Silicon Valley, voters and squeaky pips

Top of the Charts 'Insights' round-up: October 2019

The latest from Resolution Foundation Chief Executive Torsten Bell’s weekly Observer column, Insights. Read more of the latest economics and policy research in our weekly reading email, Top of the Charts (sign up here).

Voters know the value of peace, even if politicians don’t

When we think about violent conflicts and how to reduce them, the focus tends to be on military or territorial considerations. Often neglected is the role of economics and its impact in shaping attitudes towards peace.

Everyone wants peace, but we don’t always vote for it. What might make us more inclined to do so? That’s the question asked in fascinating research focusing on Israeli voters who have had a busy year declining (in two elections so far) to give Benjamin Netanyahu a fifth term as prime minister. Academics in California and Israel dug deep into how participating in financial markets (owning and trading shares) would affect individuals’ attitudes and votes.

Before the 2015 elections, researchers randomly assigned financial assets to likely voters, with incentives to trade, before measuring their attitudes and voting behaviour. The results? Getting involved in the stock market shifted voters towards parties more supportive of the peace process, increasing those parties’ vote share by 5 percentage points.

The results weren’t driven by what you might expect: it wasn’t about those holding investments having a financial incentive to favour peace – even those who had sold their assets before polling day were more likely to vote for pro-peace parties. Instead, engaging with financial markets seems to lead to voters taking a broader view of the costs of conflict, placing more emphasis on economic costs over others.

Given that some estimates point to a $123bn 10-year economic dividend to Israelis, and $50bn to Palestinians from ending the conflict, it’s worth learning any lessons we can on how to make peace more likely.

Originally published in The Observer.

Are we really being taxed until the pips squeak?

Who pays what tax on their earnings and how has that changed over time? The answers are crammed into the chart, showing the overall level of earnings paid in income tax and national insurance. Here are the key lessons.

First, we’re all paying a lower rate of income tax than we would have done in the past – tax cuts have been political bread and butter for decades. Actual income tax revenues held up, but only because rising inequality has pushed them up (the rich pay more because they’ve got more of the income).

Second, change has come in phases. The 80s celebrated yuppies – the highest income tax rate fell from 83% to 40% in 1988. The system become a lot less progressive. Later pre-crisis tax cuts were focused on middle earners. Post-crisis, we’ve seen further cuts for middle earners, but the first increases in taxes on the top for a generation, courtesy of Alistair Darling.

The rich do pay more tax on earnings, but far less than they did before Margaret Thatcher got involved. But that doesn’t mean they pay more tax overall – if we looked across all taxes the system is much less progressive and even close to being a flat rate. And the really rich benefit from the fact that you often pay less tax if you get your cash any way other than wages: self-employment, capital gains, dividends or plain old inheritance.

So what happens next? Big choices are coming – tax rises promised under Labour but tax cuts (largely for the top) under the Conservatives.

Originally published in The Observer.

How successful was Britain’s plan for its own Silicon Valley?

Every city wants a cluster, a concentration of high-productivity firms and workers beavering away in a particular industry in a particular place. Proximity means ideas and productivity growing and spreading. Who doesn’t want their own Silicon Valley?

David Cameron certainly did. In November 2010, he announced the “Tech City” programme, aiming to grow a digital cluster in Shoreditch, east London. The plan was to use branding to get firms in, networking to ensure those ideas get flowing with focused support for high-potential firms.

But did it work? Surprisingly, we’re only now getting the first detailed answer, courtesy of Dr Max Nathan, an academic leading great work on what policy does (and doesn’t) do to drive local economic growth.

The good news is that Silicon Roundabout (imaginatively named for its closeness to the large Old Street roundabout) has seen lots of digital firms sprouting up, including Deliveroo. There has been an influx of digital tech firms (think software and hardware), adding to existing creative industry strengths. This higher density of similar firms is exactly what a cluster is all about.

But the policy didn’t raise productivity – for small firms, higher rents may have outweighed the pros of being round lots of other hipsters. More importantly, it’s not clear that the policy drove the cluster, rather than just being a response to it already getting going. As the author puts it: “Instead of catalysing the cluster, policy generally rode the wave.”.

The conclusion? A good bit of PR, yes, but the research reminds us that clusters are born of thousands of decisions by firms and people, which we struggle to understand, let alone influence. If only humans were simpler, policymakers would have a much easier life.

Originally published in The Observer.

Age, rather than class, has come to determine how Britain votes

Forget the David Cameron autobiography or knitted jumper from Granny – we might be getting a general election for Christmas. While Brexit is going to be the obvious dividing line, elections always see broader economic and social trends coming to the fore.

The biggest of these used to be traditional class divides. In 1974, when the two main parties last both got around 40% of the vote, the Conservatives enjoyed a 37-point lead among the upper/middle class, while Labour enjoyed a 35-point lead among working-class voters. By 2017, those gaps had virtually disappeared.

So, if class is no longer the single big determinant of how people vote, what is? Age. While talk of a “youthquake” came to the fore in the wake of the 2017 election, age as a strong driver of which party we vote for has been building for decades. In the 70s, our voting patterns didn’t change much by age but by 2017 a 30-year-old was twice as likely to back Labour over the Conservatives, while a 70-year-old was twice as likely to do the opposite.

In part, these divides reflect that generational gaps have taken on more of a class tinge – those 70-year-olds have over twice the home ownership rates of the 30-year-olds. But that is exactly why age divides in politics are so worrying: they encourage parties to focus on appealing to their age-specific bases when what 21st-century Britain needs is a government focused on overcoming generational divides.

Originally published in The Observer.