The Tories' manipulation of education statistics

There is no evidence that reading standards have fallen among school children.

In Saturday's Guardian (Letters, 28 Jan), schools minister Nick Gibb defends the government's view that phonics are the only way to reach children to read. His central justification is that something must be done: "International studies rank England 25th for reading - down from seventh nine years ago."

In the very literal sense, Gibb is correct. In 2000, the OECD’s Programme for International Student Assessment (PISA) placed England in 7th position in its table (p.53). In 2009, it was in the 25th row of a similar table (p. 56).

In any other sense you care to mention, Gibb is entirely wrong , because:

1) Twelve other countries, nominally above England in the 2009 tables, have statistically insignificant higher scores. The National Foundation for Educational Research's summary of the OECD findings is quite explicit about this: "Because of the areas of uncertainty described above, interpretations of very small differences between two sets of results are often meaningless. Were they to be measured again, it could well be that the results would turn out the other way round (p.8)"

2) 31 countries took part in the tests in 2000, and 67 in 2009. Shanghai and Singapore may be nominally above the UK in the 2009 tables but they didn’t take part in the 2006 or earlier surveys. This makes direct comparison between years invalid.

3) The OECD’s warned explicitly (para 2 of this technical note) against comparing earlier PISA results with earlier data, because the very low response rate for earlier years largely invalidated samples.

4) The 2000 and 2003 tests were conducted some months earlier in school year 11 (Nov/Dec) than the 2006/2009 (March-May) ones, as an exception to the international study (to make room for GCSE preparations). As John Jerrim of the Institute of Education has noted, taking the tests around half a school year early makes a very obvious difference: "[I]t is important to understand that between November/December and March‐May of year 11 is likely to be a period when children add substantially to their knowledge of the PISA subjects as it is when pupils are working towards important national exams. Consequently, one should expect the year 11 pupils in the PISA 2000/2003 cohort to out‐perform their peer taking the test in 2006/2009 due to the extra five months they have had at school….."

In short, there is simply no reliable evidence that 15-year-olds in England are any less able to read and understand texts, when compared to their international peers, than they were nine year ago. Yet here we have a government minister using that argument as a key reason for a fundamental and controversial change in which five and six-year-olds are taught.

Now, if this was a result of incompetence on the part of the minister and his department, that would be worrying enough. But what should really concern us is that the Department of Education almost certainly knows perfectly well that its "interpretation" of the OECD data is entirely incorrect, but is determined to carry on peddling its untruths anyway.

The key evidence of this, I suggest, is the way in which Michael Gove himself defended his proposals for a return to 'O' Levels/CSE in parliament on 21 June:

The sad truth is that, if we look at the objective measure of how we have done over the past 15 years, we find that on international league tables our schools fell in reading from 523 to 494 points, in maths from 529 to 492 and in science from 528 to 514.

Here, Gove used the OECD raw scores for 2000 and 2009 rather than the table rankings (the lower scores can largely still be explained by two of the factors above). He almost certainly did this because he and his team realised they had been rumbled by blogs like Though Cowards Flinch with a mind to detail, and by a Guardian editorial of the same day, which said:

Mr Gove.... latches on to data purporting to show English schools plummeting down world rankings. The Institute of Education has meticulously documented all sorts of distortions in these apparently alarming figures, but such calming analysis fails to register. Mr Gove should go away, revise the evidence properly – and prepare for a resit.

Clearly, Gove didn't want to be caught red-handed by Labour members assiduous enough to have read the Guardian that morning. Yet just a month later we have the schools minister writing to the same paper with the very nonsense his boss had been wary of using.

The real tragedy, of course, is not that Guardian readers are being lied to, but that actual educational policy is being developed on the basis of false data. The direct consequence of the pretence that comparative reading standards are plummeting is a emphasis on setting higher targets, as set out by Sir Michael Wilshaw, the Chief Inspector of Schools who, sadly, has been all too complicit in the myth-making. Wilshaw has stated that: "So one of the first questions we need to ask is whether the national end-of-primary-school target of level 4 is sufficiently high to provide an adequate foundation for success at secondary school."

Yet data in the government's own 2010 education white paper suggests that the actual problem policymakers should be facing up to is not low targets, but unequal distributi on of achievement between the upper and lower percentiles compared with other countries (see Exhibit 1.1 in this PIRLS report). By focusing their energies on the creation of fundamentally dishonest headlines, the government and its advisers are actively missing out on data which might actually improve the lives of young people.

Of course, this is not the first time that the government has resorted to the use of dodgy statistics. Chris Grayling has already had his wrists slapped by the UK Statistics Authority for his flagrant abuse of statistics. Now, it even looks as though the government may attemp to explain away its disastrous management of the economy by casting doubt on the reliability of the GDP data collected by the Office for National Statistics, without providing a shred of evidence as to how these dataset might have been considered reliable for so long but are now, so suddenly, suspect.

Overall, a picture is starting to emerge of a government prepared, in its mix of desperation and ideological fervour, to go one step beyond spin. That should keep us on our toes.

"Actual educational policy is being developed on the basis of false data." Photograph: Getty Images.

Paul Cotterill is a blogger for Liberal Conspiracy and Though Cowards Flinch.

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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?