No, really, the referendum result is genuinely significant. Our masters, the electorate, have just junked the geopolitical strategy which has guided Britain since the Suez fiasco of 1956, i.e. the idea that the UK can’t go it alone. By anyone’s reckoning that is a Big Thing. But people were far more interested in the Olympic Games, which fortuitously landed a bigger-than expected haul of medals for Team GB, and in the short term there has been far more controversy over what happens with the Great British Bake Off. Yet if the Brexit vote isn’t quite up there in the same category as the fall of the Berlin Wall or 9/11 — and the jury is still out on that — it is going to have equivalent ramifications for British politics.

Of course, some Remainiacs would dearly love to reverse the referendum outcome. The chances of a second referendum are not trivial. There will have to be another EU Treaty at some point, if only to sort out the eurozone. With the British example in everyone’s minds, the nuisance value of a government holding the process to ransom has rocketed. Britain is not the only country with doubts about the free movement of people. Most likely, the EU will loudly trumpet that free movement is a sine qua non of EU membership, and then quietly discover that of course nobody ever meant it to mean XYZ. It is not unreasonable to assume there will be a relaxation of the EU grip, probably on terms that Brussels should have offered David Cameron in the first place. Assuming that the Commission is capable of learning from experience (a dangerous assumption), it could be arranged for this new Treaty to be thrashed out in parallel with the Brexit negotiations and the completion of both to be synchronised, before the 2020 UK general election.

So we can imagine Sir Humphrey quietly whispering to the Prime Minister that while, of course, the 2016 result must be respected, that was a vote to leave an EU which no longer exists, and it is only prudent to offer the public a chance for second thoughts. And if Sir Humphrey doesn’t do so, because he thinks the Prime Minister will tell him to take a running jump, the idea will certainly occur to the inmates of the left-liberal retirement home known as the House of Lords who will have a veto over any Brexit legislation and will claim that the only way to break the deadlock between them and the Commons is a democratic tie-breaker. Good luck with that.

But while the prospect of a second referendum is not negligible, there is nearly zero chance of a different outcome. If the pro-EU movement couldn’t win in 2016, with the leadership of the four largest parties behind them and the government machine bending the rules in their favour, they certainly won’t do so in 2018 or 2019, telling the voters they have been naughty children, with a Conservative Government (one eye on a forthcoming general election) wholly committed to whatever Brexit turns out to have meant. Who on earth is going to volunteer for an Opt-Back-In campaign? A second referendum would be Darwinian natural selection, removing from the political gene pool anyone too stupid to notice when the voters have sent them a message.

From now on, Brexit means Brexit, even if we don’t know what Brexit means, and that will completely reshape British politics. A good analogy is with the Cold War, the last existential question facing this country. From the late 1940s to the early 1990s quite a few active politicians did not want to be in Nato, did not want to be allied with America, and a fair-sized contingent would not have objected if the Russians had got here and carried out some of their trademark domestic reforms. But anyone advocating any of those positions simply marked themselves out as unfit for public office. It was Clement Attlee, after all, who first banned Communists from the civil service. From the perspective of today, British politics after 1945 can be seen as being largely a dispute about economics, as to where the boundary between the private and public sectors ought to lie. The differences seemed more extreme at the time than now. No one with any hope of actually getting elected offered voters a Soviet-style command economy or proposed to join the Warsaw Pact.

Equally, today there is a potential “Fifth Column” of figures in public life who would much rather that Britain remained a fully participating member of the EU. Like Edward Gibbon, who “sighed as a lover but obeyed as a son”, they will sigh as Europhiles but obey the referendum result as careerists. There will be long, tedious arguments about what the nature of the UK-EU relationship should be, or if being Out is really any different from being In. On the fundamental point, no room for any doubt: Britain will be out of the EU.

That is going to have a seismic impact on British politics. But such earthquakes do not always have the consequences everyone expects. Again, the Cold War is our precedent. As the Berlin Wall came down a great deal of self-congratulatory right-wing comment from self-congratulatory right-wing commentators suggested that not only Communism, but socialism too, was now just so much rubble and dust. Some people even discerned the End of History. And what actually happened? Geopolitically, History has been breaking out all over the place with a vengeance ever since. In British politics, the winner of the post-Cold War was the Labour Party. Or to be more precise, what Tony Blair turned the Labour Party into. Which is as much to say that the real winner was Blair himself.

If Margaret Thatcher can be said to have “won” the economic argument by 1990 — not a question which is easy to answer — then Tony Blair achieved a comprehensive victory in the culture wars which followed. Blair’s victory has proved to be more profound. Rhetorically conceding the case about taxation, and even privatising the odd forgotten arm of the state, Blair made the great discovery that it didn’t matter who owned the commanding heights of the economy, but what the regulations said. So, armed with a Chancellor who could craft a dozen stealth taxes before breakfast, and a raging global boom to smother discontent, Blair created a post-modern government obsessed with symbols, gestures, triangulation and spin.

He so succeeded in painting his opponents as “weird” that eventually even the leader of the Conservative Party was describing himself as the “heir to Blair”. Public dissent from the glories of multicultural, diverse, inclusive and, above all, “modern” Britain became the fast track to political suicide. Whether British society in its completeness ever really changed is beside the point. What mattered was what could be said and done in public. There remain large sections of institutional Britain where Margaret Thatcher might as well never have been born. Blair’s was a world view which claimed to be confident and relaxed, inclusive and tolerant at home (well, except towards the old-fashioned and intolerant, of course) while engaged with the wider world (even if, by the end, it was engaging parts of that world through Tornado fighter-bombers). Certainly not a country which had pulled up the drawbridge. In fact, the absence of a drawbridge turns out to have been a significant design flaw.

This is the political framework which went crashing down in flames on June 23. We now know that a majority of the people who can be bothered to vote on the question do not want to be part of an international organisation if it means loss of national control over key areas, most obviously over who is allowed to come and live here. It does not matter that we already have something like an “Australian-style points system” (albeit for non-EU citizens) or whether there is no evidence that such an approach would actually cut the headline number of immigrants. It does not matter that the public services as currently structured are unsustainable without a rising population, and that this has to be imported since we aren’t making enough of it ourselves. It certainly does not matter that no one is entirely clear about what the people are for as opposed to against. The EU has become a symbol of everything which makes a voting majority disgruntled about the world. So, as a symbol, it has to go. The perfect apotheosis of Blairite gesture politics.

What comes next? Let us speculate wildly. Without the EU, Britain needs to find another approach to, in so many words, dealing with foreigners. Which basically means deciding what to do about globalisation and its discontents. By no means all the 52 per cent who voted to Leave correspond to the stereotype painted by the Remain campaign, of being elderly, frightened or angry about modernity. There was a perfectly respectable free trade, shock-therapy case for exiting the EU, and it received an occasional airing during the referendum. For that matter, a significant element of the support for the EU has always been a desire to build a Fortress Europe to lock out the cold winds of an unfriendly world. But clearly a large segment of the winning majority, especially those who do not usually turn out for a general election, were waving a massive two-fingered salute to business-as-usual.

There is now a ready market for an anti-globalisation party, in a way that there hasn’t been before. Unfortunately, at the moment the chess pieces are all on the wrong squares. This New Party could be fashioned from, say, the Tim Farron wing of the Liberal Democrats, the Greens, the Northern “Red UKIP” faction, possibly the nationalists in the Celtic fringe, and of course some non-Blairite parts of the Labour Party. However, that would require each of these components to jettison a core belief — I’m sorry, I mean, to listen to the message of the voters and respond in a spirit of humility.

What would come out of the other end of the sausage machine would be a party that was protectionist, certainly far more interventionist in the economy than we have become used to, and possibly even corporatist — but it probably won’t advocate wholesale renationalisation (apart from the railways as a visible gesture) because there won’t be any money for that, and once they’ve replaced the regulators they won’t need to,  anyway. Expect them to be opposed to most forms of private development. The New Party will also be culturally conservative, placing a great emphasis on cohesive community values. There will be sharp internal debates about the extent to which it wants to be socially conservative. It will probably decide not to launch a full-scale war against lifestyles it disapproves of, but it will have a definite policy about Muslim radicalisation, and it will be very popular.

