Thursday 11 August 2022

The Inconvenient Gordon Brown

History will probably record that Gordon Brown's decisive action in nationalising the British banking sector and recapitalising the banks gave global capital with an immediate route out of the 2008 stock market crisis and prevented a recession from becoming a depression. That it put rocket boosters under asset price inflation and therefore contributed to our present malaise is something latter day admirers say less about, though having his premiership was cut short by the Tory-Liberal Democrat coalition means he cannot be held fully responsible for this. Dave and Osborne chose not to tackle the issue because it suited Tory electoral interests. But then again, neither did Brown before the sub-prime implosion raised the spectre of 1930s retread.

Nevertheless, as bourgeois politics goes, Brown is good in a crisis because he was good in a crisis. And now we stand at the crossroads of an economic and a political crisis, what Tony Blair affectionately dubbed the great clunking fist is grasping the moment by the jugular. Brown argues for immediate action. An extension of the windfall tax on bumper energy profits before monies are repatriated to foreign owners, and the uprating of Universal Credit now (by an unspecified amount) to meet the October energy price rise. For good measure he throws in a tax on City bonuses, and the closure of loopholes in Rish! Sunak's windfall levy. These measures, Brown reckons, could raise £15bn - enough to give the poorest just under £2,000 per household. Brown also backs it up with the sort of ethical argument entirely missing from Keir Starmer's prospectus: that people have a right to heating, and energy companies should not be profiting from a crisis.

Brown goes on to say he would prefer businesses work with government in holding prices down, and he also calls for a flat rate of pay settlements of between £2,000-£3,000 to stop people from going to the wall while the state doesn't pick up all of the tab. He goes on,
And if the companies cannot meet these new requirements, we should consider all the options we used with the banks in 2009: guaranteed loans, equity financing and, if this fails, as a last resort, operate their essential services from the public sector until the crisis is over.
In other words, temporary nationalisation. And it has struck a chord. 50,000 people have signed a petition within hours of Brown's views being aired, and he's even received unlikely backing from right wing commentators. But what of the policy itself? The Brown plan is preferable to what Ed Davey is touting on behalf of the Lib Dems. He suggests expanding the windfall tax to cover oil companies as well, which could raise some £20bn. This would, with an additional £16bn summoned up from somewhere, then be used to cancel the price rises for all households, leaving the energy bills as they were in April - £1,971/year. There are a couple of problems. The first is this doesn't challenge the pricing mechanism, whereas Brown does. And second, the Davey scheme is conceived as a one off. If the state is going to do a furlough-for-energy-bills to the tune of £36bn this year, what about next year? It seems more logical to nationalise the whole kit and caboodle at their present collective value of £58bn than shelling out that money more than once. And this is without noting that the state gets to determine how much it's willing to compensate share holders for.

But what about nationalisation itself? One doesn't have to sneer to note global wholesale prices aren't going to pay much attention to the nationalisation of energy supply in Britain. Which is why Brown emphasises a package of alternative measures first, while dangling state ownership as a threat to enforce compliance. He is not pretending it's a solution in itself. And, if the last two Labour manifestos are anything to go by, the left would agree. Except that nationalisation is the necessary accompaniment to a range of market intervention measures. One at the top of any list would be the harmonisation of meter and standard tariffs, so the poor are not paying over the odds for electricity. It would allow for infrastructure upgrades, storage capacity, and new energy sources to be brought on stream in a coordinated way. And even better nationalisation is electorally popular. This isn't just because most people think it's a good idea, taking energy out of private ownership gives a good kicking to businesses who are widely despised because they monopolise a necessity and are profiteering off the misery of others.

Labour being Labour, Starmer and his coterie want to be nowhere near this. Brown's suggestions, that are well within the confines of permissible politics, are a step too far. As Jessica Elgot observes, this is not kite flying on behalf of the Labour leadership; these are Brown's suggestions alone. A point reinforced by Steve Reed this morning, in which nationalisation is ruled out. If this is the case, it's difficult to see where Starmer can go on tackling the crisis. With his cost of living speech moved forward to Friday, the coordinates of the big reveal must lie between Sunak's idea of ditching VAT on fuel (which is better than Rachel Reeves's current policy, which only shaves off a fraction of VAT) and Davey's discounted bills. That means it's not in the running before it's even left the gate.

