Government spin can’t hide the fact the the Work Programme is still not working

I remembered today that the latest Work Programme figures were being published and did my usual thing of looking for the story on the BBC News website. Its article on the figures is entitled “More find jobs on the Work Programme, DWP figures suggest“. I then looked for the DWP press release which was titled “Work Programme transforming lives as number finding lasting work soars to 132,000“. So after the complete failure of the first year, things now seem to be going well. Better than expected even?

But having then found the official statistical release, I  look ed for the Minimum Performance Levels, which I think is the main information that should be highlighted to judge success or failure of the programme. The Minimum Performance Levels are based on what proportion of people would get jobs on their own if the Work Programme didn’t exist. The minimum levels are set 10% above this non-intervention estimate. For the first year, they were set at 5.5% for the three target groups (JSA 18-24; JSA 25+ and ESA new customers).

There is some discussion in the statistical release about how media reporting of the performance failure last year was inaccurate, with it being reported variously that performance was either 3.5% or 2.4% (I did so myself here). So that makes you think Minimum Performance Levels were actually better than reported. In actual fact though, they were much, much worse!

MPLs are calculated over the financial year apparently, so the first year only covered June 11 to March 12. This meant the official performance levels (which I didn’t hear the Government state once) for the first year were:

JSA 18-24: 1%

JSA 25+: 1%

ESA new customers: 0.6%

In total, only 9,000 job outcome payments were made in year 1 out of 687,000 referrals.

Remember, DWP expected 5.5%, and 5% if there was no Work Programme at all!

The 2nd year’s (the first full year) targets were much higher (reflecting that the providers would be well established and would have had much more time to work with clients), but again providers have failed. Here were the performance levels they achieved (with the minimum performance targets in brackets):

JSA 18-24: 31.9% (33%)

JSA 25+: 27.3% (27.5%)

ESA new customers: 5.3% (16.5%)

So the best that can be said is that for JSA claimants at least, the Work Programme is marginally better than nothing, but for ESA new customers, it’s still worse than nothing. Just under half of providers (18 out of 40) are meeting their targets for JSA clients (only just). None met their targets for ESA clients.

You’ll hear a lot of spin about how the Working Programme is ‘transforming lives’, but against the DWP’s own benchmark, it is still failing to meet even the minimum levels expected. So DWP are lauding the success of the Work Programme, but all providers are in breach of their contracts. Time to rethink the whole thing?

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“The parable of 100 dogs and 92 bones” – Why the Work Programme can’t work

Today’s Billy Blog is another must read, on the state of austerity-age Britain. In it he includes his ‘parable of 100 dogs and 92 bones’. I’ve used this before on this blog, but this is a better version of it, so it’s worth recounting, as it’s a perfect allusion to Governments’ obsession with ‘back-to-work’ schemes and why they can never succeed on their own. The Coalition’s failing Work Programme is a perfect example of this.

“Case study: the parable of 100 dogs and 92 bones

Imagine a small community comprising 100 dogs. Each morning they set off into the field to dig for bones. If there enough bones for all buried in the field then all the dogs would succeed in their search no matter how fast or dexterous they were.

Now imagine that one day the 100 dogs set off for the field as usual but this time they find there are only 92 bones buried.

Some dogs who were always very sharp dig up two bones as usual and others dig up the usual one bone. But, as a matter of accounting, at least 8 dogs will return home bone-less.

Now imagine that the government decides that this is unsustainable and decides that it is the skills and motivation of the bone-less dogs that is the problem. They are not skilled enough. They are idlers, bludgers and “bone-shy”.

So a range of dog psychologists and dog-trainers are called into to work on the attitudes and skills of the bone-less dogs. The dogs undergo assessment and are assigned case managers. They are told that unless they train they will miss out on their nightly bowl of food that the government provides to them while bone-less. They feel despondent.

Anyway, after running and digging skills are imparted to the bone-less dogs things start to change. Each day as the 100 dogs go in search of 92 bones, we start to observe different dogs coming back bone-less. The bone-less queue seems to become shuffled by the training programs.

However, on any particular day, there are still 100 dogs running into the field and only 92 bones are buried there!”

Bill concludes with:

“In the UK there are about 92 bones for every 100 dogs and in Spain 72 bones for every 100 dogs!

The point is that fallacies of composition* are rife in mainstream macroeconomics reasoning and have led to very poor policy decisions in the past.

There are simply not enough jobs.”

* Fallacies of composition are very common in discussions of economics. It basically means – what’s true for an individual isn’t always true for a whole group of individuals. An example of this would be the argument that cutting the minimum wage will increase the number of jobs available. While for a single firm, if wages could be cut, that might enable the firm to hire more people, if they are cut across all firms, then workers will be able to buy less stuff, so less will be produced, meaning less workers are needed. David Cameron saying everyone should pay off their credit card bills is another example. Good for the individual, bad if everyone does it at the same time.

