Interview: Ed Balls

With soaring street violence and constant classroom testing, Martin Bright and Suzanne Moore ask the

We interview Ed Balls the day after yet another terrible murder of a teenager in London. Sixteen-year-old Ben Kinsella was stabbed four times in the neck and chest following a party to celebrate the end of his exams. Kinsella was described as a model student who was likely to get a string of A grades at just the sort of inner-city comprehensive the Secretary of State for Children, Schools and Families is trying to encourage to succeed against the odds.

We ask him if it is any wonder that parents in modern Britain are worried about their children, with stories like that appearing on the front pages of the newspapers so regularly (17 teenagers were killed with guns or knives in London in the first six months of 2008). Parents such as Cherie Blair, for example, who says she fears for her children on the streets because of gun and knife crime.

Balls is adamant that schools themselves remain a safe haven for children. "There is no evidence in the last ten years of any rise in any of these crimes in schools," he says. "In fact, it almost never happens."

He does recognise, however, that schools have a crucial part to play. "The most important thing to do is to make sure schools are a place where, in partnership with the police, teachers are doing prevention and the kids know that if there's something going on which they are worried about, then they can speak up. It's about a cultural change."

It is exactly a year since Ed Balls took over at the newly created Department for Children, Schools and Families (DCSF) with the express intention of changing the culture of childhood. He is responsible not just for primary and secondary education, but also for strategies on youth crime prevention, youth offending, play schemes, youth alcohol and drugs. Jointly with the Justice Secretary, Jack Straw, he is also responsible for youth justice and, with the Health Secretary, Alan Johnson, for children's physical and mental health. The Children's Plan, a ten-year strategy published in December 2007, is a vastly ambitious attempt to shift the emphasis in policy to the needs of young people.

Under Balls, there has been a marked departure from the more punitive instincts of Blair-era policy and towards children, inside and outside the classroom. The so-called Respect agenda has been quietly shelved and the obsession with Asbo rhetoric curbed. In the classroom, there has been a serious attempt to address concerns about the testing regime. Balls is already looking at reforming tests for 11-year-olds to allow them to be taken when teachers feel the pupil is best prepared. This "testing when ready" approach is designed to be more like a music exam, one which the children enter only when their teacher believes that they have reached a certain standard.

We suggest that above and beyond all the other pressures faced by young children in 21st-century Britain, they are also being tested to within an inch of their lives. Many teachers and parents are in despair at the stress tests - especially National Curriculum tests (SATs) for seven-year-olds - are causing. Balls is initially dismissive of the suggestion that large numbers of seven-year-olds are being traumatised by testing because their parents are warned in advance.

"It doesn't happen in every school," he says.

We agree, but suggest it's quite normal. "It's totally the wrong way of doing things," he says.

The wrong way of testing

But it happens a lot, we say. We know schools that do it. Some of them are quite close to where Balls himself lives in north-east London.

"No seven-year-old should ever know they are doing SATs," he says bluntly. This is an odd answer. We know that he knows that we know what's going on. Schools think they are doing the right thing. We say that many schools send out notes to parents warning them that the tests are coming up and asking them to give their children extra support. It has been suggested that some schools lay on special treats, such as film shows and even sweets, to soften the blow.

The discussion becomes decidedly heated and at one point Balls just shakes his head and says "rubbish". But he also begins to shift his ground: "The best headteachers will ensure that no six- or seven-year-old knows they are doing SATs. I promise you that is the case. If you are telling pupils in Year 2 that they are doing SATs next week then that's the wrong thing to do. You should not be stressing the children."

It appeared to be an issue close to his heart. "They don't need to do the SATs in a sit-down environment," he says. "It's something that can be done as part of the school day. Honestly. And there are loads of schools doing that."

And those that aren't?

"I feel as angry as you about that. I cannot believe they are doing that. They should not be doing that."

Balls has been charged with being too interventionist, too prepared to meddle. On this issue, however, there is little he feels he can do to control the way individual schools run their tests, short of abolishing them altogether, which he is not prepared to do because they are a useful tool for teachers. His frustration is evident. There is a distinct feeling that he would happily wring the neck of every headteacher who announced tests for seven-year-olds in advance this summer, if that wouldn't set an even worse example to Britain's children.

Beyond the stress of curriculum tests, Balls emphasises that most British children's experience of childhood is essentially a happy one. "If you get most of your observation from reading the press, you get really pessimistic about what happens to children and young people," he says. But he also recognises this is not the case for all young people: "There are schools, families, areas, where children are really getting a raw deal. We all get angry about the fact that if you live in a deprived community in terms of income, you are much more likely to be scalded in the bath or be run over by a car in your area, as well as much more likely to not do well at school."

Balls turns to his own experience of childhood in Nottingham to illustrate the point that things were not necessarily better in the past. "When I was growing up, when I was ten, 11, 12, my mum and dad didn't want me to get the bus to watch Nottingham Forest play at home because when you went to the football you got beaten up. In the good old days it was pretty bad, actually."

Yet he does recognise a crucial difference: that the gap between those who do well and those who have a tough time is wider than it was, especially in a context of drug and alcohol misuse. Naturally, he traces this back to the "bad old days" before new Labour. "One of the consequences of the Eighties and Nineties is that a lot of young people had a tough time themselves, and their kids have gone on to have a difficult time as well," he says.

For Balls, the key to tackling youth violence is intervention at an early age, but he knows many schools do not have a good working relationship with the police/social services. It should be possible, he argues, to identify children at risk of problem behaviour by identifying those who have an older brother, sister or a parent who has spent time in custody. But many heads wouldn't have this information to hand.

As the New Statesman hits the news-stands, the DCSF will be publishing plans for legislation to set up "children's trusts" that bring together the various agencies responsible for children in a given area. The move comes as a result of recommendations by Lord Laming following the death of Victoria Climbié in 2000. Laming found that the abuse eight-year-old Climbié suffered had come to the attention of social workers, hospital staff, police and the local authority, but there had been no mechanism to act together to help.

Get to them earlier

Balls points to a number of schools that now have child psychologists, children's health services and advice for parents all located on-site. But he concedes there are still big problems of communication between the various agencies responsible for children. He tells the story of a boy at a school he recently visited, whose father had committed suicide in prison the previous year, and who was playing truant.

The headteacher explained the problem to social services, who said it was too serious for them to deal with. She then went to the agency that helps adolescents with mental health problems, which said the child would have to spend six months on the waiting list. When the head said the problem was urgent, she was asked if the boy had harmed himself, because a physical manifestation of the problem was needed before intervention would be possible. Balls's conclusion is that heads must be given the means to intervene early, and immediate help from other agencies when they demand it.

Despite everything, the Children's Secretary remains positive about the generation now going through the school system. "The majority of kids are doing better in school, have a more stable education, do more volunteering. More are doing music. Actually, they are the best generation of young people we've ever had, and we demonise them stupidly."

As we leave, we ask for a final verdict on the state of the nation's children. "The vast majority are doing great and the ones who aren't, we should be getting them earlier," he says. "And we should help parents to see that the world isn't such a scary place."

This article first appeared in the 07 July 2008 issue of the New Statesman, British childhood

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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?