It's not burdening our children with debt that should worry us

Leaving our children without assets is a far greater problem than "saddling" them with debt.

It is irresponsible to saddle our children with debt.

One of the most compelling, at least superficially, arguments for austerity. It is used globally; it resonates powerfully. After all, it appeals to the very best facets of human nature – the instinct to nurture; the wish to leave things better for future generations – and is, therefore, almost irresistible. But there are few things more dangerous than rhetoric designed to entangle the heart, while bypassing the brain.

Let us suppose that I knew, tomorrow I would be no more. The appointment has been made; the plane tickets to Geneva have been booked. If I were leaving behind my house to my child, encumbered as it is with a mortgage, would I worry? It is a huge amount of debt, but the house is worth almost double its mortgage. The interest is low. To look at that scenario and arrive at the conclusion I am “saddling my child with debt” would be highly irrational. I would have left them with positive equity.

It is illogical to assess the legacy we bequeath to the next generation, solely in terms of debt. Assets should form part of the equation.

This was precisely what our parents’ generation decided to do. And their parents’ before them. National debt, as a percentage of GDP, was much higher from the 20s to the 70s than it is now. But they made the positive choice of bequeathing it to us, as well as a world-class National Health Service, free education, thriving industry, bright prospects and a system of welfare which provided a safety net for the less fortunate.

Had they looked at debt in isolation, they would never have achieved any of these things. Luckily, they did not. They left us with positive equity.

The proposition put forward by the coalition government in support of their programme of cuts, is the bequest of a clean slate. In the current economic climate, however, a clean slate means clean of assets, not clear of debt.

With the economy stagnant or shrinking, the reality is that this government will fail to make a dent in the deficit and actually increase debt. According to the OBR our annual deficit is falling at exactly the same rate it was projected to do before any of these cuts. The national debt is projected to rise by a staggering half a trillion pounds, even by the most lenient of estimates. The OBR now admits that austerity is hurting the economy. The IMF now admits that austerity is hurting the economy.

On the other hand, there is another, even gloomier forecast. By squeezing ordinary people, by forcing them to remortgage, to use credit cards, to run to the nearest payday lender, private household debt is predicted to balloon by an additional half a trillion pounds.

So, forget this insidious idea that we might leave our children with a clean slate. It is fantasy. In fact, under this government, we will leave our children with at least one trillion more debt than we had in 2010. The only intelligent conversation to be had, is whether we leave our children with the assets, skills, environment and tools to manage that debt or not.

Not all asset stripping is fiscally responsible in the long term. Not every expense incurred results in debt. Off-the-cuff, misconceived policies to try and regulate a rampant energy industry are ample demonstration of that truth; a conservative government flailing in a futile attempt to control the profiteering which resulted from another conservative government’s privatisation programme.

We are paying through the nose, both in terms of tickets, subsidies and maintenance, for a rail network franchise system which is manifestly failing. Meanwhile, the part of the network which has been state-run for the last few years (as a result of the last botched franchise), is better and cheaper than it was in private hands and turning a profit.

We pay to bail out private banks, then complain that they are not lending to SMEs, when we actually part-own two of the biggest. Nationalisation is both a rational solution and a dirty word.

Meanwhile, we are allowing these failed experiments to go on, to expand even; the self-interested privatisation of the NHS, the cut-price sale of local council assets and social housing, the dismantling of the welfare state, the farming out of police and prison services, the poisonous influence of profit on our schools. Within five years, the UK will be spending less on public services than any developed nation.

Make no mistake. What is actually being proposed, is leaving our children with negative equity. The debt will still be there, but the assets will be gone. Important assets at that, the absence of which will translate into higher living costs, in perpetuity. The sale of state housing inflates rents. Lack of a welfare system deflates wages. Tuition fees enslave the next generation to financial institutions which we know to be corrupt. Healthcare bills are the single biggest cause of bankruptcy in the US.

Maybe this is the future that we genuinely want. But let us consider all the arguments, instead of wielding an axe at any expense with no thought of whether it is necessary or cost-effective. Let us look at debt in conjunction with the assets and values that would also form part of our bequest.

Our current predicament is precarious. Even more critical, then, to make rational, informed and brave choices - rather than terrified, ill-thought ones. For our sake and that of our children.

Demonstrators call for an end to the national debt outside Parliament last year. Photograph: Getty Images.

Greek-born, Alex Andreou has a background in law and economics. He runs the Sturdy Beggars Theatre Company and blogs here You can find him on twitter @sturdyalex

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Is TTIP a threat or an opportunity?

TTIP offers potentially huge opportunities to both Europe and the US - we should keep an open mind on what the final agreement will mean.

Barack Obama made it abundantly clear during his visit to the UK that if Britain left the European Union then it would be quite some time before we would be able to negotiate a trade deal with the United States. All the more reason to examine carefully what the Transatlantic Trade and Investment Partnership (TTIP) will mean for the UK. For Labour this is especially important because a number of trade unionists and Party members have expressed concerns about what TTIP could mean.

The economic worth of such a partnership between the European Union and the US has been questioned and it has been frequently stated that TTIP could give multinational companies unprecedented influence and undermine the British NHS.

With regard to the economic benefits of TTIP there are few that would argue that there are no economic gains to be achieved through the partnership. The question is to what extent economic growth will be stimulated. On the positive side the European Commission has argued that an agreement could bring economic gains of between €68 billion to €119 billion per year to the EU (0.3% to 0.5% of GDP) and €50 billion to €95 billion (0.2% to 0.4% of GDP) to the US. For Britain, this means that an agreement could add up to £10 billion annually to the UK economy.

