Tuesday, 29 December 2015

Here I stand: I can do no other

I wasn't going to write another post about the WASPI campaign, but things have become so unpleasant and confused that I have no choice. This post is my final and definitive statement on where I stand on the women's state pension debate. Hence the title.

My view of the women's state pension age problem

I described the women's state pension age problem in some detail in a previous post, so I shall only outline it here, along with my view on each part of this complex problem.

Recent changes to women's state pension age are these:
  1. The 1995 Pensions Act raised women's state pension age (SPA) from 60 to 65, the same as men's. To give women time to prepare, the transition did not start for 15 years, and it then raised the age over the course of 10 years, from 2010 to 2020. The effect was that women born prior to 6 April 1950 would remain eligible for the state pension on their 60th birthday, but women born later than that would see their eligibility gradually delayed. NO woman born after February 1951 would retire at 60, and all women born on or after 6 April 1955 would retire on their 65th birthdays.
  2. The 2008 Pensions Act added a year to both men's and women's SPA. The rise for women was originally intended to happen after the 1995 transition had been completed, so it would have affected younger women.
  3. In 2011 - after the 1995 transition had already started - the government, under pressure from the EU, brought forward completion of the 1995 transition by two years in order to complete the transition to the extra year by 2020. This created sharp increases in the SPA for women born 1953-4. In response to campaigning, this second SPA rise was limited to a maximum of 18 months. However, coming on top of the 1995 and 2008 changes, it did result in very large total SPA rises at short notice for some 1950s women. 
My considered view on all of this is as follows.

Firstly, I regard the 1995 transition as fair and generous. I see no reason whatsoever to overturn it. I also regard the 2008 change as reasonable.

However, the 2011 change is a different matter. Shortening a fair and long-established transition process after it had started was unfair, and the concession was inadequate. As a result of this, some women face difficult financial circumstances for which I think relief should be offered. 

Solving the 2011 problem

For me, the case for transitional relief for some women facing hardship due to the 2011 change is overwhelming, and I have been trying to think of ways of providing targeted relief for these women. I do not think that reinstating their previous state pension age or offering compensation in lieu of state pension will be remotely acceptable to the present government, since this would be expensive, a major loss of face, and potentially open the floodgates to other claims for compensation due to ill-thought-out and badly executed government policies (ATOS testing, anyone?). So I believe a more practical approach would be look at specific adjustments to working age benefits to help these ladies, such as relaxing JSA and ESA jobsearch conditionality for over-60s. I know it isn't what they really want, but I genuinely think this would have a better chance of success. In the end, if their need is for money, does it really matter whether it comes in the form of a pension or a working-age benefit?

I admit that I have another agenda too. Enhancements to working age benefits for over-60s would drive a wedge into the government's policies on working age benefits, which are causing major hardship and distress for a lot of people, including men born in the 1950s who of course were never able to claim state pension from 60. I was horrified to hear recently of a 60-year-old man sanctioned for 6 weeks for missing job centre appointments when his wife died, and another man sanctioned for failing to attend an appointment after suffering a heart attack while waiting for that appointment. Ending this misery for over-60s of both sexes would be a job well done.

But to take this route, the women affected would have to accept that they are not pensioners. They are working-age women whose problem is lack of work and/or lack of sufficient savings to enable them to retire earlier than their SPA. This is very different from the WASPI approach, which is to define them as pensioners who have been "robbed", and demand restitution. 

Nonetheless, on the unfairness of the 2011 change I am broadly in agreement with WASPI. I simply disagree about the solution. 

The WASPI demand: a much bigger issue

But the WASPI campaign does not limit itself to seeking transitional relief for women facing hardship due to the 2011 change. It has a much more far-reaching agenda.

The WASPI demand, as expressed on their Facebook page, is as follows (for the avoidance of confusion, this is a genuine screen print from their Facebook home page):

I interpret the first paragraph as meaning that not only the implementation of the pension changes, but the CHANGES THEMSELVES, were unfair. And not only the 2011 change, but the 1995 and 2008 changes too. This causes me a serious problem. I do not regard the 1995 and 2008 changes as unfair. In my view, equalisation with men is fair. So too is raising SPA as people live longer. As I shall explain below, it is the working young who pay state pensions. We have a responsibility to them.

I interpret the second paragraph as demanding financial compensation for all women born between 6 April 1951 and 31 December 1959 for loss of their right to a state pension at 60. For these women to be restored to the financial position that they would have been in if they had been able to claim the state pension at 60 (as women born on or before April 1950 did), the amount paid to them must be the difference between the total state pension they would have received if they retired at 60 and the total state pension they will now receive. That is up to 6 years of state pension payments for each woman, paid as a lump sum. 

This amounts to restoring a state pension age of 60 for all women born in the 1950s and delaying the equalisation of men's and women's pension ages for a further 10 years. I have been told by WASPI representatives that this is not the intention. They say they are in favour of equalisation of men's and women's pension ages. But I can't see how this demand can be interpreted in any other way. I have asked repeatedly for clarification, but so far have received none.

The late notice problem 

WASPI representatives say they are only seeking general compensation because the DWP failed to give 1950s women sufficient individual notice of the changes. The DWP did not start to notify 1950s women of their new SPA until 2009, and the bulk of the letters were sent 2012-13. Some of the letters apparently failed to arrive because awful record-keeping by DWP and HMRC meant addresses were wrong. It was, in short, a dog's breakfast. 

I would be the first to agree that the DWP's communication in this, as in so many other matters, has been abysmal. The DWP is utterly incompetent, and I have repeatedly criticised it. However, inadequate notice due to incompetence does not of itself create grounds for compensation. If there is no material loss, then a simple apology would suffice. As I shall explain, I am unconvinced that the case for general compensation has been made. 

Firstly, I accept that the notice given by the DWP was inadequate, but this problem is not limited to women in the 1950s. Younger women have not been notified either - including those born in the 1960s. It is not clear to me why a woman born on 31st December 1959 should receive compensation for late notice, but a woman born on 1st January 1960 should not. One day's difference in a birth date cannot possibly turn totally inadequate notice into adequate notice, especially over a holiday period. In setting such an arbitrary end date for compensation, WASPI creates a cliff edge for women born in the 1960s which could - if 1950s women obtain full restitution as WASPI demands - be as much as 6 years. This is grossly unfair to them. It is a greater injustice than the injustice WASPI seeks to rectify. 

But far more importantly, what financial difference would more notice have made to 1950s women? They say it would give them more time to "plan". But it is not clear to me what plans they would have made. Again, I have asked for explanation, but received none. 

Whether more notice would have made a material difference to 1950s women's financial position seems to depend entirely on their personal circumstances. For women on such low incomes that they couldn't save, more notice would have made no difference at all: after all, if the problem is no spare cash, giving more time to accumulate spare cash isn't a solution. So more notice would not have helped the poorest women. An earlier state pension is not a solution to women's pay inequality: since many of these women don't qualify for a full state pension due to insufficient NI contributions, all it does is enable them to live for longer on a lower pension than a man or a better-off woman. I wonder how much of the support for the WASPI demand from women who say they are on very low incomes - and the anger they express at their state pension delay - comes from an unspoken belief that the state pension is some kind of reward for a lifetime of drudgery? If this is right, I feel terribly sorry for them. No-one should have to spend their entire life doing work they hate. But this is a perverse view of the state pension. It is not justification for granting it earlier. 

More notice would have given women on higher incomes time to save more to cover the gap between their corporate pension age and their new state pension age - assuming they intended still to retire at 60. But since the whole point of equalising men's and women's pension ages is to keep women working for longer, why should topping up these women's savings so they can stop work early be a priority? 

