tag:theconversation.com,2011:/us/topics/philip-hammond-9551/articlesPhilip Hammond – The Conversation2019-07-03T12:11:34Ztag:theconversation.com,2011:article/1179262019-07-03T12:11:34Z2019-07-03T12:11:34ZClimate change: real estate worth billions could become obsolete – unless owners act now<figure><img src="https://images.theconversation.com/files/282475/original/file-20190703-126382-1v5iohs.jpg?ixlib=rb-1.1.0&rect=8%2C89%2C5982%2C3907&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/large-industrial-hall-vehicle-repair-station-189545321?src=DocpI1Zw_zUKtPdmfHSVzw-1-5&studio=1">Shutterstock.</a></span></figcaption></figure><p>From the <a href="https://theconversation.com/school-climate-strikes-why-adults-no-longer-have-the-right-to-object-to-their-children-taking-radical-action-111851">school strikes for climate</a>, to <a href="https://theconversation.com/extinction-rebellion-disruption-and-arrests-can-bring-social-change-115741">Extinction Rebellion protests</a> and calls for a <a href="https://theconversation.com/the-green-new-deal-is-already-changing-the-terms-of-the-climate-action-debate-112144">Green New Deal</a>, citizens around the world are putting pressure on their governments to prevent global warming more than 2°C above pre-industrial levels. </p>
<p>In the UK, these efforts have met with some success – the government has declared a “climate emergency” and promised to reduce greenhouse gas emissions to <a href="https://www.independent.co.uk/news/uk/politics/climate-change-environment-emergency-commons-motion-mps-vote-latest-a8895456.html">net zero by 2050</a>. Even so, scepticism persists in some quarters: the chancellor of the exchequer, Philip Hammond, <a href="https://www.bbc.co.uk/news/uk-politics-48540004">has argued</a> that the UK government’s goal may be unaffordable, based on estimates that the transition to a zero-carbon economy could cost up to £1 trillion. </p>
<p>Of course, there is likely to be significant public money spent on renewable energy transition and carbon offsetting. The costs of assets made obsolete by climate change policy – such as <a href="https://www.nature.com/articles/nature14016">unexploited fossil fuel</a> reserves – is also <a href="https://www.tandfonline.com/doi/full/10.1080/20430795.2016.1266748">potentially huge</a>. </p>
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<a href="https://theconversation.com/net-zero-emissions-by-2050-says-uk-government-now-what-118712">Net zero emissions by 2050, says UK government – now what?</a>
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<p>But the problem with perspectives like Hammond’s is that they don’t balance the cost of acting now against the cost of doing nothing. In the UK and around the world, people live and work in buildings that are typically powered, heated and cooled using energy from fossil fuels. If these buildings are not retrofitted with energy efficiency measures, there is a real risk they will be rendered obsolete by policies aimed at reducing greenhouse emissions.</p>
<h2>A valuable asset</h2>
<p>Research at Northumbria University <a href="https://www.sciencedirect.com/science/article/pii/S2214629618309599">has examined</a> this situation in relation to international real estate. The global value of real estate is estimated at <a href="https://pdf.euro.savills.co.uk/global-research/around-the-world-in-dollars-and-cents-2016.pdf">US$217 trillion</a> – that’s roughly 2.7 times the GDP of the entire world. Of this, $162 trillion worth is residential, $29 trillion worth is commercial and $26 trillion worth is agricultural land.</p>
<p>A <a href="http://www3.weforum.org/docs/GAC16/CRE_Sustainability.pdf">conservative estimate</a> is that global real estate consumes 40% of global energy annually and accounts for more than 20% of international carbon emissions. So it’s hardly surprising that international agencies <a href="https://www.worldgbc.org/news-media/worldgbc-responds-ipcc-entire-building-and-construction-supply-chain-must-decarbonise">have identified</a> real estate and the built environment as key contributors toward global warming and a major target of international efforts to reduce greenhouse gas emissions. </p>
<p>One of the most comprehensive approaches to reducing building energy use can be seen in the European Union (EU). A <a href="https://ec.europa.eu/energy/en/topics/energy-efficiency/energy-performance-of-buildings">2010 directive on energy performance</a> made it mandatory for all European properties to hold an energy performance certificate and monitor energy use from heating and air conditioning. The government of England and Wales has used these energy performance certificates to enforce <a href="https://www.legislation.gov.uk/ukdsi/2015/9780111128350/contents">minimum standards of energy efficiency</a> for privately rented family homes and commercial properties. </p>
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<span class="caption">It adds up.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/midsection-businessman-calculating-invoice-energy-efficient-767180389?src=z6pU_akdfXOBhbjXjpgIeA-1-28&studio=1">Shutterstock.</a></span>
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<p>Since April 2018, any commercial property with an energy performance rating below E (that is, those properties with F and G ratings) has been deemed illegal to let (although there are some exemptions related to maximum cost of improvements). By 2020, the plan is for these same rules to apply to residential property – which includes shared homes, nursing and care homes and blocks of flats.</p>
<h2>A less daunting prospect</h2>
<p>In England and Wales, it is estimated that 10% of residential property stock (worth £570 billion) and 18% of commercial stock (worth £157 billion) <a href="https://www.allsop.co.uk/media/understanding-the-new-minimum-energy-efficiency-standards/">does not meet</a> these minimum standards. If these properties are not retrofitted to become more energy efficient, they will become obsolete and lose value, since the owners will no longer be allowed to let them. </p>
<p>Put this way, the cost of achieving an energy transition is less daunting, because the cost of not acting is equally (if not more) expensive. It’s even reasonable to expect benefits to the economy from the growing building retrofit industry. </p>
<p>If all international governments adopted similar minimum energy efficiency standards as the UK – and assuming the same proportions of property stock are potentially obsolete – the risk value for residential real estate property assets can be estimated at US$16 trillion and US$5 trillion for global commercial assets (based on their global vale, mentioned earlier). </p>
<h2>A timely riposte</h2>
<p>The potential cost of not acting in the real estate sector should provide a catalyst for the transition to more energy efficient buildings. It should also provide a riposte to those who worry about the cost of transitioning to net zero emissions. Indeed, there’s a clear need for investors and property owners to move beyond green-washing and reduce the carbon emissions of real estate before costly regulation and enforcement sets in. </p>
<p>Ignoring climate change exposes real estate assets to the risk of permanent disruption – especially now that the potential impacts of global warming are being widely acknowledged. Clean technology is <a href="https://www.irena.org/publications/2018/Jan/Renewable-power-generation-costs-in-2017">becoming more affordable</a> and consumers are <a href="https://hbr.org/2019/06/research-actually-consumers-do-buy-sustainable-products">adopting principles</a> of environmental sustainability. Indeed, it’s already becoming more common for investment managers and financiers <a href="https://www.bankofengland.co.uk/news/2019/april/open-letter-on-climate-related-financial-risks">to demand</a> that companies disclose business model exposure to climate change, while investors are starting to take advantage of <a href="https://www.ft.com/content/a0fdc6e8-9cde-11e9-b8ce-8b459ed04726">exposed assets</a>. </p>
<p>It makes sense for property owners to plan for the introduction of powerful new climate-related policies in the coming years. Adapting existing buildings and constructing new developments that are not reliant on fossil fuels – though perhaps costlier in the short term – can create a more resilient, and therefore valuable, asset in the longer term. </p>
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<img alt="" src="https://images.theconversation.com/files/263883/original/file-20190314-28475-1mzxjur.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/263883/original/file-20190314-28475-1mzxjur.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=140&fit=crop&dpr=1 600w, https://images.theconversation.com/files/263883/original/file-20190314-28475-1mzxjur.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=140&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/263883/original/file-20190314-28475-1mzxjur.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=140&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/263883/original/file-20190314-28475-1mzxjur.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=176&fit=crop&dpr=1 754w, https://images.theconversation.com/files/263883/original/file-20190314-28475-1mzxjur.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=176&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/263883/original/file-20190314-28475-1mzxjur.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=176&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<p><em><a href="https://theconversation.com/imagine-newsletter-researchers-think-of-a-world-with-climate-action-113443?utm_source=TCUK&utm_medium=linkback&utm_campaign=TCUKengagement&utm_content=Imagineheader1117926">Click here to subscribe to our climate action newsletter. Climate change is inevitable. Our response to it isn’t.</a></em></p><img src="https://counter.theconversation.com/content/117926/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Policies to tackle climate change will make it more expensive not to act.Kevin Muldoon-Smith, Lecturer in Real Estate Economics and Property Development, Northumbria University, NewcastlePaul Michael Greenhalgh, Professor of Real Estate and Regeneration, Northumbria University, NewcastleLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1142622019-03-26T13:56:33Z2019-03-26T13:56:33ZInternet giants could strangle the smart tech revolution at birth – here are our options<figure><img src="https://images.theconversation.com/files/265862/original/file-20190326-36244-q4y2i8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Candy crush?</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-vector/phone-smartphone-broken-screen-isolate-on-1315172114">rogistok</a></span></figcaption></figure><p>Google is digesting its third whopping antitrust penalty from the European Commission, <a href="http://europa.eu/rapid/press-release_IP-19-1770_en.htm">having been fined</a> €1.5 billion (£1.3 billion) for abusing its market dominance around online advertising. The case concerned web publishers embedding a Google-powered search engine on their site, and being prevented from letting third parties place search adverts at the top of search results. </p>
<p>Margrethe Vestager, the EU’s competition commissioner, said this “denied other companies the possibility to compete on the merits and to innovate – and consumers the benefits of competition”. It takes the EC’s total antitrust fines against Google to €8.2 billion in two years, following <a href="https://www.computerworlduk.com/galleries/it-vendors/google-vs-europe-antitrust-battle-timeline-major-milestones-3589424/">previous findings</a> in June 2017 and July 2018, respectively about Google unfairly advantaging its Shopping service and Google Chrome browser. </p>
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<a href="https://images.theconversation.com/files/265864/original/file-20190326-36248-atgf2u.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/265864/original/file-20190326-36248-atgf2u.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/265864/original/file-20190326-36248-atgf2u.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=692&fit=crop&dpr=1 600w, https://images.theconversation.com/files/265864/original/file-20190326-36248-atgf2u.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=692&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/265864/original/file-20190326-36248-atgf2u.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=692&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/265864/original/file-20190326-36248-atgf2u.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=870&fit=crop&dpr=1 754w, https://images.theconversation.com/files/265864/original/file-20190326-36248-atgf2u.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=870&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/265864/original/file-20190326-36248-atgf2u.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=870&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Elizabeth Warren: break-up call.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/washington-dc-july-25-2016-senator-684236263">Kelly Bell</a></span>
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<p>The European Union is not the only one gunning for big tech. UK chancellor Philip Hammond <a href="https://www.itpro.co.uk/policy-legislation/33214/chancellor-hammond-backs-calls-wane-tech-giants-market-power">has hinted about</a> tightening digital competition policy following an independent report which raised concerns that the sector was anti-competitive. And US presidential hopeful Elizabeth Warren <a href="https://medium.com/@teamwarren/heres-how-we-can-break-up-big-tech-9ad9e0da324c">wants</a> the likes of Google, Amazon and Facebook <a href="https://www.theguardian.com/us-news/2019/mar/10/elizabeth-warren-break-up-amazon-google-facebook-socialism-capitalism">broken up</a> to unleash a new wave of digital innovation. In an echo of the EC’s Google findings, Warren cites various examples of these companies using their market dominance against smaller rivals – Amazon <a href="https://www.yalelawjournal.org/pdf/e.710.Khan.805_zuvfyyeh.pdf">creating</a> own-brand versions of goods being sold on its platform, for instance. </p>
<p>I broadly agree with this growing movement. Yet my main concern hasn’t come into focus – even though it’s arguably the biggest threat these companies pose to the future. They are standing in the way of the next big digital revolution, and need to be reined in before it’s too late. </p>
<h2>The smart future</h2>
<p>The first computing revolution started in the 1950s as mainframe computers slowly entered the workplace and began to automate basic back-office functions like payroll and accounts. The second revolution, in the 1980s-2000s, centred on the PC and the migration of computers to the desktop and then to our homes. Third came the mobile revolution, which put those computers in our pockets so we could take them wherever we went. </p>
<p>The next shift has started already. In our homes, smart assistants like Amazon Echo and Google Home are steadily colonising personal spaces, along with the likes of smart lighting and security systems. Smart home devices <a href="https://www.idc.com/getdoc.jsp?containerId=prUS44361618">shifted</a> some 640m units last year, and will be doing twice that by 2023. </p>
<p>Over the same period, we can also expect something like 50% growth in unit sales of wearable devices like fitness trackers and smart clothing – a huge market <a href="https://techcrunch.com/2019/03/05/idc-apple-led-wearables-market-in-2018-with-46-2m-of-the-total-172-2m-devices-shipped/">for Apple</a> – to approaching 300m a year. As for the workplace, an equivalent flurry of sensor technology, underpinned by AI, is now transforming factories and production lines. Sometimes known as industry 4.0, the sector is <a href="https://www.globenewswire.com/news-release/2018/10/17/1622652/0/en/Global-Industry-4-0-Market-Will-Reach-USD-155-30-Billion-By-2024-Zion-Market-Research.html">forecast to</a> double to over US$150 billion by 2023, <a href="https://www.researchandmarkets.com/reports/4519307/industry-4-0-market-and-technologies-2018-2023">and over</a> a trillion dollars by the early 2030s. </p>
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<a href="https://images.theconversation.com/files/265865/original/file-20190326-36252-wk26h6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/265865/original/file-20190326-36252-wk26h6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/265865/original/file-20190326-36252-wk26h6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/265865/original/file-20190326-36252-wk26h6.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/265865/original/file-20190326-36252-wk26h6.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/265865/original/file-20190326-36252-wk26h6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/265865/original/file-20190326-36252-wk26h6.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/265865/original/file-20190326-36252-wk26h6.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">From despair to wear.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/man-running-on-beach-modern-technology-501041416">Kaspars Grinwalds</a></span>
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<p>Hand in hand with this will be an explosion in smart services. Tech companies will increasingly seek to improve our lives by crunching sensor data from all this hardware, as well as from all the activities that we do on our phones. Alongside the tech giants, numerous start-ups are staking out territory in this frontier. </p>
<p>In the US, a company called <a href="https://getnotion.com">Notion</a> has raised US$16m towards smart home sensors to alert owners via a phone app about water leaks, intrusions and temperature fluctuations. British start-up McLear <a href="https://mclear.com/">has launched</a> a smart ring which can electronically unlock doors and authenticate payments in retail outlets. If you look on start-up databases like <a href="https://about.beauhurst.com">Beauhurst</a> or <a href="https://www.crunchbase.com">Crunchbase</a>, you come across thousands of similar companies. </p>
<p>But if there is a rapidly growing ecosystem, there is a competitive imbalance. Just like Notion, many smart devices rely on smartphone apps as the interface through which users control them. With almost 3 billion smartphones in use globally, <a href="http://gs.statcounter.com/os-market-share/mobile/worldwide">almost</a> three quarters are Android devices, controlled by Google, and one quarter are iOS, controlled by Apple. </p>
<p>Apps distributed via these two gatekeepers’ app stores must comply with their regulations. In many cases, the giants themselves will be competing in the same marketplace. We already knew that Apple was betting heavily on health-related wearables services, for instance; the <a href="https://www.cnet.com/how-to/apple-card-what-you-need-to-know-now-about-apples-new-credit-card-for-your-iphone/">Apple credit card</a> announcement shows it also has finance in its sights. </p>
<p>Similarly, Amazon <a href="https://www.theguardian.com/technology/2018/feb/28/amazon-buys-video-doorbell-ring-smart-home-delivery">last year spent</a> US$1 billion on smart doorbell maker Ring. Type “smart doorbell” into Amazon’s search box and, perhaps not surprisingly, its own products show up first. As innocent as this might be, one can imagine the temptation for such companies to give preference to their own devices and services when presenting search results. </p>
<h2>There will be blood</h2>
<p>Yet search is actually something of a side issue in all of this. Between them, Amazon, Facebook, Google and Apple hold detailed data on the interests, health, social connections and purchasing habits of billions of people. This data will be an essential input for the AI systems that will power the coming generation of smart services. This, therefore, is the greater threat to competition and innovation. </p>
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<span class="caption">Oil be darned.</span>
<span class="attribution"><a class="source" href="https://commons.wikimedia.org/wiki/File:Pascola-Standard-Oil-sign-mo.jpg#/media/File:Pascola-Standard-Oil-sign-mo.jpg">Wikimedia</a></span>
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<p>If “data is the new oil”, as many <a href="https://medium.com/@adeolaadesina/data-is-the-new-oil-2947ed8804f6">have argued</a>, then the <a href="https://www.economist.com/business/1999/12/23/standard-ogre">US break-up</a> of Standard Oil in 1911 into 34 companies because of its dominance on oil production and supply is something we should be studying closely. Whether the answer is to break up some tech giants, force them to open up their data assets to new entrants, prevent them buying start-ups in this sector, or allow users more control over their personal data, this is a debate we should have urgently. <a href="https://www.telegraph.co.uk/technology/2018/11/20/hike-pressure-tech-giants-share-mapping-data-government-told/">Calls</a> in the UK for big tech to make its mapping data freely available are almost certainly the shape of things to come. </p>
<p>The open nature of the internet over the past 20 years created an environment where innovation could flourish. It is vital that this continues, but legacy monopolies from the previous revolution threaten to slow the process down. Unless digital data is liberalised, smart services could still fall a long way short of their potential. As we saw with the <a href="https://www.whatcar.com/news/history-of-the-electric-car/n18063">electric car</a> throughout the 20th century, vested interests are more than capable of impeding progress to keep their own business activities alive and well.</p><img src="https://counter.theconversation.com/content/114262/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Martin De Saulles does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>There are mounting calls to dismember the likes of Google, Apple and Amazon, but most people seem to have overlooked the biggest threat of all.Martin De Saulles, Principal Lecturer, Centre for Digital Media Culture, University of BrightonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1089342018-12-20T10:42:49Z2018-12-20T10:42:49ZCould George Osborne have helped Britain avoid a no-deal Brexit?<p>It’s nearly two and a half years since the moment which will, I am increasingly certain, be seen as a key turning point in British political history. Forget Brexit. I am talking, of course about Theresa May’s decision to sack George Osborne as chancellor of the exchequer on July 13, 2016. This moment was only conceivable because of that other moment, three weeks earlier, but it has shaped quite profoundly the political implications of the vote to leave the European Union.</p>
<p>I teach a course on economic policy-making, and my students will testify to the fact that I am mildly obsessed with the former chancellor. Barely a lecture goes by without me mentioning his enormous influence on the recent development of British economic policy, during a seismically significant period for the economy.</p>
<p>Let us be clear: Osborne’s economic stewardship was <a href="https://www.theguardian.com/commentisfree/2018/dec/14/nine-jobs-george-poverty-british-workers-failing-wages">ruinous</a>. Yet he is substantially better at politics than he ever was at policy. May’s decision to sack Osborne also had little to do with his record as chancellor, or indeed his opposition to Brexit. He was replaced by Phillip Hammond, who is as committed as Osborne to both austerity and EU membership.</p>
<h2>Osborne’s Brexit</h2>
<p>What Britain lost when Osborne was sacked was a focal point, within government, for soft Brexit. Hammond lacks the political skills, or alliances, to play this role. Osborne was never really loved by Conservative Party members – but he was respected. Had David Cameron decided against holding the EU referendum, as Osborne <a href="https://www.ft.com/content/e4267e06-ea33-11e7-bd17-521324c81e23">advised</a>, then Osborne would have been the only serious candidate to succeed him as leader.</p>
<p>Osborne’s vision for the future of the British economy is, however, largely the same as that of the leading Brexiters. He was keen to recast the UK-EU relationship as an economic one. As Chancellor, he pursued “Global Britain” through the internationalisation of the City, and saw the EU’s new zeal for bilateral trade deals, enforcing deregulation, as consistent with, and indeed central to, his agenda.</p>
<p>Osborne’s understanding of the chaos that Brexit would cause explains his support for Remain, but as May’s chancellor, he would undoubtedly have seized the opportunity to push for a firm decoupling of the UK from the eurozone’s political integration, while situating Britain as the leading member of an emerging outer ring of the European single market.</p>
<p>This perspective has been thoroughly marginalised within the Conservative Party since 2016. But many of the party’s 2010 and 2015 intake of MPs – remainers and leavers alike – owe their careers to Osborne. It’s not difficult to imagine Osborne acting as a vital conduit between the prime minister and the parliamentary party.</p>
<p>Brexiters such as Boris Johnson know as well as anyone that leaving the EU will do little to advance the <a href="https://theconversation.com/why-brexit-is-really-about-competing-visions-of-capitalism-100274">ideological agenda</a> he shares with Osborne. He chose to lead the Leave campaign purely for political expediency, because rebranding himself as an authentic eurosceptic was his only hope of beating Osborne to the leadership or, more likely, once the referendum had been lost, securing a top job in a future Osborne cabinet.</p>
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<img alt="" src="https://images.theconversation.com/files/250944/original/file-20181217-185255-obbbzj.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/250944/original/file-20181217-185255-obbbzj.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=600&fit=crop&dpr=1 600w, https://images.theconversation.com/files/250944/original/file-20181217-185255-obbbzj.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=600&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/250944/original/file-20181217-185255-obbbzj.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=600&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/250944/original/file-20181217-185255-obbbzj.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=754&fit=crop&dpr=1 754w, https://images.theconversation.com/files/250944/original/file-20181217-185255-obbbzj.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=754&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/250944/original/file-20181217-185255-obbbzj.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=754&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Well, Osborne the construction firm does, at least.</span>
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<p>Johnson has created a beast he lacks the werewithal to control. By leading the Leave campaign, he lent euroscepticism a veneer of centrist, cosmopolitan respectability. But without a coherent plan for soft Brexit emerging from the Conservative ranks, Johnson and co. have been increasingly caught between the rock of Theresa May’s vacuous vision and doomed leadership, and the hard place of Jacob Rees-Mogg’s jingoistic and economically illiterate ultra-Brexit.</p>
<h2>The genesis of ‘no deal’</h2>
<p>And thus we arrive at the absurdity of a no-deal Brexit. It has quickly become a political cliché, but it is worth restating that nobody voted for “no deal”. What the Leave campaign offered was a very comprehensive free trade deal as an alternative to EU membership. It was essentially an accelerated version of the path Britain was on anyway, as long as it remained outside the eurozone.</p>
<p>No deal was a fringe agenda, peddled only by marginal figures such as John Redwood. It only really entered the lexicon of mainstream politics after May’s Lancaster House <a href="https://www.gov.uk/government/speeches/the-governments-negotiating-objectives-for-exiting-the-eu-pm-speech">speech</a> in early 2017, in which she argued that “no deal is better than a bad deal”. How quickly we have forgotten what she was actually talking about. The “no deal” of the speech was referring to the prospect of a future trade arrangement – not the prospect of leaving the EU without a withdrawal agreement. The speech was a misguided and futile attempt to encourage the EU to negotiate both deals at the same time.</p>
<p>It was quickly consigned to irrelevance, as the EU understandably pointed out that unless Britain agreed an orderly withdrawal from the union, there could be no prospect of agreeing a new trade relationship. The EU cannot negotiate a trade deal with a country that is still a member of the bloc.</p>
<p>An orderly withdrawal meant, above all, finding a way to prevent Brexit wrecking the Irish economy, and jeopardising the Northern Ireland peace process – hence the need for an insurance policy (or “backstop”) should the trade deal take longer than two years to agree. Given that the Brexiters have frequently claimed that a new UK-EU trade agreement would be “<a href="https://www.bbc.co.uk/news/av/uk-40667879/eu-trade-deal-easiest-in-human-history">one of the easiest in human history</a>”, their indignation over the backstop is either senseless or duplicitous.</p>
<h2>The lesser evil</h2>
<p>In the absence of a genuine leader, coupled with a failure to communicate the difference between the withdrawal process and a subsequent trade deal, May has been cast as the chief advocate of soft Brexit, and vilified as a result. Yet her <a href="https://theconversation.com/theresa-mays-deal-is-almost-exactly-the-brexit-the-uk-voted-for-107040">opposition to free movement of labour</a> makes her vision for life outside the EU a lot “harder” than anything most of her Brexiter critics, who have few concerns about immigration, would have advocated.</p>
<p>Crashing out of the EU may be unthinkable, but that does not mean it will not happen. Osborne deserves his political wilderness, since his policies did so much to <a href="https://theconversation.com/how-austerity-took-britain-to-brexit-61761">cause the divisions</a> which produced the Brexit vote. His soft Brexit would, over the long term, probably have been just as destructive. But set against the avoidable tragedy of no deal, it might have been the lesser of two evils.</p><img src="https://counter.theconversation.com/content/108934/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Craig Berry is a member of the Labour Party</span></em></p>The former Chancellor was no economist, but he was better at politics than Theresa May.Craig Berry, Reader in Political Economy, Manchester Metropolitan UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1051792018-10-24T11:21:49Z2018-10-24T11:21:49ZWill Theresa May really end austerity? Some questions you need to ask yourself<figure><img src="https://images.theconversation.com/files/242010/original/file-20181024-48727-nru7c6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The UK has had eight years of cuts to public services.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/london-march-26-unidentified-child-protests-121946641?src=l-KLI20Zyviqfg7EAtwz_Q-1-29">1000 Words / Shutterstock.com</a></span></figcaption></figure><p>Theresa May has <a href="https://www.bbc.co.uk/news/av/uk-politics-45733098/theresa-may-people-need-to-know-austerity-is-over">promised</a> to end austerity. The announcement by Britain’s prime minister raises a number of questions – not least how her party plans to finance it. This will, perhaps, be made more clear at the upcoming budget on October 29. What remains less clear is if the UK is finally ready to leave the damaging narrative of austerity behind it.</p>
<p>Austerity has been one of the pillars of Conservative Party policy since it was elected to government in 2010. It seems strange that, at a time when her party is beset by internal divisions relating to Brexit, May would want to generate further debate and risk more division in her party now. Plus changing tack would remove the charges of overspending that the party has <a href="https://www.telegraph.co.uk/news/general-election-2015/11576801/Did-New-Labour-spend-too-much-in-government.html">used consistently</a> to discredit the opposition Labour Party. </p>
