policy

We've seen much over recent weeks about how awful the City has been. How banks have made rash dodgy loans. Short sellers, overpaid executives and whatever else...

But I'll let you into a little secret: for every loan there is both a lender, perhaps a dodgy spiv with too high a bonus to be sure, but just as importantly there has also to be a borrower.

We have seen a little po-faced political bemoaning of the culture of consumer debt, but this unsecured credit - spending money - does not appear to be the primary debt that has caused this collapse. With few exceptions, when the banks talk about the sub-prime loans lying like a half-dead half-back at the base of a maul, they are talking about mortgages. Are not these borrowers to be condemned in equal proportion? Did the bankers force them to borrow? Are not they just as greedy, in their own way, as the bankers making themselves rich on those borrowers' seeming insatiable demands for more money? Maybe these are the real "sub-prime loons" that are really responsible for bringing our economies near to systemic collapse?

Of course it would be electoral suicide to lay so much blame on the ordinary "Joe Sixpack, the hockey mom". And indeed it would be quite wrong to do so. For most of those mortgage borrowers, perhaps especially what has become known, horribly disparagingly, as the "sub-prime" borrowers, were being completely rational. Rational, that is, in an utterly irrational system. And the results of that rational behaviour are now serving to highlight just how irrational the system is.

Indeed, it is so utterly irrational a system that those borrowers we might want instinctively accuse of being the least rational - those whose chances of paying off the large loans were the smallest - are in fact the most rational. Because in that mad upward spiral of house prices, those still left renting would be the worst hit. The urgency of getting out of renting and fixing your future housing costs at today's rates is all the more pressing.

Because here's the second little secret for tonight: we all rent.

This may seem counter-intuitive in a world where 70% of folk "own" their home and most of the rest want to. If you are, or can recall when you were, on the point of making the transition from renting to buying the first time, this will be easier to understand. One of the factors in your decision to stop renting and to buy instead will have been whether the mortgage payments, as compared with your current rent payments, are reasonable value, over the length of time you expect to be needing to use that property.

Of course there are many other factors as well. Some in favour of ownership, such as being able to improve, redecorate or even trash the property, and having the prospect of capital growth. Some in favour of renting, such as not being responsible for all the maintenance, or not being stuck with a mill stone if you can't sell it when you need to move. And of course the supreme benefits: a. you don't need to charge yourself rent - after all you are paying for it anyway and b. if you get to the end of your payments okay, you get it rent free for as long as you like and still get to sell the rights to it hopefully at a tidy profit.

But as tradable assets, our properties are valued on the basis of the yield it could achieve to an investment buyer now, and their view of how that is going to change over the time they expect to hold the investment. And when we buy a home, what we are actually buying is the right to collect the rent on that property for several years ahead at a "fixed" price today that we think will benefit us. Few owner occupier buyers will probably think about it that clinically. They might instead look at local comparisons to assess what they ought to be willing to pay. But so long as there is a rental market, and since there are some disbenefits to ownership as noted above it is likely that there will always remain a rental market, the money-value to the market is going to be based on its current and future rental potential and the overall yield over the time an investor would expect to hold that property investment.

So, what rising house prices indicate is that investors believe that there are going to be higher returns in terms of future rent potential. And if you are still a tenant, higher returns to the landlord mean higher costs to you. So if it is economic to freeze the rent payments at or near today's levels for the foreseeable future, you definitely want to do so. This becomes a bubble because the effect of future expectations compounds itself. Throw in relatively cheap loans and people can afford more in the present to secure those expected future gains.

Okay, now having, I hope, got you thinking in terms of "rent" I want to get you thinking about the different components of this "rent".

Take two identical, some might call them identikit, homes. Two same model "Barratt boxes". Only one is in Kensington & Chelsea, the other in Blaenau Gwent. I choose them because they are the highest and the lowest respectively local authorities by "land value" in England and Wales. Three bedroom, 100 sq m and with a rebuild cost of £1500 per sq m. On the face of it, they ought to cost about the same to buy, somewhere around £150,000, but of course they don't, do they.

