Finance

We Need To Talk About: The Green Investment Bank

/ Dr Craig Dalzell / Leave a comment

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Another day. Another broken promise from Westminster. I had been expecting news like this since the referendum last September but I’ve been frankly shocked by the rate at which they’ve been coming and where the hammer-blows have been falling.

Today it was announced that the Government will sell off the Green Investment Bank. The bank, capitalised with some £3 billion of taxpayers money, was set up in 2012 with the mandate for providing investment and incentive for renewable schemes across the UK. Its headquarters were located in Edinburgh in a bid, as it was reported at the time, to attempt to head off the push for Scottish Independence. Indeed, even just the week before the referendum dire warnings were uttered about the potential of Scotland “losing” the bank if we voted Yes (The news that the bank hadn’t actually been investing more than a token amount within Scotland in its first year or so was, of course, conveniently placed to the side).

Instead, now that we’ve “safely” voted No, the bank is to have up to 70% of its shares sold off to private interests for somewhere around £1.4 billion, under half of its initial capitalisation, at a time when it has just announced that it has become profitable.

Of course it’s not all just about the outright betrayal of Scottish voters. In this move, as well as last week’s scrapping of onshore wind incentives, David Cameron and his new Tory majority government are flexing their ideological muscles. Gone utterly is their “Greenest Government Ever“. To quote Scottish Greens co-convener Patrick Harvie on the topic today:

“The sell-off of the Green Investment Bank proves that David Cameron’s comment about wanting to ‘cut the green crap’ has now become a full-blown mantra for a right-wing Government determined to wreck our renewable energy opportunities. The bank was a half-hearted effort by the Tory-Libdem Coalition, with limited powers and funding. Rather than taking another backward step we need governments to go further and faster on developing new energy sources and cleaner industries as the need to leave fossil fuels in the ground becomes ever more urgent.”

Added to this is the call from Green Party of England and Wales MP Caroline Lucas:

“The Government’s rash and irresponsible plan to sell off a large chunk of the Green Investment Bank calls into question their commitment to investing in a low carbon economy.

“At precisely the time when we should be leading the world in the fight against climate change our Government appears to be in retreat. The Government should keep at least a majority stake in the Green Investment Bank to ensure investor confidence is upheld and the commitment to low-carbon lending remains.”

This is just another string of sell-offs by the Government of profitable parts of public service at a substantial loss to the taxpayer (joining such company as the East Coast Mail Line, The Channel Tunnel, The Royal Mail and many of the banks bailed out in 2008). It is purely an ideological move by the Tories to get the Government out of the business of owning any kind of body capable of serving the public.

I have to wonder what they think the endgame is. Just what do they want Tory Britain to look like?

And is there a place in it for us on the ground?

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How to Make Housing Affordable

/ Dr Craig Dalzell / Leave a comment

Tenementhouse(Image: Tenement House, Glasgow. Source: Wikipedia)

Housing is always a touchstone issue during election campaigns and this one is most certainly no different. Two of the most oft-quoted in the manifestos this time round are: “How can we build “Affordable Housing”?” and “How can we afford to build them at all?” It seems strange that we are quite content to allow banks to borrow, or even flat out create, the funds it requires to supply us with a mortgage for a house but it is almost anathema for a government to do something very similar. I am going to make the very simple case that we need to dispense with this illogical paradigm and start looking at how to build a stable, long term housing policy fit for purpose.

For the purposes of this exercise I looked at a couple of example mortgages available from the commercial banks today. One typical one offered me a £90,000 mortgage with an initial interest rate of 4.2% fixed for 2 years. Assuming that that rate didn’t change over the 25 year term of the mortgage I would be faced with paying £485 per month for those 25 years until the loan was paid off. The total amount repaid (discounting inflation) would be just over £145,000. Given that we are currently experiencing historic lows in our interest rates and that they are unlikely to drop further this gives us the lowest bound to the repayment. Add in, on top of that, the profit margin demanded by a private landlord and the costs soon mount up rather staggeringly. It really is no wonder that many of the UK’s richest people are in the property market.

But what would happen if the Government borrowed that money instead and invested it in a social house for me? Today, May 4th 2015, a 25 year UK bond attracts an interest rate of 2.515% (Source: http://uk.investing.com/rates-bonds/uk-25-year-bond-yield). The first thing to note is that this interest rate is guaranteed to be fixed for the entire 25 year term. There could be no uncertainty over the possibility of unaffordable interest rate rises of the kind which led to so much chaos during the 2008 crash. This opens the way to a long term government housing policy rather than the election-by-election tinkering we see now.

At this lower interest rate we could charge the same £485 per month and expect to have the loan paid off in full almost five and a half years early at a total cost of only £114,500, a saving of £31,000 or 21%. By having the government borrow for us, we can afford five houses for the price of four! Alternatively, the monthly rent could be cut by £80 per month and the 25 year term maintained whilst still undercutting any private landlords (even if they pass on their bank mortgage at cost).