With an ancestry hailing from “the Left”, this New Party ought to call itself the Progressive Democrats, if only because, in the way of these things, its programme will not be terribly progressive, and it probably won’t be too interested in democracy. Electorally, its prospects look quite good on paper, particularly wherever (outside London) there is a directly-elected mayor. It would pick up support from some of the churches and, on a good day, make inroads into the golf club Tories. But there are two major stumbling blocks.

The most obvious is the formidable barriers to the creation of a new political party. UKIP has been going for nearly a quarter of a century, telling us that a majority of people agreed with them. It turns out that they were right all along, but the only parliamentary seat they have won at a general election (Clacton, 2015) was a personal vote for a very impressive candidate, Douglas Carswell, who would have been returned if he had been standing on a Flat Earth Society ticket. Barriers are not just created by the electoral system, although it won’t help the New Party if it launches in competition with Labour, UKIP, the Lib Dems, Greens, etc.

As with any profession — airline pilot, brain surgeon — it takes a long time to build up the experience of how to run a political party and fight election campaigns, and above all a certain maturity of attitude while you are doing so and getting beaten continually. Aside from choosing defective strategies, UKIP have simply never managed to hold the same team together for long enough without an enormous internal hissy fit breaking out, followed by purges and defections.

A practical solution to this problem is to not set up a New Party at all, but to take over an existing one. The obvious candidate is Labour. They have the most extensive network and infrastructure, the best collective campaign experience and brand loyalty among the “genetic Labour vote” (I vote Labour, my dad voted Labour, my grandad . . . , etc). But here we reach the second obstacle. The Labour Party.

Jeremy Corbyn was elected (and re-elected!) Labour leader on the premise that there is a vast untapped resource of non-voters, alienated by superficial spin-doctor politics, yearning for someone to give them a dose of the old time religion and challenge the system. I would expect that the gang around him feels vindicated by the June referendum. There was an unexpectedly high turnout, driven by habitual non-voters. No one can doubt Corbyn’s opposition to globalisation. Nor, from his pathetic performance during the campaign, that he didn’t really like the EU much. He can point to the remarkable surge in Labour Party membership under his tenure as further evidence. Here, you might think, is the very living embodiment of the New Party. And you would be utterly wrong.

Corbyn cannot deliver this New Party. He’s having enough trouble holding Labour together, and does not seem to be putting much effort into doing so. Oh, he may well be attracted by some of the economic message which this New Party will proclaim. But from now on, cultural issues are going to be important. The New Party’s putative supporters are revolting just as much against Corbyn’s social agenda as against the EU. The decisive shift in the referendum came with the heavy movement of Labour supporters in the North and in the West Midlands, “disobeying” their party’s instruction to vote Remain, and it was swelled by Corbyn’s admission a week before polling day that he saw no reason to limit immigration. Doh!

To all intents and purposes Labour has been taken over by an outsider and reorientated already, in precisely the wrong direction. Corbyn isn’t Old Labour. Yes, he has swept up all the overlooked flaky lefties into a party none of them really support. It’s made life an awful lot easier for whoever at MI5 is supposed to be keeping tabs on such figures. All that has to be done now is hack the Labour Party membership list. But Corbyn’s takeover hasn’t taken Labour any closer to power. A shotgun marriage of charity shop Trotskyists and ethnic identity shake-down artists has nothing to offer a middle-aged man (or woman) who feels his life is being shaped by faceless powers that refuse to listen to him or take his values seriously. From Corbyn’s perspective, left-wing Leave voters are trapped in a deluded “proletarian consciousness”, attached to fetishes like national pride. From the Leave voter perspective, Corbyn is trapped up his own backside, unattached to reality. When Corbyn refights the 1983 general election in 2020, he will have been on the wrong side of History twice in a single career.

What the New Party needs is a leader who can carry Labour supporters with him, and pick up the other angry factions (Lib Dems, Greens, Red UKIP), by being of his party whilst also transcending it. What it needs is, um, oh dear — it needs a Eurosceptic Tony Blair. Just at the point when Corbyn’s stormtroopers are lynching anyone who vaguely resembles Blair. And until this Eurosceptic Blair turns up, there won’t be a New Party — just lots of Old Parties going nowhere. How ironic.

We have been here before. By 1918 there was no longer any objective reason for the existence of the Liberal Party. The framework of politics pointed towards a contest between Labour, the then New Party, and the Conservatives, their natural opponent. But the damn Liberals just wouldn’t lie down and die, and their refusal to do so while that New Party was still learning on the job, plus the vagaries of the electoral system, led to two decades of oscillation between Labour minority governments and Conservative administrations with thumping majorities. No reason not to expect the same story now.

Politics abhors a vacuum. The crass incompetence of the anti-globalisation factions means that for the foreseeable future, power will naturally fall to the pro-globalisation party. This party will, of course, attract those who backed the Remain option, although nobody will commit the solecism of pointing that out. Nor will this party’s advocacy of globalisation be too strident. They will conduct themselves like Baldwin’s Conservatives did towards capitalism or Rab Butler towards the welfare state. Sensible chaps who can run things better than The Other Lot, making sure you and your family do not lose out, or not too much. So there’s another irony for you: the immediate beneficiaries of Brexit will be the people who lost the referendum. The pro-globalisation lobby will lean towards being economically liberal, and will undoubtedly be socially liberal. In the interests of “reuniting our divided society”, they will make regular token gestures — for example, threatening to force firms to disclose how many foreigners they employ (and then dropping the idea inside a week) — but, immigration apart, they will do as little as possible to upset Blair’s settlement. Remember: it’s the society, stupid.

They will call themselves the Conservative Party. They will be the Conservative Party. They will pick up the old “Orange Book” faction of the Liberal Democrats, who ought to have been in the Tory Party in the past and only became Lib Dems because of historical quirks. Nowadays, no Conservative would dare to advocate something like Section 28 to prohibit “the promotion of homosexual lifestyles”, and the EU will no longer be a divisive arguing point. In time, perhaps after the interval of a complete Parliament, these New Conservatives may even scoop up whatever is left of the Blairites, or whatever they will be calling themselves by then.

The Conservative Party’s fitness to take on this role has already been demonstrated by two acts of ruthless statesmanship. First, watching the descent into insanity of Corbyn’s Labour, with the MPs at odds with the membership, they concluded that, thank you very much, but no thanks. In what would have been a much closer contest than anyone will care to recall, the second-placed candidate to succeed David Cameron, Andrea Leadsom, fell on her sword and so handed the Prime Ministership to Theresa May. Second, Mrs May, having already unequivocally accepted the referendum result despite having campaigned against it, constructed her first cabinet by promoting three prominent Brexiteers and — far more importantly — staging a gratuitously public execution of equally prominent figures on both sides (George Osborne for Remain; Michael Gove for Leave). Bloodlust sated, if only for now, unity is strength.

But what sort of a Conservative Party will it be? Not a very Tory one, in its tone and manner. To execute its tricky manoeuvre of being simultaneously repentant Remainers and bashful Brexiteers, the leadership is going to have to pretend to be not very Tory at all. After all, no one thinks of Baldwin as a carpet-chewing libertarian, because he wasn’t, but he achieved his domestic objective of keeping out the socialists for 20 years. The prime objective of the New Conservatives will be to keep out the New Party. Be prepared for the worst: they’re going to feel your pain.

