What went wrong with the Conservative manifesto?

It is clear that the Conservative manifesto has done serious damage to the Party’s electoral prospects. 

There is a sharp and deep inflection point in the Conservatives’ lead from the publication of the manifesto. Never before has a party leader changed a manifesto policy mid-campaign, as Mrs May was forced to do last week over social care, which made a mockery of her endless billing of herself as ‘strong and stable’ until then.

Obviously the social care policy was badly misjudged, politically, and alienated the Tory base of home-owning middle class old folk. Strangely this was the policy that was pre-released to the media on the morning of the manifesto launch. Did they think it would be popular? 

The ‘Theresa Miliband’ policies – the energy price caps, the meddling in corporate governance, the workers on boards and the requirements that firms publish gender pay ratios – were mostly watered-down, but are still very alienating to liberal Conservatives. The line “Some people say that it is not for government to regulate when it comes to technology and the internet. We disagree.” isn’t just horrifying to most younger internet users, it contradicts DCMS’s long-held opposition to moves globally to make it easier for states to regulate the internet.

The manifesto was not costed, unlike Labour’s and the Lib Dems’, which led to the audience laughing in the Prime Minister’s face during Monday’s televised Q&A event when she said that Labour’s sums didn’t add up. It included a pledge to hold a free vote on legalising fox hunting, which 84% of people oppose.

Conservative PPCs blame the manifesto for turning the campaign on its head, and the Party's twenty-point lead has at least been cut in half. So what went wrong? 

I wonder if May’s lack of an ideological constituency of support might be an important reason that things went so badly so rapidly. The two complaints that people have about the manifesto are that it was done without consulting people who expect to be consulted, and that it doesn’t have any policies that actually appeal to voters. But why has this happened? 

Neither of these would normally be issues. Most party leaders have had a circle of supporters and ideological allies around them. Their role is to provide ideas and act as outriders and surrogates to test and defend policies before they have to be made ‘official’ in the manifesto or as government policy.

Under David Cameron, the Conservatives had a mixture of Policy Exchange and the Centre for Social Justice to do this, and eager support from the media. Blair and Brown had groups like the IPPR and Demos; Miliband (I guess) had the likes of Compass. Thatcher had the IEA, the CPS and us; Major had a grab-bag of organisations like the Social Market Foundation and the ASI.

These groups, along with like-minded journalists, can safely raise ideas in the public debate and see the sort of traction they get with everyone else without contaminating the party leadership. The ideas that normal people hate get sloughed away. The ones you’re left with are both reasonably popular and liked by a decent enough core of supporters that they’ll go to bat for you in general.

But there isn’t a ‘Mayite’ think tank. Her policy guru Nick Timothy, his time running the New Schools Network aside, doesn’t have an ideological group behind him and cites Joseph Chamberlain, a 19th Century protectionist of all people, as his political inspiration. This kind of backing may have been very useful as she went without her cabinet, just as it was to Thatcher when she went against hers.

Since May has no ideological or intellectual base either of supporters or of thinkers, she’s come up with a bunch of policies that nobody is really willing to defend. And because nobody has thought much about them or properly tested them in the public debate before now, they've proved to be a lot less popular than they might have sounded when they were drafting the manifesto. May's team probably thought they could get away without much fan service to their base, and rely on her appeal to voters alone. That seems to have been a mistake.

In short: you need a base to test, think through and defend potential policies before you make them official. Every Prime Minister since Thatcher has had that; Mrs May does not. Maybe that explains why her first real policy test was such a failure – one that may haunt her for the rest of her career.

Capitalism just makes things so damn cheap, doesn't it?

You don't have to go far - say to the Labour Party Manifesto, or this time around the Tory one in fact - to find people complaining that capitalism is some form of a rip off. In their lust for profits the plutocrats grind the faces of the workers into the dust, short change the consumers.

And yet we also face the obvious truth of the world around us. Those people living in a place which has been roughly capitalist and roughly free market for any reasonable period of time are as rich as any group of human beings ever have been. They have more than those who came before. And thus it must be true that capitalism makes things cheaper, something not consistent with everyone being ripped off.

And a specific example: 

Ryanair, Europe’s largest airline by passenger numbers, has helped drive down short-haul ticket prices in Europe by increasing its capacity by 33% in the past two years.