Functional Finance, not fiscal rules is the responsible way to manage an economy

During Ed Balls’ speech a couple of weeks ago, he set out his thinking about how a Labour Government would need to operate within tight constraints if it won the election in 2015. Making clear he thought difficult choices would have to be made, he said Labour would have to show an ‘iron discipline’ on spending. He also spoke of ‘fiscal rules’, saying:

“Instead, Labour will set out, in our general election manifesto, tough fiscal rules that the next Labour government will have to stick to – to get our country’s current budget back to balance and national debt on a downward path.”

A lot of commentators praised the speech, including Polly Toynbee in The Guardian who wrote:

“Ed Balls’s brain was never in doubt, and his impressive speech set out a credible economic plan, tough as titanium – too tough for some Labour tweeters. Whatever flak he takes will not be for softness: one look in his steely eye and you know he’ll mince any colleague uttering an uncosted spending promise.”

So from this it would seem the way to go on the public finances is ‘responsible’ government, sound finances and fiscal rules. It seems there is agreement from left to right. Not on the specifics maybe, but certainly on the need to cut the deficit and get the public finances on a ‘sustainable’ footing. But is this approach actually ‘responsible’ at all? I say no. There is a much better approach available.

It’s called ‘Functional Finance’. It’s been around for a long time and was championed by the economist Abba Lerner in an article in ‘Social Research’ in 1943I’m going to quote quite extensively from this paper now to give you a flavour of what he was trying to say. It very straightforwardly cuts through the bullshit inherent in arguments about sound finance that were around even then (some things never change). Lerner writes:

The central idea [of functional finance] is that government fiscal policy, its spending and taxing, its borrowing and repayment of loans, its issue of new money and its withdrawal of money, shall all be undertaken with an eye only to the results of these actions on the economy and not to any established traditional doctrine about what is sound or unsound.

The first responsibility of the government (since nobody else can undertake the responsibility) is to keep the total rate of spending in the country on goods and services neither greater nor less than that rate which at the current prices would buy all the goods that it is possible to produce. If total spending is allowed to go above this there will be inflation, and if it is allowed to go below this there will be unemployment. The government can increase total spending by spending more itself or by reducing taxes so that taxpayers have more money left to spend [and vice versa to reduce total spending]. …By these means total spending can be kept at the required level, where it will be enough to buy the goods that can be produced by all who want to work, and yet not enough to bring inflation by demanding (at current prices) more than can be produced.

In applying this first law of Functional Finance, the government may find itself collecting more in taxes than it is spending, or spending more than it collects in taxes. In the former case it can keep the difference in its coffers or use it to repay some of the national debt, and in the latter case it would have to provide the difference by borrowing or printing money. In neither case should the government feel that there is anything particularly good or bad about this result; it should merely concentrate on keeping the total rate of spending neither too small nor too great, in this way preventing both unemployment and inflation.”

My last post was on tax and how it’s not correct to think of governments needing taxation to finance its spending. Here’s Lerner on the same topic:

An interesting, and to many a shocking, corollary is that taxing is never to be undertaken merely because the government needs to make money payments. According to the principles of Functional Finance, taxation must be judged only by its effects. Its main effects are two: the taxpayer has less money left to spend and the government has more money. The second effect can be brought about so much more easily by printing the money that only the first effect is significant. Taxation should therefore be imposed only when it is desirable that the taxpayers shall have less money to spend, for example, when they would otherwise spend enough to bring about inflation.”

So that’s Functional Finance then. Simple, logical and theoretically sound. It places a focus on real outcomes rather than arbitrary numbers the government has little control over. If our leaders could share Lerner’s clarity of thought, our economic malaise could be brought to a close swiftly.

On tax avoidance and the purpose of taxation

A large section of the public get very worked up (rightly) about tax avoidance. Huge companies like Google or Vodafone seem to be getting away with paying very little tax despite turning over billions. At the same time, the Government are pursuing cuts to discretionary public spending. People often make a connection between the two and argue that if rich companies and individuals paid all the tax due, there would be no need for any cuts, so a ‘left’ solution to the economic crisis is to go after the tax avoiders/evaders in a big way, and all will be OK. I think this view is misguided. Here’s why.

Firstly, there is an implicit assumption that we need those taxes that have been avoided/evaded to pay for government spending, and if we don’t go after that money, then austerity is unavoidable as the Government doesn’t have enough money. As the UK has its own currency though, this cannot be true. It can create new currency at will and can never run out. There is a risk of inflation of course, as with any type of spending (public or private), but if you don’t think repatriating and taxing a sizeable chunk of money stashed offshore would be inflationary, how could creating a similar amount to spend into the economy be inflationary? The money sitting offshore is largely inert, sitting as excess savings. Money can only be inflationary if it is circulating.

