Ian Mulheirn says UK housing is not a supply problem. No one can prove him wrong

Around three years ago in some bistro in Soho, Ian Mulheirn startled a tableful of economists going at their cassoulet with the bland statement: “Housing? It is not a supply problem”.

To call this heresy is melodramatic. We just thought he was winding us up. To question the mantra “just build more houses already” felt more like the kind of smart-alec model-play economists like to indulge in, such as when Hayek reportedly told Richard Kahn that buying a raincoat would worsen the Great Depression, or Scott Sumner reminds people that low interest rates can be contractionary (unlike Hayek, he has a point). Surely it is obviously a supply problem? Just look at those easily-googledup graphs of housebuilding, house prices, ownership rates? Screenshot 2019-08-22 at 16.15.12.png

Screenshot 2019-08-22 at 16.14.08
It all fits rather neatly into a political narrative, too: around 30 years ago, the wicked Thatcherites sold off the council homes and around the same time NIMBYs seized the planning system. For a while people kept on owning homes because other kinds of wicked capitalists (bankers) lent them money they could not afford, but when that game was up, the whole edifice came crashing down, leaving our young robbed of their future. It is a story that convinces the free market liberals and socialists alike. If this lot ever joined in a Government of National Unity, a Million More Homes might be the only agenda they coalesce around.

But Ian wasn’t trolling, and the next day at the FT I received a rather impressive and weighty report full of careful analysis like this

Screenshot 2019-08-22 at 16.21.08
I proceeded to find some hours in my day for arguing with Ian and proving some embarrassing mistake in his fundamental thinking. Because, of course, he could not be right – it is obviously a supply problem, it must be some trick of his model or failure to consider some obvious factor. Clearly we do not build enough houses – just eyeball those charts! We have had a long boom in net immigration, house supply has not risen in line, house prices have, come on, use Ockham’s razor, it HAS to be supply …
And so a long email chain began. Really long – probably the longest of my life. And every decent point I could think of, Ian patiently rebuffed over the next few months. I learned an embarrassing amount myself. The rental time series do NOT show rents swallowing an ever larger portion of the household income. There is a critical difference between Housing as an Asset, and Housing as a Service, and for the former you need to think in terms of an asset that has a yield, which must be compared to all the other interest rates available. Yes, Ian had thought about household formation being ‘endogenous’ – trans: the cost of housing possibly suppressing people going off and setting up homes.

And then Dominic Raab of all people helped to prove Ian right, or at least that the Government agrees. In early 2018 he as housing minister kicked off some ugly argument about whether immigrants were responsible for our soaring house prices and as a consequence the official MHCLG thinking on this subject was aired. Here it is. There in Table 1 is a straight acknowledgement of the elasticities that Ian references. 1% more houses means 2% lower prices: over the 1991 to 2006 period, the 20% extra houses (i.e. about 5m, or 200,000 a year) had therefore led to house prices being 40% lower than they would otherwise have been. Sounds a lot? Well, over that period house prices had risen 160%.

To put it another way: if some combination of council house building, green belt destruction and NIMBY-confronting had raised the building rate by 100,000 a year, there might have been 2.5m more houses, about 10% more, and house prices might have risen 20% less. So they might have risen by 140% instead of 160%. And that is one ENORMOUS amount of extra building – and, according to Ian’s figures, it would have hugely outpaced the actual rate of household formation.*

Let me repeat: the Government through its figures agrees with Ian. No feasible amount of house building will make housing more affordable, or the buying of a house markedly easier.

Ian has now moved to the Tony Blair Institute (he was at Oxford Economics before, and we briefly worked together at the Social Market Foundation). From the TBI he has released his latest attempt to educate the supply-convinced: it can be found here. Please read it and tweet me or, better, him what you think he has missed, because I know you think he must be wrong. Mostly lurking, I have watched him patiently and politely argue with people for three years now. See this Resolution Foundation blog. His ability to keep his temper in the face of so many arguments he has already heard is quite amazing. Do follow him. And read that paper, and reflect on charts like this showing the greater affordability of housing as a service.

Screenshot 2019-08-22 at 16.54.59.png

You may ask: what WILL make houses more affordable? A massive shift in the interest rate curve might, though it will also push many more owners into distress; houses were more ‘affordable’ in the early 1990s from that point of view, but the rate of repossession was also sky-high from the unaffordability of the monthly mortgage payments. Transfers of buying power from (old) owners to the (young) yet-to-own might, but that is a monumental political challenge. Greater mortgage availability might, but people will shake a withered finger at you and warn of repeating the errors of the 2000s.

The tougher question is: if this is so compelling, why is everyone so sure the problem is supply? Why do we all feel it in our guts? Here I cannot answer, and cannot rule out myself throwing down my pen one day, shouting “it MUST be supply” and restarting one of those enormous email chains. You tell me.

All in all, it is right that the provision of housing is a political issue. But whenever I hear someone profess some obvious sounding answer, I will always ask: “have they tackled Ian Mulheirn yet?”

*UPDATE. Jonathan Portes has politely pointed out an error in the way MHCLG presents the outcome of elasticities; instead of applying that 20% to the original price (i.e. to 100) it should be applied to 260 and so the total price would have risen 108% not 160% in light of that extra supply (this is his tweet, which Ian acknowledges). However, this error is only so egregious because we are talking about analysis of a very large, 25 year run up in prices (and 2 is apparently a high estimate for supply elasticity) – and 25 years of doing that extraordinary price explosion. It strikes me as still being the case that even adding 300,000 houses more than expected in just one year – about 1% – would lower the price level, ceteris paribus by just 2%.

