Wednesday, 5 May 2010

Class of 2010

Who are the new MPs we are about to send to Westminster? What are their political beliefs? What backgrounds do they come from? Could they work together in the event of a hung parliament? Although the next parliament will see an exceptionally large number of newcomers, we still know relatively little about the ‘class of 2010’.

To help us answer some of these questions ippr has conducted an online poll of Prospective Parliamentary Candidates from across the different parties. This excluded sitting MPs and included only those who had a serious chance of winning – either in safe seats for their party or in marginal contests.

Our first finding was that if PR is the deal breaker in a hung parliament, both David Cameron and Gordon Brown will find it difficult to persuade their backbenchers to back electoral reform. All of the Conservative PPCs polled supported first past the post, while only 10 per cent of Labour PPCs backed PR or a mixed system as used in Scotland and Wales.

On the PPCs’ ideological positions the survey found that Labour and Lib Dem PPCs have much more in common with each other than either set of candidates do with the Conservatives. This confirms that a coalition between Labour and the Lib Dems would be much easier to hold together politically than an arrangement between the Lib Dems and the Conservatives.

Our survey found that:

  • Most Labour and Lib Dem PPCs agree that government should redistribute income from the rich to the poor. Only 30 per cent of surveyed Conservative PPCs supported income redistribution and 47 per cent opposed it. Labour PPCs are slightly to the left of Lib Dem PPCs on questions of redistribution and the welfare state: 67 per cent of Labour PPCs against 33 per cent of Lib Dem PPCs agree strongly that government should redistribute income.
  • Labour and Lib Dem PPCs are less in favour of tougher sentences for criminal offences than Conservative PPCs, with Lib Dem PPCs being the most liberal.
  • 59 per cent of Conservative PPCs disagreed with the statement that too many people’s lives would be damaged by cutting benefits, compared to just 7 per cent of Labour and 17 per cent of Lib Dem PPCs.
  • 70 per cent of Conservatives agreed that the welfare state ‘crowds out’ civic endeavour and community self-help, while most Labour and Lib Dem PPCs disagreed.
  • 91 per cent of Lib Dem PPCs agreed that we have been too reliant on the City for growth and should curb its role, compared to 44 per cent of Labour PPCs. Most Conservative PPCs opposed action to reduce the role of the City in the economy.
  • Lib Dem PPCs are the least interventionist on foreign policy, with 91 per cent wanting Britain to stop trying to be a major military force in the world, compared to just 27 per cent of Labour and 6 per cent of Tory PPCs.
  • 59 per cent of Tory PPCs think the EU is a threat to the UK’s national sovereignty, whereas Labour and Lib Dem PPCs overwhelmingly reject this.
  • Whereas all Labour and Lib Dem PPCs agree that climate change is real and man made and requires major social changes, only 53 per cent of Tory PPCs believe this.

Finally, in terms of how the candidates were selected, we found that in most cases the candidates were locally based or had some local roots. There was little evidence of lots of London-based candidates being parachuted into constituencies. What is more noticeable about the selection process is how few people are involved in it: 75 per cent of these PPCs were chosen by fewer than 200 party members and 28 per cent by fewer than 100. The only party to have broken out of those small numbers were the Conservatives – many of whom had been selected in primary contests.

The survey is here and the press release here.

Rick Muir

Tuesday, 4 May 2010

A conspiracy of silence that will come back to haunt the winner

The economy has been at the heart of the general election campaign. Gordon Brown emphasises the need to support jobs and denounces Conservative plans to cut public spending by £6 billion this year as risking tipping the economy back into recession. David Cameron extols the benefit of making a start on deficit reduction in 2010/11 so that national insurance contributions do not have to rise in April 2011. And Nick Clegg calls for an increase in the personal tax threshold to £10,000 as a demonstration of the ‘fairness’ that is needed if the public are going to support tough measures on reducing the fiscal deficit.

But, as the Institute for Fiscal Studies (IFS) has made clear, all three main political parties have left more unsaid than said. In a detailed analysis of their plans, the IFS concludes that the Conservatives have not specified where £52.4 billion of deficit reduction would come from, Labour £44.1 billion and the Liberal Democrats £34.5 billion. It also said that ‘Labour and the Liberal Democrats would need to deliver the deepest sustained cut to spending on public services since the four years from April 1976 to March 1980’ while ‘the Conservative plans imply cuts to spending on public services that have not been delivered over any five-year period since the Second World War’.

Labour, the Conservatives and the Liberal Democrats have, simply, all been too afraid of the electoral consequences of spelling out where public spending will be cut and which taxes will increase after the election. All saw how the Tories’ ratings dipped in the opinion polls after their flirtation with ‘Age of Austerity’ rhetoric late last year and have concluded that, in a tight election, they cannot afford to tell the public the truth. Instead, they have, predictably, chosen to emphasise spending commitments (e.g. to the National Health Service), tax reductions (e.g. for married couples) or other positive stories (e.g. abolishing university tuition fees).

As a result, there has been far too much debate about whether it is a good idea to cut public spending by an additional £6 billion in 2010/11 and far too little about where up to £60 billion of cuts will come from in subsequent years.

