LIFE will ensure that any constituency, local area, or region that organises itself to for a new local government will receive direct control of their allocated budgets for WellFair, and the right to set their own migration levels.
Category: budget
Across the industrialised world we face a set of problems, that are destined to be the problems of all people across the whole world.
The affordability of the social-democratic State is in question, particularly in a low growth and resource constrained world. The inevitable time constraints on resolving this issue means that if it is not solved with progressive ideas, it will be resolved otherwise – most likely with a collapse into chaos, followed by an authoritarian (likely right wing) response.
Demographic and environmental pressures only serve to compress the urgency of this challenge.
Human society, as it is currently configured, is unaffordable.
Why?
Because service, not material, is the true basis of human groups.
Membership of a group costs every individual member of the group a little something, an intangible, and not the same thing from every person, but something from everyone.
The group returns something to every individual member, an intangible, a feeling of belonging, and a sense of safety, and a contribution towards their individual happiness.
You cannot pay people to be a member of a group, people agree to be a member of the group knowing that they will make a contribution in return for their membership.
If you pay someone to be a member of the group, you automatically introduce the notion that their intrinsic value is not sufficient for group membership, you instantly degrade the very groupness of that group, and undermine the individual’s worthiness. The group can provide a service, a kindness, without the intrinsic value of the member coming into question.
Think about being asked around to a friend’s house for dinner: if, when you arrive at the front door, your host gives you £20 with a smile on their face, what would run through your mind?
It’s not unreasonable to define the crisis we are in as a ‘cost of living crisis’. It costs too much to live an ordinary life: it costs too much money, it costs too much freedom, and it costs too much planet.
- One solution to something costing too much is to earn more to cover those costs. So we could try and pay ourselves more money, grant ourselves more freedom, and find some more planet.
- The alternative would be to reduce the cost of living. To make ordinary life cost less money, include more freedom, and take less planet.
If you want to understand why all of the major UK political parties are committing to essentially the same fiscal strategy, i.e. reducing borrowing to zero by the end of the next parliament, then you’re going to have to understand what the “yield curve” is.
The “yield curve” is a line drawn on a graph connecting the different interest rates that the government has to pay to borrow money over different periods of time. For the UK this is quite a steep curve, because our short-term interest rates are much lower than our long-term interest rates. To borrow money for two years at a time we pay about 0.5% a year, but to borrow money for 10 years we would have to pay around 2.8% per year. That means we have to pay five times more in interest if we want to borrow money that we will repay in 10 years from now, compared to money that we borrow and say will we will repay in 2 years from now.
Fairly obviously, as a result of this steep yield curve, the UK Treasury benefits from shifting its borrowing to much shorter term “gilts” (average gilt maturity has shortened by 5 years in the last 4 years, from 14 years in 2010 to 9 years today – see table below), because it is so much cheaper to borrow money over the shorter period. The logic is that if we are unable to repay that debt at the end of the shorter term, then we simply issue new short-term debt (gilts) and use that money to pay off the previous gilts.
So why are the U.K.’s interest rates to borrow money over the short term so much lower than they are over the long term? The reason is because, over a two year time horizon, lenders have a fairly high degree of certainty that the existing government policy will be enacted, and budgets met. But given the size of the overall fiscal problems for the UK government (we have a very high ratio of debt to GDP, and we have a higher level of annual borrowing to meet current spending, at about 6% of GDP, which is twice the limit set on Eurozone countries’ maximum borrowing), lenders have a much lower degree of confidence about how the UK is going to eventually bring its fiscal situation under control.
When lending money to the UK for just two years, lenders only have to evaluate whether the current set of tinkering measures will or will not be implemented, and they don’t have to care about whether the long term situation will be resolved or not.
The welfare debate has become confused and poisonous. We are firmly in the territory of “deserving” versus “undeserving” poor, when the real issue is affordability. As all advanced societies start to grapple with the challenge of how to run a peaceful, modern society within the confines of a low growth economy and within a sustainable budget, we need to develop a vision for how social security will work in that environment.
It is commonly recognised that the delta between income and the cost of living is the problem, but reducing the cost of living is virtually never discussed as an option to solve this problem. This is a blind spot obscuring the key to sustainable and affordable human society.
Solving the welfare conundrum has been a central mission of LIFE. So here we will review what we are really seeking to achieve with welfare, what has gone wrong, and how we can reach our objectives.
It may not feel like it right now, but we are in desperate straits, and in need of radical change if we are to maintain the society that we have built over the last 300 years.
Britons deserve the right to choose a proper solution at the next general election, and that is why we have formed the LIFE Party.
Slashing at our social fabric, or paying ourselves more, cannot be the only two alternatives on offer in the nation that used democracy and freedom to spawn the greatest advances in human accomplishment. In a time where balance is so desperately needed, between man and planet and between ambition and compassion, simply loading one side of the scales is a betrayal of our proud history and our potential future.
The real problem is that we are not running a working system.
- Not economically or financially.
- Not socially.