Its cost base, widely acknowledged as the lowest of Europe’s major carriers thanks to low plane purchase, maintenance and staff costs, has allowed it to undercut rivals while still making a profit.

The Irish airline made a profit after tax of €1.3bn (£1.1bn) in the year to the end of March, even though it slashed ticket prices to fill almost 14m seats added during the period.

Chief executive Michael O’Leary said fares had fallen 13% but profitability had doubled over three years. He added: “Frankly I see no reason why that trend won’t continue.”

The capitalist plutocrats can and do cash in by reducing the prices to consumers, making them better off. Which is, of course, why the system works as a whole.

Why shouldn't this be enough extra money for the NHS?

Much is generally made about how the NHS has a different inflation rate from the rest of the economy. Polly has been telling us for years that it needs a 4% rise in the budget each year just to stand still. And it's not obvious that this has to be the case:

Although health has been exempt from the deep cuts that have affected most other Whitehall departments since 2010, the settlements have been nugatory by historical standards. Real spending has risen on average by 4% a year since the mid-1950s. In the 18 years of Conservative rule between 1979 and 1997, it increased by 3% a year. On current plans it will increase by 1.4% a year between 2010 and 2022.

Baumol's Cost Disease comes into play here. As real wages rise then services become more expensive relative to manufactures. And real wages have risen considerably since the 1950s and thus the NHS has become considerably more expensive relative to things that are manufactured. Note that the NHS does pay a little under 50% of its budget in wages.

We might not be all that happy about this but that's just the way this flavour of the universe works. But as Larry Elliott also tells us: 

The recovery from the deep slump of 2008-09 has been the weakest in living memory. There has been no productivity growth and wages are lower than 10 years ago. 

We've not had real wage growth for a decade. Thus the NHS should not be having a higher inflation rate as driven by the Cost Disease, correct?

That is, when real wages are growing strongly perhaps the NHS does have that higher budget growth rate, but when they're not it shouldn't.

Towards a theory about nationalisation

Wanting to nationalise everything is generally, and rightly, seen as a fairly left wing idea. One which seems to run smack into the problem that Britain is a rather conservative nation. At least, that's what we take from this survey result about what should be nationalised, what should remain in the private economic sphere:

The British public is overwhelmingly in favour of keeping a range of services in public hands, a poll has shown. 

A total of 87 per cent of people are in favour of the police being run by the public sector, 84 per cent for the NHS, 83 per cent for the armed forces and 81 per cent for schools, according to statistics released by YouGov.

We can construct entirely reasonable theories about why the police and military should be government run. They are natural state services being the application of state power itself for example. We've also tried private armies and didn't like it very much, we generally refer to that period as the Wars of the Roses.

However, when we look at the fuller list we rather change our minds about this:

In the survey, which looked at 13 industries, it was only telephone and internet providers, banks and airlines that a majority of people believed the private sector should control.

There's actually a close correlation between how long something hasn't been nationalised and whether it should be run by private industry. The things which have always been state run people think should remain so, the things which were sold off decades back should be private, and as the support for nationalised operation rises so does the date at which they were get closer.

That is, the result seems to be driven by something like status quo bias. Or as we can also say, just conservatism, you know, the idea that things are about right and shouldn't be changed very much.

The IFS is quite right here, stamp duty is largely paid by pensioners

The Institute for Fiscal Studies is quite right here, the people who really pay stamp duty on shares are the pensioners:

Labour’s plans to raise taxes on businesses and financial transactions will hit pension funds, reducing returns for savers and harming living standards into old age, the Institute for Fiscal Studies has warned.

Jeremy Corbyn hopes to raise £5.6bn per year with a levy on bond and derivatives purchases, extending the stamp duty charge that already affects share transactions.

He said it would target banks and help repay the damage wrought by the financial crisis.

It is not, of course, the banks who buy and sell shares, but our pensions that do. And a charge on a transaction inside a pension will be paid by that pension.

This is all known as "tax incidence" of course, the thought that all taxes are paid by hte wallet of some live human being getting lighter - on the simple basis that there's only us folks here to pay taxes - and we need to walk through the effect of a tax on the economy in order to work out whose.

However the IFS said that, ultimately, all taxes are paid for by individuals.

