Cumulative effect of welfare reform revealed – deprived areas hit much harder than the rich

Tags

allowance, austerity, BBC, business, Centre, close, commission, communities, community, cost, cumulative impact assessment, David Cameron, demonstration, deprivation, deprived, disability, Disability Living Allowance, disability news service, disabled, DLA, DNS, economic, EHRC, employment, equalities, ESA, esther mcvey, financial loss, human rights, IB, Incapacity, Landman Economics, mark hoban, Mike Penning, National Institute, NIESR, Personal Independence Payment, PIP, Reform, Regional Economic, report, Revenue, rich, Sheffield Hallam University, shop, Social Research, social security, spending, support, tax, transparent, travel, viability, welfare

Deprived parts of Glasgow were worst-affected by ‘welfare reform’ according to The Courier [Image: thecourier.co.uk].

The headline should not come as a surprise – of course changes that cut benefits for the poor are going to harm them more than rich people.

But do you remember David Cameron’s claim that his government would be the most transparent ever?

Isn’t it interesting, then, that the independent Equalities and Human Rights Commission (EHRC) has found a way to compile information on the effects of tax, social security and other spending changes on disabled people, after the government repeatedly claimed it could not be done?

It seems Mr Cameron has something to hide, after all.

We already have a taste of what we can expect, courtesy of our friends in Scotland, who commissioned the Centre for Regional Economic and Social Research at Sheffield Hallam University to study the relationship between deprivation and financial loss caused by “welfare reform”.

The study shows that more than £1.6 billion a year will be removed from the Scottish economy, with the biggest losses based in changes to incapacity benefits. The Scottish average loss, per adult of working age, is £460 per year (compared with a British average of £470) but the hardest hit area was impoverished Glasgow Carlton, where adults lost an average of £880 per year.

In affluent St Andrews, the average hit was just £180 per year.

Of course, the cumulative effect will hit the poorest communities much harder – with an average of £460 being taken out of these communities it is not only households that will struggle to make ends meet; as families make cutbacks, local shops and businesses will lose revenue and viability. If they close, then residents will have to travel further for groceries and to find work, meaning extra travel costs will remove even more much-needed cash from their budget.

For a nationwide picture, the EHRC commissioned the National Institute of Economic and Social Research (NIESR) and the consultancy Landman Economics to develop a way of assessing the cumulative impact of “welfare reform”.

The report will be published in the summer, but Landman Economics has already told Disability News Service that the work was “not actually that difficult”.

Why, then have Mark Hoban, Esther McVey and Mike Penning, the current minister for the disabled, all claimed that a cumulative assessment is impossible?

Some might say they have a vested interest in keeping the public ignorant of the true devastation being wreaked on Britain’s most vulnerable people by Coalition austerity policies that will ultimately harm everybody except the very rich.

Some might say this is why the BBC – under the influence of a Conservative chairman – failed to report a mass demonstration against austerity by at least 50,000 people that started on its very doorstep.

Misguided conspiracy theorists, all!

Or are they?

Follow me on Twitter: @MidWalesMike

Join the Vox Political Facebook page.

Vox Political needs your help!
This independent blog’s only funding comes from readers’ contributions.
Without YOUR help, we cannot keep going.
You can make a one-off donation here:

Alternatively, you can buy Vox Political books!
The second – Health Warning: Government! is now available
in either print or eBook format here:

The first, Strong Words and Hard Times
is still available in either print or eBook format here:

Advertisements

Marcus Brigstocke v the Government – has he been reading Vox Political?

Tags

absentee, bank, benefit, bonus, company, cost of living, cynic, demoralise, economic, Economic and Social Research, economy, employee, employer, exploit, financial crisis, financial sector, George Osborne, government, growth, illness, in-work, living, Marcus Brigstocke, Mike Sivier, mikesivier, minimum, morale, National Institute, NIESR, politics, productivity, ruthless, sabot, sabotage, social security, staff, stress, The Now Show, turnover, Vox Political, wage, wages, welfare, work, zero hours contract

This is the first pic I could find of Marcus Brigstocke, as he might have looked while delivering the piece quoted below. He’s a known beardie so he probably had face-fuzz as well.

