Asking questions of Rebekah

What can and cannot be said.

Rebekah Brooks is expected to attend the DCMS Select Committee tomorrow, fresh from her arrest and lengthy questioning by the Metropolitan Police. As she sits there, there will be nothing which can stop her being asked any question by any MP on the committee, however prejudicial or incriminating the question is in its assumptions. There will also be nothing to stop any MP making any aside about her conduct, however defamatory or - indeed - inaccurate. She will just have to sit and take it. There is nothing legally she would be able to do to stop them.

More interesting is what she can say in reply. On one hand, there is the contention that whatever she says will be protected absolutely by privilege. She can say whatever she likes, and be safe from suit or prosecution in respect of those words. As with a great deal of our "constitutional law" the limits of such a supposed right are not exactly marked; but it is likely she can speak with legal safety should she really want to do so. Indeed, it may well be that she decides to answer the questions fully, presumably repeating anything and everything she has also said to the Metropolitan Police.

 

However, it may not be in her interests to say things which would otherwise be prejudicial to any defence which she may wish to use in the event of prosecution. She certainly may not want to incriminate herself. For, although there may be a formal barrier of privilege to prevent the use of those words as part of any prosecution or civil claim, any such words could well inform practical litigation decisions and she will be challenged to repeat those words outside of Parliament. Any attempt to rely on privilege will quickly become artificial.

That is why we should not be surprised if, at least for many questions, Rebekah Brooks does not assist parliamentarians with their enquiries. Like anyone arrested and bailed, she is entitled to due process. There is no reason why her general rights in this regard should be circumvented just because she has been summoned by a select committee. The issue would then be what Parliament could do with any refusal to answer certain questions? One hopes that they would do nothing, whatever the heady talk of contempt of Parliament and imprisoning her in the Tower. The rights and liberties of the subject are always important, even when that subject is Rebekah Brooks.

Addendum

According to reports, the lawyer for Rebekah Brooks has now said:

The position of Rebekah Brooks can be simply stated. She is not guilty of any criminal offence. The position of the Metropolitan Police is less easy to understand. Despite arresting her yesterday and conducting an interview process lasting 9 hours, they put no allegations to her, and showed her no documents connecting her with any crime. They will in due course have to give an account of their actions, and in particular their decision to arrest her, with the enormous reputational damage that this has involved.

In the meantime, Mrs Brooks has an appointment with the Culture, Media and Sport Select Committee tomorrow. She remains willing to attend and to answer questions. It is a matter for Parliament to decide what issues to put to her and whether her appointment should place at a later date.

Second addendum

The PR company Bell Pottinger has confirmed that Rebekah Brooks has instructed veteran white-collar defence lawyer Stephen Parkinson of Kingsley Napley. Parkinson's profile details his extensive work as a prosecutor and as a defence solicitor in many high-profile cases. The combination of Bell Pottinger and the highly regarded Kingsley Napley means that Brooks has a strong (and expensive) joint litigation and PR strategy in place.

Bell Pottinger also confirmed that the express reference to her suffering "enormous reputational damage" was deliberate. It remains to be seen if this admission has any adverse effect in limiting her ability to (threaten to) sue anyone other than the police for libel, as it may provide a so-called "Jameel" abuse of process defence (where a claim can be struck out because the claimed damage does not go substantially further than the reputation which can otherwise be shown or is admitted).

Third addendum

The House of Commons publishes a guide for those giving evidence to select committees (pdf). In this guide the House states that the absolute privilege exists in respect of evidence given to a select committee "provided that it is formally accepted as such by the Committee".

There is also this House of Commons paper (pdf) on what constitutes "contempt of Parliament". In essence, any refusal to answer questions would probably have to be referred to the Standards and Privileges committee (or the whole House) before "contempt of Parliament" proceedings could commence: if so, the DCMS select committee cannot compel answers there and then at the hearing.

 

David Allen Green is legal correspondent of the New Statesman.

David Allen Green is legal correspondent of the New Statesman and author of the Jack of Kent blog.

His legal journalism has included popularising the Simon Singh libel case and discrediting the Julian Assange myths about his extradition case.  His uncovering of the Nightjack email hack by the Times was described as "masterly analysis" by Lord Justice Leveson.

David is also a solicitor and was successful in the "Twitterjoketrial" appeal at the High Court.

(Nothing on this blog constitutes legal advice.)

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We're racing towards another private debt crisis - so why did no one see it coming?

The Office for Budget Responsibility failed to foresee the rise in household debt. 

This is a call for a public inquiry on the current situation regarding private debt.

For almost a decade now, since 2007, we have been living a lie. And that lie is preparing to wreak havoc on our economy. If we do not create some kind of impartial forum to discuss what is actually happening, the results might well prove disastrous. 

The lie I am referring to is the idea that the financial crisis of 2008, and subsequent “Great Recession,” were caused by profligate government spending and subsequent public debt. The exact opposite is in fact the case. The crash happened because of dangerously high levels of private debt (a mortgage crisis specifically). And - this is the part we are not supposed to talk about—there is an inverse relation between public and private debt levels.

If the public sector reduces its debt, overall private sector debt goes up. That's what happened in the years leading up to 2008. Now austerity is making it happening again. And if we don't do something about it, the results will, inevitably, be another catastrophe.

The winners and losers of debt

These graphs show the relationship between public and private debt. They are both forecasts from the Office for Budget Responsibility, produced in 2015 and 2017. 

This is what the OBR was projecting what would happen around now back in 2015:

This year the OBR completely changed its forecast. This is how it now projects things are likely to turn out:

First, notice how both diagrams are symmetrical. What happens on top (that part of the economy that is in surplus) precisely mirrors what happens in the bottom (that part of the economy that is in deficit). This is called an “accounting identity.”

