Britain's super-rich have done amazingly well out of the crisis. According to the Sunday Times, the wealthiest 1,000 people have increased their assets in just one year by £77 billion. That's a gain of 30 per cent, bringing their total wealth up to £333 billion. This is an interesting figure. It's more than twice the size of the £156bn annual deficit which we are told has to be eliminated by all-round sacrifice and massive cuts in the welfare state. Is there a connection? Indirectly, yes. And it is vital that we understand it - because currently across Europe people are being subjected to a confidence trick so gigantic and dangerous that it would make even Bernie Madoff blush. The same financiers who precipitated the economic crisis are now demanding that working people pay the cost. They are doing so to ensure that the profits of the very rich are maintained even if the result is deeper crisis and recession. Governments in virtually every EU country have been bullied into announcing cuts in public expenditure that will reduce economic activity by between 1 and 2 per cent annually for the next four years. Japan has just announced it will do the same. The cumulative result can only be long-term economic depression. Governments are taking this action in the middle of the world's worst economic crisis since the 1930s at a time when those who control the capitalist world's assets are not investing but hoarding and speculating. So are those who advise governments mad? Well, no more so than the inventors of the dodgy "financial products" that precipitated the crisis in 2008 - which were also very profitable for some.
On this occasion, however, the proposals are designed to benefit the whole class of the very rich. The destruction of the welfare state will push a massive amount of provision back into the private sector. It will directly attack the main surviving bastion of trade union resistance which is now concentrated in the public sector. It will increase unemployment and reduce wages. And it will cut taxes. As they say, never waste a good crisis. If any apologists of the existing order are reading this article, they might now object, saying: "But you are all shareholders. Your pensions and savings are invested in the stock exchange. They depend on corporate profitability." True - but only up to a point. Has any wage or salary-earner seen their bank savings gain a 30 per cent rate of interest in the past year? There is a reason why they haven't. It's called finance capital. This is the result of the massive concentration of capital ownership in the course of the last century and the use of this capital to dominate and control the banking system. Last September former senior official in the Office for Fair Trading John Chapman, writing in the Financial Times, effectively exposed finance capital's present-day workings. He focused on what is called the "alternative investment" sector. It is made up of the investment banks, hedge funds and private equity companies that manage the wealth of the very rich. It currently manages about £1,000bn - as against the £5,000bn invested in pension funds across Europe, mainly workers' savings.
In the years running up to the 2008 crisis the alternative investment sector was marking up average returns of over 15 per cent. It did so mainly through "leverage" - borrowing from retail banks and pension savings of ordinary people who have to be satisfied with a much lower level of interest. As Chapman noted, the alternative investment sector is only open to the "very wealthy" - effectively those with investable wealth of well over £3m. In Britain this amounts to a minute fraction of the population, roughly 0.2 per cent, at most 50,000 adults. They have the privilege of being able to invest through institutions that are not regulated, generally not taxed and can borrow unlimited amounts from the retail banking sector. It was of course the speculative leveraged borrowings by some of these alternative investment banks that precipitated the 2008 crisis - precipitated, but not caused. For causes you have to go deeper - to the age-old contradictions of capitalism. Exploitation expands capital and impoverishes workers. Profits can't match the increase in capital and workers can't afford the expanded production. Temporarily bank lending was used to sustain demand - and lending to the poor is always very profitable until people cannot afford to pay it back. Then the retail banks were left without the minimal interest to cover workers' savings. As a result Northern Rock went bust, the mortgage banks did the same in the US and the crisis began. This is why the current actions of governments are so dangerous. Poverty was the immediate cause of the crisis. Poverty and unemployment will perpetuate it. The level of average household indebtedness in Britain remains 150 per cent of household income. So what is the government proposing? Sack another 300,000 people and cut benefits. It may not make sense to you. Yet, as we have seen, it may do for the very rich.
But it is based on a gigantic confidence trick. Public spending did not cause the deficit. Expenditure on public services is less today than it was in 2007. The deficit was caused by two things - the money used by the government to bail out the banks and the economic crisis triggered by the banks - which reduced the number of employed paying tax and increased the cost of benefits paid to the unemployed. In historical terms the deficit is not even very large. Even at its biggest, as forecast for next year, the total national debt will be less than that in the late 1940s when the welfare state was created or during the full employment of the 1960s. What is enormous is the aggregate private debt of the banks - that falling due in 2010 is equivalent to 23 per cent of national income in Britain compared with 7 per cent in the US (IMF figures). This is what really frightens the managers of finance capital and the bankers of the EU. And this is why we need an alternative to this mad system. Remember, the richest 1,000 alone increased their wealth last year in Britain by £77bn. The deficit is £156bn. In 2009 the TUC backed the People's Charter and its demand for the government to take control of the banks, ban hedge funds, close down tax havens and use our savings for productive investment. Wouldn't that be a good start? "We're all in this together," Prime Minister David Cameron announced on June 7. Public spending cuts, he declared loudly, would be carried out in a way that "protects the poorest and most vulnerable in our society." The next day Chancellor George Osborne scrapped plans to extend free school meals to children of the 500,000 lowest-paid workers in Britain.
