Brexit, xenophobia and left strategy now

Guest post by Jamie Gough

originally written in July 2016

The economic consequences of Brexit are dire. But for the left a far more serious problem thrown up by the referendum and the vote to Leave is what it shows about longstanding working class consciousness regarding ‘immigrants’, and how the Leave campaign has shifted working class opinion further to the right.  For left strategy this should be the crucial concern. This aspect of Brexit is therefore what I focus on in this note.

In England and Wales the majority of the working class (in the everyday rather than Marxist sense) voted for Brexit. Many Remain voters, of both right and left, have seen this as a sign of a deep, inherent xenophobia and racism amongst British-born working class people, or as evidence of their inability to understand economic questions.  I wish to argue, to the contrary, that the white working class Brexit vote was a logical coping strategy in the circumstances, that is, given the political economy of Britain over the last forty years and its present configuration.  Correspondingly, the vote was not based in xenophobia and racism as such, though these gave it expression, but rather an opposition to further net immigration because of its perceived impacts on access to jobs, public services and housing.  This view, however, blames another section of the world working class and thus removes culpability from capital and capitalism.  The left can change this economic view and challenge xenophobia only by leading a struggle based on a different economic strategy, one which opposes capitalist austerity, proposes measures which benefit the majority of the population materially, and which breaks through in practice the mystifications of capitalist value relations.

Explaining popular consciousness requires going beyond a description of dominant ideologies; analysis of discourses in themselves cannot explain their hold on people’s imagination.  Rather, we need to see them as part of praxis, the unity of material practice and consciousness.  Widespread ideas – ideologies – do not arise simply from discursive interventions; they develop over long periods through lived experience.  Thus my focus is on everyday life and its structuring by political economy and class relations.

I use a pragmatist approach to how people choose their behaviour, including its moral aspects: that these are not a simple and direct result of their intrinsic personal interests, but are rather framed within materially-feasible strategies whether personal or collective.

The view that immigration is the problem rather than neoliberal capitalism is, in Marxist terms, based on appearance rather than essence.  However, in the Marxist approach, ‘appearance’ is not mere illusion or mystification, but is rather rooted in materially-based social relations.  This is a further reason for my emphasis on working class coping strategies.

The vote to leave and its motivations

The majority of the working class in the everyday sense, standard classes C2, D and E, in England and Wales, voted for Brexit.  The majority of classes C1, B and A voted to remain. (I will use the term Working Class (capitalised) in the Marxist sense, meaning all those directly or indirectly dependent on wages over their lifetime.  This includes the majority of standard classes E to B and some of A.)  Classes C2, D and E appear to have voted to leave mainly on three bases.

(i) that ‘immigrants’ are to blame for lack of jobs, poor wages and conditions, inadequate public services and lack of good affordable housing;

(ii) that the state –here represented by the EU– is incapable of ameliorating these conditions and in fact makes them worse;

(iii) a generalised nostalgia for better times.

Below I examine these three motivations in turn.  For each I discuss some differentiations and nuances of the motivations, and then analyse their construction.  I argue that these views have been produced by forty years of neoliberalism and the failure of social democracy and socialists effectively to challenge it.  These working class views, in turn, now support and reinforce neoliberalism.  A key question for the left is therefore how to challenge and change these views, the subject of my final section.

(i) Blaming the ‘immigrants’

Opinion polls during the referendum campaign, and vox pop reports such as John Harris’s pieces in The Guardian, strongly suggest that the main reason that working class people voted for Leave was that they believed that this would reduce immigration to Britain and thereby reduce competition for jobs, public services and housing.  Three complexities need immediate consideration.

First, the term ‘immigrant’ in this context is a vague and elastic term, a ‘chaotic conception’.  Exiting the EU could indeed reduce the number of EU citizens coming to Britain.  However, the hostility to these (overwhelmingly white) EU citizens seems, for many, to have spilled over into hostility to black Britons (the vast majority of whom are of course not immigrants from anywhere) and to refugees from the Middle East (as featured in UKIP’s notorious poster, and the Mail and Express’s naming of refugees as ‘European’ migrants).  This is evident from the attacks that have taken place since the referendum result, which have been not only on Poles and Rumanians but also on black people and people perceived as ‘Muslims’.  The Leave campaign and the vote were articulated not only by xenophobia but also racism.

