Wednesday, December 09, 2009 

The real "we are all in this together".

At one point during the pre-budget report, you had to wonder whether Alistair Darling, tired of the deliberately tedious nature of what he was delivering, had inserted a concealed joke just to see if anyone would notice. To be vulgar for a second, you suspect that there are plenty of people out there, politicians included, whom have paid money for old boilers in their time, although £400 seems a bit steep.

It was the one moment of levity in what was otherwise a tour de force in the completely expected, the responses also seemingly written weeks in advance and not updated to take account of any late changes. George Osborne, who courtesy of Steve Bell I now can't look at without seeing buttocks on his nose, did the now standard New Tory act of claiming this meant Labour had completely abandoned the aspirational, while the Daily Mail has somehow construed a pre-budget which hits more or less everyone in some way or another as class war.

If the Mail's right, then this is class war on all of the classes rather just the middle or the upper. While the additional increase in national insurance will affect anyone earning above £20,000 (the average wage before the recession being somewhere around the £24,000 mark) the freeze in public sector pay across the board, which will in effect be a cut in real terms, spreads the pain across the board. George Osborne ought to be pleased: Darling, with the tax on bank bonuses and freeze on the inheritance tax threshold is ensuring that we truly "are all in this together", something you doubt his own plans will accurately reflect.

Like when some papers and the Tories cried that the Queen's speech was nothing but pure politics, as if this was something new and terrible, Darling's effort today could be condemned in similar terms. Depending on your view, it could be cowardly, as it puts off almost all the big decisions until after the election; political, in that as it's more than likely that the Tories will then be the ones to pick up the pieces; and also the right thing to do, as cutting now in the way that the Tories propose, when the recession is not over and everyone is just assuming that growth will return in this fourth quarter, will just damage the recovery even further. It can also be all three of these things, which is the view I take.

In short, what was billed as being significant was nothing of the sort, or wasn't presented by almost anyone in those terms. The real significance was in the back of the documents which accompanied the speech as always (PDF), showing that the deep cuts are coming in the years to come, just unannounced, although everyone already assumes the worst. The battle is now over who can be the most optimistic in the public whilst being a pessimist behind closed doors, and the government has to hope that the gap in the polls can still be made up by portraying the Tories as the ruthless cutters of old. One suspects however that even with the Tory lead being reduced of late, the victory is still the Tories' to lose rather win.

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12/09/2009 10:29:00 PM | | | links to this post

Thursday, October 08, 2009 

The shape of the Tories to come part 2.

The plan for the Tory conference has been both obvious and has worked: ensure that Osborne and Cameron get all the coverage and limelight and hope that the underlings stay in the shadows, or at best don't make any horrendous gaffes. This was clearly what was in action yesterday, hoping that only the faithful or interested would notice that both Michael Gove and Chris Grayling were making speeches on their specific areas and announcing either new or somewhat new policies. As it turned out, this was further helped when Grayling himself gaffed by describing the appointment of General Dannatt as an adviser as potentially a gimmick, not realising that it was err, his side, not Labour, that had done so.

It was Gove's proposals though which were clearly the more ghastly. Alix Mortimer thinks of him as a prep school teacher circa 1965 and it's clearly a description which fits. His proposals for what should be in and out of education when the Tories come in are so overblown it reads like a an old reactionary's wish-list. What's wrong with our school system, it seems, is that the kids aren't dressed archaically enough. Just as much of the rest of society decides that suit, blazer and tie aren't perhaps the most practical or comfortable of clothes, in comes Gove, who thinks that as adults are giving up on it, children should wear it instead. His other great wheeze, setting by ability, is just as old and hoary. Listening to Gove you'd think that state schools haven't so much as tried such a thing. I hate to break it to him, but at my bog-standard, at times failing comprehensive we had setting by ability, and all it did was further entrench those in the particular sets at that level of knowledge, not stretching them or helping them, just leaving them to get on with it, failing everyone. Adding to the sense of nostalgia, rote learning was the next thing to be mentioned. He also wants "the narrative of British history" taught, without mentioning whether or not history will be made compulsory post-14, and which in any case Alix Mortimer demolishes. Just when you think it couldn't get any worse, he also wants soldiers to be brought into instil discipline, which is just the thing that we need in general in schools: ex-military personnel with a high opinion of themselves thinking that all the children of today need is regimentalism and a shared bond which develops in the line of fire.

Chris Grayling didn't have much of a chance of living up to such a litany of pure bollocks. He did though have a go, further broadening the mind-bogglingly stupid policy of taxing strong lager and cider as well as "alcopops" because of their link to anti-social behaviour. There is a case for taxing the likes of Special Brew and the ultra-strong ciders which have never seen an apple for the simple reason that the only people who drink them are alcoholics and those looking to get drunk as quickly as possible, but the downsides are obvious: when an ordinary can of Wife-Beater isn't going to cost any more, you might as well just downgrade slightly, and it's what people will do. You have to challenge the behaviour, not the drink itself. I've also lost count of the number of times I've said it here, but it needs stating yet again: those meant to be targeted by this tax do not drink alcopops. The people who do are those might get drunk, but are not those who specifically go out looking for trouble; it can be best described as a tax on those who don't like the taste of other drinks. Despite all the mocking, Grayling also still believes in the "21st century clip round the ear", now examining "grounding" as an "instant punishment". We laughed when New Labour proposed taking yobs to ATMs; now the Tories, that party of the family, wants police officers to take over parenting. Finally, once again the Tories want to ban Hizb-ut-Tahrir, a group which although reprehensible and may have incited hatred in the past, most certainly does not incite violence. If we're going to ban every group alleged to do both, why focus on HuT and not the BNP or EDL, who are the number one current threat to community cohesion? Answer came there none.

All everyone was interested in though was the main event. There is one thing to be said for Cameron's speech, and that's at least that it was a speech rather than just a series of connected thoughts, as both Brown and Clegg's attempts were. It was also a good speech in another sense: that it at least partially showed what Cameron does believe and think, and quite how wrong his interpretation is of what has gone wrong, primarily with the economy:

And here is the big argument in British politics today, put plainly and simply. Labour say that to solve the country's problems, we need more government.

Don't they see? It is more government that got us into this mess.

Why is our economy broken? Not just because Labour wrongly thought they'd abolished boom and bust. But because government got too big, spent too much and doubled the national debt.


It is indeed putting it simply, and also not accurately. Labour may have massively increased the size and scope of the state, but to break this down to saying that Labour's only solution is more government is nonsense. If it was, it wouldn't have spent the last 12 years trying to insert the private sector into every public service or continued with the horrendously wasteful private finance initiative, to give but two examples. More gob-smacking though is that Cameron seems to be suggesting that the reason our economy's broken is because of the size of government and because it spent too much: this isn't just wrong, it's politically bankrupt. The reason the economy's broken is primarily because there was too little regulation of the financial sector, not too much. Even if we had saved for that "rainy day", we'd still be in the same recession even if the deficit could be dealt with quicker, and considering that the Tories would have hardly done anything different on the economy to Labour until very recently, this is hindsight of the lowest order. He continues:

Why is our society broken? Because government got too big, did too much and undermined responsibility.