What a rare and pleasant thing we’ve enjoyed for the last few days – a Bank Holiday weekend with good weather! And isn’t it a shame that this means most of you will have been out, and therefore missed Marcus Brigstocke’s turn on The Now Show.

Here’s a guy who knows how to take the government apart; it seemed as though he’d been reading Vox Political for the last few months because he touched on some of our favourite subjects:

1. The economy

He led with the 0.8 per cent increase in economic growth, mocking the government’s celebratory tone with impressions of how ordinary people took the news, up and down the country (some of the accents were beyond belief).

“Well done, George Osborne,” said Marcus, his voice dripping with sarcasm. “You have proved your theory right, using the Grand Theft Auto model. You have successfully shown that the poor really are like video game prostitutes – if you kick them hard enough, eventually money will come flying out of them.”

Doesn’t this fit nicely with what this blog has been saying about the economy being dependent entirely on the movement of poor people’s money? Those with less spend all – or almost all – of their income and it is this money, being pushed around the system, that boosts profits and keeps Britain going.

He continued: “I know that the state of the economy matters but for the vast majority of people it is as mysterious and cryptic as the shipping forecast… What makes a difference to people is not zero-point-eight-per-cent growth; it’s actual wages and the cost of living.

“The National Institute of Economic and Social Research (NIESR) showed this week that the average worker is £2,000 worse-off since the financial crisis hit,” another common theme here on VP, except in fact it’s £2K per year worse-off. Let’s do a quick shout-out to Jonathan Portes, NIESR’s director, whose Tweets are well worth a read: @jdportes

“I say, ‘hit’. That makes it sound like the crisis swerved towards us. The reality is, the average worker is £2,000 worse-off since the financial sector arrogantly, and with galactic, hubristic stupidity, drove the economy off a cliff, yelling, ‘Does this mean I still get my bonus?’ Of course you’ll still get your bonus. Otherwise you’d leave the country and [chuckling] nobody wants that.” [Laughter from the audience – we’re all in on that joke.]

2. Employment

“More people are in work now; good. But why do employers talk like they deserve a sainthood when they have people working for them? Your company does a thing; you need workers to facilitate the doing of that thing. The workers work, and the thing is done – am I missing something here? Do you feel you need a medal?”

2a. Zero-hours contracts

“One-point-four million British workers are having to scrape a living together from cynical, ruthless, exploitative employers using zero-hours contracts. Value your employees – they are not battery workers; they are people… One in five UK workers earns less than the Living Wage.”

At this point the narrative switches to a spoof advert: “At GreatBigFacelessBastardCorp we care so little about what we do, we pay our workers the minimum wage allowed under the law! That way we can pass on their listlessness and overwhelming sense of defeated apathy to you, the customer! GreatBigFacelessBastardCorp – crushing dreams so you don’t have to!”

This relates to an argument that Vox Political has been having with Tory-supporting businesspeople for years, going back to the earliest days of the blog. Back in January 2012, I wrote False economies that leave the business books unbalanced in which I stated:

It seems to me that many employees are finding life extremely difficult now, because the amount they are paid does not cover all their outgoings and they are having to work out what they can do without. The cost of living has risen more sharply than their pay, so they are out of pocket.

This creates stress, which can create illness, which could take them out of work and turn them into a liability to the economy – as they would then be claiming benefits.

That’s bad – not only for the country but also for their company, because demoralised employees produce poor work and the company’s turnover will decrease; having to bring in and train up new workers to replace those who are leaving through ill health is time-consuming and unproductive.

Therefore, in taking the money for themselves, rather than sharing it with employees, bosses are clearly harming their own companies and the economy.

In fact, it seems to me that this is a microcosm of the larger, national economy. In order to keep more money, bosses (and the government) pay less (in the government’s case, to pay off the national deficit). This means less work gets done, and is of poorer quality (in both cases). So orders fall off and firms have to make more cutbacks (or, revenue decreases so the government makes more cutbacks in order to keep up its debt payments).

