The new Governor of the Bank of Japan, Haruhiko Kuroda, has announced $1.4 trillion of quantitative easing over the next two years. The FT reports (Japan starts monetary revolution, 5 April) that the BoJ will double Japan’s money supply in an effort to end decades of deflation, and that Barclays estimate this will be a 1% growth in GDP each month for this year followed by 1.1% monthly growth in 2014.

This bold move by the BoJ will certainly cause a reconsideration of strategy by both the Bank of England and the European Central Bank, both of whom recently announced no changes in their QE policies.

The UK Treasury will also show an interest, but perversely for a different reason. John Kay has written (Politicians bow to pressures to bend data, 13 March) about the growing tendency by the UK government to be very selective and misleading in its use of economic data, and to be fair he points the finger at previous governments too. Recently the UK government made its borrowing figures look better by counting as government income the extra interest payments that the BoE are receiving following its QE measures, while not counting the QE amount itself as increased public sector debt.

So the more QE is pumped into the UK, the better the government’s deficit will look on paper.

But can any increase in money supply be directed at jobs and sustainable growth, or is it doomed to be blown on asset price inflation and another bubble crisis? The USA approach to QE has changed recently to focus on employment levels as well as on inflation, and there have been discussions in the UK that the new Governor at the BoE this summer will somehow try to follow suit, with some early moves in that direction already started. Certainly the BoJ have accepted that inflation is better than deflation, and a modest growth in inflation in the UK, if accompanied by growth in the jobs market, might encourage personal savers to start spending more again at a time when UK personal savings are at their highest level since 2004.

The experience in the UK to date has been that QE has helped some large firms build up very strong cash reserves, but their finance directors have been mostly sitting on their hands waiting to see how the economy will develop; and small and medium firms have been denied almost any bank credit other than high-interest overdrafts and credit cards. The need now is for QE to reach smaller firms and not just the corporate head offices.

Link: http://www.johnkay.com/2013/03/13/politicians-bow-to-pressures-to-bend-data

There is a proposal to cap any bonuses paid by EU based banks next year to senior executives. This bonus cap will apply to EU based banks worldwide, and for any non-EU based banks to all their offices within the EU. Bonuses will be limited to the annual salary amount or to double the salary figure if shareholders agree.

In a report in today’s FT, (US banks put City on bonus cap watch, 2 April) it is reported that some US banks and institutions are considering moving their Europe, Middle East and Africa operations outside of the EU from London to Dubai or similar cities to be outside of the reach of the new bonus cap law. No-one is quoted, but JPMorgan, Goldman Sachs, Bank of America and Citigroup all get a mention as big employers in the City of London.

The UK chancellor George Osbourne is lobbying Brussels to exempt these US companies from the EU bonus limit. However, it might be worth looking at this in the cold light of day to ask the economic question whether such a bonus cap exemption would be good or bad for the UK?

On the one side we are told that these US banks and financial institutions are big employers in the City of London and that there would be fewer UK jobs if these firms relocated to the Middle East or South Africa to run their European operations from a distance.

But perhaps there is another argument, that excessive bonuses are bad for the UK because they distort the economy. These bonuses, and their associated very high senior salaries, have grown massively in the last 20 years in central London to the extent that they now distort the national economy and hold back sustainable growth. The relatively small number of very high net worth individuals in central London has distorted the property market as well as the retail and hospitality sectors. These distortions cause micro local benefits (“few winners”) but macro dis-benefits to the rest of the UK (“many losers”) in terms of inefficient use of resources due to significant and unsustainable overheating. Further, these extreme income inequalities of themselves can cause bad social and economic outcomes, as argued in the book The Spirit Level by Richard Wilkinson and Kate Pickett in 2009. Finally, is it a credible business proposition that tens of thousands of loyal staff and their families would be relocated to Dubai so that a few senior executives could get to keep their extreme bonuses, and all done with no adverse effect on these businesses when they have to start making investment decisions about people, organisations and places that are now four thousand miles away.

If we are serious about rebalancing the UK economy then the greed of a few must be limited to protect the jobs of the many.

The recent crisis in Cyprus, which started with the banks and is now spreading to the whole economy, perhaps holds lessons for other EU countries as well.

