‘Scrap maternity pay’ – how Tories see the future of ‘welfare’ reform

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[Image: The Guardian]

Yesterday (February 11) we had a chance to see what the Tories – or at least some of them – want to do to state benefits.

Charlie Elphicke, Tory MP for Dover, launched a debate in the Westminster Hall in which he called for the axing of maternity pay – and other in-work benefits – to make way for a new insurance system into which employers and the self-employed would pay, and from which the costs of maternity leave and other benefits would be met. He suggested that participating employers would see a corresponding cut in their National Insurance contributions.

He said he wanted this system to pay out at minimum wage levels, rather than at the current £137 per week maternity rate. The state would back the scheme, but it would be entirely funded by businesses.

The taxpayer would not fund any of this scheme – at least, not the way the visionary Charlie put it during the debate. It would be “paid for by the workplaces of the nation”.

This is how (some) Tories want the system to be: Insurance schemes-a-go-go, with people and businesses standing or falling on their ability to meet the requirements of the system.

Obviously he has not considered the drawbacks of such a scheme. One is very simple: If employers are paying everything towards in-work benefits, why not simply pay the Living Wage, whether a person is working, on maternity, or whatever? The cost would be the same or lower – because there would be no government administrative burden.

Liberal Democrat Work and Pensions minister Steve Webb put some more of them into words.

“As the system currently works… 93 per cent of the cost of statutory maternity pay is refunded to employers. In fact, more than 100 per cent is refunded to small firms,” he said.

“If an employer is reluctant to take on a woman who might have a child, therefore, the pure finances should not make a huge difference.

“I am not therefore sure that having a collectivised… system of insurance is any different substantively for the employer. Either way, employers are getting reimbursed — the costs are being met and are not in essence falling on the employer.”

In other words, there would be no benefit to employers.

He continued: “Whenever we set up a new scheme, we have new infrastructure, bureaucracy and sets of rules. If we had the levy—the at-work scheme that he described — we would have to define the new tax base, have a new levy collection mechanism, work out who was in and who was out, have appeals and all that kind of stuff. There is always a dead weight to such things. Simply setting up new infrastructure costs money. I would have to be convinced that we were getting something back for it.”

In other words, the scheme proposed by the intellectual Mr Elphicke would be more expensive than the current system.

“He then says that he wants the rate not to be some £130 a week, but to be £200 and something a week,” said Mr Webb.

“I was not clear where that extra money would come from. If we pay women on maternity leave double, someone must pay for it. If he does not want that to be an extra burden on firms, paying for it will simply be a tax increase.”

In other words, the scheme might be doubly more expensive.

In addition, he said the proposal created issues around whether it distorted the choice between becoming an employed earner or a self-employed person.

And he pointed out that Mr Elphicke’s proposal was based on a belief that women taking maternity leave would not return to their previous employment – but this is no longer true. Mr Elphicke’s proposal is based on an outdated understanding of the market.

Mr Webb said: “The norm now for an employer who takes on a woman who goes on maternity leave is that — four times out of five — he will come back to the job for which she was trained, in which she is experienced and to which she can contribute.

“We now find that three quarters of women return to work within 12 to 18 months of having their baby… We need to educate employers about the fact that, if they do not employ women of childbearing age, they are depriving themselves of talented people who contribute to the work force. Not employing such women is clearly a bad thing, not only from a social point of view, but from an economic point of view.”

There you have it. Mr Elphicke’s proposal was defeated by a member of his own Coalition government; it was archaic, it was expensive, and it offered no profit for the people who were to pay for it.

That won’t stop him pushing plans like this. You will have noticed that a keystone of his scheme was that businesses would pay for in-work benefits – not the state. Charlie Elphicke is a Tory, and Tories cut taxes for very rich people like themselves. He’ll go on pushing for it in one form or another, for as long as he remains an MP.

Even if it is expensive, harmful nonsense.

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Divisions in Coalition as MPs demand independent inquiry on poverty

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Calls for a ‘commission of inquiry’ into the impact of the government’s changes to social security entitlements on poverty have won overwhelming support from Parliament.

The motion by Labour’s Michael Meacher was passed with a massive majority of 123 votes; only two people – David Nuttall and Jacob Rees-Mogg – voted against it.

The debate enjoyed cross-party support, having been secured by Mr Meacher with Sir Peter Bottomley (Conservative) and John Hemming (Liberal Democrat).

Introducing the motion, Mr Meacher said: “It is clear that something terrible is happening across the face of Britain. We are seeing the return of absolute poverty, which has not existed in this country since the Victorian age more than a century ago. Absolute poverty is when people do not have the money to pay for even their most basic needs.”

He said the evidence was all around:

• There are at least 345 food banks and, according to the Trussell Trust, emergency food aid was given to 350,000 households for at least three days in the last year.
• The Red Cross is setting up centres to help the destitute, just as it does in developing countries.
• Even in prosperous areas like London, more than a quarter of the population is living in poverty.
• According to the Joseph Rowntree Foundation, for the first time, the number of people in working families who are living in poverty, at 6.7 million, is greater than the number of people in workless and retired families who are living in poverty, at 6.3 million.
• Child poverty will rise from 2.5 million to 3.2 million during this Parliament, around 24 per cent of children in the UK. By 2020, if the rise is not stopped, it will increase to four million – around 30 per cent of children in the UK.
• The use of sanctions depriving people of all their benefits for several weeks at a time, had increased by 126 per cent since 2010 and 120 disabled people who had been receiving jobseeker’s allowance had been given a three-year fixed duration sanction in the previous year.
• There are now more than 2,000 families who have been placed in emergency bed-and-breakfast accommodation after losing their homes.
• The per cent rise in the overall homelessness figures last year included nearly 9,000 families with children, which is the equivalent of one family losing their home every 15 minutes.
• A third of families spent less than £20 a week on food and that the average spend on food per person per day was precisely £2.10. That is a third less than those families were able to afford three months before that.
• The proportion of households that had to make debt repayments of more than £40 a week had doubled and the average level of debt was £2,250.
• A third of families had council tax debt.
• 2.7 million people had lost out through the Government’s changes to council tax benefit – many of them disabled people, veterans and some of the most vulnerable in our communities.
• Households were having to spend 16 per cent more on gas and electricity.
• There are 2.5 million people who have been unemployed for the best part of two years, and there were 562,000 vacancies when the debate took place (Monday), so four out of five of those who are unemployed simply cannot get a job whatever they do.
• Cuts to local authorities mean many home care visits are limited to 15 minutes.
• The 10 per cent of local authorities that are the most deprived in the country face cuts six times higher than those faced by the 10 per cent that are the most affluent.
• 60 per cent of benefit cuts fall on those who are in work.