This is even more nonsense. Even if you accept that big government has and does undermine responsibility, and even if you accept that society is broken, the real thing that broke it was the undermining and even open destruction of economic communities over 20 years ago. Labour has tried and mostly failed with its initiatives, but at least it has tried. All Cameron offers, and continues to offer in this speech, is the firm smack of responsibility and the recognition of marriage in the tax system, something just bound to cure problems at a stroke and not just provide the middle classes with a helpful cut. And so it goes on:

Why are our politics broken? Because government got too big, promised too much and pretended it had all the answers.

Cameron on the other hand doesn't pretend to have answers, as he doesn't offer any specific reform of politics in this speech except for the cutting of some ministerial salaries. All the talk of a new politics has completely evaporated, and who could possibly be surprised? Cameron doesn't need to change anything to win, and so the status quo is far more attractive.

Again, like Osborne on Tuesday, Cameron also offers precisely nothing on economic recovery. It's presumably just going to happen magically, while all we need to worry about is getting the deficit down. As Chris Dillow and an increasing numbers of others are now arguing, the preoccupation with the deficit is potentially dangerous when there are other threats and decisions to be taken. The Tories have focused on the deficit because this is one of their very few selling points, yet it's also a point on which they could be attacked if Labour was reasonably sure of itself, with even the potential to turn everything back around. While trying not to be triumphalist, what is clear is that the Tories themselves are now absolutely certain of their return to power. From his mention of Afghanistan at the very beginning to the condemnation of the EU at the end, this was also a speech written to touch every hot button on which the Sun newspaper has recently focused. Nothing is being left to chance. The irony of it all is that on the one thing that the Tories are significantly at odds with Labour on, they're wrong. The sad thing is that it seems it won't make any difference.

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10/08/2009 09:54:00 PM | | | links to this post

Wednesday, October 07, 2009 

Ready for the same old dishonesty.

Like Craig Murray, I had to wonder whether I was on the same planet yesterday as some of the hacks who were clearly incredibly close to falling in love with George Osborne and his "massive electoral gamble", as Nick Robinson put it. Robinson was so over the top in his clear adoration of Osborne on the 10 O'Clock News that the only thing he didn't do was film himself shooting off while listening to the speech as a result of his excitement. If the BBC turned over and fell for New Labour, then the same seems to be happening now that the Tories are on the way in. Even the Graun described Osborne's gambit as their biggest political gamble in a generation.

Osborne's explanation of just what his new and doubtless "tough and tender" interpretation of austerity will entail left as many questions as it did answers. To start with, this is a very funny sort of austerity: let's accept for a second that the cuts and wage freezes which Osborne announced yesterday result in the £7 billion saving which he claims they will. Undoubtedly, these cuts will cause suffering, and they fall mainly on the middle, which is usually anathema to his party. All the same, this is as Robert Chote described it, nothing more than a dent in the actual deficit. Over a parliament it should save £35 billion. This year alone we've already borrowed over £175 billion. This isn't even going to begin to cut the deficit by half by 2014, as Labour have promised, with the Tories, although not being specific, saying they will act faster.

This therefore fails Osborne's own honesty test. He might not have said that these are going to be the only cuts, and he hasn't specifically ruled out tax rises, but many will get the impression that this will be the Tories' main prospectus for bringing down the deficit. Instead, this will only be the very, very beginning, as the Tories themselves must know if they are serious about reducing the deficit, and considering that it now seems to be their only real economic policy, it seems safe to assume that they are. Nick Clegg might have regretted talking about "savage cuts", but it's the closest description to what can be expected will be the order of the day once the Tories do seize the reins of power.

For this was just as fantastical a speech and lacking in any real integrity as Gordon Brown's was last week. Does anyone seriously believe that Osborne's repeated dirge that "we're all in this together"? I didn't even watch the speech in full, but the number of times he repeated the ridiculous phrase left me wanting to cram it down his throat. Indeed, it's fantastically clear from the very policies promised that we're not all in this together. Magnanimously, Osborne decided that he couldn't possibly repeal the 50p tax band for those earning over £150,000 a year while we're in the current mess, he's had to put the inheritance tax threshold raise on the backburner, although it's still a commitment during their first term, and if the bankers continue to award themselves ludicrous bonuses, he will step in to tax them, but apart from that there was nothing here that would shift the burden of bringing down the deficit to those who got us into this mess from those at both the bottom and the middle. Anyone earning over £18,000 in the public sector will have a year's pay freeze. The full-time median wage is £25,123. What is interesting is what both the Tories and Labour are prioritising: the military will not have to undergo any such pay restraint, meaning that if you're trained to kill people rather than trained to save people you're currently the more highly valued. To go off on a tangent for a second, it's also instructive that no party has considered getting out of Afghanistan to save money, but then that sort of thinking would make too much sense.

Just to highlight further how we're not all in this together, it's hard not to detect something afoot in the demand that no one in the public sector should earn more than the prime minister. Fair enough, but why not extend it completely? After all, just who is exactly worth more than just under £200,000 a year? Clearly, no one should earn more than David Cameron will, and if anyone suggests this isn't about all making a contribution and rather about envy, which is of course a Labour trait, then the Bullingdon might be paying you a visit.

Not everything that Osborne proposed was instantly objectionable. I'm one of those lefties who believes that only those who need the state's help should get it: why on earth were those earning over £50,000 a year getting tax credits in the first place when those at the bottom could have been receiving more (indeed, tax credits have always seemed a poor alternative to a guaranteed citizen's basic income and taking the lowest paid out of tax altogether)? I'm not as certain on the abolition of the child trust funds for all but the poorest third, as anything that encourages saving is welcome, but it may well be one of those cuts which we have to accept in the circumstances.

Most offensive is just the sheer disingenuousness of most of the speech. Osborne complains at one point that all Labour did last week was announce yet more spending; Osborne's party would never be so crass in committing to spending increases and tax cuts at a time when the books are so in the red. All they're doing is reversing Gordon Brown's tax raid on pensions, which won't cost much, probably only 3 to 5 billion, wiping out all but 2 billion of the savings so far announced. That's to add to the pledge that those going into care homes will no longer have to sell their houses, changes to the tax system to "support marriage", the freeze in council tax for two years, the decision not to introduce the rise in national insurance contributions Labour has pencilled in, and also now the promise not to tax new businesses for their first ten employees.

The most amazing hole though is that not once does Osborne broach the one thing that is more important than the size of the deficit: the recovery. He attacks Gordon Brown for not mentioning borrowing, then takes for granted that the recovery is already on the way and that he doesn't need to anything to stimulate it further. Indeed, he again claims to be right in not supporting the VAT cut. He scaremongers that our creditworthiness is being brought into doubt while Chris Dillow points out that in fact the yields on index-linked gilts have fallen to record lows, the bond markets never so keen to lend to us. Osborne's soundbite that we need to return to being a saving society might be right in the long-term, but not when we're not even certain that growth has started again. Osborne isn't going to be chancellor until at least May, it's true, by which time if we're not back in growth we really will be worrying, but even then we're going to need investment as well as cuts and tax rises.

We have to make allowances for the fact that no politician is going to give us their budget for after they win the election the year before it even happens, but that Osborne will only "not rule out additional tax rises" is simply not credible. Either you're serious about bringing down the deficit or you're not. It's one thing to be in denial as Labour arguably are, but it's something else entirely to be as dishonest as the Conservatives have been this week. Everyone knows that they are going to be cuts, and there are going to be tax rises, even if they don't like the idea. The real "massive electoral gamble" would be to set out what they are likely to be now. Only then will we be able to decide later whether or not a party was elected on a false prospectus.

