A Social Democratic Future

Policy paths towards equality and efficiency

Main navigation

Economic Policy

How can Starmer best combine Brexit tactics with strategy?

by

On the 2nd March at the Mansion House (MH), the Prime Minister set out, at last, the government’s desired Brexit destination: a bespoke trade agreement with the EU more comprehensive in both its breadth of coverage (scope) and depth of market access, than any other  Free Trade Agreement (FTA) existing ‘elsewhere in the world’, including the EU-Canada Comprehensive Economic and Trade Agreement  (CETA) template, https://www.gov.uk/government/speeches/pm-speech-on-our-future-economic-partnership-with-the-european-union.

Soon afterwards, on the 19th March the draft EU-UK ‘where we are’ withdrawal agreement was published. It provided for a transitional period, although limited to 21 months with a December 2020 end-date. But a total negotiation period of barely two years simply makes no sense.  CETA took over six years to negotiate, even though it is both shallower and more limited in scope than the much more ambitious FTA that May seeks. A cliff edge now looms in 2020, rather than at the end of this year.

As the clock ticks towards formal exit and then to transition end the EU’s negotiating leverage will, unquestionably, strengthen. The earlier experience of Phase 1,  on its own, makes it a fairly safe bet that the EU’s negotiating guidelines, focused on the maintenance of the architecture of the single market and/or to an open Eire-NI border, will progressively and substantially prevail over the UK ‘red lines’ of taking back control of its migration, budget, and trade policy, all independent of European Court of Justice (ECJ) interference. That is unless the May government proceeded to take on board, essentially, the same existing CETA-FTA template that the prime minister ruled out as too limited in her MH speech.

The imposition of ‘rules of origin’ customs rules and of non-tariff barriers on both goods and services that are inevitable with a CETA-type FTA arrangement will inevitably increase trade frictions with resulting adverse impacts on production, income, and employment. A  UK Trade Observatory report, that modelled the particular impact of Brexit on the manufacturing sector, for instance, concluded that high-tech and medium-high tech sectors, such as car-making and aerospace, are most at risk of a decline in domestic production, with associated  losses of local employment, in Sunderland, across the West Midlands, as well as other local authority districts mainly concentrated in the North and the Midlands,http://blogs.sussex.ac.uk/uktpo/files/2018/02/Briefing-paper-16.pdf.

No-one can know or quantify the final damage of choosing an economically sub-optimal option, but the government’s own analysis of the economic impact of alternative Brexit options  on indicative UK aggregate growth, projects (taken as indication of the direction of travel, not a forecast)  that a FTA-type arrangement is likely to retard future GDP potential growth by  an estimated 4.8% to 2030 compared to that of 1.6%  if an European Economic Association (EEA)-type arrangement  membership was adopted: the ‘Norway’ option. But May in her MH speech also rejected that option, because it would mean accepting future EU directives as a rule-taker, continuing free movement (FOM), and ECJ jurisdiction; as she did continuing customs union (CU) membership in that case because it would mean accepting EU-set external tariff levels, thus preventing the UK embarking on an independent trade policy.

Alternative UK trade deals with the US, led by the mercurial and protectionist Trump, or with India, which will seek the lifting of UK visa restrictions, or with Japan, which has recently finalised a trade agreement with the EU, will take the UK years to negotiate; and, even if achieved, the available evidence converges on the conclusion that their subsequent benefits will prove largely illusory and negligible in comparison to the losses generated by disrupting the trade links and the complex integrated supply chains built up over decades with your closest neighbours. Common sense, rather than detailed economic modelling subject to uncertainty,  screams that simply is not sensible.

This cold reality makes the official Opposition and Starmer’s ambivalent position to the draft withdrawal agreement, which he gave an ambiguous and guarded welcome to, on the face of it, puzzling: in effect, tacitly or half-supporting  a government that is knowingly following a chosen process that will make not only Britain as a whole poorer, but which will leave some of its core voters reliant on manufacturing industry especially exposed to unemployment and reduced incomes.

But with Brexit, of course, politics trumps economics. In order to survive the government needs to keep the Democratic Unionists, the 60-odd diehard hard Brexiteers, and the 10-20 committed Remainers, all on board. Jacob Rees-Mogg, the standard-bearer of the hard Brexiteers has already declared the draft withdrawal agreement to be ‘unacceptable’ as it gives too much away,  and went on to link his grudging tactical acceptance of its current status to the implicit threat that ‘the final deal is the important one’, echoing the EU rhetoric that ‘nothing is agreed until everything is agreed’. Leading Remainers by tabling an amendment, back in February,  in support of continuing CU membership – which could well have passed, forced the government to postpone consideration of the relevant trade bill until such time that it can be sure of mustering the necessary parliamentary majority.

Labour, in turn, does not want to be painted as the party that disrespects the referendum vote and/or that undermines the negotiation position of a government that is actually ‘getting on with the job of delivering the people’s verdict’.  To do so could well lead to electoral punishment, insofar that the 2016 result was rooted more on social demographic-based culture and psychology than it was on economic cost-benefit analysis. The opposition’s comfort zone is to sit back and to leave the government squirming in their own Tory-created mess, rather than taking a definite alternative position, such as continued membership of both the CU and SM, which could then open-up the opportunity for the government to turn the spotlight towards them.

And Team Corbyn certainly does not want to come into power facing the continuing distraction of negotiating Brexit; it would much prefer the government to do the heavy lifting itself and then take the electoral consequences of negotiating a deal that Labour could then claim with evidenced justification will cost jobs for the sake of illusory freedom of the UK being able to negotiate its own trade deals.  After all, promoting the SM is neither a socialist clarion call nor an electoral vote-winner, when a third of Labour voters supported Brexit back in 2016, and which some Labour MP’s representing Brexit-voting constituencies might themselves reject.

Starmer, last year, set six tests in order to assess the acceptability or not of any Brexit deal in a future parliamentary vote. Their cornerstone is the second test that it should ‘offer the “exact same benefits” as the UK currently enjoys as members of the Single Market and Customs Union’. In a speech this March,  he reaffirmed that Labour’s  commitment ‘to negotiate’ a new comprehensive UK-EU Customs Union, alongside a strong new relationship with the SM that must include ‘full access to European markets with no new impediments to trade and no drop in existing rights, standards and protections’. He also outlined two amendments to the EU Withdrawal Bill that Labour intended to progress. One would prevent checks, controls or physical infrastructure of any kind at the NI/Eire border. The other – should the government’s proposed article 50 deal be defeated –  would insert a statutory provision requiring the government ‘to proceed on terms agreed by Parliament at the time, if necessary’, https://labourlist.org/2018/03/we-need-a-new-and-credible-approach-to-brexit-keir-starmers-full-speech/.

Is Starmer’s approach just tactically opportunistic or is it canny political management of a raft of complex interlocking issues that could in the end achieve the national interest by ultimately minimising the economic damage connected with Brexit, or by creating the conditions conducive for it to be to cancelled through a second referendum?

His demand, parroting David Davis (DD), that any deal should ‘offer the “exact same benefits” ‘ as the SM and CU, of course, is impossibilist, short of staying in both. Clearly designed to embarrass the government and DD in particular, it is made even though Labour shies away from advancing the outcome – other than cancelling Brexit altogether – that is most consistent with the passing of his own second test:  that is continued de facto UK membership of both the CU and SM; the position that many Remainer Labour MP’s want the party to adopt.

Starmer’s amendments to pass require the support of at least 12 Remainer Conservatives. They will almost certainly not lend support to Labour amendments directed against their own government that are designed to embarrass or to bring it down, in contrast to using their potential voting power, if and when with Labour support, as a means of internal influence with May to secure the least damaging Brexit. Defining amendments that are aimed squarely at the government’s weakest points and which potentially could command a parliamentary majority does, however, add pressure on the government to come back to Parliament for article 50 approval with a package more aligned to a progressively softer Brexit outcome. Providing Parliament with the power to guide negotiations subsequent to a failed article 50 vote,  in effect, would strip the authority of the government and would likely result in a stalemate, possibly conducive to a second referendum or a postponement of the Article 50 exit date.

