Downgrade your expectations: it pays to be wary of credit ratings agencies

Prem Sikka

Evaluating the creditworthiness of countries is far from an exact science, yet the influence of credit ratings agencies is extraordinary.

Recently, the UK government’s debt rating has been downgraded by credit rating agency Moody’s from AAA to Aa1. It joins France, whose credit rating was downgraded to Aa1 in November 2012. In August 2011, Standard & Poor’s (S&P) had downgraded the US from AAA to AA+.

Credit ratings enable investors and markets to assess the risks of government securities. In the case of the UK, a downgrade could increase the government’s borrowing costs. It would also further reduce the value of the pound sterling and thus stoke inflationary pressures by increasing the cost of imports, though the weak pound may help British exporters.

But the notions of social stability, justice, and fairness are beyond the remit of credit ratings agencies. The general message from the Moody’s downgrade is that the UK government must deepen its austerity program and attack hard-won social rights on education, pensions, healthcare and unemployment.

Credit ratings can have serious impact on national and household accounts, but are also a major money-spinner. In 2012, Moody’s reported profits of $1,077 million and 2012 is expected to produce record profits as investors seek shelter from growing financial uncertainty. However, the models used by credit rating agencies continue to produce odd results, and there is an urgent need to check the economic, social and political power exercised by the rating agencies.

The UK government has provided around a trillion pounds in loan and guarantees to ailing banks. For many years, the UK-based banks engaged in organised tax avoidance, money laundering, interest rate manipulations, mis-selling of pensions, endowment mortgages, payment protection insurance and many other scandals. These scams did not persuade credit rating agencies to reduce the UK’s credit rating. Perhaps they approved of hot money rushing to London to take advantage of scams. Just as the regulators began to show signs of getting off their bended knees to giant corporations, Moody’s has downgraded the credit rating.

The very concept of risk assessment requires some openness and a relatively free flow of information, but credit rating agencies continue to give higher ratings to opaque jurisdictions. Bermuda, whose opaque structures often enable corporations and wealthy elites to avoid taxes elsewhere, is rated Aa2, while the economic powerhouse China is rated Aa3. Oil-rich Saudi Arabia is rated Aa3, the same as the Cayman Islands which is well-known for its secrecy, opaque structures and fiddle factories that facilitate tax avoidance. Iceland, bailed out by the European Union and the International Monetary Fund enjoys a credit rating of Baa3. It shares the same rating as India, which has foreign currency reserves of around $300 billion. In December 2009, Moody’s boldly stated that “investors' fears that the Greek government may be exposed to a liquidity crisis in the short term are misplaced”, but barely four months later, the Greek government was negotiating bailout deals.

Credit rating agencies have a history of poor performance. Enron, the fraud-ridden US energy giant, collapsed in December 2001. Right until its demise, it continued to attract favourable credit ratings. These enabled the company to overstate its profits and assets and understate its liabilities. Credit rating agencies said that lessons will be learnt, but the banking crash once again has shown that the emperor had no clothes. Moody’s, Standard & Poor’s, and Fitch, the world’s biggest credit rating agencies, maintained A-ratings for Lehman Brothers and US insurance giant AIG until early September 2009, just days before their collapse and bailouts.

In 2008, just prior to the banking crash, there were about twelve AAA-rated companies and about the same number of AAA-rated countries, but around 64,000 complex financial instruments received the AAA-rating. Banks sliced, diced and repackaged subprime mortgages, collateralised debt obligations and structured finance deals into what they described as “safe investments”. This illusion was supported by the AAA-ratings given by rating agencies, which subsequently turned out to be junk. The regulators were content to let the banks hold less capital for AAA securities and, as a result, banks did not have the buffer to deal with toxic debts. Investors, governments, taxpayers and markets were duped, and the whole financial system came tumbling down.

Credit rating agencies wield enormous economic, social and political power, but do not owe a “duty of care” to the stakeholders affected by their opinions. These issues have now become the subject of legal disputes. In February 2013, The US Department of Justice sued Standard and Poor’s (S&P) for issuing “inflated ratings that misrepresented the securities’ true credit risk”.

The Australian case of Bathurst Regional Council v Local Government Financial Services Pty Ltd (No 5) [2012] FCA 1200 held that credit ratings agency S&P was liable for the “misleading and deceptive” ratings issued by it because it made unfounded and irrationally optimistic assumptions in its analysis. Protracted litigation will follow as credit rating agencies try to wriggle out of any social obligations. These issues are important because credit ratings form the basis of economic experiments that can result in austerity drives, unemployment, loss of social welfare, and ruined lives.