A second complication is that the vote for Brexit was as strong in localities and regions of Britain with very few EU migrants and black people as it was in those with many.  British-born people in the former areas were not faced with local competition from ‘immigrants’.  Their votes to Leave, however, can be simply explained if one assumes that they have a national rather than local interpretation of the economy: jobs, public services and housing are short at a national scale because of the millions of immigrants in Briton as a whole.  This national view is hardly surprising in an economy which has been highly integrated since the 16th century.  We should not lose sight, however, of the hostility to immigrants in areas where there are many EU citizens, such as those working in agriculture and food processing in East Anglia.  The slave conditions under which East Europeans are employed there appear to British-born working class people, who have decreasing number of these jobs, as caused by the immigrants.  A similar point could be made about the huge Brexit vote in outer east London where there are many recent migrants both white and non-white, as well as many black Britons.

A third complication is that some black working class people voted for Brexit, apparently using the same argument as whites: immigrants are competition.  This suggests that the real racism which articulates the view of many whites is underlain by economic competition common to the whole working class irrespective of ‘race’ or nationality.  However, the very poorest areas in England and Wales mostly voted Remain, in part because of the vote of BME people.

British working class hostility to immigrants is, of course nothing new.  In the 19C many English workers were hostile to Irish immigrants, in the late 19C east London trade unionists were hostile to east European Jewish migrants, and in the 1950s and 1960s immigrants from the Caribbean and south Asia were met with hostility and exclusion.  In the last few decades, surveys of British working opinion have consistently shown high levels of hostility to immigration.  In the last ten years, this feeling has been ably articulated and exploited by UKIP (Ford and Goodwin, 2014).  While UKIP won only one seat in the 2015 general election, it is now the second party in the majority of Labour-held constituencies.  It has many local councillors, concentrated in the poorest areas.  In these areas UKIP’s rise has been aided by street actions and attacks on Muslims by fascist groups such as the EDL and BNP (Rotherham, close to where I live, is a case in point).  The hostility to immigrants underlying the working class Leave vote therefore has a strong historical basis.  The referendum campaign and result, however, have reinforced and articulated this sentiment and projected it into national politics with a virulence, which is perhaps unprecedented in British history.

A theoretical starting point for me is a pragmatist view of justice and social practice (Gough, 2010).  Most political discourse, including on the left, proceeds on the basis that social actors have ‘interests’, determined more or less by their existing lives, on which their political views and values are based.  The task of political parties is then to promise to meet some of those interests – a ‘consumer sovereignty’ view of politics.  But ‘interests’ have no meaning outside of a feasible means of achieving them (thus everyone in England might want to live in a pretty cottage in the Lake District, but this is a meaningless interest).  So in examining social values and views, we need to look at what feasible strategies are available for people to achieve them.  The feasibility of the strategy depends on the social-political situation and the resources and power that different social groups have within it.

Working Class strategies

What are the underpinnings of the competition between workers articulated by nationality and visible difference?  Here, we need to step back and consider the most basic relations of capitalist society as such (in all times and places), the position within this society of the Working Class (Lebowitz, 2003), and the consequent strategies available to workers to improve their lot.  There are three basic strategies to maintain or improve employment and consumption positions available to Working Class people in fully-capitalist societies (Gough, 2010):-

(a) The liberal and neoliberal strategy

This is to compete with other workers for given jobs, public services and housing.  The supply of these things in liberal ideology is determined by market forces which are not susceptible to political influence.  This competition is therefore a zero sum game.

Workers’ competitiveness can be developed in two modes, respectively individual and collective:

(1) First, cultivating the competitiveness of the individual worker or their household against all others.  This is done by making one’s labour power better for potential or actual employers, through for example working hard, ingratiating oneself with the boss, or through undertaking training.  It can be done through an individual’s cash within housing markets or even in accessing better public services.  This is the ‘aspirational’ or ‘entrepreneurial’ individual beloved of neoliberal ideology.

(2) A second mode of competition is to compete as a group: to unite with others constructed materially and ideologically as ‘the same’ against groups constructed as the Other; the Other is to be excluded, through essentially political means, from jobs, public services and housing.  This divide can be based on gender or age.  It can also be based on ethnicity, nationality or ‘race’.  The history of capitalism internationally is depressingly replete with examples; indeed, one can say that this type of competition between workers has been and is the rule rather than the exception.  This mode of competition is, however, in contradiction to the fundamental wish of capital to have free access to the entire world working class, to render all labour power abstract – abstracted, that is, from social distinctions like gender, age, nationality, ‘race’, ethnicity or religion.  The dominant group of workers thus has to use political means, acting against a ‘free’ labour market, to carve out or maintain their privilege: sometimes trade unions controlled by the dominant group (men, whites, etc) imposing discriminatory agreements and practices on employers, sometimes the state (for example immigration controls, or white citizens’ influence over local authority housing or housing markets).  In this sense, this strategy is against liberalism and neoliberalism by restricting the ‘free’ labour markets desired by capital.  But it also reinforces liberalism and neoliberalism by weakening the solidarity of the Working Class as a whole and consequently its ability to resist capital.

