The Magical Land of Os(borne) – fantasy economics

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George Osborne’s claim that his nonsense policies have magically turned the economy around, coupled with his equally-preposterous claim that the UK needs another seven years of austerity before he can balance the books – provides a fine example of the duality at the heart of Conservative economic policy.

He needs to convince you that his choices have made a difference and the nation’s fortunes are changing, but he also need to convince you that we’re in a terrible mess – or he won’t have an excuse to continue cutting more public services and selling them into the private sector so his rich friends can use them to fleece you.

The two claims are not only contradictory of each other – they are self-contradictory. The evidence shows that Osborne’s policies delayed the recovery, rather than encouraging it, and the ‘Starve The Beast’ plan he cribbed from George W Bush has long been recognised as harmful to any country’s economic health; by cutting services he is starving the economy of the liquidity that is its lifeblood.

(This is a point worth remembering: Whenever a TV news reporter says Osborne or the government want to make cuts in order to “save” money, they mean the government will be “taking money out of the economy” – which will consequently be worth less. As a result, some people will have to become poorer. Can you guess who?)

Before we congratulate Osborne in ways that are anything like as effusive as David Cameron’s endorsement earlier this week, let’s look at the facts: According to Martin Wolf in the Financial Times, in three and a half years, the UK’s economic performance has improved by just 2.2 per cent – against a prediction of 8.2 per cent by his pet Office of Budget (Ir)Responsibility. In the second quarter of 2013, Gross Domestic Product was 3.3 per cent below its pre-crisis peak and 18 per cent below its 1980-2007 trend, making this the slowest British recovery on record.

Osborne and the Conservatives point proudly to the strong increase in private-sector jobs but, as Mr Wolf states, “this is hardly something to boast about”. While employment – on paper – is at an all-time high, productivity has fallen back to the level it reached in 2005. What does this say about the quality of the jobs that are being filled? Are they high-quality, long-term, well-paid careers, or are they part-time, zero-hours, throwaway fillers? We all know the answer to that. Average wages have been cut by nine per cent, in real terms, since 2010 – and they are still falling.

Even by the standards of other crisis-hit, high-income economies, the UK’s performance has been dismal, says Mr Wolf, pointing to work by Spencer Dale and James Talbot of the Bank of England. This indicates that the Eurozone has performed just as badly – but the difference is that the Eurozone countries do not have control of every economic lever that is available to them; Britain does.

Osborne claims that high global inflation and the performance of the Eurozone have impacted on the UK; Mr Wolf’s assertion is that austerity is the reason for this disappointment – and Osborne was just as much a cheerleader for austerity in Europe as he has been for it in the UK. Furthermore, as the Labour Party pointed out in its report, “David Cameron’s out of touch, you’re out of pocket” (2013), inflation in other G7 countries has been lower than in the UK, indicating that high global prices have little to do with the problem.

“Yes, but,” says Osborne, “austerity has kept interest rates down.” Did it? Did it really? In that case, interest rates would have been kept low because of the promise (in 2010) that borrowing would be brought down by 2015. When the Coalition came to power, Osborne said he expected to borrow a total of £322 billion by 2015. In March this year, that figure had risen to £564 billion – an increase of 75 per cent! Meanwhile the deadline for the national debt to start falling has slipped from 2014-15 back to 2017-18 and the level at which the debt was expected to hit its peak has jumped from 70.3 per cent of GDP to 85.6 per cent. The deficit has been stuck at £120 billion a year for the last two financial years, despite the repeated claims that it has been cut by one-third. None of this has affected long-term interest rates and neither did the loss of the UK’s AAA credit rating in February this year.

Here’s why – as explained in an article on this site in June:

As Professor Malcolm Sawyer notes in Fiscal Austerity: The ‘cure’ which makes the patient worse (Centre for Labour and Social Studies, May 2012), “It is well-known that a government can always service debt provided that it is denominated in its own currency. At the limit the UK government can ‘print the money’ in order to service the debt: this would not take form of literally ‘printing money’ but rather the Central Bank being a willing purchaser of government debt in exchange for money.” This is what is happening at the moment. Our debt is in UK pounds, and we can always service it. Our creditors know that, so they remain happy to continue financing it.