Mr Meacher said the biggest cause of absolute poverty was the huge rise in sanctioning, often for trivial reasons such as turning up five minutes late for a job interview or the Work Programme:

• A dyslexic person lost his Jobseekers Allowance because his condition meant that in one fortnightly period he applied for nine jobs, not 10. He was trying to pay his way and already had work, but it provided only an extremely low income.
• The jobcentre didn’t record that a claimant had informed them that he was in hospital when he was due to attend an appointment and he was sanctioned.
• A claimant went to a job interview instead of signing on at the jobcentre because the appointments clashed – and was sanctioned.
• A claimant had to look after their mother who was severely disabled and very ill – and was sanctioned.
• A Job Centre sent the letter informing a claimant of an interview to their previous address, despite having been told about the move. The claimant was sanctioned.
• A claimant was refused a job because she was in a women’s refuge, fleeing domestic violence and in the process of relocating, but I was still sanctioned.

Mr Meacher also quoted what he called a classic: “I didn’t do enough to find work in between finding work and starting the job.”

The latest DWP figures suggest that more than one million people have been sanctioned in the past 15 months and deprived of all benefit and all income. “Given that the penalties are out of all proportion to the triviality of many of the infringements, and given that, as I have said, four out of five people cannot get a job whatever they do, the use of sanctioning on this scale, with the result of utter destitution, is — one struggles for words — brutalising and profoundly unjust,” said Mr Meacher.

Other reasons for the rise in absolute poverty included:

• Delays in benefit payments.
• The fact that it is impossible for many poor and vulnerable people to comply with new rules – for example a jobseeker who asked to downsize to a smaller flat who was told he must pay two weeks’ full rent upfront before getting housing benefit. He does not have the funds to do so and is stuck in a situation where his benefits will not cover his outgoings due to the Bedroom Tax.
• The Bedroom Tax, which applies to around 667,000 households, and two-thirds of those affected are disabled. More than 90 per cent of those affected do not have smaller social housing to move into.
• The Benefit Cap, imposed on a further 33,000 households.
• Mistakes by the authorities; up to 40,000 working-age tenants in social housing may have been improperly subjected to the Bedroom Tax because of DWP error (although Iain Duncan Smith claims a maximum of 5,000).

Mr Meacher said: “The Chancellor’s policy of keeping 2.5 million people unemployed makes it impossible for them to find work, even if there were employers who would be willing to take them, and the 40 per cent success rate of appeals shows how unfair the whole process is.”

Responding to a comment from David TC Davies (Conservative) that those who are not looking for work must realise there will be consequences, particularly when a million people have been able to come to the UK from eastern Europe and find work, Mr Meacher said, “Those who come to this country are more likely to be employed and take out less in benefits than many of the indigenous population.”

He asked: “Is all this brutality towards the poor really necessary? Is there any justification in intensifying the misery, as the Chancellor clearly intends, by winding up the social fund and, particularly, by imposing another £25 billion of cuts in the next Parliament, half of that from working-age benefits?

“After £80 billion of public spending cuts, with about £23 billion of cuts in this Parliament so far, the deficit has been reduced only at a glacial pace, from £118 billion in 2011 to £115 billion in 2012 and £111 billion in 2013. Frankly, the Chancellor is like one of those first world war generals who urged his men forward, over the top, in order to recover 300 yards of bombed-out ground, but lost 20,000 men in the process. How can it be justified to carry on imposing abject and unnecessary destitution on such a huge scale when the benefits in terms of deficit reduction are so small as to be almost derisory?”

Suggested alternatives to the punitive austerity programme of cuts came thick and fast during the debate. Challenged to explain what Labour’s Front Bench meant by saying they would be tougher on welfare than the Tories, Mr Meacher said: “As the shadow Chancellor has made clear on many occasions, is that we need public investment. We need to get jobs and growth. That is the alternative way: public investment in jobs, industry, infrastructure and exports to grow the real economy, not the financial froth, because that would cut the deficit far faster than the Chancellor’s beloved austerity.”

He asked: “How about the ultra-rich — Britain’s 1,000 richest citizens — contributing just a bit? Their current remuneration — I am talking about a fraction of the top 1 per cent — is £86,000 a week, which is 185 times the average wage. They received a windfall of more than £2,000 a week from the five per cent cut in the higher rate of income tax, and their wealth was recently estimated by The Sunday Times at nearly half a trillion pounds. Let us remember that we are talking about 1,000 people. Their asset gains since the 2009 crash have been calculated by the same source at about £190 billion.

“These persons, loaded with the riches of Midas, might perhaps be prevailed upon to contribute a minute fraction of their wealth in an acute national emergency, when one-sixth of the workforce earns less than the living wage and when one million people who cannot get a job are being deprived of all income by sanctioning and thereby being left utterly destitute.

“Charging the ultra-rich’s asset gains since 2009 to capital gains tax would raise more than the £25 billion that the Chancellor purports to need. I submit that it would introduce some semblance of democracy and social justice in this country if the Chancellor paid attention to this debate and thought deeply about what he is doing to our country and its people.”

Ronnie Campbell (Blyth Valley, Lab) suggested that the Government might save a lot more if its members “showed the same energy and enthusiasm for getting those who evade their taxes and run to tax havens as they do for going after the poor, the sick and people on the dole”.

Against this, David TC Davies offered insults and distortions of the facts, quoting the Daily Mail as though it provided an accurate account of current events: “Members of the shadow Cabinet might need a boxing referee to sort out their disputes at the moment, as we read today in the Daily Mail.”

He said: “We took office with a deficit of £160 billion and a debt that was rising rapidly to £1 trillion. That was after years of overspending in good times, as well as in bad, by Labour, a cheap money supply and lax banking regulation under the former Government.” Labour’s spending, up until the financial crisis, was always less than that of the previous Conservative administration; Gordon Brown and Tony Blair both ran a lower deficit than John Major and Margaret Thatcher, and at one point actually achieved a surplus, which is something that the Conservatives had not managed in the previous 18 years. While Mr Davies here complained about the “lax banking regulation”, Conservatives supported it at the time and in fact demanded more DE-regulation, which would have made the financial crisis worse when it happened.

