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Cormac Evans: To boost workers rights you need to cut corporation tax

By Centre Write, Economy & Finance, Politics

Workers’ rights in the UK are in dire need of improvement. According to a report from the ITUC, the International Trade Union Congress, the UK is rated as a “regular violator of workers’ rights,” with frequent denials of the right to strike as a significant contributor. However the solution to this might lie in an unlikely place – corporate tax policy. Using tax incentives to get firms to boost employee rights and benefits could improve the UK’s workers’ rights and revitalise British productivity.

Following the introduction of the Government’s Strikes (Minimum Service Levels) Bill, it is still the case that many of the employee benefits offered in the EU are not available for UK workers, with even more at risk of being lost as part of the Government’s sunsetting of EU laws. The sunsetting risks UK workers losing their rights to holiday pay, maternity leave and protection against insolvency. 

Indeed, many of the UK’s workers’ rights provisions fall significantly short of their European counterparts, such as Austria, Norway and Germany, with the UK only guaranteeing £96 per week for 28 weeks as Statutory Sick Pay  – the minimum legal level of sick pay. Compared to nations like Germany, which provide employees with 100% of their salary for 6 weeks, and 70% thereafter, this is not good enough. Yet workers’ rights improvements do not seem to be on the horizon. 

But, given the current Treasury deficit, less costly methods are required to get workers to return to work by ensuring improved working conditions.

Presently, corporation tax in the UK is 25%, rising from 19% as of the 2023 financial year, meaning that it is the lowest rate in the G7, even with the 6% rise. The 25% rate is intended to be a “temporary measure,” with plans to eventually return to a headline rate of 19%. If this increased rate is made permanent, there will be greater scope for implementing tax reform. This means that corporation tax can still be leveraged to encourage UK-based firms to improve working conditions. 

The Government ought to explore implementing a sliding scale of corporation tax that allows businesses to receive incremental rate reductions from the existing 25% rate down to 19%, provided they provide employees with greater benefits and workers’ protections – thus making the UK a more attractive place to work and prevent a post-Brexit brain drain.

Alternatively, the government could drop the rate down to as low as 15%, in line with the ‘global minimum’ of 15% for big businesses, the Organisation for Economic Co-operation and Development (OECD) minimum tax rate on corporate income.

This builds on the ideas that the Social Market Foundation presented in 2019 in their comment, Corporate tax proposals should be dependent on businesses doing the right thing. However, this policy would apply to all sectors, instead of the corporation tax cuts being handed out only to the low-income sectors, to incentivise that workers’ rights improvements take place across the board.

Indeed, according to research conducted by KPMG, there is significant empirical evidence to suggest that “effective tax burden does have a direct impact on FDI (Foreign Direct Investment).” This proposed approach would allow increased incentives for investment in the UK to help the UK move away from having consistently weak investment and, simultaneously boosting workers productivity due to the improvements in workers rights. Moreover, improvements in workers’ rights closely correlate with improvements in their productivity; with British productivity being the lowest in the G7 the benefits from these improvements would have profound impacts on the British economy.

A change in approach to workers’ rights is needed. However, the solution does not come from ripping up EU laws. The plans outlined in this article present a progressive solution to relegate the unproductive British worker to a thing of the past. The Government ought to act now and give the economy the push it needs and boost workers rights with a single stone.

Cormac Evans is currently doing work experience at Bright Blue. Views expressed in this article are those of the author, not necessarily those of Bright Blue. [Image: Kai Pilger]

Nathan Stone: Does Japan hold the key to fixing the UK’s housing crisis?

By Centre Write, Economy & Finance, Housing & Homelessness, Politics, Towns & Devolution

If you aspire to one day own your own home, or for people you love to share in that ambition, Britain’s backlog of 4.3 million homes should concern you.

Homeownership is increasingly out of reach for many aspiring families. The current system is blatantly not working. This is unsustainable. 

We urgently need to improve our system. To do so, we ought to look around the world for inspiration. To this end, the answers to the UK’s woes may lie in Japan. 

The central challenge in building more homes lies in the structural shortcomings of the UK planning system. The key issue is its discretionary nature: planning permission is issued at the discretion of planning officers or locally elected councillors on a case-by-case basis. In theory, this allows local officials to weigh a plan not just against the aims of the Government’s National Planning Policy Framework, but also against any contextual ‘material considerations’ unique to the local area.

In reality, this system ensures a dichotomy between political gains and long-term planning objectives. Political support and voter appeasement are prioritised over well-conceived urban planning. Homeowners frequently agitate against nearby developments that they regard as a possible danger to the value of their homes. With homeowners constituting 63% of households, and only 37% supporting new housing in their area, there is a political incentive to listen to them.

What is needed is a more predictable, rules-based system that eliminates political considerations, like Japan’s. There, land within a local authority is divided into thirteen different zones, each allowing multiple uses. These range from exclusively low-rise residential zones to exclusively industrial zones

Each zone has clearly defined regulations covering permitted uses and building codes. Land use is categorised on a scale of intensity, with the lowest intensity use being residential buildings, and the highest intensity use being industrial premises. Schemes legally must be granted planning permission if they comply with the national zoning code, meaning that low-rise residential buildings are permitted almost everywhere.

A consequence of Britain’s system is that development schemes are approved on a case-by-case basis. Public consultation on every individual development proposal is inexorably built into the system, as planning permission being granted solely at the discretion of local councillors necessitates each proposal being assessed individually. Not only does this have the potential to massively slow or even gridlock the system, but it creates an element of uncertainty that significantly influences the business model of developers. 

This uncertainty centres on the fact that, in the UK system, there is no guarantee of planning permission. This creates an unstable and scarce supply of sites for development. Developers respond to this by ‘land-banking’ to create a pipeline of sites they know they can work on. Many potential development sites have been granted planning permission but no development takes place, as developers are forced to bank sites to ensure they always have land upon which they can operate, even if planning permissions dry up. 