That is why the government will, in all likelihood, use its best endeavours to fudge and kick the can down the road in order to avoid a political crunch point where they could lose a key vote in Parliament.

Successive iterations of an evolving framework of a deal that could allow it to claim that the UK has ‘taken back control’, even if in semblance, rather than practical practice, can be expected. In practical terms that would mean at the end of the day the UK progressively ceding the substance of the EU negotiating guidelines, either by accepting  diminished market access or by loosening its other red lines, such as conceding ever-widening areas where the ECJ retains jurisdiction in return for better market access : an Emily Thornberry ‘blah-blah-blah’ or ‘fudge’ line of least resistance deal could well be cooking in the Cabinet Office kitchen.

The mutual need of the EU/UK to avoid the UK being left with a Hobson’s Choice of either a politically unacceptable deal or of falling down a 2020 cliff edge, in any case, means that the prospect of an extension to the transitional period, during which the UK will have to accept as a rule-taker Single Market (SM) and Customs Union (CU) obligations and continuing budget contributions, is already looming on the horizon. In that light, even a pro-Brexit organisation, such as the Institute of Economic Affairs, recognise at least the possible benefits of  remaining in a modified customs union until after March 2019, https://iea.org.uk/publications/the-uk-can-do-better-than-the-eus-customs-union/.

Such a ‘fudge’ deal is consistent with the Article 50 ‘meaningful’  vote actually turning into one where MP’s are asked, rather, to accept an outlines of a deal on the basis of aims and objectives not commitments, focused on the principle of EU exit, rather than its detail or consequences, and one which will still lead to economically sub-optimal outcomes. The danger of such a ‘fudge’ approach for a government facing the milestones of  a March 2019 Article 50 EU exit, a 21 month subsequent transitional period ending in December 2020 – if not extended, and a Spring 2022 general election, is that the hard Brexiteers seeking their ‘real’ Brexit could still precipitate a leadership contest in the intervening period between the EU exit date and the next election.

May, no doubt is banking that the fear of such a decisive leadership election that could then lead to a premature election that could then, in turn, put Corbyn in 10 Downing Street, will prove enough to keep both the hard Brexiteers and Remainer factions on board, however reluctantly. On the other hand, her interests are aligned to Team Corbyn to the extent that both want Brexit put to bed prior to a 2022 election. The unknown is just how much ‘fudge’ the two different factions will respectively tolerate before rebelling.

But her more immediate problem is that the NI border issue will prove impossible to fudge given the Phase 1 agreement and her own commitment to no hard NI border. Most commentators concur that the government’s negotiating alternatives of ‘a’ new customs ‘agreement or ‘partnership’ will either not be accepted by the EU or realistically cannot be put in place by 2021. The UK has, in effect, therefore, committed NI to remain part of the CU and SM but rejecting that for the UK as the whole, and the logical corollary of such a combined position: a post-2020 EU-UK Irish Sea border.

Avoiding a hard NI border and Starmer’s second test alone requires him to seek and secure effective common ground with Conservative Remainers in support of a parliamentary commitment to an ‘equivalent’ CU arrangement. This would need to avoid ‘rules of origin’ impediments to frictionless trade and to ensure that future EU trade deals continue to apply to the UK.

By  requiring the UK to adhere to the EU’s external tariff wall,  it would rule out an independent UK trade policy, at least with respect to goods. But an independent UK  trade policy is a chimera, as was discussed above.  Nor is it likely that the UK would wish to introduce reduced or nil tariff trade with non-EU countries without reciprocal benefits accorded in return within bilateral FTA’s.

Such an equivalent CU could possibly be combined with UK participation in a hybrid-EEA arrangement, where the UK would, in effect, opt-in desired industries or sector to the SM,  and be ‘docked’ to the European Free Trade Association (EFTA) Court for jurisdictional purposes, for example, with reference to the interpretation and compliance of the Withdrawal Agreement. Some Conservative commentators have noted that May’s ‘pick-and-match’ aims in terms of maximising market access would be more likely achieved by such an arrangement, as it is based on existing EU precedent, and that it is an option that many Conservative MP’s are interested in, for instance,  https://www.telegraph.co.uk/politics/2018/03/25/creative-brexit-compromise-neither-leavers-nor-remainers-can/.

Indeed, the most recent, and internally contested, the House of Commons Select Committee on the The Future of the UK-EU relationship,  narrowly passed an amendment proposed by a Conservative MP, Richard Graham, that should the negotiations on a deep and special partnership not prove successful, in effect, the ‘Norway’ option, EFTA/EEA membership, remains as an alternative that would offer the advantage of continuity of access for UK services, as well, https://publications.parliament.uk/pa/cm201719/cmselect/cmexeu/935/935.pdf.

But EEA/EFTA membership, by itself, would not adequately address the NI/Eire open border issue: remaining outside an equivalent CU would mean that the resulting rules of origin checks on goods would require some sort of border infrastructure there.

Crucially, taking the needed full cognisance of the NI/Eire open border imperative requires  – at the very least – a combined hybrid EFTA/EEA/equivalent CU – hybrid, due to the exclusion of services. This would avoid the frictions connected to the imposition of non-tariff barriers on goods caused by being outside the SM, and to rules of origin checks caused by being outside the CU. Both, otherwise, will almost certainly stymie an open border.

Remaining in the SM for goods would also render the need to secure mutual recognition agreements relating to standards – which are almost certainly unlikely to be forthcoming within CETA++, unnecessary.  It could allow the UK to negotiate its own trade deals for services, and fisheries,  to avoid direct ECJ jurisdiction, and to possibly provide it with some wriggle room on migration, if the EU was so minded.

In effect such an arrangement would be a Norway-minus (services not covered)- plus (supplemented by an equivalent CU) arrangement, customised to the UK’s status as a major trading partner of the EU. It would need to include farm products as they constitute an important component of the movement of goods between NI/and Eire.

Certainly it would offer a better prospect than would CETA++: indeed, on the face of it, the only means of avoiding a hard NI border. The treatment of any goods, such as fish, carved out of the arrangement, as well as border controls on people, would remain to be resolved, however.

And, insofar that the UK participation in an equivalent CU appears to be a necessity in terms of avoiding a hard NI border and that EFTA is a free trade association outside the CU,  UK membership of both appears to be a contradiction: one that, at least to a lay observer, calls for consideration and resolution.

That said, politically,  Labour could take the initiative and signal that it would support an Article 50 deal along such lines, presenting it as ‘workers’ Brexit, but in a way best tailored to secure the needed support of Conservative Remainers.  Timing issues arise, however. Given that CETA-type arrangement is incompatible with both an open NI border and with May’s current partial opt-in approach to EU rules for UK industries most integrated to European supply chains,  Labour could just wait for growing pressure from her own MP’s to shift towards an alternative negotiation hybrid EFTA/EEA/equivalent CU negotiation template.

An Article 50 vote on an evolving withdrawal framework that fudges or clouds the reality of that incompatibility could, however, postpone that point of reckoning too far down the road. As was noted above, the practicalities and feasibility of a combined hybrid EFTA/EEA/equivalent CU requires focused consideration in order for it to properly and successfully presented and pursued with the EU. Political attention on the desirability of  the UK shifting to a combined hybrid EFTA/EEA/equivalent CU in comparison to CETA++ needs to crystallise, before the moment has passed.

Therefore, at the earliest opportune time, Labour should prioritise the facilitation of amendments across the floor that would ensure the establishment of an equivalent CU that would avoid damaging the same integrated supply chains, as May in her MH speech noted, that UK industries depend upon as well as a politically unacceptable Northern Ireland border, as was argued in http://www.asocialdemocraticfuture.org/time-labour-protect-national-interest-voting-cu/. For that reason, the  acceptance of principle of an equivalent CU should precede or accompany that of hybrid EEA membership.  Remainers across the parties could then unite to push the government to move along a road towards de facto EEA membership that will cause the minimal economic and social damage. At the same time, it would not involve a Labour commitment to full SM membership and hence free movement.