The best way to put Ian’s point is to quote it directly: this is how he makes it in the document

To put these figures in context, it is worth considering the situation in England. The latest available data suggests that the first half of 2018 England had a total of just under 24.2 million dwellings, 4.9% more than the number of households. The above relationships suggest that, if households in England were to form at a rate of 200,000 per year, net additions of 300,000 per year would cut real terms house prices by 0.8% per year, all else equal. Applying the range of UK estimates above, such rate of additions might therefore be expected to reduce prices by between  7% and 13% over 20 years.


Time for macro economics to get political once more

A former No10 colleague asked me recently: is there a definitive guide out there to how monetary and fiscal policy work together? What determines incomes? 


What made his questions remarkable were both how fundamental they were, and yet how distant from the day job when we had worked together in Downing Street. Politicians do not do macro any more, albeit you would not know from how they boast.  Chancellors demand acclaim for ‘their’ stewardship every time GDP notches up a decent run, and ‘hail’ the latest jobs figures, as if all down to their expert execution of some kind of plan. Internally, senior advisers lecture one another about the  “plan for jobs”, and the need for a comms plan aimed at the some focus group that revealed a love for the word “jobs”. 


Of course there is no ginormous Whitehall spreadsheet with all the jobs in it. The Chancellor does not steer the economy. For all the manifest talent amongst Government economists, the image that springs to mind is of a bunch of people sitting on top of an iceberg, staring at a map, pretending they are steering the iceberg.   Insofar as the state has any say, it is outsourced to combinations of the Bank of England, Debt Management Office, Office for Budget Responsibility and the like. 


This state of Macro-Impotence is still more remarkable in light of how much the macro economy matters. Macro failure led to governments being ejected in 1970, 1974, 1979, 2010 and probably 1997.  To read the memoirs of Chancellors from Cripps to Lawson is to experience a constant, chaotic drama of macro economic misadventure.* Chancellors and prime ministers wrestle for the steering wheel. The connection between fiscal and monetary policy (my correspondent’s question) is constantly contested, often in the heat of a crisis.  The Bank of England itself is unsure of how things work, and for most of its history has a lofty disdain for economists. For long periods you have Chancellors indifferent to monetary policy as tool – base rate stays the same for years. Then wild experiments in monetary base control or exchange rate management are launched into with little public understanding. At every budget, Chancellors tug away at a host of levers like hire purchase terms, capital controls and incomes policy,  tinkering we would never dare to emulate today.  


This was when the behaviour of the pound really mattered – its weakness led to the great deflationary budgets of the 1960s and 1970s and the sky-rocketing rates of 1992. Its strength wiped out British manufacturing in the early 1980s.  Bad trade figures may have swung the 1970 election


We should not look to return to those days.The period 1945-1992 was for long periods a humiliating clown-show.  I can see why the clumsy attempts in 2016 to criticize the Bank’s low interest rate ‘policy’ drew such condemnation; until the political class grasps the difference between the policy rate and natural, equilibriating rate, they do not deserve a bigger say.     Far safer the current set up, where we only watch the pound for its instant, semi–satirical comment on the latest Government defeat.  


But now I am wondering if we have abandoned the field too early.  There are a number of reasons. The first: we are clearly in a very different place to where we were when we decided to stop thinking (as a political class) about macro.  See this chart to understand what I mean:

The collapse of the natural interest rate across the developed world is a problem of first order importance, but because we were so long trained to think the problem was high rates and inflation, the political class is unable to think about it. Any measure that might break us out of this trap – a higher inflation target, recourse to direct monetary financing, etc – blunders into invisible third-rail taboos, and tactical thinking about who gains and loses from higher rates. 


We also have a very different labour market to the one we thought we had just 10 years ago. I like to trace this through the evolving forecasts of the OBR.  Back in 2011, the OBR forecast was quite vertical: employment would rise slowly, wages soon recover fast as the labour market tightens. Since then it has been flatter and flatter:

If you read those post war economic memoirs, this is the labour market all those Chancellors were dreaming about. They longed for one where you could juice up the economy and all that happened was unemployment fell.  And yet today we see those weak wages as the giveaway signal of a terrible productivity crisis. We should be asking if our labour market is now far too flexible, and damaging broader macro economic goals. 


Which leads to the second point: that weak productivity really turned up when aggregate demand began to fail around 12 years ago. Productivity is meant to be about slow-moving factors: skills, infrastructure, the quality of our institutions and technology. These are not meant to fall off a cliff (normally; see below).  The link between the hit to our nominal GDP and weak productivity may be a macro-matter, but we have trained ourselves not even to think about that. We need to. 


Finally there is Brexit and a possible simultaneous shock to demand and supply. Bank of England warnings of a 35% house price crash looked like a tactical mistake a year ago – but revealed a macro choice that politicians would want to influence: between allowing inflation to rise far beyond the target, and pursuing a really tight monetary stance to bring it down.There is even the exotic thought of a sterling crisis too.  The conventional assumption is that a chaotic Brexit will lead to lower gilt rates – and the Chancellor sounds keener than his predecessors to exploit them. Hence aggregate demand might be supported.   But that is not how it goes in emerging markets. What if the pound falls, confidence in the inflation peg goes with it, the prospects of Corbyn come closer, and gilt investors suddenly wonder if they are being taken for suckers? Is there some level of £/$ at which the Bank has to act and crush demand like its 1992?


