The False Classical Dichotomy in Sraffa, Walras, & DGSE

The Classical Dichotomy and the Assumption of Money Neutrality

What is the ‘classical dichotomy’. For Patinkin it was it was the core belief in classical economics that value theory explained relative prices and the quantity theory explained nominal prices. In our previous article we showed how this dichotomy is implicit in Sraffa’s revival of classical economics. His theory can fully explain relative prices, of corn, iron etc. but only at the expense of dispensing with all monetary phenomenon, as this requires a theoretical understanding of interest, which requires also making labour exogenous to theory as production through labour takes time – so the costs of labour production always have an interest component. So his theory is essentially static, able to show how any given technique of production requires a certain set of relative prices This is Sinhas time invariant view of Sraffa which is I believe correct. But one cannot, as I showed in the previous post, translate this into nominal prices without some kind of classical assumption about the stock and flow of funds (such as a ‘wages fund’) to sustain production over the period of investment before a surplus is realised. This is the ‘hidden’ view of money in Sraffa I spoke of, proportional wages together with the flow of capital advanced determine the money wage and prices. This is exactly the classical dichotomy. Sraffa (in his published writings) is silent on this issue, but most classical theorists were not, the assumption was of a quantity theory mechanism which related the flow of money to nominal prices. Sinha argues that this view of Sraffa is incompatible with the classical competition process. I only agree in part, because I think Sinha is correct in that the pure relative price system that Sraffa invokes depends on maintenance of the classical dichotomy, as his discarded all aspects which required treatment in real time variant forms. Once one introduces money and time however one has to introduce some mechanism whereby similar capitals earn similar returns (Sinha refers to mechanisms for redistributing surpluses and shortages but gives no clue as to what this is, and his models exclude the main means whereby this occurs, equity markets).

Whilst this dichotomy is implicit in classical writers such as Ricardo with their focus on relative prices some held a harder line of pure money neutrality, that the quantity of money could only ever effect relative prices, which implies entirely separate systems for real production and monetary relations. This tradition stems at least from Hume, money is purely a ‘veil’. …

Given a separation of monetary and real sectors the excess demand equations of the real sector can then be used to determine the equilibrium values of the relative prices (in terms a numéraire) of all goods, while the excess demand equation for money can be used to determine the money price of the numéraire. Multiplying the money price of the numéraire by the relative prices of the other goods, yields then the money prices of all goods.

This approach has been carried over from a classical divide to the neo-classical world. In monetary DSGE models approach is to eliminate one market by Walras’ Law and to add a money equation, where money demand, based on a cash-in-advance or some such function, is equalized with money supply. This is little more than disguised quantity theory, typically modelled as a direct money transfer to the household budget constraint.

The Classical Dichotomy in Walras

Lets get back to Patinken’s critique, which was made in the context of Walras. His critique is important because it directly led to a stream of thought via Tobin and Godley which has become central to modern post Keynesian thinking. Walras in his earliest editions spent most of his chapters of his pure theory in a none monetary world of barter. Then he used a variant of the quantity theory to resolve nominal as opposed to relative prices. Despite their differences both Walras and Sraffa both share this classical dichotomy, that systems of simultaneous equations can be used to determine relative prices (and in Sraffa the ‘proportional wages’ or wages share) but not nominal prices. Walras however recognised that the quantity theory needed to be modified to included a notion of cash balances – the ‘encasse desiree’ – a point later taken up with force by the Cambridge school. The point being that cash held in idle cash balances is not used for spending, therefore the quantity of money used in consumption is that proportion held liquid and not saved.

However, as Patinkin (1965) showed, Walras’s specific procedure is self-contradictory because a doubling of the money prices of all goods leaves the relative prices of these goods unchanged because the money price of the numéraire also doubles. As a result the arguments of the excess demand equations in the real sector, which are pure relative price equations, do not change. Consequently, the markets of the real sector of the economy stay in equilibrium. There are no forces outside equilibrium to adjust it.

If the dichotomy approach is to have any bite then there would have to be a mechanism whereby the , the resulting excess demand for money would then, by whatever means, because the money prices of goods to fall back to the equilibrium values dictated by the real side of the equations. However, by Walras’ Law this cannot happen, since, if all other markets stay in equilibrium, the money market too must stay in equilibrium. Therefore an excess demand for money cannot ever emerge. So Walras’ Law, by itself, is insufficient to determine the money prices of goods stays as opposed to the relative prices of goods. As such despite differences in equilibrium assumptions both Sraffa and Walras are on all fours.