 

 

Indian Budget 2018: development watershed or politics as usual?

by

In 2014, the Bharatiya Janata Party (BJP) became India’s governing party after winning an absolute majority of the seats in lower house of the Indian parliament, the Lok Sabha. Its nationalistic religious socio-cultural based (Hindutva) electoral platform has always been controversial. Its leader, Narendra Modi,  was prevented entry to the US  after his alleged complicity in the 2002 killing of 2,000 Muslims during communal riots. But, as Union prime minister, he has eagerly availed himself of opportunities to bestride the world stage, basking in his international superstar, rather than his past pariah, standing. In January 2018, for instance he addressed the annual economic gathering in Davos, Switzerland where he enjoyed the company of the western financial and political elite. He  began his life’s journey as a lower middle-class tea seller, then deserted his wife to become a monk, before working his way up the party apparatus by dint of sheer single-minded focus and ability to become chief minister in his home state of Gujarat, one of India’s most economically advanced states.

Indeed the BJP’s overarching Hinduvta platform is sometimes tempered,  more often  paralleled, by its development one.  In the Budget that the Union Finance Minister, Arun Jaitley, presented to the  Lok Sabha on the 1st February 2018, the latter development driver tended to  overshadow Hindutva, although as  it will be the last one covering a full year before the next Union election takes place in May 2019, preceded by a number of State Assembly elections, the electoral dimension also loomed large.  And, BJP  deployment of Hindutva still continued, with, for instance, the Union Home Minister waving off yet another BJP-promoted religious march or ‘Rath Yatra’ later in the same month: this time to collect water and soil from all four ‘holy’ corners of the nation.

The BJP’s 2014 platform included pushing up India’s real GDP growth performance back again to beyond  the 8% per annum achieved between 2003-11, when the  post-1992 liberalisation of the licence-quota-control Raj really began to bear fruit.  During earlier decades this had evolved into economic calling card of the hegemonic post-independence dynastic, but ostensibly secular and socialistic, Congress Party. But by  the eighties, the party began slowly to embrace market reform, responding to annual growth rates that in the 60’s and 70’s were sometimes barely above the rate of population increase. The watershed was the 1991 crisis, when India nearly ran out of foreign exchange, after which reform became a driving force, with both the BJP and Congress, as well as other parties aspiring to political power, competing to become holder of the development mantle.   Congress  remains the BJP’s main electoral rival under the fresh leadership of Rahul Gandhi, son and grandson of  former prime ministers, Rajiv and Indira Gandhi, respectively, and the great-grandson of Nehru, India’s first and renowned post-independence leader.

In practice, post-2014  economic performance under BJP stewardship has continued to be relatively sluggish. 6.5% growth was registered in 2016-17, amidst fears that the delayed result of the November 2016 demonetisation measure could continue to hinder growth into 2017-18. Investment levels remain stuck at levels below the near 35-40% of GDP that were recorded pre-Global Financial Crash (GFC).

Job creation  and rural incomes, especially in the rural areas, have also stagnated under the BJP watch. This has led some rural caste groups wielding vote banks significant at the local and state levels, such as the Patidars (one who owns a strip of land) in Modi’s home state, becoming politically unsettled, see, https://economictimes.indiatimes.com/news/politics-and-nation/the-day-of-the-patidars-why-their-votes-matter-in-gujarat-election/articleshow/61994403.cms. 

Against that backdrop, Jaitley’s budget measures were focused across three main inter-related areas, in agricultural and rural development, in extending access to universal healthcare, and in improving infrastructure.

Agriculture and rural development
Two thirds of the 1.3 billion Indian population still live in villages or rural areas, despite urbanisation proceeding steadily  and the urban population rising to 380 million.

Agriculture remains India’s largest economic sector in terms of the number of people who rely on it for income and employment,  in contrast to value-added. Most villagers still eke out a precarious and uncertain living from agriculture or related occupations. 50% of crops grown remain rain-based: a failed summer monsoon can mean no crops to sell; while a good one can lead to over-supply, which then pushes down prices and incomes. Rural incomes therefore are still highly dependent on the climate or ‘the gods’, and, unsurprisingly have lagged post-reform urban incomes.  in the early post-1991 reform period to the mid-2000’s rural incomes stagnated, as they done since 2014.  Such cold reality provides the sobering backdrop to the BJP’s promise to double rural incomes by 2022 from their 2017 level, while increasing rural employment.

It provides the political context to Jaitley’s budget announcement to increase the minimum price support (MSP) for Kharif crops (those largely sown in the summer monsoon, such as rice) to a level of 150% of their production cost, mirroring the support levels already prevailing on other Rani crops. He also unveiled measures to support the development of employment-generating food processing industries, the further rolling-out of institutional credit and marketing infrastructure, and of the lifting of restrictions on agricultural exports.

In addition, his  budget included a commitment to build one crore (10m) new homes, under the banner of “a home for all ‘poor and homeless’ households”, along with an additional 4 crore electricity connections. And, in a country where only c30% of the rural population is estimated to have access to an in-situ toilet,  an additional 20m toilet connections were also announced.

These proposed measures reflect the electoral significance of rural voters, as well as the lobbying strength of organised farmer lobbies. With respect to the latter, the BJP continues to face pressure from organised farming lobbies to maintain not only price support for agricultural goods, but also untargeted subsidies on inputs, such as on fertiliser, on farm machinery, on irrigation, as well as on electrical power.

On the debit side,  farm price MSP support can  encourage corrupt rent-seeking activity by agents best placed to exploit the system for their own, rather than officially defined, ends. Setting administrative, rather than market-based, prices apart from pushing up food prices and hence inflation, can incentivise farmers to grow supported crops, leading to over-dependence and an ‘eggs in one basket’ exposure that risks future loss of livelihood.

Its distributional impact  is unclear, although it can be expected that the more productive framers cultivating intensively larger landholdings for market distribution will benefit most through higher profits, with some gains trickling down to increased wages. A stated aim of the government is to encourage consolidation and higher productivity agriculture. That, however, implies the exit of more marginal smallholders, the further capitalisation of the agricultural sector,  with the pace of migration of the rural poor to the urban centres, consequently, quickening.

Infrastructure
Although about one-third of India’s population is urban,  two-thirds of gross value-added (GVA) within the economy is urban-based. Construction is India’s second largest economic sector in terms of its contribution to GDP. It also is employment-intensive, employing around 52m people in 2017.

Smart investment in productive infrastructure that improves connectivity by reducing the costs imposed on capital and labour by congested city streets, by inadequate and antiquated railway, road, and aviation links, and by patchy and unreliable digital services, should  help to push-up the growth rate, as is desired by the government.

The official national education aim is to ensure inclusive and quality education for all and to promote life-long learning. In that light education is slated to receive an additional one lakh crore rupees until 2022 with up to 13 lakh new teachers trained with blackboard and digital skills, referenced to a wider aim to extend the duration and improve the quality of education received by the growing number of school-age children. The National Apprenticeship Scheme is also to be expanded .

The Budget also announced higher investment outlays on railway rolling-stock, line-doubling, and wi-fi availability along with expanded aviation capacity in regional and sub-regional hubs, and of broadband access in the rural areas.

Rolling out universal health-care (UHC)
70 years after independence, less than 20% of Indians are covered by health insurance or have access to affordable health care, despite the 1947 Constitution promising universal access to affordable health care. Most households today risk incurring health costs that can be financially catastrophic, with seven per cent of low-income households – around 63m people- pushed into poverty by such costs each year.  Many others, of course, die or suffer life-changing disabilities because of their lack of access to quality health care or because of poor sanitation, in particular within the rural areas. The impact of mortality and morbidity rates, of poor sanitation of inadequate, and of inaccessible primary and secondary health services, and their associated economic costs are unquantifiable, but are likely to be huge.