In the worst scenarios there really are dilemmas to navigate and political choices to make. But it is so long since choices and dilemmas fell wholly on the politicians that David Cameron was then a special adviser**. One of the weird upsides of Trump is that it is forcing people to notice the boundaries between the political and technical/monetary sphere once more. There happen to be plenty of talented macro economists in government, mostly buried in the Treasury. It feels to me that they need to be brought to the fore again.


*I particularly recommend: Denis Healey, The TIme of My Life; Roy Jenkins, A Life at the Centre; Richard Roberts, When Britain Went Bust and Cairncross and Burke Goodbye Great Britain (both about 1976); Sam Brittan, Steering the Economy;  Philip Stephens, Politics and the Pound; Nigel Lawson, The View from No11; David Kynaston’s history of the Bank of England, Till Time’s Last Stand; Duncan Needham, UK Monetary Policy from devaluation to Thatcher; and everything in Bernard Donoughue’s Downing Street Diaries.  I have thus far resisted Geoffrey Howe’s memoirs but know I will crack sooner or later, and have Alec Cairncross’s Managing the British Economy in the 1960s glaring upon me from the shelf. 


**You might, fairly, say “what about 2008-9?”. But unless you are really nuts there was no dilemma at all then. It was a pure aggregate demand hit, all hands to the pump, and I am personally fairly thankful the Labour team had experienced hands in place. I should also acknowledge the great “expansionary austerity” fights of 2010-12, which need another post. 


What is your problem, it is only two quid!

There are plenty of rubbish jobs, but surely none as daunting as the Treasury official tasked with telling a desperate new government what is bad value for money. Bless these people with their negative ways, for they are the bulwark between us and a land festooned with Spad-designed roads, science parks without scientists, 5G testbeds dotted across the moorland and “zones” of every possible kind. You know the zones I mean. Food Enterprise Zones, Tourism Action Zones, University Innovation Zones – whatever you can get by smooshing two concepts together and adding Zone to the end. Try it yourself. It really is how grownup countries turn into Singapore, honest.

Perhaps I am being hasty – it is easy to forget it is still only August. But I suspect the people happy to spaff some £4bn on preparing for something so asinine as No Deal will be somewhat impatient with concepts like Deadweight, Additionality, Crowding Out, Benefit Cost Ratio and so on.

The problem, of course, is that none of these vital concepts get into the meeting with the No10 adviser or pivotal minister (None of the MPs queuing to visit Vince Cable did so to lobby for more laissez faire in their constituency. Particularly the Brexity rightwingers). When you see the slidepack, it is all asset and no liability. Keeping a grip on that liability is a critical skill and character trait.

One of the pleasures of the job is the sheer quantity of phenomenal business ideas you see, Dragons Den style. The art is to listen with an open mind while never, ever forgetting that you have to be missing something. Generally, that thing is “the whole of the downside” and a sceptical eye towards the chance of undiscovered yet brilliant ideas. It cannot be possible that this particular scheme to:

  • Evolve faster than sound travel
  • Charm carbon-free gas from the rocks
  • Generate electricity too cheap to meter
  • Dot the country with rapid electric chargers
  • Turn every local authority into a centre for Age Tech Expertise

was overlooked by the entire, money-hungry private sector but somehow snuck into the stuffed diary of a government adviser. If this is such a fine idea, why haven’t any of the following taken it up: Bill Gates, the French, the US Department of Defence, Goldman Sachs, Elon Musk, or the previous six governments?

Anyway, I was thinking about this when reading on the failure of our electric grids last week. The story is still evolving, and I do not want to weigh in (yet) on the brewing argument about the role of wind* in causing the FUP.

One of the clear lines of enquiry is whether we have just under invested in the grid, and the FT led its story with a striking line:

“For the thousands of rail passengers who were stranded on trains scattered across Britain last Friday evening, a £2 charge might have seemed a bargain to escape their predicament.”

A mere £2! Who could possibly object? The case is a slam dunk; after all, there has to be some level of investment at which an outage cannot happen. It is possible to build 50mw battery packs – often attached to an intermittent source like wind – and with enough of them, you can surely solve the problem.

My interest is in the £2, however, which comes from the brilliant Aurora Energy Research, total experts in the UK energy system. They have calculated it by looking at how much National Grid spends paying the likes of battery farm owners to stand ready to resupply electricity in a crisis (£170m) and doubling it.** The £2 is just the bit households pay – if we assume some 25m families, that means the ordinary household is about a third of the nation’s bill.

So that £2 is legit, but also a bit misleading, and should get the curious reader wondering: if this is so obvious why was it not already done? No one notices £2! Hey, while we are at it, why don’t we call it 4p a week?

Here is one reason why: you can mess around with that number in other ways. £170m a year (the total bill) – why don’t we roll it up for twenty years and call it “energy users face £3bn bill for electric battery folly caused by wind power lunacy”?

Or why not attack from the left instead and think of it in terms of fat cat dividends for National Grid (unfairly – they probably just administer it). While you are at it, look for some diesel generation that crept into the capacity auction.

The ultimate reason to care is that investment costs us, no matter how paid for. The government as a whole is a marvellous vehicle for spreading tiny impositions so thin that no single one of them can be felt (there is an exception for highly visible taxes like Council tax and fuel duty, which is why they are kept under disproportionate pressure). There have to be limits and budgets, or the pennies become pounds become billions. In the case of energy bills, they come through the Levy Control Framework. I personally think it is a bargain – this thing that adds up to around £9bn, or perhaps 10% of the bill, has paid for a humungous quantity of wind, nuclear, spare capacity and so on. But even this big state Liberal thinks it should be no one’s piggy bank.