And if course if a woman gave up (or lost) her job expecting SP at 60, she is now unemployed and facing the brutal JSA and ESA regimes. These are the angriest and most frightened ladies, and with reason. I have huge sympathy for them. But I've already said, here and elsewhere, that these benefits regimes desperately need adjusting. They are far too harsh, not just for ladies in their 60s but for everyone. So we should adjust them, not compensate these women while neglecting men and younger people. Similarly, women who are carers should claim carer's allowance, another benefit that desperately needs reform - for a 35 hour week it pays £62.10, which is far below the current minimum wage let alone the new Living Wage. The hardships faced by WASPI women are an opportunity to fix the benefits system. I'm really disappointed that WASPI ignores this and chooses instead to pursue an impossible goal. 

But aren't these women entitled to their pensions?

There seems to be a prevalent view that 1950s women are "entitled" to retirement at 60 (or equivalent financial compensation). The entitlement arguments seem to run like this: 1) they've paid in to a state pension all their lives, they should now be able to draw it out 2) when they started work they were promised retirement at 60, government should honour that promise. 

But there are real problems with both of these arguments. 

The first argument is simply wrong. People don't "pay in" to an NI fund that is invested on their behalf. There are no "pension pots" made up of individual NI contributions. UK state pensions are unfunded. That means current NI receipts from working people pay current pensions and contributory benefits. And no, this is not because pension pots were "raided" by Brown/Blair/Major/Thatcher (take your pick). The UK state pension has always been unfunded. What are called the "NI Funds" are in reality just clearinghouses, and their surplus is the accumulated difference between NI receipts and payments from the funds. 

The NI funds built up a surplus when wages were rising, the UK working population was rising and payments to pensioners and benefit claimants were not keeping pace: that surplus is invested in UK government debt, which is the safest form of investment for UK residents. But now that wages are stagnant, the UK working population is stable, the pensioner population is growing due to people living longer and pension payments are being uprated, the NI funds are running deficits and their accumulated surplus is fast diminishing. This is simply due to demographic shifts, poor economic performance and policy decisions regarding pension and benefit payments. It is a known hazard of "pay-as-you-go" pension schemes, especially those where the funding is shared with contributory benefit schemes. 

Now, turning to this idea that people are "entitled" to state pension at the age promised when they started work. The problem with this from the WASPI point of view is that it equally applies to younger women. After all, women born 1960-79 also had a retirement age of 60 at the start of their working lives. Once again, this argument founders on the arbitrary WASPI end date. 

But more seriously, this argument is wrong too. There is no "promise" of state pension at a particular age, or indeed for a particular amount. All NI contributions buy is the right to a pension of some amount at some age. Both of those can be changed by Act of Parliament - just as entitlement to other NI-funded benefits such as JSA can be changed. So government is not bound to honour either the retirement age or the pension amount in force at the start of an individual's working life. And as far as I am aware (though I believe WASPI is obtaining a legal opinion on this), it has no obligation to give any particular notice of changes. There certainly isn't a "rule" that 10 years' notice of changes must be given, though this government has said that future governments will give such notice. 

So the "entitlement" argument doesn't stack up either. 

Moral considerations

The story of the equalisation of men and women is one of enabling women to take responsibility for their own financial affairs, rather than being dependent on men. This must surely include keeping up with legislative changes that affect them. Many women DID know about the 1995 change - indeed according to a 2004 DWP research paper, 72% of 1950s women knew the SPA was rising. And people have been able to check their SPA with the DWP since 2001. Unions, trade representatives and HR departments of larger employers also would have been able to advise. 

In view of all this, I find a claim for compensation for 1950s women on grounds that they didn't know, hard to swallow. Apart from the fact that most of them actually did know, this rewards women who did not take responsibility. It is a form of moral hazard. I realise that there are all manner of reasons why a woman might not manage her finances well, and I do not wish to judge: but if women are to be truly equal with men, they must accept the same responsibilities as men. Saying "I was too busy with job, childcare and housework to pay attention to current affairs" is to reject the equality for which women have fought so hard, incomplete though it is as yet. And expecting SPA to be the same as corporate pension age - and therefore not checking SPA until the last minute - is just folly. Sisters, we have to do better than this. 

I'm also seriously concerned about the cost of such compensation. I do not like this government's penny-pinching attitude, but the reality is that this is the government we have for the next 4 years and possibly longer. Given this, I am unable in conscience to support paying "compensation" to well-off women knowing that the cost of this will inevitably be born by the poor, sick, disabled and unemployed in the form of higher taxes and deeper cuts to working age benefits and essential services. I regard general compensation for 1950s women as morally suspect when the working poor are being hit so hard. I would much rather see targeted relief to women in difficulties than across the board compensation. 

The moral issues run well into the future, too. If it is to be sustainable, we must change the way we regard the state pension. The state pension was originally envisaged as an insurance scheme: everyone paid in, but the majority never claimed because they died before reaching their SPA. Now, the majority of people claim SP: 91% of women live to 65 and 86% of men. And they claim it for a long time, too, A woman retiring at 60 can expect to live - on average - for at least another 20 years. In an attempt to keep a lid on rising costs, George Osborne recently limited the proportion of someone's life that they could expect to spend claiming state pension: "UP TO one third", he said, explaining that the SPA would continue to rise in line with life expectancy. But "chinese whispers" - including among WASPI ladies - promptly transformed this into "SHOULD spend up to one third". This is how unreasonable entitlements are born. How much of their incomes will future working people have to pay in tax and NI, if this becomes a general expectation that government must "honour"? For how long will they be willing to do this, knowing that when it is their turn, they will get much less? What is the responsibility of older people towards future generations? This needs serious discussion. The unborn, and the young children of today, have not agreed to the "entitlements" and "promises" claimed by older people. They have no voice. Who will speak for them? 

A better way

For all the above reasons, I cannot support what I understand to be WASPI's main aim, which is for all 1950s women to receive financial compensation for the loss of state pension from 60. 

I do, however, support targeted relief for women facing hardship, especially (but not necessarily limited to) those affected by the 2011 change. And I would like to see constructive debate about how the needs of these women can realistically be met in the current climate.

I do not know if WASPI will take me seriously. But I have now stated my position clearly and unambiguously. I am not hostile: but I will not support their campaign as it stands. It is the moral arguments against it that I find overwhelming. We cannot fight injustice with injustice, and promote equality by perpetuating inequality. There has to be a better way. 

And indeed there is. This problem would be entirely solved by a universal basic income coupled with a sensible progressive tax system. Can't we stop fighting over scraps, and campaign together for a really radical reform that would benefit everyone?

Over to you, WASPI.  
Related reading:

When will I get my state pension? - Henry Tapper
The Basic Income Guarantee: what stands in its way? - Tom Streithorst
State pension age increases for women born in 1950s - House of Commons
State pension age background - House of Commons

Image: Martin Luther's words at the Diet of Worms, courtesy of reformedanglicans. The full text of Luther's answer, and the historical circumstances, can be found by clicking the link. Please do. It is interesting - and relevant for anyone who takes a moral stand on a current political issue. 

Wednesday, 23 December 2015

The road to the workhouse

I do not like the direction in which our society is travelling.

From a joint statement by several Christian churches, published in the Methodist Times in October:
In March this year, the Churches published a report showing that nearly 100,000 children had been affected by sanctions in 2014 alone and that people with mental health problems were being sanctioned at a rate of more than 100 per day. 
Seriously? 100,000 children are affected by sanctions imposed on their parents? Let us remember what sanctions do. They deprive families of the money they need to pay for shelter, heating, food and the basic essentials of life. So 100,000 children were deprived of the basic means to live. What sort of society is it that does this to the innocent?

And it gets worse.       
The report told stories like that of Martin*, aged 60, who missed an appointment with the job centre because his wife died suddenly. He was sanctioned for six weeks, leaving him with nothing to live on and in a state of confusion as his wife had previously handled most of their joint paperwork. He came to the local church for help and charity Acts435 helped him with his living expenses until he could come to terms with the new shape his life had taken.
That poor man. Sanctioned for 6 weeks for missing an appointment when his wife died. What sort of society is it that thinks it is reasonable to hurt such a man?

