Looking forward to tax cuts, backward to better schools, and upward to Croydon

Morning all,

If you wanted Westminster to start winding down the drama for Christmas, you’ll have to wait a little longer. This week saw the resignation of a Cabinet Member, the revelation at the CBI conference that businesses don’t want to stump up more for public services, and proposed legislation to Get Britain Working (which points in the right direction, but measures look somewhat thin on the ground).

For your reads this week we’ve got high-rises, truancy and polarisation.

Have a great weekend,

Mike

Interim Chief Executive
Resolution Foundation

Systemic citations. As you might recall from our Black History Month special, economics isn’t great at producing research on the experiences of people of colour. Well, as this research finds (non-paywalled), economists also struggle to cite the research of people of colour. The authors look at more than 330,000 papers published over the course of 70 years, revealing that research from non-white authors got between 5.1 per cent and 9.6 per cent fewer citations than those penned by white colleagues. Having just one non-white author on a paper led to 5 per cent fewer citations. The authors don’t offer one all-encompassing cause for the trend, but suggest that conference participation, particularly at prestigious venues, could play a role.

Up up up. Gentle density is the buzz-phrase these days – who says economists don’t appreciate a little ambient assonance. The approach is simple – to solve our housing crisis we need to build more, yes, but we should also build *up*. This assessment of the decision to relax planning restrictions on taller buildings (aka “upzoning”) in Auckland, New Zealand in 2016 found that it created more housing, leading to lower rents. Despite informal critiques online, the authors conclude that the scheme has had an overwhelmingly positive impact on the city’s residents, and should be used as a model for other cities – something we noted in our housing paper earlier this year, and in our deep dives into Birmingham and Manchester. Indeed, the approach has already seen some mixed success on a much smaller scale in Croydon. As one author said – don’t delay, upzone today!

Marvellous marks. Education is the only public service in England where the core metric of success has improved this century, while many other countries have seen declines. But all is not well. This blog from Sam Freedman (whose book should be on all policy geeks’ Christmas lists) notes that before Covid, clear national standards, regular testing and a focus on numeracy and literacy helped to drive consistent improvements in schools across England between 1995 and 2019. But then lockdown arrived, closely followed by the cost-of-living crisis. More families fell into poverty, housing problems worsened, while mental health referrals for younger people have increased by 150 per cent in seven years. Now, nearly a quarter of students miss at least 10 per cent of their classes, suspensions have doubled, and nearly half of teachers were worried that poor behaviour would affect their next lesson last year, up from 36 per cent five years ago. Perhaps most worryingly, the gap between poorer students and their peers, that had been narrowing for a decade, has now completely reversed, and there are now fewer students from poorer families applying to university. This is a Grade A social problem facing this and future Governments, with clear risks to our future productivity and social mobility.

Diverging disobedience. The discussion around the assisted dying bill this week has been striking for its measured tone – a rare quality for discourse these days. And as this research has found, increased political polarisation is bad news for the fabric of our societies. By testing people who strongly supported or opposed former-and-soon-to-be-again President Trump, the authors found polarised people are significantly less likely to follow rules. This has nothing to do with the rules’ content: instead, these individuals tended to assume “malevolent motives” behind rules imposed by a political opponent, but didn’t attribute such motives to rules implemented by a political ally. This fundamental lack of trust doesn’t auger well for those hoping to use factual arguments to create consensus.

Bargaining beliefs. How well do you know what you could be earning at another organisation? This paper weighs up how well people understand their options. It turns out that many workers believe that their potential pay at other firms was much closer to their current wage than in reality, something the paper’s authors dub “anchoring”. These anchoring effects were significant – people who thought they could only gain a 1 per cent increase in pay from switching jobs could actually boost their pay packet by 10 per cent if they moved to their next-best employer. This is bad for workers and the wider economy too as it suggests we’re not getting people into jobs where they could be productive. We’ve looked at this before, finding that the UK has a surprisingly un-dynamic labour market. The lesson here is that pay transparency is important both within organisations, and outside too. It’s also why websites like Breakroom (backed by Resolution Ventures) can be so valuable in helping to tilt the labour market in favour of workers. Knowledge is power!

Chart of the week

This week we learned that businesses, just like farmers, don’t want to pay more tax. So you can understand why the Chancellor channeled her inner President Bush (senior) to promise the CBI conference that there will be no more tax rises in this Parliament. This week’s Chart of the Week provides some context to this pledge.  Chancellor Reeves raised taxes in the first Budget of the Parliament, firmly following the fiscal footsteps of her forbears – it’s happened in seven out of the nine past parliaments (Gordon Brown didn’t need to in 2001 as Britain surfed the crest of the NICE decade, while Phil Hammond was preoccupied with Brexit in 2017). Savvy Chancellors aim for big tax rises at the start of the parliament (anyone remember “war chests”?) followed by election-friendly tax cuts at the end, a trick pulled off by governments in 1992-97, 1997-2001 and 2010-15. But it doesn’t always work out that way … First, some Chancellors need a second bite of the tax-rising cherry to get the public finances on a firmer footing. Second, the more established pattern of the post-Gordon Brown era is that “events, dear boy” throw all the best-laid tax strategies up in the air. This is why the average forecast five-year-ahead error on the OBR’s public finance forecast is a whopping £95 billion. Ultimately, the Chancellor’s chances of keeping her promise depend largely on Britain avoiding another domestic or global economic shock in the next five years … good luck with that (and speaking of which, we’ve a report/event next week on UK trade in a post-Brexit, intra-Trump world).