Five reasons why Labour MPs should oppose the welfare cap

Despite Ed Balls saying Labour will back the welfare cap, because Ed Miliband has already expressed support for a welfare cap, here are five reasons why Labour MPs should vote against on Wednesday (26 March). If you have a Labour MP, email them (template letter via Left Futures).
 
1.    It means need is subject to an arbitrary cap

The welfare state was founded on the principle of "from each according to their ability, to each according to their need".

This government has failed to address that need: it's welfare programmes are failing - from the Work Programme to the Youth Contract to the Work Capability Assessment. Failing privatised schemes need capping, people in need do not.

2.    It feeds the Tory myth that spending is out of control

In fact the UK spends less on social security than other developed nations, and before the recession welfare spending was falling (read more here, via TUC).

France, Italy, Belgium, Austria, Germany, Denmark, Sweden, Finland, Norway, and the Czech Republic all spend more than the UK on social security (see chart below, using OECD data)


3.    It does nothing to challenge the reasons for high welfare spending

Low pay, weak trade union rights and an unregulated rental market. When pay is too low or there isn't enough work, people become eligible for tax credits and housing benefit. As the 1945 Labour manifesto said, “there is no reason why Britain should not afford such programmes but she will need full employment and the highest possible industrial efficiency in order to do so”. This government has failed to meet those criteria.

Both tax credits and housing benefit for people in work are subject to the welfare cap. If wages continue to  lag behind inflation, and rental costs continue to exceed inflation, that will mean welfare costs rise. Under this proposal, disabled people's benefits or pensioners' winter fuel allowance could be cut because landlords jack up rents or because employers don't give decent pay rises.

4.    This is feeding the demonisation of people on benefits
Disabled people have already suffered the most under this government's cuts to social security - with the failed Work Capability Assessment  for Employment and Support Allowance (ESA), the cuts to Disability Living Allowance (DLA), the closure of Remploy and the forthcoming abolition of the Independent Living Fund. Both DLA and ESA are within the welfare cap.

They have also suffered a massive rise in disability hate crime, which follows the demonisation of those on benefits by Tory politicians using the divisive language of 'skivers', 'shirkers' and 'scroungers' - which has then been echoed in the media.

5.    It does nothing to help those in real need
With half a million families using food banks, an extra million people in poverty, homelessness rising, and the number of families housed in B&B accommodation at a ten year high - what will a welfare cap do for them?

It is a gimmick, but a nasty gimmick. And Labour MPs should reject it.

p.s. if Labour MPs want to know how to cut welfare spending from a socialist perspective, read this

An economy as if people mattered

Andrew Fisher's speech for People's Budget at the Southampton People's Assembly

After a minute's applause for both Tony Benn and Bob Crow, these are the notes from which I made my speech (with a few ad libs!)at the Southampton People's Assembly on 20 March, responding to the Budget and arguing for an economy as if people mattered:

Well I hope you’re grateful.

Two years ago the Chancellor was taxing your pasties – that is what you people eat isn’t it?

And taxing your caravans – that is how you people holiday?

But now look:

You’re getting tax cuts on beer and bingo (or working class culture as the Chancellor calls it). See, tax cuts aren’t just for big business and millionaires, they’re for you – the little people – too!

Budget 2014

So aside from the Tories'  lame efforts to persuade us they're on our side, what were the main things we learned in the Budget?

• No end to austerity: because it’s ideological - by 2018 public spending will be lower than at any time since 1948 - the year in which the NHS was founded. "Rolling back the state", but going further than Thatcher ever managed. And if anything austerity is being ratcheted up. Public spending has risen by less than inflation (so a real terms cut), but his estimate for 2015-18 is for cuts to public spending in absolute terms 
• ISAs – who can save £15,000? Someone working full-time on the minimum wage doesn't even earn £15,000 a year.
• And what's underpinning Osborne's forecast for more growth? The assumption is more household debt - which will rise to the levels that precipitated the crisis. There's also some utterly delusional figures for business investment rising between 8-10% year-on-year for the next three years.
• An array of green taxes were scrapped or capped in the Budget, making more of a mockery of the Coalition's "greenest government ever" rhetoric.

What the Budget didn’t address

• Pay – it did nothing for people's wages and falling living standards. As Bob Crow said: 

• The Housing crisis – nothing in there that will build the homes our country needs, nothing to tackle rising homelessness or the rising costs of paying the rent. We are back to a pre-war situation where more of us are dependent on private landlords, with not enough council housing and fewer able to afford a mortgage.