The doubling of money prices will however halve half real money supply. a doubling of the money prices of all goods does, as before, not affect the relative prices of goods, but it does now reduce the value of money holdings by half. This was Patinkin’s solution, a ‘real balance effect’, the real value of existing cash holdings would reduce, a wealth effect. This causes an excess supply of goods, which, by Walras’ Law corresponds to an excess demand for money. This disequilibria causes a shift in prices. Patinkins solutions depends on breaking the dichotomy by treating the value of money and the value of goods as part of the same system. (note: whether Walras himself abandoned the dichotomy in later editions is a matter of some controversy not aided by his difficult exposition. In any event his metallist commodity view of money made incorporation of money within production equations difficult – ultimately he assumed that metal money is the numéraire).

Patinkin’s solution was attached by Weil who argued that cash balances have no wealth effect, because holding banknotes forgoes the net present value of the interest foregone. Holding aside the issue that most reserves in the banking system do pay interest Weil’s critique is flawed as the opportunity cost of holding banknotes is simply the value of those banknotes discounted by the interest rate for the period for which they are held. It is not that there is no wealth effect, simply that it is declining and variant upon the interest rate. As the classical economists rightly argued there is a cost to waiting.

As a result of Weil’s flawed critique most DGSE approaches have taken after Lucas in including a ‘cash in advance’ constraint. But this is little more than a classical wages fund, the fund of cash in circulation necessary to sustain production over the period of investment, hence the false classical dichotomy is firmly embedded in DGSE.

Interest and Own Rates

On potential line of attack to resolving this dichotomy is to consider the production of money within the series of production equations rather than in a separate system. This course is often criticised by followers of Sraffa because of his 1926 article on own rates (criticising Hayek). I hope to show here that his theory is only true if we assume the classical dichotomy and vanishes when we remove it.

In a money free world Sraffa was quite right to say that there was no single natural rate of interest, rather a series of own rates for each commodity depending on the rate of surplus in production of that commodity. In a monetary world however as Nick Rowe Points out

The “own rate of interest on apples” is the nominal rate of interest minus the rate of inflation of apple prices.

So even in the narrowly focused case of own rates we must breach the classical dichotomy.

But once this allowance for a monetary economy is made, as well as trading in equity between firms with different rates of profit, then the rate of return on investment is effected by equity prices. Capital advanced as money will have differential returns in different techniques depending on their productivity, however a market in equities will lead these to gravitate, as Ricardo theorised, around an average rate of profit. This rate of profit in equity markets will influence the rate of profit earned in debt markets. Capital will be transferred between equity and debt markets if the rate of profit is higher in one than another. If a firm runs a technique which, at current and anticipated nominal prices, has a rate of return lower than the prevailing average rate of profit it will be forced to borrow at higher rates.

This in the cost of borrowing money not so much a different rate of interest but an insurance, a charge and risk premium on top of the prevailing rate of interest. We have modelled this is double entry terms here. The prevailing rate of interest being the minimum upon rate at which any profit can be made on lending money assuming a borrower with ‘no risk’ and full security. Chapter 17 of the General Theory sees Keynes describe a similar process.

the total return expected from the ownership of an asset over a period is equal to its yield minus its carrying cost plus its liquidity-premium, i.e. to q – c + l. That is to say, q – c + l is the own-rate of interest of any commodity, where q, c and l are measured in terms of itself as the standard.

Or with Rowe’s correction, measured in terms of how the purchasing power of apples relative to the money commodity retains its value.

Then Keynes set out an investment schedule

As output increases, own-rates of interest decline to levels at which one asset after another falls below the standard of profitable production; — until, finally, one or more own-rates of interest remain at a level which is above that of the marginal efficiency of any asset whatever.

We have seen in the previous post the ordering of these investment returns are not immune to the market rate of interest

Given the cost addition In the production of money this sector is likely to earn lower rates than the average rate of profit and see capital switched to higher earning sectors. In this way multiple own rates see a convergence of interest rates around a single money market rate of interest . This rate is not the same as the rate in a barter economy – as Hayek believed – rather it is the average rate of profit – weighted by capital advanced in all sectors. (this weighting acting to normalise the quantity of money). Hence even though Central Banks might set a rate of interest we can still talk about a market or ‘natural’ rate of interest (I prefer market rate), which would be that rate which would exist if there were no central bank. In practice Central Banks try to follow this rate with some inevitable lag – so they are far from exogenous – being part of the political economy.

