An obituary of John Weeks appeared in the Guardian on 24th August 2020

The link is here

Laszlo Andor , Hungarian Economist , was EU Commissioner Employment, Social Affairs and Inclusion 20

Laszlo is the Secretary General of FEPS , the Foundation for European Progressive Studies

“This Summer, progressive economists lost a great thinker, author, teacher, activist and friend. I have known Prof. John Weeks for nearly three decades, starting with a visit at SOAS, and then an invitation to Budapest. During the post-1989 transition, those who refused to buy into the newly hegemonic neoliberal dogma, found his book Capital and Exploitation highly illuminating as well as accessible. more ..“

Stephany Griffith-Jones, Council member

John Weeks was a rigorous and progressive  academic economist, committed to  good economic policy and political action; at the same time he was a  very kind, supportive and loyal colleague and friend. He is being  so very badly missed; his memory, and that of his personal and intellectual contributions, however,  keeps him alive amongst his colleagues and friends

I got to know John well in recent years, when PEF was being formed. He kindly invited me to join the PEF Council, which I have enjoyed tremendously, so am really grateful to him for that. John was so  crucial to the work of PEF, and to the links with ,as well as  our support for the Labour party, and in particular for then Shadow Chancellor John McDonnell and his team. It was really admirable to see John’s dedication, which continued till the end, even as his health was failing him.In this, he was not just admirable, but in many ways heroic. He was a wonderful colleague, always generous with his support of other people’s work.

Ann Pettifor, Council member

Ann has written a full obituary for Tribune Magazine

“Late last month, pioneering socialist economist John Weeks passed away. Ann Pettifor remembers her colleague and friend – and his contributions to left-wing politics.”: https://tribunemag.co.uk/2020/08/remembering-john-weeks

Carolina Alves, Council member

John Weeks was scholar who inspired me to know more about Marx, Keynes and inequalities. I knew his work on Marx before I met him in person in 2011. Having accepted to give an interview about his views on labour theory of value, he opened his house without knowing me that well. It was an amazing encounter, and an amazing interview. From this day onwards, John never stopped supporting me and listening to what I had to say.

During my PhD at SOAS (2013-2017), he would patiently listen to my ideas, doubts and question, but he was different than other seniors scholars. He seemed to actually listen to me. He showed interests in my ideas. He was curious about my views. He always made me feel like if I knew something he didn’t. This gave me confidence, it made me feel I was doing something right and it made me grow intellectually. I think perhaps that’s what made John so good at his work and so special, he would listen to others – and he will listen to the others with an open mind and open heart. This didn’t mean he didn’t have strong views or a very clear dear of his principles, theories (we all know that he did!) but he was never afraid to test them.

My experience as a PhD student and after as a young scholar showed that John was an exception in academia because he would carry you with him. While many others would only speak about giving space to young minds or women or people from other minorities, John would actually do something about it. He would invite me for events, for discussions, and would push me to write and be vocal. All this he would do treating me as an equal.

He made me feel valuable and sometimes in academia this is all you need to enable you to carry on. There are many other things that made John very special. He was committed to build a better world and he gave his time for that. He was a humanist with his sharp sense of humour. He was transparent and honest. The heterodox community didn’t only lose a brilliant mind, we lost a human being who made our community more bearable and caring. 

Sue Konzelmann, Council member

When you’ve known him for only three of his 79 years, it ought to be harder to write about John than it actually is. His engagement with not only economics, but also the people who define, implement – and, not infrequently, suffer – from it, is not a characteristic you develop overnight. Much the same could be said of his deceptively “low key” approach to both other people and getting things done; he was someone you simply wanted to work with and help out. Unsurprisingly, that’s how we first met John in 2017 – helping him to bring another book to fruition.

This softly spoken gentleman was, though, without doubt also someone driven to continually try to improve things, a task he set about with an energy that never really wound down. Much will be written about his professional career, which will in all likelihood continue to be influential well into the future. But that’s only part of the reason for the many words of appreciation being written and spoken about John. He was also a thoroughly decent man with real sympathy for his fellow man, as well as a keen wit, making light of his declining health with the observation that “getting old is not for sissies …” 

John also took great delight in his cats, and saw no reason not to adopt another in the last year of his life. In an email exchange after his previous cat died, he wrote: “I asked my 5 year old grandson what he thought that meant. ‘He won’t come back’, my grandson said – which is not bad for a 5 year old, but not true. The cat and my sister come back to me every day in my memories”.

A lot of people are going to remember John like that, too.

Richard Murphy

I first met John when I was appointed as a Professor of Practice. John showed that he understood what others I was working with did not, which was that when appointed to such a post you might really know your subject, but that did not mean that you were familiar with the ways of academia. Because he had that insight he appreciated what others did not, which was that translating ideas into journal paper format is a skill most academics learn when doing a PhD, which stage I had missed. He helped me greatly with that process of adjustment. 

We didn’t always agree. We were on occasion robust with each other. And I like and admired John for precisely that reason. Our commitment to progressive economics permitted differences in pursuit of a greater cause. As a result I did, like I suspect many others who learned from John over his many years in academia, come to greatly appreciate his wisdom, guidance and friendship.

A life well lived is, I think, one that has positive impact on the lives of others. I only knew John in the last years of his life, but he added enormously to my knowledge and understanding during that period, and I am immensely grateful for having had the chance to know him. I suspect there will be a great many who feel the  same way. 

