The UK economy’s ticking over fine: that’s the view of Carney, Osborne’s man. So that’s alright then. Or is it? With time-honoured spin we were treated to the most optimistic scenario on every count, with the flip-side downturn kept carefully out of sight. His central message was that “there is no clear evidence of deflationary mindset among UK households”, bankers’ jargon for households continue to borrow to buy what they can’t afford. That matters because the government’s entire economic strategy now hangs on consumer borrowing. That is very worrying if interest rates rise, which the City is constantly lobbying for, because the hundreds of thousands of households mortgaged to the hilt will be forced to cut their spending and the government’s reliance on consumer borrowing as the main driver of demand will collapse. That could be the start of the next crash.
The other driver of demand is supposed to be investment, but that is mostly in property, especially expensive prime property in west London. Then there’s manufacturing (remember Osborne’s ‘march of the makers’ which never materialised like his Northern powerhouse). It’s now caught in a pincer between uncertainties of demand and a higher exchange which illogically makes exports harder to sell. He’s also assuming that the UK economy is now insulated from the impact of global economic pressures for him to be able to set our own monetary policies, but that’s a wry assumption which is simply too good to be true. Another bland assumption is that real wages are now rising, but that neglects the fact that they’ve only been rising for a period of 6 months after a decade of flat or falling wages, and even now have only reached the levels of 2004.
One crucial item of the UK economic outlook which Carney did not even mention – hardly surprisingly given the facts – was the balance of payments. This has gone from very bad to awful. At the latest count Britain’s trade balance in manufactured goods – the index of how far we are paying our way in the world – is nearly £110bn in deficit. This is the worst recorded figure since 1830! The simple fact here is that this appears on the government’s accounts as a huge debit and consequently a significant increase in the government’s deficit. Until that trade deficit is reduced by a very large amount, it is difficult to see how the budget deficit, now standing at just under £90bn (it was predicted by Osborne to be zero in his 2010 budget), can be cut by any large margin.
There never was a truer example of ‘when you’re in a hole, stop digging’. His article in the Observer today is a gift to his opponents, but it does even more damage to himself. He reveals himself as increasingly deserted even his previous closest followers, an utterly broken man watching everything he stood for swept away before his eyes. He has gone from opposition to delusion, from hysteria to denial. But what is perhaps most disturbing of all is that he can’t, as he himself candidly admits, understand why the Corbyn earthquake is happening. He just blankly refuses to acknowledge the passionate resentment which he and New Labour created by laying the foundations for the financial crash of 2008-9 and making the squeezed middle and brutally punished poor pay for it, by taking Britain without any constitutional approval into an illegal was with Iraq, by introducing into politics the hated regime of spin and manipulation , by indulging now his squalid lust for money-making, and by clearly having no more overriding desire than to strut the world with Bush.
He describes his opponents as trapped “in their own hermetically sealed bubble”, when that applies exactly to himself. If what he says were really true, why has the Labour electorate swelled to over 600,000, 50% larger than he managed even at the height of his pomp when so many were glad to be rid of the Tories on 1st May 1997? Why is he so unfeeling and unapologetic about aligning the New Labour alongside the Tories in pursuit of austerity from 2010 onwards, especially since Osborne’s policy (to shrink the State) has been so dramatically unsuccessful in reducing the deficit? Why did he urge the Blairites to support the government’s welfare bill which opposed every tenet of the real Labour Party? Why did he push for privatisation of the NHS and other public services? Why did his acolyte Mandelson say “New Labour is “relaxed at people becoming filthy rich”, and proved it by letting inequality balloon to even highe heights than under Thatcher?
So after doing all those things, how does he expect Labour members and the country to treat him? After a 20-year temp;orary iruption of hi-jacking the party down a route utterly alien to its founders, in order to ingratiate himself with corporate and financial leaders on their terms, how can he imagine that anyone wants him back? He has a lot to learn, less egoism, more humility.
