Is there a new Ed Miliband coalition?

New polling shows that Labour supporters are more liberal on issues such as immigration than in 2010.

Much of the autopsy on Labour’s 2010 general election performance has focused on the "traditional" supporter and their apparent drift from the identity and values of the party over the last decade or so – especially on immigration. The Gillian Duffy demographic has become the party’s preoccupation.

However, new polling data suggests that Labour has been successful in attracting a rather different voter in the last two years – the liberal centrist.  Should the party now aggressively seek to appeal to working-class conservative support as some advocate, the liberal centrist may be repelled. These liberal centrists are, like their culturally conservative opposites, "values" voters. A populist agenda on immigration, culture and Europe may not be the one-way street that is often supposed. What’s more, an Ed Miliband coalition that doesn’t rely on such populism is one potential route to a majority for Labour.

In 2008, Barack Obama was able to win the presidency by assembling a coalition of support tapping into new sources of political energy ignited by demographic and social change. Unable to reverse the Democrats’ deficit amongst white voters or even significantly improve his vote in that demographic, he relied on Hispanic, young, and professional voters. With the obvious exception of Hispanics, the question is whether such a new coalition could be an option for Labour? A new poll hints that it could be a possibility.

Respondents were asked in the YouGov poll commissioned by Extremis Project whether they were more or less likely to vote for parties pursuing a particular agenda based loosely around populist themes such as concern about political and financial elites, nationhood, immigration and culture. The shift amongst Labour supporters from 2010 was very striking. Conservative support showed no such shift.

In 2010, Labour voters were "more likely" to vote for a party that pledged to stop immigration into the UK by 36% to 31%. That figure has now reversed with 36% to 32% "less likely" to vote for such a party. The poll asked the same question of a party pledging to reduce the "numbers of Muslims/presence of Islam in society". Again, we see a reverse. Thirty four per cent to 25% of Labour voters were "more likely" to vote for a party with such a pledge in 2010. It is now 31%-29% in favour of "less likely."

By comparison, the Conservative figure on the same question is 50%-15% in favour of "more likely", which is almost identical to the figure for its 2010 support. The overall figure is 37% to 23%. The likely explanation would appear to be Labour’s success in wooing Liberal Democrat supporters and young voters since 2010. The poll shows a clear generational divide between younger and older voters.

A new Ed Miliband coalition would combine liberal centrists, young voters, those in the public sector as well as the more traditional working and lower middle-class support who are concerned about whether the Conservatives speak for them.

The values voter Miliband seems to be attracting is more, not less liberal on immigration, more, not less accepting of other cultures, and less prone to muscular articulations of national identity. Would he really want to reverse these gains in a populist race that he would find very difficult, if not impossible, to win?

Again, the echoes of Obama’s strategy are striking. The president has embraced gay rights, the green agenda and pitches at both young and professional, college educated support through improving access to higher education (Liberal Democrats take note) and an emphasis on investment in science. He pitches towards both the Hispanic and more liberal audiences with a commitment to immigration reform: better managed borders combined with pathways to earned citizenship.

A critical aspect of this strategy is the frame. So Obama’s pitch is not open borders instead of closed borders. It’s managed immigration versus inaction. It’s not renewable energy instead of oil and gas. The frame is rather pitched around energy security and economic growth. On gay rights, a choice has been made but the articulation is around committed relationships and a contribution to society.

The issues that Miliband faces in political terms are slightly different, but the strategy of pitting pragmatism against ideology and incompetence is instructive. While the default position on immigration is anxiety and scepticism, a majority of people are pragmatic when it comes to certain migrant groups – a failure of the Conservative immigration cap will help his cause. It is to this pragmatism that Miliband could appeal to.

The same goes for Europe, green issues, and potentially even welfare as long as there is an understanding of the deep concern with the welfare state as it is. Given that the Coalition is heading in a distinctively Thatcherite direction – blue collar populism has taken over from progressive conservatism – on these issues, that leaves the pragmatic centre open to Miliband should he wish to take it.

What’s the catch? Most critically, the economy is not going away and a perceived failure of the coalition to turn things around will not be enough for people to invest their faith in Labour. A credible approach to the economy and the deficit is critical. Just as important is the leadership question. If Miliband is not seen as a convincing and competent alternative to David Cameron he will equally struggle to maintain this new-found support. Obama passed both these tests.

Further research is needed to understand how this coalition works on a seat-by-seat basis – could it be too metropolitan? Moreover, this strategy certainly doesn’t mean that Labour should not concern itself with the very serious under-currents of cultural antagonism that exist in British society as poll after poll – including the Extremis Project/YouGov poll - has demonstrated. This is real and in, many ways, frightening.

More broadly, this strategy involves a very fine balancing act. An authentic emotional engagement with nationhood and a sense of national values is critical. See Michelle Obama’s speech where she emphasised that her husband "knows the American dream because he’s lived it". Equally, it involves clawing back assumptions both within the Labour Party and the wider media establishment that these cultural issues can only be dealt with in a discordant way.

With these caveats in mind, embracing and motivating this new coalition nonetheless seems like a more natural fit for Miliband than something more traditional and conservative. Avoiding over-adjustment in addressing Labour’s electoral weaknesses in 2010 is smart politics too. Labour now needs to look forward. Crafting a workable centre-left pragmatism is sound politics. Constructing a solid policy agenda is very different set of questions. For Labour, though, an Ed Miliband coalition of voters could be available to it – and it is one that could have the potential to see it into office.

Extremis Project  is a new platform for news, analysis, data and research on extremism across the globe co-founded by Dr Matthew Goodwin  and Anthony Painter. Anthony Painter writes in a personal capacity.

Ed Miliband has attracted a more liberal breed of Labour supporters. Photograph: Getty Images.

Anthony Painter is a political writer, commentator and researcher. His new book Left Without A Future? is published by Arcadia Books in November.

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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?