Getty
Show Hide image

Communities can mend the torn fabric of society – but they need funds to do so

There is only so much that volunteers can do without government support. 

In many ways, Britain has never been so divided. It’s not just the vote on Brexit that has split the nation. There are other more deep-rooted problems. 

Unable to get on the housing ladder and often with limited job prospects, many young people feel their lives are a world away from financial security of those who went before them. 

As well as the intergenerational chasm, a divide is opening up between the three million EU citizens living here who fear what the future might hold for them and the rest of the UK’s citizens.

And, there is the alarming gap that appears to be opening up between some ethnic minority communities and the authorities and the police.

This was seen with the anger over the shambolic response of Kensington and Chelsea Borough Council to the Grenfell Tower disaster and the unrest in East London following the death of Rashan Charles after he was pursued and apprehended by police. 

As someone who was welcomed when I came to England as a teenager and a Kurdish refugee from Turkey, these changes are worrying. There is a risk these divisions will deepen unless we act.

The fabric of our society is not torn apart, but it is badly damaged. We need action to fix that and make sure we heal these divisions to make Britain safer and more inclusive.

That work should start with the youngest. Too many children are still living in poverty in a country where the richest are so wealthy they can afford to leave multi-million pound mansions in London empty.  

According to Barnardo’s, there are 3.7 million children living in poverty in the UK – a shocking figure by any standards.

Around 400 Sure Start centres, places that gave children such a great start in life, have shut under the Conservatives. An injection of £500 million in early intervention funds promised by Labourwould be enough to reopen the centres and restore their services.

But it is not just about securing more funds.  We also need communities get much more involved in tackling some of these deep-seated problems and helping to strengthen society. 

We saw that with the fantastic way the community rallied around to provide food, support and practical help in the wake of the Grenfell Tower fire and filled gap left by the local authority. 

There are also established schemes that do an excellent job in the community like the Near Neighbours programme which has helped more than one million people.  

The scheme – which encourages people of different faiths to work together - uses small grants to strengthen local communities, build support and trust and break down obstacles that stand in the way of better community relations. 

In south London, there is a great example of a community project that is continuing to grow and bring people together. A few gardening enthusiasts turned a waste site on Clapham Common into a thriving community garden. From a humble start, the Bandstand Beds Association is now Clapham’s biggest food growing project. 

But we also need to see more help from central government to improve community cohesion by reversing some spending cuts. 

Teenagers are particularly hard hit after the government scrapped the educational maintenance allowance in 2011, cut the youth services budget by almost £400m since 2010 and hiked tuition fees. 

When it comes to crime, young people from ethnic minorities are disproportionately victims of knife attacks. But the police struggle to deal with the problem after years of budget cuts. 

There is no easy solution. I have been involved with charities in London that are trying to halt the epidemic of knife crime. We have seen volunteers team up with police to search for hidden knives and other weapons. 

But there is only so much that volunteers can do. The promise from Labour of 10,000 extra police would make our neighbourhoods safer.

The money pledged by Labour to abolish the student tuition fees that cripple the finances of so many young people would help reduce the intergenerational wealth gap between the young and old. 

And, those EU citizens worried about their place in the UK would be reassured by Labour’s guarantee that all EU nationals currently living in the UK will see no change in their legal status due to Brexit. 

All these measures would help. But we still need to do more to strengthen our society.

That includes the Muslim community in Britain – the vast majority of whom are, like me, rightly proud of their British identity. From their ranks have come doctors, nurses, teachers and businessmen that have done their part in to improve our society.

There are multiple other examples and there is much to celebrate when it comes to the contributions of multiculturalism – despite the threat posed by those who want to attack us for our tolerance. 

In my case, it was the proud moment my staff and I at Troia restaurant gave meals, help and a hospitable environment to the emergency services after the Westminster attack in March.  

Against all the efforts to divide us, we need to work together to strengthen the pillars of our society.  It will help make Britain a happy, safer and more prosperous place. 

Ibrahim Dogus is an entrepreneur and chair of SME4Labour. He was Labour’s parliamentary candidate in the Cities of London and Westminster at the general election.

 

Getty
Show Hide image

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?