Back to politics.The liabilities are missing from the conversation, it is the harried Treasury official and arms length regulator generally tasked with holding the line. We may be entering a period where those admirable types are put under unprecedented pressure to stop fussing about their business case. I wait agog to see what long-delayed project is suddenly deemed a great idea because of No Deal Politics: road, rail, science park or technological punt.

There is one in particular that is so egregious, so far from good value for money, such a transparent outcome of the most unscrupulous lobbying, that all of us former insiders are on tenterhooks about whether this is the government so cynical as to let it through. It will be the definitive proof that the Treasury has been thoroughly beaten. And the excuse to be deployed? “What is the problem, this costs mere pennies on the bill!”

*I remain permanently stunned by how many strong, uninformed opinions there are on energy; people who moronically lace together disparate, badly understood strands just to suit a prior theory. In their mind, the rise of renewables, the energy price cap, the loss of manufacturing to China, the disillusionment of the poor at the utilities, all come together into one neat critique. It does not work, but that is for another day.

**This is likely to arise through something Ed Davey brought in called the Capacity Market, and it is one of the very good things his DECC did.

The voting system drives our politicians mad

After the first big Brexit Postponement, the Euro elections and all that excitement, the day job in No10 became somewhat dull. There are limits to what an administration that is definitely, unavoidably, finished can do (for another blog). Life was dull, unlike the polls, and so with some extra hours on my hands I decided to build a Swingometer.

The ostensible pretext was to showcase what you can do on Excel. The honest reason was to translate those barmy voting intentions figures into seats, because the system is well and truly insane. 

This is not just the standard LibDem whinge about the unfair voting system, though it is that too (in 2017, a percentage point of national vote share won the Tories 7.5 seats, Labour 6.5 seats, and the LibDems just 1.5).  If anyone should complain, it is the Brexit Party – on most of my simulations, their incredible performance earns them … Thurrock-all. 

No, it is about the crazy volatility the system induces, which in the hands of risk-seeking politicians is bound to encourage similarly crazy, risk-seeking behaviour.  Which I will try to show with Charts. 

First, a few geeky words on how it works.  Back in the days of Peter Snow, there was only need for one swing – Labour-Tory.  As this moved, red would shift to blue or vice versa. Now it is far harder. As far as I can see, to reflect what is currently going on, you need:

  • The loss of Tory voters to Brexit Party
  • The loss of Labour voters to Brexit Party
  • Ditto both to the LibDems
  • Ditto both to the Greens and
  • A swing from Labour to Tory 

Fortunately Excel is good at this, and you can take every seat in the country, apply it uniformly, and presto! There you have an aggregate result.  Here is a snapshot of the thing:

Screenshot the model

Of course, it is a model, and hence a simplification. Swings will not be uniform around the country, voter shifts will be way more dynamic, and so on – but it gives you a base case. And if you know techniques such as Data Tables, you can quickly eyeball a whole range of outcomes and see just how batshit the system is.  

For example, here is a Leaver’s nightmare: what happens if we assume the Brexit Party takes 2 Tory votes for every Labour vote, and the LibDems are held at 14%: 

Leavers Nightmare

Even if there is a substantial (5%) swing from Labour to Conservative, a Brexit Party scoring 10% will see the Conservatives short of a governing majority.  It is possible for Farage’s outfit to hit 20%, take hardly any seats, but see loads of Conservative Leavers replaced by Labour MPs, and the odd LibDem. 

Now what about the LibDems doing well? Let’s see what happens if the Brexit Party is crushed down to 5%, but the LibDems gain from the Brexity Mess the others have made: 

LD Scenarios

(correction: x axis should say LibDem vote share)

Again, even with a reasonably good Labour to Tory swing going on, the Tories go well short of a governing majority.  And see above what happens if there is a substantial LibDem surge – a sudden explosion of seats when they cross into the mid 20s.  Those plum Surrey seats all begin to fall. 

Finally here is what happens if you assume the spirit of mid 2019 can be recaptured in a general election, the LibDems retain some 20%, and the Brexit Party can look upwards to 25%

Flight from the Labservatives

A really mad chart, no? Brexit votes begin by taking seats from the Conservatives and handing them to Labour and the LibDems. Then as BXP rises further the Tory losses continue and the Labour gains plateau. This time, at around 20% the Brexit Party explodes into the House of Commons, effectively taking over from a Conservative Party already gravely weakened by the loss of voters to the LibDems.  

At around 23% each for Brexit Party and Labour (and 19 for the Conservatives), the Tories are reduced to a rump of 40 seats and Brexit Party takes Uxbridge; two or three more percentage points, and they walk into Downing Street themselves. 

News stories around the middle of the year talked about a Conservative Party terrified of being wiped out. It was not an exaggeration. Pious types like me sneer at their favouring party over country. I will continue to. No Deal is a horrible failure. But the beating this voting system delivers them in the face of a combined Remainer and Brexit-hardcase surge makes it perfectly understandable. 

Of course, you can tell the polls from June were bad. What is worse is what the model shows about the glitches in the system, such as:

  • LibDems do better when the Brexit Party is strong. This is because BXP votes lower the threshold for winning any seat off the Conservatives and Labour. The same applies, vice versa. 
  • Labour benefit from many of these scenarios, even as their vote share plummets from 2017’s levels.  In plenty of cases, Labour emerges as the largest party, even when the combined Tory-BXP share is closing in on 50%. In fact …
  • The major trick is hoping your main opposition is split. That is what makes the major difference for any one party – the fragmentation of opponents. 
  • The leads the Conservatives have recently shown could return them to power.  I plugged in 31 – 25 – 15 – 15 and saw the Conservatives with 342 seats. 
  • But if you start at a four-way split, any party is 3-5 percentage points from Nirvanna (or hell).  I could show scenarios where the Conservatives get back into power with an increased majority scoring just  27% in the polls. 