The problem Starmer has is moments like this cannot have a quietest response. Not just because radical action is needed, but because the costs of not doing so are politically prohibitive. Right now Don't Pay UK has signed up a hundred thousand pledges to cancel their energy direct debits, and the union-backed Enough is Enough is galvanising have a quarter of million backing the campaign. An opposition is mobilising, and the Labour leadership are making themselves at best an irrelevance, at worst an obstacle to this movement. And as this will be the number one issue that Liz Truss has to deal with when the Tory leadership contest concludes, she could choose to outflank Labour. Conservatism in this country never got anywhere by being inflexible.

Therefore, Gordon Brown's intervention is inconvenient because he's produced a yardstick by which Starmer's plan will be measured. But that itself does not go far enough. If Starmer can't at the very least match what Brown has proposed, he might as well concede the next election to the incoming Prime Minister now.

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7 comments:

Robert Dyson said...

"Except that nationalisation is the necessary accompaniment to a range of market intervention measures. One at the top of any list would be the harmonisation of meter and standard tariffs, so the poor are not paying over the odds for electricity. It would allow for infrastructure upgrades, storage capacity, and new energy sources to be brought on stream in a coordinated way." Just as I see it. This aspect is hugely important. Same for water. Privatization allows the politicians to pass the blame, it we own it, we can demand change.

Zoltan Jorovic said...

Whatever the government response, it is unlikely to be enough, and as inflation is set to continue high until 2024, it would take something truly remarkable for the Conservatives to win the next election. Starmer's plan to not offer any alternatives may even be enough as by then anything will be preferable to more of the same.

The danger is that people will turn to the LDs and Greens in enough numbers to split the vote and allow the Tories to sneak in with a reduced majority. But this will simply mean more dissatisfaction, and as the crises gather force, they will inevitably take the blame. So the long term prognosis is a crash in their support.

The problem is how much damage will they manage to do, and perhaps just as importantly, does anyone else have a real answer to the accumulating problems? We seem to be stuck with a politics of denial. Nobody is addressing the real issues - i.e. making our civilization sustainable in the face of a rapidly deteriorating environment and climate.

I can almost guarantee that the next 5 posts will be about house prices, ownership of key services, and how wealth is distributed. All important, but none really address the underlying cause of the decline in prosperity. Which is the decline in surplus energy available to us (by us I mean our civilization as a whole). Unless we understand that, and adjust to it, these problems we are seeing will escalate out of control.

Old Trot said...

AS the Morning Star cynically, but accurately says today:

"FORMER Labour premier and chancellor of the exchequer Gordon Brown has dressed his warning — that families will suffer more in the coming months than during the financial crash of 2008 — as the preamble for a proposal that the energy companies might be taken into public ownership.

His cunning plan is to temporarily nationalise the energy corporations if they fail to cut fuel bill this winter.

As ever with the later Brown the motor of his thinking is his desire to stabilise the existing capitalist ownership system and safeguard the role of the City of London.

In 2008 his priority was to save the banks from themselves, prop them up with public money before shepherding them back into their allotted role in the ruinous financialisation of the British economy"

Nevertheless it is interesting that Brown (now a richly rewarded creature of the banks) , unlike the policy dormant Mandeson/Starmer claque , does still understand the core role of 'Labourism' in the UK political set-up, ie, to try to take the lead role when rising anger at the capitalist system emerges to dangerous mass activity levels , then to dissipate this working class proto revolt into safe parliamentary channels - with the keen assistance of the trades union bureaucracy. Just as the 74 to 79 Wilson government dissipated the huge rise in mass industrial militancy against the Heath government in the 1970's . Starmer, Mandelson, and co just want to be a new Liberal Party, shorn of a Left wing - but that isn't actually Labour's allotted role. If Labour has opted out , what political tendancy will take that leadership role in coalescing the ever-rising current mass militancy brought on by the now dire cost of living crisis ? The Left ? Or the opportunist, flexible, pseudo radical populist Far Right ? So far the mainly middle class 'Left 'in the UK are lost in the irrelevant swamp of identity politics, and with no solid social connection to the mass of the now seriously impoverished working class. Dangerous political times - certainly the most dangerous in UK terms , in my 70 year lifetime.

Blissex said...

«“what political tendancy will take that leadership role in coalescing the ever-rising current mass militancy brought on by the now dire cost of living crisis ? The Left ? Or the opportunist, flexible, pseudo radical populist Far Right ?”»

