Crazy paving causes flood woes

Will it take a British New Orleans before we take flooding planning seriously?

It's starting to seem normal. Storms since Friday, accompanied by frighteningly heavy showers across the UK, have caused floods, havoc and tragedy.

Workers trapped in a factory in the West Midlands; the Gardener's Question Time summer garden party almost ruined by rain 'like stair-rods'; the death of a soldier swept away by a swollen river in Yorkshire; schools closed in Sheffield; and thousands of homes ruined in towns and villages from Wales to Norfolk. A century ago, these would have been called 'the big floods' for years to come but the sad fact is we'll probably see the same thing happen again before Christmas.

With good timing, inadequate investment in flood defences was highlighted in a report on Friday by the National Audit Office. They found that our defences – maintained by the Environment Agency – were in peak condition in less than half of high-risk areas, and that protection is often in the wrong place, defending farmland rather than centres of population.

And it isn't just the building of barriers to rising sea levels that is a problem. Other, seemingly harmless, land-use decisions can also have serious consequences in helping make floods part of our daily lives.

The trend to pave over front-gardens in London has led to a dramatic loss of surfaces that absorb water from heavy showers. The permeable land area lost recently is 22 times the size of Hyde Park, according to the London Assembly's Environment Committee's 'Crazy Paving' report in 2005.

Each decision to have a parking space rather than a front lawn has combined to increase the city’s vulnerability to flash-flooding several times. According to the Stern Review last year, “Each individual decision may be rational, but in aggregate this loss of permeable land will leave a legacy for future generations living in London.”

The risk of more city floods can only increase as climate change takes hold properly in the future. A month's worth of rain in 24 hours may never be 'normal' but we can expect it to be a regular occurrence.

In this new climate, plans to build homes on flood plains start to look like madness. With forty percent of homes in the South of England at serious risk of flooding already, building hundreds of thousands of new homes in the Thames Gateway (its name a bit of a giveaway as to its proximity to rising waters) makes no sense at all. The Stern Review recommended limiting construction on flood plains as a way of minimising the cost of climate change, but the government and London planners are intent on ignoring this advice.

Acknowledging its flood-defence failures to date, the Environment Agency is now looking for £150 million in extra funding from this year's comprehensive spending review. I hope they get this and more; a recent study in Scotland found that the psychological impact of losing treasured belongings in floods can take years to get over, lasting long after financial losses have been forgotten.

Despite the certainty of climate change in the future, property damage now is not inevitable. The great front garden tragedy in London could have easily been avoided with a small change in local planning guidelines, and was highlighted by the Greens in London very early on.

Similarly we've opposed the Thames Gateway approach to providing housing for London's growing population, pointing out that a combination of filling empty homes and building on brownfield sites can increase the supply of homes without pushing people into places that will be regularly under water within a decade or two.

The government needs a more coherent and comprehensive attitude to flood planning. If they fail, we could easily end up with large numbers of people unable to get household insurance, unable to sell their houses and condemned to a slow decline into poverty and slum housing conditions.

Arguably, government's 'job number one' is to plan for and provide secure homes for those who elect them. Things like flood risks are simple enough problems to identify, and the consequences of failure potentially so appalling, that the current culture of neglect is inexcusable. Will it take a much bigger tragedy, a British New Orleans, to sort this out?

Sian Berry lives in Kentish Town and was previously a principal speaker and campaigns co-ordinator for the Green Party. She was also their London mayoral candidate in 2008. She works as a writer and is a founder of the Alliance Against Urban 4x4s
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?