Thursday, 30 October 2014

Events this Saturday!

With apologies if you don't live near London or Newcastle ... three great events this Saturday:

People vs PFI conference, London, Sat 1 Nov

Where? The London School of Hygiene and Tropical Medicine, Keppel Street, London

When? 9am-5pm

Details: You’d never be able to tell from the outside, but hundreds of our hospitals, schools, prisons roads and even homes are no longer controlled by us, the people. Why? Because politicians have given away our public buildings to private companies – only to have us rent them back at extortionate cost. Our money is making these tax-avoiding corporations rich, while we end up losing frontline services. This is what they mean by the Private Finance Initiative (PFI).

Every year PFI costs us £10 billion – more than the entire 2012 Olympics! The UK taxpayer will pay almost £300bn for PFI – but most of that will end up in offshore tax-havens.The government and private contractors consistently conceal details of PFI contracts. Why should public spending be allowed to be kept secret? The worst part of it all is that the public were given no choice about PFI. PFI was implemented by corruption of the democratic process. We need to take back our rights.

There is an alternative – there are cheaper and better ways to provide public infrastructure. It’s time for us to stand up and say NO to the politicians and private contractors that want privatisation-by-stealth. It’s time to make public services ours again. Join public sector workers, professional groups, trade unionists, campaigners, researchers, journalists and members of the public for a one day event to launch this vital campaign to end PFI. Hear from experts in the field to learn how you can make a difference, and tell your own story about how PFI is harming you, your family and your country.

More information on The People vs PFI conference

North East People's Assembly, Newcastle, Sat 1 Nov

Where? Northern Stage, Barras Bridge, Newcastle, NE1 7RH

When? 11am-9:30pm

Details: The Peoples Assembly Against Austerity (PAAA) is a non-party political movement formed to fight all government spending cuts nationally, regionally and locally in the UK.

The 1st North East People's Assembly, in September 2013, attracted hundreds of people from a wide range of backgrounds to discuss austerity and plan the resistance. On Saturday 1 November 2014 we will meet again to discuss why austerity is failing, what the alternatives are, and how we can end it.

More information on the North East People's Assembly

Class conference: What Britain needs, London, Sat 1 Nov

Where? TUC Congress Centre, 23-28 Great Russell Street, London WC1B 3LS

When? 10am-4:30pm

Details: Since the 2010 General Election, living standards have fallen for the vast majority. While the top 1%’s fortunes have increased, the 99% have been squeezed. The economic recovery has been unfairly distributed, and social inequality is on the rise.

The conference will discuss priorities for building a more equal and progressive country, looking at the key issues at stake at the General Election, as well as outlining an overarching vision for our society.

More information on the Class conference

Tuesday, 28 October 2014

Lloyds: sacrificing workers for profits

Andrew Fisher, author of The Failed Experiment ... and how to build an economy that works, looks at Lloyds and argues there is a better way to run banks

Lloyds Bank continued its asset stripping of itself with the announcement that 9,000 staff would be thrown on the scrapheap and 150 branches sold off to boost profits.

The bank is still 25% owned by the government, and was formerly 43% publicly-owned following the bailout that saved it from oblivion. Taxpayers bailed out Lloyds bank, taxpayers like the 30,000 Lloyds staff already sacked since the banking crisis.

Of course the bailout was not about preserving jobs for ordinary bank workers - the people least culpable for the collapse - any more than it bailed out defaulting debtors or mortgage holders. No, the bailout was about safeguarding executive pay and bonuses, shareholders and high end depositors.

So why now - when Lloyds is back in profit, the government has begun the process of full re-privatisation, and it has scraped through the European bank stress test - is the bank sacking another 9,000 staff?

Maybe its management knows something we don't - perhaps the full extent of the bank's fragility in the event of the looming downturn?

However, according to the Telegraph, the good times are back at Lloyds with the bank making £1.61 billion profit in the last nine months or £18,295 for each of its 88,000 staff. Its profits for just these nine months would be enough to give each of the 9,000 of its staff about to be laid off a £178,000 redundancy payment.

Of course no such payment will be forthcoming - that money is strictly for shareholder dividends (due to resume soon) and executive bonuses. The rich shall get richer. The poor get laid off.