The report itself has further such tales to tell. In many cases the claimant is sanctioned due to circumstances completely beyond his control. And in some cases, such as this one, the fault actually lay with the DWP (my emphasis):
Peter (20 years old) was sanctioned twice - once for 4 weeks and once for 13 weeks - for failure to attend appointments with Groundforce (his Work Programme provider). On both occasions he had not received any letter stating that he had to attend an appointment. The lack of income led to an estrangement from his own family who could not afford to support him. He moved to stay with his girlfriend’s family but the financial pressures led to a further breakdown and he was re-housed in a hostel. He needed to claim hardship payments, discretionary housing payments, and use foodbanks in order to survive. The Coventry Law Centre assisted with mandatory reconsideration letters and the decisions were overturned, although not all of the benefit owed to him was reimbursed. 
The sanctions wrongly applied to this young man caused breakdown of family relationships and serious financial hardship. Yet the DWP did not even reimburse him fully, let alone offer compensation for their error. Another young man was sanctioned when the DWP sent the appointment letter to the wrong address, even though he had told them he had moved. The DWP never refunded the benefit wrongly deducted. And this tale, from Highbridge & Burnham On Sea Foodbank, is absolutely priceless:
We had a number of customers who had been sanctioned including one guy who had been sanctioned for being late for his appointment at the job centre because the queue was so long it took him to past his appointment time to be seen. He was sanctioned even though he had arrived at the job centre in plenty of time.
DWP incompetence is legendary, of course, but this is beyond belief.

But appalling though these stories are, even more worrying is the treatment of the mentally ill. The report says that people who are deemed too ill to work are being sanctioned at an extraordinary rate (my emphasis):
Freedom of Information requests* show that in March 2014 – the last month for which data is available - 4,500 people who were judged as unfit to work because of long term mental health problems nonetheless had their sickness and disability benefit removed. Moreover the data shows that as the sanctions regime was tightened those with mental health problems were disproportionately affected.
How, in God's name, is it EVER justifiable to sanction someone who is too ill to work? And what on earth is the point of doing so? Since these people are too ill to work, this can have nothing whatsoever to do with creating incentives to work. It is deliberate cruelty. There is no other satisfactory explanation.

In fact the churches' report makes very unpleasant reading. The DWP's gratuitous cruelty is evident throughout. This, for example, on the effect of sanctions on health:
Department for Work and Pensions guidance for assessing whether someone has a long term medical condition accepts that it is “usual” for the health of a claimant to deteriorate while they are sanctioned, if they have no other resources to fall back on. It states “It would be usual for a normal healthy adult to suffer some deterioration in their health if they were without essential items, such as food, clothing, heating and accommodation or sufficient money to buy essential items for a period of two weeks…” The DWP guidance repeatedly acknowledges that the sanctions it administers are expected to cause deterioration in the health of normal healthy adults.
Starvation, exposure and hypothermia systematically used as punishments for minor transgressions of rules. And I mean REALLY minor. This is from a DWP training memo:
Audrey attends the JCP [Jobcentre Plus] every other Thursday at 10am to sign a declaration. On 25.10.12 she fails to attend to sign. On 1.11.12 she attends to sign at her normal time saying she forgot to sign last week as she got muddled with her dates. On 6.11.12 the DM [Decision Maker] determines that Audrey failed without good reason to participate in an interview as arranged to sign a declaration. This is Audrey’s first failure. A 4 week sanction is imposed.
So, Audrey's benefits are removed completely for 4 weeks because she got her dates muddled. Remember that DWP says deterioration of health would be normal if people did not have basic means of survival for 2 weeks. Audrey's punishment is double that - for a first offence. Admittedly, she might get a hardship payment after 2 weeks. But her health would already have deteriorated by then. What kind of society is it that thinks starvation and homelessness is a reasonable punishment for a simple mistake? Audrey is not a criminal: unemployment is not a crime. But convicted criminals are treated better than this.

The churches point out that such out of proportion punishments do not in any way mirror working conditions:
The penalties attached to sanctions often do not appear reasonable or proportionate to the “failure” that has occurred. If a similar system operated in a workplace - where pay was immediately removed for a month for being late for a meeting or not achieving a weekly target - we might reasonably expect action to be taken against the employer.
Indeed. Though in Victorian times, of course, employers did exactly that, and no action was taken against them. As did workhouses. The workhouse ethic was that work is a moral imperative: people who have no work are morally defective and must be forced to work as a "correction". If they refuse to work, they must be severely punished.

The DWP's sanctions regime looks uncomfortably similar.  The sick, disabled, mentally ill and unemployed are treated like criminals even though they have committed no crime. A strict penal regime is imposed on them, with extremely harsh punishments for minor transgressions of unfair and arbitrary rules. These punishments affect not only their own health but the health of those dependent on them. Not unlike workhouses, really.

And in the not too distant future even those in low-paid jobs will be treated like criminals. The churches point out that under Universal Credit, the sanctions regime will be extended to recipients of in-work benefits:
The legal framework allows people to be instructed to do things like change jobs, attend training, or increase hours in order to earn more than the threshold income. Sanctions can then be imposed on those who do not comply with the requirements. This means that people who are already in work, ie the ‘working poor’, may become subject to sanctions unless they work for longer hours, find additional jobs, or find jobs which pay more money.
Meanwhile the tabloids congratulate the government on getting the "scroungers" back to work - even though the churches note that few of those sanctioned actually find work: many disappear from the benefits system entirely. The churches comment about these people that "it is not clear how they manage".

But we know that sanctions do not work. Sanctioned people are not more likely to find work: indeed the deterioration in their physical and mental health as a consequence of sanctions may make finding work less likely, not more. Destroying people's health does not make them better able to work. Removing benefits from people who are too ill to work does not restore them to health.

The sanctions regime is no more than gratuitous cruelty imposed by petty bureaucrats. And the effect on the bureaucrats themselves is horrible, too:
There are persistent reports of Jobcentre workers feeling pressured to increase the number of sanctions they impose. One of the authors of this report has spoken to a number of Jobcentre advisers who were finding it difficult to reconcile their Christian faith with what they were required to do in the Jobcentre. The advisers felt that, even by following the rules with integrity, they were required to administer sanctions to people who would be damaged and had done nothing that warranted such a serious punishment. There are also a few reports of advisors setting claimants up to fail in order to keep up their sanction rate. This is a culture in which job seekers are less likely to seek the help and support they need and to which they are entitled.
On reading this, I was reminded of the appalling Lloyds Bank sales incentive scheme of which I wrote a while ago. The Lloyds Bank staff abused customers because they faced harsh sanctions themselves. Perhaps this is also true of Jobcentre staff. How else is their deliberate cruelty towards vulnerable human beings to be explained?

We may not (yet) have created workhouses. But we have created workhouse-like conditions among benefit claimants. Recent research by Sheffield Hallam University finds that sanctions cause homelessness. There have been reports of terminally-ill people losing benefits because they have been deemed to be "fit for work": people starving to death after benefits are cut: people killing themselves because they have no means to live. The treatment of the mentally ill is particularly harsh. But the whole sanctions regime is a national scandal.

The sanctions regime has twice been criticised by the Work and Pensions Committee of MPs. In March, the Committee called for an independent review into the operation of the sanctions regime. The government rejected that call, though it did accept (at least in principle) other recommendations within the report. It continues to insist that sanctions are necessary.

I cannot agree with this. Even if sanctions work - and there is no evidence that they do - they are morally wrong. Depriving people of the basic means to live is unacceptable in a civilised society.