My impression is that the ruling class don't worry too much, because they would care if that threatened to cause regime change (like the delusional syndicalists of the "just one last heave", "the general strike" myth of the scargillites and other "who rules Britain?" memory) but they have figured out that they can suppress riots and rebellions by compromising (e.g. Starmer) or media-attacking (e.g. Corbyn) the leaders, and without leadership riots and rebellions are just letting-off-steam moments, just a cost of doing business.

They may be wrong and they should worry about that and pacify the proles, but my guess is that they think they are firmly in control.

Blissex said...

«could raise £15bn - enough to give the poorest just under £2,000 per household.»

That is a bit lower than the increase in average private rents, but I guess it would help landlords have to evicts tenants and have voids in their rent income. :-)

«Brown also backs it up with the sort of ethical argument entirely missing from Keir Starmer's prospectus: that people have a right to heating, and energy companies should not be profiting from a crisis.»

Do those “people” who “have a right to heating” include only the 85% white people in these islands? Are the 85% people of colour in the rest of world not “people”? Should UK taxes be increased until the “right to heating” of all “people” (except of course "orcs" who are not human) is paid for by the UK government?

Careful about making “ethical” arguments that start with “people have a right”, ethical rights don't stop at the border, and “people”'s rights that end at the border of an 85% white state may not look that “ethical”.

Graham said...

If you work in the finance, commercial law, accountancy etc., you will be getting an above inflation pay increase.
If you have a mortgage on your own or on a buy to let property, inflation will mean a decrease in the proportion of your income that mortguage costs.
The cost of living crisis will further widden the gap between the top 10% of the population and the rest of us.

This is class war waged by the wealthy.

The Labour Party doesn't do class war so don't expect any meaningful response from it, especially as sections of the party are on the other side.

I note that at yesterday's meeting with the energy companies, they were asked to provide details of their investement plans for the next three years. Three years is not an invetment plan, its shuffling the petty cash. Such short termism is at the root of the UK's economic malaise. Why bother with long term investment when you can use financialisation and privitization to transfer money from the poor to the rich.

Financialisation and privitization that Brown and the rest of the Labour Party are complicit in.


Blissex said...

«If you have a mortgage on your own or on a buy to let property, inflation will mean a decrease in the proportion of your income that mortguage costs.»

More precisely, the real cost of the principal of the mortgage decreases by the amount of inflation, and also the real cost of the interest payment decreases by the difference between inflation and nominal rate, plus for BTL the rent increases by RPI (currently 12%) plus 3% (as per most contracts), and in addition labour costs paid by property owners decrease by the difference between inflation and wage raises.

Currently property prices and rents have increased by 15% per year, "official" CPI is 9%, mortgage interest is 3-4%, and wage raises are 2-3%.

That's why there is such a huge demand for property: most anybody who can afford to put together a deposit, one way or another, is buying property to both protect their wealth from inflation, and to make a big property profit from inflation.

«The cost of living crisis will further widden the gap between the top 10% of the population and the rest of us.»

That's the top 20-40%, anybody with property in a good area is going to make more from property than anything they lose from higher good costs.

That is pretty obvious, and it is another aspect of the property obsession of the UK that is rarely mentioned: if a property's valuation was 3 times an owner's income at purchase (e.g. £90k) 20 years ago, and is now 12 times their income (e.g. £360k), that means that a 15% increase of the valuation of the property (e.g. £54k) is 180% of the income of the owner. That is a large part of why UK voters are so obsessed with property.

«This is class war waged by the wealthy.»

More precisely it is what Economists call "internal devaluation" (which can be achieved by deflation of nominal wages or inflation of nominal living costs), to reduce the real cost of wages; I think that the target of most "Washington Consensus" governments is to reduce the real cost of wages by around 20-30%, over about 2 years, as the table here shows:

https://mainlymacro.blogspot.com/2022/08/why-does-bank-of-england-appear-to-be.html

The detail that gives the game away is that the BoE etc. are making a big fuss of raising the base interest rate to as much as 2%, when RPI is 12%, so for the "friends of friends" that can borrow from the BoE at 2%, the real interest rate is a generous negative 10% compared to RPI, and a negative 13% compared to property prices.

Rejoice! Rejoice! :-)

«The Labour Party doesn't do class war»

Of course New Labour does class war, but it is to the benefit of their target constituency of upper-middle class propertied voters, and of their upper class "sponsors". The New Labour plan is to steal a chunk of votes of properties affluent tories from the Conservatives, and to be funded by upper class donors, so they need to help them get theirs.