In her speeches to the Conservative Party conference in Birmingham Theresa May set out what has been described as both an uncompromisingly hard line on Brexit and an unrepentant lurch towards government interventionism. This was not her pitch to create the New Party. It was her attempt to stifle it before it is born. The criticism that this is Heath Mark II is probably not far wrong — she even copied Heath’s slogan of a “quiet revolution” — but misses the point. It’s actually old-style Clinton-Blair triangulation: a leader distancing herself from her minority core support (which, remember, for Mrs May was the Remain faction) and moving halfway towards the enemy. The only difference is that, thanks to the utter shambles of the referendum campaign, part of the group which the Prime Minister has to woo over is the membership of her own party. You might not consider the result to be very economically liberal, but it is the most economically liberal offering that is going to be available. Her references to “Global Britain” were probably aimed at you.

The logic of hard Brexit (if that is what we end up having) is a stark choice between the suffocation of a siege economy and the clinically cold shower of a brutally open, free-trade laboratory. But logic has very little to do with politics. Of course, what we will be offered is a selection of fudges somewhere in the middle. Mrs May has launched her bid to be the person who likes trading with foreigners a bit more than The Other Lot do, and who is going to throw more money at helping British businesses to compete with Abroad.

Some within the party’s ranks might argue that the weakness of the Opposition gives them a free hand. The last time Tories believed that, in the 1990s, they ended up with Blair. They will also have the awful spectacle of Jeremy Corbyn sitting opposite to remind them of what happens when you let enthus-iastic amateurs try their luck. Besides, there is no evidence that Tory Brexiteers have any clearer idea of what they really want out of Brexit than anyone else does.

So, what this New Conservative Party is going to get is a leadership approach which is, how can I put it, ah yes: Cameroon. Mrs May wants to seem as unlike Mr Cameron as possible. Very wise. She doesn’t “do” sunny optimism. She won’t hug huskies.  More niece to Heath than heir to Blair. But she has still steered her tanks straight towards the new centre ground, distanced herself from a straw-man “libertarian right”, and blathered on about “change”, and “the few”, and “the many”, in the way that Cameron used to. His public school bromides about the Big Society and playing the game have had a grammar school reboot. Mrs May actually told us that she is heading for the centre, just like Cameron.

It’s a novel strategy, to lure your enemy into a trap by telling them what your plans are — and it’s going to work. Mrs May also signalled that she wants to keep on board all those new friends that David made. The Prime Minister seemed somewhat perfunctory in her praise of her predecessor. She singled out for approval his introduction of gay marriage. That has not received the attention it deserves. No surprise that in Birmingham she chose to brand Corbyn’s Labour as “the Nasty Party”.

And there is your last and bitterest irony from this most surprising year. By calling the referendum when he did, making an utter balls-up of it, trashing his reputation as a proven election-winner, and being driven early from office, David Cameron will have finally cemented the Conservative Party into a mould of his own making, in all likelihood for a generation. He is the Robert Peel of our times. The real long-term winner of the referendum. Damn him.

The post The Real EU Referendum Winner May Surprise You appeared first on Standpoint.

His thesis is that the long run return on capital is always higher than the growth in output (r>g). The wealthy are able to save and accumulate wealth faster than others earn wages, in proportion to r-g, and the result is a spiral of inevitable inequality. The belief that free markets spread wealth more fairly is exposed as a myth inspired by misunderstanding the destruction of assets in the wars of the 20th century. Although inequality is not quite at pre-1914 levels, it soon will be thanks to high executive salaries that will found the next generation of mega-fortunes. The only way to save capitalism from itself, says Piketty, is to reintroduce punitive income tax and a new global wealth tax. This analysis is backed by 500 pages of charts, tables and relatively engaging prose.

Let us put Piketty’s proposals to the test. William is chief executive of Norton Corp. He is paid £350,000, which at present is taxed thus:

Headline salary: £350,000£32,000 @ 20 per cent tax: (£6,400)£118,000 @ 40 per cent tax: (£47,200)£200,000 @ 45 per cent tax: (£90,000)Take-home pay: £206,400Effective tax rate: 41.0 per cent

(Income bands have been rounded, and national insurance contributions ignored, for simplicity. As someone earning above £150,000 William is not entitled to a personal allowance.)

Norton Corp is discussing a salary increase for William to £500,000. If the UK tax system were unchanged that would leave him in the following position:

Headline salary: £500,000£32,000 @ 20 per cent tax: (£6,400)£118,000 @ 40 per cent tax: (£47,200)£350,000 @ 45 per cent tax: (£157,500)Take-home pay: £288,900Effective tax rate: 42.2 per cent

This doesn’t capture the full picture. Norton Corp, as his employer, can claim William’s salary as a deductible business expense, reducing the profits liable to corporation tax. So the extra £67,500 tax paid by William would be offset by a saving for the company of 20 per cent on the salary increase. But it still leaves the Exchequer better off by £37,500.

There, in a nutshell, is the justification for moderate income tax rates: it encourages value to move from being taxed in companies at 20 per cent to being taxed in the hands of individuals at 40 per cent/45 per cent. This is associated with the Laffer Curve, the thesis that there is an optimal tax rate which maximises revenue because a higher rate encourages avoidance and a lower rate raises less. According to taste this can be buttressed by arguments that people like William merit high pay as a reward, or need to be encouraged to work harder, but the foundation is all about cash-flow for the state.

Piketty rejects this. Government cash-flow is not a concern. There is a practical limit to the amount which a government can raise in tax, he agrees, and most European states have now reached that level (implicitly conceding Laffer’s argument without mentioning him — an interesting omission for a 577-page book about fiscal policy). But, says Piketty, it is equally impractical to cut that amount because it would become impossible to fund the welfare services of a modern state. For Piketty the main role of tax policy is to achieve social objectives, arranging how the burden is distributed. He advocates returning to a highly progressive income tax, levied at 60 per cent on the top 10 per cent of salaries and 80 per cent on the top 1 per cent.

On a rough-and-ready translation from figures in the book, William is already at the threshold where the new 80 per cent rate would bite, and the 60 per cent rate would probably come in where the existing UK additional 45 per cent rate starts. Under Piketty’s tax system William’s increased salary would be treated:

Headline salary: £500,000£32,000 @ 20 per cent tax: (£6,400)£118,000 @ 40 per cent tax: (£47,200)£200,000 @ 60 per cent tax: (£120,000)£150,000 @ 80 per cent tax: (£120,000)Take-home pay: £206,400Effective tax rate: 58.7 per cent

In other words, he would be exactly where he was before the pay increase under the old tax system. Presumably William would argue that he needs the increase just in order to stand still. On the other hand, we can also imagine the board of Norton Corp asking themselves if they couldn’t find a better use for their money than to hand 80p in every £1 of it straight to the Exchequer. This is what Piketty wants them to wonder. He contends that the principal impact of tax cuts since the 1980s has been to strengthen the bargaining power of senior executives in their negotiations with directors who have limited personal interest in resisting their demands. The result, he says, has been an explosion of executive pay unjustified by any explosion in talent or performance.

If Norton Corp froze William’s salary, and left him within the new 60 per cent tax band, his take-home pay would fall to £176,400. That will hurt him and his family, of course, but the board of Norton Corp might consider that if William cannot get by on over £170,000 then he probably hasn’t got the right sense of cost-control to be running their company in the first place. The new 80 per cent tax band will raise zero cash for the Exchequer-but, as Piketty cheerfully admits, he doesn’t intend it to raise any revenue anyway. It’s meant to discourage employers from paying salaries that large. In our example it has achieved its objective.

So William’s salary is frozen at the level of the new 80 per cent rate threshold. That gives the Exchequer a windfall gain of £30,000. For the foreseeable future the state will be partly financing the increases in William’s take-home pay, because even if his headline salary does not alter, for every £1 rise in the basic rate threshold he gains 40p and for every £1 rise in the 40 per cent band threshold he gains 20p. Over time the Exchequer’s gains from the new 60 per cent rate band will taper off.