This article first appeared at The Conversation

In defence of Gordon Brown (well, partially)

Last Thursday night I spoke about the economic crisis at a meeting of St Albans Labour Party, which seems in good health: a good attendance and a lively debate followed my presentation. Below I've integrated the first half my speech with some of the excellent points made in discussion.

Labour did not overspend

Despite the claims of Cameron and Osborne (and that rather politically naive and economically illiterate note left by Liam Byrne) the last Labour government was not profligate, it did not over-spend. In fact, as this graph shows, Labour actually spent less as a proportion of GDP than either the governments of Thatcher and Major.

Labour stuck to Tory spending plans from 1997-99 meaning that public spending did not start increasing in real terms until 2000. The UK had also embarked on an unprecdented period of seemingly stable economic growth that would last until late 2008.

Labour also had two decades of underinvestment in public services to make up for. The proportion of GDP spent on education, health and pensions lagged far behind the rest of Europe. Too many pensioners and children were in poverty, and Labour set ambitious targets to reduce (and even eradicate) poverty among these groups.

Labour's aim then, to increase public spending, was correct. It was necessary to build new schools and hospitals and to employ more and improve the wages of dedicated public servants.

But it was not just this period of economic growth that allowed New Labour to spend more: they also hit the utilities with a windfall tax to (partially) compensate for the fact they were undersold by the Tories' cheap sell-offs. Introduced in the emergency budget in 1997 it raised £5.2bn. Brown also sold off about half the UK gold reserves in 1999, raising over £2bn.

The decision to sell-off that gold has been heavily criticised - the price of gold has shot up since - but the question is what was it spent on? At that point our public services were in desperate need of investment - and Labour had manifesto commitments to bring down hospital waiting lists and reduce class sizes. At the time it seemed the right priority, and most people would agree.

Labour reduced the debt

So Labour spent, as Brown himself would often say, prudently throughout its term in office. It also managed to reduce the national debt - as this graph shows.

When Labour came to power in 1997, the national debt was 42% of GDP. By 2002 it was below 30%. It increased very slowly between 2002 and 2008 to 36% (still lower than any year under Margaret Thatcher or John Major). Then, as the chart shows, the banking crisis hit and Labour left office in 2010 with the national debt at around 52% - lower than in Japan, the US, France or Germany.

Despite this George Osborne came to the Despatch Box for his emergency budget in June 2010 and told us Britain was on 'the brink of bankruptcy'. Where Brown had put a windfall tax on big business privateers, Osborne delivered an unprecedented cut in corporation tax and other business tax breaks, with welfare cuts.

But Labour did make massive mistakes

Having said that some criticism must be levelled at Gordon Brown and New Labour for the mistakes they did make. Their light-touch and continued deregulation of the banking sector meant that Britain was harder hit by the global financial crisis that many other countries. Our over-dependence on the finance sector and failure to have any strategy for manufacturing left us particularly exposed.

The Tories however cannot make any headway on this because they actually called for further deregulation of the banking sector, finance and mortgage markets. They too offered no industrial strategy.

Likewise Labour should also be criticised for their national accounts-fiddling approach to investment: PFI. This has dumped about £300bn of debt on public sector bodies for assets worth about £50bn. But, bad news again for the Tories, PFI was the brainchild of the Major government and Labour's only opposition to PFI came from rebellious backbench MPs like John McDonnell and Kelvin Hopkins.

Another colossal waste of money (though more pertinently of human life) was New Labour's wars in Afghanistan and Iraq, but again the only opposition was found on Labour's own benches. Likewise for the commitment to replace Trident.

Conclusion

Labour made huge economic mistakes - it relied too heavily on the finance sector and the growth of personal debt - but none of the Tories' attack lines that Labour spent too much or left Britain on the brink of bankruptcy are tenable.

The bank bailout was also a disaster - less the nationalisation of the banks and more the privatisation of public money. Intervention was needed and although botched it was better than the Tory frontbench which dithered between bailout support and letting banks fail (and along with them would have gone jobs, savings and much more of the UK banking system) - which in turn allowed Vince Cable to appear credible.

