Sarah Wollaston: Cameron has caved in to lobbyists on minimum alcohol pricing

The Conservative MP criticises the PM's U-turn and says "we should all be aware" of Lynton Crosby's links to the alcohol and tobacco industries.

For this week's NS, I've interviewed Sarah Wollaston, the independent-minded Conservative MP for Totnes, who became the first parliamentary candidate to be selected through an open primary. We discussed the government's decision to abandon minimum alcohol pricing (which she is "devastated" about), the malign influence of Lynton Crosby and why David Cameron's inner circle is still, in her words, "too white, male and privileged". You'll have to pick up the magazine to read the full piece, but here are some of the highlights. 

Minimum alcohol pricing: "it's lobbying"

Wollaston, a former GP, devoted her maiden speech to the need to introduce minimum alcohol pricing and warns of disastrous consequences for public health if ministers do not think again. When I asked her what lay behind David Cameron's change of heart, she unhesistatingly replied: 

It’s lobbying. And to those who think that lobbying doesn’t work, well, if it didn’t work they wouldn’t be doing it.

She added: "I think we should fight back against that and I also think we should fight back against policy being driven by pollsters. There are some things that might be unpopular before they come in - a bit like seatbelts - but, actually, you look at the evidence, nobody now would say that seatbelts were a bad thing."

On Lynton Crosby's alcohol and tobacco links: "we should all be aware"

The abandonment of minimum pricing, plain cigarette packaging and a lobbyists’ register have all coincided with the arrival of Lynton Crosby as the Tories’ campaign manager. Wollaston is troubled by the influence of the man whose company Crosby Textor has lucrative ties to the alcohol and tobacco industries. She told me:

For someone giving direct advice at the heart of the government to have such close links with industry internationally - I think that’s something that we should all be aware of.

In view of this, I asked Wollaston whether she would like to see Crosby replaced. "It’s probably not sensible for me to be calling for somebody’s removal, because I don’t know enough about what else he’s doing - he may be having some very positive effects of which I’m not aware," she said, laughing in recognition of her lukewarm endorsement.

When I quoted Crosby’s alleged advice to Cameron to "scrape the barnacles off the boat" and focus on the "core issues" of the economy, immigration and welfare reform, she rolled her eyes and said: "Well, I’m sorry, actually if you look at the Health and Social Care Act, the one area that was left with government was public health. In fact, Lansley at one point wanted to call it the Department of Public Health, so public health is core government business."

On Cameron's Etonian inner circle: "it's a kind of blindess to how this looks"

Back in March, Wollaston warned Cameron that his inner circle looked "too white, male and privileged". After the appointment of two more old Etonians - Jo Johnson and Jesse Norman - to prominent policy positions, does she feel that the situation has got even worse?

I don’t think, genuinely, that anyone minds where any individual person went to school, I really don’t think it matters. But, you know, I went to excellent state schools, but I bet you that there are not five people from my two state secondary schools at the heart of government right now.

She added: 

I think it’s a kind of blindness to how this looks to other people and why it matters to other people. I’ve no doubt, individually these are extremely talented people, but it should be more than having a team of people around you who you feel comfortable with, because they have that shared background and experience. Sometimes, actually, it’s better to surround yourself with people who might challenge and disagree with you, you’re a better member of a team...This is something that they obviously don’t see, they don’t see something that to me seems pretty obvious"

Welfare refom: "I’ve very rarely ever met people who wanted to be on benefits"

I raised the case of Stephanie Botterill, the woman who killed herself over fears she would be unable to pay the "bedroom tax", with Wollaston and she told me: "It’s right that we look in detail about the circumstances and await what the coroner’s report is, but, in wider terms, when times are tough you really have to focus on what measures help to reduce suicide because we know that this is a pattern in previous recessions."

When I mentioned the "strivers/scroungers" rhetoric deployed by some politicians, she said: 

You do have to be very careful about the language that you use and you have to be doubly careful about the language that you use when times are tough, and also about the effect that it has. Nobody wants to be unemployed; I’ve very rarely ever met people who wanted to be on benefits, but I have met very many people who are trapped on benefits, there is an issue about that.

On the benefit cap: we should be prepared to say "it didn't work"

Throughout the interview, Wollaston returned repeatedly to the need for "evidence-based" policy (most notably in the case of minimum alcohol pricing). With this in mind, I raised the subject of the benefit cap, which Eric Pickles has privately warned could cost more than it saves due to the likely rise in homelessness. 

While she told me that she believed the cap would be "a good thing in the long term", she added that "if it isn't, we should be honest about that and change it."

You have to look at the evidence, so I think down the line, if there’s evidence that it’s costing us more, sometimes you have to bite the bullet and say ‘it didn’t work’”.

Conservative MP Sarah Wollaston, who was elected in Totnes in 2010 after becoming the first parliamentary candidate to be selected through an open primary.

George Eaton is political editor of the New Statesman.

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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?