Creating More 'Working Poor' In The UK

I know that my belief, that the current prime minister has an agenda to push the structure of British society back to the pattern it had a century ago, is not widely held.  However, even if you do not believe that changes to the education system, taxation and benefits are not designed to cut off opportunities for ordinary people and to protect access by the elites to such opportunities, especially in terms of education, the change in society is happening anyway.  I noted back in 2008: http://rooksmoor.blogspot.com/2008/07/unemployment-as-whip.html and in 2009: http://rooksmoor.blogspot.com/2009/09/cracking-whip-of-unemployment.html that there was a desire among employers to increase unemployment because they felt that the period of prosperity of the previous ten years had led to pay rising too high and workers not being sufficiently grateful for the jobs they had.  This has come about now and you can see it in the reduced salaries being offered.  Back in 2001 I worked on projects in an office, I had no staff to supervise and was paid £24,000 per year (now equivalent to €27,800: US$38,100) and on that salary was able to rent a 2-bedroomed flat in walking distance of my work (for £500 per month) and to buy a small second-hand car and go on holiday once per year.  I was not in a position to buy a flat.  By the time I left that job in 2005, I was earning £31,000 per year.  In my last job that finished in 2010, I managed two offices and for that was paid £42,000 per year (€48,700; US$66,700), which allowed me to drive a larger second-hand car and in combination with another person, to pay the mortgage on a three-bedroomed house in southern England.  It did not permit me to go on holiday at all.

Now, as I look for work, still, as an office manager, I find that salaries are lower even than what I was being paid simply to be an office worker back in 2001.  I will take Southampton as an example.  It is a large, rapidly growing town of around 230,000 people, located at the western edge of the South-East region of England.  Using the official Department for Work & Pensions website to look for jobs, I found that last month the average salary for an office manager is now £23,000, though with some explicitly office manager posts paying as low as £12-18,000.  If you want to earn £24,000 then you need not only to have had office manager experience but also to speak fluent Spanish and Chinese.  If you can speak fluent Chinese there are opportunities for you around the world at the moment, not simply managing an office in a dull second-rank town in England. It is worthwhile comparing the salaries with the rents in the local area.  Southampton is a cheap town to live in.  You can rent studio flats (i.e. without a separate bedroom, you sleep in the living area) for £350 per month (compared to £525 per month as the norm for a studio flat, just 21Km away in Winchester).

Now, if you were starting on £12,000 per year before tax, then over a third of your pre-tax income would be going on simply renting a room.  You can pay £280 per month if you are willing to rent a room in a shared house or as a lodger.  Even if you get promoted and take the £18,000 then it is still a fifth of your pre-tax income, just on housing.  This does not include your food, utilities and travelling costs.  So, with such a job you can cover your expenditure, but with no hope of a holiday or buying a car or ever owning a flat on that kind of income.  Banks generally lend you around three times your income, meaning even at the top salary for that office manager role you would only be lent £54,000 about enough to buy a one-bedroomed flat or a two-bedroomed static caravan in Southampton. 

Perhaps I am being hard, because it is possible to live on such salaries, but I have left out all the other costs of life bar accommodation and in the UK it is easy for a single person to spend around £30-40 per week on food, taking another £1500-2000 out of your earnings each year.  In addition, you have to remember this is the salary for the office manager, I have no idea what the staff that manager supervises must be earning.  The only people who can take such jobs are those who live at home on nominal rent to their parents.  I guess such young people are really the only ones companies are interested in which is why, at 43, I have been unemployed for so long.  What is frightening is that David Cameron has sworn to make sure that you will always be better off in work than on benefits.  With salaries dropping away so fast, the only way to achieve this will be to reduce benefits to pauper levels.

Another factor is that working hours are lengthening.  In my search for an office manager post, I found they all expected you to work 08.30-17.30 rather than the traditional, '9 to 5', i.e. 09.00-17.00.  This means a 45-hour week, or 40-42.5 hours if you remove lunch breaks rather than the 35-37.5 hours per week that were becoming the norm even in the 1990s.  This means the hourly rate in fact falls by an eighth, over what it would have been.  Many jobs now include a caveat about the need for evening and weekend working, effectively a get-out clause to compel you to work, in fact, any hours the employer deems necessary.  Of course, we have to accept such conditions because the alternative is unemployment with a low level of benefits. 

On one hand, advertising and social pressure encourages us to consume and aspire to better items and owning our own houses.  However, with incomes falling this becomes even more of a fantasy than ever.  The only item of clothing I have purchased in the last 18 months was a £14 pair of shoes from Asda to wear to interviews and this was only because there was a hole in the sole of my other pair that let in water no matter how much cardboard I put in the bottom.  How can I aspire even to buy some new clothes let alone think about a new car or a holiday or a new mobile phone?  I have had to leave the house I owned to return to the rental sector because I cannot pay a mortgage and am likely never to be able to do so again; meaning my poverty when I retire is now guaranteed. I am not a person without qualifications.  I got a degree when only 6% of the population attended university.  I have years of experience and professional training.  What hope is there for people with less than that?

I have noted before how that UK society seems to be being pushed to resemble ever more that of the USA.  The cutting back of the National Health Service is moving us in the opposite direction to what the Obama administration is seeking to do with health care and more towards the kind of privatised health system that his Republican opponents vigorously insist on.  We also seem to be moving very rapidly towards having the 'working poor' forming a significant part of our society.  In the USA working poor are defined as being people who have worked at least 27 weeks of the year but whose income falls below the poverty level.  In the USA in 2005, 2.8 million families (made up of 12.2 million people) had a household income of 100% less than the poverty level; in addition, 9.6 million families with work, about 29% of them, were earning 200% less than the poverty level, a level at which they are deemed not to be self-sufficient of welfare or charity.  To give you an idea of the level, self-sufficiency was deemed to be an annual family income of US$39,942 (currently equivalent to £25,120) for a family of four. 

In the EU poverty-in-work is defined as being 60% of the median, not mean, income.  In the UK, median income for men in 2010 was £538 and for women £439, thus poverty is earning less than £322 per week if you are a man and less than £263 per week if you are a woman.  Being paid £322 is equivalent to £16,700 per year.  Thus, the office manager job discussed above, means that your pay is at poverty levels, if you are man, until you rise £4,000 above the basic level.  By definition, all the workers you manage will be in poverty and remain in it in that position.  In 2010 it was stated that 1.7 million children in poverty in the UK were in families that had work, with 1.1 million in families without work.  There were 2.1 million working families in the working poor category and it was anticipated that 8% of the population, around 4.8 million people, were at risk of falling into this category.  We are not talking about people on benefits or retired, they are further categories of people in poverty, these are people actually in jobs but earning so little that they are deemed to be poor.

There has been rhetoric around the 'squeezed middle' especially from the Labour Party.  However, with a lack of regulation of companies' behaviour and, certainly, no attempt to shift pay levels above the minimum wage, to any higher level, there is no clear idea how they will be able to do anything to alter the situation for ordinary people.  I know Labour would shy away from setting salary levels as it would seem too much like wages and incomes policies of the 1970s, which they now find embarrassing.  Ironically, those policies were to keep down pay rises, whereas now we need to see pay rising.  Raising the threshold at which you pay tax is one approach, one favoured by the Liberal Democrats before they went into government.  However, to a great degree this takes pressure off employers who can continue to pay low salaries to everyone (except the top executives, of course).  I have outlined an idea of having the highest salary in a company always kept to a certain ratio to the lowest and I believe that, without at least indications of minimum expected salaries right up the structure of companies, then you will never eliminate the tendency in the UK for pay to pushed downwards for most workers whilst it rises inexorably for the already wealthy. 

You could argue that leading economies need cheap labour to prosper and this is one reason why China is booming at present, as, for every high-earning fashion company executive in Shanghai there are thousands, probably tens of thousands of very low-paid textile workers.  Before the minimum wage was introduced to the UK in 1999, there were complaints from companies and the Conservative Party that it would lead to job losses.  However, this never appeared and this is for a number of reasons.  One is the large profit margins that so many companies maintain selling or providing services in the UK.  Another is that the pay of high executives is so high that even cutting it back by a few percent frees up sufficient funds to pay a lot of low-paid staff.  Another reason is that paying decent pay levels benefits the economy.  Anyone who lived in a poor area, as I did in 1999 in East London, noticed immediately how small businesses benefited from the minimum wage.  Some people saw their weekly pay almost double and they went out and spent it on the basic things that they had previously gone without.  There are a lot of low paid people so a change in their income makes a bigger impact than shifting that of the far fewer high-paid people: there are only so many white goods you can fit, even in a mansion, and only so many meals you can eat.  I certainly believe that the UK's supermarket chains would not have prospered to the extent that they have done if the minimum wage had not been introduced.