<p>It certainly can’t be claimed that the Conservatives have achieved their austerity goals of reducing Britain’s debt and budget deficit, which spiked following the 2008-09 financial crisis. One reason for this is that precise targets of what either the national debt or deficit should be were never set. Nobody was willing to put a numerical figure on what would be an acceptable level – in stark contrast to the party’s view of net migration statistics, where cutting net migration to 100,000 has <a href="https://theconversation.com/manifesto-check-conservatives-talk-tough-but-bring-nothing-new-on-immigration-40336">remained the aim since 2010</a>.</p>
<p>The <a href="https://www.conservatives.com/manifesto">Conservatives’ 2017 manifesto</a> stated that “Conservatives believe in balancing the books and paying down debts”. These are two promises that are independent of one another and should be judged as such. While they have been <a href="https://www.telegraph.co.uk/news/politics/9842553/David-Cameron-given-a-lecture-on-debt-and-deficit-by-top-statistics-official.html">used interchangeably by proponents of austerity</a> this is deeply misleading. The national debt relates to the total amount of money Britain owes, while the national deficit relates to how much is being added to (or, if in surplus, removed from) the debt levels each year.</p>
<h2>Success or failure?</h2>
<p>The stated economic thinking behind austerity was that by spending less on things like benefits, social care, policing and schools, the government could “balance the books”. But, despite May’s <a href="https://www.telegraph.co.uk/politics/2018/10/03/theresa-mays-conservative-party-conference-speech-full-transcript/">recent claim</a> at the Conservative Party conference that people’s “hard work has paid off”, the government can hardly claim to have met its targets.</p>
<p>Since 2010, despite the budget deficit falling, the overall level of government debt has risen. Britain’s national debt has increased every year since 2001 and at the end of the financial year in March 2018 the deficit stood at <a href="https://www.ons.gov.uk/economy/governmentpublicsectorandtaxes/publicspending/bulletins/ukgovernmentdebtanddeficitforeurostatmaast/march2018">£40.7 billion</a>. Austerity policies haven’t reduced the amount of debt, which currently stands at £1,763.8 billion (compared to <a href="https://www.telegraph.co.uk/news/politics/7809571/Debt-crisis-means-10p-in-every-pound-will-be-needed-to-pay-interest-warns-David-Cameron.html">£770 billion in 2010</a>). Rather, a falling budget deficit has merely slowed the pace at which the national debt is growing.</p>
<p>So ending austerity now might suggest that the government sees current debt (and deficit) figures as acceptable. If they were still “too high” then logically the Conservatives would simply continue with austerity measures, aiming not to run balanced budgets but budget surpluses to lower the deficit and debt. </p>
<p>Shifting the narrative away from austerity also suggests that the level of debt is largely irrelevant or at least secondary to other economic indicators (such as GDP growth, unemployment). This is something the Labour Party tried to convince voters of under Gordon Brown with little success and was criticised for by the Conservative Party. Political opponents are therefore presenting this as a U-turn <a href="https://www.newstatesman.com/politics/uk/2018/10/theresa-may-s-speech-showed-how-much-tories-fear-labour">forced on the Conservatives</a> by Labour’s relatively strong electoral performance in the 2017 general election. </p>
<h2>What will replace it?</h2>
<p>Another question left unanswered by May’s announcements is: what happens to the austerity measures already announced, but yet to come into force? Initially devised in 2010, the Conservatives planned to introduce various austerity measures slowly, to enable the public to get used to the changes and ensure their passage through the legislative process. The idea was that more severe measures would only come into force later on in the decade. </p>
<p>So far May has maintained that the controversial <a href="https://theconversation.com/what-its-like-to-transition-on-to-universal-credit-85190">universal credit</a> – the new system that combines a number of benefits into a single payment – will continue to be rolled out. Reversing this now would place further pressure on the nation’s finances. The promise to end austerity does not seem to include <a href="https://www.ifs.org.uk/publications/13517">existing plans</a> to cut £4 billion from the day-to-day spending of unprotected departments (so all areas other than health, defence and aid) next year.</p>
<p>Equally important is what narrative replaces that of austerity. It is unlikely that the Conservative Party will find the resources or willingness to embark on a large scale spending programme, given May’s rhetoric surrounding fiscal responsibility and Conservative attacks on Labour’s spending plans. </p>
<p>So for all May’s rhetoric, her party will have a tightrope to walk if it is to actually leave austerity behind, while simultaneously defending current debt levels. Questions over her party’s ability to do so will only grow as the chancellor – a big <a href="https://www.theguardian.com/politics/2018/oct/01/philip-hammond-vows-to-stick-with-austerity-in-conference-speech-amazon-google">defender of austerity</a> – delivers his budget on October 29.</p><img src="https://counter.theconversation.com/content/105179/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Christopher Kirkland does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Are the Conservatives admitting that austerity hasn’t worked?Christopher Kirkland, Lecturer in Politics, York St John UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/880422017-11-24T11:40:41Z2017-11-24T11:40:41ZDebunking the UK’s productivity problem<figure><img src="https://images.theconversation.com/files/196194/original/file-20171123-18006-14ohrd8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Hyper-efficient.</span> <span class="attribution"><span class="source">shutterstock.com</span></span></figcaption></figure><p>Productivity – or the UK’s lack of it – is the cause of the country’s economic woes. We have been told this by countless politicians and commentators. And the focus on Britain’s “productivity puzzle” is back in the headlines thanks to the latest budget. The UK’s latest productivity and growth forecasts have been <a href="http://www.independent.co.uk/news/business/news/budget-2017-latest-uk-productivity-growth-economic-forecast-gdp-philip-hammond-statement-a8069321.html">slashed</a>, such that the leading IFS think tank now predicts two decades of <a href="https://www.theguardian.com/business/2017/nov/23/uk-no-earnings-growth-budget-brexit-productivity-ifs">no earnings growth</a>. </p>
<p>A similar story tends to be recycled every time growth forecasts change or data comparing the G7 countries or regions within the UK is released. Phrases <a href="https://www.gov.uk/government/speeches/autumn-statement-2016-philip-hammonds-speech">like</a>: “It takes a German worker four days to produce what a British one does in five.”</p>
<p>But how is productivity the cause of the UK’s problems and what does this statement actually mean? Unfortunately very little, because the term is used inconsistently. There are different measures of productivity and the nature of the UK’s problem depends on which one we are looking at and how it is being used.</p>
<h2>Different definitions</h2>
<p>At its base, productivity is a measure of output over input. The most commonly used measure of output is value-added. Literally the value added to goods and services produced in the UK, calculated as the monetary difference between what is sold and the intermediate goods used in its production. </p>
<p>The most commonly reported input is the number of workers or worker-hours. When combined this gives us a measure of labour productivity, calculated for each industry and aggregated for a region or the whole economy. So far, so good. However, there are some more crucial distinctions, depending upon how labour productivity is used.</p>
<p>If we compare the performance of the UK with other countries or that of London with other parts of the UK, this requires making the comparison at the same point in time. In this case national statistical offices use current price measures of value-added. They use prices in each country at the point of comparison, converted into a common currency (usually US dollars) and adjusted for what these can buy in each place. This is called purchasing power parity or PPP. </p>
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<p>Hence, what we are saying when we say that London is more productive than Carlisle in the north of England or that the UK is less productive than Germany, is that the value-added at current prices produced per hour worked in those places (what economists would call nominal productivity) is different. This is likely to depend largely upon the activities that are being performed in each place. </p>
<p>If some highly lucrative activities are concentrated in one part of the country – say financial and professional services in London – or within a country – think of complex manufacturing across Germany – then this will strongly influence the current price productivity data. The fact that the UK lags behind other countries on this measure reflects what goods and services it produces and the prices it can command for them versus what it has to pay for intermediate inputs. </p>
<p>So some of what the UK produces may be attributable to the skills of workers – but clearly the UK has wider historical issues regarding the types of industry it has and the geographical diversity of its economy. It is misleading to label this a productivity problem.</p>
<h2>Skills and efficiency</h2>
<p>A second way that labour productivity is used is to chart its change or growth over time. This calculation involves fixing prices at some point in time and calculating the change in the quantity of output produced to give a real measure of value-added. Hence if real labour productivity is increasing at 3% per year, a country is producing 3% more actual goods and services per hour worked than it was before, independent of price changes. </p>
<p>It is this calculation that is reflected in the growth of the economy and increases living standards. It is often interpreted as a measure of the increasing efficiency of workers but we must bear in mind that how work is organised, what equipment workers have, how skilled and well-trained they are and how close to capacity the economy is operating will all affect this measure. Also, certain industries have greater propensity for automation, which is <a href="https://hbr.org/2015/06/robots-seem-to-be-improving-productivity-not-costing-jobs">central to increasing productivity</a>.</p>
<p>Unfortunately, since the financial crisis productivity growth across the G7 has been much lower than it was prior to it – which has raised questions regarding how realistic prior measurement was, particularly in financial services, and whether the world has entered an era of slower technological progress. The UK’s productivity fall was steeper and its rebound weaker than in <a href="https://www.ons.gov.uk/economy/economicoutputandproductivity/productivitymeasures/bulletins/internationalcomparisonsofproductivityfinalestimates/2015">comparison countries</a>. </p>
<p>This might be due to a number of reasons: low capital investment, poor skills, the high employment rate and low interest rates keeping inefficient companies afloat. No single explanation is currently winning the day. I would, however, urge readers to think about which measure of productivity is being used and what it means the next time we are told that the UK’s economic woes are due to poor productivity.</p><img src="https://counter.theconversation.com/content/88042/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Paul Lewis does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>There are different measures of productivity and the nature of the UK’s problem depends on which one we are looking at.Paul Lewis, Senior Lecturer in Political Economy, Birmingham Business School, University of BirminghamLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/879632017-11-22T16:20:34Z2017-11-22T16:20:34ZBudget 2017 fails to reset or rebalance anaemic UK economy<p>Given the May government’s weakness and instability, and the ongoing toxic, Brexit-laced personal and political divisions within the cabinet, not much was expected from Philip Hammond’s <a href="https://theconversation.com/budget-2017-experts-respond-87796">Autumn 2017 budget</a>. He did not disappoint. </p>
<p>During a rambling, <a href="https://www.gov.uk/government/speeches/autumn-budget-2017-philip-hammonds-speech">hour-long speech</a> of nearly 8,000 words, weak jokes torturously delivered were interspersed with a raft of policy announcements whose sum total fell far short of resetting UK economic policy away from austerity. This was not a budget to redress the “burning injustices” and interests of the “just about managing”, which the prime minister <a href="https://www.gov.uk/government/speeches/statement-from-the-new-prime-minister-theresa-may">once promised</a> would be the mission of her government. </p>
<p>Hammond’s announcements fell far short of the £4 billion in investment required to redress the impact of a lost decade of cuts in welfare, including the <a href="http://cpag.org.uk/content/austerity-generation-impact-decade-cuts-family-incomes-and-child-poverty">freeze on benefits</a>. Or the <a href="https://www.kingsfund.org.uk/publications/autumn-budget-2017">£4 billion required</a> to maintain services in the National Health Service in England in 2018-19. And little to redress the <a href="https://www.nao.org.uk/report/financial-sustainability-in-schools/">financial unsustainability of England’s schools</a> or <a href="https://www.nao.org.uk/report/financial-sustainability-of-local-authorities-capital-expenditure-and-resourcing/">its local government</a>.</p>
<p>Hammond’s statement announced token investment in driverless vehicles, but onlookers could be forgiven for thinking that this was the anaemic budget of a driverless government. Like his next-door-neighbour in 10 Downing Street, Hammond lacks the necessary gumption to lead the UK economy at this critical juncture.</p>
<p>The Autumn 2017 budget represented the opportunity to make good Hammond’s <a href="http://www.bbc.co.uk/news/business-36864099">July 2016 promise</a> “to reset fiscal policy if we deem it necessary to do so in the light of the data that will emerge over the coming months”. The data that has emerged subsequently should have convinced him that the time for a reset was long overdue. Austerity has clearly failed to revive the British economy and there is an urgent need to prepare businesses – and not just government departments – for Brexit.</p>
<h2>Rising debt</h2>
<p>Austerity – the notion of balancing the books by cutting spending – has singularly failed to rebalance the nation’s finances. Since Hammond’s appointment as chancellor, a further £176 billion has been added to the UK’s public sector net debt, which now stands at <a href="https://www.ons.gov.uk/economy/governmentpublicsectorandtaxes/publicsectorfinance/bulletins/publicsectorfinances/october2017">more than £1,790 billion</a>. This has maintained the pattern since May 2010, which has seen the Cameron-Clegg coalition’s <a href="https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/83820/coalition_programme_for_government.pdf">“unavoidable deficit reduction plan”</a> add £772.5 billion <a href="https://www.ons.gov.uk/economy/governmentpublicsectorandtaxes/publicsectorfinance/bulletins/publicsectorfinances/october2017">to public sector net debt</a>. </p>
<p>The budget <a href="https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/661480/autumn_budget_2017_web.pdf">now forecasts</a> that in 2022-23, public sector net debt will still be £1,909 billion or 79.1% of GDP, and the government will be borrowing £25.6 billion or 1.1% of GDP. </p>
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<p>This is contrary to what Hammond’s predecessor George Osborne <a href="http://www.parliament.uk/business/news/2010/06/emergency-budget-2010-statement/">promised</a> would have been achieved by 2015-16. When the Conservatives came into government in June 2010, Osborne <a href="https://publications.parliament.uk/pa/cm201011/cmhansrd/cm100622/debtext/100622-0004.htm#1006224500000">promised</a> “to raise from the ruins of an economy built on debt a new, balanced economy where we save, invest and export”.</p>
<p>That new, balanced economy has proven to be a fiction. In 2016, the UK ran a record current account deficit of £115.5 billion, equivalent to 5.9% of GDP, and a trade deficit of £43 billion, <a href="https://www.ons.gov.uk/economy/nationalaccounts/balanceofpayments/bulletins/balanceofpayments/apriltojune2017">equivalent to 2.2% of GDP</a>. </p>
<p>There was little in the latest budget to reverse these trends. Instead, the independent Office for Budget Responsibility (OBR) downgraded its forecasts for real GDP growth between 2017-18 and 2021-22 <a href="http://cdn.budgetresponsibility.org.uk/Nov2017EFOwebversion.pdf">from 7.5% to 5.7%</a>. The British economy is now forecast to grow by less than 2% in each year of the current parliament, and, as the OBR also noted, this contrasts with “a pick-up in other advanced economies”.</p>
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<h2>Storing problems for the future</h2>
<p>The budget concluded with a raft of announcements to address the housing crisis in England, including the abolition of Stamp Duty on properties up to £300,000. This was Hammond’s crowd-pleasing rabbit out of the hat. But the OBR <a href="http://cdn.budgetresponsibility.org.uk/Nov2017EFOwebversion.pdf">has observed</a> that “the main gainers from the policy are people who already own property” rather than first-time buyers, and will likely push up prices, thus making properties less affordable. </p>
<p>Official government statistics have revealed that over the past 20 years, land values have increased by 479% <a href="https://www.ons.gov.uk/economy/grossdomesticproductgdp/compendium/unitedkingdomnationalaccountsthebluebook/2017">and property values by 203%</a>. The latest budget has done nothing to reverse these trends towards investment in property and rent-seeking, rather than in the real economy of businesses.</p>
<p>David Willetts, who until May 2015 was complicit in the implementation of austerity, as a cabinet minister in the Cameron-Clegg coalition government, <a href="http://www.resolutionfoundation.org/media/blog/the-social-contract-between-generations-in-britain-is-being-broken/">recently warned</a>: </p>
<blockquote>
<p>We are reshaping the state and storing problems for the future by creating a country for older generations. The social contract is a contract between the generations and in Britain it is being broken.</p>
</blockquote>
<p>The truth is more stark than that. Philip Hammond’s failure to reset UK economic policy by perpetuating fundamentally flawed austerity policy means the May government is reshaping the state and storing problems for the future by creating a country for older, rentier and asset-rich interests. This risks breaking down the political contract between the governing elite at Westminster and the people of Britain.</p><img src="https://counter.theconversation.com/content/87963/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Simon Lee does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>There was token investment in driverless cars, but this was a pitiful budget by a rudderless government.Simon Lee, Senior Lecturer in Politics, University of HullLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/877962017-11-22T14:03:53Z2017-11-22T14:03:53ZBudget 2017: experts respond<p>The UK chancellor of the exchequer, Philip Hammond, has delivered a budget which offered help to first-time home buyers and the prospect of more money for workers in the National Health Service, but his speech was partly overshadowed by sharp <a href="http://www.independent.co.uk/news/business/news/budget-2017-latest-uk-productivity-growth-economic-forecast-gdp-philip-hammond-statement-a8069321.html">cuts to GDP growth forecasts</a> from the Office of Budget Responsibility (OBR). </p>
<p>Our team of academics deliver their verdict on the measures introduced and opportunities missed.</p>
<h2>The economy</h2>
<p><strong><em>Michael Kitson, senior lecturer in international macroeconomics, Cambridge Judge Business School</em></strong></p>
<p>The UK economy is in desperate need of a reboot but the chancellor has delivered a “neither here nor there” Budget. The two big economic issues are stagnant productivity and the uncertainty of Brexit. </p>
<p>Productivity – often measured as output per hour – is the key driver of economic growth which in turn determines real wages, profits and tax revenues. But productivity is no higher now than it was just before the 2008 financial crisis and the OBR has <a href="http://budgetresponsibility.org.uk/efo/economic-fiscal-outlook-november-2017/">today revised down</a> its forecasts of future productivity growth. </p>
<p>The chancellor pretended to be the investor that the economy needs but he reverted to type with a budget based on the narrow principles of accountancy and the constraints of fiscal rules. Hammond outlined a hotchpotch of “action plans”, “task forces” and “reviews”. The one substantive policy was the much-needed investment in housing but even here the policy is a combination of “capital, loans and guarantees” with little detail of how much will be new money. </p>
<p>The government needs to substantially reformulate its fiscal rules and develop a coherent investment strategy if it to ensure long-term economic transformation and the development of an economy that can cope with turbulence of Brexit.</p>
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<p><strong><em>Chris Jones, reader in economics, Aston University</em></strong></p>
<p>Regardless of the size of the deficit and the economic effects of Brexit, the UK’s fundamental economic problem is productivity growth. Output per worker has been stagnant and there is a concern, as highlighted by the OBR’s forecasts, that the UK’s productive capacity has been severely damaged.</p>
<p>Until productivity rises, wages will remain stagnant. Although employment has been robust there is still significant underemployment built into the labour market. The government needs to create an environment that encourages businesses to invest. One way of doing this would be to create a public investment bank or a sovereign wealth fund to take advantage of the historically low borrowing costs available in the financial markets.</p>
<p>The OBR predicts that trend growth is now around 1.5%, much lower than the historic trend of around 2%. This lower projection suggests that the UK’s productive capacity has been permanently dented after the financial crisis, the impact of austerity and uncertainty related to Brexit.</p>
<p>The Conservatives have done fairly well on tax avoidance in recent years. The decision to deduct UK income tax from royalty payments by high tech companies is also a good move. However, given the impact of <a href="https://theconversation.com/uk/topics/paradise-papers-45854">the Paradise Papers</a> there was nothing on public country-by-country reporting which would generate much greater transparency as to where multinational firms locate their income.</p>
<h2>Housing</h2>
<p><strong><em>Gwilym Pryce, professor of urban economics and social statistics, University of Sheffield</em></strong></p>
<p>On the face of it the 2017 budget offers an impressive attempt to address the UK housing crisis, but it may simply be that the chancellor is running to stay still. </p>
<p>Proposals to boost housing supply to 300,000 net additional homes a year on average by the mid-2020s, eliminate rough sleeping by 2027 and revive the homeownership dream for young people by cutting stamp duty are all welcome. However, there are questions about whether the proposals are compatible or achievable. Setting housing supply targets is easy. Meeting them is notoriously difficult. How will the plans to boost construction industry skills have any net positive effect given the likely fall in migrant construction workers as a result of Brexit?</p>
<p>The abolition of stamp duty for first time buyers on purchases up to £300k (£500k in London) is also dubious. Will this not simply boost demand in that sector of the housing market, further inflating prices of “entry level” housing? And in the absence of any significant new money for social housing it’s hard to imagine how rough sleeping, which has <a href="https://crisis.org.uk/media/236823/homelessness_monitor_england_2017.pdf">risen by over 130%</a> in England since 2010, will be significantly reduced any time soon.</p>
<p>There is little to address regional inequalities which lie at the heart of the UK housing crisis. And it’s hard to see how Hammond’s measures could offset what Boris Johnson called the “Kosovo-style social cleansing of London” and <a href="https://theconversation.com/poverty-is-moving-to-the-suburbs-the-question-is-what-to-do-about-it-35986">other major cities</a> as low income households are increasingly priced out of inner city areas.</p>
<p><strong><em>Ed Turner, senior lecturer in politics, Aston University</em></strong></p>
<p>There is good consensus now about housing issues that need to be addressed. There should be more ambition on supply along with investment; there should be concrete action to tackle the rise in rough sleeping; and there should be greater diversity in house-building with less reliance on high-volume house builders. There is also a need to address a land market which, left to its own devices, may see land being hoarded and used for speculation rather than being built out.</p>
<p>On each of these points, action is promised by the chancellor. Hammond issued a “use-it-or-lose-it” threat to developers, but critics would observe that detail is sketchy (with a review and a taskforce rather than concrete policies on land and on rough sleeping). Some themes (such as the land question) were raised in <a href="https://www.theguardian.com/commentisfree/2017/feb/28/britain-housing-crisis-land-ownership-white-paper">February’s White Paper</a> and are simply reiterated, without policy having developed in the meantime. Clearly the biggest headline will go to the stamp duty reduction <a href="http://www.independent.co.uk/news/uk/politics/budget-2017-stamp-duty-first-time-buyers-housing-market-property-300000-tax-a8069546.html">for first-time buyers</a>. The problem with such instruments is that they risk raising house prices rather than helping with supply.</p>
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<a href="https://images.theconversation.com/files/195843/original/file-20171122-6013-1bfqv50.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/195843/original/file-20171122-6013-1bfqv50.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/195843/original/file-20171122-6013-1bfqv50.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=449&fit=crop&dpr=1 600w, https://images.theconversation.com/files/195843/original/file-20171122-6013-1bfqv50.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=449&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/195843/original/file-20171122-6013-1bfqv50.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=449&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/195843/original/file-20171122-6013-1bfqv50.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=565&fit=crop&dpr=1 754w, https://images.theconversation.com/files/195843/original/file-20171122-6013-1bfqv50.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=565&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/195843/original/file-20171122-6013-1bfqv50.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=565&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Crossroads?</span>
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<h2>Universal Credit</h2>
<p><strong><em>Jill Rubery, professor of comparative employment systems, University of Manchester</em></strong></p>
<p><a href="https://theconversation.com/uk/topics/universal-credit-26173">Universal credit</a> is a disaster waiting to happen. It introduces quite draconian cuts to some of the most vulnerable groups – the disabled and single parents in particular. It also provides employers with new opportunities to pass the costs of flexibility on to their workforce in the hope that the state will pick up the pieces. </p>
<p>It no longer provides the incentives to work promised when it was committed to. Changes in this budget to the implementation are welcome as they will reduce the catastrophe of the most vulnerable having no access to funds and at risk of losing their flats or houses even if they stop eating. </p>
<p>But the shambles of universal credit is evident in the fact that the measures to allow for advances and continuity of benefits is to cost £1.5 billion. It is not clear why these basic rights were not built into the initial plan unless it is evidence of neglect of the needs of benefit claimants. The plan seems to be to prevent the system itself attracting criticism, probably in the hope that the general public will not care so much about the cuts being introduced or the flexibility provided for employers to offer whatever hours they wish.</p>
<p><strong><em>Donald Hirsch, professor of social policy, Loughborough University</em></strong></p>
<p>This budget had some fine words about “helping families cope with the cost of living”. But for millions of families depending on benefits, tax credits and universal credit, it offered nothing to reverse the steady decline in living standards caused by freezing state support while prices rise. </p>
<p>All it really offered to low income families was a partial amelioration of the problems that recent policies have created. Some measures were designed to make the transition to universal credit less painful. The government also increased its “local affordability funding”, which compensates some claimants hit by the freeze on permissible Housing Benefit levels, in areas where rents are rising fastest. </p>
<p>The just-about-managing (and not-managing) families receiving these band aids will gain nothing from the removal of stamp duty on buying homes that they could not hope to afford.</p>
<h2>Fuel duty and electric vehicles</h2>
<p><strong><em>Paul Nieuwenhuis, senior lecturer and co-director of the Electric Vehicle Centre of Excellence, Cardiff University</em></strong></p>
<p>It seems that, despite <a href="http://www.telegraph.co.uk/news/2017/11/10/green-chancellor-philip-hammond-set-deliver-budget-tax-blow/">some dire warnings</a>, diesel drivers have been treated relatively leniently. Although older diesel cars will be moved up one band in terms of their Vehicle Excise Duty – which in some cases could add a few hundred pounds a year to their running costs – the fuel duty on both petrol and diesel will not be increased. </p>
<p>The extra income will be invested in the £22m <a href="https://www.gov.uk/government/consultations/air-quality-additional-measures-to-support-individuals-and-businesses-affected-by-local-no2-plans">clean air fund</a>. Commercial vehicles will not be penalised in any way, however. Also, no penalty is envisaged for the latest generation of “clean” diesel cars, which suggests the government has accepted the industry line on these, rather than emerging independent testing evidence. </p>
<p>The chancellor’s admiration <a href="https://theconversation.com/budget-2017-uks-driverless-cars-stuck-on-testing-roundabout-87805">for driverless cars</a> was included as one of the “cutting edge” UK technologies deserving of support under the government’s new industrial strategy. This was also linked with further support for electric vehicles, notably an additional £400m investment in charging infrastructure and a further extension of the plug-in <a href="https://www.gov.uk/plug-in-car-van-grants">car grant scheme</a>. Also relevant in this context may be the £1.7 billion promised for local authorities to improve transport in their areas. Detail is lacking at this point, but if this can also be used to promote electric vehicles, that could provide an additional boost to infrastructure.</p>