All of these points, taken together, add up to a mad voting system.  Shifts within the margin of error make gigantic, Britain-altering differences to the next House of Commons. Incentives are incredibly dodgy: the Remain/Soft Brexit parties actually benefit from the ongoing strength of the No Deal Brexit Party, the Conservatives sort-of like the LibDem vote being riled up, and so on.  And there are very good reasons for the Farage-istes to remain in existence. The prize is not just Brexit any more: some of the results from mid June might actually pitch them into government. 

This is not a system to encourage rational behaviour, but gambling on a resurrection. It explains why Labour hangs on grimly – they may just pull it off.  Likewise Johnson, likewise Farage. We are in the hands of gamblers. 


Bad in theory, fine in practice: an insider account of the Energy Price Cap

Around midnight one October I found myself in a Manchester hotel room, facing a furious Chancellor (in black tie) and his aides (more slovenly), waving a draft PM conference speech containing an unexpected retail energy cap.

Perhaps he should not have been surprised – it was a manifesto commitment, after all. But “it’s in the Manifesto” was not a popular argument in late 2017. The world thought the majority-less PM had no way of driving this sort of policy any more. Hence the No10 team found it remarkably easy to keep the announcement secret, including from the energy department.

The argument festered overnight and was only squared away with a further confab next morning, featuring a host of even scarier, sleep-deprived Cabinet ministers.* In the end a horrible escalation was avoided when I swore that the price cap would be temporary, while we got “the market” working properly again. So it survived collective responsibility to make it into That Speech, sadly overshadowed by the prankster, the dodgy signs and the sore throat.

This is an odd policy for me to feel any ownership towards. I inherited it – going into the election, there was another team in No10 handling energy, one that had wrestled with all sorts of batty interventions before agreeing with Greg Clark, secretary of state for BEIS, on the case for a cap. The last time I had really thought about an energy price cap, I was writing pieces mildly sneering upon the idea. There are few columns easier to write than one attacking a price intervention. Marks should be given for:

  • The government cannot get the price right. Too high, and all the companies get a government-mandated bonus; too low and even the best go bust.
  • Regulated prices push company efforts towards lobbying, not innovating for the customer
  • Regulated prices drive away competition, which has been so great for the UK consumer – look at the number of companies! Look at the comedy animals!
  • Cap the price and the consumer will just stop shopping around, having been told by the government that there is no point to it

Against this, Theresa May was definitely onto something when she railed against the iniquities of “broken markets”. When the utilities were first privatised, the optimistic assumption was that the regulators would “wither away” as competition gradually took hold. By the end of Cameron’s time, there were some 70 retail energy companies, price comparison sites proliferated, numberless tariffs available – and yet the ordinary punter only felt ripped off and confused. Regulators were under attack for failing at their job. The rational, self-optimising consumer was nowhere to be seen. The competing diagnoses drew on economics old and new – crimped competition, asymmetric information, behavioural biases, unevenly enforced protections – all of which added up to vulnerable customers getting a raw deal. Later work by Citizens’ Advice into the “loyalty penalty” added some empirical clout to the charge.

I added my own anecdata to the case. In my first months in No10 I took on the mantle of Consumer Champion Guinea Pig, and went after all my providers. It saved me £000s on Sky, house insurance, energy, broadband and mobile. This might encourage some optimism that the market actually works. For me the experience only reinforced the case for some intervention. If customers like me make savings, others have to be taking a hit, and they are likely to be more vulnerable. I am at the high end of financially savvy, and yet found the process hazardous and stressful. My office got used to the tinny sound of Blue Danube as I spent hours on hold, chasing payments. One auto-switching service stuck me with one of those fly-by-night companies that owed me £1200 for months. It was a scam; if this was the market being “competitive”, then being competitive is not enough.

After that Conference, we got the policy through, which meant a convoluted process of consultation, challenge, regulatory calculation, and finally the imposition of a “safeguard tariff” at the turn of 2019, calculated every six months by Ofgem. (Politicians have nothing to do with the setting of the cap.)
The obvious question remains: has it been a good idea?

First, there were political costs. There is a certain breed of auto-parodying libertarian for whom the energy cap is proof that the Tory party has lost its mind. That’s a cost, though I can think of better examples of how they have gone nuts. Never mind that only 15 US states enjoy competitive retail energy , or that the Competition and Markets Authority found some favour in the idea. Investors in energy and other infrastructure often took the same primary-colours view: “Head office doesn’t like the look of this”, even though they were seldom directly invested in retail.

Now it’s in place, what about warnings of destroying the market? Here the market-liberal whinge has proven well off the mark. Standard variable tariffs have dropped compared to what they would have been. Switching numbers have not fallen at all, indeed they have risen. The really innovative entrants – I rate Bulb, Ovo, Octopus, Shell/First Utility – are still strong, innovative and growing, and the loss of many of the tinier ones was probably overdue. I do not know any theory of the market that says the customer need 70 different exotically named start-ups; many were basically a big bet on what Octopus call “tease and squeeze”, and too thinly capitalised to play what was a poor game for the consumer.

Much of the £1.7bn excess consumer cost was assumed not to be profit, but inefficiency: this was shown to be true, when companies responded by cutting jobs, too. This is a regrettable but near-inevitable outcome whenever an industry is reformed to be more productive.