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10/07/2009 09:24:00 PM | | | links to this post

Monday, September 14, 2009 

The unions, cuts, and Mandelson.

For organisations which once upon a time had their own newspaper correspondents, the trade unions increasingly resemble Christmas decorations: let out once a year and allowed to slightly sparkle for a few days, then packed away and forgotten about until the holiday comes around again. It's a shame, because what was once a debate that Labour were trying to define as "investment versus cuts" has become the word they dare not speak but which means cuts versus, as Peter Mandelson said today, in one of the more accurate statements from his speech at the LSE, "foaming at the mouth excitement" at scaling back the state.

Few outside left-wing circles will agree with Brendan Barber's delivery of his message at the TUC, but the arguments he makes are far more compelling. Already it's being moved to the back of our minds that this crash was caused by the failure of the private sector, not the public sector, yet it's the public sector which is now going to bear the brunt for the bailing out of the banks' rapacious business model. True, it can be argued that the public sector also failed in properly regulating the private sector, yet that's no excuse for the entirety of the punishment being inflicted upon the state. If the crash had affected the way that the top 100 companies do business, then there also might be an argument for recognising their changes in practices, yet today's Guardian survey of executive pay shows that while everyone else has been cutting back, they've awarded themselves a basic salary rise of 10%.

Barber notes that amid all the optimism of something approaching a recovery, this completely ignores that people are still losing their jobs, and doubtless will for some time yet to come. This is hardly the time to already be planning how many of those in reasonably "secure" jobs will be losing them in the near future. This isn't to pretend that cuts can't be made, or that tax rises alone will have to fill the gap: it's quite apparent that cuts are coming, starting preferably in those areas which Labour are thinking of broaching, such as tax credits for the already comfortably off and the end of universal benefits such as the winter fuel allowance. Trident and ID cards could both be easily scrapped, as could the NHS IT programme and many other IT schemes costing billions, although how much the former would bring in is still unclear, not to mention the ridiculous ISA vetting quango. The putting together of £50bn shopping lists of cuts though is verging on the obscene; tough choices are going to have to be made, but also key is that private is going to have to pay its share as well as the public.

Into this breach enters Peter Mandelson, former prince of darkness, now ostensible leader of Labour. That no longer seems to be hyperbole: his speech today at the LSE to the impeccably Blairite "Progress" faction was one which Tony Blair would have given without a second's thought, and indeed, could have been a Blair speech. It contained the same mixture of brilliance and obfuscatory nonsense which they had, if not the verb-less sentences which epitomised them. Why then was Gordon Brown not giving this speech which quite clearly either a chancellor or a prime minister should have given, rather than just a mere business secretary? The answer would probably be that Brown's real keynote address is tomorrow at the TUC, or at the fast approaching Labour conference, but it also seems to be because it was so out of step with Brown's former device of investment vs cuts as alluded to above. The one other major difference with the speech is that Blair wouldn't have been comfortable with even referring to himself or to his party as "social democrats", as Mandelson did repeatedly and pointedly. Just one abashedly dubious paragraph is this:

We reject the argument of those on the right who argue that the state is an obstacle to human freedom and who espouse a vision of the good society based on a smaller state, shrinking public services and essential support delivered somehow through the voluntary sector with top-ups and opt-outs for the wealthy few.

Except that New Labour hasn't rejected this argument: in both the NHS and the JobCentre system it has introduced both voluntary and private sector contractors to deliver "essential support", with no evidence whatsoever that it has saved money, in fact, when it comes to the independent treatment centres, quite the opposite. As ever, the devil is in the details: if it was true, then Mandelson would be onto something and it would be something to crow about, yet the emperor has no clothes.

Much of the rest is taken up with the return of the mantra of "reform", without Mandelson noting that the permanent revolution which was going on in the NHS up until after the departure of Patricia Hewitt from health secretary was one of the most unpopular things the government had done to the public services. It might have delivered the government's key targets, although how much they are worth is harder to quantify, but as a way to demoralise your workers it was an even greater success. Mandelson is sharpest, as always, when attacking rather than defending, but the very idea that the Tories will spend less and expect less is ridiculous: this is the party that believes that less is more. The left might still have in some quarters the better arguments, but the Labour's greatest failure is that it can no longer persuade anyone to listen.

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9/14/2009 07:31:00 PM | | | links to this post

Thursday, August 13, 2009 

The perifidious French and Germans.

France and Germany have both respectively pulled out of recession, by a whopping 0.3%. Keeping in mind that these are preliminary figures, which could yet be revised in either direction, this can either prove everything or absolutely nothing.

Those predisposed (like myself) to further stimulus measures will note that both France and Germany have had far larger such packages than we have, although both also had more room for manoeuvre than we did in terms of borrowing and less personal debt to consider. Neither was as predisposed and reliant on the financial sector as we were, although there's certainly an argument that Germany is too reliant on its own manufacturing base, although it seems for now as if it's just that base which has helped it pull clear. Vince Cable is also pushing this argument.

Then there's the Conservatives (such as George Osborne) who are quite naturally crowing about how Gordon Brown was telling us all about how well placed we were and how we'd be one of the first out. This is equally correct, but it's also exactly what any politician was going to tell us, and indeed, if he'd been doom-mongering, telling us how it was likely to last years and that we'd be last out, he'd have been attacked for talking us down and spooking the financial markets. As has also been the theme throughout, the Tories have no real message on what we should be doing now, apart from "forcing" the banks to lend; indeed, they're still insistent on what we should be cutting now to bring the national debt down, which is about as insane a position as it's possible to reach.

It might yet turn out that the 0.8% contraction between April and June might not have been as bad as originally forecast, based as it was only on the figures up to May. Either way, all those old insults and jibes about the stagnating European economies while the "Anglo-Saxon" model of capitalism raced ahead no longer hit quite as hard.

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8/13/2009 09:40:00 PM | | | links to this post

Monday, August 03, 2009 

The coming of the fauxocracy.

I want to agree with Neal Lawson and his views on consumerism, but he makes it so bloody hard with his sweeping generalisations:

As you read this, take a look around and at yourself. You are decked in and surrounded by symbols of consumer society. It's not just your clothes that give it away, but your watch, jewellery, mobile, MP3 player, bag; the furniture and the fittings; all are brands designed to speak for you. Wasn't it ever thus?

Let's see: I have on a pair of Rough Justice jeans, a plain black top and a band t-shirt on underneath; I don't wear a watch; I don't wear any jewellery; I have the cheapest Nokia you can buy, if you can still buy it, and only take it with me when I really need it; I do have a Sony NWZ 8GB mp3 player, with which I wear Sennheiser headphones; I never carry a bag and have completely non-descript furniture and fittings. Admittedly, this still makes me a very much the Western archetypal young male, even if not an ultra-conformist one, but the point still stands.

It's a shame because he does have something resembling a point. The paradox of individualism is that it's created a society just as collectivised as any totalitarian one. There are of course numerous different sub-cultures within any "individualised" society, but capitalism infects, subverts and controls all of them; they cannot exist without it. At the same time originality and freedom of thought are being systematically undermined: both are on their last legs, if not already dead. The best way to be an individual now is to never leave your room, to avoid using the internet (or at least none of the "social media") and slowly rot away. I almost wish I was joking.

