Tag: Economy

Politicians, presentation and the subversion of integrity

What sort of politician do you prefer: a conviction politician led by a clear sense of what is right and wrong, or a perception politician led by the public mood? Should a politician rely mostly on their political philosophy or on the deliberations of various focus groups?

Perhaps these things are not mutually exclusive. Perhaps the former is too autocratic and the latter too weak, and perhaps the best sort of politician is the one who knows what he or she believes but is not so self-obsessed as to be blind to fallibility.

These questions arise because of a recent post by Alex Massie on his Spectator blog. Labour and Conservative politicians, he writes, ‘are both wrong on the politics of the 50% rate of income tax.’ We might wonder how they can both be wrong. Surely 50% is either the right rate or it is the wrong rate? What does he mean?

The telling word here is politicsWhen various characters ask why so and so is playing politics over this or that issue, they are criticising their political opponent for not treating the issue with the impartial respect it deserves. In this context, it is a pejorative term: to play politics is underhand, ignoble and contrary to the interests of the country.

And yet politics is their game. It is what we elect them to Westminster to do, and it is a serious game that affects people’s lives. Political decisions are necessary in a civilised society: they determine the occurrence of war, the level of public services and the degree of public intervention in otherwise private matters. No-one is exempt from their effects. It just so happens that politics has two meanings: the functional process of deciding policy; and the political process of ingratiating oneself with the public.

In this example, Mr Massie is saying Conservatives and Labour have both blundered: the Conservatives because, by reducing the income tax rate from 50 to 45%, they have reinforced the wrong political message – that they look to the interests of their ‘rich chums’ first; and Labour because, by arguing for a return to the 50% rate, they are reinforcing their negative image as the tax and spend party. They are, in short, reinforcing negative stereotypes.

This is a good point. Perception really does matter. But there is another side to this. What happens if one of these positions is right: ‘right’ in the sense of being in the long-term interests of the country as opposed to the short-term interests of the party? What then? We have subordinated conviction to perception. There might be very good electoral reasons to do this, but the country has lost out. Politics, as one might say, is more than mere politics.

It brings us back to the question: what sort of politician do you prefer? Should they act in the interests of the country or their party? We could get into the circular argument that a party needs to win an election before it can implement its otherwise terrific policies, thus making a bit of politicking an essential precursor to doing good. But what if this analysis is also wrong?

We do not need much reminding that politicians have a pretty low reputation at the moment, and that this was caused by not only the fiddling of expenses but also a growing sense that they lack political integrity. How many times does a vox pop survey turn up a verdict of ‘I don’t trust politicians?’

People vote for various reasons, and perception is no doubt one of them. But in this context, perception is a negative reason to vote, especially if it is based on a set of policies that seem to contradict the overarching political philosophy of whichever politician happens to be standing before us at the time.

For Conservatives to argue for higher tax and Labour for lower tax seems to run against everything we think we know about these parties. When they start arguing for things contrary to their philosophy, it merely reinforces the thought in the public’s mind that politicians lack integrity. To the electorate, it looks like the politicians are simply gaming them. The damage done to Nick Clegg over his promise on university tuition fees comes to mind.

Mr Massie is right to attach importance to political perception, and no doubt he attaches equal importance to integrity. But there is an inevitable trade-off when political philosophy is subordinated to presentation. Political parties will always have an eye to the next election (and also think that this requires a lot of ‘politics’), but they need to ask themselves why people are reluctant to vote for them. Is it because they don’t spend enough time ‘signalling’ and combating ‘negative stereotypes,’ or because the public don’t really trust what they are being told anymore?

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Windfall taxes, Sir John Major and profiteering

Oh why oh why oh why is Sir John Major suggesting a windfall tax on the energy companies? It’s the sort of thing one expects from lefties with a grudge against anyone with something they don’t have and would really rather like to have for themselves. Or, more pithily: if I can’t have it then I don’t see why they should – the running-dog capitalist scum.

This all starts from the view that energy utilities are operating a cartel (not entirely inaccurate) and are profiteering from their anti-competitive control of the market. Rather than all this profit going into the pockets of executives or shareholders, it should go to the benign state. Why? Do we suppose the money will find its way back into our pockets? Not likely, considering our debt stands at over £1 trillion. The debt interest alone is more of a burden on our wallets than anything the utility companies could throw at us.

Profiteering is quite different from profit. Any company – all companies, in fact – have to make a profit. If they do not, they are not a viable business. Continue to operate without profit, then your company (unless you have another source of revenue with which to offset losses, an example being the Guardian) will eventually default, go bankrupt, make people unemployed and stop paying tax to fund all those nice baubles to which we are now attached as stubbornly as any limpet.

So what is an acceptable level of profit: 0.0001%, 1% or 5-10%? And what constitutes profiteering? I’m not entirely sure; and it seems to me that the answer can only really be a subjective one. Bloomberg reports, for instance, that ‘Ofgem shows that energy companies’ net profit on each bill has risen from 5 percent in May 2010, when David Cameron’s coalition government took power, to 6.7 percent in May 2013.’ And the BBC reports that ‘SSE, formerly Scottish and Southern Energy, said it expected its annual profit margin to average about 5% over a three-to-five-year period, which it believed was “a fair amount”.’

