Monday, June 06, 2011

Guest Blog: the end of the Thatcherite consensus?

Jayant Chavda

Just like buses, major political events often come in threes. This week has seen the near-collapse of Southern Cross, the care home provider, a survey by Halifax which revealed that 64 per cent of 20-45 year olds questioned do not believe that they will get on to the property ladder in the next five years, and growing concern by leading economists that the Government’s deficit reduction strategy is damaging the economy. These three events are significant because they undermine the Thatcherite political consensus which has prevailed in Britain since 1979: the private sector can be trusted to run public services; home ownership is within everyone’s reach; and cutting public spending is the best way to help an economy grow.

Southern Cross – Britain’s largest provider of care for elderly people with 30,000 residents in 750 homes – is in serious financial trouble (current half-year losses are £311m) because its rent payments have increased by 2.5 per cent whilst local authorities have cut spending on social care by 10 per cent thus reducing their income sharply. The company was owned up to 2006 by the private equity firm, Blackstone, which pursued a strategy of buying care homes then selling them and relying on fees to cover the rents.

This business model – like the other one favoured by private equity during the credit boom, taking on huge debt – now looks bust, and provides yet another cautionary tale about the risks involved in bringing in profit-making companies to run essential public services. Yet the Government is ploughing on with allowing “any qualified provider” to run health services, as part of its disastrous NHS reforms. There is very patchy evidence regarding the private sector’s ability to improve the quality of services yet right-wing think tanks like Reform, and former New Labour ministers and advisers, such as Lord Warner and Julian Le Grand, insist on greater competition in health care.

The Halifax survey of 8000 20-45 year olds was a depressing reminder that the UK housing market has huge barriers for first-time buyers with property prices still far too high, lending criteria far too strict, and young people far too unlikely to have the requisite savings to put down a deposit. The average age for a person to get on to the property ladder without parental support is now 37.

One of New Labour’s great failures was to reverse the trend of the Thatcher era and build enough homes (especially of the affordable kind) to meet the needs of the population, which would have helped to put downward pressure on house prices. It is something that the Labour leader, Ed Miliband, needs to address seriously if he is to deliver on his concept of the “British promise,” that the next generation does better than the last.

It has taken an awfully long time, but some of the country’s leading economists have finally realised that the Government’s savage public spending cuts will severely hamper Britain’s already faltering growth prospects. In The Observer today, a number set out their worries as consumer spending falls, business investment declines, and exports stagnate – whilst unemployment and inflation are high, and government borrowing is up by £46bn.

Tim Besley, a former member of the Bank of England’s Monetary Policy Committee, who organised a letter to the Sunday Times last year supporting the Coalition’s deficit reduction programme, said, “Everybody has been disappointed with growth……I would like to see from the Government …a much more clearly defined growth strategy.”

Professor John Muellbauer of Oxford University, who signed the letter to the Sunday Times, said, "Things are going badly. I had hoped that the focus in the Budget would be on improving growth in the places where there are growth prospects, and also maintaining infrastructure investment, and that they would tackle failures of planning."

It was perfectly obvious to those of us with less economic credentials than Mr Besley and Professor Muellbauer that George Osborne’s massive gamble of reactionary cuts and tax increases when the economy was clearly still fragile was doomed to failure. Nearly all independent economic bodies, including the Office for Budget Responsibility and the OECD, have revised their growth forecasts for the UK downwards, a damning indictment on Mr Osborne, who has consistently lied to the public about the causes of the budget deficit and the rationale for his unnecessarily deep cuts.

Margaret Thatcher famously proclaimed that there was no alternative, and the Labour Party pretty much concurred with her during the Blair-Brown era. In light of this week’s troubling developments, there has never been a better time for Ed Miliband to start articulating clearly and passionately how he would do things differently if he reached No 10.

Jayant Chavda is a freelance political consultant and a former Labour Party researcher.

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