There seems to be a lack of basic knowledge in government about how a capitalist economy works.  The UK economy was at its strongest, not in the 1920s and 1930s, times of high unemployment and low wages, but in the 1950s and 1960s with periods of very low unemployment and rising incomes.  The UK economy will continue to be weak now, as long as the numbers of working poor remains high and, especially, as it rises.  These people will lack the ability to consume the products that keep so much of our extensive service sector running.  Of course, the UK does not manufacture much these days and imports large quantities of food, but even selling foreign goods keeps companies like Tesco, one of the cornerstones of the UK economy, thriving and, in turn, employing more people.

Poverty makes people desperate, they are far more likely to become corrupt or steal from their employers.  You can see this in countries with capitalism but a great disparity between rich and poor.  Try travelling on public transport in India or Tunisia or seeking planning permission in many South American states.  The UK has corruption, but generally in the public-facing civil service and most companies, it is very limited.  However, if you increase the number of people in work who cannot afford to live even a meagre life, then you are driving them towards corruption.  Countries like China deal with it by having a harsh, totalitarian police state.  You might think this would be an option for the UK, but interestingly, the Conservatives, to their credit, have begun to reverse the assault on human rights that was seen under the Blair and Brown governments and, ironically, to compel cutbacks in police numbers. Thus, the UK will have an economic pattern that promotes corruption but does not have the police strength to suppress it.

I believe that the current governement's stance is to encourage cheap, malleable labour of the kind employers of the 19th century could draw upon and dispose of at will.  I quite anticipate that characteristics of 19th century employment, such as tied accommodation, even live-in servants, will begin to re-appear.  I have already noted that dated modes of living such as lodging are on the increase once more.  You may contest that Cameron and his gang have any intention of retro-engineering UK society.  It does not really matter if you accept it or not.  What is more crucial is that, if the numbers of working poor continue to rise, then domestic consumption will be pitiful and the UK will be condemned to a weak economy into the coming decades.  Capitalism works on the basis of supply and demand, if you choke off demand as poverty does, then the cycle begins to break down and small numbers of ultra-wealthy people have far less impact than millions of comfortably well-off ones.

The Myth Of An Alternative To The Bank Bail Out

Last month I was particularly angered by a comment from Defence Secretary Dr. Liam Fox when he said that the main reason for the cuts in defence expenditure was no fault of the coalition government rather it was the consequence of the sustained damage Dr. Gordon Brown had inflicted on the economy as prime minister 2007-10.  Among leading Conservative politicians, Fox has been one of the most vocal in attributing the blame for the UK's economic problems on the previous Labour governments, more so even than Prime Minister David Cameron and Chancellor of the Exchequer, George Osbourne.  Cameron and Osborne use the large deficit created by bailing out the banks at the onset of the recession as the excuse for their harsh public spending cuts, which would have been imposed even if the UK was in a boom because the current batch of Conservatives believe that the state is too large and needs to be culled as abruptly as possible.  Fox, however, takes it a step further and peddles the idea that for some reason Brown and his government deliberately 'wrecked' the economy for some unknown motive.  Fox, in many ways, is a throwback to the 1970s and 1980s seeing some Communist conspiracy at the heart of British government trying to do the worst for the decent British public.  The reality was that whilst governments do and pursue a particular agenda, and Brown less vigorously than the prime ministers that bracketed him, a lot of their activity is responsive rather than proactive, particularly in the age of the globalised economy when the demand from copper in China leads to thieves in the UK disabling electricity sub-stations and sections of railway in order to get the scrap copper.

All governments say that they could have done things better than their rivals.  There is an implication in everything that Cameron, Osborne, Fox, et al say, that if, for example, rather than Tony Blair handing the premiership to Gordon Brown in June 2007, there had been an election and David Cameron had come to power, then the banking crisis and the recession which came the following year, would have been handled so differently, so much 'better', if Fox is to be believed, that, in fact, we would not now be facing such a large deficit and the consequent 'need' to slash so much of public service.  So let us look at what the Conservatives might have done differently.

The first thing to establish is what would have happened if the government had done nothing.  Even before the global recession had started, in the UK, the Northern Rock bank ran into problems.  It lent 18.9% of all of the mortgages in the UK and handled deposits of £24 billion compared to loans and assets of £113 billion.  In the summer of 2007 it found it difficult to borrow money to cover its lending.  As the US sub-prime market began to stagger, lenders became reluctant to lend on any mortgages even though British lending was generally on a far more restricted basis.  I was not surprised that Northern Rock was struggling having had much anecdotal evidence of its poor customer care combined with its aggressive marketing of products including very high percentage mortgages; this has raised its market share from 14.6% in 2006.  Rapidly fading faith led to a 'run' on the bank with £1 billion in deposits being withdrawn on 14th September 2007. This was the first run on a British bank for more than a century.  To stop the bank from collapsing, the British 'lender of last resort', the Bank of England lent the company £27 billion and in 2008 bought up £3 billion of effectively worthless shares in the company.  In February 2008 the bank was de facto nationalised. 

At least ten other offers to buy the bank were rejected because these potential owners were unable to repay the public money loaned to the company.  Interestingly, the US company Lehman Brothers which was soon to collapse in a spectacular way was one of the bidders.  Others were equity funds such as Terra Firma Capital Partners, J.C. Flowers and Ceberus, investment companies like Olivant and other banks like Bradford & Bingley and Lloyds-TSB.  If Terra Firma's bid is anything to go buy, some of the equity fund purchases would have been de facto asset stripping processes.  Interestingly, before Northern Rock was effectively taken over by the state 40% of its best business accounts was transferred to a company called Granite based in the Channel Islands which have different tax laws.  Though Granite does not receive new business, this effectively meant the cream of the bank's business (and profit potential) remained free of state control.

Now, if the state had not stepped in, then we would have seen the run on the bank continue, reducing the amount of deposits even further than before in relation to its loan commitments. There was one incident in which one bank manager was barricaded in their office because two customers were unable to withdraw their £1 million after the online banking facility of Northern Rock collapsed.  It is likely that violent scenes would have continued as the bank would have found it impossible to cover all the withdrawals with the relative low level of reserves it kept. At this stage the bank would be compelled to foreclose on its mortgages, i.e. insisting lenders immediately repay their loans or lose their homes to the bank.  This would not have helped the bank much as they would have had to dispose of the property quickly to recoup funds and in many towns the housing market would have been utterly disrupted as numerous properties were auctioned off.  As it was some borrowers, including charities, accused Northern Rock of pursuing aggressive repossession especially in 2007-8.

Some borrowers could have transferred their mortgages to other banks but this would have brought pressure on to them as they would increasingly have faced the challenges Northern Rock had already faced to raise loans to cover the mortgages they lent.  Thus, even before the main recession started, not bailing out Northern Rock could have become a crash in the UK economy. The issue for many was that the total support to Northern Rock came to £100 billion which was added to the National Debt meaning it was equivalent to 37.5% of the GDP (Gross Domestic Product) close to what is seen as the highest permitted level of debt by a state. 

I suppose that the difference that the Conservatives would have done, is being so averse to nationalisation, they would have allowed Northern Rock to have been sold to another bank, with no guarantee that the public funds put into the bank would ever be returned.  Under the de facto nationalisation, by August 2008, the bank had already paid back £9.5 billion of what it had been given, so reducing its part of the National Debt.  It seems unlikely, given that so much Conservative support comes from property owners that they would have allowed Northern Rock to collapse, it held too large a market share.  Thus, there would have been addition to the National Debt just in the way the Conservatives complain about.  In addition, there approach would have meant that the government would not have had a chance of ever seeing the money it had provided returned at some date in the future. 

The key difference would have had to have occurred back in the 1990s when regulation of banks and The City financial bodies was far too lax.  The Blair government like the Major and Thatcher ones that had preceded it, seemed beholden to the financial institutions and was happy for them to act recklessly and earn big profits.  The 'invisible' trade of financial products has been Britain's strongest industry since the 1980s and no prime minister seemed to have the will or the wish to temper the behaviour of not only merchant banks but also high street banks too.  The conversion of mutual building societies into banks after 1986 and their focus on shareholders rather than customers did not help the situation in the mortgage sector, because they were prone to take more risks.  A lot of this could be foreseen, the Bank of England had apparently been working through scenarios of such difficulties as early as 2004 and like many others saw Northern Rock and Halifax/Bank of Scotland (popularly referred to these days as HBOS) as likely candidates.

The ongoing sub-prime mortgage crisis in the USA and the subsequent tightening of loans to banks meant that many UK banks beyond Northern Rock began to experience crises.  The Bank of England offered £4.4 billion in relief in September 2007 and it was drained by banks within hours. In October 2008, the Bank of England offered £37 billion to Royal Bank of Scotland (RBS), Lloyds TSB and HBOS who were struggling to cover their loans and certainly to grant new ones.  Would the Conservatives have refused to offer such funds to the banks and so, having avoided the collapse with Northern Rock, have seen even greater problems as these banks collapsed?  RBS had assets of £2.5 trillion in December 2008 and Lloyds Banking Group £1.195 trillion, thus the scale of their demise would have made that of Northern Rock seem minor.