• Jobs or industrial strategy – far from being a budget for 'doers', following his 'march of the makers' budget, OBR projections show UK exports falling in future years. This is a government - to be fair, like those before them for the last 35 years - without a serious labour market or industrial strategy. The recovery in unemployment is due to low wage, insecure jobs.

• And the energy crisis – nothing to tackle the fuel poverty which disproportionately affects the poorest pensioners; and nothing to address the UK's woeful investment in renewable energy, in which we lag behind the rest  of Europe.

What sort of economy we want

While Osborne rattles on about his modest and delayed economic growth, and the 24 hour news tells us every hour how the FTSE is doing, what would an economy look like as if people mattered?

Five questions, I think would matter to most people:

1. Are we reducing poverty and inequality?
2. Is unemployment falling?
3. Are people's living standards rising?
4. Is the tax gap - the £120bn of avoided, evaded and uncollected tax - reducing?
5. Is the economy stable and environmentally sustainable?

If we want that economy, an economy that acts in our interests, then we need greater economy democracy. Tony Benn said:

And you can see how that happened, we built the NHS, the welfare state, council housing, comprehensive education, and brought the utilities under public control. And sadly we can see how that has been reversed through privatisation - anti-democratically transferring power back from the ballot to the wallet, from the polling station to the marketplace.

For me anything too important to fail should be in public ownership - if we want an economy where people matter. And we need economic rights, individually and collectively. The right to a minimum income, protection from being made redundant - why on Earth are profitable companies allowed to make people redundant - taking away people's jobs to give bigger bonuses to directors or higher dividends to shareholders?

And trade union rights restored, so that we can protect our jobs, pay, pensions and fight for better working conditions.

I hope that's a good basis for discussion. Thank you.

• Andrew Fisher is LEAP Co-ordinator and author of the forthcoming book The Failed Experiment ... and how to build an economy that works

Tony Benn: "What a world we would have created if we had listened to him"

LEAP Chair John McDonnell MP pays tribute to Tony Benn

LEAP chair John McDonnell MP spoke in Parliament yesterday (20/03/14) paying tribute to Tony Benn (click to watch via Youtube).

John, who also chairs the Socialist Campaign Group of Labour MPs (founded by Tony Benn), said:

"I want to go back not to the manifesto of 1983, but to Labour’s programme of 1982, which was the Bennite programme, and virtually all of it was written by Tony Benn. It is worth looking back at what it said. It was absolutely prophetic. It basically said, “We will create a society that is more democratic, more fair, more just and more equal.” How would we do it? Tony’s ideas in that programme were straightforward: we would undertake a fundamental, irreversible shift in the redistribution of wealth and power. How would we do that? Through a fair and just tax system, tackling tax evasion and tax avoidance, taking control of the Bank of England, preventing speculation in the City and the banks because it could be dangerous to our long-term economic health, and creating full employment. That is what he was about. That is what he inspired us to do.

"It is interesting that he said we should invest in housing, health and education; give all young people the opportunity to stay on at school with an education maintenance allowance; and make sure that they had a guarantee of an apprenticeship or training and the opportunity to go to university, not by paying a fee but on a grant. That was his programme in 1982. It was prophetic and years in advance of its time. He said that what we needed to create the wealth was an industrial strategy—a manufacturing base based on new technology and skills. Actually, I remember him talking in one of his speeches about alternative energy sources, well in advance of the debate about climate change.

"He inspired my generation and he inspired generations to come. What a world we would have created if we had listened to him. But more important, what a world we can create now if we listen to him.

"Solidarity and go well, comrade. You made a significant contribution to all of our lives. I hope we will be able to implement the lessons you taught us, when Labour next gets back into power."

The above are extracts from John's speech. Read it in full

Democratise companies to rein in excessive banker bonuses

Prem Sikka

In times of austerity, one of few things that seems to be booming is the trade in wheelbarrows. At least, company directors at major corporations will need them to collect vast amounts of remuneration they continue to award themselves, with the help of ineffective remuneration committees.

The financial dealers on Wall Street have collected about US$26.7 billion in bonus payments, the equivalent of a year’s pay for the 1.1m workers on the minimum wage. The UK is not far behind. Bonuses in the City of London have increased by 49% compared to 2012, a higher figure than for Wall Street.

