Young voters know Britain's future lies in the EU

New polling by the Fabian Society shows that 18-34 year olds are significantly more pro-European than the previous generation.

Oftentimes, the greatest strength of opposition is to say little and commit to nothing. But so too can there be huge political advantage in a government decisively using the bully-pulpit of power. Thus it was last week when David Cameron committed his party to hold an in-out referendum on the EU after the next election. In so doing, he left the Labour party in a bit of a pickle.

Stewart Wood, Ed Miliband’s chief consigliere, said recently, "we've found being courageous works for us …We err on the side of boldness much more nowadays." But boldness can work for Cameron too and Labour finds itself caught between supporting a referendum it doesn’t want or going into an election on a platform of ‘denying the people their say’. Neither position holds obvious appeal. Ed Miliband tried to get on the front foot at PMQs, but it was hardly his ‘no, no, no’ moment, and post-match briefings suggest we could be in for a drawn out period of nuancing before Labour arrives at its final destination.

But as right-wing Tories celebrate and the left prevaricates, is Cameron’s referendum necessarily the first step on the road to a British exit?

New polling by the Fabian Society and Friedrich Ebert Stiftung shows a fascinating – and stark – generational divide on the question. Two-thirds (67 per cent) of voters aged 18-34 say they would vote 'yes' to EU membership in a referendum. While nationally there is a 12-point lead for those who wish to leave the EU, among those aged 18-34, there is 32-point lead in favour of remaining part of the EU. In contrast, among the over 60s, leaving the EU has a 23-point lead.

Young people are also far more likely to identify personal benefits from Britain’s membership of the EU. Only 19 per cent of 18-34 year olds said they did not personally benefit from Britain’s membership compared to 51 per cent of people over 60. Forty six per cent of 18-34s cited freedom to travel in Europe as a benefit and 18 per cent mentioned social and employment rights.

Young people also see the benefits of the EU on the global stage. Fifty nine per cent of 18-34 year-olds who expressed a view found the argument that "co-operation between EU countries is the best way to tackle the big issues of our time, like climate change, the global financial crisis and international terrorism" convincing, compared to 43 per cent of people over 60.

Many young people also expressed concern about Britain’s standing on the international stage if the UK were to leave the EU. Forty per cent of those aged 18-34 agree that if the country were to withdraw, "Britain may become isolated in a world of big power blocs such as the United States, the European Union and China", compared to 34 per cent who believe that "Britain could use its own historic international links to punch above its weight in the world". Among over-60s the split was 29 per cent to 47 per cent in the opposite direction.

Europe, we are repeatedly told, is in crisis: economic, political and existential. This era of crisis has hit the left particularly hard, with the economic turmoil – originally heralded as the opportunity for a ‘progressive moment’ which would tame the ravages of capitalism – morphing into a crisis of debt and fiscal imbalance. 

 

This presents a profound challenge for the pro-European left which Cameron’s announcement has made much more urgent. What is clear is that the positive case for the EU would be easier to make if the EU was better. The left risks further setbacks in Europe without a compelling explanation of what is wrong with the Europe we have and what is better about the Europe we want.

The EU was founded on a 'never again' spirit following the second world war, yet the arguments the first generation of European leaders made for closer integration resonate less and less as time goes by. A growing proportion of the electorate are too young to remember the fall of the Berlin wall, let alone the despair of post-war Europe. For a new generation, the EU is a way of life rather than a political project. It’s not necessarily a cause to fight for. But it is clear that young people are culturally and instinctively comfortable with the European project, and see clear benefits of membership. The task for EU advocates is to harden this soft support.

For New Labour, explicit pro-Europeanism was a core part of creating a modern progressive party, which looked to Europe to deliver on its promise of economic efficiency intertwined with social justice. But Europe is far from integral to Labour’s rethink in opposition, despite the current vogue for the German economic model in Labour policy circles, not to mention Fabian polling which shows the public understand all too well that the major political challenges of the day – climate change, financial reform, fighting terrorism – can only be solved through closer European co-operation.

Miliband needs to remember he’s best when he’s boldest and should not shy away from making a stand against Cameron’s politically motivated and economically disruptive act. Our polling shows that should a referendum become a reality, the state of public opinion is more subtle than many surveys suggest. There is a wide coalition of support that could be constructed, from younger people to business leaders; pro-Europeans should approach any campaign guided by a sense of hope, rather than fear.

Ed Wallis is the editor of Fabian Review

The European Union flag is seen next to flags of members of the EU on January 15, 2013 at the European Parliament in Strasbourg. Photograph: Getty Images.

Ed Wallis is the editor of Fabian Review

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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?