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The unelected King

So much for the governor of the independent Bank of England not straying into party politics.

Perhaps I owe Nick Clegg an apology. I was one of those commentators who mocked the Deputy Prime Minister when he insisted in June that his Damascene conversion to the need for deeper and faster cuts in public expenditure had been prompted in part by a post-election conversation with the governor of the Bank of England, Mervyn King. "He couldn't have been more emphatic," Clegg told the Observer. "He said, 'If you don't do this, then because of the deterioration of market conditions it will be even more painful to do it later.'"

The Bank of England governor, however, played down the significance of his phone call to the Lib Dem leader at a Treasury select committee hearing in July. "There was nothing I said in that conversation that was different from what I had said in public," he stated. "When I am needed to give advice, I try to make sure the advice I give is full square in private and in public."

Private talk

Case closed, then. Or maybe not. The treasure trove of US diplomatic cables released by the whistle-blowing website WikiLeaks has revealed that, in private, King had been pushing the Tories to formulate a much tougher deficit- reduction programme in the run-up to the general election. "In recent meetings with [Cameron and Osborne], he has pressed for details about how they plan to tackle the debt," the US ambassador to the UK, Louis Susman, noted in a classified cable to the US secretary of state, Hillary Clinton, after a meeting with the governor in February. According to King, wrote the ambassador, cutting the deficit would be the "greatest challenge" facing whichever party won the general election.

So much for the governor of the independent Bank of England not straying into party politics, staying out of macroeconomic policy-making and ensuring his advice is "full square in private and in public". I suppose we should not be too surprised. He may have been one of the 364 Keynesian economists who signed a letter to the Times in 1981, condemning Geoffrey Howe's "austerity" budget, but King has since become a deficit hawk and senior Labour figures have long suspected that he leans towards the Conservatives. In April 2009, on the eve of the G20 summit in London, he enraged Gordon Brown by warning against "significant fiscal expansion"; in June 2009, he attacked Alistair Darling over the "extraordinary" size of the deficit, telling MPs that the Budget should be returned to balance faster than the Treasury had planned.

Last month, a member of the Bank of England's Monetary Policy Committee (MPC) claimed that King's post-election support for the coalition government's programme of austerity had been "excessively political". Speaking in front of the Treasury select committee, Adam Posen said: "There was a difference of opinion at the MPC, in particular in the main meeting, over a particular paragraph in the [May inflation] report that was talking about the need for a particular speed with which to deal with the fiscal deficit." Kate Barker, another MPC member at the time, said she was also "extremely unhappy" at the level of support expressed by the Bank for the coalition's policy of "significant fiscal consolidation".

Hasn't King's position as governor of the Bank of England, on a £300,000 salary funded by the taxpayer, become untenable? In my view, his credibility as an economist and forecaster had already been undermined in 2007 and 2008 when he failed to recognise the scale of the financial crisis and allowed, in Northern Rock, the first run on a British bank since 1866. Now he has been exposed as an "excessively political" and interfering figure - both by Wiki­Leaks and by his own colleagues on the MPC. How can he continue as head of the nation's central bank, a role that demands political independence and impartiality?

It isn't just the Bank of England governor who seems to have overstepped the constitutional mark. A BBC documentary in June revealed that the cabinet secretary, Gus O'Donnell - nicknamed "God" by his civil service colleagues - advised Conservative and Liberal Democrat negotiators in their first meeting at the Cabinet Office to go for a "more com­prehensive agreement" than a Tory minority government, in order to introduce "tough measures" that would reassure the financial markets "on the Monday morning". (In fact, the FTSE was up on the morning of Monday 10 May, despite the ongoing and unfinished negotiations between the two parties.)

No mandate

It seems the conservative British establishment - so memorably identified and critiqued by the late Anthony Sampson in his 1962 book, Anatomy of Britain - is very much alive and well, in the form of overmighty and politicised civil servants such as the cabinet secretary and the governor of the Bank of England, despite 13 years of Labour rule. But I don't remember the British public voting for Mervyn King or Gus O'Donnell.

Nor, for that matter, do I remember the public voting for the biggest cuts to government spending since the Second World War. There is simply no democratic mandate for the coalition's austerity measures. On 6 May, voters were offered a clear choice between the Conservatives' pledge to eliminate the deficit over the course of the parliament, and the Labour and Lib Dem strategy to delay cuts in spending until the recovery was secure, with Labour pledging to cut the deficit in half by 2014. The Tories won 36 per cent of the vote; the more moderate Labour and Lib Dem position on deficit reduction had the backing of 52 per cent of voters. Little has changed in recent months: a Populus poll in September showed that just one in five voters (22 per cent) supported the coalition's plan to deal with the deficit by the next election, in just five years' time.

During the last election campaign, in April, Nick Clegg warned of "Greek-style unrest" on the streets of Britain if the Tories tried to "slash and burn" public services without a proper mandate. In recent weeks, his words have proved prophetic - and I suspect the student protests over tuition fees are just the beginning. There will be protests, strikes and sit-ins galore come 2011 and 2012. Perhaps the Deputy Prime Minister should have taken his own advice, rather than that of the unelected Mervyn King.

