Labour is unlikely to scrap PCCs, so here's how it can reform them

Police and Crime Commissioners should become 'ministers for the local criminal justice system' with the political power to set the agenda.

Despite all the talk about a lack of policy detail, there is one area where Labour will certainly be doing some pretty hard thinking over the next few months. The party’s Policing Review, led by former Met Commissioner Lord Stevens, might be long delayed but is still expected to be published in the autumn and may provide some much-needed thinking on crime and justice issues.

Taking advantage of front-line police dissatisfaction at the government’s policing agenda, the review is likely to contain various pro-police measures on issues like perks and pay, and is also likely to include promises to reverse certain elements of Theresa May’s wide-ranging reforms.

It is rumoured that it will once again float the idea of mandatory police force mergers and a move towards regional police forces – an idea that is popular with some senior police leaders, but was comprehensively rejected by just about everybody else back in 2006. But as well as looking at structural changes and crowd-pleasing measures, the review will also need to address the party’s position on Police and Crime Commissioners (PCCs), who will mark their one year anniversary in November.

On the face of it, PCCs have made an inauspicious start. Poor turnout at last year’s elections, some early high-profile blunders and a media fixation on expenses and personnel have all helped to create a negative impression. But the reality on the ground will take longer to evaluate and there is emerging evidence that PCCs are bringing real clarity of leadership and proving far more effective than Police Authorities ever were at holding forces to account and improving their crime-fighting performance. Despite this, Labour could decide to make a premature call and scrap PCCs before they’ve really had a chance to get started.

If Labour was to decide to change the model of police governance again, emergency legislation would need to be passed by a new government upon taking office in order to cancel the next set of PCC elections in May 2016. Scrapping PCCs would not only need to be the first priority for Ed Miliband if he makes it into 10 Downing Street, it would also extinguish the progress made by a number of influential former Labour ministers who are thriving as PCCs of large police forces in the north and the midlands. For both of these reasons, the smart money is on PCCs remaining in place and being given the time to demonstrate their significant potential.

The report we have published today is an attempt to look to the future of PCCs, rather than continue to quibble about their introduction. In it, we outline a vision for a deliberate and steady decentralisation of the criminal justice system, with PCCs the recipients of a range of new responsibilities and powers, implemented in a way designed to command the confidence of central government departments.

Our contention is that while PCCs have a valuable suite of powers in the policing realm, they do not yet have the right tools for effecting change in the wider criminal justice system. We set out a series of steps which would see PCCs increasingly assume a role similar to that of a 'minister for the local criminal justice system' – with the political power to set the agenda, hold agencies within his/her purview to account for delivery of that agenda and drive forward reforms to ensure a more efficient and effective system at the local level.

The aim should be to create a system where, instead of local criminal justice leaders looking upwards and inwards to Whitehall for direction and validation, they increasingly look outwards to each other and downwards to the citizens they serve.

The process of decentralisation we envisage starts with giving PCCs the power to influence the people, agendas, performance and coordination of the criminal justice system at both a national and local level. Once they are given the tools to allow them to work effectively within the wider ecosystem and have successfully got to grips with their new powers, the strategy would see them becoming more financially responsible for the wider system – both for holding and commissioning with specific criminal justice budgets, and for the levels of demand created within their local areas.

As PCCs develop, whichever party is in government might also begin to ask questions about their longer-term future. These reforms have created a new set of local politicians with considerable powers (over the police, at least) – representing an entirely new infrastructure for local democracy. In this new report, we argue that policymakers should build on this by deliberately facilitating the expansion of PCCs’ powers and remit in the justice space. But it is not impossible that future governments might decide to go even further. For example, in the wake of the rejection of City Mayors in last year’s referenda, where attempts were made to introduce powerful Mayors in a 'big bang' fashion, it may make sense for PCCs to be reformed more fundamentally over time – gradually accruing powers over other areas of public policy.

The election of Police and Crime Commissioners was a once in a generation opportunity to reform policing and criminal justice, and reverse decades of ineffective policies. And there are now three choices facing policymakers: reverse, stand still or go forward. Going forward, by accelerating the expansion of PCCs’ powers and responsibilities, will give these new figures every chance of being successful in their jobs, maximising reductions in crime and meeting the significant expectations around their role. And that’s the best way of ensuring that the narrative.

Max Chambers is head of crime and justice at Policy Exchange

Labour will need to address the party’s position on Police and Crime Commissioners (PCCs), who will mark their one year anniversary in November. Photograph: Getty Images.
Getty
Show Hide image

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?