THE WELSH GOVERNMENT AND FIRST MINISTER MARK DRAKEFORD HAVE GIVEN THE CLEAREST INDICATION YET THAT THEIR POST-COVID RECOVERY PLAN FOR WALES WILL RELY HEAVILY ON A PRO-BUSINESS, FREE MARKET APPROACH ROOTED FIRMLY IN THE ECONOMIC STATUS QUO. THIS IN-DEPTH REPORT WILL LOOK AT THE PEOPLE CHOSEN TO ADVISE ON WALES’ FUTURE AND WHAT THEIR COMMITMENT TO NEOLIBERALISM COULD MEAN FOR OUR SOCIETY.
ust over two weeks ago, it was announced that a panel of experts was to be set up by the government in Cardiff bay to assist in post-Covid economic recovery planning. According to Welsh Government, the advisers would enable ministers to draw on expertise from outside Wales in developing a strategy following the immediate impact of the crisis.
Two of the main figures appointed to a panel advising Welsh Government are former Prime Minister Gordon Brown and Paul Johnson of the Institute of Fiscal Studies. A third, Rebecca Heaton, sits on the Committee for Climate Change, as well as working for the bio fuels power station Drax. Taken together, they signal a political approach that sees the role of the market as the key driver for social, economic and environmental progress.
For those hoping for fundamental change post-Covid, the panel will come as a sobering reminder that Welsh Government appears to have no such intentions.
- As Prime Minister, Gordon Brown funnelled huge amounts of wealth into the private sector, not only by promoting costly Private Finance Initiatives but also selling off vast swathes of the civil service. Since 2015, he has worked for one of the World’s biggest investment firms, PIMCO.
- Paul Johnson as head of the IFS co-wrote and edited a major economic text in 2011, known as the Mirrlees Review. Among other things, it called for child benefit to be cut for parents of over-5s, VAT to be added to all consumer products, including children’s clothes and medicines, and corporate tax cuts.
- Rebecca Heaton has worked for Drax since 2015 as Head of Sustainability and Policy. She is an advocate of clean energy and carbon reduction, but Drax – the UK’s largest biomass energy supplier- is the single biggest emitter of Carbon in Britain and has been accused of fuelling harmful levels of deforestation.
The appointments are in an advisory capacity, and none are being paid. Looking closely at their work – all of which is in the public domain but rarely scrutinised – does not provide an exact blueprint for what the Welsh Labour Government have planned for the future, but it does tell us something about the ideology which is set to underpin their approach.
Overall there is a firm belief that, despite its track record, the global free market and more generally 21st century capitalism is the only system capable of delivering on aims as big as wealth equality and environmental justice. In spite of the failures of the economic system ushered in by Thatcher and Reagan – known widely as neoliberalism – the panel’s careers show an unshakeable belief that no alternative way of organising society exists.
Gordon Brown
In 2008, as the severity of the global recession became clear, Gordon Brown’s government took the decision to cut corporation tax by 2% whilst at the same time pledging to make life tougher for people on benefits. Brown was accused of acting “as if every benefit claimant is a potential scrounger.”
As chancellor, he championed the Private Finance Initiative which saw the state heavily indebted to business for decades and oversaw large scale privatisation of the civil service.
According to the columnist Simon Jenkins writing in 2006, Brown “faced down union opposition by seeking to [privatise] air traffic control, the Royal Mint, the Commonwealth Development Corporation …The Inland Revenue sold its entire estate to a property developer, John Ritblat, who transferred it, quite legally, to an offshore tax haven… The Treasury even sold and then leased back its own headquarters in Parliament Square.”
His response to the financial crisis was to inject the banks with £133bn cash, take public stakes in Lloyds and RBS and underwrite bank balance sheets to the tune of £1 trillion, all with barely any strings attached. No such support was given to those threatened with unemployment, who instead were given sanctions in return for a small amount of money.
Out of office, Brown has often written about post-crisis management for the World Economic Forum, the organisation of the global financial elite which he joined unpaid in 2011.