We desperately need to replace this horrible regime. Ideally we should introduce a basic income which is enshrined in human rights legislation and cannot be removed to create "work incentives". A properly designed basic income is itself a powerful incentive to work. We do not need sanctions. They are inhumane, and they don't work anyway. We can, and should, do far better by people than this.

In the 19th century it took the work of Dickens and a sustained campaign by The Times, and some high profile scandals, to expose the horror of the workhouses and bring about major social reforms. But this government is not listening even to a Parliamentary committee. What will it take to expose the horror of the 21st century benefits sanctions regime and bring about the social reforms that are now so desperately needed?

Related reading:

Categorising the poor - Pieria
An experiment in basic income - Pieria
Time to rethink benefit sanctions - Joint Churches report
MPs call for full independent review of benefit sanctions - Commons Select Committee

* "The data collected through the Freedom of Information requests refer only to seriously affected individuals whose mental health problems mean they qualify for sickness benefit as certified by their doctor, the DWP’s private sector contractor ATOS, in addition to the DWP."

Thursday, 17 December 2015

The Basic Income Guarantee: what stands in its way?

Guest post by Tom Streithorst

The Basic Income Guarantee (BIG) is back in the news.  The Finns are considering implementing it, as are the Swiss, replacing all means tested benefits with a simple grant to every citizen, giving everyone enough money to survive. Unlike most current benefits programmes, it is not contingent on being worthy or deserving or even poor.  Everybody gets it, you, me, Rupert Murdoch, the homeless man sleeping under a bridge. Last seriously proposed by Richard Nixon in 1969, more and more economists and bloggers are suggesting that the Basic Income Guarantee may ultimately be the salvation of capitalism.  The BIG will eliminate poverty, lessen inequality, and vastly improve the lives of the most vulnerable among us. But that is not why we need it. It may seem impractical, even utopian: but I am convinced the BIG will be instituted within the next few decades because it solves modern capitalism’s most fundamental problem, lack of demand.

Technology and capitalism have largely solved the problem of supply. We are able to make more stuff, with fewer inputs of labour and capital, than ever before. We have the knowhow, we have the resources, we have the trained labour, we have the money.  The only thing businesses lack is customers. Making stuff has become easy. It is selling it that keeps entrepreneurs (and central bankers) awake at night. Stagnant wages tell us that the supply of labour exceeds demand.   Microscopic interest rates tell us that we have more capital than we need. Since the Great Depression most economists have recognised that demand is the Achilles heel of the modern economy.

Over the past 80 years, we have solved the problem of demand in three very   different ways. The first is war. In 1938, US unemployment was almost 20%.  In 1944 it was barely 1%.  Everybody knows World War II ended the Great Depression: but it is worth remembering that it wasn’t the slaughter of civilians or the destructions of cities that reinvigorated the global economy, but rather the massive fiscal stimulus of government borrowing. Had we borrowed and spent as much on building schools, homes and roads as we did on defeating the Axis powers, the economic effect would have been even greater.  The advantage of military Keynesianism is political: conservatives who loathe government spending are able to overcome their distaste when it comes to war.

The second, during the post war Golden Age, was rising salaries. Between 1950 and 1970, the average American worker saw his real wages double: since then, they have barely gone up at all. Back then, productivity improvements translated almost immediately into wage gains. As workers’ wages went up, so did   consumer spending. Productivity increases meant each worker was able to make more stuff. Wage increases meant he was able to afford to buy it. Advertising transformed luxuries into necessities.  Productivity gains combined with wage hikes gave the Golden Age the greatest GDP growth the world has ever seen.

In our most recent era, from 1982 until the financial crisis, the engine of economic expansion was ever increasing levels of private debt. After Reagan and Thatcher, median wages stopped going up, even as productivity maintained its inexorable rise.  With wages stagnant, only by taking on more debt were consumers   able to keep spending enough to buy all they produced.  As long as banks were happy to lend, the economy managed to grow (albeit much more slowly than during the Golden Age) and the party could go on.  But after the financial crisis, both household willingness to incur more debt and bank willingness to lend contracted, leaving us with the stagnant economy we are trapped in today.

These three old methods of stimulating demand have passed their sell by dates.   Global war would reinvigorate the economy, but at an unbearable cost. Rising wages, unfortunately, are unlikely, with more and more of us replaceable by robots, software or much cheaper foreign workers.  And higher levels of debt not only increase inequality, they also engender financial instability. What is to be done?

Every year, technological progress allows us to make more goods and services with fewer inputs of labour and capital. As consumers, this is wonderful.  We can buy better and cheaper goods than ever before.  As workers, however, productivity increases threaten our jobs.  As we need fewer workers to make the same amount of stuff, more of us become redundant. And it is likely to get worse. The rise of the robots may eliminate 47% of existing jobs within the next two decades.  Unfortunately, even though a robot can make an iPhone, it cannot buy one.  If we are hurtling  towards a post scarcity future, only a Basic Income Guarantee can ensure sufficient demand to keep the global economy ticking over.
It is not just the poor that profit. The rich get exactly the same payment, in the form of a tax cut.  Corporations also win.  With more money in consumers’ pockets, sales increase, raising profits. And since firms no longer need provide a living wage, labour costs could go down, which would give employers reason to hire. Meanwhile, workers, with a guaranteed income, no matter what, will have the freedom to tell an unreasonable boss to “take this job and shove it.” These benefits suggest that a Basic Income Guarantee could command considerable support from diverse sectors.  But these are all merely side benefits of the BIG.

If technological progress continues to eliminate jobs, the Basic Income Guarantee may well be only way we will be able to maintain demand in a post-work future. By giving every citizen a monthly cheque, a Basic Income Guarantee will be as fiscally stimulative as World War II without requiring the murder of millions. The Basic Income Guarantee is economically sensible and politically practical.  What then stands in its way?

The first problem with the Basic Income Guarantee is that it sounds too good to be true.  We have been told to be suspicious of anyone promising a free lunch, and giving people money for doing nothing certainly seems like a costless gift. Fear of scarcity is built into our DNA.  For the Basic Income Guarantee to seem viable for most people, they need to learn that demand, not supply, is the bottleneck of growth. We need to recognise that money is something humans create, not something with fixed and limited supply.  With Quantitative Easing, central banks created money and gave it to the financial sector, hoping it would stimulate lending.  Today, even mainstream figures like Lord Adair Turner, Martin Wolf and even Ben Bernanke recognize that “helicopter drops” of money into individuals’ bank accounts could have been more effective.  Technocrats are beginning to recognise the practicality of Basic Income.  We in the economic blogosphere need to bring this message into the public eye.  The rise of the robots, ever declining prices for goods and services, and disappearing jobs may ultimately teach this lesson more effectively than any number of well-meaning essays.

The second problem is sociological.  Most of us are still in employment.  We feel, in some fundamental way, that our work makes us more worthy than lazy layabouts on benefits.  This simultaneously makes us disinclined to raise benefits for others (or increase the number of people on benefit) and equally disinclined to think of ourselves as the kind of people that receive money from the state.  Adam Smith, in The Theory of Moral Sentiments (the book he considered his masterpiece), said that we humans are motivated primarily by the regard of others.  We want people to think well of us, and we want to think well of ourselves. The psychological pleasure of considering ourselves better than welfare recipients can trump genuine economic benefit.   To overcome this objection, we need to recognise that defining ourselves by our jobs is very 20th century. If technological progress continues to kill traditional jobs, this objection too will eventually dissipate. As full-time jobs become harder to find, more of us will recognise the need for a Basic Income Guarantee.

The third problem is perhaps the most central. By stimulating the economy and pushing it towards its production possibilities frontier, the Basic Income Guarantee will be growth enhancing, but it is undeniable that it will also be redistributive.  The pie will be larger, but it will be sliced differently.  For the past 30 years, we have stimulated the economy by shovelling money towards rich people.   A Basic Income Guarantee shovels money towards poor people. And for many in the top 1%, that is anathema.

