FRFI 217 October/November 2010
The wholesale assault on state welfare outlined by the ConDem coalition government in the recent Budget is creating divisions among supporters of the Liberal Democrats, well in advance of the savage cuts in public services to be announced in the autumn spending review on 20 October. Few seriously believe Chancellor George Osborne’s claim that his Budget measures are ‘tough but fair’ and that ‘we are all in this together’, while banking corporations amass vast profits and bankers continue to receive obscene salaries and bonuses. Leading Liberal Democrat members of the government attempted to cover up this reality and placate their supporters with radical sounding speeches during their conference in the third week of September. So the Business Secretary Vince Cable, who is fully behind the savage cuts in state spending, prattled on at conference about controlling the ‘murky world of corporate behaviour’ and regulating capitalist markets that were often ‘irrational or rigged’. DAVID YAFFE reports.
In attacking ‘spivs and gamblers’ Cable asked: ‘Why should good companies be destroyed by short term investors looking for a speculative killing, while their accomplices in the City make fat fees? Why do directors sometimes forget their wider duties when a cheque is waved before them? …Capitalism takes no prisoners and kills competition where it can…’. Business leaders were apparently shocked by his remarks, with the Confederation of British Industry calling them ‘emotional’, and its leader Richard Lambert saying that: ‘Mr Cable has harsh things to say about the capitalist system: it will be interesting to hear his ideas for an alternative’ (The Guardian 22 September 2010). Cable, of course, has no alternative. He is a fervent advocate of capitalism, markets, competition and privatisation. He shares the petit bourgeois illusion of many liberals and leftists in this country that it is possible to tame capitalism and take measures to curtail the creation of monopolies and the speculative and parasitic activities of financial corporations.
In the last issue of FRFI we explained the link between the crisis of British capitalism, the parasitic and usurious activities of the banking corporations and the public sector deficit. Recent developments within the banking industry reinforce our arguments.
Banks stand their ground
In August the five biggest British banks – HSBC, Lloyds Banking Group, RBS, Barclays and Standard Chartered – reported combined half-year pre-tax profits of more than £15bn. The top six British banks control 88% of deposits in this country.
There has been some attempt by regulators, especially in the
Vince Cable was said to be infuriated by Diamond’s appointment. Nevertheless he soon began to shift ground when he told the BBC in early September that, although Britain’s ‘universal’ banks had to be made safe, this could be done by more subtle methods than a crude separation of investment and retail banking, such as placing ‘firewalls’ between the two arms. The former Labour Chancellor, Alistair Darling, said that he heard in these comments ‘the screeching of brakes shortly before the execution of a U-turn’. Mr Cable, he said, had finally realised the folly of breaking up world-class banks (Financial Times 9 September 2010). As we have consistently argued in FRFI, for any ruling class party in power in this country the interests of the international markets, the financial services sector and the City of
On Sunday 12 September, after months of disagreements, the Basel Committee on Banking, representing 27 member countries, finally came to a deal. This effectively more than tripled the size of the capital reserves that the world’s banks must hold against possible losses from 2% to 7%. The new rules, known as Basel III, will be phased in between January 2013 and January 2019. US and
Vince Cable warned that the government would not tolerate the new rules being used as an excuse not to lend to small businesses. This carries little weight with the banks. Not only are banks restricting lending but their interest rates are much higher than before the financial crisis despite the dramatic fall in official borrowing costs. Those borrowing without security can expect to pay around 11%, with the bank rate currently at 0.5%. Interest rates on mortgage lending have fallen around two percentage points to 4%, less than half the five point drop in the bank rate. The banks, not the government, are dictating the terms.
Attacking the working class
While the poorer sections of the working class will be hit disproportionately by the cuts, the income of the better paid working class and the lower middle class will very soon start to be squeezed as well. The recession saw a fall in total employment and a shift to part-time work. Nearly one million full-time jobs have been lost since the start of the recession after a dramatic shift to part-time working. Total employment fell by 580,000 over two years to spring 2010, while part-time employment increased by 330,000. The draconian cuts in public spending planned in the autumn spending review will almost certainly accelerate these trends. The aim of the government is to cut public spending from 48% of GDP to below 40% in five years. This will not only hit the jobs of the six million workers in the public sector but also the 1.2 million private sector workers directly dependent on government contracts.
The Institute for Fiscal Studies (IFS) has shown that the tax and benefit changes in the coalition’s first Budget will hit the poorer sections of the working class much harder than the better off and the rich (See article in FRFI 216). A recent report Where the money goes put out by the TUC at its Congress in September takes this further and shows the impact on different groups of the population of implementing the £34bn public spending cuts planned by the coalition government by 2013.
The research shows that on average households benefit from £21,000 worth of public services a year. Those on lower incomes gain more than the better off. So the effects of the spending cuts will clearly be regressive. The
The poorest parts of the country, where the population is more dependent on public spending, will suffer most from the spending cuts. Public spending accounts for 57.4% of the GDP in Wales, 57.1% in the North East, 50.3% in Scotland, 50.2% in the North West, 42.1% in the South West and 34% in the South East (The Guardian 9 August 2010). If we ignore the extreme inequality between rich and poor in inner
The TUC study also combines the effect of the cuts in services with the IFS study of the impact of tax and benefits changes in the Budget. It shows that the impact of public spending cuts will be much bigger than the tax and benefit changes for all groups of the population other than the richest 10%. Despite the richest 10% facing increases in their tax payments, mainly as a result of the coalition continuing with the tax changes on high incomes in Labour’s final Budget, they still lose only one quarter of the losses faced by the poorest 10% (See chart).
This is class war, brutally demonstrated by the recent statement of the coalition Chancellor, multi-millionaire George Osborne, that he would reduce the number of people who claim benefits as a ‘lifestyle choice’. He was not referring to the bankers.
1 See ‘Coalition declares class war’ FRFI 216 August/September 2010. For an extensive article on the character of British capitalism see ‘