In the last couple of years there has been a debate in the blogosphere about the validity of the Sraffa critique of the ‘natural rate’. For example Grasner here invokes intertemporal equilibrium.

The latest round was started by Andrew Lainton who wrote about multiple own rates of interest. Lainton apparently thinks that there could be multiple real own rates, but seems to me to overlook the market forces that tend to equalize own rates, market forces wonderfully described by Keynes in chapter 17. Nick Rowe followed up with a post in which he seems to accept that real own rates could differ across commodities, but doesn’t think that that matters.

Glasner and his co-author state

Own rates, in any intertemporal equilibrium, cannot deviate from each other by more than expected price appreciation or depreciation plus the cost of storage and the service flow provided by the commodity, so that the net anticipated yield from holding assets are all are equal in intertemporal equilibrium. Thus, the natural rate of interest, on Keynes’s analysis in the General Theory, is well-defined, at least up to a scalar multiple reflecting the choice of numeraire. However, Keynes’s revision of Sraffa’s own-rate analysis provides only a partial rehabilitation of Hayek’s natural rate. Since there is no unique price level in a barter system, a unique money natural rate of interest cannot be specified.

RP Murphy correctly sees the ‘gotcha’ here, it assumes the classical dichotomy.

In other words, they conclude what–I claim–was Sraffa’s original point.

Please note that the explanation I give above has no equilibrium assumption and so doesn’t fall into this trap, rather it suggests a mechanism of market forces to change interest rates whether or not this reaches, if ever, any state of equilibrium, and without any hidden assumption of exogenous money with its implicit omnipotent monetary authority.. My approach accepts Sraffa’s point that in a barter system there is no unique rate of interest but instead suggests a process whereby market rates of interest are arrived at in a monetary economy.

In my revised approach I fully account for all force causing an increase or decrease in price of investment returns, and make I the clear distinction that without inflation own rates are a purely real phenomenon. if all agents correctly forecast all own rates of commodities then the term structure of nominal interest rates becomes calculable and we have inter-temporal equilibrium. Of course this will not happen, so the market rate of interest will shift and we will get a reallocation of capital, which will affect the process of production in none linear ways (see the previous post regarding Wicksell effects). I think Grasner jumps too quickly to intertemporal equilibrium and neglects the market processes affecting nominal prices.

Including Money in the Theory of Production

I hope to have demonstrated above that in a monetary economy there is only one single money rate of interest. As such it becomes possible to model interest as a cost in a cost of production approach to value. We have previously tackled this here, where we again demonstrated that Böhm-Bawerk’s objection to a cost of production theory of interest again relied on the classical dichotomy and was false in a creditary monetary economy.

I illustrate this approach graphically here, where the black is the interest cost of each factor, and capital services are simply the rental costs of fixed capital goods including depreciation.

From this we are able to devise a linear production theory including money. Interest is an ex ante cost imposed from the previous production period, a linear system can then determine prices for the future (or rather changes to all prices in continuous time) including the interest price of money. Money is modelled as a commodity produced by banks at a profit – the business model of banking, where money production has a cost and is produced if there is anticipated to be an acceptable profit. Money in circulation is modelled by a portfolio equation with one term being cash balances.

As inputs one takes the existing stocks of money and other assets – these flows coming from factor incomes in a model where income is composed of factor incomes not abstracted away –  and the prevailing market money rate of interest. The system then fully determines prices, including the price of money, Because of the potential for arbitrage between current and future interest rates it needs to be modelled in continuous time. However under normal circumstances the existence of positive growth and inflation rates eliminate the potential for such price ‘backwardation’. Allowing for the scope for such backwardation is a feature not a bug of the model. Interest then is only a partially exogenous variable, determined in expectation of production, and then determined by this for future periods. In effect current money and future created money are treated as different commodities. Wages become the residual of the model. The baseline model assumes competitive markets, but if these are not competitive then firms can charge ‘mark ups’ on prices and employers can be in monopolistic circumstances further squeezing the labour share.

In a follow up far more mathematical post I hope to set this out.

Crucially we have now embodied money production in the system of production – avoiding the classical dichotomy. As a result however money in circulation enters into the definition of the basic good and the numeraire, so it has a direct rather than an indirect effect of excess demand for money and other goods. As a result we have to modify Walras’s law, as a number of monetary theorists (notably Steve Keen) have posited, to include the excess demand for money at the given interest rate within the definition of money required to satisfy the demand for consumption. So money produced, debt, is not a veil, its creation and destruction directly modifies effectual demand.