[This seems to have been borne out by subsequent events. More people are employed than ever before, according to the government, yet GDP has improved by only a fraction of one per cent in the last quarter. By rights, it should be about 20 percentage points higher than the pre-crisis peak by now, according to some analysts.]

The message to bosses – and the government – is clear: Cutting back investment in people to keep money for yourselves will cripple your earning ability. Cutting even more to make up for what you lose will put you into a death spiral. You are trying to dig your way out of your own graves.

But there is an alternative.

A reasonable pay increase to employees would ensure they can pay their bills, and would also keep them happy.

Happy workers produce better results.

Better results keep businesses afloat and earn extra work for them.

That in turn creates more revenue, making it possible for bosses not only to increase their own pay but employ more people as well.

Wouldn’t that be better for everybody?

Well, wouldn’t it?

3. Welfare lies

“Young workers are amongst the hardest-hit by the downturn, with pay falling by 14 per cent between 2008 and 2013. Well done, everybody! We pay far more from the welfare budget supporting incomes for people in work than we do for those out of a job.

“The government keep on crowing about the number of people they have in work … most of them are not so much in work as near some work, if only they were allowed to do any.

“If you’re on the minimum wage, kept on a zero-hours contract between 7am and 7pm so you can’t work for anyone else but rack up a grand total of – ooh! – just enough hours so your employer doesn’t have to pay your National Insurance [another VP theme], you get no training, no employee benefits, no hope of any promotion and you hear ‘IDS’ banging on about how he’s ‘the saviour of benefits street’, well, if you can still afford a shoe then please throw it at the radio or through the telly or at his actual face.” This is a reference to sabotage, in which workers threw their crude shoes – or ‘sabots’ into machinery to stop it working, in protest against their working conditions and developments that were endangering their jobs.

“Low pay means higher staff turnover, high absenteeism, poor morale and lower productivity.” That’s exactly as I stated in the VP article from 2012.

4. In conclusion

“I don’t know when money started making money faster than people but… It’s not helping,” said Marcus, truthfully. “So instead of running about with your shirt over your head doing ‘airplane arms’, shouting ‘Nought-point-eight-per-cent’… do something to get the people who actually work to be rewarded, recognised and remunerated for what they do.

“It’s not rocket science and, frankly, if it is, I sincerely hope they’re not on minimum wage.”

When I heard that piece, I very nearly stood up to applaud. If you want to hear it yourself (and I’ve left out enough of it to make it worthwhile, I promise you), it’s available for download here, and starts around eight and a half minutes in.

Actually, it would be better if Marcus hasn’t been reading this blog, because then he would have drawn the same conclusions, from the same evidence, thereby reinforcing my own reasoning.

Now, let’s have your opinions, please. I’ll be very interested to hear from supporters of the current “pay-’em-the-bare-minimum” policy as they almost invariably say things like “We can’t pay them any more” – it’s never “They have good reasons that mean they can’t pay us more”.

Interesting, that.

Follow me on Twitter: @MidWalesMike

Join the Vox Political Facebook page.

Vox Political needs your help!
This independent blog’s only funding comes from readers’ contributions.
Without YOUR help, we cannot keep going.
You can make a one-off donation here:

Alternatively, you can buy the first Vox Political book,
Strong Words and Hard Times
in either print or eBook format here:

The Coalition is creating serious problems and distracting you with phantoms

Tags

Annual Survey, ASHE, Bank of England, BBC News, beauty, bedroom tax, benefit, benefit cap, BoE, breasts, bribe, Bulgaria, business, business rate, catastrophe, Child Benefit, claimant, Coalition, Conservative, council, council tax, CPI, Croatia, cure, cut, David Cameron, debt, defence, Democrat, deodorise, earning, earnings, economic, economy, false, falsify, fiddle, figure, fiscal, flood, frack, fund, George Eaton, George Osborne, government, Heathrow, hours, household, housing bubble, IFS, immigrant, Income Tax, individual, industry, inflation, Institute, interest rate, invent, Jill Filipovic, job, jobseeker, Jonathan Portes, Jonathan Wilson, Keith Vaz, Lib Dem, Liberal, low-paid, Matthew Hancock, Mike Sivier, mikesivier, National Institute, national insurance, New Statesman, NIESR, pay, Personal Allowance, politics, pretend, problem, reassessment, retail, rise, Romania, RPI, salary, sanction, self-employed, shale gas, Social Research, storm, Studies, swoob, tax credit, The Guardian, Tories, Tory, unemployment, uprating, upturn, Vox Political, wage, weather, Workfare

According to the beauty industry, women must now start deodorising under their breasts.

