The two faces of Ed Balls

During the Labour leadership election, many people were impressed by Ed Balls' apparent conversion to a social democratic economic settlement as espoused in his Bloomberg speech.

But since then Balls has committed a Labour government in 2015 to sticking with Tory spending plans for at least the first year. He has also said that Labour will not promise to reverse Tory cuts, and that Labour would have to make more in office. He has supported the public sector pay freeze, while Ed Miliband somewhat contradictorily waxes on about the cost of living crisis.

This morning the media was filled with similar tough messages, briefing ahead of Balls' speech at the Fabian Society, including the parliamentary garbage that "Balls will promise to legislate for new fiscal rules within 12 months of the general election, including a commitment to a budget surplus by the end of the parliament". Legislate for it? Really? Will the chancellor be surcharged if the target is not met? Or will a technocrat be installed to make cuts? It really is nonsense. On the upside, it should be noted that Balls is committing to a current account surplus, which allows for borrowing for capital investment - see 'Borrowing for Growth - some advice for Ed'.

Nevertheless, like any wannabe chancellor, Balls knows how to pull a rabbit out of a hat. And so the tough, 'we'll enforce austerity too' message will be overshadowed by a debate about a modestly higher rate of income tax on a few high earners. It is very welcome that Balls has committed to restoring the 50% tax rate on those earning over £150,000. It was probably the most popular policy in Gordon Brown's premiership.

What is also welcome, and will hopefully be widely reported, is that Balls also said:

"The latest figures show that those earning over £150,000 paid almost £10 billion more in tax in the three years when the 50p top rate of tax was in place than when the government conducted its assessment of the tax back in 2012"

This corrects the crap put out by the Treasury in its dodgy dossier of the 2012 Budget. Both the move to pledge to restore the 50% rate and the analysis is welcome, and hints at a return to '
Bloomberg Balls'.

However, before Labour activists start getting weak at the knees about a return to some form of modest social democracy, Balls also told the Fabian conference that Labour supported the benefit cap, the public sector pay freeze, thought public utilities belonged in the open market, and that universal winter fuel payments for pensioners should be means-tested.

We've seen the two faces of Ed Balls today in one day. Capitulating to Osborne, the financial markets and the Murdoch media this morning, while throwing a modest redistributive morsel to the left at lunchtime. Bon appetit!

Are you really worse off? Er, yes.

Labour has recently made some headway with its message that there is a cost of living crisis - which has continued despite Osborne's recovery. This feeds a number of other important messages, including that this is a recovery for the rich, and that you're being ripped off - and so the energy price freeze fits into the same narrative.

The average non-retired household is today 6.4% worse off since the recession - that was the finding of a report by the Office for National Statistics out earlier this week. It showed that the average household income fell from £37,900 to £32,600, in real terms over the last five years.

In fact, the average household is £300 a year worse off than it was in 2002/03. There is therefore a 'lost decade' of stagnation for household incomes.

This decline in income triggered entitlement to extra benefits (e.g tax credits) so that benefits rose from providing 7.6% to 12.3% of gross income for the median household. This is fundamentally a redistribution in the cost of living from the employer to the state - as a result of pay freezes and pay caps. So when Labour talks about a structural welfare spending cap (not individual benefit caps which are disgraceful) it is alluding to this phenomenon, and pledging to deal with the structural issues - and advocating the living wage is a part of tackling low pay subsidies like tax credits.

The resonance that Labour has had with this line has rattled the Tories.

So, in a blatantly politically-driven misanalysis, HM Treasury has produced data that shows compensation for workers has stayed the same, but what they don't see is that employers are paying more in national insurance and pension contributions. The idea that wages have been cut to sustain or even increase profits is, apparently, a myth.

Sky's economic correspondent, Ed Conway, says the Treasury report explains:

"Overall compensation includes not just wages but also the social contributions made by employers, including pension contributions and National Insurance Contributions. Technically-speaking, these are forms of payment, except that because they don’t go straight into your pocket they don’t feel particularly obvious."

In fact a less kind interpretation of this Tory spin - still not on the Treasury website - is that because it doesn't goes into your pocket, it's not really payment.

So the Tory argument is that pay has gone down (Ed Miliband's cost of living crisis) due to NI contributions going up (all Gordon Brown's fault) and pension contributions going up (your fault for living longer).

However, the argument doesn't really stack up for several reasons:

1. Pension contributions have only gone up in real terms for funded pension schemes - which most workers don't have
2. Part of the reason extra pension contributions are needed are due to pension holidays taken by employers in the 1990s
3. Is the logic of the Treasury analysis of NI rise that a cut in NI would be passed on to workers in higher wages
4. If that's the case why have the cuts in corporation tax not been passed on to workers then? Because corporation tax has fallen from 33% to 28% under New Labour, and now down to 22%.
5. If we're all actually no worse off why - by official figures - are a million more of us living in poverty? Why are half a million of us using food banks this year?

(There's a more detailed and wonkish analysis by the TUC's Duncan Weldon here)

So was this just a political attack to try to blunt Labour's resonant cost of living line? If so, it's another sign of the civil service being used for party political purposes (and not the first time either).

But it's an indication that ahead of this year's Autumn Statement, Osborne has only spin to offer.

Barclays and KPMG involved in $660m tax ‘sham structure’

Prem Sikka

What are the chances that in the face of public criticisms, big business would curb its tax avoidance practices? Well, not much, as evidenced by a case decided by the US Court of Federal Claims.
Salem Financial Inc v United States relates to a complex financial transactions known as STARS (Structured Trust Advantaged Repackaged Securities). The case involved Salem Inc, a subsidiary of North Carolina based bank, BB&T.

The scheme was designed by Barclays Bank, a major UK financial institution; KPMG, one of the world’s biggest accountancy firms; and Sidley Austin, a US law firm. At the centre of the dispute is a tax liability of some US$660m.

