Waking up to Sonny and Cher again

In what I suppose can be classified an example of irony, they keep repeating Groundhog Day on TV. But in order to live in Bill Murray’s head and experience the same day over and over again you don’t have to switch on ITV4. You just have to reside in Britain and pay the barest attention to politics.

The latest example of the recurrent waking nightmare comes in the form of the Daily Mail demanding (in the person of columnist Andrew Pierce who’s also a regular on Good Morning Britain) action against “an army of shirkers” on sickness benefits “which the British taxpayers are footing the bill for”.

According to the Mail “a senior government source” only a million of the 2.4 million people on universal credit or ESA and not required to carry out work-related activity are “so disabled they are incapable of doing any work”.

If this rings any bells, it might be because of the 2007 ‘independent’ report by former investment banker David Freud – commissioned by Tony Blair just before he left office – which concluded that the 2.68 million people then on Incapacity Benefit should be reduced by 1 million.

Despite Freud getting “his numbers wrong” (he only looked at recent claimants, not long-term ones), his eponymous report became holy writ for different governments. Its thinking was at the heart of the Work Capability Assessment (WCA) – the “functional”, non-medical test for all Incapacity Benefit claimants introduced by Labour in 2008. The WCA was founded on deliberately ignoring medical history and the opinions of doctors.

Although it was Labour’s brainchild, the Conservative/Lib Dem coalition found the WCA very much to their liking when they assumed office in 2010. In fact, Freud switched sides – if he had ever had a side beyond that of the rich – becoming a junior minister in the Cameron government.

Sick consensus

Judged in terms of the amount of sheer human misery the WCA has generated – it was revealed in 2017 that the number of disabled claimants attempting suicide had doubled in its first nine years  – I think the assessment has no equal among post-war domestic government policies.

There is no reason to think, by the way, that the current moral panic over work-shy fakers is any more grounded in reality than Freud’s report was. As a result of Covid, lockdown and the near collapse of the NHS, Britain is a much sicker nation. But these factors will be completely ignored by propagandists eager to replicate past tricks.

But the depressing reality is that these tricks work – in the sense of guiding the ‘national conversation’ in a certain direction. Or, to be more exact, returning that conversation to the lines it took between 2006 and 2015. Welcome to Groundhog Day politics.

Sir Kier Starmer’s Labour party, for example, has signalled that it is right behind the government’s approach to sickness benefit claimants. In January, in a speech delivered at Iain Duncan Smith’s think-tank (now there’s symbolism for you), then shadow Work and Pensions secretary, Jonathan Ashworth, decried the “the huge economic cost” and the “the increased health-related benefit bill” the taxpayer is lumbered with as a result of severely disabled people not getting jobs. Ashworth was referring to claimants in the ESA Support Group – exactly those who, according to the “senior government source” with the ear of the Mail, are not so disabled they are incapable of any work. I think you call it being on the same page.

Being there

But in the brief interregnum between 2015 and 2019, then Labour leader Jeremy Corbyn was definitely not on the same page. In fact he was reading an entirely different book. Centrist Starmer fans love to claim that while Corbyn was leading an ineffectual protest movement, the very serious Sir Kier is determined to actually win an election and make a difference by being in power. The first part is very likely to happen.

However, discounting for a moment that sabotage from within his own party may have prevented Corbyn from becoming Prime Minister in the summer of 2017, it is interesting to note the degree to which he yanked politics in a more humane direction simply by being there; by being leader of the opposition for four years

For example, I don’t think it’s a coincidence that the percentage of Universal Credit claimants sanctioned fell from 9% in 2015 to 3% in 2019, the exact period of Corbyn’s tenure. With him safely out of the way, ‘Boris’ Johnson’s “way to work” policy severely intensified the sanctions regime in 2022.

In 2016, with Corbyn’s Labour committed to scrapping the Work Capability Assessment, the government eased WCA conditions, excusing those with severe conditions from reassessment. By contrast, with the putative opposition now reading from the same hymn sheet, the government is planning to tighten the fitness to work test – by removing lack of bladder or bowel control or the inability to access an outside location from the list of “descriptors” used in the assessment.

It’s remarkable just how many U-turns Corbyn – whose leadership was under almost permanent siege from within – did force the government to make. And these were not all extorted when the government was enfeebled after losing its majority in the 2017 election. Many happened before that.

That as Chancellor under Johnson Rishi Sunak could signal “a decisive end to austerity” had a lot to do with the fact that Corbyn implacably opposed austerity from day one of his leadership. Indeed, that’s why he was elected by the Labour membership. He was also integral to forcing the original austerian, George Osborne, to beat an embarrassing retreat on proposed tax credit cuts.

Now, by contrast, with Starmer’s Labour committed to abiding by Tory spending plans, the renewed austerity earmarked to begin in 2025, will happen regardless of which party wins the next GE. Any momentum behind a campaign to abolish the Tories’ two child tax credit cap has been asphyxiated  by Starmer promising to keep it – one of the many “hard choices” (the phrase parrots Hillary Clinton) he has pledged to make if he enters Downing Street.

