Michael Meacher - Labour's Future

The problem for New Labour after Crewe is that there is a large and growing section of the population which is increasingly disenfranchised because it feels no party that is likely to be in power represents its interests and will tackle the deep-seated problems that now afflict Britain. And this is widely seen as applying across the board, not just about the odd issue.

The biggest problem facing Britain today is averting recession brought on by reckless bank lending exacerbated by the packaging of near-worthless mortgage assets into tradeable products. The government has pumped nearly £100bn into trying to unblock financial markets, but the underlying causes have not been tackled.

Structured investment vehicles, which spread the sub-prime mortgage contagion across the world, should require approval by a revamped Financial Services Authority to prevent their poison contaminating future markets. Credit agencies should no longer be paid by the companies whose creditworthiness they assess, as (amazingly) they now are. Banks should be required to hold robust capital reserves to discourage excessive lending driven by the out-of-control City bonus culture. Investment banks should be made separate from commercial banks.

But, sadly, New Labour is very unlikely to carry through these reforms because they conflict with its light-touch, deregulatory policy towards the financial markets and its commitment to City interests. Conservative policy would take deregulation even further.

Housing is where the credit crunch will strike hardest and where help is most needed. There are already 4 million applicants for council and housing association accommodation, plus 80,000 registered homeless. To prevent this huge pool of housing need expanding, houses at risk of repossession could be bought up by public authorities, their owners being converted to tenants until they are able to buy again. And to tackle the enormous lack of social affordable housing, housebuilders could be required to build at least 15% of their houses for this sector.

Yet neither New Labour nor Cameron's Tories will envisage market intervention of this kind, whatever the housing misery. New labour proposes to build an extra 15,000 social houses a year by 2016 (though that is less than half of what is needed to clear the backlog), as well as providing an extra £200m now for housing (welcome, but little more than enough for 1,000 more houses), together with more shared equity (almost irrelevant to the core of housing deprivation today). The Conservatives have made clear they would build no new council housing at all. Both parties are obsessed with home ownership - fine if you can afford it, but for the quarter of the population who can't, a cavalier dismissal of their needs.

Inequality, already extreme, is set to get worse. New Labour, originally relaxed about people becoming "filthy rich", notoriously still celebrates wealth over fighting poverty, presiding over a quadrupling of the wealth of the top 1% since 1997. In a series of U-turns easing tax liabilities for the rich over inheritance tax, non-domicile status, capital gains tax for private equity, tax-haven loopholes, and now foreign earnings for multinationals, it has bent over backwards to accommodate the super-rich.

It has indeed also reduced child poverty by 600,000 over the last decade, but this remains stubbornly very high at nearly 3 million. The Conservatives, who tripled poverty and unemployment in the 1980s, can only be expected to build even further on this structure of deeply unequal Britain.

Flexible labour markets - a euphemism for unfettered hiring and firing - have scarcely changed since Thatcher steamrollered market power over employment rights. To our shame, the charter of fundamental rights, which all the other 26 EU states accepted without demur, is still blocked in the UK by New Labour. At last Gordon Brown's legislative programme for next year is proposing increased rights for temporary and agency workers, but only subject to the agreement of the CBI. Against this background of New Labour concurrence with market forces the Tories are already talking of eroding basic employment protections still further.

The same picture applies across the whole political landscape. The privatisation of industry was forced through by Thatcher in the 1980s; New Labour has pushed through the privatisation of major areas of public service which even Thatcher drew back from. PFI, a variant of privatisation which offers poor value for money and compromises public expenditure for 30 years ahead, was developed by the Tories in the 1990s; it has now been extended by New Labour to over £100bn of public contracts, committed or planned.

The Tory war-cry "public sector bad, private sector good" has been underlined by New Labour in the light of the Northern Rock collapse, the Metronet scam on the London tube, the scotching of the Serious Fraud Office inquiry into alleged massive BAE corruption, the MRSA bug and contract hospital cleaning, and the loss of vast quantities of sensitive personal data by private contractors.