Guy Standing, Council member

When one loses a long-time friend, fellow traveller and kindred spirit, one realises one has lost of bit of oneself. There will be no replacement. This is the case with John Weeks. I will always recall the moment many years ago when he said to me quietly, ‘Please call me Johnny’. He was nearly always a rather serious man. However, what he meant was that he only wanted family and close friends to call him Johnny, rather than the formal John. I felt honoured.

Here is not the place to try to duplicate the excellent obituary written for The Guardian. I merely want to testify to our friendship and recall the two years we worked together in preparing a report for President Nelson Mandela’s Labour Market Commission in 1994-6. I was Director of Research for the Commission, which was a tricky assignment, mainly because of my opposition to the economic strategy being finalised by the Minister of Finance, Trevor Manuel, under the guidance of the IMF. I asked Johnny to work with me on our report and the book that came from all our research, which had contributions from about 50 economists in the country. We also asked John Sender to join our three-man team.

What I will always be grateful for is that Johnny was the one who resolutely supported me and who made major contributions to the book, particularly on macro-economic policy and above all in our economic analysis criticising the emerging IMF approach, known as GEAR.

Johnny and I concluded that if GEAR was pursued, there would be years of sluggish growth, persistence of very high unemployment and worsening inequalities, both within the white population and within the black population. At the time, South Africa had the highest unemployment in the world and probably the most unequal income distribution. Despite our efforts, the ANC government followed GEAR. Today, the country has the highest unemployment rate in the world and the worst income inequality, with a gini coefficient of 0.63. There is not much pleasure in being proved right in such circumstances, but several years ago the Minister of Labour told me that he still regarded our book as his ‘bible’. 

Johnny and I often recalled our work together, and just weeks before he died, when he was asking me to explain exactly why I was highly critical of the job furlough scheme in the UK, he reminded me that I had written a similar critique of wage subsidies in our book. I had forgotten; he had not.

Johnny was the sort of colleague and friend we all need. He could be critical at times, and often was. But you always knew that the friendship and kindred spirit would remain.

The post John Weeks – Obituaries and Tributes appeared first on The Progressive Economy Forum.

Recovery from the coronavirus crisis will be a complex issue. In many ways it is impossible to predict precisely what will be required. And yet, when it comes to the role of tax in this recovery some quite straightforward things can be said.

What is indisputable is that tax does withdraw money from circulation that might otherwise be spent within the economy. It does as a result suppress demand for consumption and, by reducing the overall resources available within the private sector, for investment as well.

If that is the case then it is likely that the last thing that will be required after the massive slump in demand that the coronavirus shut down has created will be any overall tax increases. It is likely that they would be deeply counter-productive because they would suck demand out of they economy just when that economy will need to be re-established as the recovery proceeds.The fact that the government will be spending more does not alter this fact.

Governments can fund themselves in three ways. They can tax. They can borrow. And they can create the money that they spend by borrowing from their own central bank (a process called direct monetary funding). The precise nuances of these arrangements are not of concern here: what is important is that what this means is that tax increases need not be in any mix relating to increased government spending for the time being.

That being said, there is very strong reason to reform tax after this crisis. That is because, as I argued in my 2015 book, The Joy of Tax, the choice between the tax policies available to a government is in many ways the most important decision that any government has to make if it is intent, as most governments are, on shaping society in particular ways to suit some interests over others.

The UK tax system has, as a matter of fact, been used for this purpose over time. In recent decades the bias that has been displayed has been very apparent: it has been towards wealth. The fact that we have no tax on wealth as such does prove this: after all, one is possible. But as importantly, the taxes on income derived from wealth and the support that the tax system provides to saving are the clearest indications possible of this bias.  And in addition, the taxes that we do have on transactions relating to wealth, such as capital gains tax and inheritance tax, have been steadily reduced

As example, in the case of capital gains tax its original role as a back stop to prevent abuse within the income tax system has been forgotten, and a blatant differential between the two has been opened up so that there is now considerable incentive to re-categorise income as gains, and a whole tax abuse industry supports this process.

The same back stop role for corporation tax, which was originally intended to prevent leakages from the income tax system, has also been forgotten. As a result the rate of corporation tax is now below the basic rate of income tax. The consequence  is that those who need not live off their income can hold it in a company and see it accumulate in a low tax environment right here in the UK: the need to go offshore to achieve this goal has almost disappeared.

At the same time there is also a deep bias against work within the tax system. Whilst those who work on what they earn have to pay national insurance on their earnings those who live off investment income do not, effectively saving considerable sums as a result.

There are also massive incentives to save for those with the ability to do so. Pensions are heavily subsidised, whilst ISA accounts, special tax exemptions for savings income and other arrangements all result in low tax rates for those do not work for their income when compared to those who do.

This then results in two further biases. One is against the young, who tend not to have wealth. And it also creates a massive gender divide within the tax system as wealth ownership remains male dominated.

On top of all these injustices, the chance that tax is not paid by those with wealth or who run their own businesses is much higher than it is amongst those who are employed: another bias is apparent then as a result of the decision of successive governments to cut funding for the work of HM Revenue & Customs.

There is as a result a need for massive reform of tax after the coronavirus crisis, which is what has motivated me to address these issues in the Tax After Coronavirus Project, which is being published in stages on the Tax Research UK blog. But that motivation is not promote the raising of revenue. It does instead arise for three other reasons.