I kid you not – it was in The Guardian.

Columnist Jill Filipovic hit the nail on the head when she wrote: “I can already hear your objections: ‘But the area under my boobs doesn’t stink!’ or ‘What kind of marketing genius not only came up with the term “swoob,” but actually thought half the world’s population might be dumb enough to buy into it?’ or simply, ‘This is a dumb product aimed at inventing an insecurity and then claiming to cure it.’

“You would be correct on all three points.

“In fact, inventing problems with women’s bodies and then offering a cure – if you pay up – is the primary purpose of the multi-billion dollar beauty industry.”

The simple fact is that you don’t really need to worry about smells down there – a good old soapy flannel will cure any such problems.

That’s not the point, though. The aim is to get you thinking about it and devoting your energy to it, rather than to other matters.

Now let’s translate that to politics.

We already know that all the scaremongering about Romanian and Bulgarian immigrants storming the country from January 1 was a crock. That bastion of good statistics, The Now Show, told us last week that the total number of Bulgarian immigrants in the last couple of weeks was “around two dozen so far”, according to their ambassador. In the first three months after our borders were opened to Croatians, 174 turned up.

Yet the government wanted you to believe they would flood our immigration service in their millions, “taking benefits and yet simultaneously also taking all the jobs”.

My use of language such as “storming” and “flood” is not accidental. By far the more serious threat to the UK in the early days of 2014 was the weather – and, guess what, not only was the government unprepared for the ferocity of the storms that swept our islands, the Coalition was in fact in the process of cutting funding for flood defence.

This would have gone unnoticed if the weather had behaved itself, because we would all have been distracted by the single Romanian immigrant who was ensnared by Keith Vaz in a ring of TV cameras at Heathrow Airport.

Now the Tories are telling us that our take-home pay is finally on the rise for all but the top 10 per cent of earners, with the rest of us seeing our wages rise by at least 2.5 per cent.

The government made its claims (up) by taking into account only cuts to income tax and national insurance, using data leading up to April last year, according to the BBC News website.

This kind of nonsense is easily overcome – New Statesman published the above chart, showing the real effect of changes to weekly income for people in various income groups, and also provided the reason for the government’s mistake (if that’s what it was).

“The data used … takes no account of the large benefit cuts introduced by the coalition, such as the real-terms cut in child benefit, the uprating of benefits in line with CPI inflation rather than RPI, and the cuts to tax credits,” writes the Statesman‘s George Eaton.”

He also pointed out that other major cuts such as the bedroom tax, the benefit cap, and the 10 per cent cut in council tax support were introduced after April 2013 and were not included in the Coalition figures.

Once all tax and benefit changes are taken into account, the Institute for Fiscal Studies has shown that almost all families are worse off – and the Coalition also appears to have forgotten the five million low-paid workers who don’t earn enough to benefit from the increase in the personal allowance.

Skills and enterprise minister Matthew Hancock compounded the mistake in an exchange on Twitter with Jonathan Portes, director of the National Institute of Economic and Social Research (NIESR). Asked why his analysis “ignores more than four million people in work (the self-employed)”, Mr Hancock tweeted: “Analysis based on ONS ASHE survey of household earnings data”.

Wrong – as Mr Portes was quick to show: “Don’t you know the difference between household and individual earnings?”

Apparently not. ASHE (Annual Survey of Hours and Earnings) is a survey of employed individuals using their National Insurance numbers – not of households or the self-employed.

So the Coalition – and particularly the Tories – were trying to make us all feel good about the amount we earn.

That’s the distraction. What are we supposed to be ignoring?