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<a href="https://images.theconversation.com/files/195844/original/file-20171122-6013-1xriy5l.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/195844/original/file-20171122-6013-1xriy5l.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/195844/original/file-20171122-6013-1xriy5l.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/195844/original/file-20171122-6013-1xriy5l.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/195844/original/file-20171122-6013-1xriy5l.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/195844/original/file-20171122-6013-1xriy5l.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/195844/original/file-20171122-6013-1xriy5l.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/195844/original/file-20171122-6013-1xriy5l.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Fuel for the tax take?</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/close-fuel-tank-nozzle-757270936?src=_4uXPYd-H-UK-x2rVL6DkQ-2-21">kpakook/Shutterstock</a></span>
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</figure>
<h2>Alcohol and tobacco</h2>
<p><strong><em>Linda Bauld, professor of health policy, University of Stirling</em></strong></p>
<p>The chancellor’s decision to <a href="https://www.thedrinksbusiness.com/2017/11/industry-rejoices-as-chancellor-freezes-wine-and-spirit-duty/">increase the duty on high strength cider</a> looks like good news at face value. High strength ciders commonly contain 7.5% alcohol by volume and are available in large bottles with up to 22 units (equivalent to a bottle of vodka) for as little as £3.50. </p>
<p>This product is consumed by heavy drinkers and young people and directly contributes to alcohol-related disease and death, violence and accidents. Increasing the duty could reduce harm, but in practice the budget increase is tiny and duty on other alcohol products has been frozen – a missed opportunity overall. </p>
<p>In contrast, the budget has <a href="http://www.independent.co.uk/news/uk/politics/budget-2017-cigarette-prices-rise-tax-duty-philip-hammond-treasury-drink-alcohol-pubs-a8069451.html">reinstated the tobacco tax escalator</a>. Smoking is still the leading preventable cause of death in the UK, and despite recent drops in prevalence, up to one third of adults still smoke in our poorest communities. Higher prices do deter smoking, and today’s announcements could help us make further progress towards a tobacco free future.</p>
<h2>Innovation</h2>
<p><strong><em>Geoff Rodgers, deputy vice chancellor (research and innovation), Brunel University London</em></strong></p>
<p>The additional £2.3 billion in research and development funding announced in today’s budget is very welcome and much needed. It will allow universities to build new research programmes in collaboration with industry that identify, characterise and implement the disruptive technologies necessary to drive change in the autonomous vehicle, mobile communication and artificial intelligence technology sectors, which should all now see a significant boost in funding.</p>
<p>These are areas where both UK industry and UK academic research is strong, and therefore the country is well equipped to compete globally. The combination of research and development in advanced technologies within these sectors, coupled with a good supply of talented young people entering these industries, will help drive improvements in productivity and promote economic growth within the UK. </p>
<p><strong><em>Peter Bloom, senior lecturer in organisation studies, The Open University</em></strong></p>
<p>A major theme of the budget is the need for innovation. The chancellor boldly promised that the UK will be “at the forefront of a technological revolution”. This claim is supported by an extra £500m to boost technology development around electric cars, artificial intelligence, and robotics. This, however, pales in comparison to the technological challenges facing the country. </p>
<p>Right now, the creation of a high-tech economy is as threatening as it is exciting. The rise of artificial intelligence, robotics, and automation brings risks of higher unemployment, greater feelings of social alienation, <a href="https://www.theverge.com/2017/7/13/15963710/robots-ai-inequality-social-mobility-study">and widening inequality</a>. What is absolutely crucial then is to promote a programme of innovation that directly addresses present and upcoming economic, political, and social challenges. </p>
<p>This includes investment in civic technology, the use of big data to create “smart solutions” to create more sustainable cities and communities, and the application of virtual and digital technology to improve public services. In the long term, we must ensure that this research and development is aimed at more than just commercialisation but opening up the possibilities of creating a more egalitarian, free, and less economically insecure tomorrow.</p><img src="https://counter.theconversation.com/content/87796/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Chris Jones has received funding from the British Academy.</span></em></p><p class="fine-print"><em><span>Donald Hirsch is a member of the Labour Party and co-author of The Living Wage from Agenda Publishing.</span></em></p><p class="fine-print"><em><span>Ed Turner has received funding from the German Academic Exchange Service (DAAD) to support comparative research into British and German Housing Policy. He is Deputy Leader of Oxford City Council and of the Local Government Association's Environment and Housing Board. He is a member of the Labour Party.</span></em></p><p class="fine-print"><em><span>Geoff J Rodgers receives funding from HEFCE, RCUK and the EU. He is a Governor of both Brunel University London and Heathrow Aviation Engineering UTC.</span></em></p><p class="fine-print"><em><span>Gwilym Pryce is on the Economic Advisory Panel for Defra. He currently has a number of research projects funded by the Economic and Social Research Council.</span></em></p><p class="fine-print"><em><span>Jill Rubery has received funding from from a wide range of sources including the European Commission, the ESRC, the Department of Health and the International Labour Organisation She is a Labour Party member and an active member of the Manchester Fairness At Work Research Centre at the University of Manchester.</span></em></p><p class="fine-print"><em><span>Linda Bauld is Director of the Institute for Social Marketing at the University of Stirling which receives research funding from Cancer Research UK and a range of other public sector organisations and charities. She is also a Deputy Director of the UK Centre for Tobacco and Alcohol Studies, funded by the UK Clinical Research Collaboration.</span></em></p><p class="fine-print"><em><span>Michael Kitson has received funding from BIS, HEFCE, EPSRC, ESRC, AHRC, NERC and the MRC.</span></em></p><p class="fine-print"><em><span>Paul Nieuwenhuis has in the past received funding relevant to this area from ESRC, EPSRC, ACEA, Greenpeace International, OECD. This article does not reflect the views of the research councils.</span></em></p><p class="fine-print"><em><span>Peter Bloom does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Academics deliver their verdict on Philip Hammond.Chris Jones, Reader in Economics, Aston UniversityDonald Hirsch, Professor of Social Policy, Loughborough UniversityEd Turner, Senior Lecturer in Politics, Head of Politics and International Relations, Aston UniversityGeoff J Rodgers, Deputy Vice Chancellor (Research&Innovation), Brunel University LondonGwilym Pryce, Professor of Urban Economics and Social Statistics and Director of the Sheffield Methods Institute, University of SheffieldJill Rubery, Professor of Comparative Employment Systems, University of ManchesterLinda Bauld, Professor of Health Policy and CRUK/BUPA Chair in Behavioural Research for Cancer Prevention, University of StirlingMichael Kitson, University Senior Lecturer in International Macroeconomics, Cambridge Judge Business SchoolPaul Nieuwenhuis, Senior Lecturer and Co-Director, Electric Vehicle Centre of Excellence (EVCE), Cardiff UniversityPeter Bloom, Senior Lecturer in Organisation Studies, Department of People and Organisation, The Open UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/878052017-11-21T16:12:03Z2017-11-21T16:12:03ZBudget 2017: UK’s driverless cars stuck on testing roundabout<figure><img src="https://images.theconversation.com/files/195635/original/file-20171121-6027-1vfkbnd.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Is chancellor of the exchequer, Philip Hammond, betting on tech utopia with plans to see autonomous vehicles on UK roads by 2021?</span> <span class="attribution"><a class="source" href="https://commons.wikimedia.org/wiki/Category:Philip_Hammond#/media/File:DOORSTEP_2016-09-09_-_EU_Members_States_Ministers_(29527029036).jpg">EU2016SK</a></span></figcaption></figure><p>The UK government is betting big on driverless cars with the chancellor, Philip Hammond, <a href="http://www.bbc.co.uk/news/business-42040856">announcing plans</a> to change regulation to allow developers to test autonomous vehicles on British roads.</p>
<p>Ahead of the Budget, Hammond – <a href="https://www.theguardian.com/uk-news/2016/mar/12/george-osborne-driverless-car-trials-budget/">echoing his predecessor, George Osborne</a> – said that “bold reforms” to get driverless cars on UK roads by 2021 would see the country leading the world in new technologies and infrastructure.</p>
<p>But, given the Silicon Valley-led effort to develop driverless cars, it’s going to be difficult for UK government-backed projects to make much impact – unless they have some breakthrough technologies under test. To date, however, there’s no public evidence to suggest that the UK is ahead of the pack. </p>
<p>Government support for driverless vehicles might be justified if its impact on the clogged up transport system is clearly beneficial. Autonomous vehicles would need to be demonstrably safer than their human-driven counterparts to be publicly acceptable – but the technology isn’t there yet. </p>
<p>If <a href="https://theconversation.com/a-future-world-full-of-driverless-cars-seriously-64606">significant issues with automation can be ironed out</a>, then higher safety rates should be achievable, given that most car crashes are due to human error. So we may expect a safety benefit from driverless cars and lower cost insurance. Beyond that, it seems likely that there will be two main impacts.</p>
<p>First, replacing the human driver with automation would drive down the cost of licensed taxis and private hire vehicles, enhancing their competitiveness. This is presumably why Uber – <a href="https://theconversation.com/uber-in-london-firm-must-value-its-drivers-as-well-as-its-customers-84621">beset with regulatory issues relating to the employment status of its drivers</a> – is so keen on this technology. Just recently, the company <a href="https://www.bloomberg.com/news/articles/2017-11-20/uber-steps-up-driverless-cars-push-with-deal-for-24-000-volvos">ordered 24,000 driverless cars from Volvo</a>. Such robotic vehicles would fill the gap in service provision that exists between high-capacity, low cost public transport and low-capacity, high cost taxis. </p>
<p>Public transport proponents are <a href="http://www.bettertransport.org.uk/blog/better-transport/autonomous-vehicles-threadbare-emperor">anxious that autonomous vehicles will attract people away from buses</a>, leading to gridlock. On the other hand, <a href="https://www.ethz.ch/content/dam/ethz/special-interest/baug/ivt/ivt-dam/vpl/reports/1201-1300/ab1225.pdf">research suggests</a> that the ready availability of automated taxis would probably reduce the appeal of owning a car, and robotic shared-use minibuses would allow door-to-door conveyance at reasonable charges. So, we can envisage a future in which the availability of shared-use autonomous vehicles fosters a shift away from private ownership in urban areas, with a beneficial impact on traffic congestion.</p>
<p>Second, private car ownership is likely to remain popular outside of cities. Driverless cars might be expected to allow new options, such as sending a vehicle home unoccupied, after delivering a passenger to their workplace. It’s then freed up for use by others living in the same household. This could reduce car ownership per household, but would increase the number of miles travelled in one vehicle. </p>
<figure>
<iframe width="440" height="260" src="https://www.youtube.com/embed/k1JRmMA7NqU?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
</figure>
<p>Another option would be “parking on the move” – programming a car to cruise round the block while the passenger nips out to the shops. However, such unoccupied vehicles would add to traffic and worsen congestion in urban areas, so they would need to be regulated to give priority to occupied vehicles.</p>
<p>A key test for any new autonomous vehicle technology is its positive and negative impacts on traffic congestion. In the absence of evidence from deployment at scale, the outcome is uncertain and the UK government’s transport policy championing driverless vehicles is by no means a sure route to the future of mobility.</p>
<h2>A fork in the road</h2>
<p>The evolutionary approach to autonomous vehicles – pursued by the world’s car manufacturing giants – offers to relieve drivers of tedious tasks with <a href="https://www.audi-technology-portal.de/en/electrics-electronics/driver-assistant-systems/adaptive-cruise-control-with-stop-go-function">technology such as adaptive cruise control</a>, which regulates the speed and space to the vehicle ahead. </p>
<p>The revolutionary route, pioneered by <a href="https://waymo.com/">Waymo</a> (a brand owned by Google), dispenses with the driver entirely. Other US companies with disruptive approaches are actively developing and investing in driverless technologies, including Tesla and Uber.</p>
<p>But where does that leave the UK government’s pledge to be a world leader in an increasingly crowded market, especially given that big questions still hang over the technology’s deployment at scale?</p>
<p>There are two related reasons why the government might attempt to “pick a winner” of this kind: industrial policy and transport policy. If, as <a href="http://www.telegraph.co.uk/news/politics/georgeosborne/12191589/Driverless-cars-will-take-to-Britains-motorways-for-the-first-time-next-year.html">Osborne claimed</a>, driverless cars represent “the most fundamental change to transport since the invention of the internal combustion engine”, then support for autonomous vehicles should form part of the UK government’s industrial strategy and transport policy. </p>
<p>In the past few years, the government has actively supported trials and future deployment of driverless vehicles on British roads. Projects are already underway in <a href="https://theconversation.com/driverless-public-transport-will-change-our-approach-to-city-planning-and-living-35520">Bristol, Coventry, Greenwich and Milton Keynes</a>; research and development is <a href="https://www.gov.uk/government/publications/connected-and-autonomous-vehicle-research-and-development-projects-2017">taxpayer funded</a>; <a href="https://www.gov.uk/government/publications/automated-vehicle-technologies-testing-code-of-practice">codes of practice</a> for on-road testing have been published; and draft legislation has been introduced in <a href="https://publications.parliament.uk/pa/bills/cbill/2017-2019/0112/cbill_2017-20190112_en_1.htm">parliament calling for vehicle insurance</a> to cover both the motorist when driving as well as the car in automated mode.</p>
<p>But it’s the lack of clarity on the UK government’s transport policy that justifies cautious support of development, testing and deployment of driverless cars to improve research into the implications of what could yet turn out to be an important innovation for Britain’s roads.</p>
<p>Which brings us neatly back to the UK transport ministry’s bold statement: “These measures will help realise the chancellor’s vision that fully self-driving cars will be on UK roads in as little as three years.”</p>
<p>Traditional transport technologies based on mechanical and civil engineering develop quite slowly. In contrast, digital technologies are fast and disruptive. Autonomous vehicles are where the digital hare has to ride on the back of the mechanical tortoise, with as yet uncertain consequences for the speed of travel.</p><img src="https://counter.theconversation.com/content/87805/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>David Metz does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>It’s going to be difficult for UK government-backed autonomous vehicle projects to compete with Silicon Valley – unless they have something neat under the bonnet.David Metz, Honorary Professor of Transport Studies, UCLLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/874232017-11-21T11:27:34Z2017-11-21T11:27:34ZWelcome to Britain: a land where jobs may be plentiful but are more and more precarious<figure><img src="https://images.theconversation.com/files/195468/original/file-20171120-18555-ao78xt.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">On the edge. </span> <span class="attribution"><span class="source">via shutterstock.com</span></span></figcaption></figure><p>The British chancellor, Philip Hammond, was <a href="http://www.independent.co.uk/news/uk/politics/philip-hammond-latest-chancellor-no-unemployed-people-annual-budget-jobless-a8063416.html">roundly criticised</a> on November 19 after claiming there were “no unemployed people” during a BBC interview with Andrew Marr.</p>
<p>While the latest figures from the Office for National Statistics showed <a href="https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/employmentandemployeetypes/bulletins/uklabourmarket/november2017">a fall in unemployment in the UK</a>, there are still 1.42m out of work. And there is growing concern about the UK’s increasingly precarious and insecure labour market. </p>
<p>The numbers of people who do <a href="https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/employmentandemployeetypes/datasets/underemploymentandoveremploymentemp16">not have enough work</a>, are on <a href="http://usir.salford.ac.uk/43586/">temporary or zero-hours contracts</a>, and who are classed as self-employed but are actually working <a href="https://www.tuc.org.uk/research-analysis/reports/international-trends-insecure-work">just for one employer</a> still remain higher than before the recession of 2008.</p>
<p>This is coupled with welfare reforms that have affected those claiming unemployment benefits. Not least has <a href="https://theconversation.com/what-its-like-to-transition-on-to-universal-credit-85190">been the introduction</a> of Universal Credit, a one-stop benefit, which has intensified the conditions that are placed on people before they can receive welfare payments. This type of “welfare conditionality”, which includes demonstrating up to 35 hours per week job search activity, also applies to people who receive Universal Credit but are working. </p>
<p>We have been involved in several research projects about the issues facing people who move from the benefits system into insecure work. As part of an ongoing national study focusing <a href="http://www.welfareconditionality.ac.uk/">on welfare conditionality</a>, one man talked about his experience of starting zero hours work in food processing in the north of England. In his first week, he was told he would receive a text message saying whether he was needed the next day. For two days he didn’t receive any messages. </p>
<blockquote>
<p>Then the third day they gave me an option to just go up there and be a spare, so literally if people don’t turn up you can go up there and stand around for half an hour and if they don’t turn up then they’ll use you. So I went up there, it was quite early in the morning, 7 o'clock; I was up at 5.45 to get there. I hung around for half an hour. I wasn’t offered any work.</p>
</blockquote>
<p>This man did manage to secure more hours, but the job was still temporary and he remained on Universal Credit throughout this experience, knowing that he would be relying on the benefit again once the temporary work ended. This meant that in addition to worrying about whether or not he would have work from one day to the next, there were also still expectations on him from the Jobcentre to attend appointments and continue looking for work. </p>
<h2>Corralled into precarious jobs</h2>
<p>Precarious workers often work in several jobs, but can still live in <a href="http://journals.sagepub.com/doi/full/10.1177/0950017017728614">deep poverty</a>. People with precarious work often have unpredictable or insufficient working hours and schedules which lead to irregular income and significant pay penalties. This can in turn <a href="http://journals.sagepub.com/doi/abs/10.1177/0950017014559264">cause</a> increased levels of debt, a limited choice of housing, or even eviction, as well as negative consequences for <a href="http://usir.salford.ac.uk/42283/">personal well-being</a>. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/195469/original/file-20171120-18561-5bqwhx.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/195469/original/file-20171120-18561-5bqwhx.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/195469/original/file-20171120-18561-5bqwhx.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=493&fit=crop&dpr=1 600w, https://images.theconversation.com/files/195469/original/file-20171120-18561-5bqwhx.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=493&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/195469/original/file-20171120-18561-5bqwhx.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=493&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/195469/original/file-20171120-18561-5bqwhx.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=620&fit=crop&dpr=1 754w, https://images.theconversation.com/files/195469/original/file-20171120-18561-5bqwhx.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=620&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/195469/original/file-20171120-18561-5bqwhx.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=620&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">UK unemployment rates (aged 16 and over), seasonally adjusted.</span>
<span class="attribution"><span class="source">Office for National Statistics</span></span>
</figcaption>
</figure>
<p>Another of our <a href="http://usir.salford.ac.uk/43586/">studies</a> showed that the first contact with precarious jobs often starts at the Jobcentre where claimants are encouraged, directed or coerced to apply for low-skilled, low-paid and precarious jobs, such as temporary agency work and zero-hours work. </p>
<p>Not doing so might lead to benefit sanctions – meaning their benefits will be suspended. A man we spoke to who lived in Derbyshire told us: </p>
<blockquote>
<p>I got offered a job with an agency in Manchester with no expenses for travel and so on. I said ‘no’ and then was sanctioned for refusing work.</p>
</blockquote>
<h2>Not what workers want</h2>
<p>Our research using the <a href="https://discover.ukdataservice.ac.uk/series/?sn=200002">Annual Population Survey</a> of over 100,000 employees in the UK is showing that precarious working contracts and conditions are driven mainly by employers’ <a href="http://usir.salford.ac.uk/43586/">demands for flexibility</a> – not what workers want. Only one in five of temporary agency workers in the UK included in the survey actually prefer to work in a temporary job. Many of the people we interviewed would not choose to work for an agency, would not recommend working for an agency and would like to see zero-hours contracts banned. This is contrary to what the prime minister, Theresa May, <a href="https://theconversation.com/fact-check-would-banning-zero-hours-contracts-harm-more-people-than-it-would-help-80933">claimed</a> earlier in the year.</p>
<p>Employer-driven flexibility also puts people in a situation where they have a limited power to negotiate their working conditions, as our research and <a href="http://journals.sagepub.com/doi/abs/10.1177/0950017017719839?journalCode=wesa">other</a> studies have found. We <a href="http://usir.salford.ac.uk/43586/">heard many stories</a> of how peoples’ working hours were cut, changed at a short notice or their jobs were taken away only because they weren’t – as one person we spoke to put it – “servile to management”. </p>
<p><a href="http://usir.salford.ac.uk/43586/">Our research</a> also shows that precarious working arrangements are also often coupled with employment practices that disadvantage workers. Many are often not provided with an employment contract or wage slips, and are not paid for holidays, sick leave or lunch breaks. Others are not paid for their work, as firms claims the hours were only an “induction”. </p>
<p>While government statistics may show a decreasing number of unemployed people, it’s too easy to point to this as a success. These figures hide the harsh experiences of many in today’s job market, in which the precarity of employment can create a cycle of moving back and forth between periods of paid work and reliance on benefits.</p><img src="https://counter.theconversation.com/content/87423/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Lisa Scullion receives funding from the Economic and Social Research Council (ESRC) for research on welfare conditionality </span></em></p><p class="fine-print"><em><span>Daiga Kamerāde does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Unemployment levels are low, but many people are being pushed into inadequately paid jobs by a punitive benefit system and lack of choice.Daiga Kamerāde, Senior Lecturer in Quantitative Research Methods, University of SalfordLisa Scullion, Reader in Social Policy, University of SalfordLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/869082017-11-06T15:09:05Z2017-11-06T15:09:05ZSouth Africa shows why collaboration is key to tackling global crime networks<figure><img src="https://images.theconversation.com/files/193415/original/file-20171106-1027-ipv99h.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">South African President Jacob Zuma. Mounting allegations of corruption at home are having international repercussions. </span> <span class="attribution"><span class="source">Reuters/Mark Schiefelbein</span></span></figcaption></figure><p><em>Lord <a href="https://www.theguardian.com/politics/peterhain">Peter Hain</a> tabled a series of allegations in the UK’s House of Lords relating to the possible role of British banks in alleged money laundering and illicit financial transactions centred around South Africa’s <a href="http://www.sahistory.org.za/people/jacob-gedleyihlekisa-zuma">President Jacob Zuma</a> and the <a href="https://mg.co.za/tag/gupta-family">Gupta family</a>. The Conversation Africa’s Charles Leonard asked him to explain why he took the step. Hain, who was a vocal anti-apartheid activist, was born in South Africa but grew up in the UK. He is a visiting adjunct professor at the University of the Witwatersrand’s Business School.</em></p>
<p><strong>In the House of Lords you said the illicit transactions were “part of a flagrant robbery of South African taxpayers”. What do you mean by this?</strong></p>
<p>As I explained in <a href="https://hansard.parliament.uk/Lords/2017-11-01/debates/B122FCEA-07C2-4A5E-A5DC-87EB70642A5E/SanctionsAndAnti-MoneyLaunderingBill(HL)#contribution-A31355C8-48D9-441F-B8C2-99717600C294">my speech</a>, the Guptas, a family from India that relocated to South African have, with the connivance of the South African Presidency, been <a href="http://www.bbc.com/news/world-africa-22513410">getting government contracts</a> and allegedly thereby robbing taxpayers of billions.</p>
<p>On regular visits to South Africa – most recently last month – I have been stunned by the systemic transnational financial network facilitated by the Guptas and the presidential family, the Zumas. If there had been more proactive and genuine cooperation between the multi-jurisdictional law enforcement agencies – and within and between the banks, which have been moving money for the alleged Gupta/Zuma laundering network – the <a href="https://theconversation.com/south-africas-jacob-zuma-is-fast-running-out-of-political-lives-80009">devastation wrought</a> on South Africa could have been significantly reduced. And perhaps, the financial institutions involved would have been better able to mitigate their exposure.</p>
<p><strong>So does it point to South Africans benefiting from the illicit transactions?</strong></p>
<p>I had delivered by hand to Philip Hammond, the Chancellor of the Exchequer, printouts of transactions, and named a British bank concerned. I asked that he again refers these to the UK’s Serious Fraud Office, the National Crime Agency and the Financial Conduct Authority for investigation. </p>
<p>This information allegedly shows illegal transfers of funds from South Africa made by the Gupta family over the last few years from their South African accounts to accounts held in Dubai and Hong Kong. Many of the transactions are legitimate. But many certainly are not.</p>
<p>The illicit transactions were flagged internally in the bank concerned as suspicious. But I am reliably informed that the bank was told by the UK headquarters to ignore it. That is an iniquitous breach of legal banking practice in the UK, which I trust ministers would never countenance. It is also an incitement to money laundering. This has self-evidently occurred in this case, sanctioned by a British bank, as part of the flagrant robbery of South African taxpayers. They have lost millions of pounds and many billions of their local currency, the rand.</p>
<p><strong>Was there a specific event that triggered your request to the Chancellor?</strong></p>
<p>I was asked by senior African National Congress figures and stalwarts to do this. My relationships with them go back more than half a century when we stood shoulder to shoulder fighting apartheid.</p>
<p>As before, my latest information has been supplied by South African whistle-blowers deep inside the system who are disgusted by the corruption at the heart of the state.</p>
<p><strong>What do you hope to achieve?</strong></p>
<p>There are disturbing questions around the complicity – witting or unwitting – of UK global financial institutions in the Gupta/Zuma transnational network. There are also disturbing questions about these institutions’ wilful blindness to the reality that the laundering process often necessitates financial systems with lax regulation and controls. Unless we urgently find ways to leverage our respective capabilities to coordinate and influence action between the law enforcement and banking sectors we cannot win this battle. This coordination needs to happen domestically here in the UK as well as globally.</p>
<p>Unless we use the opportunity to crack down meaningfully, those who want to break the law will always be one step ahead. We must therefore get the international authorities to close down any money laundering networks. </p>
<p><strong>As someone who fought against apartheid, how do you feel about having to take up a campaign against the country’s democratically elected government?</strong></p>
<p>Having been active along with my brave parents in the anti-apartheid struggle it’s painful for me <a href="https://theconversation.com/south-african-business-must-own-up-to-its-part-in-the-corruption-scandals-81905">to witness corruption</a> within a monopoly capital elite around Zuma’s family and their close associates the Gupta brothers.</p>
<p>But we should look closer to home, here in the UK. The complicity of our financial institutions in this, as well as the responsibility of law enforcers and regulators in all the concerned jurisdictions, should make government ministers and parliamentarians hang their heads in shame. Just as they were complicit in sustaining apartheid, so today they are complicit in sustaining the corrupt power elite in South Africa which is now betraying the legacy of Nelson Mandela and the anti-apartheid struggle.</p>
