Westminster may dabble in xenophobia, but the reality is that racism isn’t popular

Britain’s immigration debate would look very different if ministers overcame their fear of the fringe and trusted voters with a more honest account of the country we have.

Painted in a certain light, Britain in the summer of 2013 can be made to look pretty nasty. Government vans crawled the streets with a threat to migrants conveyed in the tone of a police state and the idiom of the far right: “Go home or face arrest.” Politicians blame every malaise on foreign interlopers: new arrivals with jobs must be jumping the queue; those without work must be gobbling benefits and hogging hospital beds. Westminster cringes before Ukip, a party that lubricates intolerance with theatrical pub cheer.

But with a change of palette, the same country can be construed differently. The menacing vans have been steered off the streets by the threat of a legal challenge, exposing a failure of process at the Home Office. The stunt has been quietly disowned by Downing Street. (“The Prime Minister probably didn’t even know it was happening,” a senior Tory adviser tells me.) Even Nigel Farage affected distaste at a “nasty, Big Brother” device.

The anxiety about immigration that shows up in opinion polls is not matched by an exclusion of immigrants and their families from British culture. Only a year ago, the nation cheered Mo Farah and Jessica Ennis-Hill, flagbearers for multi-ethnic Britishness, as its Olympic king and queen. TV audiences elected a Hungarian dance troupe as this year’s winner of Britain’s Got Talent. It isn’t a scientific reading of the collective mood but it suggests we are some way off from nationalist frenzy.

For every ministerial dabble in the vilification of migrants, there is a caveat of admiration for the contribution that foreigners have made to the enrichment of these isles. That is the paradox of British political xenophobia – the racist element in populism must be discreet because overt racism isn’t popular.

There is plainly some ugly bigotry expressed in Ukip’s rise but the stronger animus is reserved for politicians from other parties who are accused of colluding in an open-border policy and sneering at anyone who objects. Conservative and Labour MPs say the pro-Farage voters they meet on the doorstep barely distinguish between a blue and a red rosette. They are treated as interchangeable logos on one governing machine.

So there may be less mileage than Conservative strategists think in boasting that the Tories are slamming shut the gates supposedly left open by Labour. When official statistics show net migration falling, voters don’t believe it. Besides, the transitional controls on migration from Bulgaria and Romania – EU members since 2007, whose access to the British jobs market has been delayed – will be lifted in January 2014. Ukip officials barely contain their glee at the unravelling this portends for Conservative claims to be running a “tough” border regime.

Labour suffers from a complex of agonies over immigration. It knows it has lost thousands of votes over the issue. The political computation of that number is then muddled by contradictory impulses: anti-racism as an ethical hallmark of left politics; a tendency to be automatically pro-European for fear of overlapping with Little Englanders’ cartoon hatred of Brussels; a liberal conviction that enterprising migrants are good for the economy and society; a less liberal distaste for the way globalisation treats labour as a fluid resource, sloshing across borders at capital’s behest.

Then there is Ed Miliband’s background as the son of Jewish refugees from the Nazis. The Labour leader is obliged by political reality to address resentment of mass immigration and driven by his upbringing to see the migrants’ side of the story. That could be a recipe for indecision. It may also be a useful combination, because immigrant communities in marginal seats could decide the outcome in a closely fought general election.

Non-white voters do not have uniform political preferences but there is a clear pattern of mistrust of the Tories. There are Conservatives, mostly in urban constituencies with thin majorities, who see this as a long-term crisis for the party. Their concerns have been swept aside in the tactical dash to plug the leak of angry white votes to Ukip.

By contrast, Labour’s position – interpreted generously – is to focus on the causes of antiimmigrant feeling: low wages; a housing crisis that breeds resentment of foreign families in council properties; the skills shortage in an army of unemployed youth. Miliband’s aim, say his friends, is to move the conversation away from race and on to systemic failings in an economy that permits the routine exploitation of migrants and neglect of local labour forces.

That was the point the shadow immigration minister, Chris Bryant, tried to make in a speech on 12 August but the message was garbled. The intervention was erected on a platform of factual error, resulting in an overnight rewrite and a panicky retreat from attacks on corporate employers, encouraging the less generous interpretation of Labour’s position as an unprincipled shambles.

That is unfortunate, because Miliband’s nuanced line, treating immigration anxiety as a function of deep-rooted economic insecurity, deserves an airing. Britain is not a nasty country. Nor is it poised to instal a Ukip government, as more level-headed Tories can see. One Conservative backbencher, lamenting his party’s fringe obsession, recently told me: "People talk about Nigel Farage’s great charisma. Actually, I think a lot of people see him as a bit of a dick."

Westminster devotes more energy to decoding what goes on in the minds of the one in ten voters who might back Ukip than it does to understanding the larger number of people who know that Faragism isn’t the solution. There is in any society a bitter, defensive streak that can be brought out by fear and a generous side that thrives on trust. Britain’s immigration debate would look very different if ministers overcame their fear of the fringe and trusted voters with a more honest account of the country we have and the kind of country most of us want.

A van carrying the Home Office's message to illegal immigrants: 'Go home or face arrest.'

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

This article first appeared in the 19 August 2013 issue of the New Statesman, Why aren’t young people working

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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?