Norton Corp is an ethical organisation, so of course it never occurs to the board to hire William’s wife as a consultant on £150,000. Had it done so, William’s household would be £13,900 better off than if the company had paid him the full salary increase under the pre-Piketty tax system. But, as I say, that would never happen in the real world.

What, then, does Norton Corp do with the £150,000? Suppose it does nothing. The company’s reported profit will be £150,000 higher. Of course, the company will then pay extra corporation tax of £30,000 (another windfall for the Exchequer) but to the outside world the directors have delivered better performance.

In aggregate terms nothing has happened to the economy. National income remains exactly the same. There has been no change in g, the growth in output. However, there has been a shift of £150,000 from Labour Income into Capital Income. That is significant, because net Capital Income is the value which Piketty uses to calculate the return on capital. There has been no alteration in the UK capital stock. Therefore, by not paying William a salary increase, the return on capital, r, has increased. Moreover, r-g has increased, too. According to Piketty these are Bad Things. Which is a little awkward.

Only a temporary embarrassment. Obviously, if a company’s reported pre-tax profits increase, we can expect its share price to increase, too — raising the market value of the capital stock to a point where r returns to its long run average. (Actually, that does open a can of worms. Piketty derives his figures on rates of return and inequality using the market value of assets. That creates a gigantic circular argument in his definition of “capital” and his calculation of r. Nobody should have the Cambridge Capital Controversy thrust upon them unless they are about to undergo root canal surgery so we shall pretend that this problem does not exist — as, indeed, does Piketty.)

A reasonable price/earnings ratio would be in the order of 10. Thus, the £150,000 saving on William’s salary will lead to a £1.5 million increase in the market capitalisation of Norton Corp. A nice little windfall for shareholders. I wonder what that does for the inequality of wealth.

Ah, the professor is ahead of us. His second weapon is a new annual tax on capital. It is not enough to prevent new fortunes accumulating by stopping high earners from saving. The state also has to rein in the growth of inherited wealth through an annual progressive levy. Although the details are sketchy, he suggests a charge of 1 per cent on estates of €1 million or more (£800,000) with a top rate of 2 per cent on estates in excess of €5 million (approximately £4 million). Piketty realises that this is a utopian scheme since it would require worldwide assets to be accounted for, and he devotes considerable space to explaining how governments would share banking information. That, he concedes, is a long way off. However he believes it would be feasible to implement the tax on an EU-wide basis — and he means with the UK included — and the revenues would helpfully solve the eurozone sovereign debt crisis.

Such a tax would dampen the uplift in share prices. In our example, Norton Corp’s capitalisation might only rise by £1.47 million. Nevertheless, Piketty is quite right to say that his new tax would raise considerable revenues and, all other things remaining equal, over a long period would have a significant impact on wealth distribution. The margin (r-g) would shrink and the forces of accumulation would be impaired. Unfortunately, all things never do remain equal. Shareholders are just as capable of working out the implications.

Anyone with access to sophisticated investment management tools — say, a pocket calculator — could deduce that every £1 cost saving in a company would deliver a gain in wealth of around £9.60 to shareholders even after paying Piketty’s new tax. What do you imagine the instructions of those shareholders will be to the directors they employ to manage the companies they own? Piketty is worried that income tax cuts since the 1980s inflated the bargaining power of senior managers. Well, if that process is reversed, it surely means that bargaining power passes back to the shareholders.

Where cost savings come from is irrelevant. So companies might slash their budgets for R&D, maintenance or new plant and equipment — you know, like we saw in the UK when we last had high income tax rates. The softest target will be the workforce. The volume saving from restraining wage increases would be considerable and far easier to justify when the bosses are having their salaries frozen or squeezed. The overall effect of this corporate austerity would be an even lower growth rate. We can expect r-g to remain the same, if not to expand.

To overcome income inequality at the high-earning end which carries the threat of a future increase in wealth inequality, Piketty wants to cause an immediate increase in wealth inequality which carries the threat of an increase in income inequality by squeezing low-earners. Hmm. Piketty is wasted at the Paris School of Economics. He should be running France — indeed, judging by that country’s current combination of ever-higher taxes and economic stagnation, perhaps he already is.

The post Piketty’s panacea will make inequality worse appeared first on Standpoint.

This is indeed the biggest shake-up to pensions since the 1920s.  And lobbyists were quite correct that pensioners have been suffering. Because interest rates are low and people are living longer the annuity income from even a large pension pot has been derisory. Much better to permit pensioners to choose how to extract their money, and charge them standard income tax instead of the ridiculously punitive 55 per cent rate on “excessive” lump-sum payments bequeathed by Gordon Brown.

But — and you could sense there was a “but” coming — Osborne has missed a trick.

In 2011 I wrote a paper for the Social Affairs Unit called “The Price of Promises”. Since the UK faces a demographic pensions crisis, and its citizens persistently under-save for their future, I advocated amalgamating the plethora of tax-favoured schemes into a single Retirement Investment Tax-exempt Account or RITA. Savers could contribute up to £48,000 per year, and employers could contribute a further £48,000, receiving tax relief at basic rate and tax exemption for the accumulated fund. They could withdraw up to £25,000 per annum free of tax and face no requirement to purchase an annuity. Unused funds would be exempt from inheritance tax on death, so that savers could share the proceeds of their thrift with their heirs. 

Rationalising the schemes on offer, and removing their complex restrictions, should lower management costs and hence boost returns.

Furthermore, if the official retirement age were raised to 70 by 2034, and the government made an initial seed contribution to each RITA, we could phase out the various forms of state pension as well (through a reassuringly complicated transitional process I outlined in the December 2012 issue of Standpoint) and avoid bankruptcy for the public finances.

The UK is stumbling into this solution by accident.  Since 2010 the annual limit on pension contributions has fallen to £40,000 from £255,000, and the annuity rule has now been abolished, while the ISA limit has gone up to £15,000 from £10,200, with cash and stocks-and-shares ISAs being amalgamated. The current government also intends to rationalise the state pension into a single payment at a flat rate and increase the age at which it can be drawn to 67 by 2028.

However, you will be astonished to learn, the Coalition has not been following a carefully considered plan for personal investment and retirement. The motive has been to cut the immediate public deficit. So the level of pension investment, and therefore the cost of tax relief, has come down. Enabling retirees to access more of their pension pots earlier brings larger sums into income tax much sooner. The whole package sounds generous but, over the period for which the Treasury scores these things, it will actually raise taxes by nearly £2 billion net. Today’s deficit is being reduced at the cost of lower tax receipts in the future, just when the demographic crisis bites.

The official reason for the annuity rule was overtly paternalist.  If pensioners were not forced to convert their funds into a regular income stream they might blow all their money quickly (on, perhaps, bingo?) and be left to rely on the welfare state.  Unofficially, the Treasury wanted to claw back cash by converting exempt funds into taxable income. Neither was a good reason for locking up someone’s lifetime savings.

The real flaws with pensions remain: you still have to wait 30 years before getting your money back, and the compliance rules make them expensive to run (especially for institutions that have just lost the revenue from selling annuities). So pensions are still unattractive for twentysomethings, exactly the people we need to encourage to save for their retirement.

Perhaps they will opt for ISAs instead? The increased flexibility is to be welcomed. However the new higher limit does little more than repair the effect of inflation on the pre-ISA limits for Personal Equity Plans from the 1990s.  The average amount invested in an ISA is around £4,000 per annum. That isn’t going to triple, and employers cannot contribute. You have to have something to save before you can take advantage of these changes. Tax relief, which ISAs do not offer, would help contributions go farther.

The demographic timebomb is still ticking.

The post Almost Joined-Up Thinking appeared first on Standpoint.

Easy to dismiss Power Trip as meant only for newspaper serialisation to generate headlines. If you follow British politics, you already know the juicy anecdotes which Damian McBride relates about Gordon, Ed, Douglas, Ed, John, David, Charles, Alistair, Ivan, etc, and the uproar they have caused. If you have no idea who these people are, I shan’t spoil your day by explaining.

