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)

Ed Miliband on the Workfare Bill – we’ve heard it all before

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Miliband and Byrne: They did the wrong thing, but was it for the right reasons?

A whole week after the crucial confidence-breaking vote on the Bill that gives Iain Duncan Smith retroactive powers to steal benefits from jobseekers, an email appears “from the office of Ed Miliband”.

Here’s what it said:

“Thank you for contacting Mr Miliband about the Jobseekers Bill and my apologies for the delay in replying.

“We know how strongly many people feel about this and that you are disappointed that Labour decided to abstain.

“Please be assured that we looked very carefully at all the points raised but in the end the vote came down to the question of whether the DWP should have any legal power whatsoever to stop benefits for people who won’t try to find work at all.

“With record levels of young people out of work, we believe young people must be offered a real choice of a real job with real wages. That’s why Labour is moving amendments to the Bill to demand a tax on bankers’ bonuses to fund over 100,000 jobs for young people with pay at the national minimum wage and training.

“Our approach is completely different to the government.

“We would guarantee everyone unemployed for over two years a properly-paid job, but we want it to apply to young people after a year. In return, we think most people would agree that people would be obliged to take up those jobs or face losing benefits.

“These powers have always existed; for example, in Labour’s Future Jobs Fund, if a young person didn’t take the offer of a job, they would have faced having benefits halted. Labour’s New Deal operated on the same principle.

“We would not support a retrospective bill driven through Parliament at lightning speed – and Labour demanded two crucial concessions, which we forced the government to make.

“First, appeal rights must be guaranteed so that others can appeal against mistakes made by the DWP. We can’t have carte blanche retrospective legalisation of sanctions.

“Second, there must be an independent review of the sanctions regime, with an urgent report and recommendations to Parliament.

“While you may not agree with the decision to abstain, we hope you can recognise that the points you and others have raised were carefully considered and the safeguards Labour have secured.

“Thank you again for taking the time to contact Mr Miliband on this important issue.”

It’s not good enough, is it?

Miliband – and Liam Byrne, Stephen Timms, and all the rest of the current Labour team – need to realise that there is a fundamental difference between what they supported and what they say they want. They should have held out for the latter.

The Coalition government’s scheme puts people to work – for employers who are perfectly capable of paying not only minimum wage but the living wage, for an indefinite period of time, to a person who used to be defined as a paid employee – for, and this is the important part, no remuneration other than their Jobseekers’ Allowance.

Contrast that with what Labour offered in the past – “in Labour’s Future Jobs Fund, if a young person didn’t take the offer of a job, they would have faced having benefits halted. Labour’s New Deal operated on the same principle” – and what Labour says it would offer in the future – “we believe young people must be offered a real choice of a real job with real wages“.

Why put up with anything less?

The concessions are paper tigers – it is understood that appeal rights were enshrined in the original legislation and we have seen no evidence that they were ever going to be dropped, while the timetable of the proposed independent review is such that the current Secretary of State for Work and Pensions may never have to act on it.

In other words, Labour let the Coalition run roughshod over the rule of law – for nothing.

Jobseekers (retroactive destruction of rights) Bill update

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benefit, benefits, Coalition, Conservative, Department for Work and Pensions, DWP, government, Iain Duncan Smith, Jobseeker's Allowance, Jobseekers (back to work schemes) Bill, Labour, Labour Party, Mandatory Work Activity, Mike Sivier, mikesivier, Parliament, people, politics, retroactive, social security, unemployment, Vox Political, welfare, Workfare

This is a quick update as I am working on somebody else’s computer.

Vox Political has received the following comment, regarding the Jobseekers (back to work schemes) Bill, due to go before Parliament as I type this, in fact:

“Just had a reply from my MP Sheila Gilmore, Labour.

“’The Guardian article was wrong. The Labour front bench is not voting for the Bill. Currently they are looking to secure some amendments. Lots of discussion in the Parliamentary Labour Party ongoing.’”

This seems extremely good news. If it’s true, of course, we’ll never know whether it was due to the pressure of public feeling or if they were always going to oppose it.

No matter.

This is the right choice, for those affected, for Labour, and for the UK.

Life and death issues – Labour’s living wage v another Tory weapons junket

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We’re all about the money: David Cameron is in the Middle East, hawking our jet fighters to foreign powers.

It’s a matter of priorities.

On the left hand, we have the Labour Party, campaigning strongly for the so-called “living wage” – an earnings level for British workers that will provide enough for them to look after their families, heat their homes, feed their kids, care for their elderly relatives and plan for the future (as Ed Miliband was set to say at a speech today).

On the right hand, we have Conservative leader (and comedy Prime Minister) David Cameron, off on a junket to the Middle East in a bid to sell Typhoon fighter jets to Arab nations.

… Because that always works well for us, doesn’t it? (/sarcasm)

Conservatives have been selling weapons to foreign countries for decades. We know that 16 British firms were listed as having supplied arms to Iraq (the information is in a 12,000-page dossier the Iraqis kindly supplied to the UN in 2003). It has been alleged that one of the arms dealers involved in those sales was Mark Thatcher, son of the former Conservative Prime Minister. It’s a certainty that these companies were making their sales while the Conservatives were in power during the 1980s and 1990s, and probably benefited from Conservative government trade missions.

Perceptive readers will, at this point, assert that Labour governments have also sold to foreign powers, and this is true. I have been able to find evidence of sales to India and to Israel during Tony Blair’s controversial premiership.

It’s a very murky subject and nobody in British politics can say their hands are clean.

The best I can suggest is that Labour didn’t sell arms to anyone who was likely to use them on British citizens. The Conservatives were indiscriminate (and we know – or at least have good reason to believe – that arms sold to Iraq were indeed used against British soldiers).

Cameron himself has already earned adverse media coverage for selling arms to countries with questionable human rights records – in other words, those that might use those weapons on their own citizens. He has tried to talk these claims down –

– but it is telling that he has made damn sure there will be minimal media coverage of this trip. Downing Street has spent two years trying to restrict media access to the PM’s overseas visits, making him the only G7 leader who is not accompanied abroad by a full press corps. The preferred total is just one broadcaster (presumably, one who has been specially selected by Downing Street and who is, therefore “one of us”).

The deals Cameron hopes to make are said to be worth more than £6 billion to the UK. However, considering this government’s miserable record in tackling tax evasion and avoidance, one wonders how much of that will make it into the Treasury.

Contrast this secrecy with the full-on publicity campaign for the living wage, under way courtesy of Ed Miliband and the Labour Party, here in Blighty. The living wage is £7.45 per hour (outside London; £8.30 within the capital) – only a little more than £1 above the minimum wage, but it could make a big difference to workers across the country.

For every £1 spent in the private sector on getting workers up to the living wage, around 50 pence of that would come back to the government in savings on tax credits and benefits, and in higher tax revenue. In other words, it would help pay off the national deficit and debt.

“The living wage isn’t an idea that came from politicians,” says Mr Miliband in his speech today. “Or from academics in thinktanks.

“It came from working people themselves. People who recognised that they were giving their all for organisations that could afford to pay just a little bit more to give dignity to them, but who weren’t doing so. People who recognised that their firms might be more likely to succeed if they did.

“Our economy is not working for working people but just for a few at the top – a few taking ever-more of a share of the national cake, while other people struggle more and more to make ends meet.

Mr Cameron’s arms junket is living proof of the truth of those words.

Postscript: In his speech, Mr Miliband lists Labour councils that have introduced the living wage. I’m happy to add that Powys County Council, although independently-run, has pledged to research the possibility of introducing the living wage at the earliest opportunity.