In opposition Labour needs to assess where it went wrong. The simple formula for 1997-2010 was 'if the Tories agree it's probably a mistake', as they were on banking regulation, PFI, wars and (eventually) the bank bailout.

Public sector pensions: the economic crisis debate in microcosm

It occurred to me today that the debate over public sector pensions is actually the debate about the economic crisis in microcosm.

Few deny we have a large deficit. Few would deny that the UK economy is in its most fragile state for a long time. Fewer still would argue that 'something' needs to be done about it. What that 'something' is the subject of vociferous debate.

For the Conservatives (the right, politically and economically) this is the time to wheel out the classic Friedmanite arguments. The crisis, so they allege, was caused by a 'bloated public sector', us 'living beyond our means', 'maxing out the nation's credit card' and 'not fixing the roof when the sun was shining' - from the ideological to the hokey.

Hence why the government states that public sector pensions must be slashed by £2.8 billion per year to pay for the deficit as they are part of that bloated public sector. They'll tell you that 85% of public sector workers have an occupational pension compared to less than 35% of private sector workers, that pensions are gold-plated, that "the pension system is in danger of going broke".


As we know from the Hutton report, the National Audit Office, the Institute for Fiscal Studies and the Public Accounts Committee (and this humorous interview with the witless Francis Maude) public sector pension schemes are not on the verge of implosion, and the pensions are not gold-plated, in fact they average about £5,500 per year. But why let the facts get in the way of a good ideological crusade against the public sector.

Next we come to the middle of the road. Some would call this the centre, but that gives it the illusion of reasonableness, careful impartiality and a thought-out position. Whereas the middle of the road is a completely illogical place to stand. Indeed, as Aneurin Bevan once said, "We know what happens to people who stay in the middle of the road. They get run down". In this group we find the hapless Ed Miliband, leader of the Labour Party, who I think it's fair to say bears a certain resemblance to soon-to-be roadkill; that caught in the headlights blank stare reflecting a completely illogical reaction to the current circumstance.


In Ed Miliband's case this is because the last Labour government, of which he and most of his shadow cabinet were members, re-negotiated public sector pensions - and as such made them entirely affordable. In fact as the Hutton report shows, the costs are falling. Nevertheless, Ed Miliband is determined to stand in the middle of the road and look stupid. So he condemns the Tories for not negotiating seriously, and also condemns the unions for striking against the Tories.

Sadly for Labour this same half-arsed mess is mirrored in their economic policy. They too think the public sector got a bit too big, especially on welfare (Byrne, Miliband, Purnell, etc) and there's too much immigration (Glasman, Miliband, Rutherford). What to do then? Well they've moved away a little bit from the clearly right wing response of Alistair 'cuts deeper than Thatcher' Darling, and now think the cuts are too far and too fast. So they would cut less and slower, but nobody likes to mention what (except for welfare and immigration, to triangulate to the Daily Mail because voters will clearly not see the Tories as more active on those issues). Remember, middle of the road = stupid.

Finally, we have the left represented today by only a handful of politicians, but more importantly by the trade unions and a number of other democratic civil society organisations. They, like the right have a narrative. In short, 'the finance sector caused this crisis, those on low and middle incomes shouldn't be made to pay for it'.


On pensions therefore they point out the voluminous evidence produced by mostly centrist organisations (see above) that show public sector pensions are affordable, sustainable and fair - and make reasoned arguments to that effect.

On the wider economic question too, the trade unions have also put forward a clear alternative (see Unite and PCS for example) that also rejects the needs for mass public spending cuts as counter-productive for the economy.

And so the fight to defend public sector pensions is really about who was to blame for the economic crisis and what we do about it. Like 1974, it's the government or the unions. Which side are you on?

King's speech wins Oscar for half-truths

As everyone who buys their own food and fuel knows, price rises are accelerating. Even in the unlikely event that the revolutionary uprisings in the Middle East and North Africa don’t push oil prices even higher, inflation in the UK is shooting past 4% and heading towards double that by the middle of the year.

The supermarkets which control 75% of groceries, have already doubled the inflation coming through the commodity markets. They’ve pushed the price of processed food up by as much as 6.5% as they try to protect their profits from falling demand.

As the world has seen, when rising prices push food beyond reach even the most autocratic governments feel the anger of the people.

