“Opportunity” was the one-word slogan of this week’s Conservative Party conference. And that, therefore, should be the yardstick by which Conservative policies are judged: do they extend opportunity or restrict it?
I’m in favour of restriction. The biggest problem with the British economy – and with Western capitalism in general – is not too little freedom, but too much. Too much, that is, for those who make it their business to increase their share of existing wealth without creating any. This is what economists call rent-seeking (which includes, but isn’t limited to, what tenants pay to their landlords).
Rent-seekers are able to extract value from others because of the monopoly rights that the state gives them over a particular resource – be it land, intellectual property, permission to pollute, political power or something else. Rent-seeking is therefore a result of government policy. Unsurprisingly, governments find themselves relentlessly lobbied by those with a vested interest in maintaining the unjust, opportunity-sapping status quo.
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Taking on those vested interests requires courage and determination. But that’s why a government – especially one that believes in the opportunity to create rather than extract wealth – should be judged on the quality of its enemies.
Here are ten enemies that the Cameron and May governments should have made, but didn’t:
1. Land owners
Conservatives believe in the right to private property. And so they should. But that right shouldn’t include the uplift in value created when land becomes ripe for development.
The price of farmland can shoot up from less than £10,000 to more than £1,000,000 an acre just because of a planning decision. The act of merely owning the land has contributed precisely nothing to this added value – and yet landowners are able to claim the lion’s share of it.
This injustice, which Winston Churchill condemned back in 1909, lies at the heart of the housing crisis – a crisis which is destroying the Conservative ideal of a property-owning democracy and therefore popular support for conservatism among younger people.
If the Government did something about legal barriers that prevent it from acquiring land at agricultural-use value to build new housing, then a whole range of opportunities could open up. Instead, it continues to side with a few lucky farmers rather than millions of aspiring home owners.
2. The big developers
Of course, if we built more houses, the law of supply and demand would mean lower prices and reduced profits for those lucky landowners, right?
Wrong – and so is the idea that the planning system is mostly to blame for the dearth of new homes. In fact, there’s a huge backlog of unused planning permissions – leading to accusations that the big developers are “land banking”; ie, manipulating the development of the land they hold to control prices.
Of course, that can’t be possibly be true, because the Government has commissioned an investigation – the Letwin Review – which has been taken as evidence that developers don’t land bank. However, the Independent Review of Build Out Rates, Draft Analysis, June 2018, also says this:
“The fundamental driver of build out rates once detailed planning permission is granted for large sites appears to be the ‘absorption rate’ – the rate at which newly constructed homes can be sold into (or are believed by the house builder to be able to be sold successfully into) the local market without materially disturbing the market price.”
Deliberately restricting supply in order to stop prices from falling? How is that not manipulating the market?
It’s plainly obvious what’s going on. The Government must stop hiding behind jargon like “absorption rates” and take land supply out of the developers’ control.
3. Nimbys and cowboys
The planning system isn’t entirely free from blame. A particular problem is the designation of green belts around urban areas. Preventing sprawl is a worthy objective, but choking the growth of prosperous cities such as Oxford and Cambridge is not. Model developments like Poundbury in Dorchester, show that we can build beautifully designed extensions to towns and cities that enhance local life instead of harming it.
However, instead of negotiating a grand bargain on sustainable urban development, the Government has failed to confront the green belt fundamentalists, while turning a blind eye to ugly, piecemeal development in unprotected areas – the worst of both worlds.
4. The bankers
In August 2011, riots erupted across urban England. But what happened next was just as remarkable: a shock-and-awe demonstration of the power of CCTV. Rioters were systematically identified by the police (with public help), shamed by the media and harshly punished by the courts. So much for the anonymity of the mob.
Now compare all that to the UK government reaction to the financial crisis. No shock-and-awe for the bankers. There have been a few prosecutions in relation to specific scams such as the Libor-rigging scandal. Oh, and someone had their knighthood cancelled. But that’s about it.
It would seem that recklessly crashing the global economy is an almost crime-free activity.
Ten years on from the crash, the most important banking reform has still not been enacted
5. The beneficiaries of QE
Of course, that’s not to say that the financiers weren’t targeted by the state. Indeed, they were singled out… for a massive programme of assistance.
There were the immediate bailouts of failing banks, but also a much longer period of Quantitative Easing or QE. Though presented as a general tonic for ailing economies, QE has the specific effect of inflating the value of financial assets and therefore rebuilding the bankers’ balance sheets (and boosting the investment portfolios of the wealthy).
The mechanics of the policy also generates a cascade of transactions on which fees can be charged – another nice little earner for those lucky enough to benefit.
Even if we accept the argument that governments had no choice but to resort to QE, it remains a profound injustice that the sector responsible for the original crisis has profited so handsomely from the emergency treatment.
