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More should be done to dismantle British education’s Berlin Wall

Why is the left silent on the public school question?


This week's New Statesman: the 7 per cent problem

In a superb and wide-ranging essay in the magazine this week, David and George Kynaston address what we are calling the “7 per cent problem”: why does the private school minority still dominate public life? We ask, too, why the left is so silent on the subject of the dominance of the public schools – and what, if anything, it is prepared to do to improve the education of the poorest in society beyond defending the status quo. At present, as much as 50 per cent of Oxford and Cambridge graduates attended independent fee-paying schools; many of those from state schools who make it to Oxbridge went to selective grammars, of which 165 still remain.

We know what the fundamentalist left is against: academic selection, free schools, greater autonomy for schools and their head teachers. Fiona Millar is one of the leaders of this faction and was on the Today programme this morning speaking about the Kynastons’ New Statesman essay.

We know that the fundamentalist faction despises the private fee-paying schools and would rather abolish than try to reform them (a move the Kynastons reject), as has happened in India. Under the Indian reforms, private schools are compelled to take 25 per cent of children from the poorest families, selected randomly by lottery.

So what can be done to dismantle British education’s Berlin Wall?

As Education Secretary Michael Gove said in a speech in 2012:

More than any other developed nation, ours is a country in which your parentage dictates your progress. In England, more than in any comparable country, those who are born poor are more likely to stay poor and those who inherit privilege are more likely to pass on privilege. For those of us who believe in social justice this stratification and segregation are morally indefensible.

The left – and especially the teaching unions – loathe Gove. He was a colleague of mine on the Times in the mid-1990s, and even if I disagree with him on many issues I can say this about him: he cares about the need for greater social mobility. As the adopted son of an Aberdonian fishmonger, he knows how his life was transformed by a good education and he wants thousands of less fortunate children to have the chance to ride the educational escalator to a better life, as he did.

A couple of weeks ago I visited Eton to speak to the Political Society, one of the many long-established groups run by the boys themselves. Recent guest speakers have included Mervyn King, the former governor of the Bank of England, and Robert Chote, head of the Office for Budget Responsibility. (I try to visit as many schools as time will allow but most of the invitations I get come from the elite private schools or from grammar and specialist state academies, such as JFS in north-west London. It could also be that comprehensive schools no longer have the budget to subscribe to magazines such as the New Statesman, sadly.)

To recap: Eton, founded in 1440 by Henry VI as an institution to educate 70 boys from poor families, has produced 19 British prime ministers, most recently, of course, David Cameron.

As a guest, you have drinks and then an intimate supper at the residence of the housemaster in one of the 25 boarding houses. Five or six boys are invited and in this way they gain the experience of meeting and conversing with influential people from outside the school. Small wonder that this year Eton will send nearly 100 (out of 250 boys in the upper sixth) to Oxford or Cambridge. No other school will send so many pupils to Oxbridge.

Like the other leading public schools, Eton has become rigorously academically selective. The boy who invited me to speak at the school was not at all wealthy. Born in Ghana, he attended a comprehensive in east London before winning a sixth-form scholarship to Eton. The headmaster, Anthony Little, told me that as many as 260 boys are receiving financial assistance. “There are about 45 boys who pay nothing at all. We actually pay 110 per cent for them because we take the view that all the fees need remising. There’s the uniform and pocket money . . .”

Little attended the school himself in the 1960s (“when it was very different”) but does not come from a privileged background, and is the first male in his family to be educated over the age of 14. “I came from a background that was so alien to any kind of educational experience,” he told me. “My father was a security guy at Heathrow and my mother was a secretary at the local hospital. I came in on a scholarship . . . Not to be romantic about it, but that is a reason why I do the job: I feel an obligation to pay back.”

I left Eton that night feeling no resentment or hostility. But as I drove home in the cold January rain, I wished that so many more children, from all social backgrounds, could benefit from the kind of education enjoyed by the fortunate few – mostly now the sons of the super-rich – at what was once King Henry VI’s school for poor scholars.

The Kynastons end their essay thus:

There is a moment to be seized. The loosening up of the state system through academies and free schools has blown away the old plea of the private schools to be left alone in splendid, independent isolation; social mobility is going backwards; the question of our rich/poor divide in education has been spotlighted not only by the make-up and social background of our current cabinet but also by the increased profile of organisations such as Teach First, dedicated to enhancing equality of opportunity. While on the left we have the haunting, ever more distant memory of 1945, with the knowledge that missed opportunities take a very long time to come round again.

In his New Year message Ed Miliband claimed that people “do not want the earth” but prefer credible specifics, as embodied in his pledge on energy bills. Yet, however skilfully done, there is enormous danger in a strategy of pick-and-choose if it vacates the rest of the field to others. The left should not see the private school question as insoluble, nor too dangerous to touch, but rather as the potential cornerstone of a narrative about a less divided society. It is a debate that should be open to all, regardless of which side of the divide they stand: bringing together all parents, all teachers and all children to craft an education system that gives opportunity to every student, and does not reserve the best prizes for a privileged few.

I’ll be publishing replies to the essay in next week’s magazine and I will be speaking to David and George Kynaston in this week’s New Statesman podcast.

To purchase a copy of the issue, visit www.newstatesman.com/subscribe or visit the App Store

Jason Cowley is editor of the New Statesman. He has been the editor of Granta, a senior editor at the Observer and a staff writer at the Times.

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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?