<p>Winning the war against financial crime will require coordination, influence, action and accountability between multi-jurisdictional law enforcement agencies. The success of criminal networks also relies on the action or inaction – and cooperation or non-cooperation – of the relevant law enforcement authorities.</p><img src="https://counter.theconversation.com/content/86908/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The son of South African-born anti-apartheid activist parents who, after being jailed, banned, were then forced into exile in 1966 when he was aged 16, Peter Hain led British campaigns to disrupt white-only South African sports tours from 1969. In December 2015 he was presented with South Africa's National Award, the OR Tambo in Silver, for his 'most excellent contribution to the liberation struggle'. He is Vice-President of Britain's Action for Southern Africa and Chair of the Donald Woods Foundation, a charity based at Hobeni in the Transkei and Visiting Professor at Wits Business School. A Labour member of the House of Lords since 2015, he was an MP for 24 years and government minister for 12 years </span></em></p>There are disturbing questions around the complicity - witting or unwitting - of UK global financial institutions in the transnational network set up by President Jacob Zuma and the Gupta family.Peter Hain, Visiting Adjunct Professor at Wits Business School, University of the WitwatersrandLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/833212017-08-31T12:58:01Z2017-08-31T12:58:01ZHow vanishing debt costs helped the UK forget about a never-ending deficit<figure><img src="https://images.theconversation.com/files/184184/original/file-20170831-22617-jwi21q.jpg?ixlib=rb-1.1.0&rect=29%2C17%2C3970%2C2568&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/new-one-pound-british-sterling-coin-632790128?src=iMVU0iEnJrJjDHWHOa1d4Q-1-1">Ink Drop/Shutterstock</a></span></figcaption></figure><p>When the UK government found £1 billion for Northern Ireland to <a href="https://www.channel4.com/news/factcheck/factcheck-qa-are-the-tories-using-a-magic-money-tree-to-keep-them-in-power">secure Democratic Unionist parliamentary support</a>, critics accused it of turning to the same “magic money tree” it had previously mocked others for believing in. </p>
<p>But it may just be that the tree is flourishing in plain sight. UK national debt is currently <a href="https://www.standard.co.uk/business/brexit-stampede-to-safety-reaches-historic-proportions-a3281631.html">issued at a yield</a> of less than 1% – far below the rate of inflation (<a href="https://www.ons.gov.uk/economy/inflationandpriceindices/timeseries/l55o/mm23">2.6% in July</a>). And this means Britain can effectively raise money free of charge in real terms.</p>
<p>On paper, this is a golden age for gilts, the bonds issued by the UK Treasury named after their certificates’ gilded edge. The government’s cost of borrowing, as measured by yields on those gilts, has fallen steadily from more than 12% <a href="http://citywire.co.uk/new-model-adviser/news/blog-dont-give-up-on-investing-in-gilts-just-yet/a1012717">in the early 1990s</a> to less than 1%. </p>
<p>Economic slowdowns, political shocks, the 2008 global financial crisis, and the Brexit referendum vote have all failed to arrest the decline. In July 2017, £2.75 billion worth of five-year government bonds were offered at an interest rate of just 0.75%, and buyers still demanded <a href="http://www.nasdaq.com/article/uk-draws-strongest-demand-since-2010-for-new-5year-bond-20170719-00195">more than three times the amount on offer</a>. High demand lifts the prices of bonds and so compresses their yield, which is the regular interest payment expressed as a percentage of the price. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/184183/original/file-20170831-22561-44vqeb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/184183/original/file-20170831-22561-44vqeb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/184183/original/file-20170831-22561-44vqeb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=422&fit=crop&dpr=1 600w, https://images.theconversation.com/files/184183/original/file-20170831-22561-44vqeb.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=422&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/184183/original/file-20170831-22561-44vqeb.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=422&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/184183/original/file-20170831-22561-44vqeb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=530&fit=crop&dpr=1 754w, https://images.theconversation.com/files/184183/original/file-20170831-22561-44vqeb.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=530&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/184183/original/file-20170831-22561-44vqeb.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=530&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="source" href="http://citywire.co.uk/new-model-adviser/news/blog-dont-give-up-on-investing-in-gilts-just-yet/a1012717">CityWire/Lipper</a></span>
</figcaption>
</figure>
<h2>Behind the boom</h2>
<p>The fall has continued despite factors that would normally have scared buyers and forced yields higher to attract investment. These include the UK’s ever-rising debt: it is now at 86% of GDP, <a href="http://www.bbc.co.uk/news/business-39897498">up from 36% in 2007</a>, caused by a budget deficit that started to <a href="https://www.ons.gov.uk/economy/governmentpublicsectorandtaxes/publicsectorfinance/bulletins/publicsectorfinances/july2017">widen again this year</a>. A slowdown in GDP growth (to just 0.3% in the second quarter – <a href="http://ec.europa.eu/eurostat/documents/2995521/8134589/2-16082017-AP-EN.pdf/dc908a55-fc6d-42d8-ac25-d20c44fc40aa">half that of the euro zone</a>) makes it harder to cut the deficit and debt as a percentage of GDP. Investors are also looking past the threat of <a href="https://www.theguardian.com/business/2017/mar/18/inflation-rising-prices-over-2-per-cent-target-bank-of-england">persistently higher inflation</a>, which gives gilt buyers a negative real return on their investment at current yields. </p>
<p>The ongoing <a href="https://www.metro.news/global-jitters-adding-to-slide-in-value-of-pound/728735/">slide in the value of the pound</a> further dents the potential returns for overseas investors. For many, Daniel Craig has provided the only <a href="http://ew.com/movies/2017/08/16/daniel-craig-confirms-hell-be-back-as-bond/">genuinely positive return</a> on a British Bond in recent months. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/184187/original/file-20170831-22617-fqqupf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/184187/original/file-20170831-22617-fqqupf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/184187/original/file-20170831-22617-fqqupf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/184187/original/file-20170831-22617-fqqupf.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/184187/original/file-20170831-22617-fqqupf.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/184187/original/file-20170831-22617-fqqupf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/184187/original/file-20170831-22617-fqqupf.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/184187/original/file-20170831-22617-fqqupf.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Will the Skyfall in on UK debt?</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/berlin-germany-october-30-actor-daniel-117289420?src=ZhK_jr7ZdFZSsp8f_w41Gg-1-62">Piotr Zajac/Shutterstock</a></span>
</figcaption>
</figure>
<p>So why are UK bonds still flying off the shelves, allowing the government to plug the gap in its spending plans with virtually “free” money? It is possible that investors are snapping-up new gilts simply through a lack of alternatives. If (as some fear) overpriced stock markets and property <a href="https://www.cnbc.com/2017/07/10/how-to-spot-the-next-stock-market-crash-commentary.html">are about to crash</a> and once-buoyant <a href="http://uk.businessinsider.com/the-third-wave-emerging-market-debt-2015-10">emerging markets are in trouble</a> then the public debt of stable rich countries becomes the least worst option. US and German debt issues are proving similarly popular at <a href="https://www.ft.com/content/f15f4e0a-23f0-3084-80f9-746ac04eaf40">rock-bottom yields</a>. </p>
<p>Some see more positive forces driving up demand for Treasury debt and keeping its costs down. Booming bond sales, say supporters of chancellor Philip Hammoond, may be a vote of confidence in Britain’s prospects for long-term growth and low inflation, bolstered by a strong tax base and innovative skills. Foreign appetite for gilts, unquenched by the triggering of Article 50, might endorse the government’s view that the UK will emerge stronger from Brexit.</p>
<p>Against this, bond demand may have been bolstered by more negative, less stable factors. Yields have been held down by the Bank of England’s “quantitative easing” (QE): a programme of buying up old government debt so that more investors compete for new issues. Launched in 2008, QE has had to be prolonged because of a <a href="https://tradingeconomics.com/united-kingdom/gdp-growth-annual">slump in UK growth rates since mid-2015</a> and the prospect of renewed deflation (falling prices) once the present round of cost increases due to a weakened currency <a href="https://theconversation.com/should-the-uk-be-worried-about-inflation-no-looming-deflation-is-the-real-concern-82619">has passed through</a>. </p>
<h2>Who’s holding the debt?</h2>
<p>Traditionally, around 40% of UK public debt was held by pension funds and insurance companies, which form a captive market because of their need for predictable and safe long-term investment returns. Around a quarter was held by other UK financial institutions and households, and the rest by overseas investors. </p>
<p>QE has disrupted this pattern. Now, around a quarter of issued gilts are held by the Bank of England <a href="http://www.economicshelp.org/blog/4098/economics/who-does-the-uk-owe-money-to/">under its Asset Purchase Facility</a>. <a href="http://www.dmo.gov.uk/documentview.aspx?docname=publications/quarterly/gilt-holdings-data-historical.xls&page=publications/quarterly">Official data</a> still show overseas holdings at around 27%, with insurance and pension funds’ share down to 28%, and other UK financial institutions holding around 40%. But once the store of gilts sequestered on the Bank of England’s balance sheet is excluded, <a href="https://election2017.ifs.org.uk/uploads/publications/budgets/gb2017/gb2017ch9.pdf">overseas buyers</a> account for 35% of gilt holdings and other central banks another 11%.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/184192/original/file-20170831-22561-1qfxbjq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/184192/original/file-20170831-22561-1qfxbjq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/184192/original/file-20170831-22561-1qfxbjq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=353&fit=crop&dpr=1 600w, https://images.theconversation.com/files/184192/original/file-20170831-22561-1qfxbjq.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=353&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/184192/original/file-20170831-22561-1qfxbjq.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=353&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/184192/original/file-20170831-22561-1qfxbjq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=444&fit=crop&dpr=1 754w, https://images.theconversation.com/files/184192/original/file-20170831-22561-1qfxbjq.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=444&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/184192/original/file-20170831-22561-1qfxbjq.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=444&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Addicted to QE? The Bank of England.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/london-england-march-17-2015-exterior-569960206?src=u3dxbYAd0px8FnUlILMqCA-1-17">Thinglass/Shutterstock</a></span>
</figcaption>
</figure>
<p>Uniquely, more than 10% of the UK’s debt <a href="http://ec.europa.eu/eurostat/documents/2995521/8068939/2-20062017-AP-EN.pdf/dcff0b1e-7ca6-47b5-8019-892b4ab3d449">cannot be traced</a> to either domestic or overseas buyers due to the paucity of data from the regular auctions. Lack of clarity on who’s holding the debt makes it harder to judge the risks of buyers selling-off or staying away. That fuzziness that may have helped to keep the markets calm.</p>
<h2>Tarnished gilts</h2>
<p>Gilt yields’ 25-year descent has been punctuated by upward spikes as demand suddenly dips. Each time, a respectable subset of investors and economists <a href="https://notayesmaneconomics.wordpress.com/2016/10/17/is-there-a-crisis-building-in-the-uk-gilt-market/">pronounce the end of the boom</a>, but so far, such panics have quickly faded. Ironically, the UK may have boosted its “safe haven” status even while stirring up global uncertainty through its Brexit vote.</p>
<p>The Bank of England’s policy of purchasing and holding public debt – extended after the referendum result – serves to underpin prices by keeping debt off the market. But with central bankers under growing pressure to end QE at their <a href="https://www.bloomberg.com/view/articles/2017-08-23/central-banks-need-to-end-qe-for-the-sake-of-markets">annual gathering in August</a>, there are fears that its eventual resale could cause prices to slump and yields to jump. Some investors <a href="http://propertyvision.com/en/residential/thoughts/politics-economics/why-can-t-the-bank-of-england-simply-cancel-all-the-gilts-that-it-holds">may even be gambling</a> on the Bank simply cancelling the bonds it holds to avoid such a crash.</p>
<p>An undimmed appetite for UK debt, even with its yields at historic lows, has undoubtedly taken the pressure off Philip Hammond as he plans this autumn’s Budget. If the deadline for restoring budget balance – already <a href="https://www.gov.uk/government/publications/spring-budget-2017-documents/spring-budget-2017">postponed beyond 2022</a> – fades further from the headlines, then it may well be because the <a href="http://www.dmo.gov.uk/reportView.aspx?rptCode=D5D&rptName=a5a094a0-aac5-45fa-baf5-6a1c89b5d13f%7C%7CGILT%20MARKET%20(10)&reportpage=Issuance_Calendar">crowded debt issuance calendar</a> has started to resemble the magic money tree’s genetic code.</p><img src="https://counter.theconversation.com/content/83321/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Alan Shipman receives funding from the British Academy/Leverhulme Trust. </span></em></p>Could the ‘magic money tree’ have been right under our nose this whole time?Alan Shipman, Lecturer in Economics, The Open UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/818602017-08-01T09:21:41Z2017-08-01T09:21:41ZBrexit and the sin of originalism: the past should not define the future<p>An alleged <a href="https://www.ft.com/content/a5a6381e-6d3e-11e7-bfeb-33fe0c5b7eaa?mhq5j=e1">rift</a> has emerged between Philip Hammond, the British chancellor of the exchequer, and his cabinet colleague Liam Fox, the international trade secretary, over a key Brexit issue. While Hammond seems to think European citizens could still be allowed to move freely into the UK during the transition period between the end of Brexit negotiations and the UK’s full separation from the EU, Fox thinks not. </p>
<p>Downing Street has sought to clarify the position by stating that free movement will end in 2019 – though it remains unclear whether that’s possible. </p>
<p>The spat reveals a deeper philosophical conflict over how Brexit policy should be conducted by the government. For some ministers, a successful Brexit is one that limits negative consequences for the UK economy. For others, like Fox, it’s more important to “keep faith” with the referendum decision itself.</p>
<p>The issue of free movement is one dramatisation of the conflict. Another is what role to give to the European Court of Justice in the future Brexit settlement. This decision may also fall victim to an imperative to hold true to one of the defining themes of the Leave campaign. Prime Minister Theresa May herself echoed the mantras of that campaign in her <a href="https://www.gov.uk/government/speeches/the-governments-negotiating-objectives-for-exiting-the-eu-pm-speech">Lancaster House speech</a> in January when she declared “we will take back control over our laws and bring an end to the jurisdiction of the European Court of Justice in Britain”.</p>
<p>As a means of charting a course for the UK out of the EU, Fox and the prime minister are guilty of the sin of “originalism”.</p>
<p>“Originalism” is a concept that often crops up in the US. It refers to a belief that the Supreme Court’s sole function is to keep faith with the literal text of the constitution as it was written. The meaning of the constitution in 2017 should be the same as that intended by the original framers of the constitution back in 1787.</p>
<p>It’s an approach associated with a conservative right in the US. The aim is to ensure that an unelected judiciary does not extend legal rights such as access to abortion under the guise of interpreting the text of the constitution in light of changing times and circumstances.</p>
<p>Similarly, debates within the Christian church about recognising same-sex relationships get mired in a conflict between those who weaponise the text of the Bible as an unyielding and unchanged set of rules and others for whom the text is the beginning of a process of constant discovery of what it means to follow a particular faith.</p>
<h2>Brexit orginalism</h2>
<p>Now originalism is being practised as part of the Brexit debate. The difference, though, is that the Brexit schism is not based on the contested reading of a particular historical text. Instead, it centres on the interpretation of a historical event – the referendum held in June 2016. </p>
<p>Fox and various other figures have adopted the view that the government should not only implement the referendum result but also to “keep faith” with the reasons and rationales which apparently led voters to reject continuing EU membership. </p>
<p>But originalism is selective in its readings of the past. That the US constitution allowed its citizens not just to keep and bear arms but also keep slaves gets forgotten when it comes to trying to talk sense about gun control. The Bible’s list of abominations is deployed to deplore homosexuality, yet practices such as tattoos, long hair and eating seafood slip through the net.</p>
<p>In the context of Brexit, Fox picks control over borders as his article of faith. Meanwhile, he conveniently ignores that many voters also wanted Brexit to be a means of taking back control over trade.</p>
<p>In the week that <a href="https://www.theguardian.com/world/2017/jul/08/theresa-may-in-bid-to-boost-post-brexit-trade-with-g20-meetings">President Trump signalled</a> that the US and the UK might do a quick trade deal, Fox seemed remarkably relaxed about the idea that the UK might be forced to accept <a href="https://www.theguardian.com/commentisfree/2017/jul/25/chlorinated-chicken-trade-britain-us-food-standards-globalisation">chlorine-washed chickens</a> as part of a post-Brexit trade deal. Some Leave voters may have wanted the UK to have greater freedom to strike its own trade deals including with the US, but others were anxious about the effects of an increasingly globalised economy on their employment prospects. Fox’s originalism is just as selective as any other form.</p>
<p>Originalism is also an abandonment of judgement and responsibility. Politicians – government ministers and the Labour opposition – are behaving as if they have no choice but to give effect to a mandate enshrined and encoded in the referendum result regardless of whether there is any clarity as to the original intent of voters or of the consequences of implementing such an intention.</p>
<p>It’s time for politicians to drop the originalist pretence of keeping faith with the country. They should instead do the one thing the British system of parliamentary democracy is supposed to do – empower the representatives of the people to make decisions and to be accountable for them.</p>
<p>Brexit is a choice made in time and through time. It is a process that began with the referendum but doesn’t have to end there. Instead the prime minister faces a choice. Either she allows Brexit to be defined by an originalist and selective interpretation of the June 2016 referendum or she takes the June 2017 election as an instruction to govern in the country’s best interests. She must choose whether to be defined by the past or to define the future.</p><img src="https://counter.theconversation.com/content/81860/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Kenneth Armstrong is the author of 'Brexit Time: Leaving the EU – Why, How and When?' (Cambridge University Press).</span></em></p>Liam Fox insists on keeping faith with the referendum decision. But that is preventing ministers from adapting to an evolving situation.Kenneth Armstrong, Professor of European Law and Director of the Centre for European Legal Studies, University of CambridgeLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/812172017-07-19T14:38:30Z2017-07-19T14:38:30ZJack McConnell: United Kingdom can still shape Europe’s future despite Brexit<figure><img src="https://images.theconversation.com/files/178701/original/file-20170718-10303-s5ioe9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Jack's back. </span> <span class="attribution"><a class="source" href="https://www.google.co.uk/search?hl=en&authuser=0&site=imghp&tbm=isch&source=hp&biw=1440&bih=756&q=jack+mcconnell&oq=jack+mcconnell&gs_l=img.3..0l4j0i30k1l2j0i24k1l4.1074.1074.0.1656.2.2.0.0.0.0.70.70.1.1.0....0...1.2.64.img..1.1.69.0.8f5qK_wpQWw#q=jack+mcconnell&hl=en&authuser=0&tbm=isch&tbs=sur:fc&imgrc=z1IdNjMnN3bXNM:">DFID</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span></figcaption></figure><p>Ten years after stepping down as first minister of Scotland, Jack McConnell remains a busy man. I caught up with him by Skype in New York, where he was attending the <a href="https://www.un.org/ecosoc/en/events/2017-4">UN meetings on development</a>. </p>
<p>Now a member of the House of Lords, he is a veteran of the devolution campaigns of the 1990s and a strong European. As first minister, he was a leader of the <a href="http://cor.europa.eu/en/activities/interregionalgroups/Pages/legislative-power.aspx">movement for</a> a stronger role for devolved regions and nations in the EU. What, I asked him, went wrong with last year’s <a href="http://cor.europa.eu/en/activities/interregionalgroups/Pages/legislative-power.aspx">Brexit referendum</a>? </p>
<p>The problem, he tells me, was an absence of a vision for Europe. The Remain side could not explain where Europe was going, or the need for a broader solidarity. Instead, they focused narrowly on economic issues like the importance of the single market and on negative campaigning. David Cameron “had nothing positive to say”, repeating the mistake he made in the <a href="http://www.bbc.co.uk/news/events/scotland-decides">Scottish referendum of 2014</a> that helped bring the No side to the brink of defeat. </p>
<p>Nonetheless, McConnell believes the Brexit battle is over and sees little prospect of reversing the decision. He calls the country’s departure from the European Union “pretty inevitable”. Nor is he impressed by the current focus on the UK keeping the single market or something very close to it – recently <a href="http://news.bbc.co.uk/1/shared/vote2007/scottish_parliment/html/region_99999.stm">floated by</a> the likes of Chancellor Philip Hammond, for instance. </p>
<h2>Future of Europe</h2>
<p>Both inside the UK and elsewhere in Europe, McConnell detects a tendency to see the single market as an end in itself. He believes it needs to be part of a bigger picture. Instead of focusing on the technicalities of the single market, Europe needs a broader vision based on solidarity and the whole of the European continent. Instead of focusing narrowly on economics, it could take in a wider agenda, including security threats, climate change and values. </p>
<p>Even though the UK is leaving the EU, he thinks it could still take the lead in these respects by forging links and shifting public opinion. That, of course, would require some rethinking in the UK parties, including his own Labour party. The present Labour leadership under Jeremy Corbyn, he says, shows more interest in revolutionary movements around the world than in the future of Europe.</p>
<p>This overarching failure by politicians in Europe to focus on what the continent could become was one of McConnell’s main themes in a speech he recently gave in Glasgow at the <a href="https://councilforeuropeanstudies.org/conferences/upcoming-conferences/11-meetings-and-conferences/312-2017-program-highlights">International Conference of Europeanists</a>. Focusing on the growing gap between politicians and the public, he talked about the role this played in the crisis in Europe and Brexit – as well as in the arrival of “outsiders” as leaders. </p>
<p>He urged a greater role for Europe in global poverty and development, a matter he pursued as first minister and to which he has devoted a lot of time in the House of Lords. Europeans can “help rekindle our own sense of purpose”, he told the audience, by sharing with other countries their experiences in power-sharing in areas with distinct identities within countries such as Scotland, Bavaria and the Basque country. </p>
<h2>Little Britain</h2>
<p>In the run-up to the Brexit referendum, McConnell tells me that he was not optimistic about the Remain campaign. He had predicted Leave’s victory and Scotland’s decision to Remain. What took him more by surprise was the result’s failure to reinvigorate the Scottish independence movement – he had expected it to become unstoppable. </p>
<p>In fact, he says, Brexit has made it harder for the SNP to win the argument: an independent Scotland in the EU risks being cut off from the UK market, which is more important for Scotland than the European single market. He also believes the public is wary of further change and uncertainty after two difficult referendums. </p>
<p>Instead, he says, Brexit provides an opportunity for securing more devolution for Scotland. Powers should come directly back from Brussels to Edinburgh – contrary to the <a href="http://www.telegraph.co.uk/news/2017/07/16/repeal-bill-has-caused-constitutional-crisis-says-scotlands/">proposals</a> in the Withdrawal Bill published shortly before we spoke. </p>
<p>If powers were repatriated to the devolved administrations in Scotland, Wales and Northern Ireland, he believes this would allow them a more equal relationship with the UK government. Edinburgh could share powers in areas like fishing on a voluntary basis, for example, rather than by imposition from London. </p>
<p>McConnell also sees possibilities for Scotland to be more active on the world stage, something he considers neglected in ten years of an SNP government focused on independence. The paradiplomatic activity that he spearheaded as first minister was, he insists, a way of reinforcing the UK by recognising its plurality. He says it reflected the party’s commitment to “shared sovereignty, multilateralism and international cooperation”.</p>
<p>McConnnell’s vision of the UK accords with recent thinking in Scottish Labour circles. This includes Gordon Brown’s <a href="https://www.theguardian.com/politics/2017/mar/18/gordon-brown-to-push-patriotic-third-option-for-more-powerful-scotland-after-brexit">interventions</a> and the <a href="https://labourlist.org/2017/02/scottish-labour-commits-to-federalism-as-dugdale-reaffirms-her-support-of-the-union/">adoption of federalism</a> as official Labour policy, at Scottish if not UK level. </p>
<p>As the post-referendum research in the Centre on Constitutional Change <a href="https://global.oup.com/academic/product/debating-scotland-9780198789819?cc=gb&lang=en&">has shown</a>, it also chimes with public opinion, which has consistently wanted something less than independence but more than devolution. Even as opinion seemingly shifted away from No and towards Yes during the 2014 independence campaign, the underlying attitudes remained rather stable. It is just that more people thought that voting Yes was the better way to get there. </p>
<p>The question is whether Labour has arrived here too late as political opinion has polarised between the SNP’s independence and the Conservatives’ increasingly intransigent unionism, a polarisation accentuated by Brexit. The current disarray of the UK government and the lack of a majority at Westminster may open up some of these issues. If it does, it is not clear that the opposition parties are in a position to seize the opportunity.</p>
<p>Faced with this question, McConnell returns to the theme of vision and big ideas. He sees a need for a renewal of the political class, away from the professional politicians who have come to prominence since the 1970s, for whom politics is a way of life. </p>
<p>He agrees that Jeremy Corbyn has raised horizons, although not as much as has been claimed. Corbyn has showed a willingness to “stand up for ordinary people” and criticise the behaviour of private companies as well as government. On the other hand, says McConnell, he can be seen as part of a trend towards celebrity politicians and outsiders; a symptom of the current crisis rather than an answer. </p>
<p>In short, McConnell sees good and bad in the current climate: he welcomes the decline of the old deference and the growth of transparency but believes it has been accompanied by a crisis of faith in institutions and a loss of trust. There have been achievements in global development but severe poverty remains. Again and again, he stresses the role of ideas and vision in helping to turn this around. In a world that is increasingly voting against technocrats, the message is that ideas really do matter after all.</p><img src="https://counter.theconversation.com/content/81217/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michael Keating does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Scotland’s former first minister on Brexit, Scotland and the need for a new generation of visionaries.Michael Keating, Chair in Scottish Politics, University of AberdeenLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/804792017-07-05T12:15:54Z2017-07-05T12:15:54ZHard Evidence: are public sector workers due a pay rise?<p>Debate over whether or not public sector pay should be capped at 1% is raging in the UK. First Theresa May, the prime minister, <a href="https://www.theguardian.com/society/2017/jun/28/public-sector-pay-cap-could-be-lifted-downing-street-hints">indicated</a> she might ditch the cap that has been in place since 2010. She quickly backtracked on the idea but remains dogged by pressure from her backbench MPs to rethink the austerity policies that they feel led to the poor election result. </p>
<p>Meanwhile high-profile cabinet ministers, including <a href="http://www.telegraph.co.uk/news/2017/07/03/boris-johnson-strongly-believes-public-sector-pay-cap-can-lifted/">Boris Johnson</a> and <a href="http://www.independent.co.uk/news/uk/politics/michael-gove-public-sector-pay-cap-independent-review-body-austerity-a7819491.html">Michael Gove</a>, have said they think the cap should be lifted. Clearly politics is at play. </p>
<p>From an economic standpoint there is the issue of how sustainable a long-term cap of 1% (below inflation) is on pay settlements. Pay restraint is a reason why the government struggles to recruit and retain high-quality staff to deliver <a href="https://www.gov.uk/government/publications/national-health-service-pay-review-body-30th-report-2017">health services</a>, <a href="https://www.gov.uk/government/publications/school-teachers-review-body-26th-report-2016">education</a> and other public services.</p>
<p>We recently wrote a <a href="https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/623810/Wage_Growth_in_PRB_Occupations_-_final_report__3_.pdf">report for the Office of Manpower Economics</a>, the body supporting the government’s independent Pay Review Bodies (PRBs) which advise on the pay of 2.5m public sector workers (about half of all public sector workers), detailing some of the recent trends. There are four key findings:</p>
