Monthly Archives: February 2015

The EU: now is the time for unity

Posted on by

‘Compelling economic arguments are made for the UK’s membership of the European Union, not least the importance of the Single Market in which we do almost half our trade. But equally compelling are the strategic, security and diplomatic interests served by UK membership, interests that would be seriously jeopardised were we to leave the EU.’ Sir David Manning, ambassador to Washington 2003-7.

‘It has been argued that British Diplomacy boxes above our weight. Surely, departure from the EU would deprive us of the major ring in which to box?’ Lord Wright, Head of the Diplomatic Service 1986-91.

These two quotes, taken from David Charter’s excellent book Europe: In or Out get to the heart of why we should stay in the EU. Since the end of the Second World War we have slowly but surely been lulled into a false sense that the prospect of a major war on the Continent has all but disappeared. But as the crisis over the Ukraine is demonstrating, the original purpose of the Union – the avoidance of war – should not be forgotten. Beyond the Ukraine, can we be confident that the former Soviet satellite states of Estonia, Latvia and Lithuania, all EU members, won’t be next? And do we really want to be marginalised in such circumstances? Russia spends 4% of its GDP on defence and has approximately 3 million troops. We spend 1.7-1.8% of GDP and can call on 240,000 soldiers – an order of magnitude less. Soft power we have, though. For now.

In preparing this first piece on the EU, I drew mainly on two books that I think work well together. The first, the aforementioned Europe: In or Out by David Charter, and Roger Bootle’s The Trouble with Europe. The latter book, though not limited to finance, does a good job of explaining the economic challenges within the Eurozone, in particular how the adoption of the Euro prior to a concerted fiscal and political integration has led to the loss of the currency devaluation pressure relief valve for the peripheral nations. ‘Currencies and states belong together’ as the book puts it. Is the recent high level of unemployment in countries such as Spain and Greece at least partly down to the constraints of the Euro? Is the Euro a modern-day form of gold standard? To go back to the security argument, it is also fair to say that structurally poor economics can also lead to war, given that peace and prosperity are not unconnected.

One idea to overcome this structural problem is to split the Euro into a northern and southern zone. This would allow the southern Euro to find a level at which its members could remain competitive. The reduction in economies of scale argument against is countered by numerous examples of small but prosperous states such as Qatar, Luxembourg, Singapore and Norway. Singapore took off when it left the Malaysian Foundation in 1965. It seems right that there needs to be a greater degree of political and fiscal similarity than currently exists across all EU member states in order to share a currency.

If the Eurozone could be restored to health with ideas such as the north/south Euro split, we should remember that the UK is the EU’s top destination for Foreign Direct Investment (FDI), securing 20% of new projects. We are seen as the gateway to the Single Market. Our car industry – now mostly foreign owned – accounts for 10% of our exports and factories are big, long-term commitments. Can we be confident that car industry FDI decisions wouldn’t be tipped at the margin if we left the EU? It’s already difficult enough to convince foreign boards of directors. As the National Institute of Economic and Social Research (NIESR) estimated in 2000, a breakdown in EU trade relations could mean a drop of approximately 33% in manufacturing FDI and 10% in services. Businesses need stability.

It is probably wrong, however, to scaremonger too much about the long-term loss of jobs that our departure from the EU might cause. A figure of 3 million jobs is often cited but though this represents the employment related to EU trade, it is wrong to think that most of these jobs would disappear. Britain could likely negotiate a fairly wide-ranging Free Trade Agreement were we to leave.

Two important groups want us to stay in the EU: the City and the US. It’s important to the City from both the perspective of the Square Mile as a financial centre and the increased level of UK trade and business. And it’s important to the US mainly in terms of Britain’s soft power within the EU. As Joe Biden put it: “We believe that the United Kingdom is stronger as a result of its membership. And we believe the EU is stronger with the UK’s involvement. That’s our view.”

UK businesses are also generally in favour of EU membership, but are increasingly demanding a renegotiated position. This leads us to David Cameron’s Bloomberg speech, which indicated five main elements to the negotiations: competitiveness; flexibility; a transfer of powers back to member states; a bigger role for national parliaments and fairness.

One of the commonly used examples of an EU drag on the UK is the Common Agricultural Policy. It is perhaps not seen as quite such a problem by the farmers themselves, however. As Paul Kendall, President of National Farmers Union said “British Farmers are, by and large, more favourable to the European Union than the generality of the British Public.” The key issue is equality of treatment – a similar subsidy for all to make competition fair.

In conclusion, though there are good arguments on both sides, I think Mr Putin’s recent escapades show that the original idea of ‘a United States of Europe’ to offer peace and security should be front and centre of our thoughts. Though EU membership does not affect our position within Nato, the idea of a heavyweight state departing the EU and taking with it its significant soft power and influence seems wrong given the challenges posed by both Russia and Isil. We should think of the negatives of EU membership as part of our defence budget.