In contrast, the Japanese system front-loads public consultation. Land use consultations set the medium-term plan for urban growth: the zoning for the area is specified, and building specifications and appearance are determined. Residents get a say on this but have no further say on individual proposals once the local plan is approved. There are no further avenues through which development can be prevented from this point onwards.

The Japanese system therefore negates the need for land-banking, by providing assurances and certainty that the UK system cannot. 

Removing discretionary approval and consulting the public earlier in the process means that developers are guaranteed planning permission on land before they purchase it, providing they meet the zonal criteria. Consequently, there is always a steady surplus of opportunities for development, rendering land-banking redundant. As a result, land is immediately developed instead of hoarded, work starts on a greater number of sites, and the number of new homes increases. 

Certainty enables more houses to be built in Japan than in the UK. 174,000 houses started construction in the UK in 2022-23, whereas 404,000 houses started construction over the same period in Japan. As a result of this, while mean rents in London are upwards of £2,000, average rents in Tokyo are about £1,300

If we want to see sustained increases in housebuilding, policymakers should take note of the simplicity, predictability and certainty of Japanese Land Use Zones. The Japanese experience should be an inspiration for the UK.

Nathan Stone is currently doing work experience at Bright Blue. Views expressed in this article are those of the author, not necessarily those of Bright Blue. [Image: Su San Lee]

Bartek Staniszewski: The Government’s housing strategy leaves too many things unsaid

By Bartlomiej Staniszewski, Centre Write, Economy & Finance, Housing & Homelessness, Towns & Devolution

I was once listening to a young woman give a talk at a pub, and the topic, naturally, turned to housing. She told us she had given up on looking for a house – she tried, but it has proven impossible to find a place for which she would be given a mortgage and where she actually wants to live. 

That young woman was the Minister for Levelling Up, Dehenna Davison MP. If even members of the Government are not able to secure a mortgage for their first home, what hope do us, average Joes, have? 

In the 1980s, it would have taken a typical couple in their late twenties around three years to save for an average-sized deposit. Today, it would take nineteen. Millennials are half as likely to own a home at the age of thirty as Baby Boomers were, and the situation will likely be even worse for Gen Z. Most – 68% of all renters, in fact – have given up on any hope of ever being able to afford a home. The situation for young people trying to get onto the housing ladder is dire. 

It was good to hear, then, Michael Gove saying in the speech he gave earlier this week that the Government will be “prioritising first-time buyers for homes over those with multiple properties, over those seeking to convert family homes into holiday lets, and over speculative  buyers.” The numbers involved are huge. According to my estimations based on Resolution Foundation research and the UK House Price Index, the UK is host to around £1.3 trillion’s worth of additional property wealth: a sixth of all of the UK’s property wealth. To put this into context, this volume of property is worth over five million times more than the average home bought by the average first-time buyer. 

Over 10% of the UK population own multiple properties. A significant contributor are short term rentals. There were around 4.5 million in the UK as of 2020 – around 19% of the UK’s housing stock. Gove has already, laudably, been trying to bring some of them back into the hands of locals who have been prevented from stepping onto the housing ladder by requiring that said rentals acquire planning permission. 

It was encouraging to hear that Gove wants to see more homes built where first-time buyers want to live. The overarching message of his speech was densification – filling in and expanding existing settlements, such as London, Manchester and Cambridge. The average age in the UK’s major urban areas is just under 38 years. In rural areas, it is over 44 years. Moreover, at the time of writing this article, on the portal graduate-jobs.com, over half of all the graduate jobs advertised are either in London, Manchester or Birmingham – all large urban centres. Young people struggling to get onto the housing ladder have their jobs and friends largely in urban areas, and not on the green belt, so this is where they want to live. 

The problem is that this is not enough. 

First, research consistently shows that there simply is not enough space in any of the cities Gove mentions to achieve the kind of housebuilding numbers he aspires to. According to the Centre for Policy Studies, even if every piece of brownfield was developed for housing, only 1.1 million homes would be provided; enough for less than four years of sustainable housing development, and nowhere near the 4.3 million new homes that the Centre for Cities estimates 

We need to meet housing demand. A part of the solution to fixing the housing crisis must lie in expanding settlements outwards, as well as densifying them. Even if first-time buyers do not want to live outside urban centres, new homes built there would incentivise older people to move and free up their properties located where younger people need them. 

Second, even if the above were not the case, and millions of new homes could be built through densification alone, doing so would take decades – but the housing crisis is here with us now. By the time this increase in supply would effect housing affordability, millennials will have retired, including those who never managed to get onto the housing ladder.  

In truth, even if there was enough supply-side expansion immediately, prices would still remain out-of-reach for too many people in the short term. And even in the long term, the  Government must ensure that those new homes are not simply snapped up by rich landlords, speculators and holiday-makers. To alleviate this, the Government ought to work on a new demand-side measure targeting housing affordability for first-time buyers, but avoiding the past mistakes of Help to Buy. 

But perhaps there is some hope. The careful listener will have picked up on Gove’s brief salute to Help to Buy, followed by the promise that “we will go further later this year.” Let us wait and see. The Secretary of State for Levelling Up took a step in the right direction, yet more still needs to be done.

Bartek Staniszewsk is a Researcher at Bright Blue. Views expressed in this article are those of the author, not necessarily those of Bright Blue. [Image: Ricahrd Bell]

Douglas Ross: Scotland needs a skills revolution

By Centre Write, Economy & Finance, Education, Politics, Towns & Devolution

With Scotland’s ageing population and stagnating economy we need far more focus in our politics on our skills strategy, if we are to boost productivity and provide the growth of the future. Without that, we will struggle to fund good public services.

