No More Socialism for the Super Rich

Originally written for Wales Home

THE LATEST UK economic figures indicate that we are in the midst of the worst economic recession on record. Furthermore, there is growing agreement among economists that any return to economic growth will be subdued and fragile. It seems we are looking at an L-shaped recession rather than a V or U.

Most worryingly for organisations like the CAB is that previous economic downturns suggest a lag between the height of the human cost of a recession and a return to economic normality. We expect unemployment, bankruptcies, debt problems, home repossessions and other symptoms of recession to continue rising long after official economic growth returns. The human cost of this recession is likely to be particularly acute and could last until the end of the next decade. With youth unemployment rocketing towards the million mark, and UK child poverty levels having already risen to 2.3 million, social justice objectives have been left shattered by this recession.

The reality is that over £1.4 trillion of personal debt continues to circulate in the UK economy, despite the latest correction which for the first time since records began indicates a slight fall in the cumulative UK personal debt total, and Government efforts to get banks and financial institutions borrowing again to consumers seems to miss the point. This bust is not so much about credit supply but rather credit demand – UK citizens are swimming in a sea of debt which they can’t service. Individuals and families in the face of an economic downturn are far more likely to consolidate and repay their debts rather than extend their credit limits. Consequently, any economic recovery policy solely based on stimulating consumer spending is likely is unlikely to achieve the ambitions of its architects.

Growth over the last decade was driven by unsustainable consumer spending following deliberate policies to stimulate the interrelated housing and personal debt bubbles. It is concerning that the primary response of the UK Government to the economic crisis has been to try and re-inflate these two unsustainable bubbles. Reinventing the wheel isn’t going to work, and will only lead to greater misery for individuals and families in the long term.

The fiscal and monetary stimulus policies have primarily been based around preserving the financial sector. Business as usual, with a few tweaks around the edges. Arguably, a more progressive approach would have been to increase disposable incomes via tax cuts (the VAT cut was a poor effort at a reported cost of £12.5bn, including retail discounting) and increasing welfare benefit payments – in support of programmes aimed at building the infrastructure required to implement a genuine regional and more balanced macro economic policy.

Evidence indicates that individuals on benefits spend their money locally and therefore the implementation of the Joseph Rowntree Foundation recommendation to link benefit payments to average earnings would lead to significantly more cash circulating in the economies of our most deprived communities.

Instead what we essentially have is socialism for the super rich with over £1.3 trillion handed to the banks in loans, grants and guarantees, whilst the most vulnerable in our society are left to face the ravages of free markets. It’s sobering to note that there is a Westminster political consensus around an agenda of rationalising the benefits system. The poor and vulnerable will be further disadvantaged when faced with the fiscal strengthening proposals to slash public expenditure and the services they rely upon.

The CAB service is the largest integrated network of advice agencies in Wales. There are 31 members CABs in Wales delivering services from 50 main offices and 154 secondary outlets. As an organisation we are in the frontline dealing with the human cost of the recession.

In the year 2008/09, Wales Citizens Advice Bureaux in Wales dealt with 298,119 client problems – 11% increase compared to 2007/08. These included 111,339 enquiries related to debt – a 19% increase. 97,803 enquiries in relation to welfare benefits and tax credits – 11% increase.

Debt made up nearly a third of all client queries. Mortgage repayment problems increased by a staggering 57% on last year. Fuel debt problems increased by 31%. Rent arrears to registered social landlords increased by 18% and 15% for private landlords respectively. An 18% increase in council tax payment problems. A 25% increase in paying overdraft charges, a 22% increase in credit and store card payment problems, and a 30% increase in problems in paying water bills. These figures bring home the experiences faced by people in the current economic climate. Most worryingly of all we expect the rate of increase to gather pace in the short to medium term.

In our manifesto for the General Election, Citizens Advice is calling for action on the following policy recommendations:

  • Adequate incomes for all – by tackling poverty, simplifying the benefits and tax credits systems, and setting ambitious targets for benefit take-up. £10bn of entitled benefits and £2bn of tax credits are left unclaimed each year;
  • Decent affordable homes for all – by making more social housing available for rent, setting higher standards for landlords in the private rented sector and regulating the mortgage market better;
  • Accessible services for all – by safeguarding the vital Post Office network in rural areas, improving access to Jobcentre Plus services and making government helplines free to all callers;
  • Clear and enforceable rights for all – by creating a broad-based Fair Employment Agency, implementing the new Equality Act, and reforming and extending our legal aid system;
  • Fair markets for all – by giving regulators the powers and the duty to ban rogue traders, strengthening regulation of consumer credit and introducing independent regulation of bailiffs.

We also need to work to improve the financial capability of our citizens. We warmly welcome the decision of the Government of Wales to introduce financial literacy into the school curriculum, however we need to educate the whole of society.

In our submission to the recent Government of Wales Financial Inclusion Strategy we called for the creation of a National Money Service, providing comprehensive integrated and holistic money advice services. From acute debt advice provision, to preventative financial capability advice and generic financial advice – such is the severity of the personal debt epidemic.

Although a matter for the UK Government, we would argue that there is a clear case for funding the model out of banking profits under a long term corporate social responsibility arrangement. It would be a step in the right direction of addressing the imbalance between the interests of the financers and those of the general population.

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