RBS had had difficulty in raising funds from April 2008 and in the end first 60%, in March 2009 70% and in November 2009, 84% of the bank was taken over by the state.  RBS has been shedding assets since early in 2008 but did not close its tax avoidance department until March 2009 and in December 2009 stood by plans to pay £1.5 billion in bonuses to staff in its investment arm.  Lloyds-TSB already an amalgam of an old bank and a building society turned bank, took over HBOS in September 2008.  Like these other banks, through 2008 HBOS itself an amalgam of a bank and building society turned bank, saw rapid falls in its shares.  The government approved of the combination of Lloyds-TSB with HBOS even though it was effectively counter to competition as the 'super-bank' has 38 million customers, compared to a UK population of 61.8 million people.  This buy-out effectively relieved the government of having to take over HBOS itself.  However, the continued difficulty in banks raising funds meant that in 2009 the government bought 43% of the Lloyds Banking Group.  EU rules means that by 2013, it will have divested itself of the TSB brand and hundreds of branches of the retail group.  Now, it seems unlikely that the Conservatives would have overseen the nationalisation of any bank.  They certainly would have backed the buy-out of Lloyds-TSB of HBOS, but then in 2009 what would they have done with this super-bank running into difficulty given that so many people and businesses were dependent on its stability?  The likely solution from their view would have been to sell it to a consortium of equity funds.  Given equity funds' desire for fast profit, it is very likely that we would have seen even faster shedding of staff than the 15,000 made redundant by the company in 2010, a fifth of the total workforce.  By November 2009, RBS has similarly shed over 19,000 jobs.  Again, if the state had not stepped in and the only remaining source of support had been equity funds or perhaps foreign banks, then this figure is likely to have been higher. 

The Bradford & Bingley bank's mortgage book in was bought by the government in December 2008 whilst the savings and bank network was bought by Abbey National, itself owned by Spanish bank, Santander. Without UK state intervention, the only way to have avoid collapse of banks, many far bigger than Northern Rock would have been to hawk them to equity funds or to institutions from other countries.  Spain with its insistence on higher reserves being held by its banks almost inadvertently put its banks in a stronger position to weather the financial crises of 2007-9.

Aside from the state taking over banks, the British government, following the US model, but leading the way in Europe also provided funds that could be used by other banks, 'quantitative easing' to stand in for the lack of available funds on the commercial market. In October 2008 the government made available £500 billion but only RBS and Lloyds-TSB took any of these funds.  Barclays (with £2.3 trillion assets at the end of 2008) refused assistance and turned instead to the Qatari government for funds.  So, even though it would not accepted one government's funds it was happy to take them from another government.  This may have been a model that a Cameron government coming into power in 2007 would have promoted more widely for UK banks in the place of the British government nationalising or providing funds.  HSBC (with £1.736 trillion assets), the other key bank in the UK, was able to weather the financial crisis in the UK through share issues and that unlike the other banks discussed it was a multi-national bank on an already large scale.  A second package of another £50 billion in January 2009 and an increase of state ownership of Lloyds-TSB shares to 65% was announced due to the bank suffering from having taken on HBOS's losses. 

Now, the Conservatives may argue that there was no need to come forward with these funds, especially by 2009 when things seemed to be settling.  To them, no doubt, it all appears far too Keynesian in approach, stimulating the economy through state intervention.  However, much of what happens in the financial world depends on confidence.  A key problem for British banks was not that they had so many bad loans (though some did have a sizeable number) more that international lenders lost confidence in lending to any business engaged in lending mortgages no matter the quality of them.  Thus, the extra funds put forward in the latter stages were important in rebuilding this confidence, not only of lenders, but vitally of savers.  Banks have moved far from when they were dependent on depositors to provide the funds for their businesses, but what is saved cannot be ignored.  In fact, banks that weathered the situation were those who tended to have more deposits and reserves.

In total, the government paid out £131 billion in funds to keep banks from collapsing; including £107 million in fees for financial advice from companies from December 2007 to December 2009.  Other potential expenses such as borrowing support, money put into increase liquidity and protection for savings, brought the total costs to £850 billion, though of course with the easing of the situation not all these funds were called upon.  In addition, through nationalising banks, the government to some extent ensured they would get some of their money back; having them sold to private companies especially foreign ones would have meant that the government's investment to bring stabiliy, and, vitally, to try to increase the amount of lending needed by businesses and house buyers, would have never come back and in fact would have left the UK economy.

To blame the Labour government for the size of the National Debt resulting from the support it gave banks 2007-9 is false.  No government would have been able to allow Northern Rock let alone RBS or HBOS to collapse.  Even the folding of Bradford & Bingley would have had severe consequences beyond just those who saved with or borrowed from that bank.  The Conservatives, many of whom come from banking backgrounds, would not have let their friends go to the wall.  Thus, billions of pounds was needed and this would have gone on the National Debt.  I accept that rather than nationalising, the Conservatives most likely would have encouraged buy-outs by private equity companies and foreign companies.  Whilst this would have saved funds in the short-term, it would have meant that any money paid to banks most likely would never have come back, and, particularly with the private equity companies, the stability would be short lived as the banks would be broken up for what assets they could release.  The UK since the 1950s if not longer has had a real focus on privately-owned housing as a core element of its economic life, much more than any other country.  Instability in the housing market impinges widely in the UK economy and society.  Thus, the closure of banks, the foreclosure of loans, even just a greater restriction on lending than we see now, would all have dented this important sector of the economy, having a knock-on effect on purchasing and in turn jobs and economic activity.  Perhaps the Conservatives could have save a few billions by now bailing out the banks to the extent they were, but the cost would have been more instability and in turn falling tax returns, so reducing any saving they may have made.

The increase in the National Debt was a responsive policy not a proactive one as Fox and other Conservatives pretend.  If they had been in power they would have been compelled to do very much the same.  The alternatives would have only saved some small sums and at a cost to longer-term stability that many would have baulked at.  If seeking blame, one focus has to be on the freedom which financial institutions have had since the years of the Thatcher governments, though, of course, this has been a global trend, especially in the USA from where so often the UK takes its lead.  The Conservative governments of Margaret Thatcher and John Major, in line with other Conservative governments throughout the 20th century but boosted by New Right attitudes that appeared in the 1970s, believed in deregulation and the state standing back in many sectors of the economy, not least in the banking world.  Allowing building societies to become banks was one element in this trend building towards the UK aspect of the crisis of 2007-9.  However, on coming to power in 1997 under Tony Blair, Labour was beholden to the Thatcherite attitude.  Blair was a Thatcherite, making the Bank of England independent was an element of this.  Gordon Brown as Chancellor of the Exchequer was prudent, but in many ways was simply lucky.  No-one during the Blair years tried to rein in the behaviour of the banks and it was only sheer good fortune that meant the crisis did not hit in 1999 or 2003 or some other time in that period. 

Of course, the current government is a clear advocate of deregulation, unsurprisingly as it has been an unchallenged political trend of the last 30 years.  However, it means that the banks remain as free as ever to behave irresponsibily.  It is right that protestors from UK Uncut go into banks and turn them into libraries or woodland.  We could not let the banks collapse, it would have led to a social and economic crisis in the UK unlike anything we had seen.  The taxpayer provided the funds to bail them out after their mistakes, driven by pure greed for massive profits.  We have paid twice because now to fund that the government says it has to be taken out of public services with huge cuts, not by getting the banks to pay back what they received and in this I mean not only funds but also the steps to boost confidence and stop runs.  They do not even have the grace to curtail their vast earnings, they just behave as they did before, uncowed by what happened.  There is nothing to stop a similar crisis manifesting itself this year, next year, sometime soon and then where will be the funds to save the banks this time? It is not a scare story to recognise that in the life of this parliament we could see the end of a banking system that we have become familiar with in the last 40 years and a return to something very dated and very out of step with the rest of the world. 

It seems that, next time, UK banks will, in large part, stop being owned by British companies but by European and probably Chinese institutions.  A number will be asset stripped by equity funds, the only ones who have the money to afford to intervene.  Say goodbye to your savings, say goodbye to getting a mortgage unless you are already wealthy, say goodbye to free banking, say goodbye to even having a bank account if you do not have a well-paid job (especially once the Post Office accounts are privatised).  The current government panders to its banking friends and uses the myth that somehow Brown deliberately wrecked the economy as the excuse for their reverse social engineering and smashing up of the state.  It is a myth.  In the same position they would have done minimally different and like Blair and Brown, have done nothing to stop the chance that it will happen again, this time with no safety net.

2010 Election: Keynesianism vs. Deflation?

Many commentators have suggested that the recent recession is in the same league of the Depression of the 1930s which began to enter its direst phase in October 1929 with the collapse of the US stock market and came into full effect in 1931 with the folding of the Kreditanstalt bank in Austria and the subsequent weakening of the global banking sector.  The Depression affected different countries in different ways but generally led to mass unemployment, in some countries only peaking in 1936 and really only came to an end with rapid rearmament in many states in the period 1938-9.  The Second World War disrupted the global economy but also provided stimuli.  However, in 1945-7 it looked like many states would continue to suffer low production and consumption and so continue to face high unemployment.  The Marshall Plan in 1948 providing millions of dollars to states of western Europe helped to pick up demand which stimulated the US economy and in turn other economies across the world, not simply in Europe but late Japan and South Korea too.  Other factors such as the decline of colonial empires so freeing up markets to a wider range of states, organisations such as OECD and the EEC fostered trade, consumption and production.  This was aided by low oil prices sustained in part by neo-colonial relationships between the industrialised powers and the oil-producing states.