Indeed, the sluggish growth under the SNP’s watch is one of the factors behind their swingeing cuts, particularly in local services.

But far too often, when we talk about skills and education we concentrate on young people’s access to university or see the issue in terms of ensuring adults have the basic skills they need. And there is clearly more that we need to do to ensure that Scottish young people can get access to university if they have the ability and choose to go there.

In 2020, it was found that just over half of Scottish based applications to Scottish universities won a place, whereas almost three quarters of applications from students based in England were granted one. This is a direct consequence of the SNP Government’s funding model, which provides universities with a strong financial incentive to prioritise students who don’t live in Scotland.

But the barriers to access go much wider than universities.

The SNP Government’s own adult leaning strategy found that over 300,000 Scottish adults have low or no qualifications and almost 2 million Scottish adults have low numeracy skills.

However, thinking of skills purely in the terms of university education or in ensuring the provision of basic adult learning is an increasingly redundant approach that will not deliver the workforce our economy needs.

Our education system is still built around the outdated notion that a university degree is the universal golden ticket to success in the modern Scottish economy. That is what pupils are told in schools and where public money goes.

For every £1 the Scottish Government spends on skills and training, £10 is spent on supporting higher education institutes and the students who study there. And government funding per college student was more than a quarter lower than support for an average university student.

Inevitably it is the wealthy who benefit most from this focus on university education.

The most deprived Scottish school leavers are seven times more likely to go into training, two and a half times as likely to go to college, 25% more likely to go into a job or apprenticeship and half as likely to go to university as the least deprived school leavers. The SNP Government, which said that closing the attainment gap was its first priority, has instead left it yawning as wide as ever.

Yet for all this focus on university education we do not have the skills our economy needs. A Scottish Government survey found that over a fifth of all job vacancies in Scotland were related to skills shortages. Also, the Institute of Directors found that 44% of business leaders do not believe that they have a workforce with the right skills and a similar number do not believe that they will be able to recruit the right people to fill vacancies.

With an ageing Scottish population, we need to be much smarter about how and where we invest public money to get the workforce Scottish employers need.

We need to look at the over-emphasis on university degrees that exists in our current education system and encourage more young people to take alternative approaches to what is essentially four years of study with no guarantee of good employment at the end.

As someone who never went to university, I can confidently say that there are other routes to success.

Delivering the skills, we need starts by establishing parity of esteem. There is a reason that almost two thirds of young people from the most affluent backgrounds go on to university.

We need to remove the stigma that surrounds colleges and apprenticeships and instead promote and celebrate the life chances they can offer.

As Scottish Conservative Leader, I have been privileged to see exciting apprenticeship opportunities up and down the country – from defence to renewables energy to financial services.

The more we can work with attractive employers to create exciting opportunities, the more we can encourage Scots into apprenticeships.

However, the SNP have repeatedly missed their 30,000 modern apprenticeship target. They managed just over 25,000 in 2021/22 and are on track to fall short again in the last financial year.

So the Scottish Conservatives would reverse the current funding structure for apprenticeships from one where funded places are set by the government to one where the employers decide how many good apprenticeships they need, which the government then delivers support for. This would create potentially unlimited apprenticeship opportunities for Scotland’s young people.

But ultimately the prestige will follow the funding.

Scotland has world class universities, yet the current model means that they are being increasingly shut off from Scottish students. That is why the Scottish Conservatives are committed to working with the sector to reduce the length of degrees, where appropriate, from four to three years. This would reflect the reality that fewer Scots each year leave school in S5, would create more places for Scots and get students into the workforce a year earlier.

But it would also allow us to invest more in alternatives. Since 2007, the number of college students has fallen by over 140,000 – and just at the start of this month, the SNP cut £46 million from college and university funding.

An underfunded college system, starved of the cash that it needs, is hardly an attractive choice for our best and brightest young people. If we believe in equality of opportunity, then why is it that vocational courses through college receive less government support than academic courses through university?

If we want to deliver parity of esteem between vocational and academic education then over time we need to move towards parity of funding and if we want more young people to enter the workforce with the skills our economy needs then we need to give employers more involvement in their education.

Yet we cannot just change course for the next generation. We must also look at upskilling Scotland’s workforce today. Because we need a step change in how we approach adult skills, and to end the attitude that the end of school, or even college or university, is the end of learning. More and more of us will have multiple careers throughout our lives.

One of the biggest barriers to adult learning is access. That is why the Scottish Conservatives would set up a National College for Scotland which would work with all of Scotland’s higher and further education institutes to deliver high quality remote courses and learning. That means that wherever you live or whenever you can learn you have access to educational materials that you need.

Yet, as I said, the biggest barrier is our national mindset. We need to create an incentive for more people to think about the need for continuous upskilling. That is why we believe in offering every Scottish adult who is not already in funded education or training, access to use-it-or-lose-it skills funding through a Right to Retrain.

Taken together this would provoke an essential shift in encouraging more adults across Scotland to update and upgrade the skills and qualifications they can offer so that employers have access to the workforce they need.

The SNP argue for greater powers over immigration as a way to deal with the labour shortages many employers face. Yet Scotland already doesn’t attract its share of current migration to the UK. Even among those who do come north of the border, the lion’s share go to Edinburgh and Glasgow, not the Highland and Islands where they are greatly needed.

While immigration has its part to play, it is far too often used by the SNP Government as an easy answer to avoid a more difficult discussion about how the Scottish workforce does not have the skills that Scottish businesses and our economy needs and what they are going to do about it.

But it is a national debate that we need to have because if we don’t then productivity and our economy will continue to stagnate, and we will continue to lag behind our international competitors. Then it simply becomes a matter of time before Scotland is no longer an attractive place even for hardworking migrant workers to come to. And the SNP’s policy of making Scotland the highest-taxed part of the UK has the potential to render living and working here even less appealing.

