Gordon Brown's press conference -- live blog

Live coverage of the PM's regular press conference

10:46am David Cameron has had his monthly outing in front of the press. Now it's Gordon Brown's turn.

Follow The Staggers from 11am for full coverage.

11:01am Brown begins with Afghanistan. He says the London conference will see new Nato and Afghan troop levels announced.

11:03am He says he's confident the economy is emerging from recession but warns that the UK and the world economy remain fragile. We must not cut the deficit this year in a way that threatens growth and jobs, he says.

11:04am Brown announces that 100,000 unemployed young people are now eligible for a guaranteed job or training programme. He says they must accept the jobs on offer or risk losing their benefits.

11:06am He says that the government's economic plans will "expand the middle class not squeeze it".

11:08am The questions begin with Sky's Adam Boulton. He asks Brown if he really believes he can trim the Budget deficit yet avoid cuts to "front-line services". Brown says that the biggest threat to the recovery is not continuing with the action the government is taking, the reverse of Cameron's position.

11:10am Nick Robinson asks if the PM can be honest about the risks of not tackling the deficit. Brown says his judgement has been proved right throughout the economic crisis. He says he is right not to withdraw fiscal stimulus now.

11:14am After Bob Ainsworth let the date slip yesterday, Brown is asked if he can confirm that the election will be on 6 May. He replies by joking that Ainsworth suggested we need to prevent the Conservatives from winning the "council elections" (also on 6 May).

11:19am Nick Watt from the Guardian asks Brown if he agrees with Alistair Darling's statement that cutting the Budget deficit will lead to the toughest spending round in 20 years. Brown insists that, unlike some other countries, his government has already made key decisions on tax rises and restructuring the economy.

11:21am Brown is asked if he is taking a big risk by giving evidence to the Iraq inquiry before the election. He replies that he isn't, "because I stand by all the actions I have taken". He adds that he welcomes the chance to explain the decisions the government took.

11:26am Brown is asked how the Afghanistan conference will persuade President Karzai to commit to specific measures to tackle corruption. He says that action is being taken through the introduction of an anti-corruption task force on which external advisers will sit.

He says the coalition's strategy is to "split the Taliban" by persuading mercenaries to leave the group.

11:30am The PM is asked how would he characterise the differences between Labour and the Conservatives on national security. He says the government has trebled the national security budget since 2001 and has taken legislative action to respond to the terrorist threat, though he concedes this has been "controversial". He adds that the defence budget was cut "savagely" under the last Tory government.

11:37am Bloomberg asks Brown for his response to Goldman Sachs's decision to the cap the pay of its partners at £1m. He says there is a big danger that the banks want to return to the "bad old ways", with rewards unrelated to risk.

11:41am Channel 4's Gary Gibbon asks if windfall money from lower benefit payouts will go towards deficit reduction. Brown says that the government is prepared to make "difficult decisions" and cut the deficit, but it will not be distracted by people "shouting" that we need to cut the deficit today.

11:44am Brown says that the Tories produce policy documents whose one characteristic is that they "contain no new policy".

11:46am Asked if he supports the campaign to save general election night, Brown says that the timing of the count is a matter for returning officers.

11:49am Brown refuses to confirm whether he supports abolishing the law allowing firms to force people to retire at 65.

11:56am Asked about the defence budget, Brown says there is "no danger" the Afghanistan campaign will be underfinanced.

11:57am Pressed on where spending cuts will fall, Brown says that due to uncertainty over economic growth it would be premature to allocate money to departments now.

12:00 noon A rare question on climate change. Brown is asked if some of the mistakes made by the IPCC undermine attempts to secure international agreement on climate change. He replies: "No, because I think the academic evidence as a whole leads to one conclusion: that we need to tackle climate change."

12:04pm A Middle Eastern journalist asks if Brown believes the Yemeni government is committed to tackling terrorism. Brown says that he believes the government can be trusted.

George Eaton is political editor of the New Statesman.

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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?