Ed Miliband delivers his speech on the EU at the London Business School last week. Photograph: Getty Images.
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Ed Miliband's response to the Budget: full text

"This is the Budget that confirms people are worse off under the Tories."

The Chancellor spoke for nearly an hour.

But he did not mention one central fact:

The working people of Britain are worse off under the Tories.

Living standards down: month after month, year after year.

2011 - living standards down.

2012 - living standards down.

2013 - living standards down.

And since the election working people’s living standards £1,600 a year - down.

You’re worse off under the Tories.

Their 2010 manifesto promised:

“An economy where…[people’s] standard of living...rises steadily and sustainably”

But they have delivered exactly the opposite.

Standards of living not rising steadily and sustainably, but falling sharply and steeply.

And today the Chancellor simply reminded people of the gap between the Chancellor’s rhetoric and the reality of peoples’ lives.

Living standards falling for 44 out of 45 months under this Prime Minister.

Unmatched since records began.

No amount of smoke and mirrors today can hide it.

We already know the answer to the question millions of people will be asking in 2015:

“Are they better off now than they were five years ago?”

The answer is no.

Worse off.

Much worse off.

Worse off under the Tories.

And the Chancellor trumpeted the tax allowance today.

But what he didn’t tell you is that it is the same old Tory trick.

He didn’t tell you the rest of the story.

He didn’t mention the 24 tax rises introduced since he became chancellor.

He forgot to mention that he put up VAT.

He taxed away Child Benefit.

He raised insurance tax.

And gave us the ‘Granny Tax’.

It’s a classic Tory con.

Give with one hand and take far more away with another.

Same old Tories.

Now the Chancellor painted a picture of the country today that millions of people simply will not recognise.

Because this is Cameron’s Britain 2014.

350,000 people going to food banks.

400,000 disabled people paying the Bedroom Tax.

1 million more people paying 40p tax.

4.6 million families facing cuts to tax credits.

But there is one group who are better off.

Much better off.

We all know who they are.

The Chancellor’s chums.

The Prime Minister’s friends.

The Prime Minister rolls his eyes, he doesn’t want to talk about the millionaire’s tax cut.

No mention of it in the Budget speech.

The beneficiaries of this year’s millionaire’s tax cut.

Because if you are a City banker earning £5m and you are feeling the squeeze, don’t worry because they feel your pain.

Because this year that city banker was given a tax cut.

Not just any tax cut.

£664 a day.

£20,000 a month.

A tax cut worth more than £200,000 a year.

So the Prime Minister chooses to afford a tax cut of £200,000 for a banker.

But he can’t afford a pay rise of £250 for a nurse.

And these are the people that had the nerve to tell us we’re all in this together.

It’s Tory values.

It’s Tory choices.

It’s the same old Tories.

And of course, the Leader of the Liberal Democrats, with them every step of the way.

Day after day he claims he doesn’t support Tory policy.

But day after day he votes for Tory policy.

Now to listen to the Chancellor today, for a recovery that arrived three years later than he promised, he expects the country to be grateful.

Back in 2010, he told us that by the end of 2014, the economy would have grown by nearly 12 per cent.

Today the figures say it has been barely half that. And he wants the country to be grateful.

Back in 2010 he said the Government would clear the deficit in this parliament by 2014/15. Today he wants the country to be grateful because he says he can do it by 2018/19.

Three years ago the Chancellor told us in his 2011 Budget speech he would deliver an economy “carried aloft by the march of the makers”:

But what has actually happened since then to the rebalancing that he promised?

Manufacturing output has fallen by 1.3 per cent.

Construction output has fallen by 4.2 per cent.

Infrastructure investment down 11 per cent.

Every time he comes to this house he promises a rebalancing.

And every time he fails.

He talked about housing today, but what has he actually delivered?

They’ve overseen the lowest house building since the 1920s.

And rents have risen twice as fast as wages.

At the heart of the argument we will have over the next fourteen months is this question: whose recovery is it?

Under them it’s a recovery for the few not the many.

Bankers pay in London rising five times faster than the pay of the average worker.