In truth, the argument about the £6 billion of cuts was fought to a stalemate even before the election was called. Some economists say that it would take demand out of the economy at a time when the recovery was fragile; others suggested it would boost confidence and, thus, private spending. Whichever side is right – and I side with those who think cutting spending now is an unnecessary risk - the far more important issue is the make-up of the bigger spending cuts and tax increases that will inevitably follow.

This is not just a question of a democratic deficit – how can the electorate choose which party it wants to govern for the next five years if none of the parties will reveal its approach to the biggest issue that will face the government in the next parliament?

It is a problem for the parties too. Whether the election results in a majority Conservative Government, a minority Conservative Government or some sort of coalition or partnership (which, two days before the polls open, seem to be the three possible outcomes), the next government will have to implement unpopular measures on taxation and public spending, not just in its first few months in office but in every one of the next four or five years. And it will have to do so without having secured the support of the public for those measures. This will make it extremely unpopular. Indeed, Mervyn King, Governor of the Bank of England, is reported to think whichever party wins this election will not subsequently win another one for a generation.

Economists will recognise this situation as a classic game theory problem. If all the parties had cooperated and agreed to be totally open and honest about their spending and tax plans before the election, then the winner would be in a better position to implement its plans in the next parliament. But there was no such cooperation and no single party was willing to break ranks and be the first to set out its plans, for fear that the other two would not follow its lead and that it would lose support. Consequently, none acted and the result is a sub-optimal outcome for all concerned.

The consequence of this failure will haunt the next government every time it announces a tax increase or a cut in spending on public services.

This piece was first published on Left Foot Forward

Tony Dolphin

Friday, 30 April 2010

Unemployed young northerners

In last night’s leaders’ debate all three parties emphasised the importance of increasing the number of apprenticeships and vocational training to help build our industrial base and get young people back into work. This is to be welcomed.

ippr north is currently researching some of the most deprived communities in northern England. For many of the young people we have spoken to, one of the major barriers they face in getting into work is having to have previous experience. They agree that having more apprenticeships and in-work training opportunities would most help them get into work. It’s also their experience that education and qualifications do not help, but ‘who you know’ does – which is also difficult for them to achieve.

These young people are critical of training courses that do not lead to work. Too often the major objective is simply for young people to be ‘seen’ to be meaningfully occupied; if the process has no job prospect at the end, there is a danger of vulnerable young people becoming even more disillusioned about the benefits of education and the opportunities available to them. This risks lowering aspiration, and reinforcing a belief that education does not lead to employment.

But perhaps most fundamentally for the North, the majority of the election debate has been focused on the issues of ‘labour supply’ – particularly training and skills – perhaps because this is the area where the leaders feel they have most levers.

For a sustainable recovery to happen in the North, the parties must do more to tackle the thorny issue of creating new, high-quality, low-skilled jobs. Only when jobs offer the opportunity for progression and decent pay, can they truly offer a way for people to improve their lives. The risk otherwise is that we further entrench inequality.

Evelyn Tehrani

Thursday, 29 April 2010

As safe as houses?

The Nationwide Building Society has just reported that house prices in the UK rose by 10.5% over the last year – the first double-digit increase since June 2007.

Although at a personal level this will be a great relief for those households that found themselves in negative equity as a result of the fall in prices between October 2007 and February 2009, it is not a cause for national celebration. House prices in the UK are still at high levels, relative to incomes, and it is again becoming harder for young people to take their first step on the property ladder.

The manifestos of the three main parties have little to say on the housing market – though Labour and the Liberal Democrats want an increase in the number of affordable homes and Labour repeat the Budget pledge to exempt house purchases below £250,000 from stamp duty for the next two years – and nothing to say on the need to prevent a resumption of rapid house price inflation.

The Bank of England’s Monetary Policy Committee has done an excellent job since 1997 in keeping consumer price inflation close to its target rate, but ensuring greater stability in the UK economy in future requires control of consumer and house price inflation. It is a fact that house prices boomed in the period leading up to each of the last four recessions in the UK (in the early and late 1970s, the late 1980s and most of the 2000s). If nothing is done now, there will eventually be another house price boom, to be followed inevitably by recession.

Building more affordable homes will help at the margin but would only prevent future house price inflation if it was done on a major scale, something that no one is proposing. Interest rates cannot help, because they are set to control consumer price inflation. What is needed is an overhaul of the regulation of the UK mortgage market, to include limits on loan-to-value and loan-to-income ratios, restrictions on buy-to-let and self-certified mortgages and changes to remuneration practices at mortgage lenders to ensure bonus payments reflect performance over several years.

None of the main political parties was brave enough to challenge our love affair with our homes by making such proposals ahead of the election. It is to be hoped that the next government will be brave enough to implement measures along these lines after it.

Tony Dolphin

Wednesday, 28 April 2010

The Sunday Times Rich List could pay off the deficit without noticing

The Sunday Times this week published the latest list of the collective wealth of the 1,000 multimillionaires in Britain which has climbed to £335.5 billion, up £77.265 billion on 2009. Despite the global economic downturn this represents 29.9% growth on last year – the biggest rise in the 22-year history of the Rich List.