- Not environmentally.
Economically we are not balancing our books, and using debt to plug the gap. And we are paying millions of people to do nothing, in a society were simply existing is expensive, financially and environmentally.
Socially we are not nurturing the cohesion, understanding and specialist skills we need.
Environmentally we are not moving off fossil fuels fast enough.
We are still in the process of figuring out how to make it all work. How to provide a decent standard of life, how to do that in line with a working economic system, and have that system provide enough room to invest in future infrastructure that is sustainable.
We, obviously, have not figured out the big stuff yet.
Collecting taxes to pay for social security and fund national infrastructure looked like the solution. But that was back in the beginning of the 20th C when resources were cheap and demographics were in a special state. Now resources are expensive and we are arriving at a natural demographic balance.
Taxes alone will not generate sufficient revenues to pay for our society and the investments we need to make. This has been true for 50 years. We need to face his fact.
- GDP growth is not the answer because we still have an old economy based on fossil fuels, and an old structure that suppresses sustainable micro-economic activity.
- Increasing wages is not an answer either. It does not address any of the major problems, it is not practical, and it assumes there is enough wealth to pay for all our needs. But as we have already said, we have higher social needs (with progressive demographics) than our economy can afford to generate taxes to pay for.
- Increasing taxes will not do it either. We are already close the maximum tax rate an economy can withstand before it starts contracting. Some increase is possible, but it’s not enough to bridge the gap between our needs and our resources.
How do you meet expanded social needs at the same time as investing in the future, when you’re not generating enough taxes already?
You revert the social contract to its natural state.
The social contract over the long arc of human history has always been to guarantee a basic, decent life to all members of the group. We need to revive that contract. The social contract is not about money, it’s about a decent LIFE. The social contract is a guarantee of services, not cash. A guarantee of shelter, sustenance and access to basic services such as transport, health care and education.
Reverting to the natural social contract has a transformative effect on our finances. It reduces the cost of life, and it makes investment more affordable. It does this because it costs us less, as a society, to deliver basic life services than it does for each individual to buy the same services on their own. Every £1 it costs us to deliver basic services is worth 3 or 4 times as much to the recipient. So we trade pay for services, which reduces the cost of the services, which in turn means that we have to raise less taxes to pay for the same amount of service.
A natural social contract delivers better services, to more people, at lower cost. It brings our finances into balance, using a reasonable tax to fund affordable services. And it makes investment cheaper by lowering the cost of basic labour. Finally, and most importantly, it changes the relationship to work, from one of coercion for survival, to one of voluntary contribution for reward.
All this requires surprising little change and upheaval. We simply need to spend 3 years rolling out local community services for free food, local transport, Internet and basic phone services. These compliment the existing free healthcare, education and shelter services that we already provide. The rest of the benefits flow naturally without legislation. Wages fall of their own accord, micro-businesses start on their own, and the benefits of efficient resource use accrue naturally.
Making these changes is what LIFE is all about. We are about facing the big and real problems, and delivering solutions that will take us through a period of change as gently and peacefully as possible.
There is a direct link between dependency ratios and tax rates, and this limits the extent to which a mature human society can be capitalist or commercially-dominant.
First of all, let’s assume that the total activity necessary to support an individual person remains constant throughout their life. Babies and really old people need lots of care and attention, young kids in school need lots of resources, and working age people consume lots of resources in their productive activities, like commuting and training, as well as needing help with all the other stuff they don’t have time to do because they are working. So if every dependent uses 1 unit of activity, that unit must be generated by a productive person.
The more old people there are, and the longer we have to educate our children to make them productive members of our society, the higher the “dependency ratio”. That is the percentage of people of productive, working age versus the percentage of people who are too old to be productive, or who are too immature to be productive. If 50% of people are dependent, then the remaining 50% have to pay 50% of their production in taxes to provide for the 50% that aren’t working (and they have to generate 2 units of wealth, 1 for themselves and 1 for the taxes to pay for a dependent).
Pre-industrial societies had low dependency ratios (~27%) because people died before they stopped being productive and young people became productive members of society at a very young age, at 12 years old or even younger. Around 1900 in the UK this ratio went up to 34%, because young people had to stay in school longer to be effectively productive, but there was no increase in overall production because life expectancy remained low at 47. In 1950 the ratio dropped to 31% because life expectancy rose to 70, adding 18 years of productive lifespan and only 5 years of retirement. By 2000 the ratio leapt up to 44%, because life expectancy rose to 82 (adding 12 dependent years) and most young stayed in education through their early 20s. Once life expectancy reaches 90, and young adults stay in education until they are 22, and even if people are productive until the age of 67, the dependency ratio reaches 50%. In practice every human society has around 5% disabled and sick people of productive age at any given moment, so we are already at or above the 50% dependency mark now.