This recovery’s not working for working people whose living standards are falling.

It’s not working for millions of women who see the gap between men and women’s pay rising.

It’s not working for low-paid people promised by the Chancellor a £7 minimum wage, but given just 19p more an hour.

Under this Government it’s an economy of the privileged, by the privileged, for the privileged.

And instead of today admitting the truth about what is happening in most people’s lives, they want to tell them the opposite.

They tell people their wages are rising when they’re falling.

Just like they tell people their energy bills are falling when they’re rising.

And they tell people they’re better off but everyone knows the truth.

You can change the shape of the pound.

But it doesn’t matter if the pound is square, round or oval.

If you’re £1,600 pounds worse off, you’re still £1,600 pounds worse off.

You’re worse off under the Tories.

And the reason they can’t deliver is because of what they believe.

His global race is a race to the bottom.

People forced to do 2 or even 3 jobs to make ends meet.

Not knowing how many hours they will get from one week to the next.

And no idea what the future holds for their kids.

Low wages.

Low skills.

Insecure work.

That’s how they think Britain succeeds.

That is why they’re not the solution to the cost of living crisis.

They are the problem.

We needed a Budget today that would make the long-term changes our economy needs in housing, banking and energy.

But they can’t do it.

They won’t stand up to the vested interests.

They won’t tackle developers sitting on land, even though they can’t solve the housing crisis without it.

They won’t force the banks to improve competition, even though small businesses say they need it.

They won’t stand up to the energy companies and freeze energy bills, even though the public support it.

Same old Tories.

We know what their long term plan is: more tax cuts for the richest, while everyone else gets squeezed.

What does the Chancellor say about the people dragged into paying 40p tax?

He says they should be happy.

It’s good news for them.

So this is the new Osborne tax theory:

If you’re in the middle paying 40p you should be pleased to pay more.

But if you’re at the top paying 50p, you should be helped to pay less.

Same old Tories.

It’s no wonder that even their own side think they’re totally out-of-touch.

And even now, even after all the embarrassment of the millionaire’s tax cut, they won’t rule out going further.

Maybe today we can get the straight answer we haven’t had so far?

Will he rule out a further tax cut for millionaires to 40p?

Just nod your head if you’re ruling it out!

There they go again.

They won’t rule it out.

Doesn’t it say everything about them?

They really do believe the way you make the rich work hard is to make them richer, and the way you make everyone else work harder is by making them poorer.

And just like they paint a picture of the country that working people will not recognise, so too themselves.

Now the Prime Minister is an expert in rebranding.

Remember the huskies, the bike, the tree?

That was before they said cut the green crap.

What is the latest rebrand from the Bullingdon club?

It is beyond parody.

Because what does this lot now call themselves?

They call themselves ‘The workers’ party’.

And who is writing the manifesto for this new workers’ party?

We already know the answer and I quote:

“There are six people writing the manifesto, five went to Eton...”

By my count more Etonians writing the manifesto than there are women in the Cabinet.

No girls allowed.

And this week we’ve heard it right from the top.

Here’s what his former best friend, his closest ally, the Education Secretary had to say about the Prime Minister’s inner circle.

He said it was, and I quote:

“Ridiculous.

Preposterous.

Unlike anywhere else in the world.”

You know you’re in trouble when even the Education Secretary calls you a bunch of out of touch elitists.

And where is the Education Secretary? I think he has been banished … He’s hiding! I think he has been consigned to the naughty step by the Prime Minister.

I think it’s time we listened to Baroness Warsi and took the whole Eton mess out of Downing Street.

And what a mess it is.

There are more sides in the Tory briefing war than there are on the new pound coin.

We don’t need a party for the privileged few.

We need a party for the many.

That is why a Labour government will:

Freeze energy bills.

Guarantee jobs for unemployed young people.

Cut business rates.

Reform the banks.

Get 200,000 homes built a year.

And abolish the Bedroom Tax.

This is the Budget that confirms people are worse off under the Tories.

A worse off budget, from an out-of-touch Chancellor.

Britain can do better than them.

Britain needs a Labour government.

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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?