In the 1930s there was a clear lack of ideas about how to deal with the Depression.  For the dictatorships the drive for rearmament and related infrastructure, notably road building, did stimulate certain sectors of the economy but at the expense of light industry and consumption of domestic items.  Unemployment was ended by effectively drafting workers into state projects and in many cases throwing certain people out of jobs, for example, Jews, Socialists and Communists in Nazi Germany.  The Soviet Union underwent a massive programme of industrialisation combined with collectivisation of agriculture.  The country was starting from a lower industrial base and the consequences of the programme was the starvation of millions, though, by 1939 the USSR had become more industrialised than a decade before.  In the democracies the only real approach to combating the Depression was deflation and protectionism.  This involved particularly cutting back government expenditure, making more government employees unemployed and restricting welfare payments.  Currencies were freed from the gold standard and allowed to float but economies put up tariff barriers to protect their internal industries and those states with colonial empires developed trade with their colonies but firmly shut out other providers.  With the dictatorships also pursuing a policy of autarky, i.e. to make themselves self-sufficient for raw materials and markets whether through direct control or bilateral, often barter deals, trade was choked off.  This tendency was the one which Marshall Aid and initiatives such as the Bretton Woods process on currencies aimed to address after the Second World War.

There were some voices in the democratic states arguing for a different approach to the Depression.  Democratic forms of economic planning were advocated by centre, centre-left and centre-right groups, in the UK by the Liberal Party and people such as Harold Macmillan, later Conservative British prime minister.  Most notable was the work of economist John Maynard Keynes (1883-1946).  Keynes's principles developed following the First World War.  He opposed the harsh reparations imposed on Germany seeing a weak German economy as being damaging to the whole European economy and thus much of the global economy.  He opposed the rigidity of returning to the gold standard for setting currency exchange rates as happened in many capitalist countries in the 1920s.  With 'Treatise on Money' (1930), 'The Means to Prosperity' (1933) and 'The General Theory of Employment, Interest and Money' (1936) he outlined his policies for counter-cyclical economic approaches.  Basically he felt that depression could only be combated by stimulating consumption rather than reducing it through deflation.  He believed in the 'multiplier effect' that if the state pumped money into the economy to create work, often through major infrastructure project, then unemployment would not rise and with more people in work they would continue to consume products which, in turn would keep consumer good production going so keeping even more people in work.  In contrast to the balanced budgets, i.e. government receipts and expenditure were generally equal, Keynes was happy for the state to borrow in the short-term to fund the projects to keep employment levels higher, believing in the long-term that the maintenance of the tax revenues which would rise as the economy revived, would pay off the money borrowed.

Though there is some dispute about how directly Keynes's ideas influenced US policy, the New Deal, started 1933-4, introduced by President Franklin D. Roosevelt (1882-1945), president 1932-45, seems to be based on the kind of assumptions that Keynes's ideas used.  Roosevelt established a swathe of government agencies many of which produced public works projects to provide employment.  Examples include the Civilian Conservation Corps for agricultural workers, the Works Progress Administration, which included units for employing actors and writers and the vast Tennessee Valley Authority for public works building hydro-electric energy generation dams and facilities.

In Britain Keynes's approach was seen to be adopted in the 1941 budget, though of course, with the war in full force at the time, stimulus through arms spending and borrowing to fund the war, were likely steps anyway.  After the war the Labour Government initially pursued economic planning which was seen as a more Socialist approach to the economy compared to Keynes's Liberal (in the British sense of the word not the US meaning of it) economics.  However, by 1948 and certainly by 1950 they were moving more to Keynesian assumptions.  France pursued economic planning up to the 1980s but had things such as tax breaks to stimulate certain sectors of the economy and unlike British nationalised industries, large state-owned companies such as Electricite de France (now EDF Energy) strove to stimulate other sectors. Other states in Europe such as West Germany worked on Keynesian assumptions, keeping a predominantly capitalist economy but stimulating it with government regulations and funds, especially for regional development.  Partly Keynesianism, though forming the basis of economic assumptions after the Second World War was not really needed as there was an economic boom until the mid-1970s when the US economy became recessed in the early 1970s and then the sharp oil price rise in 1973-4 brought the boom to an end. Though there were some minor differences from 1950-1974 no-one in British politics really challenged Keynesian assumptions; they did not even challenge the mixed economy with a sizeable state-owned sector, which had been a Socialist rather than Keynesian policy.  Keynesianism was not used in a sophisticated way.  By the mid-1950s credit controls had generally been given up and the UK tax authorities eschewed tax breaks in the way they were used in many continental countries.  The basic tool was simply manipulating the base rate, the basis of the interest rates that banks charge.

In 1976 the pound was put under so much pressure that the British government went to the IMF (International Monetary Fund) for money to strengthen the currency (in those days the exchange rate with the dollar was reported on a daily basis and any move was seen as a source of concern, probably equivalent to falling house prices in the UK nowadays.  It is interesting how the British makes a fetish of particular economic indicators rather than looking at the broader economic picture; before the currency, the balance of payments had been the key focus).  The IMF demanded a deflationary approach to the economy, which had about 20% of industry under state control at the time.  From 1976 onwards there was consequently a move from Keynesian stimulus approaches in times of recession back to deflationary processes.  In the US there was the rise of monetarist economic approaches, which after 1974 gained ground in the British Conservative Party, though even after 1972 under Conservative prime minister Edward Heath there had been some minor steps in this direction until he fell in 1974.  Monetarism sought a strong control of the availability of money as a way to combat inflation, which was a key problem once oil prices had jumped, something they would do again following the Iranian Revolution of 1979.  Monetarism was wedded to 'free market' economics perceiving the end of state involvement in the economy through privatising state-run industry and reducing regulations on companies so allowing them to impose the pay rates and conditions that they wished.

Margaret Thatcher embraced monetarism and her regime 1979-90 saw it pursued increasingly vigorously with privatisation of the state sector, removal of regulations and reduction of the state, including dismissing a third of the civil service.  Private business was lauded and allowed to make as big profits as it liked and to move capital from the UK whenever it wanted.  The impact for the average person, however, was mass unemployment and an abrupt ending of established British industries.  In the move to a post-industrial economy after 1973 in the USA and 1974 in the UK, this was going to have happened anyway but monetarism made it more brutal and sudden.  Workers were encouraged to make themselves employable by taking lower pay and working longer hours, so reducing their ability to consume.  This seems to run counter to Keynesian approaches.  By the end of the Thatcher period, as I have noted on previous postings, the assumptions had shifted towards continued acceptance of monetarism.  In 1995 the Labour Party abandoned its objective of nationalising any industry.  When it came to power in 1997 it granted independence to the Bank of England to set the base rate so giving up the remaining Keynesian tool.  The Labour governments, bar in minor cases, before 2008, did not take back into state control industries that have been privatised.  This is apparently now called the Washington Consensus.

The financial crisis from 2007 onwards has led to what some have termed a Keynesian 'resurgence'.  It is fascinating how the faith in monetarist approaches dropped away so quickly.   In Germany and India both of which had retained a strong state role in the economy, but also the USA and the UK which had been at the forefront of monetarism, leading economists, bankers and politicians began talking about stimulus.  The President of the World Bank advocated developed countries pledging 0.7% of their GDPs to stimulus.  In January 2009 President Obama passed a US$787 billion (£512. billion: €589 billion) stimulus bill.  In November 2008, the British government launched a £20 billion (US$30.6 billion; €23 billion) package equivalent to 1% of the UK's GDP.  Much of this has gone into supporting banks rather than stimulating the economy through public works and there has been a challenge in that the supposed 'easing' of lending has not risen to the extent that the governments hoped.  This reflects that during the Thatcherite/Washington period financial institutions were given so much freedom that it is now impossible really to get them to do anything governments want, for example, even reducing bonuses.  Inadvertently the British have effectively nationalised two banks, but as was typical with British nationalisation of the past, they have not asserted much control over their behaviour and kept an 'arms length' approach.  In addition, in the face of claims of 'unfair competition' from other banks the government has not used its banks to drive certain behaviour by example or provide freer lending to stimulate business.  The state is not as strong as it was in Keynes's day and mulit-national companies and banks are often more powerful than governments as we have seen in resistance to various 'windfall' taxes and attempts to restrain bankers' behaviour.  However, stimulating (parts of) the economy through borrowing, now at £152 billion (US$232.6 billion; €175.1 billion).