Through collaboration with Barclays, KPMG specialised in developing transactions that took advantage of differences between international tax systems. Barclays marketed some versions of STARS to a number of corporations, including AIG, Microsoft, Intel, and Prudential. KPMG introduced the STARS transaction to BB&T at a January 17, 2002 meeting and used a slide show to outline the steps necessary for the scheme to work. KPMG had little prior business relationship with BB&T.

Contrived transactions

The key idea of the tax avoidance scheme was to generate large-scale foreign tax credits which could in turn be used to enhance revenue and reduce taxes payable by BB&T in the US. A series of transactions with circular cash flows were designed to create the tax savings.

The court noted that in essence the scheme called for BB&T to establish a trust containing approximately US$6 billion in revenue-producing bank assets. The monthly revenue from the trust was then cycled through a UK trustee, an act that served as a basis for UK taxation. Although the revenue was immediately returned to BB&T’s trust, the assessment of UK taxes generated tax credits that were shared 50/50 between Barclays and BB&T.

A US$1.5 billion loan from Barclays to BB&T was also part of the structured transaction, although the loan was not necessary to the objective of generating foreign tax credits. The Barclays monthly payment to BB&T represented BB&T’s share of the tax credits, and had the effect of reducing the interest cost of BB&T’s loan.

The main question for the 21-day court hearing was whether the STARS transaction had any purpose other than to generate tax savings, and if not, whether penalties should be assessed against BB&T. The 67-page court judgment found in favour of the government and the company has been ordered to pay US$680 million plus penalties of US$112 million.

After examining some 1,250 exhibits the judge referred to the scheme as “an abusive tax avoidance scheme” and said that the “conduct of those persons from BB&T, Barclays, KPMG, and the Sidley Austin law firm who were involved in this and other transactions was nothing short of reprehensible”.

The judge went on: “The professionals involved should have known better than to follow the STARS path, rife with its conflicts of interest, questionable pro forma legal and accounting opinions, and a taxpayer with a seemingly insatiable appetite for tax avoidance”. The whole STARS set-up was described as “a sham structure”.

Controversial pasts

Barclays and KPMG are no strangers to tax avoidance controversies. After lengthy investigations by the US Senate Permanent Subcommittee on Investigations and action by the US Department of Justice, KPMG were fined US$456 million for “criminal wrongdoing” in tax matters and a number of its former personnel were also given prison sentences. The firm has also been the subject of investigation of the UK House of Commons Public Accounts Committee, but this has not dulled its appetite for profits through the sale of tax avoidance schemes.

Barclays relies upon taxpayer guarantees for its core business, but operates a very lucrative tax avoidance business which is estimated to have generated around a billion pounds in fees each year between 2007 and 2010. Last year the UK government had to introduce emergency legislation to negate two avoidance schemes used by Barclays for its own business which could have deprived the UK Treasury of around £500 million. Despite fines and prison sentences major businesses remain addicted to tax avoidance. Public opprobrium has become just another cost of doing business.

It is time to shut down businesses who routinely pick citizens’ pockets through tax avoidance. Their schemes are undermining revenues that are much needed to revive the economy and provide education, healthcare, pensions, security and other public goods that distinguish civilised societies from the rest.

Yet the UK government continues to shower gifts on tax avoiders, KPMG continues to receive public contracts and Barclays is propped up by taxpayer-funded guarantees and loans. Only this week Ed Miliband hired KPMG’s deputy chairman for advice on low pay. Rather than giving them another consultancy job, politicians should be asking KPMG to explain the firm’s role in the erosion of social fabric.


This article first appeared on The Conversation website

John McDonnell MP's verdict on Ed Miliband's conference speech

Since Ed Miliband became leader, the strategy of the left has been to make issues safe for him by building support within and outside the party issue by issue. Only when it's safe is he confident about moving on an issue. Today's speech demonstrated that we are setting the agenda but there's so much further to go. A major housebuilding programme is needed, but it needs to be public housing alongside rent controls to stop landlords profiteering from housing benefits.

Challenging the scapegoating of unemployed and disabled people needs to be made a reality by scrapping the rigged capability tests associated with Atos and abolishing workfare. Time limited price controls won't end the rip-offs. A clear commitment to end privatisation is needed, especially in the NHS, and to bring rail, water and energy back into public ownership plus, if it goes ahead, Royal Mail. 

To tackle low pay, we need to make the minimum wage a living wage by right, re-establish trade union rights and restore a commitment to full employment. People already suspect this is a recovery for the rich and ongoing recession for the rest. This is exactly the time when people want more radical action. Make today's speech a beginning.

Borrowing for growth - some advice for Ed

Earlier this week Labour leader Ed Miliband made the case (somewhat haphazardly) for more short-term borrowing to stimulate the economy.

Not unexpectedly, Miliband's reluctance to admit that an alternative to austerity might involve borrowing was seized upon by the the right wing press.

Miliband's unease reflects a battle within Labour that has yet to be won. Seumas Milne analyses that ongoing political fight in his Guardian column. As Milne correctly observes:

"The Tories want to lure Labour into signing up for the same medicine – or a mildly watered down variant – as they did in the far more benign economic environment of 1997.

"If Miliband and Ed Balls (who still defends the 1997 decision to stick to Tory spending limits) fall into that trap, it would be a disaster – both for Labour's election prospects and the chances of rebuilding an economy that delivers for the heavily squeezed majority".

But I want to look at the economic timidity (and the power of the Tories' economic framing) that made Ed stutter in that interview.

Ed should have responded by saying this:

"Yes of course it means borrowing - but borrowing to grow the economy. George Osborne is borrowing over £240 billion more than he said, our debt is rising, because his policies are failing. He has to borrow for his failure, we would borrow for growth."

The graph to the right shows how Osborne's plan set out in his emergency budget has faltered - as many predicted it would - due to the self-defeating nature of austerity policies in an economy with already weak demand.

Labour should be ramming this home. The choice - framed by the Tories and put to Labour - is not between cutting spending or borrowing more. It is between borrowing for failure or borrowing for growth.

