Tories can't master message discipline until Cameron has a clear message

Conservatives struggle to say things that sound like the sort of thing their leader would say.

One thing that has surprised pretty much everyone in Westminster over the past couple of years is the endurance of Labour message discipline. There are occasional bursts of sniping from the sidelines – usually in the form of anonymous briefings and half-reported mutterings by sullen MPs when Ed Miliband seems to be under-performing. Then he makes a clever speech, or the government does something idiotic, and everyone falls neatly back into line. It is really quite impressive for a party that was heavily defeated in 2010 and was supposed, according to the pre-ordained media script, to fall apart in civil strife.

The usual explanation for this unity is that Miliband hasn’t made enough tough policy choices that would open up the divisions that were, according to the now yellowing media script, supposed to yawn wide in 2010. That is partly true – and, in the spirit of full disclosure, I should point out that I make that very argument around half-way through this column in the Sunday Times today.

But it is also worth noting that discipline doesn’t come exclusively from policy vagueness. Plenty of Labour MPs are unhappy with the leader’s lack of clarity on a range of issues, but they don’t say so on the record. Indeed, one senior BBC journalist complained to me the other day about how hard it was getting Labour guests on a flagship Westminster programme who might say anything at all to deviate from the official Team Miliband script. That isn’t just vagueness. It is strength of will and determination to win.

By contrast, the Tories simply can’t stick to the lines David Cameron would have them parrot. David Jones, the Welsh Secretary, properly disgraced himself last week by suggesting that gay couples can’t bring up children in a nurturing environment. In theory, Tory divisions on gay marriage have been sanctioned by Downing Street – parliament had a free vote on the issue. But that doesn’t excuse cabinet ministers dribbling out tired and hateful homophobic clichés about the unsuitability of gay men or women for loving family relationships.

If Conservatives were at all loyal to Cameron and truly determined to win an election, they might at least pretend to believe some of the same things their leader does.

Then there is Maria Hutchings, the Tory candidate in the Eastleigh by-election, who was reported last week to have said her son’s ambitions to be a surgeon meant he couldn’t possibly attend a state school. That is surely not how Cameron would have phrased his views on comprehensive education. Hutchings also disagrees with Cameron on gay marriage and has said she would vote to leave the European Union. The Daily Mail recently ran a profile of her as the “off-message” candidate - as if fighting the by-election on a Ukip-lite platform were part of some cunning plan by Tory high command to close off the threat from Nigel Farage and thereby snatch the seat. I don’t buy it. Hutchings was the Tory candidate in 2010 – picked from an “A-list” – when the party was supposed to be modernised, socially liberal, Cameroon.

The fact that she is the candidate again (and it is always a hazard offering voters a meal they have sent back to the kitchen once before) proves only that the Cameron operation didn’t really vet it’s A-list very well and hasn’t been paying much attention to candidate selection since getting into government. But now they’re stuck with Hutchings and are doing their best to make a virtue of her. She might still win, of course, but I imagine Cameron would rather be bringing loyal MPs fashioned in his own image into parliament instead of more “off message” mavericks. I doubt Downing Street chose to withdraw the whip from Nadine Dorries only so they could import Eastleigh’s Dorries tribute act.

Then consider John O’Farrell, Labour’s minor celebrity candidate in Eastleigh. A comedian and writer – surely he would be a liability, firing off message all over the place. But no. Even on Twitter, his wit has been channelled carefully down the appropriate slogan-delivery tubes. On 14th February, he joked:

Fear I have already turned into political robot. Valentines card to wife just said 'Vote Labour in #Eastleigh for a One Nation alternative'.

I suspect that was closer to the truth than he or anyone else in the Labour machine would like to admit. The party is still pretty good at command and control on the ground, especially in a by-election. In one contest recently, I phoned the candidate directly on his mobile to ask what he was up to and was told, quite plainly, that he had no idea but would find out soon enough because his party minders would tell him and steer him in the right direction.

It’s worth noting also how astonishingly disciplined the Lib Dems have been in government, given how cruelly coalition has savaged their opinion poll rating and massacred their local government base. That can’t just be down to party organisation. For one thing, the Lib Dems don’t have enough money to run a ferociously organised party and for another thing, their democratic structures – where everything is supposed to be settled by committee – are positively designed to amplify dissent. As with Labour, the Lib Dem discipline flows from many individual efforts of sheer will. Even if MPs are uncertain about the leader’s line, they stick with it in public.

But for that to work, there has to be a line to take. Whether they agree with Miliband or not, Labour MPs have a pretty clear sense of where he is coming from and what he is trying to do. They understand the “too far, too fast” message on the economy and they broadly understand how “One Nation Labour” is a soft social-democrat fudge to make everyone feel good about the future without making specific commitments to reduce public services in austere times. They may not think that is the best strategy, but they can do it if a microphone is put in front of them.

Likewise, the Lib Dems know the plan is to present themselves as more economically responsible than Labour and more compassionate than the Tories. They know what it is they are supposed to have achieved in government and how it is meant to have tamed the wilder excesses of fanatical Conservative back benchers. They may not think it is enough, but they know the script.

That doesn’t seem to be the case for the Tories. Naturally they can defend government policy when asked to do so but that isn’t the same as defending David Cameron’s policy. He supports gay marriage and very much wants Britain to stay in the European Union, for example. It is hardly news that many Conservatives don’t agree with their leader on certain totemic cultural matters. What I find remarkable is how unwilling they are to keep quiet about it and how rubbish the Number 10 machine is at keeping a lid on unhelpful noise.

The root of the problem – and one explanation for different patterns of behaviour in different parties – is that there are two elements to message discipline. Yes, MPs need to be disciplined, but leaders also need to know what their message actually is to begin with.

Conservative candidate in Eastleigh, Maria Hutchings. Source: Getty

Rafael Behr is political columnist at the Guardian and former political editor of the New Statesman

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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?