The irony of Lawson's position is that he is of course selling a lifestyle just as much as those he so disparages. It didn't really hit me how much the "ethical" way of life is just as big business as anything else until I saw it had an entire section in Waterstone's, just like the misery memoirs have their own huge sections, usually under a euphemism like "difficult lives". Anything and everything, even misery, can be made profitable, the "Four Yorkshiremen" sketch writ large. Ben Goldacre pointed out at the weekend that the Soil Association has £2bn backing behind it. Again, the main way to break free is not to downsize or buy less; it's to buy nothing. The impossibility of that position in the long term is also not helped by how then buying nothing itself also becomes an alternative.

Finally, Lawson presents a false dichotomy:

A life of turbo consumption cannot be the pinnacle of human development. Do we want a consumer society or a democracy? We cannot have both.

Except that the consumer society and democracy go hand in hand. The downfall of communism can almost certainly be linked to the development of the consumer society. Admittedly, communism ultimately collapsed upon itself, but the alternative was undoubtedly attractive to millions. This isn't to say that the consumer society and democracy can ultimately live together indefinitely; as Lawson suggests, none of the main political parties oppose or believe in any real alternative. Slavoj Žižek covered this excellently in the London Review of Books:

If there is one person to whom monuments will be built a hundred years from now, Peter Sloterdijk once remarked, it is Lee Kuan Yew, the Singaporean leader who thought up and put into practice a ‘capitalism with Asian values’. The virus of authoritarian capitalism is slowly but surely spreading around the globe. Deng Xiaoping praised Singapore as the model that all of China should follow. Until now, capitalism has always seemed to be inextricably linked with democracy; it’s true there were, from time to time, episodes of direct dictatorship, but, after a decade or two, democracy again imposed itself (in South Korea, for example, or Chile). Now, however, the link between democracy and capitalism has been broken.

What we might well be facing then is a fauxocracy, a plutocracy, or ultimately, a kleptocracy. Something to look forward to then.

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8/03/2009 09:42:00 PM | | | links to this post

Friday, April 24, 2009 

The budget aftermath.

As always happens with budgets, regardless of the party or the individual who delivers them, within hours they begin to unravel. No can genuinely envy Alistair Darling his task, except perhaps for Ed Balls, and there is much to be said for Darling's apparent calmness and unflappable nature, one of the very few to be around since 97 to not have become in some way tarnished by the travails of office. Such were the constraints on what any chancellor could have done given the circumstances, he did pretty much all he could, knowing full well that extensive cuts or extensive tax rises would doom his party to certain defeat. In perhaps the only comment that might be remembered, apart from the 50p rise in income tax for those earning over £150,000, he was clear that you cannot cut your way out of a recession. That much is obvious.

Likewise, his predictions that the economy would shrink by 3.5% this year, recovering to 1.25% growth next year and then growing at 3% plus afterwards were marked not so much by their infeasibility, but that he had to be optimistic for political reasons. Surely, for Labour to have any chance whatsoever of winning a fourth term next June, the economy needs to have began to recover by the turn of the year, at which point the government can say that they were right to be optimistic, to not have to wielded huge cuts so quickly, instead waiting to see if the fiscal measures taken had begun to work and that even though they may have wrong about many things, they were right when it really mattered. For there to be any chance whatsoever of this fantasy scenario becoming reality, today's GDP figures needed to be bang on the predicted 1.5%, or even better lower, reflecting the slight encouraging signs which some have suggested have started to become evident. Instead the drop was 1.9%, which means that it only needs a further drop of 1.6% in the second quarter, certainly not out of the question, for Darling's predictions to be already ruined.

Those figures, it should be noted, are provisional, and based only on the first two months' activity, meaning they could be revised both downwards or upwards, as the last quarter of 2008's were. Nevertheless, we have to go back to the third quarter of 1979 for worse figures. For all the hyperbolic, ridiculous talk of returning to the 70s this week, on this measure the analogy is undeniable. Add into the mix that the Institute for Fiscal Studies believes there's a £45bn hole in the budget, almost certainly to be filled by savage cuts to spending rather than tax rises, again the most severe since the dreaded decade, and the bleakness seems to be all enveloping.

For all the accusations flying Darling and Labour's way regarding dishonesty, as usual they cut both ways. No one can begin to pretend that Wednesday's budget was inspiring; it was rather all that could have been expected. Although putting off the real pain until after the election is pure politics, it's also the right thing to do. The same is the case with the 50p top rate of tax: it won't raise much, but it is equally absurd to call it a "return to class war", and not just because under Thatcher for a long period the rate was even higher. It is undeniable that an over reliance on the City, the laissez-faire attitude towards financial regulation, and New Labour's sickening sycophancy towards the filthy rich are the main causes of the current crisis. The public sector did not create this disaster; the private sector did. True, if Brown hadn't borrowed so much during the good times, we would not currently be facing such a monumental deficit, but we would almost certainly be facing a recession regardless, probably one only slightly less severe than the one we're experiencing. Things could be even worse if the Tories were in power and had carried out their promises to even further slash regulation, and as Stephanie Flanders points out, the last election was fought over little more than £12bn in public spending. That's a drop in the ocean to the amounts we are now boggling over. Even if it is purely a symbol, as Shuggy and Chris agree, the 50p rate is perhaps what the country wants to hear right now. You can argue about the unfairness of that, or the precedent it sets, but not the motivation.

For all the impressive rhetoric delivered by both David Cameron and George Osborne, and even if you revile the politics behind it, Cameron's response on Wednesday was probably one of his best moments as Tory leader, their plans for how to deal with the economy should they enter government next year are even more hollow than Labour's. All they have told us is that they would be making cuts now; they refuse to illustrate where, and how harsh they would be. Again, the politics behind this are obvious: no opposition party is going to present their own budget a year before they are actually going to deliver it, but they have to at least give some idea of what their intentions are. All we know is that they're not going to step into the trap of promising to repeal the 50p rate, and that somehow and incredibly, they're still going to find the money from somewhere to raise the inheritance tax threshold to £1m. As Chris again suggests, now would be the time to be taking a larger proportion of unearned wealth, not less.

Similarly, the claims that this budget means the final death of New Labour are also wide of the mark, and based on a misreading of what New Labour was about. The thing about New Labour is that there has never been an ideology behind it; instead it has always been about pure populist opportunism. This has not always tallied into truly populist policies, otherwise they would have slammed the door on east European migrants being able to come and work here, but on almost every other measure they have followed not their actual supporters' values, but those which they believe are both popular and superior. Sometimes they have relied on newspaper headlines and the demands of tabloid editors and their shadowy backers, but they have also relied extensively on focus grouping, which sometimes offers different results, such as the 50p top rate of tax, opposed by the right-wing rags they usually obey, but supported by the public at large. To now introduce such a popular measure is fully in keeping with what they have repeatedly done. Meanwhile, nothing will change whatsoever as regards to triangulating, the thinking behind the policy making that truly defined New Labour. New Labour's true demise might be only a year away, but the living dead are not yet fully exhausted.

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4/24/2009 08:26:00 PM | | | links to this post

Thursday, April 02, 2009 

The G20.

