Britain - the crisis, poverty and austerity-electioneering

Jan/Mar 2010

Despite all the past hot air about a "recovery", the harsh reality of the crisis continues to be felt in the day-to-day life of the working class. It is evident in the on-going job cuts and rising unemployment; wage cuts and shrinking purchasing power, even when in a job; the bosses' obvious attempts to use the recession as a pretext to squeeze even more out of the remaining workforce, and the on-going difficulties faced by the worst off to secure some sort of permanent roof over their heads. Ministers may have had the nerve to congratulate themselves about the fact that joblessness is not increasing quite as fast lately as it did earlier in 2009, but the fact that it isincreasing is a brutal truth for those on the receiving end of job cuts! These are the actual symptoms of the crisis for the working class and as long as these symptoms remain, any talk of "economic recovery" is mere farce.

In fact, predictions of an imminent "recovery" from the crisis have become far more cautious lately. The announcement made last year by the government, that it would take place "early in 2010 (after stating earlier, "by the end of 2009!) was quietly binned. Darling can still occasionally be heard to say that this "recovery" has "probably begun" - but this is a far cry from last year's triumphal tone. Overall, Brown's ministers are now very discreet as to when they think this "recovery" will happen - but still manage to claim credit for it, even though it has not happened yet! As for the bosses' organisation, the CBI, it was only a little bit bolder in its estimation, at the end of December, that a "recovery should be expected towards the end of 2010", while the Monetary Policy Committee of the Bank of England was far more lukewarm, noting that there were probably as many factors which pointed towards an improvement as there were pointing at a possible aggravation!

The on-going jitters

But the fact is that at every level, the capitalist economy is still showing on-going symptoms of an acute crisis.

One of these symptoms surfaced last November, in Dubai. The largest local real estate company, state-controlled Dubai World, ran out of cash and was unable to meet its repayments on an enormous debt. This did not happen out of the blue. Dubai World was known to be heavily indebted and the extravagant construction plans it had for the super-rich were only adding huge amounts to its debt. Dubai World's lenders knew this and so did the contracting companies (including a number of the big British firms) which were paid a fortune to carry out the work. But what did they care, so long as the money was paid and the profits flew in?

Eventually the chickens came home to roost and Dubai World had to suspend payments. There was a wave of panic across the world, not because the sums involved were very large - in fact they were insignificant compared to the bad debt held by the big banks since the beginning of the crisis - but because no-one could be sure that, in and of itself, this near-bankruptcy was not going to spark off some sort of chain reaction on the world financial markets, with unknown, but potentially catastrophic consequences.

In the end, Dubai World received an emergency loan from the neighbouring United Arab Emirates (UAE) and the financial system came out of this incident unharmed, for the time being (who knows what unpredictable boomerang effect this may have tomorrow?). But the same cannot be said of tens of thousands of south-east Asian workers who were employed on Dubai's construction sites on semi-slave contracts. They were sacked overnight and forcibly repatriated without any compensation whatsoever.

Nevertheless, and this is the point of this example, this was a "near miss" for some of the big British banks: RBS, HSBC and Standard Chartered had, collectively, the largest exposure to Dubai World's extravaganza, while also being big lenders to the UAE. Hence the emergency meetings between government and bank officials in London and the resulting jitters on the stock market. And who knows, there may still be a sequel to this story at some later point.

Another symptom of instability came at the beginning of December, when international agencies reduced Greece's credit rating and, therefore, its ability to refinance its debt, while causing a sudden fall of the euro on the world's currency markets. The trigger for this decision was the announcement that the Greek government's annual deficit was predicted to be equivalent to 12.2% of its national output (GDP). As a result, international financial institutions put pressure on the Greek government to cut its expenditure, which it did willingly, with a series of drastic measures against the working class, including a 10% social expenditure cut and an emergency "reform" of the pension system, involving more cuts, due to be implemented within 6 months. In fact, this was the second time that a western European country, finding itself in trouble due to the chaos of the crisis, was yielding to demands for austerity measures from lending institutions: the Republic of Ireland had acted in the same way earlier, after its budget deficit was estimated to be running at 11.6% of GDP.