Conservatives generally favour tax cuts as a way of stimulating the economy.  Although they don’t like to admit it, this is textbook Keynesianism.  As long as the government does not cut spending, more money in consumers’ pockets will inevitably increase demand.  Unfortunately, tax cuts generally favour the richest among us, and they, unlike the poor, are liable to save rather than spend their windfall. Stimulating savings is a waste of a tax cut.  Today, we have an over-abundance of saving and a shortfall of investment and consumption. A Basic Income Guarantee can be thought of as a tax cut targeted to those most likely to spend it, which is what the economy needs.

The Basic Income Guarantee solves the problem of demand, stimulates the economy, increases corporate profits, gives workers more freedom, and provides a safety net to the most vulnerable.  It is economically sound and politically savvy.  But the very rich don’t fear unemployment, they fear redistribution and they will be the most significant force against the implementation of the Basic Income Guarantee.

Related reading:

The central paradox of the 21st Century - Tom Streithorst, Pieria

Image from Huffington Post. The quotation on the bottom poster is from Frances's post "The Changing Nature Of Work", link above. 

Monday, 14 December 2015

When the world turns dark

The world turns on its dark side......it is winter
A Child of Our Time, Michael Tippett

"Man has measured the heavens with a telescope, driven the gods from their thrones," proclaims the contralto at the start of Michael Tippett's wartime oratorio A Child Of Our Time. Like our counterparts before the dark time of which Tippett writes, we too believe that science leaves no place for religion. But religion endures, and when the world turns, it comes back in its most violent form, tearing part communities and entrenching sectarian division and even outright racism. 

Our world is turning. As the memory of the financial crisis fades, the financial world moves "from war to peace", gradually restoring interest rates, somewhat relaxing tight constraints on banks, wondering how financial institutions should be regulated to prevent crises in future. But outside the rarefied world of finance, movement is in the opposite direction. It is only a small distance from an uneasy peace, to the semblance of war. The world turns on its dark side. Winter is coming.

The first signs of a chill in the air became apparent not long after the financial crisis, as people who previously rejoiced in the ability of governments to rescue broken banks and restore damaged economies suddenly became fearful of the consequences. Country after country turned away from generosity towards harshness, imposing austerity measures that hurt the poor, the sick, the disabled and - extraordinarily - the young, justifying those measures on grounds that had increasingly little to do with economics and more and more to do with the resurgence of a twisted morality last seen in the nineteenth century. Cries the Child Of Our Time,
I have no money for my bread, I have no gift for my love....How can I grow to a man's stature?
The Poor Law reformers of the 1830s believed that hard work is a virtue in and of itself, regardless of usefulness to society or financial benefit to those doing it: the workless are "moral defectives" who must be forced to work in order to correct the defects in their personalities. Thomas Malthus believed that public spending that supports the poor encourages them to breed: the poor must be condemned to a life of poverty and deprivation to discourage them from choosing to have children at state expense. The children of workless parents must be protected from their malign influence. The Mother's lament resonates with all too many of today's mothers:
How shall I feed my children on so small a wage? How can I comfort them when I am dead?
 This is the creed of meanness and selfishness, lampooned by Dickens in "A Christmas Carol". It is the creed of the false gods of Hard Work and Saving. But we, cocooned by the belief that we are better than our ancestors, invoke these false gods and publish the creed anew. The morality of the workhouse has become the morality of the Daily Mail. 

Tippett's contralto continues:

 But the soul, watching the chaotic mirror, knows that the gods return.....

In bringing back the "old religion", we have set the poor and vulnerable against each other. Solidarity disintegrates; the poor fight each other for a share of a pot of money that is deliberately kept too small to meet all needs, and demand that others who might need a share too are kept out. "Close the borders". "Stop immigration NOW". "We can't afford refugees". These are the cries of those who fear that the arrival of others will mean that they lose even more. 

In Europe, the same harshness is evident, but on an even larger scale. Here, it is not just the poor within countries who are fighting over scraps: the countries themselves are at each other's throats, as harshness is imposed by stronger countries on weaker in support of the same twisted morality. Countries that struggle to compete for export markets are morally defective: they must be forced to compete through harsh treatment. Countries that attempt to give citizens a decent life instead of paying creditors must be forced into poverty and deprivation to discourage others from the same path. Governments must be supervised by technocrats to make sure they obey fiscal rules even at the cost of recession and high unemployment. The Oppressed cry out: 

When shall the usurer's city cease? And famine depart from the fruitful land?

Worshipping the false gods of hard work and saving comes at a terrible price. The sacrifices those gods demand are the lives of those who do not - or cannot - live as they dictate. But as yet, there is no widespread challenge to their authority. People still believe the lie they tell: "There is no more money". 

People used to believe the promise of the gods of borrowing and spending, "The money will never run out". But their belief was shattered in the crash of 2008, when the debt edifice abruptly collapsed, causing widespread financial destruction. People not only stopped believing that promise, they also stopped believing in themselves. The terrible recession and ensuing long slump created an enormous confidence gap. Into this gaping hole stepped the old gods and their new lie. 

But the new lie is dangerous beyond measure. Societies under such strain are fragile. Social bonds are stretched to breaking point: people are fearful of loss, scared of the future, and angry at those they think are getting "something for nothing". They lash out at those who deny their own right to dwindling state support. And as the screws slowly tighten, they lash out at others, too - especially strangers, those who are "not one of us", and those towards whom they feel historic animosity. 

Nassim Taleb, in "Antifragile", speaks of a sudden change in Lebanon, when people who had been friends and neighbours all their lives suddenly turned on each other. In a flash, peace became war, tolerance evaporated, old wounds reopened and tribal hostilities reasserted themselves; violence erupted and the weaker fled from the stronger for fear of their lives. 

We have seen this happen many times, not just in Lebanon. Something pushes society beyond a tipping point, social bonds shatter like glass, and the flying shards cause deep and lasting wounds. War erupts, atrocities are committed by everyone, towns and historic sites are bombed to rubble, whole communities - sometimes even entire ethnic or religious groups - are murdered. 
Away with them! Curse them, kill them! They infect the State.
When the violence eventually dies down, the mass graves are found and mourned, perpetrators captured and brought to justice (or, more likely, murdered in their turn), and the work of rebuilding starts, we look back on the conflagration and wonder, "How on earth did that happen?" Hindsight is a wonderful thing: studying the sequence of events, we see the strains appearing, the apparently random incidents that together make a pattern leading inexorably to the disaster, the policy decisions that seemed sensible at the time but actually made society even more unstable. 
Truly, truly the living God consumes within, and turns the flesh to cancer....
The growing instability in Europe is apparent in the rise of nationalism, driven by an unpleasant xenophobia and a widespread belief that we "can't afford" to support people from other nations. This is, of course, the old gods at work, convincing people that "there is no money" and they must tighten their belts. Fearful that local services will be unable to cope - even though the fragility of these services is entirely due to government cost-cutting - countries refuse to accept immigrants, even genuine refugees; while there is growing support for fringe political parties proposing exit from supranational institutions and the end of foreign aid. 

Creeping instability is also evident from increasing intolerance of minority views, both political and religious. It is becoming unacceptable to express contrarian views: you are likely to be silenced, pilloried, denounced and abused. When I recently refused to support a campaign by a group of aggrieved women, they responded with a stream of personal attacks over the course of three days, across several different media: while my refusal to join in the vilification of Muslims in the wake of the Paris attacks resulted in a storm of insults. Others have even been refused the right to speak at all. The "safe spaces" campaign in universities is nothing but outright denial of free speech. 