Our demographics require a sizeable influx of skilled workers just to avoid decaying public services. But we should want to go further, and to make Scotland an engine for productivity and growth.

Scotland needs a skills revolution to drive the economic growth of the future and the Scottish Conservatives have the ideas and vision to deliver it.

Douglas Ross MP MSP is the Leader of the Scottish Conservative Party. Views expressed in this article are those of the author, not necessarily those of Bright Blue. [Image: Adam Wilson]

Cllr Jude D’Alesio: How can public policy help reduce fuel poverty?

By Centre Write, Economy & Finance

Introduction

When Sir Robert Peel wrote the Tamworth Manifesto, he advanced from conventional, Wellingtonite Conservatism and gained nearly 100 additional seats in the 1835 general election as a result. So too must Rishi Sunak’s government reject conventional responses to fuel poverty and pave the way to a majority in the next general election. This essay will propose three measures to counter fuel poverty, one each for the short, medium, and long terms. The first measure, for the short term, is drastically increasing the UK’s energy stockpiles. The second, for the medium term, is to use fracking as a ‘bridging’ energy and follow a similar path to the U.S. in attempting to achieve energy independence from Russia and the Middle East. The final measure, for the long term, is to invest in the development of nuclear fusion technology which, if successful, will permanently alter the discussion surrounding fuel poverty. In Peel’s own words, Conservatives must ‘reform to survive’.

For the short term: increasing energy stockpiles

Firstly, the UK must substantially increase its energy stockpiles. Many proposals for short-term measures to tackle fuel poverty include V.A.T. cuts on energy; however, this is the wrong approach. Such a reform offers poor value for money and would do little to abate fuel poverty, as eliminating V.A.T. on energy bills only shaves £100 for the average household while costing the Treasury approximately £3.5bn per year. Larger homes owned by the wealthier also receive a greater benefit from such a cut despite being unlikely to languish in fuel poverty. This is not in tune with the simple Conservative value of fairness, from the Tamworth Manifesto to Baldwin’s dream of a ‘union of all classes’.

The solution to the energy crisis can, however, be found in its cause: our dependence on foreign gas, on which 85 per cent of homes in the UK rely. The UK’s gas supply is sourced from abroad, principally Russia, Qatar, and Norway, making our country’s energy security putty in the invisible hand of global energy markets. As international crises like the War in Ukraine have left patent, shifts in energy prices and production have reverberating effects on international diplomacy. Any answer to fuel poverty must, therefore, include increasing our energy independence; and a short-term method of doing so is increasing our energy stockpiles.

Strategic energy stockpiles are held by governments to alleviate short-term supply disruptions, maintain national security, and safeguard the economy during energy crises. Energy prices are dynamic, and unlike certain other commodities, market reaction to changes in supply and demand can be instantaneous. If a country’s stockpiles indicate a well-supplied market and are continually increasing, energy prices can react with downward pressure. On the other hand, if stockpiles are low and dwindling, the opposite is true. However, our country has some of the smallest energy stockpiles on the continent, leaving us vulnerable to serious disruption. The UK has a total of zero days’ worth of government-owned net oil imports in its stockpile as of June 2022, the same amount as Turkey and Greece. This is significantly exceeded by other western countries such as the United States (924 days), Germany (115 days) and France (80 days). Instead, the UK obliges industry to hold minimum stockpiles, though there is no reason for this to reduce the energy bills of consumers and thus fuel poverty, relinquishing entirely the role of government in holding its own stockpiles. Therefore, there is potential low-hanging fruit in tackling fuel poverty through the government significantly increasing its strategic stockpiles for release in crises.

For the medium term: fracking as a ‘bridging’ energy

Fracking is the technique of recovering oil and gas by drilling into the earth’s shale rock layers at high pressures. Globally, fracking has altered the energy landscape in a drastic manner: the fracking revolution in the United States has propelled it to leading the world in oil production, creating a chain reaction with Russia attempting to find a new market in China, and the Middle East recalibrating its oil exports away from North America. Neither has its use of fracking been relatively expensive. With a highly complex geological structure, in contrast to the relatively simplicity of United States’s, there is no suggestion that fracking will trigger a similarly significant energy revolution in the UK. Moreover, it is in no way a panacea to fuel poverty in Britain as opinion is divided on the extent to which an increase in energy supply from fracking will cause major improvements to prices. However, it decreases our dependence on foreign energy (making us less vulnerable to international events and large price fluctuations) and acts as a bridge until cheaper, long-term measures are implemented, as discussed in the subsequent section. The growth of a fracking industry will also boost productivity and benefit the economy, creating jobs for those facing fuel poverty.

Owing to the controversy surrounding fracking, notably with those living close to fracking infrastructure, the issue must be handled with care. For example, where onshore fracking infrastructure is built, neighbouring communities should be compensated through ‘Community Benefit Schemes’ for enduring the experience. Such a scheme would provide a fund of money (to which the company conducting the fracking should contribute) for use in the community as compensation, in an arrangement redolent of the film Local Hero. Another reason for this essay listing fracking as solely a medium-term, bridging measure is its environmental impact: as Bright Blue has previously outlined, fracking is susceptible to methane leaks, a chemical up to 28 times more potent than carbon dioxide. This evidently contradicts the country’s transition to renewables; however, it is submitted that the current energy crisis necessitates all options being under consideration, especially for use as merely a bridge to renewable sources.