Self Build Falls Under Shapps – and he Tried to Cover it Up


Senior Conservative ministers have been rebuked for attempting to cover up Government statistics showing one of their key housing policies is not working.

While serving in opposition, the shadow Housing minister, Grant Shapps, promised Tory backing for people who built their own homes to kick-start a house building “revolution” in the UK.

Two years later in Government, he launched an action plan to double the number of self-build homes within a decade.

But when Labour attempted to find out how the Government was getting on with its pledge, senior officials in the Department of Communities and Local Government (DCLG) attempted to prevent the release of statistics showing how many self-build homes had been started.

Bizarrely, they tried to claim that they could not provide the information because to do so would “prejudice the effective conduct of public affairs”.

“Officials and Ministers need a safe space in which they can offer free and frank advice and exchange [of] views,” they wrote. “It is reasonable to acknowledge that data from a variety of sources will form an important part of this essential process and therefore should have the same degree of protection as other information.

“If this data was made available at a premature stage it would result in weaker discussions, poorer decision-making and the closure of policy options.”

Not surprisingly, aides of the now shadow Housing minister, Hilary Benn, were a little surprised at the decision and lodged an appeal with the Information Commissioner.

In his ruling, seen by The Independent, the Commissioner roundly rejected the argument put forward by DCLG officials and demanded that the information be released.

“The exemptions cited by DCLG require more than the possible inconvenience in responding to queries about disclosures,” he wrote scathingly.

“The Commissioner considers that DCLG has not provided arguments which demonstrate that disclosure would inhibit the free and frank provision of advice or the free and frank exchange of views for the purposes of deliberation.”

He ordered the information be released.

And what did it show? In a short table released to Labour it showed that the number of people who begin self-build homes had fallen since the depths of the recession in 2009 under Labour from 11,800 to 10,400 in 2011.

Oddly the department claimed it did not hold the statistics for 2012 – despite the fact that more than five months had elapsed since the period covered by the data.

Labour claimed the episode had echoes of previous attempts to suppress uncomfortable information by DCLG – which it said was a waste of public money and civil servants’ time.

Earlier this month The Independent revealed that the Department had spent thousands of pound attempting to suppress internal emails which showed officials in the department believed Mr Shapps may have misled MPs.

When they were finally forced to back down by the Information Commissioner and release the emails they showed that civil servants believed Mr Shapps, who is now Conservative Party chairman, had made inaccurate statements about the number of affordable homes being built in Britain.

Last night Mr Benn said that the latest episode appeared to show similar form.

“Eric Pickles has yet again wasted public money on trying to suppress evidence of the failure of his and Grant Shapps’ ‘self-build revolution’,” he said.

“He attempted – and failed – to use the ministerial veto as a way of not disclosing these basic statistics. Mr Pickles likes to lecture councils on the virtues of transparency, but as this case shows he’s not really very keen on it himself.”

A spokesman for the Department for Communities and Local Government said: “The Government does not produce official statistics on self-build and the crude estimates we have had methodological flaws, which is why we did not release them.

“However, we remain determined to help the self-build industry double in size over the next decade, which is why we’ve made £44m available to provide short-term loans to help community groups get their self-build projects off the ground, made public land available to accommodate self -build and why our reforms require councils to consider the needs of self-builders when drawing up their local plans.”

Castlepoint- Pickles on Prematurity and the Green Belt #NPPF

A slightly bizarre recovered appeal decision relating to a lack of a 5 year supply in Thundersley Essex.  One of the first to test Green Belt policy where there is lack of a 5 year supply post NPPF.  The SoS has been very willing to grant housing on numerous appeals post NPPF in this situation, even in AOMB, but this as far as I know is the first to test it for a Green Belt site.

This site has history, in 2011 Castlepoint withdrew their Core strategy after an inspector said it would be found unsound on grounds of lack of housing.  Castlepoint were furious.  They lobbied Pickles directly stating that this breached his pre-election promise that the Green Belt was ‘inviolate’.   They for a long while refused even to prepare a new plan simply withdrawing the submitted one.  This changed however following the NPPF and in December 2012 they agreed a 5 year housing target and some early release sites which they felt would  give them a 5 year supply.

