Pre Budget Statement - No Way Near Enough

This is an article I wrote for the Guardian's Commemt is Free just prior to the Pre Budget statement. I am an admirer of Robbie Burns but the choice of title is not mine.

Cowering, timorous beastie

This is no time for fearful half measures. Darling must seize the nettle of major, redistributive tax reform and bank nationalisation

Whether the government intended it or not, Alistair Darling's pre-budget statement is rapidly becoming seen as a make-or-break move by a government desperate to prevent the recession becoming a depression.
Just before he finalises his plans, it would pay the chancellor to look up some of the ideas of the last group of Labour politicians who experienced an economic depression.
In the 1930s John Strachey, later a member of Attlee's cabinet, analysed the causes and the response to the depression in his books The Nature of Capitalist Crisis and A Programme for Progress.
His mixture of Keynes and Marx reflected the intellectual climate which influenced the policies of governments for the next 30 years. Step by step, the response to recession was first to cut interest rates fast and hard, second to redistribute income from the rich to the poor by taxation and to increase pensions and benefits also paid for by printing money, third to promote large-scale public investment and fourth to develop a "national and public as opposed to a commercial and profit-making banking system."
Against this checklist the government's response so far looks tentative, indeed pretty feeble, and needs radical change.
Following Strachey's model on monetary policy the government cannot afford any more dithering by the Bank of England. We need an immediate and substantial cut in interest rates. Handing control over interest rates to the Bank of England may have been seen as an adroit manoeuvre in 1997 to reassure the markets as Labour came back into power, but now is definitely not the time for political novices of any sort, even if they are senior bankers. It is time for the government to take back control from the prevaricating Bank of England.
It is also time to recognise that the government's policy towards the banks has been an unmitigated failure. The billions in bail-outs have done little to increase lending, and we are witnessing a startling rise in home repossessions by the very institutions bailed out with taxpayers' money.
The government now needs to move towards the full nationalisation of the banking sector to create a national public banking system run in the interests of the British people.
Darling is trailing a significant fiscal stimulus and a large-scale public works programme paid for by substantial borrowing and deferred tax increases. The introduction of a higher rate of tax for high earners is long overdue but the government's proposals are hardly radical and delaying them until after the next election is pointless.
The higher rate should be the start of creating a fair tax-reform agenda, redistributing wealth from the super-rich in order to take the low paid out of taxation altogether. The public revulsion over City bonuses and bank executive salaries has opened the way for radical tax reform. The government must seize the moment.
Just 18 months ago, Gordon Brown used his final budget speech to abolish the 10p tax rate – raising taxes on the lowest earners. Frank Field and others are right to be demanding that this group is compensated. I would go further by raising the personal allowance so that what was the 10p rate is now a 0p rate. This would put money back in to the pockets of those who need it most and those who will spend it most – bringing the maximum benefit to the economy.
But it is also those out of work who must be protected. Jobseeker's Allowance at just £60 per week is an absolute disgrace. As more and more people are thrown out of work, how can it be just that they are expected to live on less than one-third of the pitifully low minimum wage? The same calculation also applies to the 2 million pensioners, who still live in poverty and who still await a decent pension and the restoration of the link with earnings.
Paying for the fiscal package by borrowing will prove counterproductive and the threat of later tax increases simply encourages hoarding not spending.
Instead the necessary boost in expenditure should be paid for by tax redistribution, lifting the cap on National Insurance contributions and introducing a wealth tax but more importantly by ensuring the corporate sector pays its way.
In its 11 years in office, New Labour has cut corporation tax from 33% to 28% – and much of it remains avoided through various avoidance schemes and the use of offshore tax havens. The US has acted to stop the abuse of tax havens. Yet the UK continues to drag its feet, even when we know that the UK is losing at least £25bn per year – thanks to the excellent work of Richard Murphy. We therefore need legislation in the Queen's speech to tackle tax evasion by corporations and the wealthy.
If we are to depression-proof our economy we may need to pay more attention to the radical ideas and policies of those who witnessed the misery inflicted on so many during the 1930s.