Lloyds might argue that it has recently had to set aside another £900 million in PPI compensation payments. But that simply represents the repayment on ill-gotten gains - products mis-sold on an industrial scale by a ruthless and corrupt culture that permeated Lloyds and several other banks.

Ordinary cashiers, admin staff and call centre workers are paying the price for historic mismanagement and for the continuing (even accelerating?) rapaciousness of finance capitalism. "We will grow the business in a way that will deliver increasing and sustainable returns for our shareholders" said Lloyds Chief Executive Antonio Horta-Osorio, "and if that means fucking over our loyal workers, so be it" he added only implicitly.

Even the usually timid Labour had something to say about it, with Treasury spokesperson Cathy Jamieson MP saying:
"Frontline staff will feel that they are being made to bear the costs of mismanagement that took place at a senior level - especially given that bonuses at Lloyds increased by eight per cent over the past year."
There is an alternative, which would involve two key changes. Firstly, on workers rights to make it illegal for a profitable company to make staff redundant. That means companies take on another duty, beyond just maximising profits or shareholder returns, they must provide jobs. So companies should have a built-in duty - as strong as any other the company serves - to provide and protect jobs. That should extend beyond the banking sector, but experience shows that the banking sector is a necessary starting place (see Barclays and the Sack Race 2, Feburary 2014).

Secondly, we should nationalise the banks - to make finance the servant of the real economy, rather than the other way around. This would mean prioritising investment in the real economy over ever inflating housing bubbles - and safeguarding jobs and people's homes rather than sky high pay and bonuses.

Banking for the many, not just the privileged few (as Labour might say if it believed its own rhetoric).

Sunday, 26 October 2014

Where's the private sector recovery, George?

Remember when George Osborne told us that the UK's economic malaise was due to the state "crowding out private endeavour"? That was during his Emergency Budget in June 2010.

Since then austerity has devastated the public sector. Two years of pay freeze followed by two years (so far) of a 1% pay cap have left public sector workers up to 20% worse off in real terms once extra pension contributions have been included. 

Since being elected, he has made 87,000 job cuts in the civil service, reducing it to its smallest size since before the Second World War. In the last year alone, 280,000 public sector jobs have been cut (according to ONS) causing all sorts of cuts to services (e.g. local government social services) and delays (passport processing).

In this space that Osborne's cuts have created, the private sector would flourish, he told us. This graph below (via Newsnight's Economics Editor Duncan Weldon) shows the recovery in private sector wages:

The graph shows that since Osborne became Chancellor private sector wages have continue to fall in real terms. There has been no recovery in the pay packets of private sector workers.

One can speculate several reasons as to why: firstly, the 'crowding out' theory has long been debunked as having no evidential basis (see Chakrabortty here); secondly, union density in the private sector remains weak at just 14% of workers - with collective bargaining coverage low; thirdly, the public sector pay restraint influences private sector employers - as they do not have to compete for higher wages; and fourthly, a lack of investment has meant lower productivity, producing lower profit rates.

The second key sign that Osborne's private sector-led recovery is AWOL is the news today that profit warnings by UK-listed firms have risen to their highest summer level in six years. Profit warnings are issued by companies to inform shareholders that profits will be lower than in the previous year.

Finally, while Osborne can point to higher employment in the private sector, it has not been full-time employment as while pre-crisis 64.4% of workers were employed full-time, now only 62.1% work full-time. So record employment is now accompanied by higher underemployment.

With the recovery faltering, the deficit rising rather than closing, Osborne will be itching to make further public sector cuts in his Autumn Statement on 3 December. The evidence to date shows it won't be a prelude to a private sector recovery.

Saturday, 25 October 2014

Housing benefit figures highlight Osborne's economic farce

Yesterday we tweeted the image below as our 'chart of the day' (hat tip @FlipChartRick). It shows the explosion in housing benefit claims from working households:

In November 2008 (around the time RBS was being bailed out) just under 1.5% of employed adults received housing benefit. Today that figure has more than doubled to just under 3.5%.

More than anything this graph shows how the true nature of the recovery: rising house and rental prices, combined with falling wages - meaning more and more working adults don't earn enough to pay for housing near their job. This is a 'recovery' based on low wage, insecure employment and rising house prices - and that means more housing benefit.