Now lets look at the decision because its rather important.

On Green Belt purposes overall the Inspector and SoS considered the site would cause ‘moderate harm’ to Green Belt purposes.

national policy is very clear that amendments to the GB should be undertaken as part of the Local Plan process and that the Council, in this instance, are following the appropriate processes, albeit that he accords limited weight to the emerging Local Plan in this appeal case.

On plan progress

[the SoS] does not agree with the Inspector’s comment at IR339 that the current programme for adoption looks somewhat optimistic, especially in the light of the Council’s experience with the now aborted Core Strategy (CS). In the Secretary of State’s view, whilst the now withdrawn CS was in preparation, there were no real drivers to ensure that the Council pressed ahead. With the publication of the NPPF, he is more positive than the Inspector that the Council can achieve its’ programme for LP adoption, especially given the drivers within it. The Secretary of State does not disagree that, apart from its GB status, the present appeal site has no overriding constraints (IR340).

Although one might wonder for a Green Belt authority what those drivers and incentives are there appear to be none.

the Secretary of State has identified moderate harm in respect of urban sprawl, moderate harm in respect of the merging of neighbouring settlements, and moderate harm to the visual appearance of this part of the GB. The Secretary of State considers that together this represents a considerable level of harm. In accordance with the NPPF, the Secretary of State attaches substantial weight to this harm to the GB.

One might question the logic of additionality here – surely moderate harm to three Green Belt Purposes add up to moderate harm to the Green Belt overall not ‘considerable’ harm?

The key passage is as follows

the Secretary of State also observes that Council’s letter of 11 December 2012 to the Planning Inspectorate (document CP-ID1) indicates that in respect of the Catherine Road, Benfleet, 396 to 408 London Road, Benfleet, and Castle View School sites, work to make amendments to the GB boundary will be taken forward through the LP process. The Secretary of State has taken into account that the Council has acknowledged that there is a need to take land from the GB, even for the lower level of housing provision that it currently proposes (IR360). However he also gives weight to the Council’s case that those ‘strategic sites’ agreed to by the Council in December 2012 that are in the GB were preferred to the appeal site for sound planning reasons (IR91) and he considers that this diminishes the weight that can be attached to the acknowledged need to take land from the GB as a factor in favour of allowing this appeal….

wishes to emphasise that national policy is very clear that GB reviews should be undertaken as part of the Local Plan process. In light of all material considerations in this case the Secretary of State is concerned that a decision to allow this appeal for housing in the GB risks setting an undesirable precedent for similar developments which would seriously undermine national GB policy.

Of course Pickles pre NPPF was JRd on a number of sites for applying a prematurity rule – in favour of local plan reviews- stringer than in national policy.

On a number of appeals subsequently the SoS has refused to give prematurity any weight.

In another Essexd case at Harlow the SoS agreed with an inspector who said

Waiting for the emergence of the LP would not accord with national policy.

However this was a special case because for Green Belt national policy is very clear that Green Belt boundaries should only be changed through plan reviews.

The decision letter makes it clear that had it not been Green Belt it would have been approved.  Also for Green Belt you have to consider alternative sites, and though not yet in a local plan the LPA had indicated that they would be favorable to such sites.  Perhaps Castlepoint did just enough through publishing this list, if they had not done then the SoS would have been left in a very difficult position as a refusal could have given the signal that it is acceptable for Green Belt authorities to drag their heels on plans forever.

So overall a correct decision and no inconsitency in thsi case from Pickles.

However Pickles may have placed excessive hope on Catselpoints cllrs ability to produce a sound plan.  From the Canvey Green Belt Campaign

The tone of the Mainland Councillors meeting with the Officers appears to demonstrate that they are prepared to again dig their heels in against committing to Green Belt development in their own wards.

So I guess the developers will simply bide their time wait six months for members to committ hari kiri over their draft revised plan and appeal again with every sign of success.  I guess the cllrs will in that case simply blame Pickles but of course the residents will only have the cllrs to blame.

Two points of note for policy wonks.  Firstly like in a number of recent appeals the Inspector based the 5 year supply on the RSS.  He had nothing else to go on.  Secondly in terms of a ‘backlog’ of need (as opposed to the+20%) he adopted the ‘Sedgefield method’ and spread this over the 5 years rather than a longer period.

