A Federalised Britain is a Pie-in-the-Sky Fantasy
The need for more devolution is one of the few areas of genuine consensus in British politics. From Boris Johnson’s levelling up programme to Gordon Brown’s proposed constitutional reforms, ‘the more devolution, the better’ has emerged as the unofficial slogan of Britain’s ruling classes. Politicians of all stripes line up to propose new metro mayors, PCCs and obscure assemblies. ‘Only when parliament is abolished and replaced with 37 regional authorities will Britain be saved!’ cry the devo-maxxers.
Neither the left nor the right is immune from this misguided thinking - but the right should know better. The idea that different regions will compete to lower taxes and slash regulation rests on a series of hopelessly naive assumptions. The UK is not the US - it is a far smaller country where economic hubs bleed across arbitrary regional boundaries. There is certainly no British equivalent to California or Texas. While competition between states works well in the US, in the UK, more devolution simply leads to an expansion of bureaucracy.
The Scottish Enlightenment (regularly marginalised within nationalist discourse) provides an alternative free-market model to decentralisation. This unprecedented moment of intellectual and economic flourishing fundamentally altered the history of human thought, elevating Scotland's worldwide reputation. Edinburgh was dubbed ‘The Athens of the North’ while Glasgow emerged as the second city of the British Empire. It also witnessed the rise of one Adam Smith.
This period of outsized Scottish influence emerged from a climate where independent Scottish institutions had recently been abolished. As Smith himself put it, ‘by the union with England, the middling and inferior ranks of people in Scotland gained a complete deliverance from the power of an aristocracy which had always before oppressed them’. (How prescient those words sound today!)
By joining the UK, Scotland was free to unleash its potential. The vacuum created by the dissolution of its corrupt national institutions was filled by independent civil societies and innovative financial institutions like free banks. It was the distinct absence of government, combined with Scotland’s unique constitutional status, that caused this previously marginalised region to punch above its weight, turbo-boosting its economy and shaping the world in its image. The Scots didn’t produce the likes of David Hume, Thomas Reid or Adam Ferguson by entrenching a national political class.
Free marketers beware! When regional officials are given more powers, they hoard them, rather than give them away. Instead of empowering their constituents, devolved assemblies create a second layer of ambitious politicians eager to expand their influence. It tends towards pork barrel politics where community champions compete for government pork – often distributed on account of its electoral, rather than economic, significance. The BBC's analysis of the second round of Levelling Up funding demonstrates that Tory constituencies were awarded a total of £1.21bn, compared with £471m in Labour ones.
Similarly, after being granted control over tax and spending, Scotland has certainly not reconnected with its Enlightenment roots. To the dismay of liberals, the Scottish Parliament has used its newfound powers to raise rather than reduce taxes. According to the BBC, Scots earning over £50,000 are paying £1,542 more than they would elsewhere in the UK while those earning over £200,000 pay £7,478 more. Instead of promoting opportunities for business and improving the quality of essential public services, the parliament has constantly sought to expand its influence, imposing authoritarian dictates on everything from hate speech to alcohol consumption.
Just as spring follows winter, more government leads to more incompetence - and this doesn’t change on a local or regional level. If anything, it is heightened. Operating on smaller scales, politicians lack the resources to properly consider legislation leading to poor decision-making. The recent string of council bankruptcies gives us a flavour of what we can expect following a proliferation of similar regional bodies. Over the next 2 years, bankrupt Birmingham will have to raise council tax by a staggering 21%. Similarly, a cursory expansion of the scandals facing devolved bodies demonstrates that the murky realities of political power certainly do not dissolve as size diminishes.
Instead of leasing out its powers to new, expensive assemblies, the UK government should skip the middleman and implement free-market ideas itself, imposing lower taxes and liberalising the planning system. It could even use national powers to create Special Economic Zones, encouraging investment in less productive regions. There is no need to rely on devolved bodies to do this job. Although the UK is regularly criticised for over-centralisation, a strong national government makes sense given our size and economic structure.
With the possible exception of Northern Ireland, decentralisation has caused more harm than good. The vision of a free-market federalised Britain of regional assemblies is a pie-in-the-sky fantasy that must be resisted. Whilst, where identities are strong, some representation may be necessary, these cases must be treated as exceptions rather than rules. Ultimately, a decentralised government is still government, and more government is not the answer to Britain’s problems.
