Though Cowards Flinch

Unsurprisingly, much discussion has been had during Labour conference on the budget deficit and how the country can promote growth and create jobs while simultaneously trying to level national debt in a realistic period of time.

Of comparable importance to the level of national debt are levels of personal debt, which have seen a sharp rise in recent times. According to statistics by Credit Action personal debt in the UK (2010) was £1.5 trillion – a figure serviceable in better times, but increasingly a struggle since the recession. In the decade to 2008, average household debt in the UK increased substantially– from 93 to 161 per cent of disposable income – largely accounted for by mortgages – and is set to rise to an average of £81,000 per household by 2015.

The think tank Compass were so bold as to say over-indebtedness was linked to low wages rather than ‘consumerism’. A fifth of the 14 million lowest earners say debt is a heavy burden, more than a third have no savings at all, and one fifth have less than 1,500 in savings. Further still, social housing tenants represent 6 in 10 of the financially excluded, of whom one in 6 have no bank account (which the government should make a universal right).

In times of severe economic difficulty, ways and means of leveling ones personal debt can get extremely difficult. Such circumstances often follow a spike in high cost credit use. Peter Crook, the chief executive of Provident Financial – a short-term, unsecured loan agent – said in 2010 that “We may well see a growth in our target audience”. When we find out who their target audience is, we can really see what drives this market. The Office of Fair Trading’s High-Cost Credit Review (Annex C, p. 36), found that 10.4% of payday customers have incomes of less than £11,100 per annum, and that 49.1% of all customers have incomes of less than £19,200 per year.

So clearly there is a problem, but what is the solution.? Stella Creasy, the Labour Co-operative MP for Walthamstow, has been campaigning tirelessly for months to introduce a credit regulation bill to implement a cap on the total cost of credit – which means not capping the annual rates of interest on a loan, leaving it open for lenders to slap on high administrative fees to redeem their loss, but a cap on how much an individual will pay overall for a loan. Such a move has already been given the cold shoulder by the Tories who are instinctively against the regulation of the banking system – instead calling on more competition in the market – and by the OFT who have claimed a total cap is not necessary.

But the UK is one of only few countries in the world without such a cap. Lenders make money, not from how many times they sell credit to different customers, but on individual customers rolling over on their debts, or even taking out loans to service existing loans. As for initial measures, placing a cap on how many times a person can rollover seems a good short term move, but obliging lenders to fund financial counselling sessions would be an even more radical progression.

Further, linking existing credit unions to a modernised post office could both make the latter more relevant in an email age, and ensure more people are creditworthy and not falling into unserviceable debt.

A savings culture in this country once again needs a boost, and with the Tories scrapping the child trust fund and the savings gateway, it’s clear what side they are on. Debt, as many people – whether rightly or wrongly – will tell you is a necessary evil, and will take years of intervening to overcome; but making credit lending less dubious, and ensuring people don’t fall into severe debt cycles, especially in times of austerity, is the sine qua non for a government and a society committed to welfare.

Go to any event that’s vaguely socialist, and you will hear it being mourned that there is a widespread disenfranchisement of the working class and its institutions. Figures by the Department for Business, Innovation and Skills (BIS) last year revealed that the number of people affiliated to trade unions dropped by 165,000 in 2009.

The number of people in unions in the late 1970s was around 13 million – leagues away from the 7.1 million employed joined to a union.

You can tell there’s a problem when in a time of financial crisis the tabloid press doesn’t blame union greed – which it did during all other times of financial disaster – but public spending; as though the unions have already won their battle, have become irrelevant because the public sector have incorporated their demands.

Clearly, though, those demands have not been met – what the press are purposefully omitting is the sky-high wages for chiefs, the mounting consulting fees and waste. To be sure this money is not going on wage increases and pensions. While 9,000 public sector employees earn more than the Prime Minister, two-thirds earn less than £21,000-a-year and are facing a three-year pay freeze.

So what has cancelled out the union bargaining chip? Some have noted that credit, and thus debt, has saturated the enthusiasm to demand higher wages, and seemingly counterbalances low wages. If this is so, we, the Left, should be behind Stella Creasy and her campaign to curb high cost credit, because when credit dependency is removed, so returns the need for higher wages, and thus union power.