The Citizen’s Income: an entrepreneurial platform as well as a benefit?

Posted on by

The rise of the Green Party as we head towards the May general election has resurrected the idea of a Citizen’s Income, a universal income paid to all British citizens regardless of means or employment status. The idea is an old one, and has an impressive list of advocates.  Putting aside the net cost for one moment, the idea has obvious advantages from a welfare state perspective. Every one of us has the permanent guarantee of a certain basic level of income. Looked at purely from a benefit perspective the argument is likely to split along the traditional divide. If there is a genuine opportunity, however, to promote use of the income as an entrepreneurial platform, a universal seed investment mechanism that gets even just a small percentage of new ventures or endeavours off the ground, then we can perhaps get a broader consensus on its worth.

Before looking at the income as an entrepreneurial platform, a recap of the benefits and likely net costs. The appropriate amount provided by a Citizen’s Income is clearly debatable, but let’s use the numbers proposed by the Citizen’s Income Trust. This suggests £56.25 per week for those under 24, £71 per week for 25-64 year olds and £142.70 for those 65 and over. So, a provision around the current level of jobseeker’s allowance for the 25-64 year old group and an amount between the current and future flat-rate pension for the over 65s. These seem sensible numbers. Add it all up and you get a total annual bill of around £276 billion.

The central idea of the Citizen’s Income is that it replaces a host of existing benefits and payments, including: the state pension, personal allowances (income tax), national insurance, working tax credits and child benefit. The long list totals around £272 billion, so on this measure, assuming the numbers are roughly right, the idea appears around cost neutral. It’s not quite as simple as that, however, because some poor families could be worse off if they received only the Citizen’s Income. This question is partly answered by the Citizen’s Trust here ‘A Citizen’s Income: The poor will not necessarily be worse off’ but let’s allow for the fact that it’s not necessarily perfectly cost neutral. The numbers suggest, however, that implementation of the idea would not be prohibitively expensive.

From the benefits side, it’s worth mentioning that because everyone receives the income, the stigma of ‘Benefits Street’ is much reduced. As I’m sure some will point out, it’s still true to say that those in employment and paying taxes are the ones footing the bill, but there’s a certain Spirit of ’45 element to everyone getting the same. The other big advantage is the simple nature of the system. Simple to administer and much less vulnerable to fraudulent claims because it doesn’t rely on means-test judgements.

So from a cost-neutral(ish), elegantly simple, stigma-free challenge to the existing benefits systems, how might we use a Citizen’s Income to think big. I think the clue to the opportunity lies in the rightful fuss around unpaid internships. Too many jobs with an impressive career trajectory – for both status and pay – increasingly start with unpaid internships. This is fine if you are independently wealthy or if you’re from a family who is willingly to support you in the early years. But they are effectively closed professions for the great majority of people who don’t fit that category. They simply can’t survive a prolonged period without pay. Notwithstanding that it seems right to continue to pressure both corporations and professions to end this practice, a Citizen’s Income would help to overcome the problem directly.

The big prize, however, is expanding the concept of unpaid internships to entrepreneurial activities and start-ups. If we can find ways to encourage enough of those not currently working to use the opportunity of a basic, guaranteed income to take risks, to invest their time in activities and ventures with possibly no immediate big pay-offs, then we can genuinely regard the Citizen’s Income as an engine of entrepreneurial activity, new venture, and therefore job, creation.

This is easily said, and it would need Britain’s heavyweight serial entrepreneurs to help develop a plan to ensure that not everyone used the income to make Countdown or Richard and Judy their specialist subject. But if just 5-10% of those currently out of work, those who would otherwise be pressured through the current benefits system into a likely low-pay job that they’d rarely escape, used the opportunity to start businesses or ventures that need a reasonable runway then we could genuinely look at the Citizen’s Income as something much more than a cost-neutral overhaul of the benefits system.

The key facet of the Citizen’s Income in this regard is that there is no benefits trap. You get the same money whether you work or not. Suddenly you have both a survival-mode income and the prospect that anything that a new venture brings in goes straight to you. You don’t lose anything by being successful. And you only have to look at the examples of JK Rowling and Oasis to get an idea of what a basic income can produce. I think Noel Gallagher has said that his best work was done when he was on the dole.

To re-emphasise, simply providing everyone with a Citizen’s Income would not be enough to spark an entrepreneurial renaissance. We need ideas for how to complement this income platform with a new venture support system and it’s got to pass the scrutiny of serial entrepreneurs. It would need a majority of them to agree: yes, I can genuinely see enough people getting off their arses and starting enough successful ventures that it wouldn’t just be cost neutral but a genuine engine of job and wealth creation. I’ll leave thoughts on this for future blogs. I think it could work though.

