Austerity with a class vengeance as benefit cuts bite

Most people were aware that the cuts would be harsh and affect the most vulnerable in society. But now religious figures around the country are joining with charities to point to deep privation amongst large numbers of families, long before the full range of cuts are implemented.

In Manchester, Bristol, Birmingham, Sheffield and Liverpool, many people are already experiencing cuts in benefits of £200 to £300 a year. James Jones, the Bishop of Liverpool, has warned that many cities will suffer from “urban diabetes”, where blood pumps around the heart but fails to reach other parts of the body.

Thousands of families already rely on food banks to survive and numbers are growing fast. In Liverpool, for example, 6,000 families signed up for food parcels in the city in the last six months alone. Last year, 2011-12 food banks fed 128,687 people nationwide; in 2012-13 it is thought this could rise to nearly a quarter of a million.

The ending of universal benefits with the termination of child benefit for all  – a policy promoted by the ConDems but accepted by New Labour Mark II – is being disguised by the introduction of “universal credit”. Within this consolidation of benefits into one payment are severe reductions in what people can claim.

Housing benefit for private sector tenants is being capped and most social housing tenants will have to make a contribution to their council tax. Many families are already deep in debt. It has been left up to charities to try to help those faced with council bailiffs claiming back arrears. One local vicar Rev Paul Nicholson in Tottenham, north London, has set up a group called Taxpayers against Poverty. says that charging council tax to the poor will result in “debt destitution and forced migration”.

Then there is the “bedroom tax” through which the government plans to claw back £500m a year from the housing benefit bill. People in council homes who are said to be “under-occupying” will charged £11-£20 per week unless they move to a smaller home. The financial and psychological effects of such a deeply intrusive measure is of course not acknowledged by the government’s “impact assessment”.

In areas like Derby, the housing support budget is being cut by 83% per cent over the next two years. Local charities describe it as “catastrophic”. Homelessness is rising, particularly among vulnerable young people who will no longer quality for services. (Cameron has famously proclaimed that no one under 25 years of age will qualify for housing benefits of any kind.) In 2012-13, five out of ten homelessness services had their funding cut.

The most vulnerable people in the firing line are the disabled. Building on the policies of the previous Labour government, people with disabilities are being subjected to horrendous tests by Atos. Last week former Labour Minister Michael Meacher said that 3,500 have died during the assessment process itself and another 7,100 died after being judged to be entitled to unconditional support because they are too ill or disabled to work.

Chief executive of Citizens Advice, Gillian Guy, has said Atos has given grounds for concern: “Last quarter, Citizens Advice bureaux had more than 100,000 inquiries about Employment and Support Allowance – a rise of 76%. More than 21,000 were appeals against decisions based on Atos assessments, mistakes that are subsequently overturned and have cost the taxpayer £60m over the past year.”

For many all the future holds is thus a spiral of deepening poverty and debt. The failure to increase benefits in line with inflation means there is a massive transfer of wealth going on. Cuts in benefits to reduce the budget deficit are essentially the price paid to the bankers to help pay for the financial crisis they created. This is austerity with a class vengeance at the heart of it.

A corporate-driven market state has replaced the old welfare state. It will take a complete transfer of power to ordinary people before we can even think of a future better than the one the mainstream parties have laid out before our eyes. 

Corinna Lotz

A World to Win secretary

Time to end the profit system

The Lib-Con Coalition government’s Spending Review is an attempt to rescue an already bankrupt economy. With £81bn cuts in public spending, it is the biggest and most sustained assault on the public sector since the creation of the welfare state sixty years ago.

But the reality is that despite the ruthless measures announced yesterday, the cuts will hardly make a dent on Britain’s budget deficit, which at £162 billion is the largest of the world’s major economies.

The plan is to bring government borrowing down by £149 billion in four years. This is a 19% per cent cut in real terms, as opposed to New Labour’s proposed 12 per cent. But can this gamble succeed? The very measures intended to reduce the deficit will deepen the crisis.

The one million people who will be thrown out of work and those made homeless will need some kind of support. And whilst blighting the lives of countless citizens, especially the most vulnerable, government spending will continue to rise by an additional £38 billion over the coming four years. As Chancellor Osborne announced: “total public expenditure - capital and current - over the coming years will be £702 billion next year, then £713 billion, £724 billion and £740 billion in 2014-15.”

An additional £7 billion cut brings the total cut in the welfare budget to £18 billion so far. The poorest ten per cent of the population stand to lose the most. It is a monstrous bludgeon expected to achieve just a £5 billion reduction in the £43 billion per year interest payments.