One is to reduce inequality.

Another is to ensure that all tax due is collected.

And third, the aim is to make sure that the income of those who need support in our society is increased by reducing the tax that they pay whilst keeping an overall balance in tax paid by increasing  the tax due by those with the capacity to do so. The result is vital support for those we now call essential workers, which can be provided by those who we now realise are not nearly so important, after all. This is a policy that is much more useful in the long term than clapping. But the clapping of those whose work is essential, many of whom are on very low pay, proves just why tax reform is required now.  

Images credit flickr/ images of money

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The differences in opinion are stark. Addressing, due to space, those parties standing in most seats, it is clear that none of the parties come close to understanding the true role of tax in the economy as yet. All are fixated on the idea that current spending must be covered by tax and only investment may be financed by borrowing. The household analogy within macroeconomics is alive and well and living in the UK, and it’s wrong. The role of tax in delivering social and economic policy in its own right is still being ignored by all the parties, excepting the Greens, with their proposal for a Universal Basic Income, and that will not be happening any time soon. This misunderstanding is a massive contributor to economic mismanagement.

Within that framework there is enormous difference in tax policy on display. In particular, Labour’s recognises a threefold need. One is to address poverty. The second is to end austerity. The two are, of course, related. And third, it wants to promote a Green New Deal. And it will spend to achieve all three.

The IFS have said this plan from Labour is not credible. I disagree. The plan for investment is largely in small projects that can be ratcheted up quickly as skills become available. And the social plans will achieve their goal, including of increasing incomes. This is a plan for the moment.

The tax dimension of it (and it’s always an aspect) also makes sense. To the extend that tax is needed the aim is threefold. Wealth is taxed more, as it is dramatically undertaxed now. Labour is right to tax it more. The same is true of corporation tax, where Labour’s proposed unitary tax base for international taxation will lead the world, whilst the increase in rates will simply bring the UK back into line with the world. No one is actually going to change their behaviour as a result of either reform. And nor, when it comes down to it, will almost any one those who are well off enough to earn more than £80,000 a year flee the country, or even work less, as a result. First, most of those people are on contracts that do not vary pay with tax rates. Second, most people have no clue how much tax they pay. And third, most people work harder when they earn less if (as is true of many of those on high pay) they have fixed and very expensive commitments. The plan does, then, make sense. Inelastic behaviour will result in the higher taxes being settled with little issue arising.

The Tories on the other hand are locked into the belief that tax sells election victory, and so are committed to maintaining the status quo. But in so doing, a very small change to national insurance apart, they also lock in the existing social infrastructure and with it the income and wealth inequality that even organisations like the OECD and IMF say is harmful. Not only are the Tories not using spending to break austerity and defeat inequality, they’re refusing to do anything at the top end either, meaning that all the divisions in society that have been so destructive of our well-being will be maintained. In this sense the Tories are really being true to form conservatives.

And in the meantime the LibDems are so far out in the tax cold that they think hypothecated taxes for the NHS might work with the electorate and in practice. But that is not how tax works, and even given the terribly low level of understanding of tax that pervades the UK I suspect enough of the electorate realise that is the case to be indifferent to the promise. The LibDems do really need to try harder.

As for the Greens, carbon tax dominates their agenda. It worries me. They are almost always regressive. The Greens proposal would be, I fear. And I am not wholly convinced a universal basic income makes up for that. The Green manifesto is only of interest on tax because it is a place where ideas can be explored. I suggest that this one still needs a lot more exploration.

Overall? Labour has a good offering that makes economic and social sense. It has, thankfully, abandoned its fiscal rule. But like the other parties it still shackles itself unnecessarily on tax by adopting an inappropriate and discredited macroeconomic view of tax. The Tories do the same to reinforce division in society that will cost millions a great deal financially and even more in their wellbeing. And the rest took part, but without serious intent.

All of which leaves only one rational choice when it comes to tax, and that is Labour.

The views in this piece do not necessarily represent the collective views of PEF, but those of the author.

Photo credit: Flickr/_SiD_.

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The gains to those making payments will be small. I am not saying nearly £500 a year is insignificant when you’re earning £12,500 a year: it very clearly is. But let’s be clear, it’s not only they who will gain. This benefit will, unless compensated for, go right up the income order to those who clearly have nothing to do with reducing a charge on those least well off in our society. It’s certain that most gains will, then, go to those not in greatest need.

And what matters at least as much as any gain to those on the lowest incomes is the state pension and other benefit consequences of this. These are massive, and all at cost to those who Johnson says should gain from this proposal.

Our state pension entitlement is still based on the number of years of earned income a person has national insurance contribution made. Technically this is not quite the same as making national insurance contributions, but the limits used for appraisal are closely linked to the national insurance system. And whilst I know there are compensatory benefits such as pension credit, but that’s not the point. Such benefits come and go. So far no one has been trying to get rid of the state old age pension, even if its value has been eroded. And now large numbers of people might have their entitlement substantially curtailed if, as I would expect, the pension entitlement threshold increase along with those for national insurance contributions. How convenient is that for a government wishing to curtail benefits and shrink what they think to be the welfare state?