It is possible that his work in this particular field, especially his advocacy around education and inequality, has made Welsh Government attracted to the idea of having him as an adviser. But Brown’s solutions to these global problems take a similar path to the policies he put forward in his time in office, they are entirely market focused.
In the wake of the Nepalese earthquakes in 2015, Brown wrote that a global fund should be set up for education in the country, arguing it could not be forgotten. In 2017, Brown expanded on where the money for global education should come from for countries in poverty or in crisis situations. He said that a new project called the International Finance Facility for Education (IFFEd), partly sponsored by the International Monetary Fund, had been set up, and was “a bold plan” that would educate every child in the world.
The fund Brown was advocating is a complicated form of debt sold to poorer countries if they are “willing to reform” their education system.
Funded initially through donor states handing money to international banks, seed money would then be leveraged on international financial markets to generate a new debt package worth 4 times the original seed money value. The programme would then require poorer states to add their own grant money before gaining access to the loan, which would be repayable to the banks, albeit at a ‘softer’ rate.
Proponents of the IFFEd- including senior figures from the World Bank & IMF – have steered away from talking about education as a goal and instead referred to the benefits of “human capital development”, arguing that the “knowledge based approach to learning…will fail” and not “be able to compete” in the modern economy.
The scheme – launched in 2017 and promoted by Brown as an “opportunity for a better life to more people than ever before” – hoped to raise around $10bn globally in additional educational funds. Writing in 2019 however, Brown said the scheme still had “plans to raise an additional $10 billion” for education, indicating that in two years, the money was still not there.
At the same time as Brown was promoting the programme in 2017 – saying that “the quest for universal education is the civil-rights struggle of our age” – he was also employed by PIMCO on their Global Advisory board, where his job was to share his “insights on how global macroeconomic and geopolitical policy affects markets and investments.” PIMCO’s parent company, Allianz, is the world’s largest insurance company with $1,060.2 billion in assets, according to Forbes.
However in a sign of how wedded Brown is to the global economic system, the former PM always favours complex market solutions above policies such as taxing the wealthiest and investing directly into state infrastructure in a strategic way. In over 40 articles he has written for the World Economic Forum since 2013, Brown has not once called for the global super rich to be taxed more, in spite of the fact that their share of global wealth has soared in the same time period, with the world’s 2,153 billionaires now owning more wealth than 60% of the entire global population according to Oxfam. Brown’s commitment to a model of ‘progressive Capitalism’ would appear to fly in the face of reality.
Whilst Brown was writing about child poverty and the plight of refugees, Allianz – the parent company of PIMCO – were investing more in the arms trade than any other global company. A study by the Fair Insurance Guide in 2017 found that “Allianz is by far the largest investor in companies involved with controversial arms trade.” The report focused specifically on arms trading with Saudi Arabia and its bombing of Yemen, which has resulted in the largest humanitarian crisis in the world, 17,500 deaths and a famine crisis affecting millions of children.
In spite of this reality, Brown’s commitment to the same global financial system that he bailed out in 2008 – and which helps to fund the Saudi bombing campaign in Yemen – remains remarkably strong. Not only is he unwilling to ever criticise it, he is actively involved in selling neoliberalism to the world.
Paul Johnson
Following the onset of severe austerity in 2010, Paul Johnson became head of the IFS.
There he was instrumental in developing the Mirrlees Review, sub headed Tax by Design. The paper – presented to the International Monetary Fund in New York in 2011 by Johnson himself – made some striking recommendations for the British economy at a time when it was reeling from the credit crunch and faced a new era of austerity that fell almost entirely on lower earners and the poorest. Analysing the document now may provide insight into how Johnson envisions coming out of the even greater crisis we face today.
The review called for VAT to be added to all products, including Children’s clothing and Pharmaceuticals. VAT (Value Added Tax) is a flat rate of tax paid at point of purchase on a number of items. Critics have called it a regressive tax as the poorest pay as much in VAT as the richest, despite having less means to do so.
