Red Pepper » Mythbusters

Mythbuster: Immigration – the real story

admin — Mon, 17 Dec 2012 10:00:50 +0000

MYTH: The flood of immigrants is unsustainable
The movement of migrants is not just one way. As people arrive, others are leaving. This gives us net migration figures which for most years since 1840 have actually been negative. Geographer Danny Dorling notes that before the economic crash, the number of migrants coming to Britain was roughly balanced with the number leaving. In total, ‘there are 10-14 million people who live here that were not born here – and there are 10-14 million people born here who no longer live here’. So not really a flood at all.
It is also worth viewing Britain’s migration figures in a global context. This shows that our experience of international migration is not at all remarkable, growing in line with world migration. Migrants make up 9 per cent of the population, which is the average for Europe. Britain has a smaller proportion of migrants and lower rates of net immigration than the US, Canada, Australia and several large European countries.
The number of asylum seekers that Britain receives is again average for Europe, ranking 14th out of 27 when looking at asylum seekers per head of population. The UK receives fewer asylum applications than France, Germany, Italy, Sweden and Belgium. As of January 2012, the UN estimated that the number of refugees, pending asylum cases and stateless persons made up just 0.33 per cent of the population. In fact, it is the so-called developing world that receives the majority of refugees, with 80 per cent being hosted there.
The past decade has seen higher net numbers of migrants. However, rather than being ‘unsustainable’, this migration is actually vital for the functioning of our society. Danny Dorling argues that the real problem is actually too little immigration. With a rising elderly population and decreasing fertility rates, we will depend even more than we already do on immigration to provide tax revenues and services.
MYTH: Britain is a soft touch
Successive governments have been making the asylum process increasingly tough for asylum seekers despite their duty under the 1951 UN Convention on Refugees to provide protection to those fleeing persecution. The system is particularly hostile to women as UK Border Agency officials often lack an understanding of gender-based persecution.
A recent report by Oxfam stated that all aspects of the asylum system are flawed and that the entire process should be urgently reviewed. The fast-track system does not give the time needed for asylum seekers to make their case; this and many other issues with the asylum determination process means that often people are wrongly denied asylum. With devastating cuts to legal aid, this situation will only get worse as asylum seekers cannot access the legal advice and support that they need.
When an asylum seeker reaches the UK they are photographed and have their fingerprints taken, they are security checked and issued with an ID card. They are then required to report at regular intervals to immigration reporting centres. They are issued with a letter that informs them that they can be detained at any point during the asylum process.
EU citizens have free movement across Europe under European law – although home secretary Theresa May has been drawing up plans to curb intra-EU migration. But the rules governing the entry of non-EU immigrants are incredibly stringent, with a points-based system that requires people to show documents such as their bank statements and exam results.
It is during detention where, far from being a ‘soft touch’, the reality for immigrants and asylum seekers is often a hard fist. Medical Justice has documented hundreds of cases of abuse of detainees at the hands of security guards during detention and deportation. Each year, 1,000 children are detained with their parents.
MYTH: They come here for our generous welfare system
Research commissioned by the Home Office concluded that there was no evidence to suggest that asylum seekers had detailed knowledge about the UK benefits system. When someone is fleeing from persecution, they often do not know where their end destination will be; some may choose the UK because they have friends and family here.
Asylum seekers anyway do not have access to the mainstream benefit system. Rather, they have a parallel system of welfare support that provides them with £36.62 a week, 52 per cent of Jobseeker’s Allowance. Surviving on £5.23 a day puts asylum seekers well below the UK poverty line. Those who are refused asylum but are too scared to return home find themselves destitute as they cannot access any benefits. Oxfam estimates that there are hundreds of thousands of destitute asylum seekers in the UK.
Asylum seekers do not have access to social or council housing. They are allocated housing on a ‘no choice’ basis in ‘hard to let’ properties. This housing is often of very poor quality. This is likely to get even worse with the privatisation of asylum housing through G4S, Serco and Reliance – all of whom have poor records in managing detention centres and transport and escort services. Indeed, there are already concerns that G4S will repeat its Olympics shambles in asylum seeker housing, leading top officials in the Home Office to monitor the situation closely.
Migrants most often come here to work and they do just that. Many have high skill levels but often find themselves in jobs that do not utilise these skills and are poorly paid. National insurance data shows that foreign nationals are less than half as likely to claim unemployment benefits as UK citizens. Access to benefits for migrants is complex, and as with access to welfare for asylum seekers has become increasingly limited since the mid-1990s.
Research by the Equality and Human Rights Commission dispels the myth that immigrants jump the social housing waiting list. This found that 60 per cent were privately renting, 18 per cent were owner occupiers, and only 11 per cent were allocated social housing. The research found no evidence of abuse of the system nor of ‘queue jumping’.
MYTH: They take our jobs
Asylum seekers are not allowed to work, despite often being highly skilled and keen to use these skills. Once their claim has been decided they may work if they have been given refugee status. However, they face many barriers to entering employment. The government has cut the Refugee Integration and Employment Service, which provided them with support in finding a job. Refugees may also struggle to work in their chosen profession as their qualifications may not be transferable or they may face discrimination by employers.
Migrants generally travel to where there are jobs available, often filling vacancies where there are skill shortages. The UK Border Agency’s points-based system for non-EU immigrants means that they are only permitted to take jobs where there are recognised skill shortages and if they can prove before entering that they have the relevant qualifications. Numerous statistical studies have shown that there is no link between EU immigration and unemployment levels.
MYTH: They are draining public services
It is our duty, not a drain, to protect asylum seekers. As discussed above, the welfare provision that we do provide is woefully inadequate. A number of other European countries provide more generous support than the UK.
The minimal provision the state provides for asylum seekers and refugees is now being decimated by government cuts with devastating consequences. There have been massive cuts to support services for asylum seekers and refugees and cuts to the Home Office housing budget for asylum seekers. The cuts to legal aid will affect asylum seekers’ ability to access justice in a system already stacked against them. Asylum seekers and refugees are being used as an easy target by the government. The Home Office has acknowledged this itself, stating: ‘Because the UKBA is not facing uniform cuts, some areas – including asylum – will be required to bear a greater proportion of the cuts.’
Besides, far from ‘draining’ public services, migrants (including refugees) actually contribute significantly to their funding through their tax and national insurance contributions. They make a net contribution to the UK economy of £3 billion. Because they are often young, healthy, and skilled, their use of public services is actually very limited. Migrants also help deliver many of our public services, working in the National Health Service, education and social care. It is a fact that the NHS could not function without migrant workers.
The myth of immigrants’ dependence has obscured the reality of our own dependence on them.