Cameron’s decision to toss another 45 peers, mostly party hacks, into the Lords is really shameful. The motivation is to remove any obstacles to the swift and easy transmission of government business. Since the whole purpose of Parliament is to hold the Executive (the government) to account, it is truly scandalous that the leader of the Executive has untrammeled tights to appoint whatever number of new peerages will defeat this purpose. This is a serious source of corruption at the very heart of government. I certainly strengthens the case for an independent Parliamentary Ombudsman who could make a formal statement, as presidents do in other European countries, condemning what he/she believes is a constitutional abuse designed to sidestep the proper working of Parliament, as well as giving MPs and indeed members of the public the opportunity to make a formal protest.
There are several other aspects too to this sordid affair. Of the 45 new peers, 32 are former politicians and 7 used to work in the party machines, making a total of 85%. Moreover, of the 189 peers created between the two elections of 2010 and 2015, no less than 68 had been elected politicians and 26 had been political staff – that is fully half of the new intake. The Lords is increasingly becoming a repository for Westminster bubble insiders, including those most recently rejected by electors at the polls just 3 months ago.
It’s also becoming a repository for donors to the Tory party. Of course it has been accepted ever since the time of Lloyd George, the arch peerage salesman, that the selling of honours was illegal. But is there much difference between an outright sale and making a large contribution to Tory party funds and then waiting for the Tory party hierarchy to reward such generosity? It doesn’t always happen of course, but an academic stidy has shown that giving large sums of money does have a remarkably positive effect on the donor’s talents being recognised.
Then there the numbers. There are now 828 members of the Lords and if MPs are added there is grand total of Westminster legislators of 1,476. Cameron said before the election that he would cut both the number and cost of parliamentarians. What he has done in practice is the exact opposite – he has appointed new peers at a faster rate than any PM since life peerages began in 1958, even more than Blair.
Packing the Lords with cronies is a shameless way for the PM to extend his patronage and secure compliance as well as smoothing the way for an uninterrupted legislative programme. Having lost votes in the Lords over devolution, the EU referendum and EVEL (English votes for English laws), Cameron is determined to stop that happening again. That he has the idiosyncratic power to do so only exposes how drastic is the need for radical Lords reform.
The report that in just over 2 years up to February last year no less than 2,380 disabled claimants died within 2 weeks of being assessed as fit for work and then having their benefit either reduced or stopped altogether, is beyond shocking. It is arguably the most damning statistic yet of the sheer callousness and brutality of this government towards the most helpless victims in our society. But there are further profound issues behind this dreadful story. The most important issues are holding to account those who are responsible for this utter tragedy and even more important still, the power to stop this lethal policy in its tracks. On both there is at present a vacuum.
Iain Duncan Smith by any measure of integrity ought to resign, but he almost certainly won’t. And Parliament should have the power to trigger an immediate emergency debate, in this case demanding the policy be suspended until there had been a rapid inquiry into the work capability assessment with recommendations (if that is the result) that the policy be stopped or drastically changed, and the government if it lost the vote should be obliged within (say) 3 months to implement the recommendations in full. Neither of these power currently exists, and it would require an almighty change in the whole process of government accountability for these powers to be granted, or rather forcibly extracted from the Westminster establishment. A few of us however are laying plans for a Commission on Parliamentary Democracy and Constitutional Reform to bring this about.
There is another ugly side to this story. Some of us have been demanding these figures for a very long time. I myself initiated a debate in the House 3 years ago in response to the death of a constituent in just these circumstances. The DWP refused in answer to PQs to give the figures, almost certainly at the instigation of IDS. It is highly significant that we only now know the figures as a result of a Freedom of Information request which the DWP rejected, but the Information Commissioner to his credit overruled that block. The DWP then had the gall to argue that they had always intended to publish the figures anyway! Moreover the Information Commissioner’s ruling was delivered in April, and still it has taken the DWP 4 months to implement it, no doubt waiting till the dog days of August to release the information to try to ensure its minimum impact.
