Green taxes and time-wasting filing

Top of the Charts 'Hidden gems' round-up: October 2020

The latest from Resolution Foundation Chief Executive Torsten Bell’s weekly Observer column, Hidden gems from the world of research and academia. Read more of the latest economics and policy research in our weekly reading email, Top of the Charts.


Protect the poor from being penalised by carbon taxes

In those glorious pre-pandemic days we only had climate change to worry about. Post-pandemic, we’ll need to get right back to worrying about it – and actually doing something about it.

On the “doing” front, economists like the idea of carbon taxes to help reduce our emissions. And recent research shows that such taxes can work. Sweden was one of the first countries in the world to implement a carbon tax in 1991, having extended VAT to petrol the previous year. The result was 11% lower transport fuel emissions compared with similar OECD countries.

So good news on the economics of carbon taxes but there is just one, rather big, problem: the politics. The public really doesn’t like them. It was French attempts to raise a tax on fuel on environmental grounds that triggered months of gilets jaunes protests that left Paris in flames.

Rather than give up, the key is to learn the lessons of these defeats. New analysis of the comprehensive Swiss rejection (92% voted against) of an energy tax in 2015 holds some clues. The public was sceptical that green taxes would be effective and worried they would hurt the poor. So the to-do list for eco-warrior economists is to design policies that protect lower-income families and to do a better job of setting out the evidence from the likes of Sweden. After all, it’s fair enough for the public to want some reassurance that there will be some environmental gain for all this tax pain.

Originally published in the Observer.


Still filing your emails? Science says it’s a waste of time

There is a lot of bad news out there. You may have noticed. Some have taken to protecting themselves from updates on Brexit wars, Trump traumas, Covid-19 nightmares and the rest by rationing how much news they consume.

Instead, people searching for safe spaces invest in long reads or, for keen readers of this column, in research into broader topics. But by far the worst news last week in fact came from a piece of research into a seemingly innocuous topic: emails.

The traumatic revelation is that all my vain attempts to keep my inbox under control by filing emails in folders are actively making me less productive. It apparently takes up 10% of the time spent on emails (ie, 10% of our lives) to do this filing. Worse, apparently our filing efforts do nothing to improve the speed at which we can re-find emails when needed. Shockingly, those inbox slobs who just leave everything in situ and search for what they need actually find what they are after quicker than those of us craving order.

Now some of you may be seeing a silver lining here. Maybe an end to the pointless email filing will bring an end to the grim reality that the past decade has seen some of the worst productivity growth since the Industrial Revolution. But before you get carried away, I’ve got some news for you: we email filers are very stubborn. Just like the anti-vaxxers out there, I shall be studiously ignoring the science as well as the news.

Originally published in the Observer.


Remote working? No, we prefer to keep it close to home

Everyone is on the hunt for silver linings to this pandemic trauma. Shop closures were going to end our materialism, but we’re buying more than ever now we can’t go out. Exceptional times would bring us together as a nation, then we stopped clapping and started scrapping about local lockdowns.

The most persistently proclaimed silver lining is that we’ve learned that tech makes full remote working the future. Zoom, Teams and the rest are apparently going to spread out good work across the country with no need for offices or densely populated cities. Parking the fact that less dense living is a climate change disaster, what does history tell us about the impact of big improvements in communications technology? A recent study investigated the case of mobile phones, examining 15m phone calls and texts a day. The question is whether mobile communications substitute for face-to-face meetings, allowing us to build networks in places where we don’t live or work.

But the authors find the opposite – our phone usage is heavily shaped by physical distance, with almost 50% of mobile phone ties formed within a 5km perimeter. Their argument: better communications tech doesn’t overcome the difficulties of forming relationships over distance. People will do more remote working post-crisis, but if we want a more geographically equal country we had better stop assuming it will happen automatically. Zoom isn’t the messiah, it’s just a naughty app.

Originally published in the Observer.