As way of background, an official report (the Srinath report, https://www.slideshare.net/anupsoans/universal-healthcare-dr-srinath-reddy-report-to-planning-commision ) in 2011 recommended to the previous Congress government that annual public spending on health care should be raised from 1.2% to 2.5% of GDP by 2017, and to 3% in 2022,  in order to eliminate the need for user charges. The report noted that  per capita government spending on health in India (at purchasing power parity:PPP)  at $43 was significantly lower than was the case in Sri Lanka (PPP$87), in China (PPP$155), and in Thailand (PPP$261), as well as across most other low to middle-income countries.

Srinath urged  that the existing national – Rashtriya Swasthya Bima Yojana (RSBY) – and similar state publicly-financed health schemes should be merged and their scope considerably expanded in order to create a viable UHC model in India, funded from general tax revenues,  rather than ‘unsteady streams of contributory health insurance which offer incomplete coverage and restricted services’. Instead all citizens should be guaranteed access to essential primary, secondary and tertiary health care services. This UHC  model, it proposed, should be provided by a mix of public and contracted-in private providers, with 70% of the increased funding devoted to primary care, reversing by 2022 the current mix of public and private funding to one instead two-thirds publicly-financed.

In 2017 total combined public and private spending on health care totaled 4.5% of Indian GDP (well below international averages). Publicly financed health expenditure remained at the particularly low-level of 1.3%. Private spending was more than double that. User-payments for hospitalisation, for drugs and for other medical expenses and  private insurance premiums continue to constitute the main sources of national total health financing, although with central and state governments reimburse insurance funds for costs they incur on eligible publicly-covered insured persons. Only 23% of total government spending on health is actually directed at the provision of public health care facilities.

The main proposal made in the Budget was for 10 crore poor households, or an assumed 50 crore people living in such households (one crore = 10 million, so 10 crore is 100 million, 50 crore is 500 million), to be provided with up to around five lakh rupee  hospitalisation insurance cost cover per household. This compares to  to the three lakh cover currently provided by the main RSBY and its state-level current equivalents. (One lakh is 100,000, so  five lakh is 500,000 rupees: at prevailing rupee-sterling exchange rate (85-90 rupees = £1), the proposed NHPS  will offer each eligible household broadly between 5,500 and 6,000 pounds insurance cover for hospital-related costs).

If, and when, it is implemented, this National Health Protection Scheme (NHPS) – the Ayushman Bharat in Hindi – will become the world’s largest health insurance scheme, administered by a dedicated and new National Health Authority of India. Its second plank is to expand and improve the currently chronically under-resourced public primary health sector. Currently each village should have  a sub-centre provided with one multipurpose health worker covering an average 5,000 people. The next tier is the primary health centre equipped with basic operating, lab, and lest one doctor and other supporting staff, with the community health centres and district hospitals providing in-patient and some specialist  care. However many supposed sub-centres do not exist; while those that do, inevitably, vary in quality and effectiveness. Many villagers have to travel some miles to find a working one. It is proposed that the sub-centres are converted into wellness centres, equipped and resourced to diagnose and treat illnesses, such as diabetes and hypertension, with 150,000 to be rolled out by 2023.

Central and state governments (with a 60% central, 40% state  apportionment) are expected to pay the insurance premiums of the additional 100m households covered by the NHPS, or to otherwise set up an alternative institution or fund to defray claims. As discussed above,  the future actual cost of NHPS premiums, and whether the government will, or can, meet them, remains to be seen. As way of  comparison, premiums charged for a household of five in a private scheme vary on average between 12,000 and 24,000 rupees annually. Assuming a 12,000 rupee annual cost would imply a Rs. 1.2 lakh crore public budgetary cost. This compares to the actual budget of Rs. 2,000  allocated in 2018-19, the initial rolling-out year.

The low distribution costs and economies of scale that large-scale bulk purchasing of insurance cover could potentially offer,  has led some insurers to project that the premiums could fall to Rs 5,000 annually, reducing the public budgetary requirement to 50,000 crore, of which the national share at 60% would be Rs.30,000: that sum is still, however, fifteen times the 2018-19 allocated amount. Government officials project that the premium cost could drop to as low as  Rs 1,000 to 1,200, but that appears very optimistic.  In order to demonstrate commitment to the effective execution and implementation of the NHPS in line with stated aims, rather than lip-service to another aspirational policy designed with more of an eye on short-term electoral impact, the government needs to show the colour of its money in terms of future year budgetary allocations .

Another issue relates to the selection and  targeting of  scheme beneficiaries. It is proposed that they will be identified from the 2011 Social and Economic Caste Census.  Such a form of election, however, is subject to definitional and recording error, as well as to corruption and fraud.

Even if fully implemented, the NHPS  will cover only around 40% of the population, leaving many  households with low to moderate incomes, as well as poor people, uncovered and exposed to an associated higher risk of morbidity and/or of catastrophic health costs. It  has attracted the epithet ‘ModiCare’, derivative of the US insurance support MediAid scheme for the poor and uninsured. It will need to overcome  similar problems to those that beset the US system, related to its reliance on a predominately privately provided hospital sector to provide secondary and tertiary health care to the population in general. Such a reliance is questionable in terms of both effectiveness and equity outcomes, touched on in http://www.asocialdemocraticfuture.org/personal-experience-indian-private-health-sector/ .

Certainly it is not clear that entrenching an insurance-based system is the best strategic route to  a viable and sustainable Indian UHC system, to the more universalist  approach recommended  by the Srinrath report and other  health and development experts.

Conclusion

The overarching issue concerning India’s post-1991 development is whether and to what extent that the substantial leap in GDP has benefited or percolated down to the majority of the population, the poor and those with low and moderate incomes. The rise in per capita average GDP achieved indicate that household per capita income should have more doubled since 1991, and if continued should double further every 12-15 years. Although the proportion of the population defined as living in poverty, as measured by a very low consumption strict subsistence-related standard,  has fallen, it remains highly doubtful that the actual household and per capita incomes  of the majority of the population have risen anywhere near that implied rate, with the incomes of the rural poor and some of the urban poor remaining stagnant. Most of the GDP gain has been secured by higher income and educated groups  employed in buoyant  market  sector, such as IT, and by those in a position to extract or colonise economic rents linked to rising land values. That  increased numbers of individuals belonging to disadvantaged caste and other groups have been able to make good financially, perhaps, perhaps serves to cloud dramatically increasing inequality and that, according to National Sample Survey data, per capita expenditure only rose on average by 0.1% per year between 1993  and 2010.

Related and ancillary to that is that social welfare outcomes as measured by nutrition, educational and health indicators have not improved significantly, and in some cases have actually regressed, resulting in India falling behind countries with lower levels of GDP per capita, such as Bangladesh, in child mortality and immunisation  rates per 1,000 population, for example. Impressive economic growth has not gone  hand-in hand with social welfare advancement in post-reform India.

Given India’s robust and effective democracy, one would expect rising and strong pressures for improved social outcomes and compressed income inequality. These pressures, however, are mediated by and on cross-cutting caste, communal, and regional lines within India’s gigantic, awe-inspiring, and complex democracy. In order to secure and maintain power, parties at both central and sate level must succeed in building up electoral coalitions of support across such lines, rather than rely on broad development programmes.

The 2018 Budget  evidenced that in relation to its MSP measures, while also responding to competitive populist pressures to improve access to health care through the NHPS in a grandstanding and bold manner, clearly designed to attract attention during a year preceding the 2019 general election.

That said,  the focus on rural development, connectivity infrastructure, and on health, which despite massive under-provision relative to need and latent demand, health is still India’s third-largest economic sector, makes sense, in GDP value-added, employment, as well as in social welfare terms. As ever, the acid test of progress will be their focused and effective implementation and measured outcomes.

 

A personal experience of the Indian private health sector

by

I stayed in Kolkata, the erstwhile colonial capital of imperial British India, for three months this year, at my wife’s home in New Alipore.

Halfway through my stay, a family crisis erupted when my sister-in-law aged 69, was taken dangerously ill. A doctor summoned to her home advised that she needed urgently to be admitted to a specialist hospital  due to complications connected to severe abdominal pains. Otherwise she would likely die.