If you managed to find the same little plot in K&C as in Blaenau on which to place your "Barratt box" you'd probably find that in Blaenau it would cost next to nothing - probably a couple of thousand pound per plot, for the trouble of clearing it! But in K&C it would cost several million and probably wouldn't be worth your while putting that Barratt box on it! In fact, in the recent purchase of Chelsea Barracks by the Candy brothers, which was reported as £959m for 12.8 acres, your average tenth of an acre plot would set you back a cool £7.3 million.

In fact, the Chelsea Barracks site is a good one to look at, since it will not involve criticizing the "poor widow" for not developing her prime land, but the government! What did the government, the Ministry of Defence do to make that barracks land so valuable? It certainly wasn't its former use as a barracks! It's not because it was a barracks that makes it an in demand site. But because of all the economic and social activity that goes on around the site. In fact, once upon a time, as a barracks, no doubt the site would have attracted the usual motley collection of military hangers on - whore-houses, bars and so on - it may even have depressed local land values initially, but certainly for the past few decades holding it out of its more productive use has meant other local prices have been pushed higher than they would be if all that land had been used productively.

In fact, the proportion of the "rent" due to the value of the building, the same sort of building as in Blaenau, is a tiny fraction of the overall rent. The rest is due to the location. The popularity of a location which is made up of dozens of factors, but centres around the fact that there are hundreds, thousands, of people who could beneficially make use of that location to be nearer work, social and other opportunities created by the surrounding community.

Now, here's the easy part to remember. What Land Value Taxers want to see, from David Ricardo, Adam Smith, J S Mill, Henry George to Lloyd-George, Churchill, Asquith and many others to the present day, is that the portion of the rent a property yields due to its location, and not the building on it, should be collected by the community and redistributed amongst the community instead of privatised by the highest bidder (or in some cases still the person with the most brutal land grabbing ancestor!), shored up by cheap bank loans. It is rent due to its monopoly as a good location that many people could make use of rather than any effort of the landowner.

In an LVT based tax system, when you "buy" your home, you'd be buying the right to collect the rent for the building alone. This is something you as an owner can affect, through your diligence or negligence in maintaining it or in building something of higher density on the same site. In the language that a typical home buyer will understand better, we want you to pay the £150,000 for the Barratt box to Barratt or the previous occupier, but you pay the remainder, the rent caused by its location, in annually assessed chunks, to the state instead of paying taxes on the earnings from your economically productive labour.

You can already, I hope, see the advantages. This bubble we have lived through over the past decade, the angst of people priced out of the market stressing about if they ever will get out of renting, the ballooning of borrowing that now threatens the very system that created it, will be things of the past. For as long as you can justify paying the location rent given the benefits that particular location gives you nobody can shift you. If that rent rises it is a sign that more and more people are being excluded from land that they might make more productive use of than you. Why should you be able to exclude them for as long as you like and then also reap a massive profit from having cost so many others much money "avoiding" your plot?

Instead of that home in Kensington & Chelsea costing you £7.35 million up front, it'll cost you £150,000 or so up front, which you can borrow to pay for if you need to, and a hefty annual location rent bill instead of both the remaining £7.2 m mortgage it would have cost you to buy the location up front and your income and other taxes on productive labour. Your disposable income is likely to be maybe 30% higher just for losing those income taxes. You can save in a wider range of productive assets for your future than just the monopolistic endeavour of owning a popular, or up and coming location. You may even choose to save so you can continue to pay the location rent when you stop earning for whatever reason - though most would probably find it just as good to save for an income in retirement and to downsize or move so that someone else can have the benefit of the local school you no longer use, the local rail station you no longer commute from and whatever other factors have made your location a popular one and for the proximity of which you would continue to pay even after you have stopped using them.

In the lingo, this is called creating "free land". Returning it to common ownership and paying as you go to occupy the bit that most suits you at any particular time of your life.

Even apart from the source of government revenue this would provide (though some of us would prefer to see the rent collected and simply doled out to all citizens in that community as a community dividend, a basic universal non-withdrawable income in place of most cash benefits) it fundamentally shifts the burden away from working and producing and onto inefficient use of scarce resources.