Ultimately, both sides of the argument exaggerate. Household energy costs are around 4% of incomes, and this might fall 5% for those affected. Perhaps £60 a year for ten million households – worth going for, but hardly enough to transform the fortunes of the ‘just about managing’.

But those getting hysterical about a grotesque invasion of the free market need to calm down. The way retail energy worked was bugging the voter. Politicians have every right to step in when things don’t work for voters. More broadly, the Conservatives were overdue a big think about how they respond to markets that aren’t performing. The question of what kind of economy we want is one for politics: Do we want to encourage markets where the greatest rewards go to those who most ruthlessly search out and retain the doziest customers?

The “one last push” free marketeers look horribly naive. Sometimes ideology represents the outcome of positive thought, at others, a symptom of its lazy absence. Expect attacks on the price cap to come from the same thoughtless voices heard calling for bonfires of red tape, without ever saying what they mean. Weirdly, the critics of the free market are far more curious and informed about how they actually perform in the real world. This agenda made more progress under May than is recognised: the Williams Review for Rail, Jason Furman’s work on Digital markets, and the CMA’s response to Citizens Advice for much else. But with Greg Clark and Theresa May gone, I am not sure who is left to make the intelligent case for reform.

If this one stalls or goes backwards, it would be a pity. Labour had a bad answer (nationalisation) to the wrong question (who owns these companies, which does not determine how they are run). The price cap was a bodge; it shouldn’t have worked, but it looks like it might.

*In normal times, there is an entire Civil Service to draw upon for the trickier questions. During Conference, all its distilled knowledge is meant to reside in the form of the hapless spad. Did I mention that I hate Conference?

Who the hell put you in charge? On Spads and management.

How to manage the abrupt disconnection of a 45 year commercial relationship? Why not “stick randomly appointed political hacks atop various departments, and shout at them to write lists”?  

Spads did not really exist fifty years ago, and those that did had little power. They sound rather more important now, if insider gossip about No Deal is to be believed: tasked with delivering the most complex state project since the War.  (hat tip, Alex Wickham)

A sub-editor friend admonished me for leaving Bubble-ish terms like “spad” hanging. Fair point. A short definition*: the SPecial ADviser is someone appointed to get the political work done. Ministers alone cannot suffice (not enough time, too bound up in the ceremony of government for key tasks like shouting at the press or whispering with lobbyists). The Civil Service might not follow the political line – every government since the 1970s has suspected the Bureaucracy either of being in it for themselves or of being too fond towards the government before. 

So the Spad was born, increasing in number from handfuls in the 1970s to perhaps eighty now.  You know them from Yes Minister, archly infuriating Sir Humphrey, or The Thick of It, hurling scatology and staplers at one another. Both portrayals contain some insight.  In truth, they have existed as long as the phrase “evil courtier”, and if they didn’t, they would be created pretty quickly, or pockets of the civil service would be corrupted to the political cause in their lieu**. 

The Civil Service definition of spad is worth knowing: “people appointed without regard to merit”.  It is only a little unfair: you actually need to be able to breathe, own a mobile phone, and know someone.  My first appointment followed coffee with a Lord known to hate obsessively the Prime Minister, which is awkward (every Spad is a PM appointment).  My second was a little different: it involved wine in The Clarence with the Chiefs of Staff, and they seemed to like the PM well enough. 

Otherwise, given the influence of the role, there was remarkably little vetting, not of my skills, views, competence nor probity. It was a giant fluke that I turned out such a gem… Other well known routes include:  lobbyists, journalists, party staff, a smattering of lawyers and academics. Less well-known: sharing a garden fence with the Boss; lifted out of the Treasury; college buddy. 

My favourite saying about spads is that the best are like poisoners: either well-known, or good at their job, but never both. Dominic Cummings, Alpha Spad to the Johnson Administration, had better hope he is the exception. The Internet is currently flooded with analyses of this man, just as it was for Nick Timothy under May and Steve Hilton under Cameron.  We definitely know what he thinks, if we have the stamina for his gloriously unedited blogs

It is Cummings, of course, who apparently commanded the Spads to go back to their Departments and prepare to list-manage them into a smooth No Deal. To some this is patently absurd: he cannot possibly think random 20-30-somethings know how to handle the regulatory, trade and logistical disruptions. It’s just a way of scaring those curiously unscareable Europeans, just before the German carmakers come over the hill to save us.  And, as the author of those blogs wrote  

It is impossible to describe the extent to which politicians in Britain do not even consider ‘the timetable and process for turning announcement X into reality’ as something to think about — for people like Cameron and Blair the announcement IS the only reality and ‘management’ is a dirty word for junior people to think about while they focus on ‘strategy’.

He has certainly given those juniors a lot to ponder. It strikes me that “the timetable and process for turning Brexit Do or Die into an acceptable outcome” is something to think about. No Deal Brexit is not one strenuous act of political will away from being a good idea, with Spads as the agents of Political Will. Good outcomes cannot be commanded.  There is indeed a reality underneath all the announcements that the rest of the country is going to have to handle. Brexit began as a political campaign but it is not going to end as one. It involves *real things*. 

With the exception of a brief period under Theresa May, Britain has gone a nice long time without that creature of the commanding majority, the imperial Spad, the martinet-guru commanding properly elected politicians to their Will. In these shell-shocked early days it may look like this returned system will hold, but in time Ministers and MPs might properly resent it.  Their lives are much harder, and their greasy pole much greasier, than that of the figures in the background. 

