Stormont could be the next territory for British politics' Ukip crisis. Photo: Flickr/Maryade
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Ukip fills a vacuum left by Westminster parties in Northern Ireland

Absent-minded protagonists? The UK parties are contributing to a political crisis in Northern Ireland.

As the Northern Ireland Assembly tinkers on the brink of disintegration this week, only one member of the UK government is at talks, Secretary of State for Northern Ireland Theresa Villiers. Former Irish Taoiseach Bertie Ahern, a key player in the Peace Process, voiced concern that Northern Ireland’s political crisis is being ignored by Westminster, saying “I do understand political considerations are elsewhere,” referring to the threat of Ukip and the general election. He further used his political weight by writing to John Bercow, the speaker of the House.

This immediate disinterest is compounded by long-term political marginalisation of the Northern Irish electorate. The Labour Party refuse to allow candidates to run in Northern Ireland, despite support there, the Liberal Democrats don’t run and the Conservatives have allied with the Ulster Unionists, ruling out cross-community support. The only parties that organise across the whole of the UK are Ukip and the Green party. 

The growing Ukip support in Northern Ireland, demonstrated by the defection to Ukip of Bob Stoker, former Ulster Unionist Lord Mayor of Belfast, last week, puts into sharp relief the fact that this is a deliberate policy by Labour, the Conservatives and the Liberal Democrats to avoid elections in Northern Ireland.

"Ukip’s door is open – so people should come and join Bob in creating a people’s revolution in politics," deputy leader of Ukip, Paul Nuttal said, "Your old parties locally are as stale and self-interested as the old parties are across the water." He added that Ukip would contest in all 18 Northern Irish constituencies in May.

On a local level the Northern Ireland Assembly is evidently in need of change anyway. That Stormont is "not fit for purpose", in the words of First Minister Peter Robinson, is demonstrated by the frustrated talks taking place this week. The majority party, the DUP, boycotted the first day in protest over the attendance of Irish Government Foreign Affairs Minister Charlie Flanagan. 

"No self-respecting unionist will be present in any meeting to discuss internal Northern Ireland business where a seat at the table is given to the Irish representatives," the party quipped the evening before the talks were due to start. "The refusal of the DUP to attend here this morning shows their utter contempt for this process, their contempt for the two governments and their contempt and lack of respect for all of the other parties in this process," retorted the Sinn Fein Deputy First Minister Martin McGuinness.

The fragile political system set up on Good Friday 1998, and consolidated in two subsequent agreements, was probably not meant to be permanent. Sectarianism was necessarily institutionalised by ensuring that both ‘sides of the community’ had, in theory, equal power. This has meant that the Sinn Fein and DUP are perpetually in a coalition government together, which puts into question democracy at a local level, but also cripples efficient decision-making.

As the First Minister Peter Robinson wrote in September, these "exceptional operational elements" make any decisions "time-consuming and sluggish". "The structures required cross-community agreement for every significant issue," he added, "a process that would have tested and defeated less divergent coalitions".

It still might defeat this coalition. In 2013 talks on Flags and Parades, two divisive issues, came to nothing. This week talks have dealt with the issues of flags, parades, handling of the historical trials extant from the Troubles, and, crucially, the looming welfare cuts. In what has rightly been called a budgetary crisis, Stormont’s budget for April next year is still £200m over what the Con-Lib coalition prescribed. Nick Clegg has warned that if an agreement cannot be reached, the government may have to go into "emergency mode".

As one commentator has noted, Stormont is outsourcing its functions to a panel comprising most of the Stormont representatives, and thus reducing its credibility. The private sector in Northern Ireland is also in despair at the situation. A "Make it work" plea, signed by prominent Northern Irish business and voluntary sector representatives, was published in the Belfast Telegraph on Monday. "Time is running out for us to make this place work, before our confidence, investment and tourism dries up again. Our people deserve forward-looking, efficient government," spokesman Peter McBride said.

"The most important thing a British government can be is an honest broker," Ed Miliband commented in 2012. "It is very hard to be an honest broker if you are also an electoral participant." Theresa Villiers shared a similar sentiment in her conference speech in September when she said that is right that Northern Ireland politicians "take ownership" of Northern Irish problems "if we are to have lasting solutions".

While Westminster parties feign an interest in allowing Northern Irish people to self-help, in practice they are denying them the right to organise political alternatives to the unworkable Northern Irish parties, and denying them the ability to integrate into the Westminster party system. This is seen most keenly with regard to the Labour Party. In 2003 the party conceded that they were discriminating against Northern Irish people by not allowing them to become members. In 2007, after legal pressure, the Northern Ireland Constituency Labour Party was set up. It is the only CLP that is not allowed to run candidates.

However, there is a history of appetite for cross-community left-wing political representatives. The Northern Ireland Labour Party contested elections from 1924 to 1987, with a high-point in 1958 when it returned four MPs to Stormont, leading the Northern Ireland Prime Minster Basil Brooke to declare in 1962 that the enemy (socialism) was "at the gate". However, the party was crippled by its stance on divisive religious issues, such as Sunday Observance, where hard-line Calvinists wanted to close playgrounds on Sundays, but Catholics opposed it. Finally, support for the moderate NILP dwindled fatally during the Troubles as politics became polarised.

Northern Ireland’s 57.6 per cent voter turnout at the 2010 general election (compared to a UK average of 65.1 per cent) was the lowest of any region of the UK in a General Election since 1945. This disengagement may reflect an important truth: there is no political option that can deliver real change and that is not defined by the old political grooves created during the Troubles. 

"It is not a sticking plaster approach which Stormont needs, but root-and-branch change, whereby mandatory coalition and its crippling mutual vetoes are ditched" the Tradition Unionist Voice party leader has said. And his warning should be taken seriously: "It is inevitable that one day the present unworkable Stormont will implode."

UK parties can no longer see themselves as impartial "brokers" in Northern Ireland. Indeed, the current political crisis has been facilitated partly by this disengagement.

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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?