That day she was admitted to the intensive care unit (ICU)  of the Charnock Hospital – a well-equipped private facility, with facilities akin to UK and American standards, located on the Eastern By-pass. It is a super-speciality hospital providing in coronary, stroke, critical care, as well as gastroenteritis services: http://www.charnockhospital.com/charnock-hospital-aboutus.html.

Fortunately she was covered by comprehensive health insurance, by dint of her husband’s former and her son’s current employment by the local Airports Authority.

The next day family members, including myself, went to the hospital in order to  find out her diagnosis and prognosis.  We arrived at around 11am and waited in the modern, almost sleek, waiting area to await information on her condition.

Whilst we did, occasional raised voices could be heard from the payments desk, the most active reception booth, which was shrouded by information boards setting out the price list for different types of treatments. These concerned the need for patient families to pay in advance for continuing treatment, and  about the precise amount demanded. Wads of notes were paid over by family members of patients or ‘customers’ without applicable insurance cover – the majority –  who were required to pay in cash up-front for treatment.

Their alternative,  if they could not or were not willing pay the prescribed charges, was to take their relative to an overcrowded general public hospital, where facilities would be much more limited, much more chaotic, with much less prospect of the delivery of suitable and timely specialised care. Indeed during that same week, a number of cases were reported in the local press where seriously injured or ill patients  were unable to access the care they needed from public hospitals that resulted in their death or were forced to seek private care instead. Another motorcyclist, for instance, who had suffered a  head injury in rural West Bengal was  unable to a obtain treatment due to a lack of neurological resources, was forced to travel first from  his  district hospital to the regional Medical College nearly two hundred miles away, before being referred to a specialist neurological unit  at one of  Kolkata main public hospitals, another three hundred miles, where he had to wait over 14 hours to receive treatment on a corridor bench, before direct representations by his relatives to the hospital superintendent secured his admission.

Back at Charnock, at around lunchtime her son and daughter–in law were summoned to the ICU, where they were advised  that their mother’s most pressing problem was  a ‘leaking’ gall bladder with some element of typhoid fever also apparently present. Medicine had been ministered in an attempt to resolve or manage the problems, but the medical representative advised that in the event of  a full X-ray denoting that surgery was required, the urgency of the situation meant that it may be needed to be undertaken as early as tomorrow morning,  and would involve an element of potential risk to the patient.

Asked to come back early next morning, they went home in order to complete a forest of forms connected to their mother’s insurance cover to be submitted as required to the hospital in lieu of up-front-payment.

They returned to Charnock next day at 5AM. It turned out to be a very long and stressful day for them. They were told that the specialist surgeon whom would have operated could not do so as he himself had to  support a sick relative, and that, accordingly, they should transfer the patient to another private super-speciality hospital  – the largest such one in Kolkata – nearby: the  Apollo Gleneagles.

Their next tasks were fourfold; first, to arrange transport for their mother; second, to complete the forms connected to that transfer; third, to collect the MRI scan and other test results  conducted on their mother;  and third, to fourthly her  admission at the Apollo. This was on top, of course, the continuing uncertainty and the increasing criticality concerning their mother’s treatment plan: in short, was surgery required and what risks would it entail? After all, if the gall bladder was actually leaking,  surgical intervention was needed without any further delay; on the other hand, if the problem was one of infection and fever, drug therapy might be  safer and less risky  compared to intrusive surgery on an elderly patient with heart problems, which could lead to the infection spreading through the blood and ultimately to sepsis: https://en.wikipedia.org/wiki/Sepsis.

Meanwhile the patient’s brother, whom I was staying with in New Alipore,  had a contacted his own diabetes specialist who an Apollo consultant, to expedite the emergency  admission. He  promised to  contact a colleague who he felt was best suited to conduct any needed surgery.

The hospital transfer to the Apollo Accident and Emergency department had only just been effected when we arrived at around 5PM.   I was surprised that visitors such as ourselves were allowed  to mill around the beds of this busy 20-bed emergency department, while doctors and nurses scurried around in order to respond to monitor warning bleeps or to conduct examinations, without challenge.  There appeared to be a rapid through-put of patents as some were transferred to wards to be replaced by new arrivals. This churn, however, was not always quick enough, with one case reported that morning of a 54 year-old man dying in an ambulance parked outside the ward due to a bed not being immediately available.

Bad news about our family member was received that the Charnock Hospital apparently had lost the MRI results of the patient or some reason could not provide it to  her son and daughter-in-law, who understandably were becoming increasingly stressed.  Another problem that was communicated to me by my wife was that the resident on-call staff at the Apollo conducting the initial examination appeared to resent the fact that the family contact consultant had assigned the case to a particular  surgeon.  They made the case-owner consultant was a diabetes, not a gastroenterology, specialist, but my wife expressed concern that the real problem was that this meant that they would not have a claim on the insurance monies linked to the case. Apparently there was competition between doctors to ‘control’ cases for that reason, sometimes to a point where it became an organised scam.

The good news was that my sister-in-law was surprisingly lucid given her condition suggesting that the medication was working, and that the assigned surgeon arrived soon afterwards to conduct his own examination, which he proceeded to do carefully and professionally.

We went outside in the corridor to receive his feedback, which he gave in  a measured and respectful manner. In essence, he advised that if the cause was a diseased or leaking gall bladder, which was the most likely cause on the evidence available, its source could be missed by limited micro-surgery; accordingly, that the safest course of action was to conduct the next day a full surgical examination and to proceed to the removal of the organ as found necessary,  as the gall bladder itself was not a vital organ, but such surgery would be high risk.

This seemed to make sense to us, and we went home relieved that at least a course of action had been mapped out and would be undertaken by a by a dedicated professional who looked and acted the part.

The operation, indeed, took place next day. We attended in a dedicated waiting room provided to relatives of those having surgery, where electronic screens reported on the progress of each operation: all mod-cons, like much of the activity of the hospital. After about two hours, the surgeon called us to the theatre entrance, where he showed us  gall bladder he had successfully removed from my sister-in-law and in particular  its diseased ‘mouth’, which was black,decayed, and horrible. He was hopeful that the cause of infection had been removed, but cautioned that post-surgical bleeding could follow and that she was not yet out of danger,  and needed to be transferred to the high dependency unit.

Fortunately she did continue to recover slowly and was able to return home after a fortnight.

That was not the end of my unplanned brush with the Indian private medical sector insofar that a friend of the family was reaching a tipping point in the treatment of his son’s kidney failure. He needed a transplant but his father’s  employment-related insurance cover no longer covered his son, as had attained 25 years of age.  Because the cost of kidneys to be used for such purposes was extremely high – Indian culture is not supportive of deceased family members donating their organs after death, while a public donor bank suffers from public administrative and other failures related to a lack of a national health service. Organs needed to be purchased often from living donors, which could push the costs beyond the means of a retired – albeit high-ranking – policeman, such as in this case. He thereby  enlisted the support of family members  to draft  a letter to his insurance company requesting that he donate the needed kidney to his son conditional on compatibility checks.

What lessons were drawn from these events?

First, of course, class, money, and location counts: unless you possess the benefit of employment-related, or were able to purchase  private health insurance at an annual premium cost reported cost between 12,000 to 24,000 Indian rupees per annum for a family of five (roughly £150 to £300), or had enough savings to pay for treatment as needed, if you suffered a  serious accident or illness you would need to rely on the grossly under-resourced  public hospital sector and take your not too bright chances accordingly. In fact 86% of rural, and 82% of urban, Indians are reported not to have any such access to insurance, explaining why 63 million of them are pushed into debt by unplanned healthcare spending each year.

Whilst not seeking to minimise the current crisis of the NHS (which also suffers from rationing, distributional, and informational issues) universal and accountable provision by the State does offers clear equity and efficiency advantages, as well a value-base or footing geared to individual need, even though that value-base can be perverted for provider and political ends as well.