In an incredibly rare example of coordinated thinking, or perhaps rather unimaginative subbing, both the Mail and Guardian tomorrow share the same front page headline - Brown's new world order. Whether the Mail's, with the addition of the exclamation mark, is sarcastic is unclear, but considering the closeness between Paul Dacre and Brown it wouldn't be surprising if even the Mail has decided to be positive for once.

Whether such positivity is genuinely warranted is equally uncertain. However much horse-trading went on behind the scenes is also impossible to know, but as Craig Murray points out, much of the "communique" which has been issued and which runs to a stonking 3,000 words, ensuring that few will read it, will have been all ready and set to go before many had even flown into London. Similarly discouraging, considering the emphasis which was put on the shutting down of tax havens and regulation of hedge funds is that the markets rose significantly today. True, the markets have been rising over the past week, but if those with so much dosh stashed away in the likes of Switzerland, Liechtenstein and the British Virgin Islands really feared the new measures put in place, they would have almost certainly taken fright. That they didn't suggests one of two things: either the economic situation has become so desperate that those with much to lose from the new agreements have decided that such sacrifices have to be made to avoid a slump into full depression, or that the new proposals aren't worth the paper they're written on. The smart money will be on the latter.

For the moment though, Brown will surely bask in the glory, once again, of being the self-proclaimed saviour of the world. Whether that glory will quickly turn, in masturbatory fashion, from euphoria to the deepest ennui and darkest depression remains to be seen. He must however be proud and thrilled with much that has taken place, probably the little things rather than some of the immediate greater achievements. You can't after all get much further from Bush calling Blair to heel in 2006 with his shout of "Yo Blair!" to Obama rather than Brown putting his arm across the prime minister's shoulders whilst in Downing Street. The "special relationship", however cynical and subservient a relationship it is, currently looks more equal than it has in years. Likewise, the communique itself will be a cause for celebration, written as it seems to be in the language which Brown and New Labour have long spoke in, note especially the early mention of the dreaded "hard-working families". To get the G20 also talking it and agreeing with it, however mediocre and mild much of the aims are, will be a source of pride, even if it shouldn't be.

As Craig Murray also suggested, there has been something for everyone to shout about so that no one goes home empty-handed. The French and Germans, who theatrically threatened to walk out if not enough was done on regulation, each got what they wanted, or have claimed to. Indicative of the pressure on him at home, President Sarkozy, who was elected on promise of wholesale reform of the French economy and nicknamed "Sarko the American" because of his enthusiasm for the country as compared to the more usual Gallic antipathy, raved about the promises for the changes on challenging the tax havens. The Chinese seem have to succeeded in their attempts to build up an alternative to the dollar as the reserve currency of choice through the IMF's special drawing right equivalent, which may be the first real signs of them exercising their coming clout over foreign policy. Probably the most significant and as a result under-reported achievement though was clinched yesterday, the pledged commitment between the Americans and Russians to reduce their nuclear arsenals. Any sign of a thaw in what was threatening to become a reprise if not a return to the war of words and threats of the cold war is to be welcomed.

Most vividly missing though was any mention of a global fiscal stimulus, which was never likely to be agreed but which Brown and his apparatchiks were still talking up until Mervyn King so rudely slammed that policy door shut last week. Equally missing was any genuine recognition that simply, things cannot return to how they were in the summer of 2007. Those who up until recently had believed that there was no alternative to neo-liberalism and that only the freest markets, uninhibited by regulation would deliver perpetual prosperity have not changed their minds - they've only changed their attitudes for as long as it takes for us to emerge from the recession of their very making. The world simply cannot sustain continuous growth, and the idea that we can protect the environment, cut carbon emissions to the extent to which we prevent run-away climate change and still slaver over the profits at the end of it is a false one. We shouldn't of course have expected the equivalent of turkeys voting for Christmas - but just the slightest recognition that even if not now, we need a serious re-examination of the very basics of modern economic orthodoxy would have been a step in the right direction.

This was Gordon Brown's last throw of the dice, for after this there's nothing left in the tank. There's no money for a further stimulus, the budget threatens to be a damp squib which will only underline just how bad the finances are and how wrong the government's predictions have been, although all predictions have been more or less worthless for some time now. He has to hope that some of the Obama magic has rubbed off, that the public has taken some notice of the praise bestowed on him by other leaders, and that even if little of this will make any difference to their personal finances whatsoever, that he has been demonstrably doing something in an effort to get the global economy working again. This credit, of which he will probably receive a little although not a lot, is still hardly likely to do anything whatsoever to lift the polls or his personal ratings. Far more influential will have been the weekend's revelations on expenses, which will have just underlined how much politicians are currently loathed. The only solace is that equally applies to the Conservatives just as much as Labour. In Westminster circles Brown might be on the up, but elsewhere the only place to go still seems down.

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4/02/2009 11:14:00 PM | | | links to this post

Thursday, March 19, 2009 

A depressing pyrrhic victory.

The only possible way you can describe Barclays' depressing legal victory over the Guardian, Mr Justice Blake ruling that the paper cannot republish the memos detailing the workings of Barclays' Structured Capital Markets team is as a pyrrhic one. The Guardian, in its own editorial, more than sums it up when it states that all that Barclays has achieved is to shut the stable door after the horse has not just bolted, but completely disappeared from view. This is thanks to the documents being immediately mirrored by Wikileaks, where they still reside and where they can be downloaded from a server in this country, in defiance of the injunction. The terms of the injunction mean that the Guardian cannot even point people in the direction of where they can find them or "incite" others to publish; all they will have to do instead is Google for them, where they'll quickly find them.

Part of Justice Blake's justification for ruling against the Guardian was that he didn't believe that the documents had spread far enough for their confidentiality to have completely broken down. This is clearly nonsense: all those that Barclays wanted to hide these documents from have not only got them, they've been poring over them now since Tuesday, whether they be HMRC, Barclays' rivals, or anyone else with the slightest grudge against the bank. The Grauniad refers to the House of Lords ruling on Spycatcher, that you cannot put the melting ice cube back into the freezer. That is more than apt: through the ban the only people who are being denied from being allowed to see what everyone else has is those who are either without the internet or those that have never heard of Wikileaks and can't properly use a search engine.

Equally weak was Blake's second argument. He agreed that the Guardian can report on the contents of the documents, as that is in the public interest; not in the public interest is the unexpurgated publication of the documents in full, containing legally sensitive matters and other confidential information. There are some obvious flaws in this: how is the paper meant to know firstly what is considered legally sensitive and confidential and what isn't? Their lawyers' might come to predictability different conclusions from those of Barclays'. This appears to have the potential to be a slippery slope; how else can a paper know what is sensitive unless they first consult the people they are preparing to expose and give them the opportunity to halt publication in its entirety? Ideally, journalists should do this anyway, but there are certain situations where if they did on an incredibly important story, undoubtedly in the public interest, they could end up not being able to publish anyway. In cases such of that as Max Mosley, there ought to be no question of the person being informed beforehand; when it involves politicians being accused of corruption or corporations being accused of blatant and artifical tax avoidance, there is a good argument for not doing so. Furthermore, why shouldn't the general public be able to view the source material for such exposes and be able to make their own minds up where it is possible for the hacks to provide such a service? Journalists cannot always be relied upon to report accurately what is in things which they either come across, investigate or are handed to them, especially when it comes to such incredibly complex and difficult to understand matters as tax avoidance. The Guardian itself is has an example of this, having misinterpreted how Tesco was operating a tax avoidance scheme and wrongly claiming that they were avoiding corporation tax to the tune of £1bn when they were in fact avoiding stamp duty land tax on a much lesser scale.