This is not new news either. The IFS has issued a couple of papers on the subject in the past. There is also the EU's own investigation into the incidence of a financial transactions tax. Which shows that, yes, the incidence is largely upon  investors - pensioners that is - plus lower wages for the workers across the economy.

Taking the fat cats this ain't. Which is why the Mirrlees Review so strenuously insists that we just should not be having transactions taxes at all, they're simply a bad form of taxation to begin with.

If you do want to try to tax the financial sector there are other and better ways. An extension of stamp duty is the wrong thing to do entirely, it's a tax which should be abolished in its entirety.

This is hardly an onerous goal being set, is it?

The usual suspects are shouting about how the education system is to be starved of that funding vital to all that is good and holy:

The Institute for Fiscal Studies (IFS) said that school funding would fall by nearly 3% by 2021 even with the additional £1bn a year, after adjusting for inflation and a rise in students enrolled.

“Taking account of forecast growth in pupil [numbers], this equates to a real-terms cut in spending per pupil of 2.8% between 2017–18 and 2021–22. Adding this to past cuts makes for a total real-terms cut to per-pupil spending of around 7% over the six years between 2015–16 and 2021–22,” the IFS said.

And we're afraid that we don't quite see it.

Firstly, it isn't true that the marginal costs of another pupil are the same as the average costs of a pupil. Education spending is far more lumpy than that. One more pupil into an extant school might cost the number of pencils they'll chew in a year but not much more than that.

Secondly, and much more importantly, this isn't actually a big ask. The education system is being asked to improve productivity by 1% a year or so. That's very much less than any private sector organisation tries to manage. And anyone at all who thinks that there isn't 1% a year to be ground out of the cost base of a British public service just sin't dealing with reality.

It's entirely true that the recently departed William Baumol had his Cost Disease, that it's more difficult to increase productivity in services than in manufacturing. But do note that he said more difficult, not impossible.

1% a year improvement in productivity, 1% a year reduction in costs? Pah!

The next iteration of the waste food problem

A general observation is that as modern fads and panics rotate through their second, third and fourth iterations then people start losing their minds. The original point becomes entirely forgotten and we end up with the meaningless, or even in gross error, incantation of the fashionable chant.

So it is with this about food waste, now we're onto how much bagged salad gets thrown away: 

People buying bagged salads with good intentions of eating healthily end up throwing 40per cent away.

The fragile leaves look appetising on the shelves but they have a very short shelf life and soon spoil and become soggy.

As a result, tonnes of lambs lettuce, baby spinach, wild rocket and ruby chard-duos end up in the bin.

New research suggests people throw away around 37,000 tonnes of salad every year, which is the equivalent of 178 million bags.

This is a useful example of failing Chesterton's Fence. Which is the idea that you cannot work out whether something should not exist until you have understood why it was first constructed. Noting a fence is one thing, but it is necessary to work out why the fence was constructed in the first place before it is possible to say it is no longer needed.

And so, why do we have bagged salad? Possibly because, even at these wastage rates, the loss is less than when all had to buy salad bits loose? We don't say that this is so, only that it's the relevant question to be asking.

As to the waste being worth a lot of money, no, of course it isn't. We're throwing it away so it is of no value to us. And yes, it really is true that we are the determinants of our own utility, the value of something to us is the value of something to us, not what either it should be nor what someone else thinks it should be.

But then others do manage to get to that ritual of incantation rather than doing the difficult bit of thinking:

The solution, then, it would seem, can in part come from us, the consumers. By taking personal responsibility and ensuring that we limit our consumption, we can probably dramatically reduce the colossal figure currently hanging over our bagged-salad heads.

It is indeed part of the worship of Gaia that we must reduce our consumption. Or at least acceptable ritual that we should claim to desire to do so, along with St Augustine's caveat of not quite yet perhaps. 

But there is that very proof that people aren't thinking. For of course the actual complaint here is that we're not consuming enough of this bagged salad, isn't it?

Ritual incantations rather than thinking just aren't the way to run the world.

We do love people holding directly contradictory ideas

This is something we humans do rather well, hold two or more directly contradictory ideas at the same time. One particular version of this is prevalent over on the environmental left these days. Which is that renewable energy is just so cheap these days that they're going to take over the entire power sector, while at the very same time any cut in investment funds to designing new methods of renewables would be to condemn the planet, and Flipper and ourselves, to drowning in ever hotter water.

