If markets and politics fail to act amid the growing public cycnicism, they risk a backlash, writes Alf Young
IF MPs on the Commons public accounts committee are to be believed, the £66 billion spent in 2008 on our behalf, as taxpayers, to buy shares in two failing banks, Royal Bank of Scotland and Lloyds Banking Group, owner of Bank of Scotland, “may never be recovered”.
All talk of a Sid-style public share sale has evaporated. So have summer suggestions of the state taking full control. The temporary public ownership, carried out four years ago to avert complete meltdown in the banking sector, now looks like outliving the current government in Westminster. Who knows when it might end?
Jim O’Neil, the man who runs UKFI, the body charged with managing these two huge blocks of shares on our behalf, thinks 2013 could be the final year of major restructuring at both banks. But he warns that getting full recovery for the taxpayer also depends on wider economic recovery, the eurozone sorting itself out and financial regulation “settling down” again. Who would currently bet on all that being achieved this side of 2020?
Shouldering the vast cost of rescuing banks that had become too big to fail has been left to you and me, and millions like us, through our taxes. Our collective generosity hasn’t always been matched by the way the bailed-out banks have behaved. They’ve clung to their bonus culture. Cut back savagely on lending. And generally behaved like capitalism’s indispensables, rather than its walking wounded.
We’ve been scandalised by new revelations, like the venal way bank traders used to discuss fixing the Libor rate. We are pursued through cyber space by ambulance chasers, suggesting we might have a claim on some payment protection insurance these banks might have sold us. And now, as they continue to dismantle the more fanciful castles they built in the years of boom and greed, we are warned our dominant stake in these two particular banking groups may well be worthless.
Against that backdrop, is it any surprise there’s growing public cynicism about how, and on whose behalf, other parts of our dominant market capitalist system currently operate? We’ve had Google, Amazon and Starbucks dragged before that same committee of MPs to explain how they manage to pay so little in corporate taxes on their operations in the UK.
We’ve had further revelations that three privatised water companies south of the Border either pay no corporation tax at all or keep payments to very low levels. Then there’s the whistleblower who’s alleged the wholesale gas market is rigged in the same way those traders manipulated the inter-bank lending rate. And as if that wasn’t enough, Ikea has had to apologise for using East German political prisoners in some of its factories in the 1970s and 1980s.
Throw in some perennials, like the major UK electricity and gas utilities coming under fire for revealing sharp hikes in profits just weeks after raising this winter’s tariffs way above inflation. And the AA complaining on behalf of motorists that the price of petrol and diesel at the pumps isn’t falling nearly as fast as the wholesale price of such fuels across Europe.
We already have a disgruntled public, struggling to make ends meet, amid talk of more zig-zagging to come in our collective economic fortunes. Now those same millions of people, who contributed through their taxes to save the banks, have all the evidence they need to conclude that the system is bent against their interests, in favour of an elite, fortunate few.
When one of the big energy utilities, SSE, announced a 38 per cent rise in half-year profits this week, having announced it was raising winter tariffs by 9 per cent last month, its chief executive confessed he was “fed up” with all the criticism. “I get fed up when people don’t objectively look at the facts, they reach for a soundbite,” said Ian Marchant.
But when SSE’s chief executive gets down in the dumps, his dumps are remarkably well-upholstered. When the business made what he himself describes as “a stonking great big loss last year in our retail business”, Marchant still took home a remuneration package of more than a million, £1.017m to be precise. In 2011 he received a package worth £1.237m.
These are numbers the vast majority of people across these islands can only dream of when they buy a lottery ticket. Their patience with a market system that fosters such inequalities is also wearing thin. Thinner with every year this age of mass austerity lasts. It may also help explain some of the appalling participation rates we witnessed in various elections south of the Border yesterday.
Elections across England and Wales for police and crime commissioners resulted in average turnouts of around 15 per cent. Of the three Westminster by-elections held on Thursday one, Manchester central, brought out just over 18 per cent of voters, the lowest turnout in such a contest since the Second World Ward.
The first police commissioner to be elected, a Tory in Wiltshire, reported many constituents telling him bluntly “I don’t vote for anything”.
These aren’t just fragile times for our economy, they look like increasingly fraught times for our participative democracy too. More and more people seem to be giving up on both markets and politics to bring positive changes to the lives they live.
If people like Ian Marchant think this is just “soundbite” thinking, I recommend he read a recent speech by Andrew Haldane, the Bank of England’s executive director for financial stability.
Haldane was speaking to an Occupy Economics meeting on socially useful banking. Occupy, of course, is the international grassroots movement that started in Wall Street and challenges social and economic inequality.
Remarkably Haldane went to speak to the meeting. Even more remarkably, he told his audience they were right. “Occupy has been successful in its efforts to popularise the problems of the global financial system for one very simple reason. They are right. By this, I do not just mean right in a moral sense.
“For sure, Occupy have touched a moral nerve in pointing to growing inequalities in the allocation of wealth and incomes globally. The 99 per cent certainly agree. But so, more interestingly, do a high and rising share of the 1 per cent. Yet, it is the analytical, every bit as much as the moral ground, that Occupy has taken. For the hard-headed facts suggest that, at the heart of the global financial crisis, were and are problems of deep and rising inequality.”
If markets and politics fail to recognise that emerging truth and start doing something meaningful to reverse that trend, they risk a more significant backlash than some people occupying the precincts of St Paul’s Cathedral. In the rain forest dome at the Eden Project in Cornwall there’s a message repeated again and again on many of the interpretation boards.
“Your wallet is your weapon.” If the disgruntled millions find ways to use their collective wallets to punish those businesses that pursue aggressive tax avoidance. Or those who lose sight of the need to serve customers well. Or who try to rig markets for their own ends.
There’s no knowing what power it might unleash. It might even make the fed up sit up and take notice.