The Plan to Make Work Pay Will Harm Struggling Businesses
Labour’s New Deal for Working People, which aims to strengthen workers’ rights, end fire and rehire, put an end to flexible contracts, strengthen trade unions and raise the minimum wage, is an attempt to tread the tightrope that exists between pleasing both the unions and big business. But it risks frustrating growth and productivity gains.
Take for instance, the Plan’s pledge to make pay ‘fair.’ Raising tips for frontline hospitality workers, raising the minimum wage to a level that constitutes a ‘living wage’ and of course will ostensibly sound like a good idea, but will squeeze the bottom line of pubs, bars, cafes and restaurants. The hospitality industry continues to struggle post-COVID – with over 3,000 pub club and restaurant closures in the UK since 2017 - and being unable to reinvest tips will only add insult to injury.
Similarly, raising sick pay and the minimum wage will pose a real challenge to businesses – both large and small – and frustrate efforts to keep businesses afloat in a difficult economic environment. The consequences will be twofold: first, it will make life more difficult for individual businesses which are trying to stay afloat and secondly, it promises to push the innovative businesses that fuel British growth out of the country as they seek more supportive and growth-friendly political environments. It speaks volumes that M&S Chairman, Archie Norman – who knows a thing or two about attracting investment and driving growth after returning M&S to the FTSE 100 last year after a four year absence - spoke out against the plan, urging Labour to “consider carefully whether a package that reduced flexibility, makes it more costly to hire people, and seeks to bring unions into the workplace will help attract new investment”.
Meanwhile, the plan to strengthen trade union powers by repealing the Trade Union Act 2016, the Minimum Service Levels (Strikes) Bill and the Conduct of Employment Agencies and Employment Businesses (Amendment) Regulations 2022, will make it easier for trade unions to strike and and removing restrictions on strike ballotting. As both history and the state of play across the English Channel illustrates, unions are diametrically opposed to productivity, increase consumer prices and carry the ability to bring entire nations to a standstill. For instance, the gilets jaunes protests of 2018 paralysed France for roughly a month and only came to an end once President Macron reluctantly passed an eye-watering €10 billion package of policies, including a €100 per month rise in the minimum wage for roughly five million French households. Empowering unions to the extent that Labour’s Plan vows to could well see the aforementioned disruption and costly concessions make the 20 mile hop across the Channel.
Despite generating - at least in the short- to medium -term - a wage premium, to name just one of the idealistic visions of unionisation, the strengthening of Britain’s unions promises to distort labour supply, restrict employment flexibility and limit research and development (R&D). Restricting flexible employment not only disincentivises productivity as employees are contractually locked-in regardless of personal performance, but it also makes firms less likely to employ experts, who are required, but only on an ad hoc basis - frustrating innovation in the process.
Furthermore, as Hirsch’s research in the 1980s found, the wage increases brought about by unions in essence serve as a tax on any return on investment. If a firm performs well, unions invariably demand a wage increase, and above competitive levels. Once again, this disincentives productivity and inhibits R&D, as return on investment is forcibly channelled into meeting union demands rather than into innovative and growth-stimulating R&D. What’s more, with improved R&D comes more consumer-friendly services and products, which stand to improve the standard of living of the average joe.
Plans to ban unpaid internships will also have myriad adverse effects. The 58,000 unpaid internships offered annually in the UK afford the country’s youngest, most ambitious and curious young people exposure to the workplace across a variety of industries, helping them decide which industry and role is best suited to them while also improving their employability. Equally, it allows companies to discern whether an individual could add value to their firm before investing in them; it’s always a risk for a company onboarding a new employee, who, to a degree, is an unknown quantity at the beginning of their career. Considering some companies simply don’t have the cash to offer paid internships, outlawing free ones would be at the expense of growth, productivity and recruitment and the employability and education of our youth, all the while stymieing social mobility.
Rather than loosening rules for disruptive trade unions, banning flexible contracts, and making it more expensive for businesses to operate, the next government should aim to incentivise small businesses to take on new employees, cut taxes for working people, and grow our economy, creating more high-quality employment opportunities in the process. At a time when our tax burden is at a historic high and the regulatory state encroaches on every area of economic life, more tax and more regulation surely cannot be the answer. Let’s learn from our cousins in Australia and America, who continue to record admirable year-on-year growth, instead of hopping along in the froggy footsteps of our French neighbours.
Louis Plater
This joined up government idea - can we have some of it?