This financial implications of this first graph are reflected in this colourful rainbow of a graph (below) from the OBR forecasting housing benefit expenditure. The various lines are made necessary because every year the OBR has had to revise up its estimates of housing benefit spending.

So while in 2010, Osborne estimated housing benefit would cost a little over £21 billion last year (2013/14), in fact it cost £24 billion and is now forecast to rise to close to £28 billion by the end of the next Parliament.

Low wages mean lower tax receipts and more housing benefit expenditure means higher spending - bad news for closing the deficit.

So Osborne has failed to generate a recovery for the many, failed to lift living standards, failed to build a sustainable recovery, failed to close the deficit, and failed to tackle the welfare bill that he rants and raves about.

Thursday, 23 October 2014

Osborne's deficit failure doesn't help Labour

Andrew Fisher

The ONS published figures earlier this week that showed that deficit reduction had gone into reverse. With borrowing in the first six months (Apr-Sep) of this financial year up £5.4 billion - and in the latest figures for September, government borrowing was up £1.6 billion from last year to £11.8 billion. 

These figures make it highly unlikely that Osborne will meet the OBR's forecast (and his own target) of an annual deficit reduction of £12 billion. The BBC's economics editor Robert Peston's verdict was:

Estimates from establishment forecasters think this government will miss this year's deficit reduction target by £10 billion to £15 billion - the latter figure representing a small increase on the deficit from 2013/14.

So not only is David Cameron wrong when he said "we are paying down the country's debts", he would also currently be wrong to say the government is even closing the deficit (the gap that causes the debt to increase). And while in 2010 Osborne said the UK's debts would be 67.4% of GDP in 2015, it now looks like they will be over 80%.

For all Osborne's crowing about the belated arrival of growth - which increasingly looks unsustainable - the reality is that since the beginning of the crisis, the UK has had the worst recovery per person (per capita in economist-speak) of any G10 nation - as this chart shows (h/t Reuters' Jamie McGeever):
In fact, the average UK person has done worse in the last seven years than the average citizen in the Eurozone - for all the UK media's lamenting of our European neighbours and recent jubilation about Osborne's recovery.

However, Labour will fail to capitalise on this failure - because by tying itself to the austerity bandwagon, its fortunes are now intertwined with those of Osborne. If Osborne fails, it just means even more austerity, because Labour agrees with the Conservatives (and Lib Dems) that there is no other solution.

It has abandoned any attempt at constructing an alternative vision of how to close the deficit. Even its woefully deficient, but still critical "too far, too fast" narrative of 2010/11 has been jettisoned in favour of "we will match Coalition spending plans in 2015-16" - a year of re-intensified austerity (as we analysed in July).

So contorted is Labour's position that it's new "we will balance the books in a fairer way" line includes the boast about cutting child benefit in real terms. How is that fair? Of course, with the deficit worse than when they decided attacking children was fair game, they will now have to come up with more similarly 'fairer' cuts.

For Labour this is electorally problematic - the more the party demotivates its own activists and supporters with attacks on things like child benefit, winter fuel allowance and who knows what to come, the more likely it is to lose the next election.

Labour has a choice to make: in the face of a slowing economy and worsening public finances it must either ramp up its austerity to match the other parties (and maintain the 'fiscal credibility' that comes from imposing failing austerity policies), or it must break with austerity and set out a different vision.
If Labour's members, affiliated trade unions and supporters want rid of a Tory-led government, then all efforts must be redoubled on breaking the party from disastrous austerity.

Friday, 17 October 2014

Britain's top boss paid year's living wage in an hour

Conrad Landin in the Morning Star

BRITAIN’S greediest boss was paid more for an hour than a worker on the living wage would earn in a whole year, a shocking new report revealed yesterday.

Simon Peckham, chief executive of transnational engineering firm Melrose, raked in an eye-watering £31 million in the financial year ending in March 2013.

Ahead of Saturday’s mass demonstration, the TUC called for the government to force companies to disclose details of the pay gap between their highest and lowest earners.

Tens of thousands of trade unionists will take to the streets of London and Glasgow to demand pay justice in the face of plummeting wages.

TUC general secretary Frances O’Grady said: “It is obscene that anyone needs to earn more than 2,000 times the living wage.”