<ol>
<li>At the occupational level, average hourly earnings have fallen by 5.8% since 2005 (taking inflation into account – real gross earnings).</li>
<li>The decline was steeper among occupations whose pay is not set by PRBs (6.1%) than it was among PRB occupations (3.1%).</li>
<li>Changes in average earnings varied considerably between PRB occupations, even among those whose pay was set by the same PRB.</li>
<li>Eight of the ten largest PRB occupations experienced a drop in real median earnings.</li>
</ol>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/176785/original/file-20170704-32624-l7vgsb.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/176785/original/file-20170704-32624-l7vgsb.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/176785/original/file-20170704-32624-l7vgsb.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=508&fit=crop&dpr=1 600w, https://images.theconversation.com/files/176785/original/file-20170704-32624-l7vgsb.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=508&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/176785/original/file-20170704-32624-l7vgsb.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=508&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/176785/original/file-20170704-32624-l7vgsb.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=638&fit=crop&dpr=1 754w, https://images.theconversation.com/files/176785/original/file-20170704-32624-l7vgsb.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=638&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/176785/original/file-20170704-32624-l7vgsb.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=638&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Growth in median real occupation earnings, 2005-15 (2005 = 100). Note: these figures are occupation-level median hourly earnings and, as such, do not replicate official earnings trends.</span>
<span class="attribution"><span class="source">Alex Bryson and John Forth</span>, <a class="license" href="http://creativecommons.org/licenses/by-nd/4.0/">CC BY-ND</a></span>
</figcaption>
</figure>
<p>Of course, average earnings within a particular occupation may vary from year to year with changes in the composition of workforce. But even after we account for those changes, we still find substantial differences in the fortunes of PRB occupations. The findings challenge the popular misconception among commentators and politicians that a 1% cap on pay settlements has a uniform impact on the various jobs it affects. </p>
<p>In fact, changes in actual earnings rarely resemble changes in pay settlements because they reflect not only changes in base pay, but also changes in things like level of overtime pay, different types of shifts, promotion rates and numerous other ways that pay is determined. This leads to gaps between pay settlements, on the one hand, and actual earnings on the other – what economists refer to as “<a href="https://www.jstor.org/stable/2551384?seq=1#page_scan_tab_contents">wage drift</a>”. That is why it is important to look at what has happened to actual earnings in an occupation over time. </p>
<h2>Breaking down the data</h2>
<p>To evaluate whether these changes in average PRB earnings are big or small we compared them with similar non-PRB occupations. Some are public sector jobs such as firefighters, whose pay is not governed by PRBs. In our analyses firefighters are the closest non-PRB occupation to police officers and prison officers. Their pay is set via collective bargaining. They were were recently <a href="http://www.independent.co.uk/news/uk/politics/pay-cap-firefighters-austerity-public-sector-theresa-may-boris-johnson-a7823711.html">offered a 2% pay increase</a> – stirring up the public sector debate even further. </p>
<p>When comparing PRB earnings growth to that among their nearest non-PRB comparator occupations we found that earnings growth was higher for the PRB group in five cases and lower in five cases. But differences were only statistically significant in three: PRB nurses and PRB nursing auxiliaries experienced higher earnings growth than their non-PRB comparison occupations; and PRB radiographers experienced significantly lower growth than their non-PRB equivalent.</p>
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<p>When we account for differences in the composition of the workforce for each occupation between 2005-2015 – factors such as age and experience as people leave and enter – we found that earnings growth was higher for the PRB group in seven cases and lower in three cases.</p>
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<p>Concern over public servants’ pay is compounded by the low pay many of them receive. It is well established in economics that perceptions of wage differences <a href="http://ftp.iza.org/dp9406.pdf">underpin attitudes to wage inequality</a>. Most people don’t compare themselves to celebrities or billionaires such as Bill Gates and Warren Buffett. Our sense of whether or not we are well-off comes from comparing ourselves to our peers. </p>
<p>Of our ten PRB occupations, five were outside the top 100 occupations in terms of median hourly earnings over the whole period. In 2015, nursing auxiliaries were the lowest paid of our ten PRB occupations with median earnings of £10 per hour, putting them in 276th position in the occupational earnings rankings among the 394 occupations in our study. Five of the ten PRB occupations had fallen in the occupational earnings rankings since 2005 with radiographers and physios dropping furthest (30 and 20 places respectively).</p>
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<p>Taken together, a picture emerges of earnings stagnation or decline for most occupations – PRB and non-PRB – since 2005. The big difference between PRB employees and those in non-PRB occupations in the private sector is that PRB employees are public servants. As such, the government can determine their annual pay settlement. </p>
<p>When deciding what to do government will weigh public concern over pay equity for groups like nurses, and experts’ concerns regarding public employers’ ability to recruit, retain and motivate staff, against the potential costs of lifting the 1% cap for the public purse. That cost could be quite considerable. Periods of public sector pay restraint are <a href="https://books.google.co.uk/books?hl=en&lr=&id=6iIFDAAAQBAJ&oi=fnd&pg=PP1&dq=1970s+incomes+policy+wage+inflation&ots=mUTKL0psp7&sig=cj9iQ8Z4knmku02-Rbsn5ZlHyJc#v=onepage&q=1970s%20incomes%20policy%20wage%20inflation&f=false">often followed by a period of wage inflation</a>, but weak wage growth since the recession suggests this is unlikely to happen on this occasion.</p><img src="https://counter.theconversation.com/content/80479/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Alex Bryson received funding from the Office of Manpower Economics for this study. He is affiliated to NIESR (as well as UCL).</span></em></p><p class="fine-print"><em><span>John Forth received funding from the Office of Manpower Economics for this study.</span></em></p>A deep dive into public sector earnings data since 2005 and how it compares to private sector pay.Alex Bryson, Professor of Quantitative Social Science, UCLJohn Forth, Fellow, National Institute of Economic and Social ResearchLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/797812017-06-20T16:33:23Z2017-06-20T16:33:23ZHammond and Carney bid to put economic reality ahead of ‘cake and consumption’ fantasy<figure><img src="https://images.theconversation.com/files/174718/original/file-20170620-30872-1wfsp3l.jpg?ixlib=rb-1.1.0&rect=69%2C61%2C4148%2C2932&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/kiev-ukraine-march-5-2015-secretary-258120800?src=8pDQltOa2eo61WIRiGu5Fw-1-0">Inna Sokolovska/Shutterstock</a></span></figcaption></figure><p>The UK chancellor of the exchequer’s <a href="https://www.gov.uk/government/publications/chancellors-mansion-house-speeches-1985-1994">speech at the Mansion House</a> tends to be a good political barometer of the state of the British economy and its prospects, and the extent to which there is agreement or not between members of the government on economic policy.</p>
<p>Two years ago, in the wake of a general election victory which had seen the Conservative party restored to single party government, George Osborne used his Mansion House speech to <a href="https://www.gov.uk/government/speeches/mansion-house-2015-speech-by-the-chancellor-of-the-exchequer">set out a confident vision</a> of the future:</p>
<blockquote>
<p>A new settlement for the British economy. A new settlement for the way we manage our public finances. A new settlement in what we ask of your important industry, financial services. A new settlement in Britain’s relationship with our partners in the European Union. </p>
</blockquote>
<p>How quickly times have changed. <a href="https://www.gov.uk/government/speeches/mansion-house-2017-speech-by-the-chancellor-of-the-exchequer">Philip Hammond’s 2017 Mansion House speech</a> – postponed because of the <a href="https://theconversation.com/uk/topics/grenfell-tower-39675">Grenfell Tower fire</a> – seemed to offer no confidence in the new political and economic settlement offered by Brexit for the UK.</p>
<p>Instead, read alongside <a href="http://www.bankofengland.co.uk/publications/Documents/speeches/2017/speech983.pdf">the accompanying speech</a> from governor of the Bank of England, Mark Carney, it offered a stark warning of the dangers of a cliff-edge, “hard” Brexit.</p>
<h2>Ridicule</h2>
<p>Hammond did not specifically describe his preferred Brexit as “soft”. He instead called for a “flexible and pragmatic” approach. However, he could not have been clearer <a href="https://www.gov.uk/government/speeches/mansion-house-2017-speech-by-the-chancellor-of-the-exchequer">in his rejection</a> of the “no deal is better than a bad deal”, Brexit via the cliff-edge option. No sooner had Hammond finished, one influential manufacturing trade body was duly <a href="https://www.smmt.co.uk/2017/06/uk-automotive-calls-business-usual-interim-arrangements-avoid-cliff-edge/">warning of the dangers</a> of a “cliff edge” Brexit. </p>
<p>Carney, meanwhile, questioned “the extent to which Brexit is a gentle stroll along a smooth path to a land of cake and consumption” – a transparent ridiculing of foreign secretary Boris Johnson’s belief that Britain could “<a href="https://www.thesun.co.uk/news/1889723/boris-johnson-joins-forces-with-liam-foxand-declares-support-for-hard-brexit-which-will-liberate-britain-to-champion-free-trade/">have our cake and eat it</a>”. </p>
<h2>Managed borders, but open</h2>
<p>While Hammond affirmed that the UK would leave the EU, he also noted:</p>
<blockquote>
<p>We’ll almost certainly need an implementation period, outside the Customs Union itself, but with current customs border arrangements remaining in place, until new long-term arrangements are up and running. </p>
</blockquote>
<p>It was part of his central idea that the UK must depart the EU “in a way that works for Britain” and which protects British jobs and prosperity. Anything less, he said “will be a failure to deliver on the instructions of the British people”, who after all had not voted to become more impoverished. Economic needs must be placed ahead of “taking back control” of UK sovereignty, not to mention any considerations of negotiating early free-trade deals or closing borders. Indeed, Hammond said the UK must remain “open to the talent, the ideas and the capital that have driven the success of our economy in the past, and will drive it in the future” – the vote for Brexit must mean managing immigration, not closing the door.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/174797/original/file-20170620-5990-sb7mzc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/174797/original/file-20170620-5990-sb7mzc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/174797/original/file-20170620-5990-sb7mzc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/174797/original/file-20170620-5990-sb7mzc.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/174797/original/file-20170620-5990-sb7mzc.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/174797/original/file-20170620-5990-sb7mzc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/174797/original/file-20170620-5990-sb7mzc.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/174797/original/file-20170620-5990-sb7mzc.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Mark Carney, Governor of the Bank of England.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/bankofengland/14907313102">bankofengland</a>, <a class="license" href="http://creativecommons.org/licenses/by-nd/4.0/">CC BY-ND</a></span>
</figcaption>
</figure>
<h2>Questions remain over austerity</h2>
<p>Hammond emphasised the “need to lead a global crusade for liberalisation of services”, and to protect the City of London and wider economy against the dangers of protectionism – something George Osborne had <a href="https://www.gov.uk/government/speeches/mansion-house-2015-speech-by-the-chancellor-of-the-exchequer">identified two years earlier</a>. However, outside the EU itself it’s hard to see in which forums Hammond will be able to make this case with sufficient authority to recruit others to his cause.</p>
<p>Finally, the chancellor reaffirmed that austerity and the aim of balancing the public finances has not been abandoned, only postponed until 2025. There is no planned reset of UK economic policy, and he <a href="https://www.gov.uk/government/speeches/mansion-house-2017-speech-by-the-chancellor-of-the-exchequer">reminded his audience</a> that “we must not lose sight of the unchanging economic facts of life. Funding for public services can only be delivered in one of three ways: higher taxes; higher borrowing; or stronger economic growth”.</p>
<p>The lesson Hammond seems to have taken from the general election is that “<a href="https://www.gov.uk/government/speeches/mansion-house-2017-speech-by-the-chancellor-of-the-exchequer">we must make anew the case for a market economy and for sound money</a>”. But having <a href="https://www.ons.gov.uk/economy/governmentpublicsectorandtaxes/publicsectorfinance/bulletins/publicsectorfinances/apr2017">added more than £700 billion to the UK’s national debt since May 2010</a>, and with Mark Carney warning of “<a href="http://www.bankofengland.co.uk/publications/Documents/speeches/2016/speech946.pdf">the first lost decade since the 1860s</a>”, one might have imagined Hammond arriving at a very different conclusion about austerity measures, given the electorate’s verdict upon it.</p>
<h2>‘Row of the summer’ fizzes out</h2>
<p>The events of the past 24 hours suggest Theresa May’s government is anything but ready for what lies ahead. On the first day of Brexit negotiations, David Davis immediately capitulated to the EU’s insistence on <a href="https://www.theguardian.com/politics/2017/jun/19/uk-caves-in-to-eu-demand-to-agree-divorce-bill-before-trade-talks">settling the Brexit divorce bill before starting trade talks</a>, having previously warned this would prompt the “<a href="https://www.ft.com/content/01396086-38ae-11e7-821a-6027b8a20f23?mhq5j=e1">the row of the summer</a>”. </p>
<p>This rather confirms suspicions that behind the bluster and vacuous soundbites (“no deal is better than a bad deal”) the British government has no clear or credible negotiating strategy on any of the key aspects of the UK’s future relationship to the single market, customs union, or freedom of movement. This only increases the risk of a catastrophic hard Brexit.</p>
<p>And so Philip Hammond’s 2017 Mansion House speech was long on coded warnings, and short on optimism and hope. It underlines the smouldering cabinet divisions between the chancellor and prominent Brexiters like David Davis, Boris Johnson, Liam Fox and Michael Gove. And with the Conservatives split – once again – over Europe, such internal divisions threaten the longevity of an already weakened administration, and seem to herald a summer of profound political discontent.</p><img src="https://counter.theconversation.com/content/79781/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Simon Lee does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Philip Hammond’s Mansion House speech was long on coded warnings, and short on optimism.Simon Lee, Senior Lecturer in Politics, University of HullLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/743242017-03-14T14:04:58Z2017-03-14T14:04:58ZThe real story behind the row over UK business rates<figure><img src="https://images.theconversation.com/files/160506/original/image-20170313-19256-781auz.jpg?ixlib=rb-1.1.0&rect=129%2C100%2C4478%2C2920&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/brighton-england-uk-14-january-2017-555922648?src=T2bLolIxEO1ZrqkDYKdF_w-1-13">Marius_Comanescu/Shutterstock</a></span></figcaption></figure><p>The tax that small business owners pay on their premises has offered a useful lesson in how the ripples of a financial crisis can leave us floundering years later. It also laid bare a stark divide between north and south in the UK, and sent the ruling Conservative Party rushing to fend off the fury of small business owners, on whose support they could normally rely.</p>
<p>Emotions are running high thanks to the 2017 revaluation of non-residential properties in England, Scotland and Wales. This is based on the market rent of premises at April 1, 2015 and has raised the prospect that some businesses will be saddled with huge increases in their bills; a fear that was <a href="https://www.gov.uk/government/speeches/spring-budget-2017-philip-hammonds-speech">acknowledged by the chancellor of the exchequer</a>, Philip Hammond, <a href="https://theconversation.com/uk-budget-2017-experts-respond-73998">in his first budget</a>.</p>
<p>Hammond <a href="https://www.gov.uk/government/news/spring-budget-2017-21-things-you-need-to-know">introduced three measures</a> designed to head off a row. It was no surprise that it included a headline-grabbing effort to soothe the nerves of Britain’s publicans, with the vast majority of pubs handed a £1,000 discount on their business rates. Hammond also capped at £50 the monthly payments for businesses who would find themselves paying rates for the first time and established a £300m fund to help owners who were struggling with increases.</p>
<p>In truth these sops amount to small beer and are only part of the wider picture. The reality has been much misunderstood. </p>
<h2>Value judgement</h2>
<p>The recent story of business rates in Britain is essentially one of bad timing. And it should be no surprise <a href="http://www.bbc.co.uk/news/business-39000471">that the outcry</a> from small businesses was, to some degree, orchestrated by a media that is <a href="https://www.timeout.com/london/blog/everything-you-need-to-know-about-londons-big-business-rates-squeeze-031317">centred on London and the south-east</a>. What has often gone unreported is that, outside of London and the wider south-east, most retail, pub, office and industrial occupiers have been paying too much in rates for the best part of seven years.</p>
<p>The reason for this is that the previous revaluation, in 2010, was based on 2008 values, when commercial markets were at their peak, just before the impact of the credit crunch and subsequent recession was felt. While national average commercial and industrial rents had <a href="http://www.bpf.org.uk/sites/default/files/resources/PIA-Property-Report-2016-final-for-web.pdf">recovered to their pre-recession peak</a> by 2015, this was driven by strong rental growth in Greater London, while rental growth outside of Greater London remained subdued. Central London offices surpassed their 2008 peak by the first quarter of 2014, but regional office rents were still languishing at 90% of their 2008 peak <a href="http://www.gva.co.uk/uploadedfiles/GVA_UK_Research/2016%20EPMR%20UK%20Post-referendum%20Outlook%20September%202016.pdf">in August last year</a>.</p>
<p>Thus, for businesses of all shapes and sizes around most of the country the latest revaluation has not come a moment too soon. The flip side is that, having been under-rated for at least three years, businesses in London are seeing their rateable values increase substantially. The Centre for Cities think-tank calculates that London’s overall contribution will increase from 17% to 21% of all business rates, more than the next 19 cities combined.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/160510/original/image-20170313-19251-o368q1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/160510/original/image-20170313-19251-o368q1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/160510/original/image-20170313-19251-o368q1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/160510/original/image-20170313-19251-o368q1.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/160510/original/image-20170313-19251-o368q1.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/160510/original/image-20170313-19251-o368q1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/160510/original/image-20170313-19251-o368q1.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/160510/original/image-20170313-19251-o368q1.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">The capital has benefited, until now.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/bauzz/8066090810/in/photolist-aCqFQG-uW25be-wW5bsw-dhLPMd-oD1hou-3VTLDJ-nLkQFL-jhjZ7c-3VPAc8-cLcv8U-4yHfCG-dSxoe6-RP7RjG-3VTRQd-Pb3MjC-aCo38B-chiMMd-ordXCd-9gBeCK-5yC5LB-nEDtND-ebAjcB-duUk2a-uRK72g-duZTHm-4PjxNM-qxoCTY-RnHA5y-5dfGfC-4yHwwS-kpu9Bt-9yGJ9s-mmT1dX-nXM44i-kJdV5p-gP6HCS-nLMitN-fbQxjt-RNidaF-cB8Bzh-jpUZdf-hZNKE6-hZMmn7-Ef5zwN-dF1n3D-nDGp8w-nMKt9R-dP3DjH-hZMYHf-oPFdWw">Raphael Faeh/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc/4.0/">CC BY-NC</a></span>
</figcaption>
</figure>
<h2>Rates of return</h2>
<p>The story isn’t as simple as a revaluation in line with the market. For some businesses, the rateable value of their premises may have increased significantly, but this is not the only factor in the rates they have to pay. </p>
<p>In fact, the business rates multiplier which is used to calculate the tax has actually reduced by 1.8 pence in the pound to 46.6p for small businesses and 47.9p for larger businesses. So, if your local coffee shop has a new rateable value of £20,000 then it would pay about £8,400 in rates per year.</p>
<p>In addition, the amount by which a ratepayer’s business rates can increase or decrease is capped – after all, the smaller the business the tighter the margin and the harder it is to absorb extra costs. That same coffee shop would see a maximum 5% hike in rates however much the revaluation added. </p>
<p>And, much like income tax only kicks in after a certain level, there is a similar threshold below which small businesses pay no business rates at all. That has been increased to a rateable value of £12,000 from April 1 2017. And remember, Hammond brought in the £50 a month cap for those who find themselves paying rates for the first time after the revaluation.</p>
<p>According <a href="http://www.centreforcities.org/publication/coming-business-rates-changes-mean-cities/">to the Centre for Cities</a>, only London and Reading will experience an increase in average rates, and there are only five cities where the majority of businesses won’t be exempt from paying business rates.</p>
<h2>Appealing prospect</h2>
<p>You might think that a simple solution to the problem of valuations that fail to match market rents would be to have more frequent valuations. This is easier said than done. The time and resources required to value nearly two million separate premises are considerable. The government <a href="https://www.gov.uk/government/consultations/business-rates-delivering-more-frequent-revaluations">has sought feedback</a> on how to deliver more frequent valuations. We are still waiting for the results.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/160513/original/image-20170313-9606-tcc9fm.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/160513/original/image-20170313-9606-tcc9fm.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/160513/original/image-20170313-9606-tcc9fm.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/160513/original/image-20170313-9606-tcc9fm.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/160513/original/image-20170313-9606-tcc9fm.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/160513/original/image-20170313-9606-tcc9fm.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/160513/original/image-20170313-9606-tcc9fm.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/160513/original/image-20170313-9606-tcc9fm.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Keeping up with the market.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/27148401@N06/29839273553/in/photolist-MsN5rF-46uZse-51B5cw-8vkYRo-j185VM-efnEEB-9DtGEx-fwJWW8-9gLmAW-efnBe8-eftqwL-efnAKZ-7LvAos-7LvxDw-fSfnDz-9dZSCj-edexJD-eftkfm-9dWNr4-7LvzKC-7LvvYd-dhewAs-7Lvz3w-7LvCUd-7LrxjZ-eftpGE-6fZZ9A-6fZU8C-7LrBH4-6fVNMH-6fVQFM-6g15Hq-7LrCmc-6fVKbx-dhew4b-6fZXYQ-6fZVqw-6fWqCT-6g157y-6fVRYv-7LvyiJ-dGvLCE-6fVPnB-8MYXX6-6g1dVJ-6fZTwm-6fVKTR-6fVUs4-6g1bQq-6fVC4B">shipley43/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<p>The complexity is ramped up by the appeal system. Following the 2010 revaluation of 1.8m premises <a href="https://www.gov.uk/government/statistics/non-domestic-rating-challenges-and-changes-experimental">there were about one million appeals</a>. Seven years later, 280,000 are still outstanding. That may not be too surprising given the timing of the valuations, but is still a stark challenge.</p>
<p>To streamline appeals, the government has launched a new “<a href="https://www.gov.uk/government/consultations/reforming-business-rates-appeals-check-challenge-appeal">Check, Challenge, Appeal</a>” system. It places greater onus on the occupier to be proactive in progressing their appeal through a series of deadlines and is stacked in favour of the department in charge of valuations. That <a href="http://www.rics.org/uk/news/news-insight/comment/check-challenge-appeal/">has sparked criticism</a> that the new system is designed to grind down potential complainants and stifle appeals.</p>
<p>The new appeals system was intended to increase the allowable margin of error <a href="https://www.valuationtribunal.gov.uk/about-us/vte/">when a tribunal</a> looked at whether a valuation was too high. In the end <a href="https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/597609/CCA_Government_Response.pdf">that didn’t happen</a>, but the appeals process remains a tough calculation for business owners. They could well end up wasting time and money to achieve nothing and still end up paying rates as much as 10% above the market, if the original valuation is deemed reasonable by the tribunal.</p>
<p>It’s enough to have them crying in their beer – another inadvertent bonus from Philip Hammond for those vote-winning pub landlords perhaps?</p>
<p><em>This story has been corrected in the penultimate paragraph to reflect the government decision to leave appeal terms unchanged</em></p><img src="https://counter.theconversation.com/content/74324/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Paul Greenhalgh is a Member of the Royal Institution of Chartered Surveyors. </span></em></p>Uproar from businesses in the South East disguises a complex picture with the financial crisis at its heart.Paul Michael Greenhalgh, Associate Professor of Real Estate Economics, Northumbria University, NewcastleLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/739982017-03-08T14:48:36Z2017-03-08T14:48:36ZUK budget 2017: experts respond<p><em>Philip Hammond has delivered his first budget as Britain’s chancellor of the exchequer. Here our panellists give their take on what it means for the UK economy. Stay tuned for further updates and follow @ConversationUK on Twitter.</em></p>
<h2>Economy</h2>
<p><em>Michael Kitson, University Senior Lecturer in International Macroeconomics, Cambridge Judge Business School</em></p>
<p>The chancellor delivered an upbeat assessment of the economy – upbeat but rose-tinted. The economy is currently being sustained by debt-driven consumption and a low exchange rate, and Hammond has done little to address the long-term challenges. </p>
<p>We were given another glimpse of the chancellor’s actuarial tendencies as he <a href="https://www.gov.uk/government/speeches/spring-budget-%202017-philip-hammonds-speech">repeated the favoured mantra</a> of his predecessor that he will “not saddle our children with ever-increasing debts”. However, what the country needs is an entrepreneurial chancellor who will invest to ensure our children inherit a prosperous economy.</p>
<p>On the plus side, Hammond has announced some modest investment in technical and vocational training with the introduction of <a href="https://schoolsweek.co.uk/what-are-t-levels/">T levels</a>, combined with a hotchpotch of piecemeal initiatives to conceal the lack of a strategy. But there are important areas that were largely ignored. First, how is the economy going to develop robust trade links outside of the single market? Things may look rosy at the moment because of low exchange rate, but this is not sustainable. </p>
<p>Second, the British economy’s long-term record on investment has been poor and is likely to deteriorate if overseas companies decide that the UK is a less attractive option outside the EU. Offering subsidies and other sweeteners is not a coherent industrial policy. Innovation is one of the key mainsprings for long-term growth, but this requires companies to invest in the UK and for the economy to be open to talent from all countries. </p>
<p>The rhetoric was strong and the jokes were feeble. What was required – and what was lacking – was a long-term plan on how to deal with the challenges ahead.</p>
<p><em>Simon Wren-Lewis, Professor of Economic Policy at the Blavatnik School of Government, Oxford University</em></p>
<p>What any macroeconomist should ask of this budget is: has the chancellor done enough to get UK interest rates off near-zero (known as the zero lower bound); to get us out of what economists call a liquidity trap? When interest rates have gone as low as the Bank of England feels able to take them, then it has lost control of the economy. That is the situation right now. </p>
<p>The only duty of the chancellor in that situation is to give the Bank of England back control through a fiscal stimulus – something he has not done. If he did do this, however, the short-term deficit and borrowing numbers that go with the stimulus would be completely irrelevant. Seeing as he hasn’t done this, his budget has failed.</p>
<p>The performance of the economy since 2010 <a href="https://mainlymacro.blogspot.co.uk/2017/03/could-we-still-be-at-bottom-of-self.html">has been terrible</a>. There has been no recovery, using the <a href="https://mainlymacro.blogspot.co.uk/2016/12/when-is-economic-recovery-not-recovery.html">proper meaning of the word</a>, from the Great Recession. All this time the Bank of England has been forced to keep interest rates at or near their floor, and use incredibly inefficient instruments like quantitative easing, because the government has kept on cutting spending. This is not normal and austerity is no longer even the international consensus. </p>
<h2>Business</h2>
<p><em>Kevin Farnsworth, Reader in International Social Policy, University of York</em></p>
<p>The biggest surprise of this budget is that the most significant factor that affected it wasn’t mentioned at all. Not only did the chancellor not mention Brexit, it is not immediately obvious how any of his announcements connect directly to it either. </p>
<p>I would have expected a boost to regional development or support for new businesses along the lines being <a href="http://www.hl.co.uk/news/2017/3/1/nissan-says-the-uk-car-industry-needs-100m-of-government-support-to-survive-brexit">called for by the car industry</a>. Usually, an unexpected boost to the finances – borrowing is set to be £26 billion lower than previously predicted by the end of this parliament as a result of stronger than expected growth – would provide some scope for new policies. But it gave the chancellor little wriggle room today. This is in part because he wants to reduce borrowing in future. But it is probably more to do with the fact that he wants to give himself more flexibility as the government prepares for Brexit. </p>