As an example, over at Salon they are running these two stories side by side:

We’ve seen prices for new solar farms below 3 cents per kilowatt hour (kwh) in other countries for over a year now, but before this week, not in the U.S. That changed on Monday when Tucson Electric Power (TEP), an Arizona utility company, announced that it had reached an agreement to buy solar power at the same game-changing price.

TEP says that this is a “historically low price” for a 100-megawatt system capable of powering 21,000 homes — and that the sub-3-cents price is “less than half as much as it agreed to pay under similar contracts in recent years.”

For context, the average U.S. residential price for electricity is nearly 13 centsper kwh, and the average commercial price is 10.5 cents.

And further:

Sen. Maria Cantwell (D-WA), ranking member of the Senate Energy and Natural Resources Committee, criticized Trump for his proposed cuts in clean energy research. “His budget proposes a staggering seventy percent cut to renewables and energy efficiency initiatives,” Cantwell said in a Tuesday statement responding to the budget proposal. “This would devastate an emerging sector of our economy by killing thousands of clean-energy jobs all over the country — all in a misguided effort to hold onto the past at the expense of our future.”

But if solar is now one third the price of conventionally produced electricity then we don't need to be doing any more research, do we? We've done what we needed to do and we can stop now and go on to try and solve the next problem.

Alternatively, of course, there's something hooky with that 3 cents number and we do need to keep researching. But they can't both be accurate complaints. Either we've got cheap renewables and we don't need to research cheap renewables any more or they're not cheap and we must continue. But we simply cannot be where we've achieved our goal and we must still research how to achieve our goal.

A social care lottery just won't work

In City AM, Cato’s Ryan Bourne makes a free market case for the Tories’ original plan for social care. The plan was to continue the current system, where a person must pay for their own care until their assets fall to £23,500, after which the taxpayer pays – but raising that floor to £100,000, including housing wealth in the measure, and allowing people to defer payments until after their death. They now want to include a cap on how much any individual can spend before the state steps in and pays for the rest.

Of the original plan, Ryan says:

This looked like a fair (but still generous) compromise. It would maintain a significant safety net for an individual requiring social care, and his or her family. For the taxpayer, it prevents an expensive new commitment to an unfunded liability, important given demographic trends. And it entrenches the idea the first port of call for paying for care should not be the state, but individuals themselves.

Given most potential inheritees will themselves tend to be older with large assets and numerous options, including paying for care out of their income, renting out the parent’s home or using equity release, this is reasonable.

Ryan makes a strong case, as usual. But he does acknowledge two flaws in this system:

Some say it is unjust because outcomes are determined by luck or chance. Have a heart attack or cancer, your family gets to keep the full estate. Suffer dementia for years and then pass away, and the assets are depleted to £100,000, eroding the inheritance.

But life itself is a lottery. Many factors which contribute to wealth accumulation owe something to luck. Homeowners have been lucky, for example, that policymakers have imposed tight planning laws that drive up house prices. Government cannot correct for all instances of luck and should not try.

Another objection is that this approach discourages saving. Some believe it will encourage people to spend, dish out their wealth through gifts earlier in life, engage in behaviour that will make quick death more likely, whilst those who do “the right thing” will be penalised.

Certainly there are some perverse incentives, but the instances of those living it up and then falling back on the taxpayer are the price you pay for a safety net. The alternatives are no safety net whatsoever or a hugely expensive nationalisation of care funding.

These are very important. In the Telegraph I make the case for a different system – one of universal coverage funded by mandatory, Singapore-style savings accounts combined with high-excess “catastrophic” insurance. 

This would address both the ‘lottery’ argument and the incentives argument. I don’t think a system that randomly wipes out most of someone’s savings if they get dementia is going to command public support in the long term. The older society gets, and the more people get entered into the ‘dementia lottery’, the more unpopular this element will become.

As of 2009/10, half of of people aged 65 will spend less than £20,000 on care throughout the rest of their lives, while one in 10 will spend over £100,000, as this chart (from the Dilnot Commission’s report) shows:

It may be that, in fact, wealth differences are largely luck-based – you bought a house in 1990 while I bought shares in Kodak and IBM. But we are loss averse animals, so losing that doesn’t feel symmetrical. And the psychological pain of effectively losing your life’s savings at the same time as contracting dementia must be difficult to bear. 