Firstly, the sense of solidarity within the EU ‘project’ has been undermined. The bonds between small and larger states, and between northern and southern states have been severely weakened. The animosity to Germany and the Netherlands is palpable. Cypriots might also wonder if Britain, the colonial power up to 1960, perhaps should have been a more active friend and not just watched from its bases. The behaviour of Greek banks in off-loading their difficulties into Cyprus was also felt to be hostile.

Secondly, the ‘troika’ of major economic institutions, here the IMF and the ECB and the European Commission, did not give out a strong sense of control, purpose and frankly competence in the handling of the crisis. This was most evident in the initial negotiations where people with less that €100,000 in their bank accounts would have lost money. Technically the international bank guarantee for smaller balances was not being dishonoured because the lost funds were to be taken as a tax. Technically. But public trust and confidence in bank guarantees has been undermined.

Thirdly, banks are not as safe as they were. In 2008 the major economies moved heaven and earth to save the banks from their errors. The impact in the national debt of the USA, UK and elsewhere is still profound and years away from being resolved, and there is significant public anger at the banks and politicians. But now in 2013 the message to banks in crisis is, there are no more business-as-usual bailouts and instead expect closures, redundancies, and bond and shareholders to take a loss.

Finally there is a lesson in economic development in smaller countries. Cyprus has been publicly reprimanded for taking bank deposits from Russia and elsewhere, and for building up the financial services sector of its economy. This sector has now been almost destroyed and Cyprus’ economy will be devastated for years to come. But how different was it to Frankfurt or London? Some commentators have drawn attention to the number of Russian millionaires living in London, buying properties and investing in owning newspapers and football clubs, settling their legal disputes in English courts. The difference between the City of London and the island of Cyprus does not stand up to close examination.

Which brings us back to the first point, the weakened sense of solidarity. I am sure the officials in Cyprus did a clear-headed calculation that staying in the euro zone was the less-worse option when they considered reverting to the Cypriot Pound, probably for bailout reasons. But I am equally sure that if ever that calculation changes in favour of a local currency they will be out in a flash. Now there is no residual sentiment at all for keeping the euro, and sentiment matters greatly in economics.

The Welfare Reform package by the UK coalition government is estimated to reduce the income of the poorest people in society by £18 billion. With the income guarantees provided to elderly people, these cuts will fall hardest on people of working age and their families. These cuts are through a combination of changes: the new ‘bedroom tax’, the changes to Council Tax benefit, the changes to Disability Living Allowance, and the changes to the Social Fund. Driven by a policy of cutting public spending, all these changes take money from those least able to make a sacrifice. Looking further ahead, there will be the Universal Credit changes which aim to combine all benefits and taxes in one monthly payment, but administrative chaos is widely predicted with poor people bearing the real cost of living as best they can for days or weeks at a time with no money. Rights to Legal Aid advice and representation are also being withdrawn. Polly Toynbee in The Guardian summarises these changes well.

Therefore, what might be the best progressive and humanitarian responses to this rising crisis?

Looking back, the best response a few years ago was usually to run a welfare rights and take-up campaign. Many people would gain because they had not been receiving their full entitlement, and an active advice sector could co-ordinate appeals so that the envelope of eligibility was increased. This strategy still has merit, but the forces against it now are much stronger and harsher than before.

More recently, there was a shift in strategy away from take-up towards making work pay. The progressive argument was that people were living in families where unemployment was becoming inter-generational and that instead it was better for people’s health as well as financially for as many people as possible to be working instead. Through measures such as the new minimum wage and working tax credits there was a concerted economic effort to end the poverty trap of benefits and show people that ‘work pays’.

Currently we seem to be in a state of flux, at a point of change. There are still some progressive discussions about reducing dependency and increasing access to jobs rather than to benefits. However, the combination of rising unemployment, reduced levels of tax credits, real-terms reductions in the minimum wage and a casualisation of the labour market have profoundly changed the economic realities of many poor people’s lives.

Therefore dependency might just make a lot of sense at the moment to poor people, if not also to public authorities. It has already been said that 2012 was the year of the food bank. There is also a wider context of growing income inequality in the UK, with increases in higher pay racing ahead of far smaller movements in low pay.

Perhaps the most recent response here is still workable, namely the living wage campaign. This puts pressure on larger employers in particular to pay a decent wage rather than a minimum wage, with perhaps its strongest impact in London. However for a living wage strategy to work it requires more jobs.