The IMF recommends:
Britain and other rich nations should raise taxes on capital gains to support a surge in benefits spending, the International Monetary Fund (IMF) has said.
In a report released on Monday, the IMF urged governments to tax businesses and investors more in anticipation of welfare bills rising across the world.
That’s eating the societal seedcorn to cover current spending. Something that leads to famine down the road. The justification doesn’t even work:
It said higher capital gains taxes should be used to support workers as artificial intelligence was increasingly being used to replace jobs.
As robots produce things more cheaply then consumers become richer - things are getting cheaper. Which isn’t - at least, it’s not a cogent - an argument for consumers requiring more support.
This then meets t’other idea:
Investment in the UK has trailed other G7 countries including the US and Germany since the mid-1990s, according to a report that urges Labour and the Conservatives to reverse planned cuts to investment or risk long-term damage to economic growth.
The Institute for Public Policy Research (IPPR) thinktank found the UK was bottom of the G7 league for investment in 24 out of the last 30 years, using figures from the Organisation for Economic Co-operation and Development (OECD).
A lack of spending by UK companies on technology and innovation over the last three decades was mostly to blame for the underperformance,
We’re willing to entertain - entertain, not insist upon - the idea that low levels of investment in the UK simply demonstrate that we’re more efficient at investment than many other places.
But look at the combination. Companies don’t invest enough and therefore a good policy is to tax the returns to successful investments more so that fewer people bother to invest. We tend to think that’s more than a little confused.
We have heard of this idea of joined up government and we think it would be a jolly good idea. When will it arrive?
Tim Worstall
But Mr. Hutton, this is a good thing
If you get the past wrong then clearly you’ll get the lessons of the past - those that can inform us about what to do in the future - wrong too. Which brings us to Willy Hutton:
The first catastrophe was the monetarist experiment of the 1980s – a means to roll back the state so it would print less money – which achieved neither a smaller state nor lower inflation. Other countries may have fallen for the same snake oil, but none so emphatically as Britain. Our industrial base was needlessly decimated, with manufacturing employment close to halving in a decade.
We would not suggest that the government - any government - got economic policy perfectly right. We are, after all, the very people who insist that government isn’t going to get the details of economic policy right therefore there should be less attempt to manage the economy in detail. But we need to think of this too:
It’s true that manufacturing employment dropped precipitately. Manufacturing output (as above and yes, of course that is already inflation adjusted) dropped, as it does in a recession, then recovered and continued to climb. Output, at the end of Thatcherism, was perhaps 15% higher than at the beginning but with half the jobs.
That’s also known as a more than doubling of labour productivity. Increases in labour productivity being one of those Good Things.
One of the things that economic policy got right in the 1980s - increasing manufacturing productivity - is being used by Will Hutton as proof of what economic policy got wrong in the 1980s. Which might be why his insistences on what we do now seem so out of kilter with reality. He’s not just failed to learn the lessons of the past he’s actually got the past wrong.
Tim Worstall
If we could just make a short but important point?
There’s the Tory tax-cutting rhetoric and then there’s the tax-rising reality: between 2019 and 2024 the Conservatives delivered the largest rise in tax as a share of GDP of any postwar parliament (3.3%, equivalent to more than £3,000 per household).
Things have got better over this time period, have they? We are, for example, gaining more and better public services? Frolic more freely now that our wallets are lighter?
We’re not? Ah.
More taxation - that is, more ripped untimely from fructifying in our own pockets to then be spent as others insist, not as we do - doesn’t improve matters.
So, there seems to be a very strong indication that increasing the tax burden so that more of society’s resources are spent by the political system and the bureaucracy doesn’t make things better. So, let’s not do that then.
Of course, we are not anarcho-capitalists here so we do agree that some government - therefore some tax - is a necessity. But less of both sounds like a jolly good idea given the success of having more.
Tim Worstall
Edmund Burke proven right once again
The latest claim is that we’re all very ill because we do not do that only connect thing Forster was so keen on.
Social health is the aspect of overall health and wellbeing that comes from connection – and it is vastly underappreciated. Whereas physical health is about your body and mental health is about your mind, social health is about your relationships. Being socially healthy requires cultivating bonds with family, friends and the people around you, belonging to communities, and feeling supported, valued, and loved, in the amounts and ways that feel nourishing to you.
Decades of research have proven that connection is as essential as food and water, but this knowledge hasn’t yet made its way into the mainstream understanding of health – and without it, we’re suffering.