<p>Help is provided for larger businesses – perhaps those most able to leave the UK if they don’t get a good Brexit deal – by way of the further reduction in corporation tax (down to 17% by 2020). In ordinary times, this would be headline-grabbing – the UK already has <a href="https://stats.oecd.org/index.aspx?DataSetCode=Table_II1">one of the lowest rates of its competitors</a>. But larger businesses may be disappointed that Hammond didn’t go further. His predecessor, George Osborne, <a href="https://www.ft.com/content/d5aedda0-412e-11e6-9b66-0712b3873ae1">promised</a> to bring corporation tax down to 15% in his budget following the Brexit vote. </p>
<p>So it’s surprising that Brexit didn’t really feature. We might have expected much more in the way of help, support and compensation for businesses considering their own futures once article 50 is triggered. My guess is that the chancellor is playing a waiting game, with one eye on the potential for greater borrowing to ease Brexit going forward. And such is the <a href="https://theconversation.com/uk-budget-2017-why-upcoming-brexit-uncertainty-will-put-bright-economic-outlook-to-the-test-74220">level of uncertainty</a> in the future that what he did today amounts to the calm before the storm.</p>
<h2>Productivity</h2>
<p><em>Geraint Johnes, Professor of Economics, Lancaster University</em></p>
<p>Productivity is very much at the heart of the budget, with specific projects being allocated funding from the £23 billion fund previously <a href="https://www.gov.uk/government/topical-events/autumn-statement-2016">announced in the 2016 Autumn Statement</a>. These include investment in STEM research, support for disruptive technologies, help with the high-speed broadband roll out and further transport projects to relieve local congestion. </p>
<p>But the main announcements made today concern the country’s education and skills infrastructure. New funding will be made available to support the creation of 110 free schools. These will, <a href="https://theconversation.com/why-do-grammar-schools-remain-so-popular-49248">controversially</a>, include new selective schools and specialist maths schools. While it is widely recognised that students attending selective schools can benefit from the experience, average performance across all students in areas served by such schools <a href="https://theconversation.com/grammar-schools-why-academic-selection-only-benefits-the-very-affluent-74189">is not enhanced</a>. </p>
<p>The chancellor also announced a long overdue and welcome tidying up of vocational and technical qualifications, replacing more than 13,000 qualifications by some 15 new T levels. Here the devil will be in the detail – we know that the job market has been polarising and that routine jobs will face challenge from continued advances in automation. To prevent a situation where we train people to do jobs that robots will soon do, technical education will need to emphasise adaptability, a high level of creativity, and the ability to learn how to learn. Finally, a relatively small investment – but an important one – addresses the issue of lifelong learning. Hammond has announced £40m to be spent on pilot projects in this area.</p>
<h2>Industrial strategy</h2>
<p><em>Ian Greenwood, Associate Professor in Industrial Relations and Human Resource Management, University of Leeds</em></p>
<p>The government’s <a href="https://www.gov.uk/government/consultations/building-our-industrial-strategy">plan for a “modern industrial strategy”</a> requires clarity of vision, strong leadership and of course substantial investment. In his budget speech today, Hammond offered additional investment in intermediate skills, but – worryingly for UK industry – the extent that the government is ideologically committed to management of the economy is unclear. </p>
<p>Hammond adopted a schizophrenic attitude to state intervention – a corollary of any industry strategy. He attacked the Labour Party for its past intervention in the economy while seeming to accept that the market does not always work as a remedy to all ills.</p>
<p>The immediate and critical needs of the UK aerospace and automotive sectors, and the downstream foundation industries – <a href="https://theconversation.com/britains-needless-kick-in-the-teeth-for-its-struggling-steel-mills-67983">such as steel</a> – that support these sectors are manifest. They will drive innovation, R&D and good jobs, especially in the context of Brexit. It would not have been difficult to develop a narrative in today’s announcement that the government understands this. </p>
<p>Is it significant that this was absent? The <a href="https://www.ft.com/content/f5f83122-01c9-11e7-ace0-1ce02ef0def9">acquisition of Vauxhall by France’s PSA Group</a> has raised again the prospect of the auto industry exiting the UK. The <a href="http://smallbusiness.chron.com/definitions-upstream-downstream-production-process-30971.html">upstream</a> devastation that this would cause to the wider economy surely warranted a mention?</p>
<h2>Pensions and savings</h2>
<p><em>Jonquil Lowe, Senior Lecturer in Economics and Personal Finance, The Open University</em></p>
<p>The budget confirmed that reform of national insurance for the self-employed will go ahead from 2018. Class 4 national insurance contributions will be increased in stages over two years, taking the standard rate to 11% from its current level of 9% (compared with the 12% paid by employees). The original rationale for the lower rate for the self-employed was mainly that they were not entitled to the old additional state pension. With the introduction of the flat-rate state pension since April 2016, the self-employed now build up the state pension at the same rate as employees. The remaining 1% point gap compared with employees reflects the self-employed’s lack of sick pay and contributory unemployment benefits, although the government has said it will consult on parental benefits for the self-employed.</p>
<p>There will also be measures to reduce the tax advantage for working through an owner-managed company, starting with a reduction in the <a href="https://www.gov.uk/government/publications/dividend-allowance-factsheet/dividend-allowance-factsheet">Dividend Tax Allowance</a> (only introduced in April 2016) from £5,000 to £2,000 from April 2018. This will also affect investors with large shareholdings (around £50,000 or more).</p>
<p>A new National Savings & Investments 3-year bond will be introduced from April. Offering 2.2% a year (taxable); it is among the best rates currently available. But, with inflation forecast to rise to 2.4% this year, competing returns may prove better.</p>
<h2>Dividend tax</h2>
<p><em>Michael Devereux, Professor of Business Taxation, University of Oxford</em></p>
<p>The “<a href="https://www.gov.uk/tax-on-dividends/how-dividends-are-taxed">dividend tax exemption</a>” of £5,000 was introduced only in the summer budget of 2015 and came into effect in April 2016. Now it has been reduced by to £2,000. It is hard to see much consistency there.</p>
<p>It seems that Hammond is concerned about the tax incentives for individuals and partnerships to incorporate – when they would be liable to corporation tax and income taxes on dividends – instead of income tax on the whole income.</p>
<p>The corporation tax rate is falling to 19% in 2017/8, which is much lower than income tax rates. Plus there is no national insurance on corporate profit. Taxes on dividends do generally remove the tax advantage to incorporation – and more so now. But that is only when profits are distributed; if you keep the profit in the company then you pay only corporation tax.</p>
<p>So why was the dividend tax exemption ever introduced? And why not just get rid of it entirely? Maybe that is for next year.</p>
<h2>Social care</h2>
<p><em>Catherine Needham, Reader in Public Policy and Public Management, University of Birmingham</em> </p>
<p>Social care needs a big idea – long-term, carefully developed, cross-party – and today’s budget was never going to deliver on that. What it did deliver was £2 billion for the care sector – with half of this coming in 2017-18. That will come as a great relief to local authorities who manage desperately strained care budgets and to health leaders who can’t discharge people from their hospitals because care services are not in place to help them in the community.</p>
<p>Care providers – the vast majority of whom are in the for-profit or not-for-profit sectors rather than public sector – are <a href="https://amp.theguardian.com/society/2017/mar/07/government-social-care-england-chief-chancellor-budget">nervous</a> that the money will get stuck in local authorities and they won’t see the cash they need to keep services viable. But at least we don’t have the outrage and disappointment that <a href="https://www.kingsfund.org.uk/blog/2016/12/what-now-social-care">followed</a> the 2016 Autumn Statement, when high hopes for a response to the care crisis were dashed. </p>
<p>Hammond talked of the need to be strategic about the long-term challenges facing the care sector – he <a href="https://www.gov.uk/government/speeches/spring-budget-2017-philip-hammonds-speech">announced</a> that a green paper would be published on funding challenges later this year. A “big idea” for care has eluded recent governments, none of whom have quite worked out how to get enough money into a care system designed for the problems of 1948 at the beginning of the welfare state. The Cabinet Office is <a href="https://www.theguardian.com/society/2017/mar/07/budget-extra-money-social-care-long-term-reform-vital">working</a> on a paper about long-term options for care reform – let’s hope it’s a good one. </p>
<h2>Education</h2>
<p><em>Andrew Gunn, Visiting Fellow at the School of Education, University of Leeds</em></p>
<p>Several of Theresa May’s <a href="http://www.telegraph.co.uk/news/2017/03/07/giving-education-huge-boost/">ambitions</a> to improve education through increased choice are funded in the budget, most prominently £320m to create an additional 110 new <a href="https://www.gov.uk/types-of-school/free-schools">free schools</a>. Some of these schools will be sponsored by <a href="https://theconversation.com/what-business-do-universities-have-in-academy-schools-50805">universities</a> and, more controversially, many will be allowed to select pupils based on attainment. </p>
<p>Disadvantaged pupils will be offered free transport to these newly selective free schools. But <a href="http://www.telegraph.co.uk/business/2016/08/30/why-grammar-schools-are-not-the-answer-to-our-economic-and-socia/">critics</a> will still claim grammar schools are <a href="https://www.theguardian.com/commentisfree/2016/sep/09/grammar-schools-education-selection-divisive-ineffective">socially divisive</a> and are contrary to the prime minister’s goal of making “<a href="https://www.gov.uk/government/speeches/britain-the-great-meritocracy-prime-ministers-speech">Britain the world’s great meritocracy</a>”. </p>
<p>To deliver the biggest reform of further education in 70 years, £500m a year from 2019 has been committed to improve technical education. The current complex and vast range of technical qualifications will be streamlined into <a href="https://www.gov.uk/government/news/technical-education-overhaul-unveiled-by-skills-minister">15 routes</a>, offering students T level vocational qualifications of equal value to A-Levels. The chancellor sees these investments as a way to address the “<a href="https://www.ft.com/content/ac05863e-e304-11e6-9645-c9357a75844a">productivity gap</a>” caused by the UK’s enduring weakness in technical skills.</p>
<p>In higher education, the government will fund 1,000 new PhDs in science, technology, engineering and mathematics. The budget also <a href="https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/597467/spring_budget_2017_web.pdf">confirmed</a> the terms of doctoral loans of up to £25,000 each for doctoral study, and maintenance loans for part-time undergraduates.</p>
<h2>Welfare</h2>
<p><em>Donald Hirsch, Director, Centre for Research in Social Policy, Loughborough University</em></p>
<p>Cuts in welfare were at the heart of George Osborne’s agenda coming into the present parliament in 2015. Two years later, not a single new measure affecting benefits was announced in this budget. Any new welfare savings have been formally ruled out in this parliament, with the <a href="https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/597467/spring_budget_2017_web.pdf">proviso</a> that if spending breaks a new cap, further cuts will be made after 2021.</p>
<p>Yet if you think this represents a pause in welfare cuts, think again. Those <a href="https://www.gov.uk/government/news/summer-budget-2015-key-announcements">announced by Osborne</a> continue to feed through. From April, every new family on low earnings or out of work will see the introduction of cuts in tax credits or Universal Credit of £10.45 per week. In larger families with more than two children, there will also be a cut in child tax credit of £53.30 per week for each child after the second one. And for all working-age people getting benefits or credits, Osborne’s freeze in their level of support continues, allowing the real value of what they receive to be eroded by inflation, forecast to be a cumulative 9% over the next four years. </p>
<p>For low-income households, all this represents a now familiar trend in living standards. The <a href="http://budgetresponsibility.org.uk/efo/economic-fiscal-outlook-march-2017/">Office for Budget Responsibility’s new forecasts</a> are significantly gloomier than in 2015. The graph below is the result: steady improvement in the value of pensions, stagnant real earnings and falling real benefits – affecting millions of families both in and out of work who rely on declining state help.</p>
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<p class="fine-print"><em><span>Michael Kitson has received funding from BIS, HEFCE, EPSRC, ESRC, AHRC, NERC and the MRC.</span></em></p><p class="fine-print"><em><span>Andrew Gunn receives funding from Worldwide Universities Network, the British Council (administering the Newton Fund), the UK Higher Education Academy, the United Kingdom Political Studies Association, the New Zealand Political Studies Association and the UK Quality Assurance Agency. Andrew Gunn concurrently holds visiting academic positions internationally.</span></em></p><p class="fine-print"><em><span>Catherine Needham receives funding from the Department of Health Policy Research Programme for research into social care markets. She is a member of the Labour Party. </span></em></p><p class="fine-print"><em><span>Donald Hirsch works for the Centre for Research in Social Policy which receives funding from the Joseph Rowntree Foundation, Child Poverty Action Group and Trust for London to carry out analysis on low income, including the effects of tax and benefits policies. Donald Hirsch is a member of the Labour Party. </span></em></p><p class="fine-print"><em><span>Geraint Johnes is Research Director of the Work Foundation.</span></em></p><p class="fine-print"><em><span>Kevin Farnsworth is on the executive board of the Social Policy Association.</span></em></p><p class="fine-print"><em><span>The Oxford University Centre for Business Taxation receives donations from several large UK businesses listed on its website. It also receives research grants for specific projects, including from the Economic and Social Research Council, the Leverhulme Trust and the Nuffield Foundation. The Centre provides analysis independent of government, political party or any other vested interest. Further details are given on its website. Michael Devereux is also Research Director of the European Tax Policy Forum (ETPF), which commissions independent academic research on issues in business taxation.</span></em></p><p class="fine-print"><em><span>Ian Greenwood, Jonquil Lowe, and Simon Wren-Lewis do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Philip Hammond delivers his last Spring Budget on the state of the UK economy. Our panel of experts dissect what it says.Michael Kitson, University Senior Lecturer in International Macroeconomics, Cambridge Judge Business SchoolAndrew Gunn, Researcher in Higher Education Policy, University of LeedsCatherine Needham, Reader in Public Policy and Public Management, University of BirminghamDonald Hirsch, Professor of Social Policy, Loughborough UniversityGeraint Johnes, Professor of Economics, Lancaster UniversityIan Greenwood, Associate Professor in Industrial Relations and Human Resource Management, University of LeedsJonquil Lowe, Senior Lecturer in Economics and Personal Finance, The Open UniversityKevin Farnsworth, Reader in International Social Policy, University of YorkMichael Devereux, Professor of Business Taxation, University of OxfordSimon Wren-Lewis, Professor of Economics, and Fellow of Merton College, University of OxfordLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/742202017-03-08T14:02:09Z2017-03-08T14:02:09ZUK budget 2017: why upcoming Brexit uncertainty will put bright economic outlook to the test<p>Philip Hammond has <a href="https://www.gov.uk/government/publications/spring-budget-2017-documents/spring-budget-2017">delivered his first budget</a> since taking over the role of chancellor of the exchequer after the UK’s Brexit vote <a href="https://theconversation.com/the-challenges-ahead-for-britains-new-chancellor-philip-hammond-62516">put paid to his predecessor</a>, George Osborne. He has unveiled a brighter outlook for economic growth, with an upgraded forecast for growth in 2017 <a href="http://cdn.budgetresponsibility.org.uk/March2017EFO-231.pdf">from the Office for Budget Responsibility</a>. He spoke of job creation and wage growth. And, with public finances in better shape than expected, he was also able to report lower borrowing forecasts than in his Autumn Statement.</p>
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<p>But recent history shows us why we should not be so confident about all these healthy forecasts. A look at the recent history of economic forecasting makes the upgraded expectations of 2% growth in 2017 questionable. Then there’s the fact that Brexit hasn’t happened yet. With Article 50 soon to be triggered, the uncertainty that harms economies the most will only get worse in the months to come. </p>
<h2>The problem with forecasts</h2>
<p>Deriving forecasts about the state of the UK economy and public finances is a huge challenge – in general – but especially now that we do not know how the UK’s relationship with Europe will shape up following Brexit. Indeed, the ancient Greek scientist <a href="http://www.philosophers.co.uk/thales-of-miletus.html">Thales of Miletus</a> was one of the first experts to (implicitly) recognise the challenges of forecasting by noting that “the past is certain, the future obscure”. </p>
<p>Reflecting the state of economic forecasting, the Bank of England’s interest rate setter Jan Vlieghe <a href="https://www.theguardian.com/business/2017/feb/21/we-will-miss-the-next-financial-crisis-predicts-bank-of-england">recently informed MPs</a>: “We are probably not going to forecast the next financial crisis, nor the next recession. Models are just not that good.” </p>
<p>As astonishing as this statement might sound, Vlieghe knows exactly what he is talking about. Figure 1 shows the inability of policymakers (the Bank of England’s in this case) to forecast GDP growth two years into the future. </p>
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<p>As the graph shows, policymakers’ ability to predict UK GDP growth has been rather poor. This can be seen in the way the forecast moves in the opposite direction to the actual outcome.</p>
<p>Figure 1 makes two further worrying readings. First, UK policymakers have been overconfident in their predictions. The Bank of England has, on average, over-predicted annual GDP growth by a massive 1.52% over the past nine years. Second – and perhaps much more worryingly – the Bank’s officials (and many other economists) completely missed the 2008-09 recession.</p>
<p>So what this tells us is that models are not good – at all – when they are needed the most. If this is indeed the case, what is the purpose of going through the somewhat futile exercise of presenting budget forecasts three to five (or even more) years into the future? Was this train of thought going through Phillip Hammond’s mind <a href="https://www.gov.uk/government/news/spring-budget-2017-date-confirmed">when he announced</a> that there will only be one, rather than two major budget statements a year?</p>
<h2>Revising the estimates</h2>
<p>Irrespective of what Hammond’s thinking might have been, the health of the UK public finances critically depends on the country’s economic performance. This is hard to pin down. Indeed, provisional (or real-time) published GDP data are often revised quite dramatically down the line. This is more the case in periods of increasing uncertainty – such as the recent financial crisis and (arguably) the present volatile economic climate following the recent Brexit vote. </p>
<p>Figure 2 plots together provisional and revised estimates of annual GDP growth in the UK. The revised estimates reflect the latest belief of how the economy has performed based on the most recent information. </p>
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<p>Although the correlation between provisional and revised GDP growth is quite high, a closer look at the data reveals the following:</p>
<p>1) During the 2008-2009 financial crisis, GDP fell earlier and more sharply than policymakers thought at the time. </p>
<p>2) Since 2015, provisional GDP growth data seems to be sending the rather misleading signal that the economy is doing better than it actually is.</p>
<p>This all has important implications for the UK’s public finances. Policymakers use data available in real time to produce forecasts about GDP growth and public finances. These forecasts should always be taken with a pinch of salt because real-time data (which are subject to potentially large revisions) are used as inputs in any forecasting model. To make things worse, forecasts critically depend on the underlying forecasting model, which is unlikely to adequately capture all the time-varying, evolving features of what we want to forecast. </p>
<h2>The challenge of uncertainty</h2>
<p>Even if we were to naively assume that provisional data remain unrevised and that we have an accurate forecasting model, economic uncertainty itself will challenge the economy. As Figure 3 shows, economic uncertainty takes its toll on annual investment growth, which in turn limits economic growth.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/159960/original/image-20170308-24192-g9xm5t.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/159960/original/image-20170308-24192-g9xm5t.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/159960/original/image-20170308-24192-g9xm5t.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=339&fit=crop&dpr=1 600w, https://images.theconversation.com/files/159960/original/image-20170308-24192-g9xm5t.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=339&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/159960/original/image-20170308-24192-g9xm5t.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=339&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/159960/original/image-20170308-24192-g9xm5t.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=426&fit=crop&dpr=1 754w, https://images.theconversation.com/files/159960/original/image-20170308-24192-g9xm5t.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=426&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/159960/original/image-20170308-24192-g9xm5t.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=426&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">The inverse relationship between UK economic uncertainty and investment growth, 1950-2016.</span>
<span class="attribution"><span class="source">Estimates of the authors using ONS data. Economic uncertainty is measured by the 10-year rolling volatility of UK's long-term interest rate</span>, <a class="license" href="http://creativecommons.org/licenses/by-nd/4.0/">CC BY-ND</a></span>
</figcaption>
</figure>
<p>To keep buying UK debt, international investors will require a higher yield on UK bonds. This yield will also experience further ups and some downs as the UK goes through a potentially messy Brexit divorce. With economic uncertainty on the rise, UK investment will slow down. This will bring with it job losses and a reduction in public finances because of lower tax receipts and rising unemployment benefits.</p>
<p>The chancellor will no doubt be hoping that his plans to lower the UK’s corporate tax rate to 19% in 2017 and 17% in 2020 will keep businesses happy. But the UK’s existing corporate tax rate of 20% was already much lower than the <a href="https://stats.oecd.org/index.aspx?DataSetCode=Table_II1">24% average for 34 OECD countries</a>. It might be helpful for existing businesses and may even attract additional ones. But it will not be enough to counteract Brexit uncertainty. Business would definitely prefer assurances about a smooth divorce today rather than lower taxes in the future.</p><img src="https://counter.theconversation.com/content/74220/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>In 2012, Costas Milas was the principal recipient of a Bank of England Research Donations Committee Grant (bid for £5,604). Title of the project: “Liquidity and output growth in the UK”. Duration of the project: 5 months.</span></em></p><p class="fine-print"><em><span>From October 2013 to October 2016, I received an Economic and Social Research Council (ESRC) doctoral scholarship award.</span></em></p>Recent history shows us why we should take the latest healthy forecasts with a pinch of salt.Costas Milas, Professor of Finance, University of LiverpoolMike Ellington, Research Associate in Finance, University of LiverpoolLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/709342017-01-25T15:37:10Z2017-01-25T15:37:10ZHow a ‘tax haven’ Brexit threatens the UK’s social model<figure><img src="https://images.theconversation.com/files/154255/original/image-20170125-23851-9kh7lk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">shutterstock.com</span></span></figcaption></figure><p>The threat that Britain might soon become a <a href="http://www.independent.co.uk/news/uk/politics/brexit-eu-chancellor-philip-hammond-welt-am-sonntag-uk-tax-haven-europe-a7527961.html">“corporate tax haven”</a> – issued by its chancellor, Philip Hammond – revealed a fundamental truth about Brexit. This is not just a decision about the UK’s relationship with the European Union; it is also about what kind of economic and social model the UK will have in the future.</p>
<p>As the UK disengages from Europe, politicians have to consider how its role within the global economy will be redefined. This inevitably raises questions about its domestic policies and institutions, and how these might need to adjust to a changed international context. </p>
<p>Hammond’s speech made clear that the UK government plans to use this uncertainty over the shape of its socio-economic model as leverage within the Brexit negotiations. The danger is that these negotiations open the door for a major transformation of the UK’s social model, one that is not necessarily endorsed by the electorate.</p>
<h2>Race to the bottom</h2>
<p>The threat of a tax haven model would be an adoption of the “race to the bottom” approach to globalisation. This strategy views cutting tax rates, regulation and often labour rights, as the surest means to attract internationally mobile capital. The idea behind the threat is that, despite the EU playing hardball over access to the single market, the UK could siphon off investment flows and business operations that might otherwise have located on the continent. </p>
<p>This would put pressure on EU members to similarly lower their tax rates or provide other business-friendly incentives in order to remain competitive. And this would jeopardise their commitment to the existing social model, which balances economic growth with high living standards and working conditions for all. </p>
<p>In taking this route, the UK would be endorsing a similar model to small European states such as Ireland and Luxembourg that have attracted foreign investment by lowering tax rates and regulatory obstacles. </p>
<p>Such an approach is not new to the UK. In fact, Hammond is really talking about accelerating and deepening its commitment to a process that is well underway. The UK social model has long been <a href="https://books.google.co.uk/books?hl=en&lr=&id=zVsTDAAAQBAJ&oi=fnd&pg=PA55&dq=+UK+market+liberal&ots=xGpK1jNBP6&sig=SrE4f7sdbGnen1L5UlF5SmEk0Gw">more market-liberal</a> than that commonly seen on the continent, with lower public spending (relative to GDP) and a less extensive welfare state. It is often viewed as closer to the American model than any comparable European state. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/154252/original/image-20170125-23867-853xvz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/154252/original/image-20170125-23867-853xvz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/154252/original/image-20170125-23867-853xvz.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/154252/original/image-20170125-23867-853xvz.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/154252/original/image-20170125-23867-853xvz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=501&fit=crop&dpr=1 754w, https://images.theconversation.com/files/154252/original/image-20170125-23867-853xvz.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=501&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/154252/original/image-20170125-23867-853xvz.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=501&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Already a haven.</span>
<span class="attribution"><span class="source">shutterstock.com</span></span>
</figcaption>
</figure>
<p>The UK already has some of the least accommodating trade union laws <a href="http://bit.ly/2j4PNEQ">in Western Europe</a> and a pro-business <a href="http://www.heritage.org/index/ranking">attitude towards regulation</a>. The corporate taxation rate was <a href="https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/183408/A_guide_to_UK_taxation.pdf">lowered</a> substantially under the Coalition government, falling from 28% in 2010 to just 20% by April 2015. Within the G20, the UK now has the joint lowest corporate tax rate. Plus, the UK (and the City of London in particular) lies at the heart of a wider network of Crown dependencies that offer low tax rates and conditions of secrecy <a href="http://www.newstatesman.com/economy/2011/02/london-corporation-city">that attract global financial assets</a>.</p>
<h2>A clever bargaining chip</h2>
<p>The tax haven idea is not, though, simply about redefining Britain’s position within the global economy. It is also part of a narrower set of interests within the UK economy. With the loss of EU passporting rights now looking much more likely in the wake of Theresa May’s Brexit speech, the tax haven idea can be interpreted as a message to the City. </p>
<p>The City’s status as an entry point to the wider European market was one of its major competitive advantages. With single market membership now in jeopardy, and major global banks reassessing their <a href="https://www.ft.com/content/0eba4f78-76b1-11e6-bf48-b372cdb1043a">commitment</a> to London, the incumbent Conservative Party will need to think about ways of compensating for the decreased attractiveness of the City as a base for European operations. Pushing further along the tax haven model may be one answer.</p>