Clearly one response to the rising crisis of welfare reform is to campaign for the cuts to be reversed, and though it would have been far better for the cuts never to have been implemented, there are still campaign opportunities which civil society and sections of Parliament can bring to bear on the government to overturn the changes as quickly as possible.

But beyond these necessary reverses, we need to reform the Welfare Reform strategies as well. Work can provide people with meaning, dignity, respect and health. But increasingly in our current ‘flexible’ economy many people’s experience of work, such as long hours, low pay, insecurity and low level harassment is anything but dignified or enabling, and creating more jobs and at a living wage is only part of the solution. We cannot reform welfare without reforming employment.

This morning (28 March) the Construction Best Practice Club in Manchester heard a presentation by Roger Burton, an architect who has applied the Passivhaus principles to his own property.
The Passivhaus standard is probably now THE leading international standard for building a house or flats which are ultra low energy, but still comfortable to live in. These houses need no boilers, no radiators and no fires.
Roger explained the origins of the Passivhaus standard by Professor Wolfgang Feist in Germany in 1991, using basic physics to design homes which are very well insulated.
In England, Building Regulations are expected to be ‘zero carbon’ by 2019, pushed forward by EU regulations dating back to 2002. However, the UK measurement is 46 kWhr/m2.yr for most houses (39 for flats and mid-terrace houses) whereas the Passivhaus standard is 15. This lower figure, as well as substantially saving money on fuel bills, also means that house builders do not need to turn to other “allowable solutions” outside the home to bring down the carbon footprint. A Passivhaus has a much lower footprint to start with.
This leads to a heat load of less than 10 watts per square metre – a 900watt hair dryer is enough for a 90 square metre typical flat or house. Of course, the fuel bills will depend on the behaviour of the residents, but a study of 32 Passivhaus properties (the CEPHEUS project) showed an average figure in real use of 13.3 kWhr/m2.yr, reasonably within the design target of 15. The equivalent expected rate for a Passivhaus retrofit is 25, still lower than the rate for newly built homes after 2019. Details: Roger Burton, nvirohaus, Manchester.

The North West Insider business magazine organised “The Business of Social Housing”, a well-attended event yesterday (26 March) at Salford City Stadium. Attended by directors and senior managers of housing associations across the region, there was a shared concern on the issues of Welfare Reform. The new Bedroom Tax is the immediate concern, closely followed by the new Universal Credit pathfinder pilots which start in the region from 28 April.
Housing associations are already bracing themselves for an increase in arrears, and local authorities are expecting more homeless families to seek their help, at a time when access to Legal Aid is also being further restricted. The social rented housing stock in the St Helens area is 60% 3-bedroom homes, so the local impact of the Bedroom Tax will be very high.
In reflecting on these changes, there was a general sentiment from the speakers that the government had ‘given up’ on strategy and was just focused on cuts without a thought to consequences. The example was given of a tenant who uses a room for medical equipment for home care. Having to give up the room will cause her to use hospital services again, saving Housing Benefit a little to cost the NHS a lot, never mind her quality of life and talk of community based healthcare. Yes, there is a discretionary fund, but most commentators insist it will not be enough to reduce hardship. The overwhelming concensus was that the Bedroom Tax was a ‘London issue’ being crudely applied across the UK. Consequently, Moodys has downgraded the credit rating of the UK social housing sector and it is now on notice with a ‘negative watch’. Which will increase the cost of borrowing for housing associations, another example of narrow-view cuts in one area which lead to further costs to others.
Private renting has grown massively in recent years, partly due to problems in getting mortgages after the credit crunch and partly because social housing providers are being pushed away from public sector grants towards private sector finance. More soon.

Britain’s housing crisis is deepening. This blog from Heriot Watt University is a good analysis of the housing supply crisis in England and especially the south, looking at the limits of the Localism agenda which removed regional plans, and recommends sub-regional Housing Boards. These would be public/private partnerships which auction housing land to developers with a licence, so that house building rather than land hoarding took place. This learns from the successful methods used by some urban regeneration partnerships.