New World Economic Order Needed.

Blogging time has been limited recently by political activities but here is an article I wrote for the Guardian's Comment is Free on Friday.

We need a new world economic order
Instead of the G20 summit, we need a new, accountable architecture of global economic co-operation
Barack Obama has decided not to attend the G20 summit convened by George Bush and the lack of involvement by India, China and the developing world in the G7 means that the best we can hope for is that this Saturday's talks are a preparatory session for a more inclusive and wider ranging summit in the New Year.
The timing is just not right to secure anything more than limited agreement on coordinating measures to mitigate the recession – and to set an agenda for the post-inaugural economic summit it is hoped the new president will convene.
Brown and Sarkozy will vie with each other over the weekend for the title of saviour of the global economy, but the reality is that until Obama is installed in the White House and unless China and India are engaged, little will change.
In the meantime, millions of workers worldwide will lose their jobs and homes as the recession bites. Many more people in the developing world will be pushed over the edge of poverty into destitution, with starvation putting many lives at risk. The demand for change, which elected the first black president of the US, has the potential to grow into a demand for change in the system that produces such insecurity and suffering.
Civil society now has a part to play in this transitional period between the G20 meeting and what appears to be the inevitable emergence of a new global institutional settlement that reflects the new world economic order.
Since the post-war world's economic institutions (the World Bank, IMF and WTO) were captured by neo-liberals in the 1970s, they have proved themselves a major part of the problem, not the solution to global economic instability. The same policies that have brought individual national economies to their knees are the policies that these institutions have spread across the globe. They have produced the global crisis.
The globalisation of unrestrained free market, rapacious capitalism by this economic institutional structure has produced inequality and insecurity in the west, desperate poverty in the developing world and a sequence of brutal wars causing immense human suffering. The plundering for profit of the world's natural resources has threatened the very sustainability of the planet.
A new democratically accountable architecture of global economic co-operation is now needed – new institutions pursuing new policies.
Civil society organisations could help set this transformation agenda to focus the minds of the politicians in the same way the popular demand for change after the experience of the 1930s depression created the Bretton Woods settlement. In our own lifetime the Jubilee 2000 campaign forced third world debt onto the global agenda.
An agenda of basic demands from any new global civil society coalition could include:
• A new structure of global economic governance inclusive of China and India and a wider representation of the developing world.
• The establishment of a democratically elected global assembly to scrutinise the policies and operation of the new global economic institution.
• The tackling of destabilising market speculation, through the introduction of a Tobin tax on international currency speculation.
• An end to trade policies and the imposition of trade agreements which are tied to deregulation, liberalisation and the privatisation of public services.
• An end to the policy of global collusion in the operation of tax havens that allow rich individuals and transnational corporations to avoid fair taxation.
• A renewed commitment to achieving the Millennium Development Goals, recognising the productive stimulus this would give the world economy in recession.
• An agreement that every nation signs up to the International Labour Organisation (ILO) conventions on international labour standards so that workers have the basic protections needed as recession sweeps the globe.
With this type of programme we could wrest the process of globalisation from the control of the corporations. The risk of the individual country recessions slipping into a worldwide depression provides the stimulus and the opportunity to create a new world economic order.

The Recession Begins to Hit with Repossessions and Unemployment Climbing Rapidly.

I put the following press release out today on hearing the news about the mounting repossessions being carried out by Northern Rock. We called for action at the early stage of the crisis to halt repossessions and to protect people in their homes by converting mortgages to social rents. I listened to assurances from both Gordon Brown and Yvette Cooper that action would be taken. Nothing appears to have happened and repossessions are rapidly rising. There is a real sense of tragic irony that taxpayers have bailed out the banks only to be evicted from their homes by the very banks that they now own!

Given the significant increase in unemployment I am calling on the Government to bring forward urgently a recession proofing programme to protect people's homes, jobs and pensions. Today's unemployment figures are bad but it should be remembered that each recent set of unemployment figures has had to be revised upwards because the staff cuts imposed by the Government on job centres means that there aren't enough staff left to keep up with the number of unemployed claiming.

