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Alistair Darling- New Labour implodes

tim — Sun, 07 Sep 2008 14:10:01 +0000

The August 30 Guardian interview with Britain’s Chancellor Alistair Darling was extraordinary in many respects. In the first place there can be few occasions that so dramatically reveal the sense of profound crisis within ruling circles in Britain.

Darling admitted to Decca Aitkenhead that the economic times we are facing “are arguably the worst they’ve been in 60 years… And I think it’s going to be more profound and long-lasting than people thought.”

Within 24 hours, he was accused of undermining confidence in Britain’s economy to such an extent that the pound hit a record low against the euro and a two-year low against the dollar. The FTSE 100 shares index also fell sharply.

Darling had committed the cardinal sin of stating openly, if still guardedly, that economically things are really bad and likely to get worse. His choice of 60 years was somewhat arbitrary. He could not mention the 1970s as many have done without raising the spectre of mass movements of workers bringing down governments. And references to the hungry thirties were similarly beyond the pale. But even such a partial acknowledgement as his was considered a serious blunder, even though only last week the Bank of England’s deputy governor, Charles Bean, had warned that the economy is facing a period “at least as challenging” as the 1970s.

Ian Stannard, a senior currency strategist at BNP Paribas, told the press, “Most people believed that things were probably deteriorating faster in the UK than the government was admitting, but the fact that we’ve seen the chancellor come out and admit that things are far worse have put sterling under pressure.”

The reaction was swift from both the government and the media. Prime Minister Gordon Brown instructed Darling to make a humiliating explanation of how he had been misinterpreted and was in fact focusing on the “unique problems” facing the “global economy.” Brown’s own speech to the Confederation of British Industry delivered Thursday was leaked in advance, in which he again emphasised that the problems facing Britain are international in origin, centering in the credit crunch, and that Britain was in fact well-placed to weather any downturn.

One senior Labour figure declared baldly to the Guardian, “Alistair must be insane. There is no rhyme, nor reason why he would want to talk like that.” The Financial Times declared scathingly that his “prognosis” on the economy “is too bleak,” whereas his fretting about the state of the Labour government “is nowhere near bleak enough.”

The ferocity of the reaction to Darling’s comments itself belies such efforts to belittle his estimation of the gravity of the economic crisis. Even as they were being made, reports were published that the British economy was at a standstill in the second quarter of the year, after a revision of figures wiped out the 0.2 percent growth reported earlier. The number of permanent jobs available had also plunged to its lowest level since 2001, with unemployment rising by about 70,000 this year and predicted to hit two million by Christmas. The manufacturing sector shrank for the fourth month in a row.

Mortgage approvals fell to 33,000 in July, the lowest since data was first collected in 1993, with the number of new mortgages issued down 71 percent in a year. House prices fell in August for the eleventh consecutive month and are now falling at an annual rate of over 10.5 percent.

Even as Darling was being decried for his candor by the Telegraph, the newspaper published an estimate by one of Britain’s foremost economists and former Bank of England policymaker, Charles Goodhart that “Britain is now facing a severe recession which will last for a year or longer and a worse housing crash than in the early 1990s”. Two days later, the Organisation for Economic Cooperation and Development (OECD) predicted recession for Britain, even while the other G7 countries will see either modest growth or a standstill.

If all that Darling’s interview confirmed was the dire state of the economy it would be interesting enough. But the chancellor’s comments provided a revealing glimpse into the deep sense of crisis gripping a Labour government that is on the verge of implosion. His interview reads like a cry of despair by someone who does not want to carry the can for Labour’s failure, but apart from this sees no way out.

Labour’s worship of the market

The government’s mantra, echoed here by Darling, that it is merely the victim of an unfavourable international situation should be opposed on many fronts. New Labour earned its place in power by breaking with reformism and embracing Thatcherite economic nostrums. It was the political vehicle through which big business set out to impose a discredited economic and political agenda on a hostile population.

With the Conservatives hated and unelectable after 18 years in power, it was Labour under Tony Blair and Gordon Brown that came in to continue where Margaret Thatcher and John Major had left off. Labour insisted that capitalism was not only triumphant, but that there was also no alternative to it. It was the best of all possible worlds, provided only that government abandon all attempts at national regulation and recognise the economic and political imperatives of globalised capitalist production and the need to be internationally competitive.

To this end old-style reformism must give way to government in partnership with corporate management, wholesale privatization of state assets and public services and unbridled speculation by the City of London presided over by a Bank of England set free from governmental control. Above all workers should heed the message from the government and their allies in the trade union leadership—that the class struggle was a thing of the past and participation in creating a globally efficient economy would raise all boats.

