Taking sides: the dividing lines of British politics

All parties love the easy, polarising rhetoric of “us” against “them” – but how distinct are their ideas? In a new weekly series, Rafael Behr finds out.

There is a reliable way to tell if David Cameron is rattled. When the Prime Minister is on shaky ground, he hurls the charge of being “left-wing” at Ed Miliband as if it were the foulest thing he could say within the bounds of parliamentary protocol. The “Red Ed” label has never been a plausible line of attack but it is a comforting fiction for senior Conservatives who deride the Labour leader’s agenda as a slide into unelectable socialism.

There is a matching obtuseness on the other side. Miliband accuses Cameron of Thatcherism and of “returning to the 1980s”, forgetting that this is not an insult in Tory circles. The idea that Cameron is picking up the ideological crusade where the last Conservative government left off is central to Labour’s image of the political landscape. Partly it is true, just as there is truth to the Tory view that Miliband hankers after more orthodox social-democratic politics.

The distinction between left and right in Britain looks starker now than at any time in the past 20 years. The polarisation inevitably follows the collapse of the economic consensus of the NewLabour years. Tony Blair embraced Britain’s role as a hub for ultra-liberal, globalised capitalism, which viewed intervention by the state in economic activity as reactionary in principle and ineffective in practice. Market forces and private business were deemed the likeliest mechanisms to improve public services. Labour’s historic impulse to direct social change had to be managed by quiet redistribution around the margins. The Blair and Brown administrations intervened all over the place but lacked the will in Blair’s case and the confidence in Gordon Brown’s to assert the government’s moral right to meddle. In opposition, the Tories argued against government policy but no Conservative leader substantially challenged the intellectual basis of the Blair-Brown model or offered a coherent alternative.

It is in the nature of a political consensus that those who are part of it define themselves as pragmatists and paint the dissenters as fanatics. Thus the New Labour position came to be defined as the “centre ground”, with its critics occupying the fringe. The financial crisis has disrupted that geometry. The clear bankruptcy of the existing way of doing things created a demand for more distinctly ideological prescriptions. By the 2010 general election, the left was sick of tagging along with Blairish compromise; the right was brimming with radical intent pent up from 13 years in opposition.

Both sides felt vindicated. The left focused on the role of banks and global markets in the crisis and saw a definitive refutation of rampant market capitalism. The right focused on the Budget deficit and national debt and saw in them proof that Britain had been ruined by the unchecked expansion of government. Everyone thought that the political pendulum was swinging back in their direction.

Within that intellectual rivalry, there is a cruder impulse to settle old scores. Trade union leaders depict the Chancellor’s austerity budgets as a cynical attack on the public sector with the strategic goal of dismantling the welfare state. Meanwhile, some ministers see resistance to the coalition’s reforms as a return to left-wing militancy and proof that the unions are enemies of progress. The muted echo of battle cries from the early 1980s rings around Westminster.

The Debt Collector by Ralph Steadman

The myth that politics can still be defined by competition between two mutually exclusive tribes, one red and one blue, suits Labour and the Tories. They want to cling to a parliamentary duopoly that, judging by voting patterns in the real world, has been in decline since the 1950s. Before 2010, it was the Liberal Democrats who were best placed to scoop up votes from those looking to register a protest with a “none-of-the-above” candidate. Nick Clegg forfeited that position when he went into coalition with the Tories – deliberately so, because he wanted the Lib Dems to graduate in the public’s imagination to the status of a serious party of government.

Clegg still hopes to carve out a niche for his party as the broker of compromise between what he presents as an unrepentant Labour Party and heartless Tories. Yet it is not obvious how his plan translates into distinctive policies. He is trapped as the salesman for technocratic machination at a time when the Westminster machine is mistrusted as the plaything of a self-serving elite.

The vacancy for a candidate who stands for rejection of the conventional parties is being filled by Nigel Farage, leader of the UK Independence Party, whose opinion-poll ratings routinely rival those of the Lib Dems. Though Ukip’s ultra-conservative, populist ideas overlap with the views of more reviled farright organisations, the party is elevated to respectability by the implicit endorsement of a few Conservative MPs who wish Cameron would strike more Faragist poses.