Blake also suggested that "if the debate can flourish without the publication of the full documents, that is a highly material factor". But none of the articles in either the Graun or the Sunday Times begins to cover in anything approaching forensic detail just what is discussed and proposed in these documents; they just give a broad summary. Debate can flourish without them being freely available, but that is not truly informed debate. The best summation of what they contain was made by Alan Rusbridger in his statement to the court:

"I considered these documents to be of the highest significance in the debate about tax avoidance.

"They revealed at first hand the processes involved in structuring extremely complex and artificial tax avoidance vehicles; how lawyers and accountants worked together to exploit loopholes in government legislation; and the degree to which they are sanctioned at the highest levels within Barclays."


Only by examining the documents first hand do you fully understand just how Barclays' SCM team operated and operates. Blake's decision has slammed the door on one source of light, but the others remain wide open.

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3/19/2009 11:18:00 PM | | | links to this post

Tuesday, March 17, 2009 

The smartest guys in the room get hot under the collar.

It would be nice to think that with various tax havens having to promise to be rather more transparent in their operations than they have been previously, threatened with being "named and shamed" by the OECD, that the actual businesses which exploit such havens would be following a similar trajectory. The sad reality is that both will continue to get away with it just as they have in the past: they'll wait for the current mood to slowly wither away, as it will when the economy eventually recovers, and then the same old lawyers and same bean-counters will be back to doing what they do best, letting the rich and powerful get away it while castigating the scum at the bottom who dare to fiddle their benefits.

Barclays however hasn't even bothered with letting it all blow other. Despite being in negotiations with the Treasury, threatened by its toxic assets, which it wants the government to insure, it still succeeded in gaining an injunction against the Guardian, stopping it from hosting documents detailing "Project Knight", a tax avoidance scheme devised in Feburary 2007 which could have seen the bank save between £40m to £60m in a single year. This is despite the fact the scheme is not illegal, and that Barclays even says that it fully informed Her Majesty's Revenue and Customs of what it was doing. Why then is it so desperate for the documents not to enter the public domain? Is it ashamed of what it was doing, legal though it was? Barclays' lawyers Freshfields argued that the documents were property of the bank, and that could only have been acquired by someone who had breached confidentiality agreements.

Sadly for Barclays, either the documents were up long enough for someone to mirror them, or they were also distributed to Wikileaks, increasingly becoming vital against legal threats of all varieties, where they are still fully available. Not just is the proposal for Project Knight included, but also documents detailing the setting up of a "Brazilian Investment Strategy", "Project Brontos", "Project Berry II - Investment in Index Linked Gilts", "Project Faber", "Project Valiha" and a memo detailing the minutes of a meeting of Barclays' Structured Capital Markets team concerning the setting up of an office for SCM in Luxembourg. Most interesting to do with the injunction issued against the Guardian is the involvement of Freshfields with Project Faber. Normally you would imagine that Barclays would have employed a separate legal firm to deal with the media, as Freshfields is ostensibly only involved with business law advice, but in this instance they seem to have decided not to do so. This raises a potential conflict of interest because the document on Project Faber details Freshfields' legal advice on the tax risk which the project would incur, and unlike the other documents where the risks are summarised fairly succinctly, Freshfields goes into quite some detail on five specific UK risks which Faber raises. Again, there's no suggestion here that either Barclays or Freshfields has done anything specifically illegal, but it also certainly seems to be in Freshfields' interest, as well as Barclays', to stop the documents from entering the public domain.

I won't pretend that I understand much of these documents, nor probably would 99% of the other people in the country, unless we had the likes of "Slicker" from Private Eye personally explaining them to us, but Richard Murphy is another man who does and who was asked by the Sunday Times to look at them after they were first passed them but didn't publish them in full. He described Project Valiha thusly:

It is designed so the money goes round in a big circle and comes back to Barclays so that they make £99m in tax savings without taking any risk at all. The whole thing takes three days.


As for the others:

“They work on the basis of exploiting tax regulations and the laws of different countries. They don’t generate any real profit for anyone, but they do save vast amounts of tax that they would otherwise pay.”

The Sunday Times claimed that Barclays might have been saving up to £1bn in tax through the various schemes, something the bank has vigorously denied. Murphy has though commented rather further on the schemes, of which it seems there might be even more which haven't turned up on Wikileaks:

I’ll tell you what I think is going on with Barclays. In my opinion it has constructed a series of wholly almost entirely artificial transactions undertaken through a significant number of separate legal entities, most under the control of Barclays itself, but some, inevitably, owned, or controlled (and in these deals it is always difficult to define what that might mean, deliberately) by the counterparty to the transaction - in most cases banks such as Goldman Sachs, Deutsche Bank, Credit Suisse, Fortis and so on.

Those entities have been in a number of jurisdictions, the UK and the Cayman Islands being the most common, but Luxembourg also being a participant. Some have been limited companies, some limited liability partnerships.

Some of those entities, even when incorporated elsewhere are tax resident in the UK, and some are not.

Some account under International Financial Reporting Standards. Some account under UK accounting standards.

It would seem that Barclays are trying to realise profits that they have ‘manufactured’ in most cases through these immensely complex structures by arbitraging (trading off) international taxation law, company law in various jurisdictions and even accounting standards, to achieve taxation results that mean that profits are realised or sold without taxation liabilities arising for Barclays.

The result has been a deliberate attempt to defraud – by which term I mean seeking to secure a financial advantage by deception, although not (I stress) illegally.

The deception has been on three parties. The first has been tax authorities who despite their brave statements to the contrary did not, I suspect, know the full details of some of these arrangements. It would seem that some may not have been disclosed to them.

Secondly, Barclays have sought to defraud (using the above definition) the taxpayers of the UK and maybe elsewhere who have not received the funds rightfully due to them on profits declared.

Thirdly, I think they have defrauded (using the above definition) their shareholders by declaring profits which were not, in my opinion, sustainable and which were manufactured through preconceived and structured financing deals in which the counterparties played a remarkably small part in exchange for what was, in effect, a fee to allow Barclays to record realised profits by turning the manufactured profits into third-party transactions.


This seems to be the real reason why Barclays is so desperate to keep the documents out of ordinary people's hands. They realise that they are some of the first real hard evidence to emerge of just how specialist teams within the banks sought to avoid tax, and who were subsequently incredibly richly rewarded for their work, with Murphy claiming that the head of Barclays' SCM division may well have been earning an astonishing £40m a year (other sources claim it could be £75m, for which see this revoltingly sycophantic article), about the same amount as that which one of the schemes would have saved the bank. In order to offset such huge remuneration, the profits from the avoidance would have had to have been far higher, and the £1bn a year figure no longer looks as nonsensical as Barclays claim. It somewhat puts Fred Goodwin's pension, even the £3 million lump-sum we now know he received into perspective, hence why Murphy has put up a further four posts on what should be done. At the very least we need to stop apologising for and excusing tax avoidance and demand that companies, in the words of Alistair Darling, don't just adhere to the letter of the law but also the spirit of it. Great public anger over the bailing out of the banks has not yet reached boiling point, but the Barclays revelations may just push the mercury further towards the top.