This is a terrible shameful example, not only of human cruelty to the severely disadvantaged, but of the complete breakdown in morality of the Cameron/Osborne/IDS government. We now need that Commission on Parliamentary Democracy very badly.
As part of the government’s plan to extract £12bn from social security benefits, IDS has announced his latest target is “the disability employment gap”. According to analysis of official ONS figures, this represents the difference between the number of disabled people who are in employment (48%) and the figure for the general population (73%). The implication is that IDS expects the same proportion of disabled people to work as those who are able-bodied! Just what does he believe disability means? There is a long and aggravated Tory history behind this latest announcement, beginning with Thatcher’s attempt to conceal the true unemployment figures by switching applicants en masse to the category of disability and making them subject to incapacity benefit rather than unemployment benefit.
This legerdemain was prompted by unemployment spiking at 3.1 million in 1986. It led to 1.6 million claimants being badged as incapacitated rather than jobless. As soon as the unemployment crisis passed, the Tory government changed course and did all it could to cut back the numbers who could be classified as disabled. The Blair continued the action, but did not get far. The really big cutbacks only took off with the Cameron government which took on the big French IT firm, Atos, to carry out ‘work capability assessments’ on a systematic and relentless basis to force disabled persons back to work by declaring they were fit to work and therefore if they failed to get work they would be liable to loss of benefit for anything between 4 weeks and 3 years. This infamous system generated massive complaints, but the government carried on regardless.
The objections were mainly that the examinations by Atos were often perfunctory and the questions asked largely irrelevant, and leaks from DWP staff indicated that the government had set targets for the removal of claimants from the benefit lists. DWP of course denied this, but that can be taken with a pinch of salt from a department so desperate to conceal the truth as to now being found out using invented stories from fictional claimants, not just once but at least twice, to pretend that benefit sanctions were actually positive and beneficial! In fact the Information Commissioner has now overruled attempts by DWP to withhold statistics of the number of claimants of incapacity benefit and employment and support allowance who died after being declared fit for work and then had their benefits stopped. DWP then said it had always intended to publish these figures! It seems impossible for a government department to stoop any lower than these constant lies, subterfuges and chicaneries, and since they are all politically driven IDS, if he had any integrity, ought to resign. But of course he won’t.
It is curious that the main charge thrown against Jeremy Corbyn – apart from all the bluster and hysteria – is that his policies lack ‘economic credibility’. The assumption presumably is that the economic policies pursued by UK governments, both Labour and Tory, as well as by the EU, were sufficiently credible and rewarding as to justify or even necessitate their continuing to be followed. Even a second’s thought shows that that is an absurd proposition. The business model of free market de-regulated capitalism which has been ruthlessly taken to extremes over the last 3 decades is patently bust. It led inexorably to the biggest global breakdown for nearly a century, followed by the longest recession and the slowest recovery since the 1870s – indeed a secular stagnation with still no recovery in sight.
We were told that the markets were self-regulating and that the role of government was to get out of the way. It turned out that the opposite was true, and that the economic system was only kept going at all by the constant drip-feed of government-initiated QE. We were told that the dynamics of capitalism would self-generate the levels of demand to keep the system constantly expanding. It turned out that growth was only achieved, if at all, by stacking up debt to prodigious levels, opening the way to the next financial crisis when the debt bubble imploded. We were told that giving a free hand to investors would ensure the maximum efficiency in the allocation of capital. What actually happened is that capital flocked to emerging markets which offered the best return, then flowed out again equally fast as soon as Western financial conditions improved, leaving emerging markets badly weakened and exporting deflation to the West.