Inflation is just one side of the global crisis. It is the direct and inevitable result of desperate attempts by governments and central banks to reverse the implosion of the global financial system in 2007-8. They poured in trillions of dollars, pounds, yen, and yuan, hoping to restart lending through commercial banks that they had rescued with money borrowed in advance – without asking – from billions of ordinary people, their children and grandchildren.

It was clear from the outset – at least to some – that the growth needed to repay the debt will never materialise. But they had to try. So another solution to the worsening debt crisis is now in play – higher taxes and cuts in government spending which have already provoked social upheaval throughout Europe.

Now the reality is hitting home. Mervyn King, governor of the Bank of England, told MPs yesterday:

The research makes it clear that the impact of these crises lasts for many years. It is not like an ordinary recession, where you lose output and get it back quickly. We may not get the lost output back for very many years, if ever.

And, he added something that should strike fear into the parliamentarians:

The price of this financial crisis is being borne by people who absolutely did not cause it. Now is the period when the cost is being paid, I'm surprised that the degree of public anger has not been greater than it has.

Maybe King is thinking of joining the national demonstration called by the TUC for March 26, which looks like turning into the Britain’s very own Day of Rage. King told the Treasury select committee that the billions spent bailing out the banks and the need for public spending cuts were the fault of the financial services sector. And so he’s now proposing that rather than rescuing ailing banks, ways should be found to allow them to fail, albeit gracefully.

But the bankers’ banker is only telling half the story, or at best one side of it, to shield the real villain in all this – the capitalist system of production for profit. This is the elephant in the room that few people want to speak of. Certainly not the TUC nor Ed Milband and his let's-build-a “prosperous capitalism”-party which we wrote about yesterday.

For decades, global growth of the capitalist economy was only made possible by an expansion of credit many times greater than the new value generated. It couldn’t last. When the limit was reached, meltdown took over. Then everything that was done to try and solve the crisis by treating its symptoms only made it worse.

Growth has been replaced by recession, and everything and anything that is done to try and deal with it just inflames the people affected most. King wonders why people are not angrier and out on the streets like the workers of North Africa. Don’t worry Mervyn. The rage is building and when it blows it needs to be directed not just against a few bankers but at the crazy capitalist system as a whole. At that point, you will be out of a job!

Gerry Gold
Economics editor
www.aworldtowin.net

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 pain 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 of people to bottom-line cyphers of cost before trying to eliminate them altogether.

Calls 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, 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, 21 October 2010
reposted from http://www.aworldtowin.net/

Why trade union rights matter

Tomorrow morning (Fri 22 Oct), John McDonnell will be moving his Lawful Industrial Action Bill, which would tackle the increasing practice by employers of using minor technical errors in the balloting process - which have no material effect on the outcome - to take unions to court in order to prevent them from taking industrial action.

It would mean the repeal of one of the most pernicious pieces of Thatcher's anti-union legislation, just one of many - but it would be a step forward. The Bill itself is sponsored by a dozen Labour MPs, and was unanimously backed at TUC Congress in September.

When we look across the Channel to France, the importance of a fair legislative framework for trade unions is immediate. France has only 8% union membership in its workforce, compared with around 24% here yet their workers and unions are able to take effective action to resist attacks on their living standards.

And it's not just France, in South Africa public sector workers have won a 7.5% pay rise after 3 weeks on strike, with an 800 rand housing allowance thrown in too.

Gone are the days, as many will have seen in Made in Dagenham, when workplace votes could initiate strike action. In fact, it's fair to say the Equal Pay Act would not exist if Thatcher's anti-union laws had been in place.

In the UK the effects of the anti-union laws are clear: the value of wages has declined from nearly 65% of GDP in the mid-1970s to 55% today. Over the same period, the rate of corporate profit has increased from 13% to 21%. A large part of the reason for the global economic crisis, argues Graham Turner in his book, is the global squeeze in wages which has sapped demand out of the economy.

Whether or not John's Bill passes the first hurdle tomorrow - it needs 100 Labour MPs to attend to make sure - UK unions are going to have fight vigorously and innovatively despite the anti-union shackles around them. It's essential they do - people will suffer immensely, and the poorest most, if these cuts go through.

John McDonnell will be presenting his Bill tomorrow in Parliament from 09:30 tomorrow (Fri 22 Oct). You can watch live on the BBC Parliament Channel.

Update, Fri 22 Oct, 2:30pm: Unfortunately only 87 Labour MPs could be bothered to attend the debate and so the Lawful Industrial Action Bill fell. Very disappointing, but well done to all those who lobbied their MPs - and to those MPs who did attend and support the Bill.

