Labour’s spending plan could humiliate the Tories

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bond, borrow, Conservative, debt, deficit, economic, economy, growth, increase, interest rate, Labour, loan, mortgage, neoliberal, plan, public, spending, stimulate, taxation, Tories, Tory, Treasury

“There is an alternative” – and it doesn’t have to cost more than we’re spending now.

It seems some people are upset that Labour has announced it does not intend to increase public spending, if elected into office after next year’s general election.

This is a perfectly reasonable reaction, depending on the amount of information available to the person holding that opinion.

In other words, if you don’t know why Labour has made this decision, it is perfectly reasonable to assume that the former Party of The Left has turned Tory-lite.

That’s why we’re hearing that Labour will simply continue Tory policies; that the main three parties are “all in it together” (to overuse a hackneyed and devalued phrase).

But evidence is available to suggest that this is a big mistake.

To finance extra spending, Labour would have to borrow more money – but this would push up interest rates and create a potential disaster for people with mortgages and loans to pay off.

According to Modern Monetary Theory – an economic method that seems to have earned credence with all the main parties – government borrowing is not undertaken to finance its spending, but to maintain a target interest rate.

In times of recession, businesses borrow more and households find it hard to save money for a rainy day (as the saying goes). We have spent most of the last decade either in recession or in the slowest recovery in British history and the private sector simply doesn’t have the spare cash to pay higher interest demanded on loans in the wake of higher government borrowing.

Labour wants to safeguard those businesses; Labour wants to safeguard your homes.

The alternative would cost any government much more in the long run.

It’s as simple as that.

So Labour has set a spending target that is the same as the Conservatives’, ensuring that interest rates can be kept under control.

This doesn’t mean it will continue with Conservative-led spending plans. That would be a betrayal of Labour’s core voters.

Instead, it seems more likely that Labour will seek to stimulate the economy by taking funding away from wasteful areas – this blog would certainly wish to see less public money given to private contractors who pocket half of it as profit – and investing it in economic growth.

With more money flowing through the system and coming back to the Treasury in taxation, it will then become easier to relax restrictions on interest rates, which will help the government with its debt issue (this has to do with the way governments borrow money, issuing bonds at fixed rates of interest, and is a story for another day).

If Labour’s plan works, it will mean humiliation for the Conservatives and the Liberal Democrats, as Labour will have spent exactly the same amount doing it as those other parties have been spending for the previous five years – to little effect.

Do not misunderstand; it is perfectly possible that Labour’s spending plans could be entirely wrong-headed! Labour spent most of the last 20 years experimenting disastrously with neoliberal thinking that, continued and concentrated by the Coalition government, has led us to the current pretty pass.

In this case, it seems the Devil really is in the detail.

But the overarching strategy is sound and Labour should not be criticised for it.

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Public and private debt reach record levels under ConDem Coalition

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bank, bankrupt, BBC, benefit, benefits, borrow, breadline, building, cap, claim, Coalition, ConDem, Conservative, Dawn Capital, debt, Democrat, economy, George, George Osborne, Gideon, government, household, insolvent, job, landlord, Lib Dem, Liberal, loan, Mike Sivier, mikesivier, mortgage, off, order, Osborne, people, politics, possession, private, public, rate, repossess, social security, societies, society, tax, tax haven, taxation, The Money Charity, Tories, Tory, unemploy, unemployment, welfare, Wonga, work, write, wrote

Household debt in the UK has reached a record £1.43 trillion, according to the BBC. What a marvellous achievement for Gideon George Osborne to put next to his already-record public net debt of £1.212 trillion (excluding interventions) or £2.184 trillion (including them).

If you’re surprised at that, don’t be – he needs to pretend that there isn’t any money so he can cut any services that are still left in the public domain after the fire sale of the last few years.

The Tory plan was always to increase private debt. Of course it was – if you cut public spending for people on the breadline, then they go into debt. Why do you think Wonga.com’s owner Dawn Capital is such a prolific contributor to Tory Party funds, with £537,000 in known donations this time last year?

The rich are shielded from debt problems in the same way they are shielded from taxation, thanks to the way our tax laws have been rewritten in their favour – all their money is safely tucked away in tax havens and can’t be touched.

On average, each adult in the UK owes £28,489. Some owe much more than that, though. Yr obdt srvt doesn’t owe a bean to anyone, despite being very poor, so that’s already £28,489 to be spread among everyone else. Mrs Mike isn’t in debt either.

The BBC report cautiously suggests that the record debt level “might increase concerns that the UK’s economic recovery [you know, the one they keep talking about on the news and in Parliament as if it actually exists] is based on increased borrowing, rather than growth sustained by rising incomes” – which of course is correct.

According to The Money Charity, total net lending by UK banks and building societies rose by £1.9 billion in September 2013 – that’s just in one month.

Over the four quarters to Q2 2013, they wrote off £3.67 billion of loans to individuals. In Q2 2013, the daily write-off was £7.61 million.

Based on the latest available data, every day in the UK 285 people are declared insolvent or bankrupt – that’s one every five minutes; 84 properties are repossessed; 1,447 people lost their jobs and eight people became unemployed for more than 12 months; 141 mortgage possession claims are issued and 113 mortgage possession orders are made; and 431 landlord possession claims are issued and 319 landlord possession orders are made.

The benefit system helps nobody. It has been redesigned specifically to push people further into debt – the cap on benefit rate increases to one per cent per year means people are two per cent worse-off for every year it continues, while inflation remains at current levels.

It is in this atmosphere that words written in this blog more than a year ago come back to haunt us all: “What do people do for money when the State fails them and they can’t get work? They fall into the debt trap.