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3/17/2009 11:44:00 PM | | | links to this post

Monday, February 02, 2009 

Have we got tax for you.

It is, as the Guardian's leader on the subject suggests, rather easier to target benefit fraudsters and those without access to good lawyers than it is to investigate tax avoidance. The paper knows this from bitter experience: it last year accused Tesco of avoiding corporation tax to the tune of £1bn, only for it to discover after publication that it had mixed up corporation tax with stamp duty land tax, and that the real sum avoided was far less. The paper quickly admitted its mistake, but not before Tesco, running straight into the arms of Carter-Fuck, had issued not just a libel writ but also a claim for malicious falsehood, although Justice Eady, the bête noire of the tabloids, subsequently threw it out.

The other reason for the Guardian to be extra careful when reporting on tax affairs is that it has also publicly admitted to be involved in avoiding tax itself, or rather that its parent company, the Guardian Media Group, has admitted such. This came about through GMG's alliance with Apax Partners, a private equity group, when it purchased the magazine publisher Emap. Quite rightly, some are therefore suggesting hypocrisy on the Guardian's part to be so apparently outraged about tax avoidance when the newspaper itself also does it. In the paper's defence, it's one of the few companies that has openly admitted some of its tax arrangements, although how much of this was in relation to the Tesco affair is unclear, while Richard Murphy, of Tax Research UK, examined all the other large media groups and found that the Guardian paid the largest percentage of corporation tax of the lot. As Richard Brooks also points out, it would be far worse if the paper's own tax arrangements stopped it from investigating "the tax gap", or even worse, if it affected its stance on it. Hypocrisy can be alleged, but it seems doubtful that the News International papers will be investigating tax avoidance any time soon, just as the Sunday Times every year mysteriously excludes Rupert Murdoch from its rich list.

Richard Brooks' involvement is one of the signs of how seriously the paper is taking its investigation, presuming of course that Brooks is the same Brooks that also works for Private Eye and who has been one of the heirs to Paul Foot's throne. That Private Eye subsequently discovered that Tesco was indeed avoiding corporation tax, as the paper had alleged, doubtless helped.

Undoubtedly, as we plunge head first into a recession, the tax receipts, taken for granted during the boom, become ever more important and should become ever more scrutinised. Peter Mandelson's famous quote, that New Labour was relaxed about people becoming filthy rich, often leaves out its second half, that this was fine as long as they paid their taxes. Half the reason why it was left off is not just so it can be used to beat Mandelson and Labour with, but also because the government itself became fabulously relaxed about companies and the individuals behind them not paying their fair share of tax. The Treasury might each year during the budget plug a few of the loopholes which are discovered by the bean-counting firms and mercilessly exploited, but the real tale, as always, was shown in the honours list, which year after year was resplendent with the burghers of industry who saw it as their duty, both to shareholders and themselves, to reduce their tax burden. Probably the most egregious example was the knighthood awarded to Philip Green, the man behind the Arcadia group - this was despite him taking £1bn out of the company to pay himself, which he funnelled to his wife in Monaco, therefore avoiding having to pay any tax whatsoever. The other gob-smacking incident was the selling off of tax offices to the company Mapeley, which is based in the tax haven of Bermuda. According to the National Audit Office's report on the deal (PDF), this saved Mapeley in the region of £55 million that the taxpayer would otherwise have had paid back to into the public purse.

The completely secretive nature of the deals, as well as the highly complex nature of the avoidance schemes exists not only between the companies and those that draw them up, but also between HMRC and the companies. HMRC, possibly out of embarrassment, possibly out of the desire to keep the missing taxes due a secret, refuses to give a figure for how much they're being left out of pocket each year, although estimates range wildly from between £3.7bn to over £20bn. Part of this secrecy is because HMRC deals directly with many of the companies over exactly how much tax they intend to pay - individuals such as Mohamed al-Fayed have long had agreements with HMRC over the exact figures. This is of course in stark contrast to how other taxpayers who get into arrears are treated, and to how the aforementioned benefit fraudsters are subject to the equivalent of a 10 minutes hate every so often. Both rip off the public purse, but only one enters the public eye, while further establishing the idea that most of those claiming to be sick are in fact not.

Some will console themselves with the idea that although undoubtedly avoiding pay your dues is a bad thing, that the money would just be squandered anyway. The argument would be a lot less alluring if this government wasn't so determined to do the equivalent of pouring money straight down the drain, as it continues to do on the various disastrous IT projects, on ID cards and on the Olympics, to name but a few such schemes. At the same time, there are always other things which many of us would like to see extra money going towards, not least at the moment a more generous benefits scheme for those temporarily out of work, or additional funding for retraining. It could be used to pay off the extra debt we're taking on more quickly, so as not to mortgage another generation of ordinary workers. As could be expected, it has been those ordinary workers, such as those protesting outside Lindsey and walking out in solidarity across the country, regardless of the involvement of the far-right and the nature of some of the slogans used, that are now being hit hardest when it was unrestrained global market fundamentalism which created the mess and which has been bailed out. The least those responsible can do is pay their fair share - and closing down the tax havens and the avoidance schemes has to be one of the conditions of the recovery and subsequent re-regulation.

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2/02/2009 11:21:00 PM | | | links to this post

 

Incidental football interlude.

While we're all becoming experts on bankers and their capacity for losing money, another bubble which has so far continued to fail to burst has been the football one, or at least that involving Premier League clubs. Managers down the years have paid extortionate prices for players who have overnight apparently turned rubbish, but surely the worst deal in recent memory has to be Liverpool's purchase of Robbie Keane for £20.3 million, a total which he was never worth a fraction of, only to sell him back to Tottenham 6 months later for £12 million. Keane comprehensively failed to win a place in the team, not helped by deciding to go to a club managed by someone notorious for his whims, inexplicable substitution decisions, and downright illogical squad rotation. A loss of £8,000,000 might not be so bad if Keane had not gone back to Spurs, but like a dog that has to go back to his basket eventually even if he's befouled it, return like the prodigal he has. In effect, it was a loan deal in which Spurs have ended up at least £5 million better off, once "add-ons" have been taken into account. That's the kind of killing that the bankers would have demanded a bonus for.

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2/02/2009 10:57:00 PM | | | links to this post

Friday, January 23, 2009 

The recession blues.

We can now at least be grateful for the small mercy that we are officially in recession; we've already become so used to the fact that the news itself has only caused something approaching a small ripple, both markets and the pound recovering from drops earlier in the day, but for those of us who have only distant memories of the last recession, which includes almost all of those in their early to mid-twenties, things are undoubtedly about to become a whole lot bleaker.

While the 1.6% drop in the last quarter was higher than expected, it's the other figures that cast further light on how what started with the poor in America defaulting has now spread across the globe, infecting most severely our already distressed manufacturing base, where output fell by 4.6%. Most surprising probably of all was that even growth in the government sector fell by 0.5%, an indication of how bad things are likely to get. Likewise, the 1.6% growth in retail sales last month may as well be a mirage: boosted by the VAT cut and the panic discounting prior to Christmas, which has continued throughout this month, it simply cannot continue. More household names are likely to close their doors as the months pass.