But, of course, Creasy doesn’t stop there (if she just stopped there, it would empower illegal payday lenders – and that’s another problem. Users of payday loans have quadrupled to 1.2 million over the last four years). She wants to increase the roll-out of credit unions which could be linked to the post office network (under pressure in the digital age), could provide links online (which keeps processing costs down) and therefore keeps loan costs down.

The issue that could be raised here is that this still allows for debt. But without doubt the creditworthiness of individuals needs to be matched by initiatives to promote savings. BIS and the coalition government say they want to better link up credit unions with the post office network (point 53 of this report – pdf) but they scrapped the Savings Gateway and the Child Trust Fund – initiatives which were the best of New Labour (it must be said that the best of Third Way-ism is Reformism, like savings initiatives; but the worst of it is neo-liberal economics).

The IPPR, geniuses that they are, may have found the magic bullet which doesn’t require those particular schemes. Tax credits could be rewarded to those accounts of low income earners who keep money in their savings accounts for longer. The problem, however, is that some families do not have enough at the end of the month to. Therefore there is no reason to think that the roll out of credit unions and tax breaks will disincentivise the enthusiasm to campaign for higher wages.

Debt is an anti-capitalist issue. Just as we sell our labour for a wage, now we sell our labour to service our debt. The choice for the Left is either to demand the impossible (cancel all debt), or demand the possible and support rewards for saving, reinvigorate the bargaining chip for higher wages and support our public services by properly modernising the post office (digitising it, for example, and linking it to credit unions).

The reformist way here, it would seem, is the most radical.

In response to the march against cuts rally on 26 March, the right have pulled together their own: Rally Against Debt.

Might not be as popular, but then campaigns aren’t always the political Right’s bread and butter pudding.

Sunny has declared his interest in going, and has urged other lefties to join him. I may just do that, but under the following banner: “The Other Rally Against Debt”.

(You know, like The Other Taxpayers’ Alliance – keep up!).

I’ve drafted a programme (still a work in progress, changes welcome, of course) and it is as follows:

• No to the most vulnerable in society bearing the burden of city risk and failure

Among those likely to suffer most at the hands of the cuts are:

- The homeless and people with complex mental health needs, whose Supporting People services are facing average cuts of 17% next year

- Children and families who, owing to council spending reductions of 25% in 2011-2012, will see early intervention services cut – which can save money in the long term – such as “children’s centres, Sure Start services, youth work, family support, respite care for disabled children, and play services”

- Pensioners, whose winter fuel allowance will go down from £250 to £200 for the over 60s and for the over 80s reduced from £400 to £300.

• No to the cuts which look set to increase household debt over the next four years

The BBC were reporting on Sunday that financial education charity Credit Action have said tax and benefit changes coming into force in the coming week will leave households £200 worse off – which “include a one percentage point rise in the charge for National Insurance and a lower threshold at which the higher rate of tax applies.”

• No to tuition fees

Ignoring for a moment the amount in social capital that degree educated individuals produce (the government clearly has), many prospective students today are obliged to be in debt to the tune of £39,000 (based on £9,000 a year in fees and £4,000 a year for maintenance over three years) for the “right” to a university education.

Though the fee cap was set at £9,000, this charge was only supposed to be for “exceptional circumstances”. The marginally less scary sum of £6,000 was supposed to be the norm. But, according to Eleanor Stanford for the Independent, the government has overlooked the power of Offa (the independent public body that ensures fair access to higher education) to cap fees charged by universities – of which it has none.

No surprises then that an unforeseen amount of universities are choosing to charge the full amount of fees.

• No to national debt fetishization

Many countries run at a budget deficit and survive just fine, including the UK. In fact, the author and economist Dr Noreen Hertz said recently that in the last 20 years Norway has been the only country in the developed world to consistently run on a surplus. The problem is not running at a deficit, but not being able to manage the repayments – and the way in which governments manage this is by investing and growing, not cutting jobs and putting pensioners at risk.

• Yes to a consumer credit act which seeks to roll out more low interest credit unions where legal and illegal loan sharks have profited from high rates of personal debt, particularly since the start of the recession

According to Compass, “the British people owed over £1,460bn in private debt”. This has been exasperated by irresponsible lending, perpetual debt cycles and poverty.

Compass’ End Legal Loan Sharking campaign, and Stella Creasy’s parliamentary work on consumer credit, promotes the roll out of low interest credit unions linked to the post office network, matched with accessible financial advice, with the aim of curbing credit dependency and tackling loan sharks.