State Education

Posted on by

‘State education has never commanded the same loyalty or sense of affection from the British public as the NHS…High-quality comprehensive education was never presented to the people as a democratic ideal; indeed, it was never presented in any coherent form at all.’ Melissa Benn, School Wars

‘Not everything that counts can be counted, and not everything that can be counted counts.’ Albert Einstein

The NHS endures its fair share of slings and arrows but I think it’s right to say that lots of us have an affection for it, what it stands for and the myriad times it has helped us or our family. We get upset if we think it’s being messed with. Look on Twitter. Some people, even those who don’t work there, have ‘Save the NHS’ avatars. The first quote, from Melissa Benn’s School Wars, is right though. The same doesn’t seem to apply to our state education system. I don’t see variants of ‘Save our NES’ nearly so much.

My contribution to the education debate is to ask whether we, collectively, have possibly got just a little bit too carried away with the things that can be counted, principally academic performance, at the expense of that which is more difficult to quantify. And is our obsession with academic performance a barrier to us embracing state education in the way that we do our health service.

Something strange seems to happen to us, especially as parents, when we consider education. In a mass participation event such as a marathon, few of us expect to be troubling Mo or Paula at the finish line. Despite prolonged, gruelling training we almost universally accept that we are simply there to complete the course and to match or exceed a particular time that we have in mind, sometimes a former personal best. I’ve never run a marathon but I think that’s right. Those who do take marathons on – lots of people – don’t seem to need to expect to win to feel motivated to undertake a huge challenge and do it to the best of their ability. With education we seem to expect, living vicariously through our children perhaps, to win.

If we are to move away from an obsession with academic performance, however, I think we need to do more than appeal to our collective conscience. I think the media does quite a good job of getting across the idea that society benefits from a more egalitarian approach to education. Many of the pushiest parents will probably agree with this concept. But it’s usually a different matter when it comes to OUR children.

Shortly after our first child was born – 10 years ago – I started thinking about his education. I considered ways to evaluate whether pushing for a private or selective school was wise. One idea was to compare the life outcomes, using Friends Reunited, for my year at the local comprehensive with the nearest high-performing (top 100) private school. No great surprise, a noticeable difference in the sort of occupations of the two groups. With my own school I had the advantage of remembering most of the people. My overall impression was of a happy bunch, good jobs and families. The same was true for the private school, but I would struggle to say that either group was happier than the other. Also, it wasn’t clear that the private school group were more useful members of society. Higher status careers for sure but does a City trader trump a nurse?

And when it comes to getting a ‘good job’ there is another side to the argument that everything hinges on exam results. Business, I’ve heard said, is all about relationships. And one of the (few) oft-cited arguments for non-selective state education is that it helps you mix with people from all walks of life. If we consider arguably the most famous businessperson in the UK at the moment, Lord Sugar, I don’t think I do him a disservice by saying that, at 16, he wasn’t faced with an agonising choice. Do I continue my studies and become a modern-day Edward Gibbon, chronicler of key periods of world history, or do I give it all up and knock out aerials from the back of a Transit on my way to a billion? Not everyone can be Lord Sugar, but we need people to be self-employed and to start small and medium businesses that generate employment. My point is that it’s not true to say that peak academic performance is a prerequisite for all ‘good jobs’ and that something that’s difficult to measure – the social effect of attending a non-selective school – may actually be beneficial for certain types of rewarding and enjoyable work.

With this in mind, there is a suspicion that successive politicians, from both sides of the political divide, have assumed that what’s best for all of us is a bit of what worked for (most of) them: a highly pressured academic environment. There’s no doubt that we still need people to fulfil roles requiring a high degree of academic training and discipline but I think we should question whether so many of us should be so desperate for our children to aspire to these roles. I’m not sure we can prove they make you happier.

I’m asking this not because I think academic performance doesn’t matter. It does, it matters a lot. But the insane pressure to raise academic standards at the expense of everything else seems to have created an education system where teachers aren’t trusted or respected to the degree they should be and where the school system has fragmented, endangering our ability to raise collective standards of attainment. As Peter Mortimore, author of Education Under Siege and someone with 50 years’ experience in education, points out:

‘In my view many of the problems [in education] have been predominantly caused by the direct actions of politicians across the political spectrum. They have fragmented – almost to destruction – what was once a national system.’

If we are to hope to create an education system that enjoys the status of the NHS, with the consequent increased respect for teachers and the likely broad-based educational benefits that go with that, we need, I think, to question whether we haven’t developed a distorted view of what’s best for our own children.