Ed Miliband should have had these arguments to his fingertips. The Labour leadership still seem caught in this false trap between borrowing or austerity. This stems from the acceptance of another narrative that Labour borrowing and investment in public services is the reason for the deficit today. It's not, no matter what economic illiterates like Liam Byrne scrawl.

In office New Labour spent less as a percentage of GDP than the governments of Thatcher and Major (as this graph shows) and had reduced the national debt prior to the economic collapse caused by the banking crisis (as this graph shows).

So while Ed should swat aside the silly jibes about Labour's spending, saying:

"The last Labour government invested in public services, while the governments of Thatcher and Major spent more on social failure, just like David Cameron's government today."

Finally, Labour's borrowing plans. All the World at One furore was caused by Ed Miliband's plan for a temporary VAT cut - "The point I was making yesterday was to get growth going by cutting VAT, then over time you will see borrowing actually fall. That was the point I was making."

There's a good solid case for permanently reducing VAT - a regressive flat tax - and redistributing the tax burden onto those on higher incomes (e.g. restoring 50% tax rate) or by taxing wealth (mansion tax). Assuming some revenue neutral combination of the above, there is a stimulus effect because poorer people have to spend their income, whereas the rich invest their surplus wealth. Taxing wealth of course unlocks capital.

However, a temporary VAT cut (and the timid message it sends) is hardly the most effective way of stimulating demand.

Why not instead argue for a mass housebuilding programme - that would create thousands of construction jobs (a sector where there is excess capacity) and more in the supply chain. Getting people into work (or more work) means more taxes and fewer benefits.

Building new homes, with a hefty chunk of council homes, would also meet an urgent social need and provide revenue to local government through rents. The knock-on impact of furnishing new homes would also boost the retail sector.

Housing is of course only one example, but there are others from new energy infrastructure, energy efficiency programmes to new transport networks.

By enmeshing economic stimulus with meeting social need, Labour could then mobilise thousands of people into backing their demands. But that needs the political fight to be fought and won within the party ... back to Seumas.

A Mansion Tax is fairer than Income Tax

LABOUR LAND CAMPAIGN PRESS RELEASE:

February 18^th 2013

Ed Miliband is right to look at shifting tax off incomes and on to unearned income by paying for the reintroduction of a 10p tax rate through a fairer property tax on high value homes. A home has two elements that make up its value – the building and the land it is located on. The land value is created by the whole of society not by any property owner and it is unfair that as land values rise because of public and private investments – paid for by us all as tax payers and as consumers - it is only owners of land that receive a financial windfall whereas tenants and other non property owners get nothing.

The Labour Land Campaign reminds people that the “asset rich, income poor widow“ being trundled out by some objecting to Ed Miliband’s proposal applies only to a very small group of people, and there are ways of getting around the problem, such as letting them roll up the tax payments until they dispose of the property. “Asset rich income poor” people have to pay for their gas, electricity, council tax etc today, why should those who can afford to upkeep a £2 million or more property be subsidised by those who live in modest homes, a large proportion of whom are tenants or living with family or friends.

Heather Wetzel, Chair of the Labour Land Campaign, says “Ed Miliband could do even better by reforming all property taxes and abolish business rates and council tax and replace them with an annual Land Value Tax being applied to all land according to its optimum permitted use. Such a tax would result in those homes, commercial buildings and idle development sites being used to provide more affordable homes and business premises instead of being held out of use by land speculators.

Land investors do not invest in anything; they actually speculate that land values will increase providing them with an unearned income that has been created by the whole of society. When tax payers from across the UK paid for the London Underground’s Jubilee line extension, it has been estimated that the extension cost £3.5 billion to build and land values rose by over £13 billion around the new stations because of the economic benefit the extension brought to those areas. Tax payers paid but land owners received a huge windfall that should have been collected and reinvested in public services throughout the country.”

If the London to Birmingham/Manchester and Leeds high speed railway (HS2) were funded in the same way then many local rail improvements including CrossRail 2 (Hackney to Chelsea) could be sustainably funded.

ENDS

 
For more details contact Steven Clarke at steven.clarke@labourland.org, or visit www.labourland.org.

Redistributing ... to the rich

Andrew Fisher, LEAP co-ordinator looks beyond the fluff to discover the real issues in the Budget. (This article first appears in the May 2012 edition of Labour Briefing)

Pasty tax, charity tax, granny tax and even caravan tax – if you live too much of your life on planet Twitter then you’d be forgiven for thinking these were the main issues in the Budget.

I admit, as someone who doesn’t tan I was initially perturbed about #pastytax until I realised it referred to Cornish pastries rather than a lack of cutaneous pigmentation.

But the real stories of the Budget – involving the big billions – were about the more commonly known income and corporation taxes. Osborne gave corporate Britain another cash giveaway: taking corporation tax down from 26% to 24%, and committing in his statement to reduce it further to 22%, with the aspiration of reducing corporation tax even further.

"So that by 2014, Britain will have a 22% rate of corporation tax ... And a rate that puts our country within sight of a 20% rate of business tax that would align basic rate income tax, the small companies rate and the corporation tax rate."

This largesse to big business will cost the Exchequer an extra £3.76bn in the period covered by the spending review. This is on top of the £25bn in tax breaks for business announced in 2010 which included Osborne's commitment to cut corporation tax from 28% to 24% over four years.

Now Osborne will cut taxes for big business to 22% over the same period. It is not as if the previous government had been loading the tax burden on business either. Under the New Labour, corporation tax fell from 33% to 28% – which LEAP estimated cost the exchequer £50bn over 13 years.

So how does Osborne's new corporation tax rate compare with other countries? He was kind enough to tell us in the Budget:

"A headline rate that is not just lower than our competitors, but dramatically lower. 18% lower than the US. 16% lower than Japan. 12% below France and 8% below Germany. An advertisement for investment and jobs in Britain."

 So more like ... Ireland? And by coincidence that is a country that Osborne deeply admires. It was Osborne who said in 2006, "Ireland stands as a shining example of the art of the possible in long-term economic policymaking". The problem isn’t that Osborne said that in 2006, but that he still believes it now!