(b) The social democratic strategy

Workers actively collaborate with capital, partly mediated by the state, to construct a more productive economy, better quality public services and a better housing stock.  This is pursued partly within workplaces, firms and industries, with workers receiving respect and decent wages and conditions from the employers in return for active commitment to the labour process.  The influence of workers here is often, though not always, through trade union representation.  It is pursued partly through the state: substantial levels of taxation of capital, and good quality public services which benefit both capital and citizens.  The housing market, and property and land markets more generally, are strongly regulated by the state, and forms of cooperative and social housing play a major role.  Social democratic parties, whose electoral base is the working class, play an important role in the state. This strategy, in sharp contrast to the liberal ones, involves collective organisations of the Working Class.  But these collective organisations do not aim to fight capital, but on the contrary to collaborate with it for shared aims.  ‘Efficiency’ and ‘fairness’ go hand in hand.

(c) The socialist strategy

This proceeds through struggle by collectives of workers against capital, and against the state to the extent that it expresses the logic of capital.  Better jobs, public services and housing are to be obtained either at the expense of capital, through greater controls over capital, or through public provision. These collectives include trade unions, social movements, residents’ groups, one-issue campaigns and socialist parties.  These collectives initially emerge from local associations and local concerns.  The latter may adopt sectionalist and exclusionary politics (a2 above).  But they may also develop towards increasing inclusion through socially –and spatially– wider practices of cooperation; and if they do, they become more powerful and effective.  This class strategy is based on the premise that competition between workers, (a), is a zero sum game.  It also notes that social democratic strategy leads to highly uneven benefits to workers (socially, spatially) which are, moreover, vulnerable to capitalist crises whether at the workplace, local, national or global scale.

It might be added, parenthetically, that in the history of capitalism there are two other strategies used by workers to secure their livelihood: migration from Europe to the colonial settler countries; and a strategy of ‘self sufficiency’ of the household or a small community, an anarchist utopia, either on cheap rural land or in cheap housing in the city.  But these two strategies obviously offer nothing to the contemporary British working class.

Working Class strategies in Britain since the 1970s

How does this analysis help us to understand the referendum campaign and result, in particular the appeal to so many people of opposing ‘immigration’?  Here one needs to consider the period since the 1970s during which neoliberalism has become dominant.

Socialist practice was strong in Britain from the late 1960s until the mid-1980s: trade union and workplace actions, social movements, collective struggles over public services and housing.  But since the defeat of the miners’ strike in 1985, these struggles have been much weaker, with the partial exception of ecological struggles.  Crucial in this evolution has been the deepening rule of value in the Marxist sense.  Workers have accepted wage cuts and job losses because the firm is not making sufficient profits.  Public spending cuts have been accepted because the fiscal deficit ‘has to be reduced’ and the public debt ‘has to be paid off’. The invisible nature of surplus value has enabled corporations and the rich to hide their rapidly-increasing wealth, extracted from the working class, and to remove it from states’ taxation.  Thus the idea of opposing capital has appeared increasingly unrealistic.  In consequence, the ideals of solidarity across the working class have been weakened, and new generations have hardly encountered them.

Mild social democratic government interventions have appeared in partial opposition to neoliberalism, responding to Working Class dissatisfaction and also to contradictions of neoliberalism for capital.  Since the 1970s, there have been innumerable local economic interventions of a mild social democratic character.  When Major replaced Thatcher after the poll tax revolt and Tory tensions over the EU, he steered slightly to the left during his 1990-7 tenure (Council Tax, ‘community-led and holistic’ urban programmes).  The New Labour government of 1997-2010 introduced a large number of social-democratic measures: the minimum wage, Sure Start, area-based poverty programmes, devolution to Scotland and Wales, the English Regional Development Agencies, Regional Spatial Strategies, Local Strategic Partnerships, and neighbourhood empowerment.  But these were hobbled by their feeble funding and by their neoliberal integument.  Urban programmes were applied in a spatially selective way, so that most poor neighbourhoods got little or nothing.  Where neighbourhoods benefitting from urban funding had large BME populations, white people in the same locality sometimes perceived this as favouritism towards BME people, exacerbating racist sentiment (Bradford was a notable example).  Devolution to neighbourhoods tended to exacerbate competition within the working class.  At any rate, many of these programmes were abolished by the coalition government in 2010.  Blair’s promise of ‘stakeholder capitalism’ appeared to offer something to workers, but proved a chimera.  The Working Class in recent decades has therefore had little encouragement to rally behind a social democratic strategy.

