budget and how all the numbers have been arrived at. This means the serious work of truly understanding the budget does not start until much of the media attention has gone away.

Yes this was a non-budget in many respects; however for me, it was instructive in how the methods used in the calculation of figures are more important than the figures themselves. In this case, as the (actually independent as opposed to the faux independent OBR) Institute of Fiscal Studies (IFSnote  an awful lot of time and energy has gone into spinning the numbers for political reasons. Or, to be even less kind, the Treasury has put more effort into presenting the state of economy in a way that is favourable to the Conservative/ Lib Dem narrative than in actually dealing with the UK’s economic challenges.  The pertinent  quote from the IFS is:

There is every indication that the numbers have been carefully managed with a close eye on the headline borrowing figures for this year. It is unlikely that this has led either to an economically optimal allocation of spending across years or to a good use of time by officials and ministers.

Says it all really? Well no – there is much more to this.

Firstly the deficit. I have written before about how the ConDems claim that they have cut the deficit by a quarter through taking credit for the combined effect of Labour’s stimulus policies together with their own spending cuts, and that this was always likely to cause a drop in the deficit in the very short term; but also has the effect of neutralising the stimulus measures and adversely affecting the deficit in the mid to long term and we are already seeing signs of this in the OBR’s figures (if you look carefully). However first we must be very clear about what we are talking about when we say the deficit.

When the government talk about the deficit, they are specifically talking about Public Sector Net Borrowing (PSNB).  The claim that the coalition cut the deficit by a quarter could be more accurately expressed as: PSNB reduced by just under a quarter (24%) between 2009/10 and 2011/12.  The cause of this reduction is, as I have previously argued, a combination of taking PSNB at its highest point (and having peaked was already starting to decline) and comparing it with a period that came just after a combination of increased revenues (driven mainly by Labour policy) and spending cuts (caused mainly by ConDem policy) interacted to cause the short term reduction.

In addition to this, however we should question the measure of PSNB as a measure of the deficit. There are arguments for and against PSNB. Interestingly, although the government love this measure (at the moment) it has its origins in the EU/EC/EEC and its main purpose is to allow for international comparison of national economies, and not as a measure of a single national economy. Therefore the first question to ask is whether PSNB is really the right measure for the purpose of measuring the UK’s deficit. It is fine if we wish to compare with other EU countries but using it for any other purpose may be called into question. However I have two other reasons for disliking PSNB as a measure of the deficit.

1. The public, media and even the Prime Minister seem to have trouble grasping the difference between borrowing and the deficit. Therefore using something called Public Sector Net BORROWING as the measure of the deficit can only cause further confusion. The government are taking full political advantage of this confusion  in order to push their inaccurate narrative that they are reducing borrowing and cutting the deficit (neither is actually true as of the time of writing) so one assumes they are quite content with this state of affairs.

2. PSNB is arguably bad accounting. The measure includes infrastructure spend and in traditional accounting spending for an asset is usually classed as an asset and not a liability and so should not be counted as part of the deficit (although interest on any borrowing to fund this spend is a liability and so part of the deficit). In fact Osborne is very happy to apply this principle when it suits him, as he did in this budget – in order to make the Help to Buy scheme appear ‘fiscally neutral’. Alex Hern explains:

The Treasury has budgeted £4.13bn for [Help to Buy]:

But the spending counts towards the central government net cash requirement, and it counts towards public sector net debt (Table 2.1 footnote 3, page 65), but it doesn’t count towards public sector net borrowing – also known as “the deficit”.

The reason is that the government is spending cash, but getting back an asset of equivalent value – in this case, equity in £20bn worth of houses. And when those houses are sold, the loan gets paid back. So assuming house prices continue rising faster than inflation – a fair assumption, given it’s basically government policy at this point – it’s not really even borrowing, just converting a liquid asset into an illiquid one….