Ireland has been through an even more adverse austerity shock doctrine than Britain, and has slipped back into recession this year. Slashing corporation tax simply undercuts the tax base and hinders recovery.

But it does something else – it redistributes wealth. Lower corporation tax means larger net profits, so instead these larger profits go to large shareholders in dividends and directors in bonuses.

Those same directors will be laughing all the way home from their banks thanks to Osborne slashing the top rate of tax from 50 to 45 per cent. That will cost £3bn per year, which will stay in the pockets of the richest 1% in the country.

This was the issue that Ed Miliband led on when he rose in the House of Commons to challenge the Chancellor’s Budget. It was an uncharacteristically forceful performance, coruscating Osborne for cutting taxes for his Cabinet mates and their chums, while doling out austerity for the 99%.

Of course, Ed Miliband went from that to photo opps in Greggs, and jumped on every bandwagon (or should that be caravan?) going. Now he leads the charge against cutting tax reliefs for wealthy philanthropists – from class warrior to woolly liberal in two weeks. It is a snapshot of his leadership – vacillating, inconsistent and ultimately inconsequential.

So back to the Budget. The lost corporation and income tax revenue requires other taxes to rise to make up the void and/or public spending is cut.

In a throwaway remark, Osborne casually added that to balance the books “we would need to make savings in welfare of £10 billion by 2016”. This is on top of the £20 billion in welfare cuts already set out and being implemented with much misery and resistance.

What was unique about this comment, was that when you delved into the Budget Red Book (the lengthy tome that accompanies that parliamentary pantomime) there was no detail. In fact all you could find is that the precise figure is £10.5bn and neither Treasury nor social security ministers could say where a penny of these new cuts would fall.

The Budget highlighted that we have an incompetent government waging class war let off the hook by a pallid (some might say pasty) opposition.

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Two Eds aren't better than none

It's been a demoralising spectacle watching senior Labour politicians attempt to announce their 'fiscal credibility'.

Far from being on the side of the economics gurus, the two Eds have lined up with George Osborne as austerity enthusiasts - to be condemned by Nobel Prize winning economist Joseph Stiglitz.

The last time we had a consensus such as this was the 1930s, and Unite general secretary Len McCluskey was right to invoke the spectre of Philip Snowden in his Guardian article today excoriating the two Eds.

McCluskey's riposte was in response to Ed Balls' Fabian speech on Saturday, and various media interviews, during which he said: "There is no way we should be arguing for higher pay", and supported the pay freeze followed by pay restraint policy of the Tory-led coalition.

Indeed with failing consumer demand and rising living costs, why would higher pay be important? Best to just drive wages down to ensure what? More loan and mortgage defaults, less consumer demand and VAT revenues, lower income tax revenues, more stress, anxiety and suicides (that inevitably accompany money worries).

Ed Miliband went on the offensive via Twitter today (as Len McCluskey started trending). Ed tweeted:

"Len McCluskey is entitled to his views but he's wrong. Im changing Labour so we can deliver fairness w less money.That means tough decisions"

Less money? Really? Rolls Royce and Bentley sales are up over 30% in the last year, while executive pay shot up by 49%. The tax gap is £120bn, the money's there - you just need to get it.

Tough decisions? Really? Why not take a 'tough decision' to scrap Trident, cancel Osborne's proposed reductions in Corporation Tax or raise the 50% tax rate to 60%?

So the two Eds weren't being credible, just capitulating to the Tories failed economics of austerity. They weren't making 'tough decisions' either, just ones already written for them by the leader writers of the Times and the Telegraph.

Miliband offers only hot air on energy

The report by Ofgem last week showed the profit margin for energy companies has risen to £125 per customer per year. It expressed concern at the rampant profiteering by energy companies. This is important - let's remember that every winter an extra 20-30,000 pensioners die due to cold-related illnesses. With prices having risen by 10-20% this will be a life or death issue for tens of thousands this winter.

The Ofgem report did not surprise us; in March 2011 we published our report 'Restoring the Public' and noted:

The unusually cold winters in the past two years, and large margins, have led to bumper profits for energy suppliers such as British Gas, whose profits rose by 24% in 2010. The regulator Ofgem has found that energy companies increased their net profit margin per customer by 38% last November, and is currently reviewing energy prices. However the case for a windfall levy now is not in conflict with future recommended reforms to regulation.

At that time we advocated a windfall tax on these excessive profits. It's clear though that seven months later, the energy companies remain unconstrained by regulation. Ofgem deliberately does not have the teeth to prevent excessive profiteering.

In retrospect our call for a one-off windfall tax, combined with the review of regulation, underestimated the problem. Let's face it: no review of regulation under the current government is likely to constrain business to benefit consumers.

Ed Miliband writing in the Sunday Mirror, continues his 'moral capitalism' theme from his Labour Party conference speech, stating "there is nothing to stop those power companies giving up those profits".

But there is! The very reason the companies profiteer is because their purpose is to maximise profits for their shareholders. Ed's plea is as asinine as Vince Cable repeatedly imploring the banks to lend more. The lesson is companies (as they are designed to do) will act in their own interest, not the public interest (unless the two happen to coincide - rare).

If Ed Miliband wants cheaper energy prices exhortations are not enough. Neither would be his other plan: "more competition". More companies will act exactly the same as the big five already do - because they will also want to maximise profits.

The only permanent solution is public ownership. If something is 'too important to fail' as the banks and energy companies are then they have to be run in the public interest - that means control.

If Ed Miliband is going to inspire voters to return to Labour he needs something that will electrify the electorate. His current gas is just hot air.

Public sector pensions: the economic crisis debate in microcosm

It occurred to me today that the debate over public sector pensions is actually the debate about the economic crisis in microcosm.

Few deny we have a large deficit. Few would deny that the UK economy is in its most fragile state for a long time. Fewer still would argue that 'something' needs to be done about it. What that 'something' is the subject of vociferous debate.