This leads on to the other point I want to make which is about the reason we tax at all. If you ask most people why we have taxes, they will say “to pay for government spending on public services”, but as someone who finds myself in agreement with Modern Monetary Theory (MMT), I don’t think that is really the purpose of taxation at all.

So what is the real purpose of taxation? There are a number of, none of which are to pay for government spending (although confusingly, for a government to spend, it does need to tax):

1. A ‘Chartalist’ view of money (which MMT incorporates) argues that the imposition of a tax by a sovereign government creates a demand for a currency. So because people are required to pay tax in pounds, a minimum level of demand for pounds is assured and people will be willing to do business in pounds so they can obtain enough to pay their tax liabilities. Because pounds have value to those with a tax liability in pounds, they also have value to those who are not taxed in pounds, so it’s not necessary that all users of pounds are taxed.

2. While the government doesn’t need to collect tax before it spends, if it spends without taxing, this will almost certainly cause inflation. We can think of government spending as ‘printing’ money and taxation as ‘unprinting’ money. The tax ‘makes room’ for the government to spend without causing inflation.

3. To correct for ‘externalities’ and discourage ‘harmful’ behaviour. Externalities are costs or benefits generated by an activity which affects non-users of that activity. Examples could be pollution or second-hand smoking. So we might want to heavily tax polluting activities to the point the activity becomes unprofitable or the tax collected is equal to the cost of the clean-up. We might want to tax smoking heavily because it imposes a cost on the health services or gambling because it can lead to crime and contribute to social breakdown.

4. For redistributive purposes. This reason would be why we might wish to take on tax avoidance. Our economy is working as a giant hoover at the moment, sucking up money from the bottom to the top, increasing inequality and leading to more and more people becoming marginalised and stuck in unemployment or low-paid work. Tax is one way of trying to correct for this damaging process.

To sum up then, I am not saying we shouldn’t go after tax avoidance. We absolutely should (although overhauling and simplifying the whole tax system would be more effective in the long run). It’s just that I don’t think it’s an answer to our sluggish economy. Those who avoid/evade tax undermine the tax system by offending people’s sense of fair play. If some are seen to be ‘getting away with it’, it makes maintaining the legitimacy of tax more difficult, and a strong tax base with efficient collection is vital for a functioning mixed economy.

While we need to do something about tax avoidance (preferably through regulation rather than appealing to amoral companies’ morals), we should not oppose austerity by saying “tax the rich more” or “tackle tax avoidance”. Austerity should be opposed on it’s own terms i.e. the government is not running out of money; the markets can’t hold us to ransom, and cutting spending in a recession is a really, really stupid thing to do.

Labour is Still Part of the Problem

Ed Balls gave a big speech yesterday on the economy. Balls’ diagnosis of the failure of George Osborne’s economic policies always seems sound. What he says about austerity is true. It has unequivocally failed. Which makes it all the more puzzling when he says things like:

“…because this Government’s austerity economics has failed, we will have to govern in a very different way and in circumstances very different to what we have known for many years. We will inherit a substantial deficit. We will have to govern with much less money around. We will need to show an iron discipline.”

WTF? Because austerity has failed, we will need more of it if Labour wins? He went on to make positive noises about raising living standards an increasing growth, but this just won’t be possible within the constraints of George Osborne’s next spending review. He briefly mentions the post-war Labour government, but takes none of its inspiration. The spirit of ’45 should be the Labour Party’s motto now. Housebuilding, job creation and public services, but instead all we get is the promise of more of the same.  So Labour are still very much part of the problem, and it looks like we’ll just be voting for our favourite colour in 2015. It will make little difference whoever wins.

Andrew Rosindell MP – King of the All-Party Group

I blogged earlier about All-Party Parliamentary Groups (APPGs) after my interest was sparked by the Panorama/Daily Telegraph/Sunday Times revelations at the weekend. I picked out 5 of these APPGs almost at random to see which MPs were members, and noticed the same names cropping up again and again. One in particular stuck out – Conservative MP for Romford, Andrew Rosindell. I decided to have a look which groups he was a member of in more detail and discovered he’s actually a member of a staggering number of these groups, mostly ones dedicated to a country or region. Here’s some stats:

Groups to which he is a member: 90

Groups he Chairs: 17 

Groups he holds other ‘officer’ positions (vice-chair, treasurer or secretary): 28

The groups he sits on include country groups as diverse as Mongolia, Liechtenstein, and St Lucia and subject groups including the ‘zoos an aquariums group’ (he chairs), the group for third world solidarity and the parliamentary group for Tamils.

If these groups are genuinely for MPs and peers to foster links and address issues, how can one person have the time to sit on 90 of them, and can he genuinely have an interest in so many regions and so many topics, including a significant enough interest to chair 17 of them? How is it possible to even keep track of which groups he belongs to? Why he is a member of so many?