“We had disastrous economic decisions, such as that to sell gold at a fraction of its real rate,” said Mr Davies. Yes – the UK lost around £9 billion. But compare that with the disastrous economic decision by George Osborne to impose more than £80 billion worth of cuts to achieve a £7 billion cut in the national deficit. The UK has lost £73 billion there, over a three-year period.

And Mr Davies said: “Worst of all and most seriously, we had a welfare system that allowed people to get into a trap of welfare dependency, leaving them on the dole for many years, but at the same time filling the consequent gap in employment by allowing mass and uncontrolled immigration into this country, which completely undercut British workers.” The first assertion is simply untrue; the second is a legacy of previous Conservative administrations that agreed to the free movement of EU member citizens, meaning that, when the eastern European countries joined in 2004, citizens migrated to the UK in the hope of a better life. Labour has admitted it should have negotiated for a delay in free movement until the economies of those countries had improved, making such migration less likely, but the situation was created before Labour took office.

Challenged on the Coalition’s record, Mr Davies fell back on the Tories’ current trick question, which is to counter any criticism by asking: “Is he suggesting that we are not doing enough to pay down the national debt? Is he suggesting that we should cut further and faster? If so, and if we had the support of other Opposition Members, that is exactly what the Government could do and, indeed, possibly should do. I look forward to seeing that support for getting the deficit down.” This disingenuous nonsense was batted away by Labour’s Hugh Bayley, who said “investing in the economy, creating jobs and thereby getting people off welfare and into work” was the way forward.

Mr Davies’ Conservative colleague Jeremy Lefroy took a different view, agreeing that increasing numbers of people are finding it impossible to make ends meet, and that job creation and apprenticeships were a better way out of poverty than changing the social security system alone. He agreed that sanctions were applied to his constituents “in a rather arbitrary manner”. He spoke against George Osborne’s suggested plan to remove housing benefits from people aged under 25, saying this “would have a drastic impact on young people who need to live away from home and who have no support from their families”. He spoke in favour of councils increasing their housing stock. And he admitted that disabled people faced severe problems when unfairly transferred from ESA to JSA: “A lady in my constituency says, ‘I am simply not fit for work, but by signing on for JSA I have to say that I am available and fit for work.’ She does not want to tell a lie.”

Steve Rotheram (Liverpool Walton, Labour) spoke powerfully about the effect of being on benefits: “Lots of people in my city are on benefits for the very first time. Far from being in clover — it beggars belief what we read in the right-wing press — they are struggling to make ends meet, and the problem that thousands of Liverpudlians are facing is new to them. For many, the idea that they might miss a rent payment is totally alien. They have not done that in the past 20 years, but since May 2010, their individual household incomes have been on such a downward trajectory that they now find themselves in rent arrears, seeking advice on debt management and unable to afford the daily cost of travel, food and energy. Figures suggest that 40 per cent of the adult population in Liverpool are struggling with serious debt problems.”

And he said poverty had health implications, too: “David Taylor-Robinson of the University of Liverpool and his fellow academics have highlighted the doubling of malnutrition-related hospital admissions nationally since 2008.”

John Hemming (Birmingham Yardley, LD) raised concerns about “the interrelationship between the welfare cap and victims of domestic violence, and whether there are situations that need more attention. I believe that people can get discretionary housing payment to leave a violent home, but it is important that we ensure that there is a route out of domestic violence for women. I am worried about that issue, just as I am about some wrongful sanctioning that I have seen. That does not help at all, because it undermines the whole process.” He also called for “a substantial increase in the minimum wage, because as the economy is improving the Government should look at that, rather than maintain things as they are”.

The vote gave huge endorsement to the call for an independent inquiry into poverty under the Coalition.

But with an election just 15 months away, how long will we have to wait for it to report?

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Osborne’s cuckooland claims could leave a terrifying legacy

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austerity, Balls, borrowing, contraction, cuts, debt, deficit, economy, Ed, education, fuel, George, Gideon, infrastructure, investment, Mike Sivier, mikesivier, Miliband, Osborne, payment, pensioner, rail, recovery, road, science, UK, Vox Political, winter

‘Jeffrey’ Osborne sings for his supper at some CBI dinner.

Try not to choke on your coffee: George Osborne reckons the British economy is “out of intensive care”.

Now, he says, the task is to “secure the recovery”.

He’s starting on Wednesday with cuts totalling £11.5 billion which, once fiscal multipliers are taken into account, means a contraction of around £20 billion in the national economy.

Securing the recovery. Good luck with that, Gideon.

The good news is that he is expected to announce investment in infrastructure projects, including roads, railways, education and science. He has realised – probably too late – that cutting all those infrastructure projects at the start of this Parliament was economic suicide and is trying to do something about it before everyone realises he’s an idiot. He is, of course, much too late for that but the investment – if it goes to well-advised places – might just do some good.

Don’t bank on it, though.

Osborne’s claims about the economy are based on statements that government borrowing has come down and employment is up – but we know that the first isn’t true and the second is not helping. In other words, he’s built his castle in the sand.

Government borrowing rose by £300 million in 2012-13, from £118.5 billion to £118.8 billion, according to the Office for National Statistics. That’s not a huge amount, you may think, but remember this government reckons it has cut borrowing by a third since taking power. That would put borrowing at around £100 billion right now, which is clearly inaccurate.

The debt is now £1.9 trillion, up from 1.1 trillion a year ago – 75.2 per cent of GDP, up from 71.1 per cent.

We all know what the problem is: Austerity – the self-perpetuating (and self-defeating) policy that will eventually bankrupt us all (but not the country. Because we have our own currency, the UK is unlikely ever to go bankrupt. You see, when the Tories told you that, they were lying).

The worst of it is that the other main political parties have signed up to the delusion that all these cuts might actually do some good.

Ed Miliband has ruled out more borrowing. That in itself is not a bad idea. But Ed Balls has admitted that he would follow Tory spending plans, at least for the first year of a Labour government, and there’s a consensus that pensioners will probably be the next defenceless social group to be hit with cuts – this time to benefits such as winter fuel payments.

