The Queen famously asked economists at the LSE in November 2008, ‘Why did no-one see it coming?’. She was told by a group of economists that “The Financial Crash showed up the weaknesses of mainstream economics and neo-classical models”. Yes it did but that is not the whole answer to the question. It ought to have been “There were a few well qualified people jumping up and down on the touch line Your Majesty, hollering for all they were worth ‘the current trend is unsustainable'”; but neither the economic establishment nor government were listening”.
TWO PROPHETS IGNORED
One of them was the late Prof Peter Ambrose who I commissioned to write the “Z2K Memorandum to the Prime Minister on unaffordable housing” in 2004. It was sent to Tony Blair in 2005 by the late Lord Morris of Manchester; he replied he had read it with interest. It included the following graph on which Ambrose commented “We argue that there have been failures of vision, collective memory, strategy and regulation that have wasted many billions of taxpayers money. The deregulation of financial markets in the 1980s sparked off a flood of house purchase lending that has underpinned massive house price rises and consumed £600 billion of investment that could have found a better use renewing our infrastructure or in research and development to make Britain more competitive in a global market rather than in bolstering house and land prices. The increasing commitment, from 23 to 72 of GDP since 1980. to house purchase loans seems unsustainable. Furthermore the increasing flow of demand side subsidies are working to enrich landlords and land vendors, not to stimulate more housing output. The analysis shows that more money has gone into housing but fewer houses have come out. Housing benefits and allowances have imposed a huge and increasing burden on state finances.”
Another prophet of the looming 2008 disaster was Fred Harrison of the Land Research Trust. Joshua Philps wrote in the Epoch Times in April 2016; “One of the first warnings of the last financial crisis came from U.K.-based economist and director of the Land Research Trust, Fred Harrison. He began warning of the trends in 1997, and in April 2005 warned that the property boom would only last for another three years before it would crash in 2008. He went on record and told the then-U.K Prime Minister Tony Blair about the looming crash. He also turned to the press and presented his data showing the trends. But he, like many others who came to similar conclusions, was ignored until the crisis came to pass. Now, Harrison is again warning of a coming crash in 2018, and his predictions are again proving true. Just last year, he warned of the economic woes that have started rearing their heads in 2016.”
THE RESPONSE TO THE CRISIS DAMAGES THE HEALTH OF PEOPLE WITH LOW INCOMES
Come the crisis and the Labour, Coalition and Conservative governments have made the poorest tenants pay for the crash by cutting housing benefit instead of controlling rents. Land owners and land lords had profited twice since 1979 from the increase in the value of their land and the rents they charged and the housing benefit they were given. Housing benefit expenditure rose with the rents in a market in short supply from £5bn in 1980 to £11bn in 1997 £15.7 billion in 2008 and has continued upwards to £24.billion in 2016. The Labour government cut housing benefit with the Local Housing Allowance in 2008 and introduced benefit sanctions on the grounds that they had been too generous with the increases in unemployment since benefits since 1997 and workers needed some compulsion to get them to work; and the government needed the money to bailout the banks. The coalition and conservative governments then turned the screws on the unemployed and the employed ever harder by adding two more cuts in housing benefit with the bedroom tax and the benefit cap, freezing increases in already low benefits and an even harsher benefit sanction regime and allowing zero hours contracts. Debt and evictions are soaring to record levels. On top of which 264 out of 326 council’s on England and Wales started taxing inadequate unemployment benefits in 2013 and ferociously enforcing arrears while adding court costs and bailiffs fees.
Unemployment is now going down while the number of zero hours contracts goes up and low pay stagnates. Now enshrined in British law is the cancellation of the minimum income in both work, the Zero Hours Contract, and unemployment , the Benefit Sanction, needed to pay for the minimum quantities of food, fuel, clothes, transport and other necessities to maintain healthy living, some times for months. The ONS has reported an unprecedented rise in mortality and in infant deaths in 2015. The Queen might well ask again “Why did no-one see it coming?” and again the whole answer is neither the economic establishment nor the politicians have been listening. Government has commissioned and shelved major reports on the impact of low incomes, debt and inequality on health from Black in 1980, Acheson in 1998, Wanless in 2002 and Marmot in 2010.
THE LIVING WAGE AND A FOUNDATIONAL ECONOMY
Emerging since 1998 and spreading since 2005 has been the living wage. The Churches played a seminal role due to our preferential option for the poor. In the early 1990s an ecumenical group of us, meeting in the rooms of the Dean of Clare College Cambridge,discovered that the poll tax was introduced by the Conservative Party in Scotland in 1989 and England in 1990 without any governmental research into the minimum income standards needed for healthy living. In 1998 as chair of the Zacchaeus 2000 Trust we raised £100,000 to commission the Family Budget Unit to undertake minimum incomes standards (MIS) research. It was published in 1999 and taken to UNISON and London Citizens. They used it to persuade Ken Livingstone, Mayor of London, to launch the London Living wage in 2005. The employers of The Living Wage Foundation are now the custodians of its integrity with the MIS research provided by the Joseph Rowntree Foundation. The Archbishop of York has been the welcome voice of the Church of England promoting the living wage. George Osborne used its name to mark a much needed increase in the national minimum wage in 2015 but the Treasury has yet to underpin statutory minimum incomes with minimum incomes standards research.
The living wage is undermined by a housing market which not only allows rents to take an ever increasing proportion of the income needed for food, fuel, clothes and other necessities but also increases the travel to work costs from the need to live ever further from work to find an affordable home. The impact of rent and council tax arrears on the incomes, and therefore the health, of the unemployed is ignored; a living unemployment benefit is desperately needed. The economics of land, as a gift of nature which exists to provide shelter, food, fuel and clothes for all, have been ignored for too long.
A way forward is being suggested by Professors Michael Moran and Karel Williams proposing the Foundational Economy. They say poverty is not just a matter of income from wages or benefits but also of claims in the form of rents, utility bills and transport costs. Of course, the living wage and anti benefit cuts campaigns need to continue but at the same time, we need to focus on expenditure ie rents, fuel poverty and the motoring poor. They are trying to tie all that together under the rubric of the foundationaleconomy.com