Possibly the idea is picked up from, umm, Bowling Alone was it?
But OK, so, we lack social connection. We do too few things communally and too many alone. Well, if true there’s an answer to that.
Burke said that the bedrock of a society, the layer that made it work, was the little platoons. Folk simply getting together, themselves, and doin’ what needed to be done. Rather than some distant ruler or bureaucracy tellin’ them what must be done, or how it must be done. Burke might have gone on to say that it was a more moral society and all that, but the clinching point to pragmatists like us is that it was a more efficient, effective society.
Now we’re being told that these sorts of personal connections are a major determinant of health. Which sounds like an interesting string to the bow of the argument. We have far too much done for us - by those rulers, that bureaucracy - for us to be making those little platoon connections any more. To our detriment and, as Burke and we would also point out, to the detriment of the society itself, not just our health.
Which seems an easy enough problem to solve. Cut government, slash it in fact, because it will make us healthier. For we’ll have to return to those more personal, locally communal, methods of gettin’ things done.
Who knows, cut enough government and we might all become healthy enough that we’ll save the NHS.
The household analogy is an absolutely great way to describe government debt
Much tutting over a reporter using the “household analogy” to describe government debt. The thing is, for all the squealing that no, no, it’s really different, it isn’t. The size of the governmental credit card is much larger, the constraints appear at a much higher level of debt but they’re still there and in the same way.
In a recent edition of the Newscast programme Kuenssberg, the broadcaster’s former political editor, suggested government borrowing was like a mortgage or taking out a credit card. She said: “One of the differences that is very important is the limit on borrowing for different kinds of spending. And just to give people some context, and I know some people object to trying to use metaphors to explain this stuff, I think actually it is quite important so you understand that borrowing for capital spending is a bit like if you took out a mortgage to buy a house or for day-to-day spending you buy loads of new frocks on your credit card: they are not the same kind of spending.”
Apparently this is terrible because:
Households have a limit on how much they can borrow because banks and other lenders put a cap on the amount. It means that once they have hit borrowing limits and can no longer afford to pay the interest bill, they tend to fall into arrears and before long creditors call in the debt. Thousands of households declare themselves bankrupt each year for this reason.
A review of the BBC’s economics coverage by Andrew Dilnot, a former head of the UK Statistics Authority, said in 2022 that countries also do not “tend to retire or die, or pay off their debts entirely” like households, which is why comparisons with household debt – and suggestions the government must ‘pay off’ or ‘pay down’ the debt – “can cause intense debate”.
Banks and lenders put a limit because they think there’s an amount that a household will not be able to repay. And as that limit is approached the more staid institutions refuse to lend and the wilder shores of the system are approached. That’s how moving from 3% over base for a mortgage (“investment!”) rises to 49% on a credit card with a guarantor (a recent offer from a non-traditional lender in the UK market).
Exactly the same happens with a country. The income is the amount that can be squeezed out of the populace over time in taxation. As the lenders think that’s getting closer to that upper limit then so does perceived risk and the interest rate at which anyone is willing to lend. This is how the Russian government ended up paying 300%.
Yes, obviously, a government can print money. But so can a household. Getting the pub to run a tab is money printing - debt creation is an increase in the money supply after all and there’s nothing that says that only banks can do that. But willingness to do that also rises as lenders - creditors - assess that risk of repayment. Until, at the limit, no one thinks promises of repayment are credible so no one lends. This is what happened to both Venezuela and Zimbabwe. To the point that both countries should, really, have started printing the money on larger pieces of paper - perhaps in rolls - so that it could be used for more fundament and valuable purposes.
The household analogy for government finances really does work. The limitation is different, sure it is. For the household, what income can be brought into it, for the government that income that can be squeezed out of everyone else. But it’s still a limit. And as that limit is approached interest rates charged on loans rise and the value of promises to pay become worth less - not worth the paper they’re written upon.
There’s only the one thing wrong with all of the above. The limitation upon government is actually lower than that upon a household. Lenders will, entirely happily, lend 4 or 5 times annual income to a household for an investment - say a mortgage. Currently the UK government takes 40% of GDP in taxation. 5 times that would be 200% of GDP as an outstanding debt. Who thinks that the markets will be happy to lend to a government with a debt to GDP ratio of 200%?
Governments face lower credit limits than households, that’s what makes them different.