Despite this extended snark, I tend to rate spads. As Isabel Hardman writes in “Why we get the wrong politicians” (p187), recruiters tend to rate them pretty highly when set against the ex-MP.  Note, however, that they are talking about a career in communications. Now people perfect adept at crafting a media line are being told to work out how to re-knit a complex mess of laws, regulations, customs and technologies once chaotically cut at the stroke of midnight, 31st October.  It cannot be serious. 


*If you want a really long one, my IFG pamphlet from 2014 is worthy enough. 

**You could argue this is what happened with Bernard Ingham and Charles Powell under Thatcher

Sod the Overton Window

First, if you were wondering why the blogging has been light, a short recap…

After thirty months in Downing Street, I left with the rest of the May administration, having advised on pretty much everything economic beneath the level of the Pound. (The Pound I left to Douglas, who is still in post –  so blame him for your thinning holiday wallet.) 

It was thirty months more than I had any right to expect.  

I had been a spad before, but a LibDem reporting to Vince Cable, and had quit in 2014 to write leaders for the FT. I saw out the 2015 election at ITV, waiting six miserable hours for Owen, Isabel and Fraser to do their bit before they let me comment dolefully on Vince’s ejection from Twickenham. TV media is brutal in its focus on the relevant, and I wasn’t. Within minutes of the exit poll, the only question left for LibDems was whether Paddy Ashdown would indeed eat his hat. The party that had hired me crept under the ten seat mark, and my prospects of being a spad again evaporated with every loss. 

When the May administration formed, I saw much to approve of: fiscal loosening, industrial strategy, even an outward concern for the less well-off. I preferred her to Cameron and Osborne, and even predicted her victory, three months early.  But I had no reason to expect this approval to be reciprocated. We appeared to face Brexity Tory rule into the distant future, and I was no Tory.  And while I never got to write editorials about Brexit, they would have taken the FT’s europhile line, but ruder. (Lex columns made my views clear, amidst charts and overuse of the word ‘ebidta’.)

The miracle/scandal of how the LibDem author of a few hundred Brexit-sceptic tweets was hired into the “Brexit means Brexit” Downing Street deserves a post of its own. But not now. 

To the present. 

Most spads, once dragged back into the light, have an urge to tell the world how things really are. I am no different. This was a hugely important job. Nothing a wonk might do comes close to the impact of being a spad. And I found the government a deeply weird place to work, the rules of the civil service like nothing else, the politicians’ feet of clay going right up to their armpits. Power and absurdity are inseparable, above all in the mismatch between the weighty matters decided and the arbitrary humans doing the deciding. The absurdity of spads deserves its own chapter.

So I would love to find a way to write about it all.  But my problem is a rather obvious one. Most of the stuff of government is of a rather small sort, and it is only through its steady accumulation that the importance emerges.  The days usually pass wrangling tiny sums of money, on the wording of Cabinet write rounds, or in meetings about powerpoints to guide other meetings about other powerpoints. Most days, it’s not Paine vs Burke or capital versus labour. When the phone is slammed down it is more likely to be about getting a policy note past an uppity private secretary, a minister bribed into signing off an appointment, or whether Barchester can declare its own Net Zero target. All important enough within a niche, but the niches are pretty small.   You beaver away, fuelled by the righteous delusion that a zillion accumulated actions will end up making things better. 

I’d still love to write about it – the actual stuff of government, the whole reason for all the politicking, is still an underwritten topic. But at this very moment, the Big Thing is overshadowing all.  Tiny steps forward, obliterated by one giant leap back. Whatever happens with No Deal swamps every policy I ever worked across. What is the point of sharpening the competition regime, when you’ve severed and cauterised ties with European competition? How can we cant on about the Future of Mobility when the automotive supply chains are being shattered? Good luck attracting billions into new energy investment with the pound pogoing off $1.05. It would not matter if we nailed those zillions of tiny actions, No Deal would wipe it away. There is no Industrial Strategy available to Britain that makes up for an 8 percent GDP loss. 

I was never involved in Brexit policy; maybe this is why I am still so easily shockable. Proximity has not dissolved my bafflement.  Three years ago, had you accused any of Brexit’s champions of willing No Deal, they would have accused you of a grotesque distortion of euroscepticism. Stop fear-mongering! All we want is an escape from political union, economic closeness, a Brexit smooth as melted butter, don’t be so melodramatic …. Now having watched in horror as the government almost stumbled out in March, I cannot find words for one that would eagerly pursue such a failure as a conscious policy.  

No Deal is failure. So what if the Overton Window has shifted? Sod the Overton Window. Constant repetition of the phrase should do nothing to diminish the catastrophe. Far too much political energy is spent conning people into swallowing the unacceptable. We have squadrons of advisers expert in putting a gloss on policy, far too few interested in what the policy really should be. They found a way of pretending three more years of steepening public sector austerity was fine (“It’s just one percent a year”). It wasn’t. They managed to kid us that losing our seat in Brussels gives us more control. It doesn’t. Now they think they can work the same magic with No Deal (“it’s Clean! It’s the WTO! GATT XXIV something something!”).  

For a developed country to attempt this is extraordinary.  I cannot think of any historical analogy to do it justice. Fighting my jet lag, I am reading Christopher Clark’s The Sleepwalkers, about the rat’s nest of pre WWI Great Power entanglements. That time was full of its clowns and rogues, but at least you could say  “well this was damned complicated”. This time it really isn’t. 

I have written six book reviews this year

What a rare thing – a blog post.

