The questions that must be answered over the unpaid stewards

Is the Work Programme fit for purpose?

As this Bank Holiday weekend drew to a soggy close, the story begun to emerge of how 80 unemployed people from Bristol, Bath and Plymouth were bussed to London to "work" as stewards for Sunday’s Diamond Jubilee river pageant.

Fifty of them were on "apprenticeships" and would be paid £2.80 an hour. The rest were on the Government’s Work Programme, and they’d been led to believe by Close Protection UK, the company they were providing stewarding services for, that they’d be paid for the work. Some had even signed off in anticipation. But then Tomorrow’s People, the charity running the Work Programme in their area, told them it was ‘work experience’ and they wouldn’t be paid. Some of them didn’t find this out until they boarded the coach to London, with the tents and sleeping bags they’d been told to bring with them. They arrived in London at 3am Sunday morning, and were left by the roadside. 20 minutes later they were shown under London Bridge and told that’s where they could camp until their shifts began at 5.30am. But they couldn’t pitch their tents on the concrete and it was too cold and wet to sleep. Their "work experience" consisted of standing for hours in the pouring rain, shivering in the inadequate clothing provided, doing virtually nothing as they’d not really been told what to do. A marked contrast to the splendour of the pageantry itself.

The director of Close Protection, Mary Prince, by the way, initially said that the "London Bridge" was a mistake, that the coaches shouldn’t have driven off and left them there. But in that case, why were they told to bring tents? And what were the drivers supposed to have done with them? Mary Prince also said that the only people who weren’t paid were ‘the ones who didn’t want to be paid’ because they’d lose their benefits.

The steward I spoke to yesterday had been on the Work Programme with Tomorrow’s People for a year, but apart from occasional sessions with an adviser (she’s on her third, as they keep leaving) ‘nothing had happened’ until March this year when she was put on the NVQ Level 2 in stewarding. She’d already done a stint of unpaid work experience in late March. I don’t think she was much impressed by the quality of training but she’d stuck with it, hoping to get paid work. Close Protection had said they’d pay the jubilee stewards £450, and it would lead to well-paid stewarding work at the Olympics. But she ended up calling home in tears and being rescued by a relative, after 36 hours without sleep, soaking wet and without being paid a penny for it.

Those are the basic facts that I’ve been told, and that have been reported in the Guardian and on a blog by Eddie Gillard, but the real questions remain to be answered. Here are just some of them.

Is the Work Programme fit for purpose? Is it actually providing training and work experience that will equip people for the world of work, and if not, what is the DWP actually paying  charities such as Tomorrow’s People to do? What monitoring is there of the Work Programme; what scrutiny of its outcomes? Where do you draw the line between giving people work experience they would otherwise not have had, and exploiting them as cheap or unpaid labour? Are these real apprenticeships? (Polly Toynbee among others has written about how this government’s much vaunted apprenticeships are simply rebadged Train to Gain or other lesser schemes, and not what would have in the past have been regarded as proper apprentice training).

What was the relationship between Tomorrow’s People and Close Protection UK? £1.5 million was allocated to pay for security at the jubilee pageant. How much of this went to Close Protection UK? How much, if any, went to Tomorrow’s People or wasn’t it a financial arrangement? When Close Protection UK were awarded the stewarding contract, was this on the basis that they’d use unpaid labour (and if so, were the organisers happy with this?) Or were the organisers led to believe that the stewards would be paid, and the contract price fixed accordingly?

Interestingly Close Protection UK says on its website, specifically under ‘Event Staff’: “Here at CPUK we pride ourselves on our reputation within the industry and therefore only provide the best and most competent event staff. All of our staff are trained to NVQ Level 2 in spectator safety (supervisors trained to Level 3) and all are SIA licensed in door supervision.”

The steward I spoke to hasn’t yet got her NVQ Level 2 (and doesn’t know if she will now, having walked out on the jubilee ‘training’). Some on the coach to London had got their SIA licence, but others hadn’t. So did Close Protection lead the pageant organisers to believe they were hiring – and paying for - ‘the best and most competent’?

Questions are also being asked about the security implications of hiring unqualified inexperienced staff for such a high profile occasion, by Lord Prescott, who has written to the Home Secretary, and my Labour colleague Bill Esterson who has tabled some written parliamentary questions. John Prescott has asked Theresa May to investigate whether Close Protection UK has broken the Security Industry Authority’s approved contractor status terms, including its ‘fit and proper person’ criteria, and whether it should still be allowed to provide stewarding services at the Olympics.

There are also concerns about the financial standing of Close Protection UK, whose net worth is currently shown by Companies House at £-185,861. The director Mary Prince has dissolved another six companies in the last six years.

Over the coming days more will be revealed, no doubt. I hope this triggers a wider debate about the use of workfare and Work Programme participants on "work experience" as a substitute for paid labour, and the exploitation of the scheme by companies who could and should pay a decent wage instead. Not to mention the exploitation of the "volunteers" who live in fear of being sanctioned or refused paid work if they turn down such opportunities. We also need to ‘follow the money’. Who was paid what, and what for, and why weren’t more questions asked about who and what and why? Watch this space, as they say.

Kerry McCarthy is the Labour MP for Bristol East and shadow foreign minister.

Rowboats sail towards Tower Bridge during the Thames Diamond Jubilee Pageant on the River Thames in London. Photograph: Getty Images.

Kerry McCarthy is the Labour MP for Bristol East and the shadow foreign minister.

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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?