Osborne has stolen Margaret Thatcher's 1980s manual

My conversation with Ed Balls.

I spent much of yesterday marshalling my own thoughts on the consequences of the latest GDP figures (here is the link to my column) -- not good, since you are asking. In the course of the day, I managed to speak with shadow chancellor, Ed Balls, about his views on the data and, more generally, on the coalition's economic strategy.

Ed was on robust form as ever and I thought I'd share some of his insights below. I can't do better than to quote him verbatim.

The outgoing head of the CBI, Richard Lambert, captured it well when he said: "Politics appears to have trumped economics on too many occasions over the past eight months." There is no doubt that George Osborne is a highly skilled political strategist. But he is making the classic mistake of the past 100 years in believing that you can impose a political strategy on the British economy. Cutting too far and too fast may make political sense for the Tories but it simply isn't working economically.

He then went on to suggest that this has all been drawn directly from Margaret Thatcher's playbook.

The political strategy he is implementing is straight out of Margaret Thatcher's 1980s manual: impose as much pain as you can straight after the election, raise taxes, cut spending, slash benefits, make people feel lucky to have a job, build up your war chest and then cut taxes just before the election, hope to win a majority and start all over again.

He is following Mrs. Thatcher's strategy to the letter -- right down to the immediate hike in VAT, even if it breaks a pre-election promise. But this strategy is irresponsible and dangerous. Two decades ago, our country paid a very high price because of the economic mistakes of the 1980s recession and the years of slow growth and rising unemployment that followed. Manufacturing capacity was lost permanently. A whole generation of young people saw their lives blighted by long-term unemployment.

Our society was divided, child poverty soared and our infrastructure decayed. Today, we see policies that are hitting women harder than men -- and hitting families with children hardest of all. A standard-of-living squeeze, which will choke off growth. And we have seen growth flatline in the past six months, compared to growth of 1.8 per cent in the previous six months, before George Osborne tore up Labour's plan to get the deficit down in a steadier way.

You can't get the deficit down without strong growth, with people in work and paying taxes. So when I hear Osborne refuse even to countenance the idea of putting jobs and growth first, I can see no economic judgement at work at all -- just a political gamble with the nation's economy.

The shadow chancellor's comments stand in sharp contrast to the Treasury's bizarre claim, repeated by Osborne and Cameron, that the data release was "good news", as the economy had "returned to growth", when it clearly has not. It's a strange old world when the only "positive" news that could be found was that sterling strengthened against the dollar and the euro, because some in the markets had priced in an even worse outcome. There are likely to be even worse days ahead.

David Blanchflower is economics editor of the New Statesman and professor of economics at Dartmouth College, New Hampshire

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The tale of Battersea power station shows how affordable housing is lost

Initially, the developers promised 636 affordable homes. Now, they have reduced the number to 386. 

It’s the most predictable trick in the big book of property development. A developer signs an agreement with a local council promising to provide a barely acceptable level of barely affordable housing, then slashes these commitments at the first, second and third signs of trouble. It’s happened all over the country, from Hastings to Cumbria. But it happens most often in London, and most recently of all at Battersea power station, the Thames landmark and long-time London ruin which I wrote about in my 2016 book, Up In Smoke: The Failed Dreams of Battersea Power Station. For decades, the power station was one of London’s most popular buildings but now it represents some of the most depressing aspects of the capital’s attempts at regeneration. Almost in shame, the building itself has started to disappear from view behind a curtain of ugly gold-and-glass apartments aimed squarely at the international rich. The Battersea power station development is costing around £9bn. There will be around 4,200 flats, an office for Apple and a new Tube station. But only 386 of the new flats will be considered affordable

What makes the Battersea power station development worse is the developer’s argument for why there are so few affordable homes, which runs something like this. The bottom is falling out of the luxury homes market because too many are being built, which means developers can no longer afford to build the sort of homes that people actually want. It’s yet another sign of the failure of the housing market to provide what is most needed. But it also highlights the delusion of politicians who still seem to believe that property developers are going to provide the answers to one of the most pressing problems in politics.

A Malaysian consortium acquired the power station in 2012 and initially promised to build 517 affordable units, which then rose to 636. This was pretty meagre, but with four developers having already failed to develop the site, it was enough to satisfy Wandsworth council. By the time I wrote Up In Smoke, this had been reduced back to 565 units – around 15 per cent of the total number of new flats. Now the developers want to build only 386 affordable homes – around 9 per cent of the final residential offering, which includes expensive flats bought by the likes of Sting and Bear Grylls. 

The developers say this is because of escalating costs and the technical challenges of restoring the power station – but it’s also the case that the entire Nine Elms area between Battersea and Vauxhall is experiencing a glut of similar property, which is driving down prices. They want to focus instead on paying for the new Northern Line extension that joins the power station to Kennington. The slashing of affordable housing can be done without need for a new planning application or public consultation by using a “deed of variation”. It also means Mayor Sadiq Khan can’t do much more than write to Wandsworth urging the council to reject the new scheme. There’s little chance of that. Conservative Wandsworth has been committed to a developer-led solution to the power station for three decades and in that time has perfected the art of rolling over, despite several excruciating, and occasionally hilarious, disappointments.

The Battersea power station situation also highlights the sophistry developers will use to excuse any decision. When I interviewed Rob Tincknell, the developer’s chief executive, in 2014, he boasted it was the developer’s commitment to paying for the Northern Line extension (NLE) that was allowing the already limited amount of affordable housing to be built in the first place. Without the NLE, he insisted, they would never be able to build this number of affordable units. “The important point to note is that the NLE project allows the development density in the district of Nine Elms to nearly double,” he said. “Therefore, without the NLE the density at Battersea would be about half and even if there was a higher level of affordable, say 30 per cent, it would be a percentage of a lower figure and therefore the city wouldn’t get any more affordable than they do now.”

Now the argument is reversed. Because the developer has to pay for the transport infrastructure, they can’t afford to build as much affordable housing. Smart hey?

It’s not entirely hopeless. Wandsworth may yet reject the plan, while the developers say they hope to restore the missing 250 units at the end of the build.

But I wouldn’t hold your breath.

This is a version of a blog post which originally appeared here.

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