Press Release
Is the Government's bank the most ruthless repossessor?
It was announced today that Northern Rock - the bank fully nationalised by the Government - has massively increased the number of homes it has repossessed in the last quarter.John McDonnell MP, LEAP Chair, said:"We fully nationalised Northern Rock, yet the Government's bank is becoming the most ruthless repossessor under the cosh of Government pressure to repay the loans. The Government is in danger of being seen as protecting banks while ignoring people."The Government needs to come up fast with a "recession-proof" strategy of halting repossessions and converting mortgages into homes for social rent."With unemployment rising, the Government should be injecting resources to save people's jobs and that means large scale public investment in major housing, rail and renewable energy infrastructure schemes."

One of the Greatest of Labour's Lost Opportunities

This is an article the Guardian's Comment is Free published from me on Monday on the economic crisis. The media are eulogising about Gordon Brown's role in bailing out the banks but I consider it is just a disastrous lost opportunity, which we will live to regret as the recession hits.
Turning a crisis into an opportunity

The financial meltdown is a chance for the government to transform our economy and taxpayers have the right to demand it

The government has been consistently behind the curve on the banking crisis and the chancellor's statement this morning demonstrates that it is missing the chance of turning this crisis into the opportunity of a generation to lay the foundations for transforming our economy.
In his interviews so far today the chancellor has insisted on an arms-length role for government and on returning the banks to private control as soon as possible. At a time when many British taxpayers will be losing their jobs and homes they are being asked to subsidise the banks in the bad times, simply to allow them to return to the profiteering role which caused this crisis.
Taxpayers will want to know what they have got for their money. Under public pressure, the government has been forced into placing some limited and temporary constraints on executive pay and bonuses – and may appoint some non-executive directors. Not a lot for £500bn of public money. The government has drifted into majority or sizeable ownership of individual banks without any coherent strategy about how to use its shareholding.
Let us be clear, the banks which the government has taken into part-nationalisation would have collapsed entirely where it not for government intervention. The billions invested today surpass even the most generous estimates of the banks' worth.
The chancellor seems oblivious to the unprecedented potential the government now has to lay the foundations for transforming our economy. To give the taxpayers a return for their investment, the government should insist on an entirely restructured banking system and a new set of economic priorities for our financial institutions.
The taxpayer, through the government, should now be forcing through an agenda with control of the board: offering full transparency and stakeholder democracy for customers and the workforce. There should also be a no-redundancies guarantee for bank workers to match the no-loss guarantee to depositors.
A new lending strategy of these nationalised banks must prioritise tackling the worst effects of the recession. We need to promote employment through investment in major public works schemes to meet the UK's needs. We urgently need a major programme of investment in renewable energy generation to tackle climate change. Likewise we need a national programme of council house building to tackle existing housing need, and to provide a safety net for those struggling to pay rent and mortgage costs as the recession deepens.
Such infrastructure investment would also mean large-scale job creation to arrest the rising unemployment levels. This would be a rights-based bank system, guaranteeing:
• bank workers and customers the right to a say in how their bank is run; • a right for the taxpayer to see investment that benefits their community; • a right to a secure home.
These are the opportunities the government is missing on behalf of the British public.
The public will also not look kindly if the government continues to refuse to assist local councils affected by the Icelandic banking collapse. The damage to essential local services by a forced round of cuts would be immense.
As taxpayers are paying for this bail-out, it should be their interests that now become the focus of a programme of major structural reform in the banking sector.

After a Week in the Crisis of Capitalism We Need to focus on Real World Economics

Over the last week most of us have been spectators to the latest crisis of capitalism, barely able to keep up with the hourly developments as markets nose dive, governments come close to panic and financial institutions rock. Debates in the media have focused on either the high economics of the global financial system or on the grubby dealings of the market floors in Wall Street and the City as individual banks and financial institutions are swept away.

Political fortunes of the major players have been on a roller coaster.