Thus, it seems for the first time ever that Keynesianism is being implemented to combat what it was designed for, i.e. a depression.  In British politics because in the 1950s up to the mid-1970s there was consensus of the need for Keynesian economics and it was just over the details rather than the economic approach.  By 1979 even the Labour Party had stepped away from Keynesianism and whilst it did not embrace monetarism in the way the Conservatives did, it was no longer a strong advocate of an alternative economic path, partly because the economics then were focused on wage and price inflation which had not been a characteristic of the 1930s depression when there had often been over-supply depressing prices rather than excess demand or at least excess demand for income whether from sales or pay as was the case in the 1970s and overall was stimulated by the artificially raised oil price, oil being vital for freight of all kinds at that time and things like plastics at a time when plastic packaging was growing massively.

In 2010 we do have a difference between the continuation of Keynesian policies under Gordon Brown and with David Cameron, the revival of not even really monetarist but in fact deflationary policies as pursued by Conservative leaders such as Stanley Baldwin in the 1930s and overseen by the cross-party National Government set up in 1931.  Cameron's emphasis on the need to reduce public borrowing so reducing the available stimulus to the economy (though no-one would envisage a balanced budget these days) and swingeing cuts to public services is text-book deflation; it will cause unemployment not least amng public sector employees and raise unemployment, increasing social welfare payments and suppressing domestic consumption and through fear of job losses, domestic demand even from those still in work.  Keynesianism is not simply about stimulating consumption but with it the confidence to consume. Cameron is pretty old fashioned in his approach to the economy even in Conservative terms.  Perhaps this is because the Thatcherite approach of the free market now seems so debased with constant reports of vast profits for those in big business at the expense of jobs and homes for ordinary people.  This is the first time in British history that the two key economic approaches of the 20th century are being brought face-to-face and as a consequence Britain stands at more of a crossroads that this lacklustre campaign suggests.

Dangerous Days for British Politics?

Well, I finally got to look at the European election results. They are probably the worst guide to what will happen in a general election than any other results because the system used differs so far from the electoral system used in all other elections in Great Britain (though not Northern Ireland). However, it is a good indicator of trends and attitudes. To some extent it has not revealed any particular disgust with politicians as the turnout at 35% is the same as it always is for European elections and shows the extent to which most people in the UK see no connection to what goes on in the European Parliament to their everyday lives, though they will whinge about the limits on working hours and the nature of their fruit. Of course, it is the European Commission and the thorough application by all UK governments (whether Conservative, even under Thatcher or Labour) of all EU regulations.

The UKIP (United Kingdom Independence Party) now have 13 MEPs, the same as Labour. There have been abortive attempts at parties which plan to get the UK out of the EU, notably the Referendum Party, but UKIP for all its problems has been the only one which has managed to grow. They have no MPs and are unlikely to get them with the system we use in our general elections, so there will be a disjuncture between our national parliament even after the next election, and our European representation. It is weird that a party that wants nothing to do with Europe will now have its members heavily involved there. What alarms me, and was apparent from the UKIP publicity, which in the areas I visit exceeded that of all the other parties combined in terms of quantity, is that effectively they are an extreme right-wing, nationalist party and given their views on 'protecting UK borders' they are like a light version of the BNP (British National Party) which itself has moved on from referencing illegal immigrants and asylum seekers to more racialist viewpoints. UKIP's discriminatory policies have now added a bridge between the right-wing of the Conservative Party and the BNP and most dangerously are another party for whom spouting such bigotry is normal.

Of course, as Channel 4 News highlighted last night, the support for the BNP (British National Party), who got two MEPs (and importantly the money that brings), came from old traditional Labour voters. This is not a new phenomenon, you only have to look at early support for the Nazi Party in Germany of the 1920s and 1930s. This was an important constituency for them, and you have people moving between the Communists (KPD) and Nazis (NSDAP) quite often, sometimes depending on what social facilities each party could offer. The fact that extreme left and extreme right meet is something long known. If you reject democracy, it then simply comes down to emphasis on which groups you are going to attack. What is interesting to consider is where votes came from for UKIP. Some it is clear came from the BNP whose share of the vote actually fell. The only reason why Nick Griffin got in as an MEP is because support for Labour fell too. This is precisely what I said about each individuals vote counting far more when turnout is low (and in this case turnout from particular voters). I said this on the day and many Labour voters need to feel ashamed that they allowed the far right to get such a bridgehead because they did not get out and vote. As the turnout itself maintained, this suggests Labour voters were also replaced by extreme right-wing voters who in the past would not have voted at a European Parliament election. Interestingly, in contrast to France and Germany where the extreme left have done well, there is no sign of that in the UK. Perhaps we need something stronger on the left than Scargill's Socialist Labour Party or certainly have a different leader with more credibility.

We have always had people opposed to the EU. Personally I think it is a good idea which sometimes works imperfectly and the way to bring about change is not to turn your back on it, but engage more and get efficiency in how it works. On a purely selfish basis, myself and many members of my extended family have benefited directly from the EU (especially those of my family who are farmers) and we would all be worse off if the UK had stayed out. However, millions of UK citizens benefit from the EU and never notice. If the UK left the EU a lot of labour and social legislation we enjoy the benefits of would be under threat, the price of many goods would rise immediately, especially food items (the UK has long been a food importer) and actually UK farming would suffer immensely as it would be outside its largest market. Of course we could put up stronger barriers to Polish workers coming to the UK, but that is as much about employers tempting them here with low wages (though higher than in Poland) and using even illegal immigrants especially in the boom of 1994-2007. If employers had paid decent wages and not tried to squeeze out even more millions of profits then this issue would not have risen. British nationalists like the BNP and UKIP seem to believe that there is something inherently attractive about the UK compared to other countries. There is the element that we speak English which is commonly learnt in many countries, but if employers had not been drawing on immigrant workers then they would have gone somewhere that was. It is about economics, but of course for the far right they ignore all that and think it is some mystical force.

The real danger now is that the language of the far right has become legitimate. I heard Andrew Brons, the other BNP MEP, talking on Channel 4 News last night about the 'indigenous people' of the UK (which in fact are the Celts, but he meant anyone white) as if this was a legitimate term. He dismissed the word 'racist' as being invented by a Trotskyite in the 1930s, as if that made it invalid (and in fact he seems to be ignorant of where his own views originated from in the biological racialism that developed in the 1860s) and was not challenged on his statement. Now that the BNP has a platform I can only hope that people will see how foolish so many of their statements are. However, where they succeed is by making their extreme views seem 'normal'. Again in the interview, Brons said that expelling failed asylum seekers and illegal immigrants was a given as if that had already been resolved. The UK expels many of these people anyway, but there is no sense that represents thousands of personal disasters and deaths that the UK government contributes to on a daily basis.

Most alarming they do not consider anyone who is non-white to be able to be British. I have not heard how they view the 700,000 mixed race people in the UK. Of course, supposedly liberal West Germany maintained the law that only those with two German parents could ever vote. They also tried deporting delinquent children (aged 14+) of second generation Turkish settlers to Turkey a country they had never visited (naturally Turkey refused to take them). Finally Germany was compelled to remove this racist law that dated back to 1913. However, it shows how easy it is for racist policies to exist even in the 2000s when all of us go on diversity training. I know people who lived in South Africa in the apartheid era and what people forget is in fact the regime affected everyone badly. Of course blacks got it worse, but everyone in South Africa of whatever ethnicity had to be classified and if suddenly you were reclassified you found yourself excluded from certain services. Such an approach as in Nazi Germany immediately leads to corruption of public services and inefficiency. Of course the identity card system envisaged for the UK will play right into the hands of the far right. One reason why it has not advanced is because of how difficult it is and how costly. An apartheid system will be far worse. Also people forget a key reason why South Africa ended apartheid was not political but economic, you cannot bring the best out of all your citizens if you put them into different boxes and enforce segregation. The UK transport system is in a dire situation, imagine if you had to have 'whites only' carriages. The UK is too inter-twined with Europe to be divorced and its population is too inter-twined to try to bring about some artificial segregation.

British society has always been full of bigots and racists. It also has people like my grandfather (a life-long Labour supporter) who grumbled about 'the darkies' but always complimented how hard working the Asian woman next door and the black men he worked with were and could never see the fact that these people made up the group he saw as the 'darkies'. Any group in society is made up of individuals that we know. Whereas last week bigots may have bitten their lip now they feel they can speak out and that is going to lead quickly to millions of individual tragedies as they feel heartened by the election result and the sense that the views of UKIP and BNP are held widely and legitimate. We cannot now avoid race riots in the coming months. The UK is going to become a very unpleasant place whatever colour you are, especially if you live in a city. We can only pray for a rainy summer rather than a hot one otherwise it will make 1981 look like a picnic in the park. All good people need to constantly contest racist behaviour and use the term 'racist' when we see it otherwise we are going to be living in a country of armed camps.

Clearly both UKIP and BNP have not thought anything about the economy. I have mentioned how employers have driven economic migration by their desire for cheap labour. However, if we even begin moving towards far-right policies then the economy will suffer immediately. People forget why West Indian and Asian immigration was encouraged in the 1950s (and the same applies to Turkish, Yugoslav and Italian immigration into Germany) it was to fill labour shortages especially in the service sector (which of course has become the dominant sector of our economy since 1974) and to start intimidating and removing people in those industries is going to send the UK economy rapidly back into the 1970s. Hospitals would close, shops in many towns would disappear, the transport sector would be cut back. The UK has had immigration for over 2000 years, to try and rip out certain people from UK society is going to be like cutting off an arm because it happens to be your right one.