Presumably this will hit all those bankers and business moguls earning below £307 a week, whose kids would have qualified for a buck-shee dinner every day. Still, at least all those big shareholders, company directors and non-doms on income support or jobseekers allowance will continue to enjoy that much-needed assistance, worth around £600 a year. Yes, we're all in this together. It also seems likely that the blue-yellow Tory coalition will scale down its plans to increase capital gains tax (CGT), whereby income is received in the form of shares, property and other assets. These can then be treated as a "capital gain" and taxed at 18 per cent, as can be subsequent profits from their sale. This 18 per cent compares with an income tax rate of 40 per cent on income above £37,401 - reduced to 32.5 per cent for income from dividends - and 50 per cent above £150,000, down to 42.5 per cent on dividend income. The first £10,100 in capital gains is exempt from CGT altogether. Osborne's Budget on June 22 will show us how the pain will be shared. Will he raise CGT from 18 per cent to 40 or 50 per cent? Will the rich continue to reap enormous tax benefits from receiving their income in the form of shares, property and other financial assets instead of paying income tax? We're all in this together, after all. Osborne has already revealed that some government departments will lose up to 20 per cent of their money over the next four years. Based on leaks to the press in April and September 2009 and corroborated by First Division Association general secretary Jonathan Baume, we warned that there would be two waves of massive public spending cuts in 2010, whatever the pro-capitalist parties might claim to the contrary. Osborne's emergency Budget will unleash the second wave.
Before then, government ministers must justify their spending plans to a "Star Chamber" comprising the Chancellor, Cabinet Office Minister Francis Maude and his deputy Oliver Letwin, Foreign Secretary William Hague and Treasury Chief Secretary Danny Alexander. Maude is a former managing director of investment bankers Morgan Stanley and chaired the last Tory government's deregulation tax force, reinforcing "big bang" freedom for the City of London, while Letwin is a former director of NM Rothschild Corporate Finance Ltd. Alexander is former head of communications for the European Movement and the Britain in Europe campaign. He can be trusted by the EU Commission and ECB to champion their drive to police and impose public spending cuts and privatisation across the continent. He succeeded David Laws as Treasury chief secretary, a multimillionaire who supplemented his fortune with a £40,000 rent subsidy from the taxpayer. We're all in this together, remember. Laws, who may rise from the dead in record time, is a former vice-president of investment bankers JP Morgan and managing director at Barclays de Zoete Wedd, where he headed currency speculation in dollars and sterling. In his spare time, Osborne himself cavorts aboard billionaire yachts with Lord Rothschild, former EU Trade Commissioner Baron Mandelson and a Russian oligarch, in between flipping his homes for tax purposes. One of his first decisions as chancellor was to appoint Sir Alan Budd to head a new Office for Budget Responsibility. The OBR will take over economic and financial forecasting from the Treasury. This is an important function, not least because it sets the framework within which the government plans public finances and helps to shape public debate about economic and financial policy. Budd is very much an Establishment figure with many quango notches on his belt. Most importantly, at the time of his appointment he was a senior adviser to the Credit Suisse First Boston bank, having previously served as an adviser to Barclays Bank. Budd was also a founding member of the monetary policy committee when it was first set up by then chancellor Gordon Brown in 1997 and given powers from the Treasury to set interest rates. The MPC was later put on a statutory basis and attached to the Bank of England, which is the likely trajectory of the OBR as well.
Who better than Budd to continue the "privatisation" of economic and fiscal policy-making, transferring it from the democratically elected government and its Treasury to the friends and former employees of City banks and big business? And what further proof is needed that this Blue-Yellow Tory coalition is a government of the City, by the City for the City? It was cobbled together under pressure from "the markets" - the gamblers and speculators of the banks and other financial institutions - who wanted a regime that would cut and privatise public services sooner and more extensively than new Labour. These demands were dressed up as a plea for "fiscal responsibility," but behind them lay the threat of a spot of Greek treatment from the bond and foreign exchange markets in collusion with the European Commission and European Central Bank. That's why, just one week after taking office, Osborne announced a £6.2 billion cut in current spending this financial year, to add to the £10 billion cut in capital spending already contained in ex-Chancellor Darling's March budget. All in it together? Britain's monopoly capitalists won't be sharing any pain with the rest of the population. The class nature of this Tory coalition needs to be exposed, stripped of its "liberal" veneer. Certainly the trade unions, regional and national TUCs, the left and the Labour Party need to be all in together, building a united mass movement against the dreadful austerity programme. Trades councils can play an invaluable role in uniting trade union, community and other organisations to launch or support local campaigns. The impact of public spending cuts on jobs, wages and pensions in the private sector should also be emphasised, to counteract attempts to split the working class along public-private sector lines. But we should also be arguing that cuts in public services, pensions and benefits are not necessary. A people's alternative to the City's agenda would be to tax the super-rich and big business monopoly profits, cancel Trident replacement and withdraw the troops from Afghanistan. Such policies are reflected in the People's Charter, which could provide a powerful focus for the labour and progressive movements in the battles ahead.
A blog for the socially and politically conscious, written by a young, gay activist who strongly believes in equality and justice.