Policymaking in the coalition is caught in a three-way haggle. The Lib Dems try to assert their identity by foiling Tory radicalism; backbench Conservative MPs view Cameron’s accommodations with Clegg as proof that his conservative impulses are inadequate and the Prime Minister, lacking a recognisable creed, seems driven mostly by tactical improvisations – witness the current contortions over a referendum on membership of the EU – and the patrician self-belief of a man groomed for power by high birth and an expensive education.

Cameron once defined his governing purpose as creating the “big society”. When the inadequacy of that idea for wooing sceptical voters (including Tories) became clear, he changed tack. He now says his premiership is about readying Britain for the “global race”, a rubric just as vague but more amenable to the deregulating, pro-commerce sentiment that animates his party. There is no sign yet that it resonates with the public.

The Labour Party is not much further advanced. Miliband does not have anything resembling an agenda for government. His allies contend that this is a natural state of affairs for the opposition a mere two years after a crushing defeat and a full two years away from polling day. Instead, Miliband has a theme – one nation. It is an offer to reweave the social fabric that, in the Labour analysis, is being unpicked by the government’s Budget savagery. It is also supposed to be the answer to the question of what comes after New Labour if it is not, as the Tories imagine, a drift back to Old Labour. What that means in manifesto terms is unclear.

Miliband’s dilemma is that his core vote is galvanised by attacking austerity, while a realistic appraisal of what he might achieve as prime minister requires admitting that a Labour government would also inflict Budget pain. An honest account of how state largesse would be rationed risks igniting the civil war in Labour that many predicted would be a necessary feature of its time in opposition. Party opinion is divided as to whether Mili - band’s avoidance of internecine strife reflects strategic nous or deferral of mature choices.

Politics, therefore, looks ill-equipped to respond to a crisis that is much more profound than a mere imbalance in the public finances. Many of the problems were in gestation long before the financial bubble burst in 2007- 2008. Wages for most workers have been stagnant since 2003, raising the cost of living in real terms for most households. An ageing population promises a relentless increase in the burden on the NHS and social care services. It is questionable whether British schools are equipping young people with the skills that will guarantee them work in a globalised labour market. There is a huge housing shortage. Rising inequality, stalled social mobility and resentment of mass migration are increasing a sense of dislocation and eroding our sense of communal purpose, making it hard for any party to assemble a coalition of voters capable of delivering a parliamentary majority, let alone a confident mandate for change.

The good news is that, behind the childish frenzy of daily political combat, there are people in all parties striving to come to terms with these challenges. Sometimes they work within predetermined ideological parameters; sometimes they follow the evidence regardless of where that may lead. There are think tanks and non-governmental organisations looking at policy solutions beyond the myopic perspective of the electoral cycle. There are MPs who listen.

Over coming weeks, I will look at some of the problems facing Britain and try to decode what the different sides might have to offer by the next election. Sometimes the divergence is stark; often there is more agreement than anyone likes to admit.

Westminster is obsessed with the delineation of dividing lines – the tactical approach to an issue that seeks to define it in crude, binary terms, with the enemy caricatured as holding a view inimical to mainstream opinion. “They” destroy public services; “we” invest. “They” want to spend your money on feckless scroungers; “we” reward hard-working strivers. It is the very substance of modern politics, and the rhetorical dishonesty, that make politics dangerously insubstantial. It makes Westminster look like a game between teams that differ only in the colour of the strip they wear. The evidence from rising levels of voter abstention and defection to fringe parties suggests it does not make a great spectator sport, still less invite participation.

The most corrosive force in democracy is the assumption that none of the mainstream candidates deserves endorsement because “they are all the same”. In the weeks to come, we will consider whether that lament is justified in Britain today. Given the scale of the challenge, we must hope it is not.

A detail from "The Debt Collector" by Ralph Steadman. (Full size below)

Rafael Behr is political columnist at the Guardian and former political editor of the New Statesman

This article first appeared in the 28 January 2013 issue of the New Statesman, After Chavez

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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?