As in any ledger sheet, credits and debits have to match. The easiest way to understand this is to imagine there are just two actors, government, and the private sector. If the government borrows £100, and spends it, then the government has a debt of £100. But by spending, it has injected £100 more pounds into the private economy. In other words, -£100 for the government, +£100 for everyone else in the diagram. 

Similarly, if the government taxes someone for £100 , then the government is £100 richer but there’s £100 subtracted from the private economy (+£100 for government, -£100 for everybody else on the diagram).

So what implications does this kind of bookkeeping have for the overall economy? It means that if the government goes into surplus, then everyone else has to go into debt.

We tend to think of money as if it is a bunch of poker chips already lying around, but that’s not how it really works. Money has to be created. And money is created when banks make loans. Either the government borrows money and injects it into the economy, or private citizens borrow money from banks. Those banks don’t take the money from people’s savings or anywhere else, they just make it up. Anyone can write an IOU. But only banks are allowed to issue IOUs that the government will accept in payment for taxes. (In other words, there actually is a magic money tree. But only banks are allowed to use it.)

There are other factors. The UK has a huge trade deficit (blue), and that means the government (yellow) also has to run a deficit (print money, or more accurately, get banks to do it) to inject into the economy to pay for all those Chinese trainers, American iPads, and German cars. The total amount of money can also fluctuate. But the real point here is, the less the government is in debt, the more everyone else must be. Austerity measures will necessarily lead to rising levels of private debt. And this is exactly what has happened.

Now, if this seems to have very little to do with the way politicians talk about such matters, there's a simple reason: most politicians don’t actually know any of this. A recent survey showed 90 per cent of MPs don't even understand where money comes from (they think it's issued by the Royal Mint). In reality, debt is money. If no one owed anyone anything at all there would be no money and the economy would grind to a halt.

But of course debt has to be owed to someone. These charts show who owes what to whom.

The crisis in private debt

Bearing all this in mind, let's look at those diagrams again - keeping our eye particularly on the dark blue that represents household debt. In the first, 2015 version, the OBR duly noted that there was a substantial build-up of household debt in the years leading up to the crash of 2008. This is significant because it was the first time in British history that total household debts were higher than total household savings, and therefore the household sector itself was in deficit territory. (Corporations, at the same time, were raking in enormous profits.) But it also predicted this wouldn't happen again.

True, the OBR observed, austerity and the reduction of government deficits meant private debt levels would have to go up. However, the OBR economists insisted this wouldn't be a problem because the burden would fall not on households but on corporations. Business-friendly Tory policies would, they insisted, inspire a boom in corporate expansion, which would mean frenzied corporate borrowing (that huge red bulge below the line in the first diagram, which was supposed to eventually replace government deficits entirely). Ordinary households would have little or nothing to worry about.

This was total fantasy. No such frenzied boom took place.

In the second diagram, two years later, the OBR is forced to acknowledge this. Corporations are just raking in the profits and sitting on them. The household sector, on the other hand, is a rolling catastrophe. Austerity has meant falling wages, less government spending on social services (or anything else), and higher de facto taxes. This puts the squeeze on household budgets and people are forced to borrow. As a result, not only are households in overall deficit for the second time in British history, the situation is actually worse than it was in the years leading up to 2008.

And remember: it was a mortgage crisis that set off the 2008 crash, which almost destroyed the world economy and plunged millions into penury. Not a crisis in public debt. A crisis in private debt.

An inquiry

In 2015, around the time the original OBR predictions came out, I wrote an essay in the Guardian predicting that austerity and budget-balancing would create a disastrous crisis in private debt. Now it's so clearly, unmistakably, happening that even the OBR cannot deny it.

I believe the time has come for there be a public investigation - a formal public inquiry, in fact - into how this could be allowed to happen. After the 2008 crash, at least the economists in Treasury and the Bank of England could plausibly claim they hadn't completely understood the relation between private debt and financial instability. Now they simply have no excuse.

What on earth is an institution called the “Office for Budget Responsibility” credulously imagining corporate borrowing binges in order to suggest the government will balance the budget to no ill effects? How responsible is that? Even the second chart is extremely odd. Up to 2017, the top and bottom of the diagram are exact mirrors of one another, as they ought to be. However, in the projected future after 2017, the section below the line is much smaller than the section above, apparently seriously understating the amount both of future government, and future private, debt. In other words, the numbers don't add up.

The OBR told the New Statesman ​that it was not aware of any errors in its 2015 forecast for corporate sector net lending, and that the forecast was based on the available data. It said the forecast for business investment has been revised down because of the uncertainty created by Brexit. 

Still, if the “Office of Budget Responsibility” was true to its name, it should be sounding off the alarm bells right about now. So far all we've got is one mention of private debt and a mild warning about the rise of personal debt from the Bank of England, which did not however connect the problem to austerity, and one fairly strong statement from a maverick columnist in the Daily Mail. Otherwise, silence. 

The only plausible explanation is that institutions like the Treasury, OBR, and to a degree as well the Bank of England can't, by definition, warn against the dangers of austerity, however alarming the situation, because they have been set up the way they have in order to justify austerity. It's important to emphasise that most professional economists have never supported Conservative policies in this regard. The policy was adopted because it was convenient to politicians; institutions were set up in order to support it; economists were hired in order to come up with arguments for austerity, rather than to judge whether it would be a good idea. At present, this situation has led us to the brink of disaster.

The last time there was a financial crash, the Queen famously asked: why was no one able to foresee this? We now have the tools. Perhaps the most important task for a public inquiry will be to finally ask: what is the real purpose of the institutions that are supposed to foresee such matters, to what degree have they been politicised, and what would it take to turn them back into institutions that can at least inform us if we're staring into the lights of an oncoming train?