But don’t expect any meaningful process of ‘financial truth and reconciliation’. The brain-aching complexity of QE is precisely what allows governments to get away with not having untangled it.
6. The nuclear industry
When the Conservative Government came to power in 2010 one of its first moves was to slash subsidies for renewable power. Quite right too – the leading renewable technologies were considered capable of delivering more for less, and that’s exactly what they’ve achieved. Despite self-serving predictions that the industry would shrivel without generous subsidies, it has thrived – cutting costs and expanding capacity.
No such market discipline for the nuclear sector, however. Hinkley Point C – the first new nuclear power station to begin construction since the 1980s – is to receive a guaranteed and very expensive price for its electricity over 35 years. So assuming it’s up and running by 2025, we’ll still be paying for its overpriced electricity in 2060.
By the way, the nuclear tech we’re getting for this money – the European Pressurised Reactor – is dogged by a history of engineering problems and cost overruns.
How on earth did we end-up with this radioactive lemon? Well, it was the first – and, so far, only – opportunity to guarantee a future for Britain’s nuclear industry (even if most of the kit is imported from the French).
No industry and no technology should be owed a living – and certainly not one with nuclear’s record of failure.
7. The rail industry
Speaking of enormously expensive things that don’t turn up on time, let’s talk about our trains.
The Train Operating Companies (TOCs) aren’t best-loved by British public. But this year, with the biggest timetable changes for at least a decade, was the chance for a reset. It was really important then that the whole thing went smoothly.
It was a disaster – with services in the North and South East of England descending into chaos.
The regulator’s report into the fiasco found that the TOCs, Network Rail, the Department for Transport and indeed the regulator all made mistakes – but also that it was unclear as to who was responsible for what.
The obvious conclusion is that the structure of the industry is unsustainable. Of course, if no one has ultimate responsibility then no one can be held ultimately accountable (right up to the Secretary of State for Transport) – which suits all concerned. Except the passengers, of course.
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8. Air polluters
At least most trains are electric these days, which means they don’t belch out the airborne pollutants linked to 40,000 premature deaths in the UK every year and billions of pounds’ worth of damage.
The disastrous decision to encourage the use of diesel engines in Europe can be blamed primarily on the German government and the Volkswagen emissions scandal. However, the British government has repeatedly failed to take the action necessary to clean up the air in our worst-affected cities – or say, in sufficient detail, how it plans to fulfil its legal responsibility to do so.
The long-term solution is to switch to electric vehicles, but we also need a short-term solution. The difficulty isn’t that we don’t know what to do (ie, dis-incentivise the use of polluting vehicles in vulnerable urban areas); it’s that it wouldn’t be popular with motorists.
The most powerful vested interests are the ones composed of millions of people. The trouble is that also leaves millions of people breathing polluted air – but that’s OK because a lot of those are children and they can’t vote.
9. The carpetbaggers of London
On to another kind of grubbiness. How is the Government getting on with its repeated promises to do something about the foreign money laundered through London’s property market?
Very slowly, is the answer. Almost 100,000 properties in the UK are owned by offshore companies. To its credit, the Government is forcing these publicly to register their “beneficial owners” – though not until 2021. Better late than never, but one has to wonder how so much information about so many properties is going to be verified.
Of course, this would be a much smaller problem if the ownership of high-end property in the UK weren’t so lightly taxed (and therefore ridiculously attractive). One would assume that most foreign investment in London real estate is legitimate; but one has to ask: who benefits?
Certainly not the ordinary working people and productive enterprises priced out of their own capital. And not those who pay heavy taxes on the fruits of their labour because their government won’t shift the burden on to idle wealth.
London and other British cities should be fully open to genuine entrepreneurs and innovators from around the world. But we don’t need more speculators; we’ve got quite enough of our own.
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10. Government itself
Let’s conclude with the vested interest closest to home – the machinery of government and the wider political system. The Conservatives came to power promising a revolution in the way that we’re governed. The 2010 Conservative manifesto was entitled Invitation to Join the Government of Britain and promised a “Big Society” in place of a “Big State”.
There have been some reforms – most notably a significant devolution of power to cities. But, on the whole, the status quo remains intact. Parliament, Government and the Civil Service all work in much the same way as they did in 2010. Even the most straightforward reforms, like a modest reduction in the number of MPs from 650 to 600, have yet to be delivered.
Others have been scrapped – such as the introduction of “extended ministerial offices“. These were a tiny move to towards reducing the dependency of Cabinet ministers on the civil service – and on Downing Street. Of course, even that proved too much of a threat to the established order.
And thus a sclerotic system of government struggles on – unable and unwilling to confront its own vested interests, let alone anyone else’s.