“With interest rates at the zero bound, austerity weakened the economy relative to what might otherwise have happened,” wrote Mr Wolf.

“Nobody thought recovery would never happen under austerity, merely that it would be damagingly delayed… This has been an unnecessarily protracted slump. It is good that recovery is here, though it is far too soon to tell its quality and durability. But this does not justify what remains a large unforced error.”

Looking to the future, Osborne has reacted to the new barrage of Labour policies, all of which have been carefully costed against savings in current budget areas, with a series of rushed measures that are entirely unfunded. Remember that, next time a Conservative accuses Labour of borrowing and spending!

The married couples’ allowance, worth less than £4 per week (and less than £2 if you’re on a low income) is unfunded. The promised fuel duty freeze is unfunded. These will cost more than £2 billion and no source has been identified.

And what about the £12 billion stage two of the housing ‘Help to Buy’ scheme, that Osborne rushed forward to this month?

He has pulled £14 billion out of nowhere, but still expects us to believe he will resume his stalled deficit cuts by £35 billion by 2015, £42 billion by 2017-18 and £43 billion by 2020, in order to create a budget surplus.

All the while, he is promising “improved living standards for this generation and the next”. For whom? These cuts must come from somewhere, and they mean removing a cumulative total of £120 billion from the economy each year by 2020. That has to come from somewhere.

Look at the amount by which bosses’ pay in FTSE100 companies has increased in the last three years – 32 per cent, while average worker pay has dropped by nine per cent.

Do you really think the “Have-yachts” will be paying for these cuts?

Further reading: George Osborne’s credibility gap (Alistair Darling, Guardian)

Have the Tories taken leave of their senses? (Michael Meacher, blog article)

From the DWP to the economy – the Coalition’s growing credibility chasm (Vox Political, June 2, 2013)

Treasury responds to Vox’s austerity challenge (Vox Political, May 13, 2013)

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Goodbye, Baroness Thatcher – perhaps now we can put ThatcherISM to rest as well

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Baroness, community charge, companies, company, council, death, economy, Euro, European, Eurozone, house, housing, industries, industry, manufacturing, Margaret, milk, Monetary, Mrs, national utility, parties, Party, Paul Krugman, Poll Tax, privatisation, privatise, public relations, riot, Saatchi & Saatchi, snatcher, social, street, Thatcher, trade, union, utilities

The Iron Lady: This is probably the most iconic image of Margaret Thatcher from her tenure as Prime Minister of the UK. “The lady’s not for turning,” she warned. Unfortunately for Britain, she kept her word.

It isn’t every day that a former Prime Minister dies – and even rarer that we witness the death of one who affected the UK in such a fundamental way as Baroness Thatcher.

As I write this, the outpouring of tributes and discussion of her achievements in the mass media are in full swing – mostly concentrating on what their editors would define as the ‘good’ she did for our country. Most of the TV channels and papers are run by right-wingers, of course – so you can expect them to be dripping with adulation.

However, as I commented on Facebook yesterday evening, street parties broke out in Brixton and Glasgow, celebrating her demise (I understand celebrations took place in Leeds and Liverpool, and possibly many other cities, towns and villages across the UK). They had bands, they have people handing out milk (remember, she was the ‘Milk Snatcher’ before she was PM), they were chanting “Maggie, Maggie, Maggie – dead, dead, dead” and popping champagne.

There was a humour – a sense of wit – about it, not only in what was going on (the milk, for example) but also the locations (there were riots in Brixton during her tenure, and Scotland was where the hated Poll Tax was piloted).

But I said it is also tragic “that a person should do so much harm in her life, and be so hated by the people she was elected to represent – more than 20 years after she left office – that her death is marked by spontaneous celebration and, literally, dancing in the streets”.