McBride worked at the Treasury under Gordon Brown, first as civil servant and then as political adviser dealing with the media; transferred to No 10 when Brown became Prime Minister; and had to resign when he was implicated in an attempted smear campaign. This book explains how that came about. McBride details all his distasteful acts, successful or otherwise, to manipulate the public image of his boss and lower the standing of rivals. We are meant to be shocked.

Being upfront about poisonous practices, McBride pitches his book in direct contrast to the conventional political memoir, whose ghost-writer praises his subject’s achievements and ignores all but a few token errors. This is a personal account of how an aggressively competitive person lost, to coin a phrase, his moral compass. By the end he was being vicious for the sake of it, so he had to go.

McBride wants us to know just how wrong he was and what he has done to straighten himself out. The contrition he has adopted in interviews, together with working at a Catholic school and then a Catholic aid agency, and passing references to making confession, have led some to see this book as an act of penance.

Well, if you’re looking for Catholic resonances, Evelyn Waugh’s Brideshead Revisited works better. Both are composed as flashbacks from an opening trigger (Ryder’s regiment arriving at Brideshead; McBride climbing out of a neighbour’s kitchen window to evade photographers). In both the narrator drifts into a career for which he had no previous training (Ryder becomes a painter after redecorating Brideshead; McBride starts as a VAT expert and ends as a spin doctor). The role of Sebastian Flyte is shared between Ed Balls and Ed Miliband (and during the story they swap roles of unreliable narcissist and teddy bear).

McBride claims he rose through his ability to draft concise reports and effective speeches. I believe him. He has a brisk, economical approach. The book is well-written. But not even McBride’s mother would rate his writing higher than Waugh’s. Power Trip is more vulgar, chatty rather than witty, couched as a pub conversation. Its author’s dark deeds emphasise the presence of sin, not the operation of grace. The religion of its characters is football, not Roman Catholicism.

Nevertheless, both writers use a dominating metaphor around which all action revolves. For Waugh this was Brideshead itself, the stately home whose values are being polluted by modernity. For McBride it is the equally monolithic Gordon Brown, a titanic statesman of genius and moral certainty who saved the world but has been traduced by an ungrateful nation. Power Trip is not an act of contrition but an attempt at rehabilitation. If only we had known the “real” Gordon Brown; if only we had understood how deeply he cared; if only we could have seen him in private; if only we could have appreciated what was going on inside his head; if only, if only, urges McBride, then the Brown administration would not have been such a bloody cock-up. And that, I’m afraid, is where Power Trip goes all wrong.

His theory lends his writing a tone of indignation, where Waugh opted for elegy. Yes, I was nasty, says McBride, but I was doing it to further this really good and nice man, who knew nothing about my activities, and you ought to have appreciated him more. This drags. So much so that we begin to notice amid the contrition the odd score being settled and inconvenient fact being slid over.

I don’t think it would have made any difference at the time knowing how much Gordon Brown really wanted to end poverty in India or was really worried about the economic threat of China. Well, not to anyone who knew how Brown was really governing the country. So what if his heart was in the right place? Everything else was all over the shop.

If Brown was such a wonderful man who inspired all around him with intense loyalty, why exactly was it necessary for people such as McBride to devote so much effort to smearing his colleagues? And why did everything fall to pieces in about six months? McBride says he loved Brown. Nobody is indifferent to their boss. Most people fluctuate between love and loathing. Organisations only go bad when everyone feels the same way about the boss all the time. Power Trip depicts a leader-worshipping cult which suddenly degenerates into a mass suicide pact.

McBride has written the wrong book.  Buried within Power Trip are interesting thoughts about civil service recruitment and promotion (no, seriously), and there is real value in the chapters discussing the Budget and the role of a spin doctor. Our author is undoubtedly talented. Nobody can go from an unfashionable backwater like Customs and Excise to head of communications at the Treasury as quickly as he did without ability.  It’s such a pity that this was frittered away peddling dirt. It is also a shame that he wastes his and our time now thrashing out who did and did not say nasty things about Douglas.

Interior repentance entails a radical reorientation of life, not just an end of sin but a turning away from evil. We need a book telling us how to run a modern government which prevents, and does not require, people acting like Damian McBride. Who better to write that than Damian McBride?

So while we wait for him to write the serious book he should have produced, might I recommend the box set of Brideshead Revisited?  

The post McBrideshead Revisited appeared first on Standpoint.

In 2004 there was a referendum in the north-east of England on whether to establish a regional assembly. For two years every measure of opinion had indicated a solid majority in favour of an assembly. The last poll published ahead of the effective start of the campaign in September 2004 predicted the Yes side would win 64 per cent of the vote. Yet on polling day in November, the Yes campaign managed only a humiliating 22 per cent.

In 2011 there was a referendum across the UK on whether to replace the first-past-the-post method of electing MPs with the alternative vote system (AV). Opinion was erratic (particularly don’t knows) but most surveys during 2010 gave the Yes side a lead of around 10 per cent. Polls published just before the formal start of the campaign in February 2011 indicated that the Yes side would get at least 60 per cent. Yet on polling day, May 5, the Yes campaign managed only 32 per cent.

Memory can be selective. Nobody in the commentariat would now advocate regional assemblies for England or the AV system for parliamentary elections. They are obviously silly ideas because of the majorities by which they were rejected. Yet before both referendums, the sensible consensus was that the measures would pass.

It is often claimed that there is an innate advantage for the no-change side in a referendum because voters who are not already committed will choose the status quo. This theory has been heard a lot since the AV referendum. It’s a nice idea, but it isn’t true with devolution.

In this case the change side usually wins: Scotland 1979 (the measure failed because of a turnout restriction, but it was a Yes victory in raw votes); Scotland 1997 twice, on the establishment of a parliament and its tax-varying powers; Wales 1997 (narrowly); Greater London 1998; and Wales 2011. The no-change side has won only in Wales 1979 and north-east England 2004. That is an anti-status quo bias of 6 to 2. This is even more pronounced if Northern Irish referendums are included.

Consider how referendum campaigns work. Imagine some enthusiasts wish to outlaw lollipops. Normally, anti-lollipop activists will have a spectrum of views and support a variety of parties. However, on the crucial lollipop question, they unite for the sake of change. A referendum is called. This pressure group goes on to be the core of the Yes campaign. So, the change side starts the referendum possessing the formidable advantages of cohesion, motivation and the initiative. But they are almost certainly a minority. If there was widespread public demand to outlaw lollipops, every party would pledge it in its manifesto. There would be no need for a referendum. The task facing the Yes campaign, then, is to snap out of being a pressure group geared towards persuading politicians and become a campaign to persuade a majority of voters.

By and large people do not establish Save the Lollipop groups on the off-chance that someone might one day try to ban them. Anti-change campaigners start behind, forced to react to the Yes group. Before now their political differences have always been more important than their shared love of lollipops. Thus, anti-change campaigners must first learn to sink their differences. That is another source of delay as they catch up with their opponents. Although the anti-change side represents a potential majority, support will still have to be mobilised. Their ability to do so depends on how successful they are in assembling a unified No campaign.

Every referendum can be explained by the dynamic between these two factors: can the Yes campaign break out of its minority position; can a coherent No campaign mobilise its blocking majority? The two extremes were demonstrated in 2011. In the Welsh referendum in March it was not possible to form an effective No campaign. The change side received a free pass and won with 64 per cent. The AV referendum held in May saw a broadly-based No campaign drawn from Conservatives, Labour supporters and even advocates of other rival voting systems. The change side was pinned down on 32 per cent.

Academic commentators often conclude that referendums display a pro-status quo bias. This is because they wanted a change and are trying to explain why a Yes campaign failed. They forget that referendums are fought on the precise terms on offer in each proposal. Also, the campaign, and how each side conducts itself, will have a significant impact on the outcome.