So in making a choice between New Labour and the Tories, the only two contenders with a chance of power, where's the beef? At a conference I addressed a week ago, a man came up to me afterwards in despair: "After 20 years of Thatcher Toryism and 10 years of New Labour, all we're offered is a return to Cameron. When are we going to be given an alternative we believe in?" That alternative is social democracy. New labour has taken us back a century to Edwardian-style inequality, the prewar dominance of private markets over public justice, and the centralisation of power in the hands of the financial, industrial and political elites, unprecedented since the 1930s.

Labour will not revive until it addresses the profound needs of Britain today rather than reinforcing a neoliberal paradigm which derives from the raw capitalism of its political opponents and which anyway has had its day and is now being buried under the chaos of the financial markets and the coming recession.

Social democracy has always been the answer to the failure of private markets, and so it will be again. It means a rebalancing of tax, income and wealth between poor and rich, a proper and necessary regulation of financial markets, a radical restoration of public accountability in parliament and throughout public life, a new and just settlement for civil liberties in society and for rights at work, and a fundamental reformulation of energy, environmental and climate change policies that can genuinely offer hope of human survival. It's what a good half of Britain is desperately waiting for.

This article appeared on 27 May in Comment is Free: http://commentisfree.guardian.co.uk/michael_meacher/2008/05/the_social_democratic_solution.html

Posted by Michael Meacher at 09:43 PM | Permalink | Comments (1) | TrackBacks (0)

The oil price today at $135 a barrel - twice as high as a year ago, a staggering 12 times higher than a decade ago - is a wake-up call to the Government which they have been shamefully neglecting for far too long. Whether it's because of surging Asian demand (Chinese and Indian economic growth rates of 8-10% a year for the last decade, and set to continue), market speculators, or OPEC keeping more oil in the ground to maximize future profits, it is really pointless for DBERR and the hapless Minister Malcolm Wicks to make a humiliating appeal to OPEC to please increase oil supplies. There's no more chance of that than New Labour winning Crewe.

With petrol prices now expected to hit £1.50 a litre by as early as September and oil prices expected to double again within the next 5 years - many think sooner - nothing will solve this problem except a fundamental shift out of oil as fast as is practicable. Oil is primarily used for transport and for heating, in addition to industrial applications. For heating, it means urgent switching out of fossil fuels to to renewables (solar, wind, biomass, ground/air heat pumps, microgeneration), replacing renewable obligation certificates by feed-in tariffs that have worked so remarkably well in Germany. For cars, it means putting far greater R&D resources into hybrids and into far faster development of hydrogen fuel cell cars. For planes, since there is no practicable alternative to oil/kerosene, and since biofuels are an even worse cure than the disease, the pressure is now on prioritising flights, switching wherever feasible to localised food production, and sharply regulating carbon emissions in the interests both of climate change and energy efficiency.

The irony of all this is that the Energy Bill now going through Parliament is already obsolete. It is a real tragedy that the drastic change in both climate change and energy policies are being driven abruptly and painfully by the inexorability of failing global supplies rather than planned for in a radical but controlled manner.

Posted by Michael Meacher at 07:35 PM | Permalink | Comments (0) | TrackBacks (0)

When the hole in public revenues is around £40bn and millions of people are being squeezed by the rising costs of food, energy, housing and tax, why isn't Alistair Darling clawing back the enormous sums of tax avoided (legal, but immoral) or evaded (illegal) in order to help balance the books without putting up taxes for the rest of the population?

There is plenty of scope. A recent TUC pamphlet written by the tax accountant expert Richard Murphy found that tax avoidance and tax planning (artificially designed to pay little or no tax) by very rich individuals now amounts to £13bn a year and by companies a further £12bn a year.

So why wasn't it done in the budget? It was because of the stranglehold now exerted by the City over New Labour which has been persuaded that this financial enclave is central to the economic interests of the UK as a whole. Yet it is nothing of the kind. By bending over backwards to encourage hedge funds and private equity firms through the most egregious tax liberality (most recently the absurdly low 18% tax rate on their income from their "carry" or share of the gains on mammoth deals, less than half the income tax rate payable by top earners), the government has turned the UK, and specifically the City, into a gigantic tax haven for the internationally mobile business elite.