There is no justification whatsoever for this. Contrarian views are not necessarily intolerant ones: Katie Hopkins, aggressively anti-immigration to the point of racism, is more "mainstream" than the pro-immigration liberal Jonathan Portes. But people have the right to express even very intolerant views, provided that by doing so they break no laws. 

So people with contrarian but lawful views are silenced. Conversely, some people with far more extreme views are not silenced. I am concerned about the amount of racial and religious hate speech I see in social and conventional media. This is not a sign of a healthy society. When people seriously discuss banning certain religions, preventing adherents of those religions from entering the country and interning those already there; when people hijack statistics about emotive subjects such as rape to spread hatred of particular racial or religious groups; when people blame particular racial or religious groups for atrocities without any real evidence of their involvement, and abuse those who try to set the record straight; then we are already on the slippery slope towards sectarian division and conflict. Fomenting religious hatred does not prevent terrorism. On the contrary, it increases it.   

We do not know exactly what pushes societies over the edge into conflict, atrocity and genocide: often there seems to be some kind of shock applied to a society already made fragile by bad policy decisions and growing social divisions. In the case of the Lebanon, Taleb describes how the Ba'ath party's policies set up the inevitable civil war:
But while Lebanon had all the right qualities, the state was too loose, and by allowing the various Palestinian factions and the Christian militias to own weapons, it caused an arms race between the communities while placidly watching the entire buildup. There was also an imbalance between communities, with the Christians trying to impose their identity on the place.Disorganized is invigorating: but the Lebanese state was one step too disorganized. It would be like allowing each of the New York State mafia bosses to have a larger army than the Joint Chiefs of Staff (just imagine John Gotti with missiles). So in 1975 a raging civil war started in Lebanon. 
Those who think "this could never happen here" should study their own history. Western nations are by no means immune from conflict. The EU itself has not experienced a major conflict since its formation after World War II, but Europe is more than the EU, and many countries along the EU's Eastern border have suffered wars, economic collapses and in some cases partition, ever since the fall of the USSR. The US is perhaps less likely to suffer a domestic conflict, but that is because it has historically defused tension at home by starting a war somewhere else in the world, often in the Middle East. It is by no means the only country to do this. Among others, Russia and China both have form for exporting domestic unrest to favourite trouble spots. 

"The cold deepens.....the world descends into the icy waters"

A tide of desperate humanity is washing up on the shores of Europe. The majority of those attempting this hazardous journey are genuine refugees seeking to escape from war, persecution and torture in the war-torn places of the Middle East. Many are hoping for a better life for their families. But a tiny minority perhaps have other motives. 

One of the Paris bombers had arrived in Europe via one of the main refugee routes. He used a false passport. Serbian police, who identified the fake, said that Bosnian Muslims were involved in producing false passports for refugees. Whether this is true or not, we may never know. But Bosnian Muslims were the victims of some of the worst violence in the collapse of the former Yugoslavia, suffering mass rapes (20,000-50,000 women are estimated to have been raped), massacres and genocide, mostly at the hands of Serbs. Given this, how reliable is the testimony of Serbian police about the origin of false passports? Do we really want the Bosnian conflict to come to life again on the excuse of complicity in refugee smuggling?

The Paris "refugee bomber" is thought by authorities to be an EU national who used a false passport because he was already on an international terrorism watchlist. This does not, however, wholly explain why he used a hazardous refugee route. Perhaps he used the refugee route in order to convince the world that refugees were involved in the bombing. ISIS is desperate to stop refugees leaving the areas it controls, since this casts ISIS in a really bad light. Nothing would please ISIS better than Western nations slamming the borders shut, resulting in refugees freezing or starving to death. After all, it has already produced large amounts of propaganda aimed at convincing would-be refugees that they will be badly treated by the West. 

If forcing the West to close the borders was the reason for the Paris bomber's route, it succeeded all too well. Now, the world is terrified of "Syrians" and "Muslims". Not all refugees are Syrians, and not all refugees are Muslims. But no-one cares. They just want the borders shut. Just as in the 1930s, Jewish refugees were denied asylum by country after country, so now Middle Eastern refugees are denied asylum. Many are still drowning in the Aegean. Many more will die from hunger and cold as winter comes. "We have no refuge," cry the Persecuted in Tippett's oratorio.

The EU has handled the situation appallingly; but for me even worse is the behaviour of US presidential candidates who refuse to acknowledge the origin of the refugee crisis in the US's inept and meretricious foreign policy, deny that the US has any responsibility for ensuring the safety and wellbeing of people displaced by its wars, and demand the complete banning of Middle Eastern refugees from America. 
We cannot have them in our Empire. They shall not work, nor draw a dole. Let them starve in No Man's Land!
As the world turns on its dark side, we still await the shock that will push the fragile countries of Europe over the edge. But a shock does not have to be large. In Tippett's oratorio, it was the shooting of a German official by a Jewish boy desperate to save his dying mother. "They took a terrible vengeance...."
Burn down their houses. Beat in their heads. Break them in pieces on the wheel!
Muslims are not strangers. They are our neighbours and our friends. And refugees are not terrorists. They are fleeing from terror. We can, and must, do better than we have done in the past. Offering asylum to the persecuted, and guaranteeing the freedom to practise any religion or none without persecution, are marks of a civilised society. If we abandon these, we give in to the darkness.

Our world turns, to darkness and danger. But by far the biggest danger is our own unreasonable fear. Let us not forget Lebanon and Bosnia. And the oddly prophetic Child Of Our Time.

Related reading:

Europe's Shame

Who pulled the switch?

Recording of Michael Tippett's A Child Of Our Time can be found here (Youtube link)

Sunday, 6 December 2015

The New State Pension is unfair to whom, exactly?

The WASPIs are angry again. About the New State Pension, this time. Apparently it is unfair to women, especially those born in the 1950s.

Paul Lewis, in the BBC's Money Box email (h/t Annie Shaw), lists six problems:
1. Women born 6 April 1951 to 5 April 1953 all reach state pension age before the new state pension begins. So they won’t get the new state pension while men of the same age – who will be 65 when it begins – will. That is sex discrimination and they want the choice to have new or old. 
2. Women born 6 April 1953 to 5 April 1959 were told about their state pension age rise just a couple of years before they were 60 and their age was raised not once but twice. That didn’t happen to any men. 
3. Women will generally do less well than men out of the new state pension. Even by the 2050s one in seven women won’t get the full amount because they don’t have 35 years’ contributions compared with one in ten men. It is also expected that more women than men will not get a pension at all because they won’t get the minimum ten years’ contributions. 
4. The new state pension will not allow women to claim a pension on their husband’s contributions either while he is alive or after his death. If they have an inadequate pension of their own they will have to rely on means-tested pension credit which is itself being cut by up to £13 a week. 
5. Transitional rules cut back on the new State Pension for anyone who was not paying into SERPS and the State Second Pension which topped up the basic pension. As a result many will get little more than the old state pension in the first years of the new scheme. DWP figures show women are more likely to be affected than men.
6. And finally the cold-towel-round-head rules which affect people who were in company schemes. Under these rules the DWP will no longer inflation-proof part of their company scheme through the state pension. This rule will probably affect men more than women.
Let's dissect each of these in turn.

Firstly, the claim that denying the new SP to women born April 1951-March 1953 is sex discrimination. This may be strictly correct, but it is a very dangerous argument. The reason why these women will not qualify for the new SP is that they will retire earlier than men of the same age. Putting it another way, the reason why men born April 1951-March 1953 will qualify for the new SP is that they will retire later than women of the same age. If denying the new SP to these women is sex discrimination, then forcing these men to retire later than women of the same age is surely also sex discrimination. If women of this age were granted their demand of a choice between old and new SP, then men of the same age should have the same choice - but they can't, because they retire too late. So men perhaps should demand compensation for the fact that they have to retire later than women of the same age and therefore can't remain on the old pension scheme even if it is better for them, which for a significant proportion of them it will be (see Telegraph chart below). If I were the WASPIs I would keep VERY quiet about this. The last thing that they want is to open the floodgates to claims from men, surely?

