Alternative Party Policies

 

WEEKLY COMMENT 5-10-2017

By Barry Edwards

Alternative Party Policies

 

The party political conferences finished this week with the Conservatives setting out their agenda for the country which was not especially exciting. The main themes for all the parties seem to be infrastructure investment, tuition fees, social housing and social care with the proposal to nationalise all utilities from Labour. All of them claim that their policies are fully costed within the national budget and the nationalisation will be funded by issuing government bonds. Most commentators were unimpressed and believe that the funding will not materialise from tax revenue leaving most of the policies unimplemented or possibly only partially achieved.

The media have condemned the politicians for their extravagant claims and find nothing from any of the parties to discuss at length and concentrate on the potential challenge to Theresa May. The reality is that all these main themes could be funded without spending tax revenue allowing space for extra expenditure on the NHS and other departments that have suffered from the years of austerity that can only be funded from tax revenue. We have discussed some of these themes in previous weekly comments and here we will look at each policy and explain in brief how this can be done.

Infrastructure Investment

The main point about infrastructure investment is that it generates substantial tax revenue when the money is spent helping the national budget in the process. The plan is to create a Collateral Guarantee System (CGS) which you can read about in detail in the right hand column of this page. In brief it utilises government bonds held by the Bank of England from their quantitative easing (QE) programme as collateral to issue guarantees to banks that fund the investment stage of each project which are then securitised and issued as bonds for financial institutions to purchase for their savers and pensioners. Where the projects do not generate income the government pays the cost annually which is mainly funded by the economic activity from the investment when it is completed. The government does not have to spend tax revenue, at least initially, and the institutions have long-term fixed interest bonds to purchase which are in great demand. Clearly, the CGS allows for much greater investment for projects than any government could provide from tax revenue and it modernises the infrastructure more quickly improving the growth of the economy.

Tuition Fees

Ever since the coalition in 2010, tuition fees have been under review by government and the current proposals vary from abolition to more refinement. The argument centres around the unfair obligation on students to incur substantial debt at the very beginning of their careers making it difficult for them to undertake any other commitments especially taking on a mortgage. Reverting back to free university education totally funded by government is one way of handling this problem but then you still have current debt outstanding which would have to be cancelled; that stands at about £100 billion at the moment. The only realistic process to remove that from students is to create a QE programme to purchase it from the government agency managing it and cancel the loans. An alternative method of removing the debt from students is to incorporate repayment with a policy to make employers repay it over time since they are the ultimate beneficiaries of the skills obtained. We are looking at tuition fees in depth at the moment and we will come forward with alternative proposals and publish a paper on various ways of handling this in due course.

Social Housing

For some strange reason governments seem to totally ignore the fact that all the occupants of social housing would pay rent either from their own salaries or from council support. Clearly, this generates income which would be used to pay the interest and ultimately redeem any debt incurred. This method worked perfectly well for most Councils before most of the housing stock was sold off but does not seem to be acceptable now. Another way of doing it is to use the CGS to do the initial building phase and issue bonds to institutions when the estates are rented out which would not incur any financial commitment from Councils if that really is the problem. In my view, this is very straightforward financial planning and could be implemented immediately. You could also establish an entity to grant long-term mortgages for any tenant who wished to buy their flat or house which would fix the cost permanently and be similar to the rent that would be paid. This could be managed by the CGS and these loans could be securitised and sold to the institutions.

Social Care  

The most relevant part of social care is for the elderly and we discussed this subject in the weekly comment on the 23rd of March this year. You can read that if you click on that date in the right hand column or below is an excerpt from that comment;

In my view there is a much better way of managing this problem which involves adapting the council tax to include payments made by each household for a community centre to be constructed in all areas of a certain size to include a care home with medical supervision for standard care home requirements. The plan would be to build or rebuild community space allocated for city councils, town or village halls to create a facility that was used by the community for all kinds of purposes. Clearly, where there are adequate facilities already in place these could be adapted to provide the service to the community.

The main point is that every household would have the right to utilise the facilities at the community centre if the occupants needed special care which could not be provided for the elderly in their own homes. It would encourage neighbourly responsibility and community involvement allowing for a convenient nearby home for all relatives and friends which would encourage utilisation of the centre itself. It would also be advantageous if a doctors’ surgery was included within the centre as well. Extra space could be provided to allow for other services to be available for the elderly and the community which would provide employment locally.

The funding for these centres could be provided by long–term loans which could be guaranteed by the county councils or other entities (such as the CGS) which could be established to keep the interest rate at a reasonable level and it would provide a safe investment for people with savings that at the moment are not earning a decent return to complete the local involvement and commitment. It would also alleviate ever increasing amounts of council funds being diverted to social care which is currently a big problem.

We are planning to publish a paper on this subject in much more detail in due course.

These are the suggestions for how the main themes in the conferences could be funded without spending tax revenue which in my opinion would make much more interesting reading for people and the media. I would be very interested to hear your comments.

That’s all for this week.

 

 

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