The fight against racism now has to be stepped up a gear. We need to work to squeeze the bridgehead the bigots have established and challenge their behaviour so that it does not become 'normal', it is always abnormal and abhorrent. Of course, if the Conservatives win the next general election, their policies will be infected by the rhetoric of the hard right, partly because they have very few policies anyway; there is no indication of how they would have dealt with the credit crunch, the bank collapses or the MPs expenses scandals at all. Of course, disillusion with MPs is at its peak and this is a golden opportunity for extreme parties to play on that, as Hitler did in the early 1930s. The price for their success will be a very high one for the UK economy, British society and millions of individuals to pay.

Are Thatcherite Attitudes Beginning to Fade?

I am not a regular reader of right-wing or tabloid newspapers, in fact I have little time for newspapers anyway as I drive around so much. When I lived in London I used to make a point of picking up newspapers of a different political slant to my own so that I was in touch with how other people saw the World. Travelling on the underground for two hours every day as I did, there were always abandoned newspapers around. Of course the bulk of the British population has always been conservative, and at times even Conservative, though even Margaret Thatcher only ever won a minority of the percentage of the votes, but because of the weird electoral system the UK has this often gave her a large majority of the seats in parliament. The bulk of the UK population is apolitical, often actually anti-political. However, this does not stop most people 'knowing what is right' and often having a far more right-wing list of policies (especially on capital punishment and immigration) than anyone in the Conservative Party would ever dare voice. As a campaign to encourage people to vote a couple of years ago, these people say 'I don't do politics', but in fact spend a lot of time ramming their political message down people's throats, yet because they see it as 'common sense' or 'simply what is right', they do not want it tarred with the brush of 'politics'. I always cringe when someone starts a sentence with 'I'm not a racist but ...' because you know a whole list of racist attitudes will follow.

The right-wing tabloid press, notably 'The Sun' and 'Daily Star' as well as the middle-ranking right-wing newspapers particularly 'Daily Mail' and 'Daily Express' have had an important role in shifting electoral behaviour especially in the 1980s-90s. When Tony Blair became leader of the Labour Party he visited Rupert Murdoch who owns 'The Sun' and the higher-ranking right-wing newspaper, 'The Times' to win his backing before trying to win public support. He knew that Murdoch's scare campaigns especially about the level of taxation that Labour would introduce had severely undermined the party's electoral chances and most certainly lost them the 1992 election which it had, up to the end, appeared that they would win.

We are now in a different world, though politically not that different. The Blair Party, which effectively was what New Labour was, stuck carefully to the Thatcher Consensus, not altering the economic pattern of little public social housing and privatised utilities and transport. The only alteration in this was the minimum wage which was set at a pretty low level, so that even those bosses who whined about it, actually found their pay bill rise minimally and because of the stimulus to consumption in so many households in the UK, domestic demand rose for certain low cost items, notably food, cheap clothing and cheap electrical goods, especially mobile phones. Gordon Brown who built his economic reputation on economic prudence did not move radically from the Thatcherite/Blairite policy, but the economic crisis of late 2008 shook the whole system up. Thatcher would have just let unemployment rocket. As I noted last year, various employers were eager to see the return of the 'whip of unemployment' and their wishes have been granted. Ironically, however, the collapse of banks notably Northern Rock and HBOS led the state to nationalise banks on a scale that would have even startled Clement Attlee the Labour prime minister 1945-51 who oversaw nationalisation of about 20% of the UK economy following the Second World War.

Through the 1990s and 2000s there were complaints about the huge bonuses and large salaries that many bosses were awarding themselves but these tended to be short-lived complaints that led to nothing. The bulk of the UK population clung to the Thatcher illusion that 'everyone can be a millionaire, so everyone's got to try' even though the bulk of the wealthy were a very narrow slice from privileged backgrounds to start off with. The assumption that long persisted was that any constraint on money making was a bad thing. Such an attitude was still around until last year. Fortunately things have changed. People realise that if the state had not stepped in then their mortgage lender in many cases would have simply folded. We have not experienced the recall of debts in the UK in the way we know from the Depression era of the UK, but widespread repossession and forced sales because the bank had collapsed rather than because the borrower had defaulted, would have been an immense trauma in the UK, a country with a society that believes its whole economic stability is based on housing. The arrogant, persistent greed of leading bankers even when they have had to be baled out by the state has slowly penetrated the strong adherence to Thatcherite values.

With house repossessions reaching 40,000 in 2008 and expected to exceed 75,000 in 2009 people have a sense, in contrast to the 1980s, that this was not 'necessary' and actually that with less greed from leading bankers and companies, they could be retaining their houses. For once the blame is being aportioned properly. I think this is due, in part, to this shock coming after years of stability since the end of the last UK economic problems ending in about 1994. When mass unemployment hit in the early 1980s, people had already had a decade of seeing heavy industry finding it hard to adapt to the move to a service economy, which became the dominant form of industry in Britain from 1974 onwards. Combined with that they had seen the impact of rising oil prices and saw an easy scapegoat in the Arab oil-producing countries. The 'War on Terror' including the invasion of Iraq had no impact on the average UK citizen and certainly nothing even approaching the scale of the collapse of the US subprime mortgage market has done.

Perhaps it is unsurprising, as 'The Guardian' highlighted this week that the British public is slowly beginning to shake off the Thatcherite mindset, or at least question some of its easy assumptions. In the budget a new top rate of 50% tax was announced for people earning over £150,000 (€166,500; US$217,500). Currently we have 40% if you earn over £37,400 and 20% for income below that with a varying amount depending on your circumstances but around £6,300 which you can earn tax free. In Sir Geoffrey Howe's first budget in 1979 the standard level of tax was reduced from 33% to 30% and the upper rate from 83% to 60% but he raised VAT (Value Added Tax, tax on purchases) from between 8-12.5% to 15% and petrol duty from 45% to 60% to compensate. Of course the monetarists believed lower taxes would stimulate the economy, though by raising indirect taxes Howe probably helped to accelerate the onset of the 1980s recession by further reducing consumption, though he would have seen such steps as anti-inflationary and one thing monetarists loathe is inflation. So, the introduction of the 50% band is hardly 'a 70s-style raid' as the 'Daily Express' portrayed it nor 'a return to the politics of envy' as the 'Daily Mail' said.

Gordon Brown did try a 'windfall' tax last year on power companies, who as I noted at the time, were making ever larger profits simply by raising prices and blaming the rise in oil prices. The reduction in their charges were very slow and piecemeal when the oil price came down. However, Brown, possibly thinking back to the windfall tax of 1949 introduced by Sir Stafford Cripps. He was unable to pull it off. Cripps and the rest of the Attlee government found they were unable to shift British industry the extent to which the country needed it moved, but they certainly had greater power in altering the economy than Brown has. He was told bluntly that any such tax would simply be passed on to the consumers he was trying to help. Thatcher delivered all power over our energy and its price into the hands of wealthy business people most of whom are from outside the UK, and of course, the French government who own most of EDF.

What is interesting is that surveys show that the right-wing press have got it wrong. You have to be well over 40 to even have a dim memory of the 1970s and a lot has happened in the economy since then. Of course business people always complain tax is too high having no memory for when it was much higher and yet businesses still prospered. There have always been very rich people in the UK even when taxes were far higher than now. Greed persists. However, the public tolerance of it seems to be waning and even readers of the right-wing newspapers that have condemned this move, are actually behind it. To some degree people see it as a fair punitive measure. The economic historian E.P. Thompson (1924-93) despite being a Marxist noted that through history the British people have not sought revolution, but the 'moral economy', i.e. what they see as 'fairness' in terms of prices and pay. He shows examples of bread riots in which the people did not take the bread home and eat it, but set up stalls to sell the looted bread at a fair price. Despite Thatcherism, this basic attitude continues even though it is hidden among all the extreme right-wing complaints about immigrants being to blame for everything. The other thing is how far away the wealthy and ultra-wealthy are from the general public.

Back in 2003, 'The Times' defined a 'Middle Englander' also known as the British yeomanry, and other such phrases as someone earning £60,000 (€66,600; US$87,000 at current exchange rates) per year. Interestingly, 80% of the UK population earns less than the average annual salary which is now around £26,000 (€28,800; US$37,700) the average in London is about £31,000 and that is the highest paid area of the UK. For single people (many of whom are retired), the average is only £16,000 (10.6% of the salary that will get this new level of tax). So this suggests that the 'middle' ranked person of 'The Times' is actually in an elite of around a sixth or seventh of the population. I earn £39,000 now, so I am in the elite of a fifth of the population, but I end the month with £100 in my bank account, minimal savings, a 12-year old car and will probably have my 3-bedroomed semi-detached house repossessed when I am made redundant this Summer. So, even among the broader elite, economic times are hard. There are 350,000 people in the UK earning over £150,000, so it is unsurprising that the 'Daily Mail' has been told despite all its whining that there is not going to be a strong Conservative Party response to the new tax band, though that does not stop buffoons like Boris Johnson, Conservative mayor of London being indignant about it.