The measures include:
• a 30% cut in funding for local authorities
• a 74% cut in the budget for house-building combined with a trebling of rents for new tenants in social housing
• insecure tenancy of council house dwellers
• the minimum possible increase for the NHS, that will leave health care struggling to keep up with an aging population and scientific advance
• ending the universal right to Child benefits
• a 3.4% real cut in education
• cancellation of major infrastructure projects, like the renewal energy from the Severn Barrage
• a 10% increase in rail fares
• a £7 billion cut in the welfare budget
• Culture Department to be cut by 42% with almost 30% cut for Arts Council
• up to 30% cuts in budgets for government departments
• 20% cut in funding for the police
• rapid acceleration in the process of adding a year to the working life of a man and six to that of a woman before they can claim a state pension
• huge and damaging reductions in the settlements for Scotland, Wales and Northern Ireland

There is certain to be much more as the contraction of the global capitalist economy tightens its grip. The attempt to reduce repayments to the money markets will be undermined by tax revenues falling faster as the recession turns to slump. The populist gesture of £2 billion to be raised from a permanent levy on banks will surely be passed on in the form of higher costs of borrowing.

Cuts in administration of around 30% over four years will lead to a loss of an estimated 490,000 public sector jobs, 8% of the total. The effects of the overall programme confirms consultancy PriceWaterhouseCooper’s estimate of a further 500,000 jobs evaporating in the private sector as spending is reduced and contracts are cancelled.

The Coalition has issued a sinister threat with its promise that it will always be better to be in work than on benefits. It means that they’re hard at work on schemes to reduce wages across the board. No doubt employers will be rubbing their hands at the prospect of new sources of cheap labour from the enlarged European Union and beyond.

This is only the beginning. The Spending Review spells out that the capitalist state can no longer afford to fund any of the rights or life-support benefits won by unions in a century of struggle.

The intention to reduce the wide and complex range of benefits needed by millions of people suffering the effects of three decades of profit-chasing globalisation to an all-encompassing single payment, and a time-limit on the Employment and Support Allowance reflects a profound contempt for the individuals whose needs have been assessed by cohorts of public sector workers. Capitalism in crisis wants to reduce millions people to bottom-line cyphers of cost before trying to eliminate them altogether.

Calls last night outside Downing Street for “French-style” strikes are a welcome move from the total inaction of the Trade Union Congress. But even industrial action needs a political purpose. The desperate gamblers in No10 and 11 are driven by a real economic crisis of the capitalist system itself.

The solution to the debt mountain comes in the shape of action by People's Assemblies http://aworldtowin.net/frontline/BuildPeoplesAssemblies.html, formed locally throughout the country with a view to defending services, livelihoods, jobs, and homes. Eventually a government formed from a network of people's assemblies will need to take control of the financial sector, cancel the debts and turn it into a not-for-profit service.

The global capitalist classes are watching to see the results of Osborne’s cruel experiment. It’s time to realise that we too must enter new territory.

Gerry Gold
Economics editor

The American dream is a nightmare of foreclosures

Las Vegas – known best for its gambling haunts – now has a new reputation. It’s America’s No.1 city for foreclosures, with more people losing their homes here than elsewhere in the country.

Artist Emily Kennerk has created a 22-hour video installation which shows an image of every home foreclosed in 2009. (Foreclosure is the legal process whereby a bank or lender obtains a court order that terminates the borrower’s right of redemption. It is harsher than repossession).

Describing her installation, Kennerk says as you walk around the town you can’t help but see “this ghost town is forming around you. It’s broader than Las Vegas. This is the first generation that’s going to have to deal with the death of the American dream”.

More than four million US homes have been repossessed in the past three years. A website currently lists 2,304,257 foreclosed properties in the US. In the state of Nevada where unemployment stands at 14%, more than six out of ten of all home sales are currently from foreclosures.

At the start of the sub-prime mortgage crisis, back in September 2008, the US Treasury took the mortgage giants Fannie Mae and Freddy Mac into government “conservatorship”. These two mortgage corporations were set up under Roosevelt’s New Deal during the Great Depression of the 1930s. Along with Ginnie Mae (the Government National Mortgage Association) they currently guarantee $5 trillion in US mortgages and 96.5% of all newly originated mortgages in the US.

So far the government has injected $145 billion into them to cover their losses. The mortgage market now is almost a wholly owned subsidiary of the United States government, according to former Federal Reserve chairman Paul Volker. "Almost all the mortgages made now are insured by the government, bought by the government, and the guys at Fannie Mae and Freddie Mac are the market . . . It’s clear Fannie Mae and Freddie Mac need to go. "

But the US is not only affected by a housing crisis. The malaise goes far, far deeper. Three trends have come together. Economists estimate that the annual incomes of the bottom 90% of Americans have risen only 10 per cent in real terms over the past 37 years while the incomes of the top 1 per cent have tripled.