Secondly, this matter of late notice of pension age rises to women born between April 1954 and March 1959. This does not not really stack up as a new State Pension problem, but I will discuss it here anyway.

While I can understand that women might be angry that their pension age has been raised twice, it is incorrect to suggest that this is limited to women born in the 1950s. Women born from 1960 to 1974 have also had their pension age raised twice. Men have had it raised once, but then they were retiring later anyway. There are further rises to come - are we going to face complaints EVERY time the pension age is raised?

The fact is that no woman affected by the 1995 changes was formally notified of the increase in her pension age until 2009, and most - especially the younger ones - still have not been notified. That is every woman born between April 1951 and March 1974. The WASPI argue that women born 1954-59 should be compensated because they had less than the 10 years' notice that the government has now decided should be given for pension age changes. But women born 1960-65 have also had less than 10 years notice, and unless the DWP gets a move on with notifications, the rest will also have insufficient notice. If women born 1954-59 qualify for compensation on grounds of late notice, therefore, so do a good many younger women.

But I don't think this claim is legitimate. The fact is that until recently there has been NO specified notice period for changes to the pension age. The government is not bound to backdate its decisions. There is therefore no legal justification for rolling back the state pension age to 60 for any of these women on the grounds of late notice. If women were incorrectly told that they would retire at 60 on a state pension, they would potentially have a claim for negligence against whoever gave them that information - which could include employers and private pension providers. But if they just assumed they would retire at 60, and made no effort to check their entitlement, then it is difficult to see that they have any legal grounds for compensation. More importantly, compensating these women across the board would in effect create a six-year cliff edge for women born after April 1959, which would be grossly unfair. The whole point of the original transition period was to avoid this cliff edge.

Women born April 1953-March 1955 were affected by the sharper transition to the harmonised retirement age imposed in 2011: some of them may have a case for transitional relief if they are facing hardship. But their hardship really arises from the inadequacy of JSA and ESA. The money would be better spent on uprating these benefits, which have been subjected to harsh cuts and conditionality over the last few years. After all, if women in their early 60s who are sick, disabled or unemployed can't live on these benefits, neither can anyone else. And if they are left destitute because they don't qualify for any of them, that too is a problem also experienced by younger people and by men.

There is a sex discrimination issue here, too. Currently, a man born between April 1951 and March 1959 who loses his job has to claim JSA, even though he is close to retirement. But a woman of the same age apparently thinks it is an "indignity" that she should have to claim JSA instead of receiving a pension, and demands reinstatement of her pension rights. If granted, this would be sex discrimination against men. Again, the WASPIs really need to tread carefully around sex discrimination matters.

Thirdly, the contributions problem. Under the new SP, a full pension requires 35 years of contributions, and to claim a pension AT ALL requires 10 years. This in my view is a major scandal in the making. No way has any woman older than about 40 had sufficient notice to build up her contributions. The problem is certainly not limited to women born in the 1950s. Indeed, it is not limited to women at all: some men will also fail to qualify for a full pension under the new rules.

The DWP has graciously provided a means for those who have a shortfall, and reach pension age after 2017, to top up their contributions. But not everyone will have sufficient income to do this. As has happened all too often in recent years, changes in benefit entitlements (legally, the state pension is a benefit) hit the poorest the most.

It is distinctly unhelpful of the WASPIs to claim this as "their" problem when it is in fact a problem for a much larger number of people. This issue needs a completely different campaign. It would be a campaign I would wholeheartedly support. HMTs cost-cutting imperative has severely damaged the pension prospects for a lot of people. It is a disgrace.

Fourthly, the ending of the right to a spouse's pension. This was always bound to affect far more women than men. This does not only affect women born in the 1950s: many women born long after that will have expected to benefit from their husbands' pension rights. In combination with the contributions problem, this will result in a large number of women receiving less than full pensions. In principle it is a good idea - after all, many women don't have husbands whose pension rights they can claim, and it is unfair that married women should in effect have pension rights greater than those of their unmarried or divorced sisters. But the transition will be painful.

Is it unfair? Yes, because many women will not have time to build up contributions to compensate for the loss of their spouse's pension rights. Should there be transitional relief for women born in the 1950s? No. Transitional relief is needed for any woman who will have insufficient time or income to make up the contributions shortfall caused by this and the contributions increase - which will include a large number of women born in the 1960s. There will of course also be a small number of men affected by this change too. So this is not a WASPI problem. Again, it needs a completely different campaign.

Fifthly, the cutback of pension entitlement for those contracted out of SERPs and/or the State Second Pension. This affects people who paid lower NI contributions because they were members of contracted-out defined benefit workplace pension schemes. Because they paid lower NI contributions, the transitional arrangements for the new State Pension cut back their entitlement to the level they would have received under the old pension. However, they will of course receive corporate pensions in addition to their state pension - after all, that was why they were paying lower NI contributions in the first place.

Once again, this problem is not limited to women, let alone to those born in the 1950s. The fact that more women appear to be involved than men I suspect is due to higher female employment in the public sector, where contracted-out defined benefit pensions were more common and continued for longer than they did in the private sector.

However, really this is a non-problem. Under the old scheme, these people would have received less than people who had not been contracted out. There seems no reason at all why this reduction should be eliminated under the new scheme. After all, they will in total receive at least as much as the new state pension and probably more. So I would not support any campaign to compensate these people, men or women. (And before you ask, yes, I am one of them).

Finally, the ending of inflation-proofing for corporate pension holders. This was long overdue and a very sensible reform. But no doubt there will be complaints, principally from men. That makes a change.

Paul's analysis suggests that women, particularly older ones, do worse out of the new SP than men. But I fear that his sympathy for the WASPI cause has blinded him to reality. The Telegraph, drawing on analysis from the DWP, paints a very different picture. Here is the Telegraph's handy table showing who are the biggest losers:

So although some groups of women are worse off under the new SP, the picture for men in general is very much worse. Moreover, it is clear that the biggest losers are younger people, both men and women. Men born 1961-65 fare particularly badly, with over half of them losing up to £11 a week: slightly older men also do quite badly. Women born in the 1950s fare better than anyone. Why is Paul focusing on them?

By incorporating the problems that the new scheme causes for some older women into a campaign that is about a completely different matter, we risk missing the real issue. The new State Pension was a good idea in principle, but the way it is implemented in practice will cause hardship for a very large number of people for a long time to come. And it is all because of HMT penny-pinching, and a Chancellor who is making a political career out of hurting the poor and the vulnerable.

Related reading:

Impact of new SP on an individual's Pension Entitlement - first 15 years - DWP
Research shows most will be worst off under new Single Tier pension - Hymans Robertson
The angry WASPIs

Unreasonable expectations and unpalatable truths

At the ICAEW's conference "Do Banks Work?" last week, there was a fascinating interchange between Ian Gorham of Hargreaves Lansdowne and RBS's Ross McEwan. Apparently RBS had refused a large deposit from Hargreaves Lansdowne, to the irritation of the asset manager. "There is a problem placing client money", said Gorham. And he went on:
"Banks don't need people's savings, because they now have much more capital to support lending. This means that savers receive much lower interest rates on deposits. For an ageing society, this is a problem". 
This is a variant on the "banks don't need savings because they are awash with cash due to QE" meme. It does at least have the merit of understanding the structure of a balance sheet - for the same assets, if you have more equity you need less debt. But the WHOLE POINT of all the regulatory reforms of the last seven years was to force banks to deleverage - permanently. The inevitable consequence of this is, of course, that they need less debt. Deposits are bank debt. Clearly, they need less money on deposit than they used to.

