From Boris to the Murdochs

What can Guto Harri do for News International?

“He never struck me as that remarkable,” a former colleague of Guto Harri's told me as rumours spread that he was set to leave City Hall for News International. “But I guess he must have something going for him.”
 
The key thing that Harri has going for him is his close relationship with Boris Johnson, who Private Eye recently described as the man “fast becoming the Digger’s favourite politician”. Under Harri’s guidance, Johnson has remained consistently and vocally loyal to the Murdochs, despite most other political allies remaining quiet or deserting them altogether.
 
When the Guardian first reported on phone hacking at News International, the Mayor publicly dismissed the story as “a load of codswallop cooked up by the Labour party.” And as the Met began their investigations, his policing deputy repeatedly tried to persuade them to scale back their inquiries.
 
“The caravan should move on,” insisted Boris as yet more revelations emerged. “Real people are so apathetic about the Leveson business,” he repeated again in the Telegraph last week. “In all its lavish coverage of Murdoch, hacking and BSkyB, the BBC never properly explains the reasons why other media organisations – including the BBC – want to shaft a free-market competitor.”
 
As the election approached you might have expected Boris to keep his distance from NI. But just one day after Rebekah Brooks was arrested in a dawn raid, Boris met with the Sun's editors for lunch. Following their meeting, the paper lavished extensive coverage on the Mayor, describing him as fighting hard for “White Van Man”, a claim based on his policy of extending free parking on some London roads by ten minutes. His opponent Ken Livingstone meanwhile was described simply as a “villain”.
 
Harri too has remained loyal to his old contacts. “He is known to be in constant contact with Andy Coulson,” explains one biography (now outdated). Such constant contact seems to have paid off with Harri freely admitting that his new appointment will be seen as "part of an irresistible geometrical pattern" between the Conservatives and News International. But what does Harri have to offer the company, aside from his loyalty?
 
His time as Director of Communications at City Hall will chiefly be remembered for his policy of limiting access to the mayor to all but the most unquestioning members of the media. Shortly after Boris’s election, Guto cancelled the regular City Hall press conferences. Out went the dry reports and question and answer sessions of the Livingstone years and in came an endless series of celebrity-backed ribbon-cutting events where the likes of Kelly Brook, Barbara Windsor and Peter Andre all posed grinning with the Mayor.

Questions from journalists were strictly limited at these events and Harri has consistently kept Boris away from any interviewer who cannot be relied upon to play nice. Chief among the “awkward squad” is BBC London’s political editor Tim Donovan who has repeatedly been refused interviews with the Mayor on the channel's weekend politics show. When Donovan dared to report on Boris’s links with News International, he earned a sweary on-air rant from the mayor. Boris has since gone on to attack BBC London as his “chief opponent" during the election campaign.

Other journalists have been submitted to more underhand attacks. When Boris’s former colleague Sonia Purnell set out to write his biography, “sources close to the Mayor” privately briefed that Purnell was a spurned and embittered admirer of Johnson, a smear that was hinted at in much of the coverage of her excellent book.
 
Along the way Harri has gathered a number of critics on the right. Rather than being a straightforward Murdoch appeaser, they accuse him of actually spending far too much time trying to win over people who will not support the mayor no matter what happens. Despite Boris’s public grumbles about the left-wing media, Harri invited over a hundred journalists from the BBC and the Guardian to the Mayor’s media reception at City Hall last year. The Sun, by contrast, received just six invites.
 
What Harri understands is that in a left-leaning city, Boris needs to appeal well beyond his own party. Under his guidance, Johnson has fought against Labour’s stereotype of him as a swivel-eyed Tory, backing measures such as the Living Wage and an immigrant amnesty.
 
Harri yesterday accused Boris’s campaign manager Lynton Crosby of nearly wrecking his re-election by only appealing to core voters: “That was almost the danger of the campaign, that he became more Tory at a time when being Tory seemed to be more of a liability than an asset.”
 
Despite his unassuming and amiable exterior, Harri is an effective and formidable operator. In four years he has transformed Boris Johnson’s image from national joke to a serious contender for the Tory leadership and Number Ten. This is a remarkable feat.

Transforming the image of News International and the Murdochs will be a far harder task, but if anyone can do it, then perhaps Guto Harri can.

Photograph: Getty Images

Adam Bienkov is a blogger and journalist covering London politics and the Mayoralty. He blogs mostly at AdamBienkov.com

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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?