<p>If the tax haven proposal is more than just a clever bargaining chip, then we should be worried. It is doubtful that inward investment, without progressive taxation, will lead to a social model that distributes wealth more evenly across society. In fact, it may well lead to a decline in overall government revenue, endangering the supply of government spending for important services such as the <a href="https://theconversation.com/is-the-crisis-in-the-nhs-as-bad-as-the-red-cross-says-it-is-70987">NHS</a>. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/154253/original/image-20170125-23867-15lct1p.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/154253/original/image-20170125-23867-15lct1p.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/154253/original/image-20170125-23867-15lct1p.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/154253/original/image-20170125-23867-15lct1p.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/154253/original/image-20170125-23867-15lct1p.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/154253/original/image-20170125-23867-15lct1p.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/154253/original/image-20170125-23867-15lct1p.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Social fabric.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/rohinfrancis/22080289729">Robin Francis</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<p>There is also no guarantee that foreign investment would be distributed evenly across the geography of the UK. Much more likely is that investment would focus on the high productivity region of London and the South East, deepening the vast spatial inequalities <a href="https://www.equalitytrust.org.uk/sites/default/files/A%20Divided%20Britain.pdf">that define the UK economy</a>.</p>
<h2>A growing divide</h2>
<p>One of the major riddles of Brexit lies in the willingness of a Conservative government, traditionally supportive of the City, to act so clearly against the financial sector’s interests. Hammond’s comments hint towards a willingness to make other concessions to keep the City onside. </p>
<p>The tax haven model may well offer some comfort to the global financial services firms based in the City of London. It promises a framework that slashes the costs of doing business and keeps London internationally competitive. The danger is that in offering a panacea to the City to balance against the costs of Brexit, the UK government sacrifices what’s left of the UK social model.</p>
<p>Opting for this strategy would also signal the UK’s disregard for global inequality. It would be defining its position in the world as a home for the assets of wealthy corporations and individuals that seek to avoid taxation. </p>
<p>One of the big political battles ahead will be to push for a post-Brexit settlement that commits the UK to the politics of equality and opportunity throughout the country. Not one that sacrifices a social model to appease the City, exacerbating the very divisions that brought about Brexit in the first place.</p><img src="https://counter.theconversation.com/content/70934/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jeremy Green is a member of the Labour Party.</span></em></p>The Conservatives may be willing to sacrifice what’s left of the UK’s beleaguered social model to maintain the City’s global status.Jeremy Green, Lecturer in Politics and International Studies, University of CambridgeLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/693872016-11-25T14:24:45Z2016-11-25T14:24:45ZCould an end to corporate tax help Britain’s Brexit-burdened finances?<figure><img src="https://images.theconversation.com/files/147440/original/image-20161124-15344-j4fqp9.jpg?ixlib=rb-1.1.0&rect=62%2C59%2C937%2C567&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/rajue/14281288764/in/photolist-nKZkAC-a3FHC7-6T18EB-97TcL-5bTCU-abDH5-5Pvp3e-5BwtM4-6ni7Dz-6fAAok-87WUzU-jTu1U2-pvbh-cGmnco-9z2pw7-odrbbs-Hq2bXZ-96hNh5-HyZkPt-a9Thxn-dJJ1bY-6iektN-qSoPsE-2bSkz-bd3ft4-7WC9x9-8hjibn-D6VeT5-cGmnaY-8UCrwN-8xLH8s-4f2eWA-cye5Tb-cGoXAU-a7n3ey-cGmneJ-9MazHF-f5sapZ-5J4yn5-4fWSm-4UUrtR-r9XFH4-5HZrvK-cyWZqE-cyWZnE-jt1VSN-5HZneT-cyWZsy-7sfoBM-4v5zR">Ralf-Juergen/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-sa/4.0/">CC BY-NC-SA</a></span></figcaption></figure><p>For many of us small government liberals who thought that, however flawed the European project is, the UK was better off staying inside it, there was one <a href="https://theconversation.com/uk/eu-referendum-2016">Brexit</a> argument that resonated. This was the promise that once it had removed itself from <a href="https://theconversation.com/4-300-to-quit-the-eu-bring-me-my-cheque-book-59699">the shackles of Brussels</a>, with its penchant for interference, overregulation, and general <em>dirigisme</em>, the UK would be free to return to the halcyon days of the mid Victorian era. A time of low regulation, low tax and free trade.</p>
<p>What remains of these promises? As I suspected at the time of the referendum campaign, not much. There will be no North Atlantic version of Hong Kong – during its heyday, a free-wheeling haven from overbearing regulation and punitive taxes. My guess is that all the heavy-handed, overweening (and vaguely French) interventionism of the European Union will merely be replaced by good old British red tape. I for one will struggle to appreciate the difference.</p>
<p>On the bright side, it could have been worse. Though there was some additional spending on housing, infrastructure and R&D in the <a href="https://theconversation.com/autumn-statement-2016-tories-shift-to-growth-strategy-in-an-ed-balls-style-pirouette-66531">recent Autumn Statement</a> from chancellor Philip Hammond, we thankfully heard no more of the rhetoric about industrial policy that first <a href="http://uk.reuters.com/article/us-britain-eu-industry-idUKKCN10C3CR">accompanied prime minister Theresa May’s ascension to office</a> in the summer. Perhaps we can thank Hammond for that, or maybe it returns in the spring? </p>
<p>Economic theory as well as historical experience has taught us that best way to fix an ailing economy – and maintain popular faith in liberal democracy – might not be the method we have become used to. In the familiar scenario, we empower our social betters (politicians and Whitehall mandarins) to manage the nation’s resources (other people’s money) to the benefit of the most deserving firms (those that contribute most to the party in government) in areas of the country most in need of investment (marginal constituencies). </p>
<h2>Rising debt</h2>
<p>What we do know for sure is that the aforementioned small increases in government spending on R&D, infrastructure and housing – along with the freeze on fuel duty and the decision not to implement changes <a href="https://www.gov.uk/pip/overview">to the “PIP” payments</a> for those with disabilities or long-term ill-health – will play only a small part in preventing the UK from achieving a budget surplus by the end of this parliament. </p>
<p>More significant is the <a href="http://www.bbc.co.uk/news/uk-politics-38087110">revision downward in forecast growth</a>, accompanied by lower government revenue. By the end of the next fiscal year, the debt burden will have reached 90.2% of GDP. These are the sorts of numbers we normally expect to observe only in the aftermath of a fairly large war – the UK went from 24% to 127% <a href="http://www.res.org.uk/view/article5jan12Correspondence.html">over the course of World War I</a>. </p>
<p>And it gets worse, because any decline that follows will almost certainly be reversed by the end of the next decade due to the costs associated with the UK’s ageing population. This is a problem likely to be exacerbated by any steep reduction in immigration because most immigrants arrive at the beginning of their working lives and often pay more in taxes <a href="http://onlinelibrary.wiley.com/doi/10.1111/ecoj.12181/abstract">than they receive in benefits</a>.</p>
<p>There is a view, promoted by Carmen Reinhart and Kenneth Rogoff at Harvard, based on <a href="https://www.aeaweb.org/articles?id=10.1257/aer.100.2.573">their own empirical research</a>, that a 90% debt burden represents a singular threshold – borrow beyond that and a country suffers particularly low growth. This is a result that deserves to be treated with scepticism – it is generated by throwing into one dataset lots of very different countries across different time periods. Nonetheless, ever higher debts will need to be financed by ever higher tax rates. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/147444/original/image-20161124-15365-6f915k.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/147444/original/image-20161124-15365-6f915k.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/147444/original/image-20161124-15365-6f915k.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/147444/original/image-20161124-15365-6f915k.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/147444/original/image-20161124-15365-6f915k.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/147444/original/image-20161124-15365-6f915k.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=502&fit=crop&dpr=1 754w, https://images.theconversation.com/files/147444/original/image-20161124-15365-6f915k.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=502&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/147444/original/image-20161124-15365-6f915k.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=502&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">A new model for pensions?</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/bugmonkey/5051453089/in/photolist-8Go21M-kQpL4Q-ekHvpL-og5vk6-f2eU7s-og4UJy-8faxV5-orcGqY-9yyKsa-qLTVMD-fHy59G-6Y9PX-LuopP-dY4CGP-cmNJLW-seUGVq-iD1EvW-4HvnYB-jwzhXx-iCYmEs-4HaVvG-cswyyf-ps2Gjn-cswyr3-49NRmr-kQnQbn-5VXzE6-5W2Uff-JnwJBX-ozd6nb-ozftip-afK9pD-7YiQv-cSpYzo-kQnWGZ-fYdYPL-oR8g66-oR8jtt-oR8QqJ-fxHST2-D7YxQ-kQoNQn-cUbABA-guBEKy-5odLFi-ba31xi-p6ArtQ-p8CFJX-5cRi2z-ajqmzt">Neil Wilkie/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-sa/4.0/">CC BY-NC-SA</a></span>
</figcaption>
</figure>
<p>Doubling a tax rate does not double the amount of revenue a government collects. The distortions and disincentives the tax creates suppress economic activity at an ever increasing rate, shrinking the tax base. Beyond a certain point a debt becomes unsustainable, when taxes can no longer rise enough to service debt interest payments. Though the UK and other western countries may still be far from this Greek scenario, they will suffer, particularly once interest rates begin to rise and refinancing the debt being accumulated becomes more difficult.</p>
<h2>Corporation tax</h2>
<p>So more spending and lower taxes would be a recipe for disaster. That does not mean that the present way the UK spends or taxes is in any way efficient. Hammond did announce that corporation tax cuts planned by his predecessor George Osborne would be implemented. A bolder move, and one more in keeping with the anarchic, anti-bureaucratic spirit of Brexit, would be to abolish corporation tax completely. </p>
<p>Why? Because this is a singularly distortionary tax, and I would argue, deeply unjust as well. It only generates <a href="https://www.ifs.org.uk/uploads/publications/bns/BN163.pdf">about 6% of UK government revenue</a>, but collecting it imposes vastly more administrative costs on UK businesses. Abolish it and armies of intelligent people working as lawyers and accountants could be repurposed to more productive activities in place of their current function of paying (or avoiding) this tax. Justice too would be served.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/147446/original/image-20161124-15359-xtjg3p.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/147446/original/image-20161124-15359-xtjg3p.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/147446/original/image-20161124-15359-xtjg3p.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=398&fit=crop&dpr=1 600w, https://images.theconversation.com/files/147446/original/image-20161124-15359-xtjg3p.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=398&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/147446/original/image-20161124-15359-xtjg3p.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=398&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/147446/original/image-20161124-15359-xtjg3p.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=501&fit=crop&dpr=1 754w, https://images.theconversation.com/files/147446/original/image-20161124-15359-xtjg3p.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=501&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/147446/original/image-20161124-15359-xtjg3p.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=501&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Reflecting on new tax arrangements for business.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/powerbooktrance/465016782/in/photolist-H6khJ-p65J8c-bAEga1-2E4oz-ePdA2r-4EG82G-4qQTFK-ePpYMQ-fjPkMm-yweWc-6r6g8o-6JuV2v-6gceBv-4FZHmd-AMqJ-H6kiJ-9ZVjnr-H6kg5-8MnN24-4sWK41-nfa8r6-pTk24-ePpYPN-aN8wPF-aZirqa-b5uDgr-ePpYNJ-4EDQCx-5Zgh4b-adSjfV-kzKr8V-sfKi-9r44TS-ePpYYC-8Per87-4CqzEC-9iFBeM-nd7qoQ-oa9e9-yweWg-9oPzzs-8xYGnN-5kt1fX-j6rDos-9BKSHD-fiLCfS-2an28V-cT6ujf-89xyPL-7wiRNK">Terry Johnston/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<p>Personally, I am not bothered that Amazon or Starbucks do not <a href="https://www.theguardian.com/technology/2016/sep/02/multinationals-amazon-starbucks-austria-says">“pay their fair share”</a>. Indeed, I believe they have a fiduciary responsibility to their shareholders to pay only what the law requires and not a penny more. Demanding they do otherwise is an assault on the very concept of the rule of law and seems vaguely fascistic. </p>
<p>What does irk, is that their smaller competitors or new firms that might compete against these incumbents cannot shift their profits to Luxembourg or avail themselves of the services of lobbyists that would ensure that tax regulations are written in a way that benefits them. </p>
<p>Ultimately, shareholders pay this tax and unlike the income tax, everyone, whether a millionaire or a destitute pensioner pays here the same rate. Shifting the burden to income tax would yield less waste and would actually be more progressive. It would also support the creation of a more entrepreneurial society, one with more competition and fewer large monopolies.</p><img src="https://counter.theconversation.com/content/69387/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michael Ben-Gad does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>A zero rate for business could actually be a progressive move and would reflect the anti-bureaucratic spirit of Brexit.Michael Ben-Gad, Professor of Economics, City, University of LondonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/665312016-11-23T16:01:10Z2016-11-23T16:01:10ZAutumn Statement 2016: Tories shift to growth strategy in an Ed Balls-style pirouette<p>Needing to perform a fiscal twist in a confined space, it looks like Philip Hammond has borrowed some dance steps from former shadow chancellor Ed Balls. Despite some mockery of <a href="https://www.theguardian.com/tv-and-radio/2016/oct/24/strictly-come-dancing-ed-balls-on-to-a-winner-botch-job">his recent turns on TV show Strictly Come Dancing</a>, Balls’ footprints are clearly visible on the spending boost the chancellor unveiled in his first Autumn Statement. </p>
<p>Balls regularly castigated the 2010-15 coalition government for being too hasty to cut public spending and raise VAT. He called, in particular, for a boost to <a href="http://www.politics.co.uk/comment-analysis/2012/10/01/ed-balls-speech-in-full">infrastructure, skills and housing investment</a> on the basis that without it, a stifled economic recovery would delay the return to budget balance. </p>
<p>Six years on, Hammond has taken much the same stance. Attempts to achieve a budget surplus have been pushed elusively forward <a href="https://www.gov.uk/government/speeches/autumn-statement-2016-philip-hammonds-speech">to “the next parliament”</a>. Meanwhile, the focus shifts to boosting growth, following a forecast downgrade by the Office for Budget Responsibility, with adverse implications for tax revenues.</p>
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<p>To protect against another slowdown, additional <a href="http://www.bbc.co.uk/news/uk-politics-38075649">spending on public infrastructure</a> (especially housing, roads and telecoms) has been announced. Meanwhile, he is also slipping in some tax reductions – including a return to the 50p top rate and a reduction of taxes on in-work benefits – in case the Supreme Court’s Brexit verdict <a href="http://www.telegraph.co.uk/news/2016/11/03/high-court-to-rule-on-brexit-legal-battle-and-theresa-mays-decis/">forces an early election</a>.</p>
<p>Big infrastructure projects are a <a href="https://www.imf.org/external/pubs/ft/wp/2016/wp1640.pdf">favoured way to kickstart stalling economies</a> because they can quickly create jobs in areas that most need them. They also generate income that mostly gets spent, boosting other activity. Such projects can pay for themselves through extra tax revenues which then shrink the budget deficit in relation to GDP. Hammond’s quickstep addition is an annual <a href="https://www.gov.uk/government/news/autumn-statement-2016-some-of-the-things-weve-announced">£2 billion boost to research and development</a>, aimed at making those already in work more productive. </p>
<p>George Osborne did something similar. Following the failure of austerity <a href="http://www.bbc.co.uk/news/business-18882172">and a dip back into recession in 2011-12</a>, he quietly reinstated several of the initially-suspended infrastructure programmes. Hammond has signalled an intention to go much further <a href="http://www.itv.com/news/update/2016-11-23/chancellor-announces-23bn-productivity-investment-fund/">with an extra £23 billion</a> to be channelled in the first five years with his new investment fund. His hope is to reverse the impending slowdown and Brexit aftershocks.</p>
<h2>Selective credibility</h2>
<p>It’s not the first time that a party <a href="http://www.bbc.co.uk/news/business-33074500">committed to cautious and balanced fiscal policy</a> has veered towards plans it <a href="http://www.conservativehome.com/leftwatch/2011/08/pour-petrol-on-a-fire-rub-salt-in-a-wound-increase-debt-in-a-debt-crisis.html">once mocked as ill-timed and irresponsible</a>. A Keynesian-style stimulus – running a deficit to spur growth, and so raising national debt – has historically been easier for Conservative than Labour governments in the UK, and for Republican than Democratic presidencies in the US. </p>
<p>This is because conservatives normally push for lower taxes, based on the belief that tax reductions will actually close a budget deficit by boosting people’s ability and willingness to pay taxes. This wilts under <a href="http://www.princeton.edu/%7Ervdb/LafferCurve/LafferLaughable.html">economic analysis</a>. And when reality bites, a switch is made from taxing less to spending more on structures that can constitute a public asset as “security” for the additional public debt. </p>
<p>Labour broke the <a href="http://news.bbc.co.uk/1/hi/business/8636701.stm">deficit-boosting record in 2008-10</a> – but only after the unprecedented bailing-out of a collapsed financial sector. It had previously reduced the public debt, by moving the budget into surplus <a href="https://mainlymacro.blogspot.co.uk/2012/08/facts-and-spin-about-fiscal-policy.html">earlier in its term</a>. Yet the Conservatives, with Hammond now as chancellor, have used the idea of Labour’s “fiscal irresponsibility” to justify huge public spending cuts. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/147191/original/image-20161123-19689-1t18zc2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/147191/original/image-20161123-19689-1t18zc2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/147191/original/image-20161123-19689-1t18zc2.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/147191/original/image-20161123-19689-1t18zc2.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/147191/original/image-20161123-19689-1t18zc2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/147191/original/image-20161123-19689-1t18zc2.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/147191/original/image-20161123-19689-1t18zc2.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Infrastructure spending.</span>
<span class="attribution"><span class="source">shutterstock.com</span></span>
</figcaption>
</figure>
<p>While the deficit has steadily narrowed since 2010, Osborne’s missed targets have meant the Conservative-led governments have added more to public debt <a href="http://www.bbc.co.uk/news/business-25944653">than the Labour administration they replaced</a>. Indeed, Labour governments – often elected after a boom has collapsed, and never trusted to borrow as much – have run consistently tighter budgets <a href="http://www.primeeconomics.org/articles/taq30tk04ljnvpyfos059pp0w7gnpe">than those who accuse them of reckless spending</a>. </p>
<p>Hammond’s new investment fund looks very much like the long-term investment bank that Labour has <a href="https://www.theguardian.com/politics/2016/jul/18/labour-vows-to-set-up-national-investment-bank-to-mobilise-500bn">long dreamed of</a>, and never succeeded in, launching.</p>
<p>The Conservatives argue that they can now afford some fiscal relaxation, having earned “credibility” through Osborne’s years of austerity. By drumming home the idea that they will shrink public spending to the smallest fraction of GDP <a href="https://www.theguardian.com/uk-news/2014/dec/03/osborne-plans-public-spending-shrink-1930s">since the 1930s</a> and continuing to lambast Labour for leaving such a large deficit, they manage to deflect criticism. Yet the OBR has confirmed that weaker GDP growth and tax receipts left the 2015-16 deficit at £76 billion, <a href="http://budgetresponsibility.org.uk/docs/dlm_uploads/Forecast-evaluation-report-October-2016-1.pdf">four times its £18 billion forecast</a>. </p>
<h2>Is the timing right?</h2>
<p>Chancellor Hammond can also argue that historically low interest rates on public debt make this the right time for governments to borrow more. In a world seemingly <a href="https://www.brookings.edu/blog/ben-bernanke/2015/04/01/why-are-interest-rates-so-low-part-3-the-global-savings-glut/">awash with capital</a> and large corporations sitting on <a href="http://uk.businessinsider.com/record-us-corporate-cash-holdings-182-trillion-2015-6">mountains of cash</a>, tax cuts haven’t delivered the needed boost to enterprise, so the state must take a more direct hand.</p>
<p>But the six-year gap between Balls’ and Hammond’s plans may also present problems for the Treasury. With more inflation <a href="http://uk.reuters.com/article/uk-britain-inflation-barclays-idUKKBN13G1QK">on the horizon</a> and the UK’s credit rating <a href="http://www.bbc.co.uk/news/business-36644934">heading downwards</a>, the government’s phase of virtually costless long-term borrowing is coming to an end. Even yields on long-term bonds <a href="http://www.marketwatch.com/story/global-bond-retreat-yanks-japanese-yields-firmly-above-zero-2016-11-18">are rising</a>, despite the Bank of England halving its base rate to 0.25% <a href="http://www.bbc.co.uk/news/business-36976528">immediately after the June 23 referendum</a>.</p>
<p>While big projects may cost more to finance under Hammond than if Osborne had launched them earlier, their growth-reviving benefits may also turn out to be smaller. The multiplier effect of deficit spending on national income is highest <a href="https://www.imf.org/external/pubs/ft/tnm/2014/tnm1404.pdf">when labour markets and consumer spending are slackest</a>, as they were in the UK in 2011-12. </p>
<p>Today, although the economy hasn’t grown enough to close the deficit, most of that slack has been taken up. Unemployment is <a href="http://www.bbc.co.uk/news/business-36844302">at its lowest for a decade</a>, employment at its highest <a href="http://www.recruiter.co.uk/news/2016/11/employment-remains-at-record-high/">since records began</a>, and spare resources could soon be even scarcer if the UK adopts a hard Brexit, with tight immigration controls. In these conditions, firms building the extra houses, roads and railways could find themselves bidding for additional employees and raw materials, driving up costs and prices rather than output and employment.</p>
<p>Rising labour costs are, of course, economists’ code for the higher pay which voters – and the Chancellor’s party – expect <a href="https://www.ft.com/content/d0829086-96bc-11e6-a1dc-bdf38d484582">to gain when Brexit uncertainty settles</a>. If that promise secures the government’s re-election by 2020, Ed Balls could well claim to be the ghostwriter denied a royalty.</p><img src="https://counter.theconversation.com/content/66531/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Alan Shipman receives funding from the British Academy/Leverhulme Foundation. </span></em></p>Hammond has taken an oddly similar stance to former shadow chancellor Ed Balls: running a deficit and boosting infrastructure spending.Alan Shipman, Lecturer in Economics, The Open UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/664482016-10-03T15:12:32Z2016-10-03T15:12:32ZPhilip Hammond plays the pragmatist but lacks the vision to deliver as chancellor<p>Pragmatism was a key watchword of Philip Hammond’s first conference speech as chancellor. He reiterated his intention to abandon the strict fiscal rules of his predecessor. He also announced new spending on housing and other infrastructure.</p>
<p>Yet, despite the talk of policy change, his speech continued to repeat the same mantra of fiscal consolidation and balancing the budget. It lacked the vision and content to deal with the deep-seated problems of the UK economy.</p>
<p>Despite his attempts to insist otherwise, Hammond’s speech was more ideological than pragmatic, and again revealed the flaws in current macroeconomic policy in the UK. The chancellor’s rhetoric may have softened, but his commitment to an ideologically-driven agenda of austerity remains in place.</p>
<h2>The need for change</h2>
<p>The chancellor was eager to give the appearance of change. He wanted to signal that a different approach is needed to match the new circumstances in which the world finds itself. He was careful not to criticise his predecessor, though his move to a looser fiscal policy is a clear sign that previous policies are unfit for the present and future.</p>
<p>The commitment to achieving a budget surplus by 2020 – a much prized target of George Osborne – has been the most high-profile goal to be abandoned. In truth, this target was always arbitrary. It had <a href="https://www.theguardian.com/politics/2015/jun/12/osborne-plan-has-no-basis-in-economics">no proper basis in economic theory</a> and <a href="http://theconversation.com/the-two-big-failures-of-george-osbornes-budget-56753">its pursuit has come at the expense of slower growth</a>. Hammond’s move to a more pragmatic policy is an admission of the folly of his predecessor’s fiscal rules.</p>
<p>Yet, if the chancellor’s speech is anything to go by, the change in fiscal policy is likely to be too modest to make much of a difference to the UK economy. The announcement of extra borrowing of £2 billion to speed up housing construction is hardly a game changer. This investment will address neither the acute housing needs in the UK nor the lack of investment in the wider economy.</p>
<p>The problem here is the lack of ambition. Hammond rightly noted that infrastructure is important for the productive capacity of the economy but he fell short of the spending commitments needed to make it work to that effect. </p>
<p>The timidity of Hammond’s spending commitments highlight the lack of vision at the heart of his economic strategy. The impression is that ideology is still ruling economic policy, preventing the necessary investment in the UK economy that could help to secure a more sustainable recovery.</p>
<p>With low interest rates, the government should be borrowing to invest, not relying on the confidence fairy to magically restore investment.</p>
<h2>Missing elements</h2>
<p>There were also important things that Hammond missed out in his speech. There was talk of record levels of employment, but nothing on the <a href="http://touchstoneblog.org.uk/2016/07/uk-real-wages-decline-10-severe-oecd-equal-greece/">slump in real pay</a> that has harmed many millions of UK workers. The unprecedented drop in real pay has placed restrictions on aggregate demand and is a key reason why economic growth has been subdued. There was also nothing in his speech about the <a href="https://www.theguardian.com/business/2016/may/10/uk-trade-deficit-hits-new-record-of-24bn-pounds-eu-referendum-brexit">large trade deficit</a>, despite its negative effects on economic growth.</p>
<p>Reference was made to <a href="https://www.theguardian.com/business/2016/feb/18/uk-productivity-gap-widens-to-worst-level-since-records-began">lagging productivity</a> in the UK but there was no clear solution on offer beyond rhetoric on improving skills and education. Hammond exhorted industry to invest more, but this was not underpinned by any plan to unlock the money within businesses and divert it to productive investment. Issues of short-termism and corporate governance (including workers on boards) were also missing.</p>
<p>Predictably, Brexit loomed large in Hammond’s speech. But, as in other speeches at the Conservative conference, Brexit acted as a smokescreen to deflect attention away from the home-grown problems of the UK economy. This diversionary tactic can only go on so long. It is imperative that attention be given to the need for reform within the economy as UK leaders talk about what a post-Brexit UK will look like. The connected problems of low pay, low investment, and low productivity require a coordinated approach that goes beyond the austerity policies sadly reiterated by Hammond in his speech.</p>
<h2>Ideology wins again</h2>
<p>The renewed talk of pragmatism in UK macroeconomic policy has a rhetorical appeal, but beneath the surface there remains a continuity in the policy stance of the current government. The ideological bias against deficit spending remains deeply-rooted and there is still no genuine commitment to rebalancing the economy away from household consumption towards investment. The personnel and rhetoric may have changed, but the supporters of austerity <a href="https://www.theguardian.com/business/ng-interactive/2015/apr/29/the-austerity-delusion">remain in charge</a>.</p>
<p>A truly pragmatic macroeconomic policy would entail a wholesale reversal in fiscal policy and a resolve to invest for the long term. In this case, it would seek to challenge the established policy and political consensus in the UK.</p>
<p>Lamentably, as Hammond’s speech underlines, the UK still awaits an economic strategy that can improve the fortunes of the economy. We are all poorer for the absence of such a strategy.</p><img src="https://counter.theconversation.com/content/66448/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>David Spencer receives funding or has received funding from ESRC, EPSRC, and FP7. </span></em></p>The truth is, George Osborne’s ideology still rules, even after deficit chasing is abandoned.David Spencer, Professor of Economics and Political Economy, University of LeedsLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/647682016-09-02T13:32:28Z2016-09-02T13:32:28ZHow to ditch corporation tax and grow government income at the same time<figure><img src="https://images.theconversation.com/files/136278/original/image-20160901-1061-1eey8jl.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Ta-dah!</span> <span class="attribution"><a class="source" href="http://www.shutterstock.com/pic-66896299/stock-photo-cute-dappled-rabbit-sitting-in-a-black-magicians-hat.html?src=qs85WiM528xGp22KAFwv8Q-1-14">Volkova</a></span></figcaption></figure><p>Another day, another tax headline. This week, <a href="http://www.bbc.co.uk/news/world-europe-37242357">it’s Apple</a>, which faces a €13 billion (£11bn) tax bill in Ireland from the EU. Everyone says there must be a better way to make business pay its way. I support boosting the tax take, too, though not by punishing companies. Earlier this year, I <a href="https://theconversation.com/corporation-tax-the-progressive-case-for-getting-rid-of-it-56452">argued</a> in The Conversation that it was time for progressives to think the unthinkable and get rid of corporation tax. </p>