The chief executive of the crisis-ridden Cooperative Bank, Euan Sutherland, was to receive a remuneration package of £3.5 million, but has since resigned. The state-owned Royal Bank of Scotland declared a loss of about £8 billion, but has given 11 directors a bonus package worth about £18.25m between them. At Barclays and Lloyds Bank, the chief executives could be collecting more than £7m each. Of course, wheelbarrows come in handy at other corporate boardrooms too. Despite the costs arising from the Deepwater Horizon disaster, the pay packet of the BP chief executive has tripled to US$8.7m (£5.2m).

The corporate boardrooms are addicted to bonuses, but are the bonuses justified? The claims for bonuses and excessive rewards presuppose that executives exert superhuman efforts to generate wealth. The anatomy of corporate decisions does not really support that. When a new executive arrives at an organisation, for some time s/he is likely to be managing and living off products, services and strategies already in place. So the claims of distinctive contribution are hard to sustain.

Now suppose an executive decides to launch a new product or a project; this will always take some time to develop, plan and launch. The same applies if the mission is to rescue an ailing business. The success or failure of the new projects will not be known for many months or years. Meanwhile, the company will probably incur upfront costs, with no guarantee that the outlays will be recouped. Even after the initial celebrations, the product/service may turn out to be a failure and become a costly burden, as evidenced by payment protection insurance and other financial scandals.

Even if new ventures are successful, the success will depend on the involvement of other employees. It is hard to relate the success of anything to the efforts of few superstar executives. If the success cannot easily be related to the input of one person then the idea of performance-related pay becomes highly problematic. This suggests that higher rewards are claimed simply because some individuals or groups have sufficient power and control to give themselves disproportionate rewards.

So the question then is how to control the institutionalised fat-cattery. The UK government’s preferred solution is to empower shareholders by giving them a binding vote on executive remuneration. Such a step assumes that shareholders are owners of companies and bear most of the risks, and will somehow act in the interests of broader society. The evidence for this is not persuasive.

Shareholders in UK banks have average shareholding duration of about three months. Their position is no different from that of a speculator or a trader seeking short-term gains. They don’t have strong incentives to constrain directors. The UK Parliamentary Commission on Banking Standards looked at the operations of HBOS and concluded that shareholders did not exert “the effective pressure that might have acted as a constraint upon the flawed strategy of the bank”.

The commission also noted that “shareholders failed to control risk-taking in banks, and indeed were criticising some for excessive conservatism”. Shareholders often profit from harmful practices without any personal responsibility. A company can be mandated to sell harmful products, for example, cigarettes. Shareholders can share the resulting profits, but are not personally liable for because they are shielded by the doctrine of limited liability. Thus shareholder irresponsibility is written into the system and they don’t have strong incentives to consider the social good.

Besides, shareholders don’t provide most of the risk capital either. At major UK banks, shareholders only provide between 4.22% and 7.24% of total capital. The rest is provided by savers and creditors. Therefore, it is hard to make a good case for shareholder supremacy.

The proper approach is to empower the public. In the case of banks; employees, savers and borrowers are a good proxy for the public at large. They should appoint directors and vote on their remuneration. Elsewhere, employees, consumers and suppliers could be mobilised to invigilate directors as they all have a long-term interest in the welfare of the company. In a democratised company, directors are unlikely to get high remuneration without paying attention to the interests of employees and other stakeholders.

• This article first appeared on The Conversation website

Tony Benn - a tribute

Tony Benn: "Democracy transferred power from the wallet to the ballot"



For all British socialists - and many around the world - Tony Benn was an iconic and inspirational figure. He perhaps developed the political philosophy of 'democratic socialism' more than any other Labour politician. In the video clip above, from the 2008 LEAP conference, Tony explained how democracy challenged capitalism - and how capitalism fought back against democracy.

LEAP Chair John McDonnell MP tweeted: "Tony Benn was the articulate advocate for socialism who inspired my generation and gave people hope of a fair and equal society."

LEAP Co-ordinator Andrew Fisher posted: "Tony Benn - inspired generations of socialists (including me) with his warmth, integrity and ideas"

John Hilary of War on Want tweeted, "RIP Tony Benn: a true internationalist, comrade in the fight for global justice and long-term friend of @WarOnWant"

Tax justice campaigner Richard Murphy, said: "Tony Benn: simply a hero. RIP"

Katy Clark MP posted on Twitter: "Very sad news about Tony Benn. A great socialist thinker who made a massive impact. A huge loss. My thoughts are with all who loved him."

