A thing for the New Statesman here
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The British middle class is sinking. Is our politics big enough to meet the challenge?

An interesting statistic crept out of the Department for Work and Pensions last week, while the pubs of Britain no doubt buzzed with discussion about Jean-Claude Junker or how someone in Ed Miliband's office may or may not have recognised someone at a FT summer drinks reception.

According to the DWP, the average household income in 2012-13 was £440, unchanged on the year before. It represents the third consecutive year of stagnation or decline (depending on how you cut the figures). As the IFS have noted, in real terms this leaves median household income in roughly the same place as it was in 2002, and comes off the back of painfully slow wage growth from the start of the 2000s.

In the same week the increase in the price of homes reached an all-time high. Add in that a majority of people on typical incomes now have less than one month's income as savings, plus the slow hollowing-out of middle income jobs, and a pretty clear picture emerges. The foundations of middle class life – a decent income, assets, savings, pensions – are getting harder and harder to attain, especially for those just starting out. In many cases, debt has filled the gap.

This goes beyond just failures of the private sector. The welfare safety net has also become residualised. People on reasonable incomes can work their whole life and receive only paltry amounts when they lose their job. When it comes to both work and the state, people in the middle have been putting more in than they've been getting out for a long time.

It should go without saying that working class communities have had it hardest over the last thirty years. But the idea of middle class decline too is too often met with derision, especially among progressives.

Part of this is down to a distorted view of what "middle class" is, a popular association with what is in effect the upper middle classes; the world of piano recitals and Waitrose where "struggle" means difficulty meeting school fees. Of course, the middle class contains many like this too and they are doing more than fine. In fact, the most interesting development that experts havepointed to in recent years is the fracturing and polarisation of the middle class, between the upper echelons and those at the lower end. And previous generations who started out at the lower end of the middle class, bought a house at the right time, settled into a profession and now face retiring near the top may well be the last to make that journey en masse. In short, the bottom is falling out of the British middle class.

There's been a lot of talk about "narratives" recently. There's also been a lot of talk about how Ed Miliband doesn't have "a narrative". But in his defence, he's one of the few at the top of British politics to grasp this phenemenon, whatever his other difficulties. He's not totally alone – some figures on the right, for instance, including the brilliant Peter Franklin at ConHome, have twigged too. But wider interest is otherwise conspicuous by its absence, in Westminster at least.

Instead we get slightly echoey outdated debates about Europe, whether X or Y is "pro-business" or "anti-business", whether a particular view of public services is sufficiently "reforming" and so on and so forth. But surely the shape of that discussion changes in the face of such huge societal shifts? No doubt this failure to catch up is partly because the senior ranks of the commentariat are largely made up of those at the comfortable end of things (themselves probably among the last who can expect to make a good living out of a profession like journalism) - but it's depressing all the same.

To be fair, the answers are neither easy nor obvious. The likes of Resolution Foundation have been fantastic at laying out the problem of stagnating wages and ways to ameloriate it, but no one has come up with a wholesale plan for reversing the trend. Some of this is because it rubs up against global head winds and the modern divorce between power and politics. It probably requires trans-national solutions, or at least a revisiting of the way Britain approaches globalisation – a debate that hasn't even been opened here.

But those who over-play the inability of national government to fix things are also wrong, and usually have a vested ideological interest in doing so (in this sense the argument between those favouring a "bigger" or "shrunken" Labour offer in opposition is mostly phony, and a proxy for a bigger one about what can be achieved in government). Ideas that would be both effective and achievable include wholesale reform of corporate governance to include a significant role for workers; profit-sharing and other ways of spreading wealth; lower-cost routes into home ownership; breaking up and remaking British banking; decentralisation to cities; the prioritisation of vocational "middle skills"; prioritising British industry in procurement; reform of takeovers etc. When it comes to welfare, there is IPPR's National Salary Insurance scheme or SMF's "flexicurity" proposals.

All of this can only start, though, with a recognition that our current journey back to basically the same political economy as we had before the crash is not what success looks like. It wasn't good enough then and it isn't now.

Marx famously wrote:

The lower strata of the middle class... all these sink gradually into the proletariat, partly because their diminutive capital does not suffice for the scale on which Modern Industry is carried on, and is swamped in the competition with the large capitalists, partly because their specialised skill is rendered worthless by new methods of production. Thus the proletariat is recruited from all classes of the population.

