A “disorderly Brexit” is now seen as “almost inevitable” by the world’s biggest banks. That, at any rate, was the gist of the observations sent to the Chancellor by the City of London Corporation’s Catherine McGuinness, after days of meetings with Wall Street bosses and Washington policy wonks. With continued access to the single market still in doubt, “uncertainty is translating into action”. UK-based American companies are already beginning to implement “contingency plans”. The British right-wing Press is agitated about the possibility that the government will allow the EU to “dictate” Brexit trade terms. The Tories airily expect to have their cake and eat it on trade, with advantageous deals with both the Europeans and the Americans. But EU trade regulations are very different from those of the US, which are much less consumer orientated. Britain risks having to pick sides between two trade superpowers with starkly different demands. The Americans have intimated that Britain would have to scrap EU food standards on chicken and GM crops (among other things), if it wants a successful post-Brexit deal. Faced with a choice of trade partners we are now seeing the advantages of the EU’s strict regulations on food, to mention only one issue.

We have now reached “the halfway mark” between Britain’s vote to leave the EU and our planned exit date in March 2019, said Iain Dey in The Sunday Times. And what progress has our “bumbling, chaotic” government made? “Even if a good deal with the EU had been possible at one stage, the chances lessen by the day.” Big businesses, particularly foreign-owned ones, “cannot afford to wait to find out”. They are already taking decisions. “Soon those decisions will be irreversible.” (drawn from articles by Iain Day & Aimee Donnellan, the Sunday Times, and Ambrose Evans-Pritchard, The Daily Telegraph).

The only good thing is that it will surely finally dawn on the public that the right-wing Brexiteers are a totally incompetent bunch of blowhards, paid to protect British interests, but incapable of cooking a boiled egg. Hopefully, they will in due course resign and the electorate can vote in people prepared to do their homework.

“My country ‘tis of thee, not what it used to be, for thee I mourn”.

“I am a gun rights advocate and firmly support the Second Amendment. I own handguns. I learned to shoot at an early age from my father, who was in law enforcement. I am an infantry combat veteran of the Korean War. I am absolutely opposed to civilians owning any form of assault weapon or multi-round magazine. The only reason for these weapons is to kill people, and they belong in law enforcemement and the military.

My proposal: shooting ranges alone should have these weapons and rent them to people to shoot on the premises.
(Carroll Rueben, Montclair VA, to the Washington Post, October 6,2017)

I’m aware the topics I’ve been posting on have been very wonkish and policy-orientated recently. I’ll do something less serious next time, but I thought I’d give my take on an increasingly popular idea amongst economics. Also be warned, the post is necessarily lengthy. 

Perhaps the most glaring contradiction of present-day ‘late’ capitalism is the co-existence of immense wealth and serious deprivation. On the one hand, an increasing number of people are millionaires, or at least enjoy a life of luxury unimaginable to people living just 30 years ago. By contrast, there is a persistent (and in some countries increasing) number of people for whom life is a daily struggle. These people are often referred to as the ‘precariat.’ They live paycheck to paycheck, have no savings or assets, and often cannot guarantee how or when they will make enough money to afford necessities. If they are employed, they work long and irregular hours, and enjoy little job security. This contradiction is most obvious in the cities, which is partly why left wing parties tend to do best in urban areas. But even in the countryside, there is an enormous gulf between the life of an estate owner and a farm labourer, for instance.

In Europe, this contradiction has persisted despite the existence of everything traditional social democrats have advocated: universal healthcare, state pensions, workers’ rights, paid leave, unemployment benefits, child tax credits etc. Take for instance, France, where state spending is well over 50% of GDP. It doesn’t take long once you emerge from Paris’ Gare du Nord to discover that the French socialist model has largely failed, and in fact there are enormous numbers of poor Frenchmen. America is somewhat different to Europe due to the less comprehensive nature of its social insurance system. But even in Democrat-controlled states, where taxation and spending levels are at European levels, a large proportion of the population is extremely poor.

If the old healthcare and social security systems have failed despite large amounts of money being poured into them, then a bold experiment is needed: Universal Basic Income (UBI). The idea is that everyone is paid a certain amount by the government. This would vary somewhat depending on whether an individual has children or is retired, but the payment should be large enough to cover your basic living costs. Thus, at least in theory, no one should be living in poverty. UBI has additional benefits. It abolishes large bureaucracies needed to means-test a wide variety of programmes. It is simple and transparent. It eliminates the possibility of welfare fraud. It would encourage people to innovate and take risks, knowing that there is a safety net below which they cannot fall.