But by sucking talent and capital from other parts of the economy, it has been bought at a very high price. As the credit crunch is exposing, City profits on invisibles cannot compensate for the steady, continuing decline of Britain as a manufacturing nation. The volatility and excesses of the finance sector are outweighed by the million jobs lost in manufacturing in the last decade, the stagnant industrial output, the £7bn-a-month trade deficit, the weakness of manufacturing investment, and a so-called "knowledge economy" R&D restricted to a very few sectors.
The UK has even refused to allow the deduction of tax from interest payments within the EU which would hugely restrict the effectiveness of tax havens because a basic rate tax (probably 20%) would already have been deducted from that income before it reached the tax haven.

There can be little doubt that this was stymied to preserve the UK as a tax haven with its City links to its overseas protectorates and crown dependencies. Equally, maintaining fiscal independence from Europe may be a populist move, but in reality it enables the international corporations to play off the EU and other countries against each other in constantly bargaining for the lowest tax rates.

The fact is, the UK can no longer afford either the prohibitive cost of the tax privileges of the City cuckoo-in-the-nest or the collateral manufacturing damage inflicted on Britain as an industrial nation. The NGO Tax Justice Network calculate that the total assets held by the wealthiest people in the world in tax havens amounts to some $11.5tn, at a potential tax cost to world governments of about $255bn.

To put that in context, it is more than two times total global aid flows last year. In the UK alone, the tax amnesty for those holding bank accounts with the offshore branches of some UK high street banks in the main Crown Dependencies - Jersey, Guernsey and the Isle of Man - is expected to yield recovery of £500m tax from 60,000 people admitting to undeclared income in these places.

Instead of occasional amnesties, all these UK dependencies and protectorates, including particularly the Cayman Islands, should be required to use the same standards of disclosure and accountability as the UK itself. And the UK standard itself should be tightened by requiring all UK-registered companies to report annually on all their overseas subsidiaries, including their revenues and numbers employed.

It would also be reasonable to phase out all allowances from those earning over £100,000, which would save more than £8bn. If the domicile rule, which is indefensible, were abolished, it would recoup £4.3bn in lost taxation. So-called "capital gains" on all assets held for less than a year should be subject to income tax, which would save perhaps £1-2 bn a year in otherwise lost tax. Investment income, like earned income, should be subject to national insurance charges, which would produce additional revenue of some £1.7bn a year.

The UK should also co-operate with other countries, particularly in Europe, to ensure that tax was paid where the taxable economic activity actually occurred, which would largely stop misallocation of profit to tax havens. More complex tax avoidance should be tackled by enshrining in law the general principle that wherever an otherwise commercial transaction is added to by any arrangement for the sole or main purpose of reducing tax liability, HMRC should disregard the latter and tax the transaction accordingly.

And so that both corporations and super-rich individuals understand that tax avoidance does not pay, HMRC, which is counter-productively being run down by 25% in the five years to 2010, should instead be built up substantially since at present each member of staff recovers 96 times their full cost of employment.

Posted by Michael Meacher at 06:31 PM | Permalink | Comments (1) | TrackBacks (0)

One of Labour's major achievements has been to remove nearly a million children from poverty. What a tragedy if goodwill from this highly significant gain were lost through the 10p tax debacle. The problem for Labour, facing an imminent rebellion, is how to turn this round, in a manner that not only restores respect, but solves the big problem of how to recoup lost potential revenue. It can be done.

The cost of restoring the 10p tax rate would be £6.6bn. To concentrate the gain on those in need, and particularly the 5.3 million losers, one obvious mechanism would be to limit the res toration to poorer taxpayers and those who pay the standard rate. Since about 12 per cent of taxpayers pay at the higher rate, this would recoup some £2.4bn. The problem then is to raise the further £4.2bn. There are ways to do it that would make the tax system a lot fairer.

It is little known that although UK-based individuals hold some £284bn in shares or UK-based unit and investment trusts, the total declared disposal value of quoted shares in 2004-2005, the last year for which data is available, was only £5.8bn - just 2 per cent of their shareholdings. That 2 per cent figure implies that on average their portfolios are changed once in every 50 years. However, it is known that the average market holding at the time was in fact only 14 months. So we should end what is clearly substantial undeclared share trading taking place on the London Stock Exchange. Even if individuals traded their portfolio only half as frequently as 14 months, it would still, if collected, raise the revenue take by some £4bn a year. And collection could be secured by requiring automatic declaration by the stockbroker of all such deals.