They are talking among themselves. It seems unlikely that any of them has bothered to look out of the window to find out the real effect of their idiot schemes.

And so the agony continues. Based on an economic fallacy, perpetuated on the masses, while the very rich continue raking it in.

The longer this goes on, the greater the danger to us all.

From the DWP to the economy – the Coalition’s growing credibility chasm

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All the wrong choices for all the wrong reasons: The evidence fails to support George Osborne’s economic austerity policies – the only likely explanation seems to be an intention to rob this nation of everything possible before 2015.

The more we learn of the Tory-led Coalition’s policies, the wider the gap grows between what it is doing and what it should be doing.

Look at the sham psychometric tests, exposed by fellow blogger Steve Walker in a series of articles on his Skwawkbox site. It is now firmly established that the DWP – aided by the Cabinet office ‘nudge unit’ – set out to pressgang put-upon benefit claimants into taking part in a crude piece of neuro-linguistic programming – no matter what answers you provided, the test always pushed out a ridiculously upbeat appraisal of your character and then tried to get you to act according to this verdict in your jobsearching activities. The theory is that this will make a jobseeker more confident and finding a job easier. The problem is that it’s quite utterly ludicrous.

If you haven’t already, you can read the Skwawkbox exposure of this particular caper on that site – there are plenty of links to it from this one. The reason it is mentioned here is that it provides a useful set of questions with which to analyse any government activity: First, is the theory behind this activity sound? Second, if that theory is being used to support a particular course of action, is that action justifiable?

So let’s turn once again to George Osborne’s reasons for pursuing economic austerity, as described in the letter Vox Political received from the UK Treasury last month.

Firstly, the letter warns against the perils of losing market confidence. By this, we can see that it means we should fear any downward revision of our credit rating by the credit agencies, as “a one percentage point increase in government bond yields would add around £8.1 billion to annual debt interest payments by 2017-18”.

What’s being said is that a drop in our credit rating would mean the people and organisations that have invested in UK government debt (by buying our bonds) might move their funds to others, meaning the government could be faced with an interest rate rise, leading to increased difficulty in borrowing.

But we know that this isn’t true. The UK’s credit rating was downgraded only a few months ago. Did interest rates rise? Was our ability to borrow hindered at all? No. There’s a reason for that.

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.

This means that the Treasury’s next point, that “any loss of investor confidence in the UK’s fiscal position would not only affect the UK, but also the global economy” is also meaningless. There won’t be a loss of investor confidence, so there won’t be an effect on the global economy.

We move on – to the Chancellor’s claim that fiscal austerity is required to prevent the slowing of economic growth that happens when the national debt hits 90 per cent of gross domestic product (or thereabouts).

You’ll recall that my letter to the Chancellor was prompted by the revelation that the academic paper on which he relied most often, by Reinhart and Rogoff, had been proved to be mistaken. The Treasury’s response pulled out a series of references to other academic works suggesting a fiscal cliff similar to the Reinhart-Rogoff model, off which we would drop if the national debt passed an arbitrary level around 85-90 per cent of GDP. These were published by the International Monetary Fund, which we know isn’t quite as keen on austerity as it used to be; the Organisation for Economic Co-operation and Development, which this blog marked out as “schizoid” only a few days ago; and others.

Obviously I haven’t had time to look up eight academic works to support any opposing theory I may wish to create – and I think I would be foolish to try. I don’t have any grounding in economics beyond what I’ve been able to pick up by following the national and international debates.

But, then, according to Dean Baker of the Center (yes, it’s American) for Economic and Policy Research: “As a general rule economists are not very good at economics.”

He writes: “Most economists are unable to conceptualize anything that someone with more standing in the profession did not already write about. This is the only reason that the Reinhart-Rogoff 90 per cent debt-to-GDP threshold was ever taken seriously to begin with.”

That prodded my curiosity to check some of the papers listed by the Treasury in support of its stance, and the three that I checked (The Real Effects of Debt, Public Debt and Growth, and How Costly Are Debt Crises?) all listed the Reinhart-Rogoff paper in their supporting references. So Mr Baker is right.

“Debt is an arbitrary number,” he continues. “The value of long-term debt fluctuates with the interest rate… The value of our debt will plummet if interest rates rise… This means that we could buy back long-term debt issued today at interest rates of less than 2.0 percent for discounts of 30-40 percent. This would sharply reduce our debt-to-GDP ratio at zero cost.

“Bonds carry a face value, meaning the amount that will be paid off when they reach maturity. This is what gets entered in our debt figure. However bonds also carry a market price, which fluctuates inversely with interest rates. The longer the term of the bond, the more its price will vary with interest rates.

“If interest rates rise, as just about everyone expects over the next three-to-five years, then the market price of the bonds we have issued in the current low interest rate environment will fall sharply. Since we count our debt at the face value of the bonds, not their market price, we could take advantage of the drop in bond prices to buy up… bonds at sharp discounts to their face value.

“The question is why would we do this, we would still pay the same interest? The answer is that the policy would make no sense for exactly this reason.

“However, if we accept the Reinhart-Rogoff 90 per cent curse, then reducing our debt in this way could make a great deal of sense. Suppose we can buy back debt with a face value of 60 per cent of GDP at two-thirds its face value, or 40 per cent of GDP. In our debt accounting we would have reduced our debt-to-GDP ratio by 20 percentage points. If this gets us below the 90 per cent threshold then suddenly we can have normal growth again.

“Yes, this is really stupid, but if you believed the Reinhart-Rogoff 90 per cent debt cliff, then you believe that we can sharply raise growth rates by buying back long-term bonds at a discount. It’s logic folks, it’s not a debatable point — think it through until you understand it.”

I found Mr Baker’s piece after asking Jonathan Portes of the National Institute for Economic and Social Research (NIESR) for his opinion on the Treasury letter. He described it as “Predictable and largely irrelevant”.

So despite my lack of economic education, we have a working theory that suggests the Treasury has built its economic castle on the sand; that its justification for austerity is unsound. What about the austerity measures themselves? Are they justifiable on any level at all?

Evidence suggests not.

