Thomas Piketty speaks to the Department of Economics at the University of California, Berkeley on April 23, 2014. Photograph: Getty Images.
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Interview: Stewart Wood responds to Thomas Piketty

The Labour peer and Miliband strategist on how the party would seek to reduce inequality.

Thomas Piketty was in parliament yesterday to discuss his book Capital in the Twenty-First Century with Labour peer and Miliband strategist Stewart Wood. Shortly before the event, I spoke to Wood about Piketty's work and about how Labour would seek to reduce inequality.

Q: How do you think Labour’s existing policies respond to Piketty’s thesis?

A: What Thomas has provided is an intellectual foundation for a lot of the things we’ve been talking about, which is the sense that, particularly in the last 30 years, but more broadly, there has been detachment of wealth-earners and income-earners at the top end of the scale from the rest of the country - and this isn’t just a concern for people on the left who care about inequality, this is a concern for people who care about the health of the market economy, and what’s encouraging is that people on the right of the political spectrum share this worry as well.

What the book suggests is that you have to understand the nature of capital if you want to get the solutions right. We’ve talked about a mansion tax, we’ve been prepared to talk about the top rate of income tax going back to 50p.

We’ve also talked about this horrible word “predistribution”, which is getting at the heart of something that Thomas talks about in the book, which is that if we really think that the drivers of inequality rest with the distinction between capital returns being high and growth incomes being lower than you have to think about ways in the long-term that you can redistribute assets so that people can get access to greater income-earning potential beyond what they just earn in their jobs. That is the biggest challenge for us and that points you in areas to do with education but also areas to do with the workplace, and I think that Labour in the recent past hasn’t taken the idea of the workplace as seriously as I think we now need to.

Those are the areas of focus, and in a mansion tax and income tax we’ve got some response on the tax agenda. There are areas in education and human capital where we need to respond further.

Q: Beyond a mansion tax, what about wealth taxes more generally? Is that something you’ll be looking at for the manifesto?

A: I’m not sure the global wealth tax in the last section of Thomas’s book is going to be in the Labour manifesto, I suspect it won’t. But I think beneath that, in that section, there’s a lot of very interesting stuff about transparency of asset ownership and capital, about international cooperation, and that is in the grain of things we’ve been talking about.

Q: There’s obviously a national dimension to this, but there’s also an international one. In a globalised era, some question whether you can have social democracy in one country any more. What do you think are the changes needed to avoid a race to the bottom?

A: There are clearly forces, to use Thomas’s terminology, of divergence and convergence here. In some respects, you can’t have a structured approach to financial capital, for example, without taking international cooperation seriously, of course that’s right. Governments left and right have realised that, although progress internationally has been pretty slow so far, but you need to have a consistent approach across the continent and globally more generally.

In other respects, I think you can make progress as a nation-state. I passionately believe that if you take the idea of making our educational policy work for the benefit of those who don’t have access to inherited wealth and existing wealth, but you actually make the education system effective, in spreading the ability of people to earn greater money and to access capital, I think that gives us a massive productive advantage as a country, it goes with the grain of those who care about being competitive as an international economy as well as those who care about distribution and social justice, so there are things you can do at the national level.

Q: Does it worry you that the legitimacy of the EU, the institution that more any other has the ability to set cross-national standards, is being questioned as never before, and that the potential for it to go further is now so limited?

A: I think that you’re right that we live an era when people’s faith in the European Union, not just in Britain but elsewhere, as a body that can set standards across countries is weakening, there’s no doubt about that. Part of our job as a Labour Party that passionately believes in the European Union is to seek to be reformers of it, so that over time, I’m not saying you can do this overnight, but over time, you can get some more faith in a reformed EU’s ability to make those kind of decisions, so it’s a long-term challenge but it’s the right one for us to be taking on.

Q: Looking further ahead, do you have a sense of how much a future Labour government could reduce inequality by?

A: I worked in the New Labour government and we did a huge amount of redistribution and investment in public services that benefited the bottom 50 per cent and we still saw inequality creeping up, so I’m not underestimating the ability of one government in one period to reverse the trends that Professor Piketty’s book talks about across centuries.

But we do need to make the pursuit of a more equal Britain something that is fundamental to policy, from education, to Treasury policy, to industrial policy. I don’t think it’s the only thing that matters, but it’s a crucial thing that matters and it gets at the heart of something in our country that is not working at the moment, which is squeezed incomes in the middle that don’t have sufficient skill levels and where there’s a productivity problem. We need to address the problem of our national competitiveness at the same time that we address the pressures on people in the middle and the bottom of our income distribution.