That comment thread has now been read by more than 15,000 people (usually I get one or two thousand through my Facebook door). A question I posted has received more than four times as many votes saying she harmed the country as say she improved it (47 – 11).

What DID she achieve?

According to Paul Krugman’s blog, it’s debatable whether she achieved anything, in terms of the economy.

“Thatcher came to power in 1979, and imposed a radical change in policy almost immediately,” he wrote. “But the big improvement in British performance doesn’t really show in the data until the mid-1990s. Does she get credit for a reward so long delayed?”

Good question. In fact, her two-and-a-half terms in office constituted an extremely rocky road for those of us who had to live through them (and I was one)! My opinion is that this is because she was not interested in improving Britain’s NATIONAL prosperity.

No – the Thatcher crusade was ideological. She wanted to thrust her form of Conservatism so far down everybody’s throat that it would take decades for any other way to be accepted – and she succeeded beyond her wildest dreams.

Let’s look at the policies that most clearly demonstrate this ideology.

She sold off Britain’s council houses. The cheap, rented social housing that accommodated those of us who earned the least were sold wholesale during her premiership – and not replaced. Mrs Thatcher is said to have had a dream to create a Britain full of homeowners. Sadly, this is not what happened. Instead, the majority of council houses were sold off to private landlords who then rented them out again – at higher cost. The lack of replacement council houses meant that the country’s poor had no alternative but to rent at the higher level, meaning they had less disposable income than before the sell-off. The rise of housing associations to fill the social housing gap has meant an extra layer of bureaucracy between the tenant and their elected representatives, who can now claim that any abuse of power by landlords is nothing to do with them.

She broke the unions. Some say this was vitally important, as the unions had become too powerful and were able to bring the country to its knees whenever they felt like it, calling strikes on a whim – and there is mileage in this. But it’s also possible to say that business bosses and members of the Thatcher government provoked confrontation in order to justify the erosion of union power – this is certainly true in the case of the mineworkers’ strike of 1984-5. There is an argument that National Coal Board chairman Ian MacGregor was paid millions of pounds to engineer the confrontation. The result was that the unions were stripped of many of their rights, meaning working people had nobody left to stand up for them in wage negotiations. It is a direct result of this that workers’ wages have risen by just 27 per cent over the last 30 years, while bosses’ salaries have multiplied by 800 per cent, and the gap between the country’s richest and poorest has grown, massively.

She stripped the UK of its manufacturing industries. What can be said about this? Thatcher saw much of Britain’s private industry as uneconomical, unprofitable. She oversaw a switch to service industries and finance – boosting this with bank deregulation. It is this move, which took place in the USA at around the same time, that led to the financial crisis of 2008 and the austerity measures which the current Coalition government is using to hammer the poorest in the modern UK.

She privatised national utilities. The share sell-offs were, on the face of it, intended to make it possible for every British citizen to buy shares in the companies that provided power, telecommunications, water and so on. In practice, the poorest couldn’t afford it, and those on middle incomes saw the shares as a short-term investment, believing they would be able to sell their shares on for many times the amount they paid, a few months later. This has led to the vast majority of shares in the privatised utilities falling into the hands of – you guessed it – the very, very rich. Another publicised intention of the sell-off was that, as private companies, these organisations would deliver a better service at a lower price. This was a fantasy; it never materialised. Look at British Rail (which I admit was privatised after Mrs Thatcher left office, but is a great example of the trend): Not only do users pay much more for their tickets now than when it was publicly-owned, but the subsidy paid to the private rail companies by the government has multiplied massively as well. Result: Rich shareholders become very much richer. Poor users struggle to cope with rising prices.

Can you spot the trend here?