Let’s go back to our other friend in this matter, Prof Malcolm Sawyer. “Fiscal austerity and cuts in public expenditure do not work – there is a limited, if any, effect on reducing the budget deficit, and any return to prosperity is severely undermined.” We can see that this is true, using the government’s own figures. It managed to cut the deficit from £150 billion to £120 billion in 2011-12, mostly by axing large projects that invested in the UK economy. How much did it cut from the deficit in 2012-13? Less than £1 billion. The benefit cuts that created much of the fuel for this blog have not helped to cut the deficit at all.

“The reduction of the budget deficit can only come from a revival of private demand which is harmed by an austerity programme,” Prof Sawyer continues. Again, we can see that this is true. Austerity measures such as benefit cuts and the axing of infrastructure investment projects means there is less money available to the people who are most likely to spend it – the working- and middle-classes, and those who are unemployed. People with less money have to spend just about everything they receive in order to cover their costs. That money passes into circulation and the economy grows, through the fiscal multiplier effect. An attempt to explain this effect appeared on this blog within the last few days. The point is that demand increases when the people who earn the least have more to spend.

Therefore we see that Prof Sawyer’s next statement, “Deficit reduction requires investment programmes and reduction of inequality to stimulate demand”, is already proved.

So the answer is to reduce the unemployment rate by creating more jobs and closing the jobs deficit, as highlighted in this blog only a few days ago; to raise incomes by significantly increasing the minimum wage and adopting the proposed ‘living wage’, as promoted in this blog frequently; and investment in infrastructure projects.

What has Osborne done, along with his economically-illiterate chums?

He has created high unemployment.

He has depressed wages.

He has cut infrastructure projects.

He has, therefore, sucked all the demand out of the economy. What effect has this had?

Economic growth has, in the single word of Shadow Chancellor Ed Balls, “flatlined”, borrowing has remained high and the national debt is continuing to rise.

In other words, this part-time Chancellor’s strategy – a plan on which we have all been asked to judge the entire Coalition government, let’s not forget – has failed. Hopelessly.

I return you to Prof Sawyer, one last time [bolding mine]: “The austerity programme is economically irrational, socially irresponsible, and lacks credibility that it can reduce the budget deficit and secure any return to prosperity. The time has come to rebuild through investment and through a major assault on inequality.”

Thinktank’s schizoid report will not help Osborne to secure more cuts

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Schizoid report: José Ángel Gurría, secretary general of the OECD. He’d probably object to the way we’ve defaced his sign, but it now provides a more accurate description of his organisation’s opinions.

How can the Organisation for Economic Co-operation and Development tell George Osborne that he should invest in infrastructure projects but continue with his policy of cutting public spending, when the first public spending he cut was infrastructure projects?

Is this a sign of the delirium into which the western economies are sinking, partly through slavish adherence to neoliberal nonsense – in the face of all the facts – and party through a lack of raw intelligence?

The OECD, according to The Guardian, has revised down its economic growth forecast for the UK. What a surprise; they haven’t revised our growth upwards since before Osborne became Chancellor – and that alone indicates where the problem lies.

It says spending cuts and a lack of consumer and business confidence are restricting what we should all call “the recovery” only in mocking terms.

But, as the newspaper reports, “it [the OECD] backed George Osborne’s plans for further spending cuts, saying: ‘With a high budget deficit and gross government debt rising to 90 per cent of GDP in 2012, further fiscal consolidation is necessary to restore the sustainability of public finances.'”

What? It’s still supporting the discredited view that when public debt hits 90 per cent of GDP, growth is slowed? Hasn’t that idea been comprehensively rubbished – not only on paper but in the fact that UK growth hit standstill point the instant Osborne came in as Chancellor and inflicted his policies on us all?

It isn’t the amount of debt that’s the problem – its the stupid things that blinkered upper-class idiots do in response!

The OECD said the Labour market was “resilient”, so it obviously has been paying too much attention to DWP press releases when it should have looked up the facts. According to the Resolution Foundation (yes, another thinktank), as reported in The Independent, “The jobs market remains weak and is likely to continue to struggle well into the second half of the decade, making this a more severe downturn for employment levels than the two previous recessions”.

The article states: “The Resolution Foundation has performed an analysis of the total adult employment rate – which reflects the increase in the size of the population and the growth of the available workforce – and found that there remains a “jobs gap” of 930,000. This is the number of new jobs that would be required to restore the employment rate from its present level of 58.5 per cent to the 60.3 per cent recorded in 2008. This jobs gap has actually grown from 830,000 in the final quarter of last year.”

Once again, we see the facts do not support Coalition government press releases.

The OECD’s claim that average real earnings are “weak”, on the other hand, is realistic and gives the necessary perspective to a report from the Office for National Statistics that the total number of weekly hours worked across the economy hit a new record high of 950.3 million in the first quarter of the year.

If everybody’s working so much, why haven’t we got any money? Answer: Because the Tory-led government has been pushing wages downwards, ever since it came into power. Average earnings for bosses of FT350 companies have rocketed upwards, but the worker on the street had a pay rise of just 0.8 per cent last year. Look at the way benefit increases have been pushed below the rate of inflation (the DWP again!) in order to make the unemployed desperate to take whatever work they can get – no matter how poorly-paid – and to put those who have jobs in fear of losing them, so that they won’t be demanding pay rises anytime soon.

Back to the OECD: It wants a house-building programme to spur jobs growth. Without this, it warned that house values could overheat, sparking another price bubble. Isn’t that what George Osborne wants? Look at the so-called “second-home subsidy” he announced in the March budget, when he said the government would underwrite a percentage of new house purchases. Already we have seen warnings (from Sir Mervyn King in this Vox article) that it will create a price bubble.

So not only is Osborne right; he’s also wrong. Growth is down because of his policy of cuts, but he should continue making them. Unemployment is down – but the jobs gap has grown.

Also, not only is Osborne wrong; he’s very wrong. Low wages mean economy-boosting demand is also low – but the government is pushing wages down still further. House-building is needed to spur jobs growth and prevent a price bubble – but he isn’t building houses and he is actively pursuing the creation of a price bubble.

That’s what the OECD report says. There’s no way Osborne should be using it to support his policies but I bet he will.

If I were the secretary of state in one of the government departments he’s trying to squeeze for more cuts, I would be phoning the local mental hospital, saying a dangerous madman was loose in Whitehall and demanding that he should be sectioned.