It is essential in an environmentally responsible regime, because it makes the choice of whether to live close and not pollute by commuting or to live far and spend a fortune in travel costs, more available to more people.

And it is essential in a liberal regime, as it gives people a choice in the "taxes" they pay - the tax savvy will soon work out that if they can spot an up and coming area that still meets their needs early they will pay less tax and watch the services there get better as others catch on, until it reaches some kind of equilibrium again. And it stop people making monopoly profits out of excluding others from what we all need access to - a location to base ourselves at.

This would be so much more than just a "tax switch" though - it would so fundamentally change the fairness, equit, economic justice for millions of people who, knowingly or not, are trapped in a system that takes money from them to line the pockets of landowners, the ranks of whom are getting ever more distant for many people all the time.

Hat tip to Matt Wardman (also posted on Liberal Conspiracy ) for highlighting this CiF piece by Richard Reeves of Demos wondering whether the internet might be killing off the rationale for think tanks. I'm not so sure. If anything the web has made such organizations more visible. Their ideas, more readily available to as many of us who can be bothered to read them, expose the poverty of policy discussion within the established political parties. For those of us who are somewhat tired of the choice between the behemoths that are our mainstream political parties who produce manifestos attempting to cover every area of life and with which, when it comes time to vote, we probably only agree with parts and have to hold our noses over their other policies, the think-tanks offer a more focussed discourse.

However, Reeves does have something of a point; in many cases the higher profile think-tanks are the ones as closely connected as charity law will allow to the political parties. The CiF article quotes a Facebook piece by Jim Knight MP where he says that think-tanks are "ultimately very elitist top-down institutions populated with very bright people who politicians sometimes seem to sub-contract their thinking to." Now, aside from the fact that I'd probably rather have "very bright people" making policy than generally self-important electoral spin driven politicians with psychopathic power seeking traits, this does undermine the independence from electoral considerations that think-tanks ought to be able to enjoy.

I am a great fan of the concept of the "Overton Window" which is a strategy of policy development mostly used by US right wing think-tanks but which can be applied by any. What happens is you take a spectrum of views on some issue and you will find opinions and thinking that is "way out there", unthinkable, at one end of the Overton Window and ideas that are actually policy being implemented at the other end of the window. To start shifting policy in a particular direction you "push" that window. You start looking at even more moon-bat ideas that make the previously unthinkable seem a little less scary. You do that again and again and the original mad idea becomes acceptable, then mainstream, then actual policy that gets implemented.

The Wikipedia entry on the Overton Window describes the steps as "Unthinkable" → "Radical" → "Acceptable" → "Sensible" → "Popular" → "Policy".

Think tanks occupy a part of this space. Previously I suspect they have prided themselves in thinking the unthinkable or at least the radical. It is true that in the UK they have tended to be less aggressive, and have perhaps seen themselves less working the Overton Window than "planting seeds" for development and further discussion and eventually policy drops out the bottom of the electoral parties (often literally I suspect!). But the point is that if they are not seen as linked to a party they can work the Overton Window more effectively because their lack of a party identity means nobody in electoral politics has to get all defensive about them.

Now, it may be that the think-tanks are moving away from really radical thinking and are becoming the "policy sub-contractors" Jim Knight writes about, maybe now occupying the "sensible" part of the spectrum. Those with party links are probably trying to move the discussion from "Sensible" to "Popular" so that "their" electoral party can then work up "Policy". And this is where the other internet players - bloggers especially perhaps - can fill a gap. Not only may we not have formal party links (and in any case as individuals we can always disagree with our chosen parties' ideas on issues with some impunity) but we also don't have to have any "responsibility" to anyone for our thoughts. People can ignore us. Even in our own parties. We can therefore indulge in flights of fancy that even the think-tanks, who have to raise the money to pay their way for example, could not contemplate. If there are enough of us out here spouting similar "Unthinkable" or "Radical" ideas then a think-tank may pick it up and develop them a bit more into "Acceptable" or "Sensible".