But, thinking about it, what was so dramatic about Ireland's and Greece's budget deficits that they prompted the financial institutions to react in this way, thereby justifying such attacks against the working class? After all, their deficits were lower than the 13% of GDP predicted for this year's deficit in Britain! But then, of course, the international financial bodies do not have quite the same attitude towards Britain's heavy-weight capitalist class and financial sector, as they have towards those of much smaller countries, like Ireland and Greece. The capitalist world is a jungle and, for all of yesterday's talk about Ireland's "Celtic Tiger" and other similar nonsense, the British bulldog remains one of the kings of this jungle.

It would probably take a far worse deterioration in Britain's financial situation, for the international lending institutions to put any real pressure on the British government, if only because British capital is one of the world's biggest lenders. In fact, if anything, Britain is already one of the worst offenders among the industrial countries, with a combined total debt (personal, corporate and public) of 465% of GDP, up from 315% just a decade ago, and far worse than the 286% of the post-WWII recession. Yet, so far, no international institutions has even considered reading the riot act to Brown.

In fact, what happens is the opposite. In the world capitalist jungle, the British government is able to read the riot act to smaller countries, as was shown by the Icelandic crisis. Following the collapse of the Icelandic banks, in 2008, British savers who were lured into putting their money in these banks because of a mouth-watering 7% interest rate, were refunded by the government and so were Dutch depositors, while all Icelandic funds were frozen by Brown, using anti-terrorist legislation! Thereafter the British and Dutch governments ordered the Icelandic government to refund what they had paid. Not only did they demand a full refund, but they slapped a 5.5% interest rate on top of it - far higher than going rates.

Except that Iceland is a tiny country of just over 300,000 inhabitants. Demanding that it should refund the debt of banks which were headquartered there, is like demanding that the inhabitants of Edinburgh should repay the debts incurred by RBS on the grounds that this bank had its head office in their town! In the case of Iceland, the Icelandic banks were operating on the basis of the same kind of high-risk practices as Northern Rock and, in fact, most of the big banks. Neither the British nor the Dutch government objected to these practices, despite many criticisms and warnings from economic circles, and it was these practices which eventually backfired once the credit bubble burst. Why should the population of Iceland be made to pay for a debt which amount to 50% of the country's GDP, not to mention interest payments, whose annual cost is equivalent to Iceland's entire health budget! Why? Quite simply, because the law of the jungle rules over the world economy and British capital would not miss an opportunity to take advantage of this law!

From Dubai to Iceland, from Greece to Ireland, all these mini-crises within the general crisis of the system, have two things in common: on the one hand, no-one can ever be sure that they will not have a snowball effect, affecting many players on the world market, if not the world market as a whole; on the other hand, they are always "resolved" in the same way, by governments which use the excuse of restoring the financial stability of this chaotic system, to try to impose on the working class intolerable sacrifices. And in this last respect, of course, the British working class is just as exposed as its counterparts in every other country, regardless of the financial situation of Brown's government.

Feeding the crisis

At the same time as every government in the world tries to blackmail its working population into accepting more and more attacks against its jobs and standard of living, by pretending that this is the only way for the economy to recover, a "recovery" of sorts is taking shape for capitalist profits and, more specifically, in the financial sector. But this "recovery", far from signalling the end of the crisis, is actually another symptom of the crisis itself.

So, for instance, the year 2009 ended with the London FTSE100 share index regaining the level it had reached in September 2008, just before the bankruptcy of the US Lehman Brothers bank triggered the beginning of a panic on the world's financial markets. Subsequently, London share prices bottomed out in March 2009 and have been rising ever since - by 61% so far, in just 9 months. In fact, there is no comparable example of such a fast increase in share prices in London.