Things may not be as apocalyptic or revolutionary now, but they are bad, and contradictions within modern British capitalism mean the lower end of the middle class is sinking. The entire middle is being stretched, squeezed and polarised as never before. The result is entire neighbourhoods – which on the face of things look serene – in fact struggling to keep their head above water, facing futures significantly less secure, less stable and less well-off than their parents. This shapes millions of people's everyday lives and influences their political attitudes, and it should influence our political discussion too. At the moment, though, it doesn't seem to be. Future generations will surely look back and wonder what on earth we were talking about instead.

François Hollande has achieved far more than his critics suggest

Piece for Shifting Grounds and New Statesman
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If you listen carefully, you can hear it coming. With next Monday marking one year since François Hollande was elected French President, a tidal wave of I told-you-so’s and smugness is about to be visited upon us by Westminster’s commentariat.

It’s fair to say that most of them have never much liked the French president. And we are sure to be gleefully informed that the first year of his Presidency has been a disaster. It will invariably be held up as a stark warning to Labour against carrying any challenge to the austerity consensus into the next election.

It won’t surprise you to learn that upon closer inspection, things turn out to be a bit more complicated than that.

Hollande has certainly had a difficult time of it, sliding recently to 25 per cent approval in the polls. Much of this can be laid at the door of his one unambiguous failure – his inability to overcome German opposition to redrawing the EU’s fiscal pact towards a greater focus on growth. As a result, unemployment is stuck at around 10%, and consumer confidence is low. The Eurozone remains largely frozen.

Some of it is also his own personal style. Hollande’s more low key, unfashioned image and patient approach – once a selling point – has bored a nation who became used to the glitz and hyperactivity of the Sarkozy years (in much the same way that ‘Not Flash, Just Gordon’ rebounded on Brown).

But if he has failed to offer much hope at a European level, the same cannot be said about his record at home. For starters, he has already made good on most of his key campaign promises, such as the hiring of 60,000 new teachers, raising the minimum wage and setting up a Public Investment Bank to lend where banks won’t (which given time could prove crucial to the country’s recovery).

But it is on budgetary matters – tax and spend – where Hollande has offered something most markedly different. Contrary to received wisdom in parts of the British press, the French President never campaigned against the principle of deficit reduction; simply against the notion that this is best achieved through deep spending cuts and huge tax hikes on ordinary people (this is after all what austerity has come to mean). And it is here that his actions in government bear far greater scrutiny than the widely held, lazy caricature that he has bowed to 'inevitable' cuts.

In 2013, only a third of Hollande’s deficit reduction measures comes from reducing spending. And all of this is coming from departmental spending freezes, not deep cuts.

The rest comes from increased taxes, largely on big businesses, banks and wealthy individuals. This includes increased wealth taxes, alongside hikes on taxes on assets and dividends. A new 45 per cent top rate has been brought in for incomes over €150,000, while companies will have to pay 75 per cent tax on any salaries over €1 million (replacing the 75 per cent income tax rate struck down by France’s constitutional court). Big banks and oil companies have also been hit with special levies. Tax exemptions have been scrapped.

While weak growth across Europe has made things harder than expected, these measures will still see France’s deficit fall to 3.7 per cent in 2013, from 4.8 per cent in 2012. Hollande has also shown admirable flexibility, resisting pressure to bring in any further deficit reduction measures to meet draconian EU targets while the economy is still weak (he has instead delayed them).

The ratio between taxes and spending reductions will level up a little in 2014, and some entitlements may be means tested. But freezes are likely to continue to take precedence to significant cuts on the spending side.

Whatever one’s view of Hollande, to equate this with the medicine meted out by other Governments in Europe is fatuous. Compare it, for instance, to George Osborne’s approach, whose ratio of cuts to taxes is 80:20, with that 20 per cent borne by people on average incomes while millionaires pay less. It’s also a world away from the broad-based slash and burn policies being implemented in Italy or Greece. Low and middle income households in France have been protected, as have public services.

Here Labour can still draw positive lessons, as beyond the need for short-term stimulus now, they face up to longer-term decisions over whether to accept the enormous cuts currently pencilled in by the Tories for 2015 and beyond. The deficit faced by any incoming Labour government is likely to be of a similar order to that faced by the French President.

Drawing inspiration from Hollande, but outside the fiscal straight jack imposed on Eurozone countries, Labour could set a longer more flexible timetable for elimination of the deficit. Assuming they inherit low growth, they could then pledge a freeze on overall departmental spending. This would be tough but would cancel planned Tory cuts and shut down accusations of profligacy or ‘turning the taps back on’ in a relatively painless way, providing them space to talk more about growth and living standards. Beyond that, levies on the well off and big businesses (e.g Financial Transactions Tax, Land Value Tax, restoring the main rate of corporation tax etc) should go towards paying for the rest of deficit reduction.