Mythbuster: Tall tales about welfare reform

admin — Sun, 26 Aug 2012 22:10:19 +0000

Welfare reform is almost inevitably contentious. Answering the question of who should receive how much financial support relies on often competing conceptions of fairness, with rival views about who needs, and who deserves, our help, not to mention the most just and efficient way of providing it. These issues are worth debating – but the current debate is being conducted on shoddy terms. Myths and stereotypes abound. These serve not only to unfairly stigmatise claimants, but to obscure the questions we might want to answer about how best the state can provide support to people who need it.
Myth: There is a major problem of ‘families where generations have never worked’
Reality: The academics Paul Gregg and Lindsay MacMillan looked at the Labour Force Survey, the large-scale survey of households from which we get most of our statistics about who’s in work. In households with two or more generations of working age, there were only 0.3 per cent where neither generation had ever worked. In a third of these, the member of the younger generation had been out of work for less than a year.
When they looked at longer-term data, they found that only 1 per cent of sons in the families they tracked had never worked by the time they were 29. What’s more, while sons whose fathers had experienced unemployment were more likely to be unemployed, this only applied where there were few jobs in the local labour market. So ‘inter-generational worklessness’ is much more likely to be explained by a lack of jobs than a lack of a ‘work ethic’.
Myth: Most benefits spending goes to unemployed people of working age
Reality: The largest element of social security expenditure (42 per cent) goes to pensioners. Housing benefit accounts for 20 per cent per cent (and about one fifth of these claimants are in work); 15 per cent goes on children, through child benefit and child tax credit; 8 per cent on disability living allowance, which helps disabled people (both in and out of work) with extra costs; 4 per cent on employment and support allowance to those who cannot work due to sickness or disability; 4 per cent on income support, mainly for single parents, carers and some disabled people; 3 per cent on jobseeker’s allowance; and 2 per cent on carer’s allowance and maternity pay, leaving 3 per cent on other benefits.
Myth: Benefit fraud is high and increasing
Reality: The latest Department for Work and Pensions estimates show that in 2011/12 just 0.7 per cent of benefit expenditure was overpaid due to fraud, including a 2.8 per cent fraud rate for jobseeker’s allowance and a mere 0.3 per cent for incapacity benefits. Even if we put together fraud with ‘customer error’ – people who are not entitled to benefits but not deliberately defrauding the state – the rate of false claims is 3.4 per cent for JSA and 1.2 per cent for incapacity benefit.
The claim that benefit fraud is increasing is similarly false. Because there have been changes in how fraud has been calculated over time, we have to look at combined fraud and ‘customer error’ for JSA and income support. This declined from 9.4 per cent to 4.8 per cent of spending from 1997/98 to 2004/05, and has since stayed roughly flat.
Myth: Couples on benefits are better off if they split up
Reality: This one has recently been comprehensively disproved by research from the Joseph Rowntree Foundation, who concluded: ‘The simplest question that can be asked in testing the couple penalty is: does the benefits system provide a different proportion of a family’s daily living needs if they live together and if they live apart? The clear answer from the calculations in this paper is no. The benefits system provides very similar living standards to families living together and apart.’
Research in 2009 for the Department for Work and Pensions looked at whether different benefit systems had any impact on people’s decisions about whether to stay together or not. They concluded that ‘on balance, the reviewed literature shows that there is no consistent and robust evidence to support claims that the welfare system has a significant impact upon family structure’.
Myth: The welfare bill has ballooned out of control
Reality: The government has repeatedly claimed that welfare expenditure grew unsustainably under Labour. In fact, total expenditure on welfare was 11.6 per cent of GDP in 1996/97; under Labour it averaged 10.7 per cent up to the crash. Afterwards benefits for children and working age adults rose from an average 4.9 per cent of GDP up to 2007/08 to 6 per cent. This is what you would expect during a recession.
Myth: Most benefit claims are long term
Reality: The government persistently frames benefit claimants as ‘languishing in dependency’. So how much of the benefit caseload is long-term? It depends whether you count people at a single point in time or look at people moving on and off benefits over a period. The numbers paint a completely different picture. For example, in 2008, some 75 per cent of incapacity benefit claimants had been receiving the benefit for more than five years, and only 13 per cent for less than one year. But over the period 2003–8, only 37 per cent were long-term while 38 per cent were on benefit for less than a year. So if you count claimants at just one point in time, as government tends to do, you will overestimate how much of the caseload is long-term – and underestimate how many people move on and off benefits over time.
Myth: Social security benefits are too generous
Reality: Out of work benefit levels fall well below income standards based on detailed research into what ordinary people think should go into a minimum household budget. Research by the Joseph Rowntree Foundation found that while pensioners do in fact receive 100 per cent of what people think they need, a single adult of working age receives 40 per cent of the weekly minimum income standard and a couple with two children receives 62 per cent of the weekly minimum.
Myth: Most people who claim disability benefits could be working
Reality: There are two main kinds of disability benefits: disability living allowance (to cover the extra costs of disability) and employment and support allowance (income replacement for those not in employment). The most basic misunderstanding is that the latter is only for people who are ‘completely incapable of work’. The welfare reformer Sidney Webb commented in 1914 – in the midst of one of many previous panics about ‘true disability’ – that the only people who could do no work at all were ‘literally unconscious or asleep’. The question is whether suitable jobs exist, and whether these people would be able to get them.
Once we understand this, three problems face us. First, just because we’re living longer doesn’t mean we’re in better health; improved medical care means that many people born with impairments or suffering traumatic injuries are able to live longer. Second, jobs are in some ways worse than in the early 1990s: people have to work harder and have less control over their job, which makes it more difficult for people with health problems to stay in work. And while we now have anti-discrimination legislation, this only forces employers to make ‘reasonable’ adjustments; the evidence not only suggests these are often limited, but that employers are less willing to employ disabled people as a result.
Finally, many of the people claiming incapacity benefits are people with low employability in areas of few jobs. These are the very employers that are less likely to make adjustments. Some people end up in a situation where they are not fit enough to do the jobs they can get, but can’t get the jobs they can do.
Completely incapable of work? Not necessarily. Penalised for their disability by a labour market that has no place for them? Definitely.