Second, there is no guarantee of excellent or good treatment within the private hospital sector. Treatment is still often reliant on personal contact and power and the ability to navigate an often rigged and corrupt system where corporate and personal profit, rather than patent need, can prove paramount. Patients must rely on family members to either activate insurance policies or to negotiate payment at a time of high stress and uncertainty. The hospitals secure super-profits from the charged use of drugs and sundries in treatment, sometimes as much as 1000%.  Hospitalisation costs are outstripping premium incomes.

Third, the problem of asymmetric information between provider and patient and their family members comes into particular play within such a private system: you must rely on medical advice that particular treatments are appropriate and needed given the particular circumstances of the case; the suspicion is that sometimes the treatment follows the payment schedule  based on inputs rather than customised to individual need and circumstances, and best outcomes.

Fourth, and related to the third, while overall the health services are massively underfunded in India, with public health expenditure accounting  at less than 1.5% of GDP, adversely impacting on both preventative and curative care outcomes, private health expenditure reimbursable from insurance and user charges continues to escalate. private providers prioritise screening consultations – with pictures of young ”yuppie- families, captioned, for example, that is never too early to prevent cancer, that inevitably result in unnecessary or over-prescribed treatments that yield additional income to the associated tests and examinations involved, which themselves often represent a diversion of scarce medical resources from alternative and more effective preventative ends. See, for example, http://apollogleneagles.in

 

 

 

 

 

 

John McDonnell: Sinner or Saviour?

by

As the May government continues to lose credibility over Brexit, mainstream attention has unsurprisingly shifted towards the prospect of the self-declared anti-capitalist shadow Chancellor becoming the Britain’s most radical Chancellor since Lloyd George.

Respected journalists, like Philip Stephen (PS) of the FT, express animated fear that this self-confessed Marxist – if given the opportunity by a gullible electorate taken in his superficial adoption of a friendly old-fashioned bank manager pose – will then proceed to wreak unquantifiable damage on the economy, as he ruthlessly proceeds to dismantle capitalism, regardless of the consequences.

Is then McDonnell, Corbyn’s Stalin-in-waiting, or, is the near-hysteria about him rather a symptom of how far the parameters of accepted mainstream political analysis has shifted since the eighties?

Stephens squirms at Labour’s core manifesto policies to re-nationalise utilities and the railways, to impose higher taxes on the corporate sector and on the highest paid, and to further reform the banking sector. Most of all, he appears to take most umbrage at the commitment to ‘irreversible shift power backing to working people and their families’.

This he describes as a destructive throwback to the seventies, proclaiming with evident fear that with Labour polling close to 40% of the popular vote, turbo-charged by the support of young people in particular, Corbyn could ride a populist surge that then delivers the keys of 10 Downing Street to him.

The pendulum does, indeed, need to swing back towards ordinary working people, whether by hand or brain. Not least for many of the reasons that PS himself sets out.

That the incomes of most Britons have stagnated or fallen for over a decade while the incomes of FTSE 100 chief executives have quadrupled, that the industries targeted for nationalisation are run by ‘avaricious, rent-seeking oligopolies’,  and that the tax and spending policies pursued by the last two Conservative-led governments have rigged the system in favour of the affluent elderly, loading debt on to students and cutting services for young families, while the bankers who caused the crash are as grossly overpaid as they have ever been: a pretty over-powering case for radical reform, if there ever was.

Certainly, as south London suffers from prolonged water shortages caused by under-investment linked to excess profiteering by a privatised utility, the notion of re-nationalising such utilities appears eminently sensible: at least if it is effectively and efficiently planned and executed.

The real issue is whether a Corbyn-McDonnell Labour government actually could achieve such a shift of power and opportunity in favour of the many rather than the few.

This will require strategic pragmatism, rather than populism. The precise detail of the sequencing, funding, and organisation of any future re-nationalisation programme provides a case in point.

At another level, one risk is that Labour could exhibit the wrong kind of pragmatism, as suggested by their open-ended manifesto commitment to continue a poorly targeted Help-to-Buy programme: a clear example of reversion to Blairite triangulation.

That example of ‘bad’ pragmatism reflects a quite discernible danger that untargeted sops to young people, certain categories of professionals, and other groups – identified by polling as potentially sympathetic to Labour within political circumstances current at the time – and motivated by the pursuit and the maintenance of electoral popularity, will take preference over strategic and sustainable political advance.

In short, and ironically, a back-to the-future New Labour focus again on presentation rather than substance: a possible omen, the beloved Jeremy appearing at Glastonbury as the Tribune of the People taking the mantle of Tony Blair as the personification of Cool Britannia. Think about it!

Analysis and informed objective criticism is required, not polemical ‘marxist’ name-calling. Informed and influential journalists, such as PS, should be challenging – and even assisting -McDonnell in terms of developing the detail and rationality of his proposals in conformity with the twin and mutually supporting demands of economic efficiency and social fairness – or, is it, perhaps, the prospect of a shift back in favour of ordinary working people that is the real problem for Stephens and his kind?

Could a future partial customs union (CU) on Turkey model be part of a Norway-Plus UK deal?

by

The Institute of Directors (IOD) new policy paper, https://www.iod.com/Portals/0/PDFs/Campaigns%20and%20Reports/Europe%20and%20trade/IoD-Customising-Brexit.pdf?ver=2018-02-15-083137-800, advances the case for a new bespoke partial customs union. It would allow tariff-free and frictionless trade in manufactured products and in processed agricultural products, but raw primary agricultural produce would be excluded from the arrangement.

Such a partial arrangement, the IOD argues, would lift the threat that the UK manufacturing firms will face costly ‘rules of origin’ requirements when the UK exits the CU on Brexit day – rules that would impact particularly across the manufactured product sectors. But, at the same time, it would provide scope for the UK to forge its own trade policy by seeking free trade deals with non-EU countries across other areas, most notably allowing the the UK to lower or remove tariffs on raw agricultural products from the world’s poorest countries.

The example of Turkey, which is currently part of a partial customs union with the EU that excludes agriculture, and, as it is outside the single market (SM), services, is highlighted as a possible model.

Such a bespoke partial customs union arrangement, similarly to a Norway-Plus arrangement, would involve a UK departure from the Common Agricultural and Fisheries Policies.

The IOD proposal, however, appears to accept SM exit without considering many of the inter-relationships between a CU and the SM.  While the UK could could commit to continuing regulatory alignment for manufactured and processed agricultural goods, but that would still leave open the question on how movement of people between N.Ireland and the rest of UK could be handled given a combination of UK repudiation of SM free movement of people and an open Eire/N.Ireland border; nor does it address  the rule-taker problem of having to accept EU regulations without the UK having a formal say in their construction and implementation.

Nor is the economic and social impact of removing or lowering agricultural tariffs on the the domestic agricultural sector modeled or discussed. Most significantly, perhaps, is that the incompatibility of agricultural tariffs with an open NI-Eire border is not addressed.

Another problem is that Turkey is a rule-taker in that it has no say on trade deals that the EU makes with third party countries, and does not benefit from reduced tariffs made under such deals.  Such a partial customs union could possibly be complemented by a wide-ranging parallel free trade agreement with the EU across such areas not covered in the partial bespoke CU new agreement, however.

Soubry’s Norway-plus approach

by

The case that Labour should support any amendments that sought to maintain de facto customs union (CU) membership infinitely – at least until an improved and sustainable alternative emerges was made in http://www.asocialdemocraticfuture.org/time-labour-protect-national-interest-voting-cu/ .

Certainly if the UK government does not present very soon a coherent picture of its desired Brexit end-state, Barnier on behalf of the EU will simply begin to impose on the UK a settlement that is consistent with the legally-binding phase 1 agreement.

The Phase 1 agreement made it inevitable that the UK maintains a mutually agreed de facto CU with the EU during any transition period. Regulatory alignment and the avoidance of immigration checks along either the Eire/NI or between the NI and the rest of the UK, seems also to suggest an arrangement very close to continuing de facto single market (SM) membership.