Independent research by Incomes Data Services for the TUC found that across the City of London’s top 100 companies the top director pocketed £3,195,353 on average.

The average chief would have been paid a year’s salary on the living wage in just a day.

Economist and author of The Failed Experiment Andrew Fisher blasted executive pay as a “national disgrace.”

But he said it showed campaigners could be more ambitious in their demands for higher wages.

“The top pay of Britain’s larcenous executive class gives the lie to the idea that a £10 minimum wage* is unaffordable,” he said.

“The money for decent salaries is clearly there but it is being absorbed by a bloated band of bosses.

“We are witnessing a new and hopefully final stage of capitalism — hit-and-run capitalism — in which the central aim is not the production of useful goods or services but simply to extract the maximum return as quickly as possible.”

A spokesman for Melrose said: “These figures are completely inaccurate. His total salary for the year was £409,800.”

The living wage — currently £7.65 an hour and £8.80 in London — is calculated by an independent commission to ensure workers are paid enough to survive.

Thousands of workers in industrial disputes in the past few years have used the rate as a benchmark to campaign for.

“Most companies fail to provide proper information on how much their UK staff earn,” Ms O’Grady added.

“The government is complicit in this cover-up as ministers refuse to make companies publish the kind of information investors and employees need to work out the gap between boardroom pay and the rest.”

Tuesday, 14 October 2014

Still not facing up to what caused the banking crash

Prem Sikka

There are mixed messages from the International Monetary Fund. The UK gets a pat on the back for its recovery, but the fund warns of darker clouds ahead in its latest World Economic Outlook.

Overall, the view is that in the foreseeable future the western world is unlikely to return to the pre-crisis era of economic growth. A major reason for this is the shrinking purchasing power of ordinary people due to wage freezes and a largely low-wage economy, though this receives little attention from the IMF.

But the IMF failed to address the banking sector, which remains the Achilles heel of the world economy. Politicians tell us that far-reaching reforms are being implemented. But scratch the surface and you see the pre-crash practices being repackaged.

Bank stress tests are a case in point. These are supposed to test a bank’s ability to withstand adverse developments. The key idea is to ensure that banks will have adequate capital to manage financial shocks such as erosion of credit, liquidity, changes in markets and lines of credit. The tests look at the quality of a bank’s assets and loans.

In general, a dynamic balance sheet mimics the “what-if” scenarios to ascertain how a bank can manage adverse developments. Of course, many of the risks are in the system where troubles for one bank can have a knock-on effect on others and bring down the whole thing.

Before the 2007-2008 banking crash, stress tests were mostly carried out by the banks themselves rather than by external regulators. Typically the models for stress tests used ratings provided by credit rating agencies and hired the Big Four accountancy firms to do the number crunching.

We all know the consequences. Credit ratings confidently gave AAA ratings where they weren’t due, many turning out to be worthless. The industry is mired by conflicts of interests as it has a close business relationship with banks.

Despite their knowledge of stress tests and risks at banks, the Big Four accountancy firms gave a clean bill of health to almost all distressed banks, with some collapsing within days of receiving a clean bill of health. The firms collected large amounts in audit and consultancy fees. The firms were effectively auditing and reporting on the outcomes of the stress tests they themselves had carried out.

Following the 2007-2008 crash, central banks, such as the European Central Bank and the Bank of England assumed responsibility for bank stress tests. But they continue to rely on credit ratings developed by the agencies, whose success is judged by private profits rather than any service to the state or people.

And, the regulators have hired Big Four accounting firms to do the calculations. Spending €500m on stress tests, this work from the ECB is a boon to consultants and accountancy firms in particular.

Lessons, what lessons?

Hardly any lessons have been learnt from the folly of relying on these accountancy firms. PricewaterhouseCoopers (PwC) is under scrutiny for the £250m accounting hole at Tesco. The firm also audited Bank of America which has been fined for overstating its capital by about US$4 billion.
At the height of the crisis, some US$5,000 billion of assets and liabilities went missing from bank balance sheets audited by the Big Four firms. Their gravy train rolls on, even though the firms are unable to serve the interests of regulators.