The main factor in this increase, according to most commentators, has been the "quantitative easing" programme of the Bank of England, which really took off the ground at around the same time as the stock market was bottoming out. This programme, whereby the Bank of England buys gilts and bonds from banks and financial companies, paid for with new electronic cash "printed" for this purpose, has lined the coffers of the sellers with a total of £194bn so far. Of course, these billions were supposedly designed to provide liquidities allowing banks to resume lending to the economy. But they did not. Instead, they used a large part of it to gamble on the stock market, thereby fuelling this meteoric rise of share prices.

The stock market is not the only market which was boosted by this "quantitative easing". The bond market, which had been largely frozen by the credit crunch, was boosted as well. The reason was simple: since bonds could always be sold back to the Bank of England against cash, thanks to the "quantitative easing" programme, the banks were willing to buy all the bonds on offer, thereby driving their prices up.

By the same token, the very big companies, which have easy access to financial markets, went on to raise funds by issuing bonds (or shares) which sold like hot cakes, rather than taking out loans. In fact, the total value of corporate bonds issued by companies in 2009 was the highest ever. Since company investment fell to an all-time low during that year, this can only mean that the big companies used a large part of the cash they raised in speculative operations rather than productive investment - which, in and of itself, is a symptom of the crisis itself, since no "recovery" can get underway as long as the capitalists starve the productive sphere of investment.

This resurgence of financial speculation explains the obscene profits which are now being announced by the largest banks, both because of their direct involvement in speculation and because of their monopoly over the issuance of bonds on behalf of companies - which has always been a major source of profits for them. Hence also the billions of pounds which these banks are about to dish out as "bonuses" to a few hundred executives, regardless of Darling's so-called "super-tax". Contrary to the way they are usually presented, these "bonuses" have nothing in common with the productivity bonuses paid to factory workers, which are just a part of their wages. Rather, banking bonuses are part of the process through which the capitalist class redistributes its profits within its own ranks.

Ironically, of course, this frenzy of financial speculation is being funded, in the last resort, by the population as a whole, through the Bank of England, under the pretext of guaranteeing the stability of the financial system and ensuring that there is enough liquidity to pave the way for a "recovery". But instead, public funds are used to fuel the same kind of speculation which precipitated the present crisis in the first place.

So much so, that many pro-market economic experts have been warning against what they consider as an increasing threat. The Economist for instance, a business weekly which is certainly not noted for being critical of financial speculation, brought out an issue in January with the headline "Bubble warning, in which the lead article argues that share prices are "still nearly 50% overvalued, while houses in Britain are "overvalued by almost 30%. In the same issue, another article entitled "Clambering out of the hole" akes a rather pessimistic view about the productive sphere: "The stronger and longer the recovery is in Britain, the more likely it is to become self-reinforcing, as business starts to invest again. Yet after so great a shock, no-one can be sure that things will develop along such reassuring lines. (..) Whenever it gets underway, the switch from public largesse to austerity will be prolonged, hampering recovery for years to come. In other words, for The Economist at best, if there is a "recovery", it will not be a real one "for years to come, but there is a risk that, instead, a new bubble will develop, compounding the present crisis!

In a bad state

Whatever happens with the crisis itself, British politicians of all stripes are now busy preparing working class voters for the idea that the only possible road to a recovery involves drastic austerity measures. As if the working class had not paid a high enough price to boost the profits of the capitalist class, and not just since the beginning of the crisis, but even before.

This is what is shown in the December 2009 Joseph Rowntree Foundation/New Policy Institute's (NPI) annual assessment of poverty in the whole of Britain. This report announced itself as the first to be written in "an economic downturn".

It makes for very interesting reading, and even more so, since it reviews the government's 10-year social record - years during which Labour governments under Blair and Brown have insisted repeatedly that they were tackling poverty and what they like to call "social exclusion".