Better late than never – how Rishi Sunak ended up with a plan

Three mini-budgets from the chancellor in four weeks isn’t normal. But then nothing much is these days. This trilogy started at the end of September, with the winter economy plan. The name gives you a clue that this was meant to be the plan for the whole winter. Far from getting through to the spring, the plan’s flagship policy didn’t make it to the end of October before being totally reinvented by the Treasury last week in the third instalment of this economic policy saga.

The policy in question is the job support scheme (JSS), the replacement for the furlough scheme that ends a week today. For those returning to work for a fraction of their previous hours, the scheme pays them two-thirds of their wages for the hours not worked. The chancellor, Rishi Sunak, said its goal was to give businesses “the option of keeping employees in a job on shorter hours rather than making them redundant”. That is the right aim, but the scheme didn’t give many firms that option. It was too expensive, asking firms being hammered by this pandemic to pay a third of wages for hours not worked.

This design flaw was obvious a month ago. As we at the Resolution Foundation pointed out within minutes of the chancellor’s announcement, there’s a reason other short-hour work schemes, like that in Germany, do not ask employers to pay towards the costs during downturns. Government’s response was that our analysis might be right on a spreadsheet but didn’t reflect the real world. You didn’t need a spreadsheet to tell you that the scheme incentivised firms to keep one worker on full time rather than two on half-time, which is not how you reduce the coming rise in unemployment.

On Thursday, the chancellor recognised this reality, slashing the employer contributions from 33% to 5%. What sounds like a tweak is a revamp of the JSS, turning it into a functioning short-time work scheme. The cost to an employer of keeping two staff earning £17,000 on for half their usual hours has fallen from £233 to just £35 a month – an 85% reduction. This will make a huge difference to take-up, incentivising firms to cut hours, not jobs. It won’t be cheap, increasing its cost many times over, but it will lead to lower unemployment and protect household incomes.

So we’ve got to the right place, albeit too late, with the now heavily revised scheme set to go live in seven days’ time. It’s worth asking how this mess happened, because there are lessons for policymakers. Fundamentally, this is a classic case of optimism bias. The hope that the summer pause in the pandemic would last was understandable, but a terrible basis for policymaking. It, combined with talk of a V-shaped recovery, lies behind this painful display of economic policy slowly catching up with the return of the virus. High employer contributions might have made sense if we were phasing out lockdown restrictions, but make little sense when we are ramping them back up.

Optimism bias is something almost all of us are guilty of. In our private lives we tell ourselves we’ll make it on time even when it’s clear we’re running late and it’s a common pandemic survival technique not to admit to ourselves quite how long this will go on.

This same optimism bias explains why it took until Wednesday for the government to confirm that this autumn’s spending review, which was set to hand our departmental budgets for the coming three years, had been scrapped. It’s been clear for months that we’re in no position to plan public spending three years ahead right now, and only placing a lot of value on hope over evidence would make you think otherwise. We don’t know what we’ll be spending next month, let alone in 2024. Underpinning this optimism bias is a misdiagnosis of our pandemic-stricken labour market. We’re regularly told that, while it’s sad jobs are going in sectors such as hospitality and leisure, it’s best for those workers to enter unemployment because they’ll swiftly find jobs in less pandemic-hit parts of the economy. This works in textbooks but ignores the evidence. The UK is seeing the largest rise in unemployment in over a decade. That is driven more by huge falls in the chances of someone out of work finding a new job than by increased job losses themselves. Far from growing fast and hiring, even firms less affected by the pandemic have stopped investing, given the huge uncertainty.

The real lesson here is that, while optimism bias may be a human flaw that we all live with in our private lives, it’s a dangerous force in politics. History shows us that previous pandemics lasted years not months, and that second and third waves were common. In a pandemic it’s fair enough to hope for the best, but policy needs to be set with a closer eye on the painful and messy reality.

Originally published in the Observer.