Wednesday 15 October 2008

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.

Friday 10 October 2008

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.

Thursday 9 October 2008

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?"

Wednesday 8 October 2008

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."

Monday 6 October 2008

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.

Sunday 5 October 2008

Government of the City, By the City, For the City

When I first got a phone call telling me about the appointment of Mandelson to cabinet I thought it was one of those reshuffle day wind ups. Usually it is someone ringing a backbencher and pretending to be the Prime Minister offering a job. I though that this was a subtler version of the joke. When I found it was for real I expressed incredulity and the after a short while declined all media interviews because I thought it was coming across as personal and not political.

The significance of the reshuffle is not just the circling of the old New Labour wagons and the Faustian pact Brown has made with the Blairites to stave off another coup attempt for a period but more importantly the statement that is made by the appointment of Mandelson and people from the City like Paul Myners into government and the establishment of the National Economic Council makes about future economic policy.

This is in effect establishing openly the government of the city, by the city, for the city.

Look at the team of business advisers which Brown has appointed alongside the NEC. This includes :

Marcus Agius - Chairman, Barclays
Sir Victor Blank - Chairman, Lloyds TSB
Sir John Bond - Chairman, Vodafone
Lord John Browne - President, Royal Academy of Engineering and MD of Riverstone Holdings
Sir Terence Conran - Chairman, Conran Holdings
Mervyn Davies CBE - Chairman, Standard Chartered
Dr. Chris Gibson-Smith - Chairman, London Stock Exchange and British Land
Professor Malcolm Grant CBE - Provost and President, UCL
Sir Philip Hampton - Chairman, J Sainsbury
Dr John Hood -Vice Chancellor, Oxford University
Lord Digby Jones
Anna Mann - MWM Consulting
Dick Olver- Chairman, BAe Systems
Professor Alison Richard -Vice Chancellor, Cambridge University
Lord Richard Rogers - Richard Rogers Partnership
Paul Skinner - Chairman, Rio Tinto
Sir Kevin Smith, CBE - CEO, GKN

There doesn't appear to be a thought given to appointing a representative from the trade union movement to advise on economic, employment or industrial issues. Even the tamest general secretary in the history of the TUC, Brendan Barber, is not acceptable enough to sit at the high economic table. Surely all those trade union general secretaries who were convinced by Brown at the Labour party conference that a new dawn of policy change, partnership and co-operation had broken and the age of Blairism was over must now feel conned.

PS Here's a funny thing. When we were the first to call for Northern Rock to be nationalised, we were ignored then pilloried as dinosaurs. Eventially when Vincent Cable came out in favour of nationalisation he was depicted as prescient.

When we were the first to expose the role of Granite as a result of Richard Murphy's research, we were ignored and then looked upon bemusedly. When the government went into disarray on it, Cable then took it up and was praised for his sagacity.

For the last three months we have been calling for a significant cut in rates and the overriding of the Bank of England Advisory Committee. See the article reproduced from the Guardian's Comment is Free below and the LEAP website. (By the way we refused to support the independence of the Bank in the first place.) We were ignored again. Today Cable has come out with exactly the same demand and it is the number one story on the World at One and Cable is again feted as the profound greybeard of economic policy.

Next week we will be calling for at least a 3% cut in rates. I bet we will at best be derided but more than likely ignored. I also bet that within weeks people will be calling for a much more significant cut in rates than the Bank of England Advisory Committee will allow this week, amongst them will be one Vincent Cable.

Funny old world.

Wednesday 1 October 2008

Do What is Needed not What it Takes.

I have written this article for the Guardian's Comment is Free today.

Time for change

Careful thought has been given to the form of words to be used by the prime minister in reacting to the latest crisis of capitalism. There have been repeated assurances that the PM will "do what it takes". The Conservatives and Liberal Democrats have rallied round in almost patriotic fervour to support the government in doing "what it takes".

But "do what it takes" to do what?

Stabilise a system which has allowed homelessness in our country to double over the last decade? Bail out speculators whose obscene incomes and binge consumerism has created a society more unequal than at any time since the 1940s? Attempt to restore confidence in a system which has allowed 3 million of our children to continue living in poverty after 11 years of a Labour government?

And who is going to pay for enabling the prime minister with the support of the Cameron-Cable coalition to "do what it takes"? People are already paying for the crisis and are increasingly facing real hardship. The number of missed mortgage payments is up 50%, repossessions are up by 48%, unemployment has risen in each of the last seven months, electricity bills are up 18% and gas bills 28%, child poverty has increased in each of the last two years, and 20,000 pensioners are dying each winter from cold-related illnesses.

The government must do what is needed, not what it takes. What is needed first is an honest debate about how we got into this mess. The government has a duty to lead the debate on the fundamental causes of this crisis and the Labour party has a once-in-a-generation opportunity to lead the discussion of the profound changes needed in our society to transform an economic system that creates poverty, insecurity and inequality.

The seeds of this crisis were sown in the 1980s, when the belief in the unfettered free market moulded the attitudes of a generation of political leaders. Concreted into all governments' policy since has been that it is neither possible nor desirable for governments to seek to fetter finance capital nationally or globally, but labour costs must be constrained by privatisation, deregulation and restraining employment rights. In this market state, the provision of housing, energy, water, health, and education become less and less the essentials of life for which government stands as guarantor and more and more commodities for sale and opportunities for speculative profit-making. If prices soar and wages are held down, demand is reduced but debt can take up the slack to keep the boom going.

After three decades of the reign of the economic law of the jungle we can now reassert the basic principle that rational democratic government must control our destinies, not the irrational forces of the market motivated by rumour, speculation and profiteering. Market solutions to market failure will simply risk an unstable rerun of the same mistakes.

The government could take four simple steps to demonstrate decisively who is in control:

First, rather than reacting on a case-by-case basis as firms collapse, the government should act decisively by nationalising now all those financial institutions involved in home loans or at least taking a determining equity stake in these bodies. The current policy of bail-outs and nationalising the losses whilst privatising the profits of the banks means that ordinary people will eventually pay the cost of market failure. Repeated bail-outs caused Japan's government debt to soar from 65% to 175% of the country's GDP. In contrast, Sweden part-nationalised its banks in 1992 when their imprudence led them to the brink of collapse.

Second, to avert the prospect of the longest and deepest recession in living memory, the government must reassert democratic control of economic policy by overriding the Bank of England monetary policy committee (MPC) and cutting interest rates significantly. The remit of the MPC could be widened beyond ensuring price stability to advising on the wider economic health of the country but the bank's policy role should revert to being one voice amongst many others to be taken into account when democratic government not bankers determine our economic policy.

Third, the government must re-establish its role in the provision of secure housing, democratically accountable public services and affordable energy. The government programme needed is blindingly obvious – a massive social house-building programme, repossessions converted to social rentals, ending the privatisation mania, and control of fuel prices or re-nationalisation of energy companies.

Four, at a time of economic downturn, the government must ensure that people are secure in their jobs and that their pay reflects the cost of living – this means abolishing Brown's public sector pay cap, making the minimum wage a living wage, and restoring trade union rights.

If the role of democratic government is reasserted, the real debate can now start on what type of democratic government is needed.