Paul Mason, former Newsnight economicscorrespondent, tweeted, "At Labour conf in 1980 & heard #Benn riveting call for 1) abolish the Lords 2) industrial democracy act 3) repeal EU powers - like detonator"

The Banking Reform Act is rearranging the deck chairs on the neoliberal Titanic

 
Prem Sikka

A new report from the Centre for Labour and Social Studies highlights the failure of the Banking Reform Act to deal with any of the problems at the core of the 2007/8 collapse. Here, its author explains what's really going on.

Some six years after the banking crash, the UK has wheeled out its answer – the Banking Reform Act. Some deckchairs have been rearranged, but little attention has been paid to the key drivers of the crisis.

The biggest financial crisis has coincided with the rise of neoliberalism, which emphasised faith in free markets and light-touch regulation. The notion of competition is a key concept and is applied to every sector of society, including corporations, regions, government departments, hospitals, and universities because this somehow secures efficient allocation of resources and opens the door to wealth and riches. Neoliberalism provides everyday understandings of what it means to be successful. It reconstructs individuals as competitive beings engaged in the endless pursuit of private wealth and consumption. In common with other sectors of society, individuals are expected to have strategies for meeting performance targets and be rewarded accordingly. Thus, performance related pay for executives has become endemic. A necessary condition for the operation of markets and pursuit of self-interest is that all individuals, including business enterprises, need to be constrained by social norms and regulatory structures. But this has not been high on the neoliberal agenda because the state is bad and inefficient and has to be rolled-back, and the self-correcting markets would restore some mythical equilibrium. Well, it has not turned out that way.

The fault lines of neoliberalism have long been evident. The mid-1970s secondary banking crash highlighted empires built on fraud. The state dutifully bailed out banks, property and insurance companies. In 1984, Johnson Matthey Bank collapsed under the weight of fraud and the Bank of England organised a rescue. In 1995, Barings Bank collapsed due to fraud. The twentieth century’s biggest banking frauds took place at the Bank of Credit and Commerce International (BCCI). In July 1991, the Bank of England closed BCCI. Some 1.4 million depositors lost some part of their savings. In an environment of weak regulation, banks continued to pick customers’ pockets by selling useless, pensions, mortgages and saving schemes.

Neoliberalism, remained the key philosophy for governments. The 2008 banking crash showed that banks made vast amount of money from running illegal cartels, money laundering, insider trading, tax dodges, manipulation of interest rates, selling abusive products, misleading investors and consumers. Markets celebrated higher corporate profits and did not ask any questions about the quality of profits, or the social consequences of banking practices. Bank executives collected vast sums of money from performance related contracts.

Markets did not come forward to rescue banks. It was the state, which has been restructured rather than rolled-back, which bailed out banks. Under the weight of neoliberal ideologies it is now less concerned about the redistribution of income and wealth, labour rights, or the provision of decent healthcare, education, pensions and social infrastructure. It has shunned any attempt to democratise corporations or enhance their public accountability. Its major purpose is now to guarantee corporate profits and socialise losses, a kind of reverse socialism has been institutionalised.

The UK state has committed some £976 billion of loans and guarantees support distressed banks and also handed over another £375 billion under its quantitative easing programme. During the boom years of 2002 to 2007, the financial sector paid £203 billion in UK corporation tax, national insurance, VAT, payroll taxes, stamp duty and insurance taxes. Between 1991 and 2007, it created around 35,000 additional jobs. But it received vast stacks of money in return. Confidence in the banking sector is maintained through the provision of a taxpayer funded depositor protection scheme which safeguards savings of individuals of up to £85,000. Since March 2009, the state has maintained interest rates at 0.5%, considerably below the rate of inflation. This has robbed pensioners and savers of income and also eroded the real value of savings. The policy has enabled banks to borrow at ultra-cheap rates, lend at high rates, make profits and replenish their balance sheets. The customer base for banks has swelled as the government has persuaded pensioners and social security claimants to receive their payments through bank accounts rather than through the Post Office. The Private Finance Initiative has been a bonanza for banks and other corporations. In 2012, there were over 700 contracts with a capital value of £54.7 billion. The government is committed to repaying£301 billion over the next 25-30 years, a profit of nearly £247 billion.

The Banking Reform Act does not check fat-cattery or speculative practices. The sunlight of democracy and public accountability is an effective antidote to shady practices, but is missing from the Act as it does not connect with neoliberal values. The Act should have separated speculative banking from the rest. To prevent speculators from contaminating the economy, the privilege of limited liability should have been withdrawn from all gambling. Instead of banking elites regulating the banks for the benefit of the industry a Board of Stakeholders, representing a plurality of interests, should have been created to guide the regulator. This Board should not be dominated by the finance industry. In fact, only a minority should come from the industry, thus ensuring that other voices are heard and policies are made by consensus. Its meetings would be held in the open and its minutes and working papers would be publicly available.