But it seems that, instead of this, the ministers who’ve dragged their feet will be subjected to a grilling by the all-new ‘Star Chamber’, which is the name for the public expenditure committee Osborne has set up. Apparently ‘Star Chamber’ has a “mystique” about it (according to The Guardian); in fact it will consist of Osborne, Danny Alexander and those ministers who’ve given in and agreed cuts, haranguing the dissenters until they fold up like cheap thugs who’ve been punched in the kidneys once too often.

The fact that they will all eventually capitulate means we can laugh at them next time they’re on television trying to act tough, but the whole sorry story leaves us with one immutable fact:

This is no way to run an economy.

GDP figures due – will Gideon have anything to show for his austerity idiocy?

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Triple-dip breakfast: Will we all be dining on the sour cereal of recession again, when GDP figures are published on Thursday morning?

Thursday will be another ‘crunch’ day for our part-time Chancellor of the Exchequer – he’s having quite a lot of those lately, isn’t he?

Only last week, the academic justification for his austerity policy was disproven by an American student (oh, the shame!), and then his former allies at the International Monetary Fund distanced themselves from him (oh, the betrayal!) saying he should calm down a bit.

That’s the best advice this columnist has ever heard the IMF provide; if not for his own health, then for the nation’s.

Thursday, though, is a really big day. On Thursday, GDP figures for the first quarter of 2013 will be published.

It is a sign of how low expectations have fallen, that all the economic commentators are saying the best we can expect is to have kept out of a triple-dip recession – with falls in output due to the weather, among other things, making that unprecedented outcome more likely.

There is a problem with all of these predictions, which should be obvious to those of us living in the real world: Short-termism.

It’s all about how the UK managed in the last quarter, how it will manage in the next; what the situation is today. What about six months from now? What about next year? What about 2015, when we’re all expecting an election and the chance to banish this nightmare? What about 2017-18, when 0sborne still reckons he’ll have eliminated the budget deficit (fat chance)?

The fact is that the only options open to a Chancellor in the current climate are unpalatable to the Boy.

He could boost investment in infrastructure, in a bid to make this country a better place to open – and carry out – business. The trouble is, this tends to be a long-term project and he no longer has the time. His chances would have been better if he had started this in 2010, but his government cancelled as many such projects as they could back then, claiming it was more important to cut public spending in order to balance the books.

That was a vain hope. Without new investment, the country has lost revenue.

But if that is unpalatable, the other alternative is likely to make him choke on his pate de foie gras (or whatever it is these posh boys ingest): Increase the spending power of the poor.

It is known that the ‘trickle-down effect’ is a myth – giving all of a country’s money to the very rich, in the belief that they will spend it, boosting the economy and the income of the poor, is nonsense. What they actually do is bank it – in offshore tax havens, most likely. That is what 0sborne has been doing; it is another reason the economy has bombed.

It is also a rock-solid fact that poor people do spend their money – or as much as they can get their hands on. When you are constantly struggling to make ends meet, it’s very hard to keep cash in the bank – you have to spend it on food, clothes, rent, heat, light, water… the list is endless, because it constantly repeats.

When you don’t have much cash, as Edmund Blackadder once said, you feel like a pelican. Everywhere you turn, there’s a large bill in front of you.

That money does work for society. It reinvigorates the economy as it filters through different hands. And it brings with it the extra joy of fiscal multipliers – every pound that gets put into the economy is worth more after it has been through.

The trouble is, Gideon shut off that money supply. He raised VAT, making it harder for working-class people and those on benefits to buy certain economy-boosting products, and then he and Iain Duncan Smith spent the last few years on their project to depress wages.

(For clarity, it goes like this: The DWP makes the benefit system so difficult to navigate that people in receipt have to do their utmost to get off-benefit as soon as possible. This means they are constantly looking for jobs, which in turn makes it possible for employers to refuse pay rises for their workforce, with the classic line that “there are plenty of other people who’d be happy to have your job, you know!” You didn’t really think the benefit cap was about making work pay, did you?)

Say what you like about Labour, but they’ve got the right idea when it comes to the money supply. Ed Balls wants to cut VAT; he wants to bring back the 10 per cent tax rate for the lowest-paid; he wants to bring in a National Insurance holiday for companies that agree to take on new employees.

These are measures that will help.

What is Gideon going to do?

How would abolishing the minimum wage help to make work pay?

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The so-called ‘public debate’ over whether Michael Philpott (or if you prefer, Iain Duncan Smith) typifies the sort of people who live on social security in modern Britain has effectively masked something more sinister that was put in motion this week.

The government wants the Low Pay Commission to consider the impact on “employment and the economy” of the minimum wage.

The implication is clear: The Conservatives want to get rid of the statutory lowest level of wages, in order to further depress remuneration for the poorest workers in the UK. Whether or not that is the fact, it’s what people will infer.

The timing is a classic tragedy of modern Conservatism. Having just made a bold (and entirely false) claim that its benefit cuts are “making work pay”, the Tory-led Coalition appears dead-set on making sure that it won’t.

I had an argument, on this very subject, over on the Conservatives’ (I think) Facebook page. It was a while ago, but I thought I had saved the debate for posterity. I spent much of yesterday looking for it and came up with nothing, so what follows is a paraphrase of what I said there, and the best I can remember. For that I apologise. I can only advise others reading this that you should never throw anything away, as you might need it later! (That goes for things you’ve said, mind, not sweet wrappers or other rubbish – you shouldn’t all become hoarders just because of me).

The discussion was based on the premise that, rather than pay the bare minimum, employers should in fact pay a ‘living’ wage, in line with what Labour has been proposing.

I’m very much in favour of a living wage. If a person receives enough, in return for their work, to pay their way in the world without having to take state benefits, several things happen:

They feel valued in their position, and try harder. The quality of their work improves, along with that of the other workers in the company who also receive the living wage, and as a result, the employer is likely to benefit from improved orders. The company flourishes and is able to take on more employees.

As a result of this, the firm and its employees are able to pay more taxes and National Insurance contributions – not as a result of an increase imposed by an oppressive government, but because more people are employed there. The government therefore has more cash to fund public services; it has less need to borrow money and will not have to pay as much in social security benefits – in-work benefits will be unnecessary because working people will be receiving enough to put them above the threshold for them, and fewer people will be claiming out-of-work benefits.