For ten years, this provided the ideological justification for Labour facilitating by every possible means a historically unprecedented transfer of societal wealth to the super-rich. With the actual wages and purchasing power of working people in constant decline, and vital social services being gutted, Labour became ever more alienated from its former working class supporters. But it was able to maintain power to the extent that a speculative boom in house prices and a flood of credit allowed people to live well beyond their actual means.

Once this speculative boom burst internationally, it was inevitable that it would hit the British economy hardest of all and would signal the end of the Labour government.

The biographical material on Darling contained in Aitkenhead’s interview is sketchy, but revealing in painting a portrait of someone who was an ideal New Labour apparatchik.

She notes that while “A blaze of glitzier New Labour stars have since fallen… Darling survived, accumulating five ministerial posts on a stainless ascent to the exchequer last year. His career had been distinguished by an almost freakish absence of failure. He has never lost an election, he joined the front bench after just 12 months in parliament, and 20 years later he has never left. Only two other members of that first cabinet, Gordon Brown and Jack Straw, are still in government with Darling today.”

This rise to prominence is incredible because Darling’s own statements make clear that he is a political zero—someone with no connection to the Labour Party, old-style reformist socialism or the working class. Both his grandfathers were Liberals, his great-uncle a Tory MP in Edinburgh, and his father, a civil engineer, voted Conservative. He was educated at a private boarding school before studying law at Aberdeen where he stood for election in the student union, “but not for a party.”

He only joined the Labour Party 1977. This was a year during which Labour was in coalition with the Liberals and imposing IMF-dictated austerity measures that met with fierce resistance from the working class and ended with the 1979 “Winter of Discontent” and the election of the Conservatives. Darling’s response? “The Labour government in 1977 was in a terrible mess, and I was getting fed up looking at all these things on the television, and thinking, God, surely we can do better than that. I wanted to do things. But I was never really interested in the theory of achieving things, just the practicality of doing things.”

Later he tells Aitkenhead, “He doesn’t call himself a socialist—‘There’s nothing wrong with the term, it’s just not one I use’—and feels uncomfortable with political labels. Class envy is a mystery to him; he sees no point in raising taxes for the super rich, because, he says, it wouldn’t raise much revenue. ‘I’m not offended if someone earns large sums of money. Is it fair or not? It’s just a fact of life.’ Asked to define his politics, he offers, ‘Pragmatic’.”

The party’s over

Like his colleagues, it was precisely Darling’s “pragmatism,” his hostility to socialism, absence of “class envy” and relaxed approach to fabulous private wealth that made him so successful for so long. He was ideal material for government as far as the Labour Party and its backers were concerned because was ready to do whatever he was told, unencumbered by any extraneous ideological baggage.

He was in effect a true and unalloyed believer in capitalism.

That is why, as he states, “For 10 years as a minister, by and large I had a charmed life.”

And that is also why all this changed by the time of that fateful day in June last year when he was appointed chancellor by Brown, as Labour was attempting to distance itself from the Iraq war and the sordid record of Blair’s premiership. Instead, as his wife states, his life has been “a crisis a week.”

In an extraordinary passage, he states that although “we knew the economy was going to slow down”: “he hadn’t the faintest inkling of the financial crisis about to unfold before him. ‘No, no one did. No one had any idea’.”

“He can clearly recall the day last summer when alarm bells first began to sound. The chancellor was on holiday with his wife and their two teenage children in Majorca. ‘I remember I picked up the FT in the supermarket, as you do, and it had the European central bank starting to put money into the economy. I phoned the office to ask why they were doing quite so much. It didn’t surprise me that money was going in—there was concern going around—but it was the sheer scale of it. I said, what about our institutions? This was when Northern Rock started to figure.”

“Even then,” Aitkenhead continues, “the gravity of the credit crunch was still not fully clear. ‘No one knew how serious it was yet’,” she quotes Darling saying.

What then is the future for a party that was so enamoured of capitalism that the man it appointed as chancellor was apparently so blissfully unaware of an unfolding financial disaster sweeping the world economy?

Aitkenhead states that today, “the mood is so febrile, it’s even possible he won’t be chancellor by the time this interview appears.”

As for Darling, he doesn’t want a cabinet reshuffle that may see him replaced—“Frankly, if you had a reshuffle just now, I think the public would say, Who are they anyway? You name me a reshuffle that ever made a difference to a government, actually.” Nor does he want a leadership challenge against Brown, even though he makes clear he has little hope of winning the next election.

“This coming 12 months,” he declares, “will be the most difficult 12 months the Labour party has had in a generation, quite frankly. Both the general economic situation, and in terms of the politics. In the space of 10 months we’ve gone from a position where people generally felt we were doing OK to where we’re certainly not doing OK. We’ve got to rediscover that zeal which won three elections, and that is a huge problem for us at the moment. People are pissed off with us.”