In 2010 the new chancellor George Osborne hiked VAT to 20%, making many goods instantly more expensive for everyone regardless of their income. Increasing the range of VAT to incorporate all products would necessarily make weekly shopping far more expensive. Johnson was proposing such a measure when it was already clear that many families and some of the poorest people in society would see their income fall through a mixture of welfare cuts and wage freezes.
But the paper also called for tough benefit changes that went even further than what the Tory-Lib Dem coalition were proposing at the time. Johnson and his co-authors put forward the idea of cutting child benefit for children over 5, saying that “work incentives should be strengthened for families whose youngest child is of school age” because “mothers of older children are more responsive to the incentives.”
In the same section, the authors also argued for axing pension credit for people under 70, saying this was another group which was “highly responsive to incentives.”
The reasoning behind the changes – to make welfare so uncomfortable that it pushed people into low paid work – was very much in step both with the New Labour administration Johnson had worked under but also the new government of the time led by David Cameron and George Osborne. And in language remarkably similar to senior Tory sources today – who were quoted recently saying that people had become “addicted” to furlough and needed to be “weaned off it” – the document described welfare as creating “serious disincentives” to work.
It is possible Johnson had developed some of these ideas working under Gordon Brown in Tony Blair’s government from 2004 to 2007. There, Johnson led on Microeconomics, described by Investopeida as a “social science that studies the implications of incentives and decisions.”
At this time, the New Labour government toughened its stance towards welfare claimants when it launched the No Ifs, No Buts campaign, with a public advertising drive showing apparent “benefit cheats” standing on a target with slogans such as: Break the law and you face a criminal record.
“We are committed to catching benefit thieves and bringing the toughest penalties against those who commit this crime,” said John Hutton, Work and Pensions Secretary at the time. “The public are fed up with benefits thieves stealing money.”
The creation of a hostile environment for welfare recipients as a means of increasingly availability to the labour market was a theme developed to devastating effect by Iain Duncan Smith, the Work and Pensions secretary responsible for ‘welfare-to-work’ programmes, which forced people to work unpaid in return for job seekers allowance.
In the Mirrlees Review, written before the introduction of Universal Credit, Johnson and Co. call for “a single integrated benefit for those with low income and/or high need”. This principle is in itself not especially controversial or unique but, taken with the review’s principle that the benefits system should be a tool to serve the labour market, could be seen as a precursor to the notorious Universal Credit.
At the same time as arguing for a more hostile benefits system, the Mirrlees review also calls for a tax relief programme for corporations. It proposes doing this by abolishing taxes on corporate equities that only have a normal rate of return on the original investment. In this scenario, a large company could make a number of financial investments and, provided it could show that the money it eventually made from this investment did not exceed the amount it originally put in (the rate of return), they would pay no tax on these parts of their business.
A year earlier, George Osborne cut corporation tax to 27%, pledging it would eventually fall to 24%, whilst also hiking VAT to 20%, freezing public sector pay, cutting housing benefit by 10%, abolishing the health in pregnancy grant, freezing child benefit and other forms of austerity.
The programme put forward by Johnson is remarkably similar in its general ethos to the coalition.
The review admits that its proposals around corporation tax measure would be costly, but says this money should not be recouped by raising normal corporation tax. “Offsetting the revenue loss by increasing the corporate tax rate would be much less attractive,” it says, “inducing multinational firms to shift both real activity and taxable profits out of the country.”
Johnson is widely seen as a deficit hawk who regularly warns politicians about the implications of their spending proposals. Just this week, he was keen to remind people how costly the government’s Coronavirus furlough scheme would be, comparing it to money spent annually on health or education. In the Mirrlees review however, financial leeway is given to business in a way not enjoyed by recipients of welfare.
Written at a time when inequality was set to soar, the review is rooted firmly in the dominant view held by the coalition government at the time, which was that the burden of the crisis should fall on workers, the unemployed and those who rely most on public services.
The report does include some increases in benefits as well as cuts, and believes it would have overall a ‘neutral’ effect on people’s finances taken across a lifespan. Even taken at face value however, this would still leave society at roughly the same position it found itself in 2011.
