Paying the price of the Banking Crisis - are we really all in it together?

David Cameron, prime minister of the UK, when speechifying about the cuts claims that we are “all in this together”. We must all, he insists, make sacrifices to pull the British economy out of the crash. A mantra repeated by leaders around the world to explain the all the sackings and the cuts. And to defend the additional money being poured into the banks even today as the Euro crisis rumbles on. All done, we are told, to save us all who are, it is stated, in it together.

Of course the assertion that 'we are all in this together' is a lie. The way we keep the economic balloon afloat is to chuck some people out of the basket. In the words of the Governor of the Bank of England, Mervyn King:

"The price of this financial crisis is being borne by people who absolutely did not cause it…..Now is the period when the cost is being paid, I'm surprised that the degree of public anger has not been greater than it has."

Mervyn King, Governor of the Bank of England, in evidence to the UK Parliament’s Treasury Select Committee, March 2011.

The people thrown out of the basket are absolutely not the ones who caused the current economic crisis. 

We are absolutely not all in this together. According to latest ONS figures for October 2011 the current crisis with 2.57 million Britons out of work leaves 29.1 million employed. Tragedy for the unemployed, some of whom may never re-enter work. But a great opportunity for those who still have a salary to draw, as dropping demand brings out a slew of bargains in shops and holiday destinations. A great opportunity to get a wider flat-screen tv, renew the sofa, and take a bargain-break to Marrakech for a new rug. And with more people unable to pay their mortgages, perhaps a chance to pick up a bargain home!

The Independent Commission on Banking published its final report last month, and then closed itself down. The report has various interesting elements, to which we shall return in a future blog. But these two graphs we need to look at now.

The first shows how the banks leveraged themselves – i.e. borrowed lots of money – to fund their irrational exuberance leading to the worldwide economic crash. Banks made money and paid bonuses by doing deals. The quality of the deal was irrelevant – all that mattered was the banks’ fees and the resulting bonuses. Be it an over-stretched “sub prime” home-buyer or a fiscally incompetent government doing the borrowing. To do the deals the banks needed money which they borrowed often from each other, generating further fees for themselves. The deal made the commission that paid the bankers’ bonuses.

The second graph shows public sector debt with and without “Interventions”. “Interventions” being the money pumped into the banks to make sure that when all the rotten deals imploded the banks could pay their debts using taxpayers’ money. To bail out the banks, Britain’s national debt nearly quadrupled.  

The banks who did cause the financial crisis are already reaping profits and bonuses, as is shown in this Bank of England graph from their 2010 Financial Stability Report. The graph shows that banks will be back to their pre-crash levels of profits this year even as the rest of us pay the price of what they caused.

So who is paying the price? The National Association of Welfare Rights Advisers, details the impact on the poorest. Some of the highlights include:

Cuts already enacted:

Employment and Support Allowance (ESA):      Affects around 1.5 million people across UK with a disproportionate effect in deprived areas with a high incidence of long term limiting illness.

CUT of up to £2,500 million per annum (30%) by 2014

ALL working age benefits: Those receiving any benefit will see its value decrease over time, lessening their ability to pay for essentials.Increases will be set by the Consumer Price Index (which produces consistently lower increases) instead of the Retail Price Index or the Rossi index.

CUT of £5,840 MILLION per annum by 2014/15

Child Benefit: Frozen for three years. Affecting ALL families and children, poorest most.

CUT of £985 million per annum

Tax Credits: Affects low income working families in particular. Taper on income for tax credits moves from 39% to 41%.

CUT of £765 million per annum by 2014/15

Tax Credits: Affects those moving back into work. Fall from £25,000 to £10,000 in “disregarded increases in income during the current tax year”

CUT of £140 million rising to £450 million

Working Tax Credit (WTC): The amount of tax credits to working families reduces in real terms. Basic & 30 hour elements in WTC frozen for 3 years.

CUT of £625 million by 2014/15

Working Tax Credit: This cut will increase childcare costs for low-paid parents. Childcare element of WTC reduced from 80% to 70% of actual childcare costs up to a capped maximum.

CUT of £385 million pa by 2014/15

Housing Benefit: Only 1/3 (instead of ½) of available private rented housing locally will be affordable to HB claimants. Local Housing Allowance Rates will be set at the 30th percentile of local private rent prices, not the 50th.

CUT of £425 million

Educational Maintenance Allowance: Abolished in England. A loss of up to £30 a week for young people on low incomes staying on at school or college.

Future cuts already in the calendar:

Housing Benefit: LHA Single room rent restriction for single people (not lone parents) under 25 extended to people aged under 35.

CUT of £215 million pa by 2014/15

Tax Credits: Tax credits will not increase to help you if your income drops unless the drop is more than £2,500.

CUT of £585 million by 2014/15

Contributory Employment and Support Allowance (ESA): Limited to 1 year for people in the “work-related activity” group.

CUT of £2,010 million by 2014/15

The well oiled hypocrisy of our leading citizens - the politicians who call for the 'dunkirk spirit' as they slash other people's jobs and benefits – is matched by the bag-carriers of the high-paid. They warn that their well remunerated masters would start slacking unless the top rate of tax is cut back from 50%. Warning that their slacking would put the brakes on the recovery with the direct result that no new jobs would be created to employ the unemployed. 

No Dunkirk spirit for them – they aren’t all in it together with the rest of us. They are just in it for themselves.