Tim Worstall
Interesting questions we might be able to answer
This particular formulation is from Danny Blanchflower but it’s an often enough asked question:
Here is a question why didn't the tories borrow a trillion pounds - or even two - between 2010 and 2020 at really low interest rates and invest/repair them in schools, infrastructure and hospitals, train doctors and build lots of houses roads, railways, clean up the water supply, and rebuild what was needed
I am just an old economist who wants to understand why they did austerity instead and now are borrowing really expensively> Just asking for a friend (me..)? Why didn't they?
The answer is because no one was lending to the government at those really low interest rates. That’s how the Bank of England ended up owning that near £1 trillion of gilts. You know, the flip side of that near £1 trillion of central bank reserves they’re paying 5.25% to the banks upon, the cause of the massive inflation we did finally get and so on.
If anyone had actually tried to borrow a couple of trillion at those 0.5% interest rates then interest rates would not have been 0.5%. If the BoE had printed more money (done more QE) in order to buy them then the money supply would have blown out and so would inflation. So also would the losses right now be vastly greater than they already are.
Why didn’t the tories (sic) or anyone else borrow £2 trillion at low interest rates to then “invest”? Because they couldn’t.
Glad we’re able to have sorted this out.
There was no market for those low rate gilts, that’s why the Bank of England owns them all. #
Tim Worstall
Nationalisation produces less and worse
From Works in Progress:
We can see the effects of wars of course. We can also see the effects of free markets in those periods before each of the World Wars. Housing construction boomed as the country got richer and the population grew.
Then in 1947, with the Town and Country Planning Act, we got the nationalisation of development rights to land. We now have less - and worse given the size of what is permitted - housebuilding. Simply because that process is indeed now centralised and subject to every whinge and complaint from whoever.
Nationalisation means less and worse. We should perhaps solve this by privatising development rights. Blow up the TCPA, proper blow up, kablooie.
Tim Worstall
Why don’t we, erm, just have less government?
In this election campaign everyone, but everyone, is saying that taxes are going to rise whoever does what. Which leads to one point which is just plain and simple. We can’t have more nice things from government because we’ve already spent all the money. This must be true - if we’ve already got to increase taxes over and above their highest rate for 8 decades to pay for the things we’ve already promised ourselves then we cannot then also buy ourselves other nice new things.
This leads on to the second point, which is that if we do desire new things from government then we’re going to have to do without some of the things we already get from it.
Now, yes, this is trivial and yet it is still indicative:
Michael Landy’s Lemon Meringue, which has been installed in East Bank in east London, consists of a series of large fluorescent signs depicting different cockney rhyming slang – rhyming phrases used to replace words.
The installation includes phrases such as “apples and pears” (stairs), “S Club Seven” (heaven), “duck and dive” (hide), “April showers” (flowers) and “dog and bone” (phone), as well as additions to the dialect such as “chicken jalfrezi” (crazy) that speak to more recent diasporic influences on the area.
We seem to have modern art celebrating Cockney rhyming slang by someone who doesn’t understand how Cockney rhyming slang works.
The direct description:
The artwork was commissioned as part of the Waterfront Art within Queen Elizabeth Olympic Park curated by Louise Trodden on behalf of London Legacy Development Corporation. It is associated with the cultural and education organisations of East Bank.
Michael Landy has named the artwork 'Lemon Meringue' as according to the conventions of the style that means 'Rhyming Slang'.
Yes, we are paying for this. And according to the conventions it should be called “Lemon”. For the entire and whole point of rhyming slang is that the rhyme is not said.
Apples and pears does not mean stairs. Apples means stairs. Derived from the phrase apples and pears, indeed, but the “and the rhyme” is always left unsaid. Brahms and Liszt does not mean pissed but Brahms does. Boat race does not mean face but “boat” does.
The man’s plastering the environment with his ignorance.
Now, some of us would suggest that we the people shouldn’t be paying for modern art at all. I certainly stand by the argument that we should abolish the Arts Council entirely - thus not paying for old art either - and all such tendrils and sucker-growths into the public purse. But I’m willing to agree that I’m an extremist on this matter. An extremist who has a point up to the point of being right about this but an extremist all the same.
But perhaps we can all agree that we should not be forced to pay for people to display their ignorance? Restrict tax funding only to that portion of governance that is being done by the competent and knowledgeable?
Oh, good, well that is nice. So, what are you going to do with your 90% tax refund then?
Tim Worstall