For some dystopian economists, automation will result in permanently lower levels of employment, particularly amongst the unskilled working class. To prevent civil unrest from breaking out, UBI would give those displaced by automation and other technologies a way to survive while they retrain and readjust to the new economy. I’m personally not as pessimistic about automation and technology as these economists. But the fact is that areas affected most by deindustrialisation have not recovered well. In the US, the Rust Belt voted strongly for Donald Trump, and most post-industrial areas in Britain voted strongly for Brexit. Perhaps UBI is a fair means of addressing the disillusionment many people in these areas face. If a more free market policy programme is pursued, many regions will permanently turn against the governing party, even if the country as a whole is supportive. Margaret Thatcher and the Conservatives are still hated in large parts of the UK, even as she left office almost 30 years ago. UBI is based on the principle that no one should be left behind. Even in an largely prosperous economy, any kind of poverty is inexcusable.

The main objection to UBI is its cost. Giving everyone, including the wealthy, a large sum of money each would be enormously expensive. UBI advocates argues this cost would be reduced by a smaller bureaucracy and the elimination of all other benefits and most tax deductions. But even then, it wouldn’t come cheap. Taxes would have to rise to cover the cost, which would eliminate the benefits of it for everyone but the poor. The rich would vehemently opposed to it, since they would lose far more than they would gain. This leads to another objection, that it would be a welfare programme for the rich. UBI advocates argue that most people would see their lives improve as a result of having their basic living costs covered. But the fact is that most people pay more in taxes than they currently receive in direct welfare payments from the government. If UBI is intended to benefit the better-off, a more efficient way to do so would be to lower taxes. UBI certainly isn’t a redistributive as means-tested programmes, or indeed a negative income tax

UBI also doesn’t take into account regional variations in wages and living costs, particularly in terms of housing. If UBI is the same everywhere, recipients in high-cost areas may end up worse off than the existing system, where payments like housing benefit have increased in recent years. If UBI takes into account regional cost of living differences, then perhaps it would reinforce existing regional inequality by paying people in already richer regions more.

My personal objection to UBI is that it abdicates the responsibility employers have to pay their employees decent wages. Under some UBI proposals, the minimum wage would be abolished, since the government is already guaranteeing people a decent standard of living. Even if the minimum wage was maintained, employers could get away with paying their workers relatively little, knowing that UBI will cover the rest. The solution to poverty is to make employers pay their workers properly, not have the government subsidise poverty wages. I also fear it would lead to inflation, since retailers who serve the low-paid would raise their prices, knowing their customers are receiving more money. Even if anti-inflationary measures like rent controls, there would be no way to ensure that the overall cost of living does not rise substantially.

Overall UBI is a very interesting idea. I’m certainly open-minded as to what the results of UBI experiments tell us. I don’t believe it would lead to a dramatic fall in employment, as some conservatives warn. The very poor and most students would definitely be better off under UBI, regardless of whether it’s best for the country as a whole. But its costs, the lack of redistribution and the threat of inflation prevent me from endorsing it right now. Nor would UBI bring us any closer to solving the housing crisis- the cause of so much poverty across much of the world. UBI currently represents a dramatic expansion of the size of government, without addressing the fundamental causes of poverty the programme seeks to address.

As a general rule, I don’t believe in high taxes. Partly because I believe they make economies less vibrant by discouraging investment and reducing disposable income. But also because of the principle that people, for the most part, have a right to keep what they have earned. Governments should only take what is necessary to keep people safe. In a developed country, a social security system to protect against poverty is also desirable. Historically speaking, governments have been the worst oppressors of their people, which is why America’s founders were sceptical of them having too much money and power.

However, taxes should also be equitable, and shouldn’t discriminate on the basis of how people do business. This means they must keep up with technological developments. Today, this means that traditional retailers should be taxed at the same rate as online retailers. But in the US and the UK, online retailers are privileged, however inadvertently.

In the UK, businesses have to pay business rates, which are levied based on the value of the property the business is using. In theory, this should be a progressive tax, hitting large corporations with sizeable operations. The reality is rather different. Far from alleviating small businesses, it actually penalises them- particularly if they are based in London, where property prices have rapidly increased in recent years. In contrast, online retailers like Amazon pay relatively little business rates, because they use large warehouses in rural areas where land is cheaper. To rectify this, I believe business rates should be abolished, and Britain’s corporation tax (relatively low by international standards) should be raised to compensate.