For the long term: investing in nuclear fusion

Every country faces the same question about the future of energy: will renewables dominate? Although it is fair to say that while the destination is set (reaching carbon neutrality by 2050), the precise road to it is less clear. Nuclear fusion, however, offers a choice of renewable energy separate from wind and solar and has historically received woefully low funding. In essence, fusion consists of burning lighter elements to create heavier elements, similarly to how the sun is energised by burning hydrogen into helium. This process, in turn, releases energy. Fusion will
undoubtedly ease fuel poverty through its relative cheapness: one estimate claims that $25(£22)/MWh is an optimistic cost of energy derived from fusion, yet not unachievable. The August 2022 average standard rate for gas from the six major gas suppliers in the UK equates to £83/MWh, thus fusion may comfortably half this as well as increasing the overall energy supply, lowering costs further.

There is an old quip that fusion is 30 years away and always will be. However, the sums currently invested indicate that it is nearer than ever. The UK declined to participate in Europe’s EU-DEMO development, instead opting to build a large, spherical tokamak by 2040 (‘tokomaks’ are a specific type of fusion experiment, essentially aiming to bottle the conditions at the core of the sun). However, the key in developing fusion is diversity of risk: there is a likely chance that any individual attempt at fusion will fail, whereas a diverse range of countries attempting fusion
needs only one to succeed for everyone to reap the benefits. Therefore, it is essential for Britain to commit itself to the development of fusion and the continuation of its own fusion experiment. One can easily envisage the strawman argument being posited by a future political leader that, as our own experiment is statistically likely to fail, it does not represent value for money and should thus be scrapped. This argument, however, ignores the importance of diversity of risk and the necessity for global unity in achieving fusion, a ‘declaration of interdependence’ on energy. Not only must the UK maintain its commitment to developing its own tokamak, it must also invest greater sums to accelerate its development where possible, ensuring that fuel poverty is alleviated without delay.

Conclusion

When Sir Robert Peel was appointed Prime Minister, it was a move contrary to public opinion leading Peel to demonstrate that his Conservative philosophy was in fact in the best interests of the people. Nearly 200 years on, Rishi Sunak must show that his answer to fuel poverty is a departure from past failures and delivers for the British public. This essay has proposed three measures to tackle fuel poverty. Firstly, the government must significantly grow its energy stockpiles; secondly, it must capitalise on fracking as bridge to long-term, renewable energy; and finally, it must invest in the development of nuclear fusion. Limiting fuel poverty by achieving greater energy independence will not only improve the quality of life of those in the UK, but allow us to act with less constraint on the international stage without our dependence on foreign energy being exploited.

Jude D’Alesio, Councillor for Long Ashton Parish Council and a law graduate from the University of Bristol, is our winner of the Tamworth Prize 2022. Views expressed in this article are those of the author, not necessarily those of Bright Blue. [Image: Krzysztof Hepner]

Alison Conway: How increasing financial inclusion is advancing gender equality: progress so far and next steps

By Centre Write, Data & Tech, Economy & Finance, Immigration & Integration

In recent years, technological developments in the payments industry and beyond, from open banking to electronic wallets, have undoubtedly improved financial inclusion for women. For some businesses and individuals in the fintech community, I know social impact is one of the things that gets them out of bed in the morning and motivates them at work. But we’re nowhere near done yet. The fintech community must use its influence and harness innovation to pave the way for global financial inclusion and ensure equal access to financial services the world over.

The sad truth is that across the globe, women are still disproportionately excluded from traditional financial services. Systemic inequalities often feed into this, such as the fact that women are over-represented in the informal economy. They may also have reduced access to formal forms of identification such as a passport or driving licence, reduced opportunities to become financially literate and increased mobility constraints. As a result, many women are forced to rely on inefficient or unstable financial options.

The good news is that in recent years the evolution of digital financial services has helped to improve financial inclusion. According to the World Bank’s Global Findex Database in 2021 the gender gap in account ownership across developing economies fell from 9% to 6%, in large part thanks to the developments in mobile accounts. The even better news is that improving women’s access to personal finance has a real-life impact upon women’s lives, driving female empowerment and entrepreneurship. For example, in Sub Saharan Africa, the World Bank emphasised the explicit link between an increase in mobile account ownership and a reduction in the gender pay gap, whilst in Bangladesh, it was found that garment workers increased their local savings after employers switched to electronic wage payments.

However, this must only be the beginning. The reach, influence and innovation of fintech companies and payment providers means that we are well positioned to drive change in the years ahead.

The fintech community has a role to play in addressing systemic issues both in the UK and further afield. Financial illiteracy remains a critical barrier to many women, which stymies their financial autonomy and renders them dependent upon men. We have a responsibility to improve female digital literacy rates, whether that is pushing for government programmes or launching their own training initiatives.

Advancements in technologies will be key to strengthening the relationship between women and financial inclusion. The fintech community must build upon the progress made by open banking, electronic wallets and P2P payments to drive financial inclusion, and blockchain will prove a critical enabler. Blockchain technology is a decentralised digital database in which all transactions are immutable, transparent and encrypted. It is also accessible and open sourced. These characteristics offer a wealth of opportunities for supporting women’s financial interactions. For example, in contrast to many major banks where $10 transactions often incur a 10% fee, blockchain assisted micropayments can be free of charge, rendering them an efficient and reliable alternative for women in developing economies who work in the informal economy. However, the potential of using Blockchain technology to advance women’s financial inclusion is only just beginning to be explored.

For businesses who step up, the rewards are not just limited to making others’ lives better. Championing financial inclusion for marginalised groups is mutually beneficial. Companies that assist the financially excluded or underrepresented can reap the benefits of an enhanced reputation while bolstering their bottom line. If women have equal access to financial services, we increase the number of users and the amount of money being spent and transferred.

Whilst the evolution of digital financial services has had a considerable and positive impact upon women’s financial inclusion, this is not the time for self-congratulation or to take our foot off the pedal. Progress has been made but the fintech community must build upon this momentum and break down the traditional barriers to financial inclusion to ensure that all may reap the benefits of the digital transformation of the financial system.