Would it be David Cameron’s attempt to bribe councils into allowing shale gas companies to frack their land? Councils that back fracking will get to keep all the business rates collected from the schemes – rather than the usual 50 per cent.

He has also claimed that fracking can boost the economy and encourage businesses into the country, in a further bid to talk down dissent.

Or is it the growing threat of a rise in interest rates, which may be triggered when official unemployment figures – which have been fiddled by increased sanctions on jobseekers, rigged reassessments of benefit claimants, a new scheme to increase the number of people and time spent on Workfare, and the fake economic upturn created by George Osborne’s housing bubble – drop to seven per cent?

It seems possible that the government – especially the Tory part of it – would want to keep people from considering the implications of an interest rate rise that is based on false figures.

As Vox Political commenter Jonathan Wilson wrote yesterday: “If the BOE bases its decisions on incorrect manipulated data that presents a false ‘good news’ analysis then potentially it could do something based on it that would have catastrophic consequences.

“For example if its unemployment rate test is reached, and wages were going up by X per cent against a Y per cent inflation rate which predicted that an interest rate rise of Z per cent would have no general effect and not impact on house prices nor significantly increase repossessions (when X per cent is over-inflated by the top 1 per cent of earners, Y per cent is unrealistically low due to, say, the 50 quid green reduction and/or shops massively discounting to inflate purchases/turnover and not profit) and when it does, instead of tapping on the breaks lightly it slams the gears into reverse while still traveling forward… repossessions go up hugely, house prices suffer a major downward re-evaluation (due to tens of thousands of repossessions hitting the auction rooms) debt rates hit the roof, people stop buying white goods and make do with last year’s iPad/phone/tv/sofa, major retail goes tits up, Amazon goes to the wall, the delivery market and post collapses… etc etc.

“And all because the government fiddled the figures.”

Perhaps Mr Cameron doesn’t want us thinking about that when we could be deodorising our breasts instead.

Show your support for Vox Political!
The site needs YOUR help to continue.
You can make a one-off donation here:

Alternatively, you can buy the first Vox Political book,
Strong Words and Hard Times
in either print or eBook format here:

Back to the maths class for DWP decision makers

Tags

allowance, Armed Forces Compensation Payments Scheme, Attendance Allowance, audit, benefit, benefit cap, benefits, CCHQ, Coalition, committee, Conservative, David Cameron, decision maker, Democrat, Department, DLA, DWP, Easterhouse, economic, employment, error, ESA, fraud, Grant Shapps, Iain Duncan Smith, Income Support, Industrial Injuries Benefits, is, Jobseeker's Allowance, Jonathan Portes, JSA, Lib Dem, Liberal, math, Mike Sivier, mikesivier, national audit office, National Institute, NIESR, Pensions, people, PIP, politics, qualified, Reform, regression, Research, select, social, support, Tories, Tory, Vox Political, War Disablement Pension, work, work-related activity, WRAG

When I was six, I told friends and family I did not want to go out with a girl because “she can’t do her maths”. What a pity the adults in the Coalition government don’t know now what I knew as a child.

Iain Duncan Smith was right to weep when he visited Easterhouse, all those years ago – although he would not have known the reason.

It turns out there are probably drug dealers on that estate with a better grasp of mathematics than anybody in his Department for Work and Pensions – or, let’s be honest, the entire Coalition government.

This week it emerged that the National Audit Office has refused to sign off the DWP’s accounts – for the 25th year running. While this indicates that the problem is not limited to the Coalition, it should be noted that David Cameron’s crew has done nothing to rectify it.

The NAO has instead delivered a “qualified” audit opinion, in respect of fraud and error which is considered to be unacceptably high. It seems the department overpaid £3.5 billion or 2.1 per cent of total benefit expenditure due to fraud and error – and also underpaid £1.4 billion to claimants.

Of this, fraud remained static at £1.2 billion (the same as in 2011-12), while underpayments due to official error increased from £400 million to £500 million.

Official error has increased while fraud has not.