As the appellents stated and the Inspector and SoS accepted

the residual method does not fully reflect the urgency of the need to catch up with the backlog. Their preference would be to adopt the so-called ‘Sedgefield’ method, in which the catching-up is required to be completed in the first five years. This approach has been accepted in recent appeal decisions at Honeybourne (in Wychavon DC) and Shottery (Stratfordon-Avon DC)

What National Planning Policy Should Say on Shale Gas

1) If It is backed it should be only as a short term stop gap to compensate for the decline in North Sea Gas Production and until Carbon Neutral Solutions are developed over the next 20 years.  Gas has a lower carbon output that electricity from coal but this only makes sense if their is sufficient generating capacity from gas power stations during a transition period, not during a period when its substitutes for renewables.  Likely this requires most coal and a lot of shale gas staying in the ground.

-This is also the position of the US Energy Secretary.  I don’t say this position is correct but it is the only intellectually coherent position if you back CO2 reduction targets.

2) To minimise visual impact the policy should encourage minimising the number of ‘sweet spot’ wellheads with lateral drilling.

-In the US the deposits are very think vertically requiring large numbers of wells over a large area.  In the UK the deposits are much thicker so in theory (at least according to the CBI) around 100-200 well heads could serve the country, providing you drill at the precise ‘sweet spot’.  However it takes 19-20 test drillings to hit this.  In the permissive US system there is no incentive to use the best technology of lateral drilling from a single sweet spot.  This can be rectified here.

The best system would be to auction 100-200 wellhead licenses nationally with 20 year concessions.  Then allow temporary consents of say 3 years to allow the ‘sweet spot’ to be found.  Such short term planning consents would not contribute to the national auction system.

The few the number of well heads the less the environmental and visual concerns.  I doubt the UK would tolerate 10s of thousands of well heads but a few hundred will be inconsequential.  The main concerns of groups such as Green Peace is the threats from thousands of drill heads.  Proper incentives can minimise this risk.

This is not to defend fracking, but it shows how well conceived regulation can both maximise economic benefits and minimse environmental impacts if a technology is adopted.

This piece I understand needs to be much longer and full of references.  But I think there is already enough evidence on fracking internationally for MPAs to start drafting sensible policies in their minerals plans.

Countryside campaign groups could do a great service by commissioning specialist research on the premise that if fracking is to go ahead what would be the best policy regime to minimise that impact.

Lets be clear Land Hoarding is Different from Land Banking

Land Banking is maintaining a sufficient stock of optioned or consented sites to maintain the maximum possible flow of completed units at a realistic rate of return.

Land Hoarding is maintaining a stock of sites over and above the level necessary to maintain the  maximum possible flow of completed units at a realistic rate of return, if the land was sold at a market clearing price.

Land Banking is a necessary and acceptable practice.  Arguably at the peak of the market as the OFT noted there was not enough of it. Land hoarding is not, it usually represents where a land owner has paid too much for a site and is afraid to write the site off its balance sheets as it is maintained as collateral with banks.

Contrary to Peter Stacey of Turley, householders are in the business of making money from land not so much housing, they are not continental like constriction only firms.  They make their money from gaining planning consent, the gift of the community. The problem is simple, housebuilder bought sites at excessive ponzi values before the onset of the great recession.  Which is why without any distinction between stock and flow, between genuine and false reasons for holding a stock and without any theory or economic analysis he can claim, despite all of the evidence, including 25% of all sites in London having no intention to develop by the landowner, that there is no problem.

See here for the proposed solution in Dublin  here is the detailed report on their proposed vacant land tax and the powerpoint.

Such taxes have been highly successful in the states, for example for example, Harrisburg, the capital of Pennsylvania, has a land vale tax. Between 1980 and 1995, that tax helped reduce the number of vacant centre structures from 4,200 to fewer than 500, increasing the population by 10%.[1]

[1] Ronan Lyons, for Smart Taxes Network, Residential Site Value Tax in Ireland, 2011

Patronising Boles Suffers Heckling at CPRE AGM


The row broke out as Mr Boles, who has aggressively been trying to increase the number of new homes built across England, addressed the annual meeting of the Campaign to Protect Rural England, which has fought the Government’s decision to relax planning rules.

He took issue with a report in The Daily Telegraph last year which – quoting Local Government Assocation figures – showed that there were over 400,000 plots with planning permission in England.

Mr Boles said: “There are only 120,000 units worth of land in ‘land banks’ with planning permission where building is not happening. That is half of what we need to build every single year.”

