Report from Eastleigh: Apathy is the watchword of the doorstep

Rowenna Davis says she's never canvassed anywhere so undecided.

Jim’s face sours as he opens the door. A former lorry driver, his home is now lined with impeccable double glazing, and a proud “Number 47” plaque hangs on his porch. The small lawn outside is neat; the car in the drive is comfortable. This is his castle, but with the pensions squeeze and rising bills, he’s being forced to consider selling up.

“My wife says she won’t move, but every month we chip away at what little savings we have. We worked hard our whole lives for this, and now we’re being punished for it. My neighbour doesn’t have this problem. It’s always the honest people in the middle.”

Jim lives in Fair Oak, a Tory stronghold in Eastleigh where activists have already spent hours campaigning. With its hanging baskets freezing in the February air over neat brick houses, it’s the beating heart of middle England, and a key battleground for the by election. It’s true not even Tony Blair won Eastleigh, but without winning over people like Jim, “One Nation” is just a sound bite. Labour needs southern voters. Knocking on hundreds of doors provides a good opportunity for us to listen.

The people I met were highly aspirational, but anxious about the future. People who had worked their way up were now haunted by what feels like an inevitable pull of decline. People like Nigel, who opened the door telling me how hard he had worked to get his two sons to university, only to find one laden with debt and out of work, whilst the other was facing redundancy from army cuts. “You work hard and you get nothing for it,” he said, with an apathetic smile, “You show me one party that offers anything different.”

But it’s not just materialism that moves people. It’s also compassion. Too many people might be getting benefits in their eyes, but too few are getting the public services that they deserve, be it for young children or ageing parents. One man answered the door in a slightly less affluent part of town in a frayed V-neck sweater. He owned his own home, and his 95-year-old mum was dying next door. After working his whole life, he said he wasn’t getting the support he needed to care for her. He had tears in his eyes as he spoke to a fellow campaigner. “He was desperate,” said the activist, “But he didn’t know who to vote for.”

Apathy is the watchword of the doorstep. Never have I canvassed anywhere so undecided. For all the neat Welcome mats on doorsteps, canvassers of all colours are treated with suspicion. The high UKIP presence is symptomatic of that deep disillusionment with mainstream politics. Anyone who thinks the south is a stronghold for any party is mistaken. The Tories might be leading in the polls, but their support is brittle. For Labour, this means that there is everything to play for.

Underlying almost all of my conversations, there was a sense that a contract had been broken. The deal that says if you work hard, it will pay off. Jim, Nigel and others felt that they had “done their time” and “played by the rules”, but the simple rewards they had been promised – a decent job, a stable home and a little support when things go wrong - were slipping away. With living costs 20 per cent higher in the south, families here are particularly anxious about the news from Mervyn King yesterday that we’re going to feel even poorer for the next two years. Ed Miliband is right to raise it, as is Jon Cruddas in his lecture today.

Of course there are the more thorny issues for Labour too. Immigration. Europe. Welfare. They all come up on the doorstep. But as John Denham, MP for the neighbouring Itchen constituency points out, once you get over the myth of the stereotypical “southern voter”, you can be surprised by the subtleties of people’s attitudes, even on immigration.

The story of one retired railway worker and former UKIP voter surprised me this week. This man owned his own home and said he was seriously concerned about immigration. But it wasn’t that simple. He praised the Indians who invested in Jaguar, and said it was wrong to keep out people who were contributing. A blanket reduction of numbers pursued by the Tories was, in his view, irrational. He was happy with people coming, as long as he knew they made a contribution. Now he didn’t know who to vote for.

Back at the Labour HQ on Leigh Road, campaigners are starting to sense this space for them to win voters round. Irrespective of whether Labour wins this month, their effort, if sustained, could mean a lot for 2015 - particularly if John O'Farrell commits to staying on. Voters need to know that Labour listened, responded, and came back again when the cameras disappeared. If we do that, people like Jim might open the door with a different expression.

John O'Farrell and Harriet Harman on the campaign trail in Eastleigh. Photograph: Getty Images

Rowenna Davis is Labour PPC for Southampton Itchen and a councillor for Peckham

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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?