She changed taxation to make the poor pay more. I refer, of course, to the infamous Poll Tax. Mrs Thatcher claimed in 1989 that a flat-rate tax for local services – with everybody, rich or poor, paying the same amount – was fairer. The public – who had already been fooled by the council housing sell-off, the public utility sell-off and the breaking of the unions, and were therefore sick of being hoodwinked – claimed otherwise and refused to pay. The public won and Mrs Thatcher was consigned to the waste basket of politics soon after. The current Coalition government is working hard to ensure that this policy is carried out, with the so-called ‘Pickles Poll Tax’ – the council tax support scheme that ensures everybody pays council tax. Meanwhile, efforts to ensure the rich pay less are going ahead, with Corporation Tax cut by a quarter during the lifetime of this Parliament, and the ‘Millionaires’ Tax Break’ cutting the top rate of Income Tax from 50p in the pound to 45p.

She kept Britain out of the Euro (or more accurately, European Monetary Union). This was her one sensible policy, history has proved. There is much to be said in favour of a free-trading zone where countries can trade amongst themselves at favourable rates – but monetary union cannot be a workable part of that, when the countries involved are at hugely varying stages of development. Mrs Thatcher was right to oppose it and the fact that the UK is not mired in the current Eurozone crisis, except as a member of the EU with trading interests to protect, is to her credit.

By now, dear reader, you are probably wondering how Mrs Thatcher lasted so long, if her policies were all so divisive, and so clearly trained on impoverishing the lower classes. The answer is simple: She was excellent at public relations. The fact that she was the UK’s first-ever female Prime Minister was a huge publicity boost for her, and she built on it by nurturing an image of herself as ‘The Iron Lady’ – a Prime Minister of firm convictions who knew that what she was doing was absolutely right for Britain (“Right for the goolies of Britain,” as Graeme Garden joked on Radio 4’s I’m Sorry I Haven’t A Clue at the time). The PR-reliance was clear from the start – the Conservative Party hired the Saatchi & Saatchi agency to run its 1979, 1983 and 1987 election campaigns. It is notable that this partnership dissolved during the 87 campaign and Thatcher’s premiership ran out of steam shortly afterwards.

To sum up, I’ll leave you with the comment I placed on the New York Times website, in response to that paper’s piece about Mrs Thatcher’s death:

“Having lived through the Thatcher years and the changes her government perpetrated on British society, allow me to assure you that there is little reason to heap praise upon her.

“The entire thrust of her thinking was to ensure that the rich and powerful became richer and more powerful, and the poor – especially those with intelligence and/or ability – would be denied any chance of prosperity or success.

“What’s the American Dream all about? Life, liberty, the pursuit of happiness? Everybody created equal, with opportunity for each according to their ability or achievement, regardless of social class or circumstances of birth?  The Thatcher government is a rejection of all those aspirations, as is the current Cameron government, which is its natural successor.

“The Thatcher government deprived people of their liberty by creating a large underclass of unemployed people and using the threat of unemployment to depress workers’ wages.

“As a result, they did not have the disposable funds to take advantage of the sell-offs of national utilities such as British Gas and British Telecom.

“She sold social housing but did not build any to replace it.

“She used the police as a tool of political repression, rather than as guardians of the law.

“She used taxation in a similar manner, crippling the poor with punitive measures such as the hated Poll Tax – a flat-rate charge, effectively a tax cut for the rich, but a huge tax hike for the poor.

“That was her fatal error, of course.”

Goodbye, Baroness Thatcher. Hopefully your passing will trigger a reassessment of your career, so that we can all move on from the political nightmare your policies created for the vast majority of middle- and working-class people whose only political mistake lay in entrusting their future to you.

Government borrowing: Insanity, explained with nonsense

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The Coalition government has no intention of reducing the UK’s debt burden as it provides an excuse to cut spending on public services and shrink the state. Messrs Cameron, Osborne et al know that, when the public becomes sick of all the nonsense they have been spouting about it, they can hand the mess over to the next government and laugh all the way to the (offshore) bank.

Government borrowing figures for August have been released and the Treasury has been talking nonsense about them. Again.

Let’s start with the facts: UK public sector net borrowing was £14.4bn in August – slightly higher than the same month last year, and therefore the biggest deficit for the month since records began. Corporation tax receipts fell by 2.1 per cent; benefit payments rose by 4.9 per cent.