Whatever Darling might wish for, there is little chance that Brown will survive the next months unscathed, less chance still that Labour will win an election under any leader whatsoever, and a distinct possibility of the party imploding. As if to underline such political realities, even as the government was attempting to recover from the damage inflicted by Darling the former home secretary Charles Clarke was busy telling the BBC that Labour is facing “utter destruction” at the polls and insisting that Brown must either improve the standing of Labour within a few months or resign as prime minister.

Britain: Tax credit system plunges families into debt

tim — Tue, 08 Apr 2008 23:52:51 +0000

Prime Minister Gordon Brown’s Working Families Tax Credits (WFTC) system, launched in 2003 and which was supposed to lift families with children out of poverty, has caused untold stress and financial hardship for millions of families.

Designed to replace an earlier system of tax credits introduced by Brown when he was chancellor in 1999, a family of four with an annual income of £15,400 a year (half the male average earnings), would get an additional £4,200 in 2006, still less than two-thirds average male earnings, under WFTC.

But the new IT system was overly complex, dealt with three times the number of households and was riddled with design and implementation problems. Brown rejected warnings that the system would not be able to cope and pushed on regardless.

The system was designed so that claimants would notify Her Majesty’s Revenue and Customs (HMRC), which administers the system, of changes to family circumstances and income after the year end so that adjustments could be made the following year. But HMRC had underestimated the volatility in poor people’s income and the work after the year end this would give rise to, particularly as there is little information publicly available to show entitlements or how the credits are calculated.

While HMRC had anticipated 300,000-400,000 overpayments in the first year as the tax credit payment system bedded down, the volume was five times that number. It “overpaid” £2.3 billion to 1.9 million families in 2003-2004, £2 billion to 2 million families in 2004-2005, and £1.7 billion to 1.9 million families in 2005-2006. One third of payments to more than 6 million households were wrong. This is equivalent to an average overpayment of £1,000 a year or £20 a week, a large sum for a low-income family for whom this could represent more than 10 percent of their income.

HMRC then sought to claw back the overpayment automatically. Families were brusquely informed that deductions would be made in their tax credits for the subsequent year or recouped via increased taxes, arguing that families could “reasonably” have expected that their changed circumstances would result in HMRC seeking to recover the overpayment. Unless challenged, HMRC immediately begins recovery.

HMRC had made no provision to examine each family’s situation on a case-by-case basis before automatic recovery of overpayments. The transfer to HMRC, which had been used to dealing with taxes, usually where people are more prosperous, meant that it would be totally unused and unsuited to dealing with highly vulnerable people for whom £10 a week matters.

Claimants were faced with bills to repay £5,000, a massive sum for families earning an average wage, let alone the more vulnerable families on low and fluctuating incomes, and were plunged into debt. Unable to pay, many found themselves facing court orders for the repayment of thousands of pounds of tax credits.

Having commissioned a fully automated system, HMRC had few staff to handle the volume of complaints that poured in. In 2006-2007, 371,282 families disputed the recovery of overpayments. When challenged, HMRC has taken months to reply and provides no explanation of the so-called overpayment. So error-prone and arbitrary is the system that some families have had their “overpayments” reduced and a few have had them written off, but many families found they were increased, again with no explanation.

There is scarcely a family in the country that does not have a horror story to tell about their experiences with WFTC: from the extreme complexity of forms that have been known to defeat qualified accountants to the nightmare of challenging the alleged overpayments and attempts to claw them back, and coping with reduced income the following year.

Nearly 55,000 people filed an official complaint expressing their dissatisfaction with HMRC, mostly relating to the handling of disputed overpayments. The parliamentary ombudsman has stated that more than a quarter of the cases she handles relate to the WFTC system, higher than any other department. In 2006-2007, she received 393 complaints about tax credits, of which 74 percent were fully or partially upheld, higher than in any other department.

The ombudsman’s 2007 report, Tax credits: getting it wrong?, noted that a group of some of the poorest people in the country had said that this had led to them getting into debt where they had previously not been in debt—causing distress, anxiety and even family break-up.

Many families have refused to have anything to do with WFTC for fear of being caught up in the system’s maladministration. As a result, hundreds of thousands of families do not claim the money to which they are entitled.

While families can appeal to an independent tribunal about the amount of tax credits to which they are entitled, they do not have a similar right in relation to a decision by HMRC to recover an overpayment once the claimant has disputed it. They cannot appeal the way the HMRC has reached its decision or applied the “reasonableness” test, unlike the comparable right of appeal in the benefit regime.

The reform agenda

The state of play with WFTCs is not simply the result of bureaucratic error. WFTCs were part of the Tony Blair government’s broader agenda of getting families off welfare and into work by “making work pay.” When Blair took office as prime minister in 1997, he categorically rejected redistributive taxes and universal cash benefits to reduce the ever-growing social inequality that is the hallmark of Britain today.