As I said on the Guardian‘s Comment is Free section late last year:

Many people who find themselves uncreditworthy turn to high-street alternatives just to get by – a trend that has been rising year on year. A report by Consumer Focus – a watchdog to be abolished by the government in its quango cull – estimated earlier [last] year that the number of people taking out payday loans has quadrupled to 1.2 million over four years. With tighter spending in the public sector, and job losses across the country, loan providers of this sort can expect their services to accelerate [...] for them it’s just a matter of time until the money starts pouring in.

It’s worth quoting the aptly named Peter Crook, chief executive of Provident Financial (the country’s largest home credit business), who said of public spending cuts “We may well see a growth in our target audience”.

• Yes to sensible debt management that rejects the notion that cutting the deficit as quickly as possible, at the expense of jobs, growth and services, is the best thing to do for jobs, growth and services.

If you were not convinced by the reality that many people, including very vulnerable people, will suffer for the coalition government’s risky economics, then perhaps the unabashed words of Paul Krugman will turn you:

… we have a political climate in which self-styled deficit hawks want to punish the unemployed even as they oppose any action that would address our long-run budget problems. And here’s what we know from experience abroad: The confidence fairy won’t save us from the consequences of our folly.

Let’s not be ruled by the confidence fairy any longer. Join The Other Rally Against Debt today.

Update: Times Hugher Education have published details of undergraduate tuition fees for 2012-13, by university – here

The issue of debt has risen to the top of the political agenda. Domestically, all parties are agreed that the level of public and private debt in the UK has risen too far.

Internationally, nations like Greece and Ireland are being forced to carry out drastic cuts in wages and public expenditure in order to satisfy their creditors.

But to listen to the debate one feels that John Maynard Keynes lived and wrote in vain. None of the political participants seem to have any real understanding about what the most original economist of the last century wrote.

Discussion is limited to how soon and how fast to cut public expenditure. The Tories say cut hard and fast, Labour say delay cutting unless it harms the recovery.

Neither side seems to have Keynes’ feeling for the interdependence of thrift and debt. There can be no thrift without an equal and opposite rise in debt. One person’s saving is another person’s borrowing.

If government debt is to be reduced, then some other section of the economy must move from financial surplus to financial deficit to compensate. Which other sector do the political parties propose to move into deficit?

During the lead-up to the crisis there were 3 surplus sectors : the rentier class, the company sector, and the overseas sector. These sectors were building up their financial assets. There were two deficit sectors: the state, and households, particularly working class and middle class ones who were building up their debts to the banks and credit card companies.

If the state and debtor households are to start paying off their debt, which of the other 3 sectors is to move into deficit to compensate?

Cutting public sector wages and can temporarily shift borrowing away from the state. Its first effect is to force public sector employees either into debt, or force them to run down their relatively small savings. But employees are much less credit worthy than the state, and quickly cut their consumption, throwing the deficit in turn onto the company sector and the import sector. Firms are more creditworthy than private individuals, but still less creditworthy than the state. Firms will respond with futher layoffs and wage cuts.

Falling tax revenues, increased unemployment benefits, throw the deficit back to the borrower of last resort : the government. In the meantime the productive economy has gone down the tube.

It was against this insane commonsense response to public debt that Kenyes polemicised in the 1930s.

The only sectors onto whom the deficit can be sucessfully shifted are the rentiers and the overseas sector. The rentiers could be taxed at sufficiently punitive rates to run down their financial assets. In compensation the public debt would fall, since the public debt is nothing more than a liability to this class, and within a given national economy, the public debt can only be run down by diminishing the assets of the rentier class.

The only way the assets of the overseas sector can be run down is by eliminating the trade deficit and running a trade surplus. This would imply a much more stringent devaluation of sterling than has so far occurred, which would be no bad thing from the long term working class interest here since it would slow the outward migration of manufacturing jobs.

The UK can do this, deficit countries within the Euro can not. Within the Eurozone, orthodoxy has no real alternative way of dealing with public debt but a race to the bottom like that which impoverished the world after the great crash of 1929.

But all this evades the real cause of public deficit: the growing financial assets of the international rentier class. This can ultimately be dealt with only by one of 3 expropriation processes

1)The Denis Healy solution : tax them till the pips squeak.
2)The Weimar solution : pay them off with newly created state currency to inflate away the debt.
3)The Biblical solution : anounce a jubilee and cancel all debts.