And this is not the only issue. It now seems that many entitlements are based on being able to prove work has been done. Even the right to stay in the UK can now be based on this. And now many people will not need to be on payrolls, at least as far as their employers are concerned,  and may well not have contribution records as a result and so will have no recourse to this evidence in the event of disputes on such issues. Where does that leave the vulnerable? More vulnerable is the very least of the answers to be provided.

I do not have a problem with reducing NIC on those on the lowest pay. But I mean reducing it and not eliminating it until such time as dependence on a payment record is also removed and proof that a person has worked as a measure of a contribution to society is eliminated.

And I do have a problem with this being lauded when very large tracts of income – from investment sources – attract no national insurance at all and so provide ample opportunities for tax avoidance for those recategorising their earnings.

There is a fundamental flaw in Johnson’s plan and that is it is designed to attack those most vulnerable in our society. That’s typical. It also needs to be said. This plan stinks of privilege with an indifference to need. That’s why I oppose it as he’s presented, and as he’s likely to present it.

Photo credit: Flickr/George Grinsted.

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Labour’s clear commitment to a £250bn “green transformation fund” correctly puts climate centre stage in this election (Turning on the spending tap: How the parties’ plans compare, 8 November). The usual economic suspects have immediately lined up to wring their hands, worrying about levels of debt and the availability of “shovel-ready” projects. They miss the real points.

The first is whether there are buyers for the bonds that will fund this spending. At present, more than 80% of UK personal wealth is invested in tax-incentivised assets.

In that case simple tax rule changes will drive buyers towards Green New Deal bonds. For example, if the rules on Isas were changed so that all funds saved had to be invested in Green New Deal bonds, and an interest rate of 1.85% (the current average cost of UK government borrowing) was paid then the £70bn that goes into Isas each year could be directed towards the Green New Deal. Simple changes to pension rules could provide the rest.

Second, as for a lack of shovel-ready projects, Labour’s plans include making the UK’s 30m buildings energy efficient while shifting energy supply to renewables. We already have the skills and knowledge to restart this transformation, since many in those sectors lost their jobs when the Conservatives cut support for such activity. Of course, a massive retraining programme will also be required, but if the government makes the money available you can be sure that the shovels will come.

Photo credit: Flickr/john-briody-photography

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Inheritance tax is charged almost entirely on death. It is usually charged at 40% on the value of the estates of deceased people that exceed £325,000. However there are generous allowances. All gifts made seven years before death are exempted, as are gifts to souses and civil partners. Much business property is exempt, as is most agricultural property and gifts to charity[i]. Arrangements for trust are complex but can still be beneficial. The result is that the £325,000 limit is decidedly flexible, and latest data says 4.6% of UK estates, or 28,100 cases a year,  pay inheritance tax[ii]. The tax collects about £5.4 billion a year[iii].

The strengths of the tax

It is the UK’s only really effective tax on wealth itself. Wealth inequality is increasing rapidly in the UK. Around the world it is seen as a major issue. Organisations such as the International Monetary Fund[iv], World Bank[v] and Organisation for Economic Cooperation and Development[vi], none of which are seen as hot beds of socialism, suggest that taxes are required to address this issue and create more equal societies.

More equal societies tend to be more socially and politically harmonious than unequal ones.

They also tend to be more prosperous and see more economic growth as those with lower wealth (and incomes) spend more of what they have, and so turn a given level of income into greater economic activity than do unequal ones.

Unequal societies also tend to take fewer risks. The wealthy tend to invest to preserve their wealth rather than take risk: there is little evidence that wealth supports real entrepreneurial activity or even investment. They prefer to save in cash, property and the share capital or already established companies.

Inheritance tax tackles these issues by redistributing wealth.

The weaknesses of the tax

Few estates pay the tax. The wealthiest tend not to because there are so many loopholes that they can exploit. Many who do pay do so because of the value of their family homes which the deceased have lived in until the time of death. As such the tax is not well targeted. That, however, is because reliefs may exempt 80% or more of the potential yield.

Why abolish the tax?

Inheritance tax seeks to do an essential job in the UK tax system by charging wealth to tax. The UK needs a wealth tax if the gross inequalities that our market system has given rise to, usually by chance, are to be addressed through the tax system as the organisations noted previously think essential.

The problem with the tax is that it is ineffective. It only collects £5.4 billion a year.

The best reason for abolishing the tax is that it is not good at what it is meant to do. Ineffective taxes are always unpopular, as are those that appear to have a random impact.

What could replace inheritance tax?

Because it collects relatively little money there are a great many options for replacing inheritance tax.

The most effective, and fairest, would be to tax all receipts of gifts during a person’s lifetime. This would discourage the concentration of wealth and instead of charging the dying – who could then give to whomsoever they wanted – would charge the living to reduce inequality. Few doubt that this is the best long term direction of ravel.

In the short term some simple changes would, however, also be very effective.

First, there could be bands of tax due: a single rate makes little sense. If the other changes noted below were enacted this would have little impact on yield and make the tax more acceptable.

Second, the exemptions for business and agricultural property could be restricted. At present they cover a very wide range of assets and are open to abuse.

Third, houses could be exempted but be subject to capital gains tax on death instead. This would require that tax only be due on the death of a second owner in the case of jointly owned property, and that gains during the whole of life and not just in the final property be taken into account, but this should present very few problems in the vast majority of cases.  This means only the gains arising on houses would be taxed, removing a major grievance.

Fourth, trust taxation need to be reviewed again to break up the concentration of wealth.