It is only to be expected that the recession would have a negative effect on the social situation of the working class. But the report's authors point out that the most important social "indicators" like unemployment and poverty were already showing signs of deterioration well before he recession began in 2007. This is particularly demonstrable since 2003/4. In other words, the present recession cannot be blamed for the serious and ever-increasing social deprivation in Britain - even if it is aggravating it - and even if the worst is probably yet to come.

But while the Labour government cannot be held responsible for the consequences of the normal workings of the capitalist system, it have not even been able to alleviate its worst effects - which has always been the Labour Party's promise!

On the contrary, the government has consistently implemented policies which have reduced the income of the working class - and its share of society's wealth - to a point where Britain has become one of the most socially deprived among the industrialised countries. In 2007, Unicef placed Britain at the bottom of a list of 21 industrialised countries rated for child "well being". In 2009, it did scarcely better, and was ranked 24th out of 29 countries, on the same table, doing "better" than only Bulgaria, Romania, Latvia, Lithuania and Malta!

So let us look at childpoverty - that favourite subject of politicians. No doubt they imagine that appealing to sentimentality (a poor child is somehow more worthy than a poor adult, as if one can exist without the other!) will earn them more votes. Thus Tony Blair made that now notorious claim that Labour would halve child poverty by 2010 and eradicate it by 2020.

Here we are in 2010 - and in this respect (among many others) things have never looked so bad. 4 million children are living in poverty, by the latest measure, (2007/8 figures). In the year of Blair's pledge, 1999, child poverty was 4.3m. Today there are just 300,000 fewer children in poverty-stricken households than in 1999. A fall of 7%, when it was meant to be 50%!

And even if one tries to be a bit fairer by taking the rise in the rateof poverty as the measure - comparing 34% in 1998/9 to 31% today, the government's pledge has "suffered a serious reverse"in the words of the NPI researchers! Yes, to say the least!

The fact is that almost a third of all children in Britain today live in low-income households. And worst of all, the recent rise in the number of children living in poverty is accounted for by the increase in the number of children living in workinghouseholds! The figures are quite spectacular, illustrating that successive Labour governments have contributed significantly to poverty by their "success" in creating a lower and lower wage economy.

Gordon Brown, when he was chancellor, prided himself in "Britain's flexible workforce", and his government has accordingly refused to enact even the rather minimal EU standards for temporary workers - the latest delay putting this back to October 2011 - precisely because the casualisation of jobs and the low wages which go with it, was Brown's selling point to the capitalist class.

Low wages cause poverty

To show how "in work" poverty has increased, it is worth first comparing this to poverty among children in out-of-workhouseholds. In 1979, when there were 1.5m adults of working age out of a job, 1m children lived in workless households. This last figure rose to a peak of around 2.5m, in 1992. Since then it has come gradually down to 1.7m in the last 2 years.

On the other hand, the number of children in low-income workinghouseholds went up from a similar figure of 1m in 1979, to 1.7m in 1992, but then rose sharply - reaching 2m in 1998/9. Over the next 5 years to 2003/4 it fell by 300,000 to 1.7m, but it then rose sharply to reach an all-time high of 2.1m in the last 2 years! Of course the period of fall in the number of children in poverty was also the period during which government policy "to halve child poverty in a decade"was under close scrutiny.

That said, there is, in the background a trend which can be seen over the past 30 years f increasing "in-work" poverty. This is the real legacy of both Tory and Labour governments since 1979: to push the cost of labour down as low as possible. And now they have pushed it way down below the poverty line!

They have prevented families from starving outright, of course, by subsidising poverty wages through devices such as "working tax credits" and the various age-related and rank-related child benefits. But this has been done by robbing Peter to pay Paul - that is, at the cost of a huge reduction in benefits to the unemployed. If benefits were not cut directly, cuts have been achieved by other means. Payments to long-term disability benefit claimants have been cut through "re-assessment". All claimants are penalised for not proving to be in a constant "job search" mode, or for refusing to take just any job that comes along, no matter how low the wage or how bad the conditions. This has ensured that cowboy employers who rely on tricking vulnerable workers out of their wages and their rights have a constant supply of workers to choose from. Harassment is another way of cutting the number of registered unemployed - after months of not finding a job while being subjected to constant "advisor monitoring", many (if not most) just "fall off" the register.