Within this overall spending envelope, further tax rises on the top (a 50p rate, mansion tax etc) could pay for tax cuts for those on low and middle incomes, aiding demand. Growth measures requiring capital spend would then be funded by taking money from budgets with the least impact on domestic demand (cuts in defence and international development to pay for a large house building programme, for instance).

There are many areas, of course, where Miliband will want and need to do the exact opposite of Hollande. He will have to be careful to not be seen to over-promise, given the public’s already brittle faith in politics. But a closer reading of François Hollande than we will be afforded in our newspapers reveals an important truth; one that can be rescued from the carnage of an otherwise difficult first year for the Socialist President. When it comes to how, when and on whose backs the national books are balanced, there are still choices.

Cameron strikes some nice notes, but plays the wrong tune

Post for Shifting Grounds

Cameron strikes some nice notes, but plays the wrong tune

There’s no doubt that David Cameron’s speech to Tory party conference yesterday was one of his better ones since becoming Prime Minister. In some ways it was his most Presidential, not just in the personal touches woven in throughout, but in his attempts to transcend national politics and sketch out a vision of a new frontier – in this case, the new global economy – and place Britain at the heart of it  (sometimes called a ‘moon shot’ in US politics). We are, he said, in a “global race” with new countries on the rise, “sink or swim. Do or decline”.

Cameron also had strong dividing lines on welfare and schools – two issues Labour has no settled position on, but will clearly need to have in the next few years.

But the speech had a fatal weakness. At its core was a diagnosis of a country full of budding businessmen and women and ‘can do’ creatives, being held back by a bloated state and unreformed public services. The solutions that flowed from this were predictable enough – hack back the state, reform welfare, get the deficit down, liberalise school provision. Growth will naturally follow.

But this fundamentally misreads British politics today. Most people won’t become ‘entrepreneurs’, and most don’t want to. They just want to get on, get a good job, earn decent money, provide for their family, and lead happy and fulfilling social lives. The biggest impediment to this in 2012 is not the welfare system or planning laws, but an enormous squeeze in living standards and an economy that only works for those at the top. Wages are stagnating, jobs hollowed out, yet utility bills, rents, train fares, tuition fees and mortgage deposits are all rising (this is the true face of ‘Britain on the rise’ under the Tories). And so are bankers’ bonuses and executive pay, all the while SMEs – a real engine of jobs – can’t get access to finance, and young couples can’t get on the property ladder.

Even those traditionally upwardly mobile parts of the population – at whom the speech was clearly aimed – are suffering from this squeeze. Polling for Southern Discomfort Again showed that between 41%-47% of floating voters in key middle class marginals say they are now not confident they have enough money to make ends meet. As Lord Ashcroft’s polling shows, a key feature of the ‘suspicious strivers’ group he identified is economic insecurity and precariousness.  The squeeze is also having obvious effects on demand and consumer confidence – without which all the “diplomatic showrooms” and ankle flashed to multinationals matters not one jot. Economically and electorally, post-crash Britain is defined more by strugglers than it is by strivers.

To this backdrop, a speech about the ‘global race’ in the new world economy, or unleashing a nation of Steve Jobs style entrepreneurs, is a little arid and far off. It’s not irrelevant, it’s just remote; a bit mid-1990s. On the real day-to-day challenges and anxiety facing people already in work, Cameron had little to say. Bank reform did not feature once in his speech, nor energy companies, or even the words ‘bills’ or ’wages’. The Prime Minister may have struck some nice notes along the way, but he played the wrong tune.

The truth is, most of the obstacles holding back prosperity in the UK and our place in the world come not from an unreformed public sector, but an unreformed private sector. That a Conservative Prime Minister, who came to political maturity in the age of neoliberalism, feels uncomfortable talking to that challenge is not surprising. But it ultimately leaves him unable to connect with the lives of people he needs to reach to win.

It is this divide that Labour needs to put the Tories on the other side of. The party needs to find a consistent line on welfare and schools, but it can’t allow the election be fought on this ground. They need to make 2015 an election about living standards and the squeezed middle; who wants an economy which puts money in the pockets of ordinary people, and who only looks out for the top 1%. Making banks and energy companies work for people, an active industrial strategy, even tax cuts at the bottom or middle paid in part by rises at the top – all, among others, have a role to play. On this divide, the Tories are extremely vulnerable – because they simply don’t grasp Britain’s living standards crisis to begin with. However eloquently delivered, David Cameron’s speech yesterday proved that.

The 'modernisers' of British politics are in retreat

Post for Shifting Grounds. Hopi Sen wrote an interesting response on his blog here.