One Million Climate Jobs

Earlier this week I went to the launch of the new and expanded 'One Million Climate Jobs' pamphlet, which sets out a strategy to solved both the economic and environmental crises.

In 50 pages it sets out a comprehensive argument for funding one million climate jobs now. It argues that the jobs and investment can be funded by the reduced unemployment and extra tax revenue from getting one million people back into work, and from addressing the tax gap. The investment required is just £18 billion - a fraction of the £1.3 trillion that bailed out the banking system. As Jonathan Neale, the pamphlet's editor, said at the launch,

"if the planet was a bank they would save it"

It argues that the dangers of abrupt climate change require us to act now to reduce our polluting ways. It is estimated that the one million climate jobs, costing just £18 billion could cut UK emissions by 80% in just 20 years, but the pamphlet is realistic: "of course cuts in the UK on their own will make little difference to global climate change. But if we campaign for a million new jobs, and win them, people all over the world will see what we have done".

The jobs themselves cover our electricity and energy production; refitting homes, public buildings and businesses, and building new homes to strict environmental regulations; building new transport infrastructure; as well as other industries. As Philip Pearson from the TUC pointed out, we have lost over one million manufacturing jobs in the last decade. This is the industrial strategy we need.

The pamphlet concludes with a chapter on what you can do. As John McDonnell MP, speaking at the launch, said:

"we need greens and trade unionists campaigning alongside each other, and to become one another"

The pamphlet is produced by the Campaign against climate change trade union group and is sponsored by the CWU, PCS, TSSA and UCU trade unions. Free download here or order from Bookmarks (£2.50)

Is the cuts consensus crumbling?

Since the story switched from 'bad banks' to 'bloated public sector', at some point in 2009, there has been a political consensus in the UK which included the three main political parties and the mainstream media. This consensus was that cuts on an unprecedented scale where necessary to avoid economic oblivion, caused primarily by lavish public spending.

The consensus was economic nonsense, but ideological cover for attacking the last vestiges of public ownership (e.g. Royal Mail, the NHS and education) and the welfare state.


Finally, this consensus seems to be crumbling. The TUC in September highlighted the unions' opposition to cuts, and the pamphlet published by the PCS union 'There is an Alternative' probably the most articulate destruction of the cuts consensus. Tens of thousands of copies have been distributed at the TUC and party conferences, to PCS activists, and to the wider movement. Tax justice campaigner Richard Murphy said of it "This is very good, from PCS. I know because people in the Treasury told me so."

Following on from the TUC, the Labour Party's new leader Ed Miliband used his first speech to chart a different course from the Darling-Brown axis (which was championed by the defeated David Miliband). The excerpts are below - it's not quite earned him an invite to LEAP, but it does represent a shift in direction:

Economics teaches us that at a time of recession governments run up deficits.

We were too exposed to financial services as an economy so the impact of the crash on the public finances was deeper on us than on others.

We should take responsibility for not building a more resilient economy.

But what we should not do as a country is make a bad situation worse by embarking on deficit reduction at a pace and in a way that endangers our recovery.

The starting point for a responsible plan is to halve the deficit over four years, but growth is our priority and we must remain vigilant against a downturn.

You see, it's obvious really, when you cancel thousands of new school buildings at a stroke, it isn't just bad for our kids, it's bad for construction companies at a time when their order books are empty.

It's not responsible, it's irresponsible.

When you deprive Sheffield Forgemasters of a loan, a loan from which government would be paid back, you deprive Britain of the ability to lead the world in new technology.

It's not responsible, it's irresponsible. And we should say so.

And when you reduce your economic policy simply to deficit reduction alone, you leave Britain without a plan for growth, which is what this government has done.

No plan for growth means no credible plan for deficit reduction.

Ed Balls, who to be fair was heading in this direction earlier, used his speech to Labour Party conference to say we had to "put growth and jobs first" and he reminded delegates that Ramsay MacDonald had said there was no alternative to cuts (he didn't add that much of the previous new Labour government said that too and many of them have joined: Hutton, Milburn; and Mandelson offered to).

This shift in Labour policy will also be bolstered by the Guardian/ICM poll published today, which shows that "43% now saying the cuts have gone too far compared with the 37% who think the balance is right. By contrast, in July 39% thought the balance right, and 38% said too far".