Those among the unemployed who have children are left to claim non-contributory benefits. And, as the NPI report points out: "strictly speaking, children in workless households are now in poverty because adult benefits are too low". hat said, today, according to the NPI report, the number of jobless is the highest since 1997 and the unemployment rate among 16-24-year-olds is the highest since 1993. So no wonder the government is trying to reduce the cost of unemployment.

In fact the NPI report shows that overall unemployment fell only during the period 1999-2004 (which it calls "Labour's golden years"!), and then only slightly. But it was again rising by 2005, while youth unemployment had already "stopped falling" in 2001. In other words, for over 8 years there has been a deficit in new jobs for the new generation of workers.

Likewise, even before the crisis, the number of people living in low-income households was rising. Today it is now as high as it was in 2000, at 13.4m, having gone up by 1.3m in the last 3 years. To explain: the category of "low income" includes any adult, with or without children, living on less than "60% of the median UK income threshold"- in concrete terms, for 2007/8 this was £115/week, after housing costs for a singe adult without kids. It was £195 for a single parent with a child and £279 for a couple with 2 children.

One should keep in mind, however, that after housing costs are deducted, many workers in London and the home counties, where these are particularly high, would be on an income quite far below the figure quoted above. For instance, the net basic wage of a full-time postman (after housing costs and taxes are deducted) would not be much more than £250 per week (an could be less), which puts this "average worker" under the poverty line if he/she has a partner and two children! This is what would be left to pay all bills, transport, food and other living costs per week.

But then there is a category of the poorest of the poor - those, working or not, who live on incomes below 40% of "median income" and this number is the highest in 25 years. In fact this number, in contrast to those in the higher category, has never fallen, but has risen slowly but surely since the mid-1990s. The 40% threshold for a single adult is £77 - but Job Seekers' Allowance is only £64.30 per week!

In assessing Labour's 10-year record, the report has also enumerated the indicators which have shown improvement, presumably so as maintain its non-partisan stance. The problem is that a number of these improving social indicators include educational targets - which could be met by lowering the goalposts, as well as subjective questions, like the "fear of crime". But apparently there are two health indicators which are better: infant mortality and deaths before the age of 65. Surprisingly, homelessness has also decreased up to 2007/8, but since evictions have been consistently on the rise there seems little doubt that homelessness will be on the rise again as soon as the statistics catch up with reality!

The NPI researchers ask what light their report shed on "the notion of a 'broken' Britain. They say: "clearly enough, if it really is 'broken', then at least in the key areas of education, children's behaviour and crime, it is not something that has come about just in the past ten years. (...) This does not mean that the post 1997 record always looks better than the pre-1997 one. For example, one of our key statistics, (the proportion of 19-year-olds without a basic qualification) though changing little in the last decade, was coming down (from an even higher level) in the first half of the 1990s. But the argument that some things have not got worse hardly disposes of the argument: after all, the charge that we live in a 'broken society' was first levelled by a leader of the opposition not in 2005 or 2007, but actually in 1995."

Competing for the most broken?

So how broke can they make it? Certainly Tory leader David Cameron constantly accuses Labour of presiding over a "broken Britain" - and he "forgets" to attribute his words to Tony Blair...

Yet given that the main competitive game during the electoral run-up is about who can make the most public sector cuts in the context of a record budget deficit - while promising the most tax breaks - the prospect for the working class is yes, a really much more broken society.

In this respect, the political agenda of all the main parties could not be more similar in fact. Obviously, any party coming into power under this system will have the same budget deficit to deal with and so none of them would care offer very much, in reality. Whether it be protection for the NHS or tax cuts.