At the end of another writingful year I thought it worth noting a few of the achievements now likely to vanish into posterity. There are, after all, so many words out there, mostly words about words.  Like book reviews. I have written six this year, the most recent published just now in Prospect Magazine, about “The Future of the Professions: How Technology will Transform the Work of Human Experts”, by Richard and Daniel Susskind.

Here it is. And here, an excerpt:

Technological improvement is theoretically limitless. Eighteen years have passed since Deep Blue, an IBM computer, beat Garry Kasparov at chess. Since then, as Moore’s law has predicted, computer processing power has doubled every 18 months; now Kasparov would struggle to beat your iPhone. Four years ago, IBM’s Watson beat two of the greatest champions ever to play Jeopardy!, an American television game show demanding erudition and lateral thinking. Watson’s method was brutal: load up terabytes of unstructured data, apply probabilistic algorithms and spit out an answer … But it is too early to extrapolate such improvements into a future in which the machines take over the decision-making role of humans. As a feat of futurology, this book could have benefited from a more sceptical take on how monopolies evolve to shield themselves from the forces that threaten them. The Susskinds set out a model for the evolution of professional work in which the last stage is “externalisation,” where the deep practical knowledge of the professions is released to the commons. Knowledge wants to be free, and market forces will drive it that way. Yet, as they acknowledge, professions also show a profound reluctance to share. This is understandable. A legal firm does not spend years accumulating an understanding of specialist law only to give it away.

The rest were at the FT. The most popular by far was of a book by Yanis:

Often it reads less as a work of economics, more a drawn-out conspiracy fable that just happens to use economic terms; the author, at times appearing confounded by supply and demand, is determined to see Machiavellian impulse behind every flow of capital. One of the mysteries the book clears up is how Varoufakis could so annoy Greece’s creditors that his departure proved essential for a deal.

I (almost) felt conflicted writing one on Will Hutton’s latest, as I know and like the man. But I was not convinced:

What I find less convincing in How Good We Can Be are his remedies, which, given his goal of “ending the mercenary society”, can look strangely small. As in previous works, Hutton’s focus is firmly on ownership and governance. But against the macroeconomic sweep of the financial crisis, demanding that companies “declare their business purpose on incorporation” feels like a rather dilute response. Requiring directors to outline their virtuous intentions through yet another layer of narrative reporting will not magically elicit greater results.

I also know and admire Lord Turner, whose Between Debt and the Devil is well admired. But, again, not wholly convinced:

Macroeconomics allows no controlled experiments. This one great financial crisis stemmed from several causes. To distinguish the essential from mere side effects is not easy. What if funding had been less flighty, banks better capitalised or central bankers less blithe about finance? How significant was the rise in oil prices, given how it scrambled inflationary signals at the very worst time? Is it meaningful to blame a culture of short-termism in Wall Street? Sifting such a welter of detail, I was left in two minds. Turner’s comprehensive account suggests what might be called “credit determinism” — but it could equally prove that such a crisis required every unlucky star to align.

It was hard not to like Richard Thaler’s gentle stroll through the birth of the somewhat overhyped Nudge movement. I remember having to complete this on that miserable May night.

Just like ordinary economics, the behavioural offshoot is a tool to be used, and like any tool can be applied well or badly. As Thaler says at the very end of Misbehaving, the real triumph for his field will come when it ceases to exist and is fully absorbed by the broader discipline that ignored it for so long.

And finally, probably the weakest book I have read, by Tariq Ali. The old lion roars to little real effect about The Extreme Centre

This book does a better job of describing Ali’s sadness at the failure of the left than expanding on why. The closest thing to a consistent explanation is human corruptibility before the temptations of money. But the book never explains why perennially incompetent capitalists always have enough of the folding stuff to keep the system going.

So many hours, so many words. Sorry, it all feels a bit … bubblish right now. What are all these arguments for, anyway?

Some writing I must hold up my hand to

I knock out about four leaders a week.  No, you cannot tell which are mine, officially, and in any case they reflect the FT View, not necessarily mine.

Still worth reading though. (£), but so what.

I also produce a few in my own name when so graced by the Comment section.  For neatness/vanity/posterity, here are some that spring to mind.

The Grexit standoff is Not a Prisoners Dilemma. Very pleased with this as it sprang from a hasty 20 minute email argument.

A Saturday look at the Osborne Ordo-liberal imitation of German ways Worth it for the Keynes quote.

What ‘working’ with Steven Hilton was like.  Got a lot of Twitter love for this. So many people revolted by his Newsnight More Human sell.

There are plenty more, I am sure. Enough for now.

New permanent role

In case it is not otherwise clear: I am now permanently employed by the Financial Times to write leaders.  This means I write about 2400 words a week for the best newspaper in the land, on topics judged to be important enough for the privilege.  Just you will not know it is me, and (crucially), the words represent the views of the newspaper not necessarily the biased ranting of this blogger.

It is great fun.  Insert cheers and congratulations here.

It does not necessarily mean I will never blog here again.  As you can tell the style here is somewhat different. I am yet to work out the rules and, to be frank, the time difficulties are as much the obstacle as anything else.  Putting out that many words for as good a publication as the FT on the short notice one necessarily receives, often on topics unheard of a few minutes before, is challenging.  I spend the last half hour of each day in a state of combined elation and paranoia, having filed.

I will still be doing the odd op-ed, of course, and reposting from the extensive back catalogue here.  Have you seen how extreme the various fiscal plans of certain parties are? And did you read what was published here on it in June, July?  You get the picture.

It’s sunny, there are two magpies in the garden eyeing the huge crop of frog- and toad-spawn in our pond, and so I need to dash.