The coalition's woes with women

For the Liberal Democrats there is both extreme risk and a glimmer of opportunity.

If you want to see a fearful expression, talk to senior coalition members about shifting patterns of support among women voters. Call it a cold-sweat, or a premature onset of mid-term jitters -- they are distinctly, indisputably on edge. Which is odd, at least on the face of it, given that the Conservatives -- if not their Coalition partners -- are currently polling at broadly similar levels of support to the last election. So what explains this onset of nerves?

To help answer that question the Resolution Foundationasked Ipsos MORI to undertake a detailed analysis of voting intentions in the first half of 2011 compared to the 2010 general election result. The findings are striking - and they reveal one thing beyond doubt: when it comes to support amongst women, the Coalition does have reason to be anxious, even if some of the recent comment on this issue has been overblown.

Source: Ipsos MORI
Base: 10,211 GB adults aged 18+, 19 March-5 May 2010; 7,176 GB adults aged 18+, January-July 2011

Of course, it's important to tread very carefully when talking about the so-called women's vote (itself a meaningless phrase -- when do you ever hear politicians talking about the "men's vote"?). Sensible generalisations can rarely be made about half the electorate. Nor do the headline figures stand up the contention that a dramatic gender gap in electoral support has opened up. Most people, regardless of gender, care about the same issues -- jobs, inflation and living standards; crime; immigration and the NHS.

And the impact of age, class, occupation and geography often trumps that of sex in explaining differences.

But make no mistake, and despite all the caveats, some shifts are occurring. It's well established that at the last general election, women were on average more likely to vote for the Liberal Democrats than men (26 per cent v 22 per cent), as well as Labour (31 per cent v 28 per cent).

Less understood and more interesting are the staggering variations that exist underneath these headline figures. Women aged 25-34 were more likely to vote for Labour than the Conservatives (11-point lead) whereas C2 female voters (of all ages) were dramatically more likely to back the Conservatives than Labour (by a remarkable 17 points), fully reversing Labour's towering 18 point advantage among the same group in 1997.

Following the 2010 election, during the early and easy days of the Coalition, Tory support climbed among women, reaching a commanding 45 per cent in one poll at the end of 2010, hovering just below 40 per cent in others, compared to around 34 per cent of men. Since then the Tories' lead amongst women has fallen, dropping below that of men in many polls.

Perhaps more noteworthy is that overall levels of 'approval' for the Coalition have fallen to 25 per cent among women, 8 per cent lower than for men. Just 13 per cent of women feel that the Conservative Party is the party which is closest to women and best understands and reflects their views; plummeting to 7 per cent for the Lib Dems. When it comes to their personal ratings both Cameron and Clegg have a deficit of 6 per centamongst women compared to men. No wonder Downing Street strategists -- both Conservative and Lib Dem -- are jumpy.

Given that these headline findings about "women's attitudes" inevitably conceal more than they reveal it is vital to get a more granular account of changes in political support amongst different groups of women. To make a start at this we can break down levels of support in 2011 by age and social class compared to those in the 2010 election (admittedly still very broad and crude categories).

The results are intriguing. In terms of social class we see that both the Tories and Lib Dems have haemorrhaged support amongst C2 women (typically skilled manual workers), often key voters in swing seats. In contrast the Tories have actually gained support amongst female AB voters (professional and managerial), and seen their support hold steady amongst male C2s.

The Lib Dems have performed even worse amongst female ABs than other classes. They also show that the proportion of women aged 18-24 who support the Tories has declined from an already low 30 per cent at the General Election to just 18 per cent in 2011, while support among the same group for Liberal Democrats has collapsed from 34 per cent to just 8 per cent, meaning the coalition has succeeded in losing 38 per cent of its support among this group. To be clear, male voting intentions have also moved in the same direction but to a lesser extent.

 

Source: Ipsos MORI
Base: 10,211 GB adults aged 18+, 19 March-5 May 2010; 7,176 GB adults aged 18+, January-July 2011

There are plenty of potential explanations for these shifts -- though very little hard evidence as to which is most telling. Much of the media comment earlier in the year focused on some of the Coalition's unfortunate symbolic moments which have pierced the public consciousness -- from David Cameron's "Michael Winner moment" during PMQs to Ken Clarke's linguistic contortions over rape.