This pattern has been replicated across the policy spectrum – from taxes on the super-rich, to the treatment of refugees, from the powers of the security state over citizens, to the disavowal of public ownership of utilities. Corbyn shot holes in pre-2015 cross-party mono-politics – extracting some, not insignificant, concessions – while Starmer has methodically rebuilt the ramparts.

Iron Man

To be fair to Sir Kier he does have a stellar record on U-turns. Unfortunately, they all apply to Labour’s own programme – the social-democratic policies that got him elected as leader but which he has systemically discarded in favour of enervated third-term Blairism.

Corbyn’s mere presence shifted British politics slightly to the Left. His successor has used his position to return it to the sterile trajectory it took before the unexpected elevation of the MP for Islington North. And by stopping Corbyn from even standing again as a Labour candidate – an act with no precedent in British political history – to ensure that that fleeting effusion of hope never recurs.

Regardless of whether Starmer wins the next election or not, that’s his role.

Money, money everywhere and not a drop to drink

Water, wealth uncreation and turning the means of life into financial assets

The scandal of Thames Water – £14 billion in debt and seemingly incapable of fixing leaks or avoiding untreated sewage being pumped into rivers – says so much about our allegedly democratic political system.

The Conservatives, naturally, want renationalisation – should it become unavoidable – to be a strictly temporary stop-gap before, as with insolvent banks after the 2008 crisis, water is returned to the good hands of the private sector.

But the other team, Labour, are also against permanent nationalisation. In fact, together with the water industry, they are racking their brains to come up with plausible alternatives to it.

Such an absurd situation, at a time when large pluralities of voters, including Conservative ones, want the water ‘industry’ to be taken back into public hands, is perhaps more understandable in the light of the last New Labour government’s intimate ties to the water companies.

Ruth Kelly, for example, former cabinet minister under both Blair and Brown, is head of Water UK, the trade association for the water companies and naturally regards nationalisation as anathema. Angela Smith, former Labour MP and one of the founders of (Don’t) Change UK, vehemently opposed Labour’s previous policy, under Corbyn, of renationalising water. She was quietly readmitted to the Labour party last year. Ian Pearson, former New Labour environment minister is a non-exec director of Thames Water, the UK’s biggest water company, which also employed the ex-Labour cabinet minister and one time Trotskyist, Gus Macdonald, as its  European advisor between 2006 and 2016.

Such an elite consensus is symptomatic of the British oligarchy which masquerades, less and less convincingly with every month that goes by, as a model democracy. The Conservatives are obviously in favour of the continuation of privately-run water – it was Thatcher who privatised it in 1989. But the opposition Labour party is so well ensconced in the (fraying) order of things, that it is just as ideologically opposed to a change in the status quo. Notwithstanding obvious errors like the Brexit referendum, which released so many exorcised ghosts from the closet, British ‘democracy’ is about persuading the public to acquiesce in a state of affairs they dislike more and more as time passes.

But if the water ‘industry’ illustrates the hollowness of democratic decision-making, it also exposes something fundamentally rotten in the way we approach our economy as a whole. The water companies are, it has been reported, collectively in debt to the tune of £65 billion, up from nothing when they were privatised. “The staggering combined debt pile built up by the UK’s 12 water companies means that huge swathes of cash are being spent on interest payments,” fumed the Daily Mail a few weeks’ ago, “money that could be spent cleaning up polluted rivers or fixing leaky pipes.”

But no-one seems to ask why they are in debt. It can’t have been to fund infrastructure investment as the sewage-tainted rivers and seas and unplugged leaks wouldn’t exist if the infrastructure was properly maintained, let alone upgraded. The real reason is both more prosaic and depressing. Deliberately placing companies in debt, in order to extract money from them, is a core part of the strategy of their immensely wealthy owners.

The technical term for this is a ‘leveraged buyout’. The idea goes back to the 1960s but really only took off in the 1980s and ’90s. One American writer on “asset-manager capitalism” describes it thus:

[Traders realized] they could buy a company with borrowed money, using the company’s assets as collateral for the loan. They then transferred the debt to the company, which in effect had to pay for its own hijacking, and eventually sold it for a tidy profit.

The root of Thames Water’s debt affliction stems from the time it was bought by Australian asset manager Macquarie in exactly such a leveraged buyout in 2006. According to Money Week magazine, “by the time it was sold again in 2017 its debt had ballooned from £3.4bn to £10.8bn”.

Incidentally, Macquarie’s interest in the UK’s Water ‘industry’ has not abated. In 2021 it completed a “debt investment” in Anglian Water and acquired a majority stake in Southern Water.

According to American economist Michael Hudson, asset managers and ‘activist shareholders’ now look upon companies generally as “cash cows”. Rather than “plowing [sic] profits back into the corporation to expand the business by new long-term investment, research and development,” he argues, “the company is urged to pay out its earnings as dividends and buy back its stock to bid up its price.”

Share buybacks, illegal until the Thatcher and Reagan eras, have become routine for corporations. Among UK water companies, the owners of South West Water and Yorkshire Water have both initiated share buybacks. The effect of a firm buying back some of its own shares is to reduce their overall number, thus increasing the earnings per share that shareholders receive. However, there is a cost. The money used could have been deployed to invest in the business or, in the case of water companies, modernise infrastructure or reduce bills. According to one critique, “By systematically draining capital from America’s public companies, the habit … corrupts the underpinnings of corporate capitalism itself.”