The 'modernisers' of British politics are in retreat

Since the summer reshuffle, a lot of discussion has been devoted to the right-ward shift of the Conservative party. As Stewart Wood writes, the Tories detoxification strategy seems like a “distant memory”.

But arguably the fading of the Cameron project is just one piece of a broader picture, which is the fall from grace of a sub-sect within the political class which once reigned supreme in all parties: the so-called ‘moderniser’.

It is rarely noted that inside the three three main parties sit a relatively small group of people – advisors, MPs, lobbyists mostly – who have far more in common with one another than their own respective party faithful. Their views are distinguished by a metropolitanism and social liberalism. They are intensely relaxed over gay marriage and women’s rights, but also the filthy rich and the City; supportive of public services but besotted with ‘reform’ defined by marketisation; mildly redistributionist but sharers of a faith that increased tax on higher incomes hits aspiration, that the British middle class starts at sixty-grand a year and the working class has been replaced by an underclass. An unswerving commitment to flexible labour markets is likely to make them uncomfortable with anxiety over immigration, while crime is usually addressed through depoliticized phrases like ‘social exclusion’ or ‘problem families’.

As Julian Astle perceptively notes, in one of the few articles written on them, this group will tend to give different emphasis to these views depending on their respective party’s historical weaknesses. Most importantly of all, though, they position and define themselves by a battle with their own more provincial party base.

And for years they won out. This is what came to capture the essence of ‘Blairism’ and many Blairites within the Labour party by the late 1990s. Success at the polls meant their agenda framed British political debate practically unchallenged. Despite ousting Blair himself, ultimately Brown and the people around him couldn’t carve out an alternative to a zeitgeist still going strong within the party and in media circles.

That Cameron came to pick up the Blairite playbook is well known by now; the huskies, the pledges on public spending and overseas aid, the commitment to gay rights and a more open approach to Europe – all key components of the Cameroon project. What is less appreciated is that in retrospect the ascendency of Clegg and co. at the top of the Liberal Democrats was just another variation on a theme, as he moved his party away from the ‘soft leftism’ of Charles Kennedy towards this more fashionable centre. Out went taxing income to better fund public services and opposition to marketisation, in came greater focus on taxing property and pollution, on free schools and on aridly defined ‘fairness’ within existing budgets. Both Cameron and Clegg kept red meat for their base, but their direction of travel became clear enough.

Now, though, it’s a very different story. The Cameron set are well and truly in retreat, ‘in office but not in power’ as the old saying goes. The resignation of Louise Mensch (a politician quietly liked by trendy triangulating types within the other two parties) and emigration of Steve Hilton comes as the Tories prioritise brutal spending cuts and slash tax for millionaires, all the while stalling on gay marriage and trashing any green credentials they once had. Clegg is more secure – the Lib Dems are less factional than commonly thought – but even he has had to tack back towards proposing higher taxes on the rich, and speculation persists that he’ll be ditched for the more leftish Tim Farron.

Meanwhile, the defeat of David Miliband, the departure of Alan Johnson for Ed Balls and the dominance of the likes of Tom Watson has drastically reduced the influence of Blairites or ‘Third Wayers’ over the direction of Labour. This is the real stupidity of the recent GMB motion to ban Progress. Their formal power within the party has never been weaker. The soft-left totally dominate strategy, policy and often selections. And if we can’t make the most of that ascendency, then we have only ourselves to blame, not nonsense conspiracies about plots or coups.

Indeed, there is an opportunity to forge a new consensus amid the rubble of the old one. The old modernising consensus has fallen from favour in all three parties mostly because its playbook was forged at a time when the basic questions of political economy were settled. In this respect, it was broadly in tune with public opinion. But the financial crash and the decline in living standards has incinerated most of those assumptions, and meant the old agenda satisfies neither party rank and file nor voters. Public opinion is much more volatile and harder to capture than before (increased anger at bankers, the rich and inequality but also – sadly – recipients of welfare). It is this which explains what Rafael Behr laments as “the hollow centre of British politics”.

As both Behr and Wood argue, the Tory right has sensed this gap too. They are pushing on with increasingly bold and frightening agenda to plug it. Unlike Brown, Ed Miliband has proved he can operate effectively outside the old ‘modernising’ formula – he has not pointlessly picked fights with his base nor felt the need to match Tory policy or indulge in huskie style stunts.

But there is still a sense of caution to him at times – he recognises the moment British politics finds itself in, but seems reticent to fully follow through on its implications. For the first time as leader, he and the people around him head into conference this week without any real threat, as a chunk of his critics find themselves in the wilderness or fighting their own internal battles. That space needs to be used to match bold critique with bold policy. There may never be a better chance.