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Laurie Penny on rising tuition fees: A breathtaking attack on social mobility

Lifting the cap on tuition fees isn't just an attack on young people -- it's much, much worse than that.

It's worse than we feared. The Browne report, released today, advises the government that the best way to fund a "competitive" higher education system and provide businesses with the goods, services and skills that they require is to replace state funding of higher education with a punitive fees system which is set to triple and or even quadruple the amount that British students have to pay to attend university. This provides the coalition with all the excuse it needed to turn our universities into cowed commercial spaces, crammed with young people so terrified of their mounting debts that they will fashion themselves into obedient corporate drones with less of the soul-searching that goes on in today's academy.

Once they have graduated, rather than having their loan charges frozen as is currently the case, students will be obliged to pay interest at market rates, meaning that the poorest students will potentially be paying thousands of pounds' worth of extra interest over 30 years. Meanwhile, the very wealthy, who do not need loans, and the middle-aged and elderly, who enjoyed free higher education paid for through progressive taxation, will see their odds of remaining "competitive" in the meat market of modern moneymaking vastly improved.

This is a breathtaking attack on social mobility. The report, which is likely to be directly incorporated into policy, is a statement in bald black and white that neoliberal political doctrine will now be more mercilessly pursued than it ever was under New Labour. At root, the Browne report is not about what students and graduates are willing or able to pay, but about what the government is unwilling to pay to fund a higher education system that, with its fusty emphasis on learning and personal development, has always contradicted to some extent the interests of profit.

The question isn't where the money to run our universities will come from -- the question is where it won't come from. If the Tories push ahead with their plans to raise tuition fees, then it won't come from taxpayers; not anymore.

Let's remind ourselves of the levels of stomach-churning hypocrisy at play here. The politicians currently wrangling over how many tens of thousands of pounds students from poor families should be obliged to pay, and when, for degrees which are now all but essential to any hope of decent employment in a beleaguered job market, all attended university for free. Not only that: Cameron, Clegg and Osborne, despite having families wealthy enough to educate them at top private schools, were all offered generous maintenance grants to support them through their prestigious free courses, payable by edict of the Education Act 1962.

Like many universal benefits, the student grant was long ago tossed into the dogpit of corporate cannibalism, with young people and their families now forced to make up the shortfall of what was once ours on principle. The student grant and free tuition used to be financed perfectly adequately through the tax system -- a system that saw top-rate taxpayers paying 83 per cent on their earnings in the 1970s and 60 per cent even during the grimily golden years of Thatcherite neoliberalism.

This isn't just a tax on the young. It's far, far worse than that. Today, the new, caring Conservative party plans to effectively abolish higher education that is free at the point of delivery, and instead deliver the functions of the welfare state to the market in their entirety.

The attack on university funding is part of a fiscally sadistic cuts agenda that seeks to roll back the state in order to turn universities, hospitals and even jobcentres into little more than third-sector service providers jostling for the business of the desperate consumers who we used to think of as "citizens". This kamikaze capitalism has now cynically incorporated the language of "fairness". The coalition mouths platitudes to "fairness" precisely because fairness before the market is the one thing that savage neoliberalism can promise without blinking. This is about more than fairness, however. This is about justice.

The people of this country now face a choice -- between cringing complicity with a compromised and misleading notion of 'fairness' and the challenge of fighting for justice, genuine social justice, which is more than equality, more than fairness, and certainly more than the market can deliver.

This is a choice that faces all of us, including those who are unlucky enough to have endorsed, voted or chosen to work for the quisling Liberal Democrats. Will we remain complicit as our welfare state is destroyed and our young people's futures are aggressively pimped out to an uncaring private sector? Or will we turn around and say, while we still have the strength: enough?

Laurie Penny is a contributing editor to the New Statesman. She is the author of five books, most recently Unspeakable Things.

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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?