More recently the focus has switched to the way in which the deteriorating economic situation is impacting on many women, particularly those on low-to-middle incomes. Over the last quarter unemployment increased by 38,000, with 21,000 being women. Female unemployment had already risen by 76,900 over the last year - with the number of women out of work now 1.05 million, the highest since the spring of 1988 - and the forecasts are that female unemployment will continue to rise as women are disproportionately suffering due to their higher concentration in the public sector. Qualitative research suggests that women are more inclined to be pessimistic about the economy and feel they are more likely to lose out as a result of cuts. On top of this, particular groups of women -- such as those in their 50s -- are being faced with major shifts in their pension age that they weren't anticipating, causing real concern.

As Ben Page of Ipsos Morri says, "Women, and working class women in particular, are shifting away from the government, reflecting the fact that they are hardest hit by both the recession and cuts in public spending."

Given the wider economic context of falling wages and rising prices you might think it is a uniquely dumb moment to be making it more difficult for households to sustain two people in work by withdrawing childcare support. But that is what is happening.

As leading welfare expert Donald Hirsch has pointed out, April's cut in support from 80 per cent to 70 per cent of eligible childcare costs may not sound all that much to some people - including ministers. Not, that is, until you work out what it means for the many families with young children struggling on low wages who will be most affected. A couple with two young children paying out £200 a week in childcare will need to find an extra £20 a week to recoup this lost tax-credit income. That's £1,000 a year of post-tax income.

What does this imply for their pre-tax earnings? To recover the full £1,000 they'd have to earn an extra £3,700. Fat chance. Many women are likely to conclude that work simply doesn't pay.

Some straws in the wind suggest these changes may be starting to take their toll. A poll out last week reported that the high costs of childcare were leading high proportion of low-income parents to consider reducing their hours or give up work; whilst another recent report found the number of families getting income from a second salary has fallen from 36 per cent in May this year to 30 per cent in August. Median monthly net family income dropped by two percentage points over the same period - the main determinant being an 8 per cent drop in women's incomes while men's incomes rose.

And now the mistake on childcare policy looks set to be compounded. As was first flagged up in spring, and has been back in the news over the summer, there are further changes in the pipeline - as childcare support gets integrated within the universal credit, making employment even less worthwhile for many working mothers. (Note that when it comes to childcare it is low-earners who will bear the brunt of reduced support, the tax-relief going to higher-earners via childcare vouchers remains unscathed by the Coalition).

Stir into this cocktail the proposed abolition of Child Benefit for higher rate tax payers scheduled for 2013, the most aggrieved victims of which will be women in single-earner households living on just over £40,000. Their outrage will be given added piquancy if this coincides -- as is widely tipped -- with the abolition of the 50p tax rate, benefiting the richest 1 per cent of earners, the majority of whom are, of course, men.

Clearly all this gives Labour a lot to aim at -and there has been no-shortage of tactical attacks. Labour's polling position has strengthened, especially among C2 women. But they are yet to convert improved poll ratings based on protest into solid support, and still need to grapple with the deeper sociological and economic changes in UK society that will reshape the nature of the electoral coalition required to win in 2015.

For the Liberal Democrats there is both extreme risk and a glimmer of opportunity. The risk, of course, is that their shattered support among working women continues to act as an anchor on their overall levels of support as the party soaks up blame for unpopular decisions. The opportunity as they see it is to rebuild some of their bedrock support by differentiating themselves on issues thoughts to appeal to key groups of women. Senior Lib Dem strategists are seized of the need for this and see "our catastrophic loss of support amongst working women, especially C1s/C2s, as perhaps our biggest electoral challenge", more so even than the collapse amongst 18-24s who tend to vote less. "If we are not seen as a party of mainstream working women we are nowhere."

Expect senior Lib Dems to use their Conference to package their flagship policies on tax-allowances, part-time students, and shared parental leave to make this point. And don't be surprised to see them playing up what they see as the social conservatism of both main parties -- whether it be Nadine Dorries on the right, or the mis-firings of Blue Labour on the left, as evidence that they are more in tune with the mood of mainstream women.

The reality, though, is that in times like these, economics tends to dominate. As senior Lib Dems concede, the party has little chance of getting a hearing if the Coalition's agenda -- particularly on issues like childcare - is seen as another threat to living standards. Which explains why they view further proposed cuts to childcare with escalating levels of anxiety, and why Nick Clegg has inserted himself in key Whitehall discussions on the future of the childcare tax-credit.

Clegg will no doubt find that fights like these -- with spending implications - are the toughest. Unfortunately for him they are a key litmus test for his ability to improve the lives of low-to-middle income working mothers. Cuts to childcare support are hitting working women where it hurts at the worst possible moment. For their sake, as well as his own, this is a battle the Lib Dem leader needs to win.

Gavin Kelly is a former adviser to Downing Street and the Treasury. He tweets @GavinJKelly1.

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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?