On Monday Brown and Darling thought that they could bluff out the first day back in Parliament with only a statement that they were thinking of a plan for the crisis. The market interpreted this as dithering and shares plummeted. By 5 o'clock panic set in and Mervyn King was summoned from the Bank of England only for him to tell the PM and Chancellor that it was for them to take the lead and produce some sort of plan because the Bank couldn't keep on pumping out money forever with no visible effect.

Tuesday morning and the bank bail out plan is produced with a fanfare. Described as daring, innovative, almost revolutionary, by Wednesday Brown is basking in his Falklands moment.

Thursday and all is not going to plan. Despite a small inevitable lift for some banks, understandable with £500 billion of taxpayers money thrown behind them, the plan doesn't seem to be jump starting interaction between banks and restoring credit activities as hoped. Iceland defaults and the various consequences of the crisis are beginning to come out of the woodwork including the large scale potential losses of councils and charities.

Friday comes and the markets worldwide are dropping like stones, recovering a bit and then dropping again. There is a growing feeling that the Brown/Darling quick fix is not going to be sufficient in the face of world wide market slump, the continuing absence of confidence in inter bank trading for fear of default and financial institutions hoarding resources to protect against default. The G7 meeting only serves to demonstrate that the G7 appear to be floundering in the face of the scale of the potential collapse of the world economy.

Brown and Darling may not like to admit it yet but full nationalisation of Britain's financial institutions is beginning to come onto the agenda as the only option left.

Whatever is happening in the stratosphere of high economics it is the real economy of jobs, homes, fuel and food bills and public services that we urgently need to turn to. What action are we going to take through our political parties and groups, through our unions and organisations and within our communities when the recession begins to hit hard and when people start losing their jobs, are repossessed, their services cut and they are unable to pay their fuel and food bills?

We need to start mobilising now the campaigns to support those who will bear the brunt of this recession whether it is workers threatened with the loss of their jobs, public services put at risk by cuts in public expenditure or families losing their homes through repossession. We cannot let our people be forced to pay for this crisis caused in the City board rooms and in ministerial offices.

On Monday at 7.30 in Committee Room 10 in the House of Commons we have organised a meeting to discuss the crisis and how we as a Labour and trade union movement respond. Come along.

The Fall Out from the Bail Out

Yesterday I was trying throughout the day on live media to cut through the New Labour spin and explain the potential consequences of the Government's bankers' bail out for the rest of us and also to ask the question "what next?" Even if this bail out works for the banks it simply let's them off the hook so that they can return to binge banking, which we will pay for with tax increases and cuts in expenditure on public services. This morning the Guardian has published this commentary from me on the Government's bail out for the bankers.

Reckless with our money

The government, in effect, is handing over taxpayers' money to the very people who led these banks to the brink of collapse
John McDonnell MP

The British government has announced a £50bn part-nationalisation scheme. As someone who has been calling for the nationalisation of the banking sector since this crisis began, I should be satisfied.

However, as more details of this package emerge left economists and Labour MPs are increasingly alarmed. The deal is incredibly reckless: the government will only take preference shares in the banks in exchange for a massive investment of taxpayers' cash. The only potential advantage for taxpayers is in dividend payments, if there are any, crucially though the government will have no controlling stake. This in effect is handing over taxpayers' money to the very people who led these banks to the brink of collapse.

If the government is injecting public money, it should also take the right to oversee board appointments, executive pay, and future business operations. The government argues that by taking preference shares, the taxpayer will have first call on dividends. However, the only banks that will come forward to use this £50bn facility will be those in trouble. The market capitalisation of these banks has only been sustained at all by the prospect of a government bail out. Many of these banks are actually bust. Therefore there will be no dividends, we are throwing good public money after bad.

The government should be ensuring the public is protected through cuts in consumer borrowing rates – ensuring that people do not default on their debt and mortgage payments; giving a no-repossession guarantee, providing people with a "right to stay" in their homes – by converting repossessions to social rentals; and securing the jobs of those workers now threatened with redundancy as their bosses' kamikaze capitalism unravels.

But to do that, we would have to take a controlling stake. We should have nationalised to stabilise, with control for the taxpayer to have scrutiny of the banks' accounts, representation on the boards, a pay cap for bank directors and the end of excessive bonuses.