Barring the effects of one-off transactions like the raid on the Royal Mail Pension Plan that I mentioned last month, borrowing from April to August increased by £12.9bn, or 22 per cent, on the same period last year – to £61.3bn.

The British Chambers of Commerce reckon that at this rate, total borrowing for 2012-13 will be £20bn+ more than estimated by the misnamed Office for Budget Responsibility at the time of the last budget.

Public sector net debt stood at £1.04 trillion at the end of August 2012, equivalent to 66.1 per cent of gross domestic product (GDP) – that’s up from 1.032tr at the end of July, or 65.7 per cent of GDP.

The BBC, reporting on its website, has stated that the figures make it more likely the government will fail to wipe out the structural budget deficit by its deadline – and I think it won’t make a difference whether that’s 2015 (already long-abandoned) or 2017.

The Treasury, on the other hand, is still telling us it is getting the deficit down. Exchequer secretary to the Treasury David Gauke said new figures showing borrowing for 2011-12 came it at £119bn, rather than the OBR’s forecast of £126bn meant the government was dealing with its debts.

This is particularly rich, coming from him. Everybody now knows that the best way for the government to pay down its debts is to tax all the rich Brits who have stashed their cash in offshore tax-havens. Mr Gauke used to work for a tax avoidance firm and his wife is a tax avoidance lawyer. He is exactly the wrong man to lecture us on getting the deficit – the difference between government spending and tax receipts – down.

Some, like Sir Mervyn King, governor of the Bank of England, are now saying that overshooting the deficit reduction target would be acceptable if the reason was slower economic growth across the world, and the government has been happy to play its ‘Eurozone Strife’ card many times in the past.

But I’m not convinced. I tend to agree with The Guardian’s summary of the Coalition’s non-achievements so far, which states: UK exports to the EU have been growing, at least until early 2012; the deepening Eurozone crisis was mainly due to the same austerity policies employed in the UK; therefore austerity should have been cut back and demand revived.

What we’re left with should be no surprise to anyone: Numbers that don’t add up and explanations that don’t make sense.

Welfare? Rebels are right to fight these well-UNfair changes

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benefits, cash for questions, Coalition, Conservative, David Cameron, economy, Ed Balls, Ed Miliband, ESA, EU, Eurozone, George Bridges, George Osborne, government, Iain Duncan Smith, Income Tax, inflation, Labour, Liberal, Lord Ashdown, Middle England, Mike Sivier, mikesivier, Paddy Ashdown, Parliament, people, Peter Snowdon, politics, sleaze, tax, tax havens, taxhavens, Tim Leunig, Tony Blair, Tories, Tory, tourette's syndrome, Universal Credit

It looks as though (as I write this, early on January 23) the UK Coalition government is about to lose yet another vote on changes to welfare benefits, in the House of Lords. Quelle surprise.

The changes (I refuse to call them reforms), dreamed up by Iain Duncan Smith, have been pilloried by the public as attacks on the poor, and it’s easy to see why. The Guardian, for example, compares two families.

“One is an Islington couple who have never worked. The other is an Oldham family with four children, where the working parent has just lost his or her job,” writes Tim Leunig. “The Islington couple currently receive £250 a week in housing benefit, while the Oldham family gets only £150.

“Times are tough, and the government wants to save money. Which family should have its housing benefit cut? George Osborne has chosen the Oldham family. He is cutting its housing benefit to £96 a week, while allowing the Islington couple to continue to claim £250 a week for as long as they like.

“That is the reality of the £26,000 benefit cap. It takes no account of your employment history or family size. So a central London couple who have never worked are unaffected, because they currently receive less than £26,000 in benefits. But a large family – even in a cheap house – will be hit. That is not sensible.”

But that is the problem with the Tories – no eye for detail. They like to simplify (I believe that’s their euphemism) the benefits system – the classic example being the new Universal Credit, with which they intend to replace a whole bundle of dedicated payments. The problem is that this creates far more problems than it solves and will end up costing far more money. Count on it.