Mr Boles told one CPRE member that “it is no good shaking your head”, but others shouted at him that the figures were “untrue” and he was being“so simplistic”. One shouted from the back: “It’s about time you listened to other people.”

The heckling is thought to be the first time that Mr Boles has publicly had to face the anger caused in communities across England over the Government’s decision to rewrite the planning rule book with a bias in favour of sustainable development.

There was more anger among the CPRE members when Mr Boles said he wished England was more like Germany, where property prices are low because more land is released for building.

Banging the lectern, Mr Boles said: “Look at Germany where real house prices have been constant for 30 years, where houses have got bigger, better designed, more beautiful, more eco-friendly.

“Why? Because they release enough land, to build enough houses, to meet demand. Nobody is doing what we crazily do which is put all of our income into houses, bank our whole retirement into the value of our house – it is completely nuts.”

This prompted more heckles from the CPRE members, and two walked out. Outside the first member, who declined to be named, said: “He is not listening.”

The second CPRE member, Richard Nicholls from Dorset, added: “The man does not understand what planning is about. The man is a fool.”

In his speech Mr Boles had told the CPRE that blocking new housing developments was slowly condemning rural villages to be “museum exhibits, not so much protected as embalmed”.

He said: “How do we protect rural England – not I am sure by paralysing the rural economy and squeezing the life out of village communities.

“Yet in many parts of the country this is what has been happening. In Devon, Cornwall, Shropshire, Sussex, the Cotwolds and the Yorkshire Dales some villages are inches away from becoming forever fossilised.

The homes were so highly prized that local people “could not afford even the tiniest cottage”.

Villages in these areas were beautiful certainly but “somehow sanitised, with all the stone walls recently re-pointed and the most humble of doors recently repainted in the greys and greens from Farrow and Ball: perfectly preserved but strangely lifeless.

“What these villages need is some noise, bustle, young blood, teenagers kicking a ball around after school, teenagers sitting on a wall nervously flirting, young mothers and fathers reaching for a pint in the local after an hour digging the vegetable patch or doing the ironing.”

If people were not around to mend the church roof then “it isn’t a community it’s a museum exhibit, not so much protected as embalmed”.

In an earlier speech to builders Mr Boles said that allowing large scale poorly designed housing developments near existing communities can damage house prices.

In remarks to the National House Building Council, he said badly designed new homes “undermined” property prices. He said: “If you design better places, if you design more beautiful buildings, communities will release land for development.”

People would not “object quite so fiercely if they think that the thing that is going to come down the end of their road is something that might actually add to their house value not undermine it”.

Speaking at the CPRE meeting, the organisation’s chairman Sir Andrew Motion branded Mr Boles as “Boles the Builder”.

Sir Andrew said: “He leapfrogs brownfield sites and lands with a bricky crunch in the open countryside.He speaks up for green field housing estates rather than the green fields themselves.”

Sir Andrew added that “the reasons to speak up for the green belt have become more and more urgent” as councils come under pressure to provide more land for building.

[blob] People will not be able to use the Government’s help to buy mortgage guarantee scheme to buy second homes, the Treasury said.

Borrowers will be forced to make an explicit declaration that they have no financial interest in another property.

In the speech – the issued version not mentioning landbanking or Germany, Boles almost entirely focused on affordable housing in villages, which CPRE are in favour of.  It was like turning up to a WI conference and lecturing them on how they shoudl adopt better jam making techniques – patronising in the extreme.

Where does Boles get his landbanking figures from – he he updated figures from the OFT report since the recession?  Perhaps an FOI is in order.  Given the stats show that The average time taken to complete a private development has risen from 20 months in 2007-08 to 25 months in 2011-12. In London it is 30 months, its uggests that the a crack down on land abnking could increasde completions by a fifth to a third, in London Boris Johnson has stated that  showed that 45 per cent of all land with planning permission in London was held by actors who had no intention of building on it.

Boles – Garden Cities a Low Spending Priority


Responding to a question about the government’s commitment to garden cities, he said ministers remained enthusiastic about them in principle.
But he warned groups that had been hoping for a pot of money specifically for the purpose of promoting garden cities that other priorities, such as infrastructure, had been given greater weight in the spending round. He also said that the government “was not in the business of imposing garden cities on communities that don’t want them”.

So roads, schools and houses are a  priority but doing them together isnt!


How to Guarantee that Your Plan Will Never be Found Unsound

I must stress that this is not my idea, it was suggested to me as a potential solution (by someone who should know)  in those cases where the inspector states that he or she is likely to find a plan unsound.  I cannot find a flaw in the logic.