Politicians aside, many British people are outraged that these predatory capitalist practices are being used to degrade a vital public service such as water provision, without which life would be unbearably hard. But the uncomfortable fact is that such predatory practices are degrading capitalism as well.

The peril of damaging the delicate flower of ‘wealth creation’ is invariably raised whenever the idea of public ownership or more regulation or taxation is mooted. Sir Keir of Starmer-land, leader of something called ‘the Labour party’, says that ‘wealth creation’ and economic growth must happen first if money is to become available for public services.  But today’s financial managers, in the water industry or elsewhere, aren’t doing anything to create wealth. Instead, by stopping infrastructure or capital investment from occurring, they’re destroying it – to no-one’s benefit but their own.

And this is before the fact that they invariably avoid paying any tax on their ‘wealth creating’ activities is brought into the equation. Because water firms – and many other companies – are drowning in debt, they pay very little tax on their “special dividend payments”. Thames Water, for example, admits it doesn’t currently pay any corporation tax “because of the Government’s Capital Allowances scheme and the impact of our interest costs”.

We have been lulled into accepting the fiction that wealth creation is synonymous with rich people doing whatever it takes to become even richer – that a high share price is a sign of economic vigour  – when, in reality, their labyrinthine money-making schemes can be its utter antithesis.

Arguments contesting the duplicitous concept of wealth creation have generally taken the form of arguing that other people – workers, entrepreneurs or consumers – are doing the real work of creating wealth. The owners, by contrast, do very little, apart from becoming legally entitled to receive it after it has been generated. This is what Marxists call (surplus) value. But even one takes the highly dubious wealth creation ruse at purely face value, it involves the creation of jobs and products or services by someone. How are we to react if, in fact, no value is being created, besides the ‘wealth effect’, the translation of capital gains made in the stock market into luxury consumption?

At this point someone will be sure to pipe up about pension funds. They loom large among the investors in water companies (and electricity firms), either as clients of the private equity investment firms that own them, or as partners in consortia that run water companies directly. For example, the Universities Superannuation Scheme (for academics in the UK) and the Ontario Municipal Employees Retirement System both own large stakes in Thames Water.

But pension funds are as desperate for ‘yield’ as anyone else, in order to pay for the pensions of current and future retirees. They illustrate the absurd quid pro quo we have got ourselves into – that we must accept sewage being pumped into rivers and seas, and bills that keep rising while tax is avoided, in order to ensure barely adequate occupational pensions for thousands of ordinary people.

This is not a choice we should be forced to make. As should be obvious since the financial crisis, the stock market is not, despite superficial appearances and the best efforts of governments through ‘quantitative easing’, an eternally bountiful cash cow – either for money managers or pension funds. The old pension system in the UK – a better basic pension and an occupational (SERPS) scheme – both based on the pay-as-you-go principle offered more stability than endlessly trying to squeeze as much as possible from unwilling companies or privatised utilities that neglect their primary functions in favour of making money.

Still there is something archetypal about water. Along with energy, health services, ports, nursing homes, waste management, car parks, telecommunications etc., it is a real asset with a guaranteed cash flow that makes it irresistibly attractive to asset managers. This is, according to one author, “a society in which the key physical systems supporting social life and its reproduction—so-called ‘real assets’—are increasingly owned by institutional investors [pension funds, insurance companies, university endowments] specifically through the mediation of dedicated asset managers [the plunderers] and their investment funds.”

However, it seems peculiarly odious that water, so basic to the preservation of life, is treated in this manner. One of the first things acts of a Corbyn-led Labour government would have been to renationalise water, while his successor is brainstorming ways to head off the threat of that common sense option being taken. Nothing else illustrates quite so starkly which side they are on.

 

Addendum: Last week ITV broadcast a programme called 'Dirty Water – what went wrong', an investigation into why there were more than 300,000 sewage spills in England & Wales last year. But the programme shied away from the real reason things have gone horribly wrong – privatisation. Specifically a system in which asset managers buy water companies by placing them in debt and then get them to pay for the privilege of being bought out – in the process sacrificing the basic function they are supposed to have, which is to ensure clean water. The programme suggested that bills would have to rise to pay for the investment in infrastructure that will have to take place to avoid the mass contamination of water in the future. But bills have already increased by 40% in real terms since privatisation, with the result of sewage being pumped into rivers & seas across the country. So where has all the money gone?  You don't need me to tell you.

The experience of England is not unique. In the book Our Lives in their Portfolios, author Brett Christophers relates how private equity companies have acquired water systems across cities in America with the result that bills have skyrocketed while the systems themselves have been left in a terrible state. In England & Wales all but three of the water companies in England & Wales have been removed from the stock market by private equity firms.

The incidents are not exceptions, says Christophers. "Rather, they are the more or less inevitable upshot of core features of the model by which asset-managers society operates. They are, in short, a feature not a bug".

I look forward to a TV programme about that.