Alison Conway is the Head of Corporate Development and Strategy at Trust Payments. Views expressed in this article are those of the author, not necessarily those of Bright Blue. [Image: ]

Mikhail Korneev: A homelessness crisis is on the horizon?

By Centre Write, Economy & Finance, Housing & Homelessness, Towns & Devolution

Recent data published by the UK government reveals signs of a potential homelessness crisis in England. Sensitivity to energy price volatility may make social housing rent unaffordable.

If there is a threat of home loss, tenants are eligible for a prevention duty. These are support measures provided by local councils. According to official data on statutory homelessness in England, 1,470 social housing tenants were owed this benefit on the basis of the threat of home loss in the fourth quarter of 2021. This number more than doubled to 3,270 social housing tenants in the first quarter of 2022 before settling back to 1,810 in the next three months.

These figures may seem incremental when taking the size of the overall housing market into account. However, such a  spike in data cannot just be attributed to statistical noise. Indeed, historically, homelessness has not exhibited such fluctuations. Energy price volatility appears to be the most plausible explanation for this spike in the threat of home loss for social housing tenants. If correct, this assumption implies that a growing number of households in social housing might find themselves on the edge of homelessness as the energy crisis escalates.   

Social housing is usually seen as the last resort for financially vulnerable groups. By design, it is cheaper than private and affordable rent. While tenants are more protected in social housing, people still face the threat of eviction if the rent is not paid. If people are evicted from social housing, their only remaining options are often temporary accommodation or rough sleeping.

It is remarkable that the mentioned ‘bell shape’ spike in the threat of home loss is observed in the private sector as well. The number of people claiming benefits rises in the first quarter and falls in the second quarter of 2022. However, these changes are proportionally less significant than in the social sector. This is likely to be caused by private renters’ greater financial resilience and the availability of social housing as an alternative.

Statutory homelessness figures reveal that problems with rent payments are the primary reason for the threat of home loss. Therefore, the spike in the threat of home loss seen in the first quarter of 2022 had to be driven by factors affecting households’ finances. Such factors may include policy change, employment shifts and inflation.

There were no major, relevant government policy changes at the end of 2021 and the beginning of 2022. Unemployment was steadily declining throughout the period. There was a rise in the number of claimants of the housing component of Universal Credit in the social housing sector. However, there were no major fluctuations during that period.

The most volatile macroeconomic indicator for that period is inflation and changes in energy prices in particular. According to Ofgem, wholesale gas prices increased to a record high in the fourth quarter of 2021. The rise had been mitigated in the first quarter of 2022 before the effects of the Russian invasion of Ukraine drove the prices up again.

Because of the rise in energy prices, social landlords had to secure energy contracts under unfavourable terms. Greater energy expenditure meant higher rents and energy bills for social housing tenants. Available data indicates that market average tariffs for households rose substantially in the fourth quarter of 2021 shortly after Ofgem lifted the energy price cap.

This is consistent with the Office for National Statistics’ February publication which demonstrates that energy price increases disproportionately affect those on lower incomes. The lag in the effect arises due to time gaps between market energy price fluctuations, households’ savings drain and prevention duty claim registration. Such sensitivity would explain the decrease in prevention duty cases from April to June this year. Energy bills stabilised in the first quarter of 2022. Hence, there was less pressure on consumers’ budgets and fewer people were pushed to seek help from local councils in the second quarter of 2022. 

Overall, this provides two insights. First, households in social housing are likely to be highly sensitive to changes in energy prices. If private renters have options when rent cannot be paid, homelessness is almost the only alternative when social housing rent is unaffordable. Second, the energy crisis does not only affect individuals’ finances but also affects households with a lag. It takes time for the energy price volatility to pass on to renters’ budgets. 

As energy prices are rising way above the levels seen in the fourth quarter of 2021, local councils may now face a growing number of people on the edge of homelessness in social housing. Since the beginning of the year, Ofgem has increased the energy tariff cap twice. According to Ofgem figures, average standard variable tariffs provided by Large Legacy suppliers rose by 54% in April and most recently went up by 27% in October 2022. 

The energy price guarantee adjustments announced by the government in the Autumn Statement as well as the 7% rent increase cap for the social sector are steps towards preventing the homelessness crisis. The analysis here nonetheless suggests that social housing may require even greater attention. Since the effect of energy price increases is delayed, acting early will be the best strategy. 

Mikhail Korneev is a Research Assistant at Bright Blue. Views expressed in this article are those of the author, not necessarily those of Bright Blue. [Image: Nick Fewings]

Mikhail Korneev: Navigating the declining housing market

By Centre Write, Economy & Finance, Housing & Homelessness, Towns & Devolution

Fourteen years since the collapse of Lehman Brothers and the implementation of austerity, the memory of the 2007-2008 global financial crisis remains vivid. The spike in mortgage rates after the announcement of Liz Truss’ mini-Budget this September would not normally constitute a major concern. However, it came at a time when house prices were already in decline and inflation was steadily rising.

As the availability of mortgages falls and mortgage rates are expected to exceed 6%, this raises some concerns over the government’s control of the situation. So far, the Bank of England remains confident in its focus on inflation targeting and rules out a repeat of the 2008 scenario as improbable. Taking the current government’s commitment to expenditure cuts into consideration, the “wait and see” approach appears a coherent option.

While a significant part of the UK economy suffered severe losses during the COVID-19 pandemic, the housing market was on the rise. Since the beginning of the pandemic, prices increased by 25% across the country. Part of this growth came from the temporary Stamp Duty cut. This trend has since reversed, with prices this June declining to May levels.