Mehdi Hasan is senior editor (politics) of the New Statesman.

Mehdi Hasan is a contributing writer for the New Statesman and the co-author of Ed: The Milibands and the Making of a Labour Leader. He was the New Statesman's senior editor (politics) from 2009-12.

This article first appeared in the 06 December 2010 issue of the New Statesman, Vietnam: the last battle

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The Conservatives have failed on home ownership. Here's how Labour can do better

Far from helping first-time buyers, the government is robbing Peter to pay Paul

Making it easier for people to own their own first home is something to be celebrated. Most families would love to have the financial stability and permanency of home ownership. But the plans announced today to build 200,000 ‘starter homes’ are too little, too late.

The dire housing situation of our Greater London constituency of Mitcham & Morden is an indicator of the crisis across the country. In our area, house prices have increased by a staggering 42 per cent over the last three years alone, while the cost of private rent has increased by 22 per cent. Meanwhile, over 8200 residents are on the housing register, families on low incomes bidding for the small number of affordable housing in the area. In sum, these issues are making our area increasingly unaffordable for buyers, private renters and those in need of social and council housing.

But under these new plans, which sweep away planning rules that require property developers to build affordable homes for rent in order to increase the building homes for first-time buyers, a game of political smoke and mirrors is being conducted. Both renters and first-time buyers are desperately in need of government help, and a policy that pits the two against one another is robbing Peter to pay Paul. We need homes both to rent and to buy.

The fact is, removing the compulsion to provide properties for affordable rent will be disastrous for the many who cannot afford to buy. Presently, over half of the UK’s affordable homes are now built as part of private sector housing developments. Now this is going to be rolled back, and local government funds are increasingly being cut while housing associations are losing incentives to build, we have to ask ourselves, who will build the affordable properties we need to rent?

On top of this, these new houses are anything but ‘affordable’. The starter homes would be sold at a discount of 20 per cent, which is not insignificant. However, the policy is a non-starter for families on typical wages across most of the country, not just in London where the situation is even worse. Analysis by Shelter has demonstrated that families working for average local earnings will be priced out of these ‘affordable’ properties in 58 per cent of local authorities by 2020. On top of this, families earning George Osborne’s new ‘National Living Wage’ will still be priced out of 98 per cent of the country.

So who is this scheme for? Clearly not typical earners. A couple in London will need to earn £76,957 in London and £50,266 in the rest of the country to benefit from this new policy, indicating that ‘starter homes’ are for the benefit of wealthy, young professionals only.

Meanwhile, the home-owning prospects of working families on middle and low incomes will be squeezed further as the ‘Starter Homes’ discounts are funded by eliminating the affordable housing obligations of private property developers, who are presently generating homes for social housing tenants and shared ownership. These more affordable rental properties will now be replaced in essence with properties that most people will never be able to afford. It is great to help high earners own their own first homes, but it is not acceptable to do so at the expense of the prospects of middle and low earners.

We desperately want to see more first-time home owners, so that working people can work towards something solid and as financially stable as possible, rather than being at the mercy of private landlords.

But this policy should be a welcome addition to the existing range of affordable housing, rather than seeking to replace them.

As the New Statesman has already noted, the announcement is bad policy, but great politics for the Conservatives. Cameron sounds as if he is radically redressing housing crisis, while actually only really making the crisis better for high earners and large property developers who will ultimately be making a larger profit.

The Conservatives are also redefining what the priorities of “affordable housing” are, for obviously political reasons, as they are convinced that homeowners are more likely to vote for them - and that renters are not. In total, we believe this is indicative of crude political manoeuvring, meaning ordinary, working people lose out, again and again.

Labour needs to be careful in its criticism of the plans. We must absolutely fight the flawed logic of a policy that strengthens the situation of those lucky enough to already have the upper hand, at the literal expense of everyone else. But we need to do so while demonstrating that we understand and intrinsically share the universal aspiration of home security and permanency.

We need to fight for our own alternative that will broaden housing aspirations, rather than limit them, and demonstrate in Labour councils nationwide how we will fight for them. We can do this by fighting for shared ownership, ‘flexi-rent’ products, and rent-to-buy models that will make home ownership a reality for people on average incomes, alongside those earning most.

For instance, Merton council have worked in partnership with the Y:Cube development, which has just completed thirty-six factory-built, pre-fabricated, affordable apartments. The development was relatively low cost, constructed off-site, and the apartments are rented out at 65 per cent of the area’s market rent, while also being compact and energy efficient, with low maintenance costs for the tenant. Excellent developments like this also offer a real social investment for investors, while providing a solid return too: in short, profitability with a strong social conscience, fulfilling the housing needs of young renters.

First-time ownership is rapidly becoming a luxury that fewer and fewer of us will ever afford. But all hard-working people deserve a shot at it, something that the new Conservative government struggle to understand.