It’s also inconsistent with most of our other priorities in things like care for the disabled – if you are born unlucky we try to mitigate that bad luck – and healthcare. If you get cancer you don’t lose your life’s savings, and nor should you.

The perception that a person could lose their life’s savings after falling ill is one of the biggest reasons that people (including me) perceive the US healthcare system to be so awful. Sharing this risk is a major part of why insurance exists and why state-funded models of healthcare are so appealing. I suspect that a social care policy that includes this risk will fall apart fairly quickly as more and more people fall victim to it. 

Secondly, the disincentive to savings is potentially very significant. A raft of evidence from Britain and Europe shows that people's behaviour is very sensitive to means-testing of assets for things like pensions benefits. This is not that surprising: reducing savings means consuming them. Get a higher pension in exchange for going on a few nice holidays in the sun? Count me in. 

You might argue that people don’t price the risk of getting dementia accurately, but I’d say they’re just as likely to overestimate the risk – and hence the savings disincentive – as they are to underestimate it. And since savings have wider benefits, by providing funds for investment, anything that artificially disincentivises them is bad news.

This is why a floor of any kind is a difficult proposition. As Ryan says, if it’s means-tested it’s difficult to get around that. 

My suggestion is a true insurance model: a high-excess plan that would only cover the “tail risks” – the truly enormous costs faced by the minority of people who need a lot of care. This would effectively spread the risks of getting dementia.

We should not expect insurance to cover all costs. That isn’t what insurance is for. Systems that try to make insurance cover all costs often don’t work very well, giving people a blank cheque for unnecessary consumption and driving premiums up very high. 

When individuals pay with their own pot they economise: they size up benefits and costs and choose their best option, like when they choose where to rent, or what car to buy. 

So a Singapore healthcare-style model, but for social care: insurance for the catastrophic costs that ten or twenty percent of us will face, and a special pot of our own savings for the normal costs of old age that most of us can expect to face. Whatever’s left can be passed on to your kids, tax free, when you die, and people on very low incomes can have their payments topped-up by the state during their working lives. 

I am afraid that this is very much a second-best solution: as long as there is a prospect of the state swooping in and caring for people who cannot pay for themselves, these insurance and savings account schemes will have to be mandatory. But it would mean people (mostly) providing for themselves, would eliminate the ‘dementia lottery’, and avoid disincentivising savings (at the expense of disincentivising earnings for those who receive a government top-up, which is probably less important). 

I see the distinction between healthcare and social care as being largely an accident of history. A system that works for one might very well work for the other too. So, no lotteries, but no pooling of day-to-day costs that individuals have some control over either.

This is an absurdly stupid complaint about in work poverty here

This particular complaint should be met with an angry shout of "What the hell did you think was going to happen anyway?" quite possibly with a few cuffs around the ears to encourage thought:

A record 60% of British people in poverty live in a household where someone is in work, according to researchers, with the risk of falling into financial hardship especially high for families in private rented housing.

No, that's not it, this is:

Low pay is a trigger for in-work poverty but the primary determinant is the number of workers in a household, with single-earner families at a very significantly elevated risk of hardship, the study says.

So what the hell else did anyone think was going to happen?

Sigh.

We measure poverty as being below 60% of median household income (and then in various forms, before and after housing costs, disposable income, before and after tax and benefits and so on). We adjust for the size of the household, the number of adults - but not for the number of earners. The median UK household has two earners in it. Thus single earner households are much more likely to be in poverty simply because of the way we measure it, comparing single earner household incomes to that median of dual.

The result is built into our measurement system. We could not reach any other result given that measurement system.

Imagine, just as an example, that the second adult went out to work and the household then spent upon paid child care. As many have actually noted the extra earnings from that second job only just about cover those child care costs. The household isn't any better off. But by our poverty measure that household isn't going to be in poverty any more as a result of two earnings not one.

We must always, but always, remember that we do not actually have any poverty in the UK. That, the absolute poverty, was beaten back in the 1930s. What we have and what we measure today is inequality, the thing we call relative poverty. And if we don't remember this then we're going to be making mistakes similar to the one above.

Single earner households have lower earnings that dual earning ones. Blimey, that's a bit of a surprise, innit?