For the Conservatives (the right, politically and economically) this is the time to wheel out the classic Friedmanite arguments. The crisis, so they allege, was caused by a 'bloated public sector', us 'living beyond our means', 'maxing out the nation's credit card' and 'not fixing the roof when the sun was shining' - from the ideological to the hokey.

Hence why the government states that public sector pensions must be slashed by £2.8 billion per year to pay for the deficit as they are part of that bloated public sector. They'll tell you that 85% of public sector workers have an occupational pension compared to less than 35% of private sector workers, that pensions are gold-plated, that "the pension system is in danger of going broke".


As we know from the Hutton report, the National Audit Office, the Institute for Fiscal Studies and the Public Accounts Committee (and this humorous interview with the witless Francis Maude) public sector pension schemes are not on the verge of implosion, and the pensions are not gold-plated, in fact they average about £5,500 per year. But why let the facts get in the way of a good ideological crusade against the public sector.

Next we come to the middle of the road. Some would call this the centre, but that gives it the illusion of reasonableness, careful impartiality and a thought-out position. Whereas the middle of the road is a completely illogical place to stand. Indeed, as Aneurin Bevan once said, "We know what happens to people who stay in the middle of the road. They get run down". In this group we find the hapless Ed Miliband, leader of the Labour Party, who I think it's fair to say bears a certain resemblance to soon-to-be roadkill; that caught in the headlights blank stare reflecting a completely illogical reaction to the current circumstance.


In Ed Miliband's case this is because the last Labour government, of which he and most of his shadow cabinet were members, re-negotiated public sector pensions - and as such made them entirely affordable. In fact as the Hutton report shows, the costs are falling. Nevertheless, Ed Miliband is determined to stand in the middle of the road and look stupid. So he condemns the Tories for not negotiating seriously, and also condemns the unions for striking against the Tories.

Sadly for Labour this same half-arsed mess is mirrored in their economic policy. They too think the public sector got a bit too big, especially on welfare (Byrne, Miliband, Purnell, etc) and there's too much immigration (Glasman, Miliband, Rutherford). What to do then? Well they've moved away a little bit from the clearly right wing response of Alistair 'cuts deeper than Thatcher' Darling, and now think the cuts are too far and too fast. So they would cut less and slower, but nobody likes to mention what (except for welfare and immigration, to triangulate to the Daily Mail because voters will clearly not see the Tories as more active on those issues). Remember, middle of the road = stupid.

Finally, we have the left represented today by only a handful of politicians, but more importantly by the trade unions and a number of other democratic civil society organisations. They, like the right have a narrative. In short, 'the finance sector caused this crisis, those on low and middle incomes shouldn't be made to pay for it'.


On pensions therefore they point out the voluminous evidence produced by mostly centrist organisations (see above) that show public sector pensions are affordable, sustainable and fair - and make reasoned arguments to that effect.

On the wider economic question too, the trade unions have also put forward a clear alternative (see Unite and PCS for example) that also rejects the needs for mass public spending cuts as counter-productive for the economy.

And so the fight to defend public sector pensions is really about who was to blame for the economic crisis and what we do about it. Like 1974, it's the government or the unions. Which side are you on?

Why has Labour not supported the Robin Hood Tax?

Thursday's Morning Star reported that the Labour frontbench failed to back a Labour backbench amendment to the Finance Bill that would have forced the government to report on the feasibility of introducing the modest 'Robin Hood' Tax on financial transactions.

The parliamentary debate can be viewed via Hansard, and I particularly recommend the moving speech by John McDonnell MP (excerpt below) but what is shocking is that such a moderate proposal with such widespread appeal was opposed by the Labour frontbench. In fact only 25 MPs voted for it, and they were:

Gregory Campbell (DUP), Ronnie Campbell (Lab), Jeremy Corbyn (Lab), John Cryer (Lab), Frank Dobson (Lab), Mark Durkan (SDLP), Jonathan Edwards (Plaid), Andrew George (LD), Kate Hoey (Lab), Kelvin Hopkins (Lab), Stewart Hosie (SNP), Elfyn Llwyd (Plaid), Caroline Lucas (Green), Angus MacNeil (SNP), William McCrea (DUP), Alasdair McDonnell (SDLP), John McDonnell (Lab), Andrew Miller (Lab), Austin Mitchell (Lab), Margaret Ritchie (SDLP), Angus Robertson (SNP), Dennis Skinner (Lab), Mike Weir (SNP), Eilidh Whiteford (SNP), Hywel Williams (Plaid), David Winnick (Lab) and Mike Wood (Lab).

The question John McDonnell MP rightly asks is why the Labour frontbench has refused to support calls for Robin Hood Tax. Another opportunity to lead a progressive, popular campaign lost. As this was a Treasury issue, why did shadow Chancellor Ed Balls not back it? And why has Ed Miliband missed an opportunity to support this policy and place Labour back at the head of a progressive coalition?

John McDonnell: I can think of no better day on which to debate this issue, having seen the pictures shown on our television screens last night and today of the tragedy that is taking place in the horn of Africa. This morning, Radio 4 broadcast the story of a family—parents with one child—who had walked for miles to the aid station, only to find that the one-year-old child had died as a result of suffering the drought and famine. I also commend last night’s “Dispatches” programme, presented by Jon Snow, which identified the activities of Rachmanite landlords in west London. Some of those landlords operate in my constituency, and the matter has been raised in the Chamber in the past. It demonstrates the poverty that still exists in this country.

On a personal note, let me say that this morning I received letters from children at Cherry Lane primary school in my constituency as part of their campaign to encourage politicians to think about how we can fund education in the developing world so that children there can go to school. That is what my proposal is all about.