The decreasing credibility of socialist and social-democratic strategies among the Working Class has left only liberalism.  Most people are pragmatic rather than ideological in their approach to economic questions, and liberal strategies have increasingly appeared as the only feasible ones, by elimination of the others.  The individualistic approach, a1 above, has appeared feasible for the middle class and some of the upper working class, the ABC1s.  But it has held no promise for the rest of the working class.  Training, self-advancement and self-promotion are useless in an economy of deskilled, low paid casualised jobs.  Public service cuts cannot be got round by going private.  House purchase is impossible.  Thus the anti-immigrant strategy, a2, becomes the only apparently feasible one for the C2DEs (Worth, 2013).  This suggests a reason for the pattern noted earlier, that ABC1s mainly voted Remain while C2DEs mostly voted Leave.  Both groups are seeking to compete with other workers for jobs, services and housing; but whereas the ABC1s can aim to compete as individuals, many C2DEs can see no option but to compete by nationality and ‘race’.

To be sure, the economic-political strategies available to Working Class people are not the only cause of working class xenophobia and racism.  The media, not only the notoriously rightwing press but also the main TV channels, has for the last 40 years kept up a continuous stream of anti-immigrant, anti-refugee and blatantly racist ‘stories’.  In the Sun, Mail and Express these completely dominate coverage of politics (column inches, front pages), with the direct implication that ‘immigrants’ are the dominant cause of people’s problems.  This line of propaganda was reprised by the stars of the Leave campaign, with the chorus of the Sun, Mail and Express fortissimo.  The impact of this propaganda is not, however, an independent ‘factor’ in creating anti-immigrant sentiment.  Messages from the media and politicians are not indifferently and passively absorbed by people; a message is powerful to the extent that it chimes with people’s views based on their own personal and collective strategies.  In this case, anti-immigrant propaganda from above had resonance with the strategy of excluding immigrants developed by working class people themselves from their perceptions of the alternatives.

(ii) Working class anti-statism

Opinion polls suggest that the Leave vote was partly based on disillusionment with the state (in which I include all spatial scales of the state), with government, with the politicians and with their acolytes and ‘experts’.  The Leave campaign’s slogan, ‘Take back control’, and its attacks on ‘the establishment’ and ‘experts’, can be understood as appealing to this anti-state sentiment.  This disillusionment had two notable effects within the referendum debate.  First, the EU itself, qua a level of the state, was regarded as either useless or malignant.  Secondly, mainstream politicians and functionaries, both British and international (Lagarde, Obama, EU prime ministers et al.) who argued for Remain were simply not believed.

This disillusionment was, like the hostility to immigration, a product of 40 years of neoliberalism.  Neoliberalism has had two distinct effects here.  First, neoliberal ideologues have consistently preached that the state is an obstacle to prosperity.  The state should be reduced not only quantitatively (taxation and spending) but also qualitatively, in regulating, coordinating and guiding.  The Leave campaign drew strongly on this ideology, in pointing to the supposed financial costs to Britain of EU membership, the EU’s supposed profligacy, and the EU’s ‘bureaucracy’ (read laws and regulations) which allegedly strangles business with red tape.  The Remain campaign was too much itself enmeshed in this anti-state ideology to point out that many EU regulations are beneficial to workers and the environment, or to the benefits of EU regional funds to poor regions in Britain.  It presented the benefits of EU membership solely as the single market in goods and services, that is, absence of state regulation of trade.

Secondly, and more importantly, forty years of neoliberalism in Britain have seen both national and local government (and in a minor way, the EU) unable to protect jobs, public services and affordable housing.  After decades of such failure, despite endless promises to do the opposite, a reasonable conclusion is that the state is useless for Working Class people (Gough and Eisenschitz, 2006: Ch.5).  The chronic broken promises and outright lies of politicians which are required by neoliberal government have added further fuel to this fire.  The result is a generalised contempt for the state and its representatives.  The EU referendum gave working class people an opportunity to express this contempt.

