by Dan McCurry
The Tory wealth trap is making the rich richer, while the rest of the population either stands still or gets poorer. There is no trickle down effect caused by the squeezing the real economy with ill-timed austerity, while flooding the financial markets with cheap money, QE. All this achieves is to boost asset wealth while eroding wages, through pay freezes and inflation.
This wealth trap is caused by the desire of the Tories is to preserve their own wealth, but is exacerbated by the failure of George Osborne’s original economic policy, of expansionary austerity, whereby companies would be inspired by the cuts to invest. When that didn’t happen and the economy froze for three long years, he resorted to creating a debt bubble through subsidised mortgages.
The Tory policies are about to get worse. The current mortgage subsidy is £3.5bn. But this was only to buy new builds, which is excusable if it helps create shovel-ready jobs. However, the £3.5bn is about to be expanded to £12bn for all mortgages, just for the year running up to the general election. There couldn’t be a more blatant bribe than pumping up house prices in the run up to an election, without a care for the damage this will do to the economy in the medium and long run.
The most cynical aspect is that the pumping up of debt is all done “off-balance sheet”. George Osborne used to accuse Labour of not regulating the banks, who did off-balance sheet accounting, so who is regulating George Osborne, when he does exactly the same as a cover for his failed policies? The total amount of mortgage guarantees should be added to deficit, not recorded off-balance sheet, as this is the amount we are liable to if they go wrong.
It has always been Labour’s policy to invest in the real economy, the place where people have jobs and businesses. The original QE program was limited to creating liquidity in finance, oiling the wheels following the banking crisis. The Tories have transformed it into a massive hand out for the rich, at the expense of the rest of the economy.
Labour’s economic policies were always conceived to generate wealth to boost the whole economy. We would have undertaken a massive house building program, with all the money concentrated on building, not buying. We would have given young people a guaranteed six months of work, to help them get on the ladder. This policy would pay for itself according to a study by the DWP. If the economy needed it, we would reduce VAT to give “a shot in the arm” to boost spending.
These are policies where the resources of the state are invested in the real economy for the benefit of all, not in high finance for the benefit of the rich.
This is the difference between the Tories and Labour. With their policies there is no trickle down effect. With our policies, everyone benefits. That is the distinction we should highlight to the British people.
Dan McCurry is a Labour activist who blogs here
Tags: Dan McCurry, George Osborne, QE, Tory wealth trap, trickle down economics
“The Tory wealth trap is making the rich richer, while the rest of the population either stands still or gets poorer”
According to the ONS figures for 2011/12 the income gap between rich and poor is at its lowest since 1986. This is attributed to a drop in earnings at the top and an increase for the bottom 5th (including government tax changes e.g increasing personal allowances) .
“Labour’s economic policies were always conceived to generate wealth to boost the whole economy”.
I’d be grateful if you could explain what the Labour policies are exactly ? When you provide them I shall send them on to other Labour MP’s who don’t seem to know either.
The recently announced house price rises are not representitive of the country as a whole, with the vast majority of the rise being down to international buyers in London. So it is the foreign investor driving up prices as they are basically looking for a safe investment for their savings. I hear alot are from the PIGS countries and some moving their cash so the nice socialists in the EU dont steal their money as they did in Cyprus.
The government scheme is actually the second phase of the exisiting scheme which has helped 7000 buyers gets on the property ladder and will run for a maximum of 3 years according to the report, so its not a quick 12 month bribe as you describe. It is not available for all mortgages or mortgage applicants who may wish to use it as strict guideleines are in place.
The use of QE and housing policies are not related but I guess a bit of FUD for the uninitiated makes a better case for you.
“I’d be grateful if you could explain what the Labour policies are exactly?”
Ex-Labour, you’re asking a lot, McCooky has demonstrated time and time again that he doesn’t understand simple economic concepts. He has no idea of what happened in the New labour years. Let alone whats happening now or what his glorious party are promising.
This is an article for people who think the same way he does, Labour always right. Tories nasty and wrong.
Its the old Tory rich Labour poor narrative which is bunkum considering how many millionaires and high worth homes among the Labour elite. Is tickle down enough for the current Labour party ? It used to be a derogatory term in the Thatcher years and now its the best we can expect in terms of a redistributive political vision.
1. you can only get richer by spending less than you earn and investing the surplus.
2. The poor aren’t allowed to get rich, because you are taxing them.
3. Take NI, where because you took the money from them, a median wage earner is down over 400,000 pounds. They are poor as a result.
4. Investment.
OK, Name the investments labour has made.
1. How much was invested.
2a. What savings have resulted? Cuts in other words. or
2b. What income do those investments generate?
If the investments are so good, how come you aren’t generating the cash to pay for state services?
Ah yes, it was all spending. More lies.
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Labour’s economic policies were always conceived to generate wealth to boost the whole economy.
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Ah yes. No more boom and bust. We just had the bust. Your policies didn’t generate wealth. In fact they generated the opposite.
Pensions included (you are going to pay people pensions aren’t you, even if they are off the books), the debts come to 8,000 bn.
Under Labour the pensions alone were going up at 734 bn a year. ONS figures.
Even now, taxes only raise 600 bn.
So no amoutn of growht is going to generate the cash to pay pensions. You’ve made people destitute.