When the transaction tax was relaunched last year as the Robin Hood tax, it was supported by a wide range of churches and religious organisations. I will not name them all, but let me give Members a flavour of them. They included the Trades Union Congress, Crisis, Action Aid, Article 12 in Scotland, Barnardo’s, the Catholic Fund for Overseas Development, Christian Aid, Church Action on Poverty, Comic Relief, the Church of Scotland’s Church and Society Council, the Christian Socialist Movement, the Disability Alliance, the Ecumenical Council for Corporate Responsibility, EveryChild, Family Action, Faith2Share, Friends of the Earth, the General Assembly of Unitarian and Free Christian Churches, Greenpeace, Oxfam, Quaker Peace and Social Witness, Save the Children, Tearfund and the Salvation Army.

That was the largest alliance of civil society organisations that we have seen in generations campaigning on a single issue, and, as you know, Mr Speaker, they came here last month. Twelve hundred people came to Parliament, and met us in Central Hall over a cup of tea. The event was organised in particular by Oxfam, Action Aid, Save the Children, Tearfund, CAFOD and Christian Aid, and their message was simple: 1 billion people have no access to clean water and 2.5 billion lack basic sanitation, and it is time for change and action.

Read full speech and debate and online

Fence-sitting Labour needs a push to the left

Last week, on 22 June, MPs debated the economy. It was an 'opposition day' in the House of Commons, which means the opposition party tables a motion for debate on a subject of its choosing.

The Labour frontbench chose the economy - neatly on the first anniversary of George Osborne's 'Emergency Budget'. Their motion is set out below:

That this House notes that on 22 June 2010 the Chancellor announced his first Budget with a target to eliminate the structural deficit by 2015-16 through an additional £40 billion of spending cuts and tax rises, including a VAT rise; further notes that over the last six months the economy has not grown, in the last month retail sales fell by 1.4 per cent. and manufacturing output fell by 1.5 per cent. and despite a welcome recent fall in unemployment, the Office for Budget Responsibility predicts that future unemployment will be up to 200,000 higher than expected; believes the Government’s policies to cut the deficit too far and too fast have led to slower growth, higher inflation and higher unemployment, which are creating a vicious circle, since the Government is now set to borrow £46 billion more than previously forecast; calls on the Government to adopt a more balanced deficit plan which, alongside tough decisions on tax and spending cuts, puts jobs first and will be a better way to get the deficit down over the longer term and avoid long-term damage to the economy; and, if the Government will not change course and halve the deficit over four years, demands that it should take a step in the right direction by temporarily cutting VAT to 17.5 per cent. until the economy returns to strong growth and by using funds raised from repeating the 2010 bank bonus tax to build 25,000 affordable homes and create 100,000 jobs for young people.

Very moderate stuff - and still the 'too far and too fast' line. However, it would be foolish not to recognise that this is progress from the "cuts deeper than Thatcher" line of Alistair Darling barely more than a year ago.

The pledge to cut VAT and re-institute the bank bonus tax should be welcomed as the modest, progressive measures that they would be - esepcially since they advocate hypothecating the revenue into affordable house-building (though not council house-building) and job creation to tackle youth unemployment.

However trade unions and Labour Party members still have much further to go to move the party to a more radical position of 'no cuts' - although very welcome that Unite's Executive has passed this very clear policy.

There is the sense of a real battle going on within the Cabinet at the moment. It has also manifested itself over the 30 June strikes with Ed Balls initially breaking cover to say "The trade unions must not walk in to the trap of giving George Osborne the confrontation he wants to divert attention from a failing economy". He neither supported nor condemned the strikes.

On Saturday, Ed Miliband told the Guardian the strikes were a "mistake" and said "I don't think the argument has yet been got across on public sector pensions as to some of the injustices contained on what the government is doing. Personally I don't think actually strike action is going to help win that argument and I think it inconveniences the public" - seemingly not having looked at polls showing 48% of the public supported public sector workers striking to defend their pensions, with only 36% opposed.

But later on Saturday, Peter Hain saluted trade unions "fighting for justice" in the public sector, and followed that up with an appearance on Andrew Marr where he said "One of the things that's led to this situation is the government's reckless and arbitrary attack on public sector pensions without being willing to negotiate. I mean here's Michael Gove coming on your programme and he's urging parents to break strikes. That's not a responsible way of resolving these situations". He also added it was not for Labour to urge union members to go to work saying political leaders should be trying to resolve strikes, not applauding or condemning them.

The question Labour is failing to clearly answer is 'which side are you on?' Labour continues to sit on the fence. It needs members and unions to give it a firm push to the left.

Pensions attack brings tipping point nearer

On both sides of the Atlantic, a massive onslaught is under way with the single purpose of dramatically reducing the share of national wealth going to working and retired people in favour of the rich, powerful elites who own and control the economy.

This is not an “ideological attack”, as some trade union leaders in Britain claim, but capitalism trying to “solve” the crisis that has enveloped the system since 2008 in the only way known to it.

The global market for commodities has shrunk, with recession and unemployment taking over. As the low-cost Chinese and Indian economies seize the initiative, corporations operating in North America and Europe are desperate to drive down costs and increase the surplus going to shareholders as the basis for “renewed growth”.

In Britain this week alone, the Coalition launched its historic attack on welfare benefits, including the disability living allowance (DLA), and published proposals that undermine public sector pensions. The aim is to cut DLA expenditure by 20% by 2015-16. The Disability Alliance says: “We believe the new approach risks over 835,000 disabled people losing what is often described as an essential ‘lifeline’ of support.”

Yesterday, with considerable help from Labour peer Lord Hutton, public sector pensions were hung out to dry. Under the plans, firefighters and others will have to work well into their 60s, pay more in contributions and receive less in pensions than at present. Pay more for less, in other words.

Yet, as a table in the Hutton report shows, the actual cost of the present public sector pensions scheme as a share of national income is forecast to decline over the next 20 years. So this is all about spending cuts and a redistribution of wealth to the private sector.

Which is the story in Wisconsin, where a union-busting law has been railroaded through the state legislature by Republicans against a background of mass opposition which has included sit-ins and demonstrations into the early hours of the morning. The Wisconsin bill “could spell the beginning of the end of public-sector unions,” warned former US Labour Secretary Robert Reich.

