A hodgepodge approach to housing

Some unfortunate words about immigrants, the government's peculiar approach to green energy and the

Dear Marina,

I am very upset. I have always been a loyal socialist albeit in a slightly patrician and up myself kind of a way. I recently said British families should be given housing priorities over immigrants and now that ghastly Alan Johnson has compared my language (aspirational Islingtonian) with the BNP's (inarticulate and trashy). What does the dreadful little postie think he's up to?
 
Yours MH,
Barking/Islington

 
Stupid woman! Even the Tories under Michael Howard understood you could only ask: “Are you thinking what we’re thinking?” No one expects a Labour luvvy to come out with a blatantly racist attitude to social welfare and justice.

All councils, as I understand it, operate a points system whereby one’s points increase with time on the waiting list and all other points are awarded for various aspects of deprivation. More points for children, being a single parent, having more adults than bedrooms, illness, disability and so forth.

I am not aware that any council takes into consideration the country of origin of those eligible for housing allocation. Indeed it’s probably a sackable offence to do so.

Allow me to enlighten you with a few facts.

Migrationwatch argues Government household projections are based on a "false assumption" that net immigration would be about 65,000 a year.
Between 1996 and 2004, however, it had averaged 140,000 annually, says the group, which spends much money fighting the false bogeyman that is “mass immigration.”

It concludes that 70% of the 370,000 housing shortfall - totalling 260,000 properties - had resulted from immigration above what had been anticipated.
So far so BNP friendly. Now consider rising demand for housing caused by people living alone.

The number of single person households increased from 2,977,000 in 1971 to 6,447,000 in 2006.

This trajectory is set to continue with people living alone accounting for 72% of annual housing growth by 2026. And no it’s not all single mums; it’s the elderly, professionals and divorcees too.

Meanwhile, over the last 30 years, the level of new house building has halved.

So yes Ms Hodge, we do face a housing crisis - caused by consecutive UK governments which not only failed to address, but have - through poor policy decisions - made worse the current housing shortage.

We can hardly blame the small-by-comparison number of people fleeing poverty and/or violence abroad – often as a result of our own foreign policies and increasingly our failure to act on climate change.

Since Alan’s message appears to have fallen on deaf ears, I suggest you send a note to self Mrs Hodge: engage brain before speaking. Otherwise your Hodgepodge approach to the facts leaves you vulnerable to accusations of being a bit of a BNP supporting idiot. And it’s a very poor look!

Dear Marina,

As a Christian I am concerned that we are not doing enough to combat climate change. My local parish council is keen to put solar panels on the church roof. But we’ve had no joy from the government whom it was assumed would want to help us. What do you suggest we do?

Green Worshiper

As a pagan, I agree. In a week when the government shows once again that its attitude to nuclear power, clearly, is a positive one it is obvious that all encouraging words on renewables have been nowt but piss and wind.

Example: Gordon Brown announces an extra £6 million funding for the Low Carbon Buildings Trust which provides grants for renewable energy projects. But two hours later the DTI closes down the scheme. It’s a case of talk global, postpone local, wouldn’t you say?

Grants are back on next week, but the drop in recent business for renewable companies of between 40 and 60% mean many already have their noses squashed up against the wall as their businesses collapse.

The DTI is obviously shagging the nuclear industry – in bed with is just too polite under the circumstances – and until that sorry department is abolished, we’ll have no positive way forward.

So why not launch a project to ensure every home in your parish is equipped with energy efficient light bulbs – a switch of 27 million bulbs would see this country’s energy needs reduced by two power stations.

If you still want to push ahead with a micro generation project, you now have to apply via the utilities companies, who frankly, have no interest in us switching power generation supplies, but have been tasked with the job anyway. God I’m depressed.

Dear Marina,

I can't believe it, the divorce (on hygiene grounds) was bad enough but now the ex has just robbed me – legally! Apparently as the homemaker she's entitled to part of my £131million beer money. What I want to know is how come she's the homemaker when we have a staff of 15 Filipino maids and the pile was built by Poles?

Ill-used of Belgravia or somewhere

Get over yourself. She’s only had 45% of the wealth you acquired as a married couple. I’m sure if life had been different – say after sixth form, where you met, you still got together but now found yourselves in debt. Then you wouldn’t be quibbling over her taking on board half the overdraft, now would you?
Given you left her for tax reasons (moving to Bermuda! Lucky you), there must be savings in the kitty. Give your ex her dues and move on.

Can’t give this any more thought – the Tories are trying to cancel our annual town fireworks display – I have some serious rebellion to organise. Not only that, but it’s the start of the festival season – so once I’ve got the local youths rioting, I’m off for a hot date round a campfire. Peace and love all. Will blog from a field next week – power supplied by renewable technologies OBVIOUSLY!!!!

Marina Pepper is a former glamour model turned journalist, author, eco-campaigner and Lib Dem politician. A councillor and former Parliamentary candidate, she lives near Brighton with her two children.
Why not e-mail your problems to askmarina@newstatesman.co.uk?
Getty
Show Hide image

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?