Related to this topic is the news report from The Guardian (22 March) of the political tensions within the UK government on building more homes versus nimbyism. http://m.guardian.co.uk/politics/2013/mar/22/housebuilding-cameron-osbourne-confrontation-tories

The Keep Britain Tidy group organised this ‘Despite The Cuts’ national conference today (21 March) in Manchester, bringing together a wide-ranging audience around new ways of community development in a climate of austerity and cuts in grants. There was a rich range of speakers and workshop presenters, and the organisers plan to publish the discussions as an ebook later. http://www.keepbritaintidy.org
One interesting discussion this afternoon was on whether ‘One Planet’ thinking would be useful in exploring a root cause analysis of citizen-led actions by small community and voluntary organisations. In terms of local environmental projects, for example, we are seeing a trend where ‘waste’ increasingly has a cash value. This could be an income stream for local groups, similar to the benefits already gained by separating out and weighing the aluminium cans from community litter pick events. ‘Waste’ clothing is now worth £2 a kilo, and scrap cars £150.
So perhaps rising world commodity prices due to our current Three Planet living will (to a small extent) help small community and voluntary groups in this new age of austerity. I look forward to seeing the discussions today turn to useful projects tomorrow.

An interesting editorial in yesterday’s (16 March) Financial Times set out some strong arguments for a carbon tax. These include the point that it is better to tax something that is environmentally bad rather than tax things which are socially good such as incomes.

To be fair, there are some issues to be ironed out. A basic carbon tax would be regressive, impacting harder on poor people than richer people. For example, the lone pensioner in a cold and draughty house should not have to pay more for heat. Prof Kevin Anderson at the Tyndall Centre at Manchester University has made this very point, that for equity reasons the carbon footprint of the poorest people in society does need to increase. This would be more than offset by much larger carbon reductions elsewhere.
There would also need to be some industrial transitions for sectors which are either high energy consumers or high CO2 emitters or both.
For the Built Environment sector, cement and concrete production is both a high energy and a high CO2 emitting process. Industry looks for tax and regulatory stability when making investment plans, therefore it would be best to start now with a carbon tax escalator, rising in a pre-planned way year by year, rather than having a carbon tax introduced later in a hasty dash to catch up with economic and environmental pressures.
All the predictions for the coming Budget (20 March) are for a gloomy future of further recession, deficits, debt, cuts and austerity. This is the moment to be seized for low carbon sustainable development, starting with global leadership through a UK carbon tax.

Within the next 10 years, nearly all commercial and industrial waste will be sold, yet currently businesses pay to have it taken away. The old model was collect-move-dump. There is now an immense range of alternative technical options, all the way to hydrogen gasification.
This shift was a very strong message of change from two talks yesterday evening (14 March) by Peter T. Jones OBE, formerly at Biffa and now retired; and by Charlie Browne who leads on waste minimisation for IKEA nationally.
Already waste is being measured in gigajoules / tonne as an energy source, but increasingly because of growing commodity shortages and price rises there is a vibrant recycling market as well. For example used clothing is worth £2,000 a tonne or £2 a kilo. Charlie Browne noted that when IKEA buys a waste bailing machine it gets a full return on investment within 15 months of the capital purchase. Wood waste is shredded and burnt onsite by IKEA to heat air and water.
Peter Jones commented that the “big brands” like Tesco are now competitors to the traditional waste collection companies. These big brand companies are beginning to combine their home deliveries with ‘waste’ removal, only now what used to be ‘waste’ is now a resource with value. This growing market in recycling and reuse supports the closed loop approach of sustainable production and consumption.
The key to innovation in the waste sector, claimed Peter Jones, was the increasing involvement of big engineering companies who were able to de-risk projects and then replicate them at a large scale. The four key elements for success are to understand and organise: the feedstock, the site, the technology, and the end market. But strangely, it is this complexity which is still scaring off investment. However, the existing gate fee business model is collapsing.
Charlie Browne’s top tip to any business was to examine all your bills and invoices and think about how to avoid any waste you find. An example he gave was that IKEA is replacing wooden pallets with paper pallets to save resources and so reduce costs. In Germany they sell their food waste from cafes etc, using a mascerator and then de-watering the product to extract the particulate for sale, eg to anaerobic digestion.

Link: http://www.ecolateral.org (Peter Jones and others)
* The organisers:
#NWSBQ is the North West Sustainable Businesses Quarterly network, which typically meets on a Thursday evening in Manchester city centre. It is hosted by Bruntwood and organised by M4C Sustainability pro bono.