“High-interest, doorstep lending to poor people is Britain’s latest – perhaps only – boom industry. In other words, the government’s sick benefits regime is forcing the poor into debt to organisations that will take away everything they have left, in order to make up payments on a loan whose interest rate they probably made up on the spot.

“And when they’ve taken everything, what do you do then?

“Do you really want your kids to starve?”

A lesson in taxation for Smith and Shapps

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Grant Shapps and Iain Duncan Smith (Vox‘s Monster of 2012, let’s not forget) delivered woeful performances on radio and TV respectively, during the weekend – discussing the Bedroom Tax.

That’s right – the Bedroom Tax. Not the “spare-rooms subsidy”, not the “under-occupation subsidy” – the Bedroom Tax. The tax on bedrooms that is being levied on some of the poorest people in the land, who cannot move to smaller premises because a previous Conservative administration stopped them from being built.

Tweedle-Shapps and Tweedle-Smith clearly need a lesson in what taxation actually is. The sad part is that they probably think they delivered good performances.

Appearing on BBC Radio 4’s The World This Weekend, Shapps said: “Labour have very cleverly deemed this to be a tax; of course it’s exactly the opposite to a tax. It’s a spare-rooms subsidy, that’s being paid through the benefits system, on a million empty bedrooms in this country, which makes no sense.

“We’re not using the housing we have in this country in a proper way… What we can’t continue to do, and we can’t afford to do, is pay for a million empty rooms whilst we’ve got a waiting list that doubled under the previous administration and with so many people in desperate need of a house at all.”

Mr Smith, on The Andrew Marr Show said: “We have in social sector housing a very large number of people in houses where they have many more bedrooms than they actually need… Meanwhile we have over a quarter of a million people in overcrowding and a million people on the waiting list, trying to get into housing.

“The last government let house building fall to the lowest level since the 1920s… What we want is those that are under-occupying their properties, we need to help them to be able to move to property that they would occupy-”

Eddie Mair, standing in for Andrew Marr, interjected: “You mean force them?”

Smith plunged on: “What we’re saying is, ‘Look – you can stay where you are, but if you do, you have to pay more.'” (In other words, yes, he means “force them out”).

Mr Mair again: “But cough up. We know you’re very poor, but pay more.”

Smith was determined: “People… who rent in the private sector under housing benefit – they’re not allowed to have extra bedrooms. They’ve never been. So they are only paid, in the private sector, for the number of bedrooms they occupy.”

Mr Mair, an astonished inflection in his voice, spluttered: “But the point of social housing is to help-”

Now Smith fell back on the real reason for the change: Money. “Look, the taxpayer is paying about £900 per household to help people stay in social housing.”

Put these things together and we get a clear picture of what’s going on. First, a bit of history:

Back in the sunlit days before Margaret Thatcher first won an election, local councils were permitted to build and maintain social housing stock. I know this seems an alien concept now, but they were actually allowed to build houses in which poor people could live, for a rent that they could meet.

Then the Thatcher government came into office and she decided to sell off council houses at discounts of up to 70 per cent. Of course, take-up was huge. People believed they would be able to sell the properties on at a later date – for a profit – and go further up the housing ladder, and this appears to be what happened. The houses that were sold on again tended to go to professional private landlords, who then rented them at a higher price than the councils who originally owned them.

The policy raised more than £20 billion for the Conservative government, but it never allowed that money to be ploughed back into council house-building. That money has disappeared; we don’t know what was done with it (in fact, if anybody does know where it is, please write in and let us know)!

My understanding is that councils had expected to be able to use the receipts for a new house-building programme but then, by one of those “coincidences” – and I put that word in quotation marks for a very good reason; I don’t think they are coincidences at all – for which the Tory Party should be infamous, another policy was introduced – the Rate Cap.

Local taxation at the time was done by a method known as the Rates. We’ve had Poll Tax and Council Tax since then (and will soon have the Poll Tax back, thanks to Eric Pickles and his evil, misnamed little ‘Council Tax Reduction Scheme’) so many readers may not remember them.

The idea was to stop councils from spending more than the Tory government thought they should, by limiting the amount of money they could spend every year, and creating a blacklist of councils that transgressed, with associated penalties.

Result: any new council house-building was stopped dead.

It’s a situation that has continued to this day. During the New Labour years, there was a push for new social housing with a condition on planning permission for new estates, that a certain proportion of the new build had to be “affordable” housing.

Result: We now have a huge amount of land with planning permission for estates that have never been built, as developers are reluctant to create housing for which they won’t be able to screw maximum profit from the buyers.

So, successive governments have created a situation where the queue for social housing is very large. Even though the plan during New Labour’s time had the best intentions, my opinion is that it was scuppered by the greed of developers.

Now we have the Nasty Party in office again, and of course they want to screw as much money out of the poor as possible.

They don’t want to build any new social housing; they want people to rent from the private sector, who will try to screw the highest amount out of them.

In order to push them out, they have invented this new term, “spare-rooms subsidy”, or “under-occupation subsidy” – that never existed before. They have declared that people – who are only occupying the houses that were available to them when they went into social occupancy – are now receiving that subsidy for any spare bedrooms they may have (no matter whether there was a reason for having those rooms in the past, or may be one in the future). And in April they will remove an arbitrary amount – nobody knows how they arrived at the figure – from tenants’ housing benefit.

Result: As Eddie Mair said, these people will be forced out – into the arms of private landlords, who will charge more while they will receive less help from the government.

The money saved will, we’re told, be used to help balance the national finances, which is a policy of this government.

So, getting back to the point – the removal of this recently-dreamed-up “subsidy” is taxation, because the money removed from UK citizens will be used to finance government expenditure. That is the definition of tax.

Mr Shapps, Mr… Smith: Look it up.