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Mythbuster: The truth about the unions

admin — Wed, 23 Nov 2011 15:08:22 +0000

MYTH: Unions strike at the ﬁrst opportunity, without a thought for the consequences

Nobody takes the decision to strike lightly. Strikes are very expensive – the cost to the unions of 30 November, including ballots, will be millions of pounds. Union members will sacriﬁce up to £100 million in pay altogether.

The unions are taking action because other options have been blocked by the government. It effectively froze negotiations. It is only the threat of strikes that has led to any change in the government’s position.

When the unions do eventually decide they have to resort to strikes, they discuss with employers to organise emergency cover and ensure that no one is in danger and vulnerable people are not harmed.

Home care for the elderly, urgent operations and accident and emergency departments all continue to function. Unions agree with employers that enough people are exempt from the strike to make sure this is the case.

MYTH: Unions are just a ‘lobby group’ for workers’ selﬁsh interests

Public sector workers are less motivated by their own pay and conditions than by a strong public service ethos. 53 per cent of NHS staff regularly work additional unpaid hours over and above their contract (Annual NHS Staff Survey). The most common reason for working unpaid hours was ‘because I want to provide the best care I can’.

Public sector unions play a key social justice role, campaigning for decent public services for all. They would like to be striking to this end, but that is illegal. They are only allowed to take action over their own pay and conditions.

But good conditions are part of ensuring quality public services – after all, services will be better if the workers providing them are secure about their futures, rather than anxious.

Unions can hardly be accused of representing ‘sectional interests’ when they do so much campaigning on wider issues such as anti-racism and freedom for Palestine.

MYTH: Unions are a thing of the past – a declining minority of the workforce

The unions are constantly renewing themselves. Many trade unions are in fact growing as they reach out to new groups. For example, Unison signed up 160,000 new members last year – 27,000 of them aged under 30. Unions are also on the rise internationally as more of the world is industrialised and workers start to ﬁght for their rights.

Deindustrialisation and legal attacks have reduced the number in unions in the UK since the 1970s. But with nearly seven million members (National Statistics), trade unions are still the largest voluntary organisations in the country.

And another estimated 3.3 million non-union workers are covered by collective agreements negotiated by a union.

MYTH: Unions are a drag on the economy

Government-commissioned research shows that unions bring an identiﬁable range of beneﬁts to the economy, and the taxpayer, worth up to £1.1 billion every year (‘Workplace representatives: a review of their facilities and facility time’, BERR). This is through their contribution to dispute resolution, reductions in workplace injuries and work-related illnesses, and improved take-up of training.

There are also productivity gains worth up to £12 billion (‘The Facts About Facility Time’, TUC) thanks to improved morale and employee engagement, among other factors.

Even the International Monetary Fund has published research (‘Inequality, Leverage and Crises’, IMF) suggesting that union bargaining helps maintain economic stability, by keeping a lid on inequalities and putting a brake on runaway expansions of household debt.

Nobel Prize winning economist Paul Krugman says: ‘If we want a society of broadly shared prosperity … we need to restore the bargaining power that labour has lost over the last 30 years, so that ordinary workers as well as superstars have the power to bargain for good wages.’

MYTH: Unions only care about the public sector, where most of their members work

The government talks a lot about how ‘unfair’ unions are for private sector workers – but workers in the private sector won’t beneﬁt one jot from an attack on the public sector.

The public sector’s conditions are better because unions have fought to maintain standards in the face of a race to the bottom. Union members’ hourly earnings are around 17 per cent higher than those of non-union members.

Unions face enormous challenges recruiting and organising in the private sector because of the nature of much employment. But millions of private sector workers are in unions – and millions more who are not in a union would like to join one. Unions want to level up, not race to the bottom.

According to the British Workplace Representation and Participation Survey, 46 per cent of employees in non-unionised workplaces say they would become members if unions were enabled to recruit and organise there. That alone would easily take total union membership above 50 per cent nationally.

MYTH: Unions are pale, male and stale

In fact, unions have been working continually to address inequalities and secure greater participation and representation of women, black and ethnic minorities, disabled and young people ever since the social movements of the 1970s transformed understandings of inequality and work.

Unison, for example, has over a million women members – more than two thirds of the union. Women’s representation is growing across the unions, and many now actively encourage women to get involved and become reps.

It’s taken time and struggle, and there’s still a lot to be done, but unions score higher than most institutions on diversity and equalities – including not just businesses but also political parties. Young people today are far more likely to join a union than a political party.

MYTH: Unions are undemocratic, with ‘union barons’ ordering members to strike

The very role of a trade union is to provide democratic representation of its members in the workplace. The right to form and join trade unions is generally considered to be a fundamental part of any democratic society, and is speciﬁcally mentioned in the UN’s Universal Declaration of Human Rights (article 23).

Unions spread a culture of democracy. Research suggests high levels of union membership are linked to democratic participation more generally, such as voting in elections and campaigning in the community (‘The Everyday Democracy Index’, Demos).

Union leaders are elected democratically by a ballot of every member. Policy is made through the unions’ democratic structures, such as annual delegate conferences. As with any democratic institution there are ﬂaws, and improvements must be fought for, but in few organisations are the leaders as accountable as they are in the unions.

No strike can take place without the support of at least 50 per cent of those voting by postal ballot. Two out of every three MPs didn’t get 50 per cent of the vote at the last general election.

MYTH: Unions are unpopular

Trade unions’ portrayal in the media could make you think that they are universally despised. But surveys show that this is far from the case.

Even at the height of the attack on the unions, when MORI opinion polls found a majority of people agreeing that unions were ‘run by militants’, 73 per cent still agreed that unions are essential to protect workers’ interests’. Today 76 per cent say they are essential.

A ComRes opinion poll at the time of the smaller pensions strikes in June this year found that a majority of the public thought ‘public sector workers are right to take strike action’. With up to three million set to strike on 30 November, these arguments are ones we can win.