Thus, a “slow economic strangulation”, which began well before the Great Stagnation, now means that income mobility is declining just as inequality rises sharply. Even families with a gross joint income of $70,000 per year, are only “a pay check or two from the streets” as one Minneapolis worker puts it. Medical expenses are a nightmare. Even families on twice the US median joint income have to borrow heavily to have essential, life-saving operations.

Arthur Miller’s 1949 play, Death of a Salesman, dramatised the anxieties arising from US Great Depression of the 1930s and the reliance on credit to provide necessities. During the Cold War years, such plays were seen as an attack on great American dream. But in today’s Great Stagnation, following the years of easy debt-fuelled consumer credit, which analysts call the “Great Moderation”, it’s certainly not playwrights who are pricking the dream-bubble.

The inability of the capitalist system, not only to ensure the fundamental necessities of life, but the very notion of a positive future is self-evident. Cities and states are staring at bankruptcy while trillions of government dollars have failed to revive the economy. As American comedian George Carlin quipped: “It’s called the American Dream because you have to be asleep to believe in it.”

Corinna Lotz
A World to Win secretary

The year of the bailiff

The extent to which we are cajoled, enticed, seduced and even tricked into spending more than we have – especially over the end-of-year holiday period – is revealed through startling figures. A poll conducted by the Norwich Union found that 73% people who responded said they would run out of money by today – several weeks before their next pay day at the end of the month.

Some 43% of people surveyed said this month was the most worrying time of year financially, while 19% did not think it was likely they could cover all their household bills during January. More than one in three thought they would go into debt this month. Some householders will dip into their savings or rely on credit and loans to make ends meet for the rest of the month, the Norwich Union said. It is estimated that Britons spent on average £781.86 extra over the festive period on gifts, socialising and sales shopping.

Global capitalism can only sustain itself by persuading people to buy increasing numbers of goods and services. It is the only way corporations can maintain rates of profit, which are what shareholders and stock exchanges are solely concerned about. Whether people need these commodities is irrelevant. What is absolutely essential is that they are sold so that the whole process can begin again and again and again.

This is not a new feature of capitalism, of course. But in the last 30 years of corporate-driven globalisation, the exponential growth in output has required an even greater growth in consumer spending – no matter how that is achieved. The deregulation of the financial sector paved the way for easy credit, cheaper mortgages, buy-now-pay-later deals and a view that if you got into debt you could always remortgage your house, which continued to soar in market value. Rampant consumerism went from a social phenomenon into a form of social compulsion, driven by advertising and marketing epitomised by slogans such as “Because you’re worth it”.

This has proved unsustainable at both a personal and at a corporate/financial level, where there is an unfolding crisis of insolvency as shown by the Northern Rock crisis. To sustain the level of expansion the economy demanded, the volume of credit and debt exploded. As we show in A House of Cards, this appeared in various forms as traditional banking assets, stocks, shares and bonds, and an array of exotic and increasingly toxic derivative products. The expectation of continued growth and profits to service the debt fuelled an impossible dream, now shattered.

Now desperate banks are refusing to pass on the recent cut in interest rates to hard-pressed home owners, despite pressure from the government to do so. Sharp rises in gas and electricity prices are on their way, along with council tax increases. Falling house prices and higher lending rates reduces the possibility for remortgaging to raise extra cash. Little wonder then that despite most people being broke today after splashing out at Christmas, retailers are announcing the end of the consumer boom. Marks and Spencer today reported a fall in sales over the Christmas trading period. Sales fell 2.2% in the last three months of 2007, M&S said. Sales of clothes and homeware declined 3.2%, while food sales dropped 1.5%. It was the firm's worst performance for more than two years.

Another, even uglier, side of capitalism is beginning to reveal itself – a world of home repossessions, bailiffs, county court judgements, job losses and pay cuts. Creating a more sustainable economy, based on producing what is actually needed rather than maintaining profit margins, is a practical question for 2008.


Paul Feldman
AWTW communications editor

March on Wall Street

The jailing of press baron Conrad Black for defrauding shareholders has captured the headlines this morning. Black’s $32 million theft is simply the tip of an iceberg of what may be viewed as an entirely criminal situation in the world of business and finance. Black’s six and a half years in jail will perhaps seem small to the millions of people around the world who are imprisoned by debt for their entire lives - while traders play the financial markets to notch up record profits.