Collective bargaining rights are substantially eroded and state workers have to pay 5.8% of their salary toward pensions and 12.6% of their health-insurance costs. Calls for a state-wide general strike are under discussion. Similar moves are afoot in Ohio as states face up to a combined debt of $100 billion that results from the recession.

In Britain, as in the United States, the question is how to fight against capitalism’s attempts to make workers pay for the crisis. In Britain, it certainly cannot be through the Labour Party which is essentially glove in hand with the Coalition. Labour-controlled councils have, for example, passed on government spending cuts at town hall level.

Labour leader Ed Miliband, who favours a “fairer”, “prosperous capitalism”, instructed his backbenchers this week to abstain (!) on the government’s anti-welfare legislation, leaving a handful of MPs like John McDonnell to do the right thing and vote against. Why did Miliband do this? Because many of the government’s proposals actually follow from attacks on benefits begun by New Labour, so there is no disagreement in principle between the two major parties.


While trade union leaders lined up to attack the Hutton report and threatened strike action, Labour’s response was muted to say the least. Angela Eagle, shadow chief secretary to the Treasury, only said that “it would be deeply unfair for public sector workers to disproportionately bear the brunt" of what were “tough choices”. Thank you and good night.

Add in soaring prices for food and fuel, rising unemployment, the attack on the NHS and other public services and you sense that a tipping point is coming. Most people will soon find it simply impossible to get by. When that occurs, the road to take will be more like Egypt’s ongoing revolution than one-day protest strikes and lobbies of an undemocratic Parliament stuffed full of pompous, self-seeking “representatives”.

Paul Feldman
Communications editor
www.aworldtowin.net

Miliband also in denial

If Colonel Gaddafi is said to be “delusional”, believing that all Libyans love him when clearly they do not, where does that leave Ed Miliband? At best he is in denial about 13 years of New Labour. At worst he takes no responsibility for his actions and ought to seek help.

In a somewhat astonishing – for the wrong reasons – speech yesterday, he reeled off statistics that confirmed the growth of inequality in the period 1997 to 2010. Can any of us forget that this was the period of massive Labour majorities under Blair and Brown, and when Miliband was in the cabinet?

Yet, ultimately, Miliband, apparently Labour’s present leader, could only tell his audience: “The task is to create a more prosperous capitalism but also one that is fairer than we had before the financial crisis.” Excuse me?

In the period we are talking about, capitalism was indeed “prosperous”. It was just that it was at the expense of working people’s wages and conditions. Bankers and CEOs of transnational corporations did not go hungry or homeless in this period, in which inequality grew apace.

As the power of globalised capital to dictate to governments and trade unions grew, so the share of wealth going to those actually working fell. The wage share of annual national income (GDP) rose to a high of 64.5% in 1975, falling to a record post-war low of 51.7% in 1996. From then it recovered slightly to reach 55.2% in 2001 before slipping back to 53.2 per cent in 2008 – close to where it was more than a decade before. In the United States, by the end of 2006, the share of national income going to wages and salaries in 2006 was at its lowest level on record, with data going back to 1929.

As the 2009 TUC report Unfair to Middling explained:

The declining wage share has been driven by the introduction of flexible labour markets since the 1980s (with the paring back of employment protection rules); economic liberalisation (including privatisation); the increasing constraints on collective bargaining; a reduction in the demand for unskilled labour resulting from technical change; and the global transfer of jobs triggered by globalisation.

This is the new world order that New Labour embraced with enthusiasm. Instead of wages, workers could get easy credit in a modern version of living on tick. The whole growth system of capitalist production and finance became driven by debt until it went down in flames in 2008. Of this, Miliband had nothing to say.

No apology for giving the financial sector carte blanche, for restricting union rights, for allowing inequality to grow. Just platitudes about how “our economy has become progressively less fair and the losers have been those on middle and low incomes.

He warned,however, of an impending cost-of-living crisis as a result of rising food and fuel prices. These will further erode the wage share of GDP, which accelerated in the last two years of the previous government. This is how capitalism “solves” its crisis. It destroys jobs and living standards because that’s all it knows. With the global debt crisis still reverberating, the attack on living standards will intensify because that’s how the system functions.

Miliband did not contemplate how the soaring cost of living in Britain, alongside mass unemployment and short-time working, could easily turn into a movement for social change, much as it did in Tunisia and Egypt. Just as well, because Labour is a party of big business, making the cuts at town hall level, and will be just as
much in the firing line as the ConDem coalition when the working people of Britain decide that enough is enough.

Paul Feldman
Communications editor
www.aworldtowin.net

VAT rise 'will backfire'

As the Morning Star reports today, there is unanimous condemnation of the VAT rise that took effect yesterday, 4 January:

The coalition government landed its latest body blow on Britain today with a VAT rise that critics warn will combine with brutal job cuts and rising inflation to create a perfect storm of misery for ordinary people.

Multimillionaire George Osborne's tax rise on most goods and services from 17.5 per cent to 20 per cent - the highest rate in British history and among the highest in Europe - drew criticism from politicians, trade unions and economists on both the left and right.

As the rise came into effect yesterday Mr Osborne boasted that it was a "necessary step towards Britain's economic recovery."

The Chancellor says that the change will raise £13 billion a year.

But Labour leader Ed Miliband accused Mr Osborne of "treating the British people like fools" and said that "everybody knows it's poor and middle-income families that will be hit hardest."

Retailers themselves have warned that the measure will backfire and depress spending in high streets and drive inflation, which is already outstripping the bulk of pay rises for workers in Britain.

The Chartered Institute of Personnel Development has predicted that the VAT rise, along with the government's spending cuts, will see more than 1.6 million jobs lost in both public and private sectors by 2016.

CIPD chief economic adviser John Philpott warned last year that 250,000 private-sector jobs losses will come from the VAT rise alone.

The cost of basics such as petrol, food and clothing all rose, as did everyday luxuries such as beer - with the GMB union warning that the rise puts thousands of pubs at risk.

Left economists told employers to expect rising anger among ordinary people hit by rising prices and lower incomes.