Another remarkable fact is that nearly half (45 per cent) of all commercial property in the UK is now owned by foreign nationals. Yet they are unlikely to pay UK tax on their UK property sales, in contrast to the practice in many other countries. In addition to the revenue loss, this distorts the market. Closing this gap by charging capital gains tax (CGT) on the sales of foreign holdings could well form the second strand of the strategy. Property disposal in 2004-2005 accounted for nearly a third of all reported capital gains and amounted to £5.3bn. That suggests that gains for foreign property owners totalled some £2.4bn, and with an 18 per cent CGT applied, it would yield about £430m.

It may also not be realised that a fifth of all financial assets sold and subject to CGT have been owned for less than a year. But gains are meant to arise on investments, which by definition should be long-term holdings. Those arising on short-term trades are likely not to have come from investments at all, and it is clearly right that the profit in that case should be subject to income tax. More than £1bn of chargeable gain was declared on these disposals, representing a profit rate of only 13 per cent. This is far lower than the rate for disposals as a whole, where the average is 52 per cent. Closing this anomaly would yield at least a further £500m a year.

These actions alone would be enough to recover the revenue loss resulting from restoring the 10p tax rate. But there are other options.

For example, recent research for the TUC by Richard Murphy, one of Britain's foremost tax experts, found that the 50 largest UK companies almost always pay 5 per cent less tax on average than they declare in their accounts. As such, the actual corporation tax rate paid by these firms in 2006 was 22.5 per cent, when the rate set by parliament was 30 per cent. By the end of 2006, the cumulative tax savings recorded in the accounts of these companies amounted to a staggering £47bn - which seems indefensible when people on £200 a week are required to pay more tax.

Or how about getting tougher on tax avoidance? A recent crackdown has already led to more than 60,000 people admitting substantial undeclared income in offshore bank accounts, with a prospect of a £500m tax recovery.

All this of course raises the spectre of redistribution from rich to poor, a politically taboo subject. But there has never been a time when this was more justified, and it would signify a Labour government that really meant business.

----Originally published in The New Statesman, 24 April 2008

Posted by Michael Meacher at 08:14 PM | Permalink | Comments (1) | TrackBacks (0)

With French and German companies lining up to build new nuclear power stations in Britain, the die now seems cast for nuclear. Or is it?

The Government’s goal is certainly ambitious. Ten countries – primarily the UK, USA, France and Canada, but also including Japan, Korea, Brazil, Argentina, South Africa and Switzerland – have set up a body called the Generation IV International Forum to develop a successor nuclear energy system to the previous Generations I (Magnox) and II (AGRs and the Sizewell B Light Water Reactor) and to follow the Generation III systems now being built. The latter includes the French Areva Evolutionary Pressure Reactor (EPR), the prototype of which is currently being constructed at Olkiluoto in Finland, with another being built in France. It is intended that these Generation III models plus (hopefully) improved versions in future will lead reactor orders through to 2030, after which it is hoped that Generation IV will kick in, the goal of which is nuclear sustainability.

However, the roadmap to get there is beset by profound practical problems which may well prove insurmountable. Generation II and III nuclear power plants operate in a ‘once-through’ mode, which means that only half of the 0.7% fissionable uranium U-235 content of natural uranium goes into the fuel while most of the heavy metal ends up in enrichment tails and in spent fuel as waste. This therefore requires a constant and increasing supply of natural uranium to meet the rising demand for electricity, while at the same time it intensifies the already unresolved problem of what to do with vast accumulations of radioactive waste.

Even the optimistic IAEA-OECD Red Book of world uranium reserves puts the total at 4.7 million tonnes, and that assumes a purchase price of at least $130/kg. In fact prices are currently nearly twice as high, yet primary uranium production is falling. But even if the Red Book figures were roughly correct and not significantly inflated, their total of known uranium resources is expected to be exhausted by 2030.

If fast reactors were to be introduced by then – which is the centrepiece of the strategy – a further 10 million tonnes, twice the known resources, would have to be ready for production, and this could only come from ‘speculative and undiscovered resources’. The nuclear power industry answers this by reference to the universality of uranium in the Earth’s crust and in seawater; but the enormous energy needed to extract it from these low concentration sources would actually exceed the energy output of the fission of the fuel thus provided, so in terms of net energy availability it is irrelevant.

