Why the Tories should embrace the trade unions

Trade unions are essential components of the Big Society.

I was recently asked by a journalist on the radio: how does the government reaction to a possible fuel strike square with my Demos pamphlet, Stop The Union-Bashing? My reply was: I don’t see a contradiction in terms. There is a huge difference between millions of moderate union members, and some hardline union leaders, who Conservatives are bound to have disagreements with.

I have argued, however, that when we talk about trade unions, Conservatives need to change our language and our attitudes. Sometimes when we criticise unions, the effect is not just to demonise militancy, but every trade union member, including doctors, nurses and teachers. There is a world of difference between the policies of Len McCluskey, and the activities of the Unite trade union. In reality, Unite is a very capitalist organisation. On their website they advertise tax-minimising services through a business call “Tax Refund Co”, with the strapline: “Over £6.3 million already refunded to Unite members - see if you're due a refund.” They also advertise private health insurance deals through Eyecare Express, Macmillan Cancer Support, and Unite Family insurance, and there is even a “Unite Lottery”, a gambling game raising funds for the union.

It’s not just Unite. Many other unions offer identical services on their website. Unison, for example, also has private health schemes, and tax-avoiding services. And yet, both are formally affiliated with the Labour Party. This serves as a reminder that there are far more trade unionists with private health care, than who go on strike. The Daily Telegraph reported in 2001 that 3.5 million trade unionists—more than half the TUC membership—now have some form of private health cover. By contrast, the TUC estimate that just 2 million went on strike in 2011 over pensions reform. I joined Prospect, not because I agree with all of their political views, but because I know that if I got into a spot of bother, the union would be one of the first places to turn - especially if I needed legal advice or work support.

It is worth noting, however, that not only are unions very much capitalist, they are essential components of the Big Society. They are the largest voluntary groups in the UK. They are rooted in local communities, and are very much social entrepreneurs. TUC research shows that trade union officers are eight times more likely to engage in voluntary work than the average.

Disputes over pensions and wages will never make this relationship an easy sell. But the essence of my argument is that we cannot allow the Labour MP Denis MacShane to get away with tweeting that “Tories despise union folk”. It is simply not true. There are 6.5 million trade union members in the UK – more than the entire population of Scotland – and the majority of them are moderate, hard-working people. A Populus poll in 2009 showed that a third of Unite members intended to vote Conservative in the general election. The same was true of Unison. Of the 58 unions in the TUC, only 15 are Labour-affiliated, leaving 43 non-affiliated unions in Britain.

To be clear, I do not expect Bob Crow and other union barons to become Conservative voters. But given the extent of Conservative-minded thinking among union members, Conservatives should reach out to the membership, if not the leadership.

Contrary to popular mythology, Conservatives have not always been hostile to trade unions. Mrs Thatcher was herself an ardent trade unionist. Before New Statesman readers choke on their cornflakes, it is worth looking at the history. In 1951 one of the first political organisations she joined was the Conservative Trade Unionists (CTU). As Leader of the Opposition, she expanded CTU to more than 270 branches up and down the country, and even diverted Conservative Office funds to support the CTU with full-time staff. It is hard to imagine now, but in 1979, thousands of trade union members flew banners reading: “Trade Unions for a Conservative Victory” in Wembley Stadium before the general election. Her quarrel was with what she saw as militants, not the trade union movement as a whole. Most people associate the beginning of the union movement with the Labour Party, but it was actually a Conservative Prime Minister (the Earl of Derby) who set in train the laws to establish trade unions, in 1867.

Conservatives should not be afraid to praise the union movement or even encourage people to join up. In fact, I think we should go so far as to offer free membership to any Conservative-minded trade unionist. We need to show union members that we share similar values: not only for their capitalism, but for their communitarianism as well. A newly invigorated Conservative trade unionist movement should encourage Conservatives to campaign in trade unions again, standing for election as officials, just as they did under Margaret Thatcher. It’s no good Conservatives complaining that unions are dominated by the Left, if we don’t participate in the union movement.

Robert Halfon is MP for Harlow and the author of Stop the Union-Bashing, published by the think-tank Demos. He tweets at @halfon4harlowMP

Workers at Unilever's Port Sunlight factory picket outside the main gates of the factory on the Wirral, Merseyside. Photograph: Getty Images.

Robert Halfon is Conservative MP for Harlow. He tweets at @halfon4harlowMP

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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?