Interestingly, several recent referenda in Britain concerning local and regional government have demonstrated the same anti-state attitude.  The New Labour government held a referendum in the North East of England to set up an elected regional government, something never previously existing in England.  Despite the North East being chosen for seeming to have the strongest regional identity and anti-Westminster feeling, the proposal was heavily defeated.  Surveys of opinion showed that a major reason was that people didn’t want yet another level of the state, with its attendant expense and bureaucratic meddling.  Similarly, most of the referenda in the North and Midlands to set up mayors in cities have been defeated, in contrast to the positive vote in middle-class dominated Bristol.

In short, if the state fails over forty years to protect their living standards then working class people, given the opportunity, will minimise the levels of the state ruling over them.  This is a crisis, among other things, of the legitimacy of the state.

(iii) Nostalgia – but for what?

Voting in the referendum was strongly differentiated by age: across the classes, young adults voted to Remain while middle aged and older people voted to Leave.  This suggests that  motivations were based not only on the current political and economic situation but also on life time experiences.  The reaction to the result from many Leavers, ‘we’ve got our country back’, suggests nostalgia for an idealised good society in the past.  On the part of older white working class people, this nostalgia seems to focus strongly on a real or fantasised mono-ethnic society and culture.  Some white people in localities with a now large BME population express this as ‘no longer feeling I belong here’, feeling excluded by visible expressions of BME cultures (Ford and Goodwin, 2014). This has obviously fed into ‘anti-immigrant’ sentiment.

This nostalgia for a white past needs some analysis, however.  The implied historical time period – better times in the postwar boom, deterioration since the 1970s – suggests that the positive feelings about the earlier period may been grounded in its greater prosperity, better public services and far better housing supply: the (imagined) period of mono-culturalism correlates with better economic and social conditions for working class people.  The sense of loss of ethnic-cultural homogeneity may then stand in for anger about deterioration of material life, particularly as the former is easily visible whereas the latter is molecular and obscure.  Similarly, the nostalgia for a white Britain has a strong element of loss of neighbourhood community.  But the latter is largely a product of long term tendencies in social life in capitalism, deepened by neoliberalism with its individualisation of the Working Class, longer hours of waged work for those that have it, and deterioration of public services (for a more nuanced argument, see Gough and Eisenschitz, 2006: Ch 6, sections 1-3).  These considerations direct us back to political-economic strategies.

Implications for the left now

The Labour Party, at least since Blair, has had a de facto strategy of substantial immigration to Britain, both of skilled workers (to meet endemic and chronic skills shortages) and of semi-skilled and unskilled labour (to fuel the expanding low wage sector and further reduce wages and conditions in it).  The party leadership, aware of working class opposition to immigration, has never spelt out this strategy, and has orchestrated pieces of political theatre to demonstrate that it is keeping out immigrants, especially refugees.  Many backbench Labour Party politicians have been more forthright, calling for more barriers to be erected to immigration, at least of non-skilled workers.  Even before the referendum result was known, leading Labour politicians were joining in this refrain, and since the referendum this idea has spread on the left.

Many on the left argue that stronger restriction of immigration would have little, or negative, impact on the jobs, services and housing available to working class people.  As a short to medium term prediction, I am rather dubious about this; it may be true in some localities and regions, but it is probably not true in others.

Others on the left, including Jeremy Corbyn and the far left groups, argue that freedom of movement of the world’s workers is a right, all the more so at a time when capital (money, productive, commodity) has unprecedented freedom to move between countries.  I agree with this argument.  Anti-racist campaigns, led by BME people but involving whites wherever possible, are vital: to welcome refugees and migrants, against restrictive immigration laws and procedures, against police racism and deaths in custody, against racial or ethnic discrimination in employment and housing, and against media racism.  But my analysis above shows that, unless they are convinced of a socialist economic strategy, many working class people will reject the Open Borders argument.  I have argued that the hostility of most working class people to immigration is not primarily based on ideology or discourse, even longstanding imperialist racism or the poisonous propaganda of the Tory press.  It has been adopted as a survival strategy by many working class people because socialist militancy, social democratic reforms, and individual aspiration and enterprise have failed to deliver the goods, whereas on the surface of things restriction of immigration promises to deliver.  There is no chance now that they will be shifted from this view, and from the clutches of UKIP and the fascists, unless they become convinced that a different political economic strategy is feasible.