These pressures are already being felt. The US gets half its nuclear fuel from diluted former nuclear weapons’ highly enriched uranium from Russia, and even Russia itself with its insufficient primary production will be forced to rely on ex-weapons material to power its planned expansion. The UK’s aim of security of energy supply will not be aided by 100% import of nuclear fuels on top of increased dependence on imported fossil fuels, notably gas. Japan has closed 7 nuclear power stations built on an earthquake fault line. Olkiluoto is already 2 years behind schedule after just 2 ½ years building and already has a £1bn cost overrun, and there can be no reliable evidence on the economics of nuclear power until the new designs of the Westinghouse AP1000 and European EPR water reactors have been fully tested over many years in service. Contrary to claims by the industry, unresolved questions of cost and the looming shortage of uranium are the biggest challenge to its revival.

To overcome the fragility of this recovery, the industry looks to Generation IV development of the fast reactor by 2030 as the key to ultimate nuclear sustainability. However if for this purpose the fast reactor were adopted in ‘breeder’ mode, an even greater quantity of highly radioactive actinides (plutonium, neptunium, americium and curium) would be generated, exacerbating still further the waste management problem. If on the other hand the fast reactor were adopted in ‘burner’ mode, as currently seems likely to prevail, the waste problem is alleviated, but there is no sustainability.

The Generation IV fuel systems offer at present 6 types, of which two are emerging as likely candidates. One is the very-high-temperature gas-cooled thermal reactor (VHTR) which can be used for coal gasification as well as thermo-chemical hydrogen production. The US Government favours this because a hydrogen economy is seen as the solution to the exhaustion of oil reserves and the petrol (gasoline) derived from it. The main problem with the VHTR, which has a coolant system outlet temperature of about 1,000ºC, is likely to arise from irradiation characterised by the Wigner Effect and from progressive disintegration by neutron bombardment.

Indeed a similar problem with the Wigner energy in pile 1 at Windscale (now Sellafield) caused the fire and melted the fuel elements. Given the very high temperatures needed for this complex and quite likely unstable process, its viability would need rigorous and exhaustive testing before such a problematic reactor were ever adopted.

The second favoured Generation IV candidate is the sodium-cooled fast reactor system (SFR). The idea here is that as supplies of natural uranium decline, it is replaced by a plutonium-based fuel which is incrementally augmented by fresh plutonium in a repetitive cycle, providing claims of sustainability. It is envisaged that there is a gain in the plutonium in a surrounding ‘blanket’ of uranium 238 over and above the plutoniun consumed in the reaction, with a doubling time of 15-20 years. But again there are two key problems. It is a burner reactor, not a breeder, so that whilst reducing waste management problems it does not provide for sustainability.

Secondly, even if fast reactors of this kind could be successfully deployed – a big if – the doubling time of 15-20 years would require supplies of natural uranium to be maintained for decades, if not centuries, until the fleet of ‘once-through’ reactors can be progressively replaced. And the uranium simply isn’t available for that timespan. So, a nuclear renaissance? Forget it.

Posted by Michael Meacher at 09:46 AM | Permalink | Comments (1) | TrackBacks (0)

Is this Government really serious about climate change? We’ve just learnt that it is now lining up behind BP to get a decent-sized chunk of the oil-drilling licences soon to be issued in Iraq. That’s in line with the discovery that Britain is also planning to lay claim to over 1/3 rd million square miles of the seabed off Antarctica because of its oil potential. And the UK is also already developing sub-sea claims on Atlantic oilfields around the Falklands, off Ascension Island, and in the Rockall basin, as well as large tracts in the Bay of Biscay.

Tony Blair’s visit to Gadaffi in 2004 was prompted less by concern about Libyan WMD than by the goal of prising open the huge Libyan oil market. Blair’s red-carpet welcome in Downing Street in 1998 for Haydar Aliyev, the ex-KGB President of Azerbaijan, was designed to secure a £5 billion oil deal for BP, which it duly did. The Government also strongly backed the construction of BP’s $4bn Baku-Tbilisi-Ceyhan 1,000 mile oil pipeline which is now transporting a million barrels of oil a day of Caspian oil to the UK and the West. Again, Government support lay behind Shell’s massive $20bn Sakhalin Energy gas and oil project in Eastern Siberia (till Russia muscled its way into taking it over in 2006) and Shell’s equally costly Athabascan tar sands project in Alberta, Canada, to extract synthetic oil from oil shales even though extracting it generates twice as much C0² as conventional oil. And of course UK participation in the American invasion of Iraq was at least partly motivated by the goal of securing for BP some significant share in Iraq’s huge still-unexplored oilfields.