Should inheritance tax be replaced then?

In a word, no, it should not be.

But it does need significant reform to make it substantially fairer. That might even require that it be given a new name. But the UK needs a wealth tax and the Brexit Party is completely wrong to suggest we should do without one. Most especially that is because that is not in the interests of most of those who voted for Brexit, who will never pay this tax.

Photo credit: Flickr/ferret boy.

[i] These reliefs are together worth more than £4bn a year on average https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/832126/IHT_Commentary.pdf

[ii] https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/832126/IHT_Commentary.pdf

[iii] https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/832126/IHT_Commentary.pdf

[iv] https://blogs.imf.org/2017/12/07/chart-of-the-week-sharing-the-wealth-inequality-and-who-owns-what/

[v] https://www.worldbank.org/en/news/press-release/2018/01/30/world-bank-report-finds-rise-in-global-wealth-but-inequality-persists

[vi] https://www.oecd.org/officialdocuments/publicdisplaydocumentpdf/?cote=SDD/DOC(2018)1&docLanguage=En

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I direct the Corporate Accountability Network (CAN) which thinks that this approach is inadequate. That’s because this issue is too important to be considered outside the framework for financial accounting, which the TCFD necessarily does; too significant to be voluntary; and of interest to a much wider range of stakeholders than the TCFD approach addresses. Why the climate change reporting needs of civil society, regulators and governments are, for example, ignored by the TCFD, is incomprehensible to us. As a result the Corporate Accountability Network thinks that a different approach is required.

Sustainable Cost Accounting

The Corporate Accountability Network suggests that we need a mandatory approach to climate change accounting. It calls this approach sustainable cost accounting (SCA). To achieve this goal sustainable cost accounting would have to be an accounting standard that all large companies would, ideally, have to comply with, but it could be introduced by countries in isolation if they so wished.

The essence of sustainable cost accounting is simple. It would require that every large business prepare a plan to show how it will manage the consequences of climate change. This plan would have to state how it might become carbon-neutral by a specified date, both within its own business and within its supply chain.

That plan would have to be specific as to what the business must do to achieve this goal, or alternatively state that this is not yet known. A precautionary principle would apply: in other words, the plan could only rely upon those technologies now known to exist and that have been proven to work. In addition, the plan would have to show where the impact of the changes would arise geographically: it would be unacceptable to solve the problem in some countries and not others, or to export carbon risk to developing countries.

That plan would then have to be costed. The requirement of sustainable cost accounting would then be that the full cost of the change to being net-zero carbon emitter should be provided for in the accounts of the companies to which sustainable cost accounting would apply at the time that it was adopted, which could be by 2022 if sufficient urgency was applied to this task.

If this provision resulted in a company being shown to be insolvent then the company would have then have to show how their solvency might be restored. This could, for example, be by raising new money for investment in the company, but they would have to convince their auditors that this was possible. We stress we think that all the sustainable cost accounting data would require financial audit since the intention is to include it in financial statements.

And, if a company could not show how it could fund the cost of the transition, or it could not estimate the cost of completing that process, or it concluded that it simply could not make the transition, then we suggested that it would have to be declared ‘carbon insolvent’. This would not mean that it was financially bankrupt. But it would make clear that the company was not going to survive into the era that we are going to have to live in. As a result an orderly winding up of its affairs would be required, and carbon insolvency administrators would have to be appointed to achieve that goal.

The benefits of sustainable cost accounting

Sustainable cost accounting will achieve four goals. It will bring the biggest issue facing companies today into financial reporting. As such it will make clear which businesses can and cannot survive into an era of sustainability. It will as a result redirect capital to those best able to use it. And by providing data geographically it will enable all the stakeholders of a business to plan their future relationships with the companies with which they engage.

Sustainable cost accounting is the accounting for the climate crisis that we now need. In comparison there is no other issue more important in accounting.

Photo credit: Flickr/Mark Seymour.

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The Green New Deal

The Green New Deal, in almost every iteration I have seen, is a variation on the plan produced by the London-based Green New Deal Group that first reported in July 2008, shortly before the crash of Lehman Brothers and the onset of the Global Financial Crisis. Those objectives might be summarised, in my view, as seeking to provide:

• Security for our planet by limiting and then reversing climate change;
• Securing food supplies by supporting biodiversity;
• Securing jobs for the long term by creating:

• The energy efficient housing we all must live in;
• The new energy generation systems we need,
• The public transport infrastructure we require to replace carbon fuelled vehicles,
• The ‘circular economy’ to minimise waste and resource use;
• The new agriculture we require;
• The forests that must be a part of our landscape;
• The businesses that can meet our needs in a sustainable future, and
• The social facilities we will need in the future.

How will we do this?

The Green New Deal has an ambitious programme to achieve these aims. It will, for example, seek to transform the UK’s 30 million buildings so that they are all energy efficient by 2030, creating hundreds of thousands of jobs on the way right across the UK. It will also supply the training and support services that this will require. In the process it will turn as many of those buildings as possible into power stations by fitting solar panels and other generating capacity, and it will fund the building of the new social housing required to end our housing crisis whilst investing in renewable energy of all sorts, on and offshore, that will guarantee that they can be net-zero, carbon neutral.