What happens after the loan is paid off could be a matter for government policy. The rent could be maintained, providing the government with a ready and reliable revenue stream. Or the house could be granted at a discounted rate or entirely rent free to the tenant for the remainder of their occupation (with the house returning to the social stock once it is no longer required), or the rent could be reinvested into more housing stock to keep up with demands from population growth and (dare I mention that dreaded word?) immigration. The UK’s population is growing at less than 1% per year meaning that we’d need just one new house built every year for every one hundred in the stock. The rents from those hundred could easily accommodate for that level of demand. Our hypothetical £405 per month rent for 25 years is now just £410 per month, still greatly cheaper than our private landlord and we no longer need to worry about the costs of housing the next generation (wherever they come from).

Of course, many other questions still remain underneath this housing policy such as: where do we build these houses? (the old green belt versus inner city regeneration question), how do we manage (or tax) the land on which they are built?, what infrastructure do we build around them?, or how can we encourage business development in or near these areas to provide jobs for the residents. These are most certainly vital questions to be answered as part of a holistic and complete housing policy but one thing is certain. Neither your bank nor your private landlord concerns themselves with these questions. Even if none of them are answered within this article I believe that I have demonstrated that allowing a government to borrow to invest in our society need not be the terrible thing that some politicians would have you believe it would be. Surely, lining the pockets of the banks and landlords the way we currently are is the least effective, most costly way we could possibly be doing it? TCG logo

We need to talk about GERS

/ Dr Craig Dalzell / 5 Comments

GERS

Much has already been said about the publication of the latest round of the Government Expenditure and Revenue Scotland report or GERS (http://www.gov.scot/Resource/0047/00472877.pdf). Much rammying done over what these figures mean for an independent Scotland.
Answer: Not much. They tell us nothing about future policy direction. GERS isn’t a prediction of different circumstances, merely a snapshot of how current policy is affecting us.

More rammies have broken out over whether Scotland is or is not “subsidised” by money from the rest of the UK. Answer: This year and last, probably. But it’s yet to make up for the decades of cash flowing the other way to the tune of around £220 billion over the past 35 years. Little is said during this about the state of the UK’s finances to which we are compared. As a percentage of revenue, the UK deficit is currently worse than that of Greece at 15.6% versus 10.4% respectively!

Even less is said about how balanced Scotland’s economy is compared to the UK’s. If we are to be bound by (largely) the same economic rules and austerity agenda then we need to know if it is “working” for Scotland as well as for the UK as a whole.

Here is the table from the report breaking down the tax revenue from various sources.

GERSrevtable  Scotland, by population, makes up 8.1% of the UK total. We should, all things being equal, contribute 8.1% of each of those different tax sources. Several disparities stand out to me.

The largest one is income tax. There is a £1.2 billion shortfall in our income tax receipts. This is despite Scotland’s higher employment rate. In essence, Scots are taking on lower paid jobs thus paying less in tax. Correcting that shortfall is the equivalent of taking every single worker in Scotland, part time and full time, currently earning less than the Living Wage and paying them a £25,000 salary instead. The lack of decent employment in Scotland is having a devastating impact on our nation’s finances and our ability to sustain public services. Incidentally, increasing employee pay would also raise the amount of National Insurance paid by several billions of pounds.

Ruth Davidson suggested fixing the deficit by raising the income tax rate, I simply say have more people earn more money and use that to pay more tax.

Whilst we’re looking at income, it’s worth looking at the other end of the spectrum. The large corporations touted as the “job creators” in this economic climate are largely based in London and the South East and the very rich pay a greater fraction of their taxes via Capital Gains and other wealth related taxes. Again, here, we see a shortfall in the amount paid compared to rUK removes over half a billion from Scotland’s accounts. Another £660 million are “missing” from our accounts due to shortfalls in both council tax and stamp duties. Policies designed to further inflate the London housing bubble simply don’t fit in a nation where the house prices are consistently comparatively lower.

But where does Scotland “over contribute” to the national finances? Tobacco, alcohol and gambling duties all contribute far in excess of our UK “share”. Some £640 million per year is collected off the back of spending on these items. Time and time again, studies have shown that a population ground down by stress and inequality turn to vice and addiction to ease the pressure (http://www.gcph.co.uk/assets/0000/1080/GLA147851_Hypothesis_Report__2_.pdf) and that income inequality in particular is the single strongest correlator with a nation’s overall wellbeing.

inequality

(Image: http://inequality.org)

If the economic policies of Westminster are designed to improve the lot of the top 10% (who have seen their share of national wealth increase from 20% to 35% of the total within my lifetime) then here is direct evidence that this strategy is most certainly not designed to help Scotland.

So why is no-one talking about all of this? Why do we hear nothing more than the same old back-and-forth mud slinging? There are plenty of journalists and politicians who have spent hours poring over the same data presented here. They must have the ability to spot the same patterns as anyone else can. Is it possible that it’s simply easier to complain about a problem than to identify the causes of it, much less actually suggest a solution?

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