An essential task of the left in fighting xenophobia is therefore to develop struggles against austerity and for decent jobs, public services and housing (Worth, 2013).  To the extent that even limited victories are won, more people can be convinced that this is a viable strategy for dealing with their problems.  In other words, to make a socialist approach of solidarity and collective good hegemonic in the working class, a long period of struggle around concrete material issues will be needed.  These struggles can gradually demystify the rule of value: the ‘need’ to reduce the fiscal deficit; the ‘impossibility’ of taxing corporations and the rich; the ‘greater efficiency’ of private firms than the public sector; the imperative of the profit rate and payment of dividends by industrial and commercial firms; and ‘competitiveness’ through absolute surplus value.

As to the anti-state sentiment in the working class, socialist strategy argues for a greater role for the present state: higher taxation of corporations and the rich, expanded public services and social housing, greater regulation of business, public ownership of (at least) utilities, and public investment in green infrastructures and housing.  Since all of these are demonstrably beneficial for the Working Class, it is feasible to overcome the anti-statism which neoliberalism has bequeathed.

My argument that anti-immigration and anti-state sentiment is based on working class people’s real experience, and that these reactionary viewpoints can be overcome through class struggle, corresponds to Marx’s view of bourgeois ideology and its critique (Critique of Political Economy; Capital, Vol 1, Ch 1; Geras, 1972; Ollman, 1993).  Workers’ view that they need to compete with others to improve their lot, is both illusory and real.  Illusory because it cannot substantially and in the long term improve material conditions; real because there are real social processes involved —labour and housing markets, the capitalist labour process, government budgets— which encourage competitive behaviour.  Marx’s critique set out to show the deep social relations— exploitation, indefinite capital accumulation, uneven development— underlying these appearances.  But he also argued that this critique is academic unless realised in concrete, material class struggles, which can begin to challenge and put in question the fundamental social relations of capitalism (Colletti, 1972).

 

References

Colletti, L (1972) Marxism: science or revolution?, in Blackburn, R (ed) Ideology in Social Science, London: Fontana/Collins: 369-377

Ford, R and Goodwin, M (2014) Revolt on the Right: explaining support for the radical right in Britain, London: Routledge

Geras, N (1972) Marx and the critique of political economy, in Blackburn, R (ed) Ideology in Social Science, London: Fontana/Collins: 284-305

Gough, J (2010) Workers’ strategies to secure jobs, their uses of scale, and competing economic moralities: rethinking the ‘geography of justice’, Political Geography 29 (3) 130-9

Gough, J and Eisenschitz, A with McCulloch, A (2006) Spaces of Social Exclusion, Abingdon: Routledge

Lebowitz, M (2003) Beyond Capital: Marx’s political economy of the working class, 2nd edn, Gordonsville: Palgrave Macmillan

Ollman, B (1993) Dialectical Investigations, New York: Routledge

Worth, O (2013) Resistance in the Age of Austerity: nationalism, the failure of the left and the return of God, London: Zed Book

I would like to thank the many friends who have sent me comments on an earlier version of this piece.  I would particularly like to thank Rory Rowan, Paul Usherwood and Maureen Roshier for ideas which I have tried to integrate into my argument.  JG

This was originally written as a ‘blog post’ but without a blog on which to be posted. It then appeared on a Verso blog with the introduction: In the latest in our series of blog posts which aim to critically analyse the Brexit vote and it’s implications, James Gough, Senior Lecturer in Town and Regional Planning at the University of Sheffield, examines what the racism and xenophobia of parts of the British working class means for contemporary left strategy. [link: Jamie Gough ] A shorter version will be published in the next issue of  Capital and Class, in a special symposium on Brexit. Do comment below and/or contact Jamie direct on jamie.gough [at] sheffield.ac.uk  I am grateful to him for agreeing to this further dissemination. ME

 

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Risks of Haringey’s #HDV

5 April 2017 I am one of those invited to give evidence at a Scrutiny Committee meeting today, looking into the Council cabinet’s proposals to set up a Haringey Development Vehicle #HDV.  [For background, see my previous post and the Council’s web site.]

evidence from Prof Michael Edwards, UCL Bartlett School of Planning, m.edwards@ucl.ac.uk  [ and later updates at the end ]

My comments are mainly about [some of] the risks and uncertainties which the Council confronts. In this I’m drawing on experience since my first professional job working on the economics of Milton Keynes, through a career of consultancy, research and teaching on the economics of planning and property development. In particular I set up and ran for 15 years a Masters programme on property development and planning, initially with a European scope but now more broadly international. I have also learned a lot from being involved in the King’s Cross development over the last 25 years, and the GLA London Plan process from 2000 onwards. I’m a member of the Highbury expert Group on Housing Supply.