There is grim humour in the fact that this failure to understand the nuances, the details, of the system has become the defining characteristic of Tory leader David Cameron, who was described by Peter Snowdon, in his book Back From The Brink – The Inside Story of the Tory Resurrection, as having “an eye for detail”!

(Snowdon also states that Cameron has a “flair for words”. Considering the trouble his turn of phrase created for him after he described sitting opposite Shadow Chancellor Ed Balls as being similar to facing a man with Tourette’s syndrome, this also seems an unfortunate description)

David Cameron is a loser. His first attempt to get into Parliament was in 1997, when he contested the Stafford seat. He lost. Nobody should ever forget the fact that, with Labour at its lowest point in 13 years, Cameron totally failed to win a Parliamentary majority that was his for the taking in 2010.

And late last year, he managed to use the UK’s EU veto to sideline this nation from the main action in restructuring the Eurozone, effectively isolating us from decisions that directly affect British trade with its largest partner. This is the man who once declared (about Tony Blair): “The socialist Prime Ministers of Europe… want a federalist pussycat and not a British lion. It is up to us in this party… to make sure that lion roars, because when it does no-one can beat us.” In the event, it turned out that the roar was more of a mewl, and no-one outside the UK really noticed. Who’s the pussycat now, David?

People like Lord Ashdown, the former Lib Dem leader, have already stated they will oppose the welfare changes. They have realised that the Coalition is an alliance of losers and want to distance themselves.

However, both Cameron and his Tories are faring well in the opinion polls at the moment. Why?

It could be because Labour, under Ed Miliband and the aforementioned Mr Balls, has not created a well-defined image of itself as the opposing political force. The Labour leadership recently stated it would not reverse any of the Coalition’s cuts if it came into power – creating a stink among the trade unions and collapsing support from party members. If the Labour Party won’t change anything, why support it?

To me, it seems that the two Eds are trying to engineer a repeat of history. In the mid-1990s, according to George Bridges (the Tories’ former campaigns director), Tony Blair was “picking up Tory principles that he felt were appealing to middle England and playing them for all they were worth”. He also promised not to raise Income Tax and committed Labour to Tory spending targets for two years after being elected.

But the political landscape was very different in 1997. Inflation had been curbed and the economy was fairly secure, and the UK headed – under Labour – into the most sustained period of growth it had ever known (or certainly the most sustained in decades).

Now, that bubble has burst and we are, as a nation, having to pay. The Coalition, headed by the Tories, has dictated that the poorest of us must pay the most, and that is a weakness that Labour should exploit.

Labour should be attacking the belief that the economy is safe with the Tories. It isn’t. They took a national economy that was showing the beginnings of strong recovery and choked it off with their austerity programme; also, a programme that benefits those who are already rich while forcing the poor, the disabled, and the rising numbers of jobless into increasing penury is not good stewardship. How can it be? With more people out of work, whether they are receiving benefits or not, fewer are contributing taxes to the Treasury to help pay off the national deficit. The recovery cannot happen.

Labour should be attacking the culture of greed and arrogance that Mr Cameron tried to shake off whilst in Opposition, but has reared its ugly head again, now that the Tories are in office.

Labour should be attacking the divisions in the Tory Party – Europe is an example of this. Conservatives are held together, not by any strong, unifying ideals, but by the thirst for power and money, and members of the Party have widely varying views on almost any issue you care to put before them. It’s just a matter of finding the right pressure-point and applying enough leverage, and they’ll splinter.

And then there’s Tory sleaze. This is never far away. Who can forget the extramarital affairs enjoyed by multiple Tory ministers in the administrations of 1979-97, or ‘Cash for Questions’, to quote just two famous examples?

All Labour has to say about its own policies, in government, is that the Party will do what works. The Tories have proved themselves to be wedded to ideological programmes – stripping back the welfare state, creating tax havens so the rich can keep their money and not contribute to public services, and so on. These are harming the nation. In contrast, Labour need only state it will level up the playing field, re-balance the nation’s finances, and set us up to get back on our feet, and the votes should come rolling in.

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