This shift can be plausibly attributed to the cost-of-living crisis and rising energy prices, both of which have put pressure on the demand for houses. As everyday spending increases, mortgage repayments have become increasingly unaffordable. Therefore, customers are less keen to purchase houses, contributing to a slowdown in demand. 

Indeed, some estimates suggest that we can expect a 10% fall in house prices over the next two years. Similar concerns are expressed by other market stakeholders and analysts, with Oxford Economics projecting a 30% collapse in house prices. A fall within the 10-30% range will not only constitute the biggest drop in house prices in fifteen years but will also come worryingly close to the 18% decline during the global financial crisis of 2007-2008. 

The government has several established fiscal policies to shore up demand in the housing market. It is worth considering the two that the Chancellor updated in his recent budget. First, house demand can be incentivised with the Stamp Duty easing. Second, the Support for Mortgage Interest scheme may help the most vulnerable to meet their mortgage repayments obligations.

The former has proven to be effective during the pandemic. The current policy that got prolonged in the Autumn Statement exempts buyers from Stamp Duty for deals under £250,000. This allows more people to afford house purchases. However, increasing the threshold further does not seem like a coherent solution to the current decline. Giving up this source of the tax revenue goes against the fiscal responsibility endorsed by the new Government.  

Under the Support for Mortgage Interest scheme (SMI), the government provides financial assistance towards interest rate payments on mortgages and house-related loans. The scheme has, however, limited capacity to influence broader economic trends. Although the Autumn Statement has relaxed eligibility restrictions, SMI is only available to those already claiming social benefits. Therefore, the scheme appears more as a measure to protect the most vulnerable during a crisis than restoring the house demand per se. 

A monetary response to the rise in house prices would be to indirectly lower mortgage rates, which are tied to the Bank of England (BoE) interest rate. Currently, as the BoE sets the interest rate higher to fight inflation, this puts upward pressure on mortgage rates. The BoE could reduce or at least freeze the interest rate. As inflation climbs higher, however, this policy is highly unlikely to materialise. 

In its report on the Financial Policy Committee meeting this October, the BoE has clearly prioritised inflation targeting over housing market stability. Although the BoE recognises the vulnerabilities of UK households’ debt, it believes that establishing control over inflation is the most comprehensive long-term solution to the current crisis. When inflation is under control, the interest rate can be decreased, pushing mortgage rates down. 

This seems justified. In comparison with the years before the global financial crisis, lenders are better capitalised and are restricted in the use of repossessions. Therefore, a sharp fall in house prices should not trigger a broader crisis. It is noteworthy that the BoE does nonetheless take the danger of a market collapse seriously. The BoE is ready to increase the countercyclical capital buffer rate for banks if the situation escalates. 

What this tells us is that the government and the BoE are constrained in their response. Both fiscal and monetary solutions conflict with broader economic objectives. The government will, therefore, likely allow house prices to decrease. The expectation is that the housing market will follow the national economy’s path and stabilise when inflation and growth are back to normal. If the government follows the situation closely and acts promptly when needed, this seems like the least worst option.

Mikhail Korneev is a Research Assistant at Bright Blue. Views expressed in this article are those of the author, not necessarily those of Bright Blue. [Image: Jac Alexandru]

Sang-Hwa Lee: Should Britain pay ‘loss and damage’ climate reparations?

By Centre Write, Economy & Finance, Energy & Environment, Foreign

In international climate discourse, ‘loss and damage’ refers to the destructive and irreversible consequences of global warming that cannot be avoided by mitigation or adaptation. The devastation may arise from extreme weather events or more slow-onset catastrophes, such as rising sea levels, and includes both economic (damage to livelihood and property) and non-economic (loss of life, biodiversity, and cultural heritage) costs. More specifically, the term is used when discussing how to support developing countries that are particularly vulnerable to the adverse effects of climate change. It has been an area of contention for the past 30 years, pitting the Global North against the Global South. Despite this, ‘loss and damage’ has been added to the agenda for discussion at COP27 for the first time. 

Talk of ‘loss and damage’ dominated the first day of the conference and Labour was quick to back calls for such payments as ‘morally right’. Sunak echoed this language when reiterating the government’s commitment to honouring its climate finance obligations of £11.6 billion. But he maintained a studied reticence on the topic of compensation, implicitly aligning himself with Johnson’s more frank admission that Britain simply couldn’t afford it. The backlash on this issue (from those on both sides of the debate) overshadowed the Prime Minister’s announcement that the UK would also triple funding on adaptation to £1.5 billion by 2025.

Many of the countries worst-affected by climate change emit only a small proportion of the world’s carbon. Understandably, they feel angry that they must bear the brunt of the burden, which may even constitute an existential threat for many small island states. It is without question that Britain and other wealthy nations should help with global adaptation and mitigation efforts, as well as provide timely aid when disasters strike. This is both our moral duty and self-evidently in our own interest.

But those calling for ‘loss and damage’ payments do not only seek to institutionalise an insurance scheme that is wholly separate and distinct from existing conduits of climate financing and support. More problematically, they also appear to presume a right to such compensation based on the assumption that today’s wealthy nations share the collective guilt for industrialising first. As such, it has (despite Ed Miliband’s best efforts) effectively become synonymous with the controversial notion of ‘reparations’. As evinced by the quandary over slavery reparations in the US, this concept is mired in all sorts of political, moral, practical, philosophical, and legal challenges, which are only magnified when applied to climate justice. 

First, it is not at all clear that Britain has a ‘historical responsibility’ to provide reparations because of our pioneering role in the industrial revolution – a revolution that has, for all its many flaws, produced previously unimaginable riches that have improved the lives of billions of people all over the world. Playing such accounting blame games seems neither sound nor fair, and risks opening more dangerous doors (should, for example, Britain demand royalties for her early inventions and innovations?)