The government can then pay off its debts and deficit more quickly and then cut tax rates. This means everyone will have more money in their pockets – including employers, who can then plough the extra cash back into the firm with infrastructure improvements and more employment.

You see how this works?

Contrast this with what happens when you employ somebody on the minimum wage, or abolish it.

People on the absolute minimum do not feel valued. They consider their employers to be taking more than their fair share of the profits generated by the company where they all work together. They feel undervalued – and demeaned by the fact that they have to claim state benefits in order to survive. Their health may be put at risk, because they may find themselves having to work ridiculously long hours, just to make ends meet. Their work starts to suffer, and they may end up unemployed, either for health reasons or because the company is suffering (as a result of workers turning in substandard work).

The company makes cutbacks. Its bosses don’t want to take a pay cut so they cut corners elsewhere. The workforce diminishes and the quality of the product suffers. In time, the firm’s contribution to the national economy dwindles – if it doesn’t go to the wall altogether. Its tax and National Insurance contribution plummets.

The government finds itself paying in-work benefits for increasing numbers of people, and unemployment figures skyrocket. Employers and workers do not provide enough money in taxes and National Insurance to pay the bill for public services, so these are cut back and borrowing increases. The nation goes into a debt spiral.

That is the current situation.

Which of the above would you rather have?

RIP Hugo Chavez – when can the UK have a Prime Minister like you?

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Which would you rather have – Chavez or Cameron?

Isn’t it amazing, the amount of joy the right-wing press and its adherents can project over the death of a man who improved conditions in his country beyond all expectations?

That is what we are seeing after the death of Venezuelan President Hugo Chavez.

But we should not be surprised – after all, these are the same newspapers (and their bosses) who support the nation-wrecking policies of David Cameron and the Coalition – an unelected dictator and a cadre of manipulators whose only linked interest is their own enrichment at the expense of anybody else.

Chavez was not perfect. There are some aspects of his personality that would give any reasonable person cause for second thoughts. His support for foreign dictators is one. Any man who can draw tributes from Ahmadinijad and Assad is questionable. The rise of violent crime in his country is another – and extremely worrying. Violent crime is linked with poverty, and yet…

And yet any criticism of his presidency on economic grounds is absurd. His nation’s wealth tripled during the first 12 years he was in office. Tripled!

As for his association with unelected dictators – this seems beyond strange as he was not one himself. In fact, his share of the popular vote at his last election was enough to turn every British Prime Minister since Winston Churchill pale with envy.

That last election was won under one of the fairest and most robust voting systems in the world – that was implemented by his own party. Former US President Jimmy Carter thinks its system is superior to that of the US. Turnout was more than 80 per cent, with 55.1 per cent of voters casting for Chavez. It’s notable that the 44.3 per cent of votes cast for rival Henrique Capriles would shame every single UK Prime Minister since Harold Wilson in 1966.

In other words, Venezuela’s former president was elected by one of the most democratically-sound systems in the world, and gained more support from his people than any British PM since Churchill.

Not a despot, then.

He has cut extreme poverty by two-thirds, and general poverty by almost half.

He has cut infant mortality and improved equality; and he has cut unemployment by almost half, to 8.2 per cent (strikingly close to the UK level).

He has improved his nations infrastructure and public services.

And he has proved that left-wing policies can improve prosperity and increase economic growth.

That’s why the right-wing press hate him. He shows there is a better alternative to the nightmare we are living through.

So let’s look at David Cameron, shall we?

Only 23.47 per cent of eligible voters supported David Cameron in the UK general election of 2010 (compared with 44.32 per cent for Chavez in January this year).

That election was marred by the fact that many voters were prevented from casting their vote at polling stations that closed at exactly 10pm. This was incorrect – all voters who had arrived and were queueing by 10pm should have been admitted to the building and allowed to cast their vote. So the UK election of 2010 was carried out in an improper way.

The result was a hung Parliament, with no single political party gaining power. The Con/Dem Coalition was formed in a backroom deal between Cameron and Nick Clegg, and had nothing to do with the will of the electorate. Therefore Cameron can be said to be unelected. Less than a quarter of the eligible voters wanted him and he did not win enough Parliamentary seats to justify taking office.

Then we come to dictatorship. How many unwanted policies have we had since this rabble slithered into government, determined to restrict our freedoms just as much as possible?

Policies like, for example, the cuts to Legal Aid?

Secret courts?

The Internet snooping Bill?

The plan to gerrymander the number of Parliamentary seats and the boundaries of constituencies, in order to deliver an unfair advantage to the Conservative Party in the next election (which, thankfully, failed)?

How many policies have been imposed on us with the intention of impoverishing the poorest in society?

The Welfare Reform Act?

The Localism Act, with its reintroduction of the hated Poll Tax (that’s the Council Tax Reduction Scheme, for those of you in England who have to deal with it)?

The Bedroom Tax?

AUSTERITY?

And then there’s the Health and Social Care Act, an attempt to ‘fix’ the National Health Service when it wasn’t broken, in order to let private operators get their hands on the huge cash opportunities it offers. Has anyone noticed that the nation’s health has worsened, according to many indicators, since the ConDems took over?

And there has been no mention yet of all the policies to put money in the pockets of the very rich, donors to the Conservative Party, bankers, people who park their money in offshore tax havens (thereby keeping it away from the taxman) and the many other corrupt ways this government’s members have been filling their own pockets with cash (and those of their friends and donors) when they should have been looking after the national interest.

Yet the right-wing press supports Mr Cameron and his cronies, despite the fact that they have been a worse disaster for the UK than the financial crisis that preceded their arrival.

Can we ever hope to have a champion like Chavez in this country?

Or is the British system now so badly corroded that it can only ever attract the worst that society has to offer?

Get a clue, George! (Or: Saving the economy, part two)

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Don’t get your hopes up! The box is probably as empty of good ideas as his head.

What a lot of twaddle Gideon George Osborne was peddling to Andrew Marr yesterday!

Speaking in advance of his Autumn Statement (or mini-budget) on Wednesday, Gideon told us all that cutting the UK’s financial deficit was “taking longer” than planned. This is because his government hasn’t invested in any infrastructure projects worth mentioning, or created jobs any other way. Where projects have been identified (HS2, new airport/runway), his political party has descended into squabbles over price and place.