@Dan McCurry – in general I agree with what you have written. Frances Coppola has written on a similar theme today on her blog http://coppolacomment.blogspot.co.uk/. It draws a similar conclusion to that alluded to by Ex-Labour that any increase in house prices is largely illusory as the further awway from London you get the lower the increase is.
Another point that Coppola makes is that it would seem that Osborne is trying to create a housing led recovery purely for electoral gains, much as you alled to here, although with out the ‘Nasty Tory’ part.
For what its worth I think that housing will be a major factor in the next general election, as it is inextricably linked with the economy. To this end Labour should probably plan to announce large investment in social housing. Whether this is funded directly through low cost governmental borrowing and paid for in future taxation, or whether tax incentives are given to pension funds to invest in long-term rental stock is perhaps the only area for debate.
@Ex-labour: I wasn’t aware of the statistic regarding the narrowing of inequality so I attempted some cursory research (of the non-scientific nature) and found this
http://www.myfinances.co.uk/cut-your-bills/2013/07/11/ons-report-shows-indirect-taxes-increase-inequality-of-incom
which begins in the same way that you did and then goes onto say ….
“However, many of the changes that have led to a narrowing of income inequality like the rise in the income tax threshold and changes to national insurance contributions that have hit higher earners hardest were wither Liberal Democrat policies or introduced by the previous Labour government.However, many of the changes that have led to a narrowing of income inequality like the rise in the income tax threshold and chanhes to national insurance contributions that have hit higher earners hardest were wither Liberal Democrat policies or introduced by the previous Labour government.
Many of the benefit changes that have been introduced by the coalition are not yet included in the figures and these could reverse the trend.”
I would like to see the income gap narrowed further; to this end I would like to see Labour propose a permanent reduction in VAT to 15% for most household goods and further reductions in VAT for building materials. In particular insulation, which is one of the most expensive materials for building works and is desperately needed in refurbishment and new construction to reduce energy usage. VAT and other indirect taxes affect those on low incomes disproportionately and as such is a regressive tax.
Labours pitch on handling our money might be more convincing if it were better at handling its “own”. This Blog can give itself a pat on the back for pointing out that Labour HQ should run the new “opt in” propososals past its creditors before conference.
If the story in todays Sun (paywall) is correct some of Labours Creditors are worried that with its income cut they may never get paid. Of course the more creditors panic the more they will have something to panic about, thats how Bank Runs start. What larks !
@ Robin Thorpe
I think we would all like to see lower incomes rise and I think the government changes to tax allowences will go some way to assisting this in the coming years. However there will never be “equality” which the left consistently bemoans. A surgeon will always earn vastly more than a cleaner, a CEO more than a brickie, and so on.
Labour need to move away from the “filthy rich” mantra where the word “filthy” is the obligatory adjective. If labour are truely a party of the people then yes by all means reduce VAT but also abolish stamp duty, so that low and medium income workers can have a better chance to buy a house. No that would be a popular vote winning policy – something which Labour need right now.
@Robin Thorpe,
I think that the foreign investors buying up Mayfair are an absolute pest. Whole streets and squares no longer have lights on in the evenings due to there being no one in the houses.
Will Osborne do anything about this? No, because its one of the few income streams this country has right now.
Labour needs to learn it’s place. The combined membership of every political party represented in Westminster is less than the membership of Unite.
When Labour stands proud bragging as the political wing of the union movement then it will serve a purpose.
In it’s present form it is a pointless middle class largesse and the sooner it is certified dead the better.
“I think that the foreign investors buying up Mayfair are an absolute pest”.
If the country allows in 100000 Bulgarians to live, who cares about a few Russian pests? Oh, that’s another Labour hypocrisy, it’s ok if 100000 Bulgarians come and put pressure on your employment, your housing, your health service, your schools. But a few Russians who probably put no pressure on local services and only increase house prices at the very top (which the Govt takes a nice cut) with money are considered a pest.
I guess I know what the next Labour policy is.
“it’s ok if 100000 Bulgarians come and put pressure on your employment, your housing, your health service, your schools”
Boring xenophobes.
Immigrants don’t put pressure on services. That’s a Tory tabloid myth.
Of course it does and it will be! This is how the perfect scheme of power works. While wealthy people become even wealthier, poor people get even poorer (if it is possible, of course, since each of us has at least one credit card debt and there are many of those who live from paycheck to paycheck and need money to borrow from North’n Loans or whatever other companies there are in Britain). I do not that that existing problems in today’s economy worry these people too much I must say….so don’t rely on positive changes. Thanx for the post though
Labour fcuk the economy and leave the Tories to pick up the tab. Thats the way its always been.
They then oppose every reform the Tories try to make knowing full well they would have had to cut public spending themselves if they stayed in government.
And lets face it, Labour is full of ‘ dont do as we do, do as we say Socialist hypocrites, which i personally have always had a big problem with.
The old adage that you cant do anything if you dont have power-being the elected government- is now wearing a bit thin.
Labour or New Labour if you like were the worst government ever. They screwed their own core voters with their disasterous immigration policy-looking after their chums in big business-and Blair led us into two futile wars.
BenM, its no myth its obvious common sense. Over 2 milion net immigration between 1997 and 2010-the New Labour years-couldn’t very well do anything else but put pressure on the infrastructure.
Simple supply and demand principles should also have told you that flooding the labour market with immigrants was always going to keep local unemployment levels high and force down wages.