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Pensions: what private finance doesn’t want you to know

admin — Mon, 27 Jun 2011 05:18:39 +0000

Debates about pensions often seem complex. Public or private? Personal or company? Final salary or defined contribution? But most of these debates are not really about pensions at all. The abundance of myths about welfare for people at a certain stage in their lives adds to the smoke and mirrors of passionate but obscure arguments.
Myths, though, are social constructions of reality designed to protect vested interests. Uncovering these interests is critical to constructing another reality.
As hundreds of thousands of trade unionists prepare to strike to defend their pensions, here we look at the key myths that are deployed against them again and again.
Ageing populations are a burden on the state
Let’s start with a myth that is propagated by nearly everyone: the idea that ageing populations are a burden on the state, on working people and on younger generations.
Older people are often described as ‘threats’, setting off demographic ‘time-bombs’, causing conflict between generations unless they can be financially contained. But this is not true.
People in many countries (but not all) are certainly living longer and older people are becoming a larger proportion of the population (at least until the baby boomers die, or because AIDS has ravaged younger ones, or because birth rates have plummeted).
That doesn’t necessarily mean that state pensions can’t be afforded, however. It is rather that public spending priorities are being placed elsewhere, such as defence expenditure, national security, and bank and corporate welfare.
Instead of boosting state pension, which would increase older people’s spending and their savings, all to the benefit of workers and the wider economy, plans are being made to cut them adrift. Younger workers feel frightened into increasing their private savings with private pension funds out of their dwindling net private income if they don’t want to face a similar fate (even though such savings didn’t save current pensioners).
In fact, as we shall see, it is the stock market model of social welfare that exacerbates conflict within and between generations, classes and workers.
There is a growing ratio of young to old
Another version of the ‘ageing population’ myth is that the ratio of old to young people is said to be growing. This, it is argued, adds to the ‘burden’ that older people represent and increases the ‘dependency ratio’: the number of non-earning members of society who depend, albeit indirectly, on wage earners.
Rarely mentioned is that societies managed to find the money to feed, clothe, house and educate the baby boomers for their first 16 to 20 years, when they were ‘dependents’, before they started working. And as public sector services are cut back still further, older people will be those increasing their child care, community and charity work that contributes to an active economy.
Historical records suggest that the overall dependency ratio (paid workers to non-paid workers) has been more or less constant over time, even if the composition of those not working has changed over time.
There are not enough savings to pay for old age
We are all regularly exhorted to ‘save more’ for our retirement. In fact, there are more than enough private savings around the world to fund decent pensions.
It’s a matter of distribution and political priorities – not of whether you buy a loaf of bread or put your wages in your deposit account. What is insufficient is the ways and means of distributing savings equitably, and of controlling and ensuring equitable and sustainable investment.
Pensioners who have put aside money in advance of retirement and those who receive money taken out of current taxation all depend on what the economy produces and society provides at the time when they are actually pensioners, and at what prices – unless they store up 20 years’ worth of tinned food, dried milk and a hip replacement or two beforehand.
The myth about funding pensions in advance or not serves simply to hide a conflict over how to divide current national income and who should get it.
Public sector pensions are privileged
That takes us on to public sector pensions. These are increasingly cast as overly generous schemes for ‘privileged’ public sector workers and contrasted with private sector schemes that are being closed or cut in value because of the Great Financial Crisis.
In the context of the wider economy, however, not only are public sector pensions affordable and minimal, but UK public sector and state pensions are among the lowest in the OECD.
The problem is not with public sector pensions, but with the spectacular failure of private ones. It is ironic that the private sector financial institutions are being recruited to ‘relieve’ the state of its supposed pensions burden, when the real effect is to make up for failings in the private sector itself.
At the same time, the American manager of RBS (now a nationalised bank) has received a pension bonus of £735,000, which reminds us of what myths are really for – social constructions of reality to protect vested interests.
The language of pensions
The language used to describe pensions is a myth in itself – one that underpins most pension debates.
‘Burden’ is a favourite word to describe old people and their pensions, ‘crisis’ another. ‘Savings’ are invariably good, but ‘taxes’ are bad, even though in the pensions world the concepts are actually the same. The difference is that ‘savings’ refers to the private financial sector and ‘taxes’ to the state (even though public sector finances are now largely captured by financial capital).
Winning acceptance of the need for people to save more for their retirement is really a political issue: savings are much easier to sell than taxes.
If there is a pensions ‘crisis’, it is that there are too many people in poverty in their old age because of unemployment, low wages and a shift in income distribution away from wages towards profits that has figured in the pension debate for 50 years.
Private finance knows best
In the UK, pensions mythology began some 50 years ago as successive governments agreed a deal on ‘final salary’ pensions with the trade union movement: employer-led pensions, managed by private financial institutions, based on final salaries and paid out in future, would be guaranteed (for the most part) in exchange for wage restraint in the present.
Previously companies would agree final salary schemes with trade unions for a trade off of wages for pensions. As a result, pensions were regarded as ‘deferred wages’.
This deal was a fake. In practice, it was an enormous transfer of economic power from labour to finance capital, the politics of which have not yet been fully explored. The legacy, however, is still with us today: private finance is said to be the best judge of where to place savings and the most efficient way to allocate them so as to promote investment in order to boost the resources available to provide for people’s retirement.
Private pension funds are good for the economy
According to this myth it is a good thing to encourage, or force, people to put some of their wages into private pension funds, not just for them but for the wider economy. The idea is that these funds will invest the money, primarily in stock markets and increasingly in alternative vehicles such as hedge funds, and this will increase financial capital, stock market growth, corporate investment and productivity. All this, in theory, will result in higher national wealth to pay pensions.
This theory was unproven even before the financial crisis. The World Bank, a leading pedlar of the myth for 20 years or so, admitted that even if such privatisation did not increase pensions, it would at least increase the size of stock markets around the world – a concession that reveals the real priorities behind the myth. World Bank figures show a rise in stock markets, which has nothing whatsoever to do with economic growth.
Pension funds support innovation
Advocates of UK and US-style pension systems that rely on stock markets say such systems allegedly result not only in higher economic growth but also more money for venture capital funds that will support innovation, needed for growing economies.
Most innovation, though, is initiated and backed by the state; pension funds and other private investors get involved much later on when the state has completed the initial high risk investment and sells it on.
The privatisation of pensions has led neither to better pensions for more people, nor to greater economic growth – and arguably has contributed to near financial collapse. Just consider the numbers of pension funds that have closed to new entrants, and existing members, when we were all told how essential the system was for our welfare.
The state can’t run pensions
Even if public sector pensions were not paid for out of our current taxation or national insurance contributions, and the state ran its own type of provident fund, it would still come in for criticism. There is now a myth that the state can’t provide pensions at all. The World Bank, for instance, in its 1994 publication on averting the old age ‘crisis’ (solution: protect the old by promoting economic growth) states that provident funds are ‘a backdoor to nationalisation’, its real concern. The World Bank, incidentally, is a public institution that provides its employees with one of the best pension arrangements in the world.
In the Singapore provident fund, where the state provides all pensions management, fees are 1.5 per cent. In Chile, the exemplar for privatisation, the fees have been upwards from 15 per cent.
In fact, countries such as Chile and Argentina, which were the subject of major privatisations of pension provision, have now gone into reverse. Chile is providing state support for people who cannot provide for themselves and Argentina has nationalised its private system.
Personal pensions make sense because people want choice and can look after themselves
But the clincher in current pensions mythology is this one concerning ‘personal pensions’: individuals can look after themselves because they have greater ‘choice’ and power over how their future retirement income is saved and provided.
In reality, an estimated 40 to 45 per cent of their pension contributions will be consumed by various administrative fees and costs, providing profits for the pension fund.
Individual personal pensions have not generated a surge in domestic savings that could support productive investment and economic growth, meaning that pensions cannot in any sense be paid for in advance.

All these pension myths have been a cover over the past two decades or so to expand stock markets, liberalise financial markets and change the role of the state.
What the privatisation of pensions has done is to distribute more income to the financial sector and the highest paid individuals, while relying on the public sector to subsidise them and to support those from whom insufficient profits can be made.
Private pension provision increases rather than lessens the risk of insecurity in old age: the enormous expansion of financial market risk continues to expose pensioners to serious asset meltdown.
This mythbuster draws on Too Many Grannies? Private Pensions, Corporate Welfare and Growing Insecurity by Richard Minns with Sarah Sexton. www.thecornerhouse.org.uk/resource/too-many-grannies

Higher education: the lie-busting low-down

admin — Fri, 04 Feb 2011 23:35:12 +0000

In the biggest shake-up to the university sector since grants were introduced in 1962, the government is tripling fees and cutting funding to teaching budgets by £3.2 billion. This includes a 100 per cent reduction for the arts, humanities and social sciences, in effect privatising their teaching. Universities that cannot ‘compete’ for high enough student numbers will have to close. The changes mark a significant step in the transformation of higher education into a commodity subject to the whims of the market.
The government claims these plans won’t affect participation, that the cuts are ‘fair and progressive’, and that they make social and economic sense. Should we believe them? Of course not. And our lie-busting low-down reveals why:

MYTH: The fee rises and public funding cuts to universities are fair – graduates should pay for their university education, not everybody else
The coalition argues that since graduates are the main beneficiaries of a degree, it is fair that they should pay for that degree. The structured repayment scheme for students has even led to claims that these plans are ‘progressive’.
However, the idea of the public ‘funding’ higher education through taxes is something of a myth. In reality, university graduates actually provide a profit for businesses and taxpayers through higher income tax contributions. Statistics from the OECD show the net profit from funding a graduate, recouped through social contributions and tax, averages £56,000 over a lifetime. It is true that under the tiered debt repayment plans people on higher incomes would pay a greater proportion of their fees than those who are poorer. But the focus on repayment plans deliberately dodges the issue that taking on up to £50,000 in debt is a massive psychological disincentive that will be felt most keenly by poor‑to-middle-income families.

MYTH: University reform will save money and balance the deficit
Many of the cuts proposed by the government are unlikely to actually save any money, and higher education is a case in point. Despite currently being funded with a comparatively very low 1.3 per cent of the governmental budget, universities employ 2.6 per cent of the country’s workforce and generate 2.3 per cent of GDP (figures from Universities UK). The cuts to universities will cause significant job losses and some institutions will go bust. These redundancies cost money in the short-term, and welfare costs will also rise.
Meanwhile, money saved in subsidising courses and research will be required to fund the massive expansion in lending. The Higher Education Policy Institute recently concluded that the government will be spending so much on increased student loans that increased fees will not save any public money.

MYTH: Student numbers are unsustainably high now, and so cannot be funded by the public any longer
Universities in the UK receive far less funding than in most OECD countries, which have higher levels of student numbers. Student numbers (currently around 36 per cent of young people) are higher than previously but similar increases have taken place across all OECD countries in recent decades. Britain has below‑average participation levels overall, ranking below Poland, Slovakia and the Czech Republic (Education at a Glance 2010, OECD).
Vice-chancellors have been complaining for many years about underfunding, and until recently their target was the government. This is because the government has been spending a modest 1.3 per cent of GDP on higher education. This compares with an OECD average of 1.5 per cent. The United States, despite huge contributions by individuals, spends 3.1 per cent; Canada, South Korea, France and Scandinavian countries also spend substantially larger proportions of public money on universities.
Neither student numbers nor public spending on higher education in the UK are at unsustainable levels. If anything, targets for public spending on higher education and levels of university participation should be increased.

MYTH: British universities won’t be able to compete internationally without ‘reform’
Fee rises have been introduced to substitute for massive cuts in public funding, not to improve university performance. The proposed enormous higher education budget cuts will clearly damage UK universities, not help them.
The coalition’s disregard for the well-being of educational institutions is most apparent in arts, humanities and social sciences, for which it has decided to virtually discontinue its financial support. The government’s reforms entail a shift of the burden for university funding from the public budget onto students. But British universities will continue to require financial support to maintain and increase the impact of their research, and their appeal when it comes to research contracts and international students. Students’ university fees will simply not cover the costs in some departments, irrespective of their research standing. The tripling of university fees is ‘necessary’ to safeguard standards only because of this government’s refusal to subsidise higher education as a public good.

MYTH: The proposed changes won’t affect student numbers and won’t prevent access for poorer students
The government, backed up by vice-chancellors from the 20 Russell Group universities, denies that the huge increase in fees will deter potential students from university. They claim that increases in student numbers since the 2006/7 introduction of top-up fees is evidence to the contrary.
Closer analysis of the impact of top-up fees, however, reveals a decline in participation precisely from those eligible to pay them. Poorer students (those below the median household income) paid no increase in cost or in debt levels due to the introduction of grants up to nearly £3,000 alongside more bursaries.
The numbers of students who did experience these rises in fees, those from the four higher social classes, declined from 43.8 per cent to 40.6 per cent (BIS, The Impact of Higher Education Finance on University Participation in the UK, September 2010) in the year of the increase. Even looking at families most able to pay the £1,800 increases in fees there was still a significant reduction in access, despite the doubling of available loans. Students could borrow to pay these fees, yet they were still deterred from entering higher education – this shows that fees, even in the form of debt, negatively affect access. Increases of up to £6,000 on top of these levels are therefore certain to hit participation levels very significantly.
There is no equivalent package to that introduced in 2006/7 to lessen the impact of these new changes or protect prospective students from the huge increase in debt. A tiny £150 million (coming from scrapping free school meals) will be spent on new scholarships for the very poorest.

MYTH: Top universities have been taking in more poor students, promoting social mobility
While 36 per cent of students go to university, there is vast inequality in the student population. 19 per cent of young people from the least advantaged fifth of the population go to university compared to 57 per cent from the most advantaged (Office for Fair Access, Fair Access Report, 2010).
Although this is actually a marked improvement since the 1990s, the 20 most selective institutions have not increased their percentage intake from the least advantaged areas at all over the same time period. The increases that have taken place are almost entirely in former polytechnics and others outside of the Russell Group universities.
The government’s near-privatisation of university education, and the ensuing ‘competition’ envisioned by Lord Browne, is expected to promote the expansion of some universities while allowing others to close. The institutions that will suffer the most will be those outside the core of the existing big, well-funded institutions – precisely those that young people from poorer backgrounds would attend. Moreover, the evidence shows that any system of bursaries and loans has little positive impact on the likelihood of poorer students applying to and attending more selective universities, so the new scholarships are unlikely to address any of these inequalities.
The government’s statements on higher education cuts are designed to provide bland reassurance. They mask a brutal attack on university education as a public good. We cannot allow them to be its epitaph.

There is an alternative – unlock the surplus

admin — Wed, 22 Dec 2010 22:15:35 +0000

The coalition government is constantly arguing that ‘there is no alternative’ to the devastating package of cuts outlined in its October comprehensive spending review – a line last used with such vigour in the Thatcher years. This is often coupled with the claim that ‘there is no money left’. Neither claim is true.
Not only is there an alternative, but there is a great deal of money sitting in corporate bank accounts. Unlocking this pool of cash and transforming it into productive investment is an alternative to the savage cuts and the surest route to growth and decent jobs.
The coalition’s argument
George Osborne’s argument is premised on the notion that Labour massively overspent while in office, and that the recession was somehow the fault of ‘big government’. His political case against Labour means that he cannot consider any alternative explanations; in effect his economic choices are guided by his political rhetoric. The clearest demonstration of this is his desire to close the structural deficit in five years – the length of a parliament rather than a timetable guided by economic realities.
Osborne’s policy is guided by a theory known as ‘expansionary fiscal contraction’. He believes that at present government spending is ‘crowding out’ private sector investment – so as government borrowing is cut back, private sector investment will step up to take its place, generating growth and jobs.
Crowding out
This ‘crowding out’ argument takes one of two forms. In the original use of the term, neo-classical economists assume that there is a fixed amount of savings in the economy, and that if he government is taking these savings (through borrowing) then they are not available for the private sector to use to finance investment.
However, this argument only works if the economy is operating at full potential. If the economy is performing very well and employment is high then resources (savings or workers) used by the state might ‘crowd out’ the private sector. In the current situation, with many resources standing idle (high unemployment, low investment), this argument in fact makes very little sense.
If the private sector wanted to invest, the resources are already sitting there ready for it to use. The government cutting back would just mean even more resources standing idle – in other words, higher unemployment.
In the second sense of the argument there is the more subtle theory of ‘psychological crowding out’. This theory claims that investors and entrepreneurs are worried about future taxation. They can see the large government deficit and know that rationally it will have to be reduced, probably by higher taxation, in the future. This creates a great deal of uncertainty and makes them reluctant to invest.
In other words, businesspeople see deficits as essentially ‘deferred taxation’, and adjust their spending accordingly. This also means that, contrary to a more Keynesian view, deficit spending does not have much effect on demand in the real economy. This argument is known as Ricardian equivalence after the classical economist David Ricardo.
This can lead into the oddly illogical view that ‘investors will not invest as they fear that taxes will rise in the future, therefore we must raise taxes now’. And while Ricardian equivalence is a neat theory, there is no empirical evidence that it holds true in reality – despite many studies over the past 30 years.
Canada and Sweden
The coalition and its allies often point to Sweden and Canada in the early 1990s as examples of how ‘expansionary fiscal contraction’ can work. In both cases the governments slashed public spending while their economies enjoyed reasonably strong growth.
However, not only were the cuts smaller than those planned by Osborne, but in three crucial ways the conditions were different. First, while Canada and Sweden were cutting spending, their respective central banks were also lowering interest rates to cushion the blow. In the UK interest rates have already been cut to 0.5 per cent, so there will not be the same degree of support from the central bank.
Second, while Canada and Sweden were cutting, their currencies were allowed to depreciate, boosting the competitiveness of their exports. In the UK today sterling has already fallen a great deal. It is unclear how much lower it could fall without seriously risking inflation through higher commodity prices for UK consumers.
Finally, both Sweden and Canada were cutting in the context of an otherwise strongly growing global economy. Their trading partners were enjoying boom times and could soak up increased exports from both. The global situation now is very different, with the UK’s major trading partner (the EU, with over 50 per cent of UK exports) also embarking on its own cuts. So the Canadian and Swedish examples are not especially strong guides for the UK.
Is there no money left?
Whenever pushed on the likely success of their budgetary policies, given the background outlined above, coalition supporters often fall back on the line ‘but there is no money left’. Essentially they argue that even if their policies are unlikely to succeed they have no choice but to implement them, as there is simply no money to try anything else with. Nothing could be further from the truth.
The corporate surplus
One little-remarked-on feature of the UK economy over the past ten years is the ‘corporate surplus’. In a well-functioning economy the difference between corporate profits and corporate investment would be negative – corporates would be borrowing from household savings in order to fund investment.
In the UK, since 2003, the corporate surplus has been growing. In 2009 it reached £64.7 billion – so at the height of the recession, UK‑based non-financial companies were making profits £64.7 billion higher than the amount they were investing. By the end of 2009 (the latest available data), UK non-financial corporations were holding cash and bank deposits worth £652.4 billion pounds with UK banks.
Far from there being ‘no money left’, there is a pot of corporate savings worth more than £600 billion pounds. That’s £600 billion held not by banks or financial companies but by the everyday corporations that make up the majority of British business; £600 billion that could be funding vital investment – high-speed rail, social housing, clean technology and much needed infrastructure improvements. The accumulation of such a surplus suggests something has gone horribly wrong with British business.
What is needed
We need a programme of public investment that aims to ‘crowd in’ this private sector investment. Corporations are sitting on a large pile of cash because they are nervous about an uncertain future – what Keynes called depressed ‘animal spirits’. Public investment in infrastructure can ‘unlock’ some of this surplus.
If, for example, transport links are improved, then companies may be more willing to invest in better-connected areas. Social housing can help attract workers to previously unaffordable locales.
Policies designed to unlock this surplus – whether direct public investment or subsidies to private sector investment in the form of tax breaks conditional on new investment, matched public investment or the like – would increase investment and hence employment, increasing tax revenue and decreasing the welfare bill. This is the surest way to improve growth and reduce the deficit.
There is an alternative – and the money is there to fund it.

Countering the cuts myths

admin — Thu, 05 Aug 2010 20:37:34 +0000

MYTH: Government debt is the highest it’s ever been

The UK’s government debt is at around 70 per cent of GDP (the total amount of goods and services produced in one year). That is certainly high, but it is far from unprecedented.

Government debt never fell below 100 per cent of GDP between 1920 and 1960. It is only in the past decade or so that it has become normal to think of government debt being stable at around 40 per cent of GDP.

It is worth noting that government debt reached 250 per cent of GDP around the end of the second world war, as the result of a ‘once in a generation’ economic and political crisis. It is certainly arguable that we are now living through a similarly momentous crisis.

MYTH: The UK’s debt crisis is one of the worst in the world

Just as the current level of government debt is not unprecedented historically, neither is it substantially higher than that of other countries.

IMF data (IMF World Economic Outlook Database, April 2010) shows the UK has the lowest government debt as a proportion of GDP among the G7 countries (the US, Canada, Germany, Britain, Japan, Italy and France).

Much has been made by Cameron and Osborne of Gordon Brown’s ‘imprudent borrowing record’. They say that before the spending to stabilise the financial system, public debt was high.

But again, IMF comparisons of the level of public debt prior to 2007 showed the UK in a much better position than many comparable countries, such as France, Canada, the US and even Germany, the home of fiscal rectitude.

MYTH: Government debt is ‘unsustainable’

The sustainability of government debt is not just dictated by its size, but by its make up. We have already seen that government debt is at a comparable level to other similarly sized economies. Where the UK is in a much stronger position, however, is in the nature of its debt.

While countries such as Greece tend to owe money to external financiers, the vast majority of UK debt – about 70 to 80 per cent – is held within the country.

And the UK’s debt is not so short term. Countries such as Greece, Ireland and Portugal have average debt maturity rates of between six to eight years, but UK government debt stands out among international comparisons as being much longer term at well over 12 years on average.

This means that the UK has to ask the financial markets to refinance its debts much less frequently, making it less vulnerable to short-term speculative pressures and much more able to continue to finance its debts on a sustainable basis.

MYTH: The government shouldn’t get into debt, just as your own household shouldn’t

This overlooks the fact that, for the past 30 years, governments have positively encouraged households to get into debt.

In fact, it can be prudent for households to take on debt – particularly if they are borrowing to pay for something (a house or educational qualification) that might reasonably be expected to improve the household’s income and well being in the long run.

In just the same way it is often sensible for governments to take on debt to pay for investments (such as housing or transport infrastructure) that will make the economy work better and so pay for themselves over the longer term.

But the public economy is also different from the household economy. What might make sense for a household could, for the government, deepen a recession. When times are hard households tend to tighten their belts – reducing their spending and borrowing. But if everyone does this at the same time, the effect is counterproductive: total demand for goods and services falls, which makes it harder for businesses and individuals to generate an income, and everyone ends up worse off.

This is exactly what is happening now, which is why it is essential for the government to compensate for households’ reluctance to spend and invest.

MYTH: Public spending got ‘out of control’ under Labour

It is true that the Labour government gradually raised public spending in the early part of the decade, but it was from what were historically very low levels.

Levels of public spending are now about the same as they were in the early 1990s, at the time of the last economic crisis. This is because spending always rises during a recession as a result of welfare spending on unemployment.

In fact, levels of public spending as a proportion of GDP were much lower for most of the 2000s than they were than at any point since the 1960s.

Where Labour did spend more in the years after 2000, it was necessary to repair the visible effects of long-term under-investment. Who can forget schools and hospitals with buckets in the corner to catch the leaks, or grim city centre landscapes with crowds of homeless people sleeping rough?

Labour’s increased spending also addressed workforce shortages in schools and the NHS, where more staff were needed to raise educational standards and care for an ageing population.

Rather than cutting such spending, the crisis could be an opportunity to build the infrastructure of a more energy-efficient, green economy. That would prepare us for the longer-term structural barriers to growth presented by climate change and the depletion of natural resources.

MYTH: The UK has a big public sector compared to other countries

Public spending in the UK is lower as a proportion of the economy than in the likes of France, Italy, Austria and Belgium, as well as the Scandinavian countries (OECD World Factbook 2010).

And spending on core areas such as health and education remains comparable or low in relation to other OECD (broadly speaking, ‘rich’) countries.

For example, the UK spent just 8.4 per cent of its GDP on health in 2007, roughly half that spent in the United States (once the large private sector is taken into account) and well behind Germany, France and most other west European nations.

On education, the UK again spends less per pupil than most comparable OECD countries.

The UK is not profligate in public spending and does not have an oversized public sector compared to similar countries.

MYTH: Spending on the public sector is ‘crowding out’ private sector growth

It is argued that public spending comes at the expense of overall growth, because potential investment is being re-directed into taxation to fund an ‘unproductive’ public sector. But in fact investment in public infrastructure and services is essential to private sector productivity, and so is no less critical to future growth than private sector investment.

Furthermore, the UK is not a highly taxed economy. The OECD’s comparative figures on taxation as a proportion of overall economic output show the UK way down the list, only just above the average.

It is sometimes suggested that taxes hit the private sector in such a way as to discourage job growth. Again, though, the data shows the UK to have very low levels of taxation per job: far lower than the OECD average.

The second way in which the public sector might be said to be crowding out private sector growth is by taking workers it needs, but this would only really be the case where the labour market was operating close to full employment.

With the unemployment rate at about 8 per cent, this is clearly not the case. and in many areas of public provision – from child protection, to education and training, to care for the elderly – there is a pressing need for more, not fewer, public service workers.

Finally, some argue that public investment ‘crowds out’ private investment, because government borrowing pushes up interest rates and inflation. But there is no evidence that this is currently a problem – real interest rates are low, and the economy is still operating well below its potential output, which means there is lots of room for non-inflationary public sector expansion.

In fact, in current circumstances, public spending is more likely to stimulate private sector investment by maintaining levels of demand and preventing a deeper collapse of economic activity.

MYTH: Public sector workers are overpaid

It is true that very recently average wages in the public sector have moved marginally above those in the private sector. This is mainly because privatisation has pushed many low-paid jobs out to the private sector.

The trend is not that public sector wages have risen sharply, but that private sector wages have fallen – a characteristic of the economic crisis. If we take a longer view, since the 1990s average public sector pay has not seen significantly more growth than the public sector.

And when private sector wages are split up to consider different sector and occupational patterns, a rather different picture emerges. Wage rates differ widely, with the average pulled down by very low wage sectors such as distribution, retail and hospitality.

What the data shows, therefore, is not that public sector workers are overpaid, but that some private sector workers are severely underpaid.

MYTH: The financial crisis was caused by a lack of money in circulation

This one is true to some extent, but it requires careful explanation. The system of finance capitalism pursued in the UK and US since the 1970s has continuously recycled economic surpluses away from the poor toward the rich. In both countries, the share of economic output taken up by wages (as opposed to profit) has fallen, and inequality has risen. The very affluent have got wealthier, at the expense of the rest of the population. In 2007/08 the richest tenth of the population had more than 30 per cent of total income (‘Income Inequalities’, poverty.org.uk).

In the post-war period, part of the role of the state was to redistribute economic surpluses to the wider population so that they could keep spending on goods and services. This was seen as so important precisely because large inequalities had been identified as one cause of the 1929 stock market crash and the subsequent depression.

For a while, the problem that rising inequality presented for growth was overcome by the use of credit and the super-exploitation of workers in the developing world, which allowed consumers to keep buying cheap products. This is one of the factors that fed the debt crisis.

So, yes, there is not enough money in circulation – but this is precisely because it has been captured by the super-rich.

MYTH: Cutting public spending will help us avoid economic disaster

A range of economists, from Larry Elliott of the Guardian to Nobel prize winning professors like Paul Krugman and Joseph Stiglitz, are warning that making cuts now raises the very real possibility of undermining the fragile economic recovery.

As every first year economics student knows, there are four main components of economic growth: (1) exports; (2) investment; (3) household spending; and (4) government spending.

Over the past two years, governments around the world have stepped in to bridge the gap in the first three by providing debt-financed public sector stimulus packages. There is precious little evidence that the private sector or households are ready or able to step up their activity to fill the gap, or that exports will increase in a world where our major trading partners are also reining in spending.

As such, any austerity programme may prematurely remove the foundations of the recovery and lead to a return to recession – a ‘double dip’. This would be disastrous, not just for growth, but in turn for tax receipts and the capacity of the state to reduce the deficit and government debt.

How will that help to stabilise the world economy? How will it deal with the frequent, persistent and cumulative financial crises that are endemic to it, or overcome the pressing resource and environmental constraints that are so clear for all to see?

The economic crisis was a golden opportunity to move toward a more economically, socially and environmentally sustainable national and international economic system. For a while all countries were so concerned about the whole system that there was at least a chance to overcome narrow self-interest and look toward a more co-operative and sustainable future.

We are about to squander a once-in-a-generation opportunity for progressive change – unless, that is, we organise and campaign for an alternative.

MYTH: There is no alternative to cuts

The beginnings of an alternative have already been discussed. For example, Unison’s alternative budget (‘We can afford a fairer society’, Unison Alternative Budget 2010) suggests that almost £4.7 billion could be raised each year from introducing a 50 per cent tax rate on incomes over £100,000.

About £5 billion could be raised every year from a tax on vacant housing; £25 billion a year could be raised by closing tax loopholes; and the IPPR think-tank has estimated that a ‘Robin Hood tax’ on financial transactions could raise another £20 billion a year (T Dolphin, Financial Sector Taxes, IPPR 2010).

All these taxation measures would be ‘progressive’ in the sense that they would divert wealth from the rich to the poor, in contrast to measures such as the government’s VAT increase, which hits the poor hardest.

In addition, some of these ideas might have behavioural advantages: they could work against destabilising speculative financial flows, or lead to fewer empty houses.

Similarly, we could look at spending that really should be cut. For example, while estimates of the true costs of replacing the Trident nuclear weapon system vary widely, they tend always to come in above £80 billion over 25 years.

Getting rid of the cost of the war in Afghanistan, massive consultancy fees on private finance deals and contractors’ profits in privatised public services would also make a difference.

We could also decide to manage the deficit and public spending in a long-term manner, targeting social issues such as inequality, under-investment in education and child poverty, and strongly regulating international financiers, banks, hedge funds and the like.

All of these are political choices.

We don’t have to live in a world where unemployment co-exists with a long-hours culture in which workers are so stressed that mental health problems are on the rise.

We don’t have to live in a world where bankers gamble millions across the world in elaborate financial casinos at the same time as 1.4 billion people live on less than $1.25 a day.

We don’t have to live in a world where there is no limit to how much of our collective economic output goes to the rich, yet others do not have enough to eat.

It is worth remembering that after the last crisis of this scale and significance, and with public debt something like three and a half times the size it is today, we established the NHS, created the welfare state, put in place comprehensive education and built a vast number of public housing estates.

History tells us that there is more than one way out of an economic crisis.

Download our pdf version of this article to distribute far and wide…

Thanks to Dr Alex Nunn of Leeds Metropolitan University and the Transpennine Working Group of the Conference of Socialist Economists. www.alexnunn.net csetranspennine.wordpress.com