The current efforts of the Conservative MP, Anna Soubry, to marshal cross-party support for a European Economic Association/ European Free Trade Association (EEA/EFTA) + CU (Norway-plus) option are consistent with UK adherence to that Phase 1 agreement.She highlights other selling points of such an approach, apparently directed at ‘leaver-lites’.

First, such a Norway-plus option would still allow the UK to exit the Common Agricultural and Fisheries Policies, membership of which has increased prices for UK consumers, while the latter  has hastened the decline of Britain’s fishing industry.

Second, it would possibly allow some wriggle room to escape direct European Court of Justice (ECJ) jurisdiction – through the EFTA Court and associated treaty provisions.

Third, the SM freedom of movement (FOM) requirement could possibly be combined with some measure of immigration control based on work permits.

Fourth, the UK could possibly seek to negotiate alternative trade deals as a EFTA member.

These claims are contestable in terms of EU acceptance, while their actual potential relevance in practice could well be thwarted by the weight of complexity and trade offs involved in, for example renegotiating fisheries with the EU.

And what Soubry and colleagues have also not clarified is whether Norway-plus would just be a transition to another end state, and if so for long that it would apply. This is material, as neither the EEA nor EFTA were envisaged as transitional arrangements for a country on a journey to somewhere else, although there is always a possible first time for everything.

If Norway-plus operated as a two year transition, the UK would still face a cliff edge in 2021 when that ended, as it would not be possible for the UK to negotiate alternative trade deals within that period, implying a much longer time period that it would need to operate.

In any case it remains unclear how many Conservative MP’s are prepared to sign up to support to such a position, which, in effect, commits the government to the softest brexit. Perhaps the threat of revolt is being used to force May to formally align with the Phase 1 agreement that it signed only last December.

Across the benches, it is perhaps understandable that the Labour front bench continues to be cautious in taking the lead in trying to force the government to face up the inevitability of de facto staying in the CU and SM, for fear of providing political space to May to paint Labour as the referendum-reversing party: safer instead to act as to bystanders to a mess created and made worse by the Conservatives, and wait for its consequences to unravel, without risking splits within its own ranks by imposing three line whip, which some Labour Brexiteers might well then defy.

Although it is inevitable that the government’s position will unravel, less clear is precisely when it will.

Yet the national interest and the particular economic interests of those of the ‘left-behinds’ located in brexit-voting constituencies, such as Sunderland, demand that Labour discharges its responsibility as the official opposition, and steps up, not only to hold the government to account for its backtracking from the Phase 1 agreement, but in order to require the government to adhere to it, while offering them a compelling vision of a post-brexit UK.

Time for Labour to protect both the national and its own interest by voting for continued Customs Union membership

by

Two Conservative MPs — Anna Soubry and Ken Clarke – were reported last week to be seeking cross-party support for keeping intact the UK’s current customs arrangements with the European Union (EU) in amendments that they intend to table for a vote by Parliament at the end of this month.

The former has also indicated that in the event of the displacement of Theresa May by a leadership triumvirate of Rees-Mogg, Gove, and Johnson that she would jump the Conservative ship to an alternative – albeit – undefined party.

A political window of opportunity, accordingly, appears to beckon for Labour. But, it should, in any case, make every possible effort to secure the passing of any such amendments. The national interest demands that HM Government’s loyal opposition spotlights the confusion, drift, and downright contradictions that continue to swirl unresolved within the current conservative brexit approach, which can hardly be called a policy or a strategy.

A January 2018 economic analysis produced by the government’s own economists (that it does not trust us to read) has been widely reported as forecasting that any form of brexit would depress UK GDP over the next fifteen years. A disorderly one, where we reverted to World Trade Organisation (WTO) rules in 2019 would have the most adverse outcome at eight per cent of GDP. A Canada-style Free Trade Agreement (FTA) would lead to a five per cent drop. Even the ‘softest’ exit option of continued UK membership of the European Economic Association (EEA), involving continued single market (SM) access, would still induce a two per cent drop.

Those MPs allowed to read it have relayed back that increased government borrowing of £20bn by 2033 is forecast under the EEA model, £55bn under a Canada FTA, and £80bn under the WTO, options.

Essentially, possible forecast gains secured from alternative trade deals with the US, Japan, and India were modelled lie at best in the 0.4% to 0.8% range, over the entire 15 year forecast period: negligible, in comparison.

It is not impossible that these forecasts could be belied if the UK, freed from the shackles of EU membership, became a buccaneering free trade partner within a future global trading environment that bestowed most of its favours on countries negotiating bespoke trade agreements outside wider international arrangements or customs unions, but pigs may fly. Here and now common sense screams that disrupting trade links and complex integrated supply chains with your closest neighbours whom you have shared a deepening single market for decades, simply is not sensible.

Alternative free trade deals with countries, such as the US – led by the mercurial and protectionist Trump, or with India, which will seek the lifting of UK visa restrictions, or Japan, which has recently finalised a trade agreement with the EU, will take the UK years to negotiate; even if achieved, the available evidence converges on the conclusion that the posited benefits to the UK of such agreements will prove largely illusory and limited, and that they will fail to offset the loss of a large slice of the ‘gravity-based’ gains currently secured through frictionless trade with our EU neighbours within a long established regional trading bloc.

A study published earlier this month that modelled the particular impact of brexit on the manufacturing sector, for instance, concluded that high-tech and medium-high tech sectors, such as car-making and aerospace, are most at risk of a decline in domestic production. Such losses are associated with a possible employment loss in excess of 1,000, in Sunderland, in Birmingham, in Coventry, in Derby,as well as the Cheshire East, Solihull and County Durham, local authority districts, http://blogs.sussex.ac.uk/uktpo/files/2018/02/Briefing-paper-16.pdf.

As to the question as to whether the UK signing new trade deals could compensate for the loss of market access and the EU, its modelling of an even a ‘best-case’ scenario, in which the UK leaves the EU without a deal, but signs FTAs with all other countries in the world (the pigs might fly option?), suggests that even such universal FTAs would not fully mitigate the brexit-related loss of trade with the EU.

The balance of risk, as is currently discernible from reasonable analysis and observation, is towards the downside that the economic impact of brexit will prove to be more severe than is currently modelled.

Maintaining de facto CU membership infinitely until an improved alternative and sustainable alternative emerges would, therefore, accord with Labour’s EU negotiating red lines, concerning economic and employment outcomes. It should help to mitigate the adverse economic consequences of brexit across the regional economies most dependent on manufacturing, such as the North-east and the West Midlands, that also provide large swathes of its actual and potential vote amongst the ‘left-behinds’ – the group that is likely to suffer the most from brexit. At the same time such a stance should help to solidify Remainer support for Labour.

What is then stopping Labour? That is not wholly clear; clearly its front-bench does not wish to appear to disrespect the referendum vote, at least until the climate of opinion demonstrably changes, fearing further loss of its core vote in brexit-voting constituencies.

Some also suggest that both Corbyn and McDonnell, want a complete UK rupture from the CU and SM, in order to remove future impediments to Labour implementing an interventionist industrial strategy. Such impediments are, however, based on perception rather than reality, as a recent publication by Labour MPS, Heidi Alexander and Catherine West, and others, explain cogently with particular reference to relevant parts of the party’s 2017 manifesto in:
https://d3n8a8pro7vhmx.cloudfront.net/in/pages/14074/attachments/original/1517224151/lexit_paper_finalONLINE.pdf?1517224151.

Labour should support the Soubry-Clarke amendments, or otherwise table its own, requiring the government to include continued CU membership within its EU negotiating position, which due to its own internal divisions  it cannot settle. Time before the EU seeks to impose its own terms is now rapidly running out.

By doing so, Labour could make a clear case in the general national interest, as well as in the particular interests of voters in brexit-voting constituencies, that a cliff-edge exit from the CU, either in 2019 or 2021, would certainly cause unnecessary, deep, and quite possibly catastrophic, economic and social damage.

The public finances would be consequently weakened, thus constraining further the fiscal capability of any future government to invest in the health, education, and health infrastructure, most needed by the ‘left behinds’.