Recent examples include PwC receiving a US$25m fine from New York’s financial regulator for sanitising its report to regulators regarding sanctions and anti-money laundering compliance at Bank of Tokyo Mitsubishi. In 2013 Deloitte was fined US$10m for “misconduct, violations of law, and lack of autonomy during its consulting work at Standard Chartered on anti-money laundering issues”. But the Big Four continue to be trusted with auditing banks for the public good and not their own profits.

Following the banking crash the regulatory deckchairs were rearranged; but little has changed. Despite their failures, regulators continue to rely on credit rating agencies and accountancy firms.

This reliance on external advisers means that the regulators have failed to develop an adequate in-house knowledge base and are in a poor position to manage the risks of bank behaviour. Let’s hope it doesn’t take another crash of the financial market to encourage the IMF and the regulators to reflect on institutional failures in the banking system that is at the heart of the global economy.

Monday, 13 October 2014

In praise of Wilkinson and Pickett

Andrew Fisher, author of The Failed Experiment ... and how to build an economy that works reviews a new Fabian Society pamphlet: A Convenient Truth (A Better Society for Us and the Planet) by Richard Wilkinson and Kate Pickett

Like many others I loved 'The Spirit Level - Why More Equal Societies Almost Always Do Better' mainly because it confirmed with reams of objective data what I viscerally knew in my gut and had observed previously only through snippets of data and anecdote.

The book was significant and influential - it put equality (and its flipside inequality) back on the political agenda. In this Fabian pamphlet, the authors now set out some policies to create and to institutionalise a more equal society that will do better for us and the planet.

But The Spirit Level was more than mere data, Wilkinson and Pickett used the data to explain how inequality damaged everyone across income bands. This humanity shines through again in A Convenient Truth, "the larger the income difference, the stronger the impression that some people are extremely important and others are almost worthless". But there are also updated datasets which show those living living the richest 5% of UK neighbourhoods live to over 79 on average, while those in the poorest 5% manage only to reach a little over 71.

Rising inequality "changes the whole social fabric, increasing status competition and reducing trust and social cohesion right across societies" - and there's something there to consider when assessing the rise of UKIP.

What is striking - and new - about A Convenient Truth is that is offers some very sound and radical policies to build a more equal society. Like Prem Sikka and John McDonnell MP have advocated on these pages, and as the TUC too has tentatively advocated, Wilkinson & Pickett call for worker representation on the boards of "all except the smallest companies". But significantly they go beyond tokenism or the liberal view of 'if watched they'll behave less badly', and advocate that workers' representation becomes domination - "moving eventually to majority control and beyond requiring that a small proportion of shares be transferred each year to employee-controlled trusts".

There is also some welcome support for better support to establish co-operatives and the suggestion for a 'democratic company' mark like the Fairtrade brand or the new Fair Tax mark pioneered by Richard Murphy. Such democratic companies should be given precedence in public sector contracts, and possibly lower corporation tax rates.

In a welcome sign of a growing consensus on the left, they strongly echo the conclusions of  both Owen Jones' The Establishment and my own The Failed Experiment ... and how to build an economy that works when they state this key truth:
"We argue the best way of building more equal and sustainable societies is to extend democracy into the economic sphere ... the next major step in the long project of human emancipation."
Like we have pointed out on this blog, there is also a recognition that trade unions were the handmaidens of greater equality in the twentieth century, and their relative decline has coincided with rising inequality. And Wilkinson and Pickett show the trend extends to other countries too - with inequality generally lower in countries with higher trade union memberships.

There are also echoes first cogently aired by Richard Murphy in The Courageous State, calling for a better politics that believes in the emancipatory capacity of the state to solve problems. Wilkinson and Pickett  berate the "appalling lack of leadership and responsibility in the face of overwhelming evidence" on climate change - and more generally the "rag-bag of uncoordinated policies" the parties offer.

But limits to the state are also recognised in the Morrisonian model of public ownership and the reliance on progressive taxation and social security benefits, which could be and were "undone at the stroke of any new government's pen". So Wilkinson and Pickett propose to build effective democratic constraints permanently into the economic system. In some ways it sounds a little like what Ed Miliband was grapsing for when he used to talk about 'predistribution'.