On the negative side, a study commissioned by the European United Left/Nordic Green Left Group in the European Parliament has maintained that TTIP would bring only “limited economic gains”. These gains have to be weighed, it was argued, against the “downside risks”. Those risks have been identified as coming from the alignment of standards in areas such as consumer safety, environmental protection and public health.

These are important concerns and they should not be quickly dismissed. They are made all the more important because the existence of already low tariffs between the EU and the US make the negotiations to reduce non-tariff barriers to trade all the more significant.

There are a number of areas of concern. These include food standards and the regulation of GM crops and the worry that the EU’s focus on applying the environmental precautionary principle might be weakened. The European Commission, which has a responsibility for negotiating TTIP on behalf of the EU, is however acutely aware of these concerns and is mindful of its legal responsibility to uphold, and not to in any way weaken, the agreed legal standards to which the EU adheres. A concern has been expressed that irrespective of what European law may say, TTIP could undermine those standards. This I find difficult to accept because the ‘rule of law’ is absolutely central to the negotiations and the adoption of the final agreement.

But the EU is mindful of this concern and has brought forward measures which have sought to address these fears. The latest proposals from the Commission clearly set out that it is the right of individual governments to take measures to achieve public policy objectives on the level that they deem appropriate. As the Commission’s proposal states, the Agreement shall not affect the right of the parties to regulate within their own territories in order to achieve policy objectives including “the protection of public health, safety, environmental or public morals, social or consumer protection or promotion and protection of cultural diversity”.

Of course, this is not to suggest that there should not be vigilance, but equally I believe it would be wrong to assume the theoretical problems would inevitably become reality.

The main area of concern which has been expressed in Britain about TTIP relates to the NHS and the role of the private sector. Under the Investor-State Dispute Settlement (ISDS) provisions investors would be able to bring proceedings against a foreign government that is party to the treaty. This would be done in tribunals outside the domestic legal system. If a Government is found to be in breach of its treaty obligations the investor who has been harmed could receive monetary compensation or other forms of redress.

The concern is that the ISDS arrangements will undermine the ability of democratically elected governments to act on behalf of their citizens. Some have maintained that measures to open up the NHS to competition could be made irreversible if US companies had to be compensated when there is a change of policy from a future Labour Government.

In response to these concerns the European Commission has proposed an Investor Court System. This would be based on judgements being made by publicly appointed and experienced judges and that cases would only be brought forward if they were precisely defined. Specifically, it is proposed that cases would be limited to targeted discrimination on the basis of gender, race or religion, or nationality, expropriation without compensation or the denial of justice.

Why, you might ask, is there a need at all for a trans-national Investor Court System? The reason in part lies in the parlous state of the judicial systems in some of the relatively recent EU accession countries in Eastern Europe. To be frank, it is sadly the case that there are significant shortcomings in the judiciary of some countries and the rule of law is, in these cases, more apparent than real. It is therefore not unreasonable for investors to have an international framework and structure which will give them confidence to invest. It should also be noted that there is nothing proposed in TTIP which contradicts anything which is already in UK law.

We need to remember too that this is not only about US investment in Europe, it is also about European investment in the US. No US-wide law prohibits discrimination against foreign investors, and international law, such as free trade and investment agreements like TTIP, cannot be invoked in US courts. The Investor Court System would therefore benefit European companies, especially Small and Medium Sized Enterprises. 

It is of course impossible to come to a definitive conclusion about these provisions because the negotiations are ongoing. But it would surely be unwise to assume that the final agreement would inevitably be problematic.

This is especially true regarding the NHS. Last year Unite the Union commissioned Michael Bowsher QC to provide an opinion. His opinion was that “TTIP does pose a threat to a future government wishing to take back control of health services”. The opinion does not express a view on whether TTIP will “force” the privatisation of the health service (as some have claimed) and Bowsher admits that much of the debate is “conducted at a rather speculative level” and he has been unable to produce any tangible evidence to support his contention about future problems. On the other hand, it is the case that there is nothing in the proposed agreement which would alter existing arrangements for compensation. There are of course many legal opinions which underpin the view that existing legal arrangements would continue. While I accept that it is theoretically possible for the Bowsher scenario to occur, it is nevertheless extremely improbable. That is not to say that there ought not to be watertight safeguards in the agreement, but let us not elevate the extremely improbable to the highly likely.

A frequently heard criticism of TTIP is that the negotiations between the US and the EU are being conducted in ‘secret’.  Greenpeace, for example, has strongly sought to make this a central part of their campaign.  Although the Commission publishes EU position papers and negotiating proposals soon after they are tabled, it is impossible to see how complex negotiations of this kind can be practically conducted in public.  However, I believe that the draft agreement should be made public well before the final decisions are taken.

Once the negotiations have been concluded, the draft agreement will be presented to the European Council and the European Parliament, both of which have to agree the text. The European Council is, of course, made up of representatives of the governments of the EU and the European Parliament is democratically elected. Both Houses of the British Parliament will also debate the draft and there will need to be parliamentary approval of the agreement.

Transparency and democratic scrutiny are two things which there cannot be too much of. But, in practical terms, it is difficult to see how there could be more of either without making it nigh on impossible to secure such a complex agreement. Unite, of which I am a member, and others are quite right to express their concerns about TTIP, but let’s not exaggerate the potential difficulties and let’s not assume that the worst case scenario will always come about. TTIP offers potentially huge opportunities to both Europe and the US, and we should therefore at least keep an open mind on what the final agreement will mean.

Wayne David is the Labour MP for Caerphilly and is Shadow Minister for Political Reform and Justice. He is a former Shadow Europe Minister and was a junior minister in the last Labour government.