For all the assumptions that the Conservatives are easily going to win the next election, they ought to be careful no to be seen as too associated with big business and greedy bankers and opposing the 'fair' penalties imposed on them. I think the assumption of Labour's fall is very lazy and has been being talked up since Brown became prime minister, based on very little. Brown has worked hard to minimise the impact of the recession on ordinary people and it seems they are beginning to notice that. In addition, despite me commenting on this for the past year or so, the Conservatives still have not come forward with any clear policies and certainly no clear way of doing anything about the impact of the recession. Many people are likely to fear they will simply repeat Thatcher's attitude of holding up their hands, saying they can do nothing about it, and even worse, that it is 'good' for the population to go through this. As we have seen since 1873 and 1931 the Conservatives always struggle with any ideas when hard economic times come and ironically, as later Conservative prime minister, Harold Macmillan did in the 1930s start flirting with state-backed initiatives of greater control over the economy.

I am heartened that the British public, in part, is beginning to shake off the easy, nasty assumptions from Thatcherism. Of course, the right-wing elements remain. Driving through rural Dorset recently I heard how antagonism to migrant labourers is rising as unemployment increases. We can expect that alongside the desite for a moral economy will be the less moral attitudes of hunting out scapegoats too.

Just to wrap up, I am always stunned when I start doing research for a posting the extent of madly extreme views I come across, for example someone arguing that the British tax system is far too complex with its different bands and that there should be a single flat percentage of tax for income tax! This is illogical as all of us have to spend a large chunk of our money on the basics like housing and food, so if we become very wealthy we may have a larger house or more houses and more cars, etc., but all of us only actually need one house, so the wealthier have a great deal more 'slack' in their income that morally they should give back to the society they are draining from in order to make their wealth. However, ideas such as a single band of tax show that clearly there are some corners where Thatcherism continues to thrive.

The Bitter Legacy of Margaret Thatcher

As the economy is moving rapidly into the kind of situation we experienced in the 1980s with mass unemployment, the disappearance of numerous businesses and repossessions of houses, it is unsurprising that people's thoughts turn back to that era. Many, including myself hoped we would never experience anything like it again in my lifetime and until the middle of 2008 it seemed that possibly we never would. It is terrible that the greed of bankers has brought back this situation that causes so much misery to millions of people. Fortunately this time we seem to have governments in power who rather than saying that there is nothing they can do, or even worse, as was said in the UK by its government in the 1980s, this kind of suffering is somehow 'good' for us, they are now trying to rein in the reckless bankers and keep the economy stimulate rather than facing huge contraction.

Okay, so this is old news now. However, what brought it back to mind this weekend was the references to the anniversary of Margaret Thatcher coming to power 4th May 1979. She held office until 28th November 1990 so bracketing the 1980s and the evils of that decade will always be associated with her. I saw an article in 'The Guardian' about the anniversary and worried that it would begin to rehabilitate Thatcher (who unfortunately still lives, she was born 1925). I was heartened to see that it was written by Germaine Greer and that she has charged at Thatcher's record with full force. There are very accurate descriptions: she '... had scant regard for democracy and no scruples whatsoever.' Greer is right that Thatcher did not have a systematic plan to smash British society (though she had a very clear plan to smash trades unions especially the coalminers' NUM), but like Hitler she was an opportunist who took advantage of things like the Argentinian invasion of the Falklands Islands to advance her wrecking of UK society and industry. Unlike George W. Bush, she did not do this because she particularly favoured the very wealthy, though they clearly benefited from her policies, but because of the twisted ideology that she subscribed to, part based in a misunderstanding of Hayekian attitudes mixed in with New Right economic and social thinking from the USA and above all an incredible arrogance that what she did was right. Perhaps people can only become politicians if they have that focus, but Thatcher's was untempered by anything like reference to God or democracy and in fact was simply reinforced by her clear contempt for almost everyone she dealt with.

Though we did not know it at the time, increasing evidence has come to light about how corrupt she was, especially in arms deals which in particular benefited her son, the buffoon and attempted coup creator, Sir Mark Thatcher, Bart. He made £20 million from the arms deal his mother did with the Saudis in 1985. Thatcher tried to overthrow the government of Equiatorial Guinea in 2004 but as with many of this incompetent's projects it failed. Back to his mother. Like the US President with which she shared most affinity, Ronald Reagan (president 1981-9) she believed in supporting right-wing dictatorships across the world notably President Suharto of Indonesia (dictator 1967-98) and especially General Pinochet dictator of Chile 1974-90. With Reagan she adopted a harsh line towards the USSR and helped bring the world closer to nuclear war 1979-83 than it had been for almost two decades. I remember the terror of waking up to loud bangs in the early Eighties, thinking that the nuclear war that Thatcher so clearly wanted had come. Thatcher was harsh in personality and terribly patronising (and her use of the pronoun 'we' when referring to herself, something usually reserved for royalty), but worse than that, as many people observed to me at the time, she seem to revel in blood letting. This is most obvious when you saw coverage of her at the time of the Falklands Conflict, though she referred to the loss of British forces, it appears in her face as if she was energised by the recognition of those deaths. Perhaps she could not suppress the impact of the knowledge of how it would benefit her election campaign, perhaps she did simply enjoy conflicts; she seemed happiest atop a tank.

In the international sphere, Thatcher directly contributed to the deaths of thousands of people through permitting arms sales to dictators. However, a lot of this was oblivious to the British public. The more immediate suffering was how she wrecked the economy and thrust unemployment above 4 million (though never admitted this through using skewed statistics). Industry was changing in the UK as across the world. As early as 1974 service industry had outstripped manufacturing in terms of contribution to the economy and of course this was going to continue. However, there were many different ways to handle this change. Thatcher adopted the one which was to cause most misery to the most people in the UK (and I will throttle the next person who tells me 'well, of course we knew it was necessary', I wish I could send them back to 1983 and make them someone with a family, thrown out of their jobs, humiliated by being told they were a 'dole scrounger' and to 'get on their bike' to search for the work that was not there). She adhered to a strongly monetarist policies and shut down the coal industry and sold off the nationalised sector to greedy exploiters who have made millions in profits (and personal income) and left us with a fragmented far worse set of utility and transport companies (I will also punch the next person who tells me that the railway system, which they never use, must be better than it was when first privatised [I know that was under John Major but it was part of the flow of Thatcherite policy]), whose greed simply fuel the inflation Thatcher was so supposedly against. Of course, none of this mattered to Thatcher, she did not really believe society existed, she just saw 'families and individuals'. Thus, schools and hospitals were forced to make cut-backs from which many have still not really recovered. The privatisation of hospital cleaning under Thatcher has directly led to the various 'super-bugs' infections which infect thousands of people across the UK and kill many. Poor literacy and numeracy levels and still too high levels of people leaving school without qualifications goes back to Thatcher.

The worst legacy of Thatcher's regime is the myth of getting rich quick. 'Everyone can be a millionaire so everyone has to try' was how the The sung it in 1986. The implication was that it was only the lazy who were unemployed and if you worked hard you would always succeed in Thatcher's Britain and yet it was a lie right from the start. Those people who were seen being successful, notably the City of London financiers and stockbrokers were in most cases privileged to start with. People bought into the myth, partly as a way to escape the gloom and yet in fact they just got into debt through over consumption to try to buy the glamorous 1980s lifestyle and in particular to try to buy their council house many of which were to be repossessed 1990-3 as the bubble burst and people had to count the cost. As unemployment figures of the 1960s showed, there are some people who cannot work, probably 50,000 in the UK population. However, the bulk of the population is keen to have a job. No-one should feel guilty at being thrown out by an employer who sees cutting labour costs as the easy option and less personally painful that cutting their salary or bonuses. It is this culture established and lauded under Thatcher that has led us into a repeat of the unpleasant days of the 1980s once again.

Thatcher fuelled an attitude that divided British society against itself. British communities have probably never been as strong or amenable as people have believed, but they certainly were not as hostile and vigilante focused as they became following Thatcher's policies. The division of the 'deserving' and 'undeserving' is one we are still haunted by and so many people can be dumped into the 'undeserving' category notably asylum seekers, immigrants, students, people from other regions. There has always been North-South tension in the UK, but it was sharpened by the Thatcher years and it seems only now that it has began to reduce, but perhaps the recession will make it worse. Thatcher spoke of the 'enemy within' referring to anyone with left-wing or trade union connections and she gave a free rein to the police and security service in a way that has never been recaptured. She established a sound foundation for the steps we continue to take towards authoritarianism in the UK even today. That 'enemy within' mentality of course extends into communities especially since it received the jolt of anti-Islamic propaganda in the 2000s. However, without Thatcher's legacy such tendencies would not have fallen on such fertile ground.

