Tony Benn addresses an anti-austerity march. Photo: Getty Images
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I backed Tony Benn - but now I'm backing Yvette Cooper, not Jeremy Corbyn

I remember the excitement of backing Tony Benn, my admiration for Michael Foot - and my devastation when Margaret Thatcher won a majority of 140. Don't let it happen again, warns Jack Dromey.

Yvette speaks of her first demonstration as a child, the great People’s March for Jobs in 1981. I remember it well. As a young officer of the T&G and Secretary of the South East TUC, I was one of the three organisers of the greatest march on unemployment since Jarrow. As it descended from Liverpool to London, the People’s March captured the imagination of millions and mobilised hundreds of thousands. As the march reached London, 70,000 young people attended Rock for Jobs in Brockwell Park on the Saturday and then, on the Sunday, a quarter of a million cheered the marchers as they entered Trafalgar Square.

I remember also in the same year the heady atmosphere of the Benn Campaign for deputy leader of the Labour Party. I was part of that campaign because I passionately believed in a left future for Britain, and I admired our leader Michael Foot. I do to this day. It seemed at the time as if the whole world was at our feet. Then, two years later, we went down to a crushing defeat. Thatcher, who had so devastated our manufacturing base that at one stage the T&G was losing 100,000 members a year, won a majority of 140, the biggest Conservative majority since the War.

In the trade union movement, we were devastated. But one leading figure in the Labour Party summed up just how, as a bitterly divided party, we had become out of touch. She said “at least we had the right policies.” At least we had the right policies? So we were right and the people were wrong. Even after the defeat this showed just how fundamentally we misunderstood our relationship with the electorate. 

For this, we then paid a heavy, heavy price. The miners, the printers, the dockers, all went down to crushing defeats. One particularly nasty employer told me ‘she will soon sort you militants out.’ We lost millions of members. The magnificent miners may have marched back to work, heads held high behind their lodge banners. But the Tories had won. 18 bitter years in the wilderness followed of what seemed then like eternal opposition. We must not repeat the mistakes of history.    

Following our unexpected defeat, a disappointed rage grips our Party. I share that sense of dismay and I too am angry about what this Government will now do and I am determined we fight back. But Yvette is absolutely right when she says it is no use just being angry with the world. We want to change the world. That is why tens of thousands are joining our party. For them and above all for the country we have to fight back and win. Both. Fight the Tories every inch of the way. But ultimately we have to win. 

It cannot be right that ever again we preside over decline, comfortable and preserving our credentials. Once again asserting ‘at least we had the right policies.’ It cannot be right not least because the Tories are out to break the labour movement once and for all with their boundary changes and attack upon the Trade Unions.   

It cannot be right because those we represent will pay a heavy price if we go on losing. They, not us, will be the big losers. I want to win for Angela whose disabled son was stoned in Kingstanding in my constituency, Erdington days after George Osborne’s infamous shirkers and strivers speech. Her 12 year old son was the victim of a whispering campaign because she was accused of ‘having a car on benefits’, yes through Motability. I want to win in memory of Stephanie, the Meriden grandmother hit hard by the infamous Bedroom Tax who threw herself in despair under a lorry and committed suicide. 

I want to win for the ever-lengthening queues of people in my advice surgeries desperate for a decent home at a price they can afford. I want to win because I cannot bear the thought of Erdington’s wonderful Children’s Centres, much loved by kids and parents alike, closing. Do you know what? I want to win to wipe the smile off David Cameron’s and George Osborne’s faces. They are ‘loving’, in Cameron’s words, every minute of our discomfort and division. 

Yvette Cooper is a progressive woman who can win. I have worked with her for nearly two decades. She was the last housing minister to preside over the building of 200,000 homes in Britain and is now determined to build 300,000 a year, creating millions of good jobs and apprenticeships. That means homes to buy and a new generation of Council homes, good homes in mixed communities where people want to live. Instrumental in developing Sure Start in a Labour Government that built 3,000 Children’s Centres, Yvette is best placed to lead the battle for every child having the best start in life, a cause she is passionate about. 

Winning is not about junking your values. I was born on the left and I will die on the left. But, as I learnt in the world of work, you don’t win unless you win a majority. Can I give an example: I was a founder member of the drive for the real Living Wage. Heading the 100 strong T&G Organising Department, with London Citizens, we fought and won the Living Wage for over 3,000 cleaners in the City of London and Canary Wharf. I then organised the first ever strike in the history of the House of Commons to win the Living Wage for the Commons cleaners. In the general election campaign, I was passionate about the causes of the Living Wage, a higher Minimum Wage and ending exploitative zero-hours contracts. But in essence we were pitching to the bottom 20 per cent of the labour market. Were we appealing to the 4,000 skilled, better paid and well-organised workers, the aspirational working class, in the Jaguar plant in Erdington? No. 

Let me give another example. I organised the first ever Erdington’s Young People’s Parliament in Parliament, twice bringing to London 100 local young people from the sixth forms, colleges, training agencies, apprentices and the young homeless organisations. They were inspirational, hammering out their demands in their Manifesto because they wanted to change the world in which they live. I also organised the first-ever Homeless Young People’s Parliament in Parliament, 100-strong and nailing myths about the young homeless. Not "druggies, drunks and drop-outs on benefits." On the contrary they were ordinary young people whose lives had fallen apart, often because of family breakdown or sexual harassment. They too were inspirational. They too wanted to change the world in which they live. They too hammered out their Manifesto.

I was a strong supporter, therefore, of our standing up for the next generation in the last Parliament. It was right and we were right. But were we also appealing to the over 65s, those who built Birmingham and Britain? No. But the Tories did. The result? They won two million more votes than we did amongst the over 65’s and, by the time of the next Election, 51 per cent of voters will be over 55. 

There will be those who say "we must not sell out". The electorate are wrong and we are right. And we must not move to the right. Is it to swing to the right to listen to Labour’s lost voters, those Jaguar workers and the pensioners of Erdington? Absolutely not. Is it to abandon our principles to hear the sometimes uncomfortable truths of how too many people, including the millions who don’t vote, see us, removed from the realities of their day-to-day life? No. When I ran the best Union Organising Department in Britain, we used to always say you start by asking workers what they think, not telling them what our policies are. To be frank, right now we need to listen and learn as we rebuild as I know we can. 

This is a defining moment. The Tories are ruthless, out to finish Labour off. We have a choice. We can play into their hands, or, alternatively, we can say this is not a Conservative country. It was said of Labour in 1983 we were finished. We proved them wrong, ultimately, winning three consecutive terms of office. We could and should have done more in those terms. But the country was a stronger, fairer, better country thanks to 13 years of a Labour Government. 

We did it before. We can do it again. But the stakes could not be higher. That’s why I am backing Yvette for Labour.  

Jack Dromey, Member of Parliament for Birmingham Erdington and formerly the Deputy General Secretary of the Transport & General Workers Union and Unite.

Jack Dromey is shadow policing minister.

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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?