The cataclysm of 2007-9 was a lesson that international policy co-operation was needed to increase global demand. It was a lesson that higher investment in infrastructure and skills was needed to increase productivity. It was a lesson that an economic model based on widening inequality was undermining the essential requirements of a successful economic system. It was a lesson that uncontrolled capital flows are both dangerous and counter-productive. It is clear that none of these lessons were learnt. Perhaps Jeremy Corbyn’s greatest contribution is that he is not accepting the status quo which is rotten: an over-sized financial sector, a neglected manufacturing industry, inadequate investment, flat productivity, huge and growing balance of payments deficits, ballooning inequality, and an economy mired in enormous permanent debt. He deserves credit for arguing that the fundamentals have got to be changed; it’s a debate we desperately need.
UK unemployment, which is still as high as 1,850,000, is now starting to rise again. Combined with the jobs standstill, the lack of momentum in pay makes this the most worrying set of labour market figures for a long time. What is equally disturbing is that almost all the increase in employment since the 2008-9 crash has been accounted for by workers from the EU. Employment among EU citizens born outside the the UK has now risen above 2 million for the first time. The latest figures point to falling demand for jobs, fewer hours being worked, and little or no evidence of a rise in pay.
The number of non-UK nationals working in Britain over the past year is recorded as having increased by 257,000 to 3.1 million, whilst over the same period the number of working UK nationals rose by only 84,000. But demand for labour fell during the spring, with the number employed 63,000 lower in the 3 months ending in June than in the first quarter of the year. In that first quarter employment among UK nationals fell by 146,000 while over the same period employment among workers from overseas rose by 91,000. It also emerged that since 1997 the proportion of employment accounted for by non-UK nationals increased from 3.7% to 10.3%.
The turnaround in the labour market was expected to generate pressure for higher pay. That hasn’t happened. Regular gross pay for employees as a whole remained unchanged at £463 a week in June. However pay at the top continues to rise sharply. The High Pay Centre has just released figures which show that the salary ratio between FTSE-100 chief executives and an average worker jumped from 160:1 in 2010 to no less than 183:1 last year. At the extreme Sir Martin Sorrell, chief executive of the advertising group WPP, took home £42.9 million (£825,000 per week), which works out at 810 times as much as the average WPP employee.
All of this is of course without reference to the quality of the jobs. We are seeing in both the UK and the eurozone the steady growth of ‘the precariat’. More than half the eurozone’s young workers are in temporary jobs, churning from one short-lived contract to the next. The share of the eurozone’s 15-24 year old workers who are temps is the highest on record, a deeply disturbing 52%. It’s clear that the 2-tier labour market won’t go away without more incisive action. But for now the priority must be to tackle the ‘black legacy’ of long-term unemployment where Osborne repeatedly boasts success, yet is now already worsening from a total little short of 2 million.
Following Osborne’s triumphant releasing of pensioners to unlock their annuity contracts to spend how they will, there were many siren voices raised that that risked exposing many vulnerable elderly people to crooks and scammers selling dud investment projects as the road to riches. The results have turned out even worse than feared. City of London police are now having to wage a huge campaign against the use of some of the Square Mile’s most prestigious addresses as a cover for scams purporting to sell overseas land for investment as well as wine, diamonds, etc. Police say such scams cost mostly elderly and vulnerable people at least £1.7bn last year, with fraudsters typically returning to their victims a second timein the guise of ‘asset recovery specialists’ who pursue lost money for a fee. Read more “Osborne’s giveaways come back to haunt him” »
Sadly, but predictably, the Labour Leadership struggle has been so much mired in bluster and hysteria that its true potential significance has been largely obscured. A contest of this kind should start, not with who it is claimed has the style and presentation to be the most plausible leader, but with what it is argued is currently wrong with the country, what policies are necessary to put those things right, what mechanisms are proposed to achieve that, and how should they be funded and delivered.
Arguably the most pressing problems for Britain at the present time can be summarised as follows. What were the causes of the financial crash and the consequent prolonged downturn, and what lessons need to be learnt to prevent a recurrence? Does the manifest lack of adequate reform of the financial sector make it likely there could be another catastrophic slump again soon? Is austerity the right policy to cut the deficit? Read more “The Labour leadership contest is a classic example of how it should not be fought” »