The Green New Deal will also fund significant investment in local public transport, with an emphasis on reducing dependency on fossil fueled cars. Investment in research and development that will seek to address the problems of a green transition for freight, sea and air transport will also take place. And whilst all this is happening business will be required to transform itself to become zero net carbon: the Green New Deal and its associated National Investment Bank will help provide the capital to assist business to do that if they cannot find it themselves.

Throughout this the Green New Deal will seek to provide security for people’s jobs and long-term prospects, as well as providing secure opportunities for their savings, which will be used to fund this innovation at better rates of return than most savers enjoy now. As a result, the Green New Deal will also deliver pensions that will work.

How much will this cost?

Current best estimates suggest that the Green New Deal will in itself cost at least £50 billion a year. On top of that requiring that businesses be net-zero carbon – as it is going to have to be – will create additional costs and that business will need help to fund this transition. The need may then be for £100 billion a year of investment for at least a decade.

This sum does, however, need to be put in context. £100 billion is just 5% of the UK’s annual income, which is a small price to pay for a secure future. And in addition, it is only about 8% – or less than a twelfth – of total UK private wealth. It is easy to get carried away with thinking that programmes costing multiple billions of pounds are unaffordable. In the case of the Green New Deal there is, firstly, no option but invest if we are to survive. And second, the sums involved are completely affordable.

How do we pay for this?

It is very likely that the transition that the Green New Deal requires can be paid for without increasing taxes, at all. That is because the tax reliefs that direct the way that the wealth of the UK is saved should instead be used to redirect funds to the Green New Deal.

About £100 billion a year is paid into UK pension funds and all of that money gets tax relief from the government. The total tax subsidy costs £54 billion a year. If 25% of those contributions were required to go into Green New Deal Investments in exchange for that tax relief that would supply about £25 billion a year to the Green New Deal.

In addition, about £70 billion is saved in Individual Savings Accounts (ISAs) each year. If ISA tax relief was dependent on these funds being invested in the Green New Deal in future through GND related gilts and other bonds of the types noted below, with a government guaranteed rate of 1.5% on all bonds issued by government related or backed institutions, it might be that all this money would be available to the Green New Deal.

In that case these two sources of funds should, by themselves, fund the whole cost of the Green New Deal. It is important to add though that all this new economic activity undertaken by people in secure and well paid employments would create significant additional tax revenues that would help pay for a lot of the Green New Deal as well, or other measures to relieve the impact of austerity. In that case it is likely that the suggested funding is more than adequate to fund the whole Green New Deal programme.

What are Green New Deal Investments?

Green New Deal investments that ISAs and pension funds might invest in will take the form of a whole range of products, including:

• Green gilts specifically issued by central government to fund Green New Deal projects, for which new reporting measures would be required;
• Bonds issued by a National Investment Bank to fund the Green New Deal;
• Local bonds issued by devolved governments, cities and counties that want to pursue their own Green New Deals;
• Approved shares and bonds that will be issued by companies to fund their Green New Deal projects.

Providing both liquidity and security to Green New Deal investments

At present the UK has what is called a Financial Services Compensation Scheme. This means that anyone who has up to £85,000 in a bank deposit account is guaranteed to be repaid by the government if that bank fails. Everyone involved knows the value of a government backstop guarantee for their savings.

The Green New Deal should, it is suggested, involve a similarly guarantee. Every single Green New Deal approved bond or deposit or loan (but not shares, if ever these were approved) of the types noted above should be backed up by the government to the same limit as that supplied by the Financial Services Compensation Scheme.

This guarantee is easy to arrange, and finance. The government can offer such a guarantee because unlike anyone else a government can create the money needed to back up its promises, which is precisely what it did when over the last ten years it effectively supplied £435 billion of funding to UK banks and other financial institutions through its quantitative easing (QE) programme, which funding backed up their solvency. Replicating this guarantee scheme for the Green New Deal is, it is suggested, the proper use for what has become known as Green QE. What Green QE guarantees is that the money to deliver the Green New Deal will always be secure and that liquid markets for Green New Deal investments will exist. In that case it is more than likely that enough funds to finance the Green New Deal will be invested without there ever being need to resort to this guarantee: the promise will be enough in itself to mean it will never be called upon.

How does business play a part on the Green New Deal?

It seems obvious, but is rarely said, that Green New Deal has to involve everyone, including all businesses. To make sure business is fully involved in the Green New Deal accounting rules need fundamental revision. What should be required is that all large businesses (to start with, at least) should:

• Prepare a plan for how they and their supply chains will become net-zero carbon emitters, ideally by 2030;
• Cost this plan;
• Have that plan audited, and then publish it;
• Then include the whole cost of transition in their accounts by not later than 2022.

In some cases, this will show that the business cannot fund that transition based on currently identifiable sources of capital.

Sometimes it will be apparent that this is because in the long term that business cannot survive: it’s doing something that we can no longer permit if life is to continue here on earth.

In other cases what will be required is new capital: if the case for survival can be made then the National Investment Bank should be there to help: using its resources it should provide the support to ensure that these businesses, and the jobs of those who work in them, will make it to the new world that we must live in.

But for those businesses that cannot make the transition then a new form of insolvency will have to be created. For obvious reasons it should be called ‘carbon insolvency’. This will require the orderly winding up of the affairs of the companies involved, and the investment of new funds to assist those whose jobs will be impacted. The National Investment Bank will be the source of this funding. The Green New Deal is all about job creation: it will invest to ensure that promise is fulfilled.