In 2004 the polls suggested most people in the north-east were sympathetic to some sort of regional assembly.  When the actual powers on offer were examined, however, voters agreed with the No campaign that an assembly would be a useless talking-shop and not worth the cost, which would be added to their council tax bills. A “hopey-changey” Yes campaign relying on celebrities and local pride did nothing to dissuade them from this hard-headed analysis.

The referendum on September 18, 2014 will turn on the terms of the relationship between an independent Scottish state and the UK — perhaps most of all, on which questions the Scottish National Party has been unable to answer by polling day. Until the two sides begin to engage on these issues, which won’t be for another year, answers to any opinion poll will be soft.

Referendums are also fought within their own legal rules. In the Referendum Bill now before the Scottish Parliament, the SNP wants to write those rules in a way which, by an amazing coincidence, hampers its opponents.

From here, either side could win the Scottish referendum. Let’s hope they do so after a fair fight.

The post Poll Facts appeared first on Standpoint.

Because of deadlines and so forth, I’m writing this in advance of Doomsday, so it’s possible that between my now and your now, when you’re reading this, someone else will have remembered that the world was supposed to be ending and they’ll have given it some coverage. So what I’m going to say might be old hat by now.

That’s the problem with trying to predict the future. You never know what’s going to happen.

Anyhow, I’ll assume that you’ve forgotten about the Mesoamerican Long Count Calendar. The Ancient Mayans had a calendar based on a mixture of 18 and 20: so 20 days made 1 winal; 18 winal made 1 tun; 20 tun made 1 katun; and 20 katun made 1 baktun, or a complete round of the calendar. That made each baktun, or long count, equivalent to 144,000 days, which the Mayans regarded as an historical period (a little over 394 years).

The Mayans also had a more conventional 365-day annual calendar for everyday use, and confusingly a 260-day calendar for timing religious ceremonies. The Long Count did however provide a way of assigning a unique identifying number to any date over a long period of time and that seems to have been what it was used      for.

So, why the fuss? Well, by deciphering Mayan inscriptions it can be deduced they believed the gods created the world (at their third attempt) on August 11, 3114 BC. Which means that the 13th baktun of the current world, a period of 5,125 years, ends on December 21, 2012. Hence, we are told, the Ancient Mayans predicted that was when the world would end.

Quite what specialist insight the Mayans possessed is unclear. The first Mayan settlements date from 1800 BC. After a flourishing civilisation they collapsed around 1100 AD. The Mayans don’t seem to have foreseen the severe droughts that laid them low. 

The arrival of Cortès is something else they missed. Nor is it obvious that they thought the world would be ending around now. The time might have spiritual significance, but that’s all. Mayans calculated the time of astronomical events well past this date, assuming that the date is correct, which isn’t certain.

The first suggestion that the ending of baktun 13 might be Armageddon came in 1966 in The Maya by Michael Coe. It was not picked up outside professional Mayanists until 1975. Coe had got the date wrong, and consensus as to the precise timing of the apocalypse was not attained until 1983. 

By the 1990s the idea had been taken up by the New Age industry, such as the egregious “alternative historian” Graham Hancock, and jumbled with all sorts of pseudo-waffle about galactic alignments, proton beams, black holes, etc. Roland Emmerich used the idea for a film in 2009, as his latest attempt to destroy the world after alien invasion and ice age (it was banned in North Korea for some reason). A NASA website has been bombarded with queries about the subject and, we’re told, some Brazilian mayors have been stocking up on food supplies.

So, congratulations for surviving the end of the world—again. All we have to do now is start worrying about the end of the next long count in March 2406.

Oh look—the stars are starting to go out. 

The post Mayageddon appeared first on Standpoint.

“Turning back now would be a disaster.”Admitting we’re making a U-Turn would be a disaster. “The British economy is healing”The British economy is badly wounded. “The deficit has fallen by a quarter”I have missed my targets for reducing the deficit. “Now we are seen as one of the safe havens”The UK will lose its AAA rating next year. “Latest economic forecast”Optimistic guesswork. “Independent forecasts”Someone else’s optimistic guesswork. “I want to thank the Office for Budget Responsibility for their rigorous approach”Every one of their forecasts has been wrong. “The economy has ‘performed less strongly’ than expected.”OK, maybe hiking VAT was a mistake. “Credit rationing and impaired financial markets”And perhaps it was a daft idea to bash the banks, making it harder for them to lend. “Making banks contribute more”But since bankers are the only people more unpopular than me, of course I’ll keep bashing them. “Supportive monetary policy”Printing money. “Directly addressing the problems of tight credit”Printing more money. “Sensible cash management”Printing even more money, paying it back to ourselves and then fiddling the figures to cover up what we’ve done. “I want to make the figures completely transparent”I am changing the way I calculate my targets to make it harder to see I’ve missed them. “We have a better than 50% chance of eliminating the structural current deficit in five years’ time”We will not have eliminated the deficit in five years’ time. “We do not meet the supplementary objective”The National Debt will continue to rise. “We are not taking that road to ruin”We’re taking another road. “I’m switching current savings into capital”A small U-Turn — but old news. “Our country’s pension funds will launch their new independent infrastructure investment platform”A new quango that will let the Treasury raid your pension. “The replacement for the discredited PFI”We are re-naming the discredited PFI. “Savings from Whitehall are not enough to tackle our debts”The National Debt will continue to rise. “Fair share of taxes”Higher taxation. “Aggressive tax avoidance”Paying only tax you’re actually obliged to pay. “I want to help the great majority of savers”A minority of savers will get a real kicking.

“A welfare system that Britain can afford”A welfare system that Britain cannot afford. “We will apply a similar approach to the uprating of tax thresholds as we have to welfare.”Higher taxation. “Michael Heseltine’s report has captured the imagination of all political parties.”Michael Heseltine’s report is grandstanding self-publicity. “A single Office for Unconventional Gas”A new quango with a silly name. “Forcing energy companies to move families onto the lowest tariffs.”Cheap populism. “£10 billion worth of guarantees for housing”Cheap and irrelevant populism. 

“No 3-pence fuel tax rise”Expensive populism. “We’re all in this together.”The National Debt will continue to rise.

The post ONLINE ONLY: Translating the Autumn Statement appeared first on Standpoint.

The largest financial hole facing the UK is not the deficit (£126 billion and sticky)—about which the Coalition is doing quite a lot, though it’s often contradictory. Nor is it the national debt (£1,039 billion and rising)—about which the Coalition proposes to do nothing at all, except increase it. No, the grimmest spectre haunting us is the liability attached to the state pension system. Depending on whom you ask, this is equivalent to possibly £2,000 billion, a figure nowhere incorporated in the public accounts.

We are living longer and we are having fewer babies before we die. Also, we have stopped saving, either because means-tested welfare has made saving irrational, or because low real interest rates have undermined its value, or because we’ve all become short-sighted. It’s probably a mixture of the three.

The state pension is unfunded. No pot of money supports the promises made. Like a vast Ponzi scheme, current contributions from workers finance current payments to pensioners. Thus, as a matter of inescapable arithmetic, if the number of recipients goes up, they receive for longer, and more of them are dependent upon the state because they have no savings of their own, while the number of contributors falls in relative terms, then the burden on the contributors will escalate. And a heavier tax burden on future contributors will leave them with less disposable income, which reduces their ability to save, making more of them dependent upon the state when they retire, which will cause the problem to snowball even faster. Furthermore, this system of dole-pensions carries a high administration cost: to track people, to record their notional accrued entitlements, and then to make small, regular payments to them in their old age.

The system, then, is a recipe for escalating tax burdens which are simply unsustainable. And everyone knows it. The Ghost of Christmas Present is hardly a bundle of laughs, but the Ghost of Christmas Yet To Come offers nothing but Dickensian squalor. Perhaps the natives of Borrioboola-Gha will send us food parcels.