The US also practises discrimination in favour of online retailers. Each state (with a few exceptions) levies a sales tax. If you buy something from a traditional store, you will have to pay that tax. But if you buy something online, provided the store is based in a different state to where you live, you won’t have to pay sales tax, making online shopping considerably cheaper. To make matters worse, many online retailers avoid paying sales tax altogether by making the online store a different legal entity to the physical store that will deliver your purchase. On top of that, these online retailers are far better at avoiding taxation generally by hiring expensive tax lawyers and ruthlessly exploiting loopholes. The overall result is a tax structure that punishes small shops and rewards the tech giants.

It’s well known that the major tech companies do not pay what they ought to in tax by moving money offshore. The only solution is for countries to band together and make these companies pay what they owe in a system of supranational tax enforcement. In Europe, the European Commission is already trying to do this, though the task remains a formidable one. Other continents should follow suit.

It was absolutely shocking to read Conservative MEP and avid Brexiteer Daniel Hannan’s defence of mass tax avoidance in the Telegraph. His argument was that everyone tries to reduce their taxes, only the tech companies and online retailers do so on a larger scale. This argument is complete nonsense, because large corporations can reduce their taxes through means that aren’t available to ordinary businesses. A truly fair system would ensure that everyone’s ability to reduce their taxes is the same. It was also anger at elites and large corporations that contributed to Britain voting to leave the EU. If a post-Brexit government were to turn a blind eye to tax avoidance and unfair business rates, then the likes of Hannan will find themselves hated by the very Leave voters they claim they represent.

For those of you who don’t know, Robert argued in favour of the abolition of private education at his old school. Since Sherborne is a private school, he was understandably met with a frosty reception. So today I will outline my views on private schools. Unlike Robert I was state educated, but my sixth form was founded by the Mercer’s Company of the City of London, so it receives more money than most places. My sixth form also unusual in that it attracted people who had been privately educated, but then decided they wanted a change. That, combined with my mother’s poor experience at a boarding school, meant that I grew up believing private education was a waste of money.

The classic argument in favour of abolishing private schools is that they allow the rich to buy a better education for their children. Since privately educated children have access to more resources, better teachers and smaller class sizes, they have huge advantages when sitting exams or applying to university. The vast majority of the UK’s top universities have a hugely disproportionate proportion of privately educated students. Thus, the notion of a meritocracy or level playing field is a myth in a nation where some children have such advantages over others from the very beginning.

There is quite a lot of truth to this argument. The UK is the least socially mobile country in the developed world- even less so than the US. If you are born poor, you have less of a chance of becoming rich than everywhere else. It would be absurd to conclude that children at independent schools deserve their disproportionate success because they work harder or are naturally cleverer. Private schools also create a very self-conscious upper class and upper middle class culture. It is hard for non-British readers to understand, but Britain is one of the most class-conscious countries in the world. The rich and the poor have scarcely anything in common. As a result, the poor feel they shouldn’t apply to places like Oxford and Cambridge because they won’t fit in- they aren’t of the same culture.

However, on closer examination, Britain’s lack of social mobility is not the fault of the private schools, but the state schools. There is an enormous variation between state school performance in rich and poor areas. Kensington and Chelsea’s state schools are amongst the best in the country, whereas Blackpool and Hull’s schools lag behind. There is little evidence that getting rid of private schools would solve state school underperformance. Rather it could have the reverse effect. Wealthy parents would buy up the most expensive catchment areas, or pay tutors for their children for the 11+ in grammar school areas. One way or another, the wealthiest parents would ensure their children attend the best state schools, making the state system even less meritocratic than it is currently. The country would be left with a situation where the government has to spend more money to cover the formerly privately educated children, while the overall standard of education would decline due to the closure of so many good schools.

There are two solutions. The first is to ensure universities take into account the socioeconomic characteristic of their applicants. So a student predicted 3 A’s from a private school would have less of a chance of getting an offer than a student predicted the same results from a comprehensive in a deprived area. That would improve equality of outcome without reducing academic standards. There would be no crude quotas, just a recognition that it is harder to achieve good exam results if your school wasn’t as well resourced or your family are in poverty.

The other solution is to make the state schools more like the private schools. Teach a more rigorous curriculum. Introduce more traditions, which many students actually enjoy. Encourage the students to be more ambitious. Reduce the amount of paperwork teachers have to do. Foster the creation of extra-curricular societies. Most of this wouldn’t require all that much more funding. The most important reform is a reform of people’s mindsets. There were too many people at my old school who believed they couldn’t achieve highly, and so resigned themselves to mediocrity. Instilling optimism and the will to succeed is the best thing we can do for children of all backgrounds, but especially those from the lowest social class.