The perverse attitude of Thatcher which has done so much harm to the UK (and its spread was her greatest success) was the 'community charge', better known as the poll tax, which was charged at the same rate on people no matter what their income was. Some of the poorest got reductions, but a millionaire would pay the same as someone earning less than the average wage (and of course in those pre-minimum wage days, low wages were ridiculously low, the figures mean nothing now but on the eve of the introduction of the minimum wage in 1999 at £3.60 per hour for people over 21, I knew people working at £1.90-2.00 per hour, which shows how much the jump was). This was Thatcherite 'equality' and how perverse this was led to the poll tax riots of 1990. Of course, you can tell the severity of the regime by how often there was rioting under Thatcher. The UK is not a country particularly known for forceful political protest, but the 1980s saw a lot of it. Even riots sparked by local tensions such as the St. Paul's (Bristol) Riot of 1980 and the Brixton Riot of 1981 were in part caused by the police feeling they had Thatcher's backing to using harsh and often racist measures. If you think of the Handsworth riots (1981 and 1985), riots in Leeds, Liverpool (Toxteth), Broadwater Farm in 1985 (at which a policeman was beheaded) and riots connected with the Miners' Strike 1984-5 only apartheid South Africa and Sri Lanka experiencing a civil war faced anything similar at the time. The level of fury at what was being done to the people of Britain was immense. This in a country in which such protest has always been less common than elsewhere in Europe, except during the Thatcher years.

Thatcher was anti-intellectual. Again, education needed reform, but she thrust universities back into the elitist system and fostered the hostility to students that I see very visibly in my own neighbourhood even today. No other country in Europe has such hostility to learning as the UK. Somehow it is seen as a 'luxury' and again students are condemned as 'lazy'. In other countries people are proud not only to see their own children go to university, but proud to see other children in the same street, district, town go. Through the 1980s studying was dismissed as taking you away from the getting rich quick which was your duty; all successful entrepreneurs bragged that they 'went to the university of life' not noticing how the UK was slipping further and further behind rivals where even waiters are trained. The UK has only kept its head above water by importing intelligent, skilled, qualified people from across the world, notably Asia. If every doctor of Asian background (and I mean immediate background, not children of Asians who had settled in the UK in previous decades) was suddenly removed from the UK then the health service would collapse immediately. Look at successful businesses in the UK and you will find a huge number are led by 'outsiders' because too few indigenous British people, no matter what their race, has been encouraged to study or had the funding to continue to the levels needed to make a successful business and intellectual country.

Some people will regret that Margaret Thatcher was not killed in the bombing of the Grand Hotel where she was staying in October 1984. I will look at the implications of that incident in a counter-factual soon. However much I wish Margaret Thatcher had been eliminated from the UK I know that the response would have effectively made the UK a police state immediately and democracy (which Thatcher was no fan of, she disliked even working with ministerial colleagues, she was Gaullist, almost dictatorial, in wanting to dominate all aspects of politics) would have been suspended. I wish her corrupt arms dealings could have brought her and the Thatcherites of the time down and humiliated them for a generation in the way Nixon was removed from office and shunned because of his corrupt actions. Margaret Thatcher damaged the UK in so many different ways, some that were immediately obvious, some that we are only now seeing the consequences of. There are very few politicians that you cannot find one good thing that they have done for the country they dominated, but Thatcher is certainly one of them and the UK would have been a far better place if she had never been born.

The Demise of Woolworths

There are some companies in the British high street that seem to have been there forever. If you got swept up in a kind of 'Life on Mars' style experience and found yourself back in 1973 they would be there just as they are today. The damage caused to the British economy in the 1980s purged many established stores from British shopping centres and the fact that the average British company will last no longer than 40 years means there are very few of these companies, but some do remain. The ones that are still there are Boots the Chemists, WH Smith and Marks & Spencer. The supermarket chains Co-op, Tesco and Sainsbury also remain though they have become very different from what they were before, Asda, Morrisons, Somerfield, Waitrose, Lidl, Aldi are all relative or actual newcomers. The one that will be missing from so many streets in the UK after today is Woolworths stores ('Woolies' as it was often affectionately called). To some degree this is unsurprising.

When people are asked to define what it sells they end up giving quite an eclectic mix. WH Smith has faced a very similar difficulty. The average branch of Woolworths in the UK (it was a US company started in 1879; the first branch in the UK opened in 1909 in Liverpool) sells small electrical goods, DVDs, CDs, garden items, some decorating goods, books, children's toys, children's clothes, haberdashery and sweets. The key problem for them is now that supermarkets sell all this kind of stuff whereas once they were much more restricted to food and cleaning items. France never had places like Woolworths because all the things they sold would be available in hypermarkets. Now that British supermarkets often resemble hypermarkets it is unsurprising that the ground has been cut from beneath them.

The other key problem for Woolworths despite their efforts over the years is that despite their efforts over the years, they seem terribly old fashioned. However much they tried to make it look dynamic, the layouts and the products sold never changed radically. In those days of my youth when electrical items were sold without plugs Woolworths was always the place to get a plug. They are the store that sold all those awkward but essential items, and perhaps these days that is insufficient basis for running a store. This reassuring continuity was welcome but it hardly made them appear dynamic.

Woolworths longevity was also partly a problem because they have been around so long and all of us remember them as they were in our youth and all the baggage that brings with us. In contrast there is minimal similarity between the first tiny Tescos I went into and a modern day branch whether a Tesco Extra hypermarket or a Tesco Local convenience store. In contrast there are no out-of-town super-Woolworths. Even WH Smiths has managed to pull this off in some locations having cafes in them and hitching themselves to the kind of lounge-around style common in bookshops these days, though with the advantage of a slightly wider range of products which make them more family- rather than young professional-, friendly. Woolworths are still in the high street and predominantly in working and lower middle class districts, naturally supplying those people who lack the time, money or vehicles to reach out-of-town facilities. In this age when everyone in the UK is supposed to be middle class, that is a difficult demographic to be addressing.

The immediate issue is that 800 stores employing 25,000 will close in the UK. There will be suddenly a boarded-up space in many high streets and a sudden injection into the unemployment figures just before Christmas. In the long-run, I think people will severely miss Woolworths. I thought back over how many items I had bought from my local branch this year and it added up to a whole slew of lego, probably a dozen garden plants and an assortment of garden equipment, a clock, about five DVDs. Now many of these things I could probably buy elsewhere but it will be far harder to get them without getting in a car. For older and poorer people than me it is going to be even harder. Pound shops with their ever changing stock are not going to replace the consistency of Woolworths and many children are going to miss out on being able to buy their first watch or just get some lego to cheer up a dull Saturday now Woolworths is gone.

I mourn the loss of yet more jobs in the UK, but I also acknowledge I mourn too, the passing of something that has been there all my life and a company which I have interacted with on countless occasions. Woolworths is not like the departure of Peter Lord or Freeman Hardy & Willis as there were always other shoe shops, there is nothing else like Woolworths, which is part of its problem, but also means it is irreplaceable and a characteristic of all the towns I have ever lived in will be gone forever.

P.P. 29/12/2008 - I have to confess that I am not a person who regularly reads the financial pages of the newspapers, though perhaps we all need to these days to see how big business is playing with our lives. Over the Christmas period someone pointed out to me that the UK Woolworths did not collapse because of poor sales and in fact in April 2005 when it was taken over it was returning a profit of £109 million. What killed it was the control that was taken by Elliott Associates a hedge fund (one of the oldest, being in existence since 1977) though due to its behaviour known as a 'vulture fund'. Basically it is an asset stripping company that buys up companies or even economies of countries (as it did with Peru in 1996) when people do not want to chase after debt repayments, then sues the company or economy for full repayment, so making a profit. In 1996 it bought the debts of Peru for £6.1 million which were worth $20.7 million (so equivalent to £9.02 million, but the exchange rate has shifted back and forth loads since then) and almost bankrupted the whole company. After a failed takeover bid failed, which would have earned Elliott Associates millions, they tried to get Woolworths to break up and return money to shareholders like them. Woolworths has had various debts piled upon it, leaving it with £129 million debt earlier this year. It has been the plaything of wealthy people since at least 2005. Its largest shareholder Ardeshir Naghshineh, held 10.2% encouraged it to ignore takeover offers until it was too late. Like all of us Woolworths became a football in financiers' games. These are people who never go anywhere near a UK high street and have never had to buy lego from a branch of Woolworths. They do nothing except drain companies to death just to earn millions more as their carcasses are ripped up. They do not have to worry about their jobs or a disused shop in their districts. These people can be seen as evil, but it is not even that sophisticated, they cannot see any further than the vast sums of money they make and how they can achieve that not by making or selling anything but through ripping apart other people's businesses. It is people like this who have smashed the profitability that has been so prevalent over the past two decades and are now condemning millions of us to unemployment and loss of our homes, just to satiate their greed. Woolworths proved to be yet another of their victims. The seven year old in my house today asked when Boots and WH Smith were going to go from our high street and honestly I told him, probably very soon. Greed was never 'good' and its consequences are terrible.