Perhaps now then it is the blogger that is on the far end of the Overton Window. That and things like the "Global Ideas Bank". Which, to me, is exactly how it should be. Ideas have to originate somewhere. Individuals now have a mechanism, via the internet, for publicizing our ideas, however outlandish, and I'm sure we all hope that one day party policy will spring spontaneously from one of our "good" ideas. But at the very least, we can hope that someone, perhaps a think-tank, will pick up on what's being said out here in the vastness of cyberspace and develop some of those ideas.

Actually, I'd like to see the think-tanks replace the political parties - how's that for "unthinkable"? Break down the behemoths into more specific policy area groups whose ideas we the voters can vote for directly. No more would the unreconstructed socialist have to hold their nose and vote for the amorphous electoral blob spanning neo-liberal eocnomics and authoritarian imperialism that is New Labour.  Nor the radical liberal the squidgy semi-left Lib Dems.  No longer the social conservative for the policy free New Con Party.  There would be something that really represented our opinions on different issues for which to vote and only once in parliament would they coalesce into functioning groupings of roughly like-minded groups. 

I might choose to vote for IEA economic policies, for Progressive Vision 's health policies, Liberty 's justice policies and so on. As I said, if an "elite" is going to claim the ability to rule over us "top-down", I'd probably rather it was the "very bright" elite of Jim Knight's comment rather than the populist psychopathic politicians. For the moment though, I guess we have to accept that for the vast majority of the voting public they currently seem to need those policies all packaged up into broad ranging manifestos and sound-bites they can vote for.

I have frequent run-ins with a particular individual who, like me, calls himself libertarian. He takes the view that libertarians have to be able to compromise to get libertarian ideas heard, and indeed they are launching such a compromise "lobby group" within the Lib Dems at the forthcoming conference (Liberal Vision - at the conference fringe, Monday 15th September, 1pm at the Marriott Highcliff Hotel). But to me that misses the point. It is the party itself, when adopting policy, that has to make the compromise along the spectrum of opinions put forward in the preceding debate on an issue. If the radicals themselves "water down" their message before the party hears it, it will not impact on that compromise. So for me, I'd far rather remain at the far end of the Overton Window and hope that my unadulterated , radical and sometimes even unthinkable ideas get taken into account when the debate is held and the compromise based on it.

I know the Lib Dems are always on about how terrible it is that other parties plagiarise our own policies and take the credit, and I thoroughly approve of today's "Making it Happen" announcement and policy document at least as to direction. But might I humbly suggest that when our people are scrambling around in the bowels of government looking for these savings that seem to have been promised by every aspiring government since Nebuchadnezzar they could do a lot worse than to shamelessly borrow these fellow travellers' ideas on demolishing the QUANGOcracy.

There. £64bn savings. Done!

I have two problems with the recent Lib Dem policy announcement about using road pricing to lower fuel duties and fund spending on infrastructure for more "environmentally friendly" forms of transport. The one, which I will return to in another post, is about the difficulty of solving two problems - paying for roads and trying to force people off them - with this one policy. But for now I want to suggest a solution to those many commenters on the Lib Dem Voice thread that any implementation of road pricing is going to be necessarily an intrusion on our privacy.

In fact, the technology has been around for five decades: the flight data recorder, or "black box". It even ought to cost less as it would mean no additional physical infrastructure such as ANPR gantries or roadside transceivers.

Take a regular GPS Sat-Nav system. Already the technology is being developed to deliver all sorts of content to such devices (see the "Sat-nav for people" section on this BBC Click report). It would be a small step to link this to a billing system in the vehicle that got data about the current price of the road you are travelling on, and on other alternatives to help you make up your mind about what route to use, and to calculate a total bill for a journey and initiate a payment transaction without even telling the billing authority where it has been.

Ah but, people say that's open to abuse or tampering to avoid bills on the one hand, and because there's no central information about how your bill is made up it would not be possible to dispute a bill on the other. Well, this is where the "flight data recorder" comes in. You do have the details of your journeys stored, but not centrally, rather in a box in the vehicle. A box say that has to be audited as part of your annual MOT perhaps. And that can only be accessed when security information is provided by both the person or authority wanting to read it and the owner. That way, if you think it is to your advantage to disclose where you have been, for example to dispute a bill, you are in control of when that data is disclosed.