But first I want to make a comment as a resident. I have lived in Seven Sisters Ward for 14 years. I am a regular reader of the Council’s glossy magazine which comes through my letter box and I also get periodic emails from the Council. I have read draft Town and Country Planning documents as they appear and have made representations on some of them. But I have never been aware of, let alone consulted on, the HDV proposal and I think it’s impossible that I would have missed an announcement about it, given my professional interest.

Risks

The Council’s Business Case of 2015 was prepared before the EU referendum and before the numerous changes in housing and planning law which were enacted in the Housing and Planning Act 2016 and trailed in the White Paper recently released. As a result of these changes in the economic and political environment the Council’s decisions have to be tested against a much wider range of possible circumstances than must have seemed likely in 2015.

The economy of the UK is very weak, with low investment; what little growth we have being driven by migration and expanding household debt and no clear prospect that we’ll be able to take advantage of a devalued pound to increase our exports. Many of our export sectors in finance, insurance and related professional services are directly threatened by brexit while others – like the university sector, a huge earner of foreign exchange, are threatened by visa restrictions. We share with Greece the decline in real incomes in the last decade.

We thus need to consider the possibility that the UK economy will fail to grow and may contract in the coming decade. Furthermore the effect of inflation of import prices leading to higher interest rates would both impoverish an indebted population and change balance of power within the HDV.

The other contextual factor is related to housing policy: it keeps changing in ways which make it ever harder for councils to resume house-building. That’s one of the reasons why Haringey has proposed the HDV. But it seems quite possible that government will find ways of extending the Right to Buy to Council-owned companies or in other ways inhibit the efforts of London Boroughs to circumvent government policy. Although the Minister has backed off the RtB threat recently we cannot be very confident.

So what are the risks we should be looking at:

  • The risks of debt exposure of the HDV. We are told that the Investment Partner (IP) will match the value of the Council’s successive transfers of property with injections of equal amounts of its own equity finance. Then on top of that the HDV will borrow the money to do its developments. Can the HDV borrow through the Public Works Loan Board (at about 2% currently) or would it have to pay open market interest rates of perhaps (7-8%)? I’m not a local government finance professional but I doubt whether a private company would be eligible for PWLB.

In any event (whatever the interest rate) if interest rates then rise, it could indefinitely postpone the moment when Haringey begins to receive 50% of the profits from the venture. (We are told that the Council would receive profits only after all debts are repaid.)

  • All the work of managing the HDV and the property portfolio handed over to it on day 1 would be undertaken by the IP (Lend Lease). This would presumably mean that the IP is expected to charge the HDV with its costs, and these costs would undoubtedly include some level of profit to themselves on each task performed. The IP would thus be enjoying steady profits from these operations while the Council would gain no profit share from the HDV until much later, if at all.
  • If the government goes ahead with measures which would impose the Right to Buy on sub-market dwellings produced by Council subsidiaries, the HDV could be losing units which it had made such sacrifices to produce.
  • The Council’s cash flow under the HDV regime would, at least initially, fall because the rental income from its commercial property portfolio would instead flow to the HDV. The leader of the council in her recent article (extract below), implicitly accepts this prospect, but expects it to be made good by growing income from Business Rates and Council Tax. That may be so, but we ought to be able to see the figures.
  • A final risk which I consider should be explored is what happens if and when the IP  decides to sell its share. We are assured by the Council Leader that Haringey would have to consent to any such sale. But if economic conditions become very adverse and there are few willing buyers the Council might not have much choice. I raise this point because we have seen examples, especially in Germany, of large portfolios of rented housing falling into the hands of hedge or private-equity funds of the very aggressive kind which then exert intense pressure to raise rents and evict those who cannot pay. Rather less likely, though possible, is that the Council sells its share, or part of it.

I have listed all these risks because they appear to me to be possibilities which should be explored before the scheme is finalised. Perhaps they have been explored. Your committee and the general public at least need detailed reassurances and surely should be able to scrutinise the cash flow projections which correspond to them.

Alternatives:

Among the alternatives which should be explored I am not at all happy that the set is wide enough or serious enough.

The “do nothing” strategy Option 1 Base Case gets little attention in the Business Case document. But it could really be the best strategy in current conditions insofar as “regeneration” on current models almost invariably leads to a reduction in social rented housing. (Assembly report PDF) It would, in that event, maximise the Council’s capacity to house those in greatest need including the homeless, while not meeting the Opportunity Area targets for total dwelling numbers.