We can argue over whether that’s profiteering or simply the profit necessary to ensure continued investment, but if we have a problem with it then we should have a problem with lots of other big companies. Tesco, for example, reported a profit margin of 6.5% in 2012. I’m not an analyst, so I’m not going to trawl the data and tell you that one figure is directly relatable to another, but that doesn’t seem too bad to me. It wasn’t so long ago we expected to receive about 5% in interest from our savings accounts. Those days are gone, for now, but were we profiteering to expect that sort of return?

But what is probably most odd (and deceptive) about this is the word itself: ‘windfall.’ It implies something of benign providence; a reward; something fallen out of the wind, to be precise, as if it is of no more consequence than picking up a leaf blown to your feet by a warm and pleasant gust of wind. It’s a bit like adding the word ‘Mansion’ to tax. It’s designed to make us accept it for wholly false reasons. Rich Toffs don’t deserve mansions, so why not tax them until they fully comprehend the crime they have committed by simply owning a nice large expensive house. It’s not really their money anyway; it’s the people’s money.

Still, if it’s a choice between a ‘windfall’ tax (which seems, I have to say, not unlike an opportunistic looting) and a price freeze, the tax is probably better. We already tax utilities more than other companies (apart from fuel, perhaps). The green and social levies, for instance, add to our bills. Perhaps we could lower utility bills by taking these levies off the bills and paying them through general taxation, which is a vastly more progressive way of raising the money.

My preferred option would be to encourage competition, explore other methods of supply (including green, nuclear and fracking) and reduce taxes to a minimum. After all, by far and away the most significant factor in the level of our utility bills is the global wholesale price. But I suppose we still haven’t quite noticed that the rest of the world has caught us up and is powering ahead, quite literally, to leave us now playing catch-up when it comes to quite a few things economic. Why would we add to those costs? It doesn’t make sense.

House prices are on the move again

Recent figures claim property prices for October are 10% higher than for the previous month. OK, that’s in London, which is a renowned basket case when it comes to this sort of thing – and much else, besides – but still… If this increase continues over a calendar year, we will have seen a price increase of more than 200%. That’s an ouch-inducing figure.

I know it won’t happen. There’s a bit of room for property to move upwards in price, but sustained 10% increases, month after month, are unlikely. Well, I say it won’t happen. What I mean is I hope it won’t. But they probably said something along these lines in Weimar Germany during that tricky inter-war period of theirs. On second thoughts, I don’t think that’s an entirely useful comparison.

But we’ve been here before. Remember the bull days of New Labour, just before the credit crunch, when prices were rocketing at that alarming rate? I do. I remember talking to a friend who owned a place in London who couldn’t believe what was going on. But he didn’t complain too much. Who would?

If this is the start of a new bull property market, why is it happening? From what I can gather, it begins with international money flooding in (I believe I can use that word regarding money, though not people). London is a safe haven. We can’t fail to notice that the world is aflame (It always seems that way, doesn’t it?) There’s the Middle East, North Africa, the southern Eurozone countries and, no doubt, a few other places whose desirability we are not allowed to question, despite them patently being places where you would think twice about living if you wanted the good life.

Despite its problems, London remains a global haven for the rich and mobile. And the reports suggest they are shifting their money, not just to invest it, but to keep it safe and provide them with a bolt-hole if things get nasty at home.

Boris Johnson wades in with his typically excellent prose, but unfortunately gives only a manifesto for doing not much at all. He ends with a flourish: ‘The Brits: we’re the biggest load of bloody foreigners on earth,’ to make the point that questioning house-price inflation created by foreign money is a no go area.

He has a point. Brits live abroad, they inflate Dordogne property prices and they claim unemployment benefits in other European countries. But that doesn’t make it right. It is not right that property prices are inflated by international money chasing a limited resource; it’s not right that people are priced out of their childhood communities by external inflationary forces; and it’s not right to try and solve the problem by building more and more and more affordable (read cheap and not particular nice to live in) property in the South East and London.

There is, on a slightly different tack, a thought that property prices are rising in London because of a simple market ‘thaw’ – buyers looking for property after their summer holidays. Let’s hope this is significant. Luckily, it is also thought there is little upward pressure on property prices in places outside London. Let’s hope that’s right, too.

But anyone looking at what’s going on at the moment can’t fail to be concerned. Property has always been a scarce resource; it takes time to build more houses, it takes political will, and prices respond badly to increases in demand. And when you hose money into an economy; when governments encourage people to buy with easy credit and artificially low interest rates; when governments wilfully increase the population through reckless immigration, thus increasing demand for housing; when foreign nationals are free to inflate the market with their money when things look dicey at home or they really rather like the idea of having a pad in London; and when people are reluctant to see their communities grow increasingly dense through non-stop house building – you get property prices increasingly out of the reach of normal people.

And that is where we are heading, again, and not for the last time unless we start understanding the economic fundamentals that drive prices and make them so unfriendly for the average person.