Again, this technology is already around, and in applications much smaller than aircraft. My security guard in the hall of residence has a little device called a "Deister" which they use to "prove" that they have been doing patrols. There's no live link snooping on where they are going, but the Deister gun will be audited and has logged a patrol if there is any dispute.

Can anyone see any other objections to such a way of doing it non-intrusively?

A number of others have kindly blogged about the interesting discussion at the ALTER conference fringe event last Saturday night. From the point of view of being on the platform for the first time it was all the more interesting for me. I wanted to pick up on some of the issues that were raised, not so much by the audience, though many were very insightful questions and observations, but the issues raised by both Tony Vickers in his introduction and especially by Vince Cable in his speech.

First, Tony Vickers introduced the whole event by saying that ALTER wanted to spend some time focussing on the second half of our acronym, Economic Reform more generally, rather than Land Tax which we have fixated on thus far. I'm afraid I rather brushed that aside with my little speech about our book, which will now focus more on land than anything else.

I have always taken the view personally that there is indeed more to the essential economic reforms we need to see in an equitable economic system that will benefit the greatest number of ordinary people than just land. I look to the great individualist anarchists and mutualists of the late nineteenth and early twentieth centuries, the fore-runners of the libertarian movement, who all held that there were four great monopolistic systems we needed to eradicate to level the playing field for all - land, banking, intellectual property and the state itself, or most especially the tariffs they use in pursuit of protectionist policy. Indeed my journey to understanding the land problem began with reading books about the debt-money system.

Colleagues involved in the editorial team for the book, whose economics education is far superior to mine, however, are more convinced that the land monopoly underpins all of these others, and whilst I am yet to understand their arguments fully I do I think see roughly where they are coming from. Essentially their argument is that by creating "free land" the power of the worker is increased by enough to offset the coercive power of debt money, that the ability of governments to manipulate a tax system based on market set values of land to effect protectionist policies is reduced and intellectual property becomes much more a negotiable part of an inventor's portfolio rather than something easily "enclosed" by big business as a result of the relative increase of the power of labour versus capital. At least I think that's how it goes.

But anyway, the upshot of all this is that the book will be more about land than about any of the other areas I have been interested in and which Tony suggested we would be looking at in the future. Though no doubt the chapters on each area of policy will show how "free land" feeds through into greater empowerment of the individual and worker.

Second, (we weren't ganging up on Tony, I promise!) Vince again turned the discussion around onto land tax. He said, I think, that we had largely won the theoretical argument on land taxes - that the party acknowledged its potential importance. But that there was much work to be done he said to produce "SMART" (my corporate bingo word, not Vince's) policies that can actually be sold to people (ie voters) and implemented. And on that theme I want to post a few separate thoughts of my own in separate posts in the near future.

James Graham rejoined that actually we need to make the "moral case" for LVT, what I would call, and agree with, the TINA (there is no alternative) argument - though my powers of persuasion in the housing debate on that position were clearly not very good! I could put it a slightly different way - "can we afford not to". And that, I think, is also shaping up to be the real message of the "Liberal Alternative" book.

I will end this introduction to a series of posts on "can we afford not to" with a thought on what seems to be a trait in Liberal Democrat policy making. Do we need to have such detailed plans for exactly how we would proceed from day one of a Lib Dem administration, or should we focus more on getting the "big messages" across. It seems to me that the last time we had a big ideological shift in British government, in 1979, that the Tories had a clear "direction of travel" but were not obsessed with landing in Number 10 with a full set of detailed measures to implement that. They may have had behind the scenes, ready to wheel out when the time was right, but the message to the public in the election was of the broad direction of travel.

This is not something we are alone in. Nowadays every party seems to have to have these details all thrashed out in order to give them credibility amongst the electorate that they would be competent to run the country. But I'm not entirely sure that that is what the voter actually wants - perhaps they want the big ideas rather than the detailed minutiae. I suspect this minute detail is a symptom of our modern managerial one-upmanship and the absence of ideological politics. But surely as a party we actually want to return to ideological politics that we think voters will engage with and be excited by.