If you wanted to design a state pension for the UK from scratch, you would not do it this way. Every commentator has his own preferred wheeze, with its unique bells and whistles, but across the literature there is a degree of consensus. We want to encourage people to save to provide their own funded pot, so there should be a tax-shelter in which they can accumulate reserves, with a generous annual allowance—something like a super-ISA. In fact, it would be sensible to amalgamate the various forms of tax-favoured saving (ISAs, pensions, etc) which would reduce management costs, and so improve returns and thus the eventual pension paid. Legitimate concerns about pensioner poverty could be addressed by contributions from the Exchequer. My favourite mechanism would be a seed capital contribution to each pension plan, paid at an early age and set at an amount that on pessimistic assumptions about investment returns and optimistic ones about life expectancy, would accumulate over a working life to provide an income at least as high as the state dole-pension would have been. As a nice touch, you might want to exempt the new arrangements from inheritance tax, so that when people die before they draw their pension, or before exhausting their fund, they can pass on their savings to their children’s pension plans. The quid pro quo would be an increase in the retirement age.

It is not very difficult to devise a new form of saving vehicle along these lines. Nor is it too difficult to see that such an arrangement would cost far less than the current system. In hard economic terms there is no difference between paying a dole-pension to a retiree every week for the rest of his life and giving him a one-off lump sum equivalent (currently, at least £60,000). That is the principle behind annuities. However, there is a significant difference if instead you pay a one-off lump sum to a young person so that it can accumulate over his working life to a fund equivalent to a dole-pension by the time he has reached 70. One-off lump sums to a few hundred thousand people born in the same year would cost far less than weekly dole to several million pensioners for as long as they live. Increased tax relief and exemptions would be only a fraction of a fraction, and would be offset by reduced administration costs and the wider benefit of higher levels of saving and investment.

State pensions cost around £100 billion a year, but within a few decades this can be expected to more than double in real terms and to keep rising. The cost of “super-ISA” pensions would depend on the age of the recipients but would probably be about the same as the current cost and, crucially, it would remain stable. (Older people, having a shorter time to accumulate savings, would require a larger seed contribution than younger people, but there would be fewer of them as the grim reaper thins their ranks, so it would most likely all balance up.) Hence, if we had this sort of state pension system, by about 2040 (when I will be collecting my pension) it would save the state at least £100 billion. Which is quite a nice little windfall for our children, don’t you think?

The Coalition, of course, would claim that they are doing something. They have “faced reality” and “taken the hard decisions”. And in fairness, the Coalition has accelerated the increase in retirement age to 70 and implemented a footling scheme of auto-enrolment for personal pensions. These measures are little different from ideas proposed by Gordon Brown. They still assume that people will save themselves by saving for themselves—even at a time of austerity when it is harder for them to do so. Raising the retirement age by itself will not solve the inherent flaws of the dole-pension, which are a matter of demography. (Measures to reform welfare by tackling its alleged abuse by feckless unmarried mothers seem particularly unfair: the feckless mothers are, at least, doing something to relieve the coming demographic crisis.)

By emphasising the need to control expenditure the Coalition has courted the austere image of Ebenezer Scrooge. That is most undeserved. Scrooge was successful. The Dickens character whom this government most resembles is Mr Micawber, forever hoping for something to turn up. Despite their rhetoric, on pensions Coalition ministers are merely deferring the need to face up to the demographic crisis to a time when they will have moved on to heaven, hell or the House of Lords.

If it is so obvious that a state pension based on lifetime accumulation is better than a retirement dole system, you may wonder why the change has never been made. There is a poison pill at the heart of the current system. A Ponzi scheme only works so long as the music keeps playing and none of the participants wants to withdraw. Current workers pay for current retirees, in the expectation that a future generation will pay for them in turn. If you switch to an accumulation system, older workers will not have sufficient time to build up funds to provide an adequate future income and no one will be picking up the tab for the already retired. That means those groups will have to be compensated by what amounts to buying out their accrued pension promises—at a cost of about £2 trillion. The state, of course, would have to recoup that sum by placing additional burdens upon the current workers, who would end up paying twice. The choice is between throwing granny into the gutter and taxing her descendants into the workhouse.

Nor is it feasible to borrow the funds now and repay them later as the savings are realised. Ignore the minor point that this is not really the time for the Treasury to try to borrow £2 trillion. Even in the unlikely event that rates remained at their present historic low level, the interest charges that would be incurred until the whole debt was redeemed would obliterate any savings from making the change and distort the capital markets in the meanwhile.

So, while accumulation-based pensions offer us a land of milk and honey, no government has risked the trek through the desert to reach it. What is needed is a way to get our hands on all that lovely future money so that we can spend it now. But no one has yet been able to invent a method to do so.

Until now.

Let us conduct a thought-experiment. Suppose the Treasury knows that, as a result of reforms to the state pension system, it is going to save money. It could instruct the Bank of England to issue a voucher to represent £1 of that money now, to be redeemed later. Since there might be a delay, the face value of the voucher would be index-linked against a sensible measure of genuine inflation such as RPI. So a 2013 voucher for £1 would be redeemable at, say, £1.04 in 2014, or £1.09 in 2015, or whatever. The Bank would issue vouchers and inform participants that they could be used for investment within a pension plan—and only for that purpose. Taxpayers could not turn up at a corner shop and use them to buy cigarettes, for instance.

That would make the vouchers a bit like money, but not money. It would make them rather like the vouchers issued by supermarkets with their loyalty cards, which have a value when used to buy goods from their shops but are utterly worthless elsewhere. Why would the pension providers accept these vouchers? It would have to be a requirement of the new regime that they would have to accept them, and could use them as legal tender at their uprated face value to acquire financial assets (shares, bonds, etc) from financial intermediaries or issuers. To ensure that intermediaries and issuers accepted them at face value they in turn would have to be entitled to deposit them with a bank as if they were cash. Thus, if Jarndyce & Jarndyce plc issued £1 million of new shares it would make no difference whether it received cash or vouchers in exchange.

So these vouchers would be a form of ghost-money, and quicker than you could say “Bob Cratchit” they would all end up inside the banking system. The banks, of course, could not issue them to their own customers, so this ghost-money would not enter the “real economy” but they could use them in dealing with other banks or in their own market trading activities. A bank could hold vouchers as risk-free assets worth their face value, serenely confident in the guarantee of their ultimate redemption by the Bank of England, and behind them the Treasury (and what could possibly be more reliable than that?). But maybe, just maybe, a bank might prefer not to wait. There would have to be a provision that a bank could tender vouchers to the Bank of England as payment for any transaction between them. This willingness of the Bank of England to accept them would be the ultimate underpinning of the value of the vouchers. Quicker than you could say “Tiny Tim”, we could expect the vouchers to have made their way back to where they started, the Bank of England.

What would happen next? Nothing. Individual citizens would have paid-up pension plans with real financial assets inside them. The vouchers (assuming that anyone bothered to print them, instead of using electronic registers) would sit inside a vault in Threadneedle Street until such time as hard cash arrived in the Exchequer. Then the vouchers would be redeemed, the Bank of England’s corresponding liability to the Treasury would be liquidated, and the value created when each voucher was issued would be withdrawn from the economy. The ghosts would have dematerialised. Job done.

Now, a few awkward types might have objections. You might say, for example, that this is simply an exercise in make-believe, with the vouchers only having a value because the government has arbitrarily decided they should have that value, and everyone else decides to play along with them.

Yes—and what do you think money is?

You might argue that it is nonsense to claim my vouchers would not somehow get into the “real economy” and that the process is nothing more than a government printing money and unleashing inflation.

Not really. We could expect a rise in the price of financial assets and a boost to investment. A slump is a good time to have those. Our ghost-money would not be haunting the shopping malls. The process is self-correcting because the value of the vouchers is clawed back when they are redeemed.

You might claim that this is nothing more than quantitative easing by another route.