And, it should be said, for those businesses that look like they can prosper with zero net carbon emissions, then the future will look very good indeed.

What the suggested form of accounting will do, then, is exactly what accounting should always provide, which is the indication that society needs as to whom to trust with its capital. That is precisely why accounting will play a key part in the Green New Deal process.

The Green New Deal will deliver long-term security:

The result is that the Green New Deal will deliver the security we need:

• For people;
• For jobs;
• For the environment;
• For sustainable businesses;
• For our savings;
• For young people;
• For pensioners;
• For the services we all rely on.

It has long been my belief that the Green New Deal is the way to secure the world we need to live in. Now is the time to prove it.

Photo credit: Flickr /Steve Rhodes.

The post The Green New Deal: Building a secure future appeared first on The Progressive Economy Forum.

Any incoming progressive government will face massive social challenges. Leaving aside green issues, the biggest of these will be the income and wealth inequality that is crippling our society and leaving many in poverty. The policies that I recommend here are all designed to tackle this issue. That is because I do believe that tax has to be seen as an instrument of social policy.

1. Equalise capital gains and income tax rates

It is quite extraordinary that those with wealth, and who do as a result make capital gains, pay lower rates of tax on those unearned gains than those who have to work for a living pay on their incomes. It is even more extraordinary that those with capital gains get a second annual tax-free allowance over and above that allowance that they, and others, can offset against their earned income. This situation has to change. There are two ways to do this, and both are easy to introduce. The first is to equalise the rates at which income and capital gains are paid by a person. This last happened under Tory governments in the 1980s and 1990s. The second is to substantially reduce the annual capital gains tax allowance. A sum of £2,000 is suggested instead of the current £12,000. This remains more generous than that offered in most countries.

2. Make the UK main corporation tax rate 25% with a small company rate 20%

The current UK corporation tax rate is 19%. It is planned to reduce to 17% in 2020. This rate is well below the Organisation for Economic Cooperation and Development and European Union averages, which are both around 25%. It is also less than the basic income tax rate of 20%. This low tax rate creates a number of perverse incentives. First, it encourages the diversion of any income into a company to save tax. No tax system should undermine itself in this way. Secondly, it encourages increasing wealth inequality as those with wealth can let it accumulate at low tax rates. Third, it reduces the impact of fiscal policy as tax incentives and allowances have limited value. Most importantly though, there is no evidence that the reduction in UK corporation tax rates has encouraged investment or job creation, and business appears unenthused by such low rates. A main corporation tax rate at the OECD average does then make sense. If it was thought necessary, a small company rate set at the same rate as the basic rate of income tax would help remove many incentives to tax avoidance.

3. Cap pension tax relief contributions at 20%

Tax reliefs for pensions cost in excess of £50 billion a year. It is unlikely that almost any new investment in UK business or other economic activity arises as a result. This cost is, then, simply a subsidy to saving, most of which is given to those who are already wealthy or high earners. Pension tax reliefs also create a perverse distortion. Since they are usually provided at a taxpayer’s highest marginal income tax rate many higher rate taxpayers get twice as much tax relief for each pound that they pay into their pension as does a basic rate taxpayer. This double rate of subsidy serves to increase income and wealth inequality in the UK. The problem can very easily be solved: tax relief on pension contributions should only be available at the basic income tax rate in future.

4. Introduce an investment income surcharge

Another perversity of the UK tax system is that those who work for a living tend to have much higher tax rates than those who live off unearned income. This is largely because those who work for a living have to pay national insurance contributions in addition to income tax and those who have unearned income do not do so. Despite this, those with unearned income do have access to the full range of state services and might even qualify for some benefits if, for example, their income fell in old age. This system is then another contribution to the creation of income and wealth inequality in the UK. It can easily be addressed. Until well into the 1980s the UK had what was called an ‘investment income surcharge’ rate of income tax. This charged an additional 15% income tax on investment income and rents over a specified annual allowance, which could be significantly increased for those of pensionable age, but might otherwise apply to income in excess of £12,000 per annum, which limit would imply that the taxpayer to whom it would apply had considerable wealth holdings.

5. Reducing the rate of national insurance for those on low earnings

Those on low earnings in the UK face very high marginal rates of tax because of the interaction of the income tax, national insurance and benefits systems, whichever version might apply to them. There is no easy answer to this problem, but one option that would help would be to apply a lower rate of national insurance to the first £10,000 of earnings subject to national insurance. National insurance is payable on earnings over £6,136 per annum in 2019/20, which is less than half the level at which income tax starts to be charged. The usual rate charged is 12%. If this was reduced to 4% for the first £5,000 of earnings and to 8% for the next £5,000 then it is likely that a valuable, if small, contribution to solving this problem would be made, and a clear political message would be delivered.

There are, of course, a multitude of other tax reforms that could be offered. Those noted do however share a point in common: each is clearly linked to the creation of a more just society, and that is a fundamental role of tax in our society. 

Photo credit: Flickr / Klovovi

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John Weeks: “austerity in real time”.

Every three months the Office for National Statistics (ONS) reports data on the main sectors of our economy, providing numbers on economic activity as a whole, the major sectors (manufacturing, construction and services), and categories of expenditure (by government, business, exports and imports).