This would combine well with a more piecemeal approach: developing individual sites or estates as an when it can feasibly be done in the changing economic and policy environment. If political condition improve, for example, the Council would be able to borrow and build in the normal way. If conditions get worse, the Council would at least have battened down the hatches.

There is a lesson from King’s Cross here. Camden negotiated one huge outline planning permission for what is now known as King’s Cross Central (KXC) with one huge S106 agreement alongside it. The local community groups called for the Council to give permissions stage by stage but were defeated. Under intense negotiation the scheme was to have about 41% of affordable housing units of various kinds, with some co-funding from the HCA (from the Labour Government). In the first half of the development this went well. But, after HCA funds for affordable housing were severely cut back by coalition and conservative governments, the developer exercised a clever clause in the S106 agreement which enabled them to reduce the social housing % in the later phases. Camden was tied down to a 2006 contract and had to accept a reduction to about 31%.

Had the permission been split into phases, a fresh negotiation would have taken place for the later phases and, since market values for homes had escalated enormously, it would have been possible to negotiate at least the same level of affordable housing, and probably more.

I tell this story not because there’s a likely parallel in Tottenham, but because it illustrates the dangers of committing an entire long-term programme in one agreement.

Finally we should be looking at 2 other alternatives:

A Development Corporation. London has two already and why don’t we explore how good a third one would be for Haringey? Although there is criticism of the level of community engagement in the 2 existing ones, they are at least governed by accountable bodies, with planning meetings open to the public and fully subject to FOI. They also have the attraction of being able to draw on GLA funds.

Finally the study should explore a majority-owned public-private company, perhaps on the model of the Sociétés d’économie mixte in France, hundreds of which have been operating for decades. The law prescribes that public bodies, taken together, must have a minimum of 51% control, and maximum of 85%. It’s a distinctly lower level of privatisation than the 50% proposed here because the public owner can ultimately break a deadlock in the public interest. The economist Nicholas Falk has also written compellingly on German and Dutch models which we should be learning from: [ Main book with the late Sir Peter Hall 2014 on learning from Europe ]
[ 2014 link ] [ 2017 link ]

Extracts from: Cllr Kober article 19 January 2017 http://www.haringey.gov.uk/news/article-council-leader-cllr-claire-kober-haringey-development-vehicle

That transfer of land constitutes the Council’s 50% equity stake in the development.  The private partner then matches that stake with an equal cash equity contribution, cementing the 50/50 nature of the partners’ relationship.  The vehicle will then borrow whatever additional funds it needs to pay for development, and do the building work.  The proceeds from development are then used first to repay the borrowing, and what’s left over is split 50/50 between the partners. [I was told in today’s meeting that this has since been ‘clarified’: the IP’s equity contribution would not be made in one go, all at the outset, as this text implies, but would be advanced as needed, project by project.]

and

First of all, I’m determined that council budgets – and the services which depend on them – are protected.  The first principle has to be that we are no worse off.  Where the council loses rental income from commercial property transferred into the vehicle on day one, we are absolutely clear that the vehicle will make good the difference.  As the vehicle’s work goes on, we will very closely manage both our General Fund and Housing Revenue Account, always ensuring that any impact is manageable.  In the long run, our costs will be greatly outweighed by the returns from development and the increases in council tax and business rate income. 

For further source material see previous blog post.

Later addition, after the meeting.

  1. A courteous committee which asked a lot of questions. It is amazing how little they have been able to find out about the HDV after a year or so of studying it. How can “scrutiny” be applied to something so inscrutable?
  2. I was delighted to hear (informally, in a coffee break) that they had interviewed Pete Redman (of Trade Risks, and the Highbury Group). Apparently, while broadly sympathetic to the Cabinet’s ambitions, he had favoured splitting the one huge project up into smaller ones (one of my main points) and had also made strong criticism of the legality or necessity (I’m not sure which) of the level of secrecy in which the negotiations are shrouded.
  3. They are interested in the continental models and in the experience of other UK Councils.  I told them about Janice Morphet’s work on English LHAs and they might want to meet her.
  4. The other witness this morning was Gail Waldman of the Highgate Society who was extremely knowledgeable about borough affairs and the Local Plan system and policies. She has promised to send me her written submission and I’ll seek her permission to link to it. Very impressive indeed.

Later 12 April 2017 a good blog post by Doug Thorpe of RHN:  http://radicalhousingnetwork.org/a-2bn-gamble-with-public-assets