Earlier this month, the IFS said that public transport costs should rise as a way of discouraging use, sparking a backlash that this would only serve to increase the cost of living for low paid workers.
Wales is a country with a high number of welfare claimants and a depleted industrial sector. The appointment of Johnson, however, points to an approach more akin to Thatcherism, with a strong belief in strengthening the hand of the market.
Rebecca Heaton
This belief would also appear to be strongly held by the third appointment to the panel, Rebecca Heaton. Currently working for Drax, the UK’s biggest bio fuel power station, Heaton has been involved in developing bio fuel technologies and green energy for over ten years.
This has almost always been done within major oil and gas companies who have often actively undermined efforts to tackle climate change whilst simultaneously promoting their green credentials.
While Heaton worked for Shell between 2009 and 2015, developing their bio fuels scheme, the company successfully lobbied the EU to water down its carbon reduction plans by dropping binding targets for individual member states on energy efficiency and renewable energy.
Since 2015, Heaton has worked for Drax as Group Head of Sustainability and Policy, where according to her Linked In profile she has “Responsibility for the sustainability of the global forest supply chains for the largest biomass generator in the world typically providing 8% of UK electricity.”
The Drax power station in Yorkshire is the UK’s biggest CO2 emitter. The majority of energy produced at Drax Power Station is biomass in the form of imported compressed wood pellets. In the last 5 years, Drax has imported more wood than the UK can produce annually.
Critics of this method however point to the fact that the wood used to make the pallets comes via mass deforestation in other areas of the world, such as the US South East where forestry is becoming heavily depleted.
Rita Frost, the campaigns director of Dogwood Alliance, a forest preservation group based in North Carolina .explained to the i paper in June last year that wood pellets taken from the older carbon-absorbing trees will emit that carbon back into the atmosphere when they are burned for energy, and will release more carbon dioxide into the atmosphere than coal.
“The UK’s dependence on biomass puts some of the world’s most ecologically valuable forests at risk,” she said.
Drax denies these claims, saying they had looked into them and “found them not to be true.”
The UK’s biomass industry has received hundreds of millions of pounds in subsidies via energy bill levies and direct government grants. The burning of biomass is permitted under EU rules around cutting carbon emissions as it is seen as carbon neutral, despite campaigners pointing to the fact that it will take decades for new trees to absorb the carbon emitted by the ones being burnt for energy, and the severity of climate breakdown requires the immediate reduction of carbon.
Given the operations of Drax, the inclusion of Rebecca Heaton on the panel may ring alarm bells for environmental campaigners worried about how the Welsh Government plans to use its stock of natural resources, particularly timber. With the Swansea Bay lagoon project rejected by Theresa May’s government, the need for renewable energy may fall elsewhere, risking the prospect of large areas of forestry felled and replaced by monoculture plantations, mirroring Drax’s operations in the United States.
What Now?
Extracting any definitive idea from the appointment of Rebecca Heaton about what Wales’s climate strategy will look like post Covid is impossible, but as with Gordon Brown and Paul Johnson, there is a very clear commitment to the ability of big business to solve major crisis that have been created in large part down to their own operations.
In Brown’s case, this presents itself as a belief that global banks are most able to deliver the world from a global banking crisis. For Johnson, that designing a system which punishes the poorest in society is necessary to pay for an economic recession caused primarily in the wealthy financial sector. And for Rebecca Heaton, a commitment to working against climate change within the world’s biggest oil and gas companies which are most responsible for carbon emissions.
At a time when the Coronavirus pandemic has brought fundamental questions about our society to the fore, and highlighted deep structural problems with our political and economic system, Welsh Government’s appointments betray a remarkable commitment to the status quo.
Instead of looking at how Wales and the world can change, they seem determined to keep it as it is.
“Another option is available,” wrote over 600 academics in a letter to the Guardian on Friday addressing how the world must change after Coronavirus. “Democratise firms; decommodify work; stop treating human beings as resources so that we can focus together on sustaining life on this planet.”
For now at least, this does not appear to be the thinking of Welsh Government and their panel of advisers.
This article was updated on 17 May 2020