Or - do they? Here is Ross McEwan's response.
"There is a huge amount of money floating around the financial system looking for a home. The supply is greater than the demand, and that causes the price to fall." 
So, for McEwan, the problem is not so much that banks need less on deposit, it is that more money is trying to find its way into banks. There is too much supply, not insufficient demand.

McEwan is right. There is indeed too much money in the financial system. It has been deliberately created by central banks to encourage people to invest productively instead of sitting on cash.  It has singularly failed, largely because no-one joined up the dots. Money never leaves the banking system except in the form of physical cash. Putting more of it into the banking system therefore cannot possibly increase the flow of money around the system. It is rather like pouring more water into a stagnant pool, without removing the leaves and debris that have blocked the outflow and caused the stagnation . You simply end up with a much larger stagnant pool. So since they have destroyed demand for deposits and killed the interbank market with QE, central banks now have to introduce additional policy measures such as negative rates on reserves to try to improve the velocity of money. Governments, too, get in on this game, providing subsidies to banks to encourage them to lend and bungs to people to encourage them to borrow. These interventions have some effect, of course, but at the price of more and more state intervention in the banking system. It is, in effect, creeping nationalisation.

But Gorham, too, has a point. Banks do not want to take deposits for which they have no immediate need: they would rather customers placed them somewhere else, and they don't really care where. So this interesting exchange touches on a deeper question. What exactly do we want our banks to do?

Traditionally, banks accepted deposits, made loans and provided payment services. They paid interest on deposits, charged higher interest on loans, and imposed fees on payment and other services. But that was at a time when the demand for loans roughly matched the supply of deposits, and free-while-in-credit banking didn't exist. Now, the supply of deposits vastly exceeds the demand for loans, interest rates are on the floor, and payments have become a vital (and largely free) public service.

And this, as both Gorham and McEwan acknowledged, creates a problem. Customers - including asset managers, apparently - want banks to provide a deposit-taking service regardless of whether banks have a productive use for the money. Banks may of course provide such a service, but if they can't use the money to fund profitable activities, they will not pay customers for it. Why should they borrow money at interest when they have no profitable use for it? It would be wholly irrational, and probably a failure of fiduciary duty towards their shareholders.

So, banks are starting to demand payment for deposit-taking services. Some banks are already charging institutional customers for the placing of very large deposits. And among retail customers, there is a growing scandal over the mis-selling of bundled current accounts, which in effect are an attempt by banks to charge fees for transaction services without being seen to do so. The imposition of fees on deposit-taking is, of course, a proxy for the negative interest rate that deposits should bear in a banking system where the supply of money exceeds the demand for it. Unless the demand for money picks up - and that means a considerable increase in profitable lending - savers will continue to receive very low or even negative rates, especially on demand deposits.

Banks have the right to refuse deposits. Indeed, under certain circumstances (such as if they suspect the money comes from a dodgy source), they are obliged to. And it is prudent of them to refuse deposits that would make their balance sheets unstable. Banks have been under severe regulatory pressure to reduce reliance on forms of funding that are prone to runs. The worst is wholesale funding.- which is exactly what Hargreaves Lansdowne's client money is. No wonder RBS refused it. Not only does RBS have no productive use for it, the bank would pay a levy to the government for accepting it.

The scars of the 2008 crisis run very deep. People still don't trust banks. They want to lend their money to banks, because - let's face it - these days it is very hard indeed to manage without a bank account. But they don't want to tie up their money in term deposit or notice accounts, because that means that in the event of a bank failure they would not be able to get their money out. This is reasonable. What is not reasonable is the expectation of immediate access to savings AND positive returns.

The provision of liquidity to retail and institutional customers is one of the principal services provided by banks. It's an essential market function, and when banks restrict liquidity the whole economy suffers - just look at the effect of capital controls in Greece, for example. But since providing liquidity creates risk for banks, it is reasonable for them to charge for it. So the underlying problem here is people's unreasonable, though wholly rational, desire to have their cake and eat it. Customers cannot have both immediate access to, and positive returns on, their deposits. If they want liquidity, they must pay for it in the form of low, zero or even negative returns. Liquidity has a price, and the more safe we want our banks to be, the higher the price of the liquidity we want them to provide may have to be. For Hargreaves Lansdowne, the price was infinite.

Ian Gorham's annoyance at RBS's refusal to accept very large deposits of client money therefore misses the point. Asset managers are not supposed to be providing liquidity for their clients, and banks don't have to help them to do so. Asset managers are supposed to be investing for the long-term. It is a measure of how unreasonable people have become that they expect not only banks, but asset managers too, to generate high returns on their savings while providing immediate access.

However, it is not just demand deposits that face interest rate compression. Time deposits do too, even though for banks they are a good source of stable funding. And that is because the world has changed. We are now in a low-growth, low-inflation, low-interest rate paradigm, which shows no sign of shifting any time soon, despite the optimistic forecasts of central banks and other institutions. Low expectations of growth and inflation depress investment and encourage hoarding, both of which put downwards pressure on interest rates: while an ageing, asset-rich society increasingly regards the primary aim of financial management as avoiding losses rather than taking reasonable risks. Passivity is all the rage. Stagnation is not just due to QE - it has an underlying demographic driver.

The days are gone when bank managers borrowed at 3%, lent at 6% and were on the golf course by 3pm. These days, much of their lending is at far narrower spreads: deposits earn less, but so do the mortgages which make up most of their business. Banks face stiff competition in all areas of their business: for savings, from funds and asset managers; for loans, from online providers and peer-to-peer lenders; and for transaction services, from mobile money and fintech. It simply is not possible for banks to provide the services of the past and remain profitable.

Retail banking, in particular, is looking more and more like a public utility akin to water or railways, heavily regulated and requiring extensive public subsidy to enable it to function at all. This seems inevitable: surely it is time we grasped this particular nettle, and stopped pretending that retail banks can be effective providers of financial services to the real economy without government support? I wonder if attempting to unpick state support of banking is going in the wrong direction. Banks that cannot rely on state support in a crisis are inevitably risk-averse, and that makes them less willing to provide finance to the riskiest part of the real economy - small businesses and startups.

Ross McEwan says that banks must "face their customers". Indeed they must, and that means being honest with them. If customers have unreasonable expectations, banks must tell them unpalatable truths. In a world of excess money, customers cannot have significantly positive returns on deposits. The price of liquidity, too, may be higher than some customers want to pay. Similarly, with lending, some customers will be unable to access finance at a price they can afford, because the lending risk is higher than the bank wants to accept. As a result of all this, some people will be pushed out of the banking system: for example, self-employed people who prior to 2008 would have obtained a self-certificated mortgage now cannot borrow to buy a house, and savers who want higher returns are looking at alternative providers. This is a feature, not a bug. Having safer banks inevitably means excluding riskier customers and those who want abnormal returns on savings.

The question is what we do about those customers. This to my mind is not being adequately addressed. It is not safe to assume that the unregulated sector can meet the needs of those voluntarily or involuntarily excluded by the banks. Historically, financial crises have always started in the unregulated sector, and spilled over to banks primarily through the payments system, because all money, even that supposedly deposited in the unregulated sector, actually lives in banks. Unregulated financial institutions are customers of regulated banks. If access to finance for marginal borrowers is key to unlocking future growth, it may be better for the state to accept the risk of lending to them rather than allowing society to take the risk of unregulated lenders blowing up the whole system. And similarly, if the old being able to live on the returns from their savings is beneficial to society, then it is rightfully the role of the state to enable it.

Regulators and banks would like us to believe that things are now "back to normal" after the disaster of 2008. But this is as unreasonable as the expectations of customers. Things are not "back to normal", and they never will be. We are in the middle of a process of fundamental change. What the "new normal" in the distant future will look like, we don't yet know. But one thing seems clear: the banks of the future will be very different from the banks of the past.

Related reading:

The slow death of banks - Pieria