I don't think I would be accused of disloyalty if I said that we are not going to be the party of government after the next election! So we spend a lot of time selling detailed policies that we will not get to implement before circumstances, most likely, change again. We have had most success with our "big themes" - we are known for PR, for opposition to war in Iraq, and for the idea, expressed through our previous tax pledges (though I hate to admit it in oh so many ways - not least that it will give succour to the likes of Evan Harris!) that we want "fair" taxation. We can sell LVT as "fair taxation" without minute details as to how it would be implemented, perhaps at most a broad timescale for a tax shift, as the Tories did with reducing income taxes in 1979 - something that actually took them three terms to really implement as far as the average voter would feel in their pocket.

Our detailed policy making produces a couple of not always welcome effects - that we are hostages to fortune - what we promise in one election might one day come back to haunt us several elections later when we make it to Downing Street, and it saves other parties a deal of work thinking for themselves when we create policies that they like to nick. We can of course take some pride in others wanting to use our policies, but people soon forget where they originated, and we risk being forever a glorified "think tank" rather than a party with the big ideas that will win us power. LVT is such an idea. We should not be afraid to tout it without trying to explain to people exactly how it would be implemented except in broad outline until we are closer to being in a position to do so. That will not stop the likes of us in ALTER, however, trying to show the party internally how it might work, but in the end, the detail is what the Treasury is for when we have control of the Great Court!

James Graham has a piece on openDemocracy on policy making in the Lib Dems, in which, amongst other things, he bemoans the lack of local involvement in policy making:

That isn't to say that the quality of debate at Lib Dem conference isn't high; the problem is the level of debate up until that point. "Consultation" such as it is involves a three hour debate on the Sunday morning before party conferences followed by a narrow window of opportunity to make written submissions. In many cases the working group will have already pretty much decided 90% of the paper by that point. Local parties as an entity contribute very little to policy overall; very few have regular policy discussions, let alone formal ones which actually feed into the process. Indeed, Unlock Democracy research suggests that of the three main parties, the Liberals discuss policy less than either of the other two at a local level, despite the much greater power their local parties theoretically wield.

Coincidentally this came up in a fringe session at Saturday's South Central regional conference chaired by Chris Marriage, chair of the South Central regional Policy Committee. I had a few things to say at it which I think would help address this apparent lack of localised discussion, and since I got all excited about it, I went straight out and got two signatures on a nomination form to be on the regional policy committee and hey presto! was returned unopposed.

I observed that with the new system of calling on a standing panel and not advertising individual policy working parties at a federal level there is, if anything, even less of an opportunity for individual members to get involved just in an area they have an interest in. Further, there seems to be ever less opportunity for local parties and other bodies to get policy motions debated at conference. Some would say this is just a function of having ever more business to conduct at busy conferences and others perhaps more cynically that FPC/FCC don't want so many "oddball" motions slipping into a carefully media managed conference agenda.

It was stressed that in theory at least regional policy committees were there to set policy for that region rather than being a regional branch of FPC, and that much is accepted, for the moment. But need it be that way? Could we have a mechanism where regional policy committees have a remit to help develop policy making capacity at local party level and then filter local submissions and champion them up to federal level?

Chris suggested that perhaps there ought to be a place as of right for a representative of each region on FPC. I think that is not possible - FPC is already big enough. But perhaps what there could be is a committee - perhaps meeting just two or four times a year - of representatives from each regional policy committee that could have some presence from FPC and a right to submit ideas (and fully worked up policy papers if available) into the FPC process.

Here in Oxford East we do have policy discussion type meetings - "Pizza and Politics" and so on - and I am somewhat shamed to say I have not yet made it to one. They seem at the moment mostly to be a vehicle for explaining and debating existing policy. I think an early one though sought to debate the Tax Commission I consultation paper before it went to conference and feed into that process.

I hope I'm not pre-empting my first meeting of the regional policy committee but I think I would like to make this a task of mine on that committee - to get in touch with local parties and try to get them to do more "blue sky thinking" with their members with the aim of getting the best of locally generated policy ideas and championing them up to federal party and federal conference level - to give local parties another shot at getting their ideas debated in the big tent.