<p>UK politicians remain to be convinced, alas. The All Party Parliamentary Group’s <a href="http://www.appgresponsibletax.org.uk/wp-content/uploads/2016/08/Sticking-Plaster-APPG-Responsible-Tax-Report.pdf">recent report</a> on the global tax system stated:</p>
<blockquote>
<p>Some experts have argued that we should stop trying to tax the profits of global companies. We disagree. Governments need a range of taxes to fund public services and corporate profits form one part of that range.</p>
</blockquote>
<p>They haven’t recognised that you could bring in much the same revenue for the state by shifting the burden to shareholders. How? By fully taxing company dividends – and reaping the tax proceeds of people selling UK shares that have risen because of companies becoming more profitable after being freed from corporation tax.</p>
<p>But here I want to propose another carrot: charge companies an annual fee to be registered in the UK. </p>
<h2>Ever-decreasing corporation tax</h2>
<p>Corporation tax <a href="https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/539194/Jun16_Receipts_NS_Bulletin_Final.pdf">brings in</a> around 6% (net of dividend allowance) of UK tax revenues. Former chancellor George Osborne <a href="http://www.bbc.co.uk/news/business-36699642">intended</a> in the wake of Brexit to cut UK rates from the current 20% to 15% of companies’ pre-tax profits. Philip Hammond, his replacement, has yet to announce a policy but <a href="http://www.dailymail.co.uk/news/article-3704195/Hammond-cut-corporation-VAT-tax-economy-stalls-Chancellor-raises-expectations-revealing-plans-reset-policy.html">has signalled</a> he may move in the same direction. </p>
<p>Coupled with further erosions to the corporate tax base due to internet trading and the relocation of intellectual property to more favourable tax regimes, the day is soon likely to arrive when the UK struggles to raise 4% of its tax revenues from corporation tax. What’s this in money terms? Say £20bn (<a href="https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/539194/Jun16_Receipts_NS_Bulletin_Final.pdf">compared to</a> £30bn, net of tax credits, in 2015-16).</p>
<p>So how much corporation tax would be raised on average from UK companies each year if tax revenues fell to £20bn? <a href="https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/545611/StatisticalReleaseIncorporatedCompaniesUKJune2016_V1.1.pdf">There are</a> 3.5m limited companies in the UK. But 2m are dormant, so only 1.5m are actively trading. This means that each company would be paying just over £13,000 each year to HMRC on average. </p>
<p>I don’t know the average cost of a company complying with corporation tax each year, but it won’t be far removed from £13,000 (much higher for multinationals, much lower for small companies). And while companies only pay taxes when they make profits, they must make tax returns either way. It’s also worth remembering that many companies are subject to investigations, make appeals and sometimes end up in court – more costs. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/136281/original/image-20160901-1036-trc8kf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/136281/original/image-20160901-1036-trc8kf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/136281/original/image-20160901-1036-trc8kf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=480&fit=crop&dpr=1 600w, https://images.theconversation.com/files/136281/original/image-20160901-1036-trc8kf.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=480&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/136281/original/image-20160901-1036-trc8kf.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=480&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/136281/original/image-20160901-1036-trc8kf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=603&fit=crop&dpr=1 754w, https://images.theconversation.com/files/136281/original/image-20160901-1036-trc8kf.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=603&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/136281/original/image-20160901-1036-trc8kf.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=603&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Profit-seeking missile.</span>
<span class="attribution"><a class="source" href="http://www.shutterstock.com/pic-202197343/stock-vector-businessman-running-away-from-rocket-tax.html?src=j3kNoH3ShB-AEWRsra4UMA-1-78">BoBaa22</a></span>
</figcaption>
</figure>
<h2>Plan B</h2>
<p>Now suppose we charged an annual fee for the privilege of being a UK company, using a fee scale based on company size. While companies would now be paying to be UK-registered, most would save more by not having to comply with corporation tax. </p>
<p>You could set the fee levels to bring in roughly what the government lost in corporation tax. In addition, the government would still have the revenue from the higher dividends and capital gains I mentioned earlier. In total, the income for the state would have risen substantially. </p>
<p>Collection of this fee would be simple. Companies would pay it when they deliver their <a href="https://www.gov.uk/government/publications/confirmation-statement/confirmation-statement">confirmation statement</a> (the replacement for the annual return). Penalties and interest would apply if payments were late – another source of money for government. </p>
<p>More information would be required to determine the number of fee bands and the charge per band for these new company fees, but below is a possible structure. Though the rates would of course be much higher for big companies, these are probably still comparable to what they spend on dealing with their tax affairs. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/136277/original/image-20160901-1023-1hwrc3n.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/136277/original/image-20160901-1023-1hwrc3n.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/136277/original/image-20160901-1023-1hwrc3n.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=156&fit=crop&dpr=1 600w, https://images.theconversation.com/files/136277/original/image-20160901-1023-1hwrc3n.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=156&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/136277/original/image-20160901-1023-1hwrc3n.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=156&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/136277/original/image-20160901-1023-1hwrc3n.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=196&fit=crop&dpr=1 754w, https://images.theconversation.com/files/136277/original/image-20160901-1023-1hwrc3n.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=196&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/136277/original/image-20160901-1023-1hwrc3n.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=196&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
</figcaption>
</figure>
<p>I’ve spoken to a few people who run or are involved with companies about how they would react to a system like this. What was their reaction? They’d bite your hand off to sign up, basically.</p>
<p>And a final thought. If the UK abolished corporation tax, where do you think Apple, Google and others would consider relocating given the problems the EU has created for Ireland?</p><img src="https://counter.theconversation.com/content/64768/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Grahame Steven does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Arguments about reducing the tax burden of companies tend to get associated with rabid neoliberals. Here’s why they needn’t be.Grahame Steven, Lecturer in Accounting, Edinburgh Napier UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/629822016-07-28T15:57:39Z2016-07-28T15:57:39ZBritain drops one deficit target and ends up facing a new threat<figure><img src="https://images.theconversation.com/files/132191/original/image-20160727-21561-19y9so0.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C2048%2C1364&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">London's trading strength has evolved from dockyard cranes to high finance.</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/ruben3d/20825017346/in/photolist-sm8Jgg-bwsrid-48dsCn-cyTKXE-2Vx8w-2VxcX-9Dd2q4-2VxeZ-7WvUcD-4b9ph8-4MdFiG-2VxJq-2VxbL-cHLdAf-2Vxa4-2VxHM-2Vxcx-a3qqXT-54d1L4-cPTqzC-54hgtw-cyTM83-4M9v7z-F8Pbta-wCY6Ki-rBX13c-rWcwpx-2Vxgo-cPTtfN-4T3KXQ-iSaSy-2VxH6-3xHRX-7fLv23-sm3cEy-9Dd2NV-bwmHUb-5vJ5Vr-ddRdBH-2Vxfu-2Vxec-2VxfZ-xJeE8d-rDFE7u-rWcwsZ-rTYM7m-rDFE5W-w4VHgd-w53Hwi-y8PSUt">Rubén Moreno Montolíu/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-sa/4.0/">CC BY-NC-SA</a></span></figcaption></figure><p>The UK vote to leave the European Union gave new chancellor Philip Hammond a good excuse <a href="http://www.theguardian.com/politics/commentisfree/2016/jul/14/philip-hammond-chancellor-economic-policy-brexit">to abandon his predecessor’s plans</a> for closing the budget deficit, but it shines a harsh light on the “other” deficit – in the balance of payments. </p>
<p>The current account, which compares how much the country spends abroad and how much it receives through sales and investment income, showed a deficit in the final quarter of 2015 <a href="http://www.bbc.co.uk/news/business-35931968">equivalent to 7% of GDP</a>. That was the widest since records began 60 years ago, and it has <a href="https://www.ons.gov.uk/economy/nationalaccounts/balanceofpayments">narrowed only slightly</a> since. </p>
<p>This external deficit means, essentially, that we’re buying more than we sell, bridging the gap by attracting foreign investment with the promise of future payback. It has seemed a comfortable arrangement until now because more than 80% of the UK deficit has been financed by foreign direct investment (FDI): overseas investors buying production capacity and intellectual property in the UK. The US$32 billion sale of <a href="https://theconversation.com/as-arm-enjoys-a-japanese-embrace-the-lessons-it-can-teach-uk-tech-firms-62701">leading chip-maker ARM</a> to Japan’s Softbank suggests that quitting the EU might not quench the appetite for large FDI deals. </p>
<p>But <a href="http://unctad.org/en/PublicationsLibrary/wir2015_en.pdf">there have been fears</a>, ever since the crash of 2008, of a permanent slowdown in FDI to “developed” countries. If they still want to build or buy plants abroad, multinationals increasingly target the much lower-cost emerging economies. The UK’s longer-term appeal to foreign investors may be reduced by the decision to leave the EU, which brought an immediate <a href="http://www.bbc.co.uk/news/business-36644934">fall in UK sovereign credit ratings</a> and <a href="http://www.ey.com/UK/en/Issues/Business-environment/Financial-markets-and-economy/ITEM---Forecast-headlines-and-projections">forecasts of a sharp slowdown</a> or even recession next year.</p>
<h2>Signs of strength</h2>
<p>Governments haven’t worried much about the current account since the 1970s, which began with the <a href="http://news.bbc.co.uk/onthisday/hi/dates/stories/june/23/newsid_2518000/2518927.stm">pound being “floated”</a> and ended with the <a href="http://hansard.millbanksystems.com/lords/1979/oct/23/exchange-control-removal-of-restrictions-1">removal of foreign exchange controls</a>. With a flexible exchange rate, the pound can always lose value against other currencies if the external deficit becomes excessive. A weaker currency traditionally boosts exports by making them cheaper abroad, while curbing imports by making them costlier at home. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/132205/original/image-20160727-21569-1a6ld82.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/132205/original/image-20160727-21569-1a6ld82.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/132205/original/image-20160727-21569-1a6ld82.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=288&fit=crop&dpr=1 600w, https://images.theconversation.com/files/132205/original/image-20160727-21569-1a6ld82.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=288&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/132205/original/image-20160727-21569-1a6ld82.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=288&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/132205/original/image-20160727-21569-1a6ld82.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=362&fit=crop&dpr=1 754w, https://images.theconversation.com/files/132205/original/image-20160727-21569-1a6ld82.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=362&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/132205/original/image-20160727-21569-1a6ld82.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=362&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Money flows.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/jamescridland/3244096925/in/photolist-5WEQZB-9kMSBb-HiB3cX-9obBrg-fpiHYE-9VC47N-7taeJV-9kP6MU-7b8177-9kP56d-HnHyFw-9chSab-vbPDGx-9kJHci-9kJP4c-royb3v-8upwDg-aWwhx4-a2Ybz8-9kMKy9-9VBBzN-9kL35z-58PD49-9kMNwd-aXTBnX-7bb1pp-9kNUaq-9VyWWc-8puqfH-8pxBCE-8puprR-bZPcJN-7vzkko-qgE8nK-nzKQ2n-w3rTY-dkaUyr-wowHq9-5WUcDk-9kKZfe-8purhr-5WUbvX-8pup2p-8purRn-8pupSi-bYafLo-5WUc4D-8pust2-6zuWm-pLbVqY">James Cridland/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<p>Because an external deficit is always financed by capital inflows, some economists now view the UK’s current-account gap as a sign of strength. <a href="http://www.cityam.com/237925/should-the-uk-worry-about-its-record-current-account-deficit">It’s become more attractive to foreign capital</a> by offering a vibrant business environment, benign tax regime and strong institutions. Optimists note that the deterioration since 2012, when the deficit was just 3.3% of GDP, has resulted not from a worsening trade balance (imports growing faster than exports), but from a widening imbalance in <a href="http://www.niesr.ac.uk/sites/default/files/publications/NIER234Lane.pdf">flows of investment income</a>. Put simply, the return on the UK’s investments abroad has fallen relative to the return on foreigners’ investment in the UK. </p>
<h2>Sliding to safety</h2>
<p>This suggests a global vote of confidence in the performance and prospects of the UK economy. Evidence <a href="http://www.bankofengland.co.uk/publications/Pages/speeches/2016/890.aspx">presented in March</a> by Kristin Forbes, a member of the Bank of England’s Monetary Policy Committee (MPC), showed the UK’s investment income deficit rising because it gives foreign investors bigger capital gains than it has earned on its investments abroad. </p>
<p>By implication, the UK is expected to deliver stronger growth and profits, at least compared to eurozone partners. And any “excessive” widening of the deficit, caused by this international difference in investment performance, can be easily cured by letting the exchange rate fall. A depreciation of sterling improves the ‘income’ balance on the current account, by giving UK investors more pounds for every dollar they earn abroad.</p>
<p>Currency depreciation used to cause alarm because it can lead to higher inflation, by boosting demand (if, as at present, the economy seems <a href="https://www.gov.uk/government/news/employment-rate-hits-record-742">close to full employment</a> and by making oil and other imported raw materials more expensive.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/132386/original/image-20160728-12084-1ybmip9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/132386/original/image-20160728-12084-1ybmip9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/132386/original/image-20160728-12084-1ybmip9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/132386/original/image-20160728-12084-1ybmip9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/132386/original/image-20160728-12084-1ybmip9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/132386/original/image-20160728-12084-1ybmip9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=501&fit=crop&dpr=1 754w, https://images.theconversation.com/files/132386/original/image-20160728-12084-1ybmip9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=501&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/132386/original/image-20160728-12084-1ybmip9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=501&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Market prices.</span>
<span class="attribution"><a class="source" href="http://www.shutterstock.com/cat.mhtml?lang=en&language=en&ref_site=photo&search_source=search_form&version=llv1&anyorall=all&safesearch=1&use_local_boost=1&autocomplete_id=&searchterm=fruit%20stall&show_color_wheel=1&orient=&commercial_ok=&media_type=images&search_cat=&searchtermx=&photographer_name=&people_gender=&people_age=&people_ethnicity=&people_number=&color=&page=1&inline=228181198">Lipskiy/Shutterstock</a></span>
</figcaption>
</figure>
<p>But faster inflation would at present be a bonus. It’s been stuck far below its 2% target <a href="http://www.bloomberg.com/news/articles/2016-03-22/u-k-inflation-rate-unexpectedly-remained-at-0-3-in-february">for over two years</a>, keeping borrowers’ real (inflation-adjusted) interest rates high and making it harder to pay down debts.</p>
<h2>Attention: deficit disorder?</h2>
<p>So with all these assurances, why should the new chancellor (or anyone) worry about the current-account deficit? First, because no other advanced economy comes close to the UK’s level of deficit. The US, although traditionally an even bigger magnet for inward investment at times of global tension, and able (unlike the UK) to do all its foreign borrowing in its domestic currency, ran a deficit of 2.7% of its GDP in the <a href="http://www.bea.gov/newsreleases/international/transactions/transnewsrelease.htm">first quarter of this year</a>. Germany runs a current account surplus that’s <a href="http://ec.europa.eu/eurostat/documents/2995521/7566913/2-20072016-AP-EN.pdf/24c06bd5-a8bf-4a3b-b00a-c44e993cd7c5">now above 8% of its GDP</a>, and is the main reason there’s an external surplus for the eurozone as a whole. </p>
<p>The need for capital inflows to finance a current account deficit leaves countries vulnerable to abrupt slowdown and dramatic exchange-rate falls if those inflows <a href="http://www.columbia.edu/%7Egc2286/documents/ciecpp5.pdf">experience a “sudden stop”</a>. Crises of that kind have so far been confined <a href="http://www.columbia.edu/%7Egc2286/documents/ciecpp6.pdf">to emerging economies</a>. But the UK may not be immune if shock events, like turbulent Brexit talks or another banking crisis, cut the amount that countries with surpluses are able and willing to invest abroad. </p>
<p>While a country that can’t finance its external deficit can always reduce it, the mechanism tends to be painful: slower growth to curb import demand, and an all-round pay cut to make exports more competitive.</p>
<p>This underlies a more pessimistic explanation for the pound’s recent slide offered by another MPC member, Martin Weale. <a href="http://www.mondovisione.com/media-and-resources/news/bank-of-england-brexit-and-monetary-policy-a-speech-by-martin-weale-external/">He traces it to</a> foreign investors’ perception that UK productivity growth will now be even weaker, and GDP slower-growing in the longer term. This will mean a slowdown in the (already very weak) growth in real wages, driven by higher inflation that has to be offset by currency depreciation. </p>
<h2>Falling with the pound</h2>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/132387/original/image-20160728-12120-6t1fy6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/132387/original/image-20160728-12120-6t1fy6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/132387/original/image-20160728-12120-6t1fy6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=401&fit=crop&dpr=1 600w, https://images.theconversation.com/files/132387/original/image-20160728-12120-6t1fy6.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=401&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/132387/original/image-20160728-12120-6t1fy6.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=401&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/132387/original/image-20160728-12120-6t1fy6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=504&fit=crop&dpr=1 754w, https://images.theconversation.com/files/132387/original/image-20160728-12120-6t1fy6.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=504&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/132387/original/image-20160728-12120-6t1fy6.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=504&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Responsive? The Bank of England.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/desheboard/6275843251/in/photolist-ayzkxZ-dEASWV-pA6BGm-bD32cx-ogmnEu-g4AQn9-9GjdTr-2gPZa3-e7v3r4-nuaWUR-ncoxPr-mBZBYJ-54sPzd-BaTBm-54sNm3-sQTEw-mzWbFB-bE36Ji-fhLACN-6e1RcQ-kZXpje-g4APaj-9pBYSK-pA7y8p-g4AQcv-evBvfx-g4B8Cm-7mnCfa-7Sewb-bumC13-bxLvSD-JpyWcS-5ZtFrv-6wjci4-CVa2xg-D3rVnt-qH9Qmf-6wooaL-9MaLTw-fNkK1o-7VYcMg-72KR1H-5WcogG-8nTSAw-38KrEi-6MmWxJ-e7AGvj-nGTmZ-dMbY9o-andtmE">Ofer Deshe/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<p>Forbes, Weale and a majority of MPC members are expected to vote in August for a further cut in UK interest rates. A major motive will be to narrow the current-account deficit, through the twin track of boosting net exports and amplifying foreign investment income. </p>
<p>The deficit tops the <a href="http://www.bankofengland.co.uk/publications/Documents/fsr/2016/fsrjul16sum.pdf">Bank of England’s list</a> of post-Brexit risks to financial stability, despite its optimistic assessment of the causes. It ultimately reflects a strength of domestic demand made possible by <a href="http://www.thisismoney.co.uk/money/cardsloans/article-3539847/Household-debt-binge-hits-pre-crisis-levels-says-Bank-England.html">record consumer borrowing</a>, another escalating risk. And it points to an imbalance which might eventually require a <a href="http://www.berenberg.com/uploads/tx_news/160415_CoW_Current_account_deficit.pdf">rapid rise in interest rates</a>, to rein in spending and stem inflation. </p>
<p>In his Brexit strategy, sketched before he was appointed to lead the UK out of the EU, <a href="http://www.conservativehome.com/platform/2016/07/david-davis-trade-deals-tax-cuts-and-taking-time-before-triggering-article-50-a-brexit-economic-strategy-for-britain.html">David Davis anticipated</a> a succession of quick trade deals that would redirect Britain towards “export-led growth”. His new Treasury colleagues must hope it works without the pound having to drop to parity with the euro. Any other route to current-account rebalancing could bring several ministerial careers to a sudden stop.</p><img src="https://counter.theconversation.com/content/62982/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Alan Shipman does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>As the budget deficit fades from political view, anxiety shifts to the much wider current account deficit. It may signal UK dynamism, but neither financing nor closing it look easy after Brexit.Alan Shipman, Lecturer in Economics, The Open UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/626512016-07-18T18:58:01Z2016-07-18T18:58:01ZJapanese bet on UK tech group ARM is no backing for Brexit Britain<figure><img src="https://images.theconversation.com/files/130928/original/image-20160718-2115-1lizw57.jpg?ixlib=rb-1.1.0&rect=16%2C16%2C5599%2C3724&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The chips are down.</span> <span class="attribution"><a class="source" href="http://www.shutterstock.com/">Dario Lo Presti/Shutterstock</a></span></figcaption></figure><p>SoftBank, a Japanese technology business, has agreed to <a href="http://www.bbc.co.uk/news/business-36822806">buy Cambridge-based chip designer ARM Holdings</a> for a European record US$32 billion for a technology business. The deal was <a href="http://uk.reuters.com/article/uk-arm-holdings-m-a-softbank-group-brita-idUKKCN0ZY0GD">hailed by the new chancellor of the exchequer</a> as a sign that Britain remains “open for business” following the <a href="https://theconversation.com/uk/eu-referendum-2016">vote to leave</a> the European Union.</p>
<p>In truth, SoftBank’s punchy move is a bet on ARM’s technology offering, not on Britain’s economic future. And it is a risky bet at that.</p>
<p>The timing does however reflect the weakness in the pound since the Brexit vote. ARM, which has seen startling growth since it was founded in 1990, now provides a cheap sterling cost base for designing chips and software while sales are dollar denominated. Margins will therefore increase as a consequence of Brexit and the price paid for the business is at least 10% less than it would otherwise have been.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/130930/original/image-20160718-2122-qzulip.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/130930/original/image-20160718-2122-qzulip.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/130930/original/image-20160718-2122-qzulip.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=337&fit=crop&dpr=1 600w, https://images.theconversation.com/files/130930/original/image-20160718-2122-qzulip.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=337&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/130930/original/image-20160718-2122-qzulip.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=337&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/130930/original/image-20160718-2122-qzulip.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=423&fit=crop&dpr=1 754w, https://images.theconversation.com/files/130930/original/image-20160718-2122-qzulip.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=423&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/130930/original/image-20160718-2122-qzulip.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=423&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Sterling work.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/howardlake/4550760086/in/photolist-7W8QqN-9NwACM-9kMwDm-ndnFky-4uuDPQ-9NFVNX-2hYsBf-a2YbjP-fvG2B3-9NH9LR-bmdkbV-egkhku-9chSab-5Sus9W-7W8S5L-8x6Fdh-9Ebx4k-88jr2T-gc4HKC-s7tt27-5Ybbkb-fUkmTs-9NGYZA-9NF1UU-qGXScM-fyu7Fw-8m75qT-9LPBnH-55jYqQ-9kJCnM-fvFV5o-5QCqN7-a31WN9-9NFhVS-a2YtoH-6Ro2v4-9NBTQp-4S7Zut-qj74Ls-bEKdHx-9VE8JS-9kMJaE-7W5zge-mfgj32-7Zgydh-8HcKL5-5xnD51-9VAk2x-7ZkWpL-5sL1NB">Howard Lake/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span>
</figcaption>
</figure>
<h2>Chipping away</h2>
<p>All that considered, SoftBank have still paid an enormous price at 70 times the earnings and 50 times the net income of the company. The agreed bid offered a 43% premium to the previous share price. This is a major bet on chip technology development for products which may be <a href="http://www.telegraph.co.uk/technology/mobile-phones/11812322/smartphone-sales-in-china-fall-says-gartner.html">approaching saturation</a>.</p>
<p>ARM was created through a spin-off from early home computer maker Acorn and US firm Apple. Its chips predominantly <a href="https://www.arm.com/products/index.php">end up in phones and tablets</a> – the designs are found in billions of devices. There appears to be no real synergy benefit to SoftBank owning ARM Holdings as the UK head office is to be retained and there will be no integration of any other activities. A benefit will be the promise of significant UK investment over the next five years. However, promises made to secure agreement to acquisitions are not always reliable. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/130934/original/image-20160718-2153-mz36rv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/130934/original/image-20160718-2153-mz36rv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/130934/original/image-20160718-2153-mz36rv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/130934/original/image-20160718-2153-mz36rv.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/130934/original/image-20160718-2153-mz36rv.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/130934/original/image-20160718-2153-mz36rv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/130934/original/image-20160718-2153-mz36rv.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/130934/original/image-20160718-2153-mz36rv.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Staying put?</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/maxf/7495063252/in/photolist-cqjabu-6uz7WM-eAgULg-4aXNhX-7j1vow-xtJUb-7cNnwc-5VxDMM-5WB6nY-86ofSz-86Tx1w-kFhtS-3ky8an-7iJ6jr-JjUL4-5Nh61u-dWK8Rr-2HhMYe-9M4M4j-2HhLC8-63yp4S-7adfA6-ohazj-7TXSQH-94TGe-gj2bE-2rqR3-5kWha2-F3s97-3cdszY-tRwmy7-4uPmN1-59ijLg-vait8-4QVjUm-zgX17J-z33fy-EneMY-B6MSi-Afy4X-qmQTt-5nuaph-8nWWo4-a5t2yK-2y5kR-o7vQF-9ckuJP-9iqkwk-q1vudb-boZRZz">Max Froumentin/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<p>Most acquisitions <a href="https://hbr.org/2011/03/the-big-idea-the-new-ma-playbook/ar/1">destroy value</a>. More than half are sold off within five years. The principal reasons for failure are paying too much – which seems very likely here – and a lack of strategic clarity motivating the deal, which also seems likely in this case. The good news is that a major source of value destruction is the integration process which usually involves lost market share and key staff leaving. Distraction and uncertainty are hugely destructive forces. In the case of ARM there won’t be an integration which improves the prospects of success. </p>
<h2>Tech failures</h2>
<p>Technology acquisitions have a poor record of success and are especially risky. Look at Hewlett Packard’s <a href="http://www.wsj.com/articles/SB10001424053111903596904576516914051864044">acquisition of Compaq</a>, which ultimately cost Carly Fiorina her CEO job and <a href="http://www.computerworlduk.com/galleries/it-vendors/hps-botched-autonomy-acquisition-timeline-of-saga-3594523/">latterly HP’s deal to buy software group Autonomy</a> which required nearly all the US$11.1 billion cost to be written off in a year. Another Hewlett Packard CEO left as a consequence. </p>
<p>Microsoft also has a poor record when it comes to its technology acquisitions, with the US$7.4 billion purchase of Nokia completely written off followed by a <a href="http://money.cnn.com/2012/07/02/technology/microsoft-aquantive/">US$6.3 billion writedown on aQuantive</a>. Some <a href="http://www.telegraph.co.uk/business/2016/06/14/the-alarm-bells-are-ringing-over-linkedin-deal/">have similar concerns</a> over their recent US$26 billion purchase of LinkedIn. In ARM’s case, the benefits are largely revenue based and merger research finds these are rarely realised. The business is also to be kept separate so there are not expected to be any cost benefits.</p>
<p>The principal problem with technology acquisitions is the speed and unpredictability of technology change and market trends in usage. A successful proposition often generates enormous cash returns which are then invested in making a bet on the next big technology which has a high chance of failing. Easy come, easy go as they say.</p>
<h2>More to come</h2>
<p>Merger activity has collapsed in the UK following a <a href="http://www.ibtimes.com/merger-acquisition-activity-hits-record-high-2015-report-2213166">strong year in 2015</a>. The basic conditions for a successful acquisitions market is high liquidity which means corporate cash piles, cheap borrowing and institutions with large cash balances to invest. These conditions still largely persist and are driving global acquisition activity outside the UK. </p>
<p>However merger markets also require a benign growth outlook. Continuing uncertainty regarding Brexit is to blame for the UK situation which may take some years to resolve. Whatever the chancellor Philip Hammond says, Softbank’s US$32 billion bet is not on the UK but on the chip technology market because much of ARM’s sales are overseas and dollar denominated. The more realistic appraisal is simply that UK businesses are now cheap and more acquisitions may follow, especially those with substantial export sales and UK based costs.</p><img src="https://counter.theconversation.com/content/62651/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>John Colley does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>SoftBank’s US$32 billion deal for the Cambridge company makes use of the weak pound and may presage more to come.John Colley, Professor of Practice, Associate Dean., Warwick Business School, University of WarwickLicensed as Creative Commons – attribution, no derivatives.