 

All-Party Parliamentary Groups – Just an excuse for free trips to exotic places?

There’s been a lot in the news about lobbying this weekend and it looks like a story that looks set to run and run. When David Cameron was trying to get himself into Downing Street in 2010 and in the wake of the Parliamentary expenses scandal, he suggested that lobbying would be the next big scandal, and when the Coalition was formed, the introduction of a register of lobbyists was included in the Coalition Agreement. Nothing to date has been done about it however, although the fallout from Thursday’s Panorama programme may change that.

Part of the ‘support’ Patrick Mercer (the MP caught up in this scandal) is said to have offered the undercover reporters was to set up an all-party parliamentary group (APPG) on Fiji, through which the clients agenda could be pushed. According to the Daily Telegraph, Mercer is filmed saying (of the setting up of the APPG):

The MP told the lobbyist he was making progress establishing the APPG. Mr Mercer said it would not be a problem attracting members. There were “several freeloaders that would like to go to Fiji”.

“This is extremely attractive,” said Mr Mercer. “I mean who doesn’t want a trip to Fiji, who doesn’t want a trip to the South Seas?

His view seemed to be borne out when Mercer gave a progress report and said:

“I am sorry to have to ask this but [name of MP], for instance, who is one of the … individuals who is very keen – he said I would love to go to Fiji,” said Mr Mercer.

“[The MP said] ‘can I bring the wife?’, I said, ‘I just don’t know, I’ll have to ask’.”

So there appears to be a picture being painted here that external groups with interests in a particular country can promote their own agenda in Parliament by playing on the desire of certain MPs to enjoy trips to sunny climes. But what actually is an all-party parliamentary group, and who sits on them?

Parliament publishes a Register of All-Party Groups here. Of APGs, it says:

APGs are informal, cross-party, interest groups that have no official status within Parliament and are not accorded any powers or funding by it. They should not be confused with select committees, which are formal institutions of the House.

There are a great number of APGs. They cover many and diverse fields such as health, education and transport. Some exist to foster links with other countries and parliaments, others to address a particular issue, and a couple exist mainly for social reasons (eg some sports groups). Some APGs have existed for many decades whereas others come and go in response to issues of the day.

APGs are essentially run by and for Members of the House of Commons and House of Lords. Mostly they are run by backbenchers, though ministers may also be officers or members of APGs and many groups choose to involve individuals and organisations from outside Parliament in their administration and activities.

So they cover many issues, not just countries and have no official status. The register is a vast document (over 600 pages long), so it would take a  team of researchers to investigate the memberships of each group, the interests they have declared and the questions they’ve asked in Parliament. I’m sure there are journalists working on this as we speak, and there’s surely potential for more political casualties before this is over, but I thought I just take a quick look at 5 top holiday destinations that there is an APG for and see who sits on them.

1) Bahamas

Chair: David Morris (Con)

Notable other members: Alec Shelbrooke (Con); Patrick Mercer (Con);  Aidan Burley (Con); Tom Watson (Lab); Andrew George (LD); Ian Paisley (DUP)

2) Maldives

Chair: David Amess (Con)

Notable Other Members: Andrew George (LD); Keith Vaz (Lab); Ian Paisley (DUP); Roger Godsiff (Lab)

3) Mauritius

Chair: Andrew Rosindell (Con)

Notable Other Members: David Amess (Con); Tom Watson (Lab); Roger Godsiff (Lab)

4) St Lucia

Chair: Andrew Rosindell (Con)

Notable Other Members: Ian Paisley (DUP)

5) Thailand

Chair: Roger Godsiff (Lab)

Notable Other Members: Andrew Rosindell (Con)

I picked these five countries at random based on my perception of them as a holiday destination, but I was surprised to find that even among just fives countries, there is quite a lot of duplication of names. Ian Paisley, Roger Godsiff and Andrew Rosindell are all members of three of the five, while Tom Watson, David Amess and Andrew George are members of two. If I get time, I might look at this a bit more closely (or maybe someone else will do it).

Looking at Roger Godsiff’s entries on the Register of Member’s Interests, in the last 5 years, he’s travelled (for free) to Mauritius, and also Japan, Syria and Vietnam. The cost of paying for these trips himself would have been more than £10000.

In the last 5 years, Andrew Rosindell has enjoyed all-expenses paid trips to the Cayman Islands, Venezuela, Jordan, Gibraltar, Taiwan, Norway, Switzerland, Lebanon, Qatar, China, Syria, Malta. That’s 12 overseas trips! And he hasn’t even been to Thailand, Mauritius or St Lucia yet.

Godsiff and Rosindell are both back-bench MPs, and it’s not clear to me how their jet-set lifestyle is representing the interests of their constituents. What are the sponsors of these trips getting for their money?