An interesting sidebar to this is the fact that fraud has not decreased either, despite all Mr Duncan Smith’s apparent efforts to hammer it. Next year’s accounts – due after April 2014, although your guess on the actual date is as good as anyone’s – should make interesting reading, as they should show the effect of the major regressions (not reforms) he introduced this year.

Further evidence of government incompetence with the figures came in a chart from Conservative Central HQ’s press office, flagged up by Jonathan Portes and the immeasurably cleverer people at NIESR (National Institute of Economic and Social Research).

The chart’s claim was that 28,500 households had been receiving more than £500 per week in benefits, despite containing people who could work but weren’t – until the £26,000 per year Benefit Cap was brought in and reduced it to nothing.

Mr Portes told us the chart was based on DWP statistics published last week that show that 28,500 households have had their benefit capped at £500 per week, “however, the interpretation – and the chart – is utterly wrong in every respect.

“It just is not the case that every one of those 28,500 households contains someone who “can work”.  As the DWP publication clearly states, the cap applies to households in receipt of key out of work benefits – including both those in the Employment and Support Allowance (ESA) Work-Related Activity Group (WRAG) and those on Income Support (IS).  For people in the WRAG, the position is quite clear. As the DWP itself puts it… they are ‘currently too ill or disabled to work’.

“DWP makes clear that there is no assumption that Income Support claimants ‘can work’, but quite the opposite. As a general rule, most people who ‘can work’ should be on Jobseekers Allowance (JSA), not IS. In practice, most of those on IS are single mothers with young children, who are not expected to work.

“Overall, although we don’t have precise numbers from the DWP statistics, it seems quite likely that in fact less than half of the households affected by the cap contain ‘people who can work but aren’t’.”

Mr Portes went on to analyse the second assumption in the chart – that there are now no households receiving more than £500 per week in benefits that include “people who can work but aren’t” – and found it “just as wrong,” – because DWP guidance exempts households with anyone on DLA, PIP, Attendance Allowance, the support component of ESA or Industrial Injuries Benefits, and those receiving War Disablement Pension and equivalent payments from the Armed Forces Compensation Payments Scheme.

“Of course it’s perfectly possible for such households to contain ‘people who can work but aren’t’ – most obviously households with a child receiving DLA, but there are lots of other possible cases. Moreover, even this excludes couple households where one person is working but the other could work, but is not, who are also exempt. Given enough children and/or high enough housing costs, such households can receive more than £500 per week in benefits,” wrote Mr Portes.

“Again, we don’t know the exact numbers, but we are certainly talking about thousands of households, not zero.”

Only on Monday, Mr Duncan Smith assured the Commons Work and Pensions Select Committee that he had warned CCHQ and Tory chairman Grant Shapps against such jiggery-pokery with his departmental stats: “I have had conversations with him and others about being careful to check with the department.”

So did the chart go out with his department’s full endorsement, in which case this is even more proof that the DWP can’t get its facts right – or did CCHQ ignore Mr Duncan Smith’s words and make its own mistake?

For this government, and Mr “In Deep Sh…ambles”, the result is the same.

Vox Political is funded entirely by donations and book sales.
You can make a one-off donation here:

Alternatively, you can buy the first Vox Political book,
Strong Words and Hard Times
in either print or eBook format here:

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

Tags

90 per cent, agencies, agency, arbitrary, austerity, benefit, bogus, bond, cabinet, Centre, Chancellor, co-operation, Coalition, confidence, Conservative, credit, credit rating, cut, Dean Baker, debt, Department, DEPR, development, domestic, down, DWP, economic, economy, fake, fiscal, fiscal cliff, GDP, George Osborne, government, gross, IMF, inequality, infrastructure, Institute, Interest, International Monetary Fund, investment, job, Jonathan Portes, living, Malcolm Sawyer, market, market price, Mike Sivier, mikesivier, minimum, national, NIESR, nudge unit, OECD, organisation, Pensions, policy, politics, product, project, psychometric, rate, ratio, reinhart, Research, revise, revision, rogoff, sham, Skwawkbox, Social Research, Steve Walker, test, Tories, Tory, unemployment, Vox Political, wage, work, yield

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.”