Employees, savers and borrowers have long-term interests and should elect directors and vote on their remuneration. Instead, the government is obsessed with shareholders who are often the source of problems. The Parliamentary Commission on Banking Standardsconcluded that “shareholders failed to control risk-taking in banks, and indeed were criticising some for excessive conservatism”. The typical shareholdingperiod in banks is about three months. Shareholders provide only a small amount of risk capital at banks. For example, at Barclays, HSBC, Lloyds Banking Group, Royal Bank of Scotland and Standard Chartered, shareholders provide about 5%, 7%, 5%, 5.5% and 7.25% respectively of total capital. Shareholders are akin to traders and speculators and cannot invigilate bank directors.

In time, the missed opportunities for opening a new chapter in banking regulation will haunt the UK.

• This article first appeared on Open Democracy.

Posturing over the pound

The debate about what currency Scotland could, would or should have has sprung into life now that the SNP's white paper proposal for 'keeping the pound' has been rejected by all of the major Westminster parties, and the Liberal Democrats too.

This represents a new stage in the debate, with the stakes ramped up for both sides. But if we sweep aside the political posturing, the debate over the last few days has revealed - to this disinterested observer - some interesting truths:

1. The establishment is worried by the prospect of a 'Yes' vote

The unity among the leaderships of the Tories, Labour and Liberal Democrats (and UKIP incidentally) reinforced by the unusual decision to publish the advice of a senior civil servant is a clear indication that the establishment is concerned about the prospect of Scotland seceding from the union.

You might argue that this consensus is a reflection that currency union is a bad idea (especially for Scotland), but Sir Nicholas MacPherson's letter and the statements of the three parties (working together for a No vote under the Better Together banner) go further than criticising currency union and contain some ridiculous scaremongering. The 'no' side - ahead in all the polls - is obviously worried though.

And it has good reason. If Scotland votes to leave and is refused currency union, it could quite legitimately reject the UK debt (a possibility acknowledged in MacPherson's paper). However, even if Scotland took a share of the national debt (based on population size) it would have a debt to GDP ratio of 81%, compared with 104% for the rest of the UK (according to an NIESR paper).

The Treasury paper implicitly acknowledges these possibilities but implicitly says the UK would get its way because "an extensive wrangle about [Scotland's] share of the debt would increase uncertainty and hence its funding costs". What it doesn't say is that is true too for the remaining UK ... and that's why they're worried.

2. HM Treasury believes the Euro is still bad for the UK

It believes that economic union is problematic without political union - and that economic independence is incompatible with currency union. In this it is right: witness how a technocrat was imposed in Italy and government policy imposed in Greece (and elsewhere) under Eurozone orthodoxy.

3. The SNP is economically bankrupt

The SNP clearly lacks the confidence to argue for an independent currency under a central bank of Scotland. Instead it wants a more familiar and convenient currency union with the UK, knowing that it will inevitably mean that Scotland would not be economically independent.

At best Scotland might get one seat on the Monetary Policy Committee of the Bank of England (given size of economy or population), and the interests of the Scottish economy would be totally marginalised (it is arguable that is the case now since the Bank of England largely operates in the interests of the City of London's square mile, but then why vote for independence only to accept the situation of pre-independence?)

As such an 'independent' Scotland under the SNP's vision would leave Scotland as a crown dependency, similar to the Isle of Man or Jersey. Given that Salmond's economic vision has previously been to turn Scotland into a tax haven, maybe that's the aim. Scotland as an outpost of the City of London?

4. The UK banks are still fragile, and if they crash again the establishment will bail them out again

The Treasury paper states "Scotland's banking sector is far too big in relation to its national income, which means that there is a very real risk that the continuing UK would end up bearing most of the liquidity and solvency risk". So the Westminster consensus still believes if banks fail they should be bailed out exactly as before. They have learned nothing from the greatest crash in over a century - their neoliberal ideology remains unshaken. The SNP does not demur from this, nor suggest the Icelandic route.

Conclusion

These points do not make the case for either a yes or no vote in the referendum. What they point out is that however Scotland votes, it will be governed by people unable to govern in their economic interests.

What is also reveals is that the referendum debate is likely to step up, with more vitriol and posturing, that will make independence negotiations more difficult if Scotland does vote yes.