This may prop up a failing system in the short term, but in the medium to long term this deal will have to be paid for and this can only come through either tax rises or (more likely) through public expenditure cuts. This will exacerbate the recession by reducing demand. So while the package might prop up the banks in the short term, it risks further damaging the entire economy in the long term.

This deal is like your neighbour going on a massive spending binge – throwing a party, buying a new car, going on holiday – and then sending you the bill. Taxpayers will end up paying doubly, once through loose subsidies to dodgy banks and the second time as the recession bites and they risk losing their jobs, homes and going further into debt.

At that point they will rightly be asking the government: "Where is the bailout for the British public?"

Immediate Reaction to Government Bans Bail Out Proposals.

This is the press release I have put out this morning in response to the Chancellor's announcement of the Government's bank bail out proposals.

"Government Plan Nationalises Losses"

"Taxpayers to pay for Bankers' Greed"

"Fear Too Little Too Late"

Commenting on the Government's Banks bail out, John McDonnell MP, Chair of the Left Economic Advisory Panel, said "Without full nationalisation the Government is effectively nationalising the Banks losses and privatising the profits so that taxpayers will now pay for this crisis caused by the greed of the bankers. I fear that it will be too little too late. Without full nationalisation at least we need very detailed and specific conditions on any taxpayers support."

See also the Guardian's letters page where we have published a letter setting out a summary of a people's programme for the crisis rather than a bankers' bail out.

Now that it is accepted that the British economy is in recession today there must be pressure on the Bank of England for at least a 1% cut in interest rates. Without this the recession will be longer and deeper, with the risk of serious deflation and some even talk about a depression.

Already job losses are mounting and repossessions escalating. Our people are beginning to suffer. On Monday (13th October) we have convened a meeting at the House of Commons at 7.30pm in Committee Room 10 to plan the Labour movements strategy to confront the recession. We need to mobilise to protect jobs, homes, and living standards. Come along.

No blank cheques for the banks

Last night, as the details of the UK bank bailout were emerging, I put out the following press release -

PRESS NOTICE:
FOR IMMEDIATE RELEASE:

No blank cheques for the banks

John McDonnell MP, LEAP Chair, said:

"Yet again the taxpayer is being asked to pay for the mistakes of the bankers with next nothing in return. The Governments set to throw £50 billion of taxpayers' money at the banking sector's failures. I believe that the Government should nationalise to stabilise the banks. At a minimum the Government must place conditions on any bail out including

1) Full public and parliamentary scrutiny of the banks' accounts
2) Representation on the boards
3) No repossession of homes
4) A pay cap for bank directors and the end of bonus binges
5) Reduction of consumer interest rates on borrowing

"Without these conditions, the bail out is nothing but a subsidy by the taxpayer to the very people who have brought our economy to the brink of collapse."

A People's Programme for the Crisis

The Government needs to act urgently to protect the British people against the economic turmoil that was not of their making, but is now resulting in them losing their jobs, and struggling to pay their rent or mortgage, and fuel bills. There should be no blank cheques to bail out the banks that contributed to this crisis.

We are calling upon the Government to implement a people's programme to protect our people from the crisis not just the bankers, including:

1) nationalising the banks and establishing democratic control over banking decisions, ensuring democratic representation on boards, ending the bonus binges, controlling executive pay and share holder rewards;

2) Cutting interest rates significantly and immediately, restoring democratic control over key economic decisionmaking by not only widening the remit of the Bank of England beyond ensuring price stability to advising on the wider economic health of the country but also reverting the bank's role to being one voice amongst many others to be taken into account;

3) Securing people a home by converting repossessions to social rentals so that people have a 'right to stay' in their homes and embarking on a massive council house-building programme;

4) Enhancing security in employment by ensuring people have a say over the future of the companies by strengthening rights and representation at work;

5) Bring fuel bills under control with price controls on the consumer price of gas and electricity, so that people are not being forced to choose between heating and eating this winter, with the threat of nationalisation if needed.

We call on all people to support these measures and to campaign to the Government for their implementation.