Quite apart from the fact that this is yet another indication that those ‘architects’ of the economic crisis have also been its beneficiaries, this level of growth is completely unsustainable by almost any standards. It does, though, suggest a rather tempting solution to the political parties’ collective headache over the public deficit.

By our calculations, just 20% of the combined wealth of the Rich List would be sufficient to fund the entire public deficit for 2010-2011. In political party terms, just half of last year’s growth could plug the hole in Liberal Democrat plans; a 25% share of the richest hundred’s combined wealth of £182bn would fund Labour’s shortfall; and if this year’s 53 billionaires (rising from 43 last year) could stump up £53bn between them, that would plug the Conservatives' plans.

Of course, if it was done through taxation there would be cries of foul and flight – although interestingly the Sunday Times this year plays down such cries as threats rather than realities – but it would be worth the anoraks running some sums.

But in these unprecedented times, what if the Rich List 2010 somehow clubbed together and in an act of monumental generosity simply gave a small part of their wealth away? For the many millions facing as yet unknown austerity in our schools, hospitals and communities, it might make a difference that would go down in the annals of history far more than any investment in a trophy football team or quantity of private jets. And for the richest thousand? They probably wouldn’t even notice.

Ed Cox

Tuesday, 27 April 2010

Higher spending in the devolved nations

Whatever the outcome of this election, everyone knows that public spending is going to be cut dramatically in future years. But how might cuts affect the distribution of funding across the UK as a whole?

A new ippr paper by David Bell, Professor of economics at Stirling University, argues that thanks to the perverse properties of the funding formula used to dish out money to the devolved nations, Scotland, Wales and Northern Ireland will be better protected than England. He warns that the current funding disparities that exist between England and the devolved nations will actually widen as overall spending across the UK falls.

Why? First, because the main parties have promised to protect health spending, while Labour is also promising to protect a substantial proportion of the education budget, and it these two items of spending which make up well over half the grant that goes from Westminster, via the controversial Barnett formula, to the devolved administrations. Protecting health and education therefore safeguards a bigger share of the budget than in England. The effect won’t be huge but it will be felt. Certainly we won’t see the current spending gap across the nations fall.

Of course the realities of budget-deficit reduction after the election might mean that health and education don’t survive unscathed. But even if these areas face some pruning the oddities of the Barnett formula will still ensure that devolved budgets don’t fall as much as those in England.

The so-called Barnett squeeze, a reference to the fact that overtime the formula is supposed to bring about equal spending per head, actually goes into reverse when spending in England is cut. For example a 5% reduction in English spending will actually increase the gap between English per head spending and that received by Scotland, Wales and Northern Ireland.

Does this matter?

Arguably it will exacerbate English resentment over the higher spending enjoyed by the devolved nations. Earlier this year we published research that shows that the number of those in England who believe that Scotland gets ‘more than its fair share’ of money has nearly doubled in the last 7 years. Awareness of spending disparities is on the rise. So if the English were increasingly annoyed about how much money went to Scotland in an era when spending was growing how will they react when they learn that the funding gap is likely to widen as cuts are unleashed?

Guy Lodge

Is the public sector really ‘too big’?

How public spending is spread around the UK is generating great interest, after David Cameron identified areas like Northern Ireland and the North East as having a public sector that is ‘too big’. Is he right? Well, sort of.

Much of the coverage has been based on figures that show the public sector constitutes up to 70 per cent of the economy in some parts of the country. These are quite shocking figures, but they deserve closer inspection.

Treasury figures published last week reveal that spending per head is spread unevenly around the country. Areas like Northern Ireland, Wales, Scotland, the North East and the North West of England receive above average levels of public spending per head, while regions like the South East and East of England receive less than the UK average. Surprisingly for some, these figures also reveal that is it actually London that receives the most public spending per head – 15% above the UK average.

Mostly what this shows us is which parts of the UK have the highest levels of social and economic need, as a large proportion of this spend is made up of ‘social protection’– i.e. benefits and the state pension. This spending is entitlements-based, and responsive to need, so if the number of claimants of Jobseeker’s Allowance in an area increases, so too does social protection spending.

So why didn’t David Cameron flag London’s public sector as too large? The figures he used looked at the sector as a proportion of GDP, rather than public spending per head. The City of London’s economic success (much of it the result of people commuting in from surrounding regions) disguises the size of public sector spending when the figures are viewed in this way.

Cameron did also make the argument that the private sector needs to be larger in the Northern regions, Wales and Northern Ireland, which is the right way to think about the issue. It is not so much that the public sector is 'too big' but that the private sector is 'too small'. You could argue that without public sector employment the situation could be even worse in some parts of the UK.

We all know cuts are coming and they have to be made, but it is vital that economic geography is factored into the thinking as the size of the public sector is reduced. Otherwise, there is a risk that swinging cuts could have a particularly negative effect where social and economic need is already high.

Katie Schmuecker