"Combined with above-inflation fare increases, the public-sector pay freeze and welfare cuts there will be a real squeeze on spending again this year, which will inevitably increase demands for higher pay settlements," said Left Economics Advisory Panel co-ordinator Andrew Fisher.

"Pay will therefore increasingly become the central issue for industrial disputes.

"The profitability of Britain's corporate sector is at near record levels and this VAT rise could easily be absorbed by retailers.

"Instead however they will pass on the costs to the public through higher prices and potentially job cuts in the retail sector."

Trade unionists argued that far more than £13 billion could be saved from targeting tax avoidance by big businesses.

TUC general secretary Brendan Barber said: "Raising VAT, while failing to tackle the tax loopholes exploited by big businesses means that ordinary people will soon pay a higher rate of tax on purchases and earnings than the banks pay on their profits."

And Communist Party of Britain general secretary Rob Griffiths called for a windfall tax on the super-profits of retail, pharmaceutical, banking and energy monopolies.

Even Professor Philip Booth of the pro-business Institute of Economic Affairs argued: "If the government insists on increasing taxes there are better candidates than a general VAT rise."

Evidence of the 'squeezed middle'?

Labour leader Ed Miliband, and the rest of the Labour frontbench now seem to be triangulating towards a group they have dubbed the 'squeezed middle' although he seems a bit confused about who the 'squeezed middle' is.

The term has been coined by the Resolution Foundation (RF), which seems a fairly New Labour-ish kind of think-tank populated by the usual pretentious canape-devouring circuit that churns-out 'influential' waffle at an impressive rate.

Still at least RF knows what it means by the 'squeezed middle': "the 11 million households who (sic) earn between £12,000 and £30,000 a year". To most people that might look the vast majority of the working class, and really would be better described a low income households (full-time on the minimum wage is over £11,500), and indeed as well as using the political soundbite 'squeezed middle' they also use the more prosaic epithet "low-to-middle earners".

The language is important here: why from "low-to-middle earners" has Ed Miliband adopted "squeezed middle". Admittedly, "shat-upon-poor" is less acceptable to the Daily Mail, but it seems the concerns of the poor or low paid are so illegitimate as to be irrelevant to the new Labour leader (should that 'n' be capitalised?).

Miliband actually appears to be crow-barring higher earners into the "squeezed middle" too - stating those having child benefit removed are also the "squeezed middle".

Clearly Miliband is confused.

However, there is no reason for him to be: the low and middle income households are indeed being squeezed. Serious evidence of this was published this week by the Office for National Statistics in their Family Spending survey which showed for the first time (in the 10 years the data has been published in this way) UK household spending declined over the last year.

In 2009 the average household spent £455, down from £471 in 2008. With unemployment rising, short-term working, and pay freezes it is not surprising that households tightened their belts over this period.

The risk must be that with unemployment still high, and likely to rise further, there could be a continued downward slump. It is also clear evidence of the need for policies that are redistributive rather than regressive. With the Coalition cutting jobs, freezing pay and slashing benefits household expenditure will tighten further.

The squeeze exists, but not exclusively for the middle.

Is the cuts consensus crumbling?

Since the story switched from 'bad banks' to 'bloated public sector', at some point in 2009, there has been a political consensus in the UK which included the three main political parties and the mainstream media. This consensus was that cuts on an unprecedented scale where necessary to avoid economic oblivion, caused primarily by lavish public spending.

The consensus was economic nonsense, but ideological cover for attacking the last vestiges of public ownership (e.g. Royal Mail, the NHS and education) and the welfare state.


Finally, this consensus seems to be crumbling. The TUC in September highlighted the unions' opposition to cuts, and the pamphlet published by the PCS union 'There is an Alternative' probably the most articulate destruction of the cuts consensus. Tens of thousands of copies have been distributed at the TUC and party conferences, to PCS activists, and to the wider movement. Tax justice campaigner Richard Murphy said of it "This is very good, from PCS. I know because people in the Treasury told me so."

Following on from the TUC, the Labour Party's new leader Ed Miliband used his first speech to chart a different course from the Darling-Brown axis (which was championed by the defeated David Miliband). The excerpts are below - it's not quite earned him an invite to LEAP, but it does represent a shift in direction:

Economics teaches us that at a time of recession governments run up deficits.

We were too exposed to financial services as an economy so the impact of the crash on the public finances was deeper on us than on others.

We should take responsibility for not building a more resilient economy.

But what we should not do as a country is make a bad situation worse by embarking on deficit reduction at a pace and in a way that endangers our recovery.

The starting point for a responsible plan is to halve the deficit over four years, but growth is our priority and we must remain vigilant against a downturn.

You see, it's obvious really, when you cancel thousands of new school buildings at a stroke, it isn't just bad for our kids, it's bad for construction companies at a time when their order books are empty.

It's not responsible, it's irresponsible.

When you deprive Sheffield Forgemasters of a loan, a loan from which government would be paid back, you deprive Britain of the ability to lead the world in new technology.

It's not responsible, it's irresponsible. And we should say so.

And when you reduce your economic policy simply to deficit reduction alone, you leave Britain without a plan for growth, which is what this government has done.

No plan for growth means no credible plan for deficit reduction.

Ed Balls, who to be fair was heading in this direction earlier, used his speech to Labour Party conference to say we had to "put growth and jobs first" and he reminded delegates that Ramsay MacDonald had said there was no alternative to cuts (he didn't add that much of the previous new Labour government said that too and many of them have joined: Hutton, Milburn; and Mandelson offered to).

This shift in Labour policy will also be bolstered by the Guardian/ICM poll published today, which shows that "43% now saying the cuts have gone too far compared with the 37% who think the balance is right. By contrast, in July 39% thought the balance right, and 38% said too far".

Given the cuts have yet to be outlined in full until 20 October, and many of those announced have yet to impact, this should be a worrying trend for the coalition government.

It's up to all of us to kill off this consensus, and build the opposition. Today, there are reasons for optimism.