There are frustrations with the piece - not least the way the terms 'left' and 'socialist' are misused to represent what would more accurately respectively be 'the Labour leadership' and 'Stalinism' respectively. Likewise, I found their explanation of the psychological consequences of inequality (status competition as the motor of consumerism, debt and longer working hours) partial - failing to take account of the material consequence, which is longer hours and debt are the inevitable consequence of low pay and high housing costs.

But if you can forgive these, and you should, then overall this is an excellent evidence-based case for a more socialist society - as most socialists would conceive it: more equal, more democratic, more co-operative. Wilkinson and Pickett ask rhetorically, "Do we live in a society based on co-operation and reciprocity, or competition and rivalry?". As Rosa Luxemberg's said, it's "socialism or barbarism".
  • A Convenient Truth is published by the Fabian Society - available as a free pdf or hard copy for £9.95

Wednesday, 1 October 2014

Tory tax policy will widen inequality

Andrew Fisher

The Tories set out their General Election stall very clearly at their Birmingham conference. This is class war waged efficiently on behalf of the comfortable and the selfish. It is turbo-Thatcherism - slash benefits, cut taxes disproportionately for those with most, and cut taxes on big business too.

The BBC table below - with data supplied by HM Treasury - sets out how the income tax changes will affect different earners. So those higher rate tax payers earning £50,000 or more a year by 2020 will see a cash benefit of nearly three times the basic rate taxpayers.

This is a tax break for the top 15% of earners - those who need it least - who won't be queuing at the food bank, choosing between heating and eating or worried that every knock on the door could be the bailiffs. No, this is a tax break for those whose anxiety is whether they can have a second foreign holiday, afford a new car this year or scrape enough together to send their children private.

This comes on the back of a tax cut from 50% to 45% for the highest earners.

You've been framed!

The careful framing in Cameron's speech suggested these were tax cuts to benefit the lowest earners and the ever-nebulous 'squeezed middle' - dragged into the higher rate 40% bracket.

So raising the personal allowance to £12,500 (it will be £10,500 at the time of the general election in May 2015) was described by Cameron as:
"That will take one million more of the lowest paid workers out of income tax"
But the people it benefits least are the lowest earners. You see, someone working 30 hours per week on the minimum wage is only taxed £28 per year. So raising the personal allowance will only save them £28.

For many people working at minimum wage rates part-time or inconsistent hours on temporary or zero hours contracts earning £12,500 is a dream. Likewise for people even working full-time hours on apprenticeship rates, or on the youth rate of the minimum wage, earning £12,500 is not likely.

So despite the carefully chosen words to make it sound like good news for those struggling, Cameron's raising of the personal allowance actually does nothing for the lowest income groups (pensioners, those on out-of-work benefits) or for the lowest earners, who already don't pay any or very little tax.

The lowest earners will also be hit hardest by the freeze in uprating of in-work benefits like tax credits, housing benefit and child benefit. And of course those on out-of-work benefits will be far worse off still.

On the raising of the 40% rate, Cameron said:
"The 40p tax rate was only supposed to be paid by the most well-off people in our country…but in the past couple of decades, far too many have been dragged into it "
Currently, only the top 15% earners pay the higher rate - around 1 in 7, so it is only paid by a relatively small proportion of the better off. And of course someone earning a little over £41,900 (the current threshold) only pays 40% on amounts over that - so someone earning £45,000 only pays 40% on the top £3,100 of their salary - the rest of their tax is paid at the basic rate of 20%.

In Cameron's defence though the number of higher rate taxpayers has ballooned from 930,000 in 1984 to 4,400,000 paying higher rate in 2014. Of course what Cameron could have done would be to put the 40% rate at £50,000, the 45% rate at £100,000 and restored the 50% rate at £150,000 - then that would have benefited the higher, but not the highest, earners.

Corporate giveaways

Cameron persisted with the commitment to make the UK a virtual tax haven (as cabinet minister Francis Maude favours) - and to cut the contribution to public services and deficit reduction from corporations:
"with the next Conservative Government – we will always have the most competitive corporate taxes in the G20…lower than Germany, lower than Japan, lower than the United States"
The consequences of which we have previously evaluated.


A vote for the Conservatives is a vote for redistribution - to the rich. A vote for a more unequal society, with worse public services to pay for tax cuts for the richest. Don't be conned.