Exclusive: Tim Farron interview: "I really like Ed Miliband, I don't want to diss him"

The Liberal Democrat president lavishes praise on the Labour leader and says "I don’t want join in with the Tories who compare him to Kinnock."

Liberal Democrat president Tim Farron said of Ed Miliband: "I don’t want join in with the Tories who compare him to Kinnock."
Illustration: Nick Hayes

Nick Clegg and his allies have long regarded Tim Farron, the Liberal Democrats’ popular and ambitious president, with suspicion and they have even more reason to do so after my interview with him in tomorrow’s New Statesman.

Days before the Lib Dem conference opens in Glasgow, Farron lavishes praises on Ed Miliband in a clear signal that he has his eyes on a Labour-Lib Dem coalition after 2015. While critical of Miliband’s conduct over Syria (“He changed his mind half a dozen times in 48 hours”), he qualified his remarks by telling me:

I really like Ed Miliband, so I don’t want to diss him. I don’t want join in with the Tories who compare him to Kinnock.

He went on to praise Miliband as a model progressive:

First of all, he’s a polite and nice person. I think he is somebody who is genuinely of the Robin Cook wing of the Labour Party, from their perspective what you’d call the 'soft left'. Somebody who is not a Luddite on environmental issues, somebody who’s open minded about modernising our democracy, somebody who’s instinctively a bit more pluralistic than most Labour leaders and a bit more internationalist as well.

I waited for a "but", only for Farron to say:

And they’re other things too. For all that I think he could have done a lot more on the AV campaign, he did at least have the backbone to come out and back it.

He mischievously added:

He wouldn’t share a platform with Nick [Clegg], so he ended up with me, poor thing. I like the guy.

As Farron knows, should Miliband refuse to form a coalition with Clegg in 2015, he could well end up with him again. In a way that the Deputy PM never could, the Lib Dems president regards Miliband as an ideological co-spirit. While Clegg seeks to remake the party as an economically liberal outfit, instinctively closer to the Tories than Labour, Farron holds out the alternative of an unambiguously centre-left party, at one with Miliband on issues such as the 50p tax and tuition fees.

Farron’s comments set him at odds with Clegg allies such as Home Office minister Jeremy Browne (interviewed by Rafael this week), who described Labour as "intellectually lazy, running on empty" and suffering "from a leadership void". Rather than making eyes at Miliband, he praised David Cameron for identifying "the big issue of our time” in the form of “the global race".

On Michael Gove: "completely wrong" on school standards

By contrast, when Farron does mention a Conservative minister (Michael Gove) it is to bury, rather than praise him. He told me that the Education Secretary was "completely wrong if he thought that the way to deal with the age-old problem of the fact that Britain doesn’t always compete as well when it comes to educational outcomes as our European neighbours is to just berate the teaching profession, the chances are that it’s British political culture and class culture that are the reason why we’re behind other European countries and always have been."

50p tax rate: "we should have that in our manifesto"

Elsewhere, in another point of agreement with Miliband, Farron calls for the Lib Dems to pledge to restore the 50p tax rate. While David Laws has warned against tax policies that raise little revenue and are "just symbols", a view shared by Clegg, Farron turned this logic on its head.

"My personal view is that we should have that in our manifesto and while it raises an amount of money, it’s also a really important statement that we are all in it together."

Tuition Fees: "I’d like to see fees abolished"

In the case of tuition fees, he similarly argued that the party should not settle for the status quo. “I would personally like to see fees abolished and replaced with a graduate contribution system purely based on ability to pay.” The manifesto, he said, should call for “movement towards a more progressive system.”

While avoiding mentioning Clegg by name, he told me:

There’s a danger that some people in the party might think we should concede and maybe write bits of our manifesto on the basis of what we think other parties would accept, rather than the basis of what we want to achieve.

The fear among activists is that the party will produce a bland, centrist manifesto seemingly crafted with a second Conservative-Lib Dem coalition in mind. It was a concern echoed by Farron. "The most important thing from our perspective, and I’m a member of the manifesto group, is that we ensure that our manifesto is 100 per cent Liberal Democrat. You don’t pre-concede on things. So if we think the Tories wouldn’t accept putting the top rate of tax back up to 50p, but we want to, then we stick it in there and we negotiate from that point."

Syria: I would have voted against military action

Farron abstained on the government motion on Syria but told me that he would have opposed military action had there been a second vote.

"I made it very clear that if it was a call to intervene militarily, I would have voted against. If the vote had been won, and we’d been back here voting on action this week, I’d have been in the no lobby."

On Clegg’s attitude to left-wing voters: "you don’t write people off"

As party president and the standard bearer of the Lib Dem left, Farron has made it his mission to win back the millions of progressive-minded voters who have deserted the party since the last election. But while he would never describe any voter as lost, Clegg often appears to regard his party’s former supporters with something close to contempt. He remarked last year: "Frankly, there are a group of people who don't like any government in power and are always going to shout betrayal. We have lost them and they are not going to come back by 2015. Our job is not to look mournfully in the rear view mirror and hope that somehow we will claw them back. Some of them basically seem to regard Liberal Democrats in coalition as a mortal sin."

When I asked Farron whether he agreed, he bluntly replied: "the people who are most likely to vote for you next time are the people who voted for you last time...You don’t write people off, they’re there to be persuaded to come back, or rather stay with us."

Housing: we should build "vast numbers" of council houses

While the coalition's Help To Buy scheme is inflating housing demand, Farron will use his speech to the Liberal Democrat conference on Saturday to address the fundamental problem of supply.

He told me that the party should commit to building "vast numbers" of council houses, a minimum of "half a million", and that local authorities should also be allowed to develop "a new strand of income".

Farron explained: "that means not just building council houses but building more expensive houses as a way of developing income streams. Local authorities do incredibly good work in supporting people but not if they’ve got no money, they’ve got a reduced council tax base and reduced funding from central government. Being a councillor is a miserable experience these days as you’re having to cut, cut, cut just to stand still. Well, here’s a way of providing a genuine source of income, with councillors as developers, as investors in their own communities."

Tim Farron is speaking at a New Statesman fringe event ‘Endgames: the Lib Dems in the final phase of coalition’ in partnership with the Institute of Government on Monday 16th September at 6pm at the Liberal Democrat conference in Glasgow. He is also doing an 'in conversation' event in partnership with Santander on Tuesday 17th September at 6:15pm. 

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?