Much of this was predictable: when you have an extended boom, especially one built upon massively inflated house prices and unprecedented private borrowing, the inevitable bust is always going to be painfully extended. This was the undoubted hubris, not just of the prime minister but of the vast majority of politicians. The last few elections were not fought on the economy, but on the public services and social issues. So too was the next one thought to be: under Cameron, the Conservatives offered even less than Howard and Hague. Sunshine was meant to win the day, the great gods of the macroeconomic cycle having decided that this was the End of History. Even after 9/11 destroyed the tiny basis for that claim, we still imagined the economic case to be sound. This bust is indicative not just of those politicians who believed it, but also the whole school of economic theorists who similarly declared that the free-market was the be all and end all, and that only governments and regulation were to blame for not delivering the full benefits of unleashing it wholesale.

In short, hardly anyone saw this coming when it was so completely predictable. You would therefore expect that the response would be humility from all sides, admitting they were wrong. With the exception of the odd columnist in the Times, this has been noticeable for its absence. No one really thinks that Gordon Brown, who whilst not arrogant is as stubborn as feasibly imaginable, is going to own up and admit that his claim to have abolished boom and bust was wrong, but the least he should be doing is now coming straight with us and saying that we face an exceptionally bleak economic prospect over the next year. We are not, as he repeatedly claimed, among the best placed to weather the financial storm; we are in fact one of the worst placed. This though too has been following the pattern which has emerged over the past 6 months. When Alistair Darling said in his Grauniad interview that we were facing the worst economic situation for over half a century, he was denounced. He was right. When George Osborne suggested that the amount of debt were taking on was likely to cause a run on the pound, he was criticised. He was right. When David Cameron now says that we could well have to go cap in hand to the IMF, he too might well be proved right. Nothing should be ruled out.

This isn't to agree with the Conservative's predictable positioning, which is to blame everything on Labour. If they had won in 2005 we would now be facing the exact same recession, possibly an even worse one if they had quickly introduced some of the policies which featured in John Redwood's later economic review. Labour's claims that this is all the fault of a global crisis are equally hollow. Countries which had far tighter regulated banking systems and the absence of such an inflated property bubble are not facing the same problems. Either one or the other can cause disaster, for which see Spain, which has a tight system of banking regulation but an absurdly out of control property market. For the former, we have not just one or two but three people to blame. The Financial Services Authority and and the tri-partite system of financial regulation was the direct creation of Brown, Balls and Gus O'Donnell. Paul Mason, who thankfully has a longer memory than others, recalls a speech by Blair towards the end of his tenure which was highly critical of the FSA for being too burdensome, for inhibiting the perfectly efficient and non-fradulent business of companies which were doubtless complaining too him about it all being so unfair. Who knows, perhaps it even included Northern Rock. Likewise, later in 2007 Gordon Brown, in his Mansion House speech, suggested to doubtless warm applause that the City was on the edge of a new golden age. It was instead on the edge of a precipice, but it's easy to mistake one for the other.

Neither the bankers, the politicians or the regulators are those will suffer the most from this recession, however much we would like it to be the case. Instead it's going to be the poorest, the ordinary workers now about to be drafted into James Purnell's welfare reform experiment. Already even the slightest thing to resemble largesse is being denounced, whether it be the "underserving" likes of Afghan families living in supposed mansions, the radio station for prisons which cost a massive £2 million, or less easy to justify, the bonuses for Northern Rock workers. They were though after all taking a leaf out of the book of their former bosses, so who could really blame them? Our apoplexy will not turn on those who brought us into this mess, but on those supposedly taking liberties. What already resembles a cruel nation will turn even crueller. What should be an opportunity for the left seems to have already been spurned, not helped by the fact that an authoratarian party masquerading as left-wing has been in power for approaching 12 years. Things can only get better, but they'll probably only get worse before that happens.

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1/23/2009 11:59:00 PM | | | links to this post

Tuesday, January 20, 2009 

Are we about to become utterly fucked?

It's understandable that a lot of people are getting terribly excited about someone who isn't a Bush ascending to the presidency of the United States of America, but left behind has been a major lack of any real substantive comment on the latest bail out of the banks, or rather, as it's beginning to already look, the further throwing of money at a lost cause.

Even if you opposed the original bail out, few were so dismissive of Brown and Darling to claim that they didn't know what they were doing; quite the opposite in fact. While they may have been authoratitive then, they were left looking anything but yesterday morning. They're not helped by the fact that no one, including them, has any idea of just how much effectively providing insurance to the banks for their losses in exchange for them to return to lending is going to cost, for the simple reason that no one it seems, Brown and Darling included, still has any idea of just how much the banks have lost through the collapse of the sub-prime market. This is part of the reason why the City has took such fright and been getting out of Royal Bank of Scotland as quickly as it can - when a bank that is over 70% owned by the state is still not potentially revealing the true nature of its losses, already estimated at £28bn, the idea that RBS is in fact bankrupt and has only been propped up the taxpayer quickly gains traction.

To give an indication of just how quickly we might be moving from another bail-out to full nationalisation of most, if not all of the banks, John McFall, chairman of the Treasury select committee and regarded as close to Gordon Brown, is already calling for both RBS and Lloyds to be fully nationalised, in what could well be a softening up exercise. The implications of such a move should not be understated - taking RBS alone into the public sector would put more than a year's GDP onto the already massive and continually growing national debt. With this fast becoming an increasingly ominous prospect, there's already talk that this could result, inevitably, in a sovereign debt crisis, where the buyers of the debt refuse to take any more, leaving us to go cap in hand to the IMF and also probably the EU.

For the moment this is not yet a full-blown crisis - undoubtedly Ireland and the United States itself are in far more dire straits than we are - but the underlying cause remains the same. For all the talk from the government that this is an American problem imported here on the back of the collapse in the US housing market, it was the hubris of Brown in imagining that he had abolished bust while instituting a light-touch regulatory system which in fact turned out to be a no-touch regulatory system which allowed our own banks to get involved in the toxic loans in the first place. Undoubtedly, the main share of the blame should fall on the bankers themselves, especially the likes of "Sir" Fred Goodwin, who slashed jobs while devouring the likes of ABN Amaro in a truly disastrous predatory move. They were however encouraged by a government which had fallen completely for the mantra of neo-liberalism in the City whilst expanding the public sector too quickly. As ever, New Labour wanted results and it wanted them fast, and to be fair in certain areas it has shown - the NHS, despite the cynics, has been markedly improved. Less apparent are the advances in education, where the obsession with reform has created a gaggle of schools which to this blogger look nightmarish in their controlling tendencies, whilst failing to boost the results sufficiently to mitigate such policies.

The boast since the original bail out that the government had saved the banks has been accurate. Without the injection of funds, RBS and HBOS may well have gone bust, with all the implications that the letting of Lehman Brothers fail caused, not just here but around the world. The fear now must be that all the original bail out has succeeded in doing is postponing just that, with the state shortly to be forced to fully intervene. The jibes at the Tories that they are a do nothing party will look even hollower if it turns out that doing something was almost as bad as doing nothing. If the bank shares continue to fall tomorrow, things really might be about to get a whole lot worse.

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1/20/2009 11:59:00 PM | | | links to this post

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