Indeed, since not one of them would dare to be seen to attack the NHS outright, they all have made it clear that they will have no choice but to cut other public services. So although it is too soon to expect them to have their party manifestos ready, we can nevertheless provide a preview!

Starting with the Lib Dems (who will probably, as usual, attract a protest vote, despite leader Nick Clegg's very close imitation of David Cameron) - as their policy document goes: "We have isolated only two areas where we will make immediate, significant additional spending pledges: in education and in infrastructure investment. And both will be funded from specific cuts in other areas of current Government spending. No other party in British politics today has taken such a deliberate step to be open and credible with the British people about what we can and cannot afford. And, yes, that means that some multi billion pound spending commitments we have promoted in the past - like new free childcare entitlements, a new citizen's pension or free personal care - will no longer be firm commitments in our manifesto, but will be put on hold until they become affordable again. And some of our other pledges such as the scrapping of tuition fees will have to be phased in over a longer period of time."

The Tories, who are heading opinion polls at present (a YouGov poll published in the Sunday Times on 17 January put the Conservative party on 40% and Labour on 31%) - just like the Lib Dems - tell us how much they are not like Labour!
"Unlike Gordon Brown, we have been honest about the scale of Labour's debt crisis and have set out some of the tough measures we will take to tackle the deficit. These measures could all be implemented without harming frontline public services, and show how the burden of dealing with Labour's debt crisis should be shared fairly while protecting the poorest and most vulnerable in our society."
Of course... So what would they do? "We will freeze pay for all public sector workers in 2011, except for those earning under £18,000." In fact the Lib Dems more or less say the same in a different way by saying that lower-earning public sector workers would get a pro-rata £400 pay rise, but the others would get nothing.

The Tories go on, "The savings from this are equivalent to protecting more than 100,000 jobs. We will cut the cost of Whitehall bureaucracy and quangos by at least a third by the end of the next parliament. We will cap public sector pensions at £50,000 per year. We will stop new spending on Child Trust Funds for better off families. But to protect the poorest and most vulnerable, disabled children and the poorest one third of families should continue to receive both new Child Trust Funds at birth and top-up payments. We will stop paying Child Tax Credits to those earning over £50,000. We will hold a review to consider bringing forward the planned rise in the state pension age. We will create a new Office for Budget Responsibility to assess independently the sustainability of the public finances and hold the Government to account."

But of course Labour has already frozen public sector pay. It has already put legislation in place to increase retirement age and therefore cut pensions, de facto. In addition, in Darling's pre-budget report he undertook to "halve the deficit over four years" nd he also announced "further action including £11 billion of savings by 2012-13 through smarter government, £5 billion of savings by 2012-13 from targeting and prioritising spending, a one per cent cap on public sector pay settlements in 2011-12 and 2012-13 and reforms to public service pensions to save £1 billion a year from 2012-13 onwards.

What a "choice" for working class voters! In fact it is no choice at all. And today, in the context of this current unprecedented financial crisis and recession, workers quite obviously cannot expect anything from these parties.

Labour might still claim the vote of the working class, but one has to wonder why it dares. Aspiring Labour politicians from the ranks of the union bureaucracy and petit bourgeoisie may have a long record of using working class votes to climb the political ladder. But the Labour party's policy has long been to serve unreservedly exactly the same capitalist interests as the other two parties, no matter what it might try to argue, in desperation, in the face of its declining ratings in the opinion polls.

The three main parties are all parties of business, private profit and finance. They were all bent over backwards to bail out the crazy casino system of the banking sharks. And they are all committed to making workers tighten their belts as much as they can, in order to ensure that the capitalist class makes up for its losses, restores its profits and even increases them, despite the crisis.

So regardless of packaging, regardless of the fine or not-so-fine words, that is what they are all going to be asking from us. Voting for any of these parties in this context would be voting for more poverty and more degeneration of working class areas. The alternative we have is not to let any of them get away with it - and preferably without waiting until the general election.