Now we have dependency ratios of around 50%, and that means tax rates will have to approach 50% to pay for our social security (i.e. to pay for all the non-producing young, old and sick). Trouble is that tax rates above 40% reduce economic performance, and create a downward spiral that cyclically reduces economic performance and tax revenues. Most of the factors in this equation are beyond our control: the cost of materials is fixed globally, the cost of energy is high, and to invest in renewable energy also costs lots of money. The only factor that is really under our control is how much we pay ourselves. The more we pay ourselves, the more expensive we make our lives. Because so much of what we do and what we need includes the labour of someone else, pushing up wages just makes life more expensive. Because a large-scale human society is effectively dependent on socialised security (as opposed to family or tribal security), and because social security services contain a high proportion of labour, the cost of labour is directly related to the amount of taxes that need to be raised to pay for social security. When social security is provided by family or tribe, the vast majority of the labour is not paid for, it is provided as a social service in a conscious or unconscious trade for mutual security. Emulating that social trade of “labour for security” is the key to making our modern, large-scale societies affordably secure. But how?
The answer is more simple than you might imagine. Provide social security without charge. Just meet the basic survival needs of every person, and they will accept that security in lieu of fully-loaded wages. It’s a trade we have made consciously and unconsciously for generations upon generations, it is built into our DNA, and it is millennia older than any modern invention of the monetary-industrial-technical-information age. In fact it is so old and so deep that it has probably just floated past you, without you realising that it is the solution to our modern economic dilemma. So here it is again: provide everyone with the assurance of social security for free, and we will make our entire society affordable. Wages will come down, and we will be happy with that. We will accept the assurance of shelter and a decent meal in lieu of a surprisingly large portion of the wage we would have otherwise demanded without that assurance. And in so doing we make our social security cheaper, and we make investment cheaper at the same time. Everything that contains labour becomes cheaper.
The social trade of “labour for security” decreases the percentage of total activity in our society that is exchanged for money, i.e. is commercial. This table shows the extent to which all activity in a society can be commercial depending on the dependency ratio at a specific tax rate. The higher the dependency ratio, the higher the tax rate has to be to pay for the dependents. The less activity that is commercial (exchanged for money), the lower tax rate can be, because taxes are only needed to pay for the portion of dependent support that is paid for with money.
The data:
Maximum Commercialisation Rates
|
Dependency |
Tax Rates |
||||
|
Ratio |
40% |
37% |
35% |
25% |
20% |
|
25% |
160% |
148% |
140% |
100% |
80% |
|
35% |
114% |
106% |
100% |
71% |
57% |
|
40% |
100% |
93% |
88% |
63% |
50% |
|
45% |
89% |
82% |
78% |
56% |
44% |
|
46% |
87% |
80% |
76% |
54% |
43% |
|
47% |
85% |
79% |
74% |
53% |
43% |
|
48% |
83% |
77% |
73% |
52% |
42% |
|
49% |
82% |
76% |
71% |
51% |
41% |
|
50% |
80% |
74% |
70% |
50% |
40% |
|
51% |
78% |
73% |
69% |
49% |
39% |
|
52% |
77% |
71% |
67% |
48% |
38% |
|
53% |
75% |
70% |
66% |
47% |
38% |
|
54% |
74% |
69% |
65% |
46% |
37% |
|
55% |
73% |
67% |
64% |
45% |
36% |
|
56% |
71% |
66% |
63% |
45% |
36% |
|
57% |
70% |
65% |
61% |
44% |
35% |
|
58% |
69% |
64% |
60% |
43% |
34% |
|
59% |
68% |
63% |
59% |
42% |
34% |
The Bank for International Settlements (BIS) released a report today on the state of the world economy and national budgets. It makes for pretty dire reading – especially if you think we are already suffering under unbearable austerity. http://www.bbc.co.uk/news/business-23028023
Bottom line: interest rates will at least double before the next General Election, and none of the incumbent politicians has a plan to get debt down to anything that could be considered reasonable historically.
To cope with this and get back to firmer ground the government is going to face cutting spending by £100Bn, not the £10Bn currently being negotiated. This simply cannot be done without a wholesale rethink of how to fund our social security. No amount of tinkering will work, the numbers are just too big.
LIFE’s plan to change social security to services instead of benefits (WellFair), to a system that pays the people delivering the services, instead of those receiving them, is the only plan being proposed by any political movement that can possibly cope with the the future we face.
If you think LIFE’s policies are radical, you’re not paying attention. LIFE’s policies are the most gentle, humane and digestible way forward. Instead of plunging into an abyss of austerity and debt without end, we are proposing a way to balance and joy. You may think it sounds corny, but it’s deadly serious – do the maths.
Maths:
Start with £1,500Bn of debt (current).
Add £50Bn a year in interest (at current rates).
Add £70Bn a year in extra borrowing (current, with 2013 austerity).
Add £50Bn a year in interest at future rates (conservative estimate, could be twice this).
Add £50Bn a year to reduce the debt to £1,200Bn by 2020 (that’s still 80% of GDP)
= £220Bn reduction in spending required = 33% of all current spending.
Want to know how to solve this equation without destroying our society? Check the LIFE budget plans.
UK LIFE 
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