Notes on the Front

I was intending to a piece on the grotesque, unbelievable, bizarre and unprecedented' proposal to flush €7 billion down the recapitalisation toilet but David McWilliams has already outlined why its a gross waste of moneywhile John McManus has a very insightful deconstructionon why the whole thing is potentially counter-productive (if you believe that recapitalisation should bail-out the economy and not shareholders).

I was going to go on to point out RTE's curious notion of bank executives' pay cuts.  Bryan Dobson introduced last night's Six-One News with:

'Irish Life and Permanent has become the first of the big banks to announce pay cuts for senior staff.'

Oh?  And what did this amount to?  Apparently, CEO Denis Casey will retain his salary of €890,000 per year.  It's just that he won't get a bonus of €620,000.  Hmmm.  In 2006, Mr. Casey's salary was €348,000.  It has increased by nearly three times (must be a member of a public sector trade union).  And this year it's apparently not cut.  Yet RTE sells this as a 'cut' because he didn't get a bonus. 

I was going to go further – about how executive salaries are a diversion.  The point is that the same people who got us into this mess still rule the roost, with or without bonuses.  The point is not who makes how much but whether banks come under democratic control or still operate to their own and shareholders' agenda. 

I was going to go into all this but, really, you would get weary.  So let's talk about Eamon Ryan's newest announcement – about a €100 million programme to insulate houses that will create 4,000 jobs; and how the Left got wrong-footed.  The whole episode is a lesson.

The Minister's initiative will allow people to draw down a raft of grants to insulate their homes:  attic and wall insulation, heating control upgrades, and energy rating assessments.  It is hoped that up to 50,000 will take up these grants.  And that 4,000 jobs will result.

This is all useful.  Insulation will reduce homeowners' energy costs and carbon emissions, reduce imports, improve the housing stock – and, of course, employ people.  Still, the programme is flawed and unambitious.

First, it is debatable how many will avail of the programme.  The Minister is hoping 50,000 will (divided between the above grant programme and the Warmer Homes Scheme for low-income households).  But the grants only come to 20 percent and 30 percent of the total cost with payback times of three to twenty years.  With money tight and so many people up to their eyes in debt, there may not be a long queue for what could be a considerable outlay (for external wall insulation the total cost would be nearly €20,000).

Second, it amounts to a subsidy to middle and higher income groups – who will benefit from lower energy costs and increased value to their house.  For it is only people on higher incomes that could afford the external wall insulation, the €9,000 for internal wall insulation, or even the €1,200 for wall cavity insulation.  This represents a transfer from lower income groups – unemployed, low-paid, pensioners – to higher income groups.

Third, it is unambitious.  It is estimated that one million houses need retro-fitting.  This programme will cover five percent.  In the UK, they are launching a more ambitious measure to retro-fit one in four houses, though there's concern that the grant-aid won't be enough to fund the project.  Still, a similar programme on a pro-rate basis here could create 25,000 jobs and be a major 'green' stimulus.

Regressive subsidies can be excused if it can create greater social gains such as employment and environmental efficiencies.  But it can't be excused when there's a strategy that could

1. employ thousands more 
2. ensure that everyone regardless of income can participate and,
3. cost the state nothing.

Some months ago I suggested an alternative approach. Put simply, everyone would be entitled to have their house made-over for free.  It would be repaid through a combination of a small income-related levy (e.g. 2 percent) above a certain income threshold with the full cost redeemed when the house is sold or transferred under inheritance.  This would mean that even those on low incomes could avail of the scheme and the energy savings (estimated at between €600 and €700 per year) would still outstrip any levy payment.  Such a scheme could be rolled out initially in low-income areas where fuel poverty is highest and the gains from insulation would have the greatest social impact.  And the whole thing could be kick-started with a bond purchase from the Pension Reserve Fund.

Regardless, the Minister's unambitious and traditional approach (relying on grants paid to those income groups who can afford to pay for most of the retro-fit) was enough to marginalise the Left.  Labour had put great store in an insulation programe.  It features prominently in it's stimulus proposals.  It would do something similar as Minister Ryan's proposals but probably on a larger scale (though it has never produced details).  This led the Party Spokesperson, Liz McManus, to welcome the Minister's project with this caveat:

'The grant aid to householders is very helpful, but limited in the sense that there is no means test, so that people on very high incomes are treated the same as someone on a €20k public sector salary.'

Yet, she told the Irish Times,

'I think they could have gone further,” she said. “I am convinced that people on higher incomes who have savings would have been persuaded to invest if they got tax relief for doing so.'

This confusion – a means test to treat higher income groups differently but a tax break to incentivise those same higher income groups into the scheme – was completely avoidable and would have given her other criticisms more bite: the 'limited' nature of the scheme, the fact that the Warmer Houses Scheme has not been rolled out nationally, that those who really need help won't be able to get it.

More importantly, the Left's critique could have been substantial if it started from a different premise – universal provision free at the point of retro-fit:  more homes insulated, more carbon efficiencies, more jobs.  Unfortunately, Labour's proposals were never spelled out, were eventually co-opted by the Government, leaving Labour to ankle-bite in a confused manner.

What can we learn here?  A Left critique of Government policy must go hand-in-hand with thought out proposals that start from different premises.  It will be difficult, now, for Labour to criticise the Government's handling of the insulation issue, except that it's not doing enough fast enough.  Qualitatively it's the same, only the management of it differs.  This is only one example.  If the Left is not careful, it will be marginalised in the debate over fiscal policy, banking policy (e.g. executive salaries); content to criticise Government policy but not on the substantive issue.

That is how one loses a debate.