Q: Do you think you could enshrine that focus on reducing inequality in law or through a particular institution?

A: I’m not sure that targets in this area are the way forward. The trends are so multiple and so difficult that I think just setting an arbitrary target is not the way to do this. What you need here, maybe it’s old fashioned, but you need a debate, you need resolve, you need it to be in the bloodstream across the political spectrum. I don’t think it should just be the ambition of the Labour Party, it should be the ambition of all politicians to seek to build a country where you don’t have this detachment of those at the top from the rest, I think that’s bad for a country whatever your politics.

George Eaton is political editor of the New Statesman.

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The tale of Battersea power station shows how affordable housing is lost

Initially, the developers promised 636 affordable homes. Now, they have reduced the number to 386. 

It’s the most predictable trick in the big book of property development. A developer signs an agreement with a local council promising to provide a barely acceptable level of barely affordable housing, then slashes these commitments at the first, second and third signs of trouble. It’s happened all over the country, from Hastings to Cumbria. But it happens most often in London, and most recently of all at Battersea power station, the Thames landmark and long-time London ruin which I wrote about in my 2016 book, Up In Smoke: The Failed Dreams of Battersea Power Station. For decades, the power station was one of London’s most popular buildings but now it represents some of the most depressing aspects of the capital’s attempts at regeneration. Almost in shame, the building itself has started to disappear from view behind a curtain of ugly gold-and-glass apartments aimed squarely at the international rich. The Battersea power station development is costing around £9bn. There will be around 4,200 flats, an office for Apple and a new Tube station. But only 386 of the new flats will be considered affordable

What makes the Battersea power station development worse is the developer’s argument for why there are so few affordable homes, which runs something like this. The bottom is falling out of the luxury homes market because too many are being built, which means developers can no longer afford to build the sort of homes that people actually want. It’s yet another sign of the failure of the housing market to provide what is most needed. But it also highlights the delusion of politicians who still seem to believe that property developers are going to provide the answers to one of the most pressing problems in politics.

A Malaysian consortium acquired the power station in 2012 and initially promised to build 517 affordable units, which then rose to 636. This was pretty meagre, but with four developers having already failed to develop the site, it was enough to satisfy Wandsworth council. By the time I wrote Up In Smoke, this had been reduced back to 565 units – around 15 per cent of the total number of new flats. Now the developers want to build only 386 affordable homes – around 9 per cent of the final residential offering, which includes expensive flats bought by the likes of Sting and Bear Grylls. 

The developers say this is because of escalating costs and the technical challenges of restoring the power station – but it’s also the case that the entire Nine Elms area between Battersea and Vauxhall is experiencing a glut of similar property, which is driving down prices. They want to focus instead on paying for the new Northern Line extension that joins the power station to Kennington. The slashing of affordable housing can be done without need for a new planning application or public consultation by using a “deed of variation”. It also means Mayor Sadiq Khan can’t do much more than write to Wandsworth urging the council to reject the new scheme. There’s little chance of that. Conservative Wandsworth has been committed to a developer-led solution to the power station for three decades and in that time has perfected the art of rolling over, despite several excruciating, and occasionally hilarious, disappointments.

The Battersea power station situation also highlights the sophistry developers will use to excuse any decision. When I interviewed Rob Tincknell, the developer’s chief executive, in 2014, he boasted it was the developer’s commitment to paying for the Northern Line extension (NLE) that was allowing the already limited amount of affordable housing to be built in the first place. Without the NLE, he insisted, they would never be able to build this number of affordable units. “The important point to note is that the NLE project allows the development density in the district of Nine Elms to nearly double,” he said. “Therefore, without the NLE the density at Battersea would be about half and even if there was a higher level of affordable, say 30 per cent, it would be a percentage of a lower figure and therefore the city wouldn’t get any more affordable than they do now.”

Now the argument is reversed. Because the developer has to pay for the transport infrastructure, they can’t afford to build as much affordable housing. Smart hey?

It’s not entirely hopeless. Wandsworth may yet reject the plan, while the developers say they hope to restore the missing 250 units at the end of the build.

But I wouldn’t hold your breath.

This is a version of a blog post which originally appeared here.

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