The official opposition needs to hammer home the reality that May’s espousal of a deep, special, and comprehensive bespoke replacement FTA with EU cannot possibly be negotiated by 2021.

Another core reality is that the Phase 1 agreement on the Eire/N.Ireland border assumes continuing de facto CU membership, as well as continuing regulatory alignment. In that particular light, already the EU is taking contingency steps to enforce the December 2017 Phase 1 agreement in the event of UK backtracking and/or a disorderly exit.

Advancing such amendments would also offer a platform for Labour to develop its strategy to actually extend opportunities to the ‘left-behinds’ in terms of industrial policy, affordable housing, training and apprenticeships, and for general education advance.

What it would not do is to signal a Labour-led overturning of the EU referendum result. In fact, the contrary, insofar that the prospect of a disorderly exit or one imposed on the EU’s own terms, would most likely result in pressure for that vote to be revisited given the resulting damage to Britain’s economic and social fabric.

Continuing CU membership is different to continuing SM membership with its four freedoms, including freedom of movement (FOM), although there is overlap, as discussed in: http://www.asocialdemocraticfuture.org/can-uk-long-term-stay-cu-outside-sm/.

A concerted and focused Labour intervention could well  be effective. A position whipped across the Labour benches attracting sufficient support from Remainer conservatives and other parties is likely to force May to crystallise more clearly the government’s position in favour of continued CU membership, in the face of a potential fatal loss of support from the NI Unionists, as well as from her own Remain wing.

The Brexiteers should they choose to sought to reverse any such concessions through setting in train a leadership challenge would risk precipitating a general election.

To duck this challenge would be a dereliction of duty by Labour, in respect of both its actual position as the official opposition and of its purported one of safeguarding and protecting the interests of the disadvantaged in society. It will not be forgotten by future generations.

Can the UK long term stay in a CU outside the SM?

by

The Confederation of British Industry (CBI) through its director-general has indicated that it considers that long-term continuing membership of the customs union (CU) is in accord with UK economic interests, even though continuing CU membership would appear to preclude the UK from negotiating bespoke trade deals with third party countries outside the EU.

It is indeed doubtful that future gains actually realisable from any such future deals would offset the economic costs of the UK losing the advantages of SM membership, given the concentration of trade that the UK has with its european neighbours.

Certainly it is difficult to see how a hard border between Eire and N.Ireland could be avoided – a key plank of the brexit stage 1 agreement between the UK and EU – if the UK exits the CU.

But is it really possible for the UK to continue in the CU indefinitely, while in parallel disengaging from the the obligations and processes of the single market(SM)?

Cutting a complex and uncertain reality to its essentials, post-brexit UK regulatory autonomy appears inconsistent with it maintaining regulatory alignment with the EU.

In the absence of such alignment, it highly doubtful that ‘frictionless’ trading of both goods and services can be maintained even if the UK retains some sort of de facto CU membership.

The UK could offer to continue to ensure such regulatory compliance through domestic regulations and processes. But there would need to some assurance assurance and compliance system that would satisfy EU SM requirements, that would appear, inevitably, to involve continuing ECJ oversight or something comparable, at least well into the medium term.

Yet both the May government the Labour leadership appear still appear to seek bespoke bilateral arrangements where the UK could continue to secure the advantages of SM membership, while jettisoning perceived accompanying unwelcome requirements, including free movement, ECJ jurisdiction, and in the case of Corbyn, restrictions on state aid.

But the French President, Macron, has recently made it clear again that continuing UK access to the single market, including its financial services, requires the UK to continue to contribute to the EU budget and to acknowledge European jurisdiction, as well as honour free freedom of movement of labour and capital, if it wishes to continue to benefit from the free and frictionless movement of goods and services.

He also did hint that that some bespoke tweaks relating to how UK adherence to SM requirements could be interpreted or portrayed might possibly be on the table (one example could be on how EU oversight of UK regulatory compliance is defined), while reiterating that no fundamental breach to the institutional SM architecture would be entertained.

The UK tactical bet seems to be that the attractions and importance of the UK as a trading partner will trump the determination of the EU
to conserve the complete integrity of the SM and its rules during this year’s negotiations. That appears wishful thinking.

Such a misguided approach detracts from a UK negotiating position that is best capable of maximising UK benefit from a least economically damaging settlement.

Corbyn and the single market

by

This week the leader of the Labour Party appeared to rule out any continuing UK de facto membership of the single market (SM) because it would prevent a future Labour government re-nationalising the railways, the water and electricity utilities, and the Royal Mail.

Corbyn appears also concerned that continuing UK involvement in the SM would likewise prevent the provision of selective state assistance or aid as part of a more interventionist industrial policy. This could possibly involve a state investment bank taking equity stakes in firms or supporting research and development expenditures, especially across new technology and medical research areas.

The detail of these plans, which were outlined in its 2017 GE manifesto , however, remain hazy, particularly with in connection with how will be financed without undermining confidence in the public finances.

Each element requires focused and objective debate and scrutiny measured against strategic social democratic ends. That requires potential and likely gains to be balanced against realistically-assessed costs. Otherwise Labour will risk being portrayed – not only by the Tories, but also by responsible and informed elements of the mainstream media, as economically naive, at best.

Crucially it is doubtful whether most – if not all – of Labour’s proposals will infringe current EU state aid rules, as discussed in , and https://d3n8a8pro7vhmx.cloudfront.net/in/pages/14074/attachments/original/1517224151/lexit_paper_finalONLINE.pdf?1517224151.

It is perplexing that at this crucial juncture in the brexit negotiation process that the leader of the opposition party is resurrecting a particular historic and ingrained left-wing concern about EU membership that is not informed by the actual underlying situation.

This is at a time when Labour needs to crystallise its brexit position in tune with the national interest, in order to effectively challenge and expose the government’s self deluding ‘let us have cake and eat it’ approach to the impending stage 2 negotiations.

Future funding of health and social care

by

Some measure of cross party consensus is needed on how to secure additional and sustainable funding streams for the NHS in order to bridge the current funding gap. This has been variously estimated as lying between 2-4bn in terms just surviving the current seasonal winter demand increase, and 20-30bn in terms of approaching best european levels of provision.

Local authority funding of social care in the community likewise must increase. But increased health and social care funding presupposes that sufficient political maturity and commitment to national rather than party ends, is present across the parties, a widely over-optimistic assumption, that also presupposes that there is cross-party acceptance that reducing the budget deficit should be downgraded in priority further (with respect to current as well as investment expenditure) and/or on the design and general acceptance of new levies/taxes to fund health and social care expenditure.

A problem with the latter is that such hypothecated charges – raised through national insurance and council tax bases – tend to be regressive without wider reforms of those systems: again, such reforms are not on the foreseeable horizon; especially so given the political crowding-out effect of the brexit process.

A possible way forward that the May administration could initiate in any future Green Paper on social care funding is to propose an additional social care levy on the top council tax band. This could be part a part of a package involving a cap on user charges on high worth wealthy homeowners unfortunate enough to suffer long-term continuing conditions, such as dementia, requiring expensive residential care.

It would, at least, lift the exiting fear of such households that they could lose entirely or most of the inheritances that they hoped to pass on to their families. It might also offer a better match between contribution, risk, and benefit than the present system does, as well better accord with the old fashioned, but still pertinent concept, of citizenship.

Another possible idea is for the Government to issue public health bonds with the coupon or interest calibrated to the achievement of defined delivery and public health results.

More high quality research that actually decomposes the input demands on, say, A&E services, is also probably needed. This would seek to quantify the relative contribution, and actual costs, of age-related conditions, differentiating between presenting circumstances. These can include acute emergency episodes, such as strokes and fractures, as well as premature discharge, lack of suitable primary care alternatives, such as domiciliary assistance with moving, shopping etc at home. Secular trends in drink and drug related ;attendances, accidents at home and work, should be similarly constructed. Costs and admissions related to car accidents and fires at home, for instance, should have reduced over the last 30 years. Have they?

%d bloggers like this: