Creating a stakeholder economy may require stick as well as carrot

Twenty-two years ago the leader of the opposition Labour party had a big idea. It was to create a “stakeholder economy” in Britain.

This would be an economy “run for the many, not for the few”, he told us. “We [must] shift the emphasis in corporate ethos from the company being a mere vehicle for the capital market to be traded, bought and sold as a commodity, towards a vision of the company as a community or partnership in which each employee has a stake.”

But Tony Blair’s stakeholder economy was only a sigh on the breeze. New Labour under Blair did plenty of things that irked bosses – from the windfall levy on utilities to the minimum wage – but he never sought to diminish their authority in the boardroom, to curtail their ability to make decisions without consulting rank-and-file workers. As the economist Chris Dillow argues, the inequality of power relations in the workplace was New Labour’s great “blind spot”.

Fast forward two decades and the shadow chancellor, John McDonnell, is making rather similar noises to those made by Blair all those years ago. “Labour’s programme of workplace reform will restore the balance between employer and worker – extending the opportunity for employees to share collectively in the benefits of ownership of their company,” he told the TUC conference yesterday.

However, unlike Blair, McDonnell (whose aspirations to replace Jeremy Corbyn are increasingly unconcealed) is prepared to get into some policy specifics. He says that Labour is exploring “ownership funds” for private companies with more than 250 people, where staff would be given shares in their employer, funded by a portion of the firm’s profits.

This is similar to a proposal in the report from the IPPR think tank’s archbishop-blessed Commission for Economic Justice last week. Indeed, it arguably bears a resemblance to existing government policy. In 2014 the coalition government created a tax incentive for business owners to disperse ownership among staff in Employee Ownership Trusts.

The Institute of Directors suspects Labour’s plan would “cross the line between encouragement and coercion”. Perhaps they see this as part of McDonnell’s self-declared goal of “generally fermenting the overthrow of capitalism” as opposed to gently nudging it in a kindlier direction. But let’s park the issue of personalities and concealed agendas and first consider the merits of the policy.

An independent report for the government in 2012 cited evidence showing that employee ownership is associated with reduced absenteeism and happier, more engaged workers. But it’s not just nice for the workers. Mutualisation seems to be beneficial to the overall business too, with such companies exhibiting better business performance, more innovation and higher levels of economic resilience. Indeed, the fact is that it has become something of a cross-party political orthodoxy that giving people an ownership stake in the organisations for which they work would be good for the overall economy.

One of David Cameron’s early ideas was for “John Lewis-style public services”, inspired by the high productivity of the employee-owned department store. The party’s 2015 election manifesto promised a “right to mutualise”, albeit only in the public sector. In 2012 Nick Clegg called for a “John Lewis economy” and said workers should be given the ability to request shares in the companies in which they work. “We don’t believe our problem is too much capitalism: we think it’s that too few people have capital,” said the then deputy prime minister. Theresa May has not banged the drum for mutuals per se but, at least until the business lobby got to her, she wanted to put workers on boards to “put people back in control”.

Given all this, any attempt to paint Labour’s ideas on mutual promotion as outrageous, knuckle-headed, 1970s-style socialism, is in danger of failing the laugh test. So the question is not whether mutualisation should be encouraged, but whether it should be given a serious nudge, as Labour seems to be suggesting.

A workforce characterised by increasing levels of part-time working and self-employment may not look like favourable ground for a mutualisation drive. Part of that casualisation trend seems to be driven by company bosses making a national insurance saving by hiring workers as independent contractors rather than conventional employees; one can envisage that kind of practice being curtailed in an environment with greater employee influence.

And the trouble with the dangling carrot approach is, as we have seen, inertia. There has been no discernible proliferation of mutualisation in the years since the government introduced its tax breaks.

While there are lots of mutual friends in theory, often little tends to happen in practice. As with wealth, those with corporate power tend not to be keen on its redistribution. Perhaps if we are to inch closer to that Blairite vision of a stakeholder economy we will need an element of stick after all.

#JohnMcDonnell #LabourParty #mutuals #stakeholdereconomy

The unjustified under-taxation of the self-employed

The self-employed are undertaxed relative to employees. That’s a simple statement of fact.

But let’s first be clear what this doesn’t mean. That doesn’t imply that people who work for themselves are any less virtuous than people who work for firms. It doesn’t belittle the economic contribution of these five million or so British workers. Nor does the statement contain any judgement about the rate of tax that employees pay, whether it’s too high or too low.

Yet that statement of fact – that the self-employed are currently privileged in the tax system with the gap adding up to around £ 5bn of foregone revenues a year – is evidently a hard message for many people to digest. Impossible even.

The Treasury’s low-key cancellation of a planned bit of national insurance tax relief for this group of workers last week was loudly condemned by the Federation of Small Businesses and bewailed by the TaxPayers’ Allowance even though, had the move gone ahead, it would have increased the overall tax gap between the self-employed and the employed still further.

“The Tory party is meant to be the party of low taxation and the friend of the ambitious. This U-turn fails on both counts,” sniffed the Tory backbencher Jacob Rees-Mogg. Are we to infer from this statement that company employees, all 27 million of us, who do not benefit from this lower rate of tax, are to be considered unambitious? The consequence of the tax gap is that employers have a major incentive to hire people as temporary contractors rather than taking them on full-time, even when they’re effectively doing the same job. Plenty of people who are self-employed today, particularly in the gig economy, would prefer to be employed.

Yet even Labour’s shadow chancellor John McDonnell, who has frequently bemoaned the casualisation of the British workforce in recent years, called the Treasury’s reversal a “betrayal of the self-employed”.

Another consequence of the tax gap for the self-employed is that, as more people are employed in this way, total tax revenues from employment dwindle. This is something the Office for Budget Responsibility has highlighted as a threat to the public finances.

If less tax comes from the self-employed, there’s a strong likelihood that, with public services clearly in need of a funding boost, ministers will end up increasing the income-tax burden on the employed. In this sense, one might say that the Treasury’s originally planned tax cut for the self-employed would have been a betrayal of the employed. Some don’t seek to deny that the self-employed are undertaxed, but argue that this is necessary to encourage people to become entrepreneurs, or to compensate the self-employed for the fact that they don’t get paid holidays or company pension contributions. But leaving aside the pretty dubious economics inherent in these claims, trying to accomplish these kind of goals through a distorting tax gap is a terrible way to do it.

What we have here is an example of the dysfunction of our political system when it comes to tax.

Newspapers don’t understand the subject, or choose not to understand it. They create a stupid slogan such as “White Van Man tax” in response to an attempt to close the gap. Cynical politicians – from both main parties – pander to the slogan, even when it undermines their broader agenda.

Ministers panic. Broadly sensible attempts at reform put forward by civil servants are hastily reversed, as happened last year. Then there’s a furtive attempt to undo some of the damage of the reversal, which is in danger of making matters worse because it is not part of a comprehensive and coherent reform of the whole cripplingly-complex system.

The traditional liberal faith is that good arguments and good information will have a tendency to drive out the bad varieties. It’s a faith that is being brutally tested. The Institute for Fiscal Studies has carefully explained the issue of the £ 5bn-a-year self-employed-employed tax gap and its adverse consequences clearly and frequently in recent years. Its director, Paul Johnson, did so again on the BBC’s Today programme on Friday.

The government-commissioned Taylor Review of modern working practices last year argued unambiguously that “treating different forms of employment more equally in the tax system would be fairer, more economically efficient and support better quality work”.

Perhaps one glorious day the message will finally penetrate. But for now we’re forced to contemplate a miserable vista of wilfully ignorant news organisations, ideologically obsessive pressure groups and political opportunists shoring up a tax status quo that hurts the people that this same crew purport to be trying to help.

#InstituteforFiscalStudies #nationalinsurance #selfemployment

Raise a glass to the right experts

The temperance movement hasn’t had a boost like this since prohibition.

A major new international study on the health risks of alcohol, by the Institute for Health Metrics and Evaluation, in Seattle, was published last week in The Lancet. “The safest level of drinking is none,” the authors concluded. “Our results point to a need to revisit alcohol control policies and health programmes, and to consider recommendations for abstention.”

But if nonsense was graded like alcohol, this would be 100 proof. The authors are making statements and policy recommendations their own findings do not support.

The study’s results show the risk of developing an alcohol associated health illness such as heart disease or diabetes over the course of a year for non drinkers, is 0.914 per cent. For those who consume a single drink daily, the risk increases to 0.918 per cent. Two drinks per day raises the risk to…0.977 per cent.

So, among 100,000 people consuming two drinks per day, 63 more would be expected to develop health problems, relative to a group of 100,000 teetotallers.

The implication of the results is not that we should embrace teetotalism, but that the health risks of moderate daily alcohol consumption are, in fact, extremely small. One of the report’s authors, Professor Sonia Saxena of Imperial College London, reflected none of this in her comments to the media.

“Most of us in the UK drink well in excess of safe limits and as this study shows, there is no safe limit. The recommendations need to come down further, and the government needs to rethink its policy,” she said.

Let’s skip over the Lewis Carroll style paradox of being able to drink more than a nonexistent safe limit, and consider what UK government health recommendations on alcohol actually are.

In 2016, the government cut the levels of recommended alcohol for men and women to no more than 14 units per week, that’s six pints of average strength beer or seven glasses of wine. So roughly around one drink a day, which is what the study suggests is barely more risky than not drinking at all. That means government policy is, in fact, appropriate. One could argue it’s excessive, given the small relative risk increase associated with two drinks per day.

What lessons can we learn from this debacle? The lesson for researchers is, obviously, to be extremely careful not to make claims that are not clearly supported by their work.

The likelihood is these authors, focusing on the unquestionably severe health harms associated with high alcohol consumption, believed they had a moral responsibility to overegg their findings.

Perhaps they were worried by mixed messages coming out of other recent research suggesting moderate alcohol intake was beneficial. Perhaps they feared a slippery slope to mass binge drinking.

Whatever their motivation, the decision to call for total abstention was a mistake. And there seems to be a particular problem with this kind of overreaching in public health research – where the “x causes cancer” story has become ubiquitous, often based on rather tenuous or ambiguous results.

The line separating science from advocacy is inevitably blurry and we shouldn’t be overly strict about policing it. Yet these authors pretty clearly went too far and, sadly, have probably inflicted damage on the credibility of the wider scientific research community as a result.

What about the lesson for the public? There will be, doubtless, those who say this shows one shouldn’t trust scientists, because they have a hidden social or political agenda. So ignore the overwhelming consensus on climate change. Don’t listen to economists on Brexit. Follow your guts instead, or whichever non expert politician speaks most convincingly to your prejudices.

That would be folly. The right conclusion is not to disregard expert advice, but to make greater efforts to heed relevant experts, specifically those who can put raw results in an appropriate context.

The Lancet authors might be experts on the epidemiology of alcohol harm but they are not experts on risk and its evaluation. The fact their paper does not even state the absolute risks of alcohol consumption, and only publishes the relative risks – which is bad statistical practice and a breach of The Lancet’s guidelines – was a warning sign.

David Spiegelhalter, professor for the public understanding of risk at Cambridge University, has led criticism of the alcohol study’s scaremongering, improving what would otherwise have been woefully misleading media coverage.

The risks of getting bad expert advice are real enough. But the risks of listening to no expert advice at all, are far greater.

#alcohol #DavidSpiegelhalter #risk