This policy of relentless – and extraordinarily expensive – pursuit of the remaining hydrocarbon supplies wherever they may be found across the world is both shortsighted and wholly contrary to any pretensions to be tackling climate change as being the greatest threat facing the planet. It is shortsighted because peak oil – the point at which oil production reaches its global peak before it then steadily declines – is widely expected to be reached some time between 2010-2015. At the same time the global demand for oil, driven mainly by the frenetic growth rate of the Chinese and Indian economies over the last decade and into the future, will continue to rise inexorably and the 1-1.5 trillion barrels of conventional oil that remain will be consumed in some 40 years and perhaps less. Even if the UK could secure a significant slice of the remaining hydrocarbon deposits across the world which, given that the intense competition between the US and China for the same supplies is the biggest struggle driving geopolitics today, must at best be highly optimistic, it is a policy which is absurdly short-term. Oil has no long-term future, and it is madness that so close to its demise we are not at this stage planning much more systematically for a post-oil world.

The policy also ruthlessly exposes the proud boasts that the UK is leading the world in the fight against climate change. While Government is telling people (rightly) to turn off their electronic stand-by buttons and to recycle more, which will have a useful but small effect, it is still cranking up the last enormous reserves of the fossil fuel mania
which will have a vastly greater and negative effect. While 10-25% of electricity generation in Europe is derived from renewable sources of energy, and 35-50% in Scandinavia, in Britain – which as an offshore island has more windpower capacity than most of the rest of Europe put together – it is a pitiful 4%.

Still today almost every aspect of energy policy in Britain is driven by the dominating influence of the old fossil fuel industries. The Government is proposing to triple airport capacity by 2030 even though on current trends air travel emissions may well by 2050 equal emissions from all other sectors combined so that even if all the latter were reduced to zero (which is fanciful), there would still be no reduction at all in the hugely excess level of total emissions that already exists today. And since the abolition of the fuel duty escalator in 2000, there has been no policy to discourage use of gas-guzzling and emissions-inflating SUVs except the mild differential in annual car tax between small and large cars which a recent budget increased for SUVs by 80p a week – which is a joke.

Nor has industry, or at least the largest firms, been required to report annually on their greenhouse gas emissions so that the public can see whether they, and particularly the most polluting industries, are making their due and proper contribution to cutting emissions by at least 60% by 2050, as the scientists say is necessary. There was indeed a Government legislative measure to do just that in 2002, but it was dropped at the last moment in order to burnish the Chancellor’s deregulatory credentials with the CBI. Nor, to cut food air miles when produce can be grown locally, are food products required to be labelled with the country of origin and the distance they have travelled to be sold.

There are however two areas where the Government is certainly headed in the right direction. One is the proposal that all new house-building by 2016 should be emissions zero-rated. This is a bold initiative, though it needs to be supplemented with measures to reduce the carbon-rating of existing buildings progressively towards zero. The second is the proposal to introduce a carbon allowance for each family, depending on its size, which will then gradually be reduced year by year, though its date of introduction should be brought forward from 2012.

The ongoing love affair with oil has got to be broken. In 1990, taken as the baseline date for climate change purposes, Britain generated about 160 million net tons of carbon a year. If we are to cut emissions by at least 60% by 2050 (though the scientists are now saying 80% will be necessary), we will have to reduce that to no more than 60 million tons – a reduction of around 2 million tons of carbon every year right through to 2050. On that basis the total should by now have reduced by some 35 million tonnes compared with 1990. In fact it has reduced by only about 5 million tons. There could be no starker reminder that if we are really serious about stopping catastrophic climate change – in reality, not just in words – then we need as a top priority a blueprint for a zero-carbon post-oil Britain, and we then need to enforce it.

---Originally published in Compassonline.com, first week of April 2008

Posted by Michael Meacher at 05:09 PM | Permalink | Comments (0) | TrackBacks (0)