Instead, he called in an array of big businessmen to review welfare and social policy issues and suggest how it should be reformed. Martin Taylor, then chief executive of Barclays Bank, was asked to set up a task force “to advise on the reform of the tax and benefits system.”

His task force concentrated on work incentives and converting the existing system of family credits to a tax-based system. It was a crucial step in the direction of a unified benefit system more directly linked to the tax system and workplace, and a tax-based credit system that would force people off benefits and into low-paid work.

As a unified benefits system, WFTC would—it was claimed—reduce fraud and “offer joined up government,” with a “more efficient service to customers.” But a unified benefits system would have to bring together the assessment of eligibility for benefits and their payment. It therefore depended upon highly integrated IT systems linking the various agencies and the transfer of responsibility from the then-Department of Social Security to the Inland Revenue, which has subsequently merged with the Customs and Excise Agency, under the direct control of the Treasury.

This resulted in yet another lucrative IT contract for EDS, but a financial disaster for claimants. While most of the responsibility for the faulty IT system and the £7 billion worth of wrong payments has been laid at EDS’s door, the contractor has been subject to a trifling £75 million penalty, and £25 million of this would only be payable if it won further government contracts. To date, less than £55 million has been repaid.

WFTC aligns benefits away from payments paid as a matter of right based on rules of eligibility to a means-tested tax credits system. In effect, it is determined by employers. Under the Labour government, welfare henceforth was to be linked to the responsibility to work. In the future, anyone refusing a job, however lowly paid, will have his or her benefits stopped. This is now being extended with attempts to force those with disabilities, long-term sick and health problems into work.

The “social safety net” of collective social insurance is being replaced by discretionary payments by the state. They can be withdrawn or changed as the state sees fit and are subject to tax regulations rather than those of the benefits system. Part at least of the benefits system has been brought under the direct control of the Treasury.

In this context, a little-reported measure in the Finance Bill going before parliament is significant. It will extend the right of Customs and Excise officials to turn up unannounced on taxpayers’ doorsteps, demanding to go through records, to tax inspectors, as part of the ongoing merger of Revenue and Customs. The proposals will specify and standardise the records taxpayers must keep, although it is as yet unclear what these requirements will be.

While Customs officials have long had strong search rights, tax inspectors require official warrants to make surprise visits. Now, HMRC is seeking to extend these rights across the two merged agencies. While these new powers are ostensibly aimed at corporations and businesses, they will be used against working people under the guise of combating fraud.

A recent report published by the Economic and Social Research Council, Tracking income: how working families’ incomes vary through the year, sheds light on the implications of the move to a tax credit system. It found that low-income households had much greater income volatility than had been expected. For example:

*Only 7 of the 93 families it tracked had incomes within 10 percent of the annual average.

A quarter of the families had at least four periods with incomes outside the range of 85 to 115 percent of their annual average.

The families with the highest volatility were generally those with the lowest incomes, and a higher proportion of lone parents and tenants had more variable income.

WFTC was aimed at creating a new pool of cheap labour by forcing people off benefits. That in turn would serve to drive down wages. By providing inducements to work in the form of tax credits, it was a barely disguised subvention to big business, enabling employers to pay poverty-level wages. The government admitted as much when it said that making savings was not the primary purpose of the scheme. Indeed, it would cost more, not less, as the evidence has confirmed.

WFTC is a £20-billion-a-year subsidy to the employers and has become key to making Britain a low-paid service centre, while the service companies are the Stock Market’s darlings. It is an essential mechanism for corporate welfare—for redistributing wealth from the mass of the population to the financial elite.

The latest official figures show that unclaimed means-tested benefits—pension credits, housing benefit, council tax benefit, jobseekers’ allowance and income support— amounted to about £9.37 billion in 2005-2006, the most recent year for which data is available. This is an increase of £1 billion on the previous year. It contrasts with the paltry £750 million for 2008-2009 and £950 million earmarked for tackling child poverty in the budget, which Save the Children believes means that the government will miss its own target for relieving child poverty by 450,000.

It is now deliberate government policy to increase the level of unclaimed benefits. According to official papers from the Department for Work and Pensions (DWP), ministers have decided not to try to meet the benefit take-up targets on the grounds that it would not represent “value for money to repeatedly press unwilling people to take up their entitlement.”

In the case of pensions, the government has introduced legislation making it compulsory for workers to pay into a second-tier personal and portable insurance for pensions, whose funds are to be invested on the Stock Market.

The new welfare system radically alters the relationship between the government and its citizens: the individual’s responsibility is to work, be independent, support family members, not just children, and save for retirement. The state’s role is to ensure that people do work and thus become “economically independent” so that the state supports only those unable to work, and then only on the most stringent conditions with meagre entitlement. Thus, the Labour government has gone a long way towards dismantling the system of state social insurance, introduced by the post-war Labour government exactly 60 years ago as a mechanism for eradicating poverty.