The fact is that 2008 is set to be the year when debts come home to roost. And, as credit becomes harder to obtain, debt is changing from being a millstone around their necks, into a nightmare. Mortgages have helped people afford a roof over their heads, whilst at the same time locking them into repayments they can ill afford. But now comes the nightmare of repossession.

In the United States, things are now so bad that people have taken to the streets – Wall Street to be exact – to protest against the way in which black communities and ethnic minorities have been hit especially hard. Yesterday, demonstrators paraded through the centre of US big business to protest against the eviction of millions of homeowners, the first ever march to target the financial markets. US civil rights leader, Jesse Jackson, who has campaigned for economic empowerment since he joined Martin Luther King as far back as 1965, led the march. He has spoken on U-tube of a financial tsunami in the US and last Friday called for a Marshall Plan to provide relief to people who lost homes and savings in an editorial in the Wall Street Journal.

The National Association for the Advancement of Coloured People, which organised the New York rally and a second one in Chicago, said in a statement:

“As the mortgage market continues to decline, millions of home-owners could face foreclosure in the coming year. Unfortunately, a disproportionate number of those home-owners are minorities who were targeted for sub-prime, predatory loans”.

Like his mentor, Martin Luther King, Jackson sees the issue of debt as a class question as much as an ethnic issue. In Chicago, where Jackson’s Rainbow Push coalition is based in a former synagogue, 30% of homes are in foreclosure. In Detroit’s Wayne County, a quarter of homeowners are in default, as Danny Schechter reports.

Lest anyone thinks these problems are unique to America, just look at what is coming up here. The lead story in today’s Times notes that as shoppers are set to blow a record £11.7 billion on their credit cards this Christmas, the new year will bring nothing but pain. It concludes:

“There are fears that the credit crunch will have a devastating effect on some families which are already deep in debt. Nearly 5 million people have still not paid off their store and credit card bills from a year ago, according to moneyexpert.com.”

It is time to get real. We need to work out a bold programme for a not-for-profit economy, not rely on the same politicians who have worshipped at the shrine of capitalism for all their lives.

Corinna Lotz
AWTW secretary

Things can only get worse

In 1997, New Labour’s election theme tune was Things Can Only Get Better. If Gordon Brown is thinking of calling a snap general election it is because the government knows that severe economic and political turbulence lies ahead and that things can only get worse. For the New Labour government faces a growing financial crisis, demands for a referendum on the new European Treaty and a rising tide of trade union militancy. Of prime concern to the Brown government is the state of global financial markets. The hurricane blowing through the markets will touch most of the population in one form or another in the next period. While Brown and his ministers repeat that the “fundamentals of the economy” are sound, as if the financial maelstrom was taking place on another planet, quite the reverse is true. The fact that a bank like Barclays is in difficulties is just one indication of how serious the situation is.

The entire financial system is now overwhelmed by a Mount Everest of debt that is increasingly “non-performing” – borrowers are unable to repay the interest, let alone the capital. Because the sums involved are astronomical, as well as the fact that the financial system is largely uncontrolled, unregulated and out of sight, central bank intervention makes little difference. As debt unravels, the impact on the “real” economy is palpable. Because capitalism requires credit and debt to oil the system of production for profit, as this lubricant dries up, so too does economic activity and we enter a period of recession. And because the global economy is deeply integrated and interconnected, the impact of an economic decline will be felt worldwide and in quick order.

At the personal, consumer level, the debt crisis is already taking its toll in Britain. The rise in interest rates has caught out people who borrowed five, six or even seven times their income to buy a home. Repossessions are rising at a rate not seen since the early 1990s. It may not yet have reached the levels of the United States, where over one million households face losing their homes because of mortgage default, but the signs are ominous. House prices are already falling outside London and the shake-out of City jobs forecast for later this year will take the heat out of prices in the capital too. So 2008 looks like being a year of negative equity – for bankers and ordinary people alike. In addition to all this, the Brown government is having to face down trade union wage demands, which produced the unprecedented and illegal walk-out by prison officers last week. Now even the police want the right to strike, something they lost in 1919 after laying down their truncheons for the first and last time.

Brown is presenting himself as a politician who speaks for all classes in society in a bid to woo Tory voters. In today’s Daily Telegraph, he says that people “are fed up with confrontational politics” and that his role is to reach “out to those who might not be thought of as our supporters or identified with us”. This is Brown the corporatist speaking, the politician who has done most to restructure the state so that it more directly serves big business and financial interests. These same interests are now in deep crisis and major shocks lie ahead. Whether he likes it or not, Brown will have to face up to “confrontation” as people fight to defend their own interests – their jobs, pensions, houses and standards of living.

Paul Feldman
AWTW communications editor