That’s fair. The comparison favours my thought-experiment. Under quantitative easing the Bank of England has pumped £375 billion (so far) into the financial system, inflating asset prices but otherwise without any clear idea what has been achieved, who has benefited and how we are going to exit from the process. Under my vouchers value would be pumped into the financial system, inflating asset prices, hiking the amount of saving in the economy, giving everyone the assurance of a reasonable retirement which was not dependent on the generosity of future politicians, partially recapitalising the banks, escaping the effects on the public finances of the coming demographic crisis and with a clearly defined exit via redemption. 

You might object that since the vouchers are a liability on the public finances, this idea represents a not-very-well camouflaged explosion in the National Debt.

Well, they are only debt in a Pickwickian sense. The vouchers do not actually add to the liabilities which the public finances have to support. Successive governments have had these obligations since 1946 when the current state pension was adopted. The only difference is that successive governments have not bothered to admit this. If a company treated its pension fund in the same way as the government, its directors would be guilty of false accounting. Through the vouchers an open-ended, unfunded and unquantified liability would be changed into something that is capped in real terms, hard and marketable and used to fund personal pensions for everyone. To that extent, the financial engineering involved could be called Qualitative Crystallisation.

From there, it becomes a numbers game.  This is how the transition would be managed.

First, pick a starting date, such as April 6, 2013. Next, pick a starting age, such as 20. Everyone who was that age on the starting date would receive vouchers with a value projected to accumulate over 50 years to a fund that could generate an income equal to the state pension for 30 years. (We might as well assume that everyone is going to live to be a centenarian—a nice margin for error.) Individuals, and their employers, could add further contributions, but even if nothing else was saved a decent retirement income would be available. In the following year, the next cohort of 20-year-olds would be brought into the new system.

The final parameter is a threshold age, such as 45. Everyone who was 45 years or older would remain within the existing dole-pension arrangements, which would survive for as long as the group does. That leaves a broad band of people who are aged 21-44 on the starting date and who would be brought into the new system gradually, receiving an amount of vouchers depending upon how old they were at the time of receipt. Phasing would allow the Treasury to regulate the total value of vouchers outstanding at any time. At some point cash savings would start to flow through and could be applied to redeem vouchers, and eventually it would no longer be necessary to use vouchers for the seed contribution. We would have made it through the wilderness. Then (if not before) the government could reverse £100 billion of tax increases.

Christmas and New Year is supposed to be a time for taking stock, for renewal and for new hope. But making resolutions to be better are worthless unless they are kept.

Since the credit crunch of 2008 we have heard a lot about “zombie banks”, institutions which are functionally insolvent but which stalk the earth in a living-dead state (by concealing the truth about their finances). In the UK we have a zombie state pension, sustained by a zombie ideology. We no longer believe in the ideas of 1945. They do not work. They never will. So why are we putting ourselves through such pain trying to make the unworkable work?  

The time to exorcise this problem is now. If we do not sort out the state pension while we have the chance then we face the prospect of ever-rising deadweight taxation and cheese-paring meanness towards our elderly. Third-rate provision amid a second-rate economy.

Alternatively, of course, you could always pray for a massive outbreak of pneumonia.

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I had that impression while I was reading Don’t Take No For An Answer: The 2011 Referendum and the Future of Electoral Reform by Lewis Baston and Ken Ritchie (Biteback Publishing, £9.99).

You have probably forgotten, but back in May the UK had a referendum on whether to replace the current method of electing MPs to the House of Commons with a system called the Alternative Vote or AV. It fell in between the Royal Wedding and the death of Seve Ballesteros, so most people will have missed it. Anyway, the No campaign, for which I worked, won with 68 per cent, which looked pretty emphatic. The authors were on the Yes side. They think the voters got it wrong.

This book is not about the AV referendum. It is not even about how the Yes campaign could have won. It is about how enthusiasts who want to change the voting system will win next time — by not doing anything silly like asking the country to vote on their demands.

The authors are convinced that British politics is “rancid”. They believe Westminster is in the grip of an unrepresentative elite, concerned only with its own self-interest. They have proved their case, but not in the sense they intended. Baston and Ritchie are part of a small faction that wasted £100 million of taxpayers’ money, at a time of public expenditure restraint and job losses, in a referendum on an arcane issue of concern only to themselves, as the ransom price for forming a coalition government — and, because they did not get the answer they wanted, they now cheerfully tell us it can be ignored anyway. As a way of solving a problem, that is comparable to O.J. Simpson’s offer to help the Los Angeles police find his ex-wife’s killer.

There is a massive blind spot at the heart of this book. The authors believe the voting system ought to be changed; they have persuaded themselves their arguments are undeniable; the voters disagreed; therefore the voters must have been wrong; therefore the result in some sense does not count. They provide a lot of excuses. Referendums are a crude device. The Yes campaign were not very good at their job. AV was the wrong choice anyway. So, ram through something else instead as a piece of parliamentary blackmail.

Apparently such behaviour will lead to a healthier democracy. Why must the Yes Men try again? “Democracy, equality and the political empowerment of the ordinary citizen are, we devoutly hope and believe, an advancing tide.” Not if you’re going to ignore 13 million “ordinary citizens” voting No, they’re not. They also devoutly believe that “the intellectual case for reform” is overwhelming. No it isn’t. It got only 32 per cent. That’s very underwhelming.

Like the emperor’s new clothes, it seems that only really special people can see the obvious merits of what they want to sell us. The Baston-Ritchie argument is a little difficult to follow at times. It is not helped by poor editing: the text often cross-refers to charts which either do not appear or which are incorrectly labelled. I am not convinced that following the argument is worth the effort. Sometimes, you just have to walk away from the bore. They won’t get the message, but you don’t have to listen to theirs.

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This is not a book about global warming. That is what makes it so valuable. Ignore all the usual controversies, says Sinclair. Instead, treat climate change policy like any other and ask a basic question somehow overlooked in all the shouting: does it actually work?

The answer is no. Cap-and-trade emission control generates windfall profits for energy companies while making their prices more volatile; renewable energy plans are a colossal waste of capital which make power sources less secure; green taxes on transport are a government shakedown scheme which arguably overcharge for the impact of climate change (nobody can really be sure); biofuels inflate food costs; and the only green jobs that will be created are for bureaucrats, lobbyists and workers in the developing world where factories will be relocated.

Above all, claims Sinclair, the policies we currently follow will not actually reduce emissions and avert climate change — unless they cause a profound and prolonged economic depression in the developed world. Cure may well turn out to be worse than disease. It is time for a rethink.

The title refers to the intriguing fact that, because of the way in which the EU Emissions Trading Scheme is structured, UK households suffer higher energy bills and the average extra burden is more than they spend each year on buns, cakes and biscuits. 

It is also, of course, a backward nod to Marie Antoinette, and this provides Sinclair’s theme for the second half of the book. The toiling masses (that’s us) are being taxed to the hilt to support an out-of-touch court of favoured lobbyists, environmentalists and grandstanding politicos (Them). Unelected cartels run an irrational system that does not work even on its own terms but out of which they all do very nicely indeed. 

 Sinclair derives two laws of climate change politics: climate change legislation will not pass in a country where a mainstream party opposes it; and regulation will tend to proceed through the least democratic route. He has a good deal of fun pointing out some of the lunacies of the eco-lobby and identifying which pockets are being lined by whom.

This nouveau régime really is unsustainable. Sinclair ends with a stirring call for a modern-day guillotine (he does not specify whether the wood should come from sustainably-managed forests) and a revolt to tear down this “enormous political edifice”.  He predicts immense dividends for the first party to shatter the green consensus.

Many books have challenged global warming science; several by prominent figures have queried the viability of green economic theories; attacks on the eco-lobby are not uncommon. This is probably the first work for a non-specialist audience which provides an actual audit. That is why it is so frustrating that the book lacks an index. Most readers will have to do as I did and litter the pages with bookmarks. I used old train tickets, as a form of recycling. I like to do my bit for the planet.

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