Now if this argument applies to Help to Buy, in theory it should also apply to many things which are included in PSNB as well. It is essentially infrastructure spend and so there is no good economic reason for excluding it from PSNB. I would therefore suggest the reason for excluding is political. Yes that’s right Osborne has just decided (at a whim, it would seem) to exclude infrastructure spending he likes from the deficit and include spending he doesn’t like – not very scientific that! Ok …Ok there is a fig leaf economic argument around why Help to Buy can be excluded; but it is not a very good or convincing one frankly so I think it best to opt with the obvious explanation – political motivation – in this case.

I have a couple of other quick points to make.

I will not dwell on this as it has been widely reported (kudos to the BBC’s Stephanie Flanders who seemed to be the first to spot this – tweeted during the budget speech itself!) that if we ignore all Gideon’s jiggery pokery then the deficit (PSNB) has risen. This is no great surprise to anyone who has been keeping an eye on the figures.

My second point is that if you have agreed with me about PSNB being a dubious measure of the deficit then is there a better one? The answer is yes – a couple – and I try to keep an eye on them.

The Office of National Statistics keeps track of the Current Budget Deficit (the simple difference between current revenues and current outgoings) – however this only really gives you a snapshot. Perhaps a better one to look at is the OBR’s cyclically adjusted  budget surplus – I would even go as far as saying this is the “REAL” deficit figure. This currently stands at -4.2% of GDP. In 2009/10 this was -5.3% of GDP. Therefore between 2009/10 and now the deficit has reduced by 20% as opposed to 29% (a ‘third’ in Gideon-Speak) if you use PSNB for the same period. Is it any wonder that the government choose PSNB as their measure of the deficit?

Immigration bombshell: Cameron’s (very) secret deal to allow a flood of cheap labour from India

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(not satire)

With opinion polls showing immigration – rightly or wrongly – the number one concern of voters, and with UKIP snapping at the heels of David Cameron,  you can only imagine how damaging it would be if the fact were ever to come out that the prime minister has secretly agreed to a flood of cheap labour from India into the UK.

Well, the fact is, he has.

And that’s probably why he and his media friends have been keeping really really quiet about it.

Here’s a question for you. What was the purpose of David Cameron’s recent trip to India?

Bilateral trade you might well say. After all, that was how it was spun in the UK media.

In India however, the truth is somewhat easier to find.

The main purpose of the trip was actually to boost completion of the EU/India Free Trade Agreement.

India’s sole demand in this agreement is that the EU allows Indian companies to supply cheap temporary labour into the EU – approximately 85% of which would be to the UK.

The Coalition will argue in its defence that the UK now has an ‘immigration cap’.

However, the government has excluded temporary workers from the cap and the trade agreement with India allows specifically for temporary workers to come to the UK.

Temporary? How temporary? Well, the UK government has stipulated that ‘temporary’ can be as long as 9-10 years.

Cameron may well also argue that the agreement only allows for ‘graduates’ or ‘students’ to work in the UK.

But what he won’t tell you is that the ‘graduates’ and ‘students’ only need to be classed as that status in India. In the UK they could take any jobs from factory workers and care assistants to doctors, teachers and accountants.

And finally the government will argue that there are restrictions on the numbers of certain kinds of workers who will be allowed into the UK.

What they won’t tell you is that there are no restrictions on the overall number of Indian workers who will be allowed into the UK.

For a more detailed analysis of the trade agreement and what it will mean for the UK, have a look at this excellent article here:

What was the real purpose of David Cameron’s visit to India?

The truth is, Cameron knows full well that this flood of cheap labour from India is sure to put a strain on employment, housing, health and public services in the UK as well as driving down wages and working conditions.

Of course, as long as this immigration bombshell is kept secret from the UK electorate, Cameron is counting on the effects of the agreement only being noticed well after the next election in 2015, by which time he’s hoping he will be in power for another 5 years anyway.

And needless to say, if this information were ever to get out – it would have a devastating effect on Cameron’s chances of winning the next election.

So best keep it to ourselves then, hadn’t we?

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