In addition, Britain’s cumulative emissions have long since been overtaken by other countries. It is certainly true that we have benefited from structural changes in our economy, particularly the offshoring of manufacturing, and we must not overly greenwash the carbon footprint in our supply chains. Still, other ‘developing’ countries, including China and India, emit substantially more and yet do not face the same pressure or opprobrium. 

Moreover, it is not necessary to be a climate denier to concede that the explanation behind the scale, frequency, and occurrence of adverse weather conditions is multifaceted. It should, by now, be beyond dispute that man-made global warming has made such extreme disasters more likely or more severe. Many were shocked by the severe flooding in Pakistan, which has, unsurprisingly, been a vociferous advocate of the compensation scheme. Yet it cannot be denied that Pakistan has suffered from major (and worse) floods before, nor should its alarming rate of deforestation be ignored. The country is already one of the largest recipients of UK aid, as it struggles to shore up its crumbling infrastructure and support its growing population (which has expanded over sixfold from 33 million to 235 million over the last 70 years) – all the while somehow maintaining an expensive nuclear weapons and space programme. Given all this, how exactly would the UK’s ‘loss and damage’ bill to Pakistan be calculated?

Perhaps most importantly, there would – justifiably – be significant uproar from large segments of the general population at the prospect of paying any reparations. Debt-addled Britain is anxiously bracing itself for the inevitable real-terms and actual cuts in the upcoming Autumn Statement. ‘Crisis’ seems to be the order of the day with regards to energy, education, housing, health and social care. And all this is amidst the backdrop of long-term stagnation in wages and productivity. No party – least of all the party of levelling up, of the 2019 mandate, and of one-nation Conservatism – can lecture struggling, working people about their historic ancestral sins and make them cough up reparations as atonement for their ill-gotten gains. Not unless, of course, it fancies an indefinite stint in Opposition (or worse) and wishes to incur the electorate’s wrath, nurture the most dangerous and irrational wings of extreme populism, and set the climate agenda back by a generation through a needless alienation of the public.

So what should the government do instead? If Britain has any historic obligation, it may be to channel the gusty entrepreneurial spirit of the industrial revolution into achieving net zero. This may include identifying and producing cutting-edge technology (green hydrogen, for example, is set to be a huge growth sector, promising plentiful energy and employment), as well as cutting the Gordian knot when it comes to our restrictive planning laws. We should be generous with sharing new technology with the rest of the world, while ensuring that we scrupulously honour our climate finance and aid obligations in the meantime. Finally, the government should genuinely try to persuade the nation that net zero is in their personal interest by intertwining the climate agenda with both national security and levelling up

Wealthy countries have a moral responsibility to do more and pay up. But sanctimonious rhetoric about reparations is rarely effective and often highly divisive. Tackling climate change is simply too important to be side-lined because of that. 

Sang-Hwa is currently undertaking work experience at Bright Blue. Views expressed in this article are those of the author, not necessarily those of Bright Blue. [Image: Chris Gallagher]

Good Things Foundation: How much does it pay to be “tech savvy” now?

By Centre Write, Coronavirus, Data & Tech, Economy & Finance, Education, Politics, Towns & Devolution

Last time we were here, we were battling the first wave of Omicron. Since then the world around us has dramatically changed: a war, an economic crisis, unprecedented political upheaval – just to name a few.

However, the undisputable role of digital remains. From accessing essential services to booking a holiday, being able to confidently and safely operate the digital world is vital. And now we have updated evidence of its economic significance too – making the case for investment into digital inclusion as a result.

Having a basic level of digital skills impacts our economy in all sorts of ways. Take productivity as an example. There is a wage premium associated with having digital skills, and employee earnings are mostly related to their productivity. Employers will therefore pay more for productive staff and benefit from their increased output. Ensuring all UK adults learn basic digital skills therefore leads to a positive macroeconomic impact for productivity, employability and earnings.

Given society’s continued digitisation, it’s unsurprising that the economic impacts of digital inclusion make for a long list – from the advantages of online retail to more easily accessing online services. Understanding the scale of these benefits should be critical for those making decisions about policy and investment, at a national, regional and local level.

That’s why Good Things Foundation – the UK’s leading digital inclusion charity – partnered with Capita and Cebr to assess the economic impact of digital inclusion, in their report The Economic Impact of Digital Inclusion in the UK launched earlier this year.

So, what does the report find? What are these so-called economic gains? 

The headline is that for every £1 invested in interventions to help digitally excluded people to build their basic digital skills, a return of £9.48 is gained throughout the economy. 

Savings to the public purse are significant. Through efficiency savings alone, the Government is estimated to benefit by £1.4 billion over the next ten years, plus £483 million in increased tax revenue. The NHS is expected to save £899 million in addition.

A proportion of working-age adults still need digital skills support to gain work or better work. Meeting this need is estimated to generate £2.7 billion for organisations through filling basic digital skills vacancies over the coming decade. Furthermore, an estimated £586 million in increased earnings, £179 million in additional earnings from finding work, and £76 million in environmental benefits.

The cross-cutting, complex nature of digital inclusion requires a co-ordinated, well-funded and holistic approach to meaningful help those most excluded and to invigorate our economy. The most challenging stretch of the country’s digital inclusion journey lies ahead, and Good Things Foundation’s new strategic offer is ready to tackle it alongside others: working across sectors on our National Databank, National Device Bank and National Digital Inclusion Network initiatives.

If we are to achieve an inclusive recovery to Covid-19, combat the cost-of-living crisis, level up and ensure everyone can make the most of the digital world – we have to comprehend the economic advantages, step up, and invest in it.

The Good Things Foundation is a charity with the goal of fixing the digital divide. . Views expressed in this article are those of the author, not necessarily those of Bright Blue. [Image: John Schnobrich]