In these cases the LPA can require that an Inspector MUST make recommendations that would make a plan sound.   The Act says that it is the responsibility of the “person appointed to carry out the examination” to recommend the main mods- section 112 of the Localism Act amends section 20(7) of the Act as follows

(7C)If asked to do so by the local planning authority, the person appointed to carry out the examination must recommend modifications of the document that would make it one that—

(a)satisfies the requirements mentioned in subsection (5)(a), ((legal requirements) and

(b)is sound.”

So the LPA can simply say, no we wont withdraw, we are going to suggest modifications no matter how long it takes until you are satisfied.  What if this is longer that the normal PINS six month break.  Cannot in these cases the SoS direct the plan is withdrawn?  No that power was abolished by 2011 c. 20 s. 112(4) Sch. 25 Pt. 17

So in a case like Medway, or the recent AAP in Plymouth – just keep on going, you have already suggested some alternative sites.

So zero risk of withdrawing a plan and then having the plan being found unsound at a re-submission PLI.

Also no policy vacume, as the revisions are more likely to be found sound they are a stronger material planning consideration than the policy vacume left by withdrawl.

Of course it is possible that the plan would necessarily  be a complete rewrite to the one submitted, and that publishing a set of amendments rather than a full consolidated draft would be hard for third parties to follow, which shows how removal of the power to direct withdrawl in the localism act was a great mistake.

Of course an inspector might be caught in a stalemate, he or she might not have sufficient evidence to make recommendations, which shows the poor drafting of the new section 7C , it should add ‘as far as the evidence before them permits’.

So why should a plan ever be found unsound again?

NI 1st Minister to take over Planning Policy from Environment Minister in ‘Economic Planning Zones’


Stormont has approved plans to create special economic planning zones, to be designated by the Office of the First and Deputy First Ministers (OFMDFM).

In effect, it would mean that OFMDFM would be in charge of planning policy in certain areas, rather than the Environment Minister, Alex Attwood.

The proposals were opposed by Mr Attwood and green campaigners, but supported by the DUP and Sinn Féin.

In a heated debate, 60 MLAs backed the change, with 32 voting against.

The creation of “economically significant” planning zones was discussed in the assembly on Monday, as part of proposed amendments to a new planning bill.

During the late night debate, Mr Attwood argued that OFMDFM did not have the operational ability to take on new planning powers.

He also said he had received legal advice that the new zones could run foul of European directives, as they did not exclude EU wild birds and habitats directives.

His SDLP colleague, Dolores Kelly, wanted to know why Sinn Féin and the DUP had not involved the environment minister in their discussions.

She said it was “another example of how the Sinn Féin-DUP junta does business” and that it was “all contrary to the Good Friday Agreement”.

Ulster Unionist Danny Kinahan said that, like many other people, he was “shocked, horrified when we saw the amendment”.

Basil McCrea of NI21 said that “they are at a single stroke going to do away with the Department of the Environment”.

“War has been declared on this assembly,” he said.

The TUV’s Jim Allister likened the amendment to an ambush on the environment minister and said it had to be “the most audacious power grab this house has seen for a long time”.

Mr Allister called on the parties opposed to the amendment to quit the executive” and force the issue of opposition in this house”.

Anna Lo of Alliance, who chairs Stormont’s environment committee, said she was “shocked” when she read the amendment to the planning bill.

She said the first time she had heard of the proposed changes was the previous week, and the committee had not had time to discuss it.

Ms Lo said it would give the DUP and Sinn Féin “the green light to approve fracking in Fermanagh” and said her party would oppose the amendment.

However, Sinn Féin’s Cathal Boylan said it was a measure aimed at “growing the economy” and would not pave the way for fracking.

Mr Boylan said it was about creating jobs and “trying to keep our young people here”.

The DUP’s Simon Hamilton said the amendment represented “another arrow in the economic quiver of Northern Ireland”.

He said his party had the right to bring an amendment at consideration stage.

Mr Attwood quoted from part of the economic pact agreed between Downing Street and OFMDFM earlier this month, which stated that: “The executive will establish a new process for economically significant planning applications and make new arrangements in relation to applications for judicial review of planning decisions”.

The SDLP minister questioned whether London should be able to use Northern Ireland “as a place to sample and test new law when it comes to significant planning applications and JRs (judicial reviews)”.