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Laurie Penny on Kate Middleton: benefit scrounging mother moves into palace at taxpayer's expense

Britain only permits two types of outrage today: dog-whistle disgust for the extremely poor and spanielish devotion to the aristocracy.

“Dole Queen Owns Horse!” screeched the front page of yesterday's Sun. This masterpiece of balanced headlining ran alongside a full-length picture of a distressed-looking pregnant woman who is due to be relocated into an extravagant new home at the government’s expense. The thirty-one year old, who has never held a full-time job, will shortly be moving into a twenty-bedroom palace with a fleet of staff, all funded by the taxpayer at a cost of hundreds of thousands of pounds per year. Kensington Palace, to be precise. The state is to fund the redecoration of every room to suit the unemployed mother-to-be and her husband, who is also out of work after a brief stint in the army. 

By now, the twisted logic of tabloid mob-whippery dictates that a small host of outraged citizens carrying pitchforks, cameras and branding-irons should be forming to descend on Kensington. The public must be demanding to know who this brazen madam thinks she is and why she's being allowed to have a kid on the state and hundreds of millions of pounds in handouts instead of accepting a slow slide into alienated penury like the rest of us. Throw the hussy to the vultures! Smear her face over every front-page, have her chased from her home by packs of wild paparazzi! Confiscate her uterus! Rent out the offending organ to wealthy Chinese families until the surrogacy fees have paid back the exorbitant cost of her outrageous hyperfecundity to the public purse! If we’re not careful, every scrounging harlot this side of Anglesey will grow up thinking that the recipe for an easy life is to amass a collection of elegant wrap-dresses and marry the hereditary heir to the Duchy of Cornwall. The shame of it. 

Rather than string this one out until it snaps, let's be absolutely clear that we're talking about the Duchess of Cambridge here. By an unhappy oversight of tabloid subediting, Kate Middleton’s picture appeared yesterday in every paper looking slightly sad about some slightly mean things said about her by a Booker Prize-winning author, alongside headlines attacking Heather Frost, mother-of-eleven, for daring to be rehoused by a local council that has a statutory duty to do so. That these two stories have hit the front pages this week tells you most of what you need to know about class and media manipulation in Britain today. 

Tabloid persecution of individuals in receipt of welfare benefits is practically encouraged by the Department for Work and Pensions, which has been known to feed its tame papers stories about "benefit scroungers" to drum up support for its policy of plunging hundreds of thousands of children into poverty. Say anything the least bit critical about the Duchess of Cambridge, however, and you’ll get an official reprimand from the PM, or worse. If Hilary Mantel’s subtle and incisive essay merits public excoriation of this sort, I’m expecting a team of black-baggers to burst through my window at any second once they find my back-catalogue of republican rantery - so please forgive any spelling mistakes. I’m writing this column at speed, in the dark, hiding under the bed.

Before they come to take me away, let's look at the figures. Frost's large family costs the British state some £30,000 a year, as opposed to the £30m paid to the Queen per annum, on top of the Royal family’s land-based income and travel and living expenses. The morality of having a child at state expense is not what I want to discuss here: the key difference between Kate Middleton and Heather Frost is that the Duchess’ future children will never be at risk of poverty, whereas Frost’s are. In fact, in the sixth richest country in the world, over a quarter of children and young people live in poverty. The morality of that uncomfortable little statistic is never questioned, because Frost’s real crime in the ledger of proto-fascist tabloid morality is not the fact that she has a lot of children, but the fact that she is poor. Every millionaire in Britain will be receiving a £42,000 tax cut come April, and none of them are being shamed for it on the front page of the Sun.

There are two types of outrage permitted on of this bitter little island right now: dog-whistle disgust for the extremely poor and spanielish devotion to the aristocracy. If we're going to talk about large, dysfunctional families gaming the system and spoiling democracy for hard-working, law-abiding, ordinary citizens, the discussion should start and finish with the House of Windsor. The royals and their retinue cause more damage to the British psyche than any luckless single-parent family scapegoated by the tabloids, and it's a cost that goes way beyond the financial implications of the Civil List. Yesterday’s headlines, like tomorrow’s and next week’s, tell the people of Britain in terms as stark and brutal as an eviction notice: ask for nothing, doff your cap, and know your place.

 

Laurie Penny is a contributing editor to the New Statesman. She is the author of five books, most recently Unspeakable Things.

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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?