A capital wheeze
MOTIVATION, AGENCY AND PUBLIC POLICY: OF KNIGHTS & KNAVES, PAWNS & QUEENS by Julian Le Grand OUP, I25, pp. 191, ISBN 0199266999 As its more memorable subtitle may be taken to imply, the subject matter of this splendid book, which is also of exemplary moderate length, may be divided into two main parts, even if by separating 'theory' and 'policy' its contents page specifies three. The more substantial of the main two is devoted to Knights & Knaves, the less to Pawns & Queens. In what follows I will reverse that space allocation because the author's proposal for universal capital grants of £10,000 per head at the age of 18 seems to me to be easily the most striking feature of the book, to be persuasively feasible and of great potential benefit. It would also give concrete expression to the calls for 'empowerment' which are endlessly, and in large measure vacuously, reiterated by our politicians and other opinion-formers. For what ifs worth, it also comes quite close to my own field of specialist knowledge. More of all that in a moment. But 1 must first deal at least summarily with what Julian Le Grand has to say about Knights & Knaves.
One of the author's two starting points in this first main part is David HUI]le'S tougher version of Adam Smith's endorsement of the self-interest imperative:
In contriving any system of Government, and in fixing the several checks and controls of the constitution, every man ought to be supposed a knave and to have no other end in all his actions than private interest.
The second is the 'knightly' ethic of disinterested professional public service, which formed the moral foundation of the Attlee government's administration of its welfare state, especially in the fields of public education and public health. Using these two starting points as his tools of motivational analysis, Le Grand goes on to explore the so-called quasi-market reforms first introduced into the health service by Mrs Thatcher and broadly continued, even if with some linguistic disguise. under New Labour. About these new arrangements which seek to improve efficiency and the quantity and quality of output by grafting some elements of subgroup and individual self-interest to the old ethic of publicservice altruism, I hasten to declare that this is not at all my subject. The author's conclusion is properly qualified and hedged about. However, it seems to me to be more positive than negative. By adding on to knightly public-service altruism, selected, 'robust' and partly knavish incentives of a quasi-market kind, it is possible to achieve some performance improvement.
As compared with the possible benefits which can result from spicing up the knightly virtues with a touch of knavish self-interest, what does Le Grand tell us about the prospective outcome of his potentially much more consequential project: that of transforming pawns into queens? To begin with and substantially in line with majority public opinion — or at least those parts of it which are not linked to either the teaching or health-service unions — he strongly favours moves to strengthen the voices in the decisionmaking processes of the patients in the case of the health service, and parents in the case of the schools. As the author acknowledges, there are limits beyond which this shift of influence cannot sensibly go. But his position seems to be that much is still to be done before reaching them. He rightly invites his readers to accept that progress towards them can be seen as a process of transforming pawns into queens.
now come to discuss in more detail what for me is easily the most radical and innovative proposal put forward by Le Grand in the name of a mass transformation of pawns into queens, already flagged up at the start of this review. Specifically, what he proposes is a universal capital grant of £10,000 per head probably best distributed at the current coming-of-age milestone of 18.
For those with a taste for historical pedigrees in the area of innovative new proposals about government financial policy, Le Grand traces what he calls his `demogrants' back to the great Tom Payne who suggested a figure of £15 per head at 21, the then year of coming of age. By stretching the concept slightly he is able to include Sir Samuel Brittan among more recent advocates, citing his proposal that 'shares in privatised industries should be allocated equally among the citizenry'. I should also, of course, make clear that he makes a proper reference to the so-called Child Trust Fund recently introduced by Gordon Brown and sometimes called his 'baby bonds'. However, since even for the poorest children the initial amount of the grant in the trust fund will not exceed £800 per head, Le Grand persuasively argues that
There is a danger that it is seen to be insignificant by the recipient who might then seem quite justified in blowing it for a piece of fun.
He goes on:
The sum needs to be seen as significant, providing a one-off opportunity that justifies careful consideration. Instinct says that a grant of a thousand pounds or so may fall between two stools, being insufficient for most worthwhile investments. Hence my own and Nissan's suggestion of a £10,000 grant.
The reference to Nissan requires some clarification. The point is that this proposal is a re-run of what was originally proposed by the author and David Nissan in a joint Fabian Society pamphlet published in 2000 with the title 'A Capital Idea: Start Up Grants for Young People'. I don't know whether there are more readers of pamphlets than shortish books in today's world. But I may not be the only Spectator reader who missed 'Start Up Grants for Young People'.
Both in the pamphlet and now in this book important details about how the proposed demogrants might most sensibly be operated are spelled out at some length. The capital grants would be paid into a special 'Accumulation of Capital and Education' accounts (ACEs) and expenditures out of them would be to some extent overseen by trustees. Obviously eligible applications would be for down payments on a house or shares in a business. With the twin aims of promoting age cohort solidarity and cutting costs, they would not be subject to a means test. The children of billionaires at one end and parents on benefit at the other would qualify for the same £10,000 on reaching the age of 18.
I have left to the end the question which everyone will want to ask about this magnificent scheme: how could it he financed? On this issue and in line with the Fabian pamphlet, Justin Le Grand does not allow himself to sink into a mire of details. Instead he offers what I can only describe as a dazzling but for me unquestionably convincing 'back of envelope' solution. There are two starting points to its logic. The first is that the wrongly described 'inheritance' tax is still, like its estate and death duty forerunners, because of an array of available exemptions substantially 'voluntary'. It should be replaced by a genuine, correctly described 'inheritance tax', imposts levied on the recipients rather than the handers on of what amounts to an intergenerational bounty. The new and genuine inheritance taxes would not be voluntary and would be levied at a standard rate starting from a quite low basic allowance threshold.
So much for the logic. What about the arithmetic? Here the author offers two key numbers with which, to my shame, I was previously unacquainted. One is an estimate, in this case from the Inland Revenue and for the year 1999, of the country's 'total marketable personal wealth'. Depending on one's preference for thousands of billions or trillions the number is either £2,594 billion or £2.594 trillion. The second tells us the current approximate number of the 18-year-old age cohort. Le Grand's number is 650,000. And that supplies us with the annual cost of the proposed scheme, namely at £10.000 per head, £65 billion (or for those who prefer the alternative usage £0.65 trillion). By way of comparison Le Grand supplies an estimate for the yield in 1999-2000 of the present misleadingly named and largely voluntary inheritance tax which he characterises as a 'pitiful' £2 billion.
Finally Le Grand makes a plausible assumption about the percentage of total marketable personal wealth which would be passed on each year and puts forward two per cent — thus yielding total taxable capital of £52 billion in 1999. It will be seen that to yield the £65 billion needed to finance his proposed £10,000 capital grant per head for 18-year-olds, the rate of the new and linguistically genuine inheritance tax could be kept quite low.
I would very much hope that Justin Le Grand's proposed scheme with its outstanding potential benefits would appeal to policy-makers in each of our three main parties, though it is entirely possible that 'Old Labour' will have reservations. But for the Tories and the Lib-Dems I can sec no serious grounds on which to base objections. For the former, Michael Howard has been reported as putting 'Equality of Opportunity' near the top of his credo. In the case of the Lib-Dems it is reasonable to highlight the time and effort which the late Jo Grimond devoted to employee ownership for the last 15 years of his life. Hughie Long, the now largely forgotten American populist Democrat, wrote a once famous book with the title Every Man a King. In our more enlightened and gender-neutral days, we should be pleased to substitute 'Every Pawn a Queen'.