Woolas's options limited but support remains

Some Labour members in Oldham have criticised the treatment of Woolas.

Could Phil Woolas run as an independent? Probably not. For a start, he has been disqualified for three years from standing for Parliament, the automatic penalty for having broken the law in this instance.

Yesterday the High Court agreed to hear an application for a judicial review of the decision. This will begin next Tuesday and last for a day and a half.

If accepted, Woolas is likely to need to be able to raise an estimated £200,000 to bring a full judicial review according to some reports. He will hope to challenge the three-year disqualification penalty, though overturning this remains unlikely.

But what is interesting is the support he retains among members of the Labour Party in his constituency, as well as across sections of the Parliamentary Labour Party.

The following audio clip (via: @ChrisMasonBBC) shows interviews with a number of Labour members from the Oldham East and Saddleworth constituency.

One local councillor from the constituency states:

I am very ashamed and very, very disappointed with behaviour of our deputy leader. I feel she has tried and tested him already regardless of the outcome of the JR [Judicial Review], she's decided that that's it - we're not going to allow him back into the party. He could come back from the JR and be completely innocent. Her comments are saying an innocent person cannot join the Labour Party, well I'm now questioning the whole analysis of the Labour Party... This is not Harriet Harman's party, this is not her party.

Another member, an 80-year old retired teacher comments:

I read the local paper and see him referred to as Phil Woolas the "disgraced MP"... He has not been disgraced... In fact, his "offences" are in the hurly burly of an election.

One member, originally from Pakistan, is particularly scathing of the ongoing judicial process:

I've lived in Oldham since 1967. If something like this happened in my native land where I originate from, in Pakistan... people with any sort of knowledge would say this was a kangaroo court. As far as I'm concerned, the judges have behaved in such a manner.

These are obviously selected clips so do not necessarily reveal sentiment across all the Labour members in the constituency. In Westminster, however, supporters have raised £30,000 in 24 hours for his legal fighting fund, according to some reports.

Woolas has also received the support of Gordon Brown, former Foreign Secretary David Miliband and Cherie Blair -- although, given the cab-rank rule, in a strange quirk it is barristers from Cherie Blair's chambers who have been representing Woolas's opponent in court.

Meanwhile, Ed Miliband has rightly said that no Labour candidate will be selected until the legal process has completely run its course. This has led some to suggest, unrealistically in my view, that he could be allowed back.

Moreover, John Bercow, Speaker of the House of Commons, issued a "clarification" yesterday to say that the political parties could call a by-election in the constituency, even as legal action is ongoing. This is interesting because any MP can move a writ, in effect, triggering a by-election, although it is usually the party of the person ceasing to be the MP who makes the decision.

Rumours are already circulating about possible Labour candidates. The Manchester Evening News' David Ottewall writes:

I'm sure the Labour party in Oldham will have names in the frame already. But one man who springs to mind is Afzal Khan, the former lord mayor of Manchester. He's someone who transcends traditional boundaries and is a canny political operator, too. If he wants it, he might just win.

Other potential candidates? Coun Khan's, daughter, Maryam Khan - who put in a creditable against-the-odds performance in losing Bury North in May.

Lucy Powell, originally from South Manchester and defeated at nearby Manchester Withington, worked closely with Ed Miliband throughout the leadership campaign and has been tipped by some as a possible candidate. One wonders in any event if it might be worth biding the time until the next General Election, given John Leech's vulnerability in a seat with a large student population and a relatively small majority.

There were also rumours on some blogs of one of Woolas's members of staff putting their name forward for consideration, but these rumours have since been comprehensively refuted.

Either way, this is all speculation and Oldham East and Saddleworth members will come to their decision in due course.

Interestingly, Jon Cruddas, Labour MP for Dagenham and Rainham, suggested to the BBC's This Week programme last night that the manner in which Woolas had been treated by the Labour Party was a "tricky issue", which followed on from the case of Ian Gibson, the former MP for Norwich North, after he was banned from re-election by the Labour Party's so-called "star chamber" (see 32mins 50secs in).

Woolas has, as the judgement states, been guilty of an illegal practice. This may simply prove totally insurmountable for him, despite what happens next week. The full court document can be read here, but the following section is indicative.

The Respondent is therefore guilty of an illegal practice. That illegal practice was committed by him. We shall so report to the Speaker as required by sections 144 and 158 of the RPA 1983. Section 144 requires the court to determine whether the election of the Respondent as a Member of Parliament is void. We have determined that his election is void pursuant to section 159 of the RPA 1983 because the Respondent is personally guilty of an illegal practice. [Emphasis added]


UPDATE: As Paul Waugh of PoliticsHome points out, the case of Woolas has drawn the attention of the Daily Show's Jon Stewart. You can watch this here at 9mins 10secs into the vid.


You can follow Rob Higson on Twitter.

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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?