The media and politicians invariably transform this rather bland non-event into a ritual of economic assessment, with the prime focus on “growth”, the aggregate measure of national economic activity as indicated by gross national product.  The commentary on this near-magic number, “percentage change in GDP” should carry a health warning, because special interests rush forward to provide their self-serving interpretation without explaining to the public what is being measured and why that measure enlightens our understanding.

Earlier this morning the ONS initiated the seasonal ritual with the announcement that “UK gross domestic product (GDP) in volume terms was estimated to have increased by 0.4% between Quarter 1 (Jan to Mar) 2018 and Quarter 2 (Apr to June) 2018.”  Many of those who read this statement, or found it in second hand reports, might conclude that our national production had increased, albeit by a very modest annual rate of 1.3% compared to a year before.

This conclusion would be false.  Delving further down in the ONS announcement, the reader discovers that activity in the “production” category – manufacturing, electricity and water, mining and agriculture – declined by 0.8% quarter-to-quarter, its sharpest quarterly fall since the end of 2012.

The production of goods declined, and businesses and households used less power and water – how could GDP increase?  Services and construction rose, counteracting the decline in production sectors (numerically, if not substantively).  To compensate for less domestic production our balance on international trade dropped deeper into the red (trade balance declined from £6.8 billion to 9 billion).

To put it simply, the increase in GDP from 0.2% in the first quarter to 0.4% in the second brought us an economy with less production and more imports.  This unpalatable combination results from the feckless continuation of Tory austerity policies that depress domestic demand (household consumption rose by a meagre 0.3%).

A few may hail this dismal outcome as a harbinger of good things to come.  I expect the many to take a more jaundiced view, because, to quote from section 6 of the report, compensation of employees “slowed to 0.6% in Quarter 2, which was the weakest growth since Quarter 4 (Oct to Dec) 2016.”

Slow expansion of our economy, depressed productive activity, and stagnation of earnings, austerity in real time.

Johnna Montgomerie: “people going into debt is how the UK economy putters on”.

Growth figures released today say the UK economy grew by 0.4%, compared to 0.2% last quarter. There is nothing to celebrate in yet another fraction of a percent of GDP growth. It is clear the UK economy is in the doldrums without any prospect of the winds picking up. The UK is at the bottom of the G7, the ‘sick man’ of the advanced economies around the world.

The biggest problem is that even this meagre performance is heavily reliant on record levels of consumer credit. People going into more and more debt is how the UK economy stays on life support; neither thriving or in recession, it putters on. UK households have seen their outgoings surpass their income for the first time in nearly 30 years. Economic stagnation has taken hold because wage growth is so slow it cannot stimulate economic activity or, increasingly, just manage current outstanding debts. This is why GDP growth isn’t translating into people’s pay packets.

Let us not celebrate mediocrity, and face the fact that the UK economy is a sinking ship. Without a bold and credible plan to chart a new course, expect more of the same in the months and years to come.

Danny Dorling: “the contraction of the financial sector takes place very quietly”.

Hidden in the detail of these figures was the news that Britain’s finance and insurance industries had shrunk, albeit only by a tenth of one percent. While the rest of the UK economy was growing, very slightly and slowly – more slowly than in recent years – growth in finance and insurance activity was negative.

The size of the contraction in these industries in the last quarter was roughly half of that in public administration, which has continued to be squeezed by public spending cuts. Most recently, it was reported that Northamptonshire County council will be making future cuts of up to £70 million. When the cuts in public sector spending were announced, the BBC reported one protestor as saying: “When people die this winter, because they will die this winter, the blood will be on your hands.” Contraction often occurs through a thousand small cuts.

In April 2018, the European Banking Authority (EBA) announced that that the salaries of the highest earning bankers in Europe had begun to fall. Almost all of the highest earning bankers are based in London. The EBA is currently based in London, but will be moving to Paris soon.

Unlike public sector cuts, which have immediate and obvious effects and result in protests reported by the BBC, the contraction of the finance and insurance industries in the UK takes place very quietly. It is not in the interest of the banks to point out who among their staff is moving to Paris or Frankfurt or Amsterdam and whether it is the younger bankers and lawyers without families who are moving first. And it is not in their interest to point out that they are now paying themselves less, as most people still understand that the highest paid bankers have been paid far too much. But hidden in today’s ONS report is yet more evidence of the contraction of what had been the UK’s most successful industry.

Richard Murphy: “nothing of any substance to celebrate here”.

The UK’s growth figure for the second quarter of 2018 has just been reported to be 0.4%. Compared to the 0.2% reported in the first quarter this sounds like an improvement. And in purely statistical terms it is, of course. That is the only indisputable thing about it.

Standing back this data remains deeply unexciting. And if it is understood that the first quarter may simply have been depressed by poor weather, which meant consumers deferred some spending simply because they could not, or would not, get out, then the bounce (if it can be called that) might well be little more than a correction.

And let’s also be candid; when the figures are so small, and the boundaries for reporting are so wide in proportion to them, the margins for error in this reporting are very high. No wonder the pound is still falling – they’re treating the change as no sign of a significant difference in the overall economic environment.

So my point is that we should go back to fundamentals. This growth rate is still very low. There is, despite what the Bank of England is forecasting, little sign that it is flowing through to wage rates. There are signs that it is private debt that continues to fund consumption growth. And there is massive uncertainty for the UK ahead, which is one reason why we remain so weak in comparison to other economies.

There is nothing of any substance to celebrate here. But there is ample reason to think there may be more trouble ahead.

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