He said “to turn back now would be a complete disaster”, which is true but pointless, as nobody is contemplating it. If Labour were to take over in 2015, they would have to look at the situation then and find a way to progress from there – they wouldn’t try to turn back the clock; that’s not possible.

He said richer people would “pay their fair share”, which means nothing when we don’t know what Mr Osborne considers is fair to richer people. What we’ve seen so far would suggest he likes to hammer the poor while handing richer people a tax rebate. Do you think that’s paying their fair share?

But I’ve already tackled what I would do with taxation.

He said the deficit was down by a quarter. This is a statistic that the Tories like to peddle but it is utterly meaningless when you see that borrowing for October hit £8.6 billion – £2.7 billion more than in October 2011. How is this an improvement?

He did show one flash of wisdom; he wisely refused to divulge any of the Office for Budget Irresponsibility’s economic forecasts in advance of Wednesday’s Statement. This is an organisation that has been consistently wrong, ever since it was set up. I wouldn’t trust it to speak my weight.

His worst transgression, though, was this: “To go back to the borrowing and the debt and the spending that Ed Balls represents would be a complete disaster for our country.”

Get a grip, Gideon! Borrowing during the Labour years was around 2 per cent LESS than during any preceding Conservative administration over the last 40 years! As for debt, even after the financial crisis and the bank bailout, the UK’s debt was a lower percentage of GDP than it had been for most of the 20th century! You are peddling an infantile justification narrative that even a child can see is nonsense!

I think the biggest problem here is one of perception. Gideon‘s idea of borrowing and spending involves borrowing money to give to his party’s fatcat business friends through government schemes like the work programme (don’t let them tell you it’s payment by results – even the DWP has admitted it isn’t). If he actually got down to proper investment, in proper infrastructure projects, the economy would start to rally.

Government investment of this kind would, in fact, pay for itself – and help pay off the deficit.

Any spending has a greater impact on the rest of the economy than the initial outlay; this is known in the jargon as the ‘multiplier effect’. There are a variety of multipliers depending on the sector. The highest multiplier is attached to construction at 1:2.06, meaning that every £1bn invested in construction will actually generate £2.06bn in new activity.

The government could, for example, embark on a massive programme of publicly-owned housing, to help reduce the deficit. It can do so much more efficiently than the private sector for three reasons: First, government has a return in the form of taxes; secondly, welfare spending falls as people are brought into work; thirdly, government borrows at much lower interest rates.

For these reasons, government can actually build the same house for a much lower net outlay than the developer and so offer affordable housing which contributes to reducing the deficit.

Also, there are 1.8 million families (representing over five million people) on council house waiting lists. There is an urgent need to build affordable housing for these people, which would also help reduce housing benefit payments.

There is no obstacle to increasing borrowing in order to fund investment. The interest rate on 10-year government borrowing is currently well below the level of inflation – meaning the government can borrow at interest rates that are less than zero in real terms. Why doesn’t anyone ask Gideon why he isn’t taking full advantage of these amazingly favourable opportunities?

This is the kind of investment that creates real jobs. You don’t create jobs by bullying people on benefits into work that doesn’t exist, Gideon! Here are a few more examples of where public sector jobs would benefit the economy as a whole:

It has been estimated that over a million ‘climate jobs’ could be created if the government was serious about tackling both climate change and unemployment – these would include areas like housing, renewable energy and public transport investment including high speed rail, bus networks and electric car manufacture.

Much of the country outside of London also needs huge investment in bus services – and, just as we should invest in electric car technology, we should also invest in electric buses and tram networks.

Only 2.2% of UK energy comes from renewable sources compared with 8.9% in Germany, 11% in France, and an impressive 44.4% in Sweden. If we are committed to tackling climate change and ensuring domestic energy security there needs to be investment in renewable energy technology.

Are you going to mention any of those in your Autumn Statement, Gideon?

I think not.

How can unemployment be dropping at the same time as claims for joblessness are rising?

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Today, the government was very pleased to announce, on the BBC and in all the usual right-wing rags, that the number of people out of work in the UK has fallen to its lowest total for more than a year – 2.51 million or 7.8 per cent of the working-age population.

But the claimant count – which tracks the number of people receiving Jobseekers’ Allowance and is the most timely measure of employment – rose by 10,100 last month, the largest increase since September 2011, as reported by the BBC and The Guardian.

Both figures were released by the Office for National Statistics, which seems to be treading on territory that is practically owned by the Office of Budget Irresponsibility.

Are you as confused as I am?

How can unemployment be down when more people are claiming for it?

No explanation.

It’s interesting that long-term unemployment has increased by 12,000, meaning those out of work for over a year now number 894,000.

Part-time employment rose by 49,000 to 8.1 million, more than a quarter of the workforce and close to a record high.

The fall in unemployment has been attributed to a reduction in youth unemployment, but that still leaves 963,000 people, aged between 16 and 24, looking for work.

Most tellingly, average incomes rose by 1.8 per cent for the year to date, while inflation measured according to CPI is now 2.7 per cent. According to RPI, it’s 3.2 per cent. That means the spending power is falling.

Economists say the job market is worsening, possibly as people who were hired for the Olympics, and other summer events, come off firms’ books.

Bank of England supremo Mervyn King said the figures suggested the labour market was “pretty strong” but said it was hard to reconcile this with the economy’s weak growth.

I’ve got a pretty good idea about that, Mervyn.

The economy is growing slowly because the vast majority of people aren’t being paid reasonably by their employers. Wages have grown by almost (or more than, depending which yardstick you use) a whole percentage point less than inflation. People don’t have the money to spend!

If the economy is to enjoy real growth, then the government needs to launch a major attack on tax avoidance and tax havens, get that money back into the UK Treasury where it belongs, and then use it to invest in British infrastructure and British business. That way, firms can get back on their feet and will have no excuse not to pay a living wage to workers. Then working-class people – the vast majority of the population – will have a higher disposable income and therefore more spending power (they’ve hardly got any to spare at the moment). They will use that money; it will go around the system again, and the economy will grow again.

If I can see that – and I’m no economist – why can’t you? Why can’t Gideon George Osborne?

I think we all know the answer to that. He can.

But it suits his purposes to ignore it.