Given the cuts have yet to be outlined in full until 20 October, and many of those announced have yet to impact, this should be a worrying trend for the coalition government.

It's up to all of us to kill off this consensus, and build the opposition. Today, there are reasons for optimism.

Austerity obsession will prolong misery

Stephanie Blankenburg

So, here we are. The economy is going into wind down before it has had time to get back on its feet. The Bank of England has just revised its growth outlook downwards and US news is more than disheartening. Equity markets are falling worldwide, and even China has, it seems, eventually been caught up in the global slowdown.

This dismal picture was marginally lightened by the unemployment figures of the Office of National Statistics (ONS) in the UK: a fairly large quarterly rise of people employed, a considerable fall in the claimant count. But even here much caution and warnings as to a shortlived surface phenomenon, unlikely to survive what most regard now as an inevitable "double-dip" recession or even a long depression – near zero growth and high unemployment for many years to come.

Overall, then, we are going into slowdown. Little, if any, doubt, about it. But why, exactly? There is much detailed discussion by experts – for example, of fiscal stimulus programmes in the US having failed, and having mistakenly outcrowded monetary policies geared towards keeping down the costs of borrowing by the state, ie bond (Treasury) prices, of the Cameron-cum-Clegg austerity obsession bringing this on, at least in the UK.

All of this is besides the point, though much of it will, eventually, come into the narrative. There is no immediate technical and short-term reason for this downturn, but there is an important longer-term one: there was a very big crisis. One that shed considerable doubt on the ability of a radically decentralised system of economic co-ordination to assess risk and promote general welfare.

In the aftermath of this crisis, nothing essential or effective was done to remedy the original problem of the failure of markets to assess social risk properly. Some villains were too big to fail and thus bailed out. The burden was shifted from private to public finances. There were some half-hearted fiscal stimulus programmes to reflate debt-ridden economies in some parts of the world, and a bit of "quantitative easing" in others. All of which have failed to infuse private sector agents with sufficient confidence to move on, to invest and lend again. Instead, those who can have retreated to speculation on commodities (copper, wheat, oil) as their safest bet in the longer term.

The likely outcome will be worldwide stagflation. Inflation, brought on by high long-term commodity prices (for copper, wheat, oil) through financial speculation, that will eventually lead to an increase in interest rates. Hence, mortgages and household debt will remain a huge headache, especially in the UK where current household debt is, still, particularly high. And stagnation, brought on by a sustained lack of private sector confidence and expectations of sales in anything other than commodities.

Meanwhile, when October comes round, and with it the spending review, stand by to blame the government. Their long-announced austerity measures can only worsen the hell we are headed towards by making very sure that private sector expectations are going to be even less salutary than expected. After all, 500,000 jobs lost in the public sector, at a minimum, and 600,000 to 700,000 in the private sector by the end of this parliament, aren't exactly what you would call a confidence-inspiring upward trend. "The markets" – and their self-appointed guardians, the credit rating agencies – know as much, and are worried. Not about the UK debt, but about the lack of future sales perspectives.

The Cameron-cum-Clegg austerity obsession will do little, if anything, to solve the original problem. The big crisis and its causes. It won't get the debt down, since the economy will stagnate, at best, but it will do much to prolong and deepen the misery of the many. For very many years to come.

*This article first appeared at Comment is Free

Capitalism in the wake of the financial crisis

Stephanie Blankenburg

In June 1931, J.M. Keynes warned a Chicago audience that

“today [we are] in the middle of the greatest catastrophe – the greatest catastrophe due almost to entirely economic causes – of the modern world. I am told that the view is held in Moscow that this is the last, the culminating crisis of capitalism, and that our existing order of society will not survive it”

and around the same time, the then Governor of the Bank of England, Montagu Norman, warned his French counterpart that

“[u]nless drastic measures are taken to save it, the capitalist system throughout the civilized world will be wrecked within a year. […] I should like this prediction to be filed for the future”

In hindsight, we know that such fears underestimated capitalism’s resilience. However, the premonitions of impending catastrophe – in the form of the rise of European Fascism and World War II - were, if anything, understated.

Perhaps the most startling contrast between 1931 and 2010 is the total absence of any sense of systemic crisis of capitalism today compared to assessments, such as the above, in the wake of the Great Depression. Quite the contrary: Despite continuing fears of a “double-dip” recession in the UK, in some Euro economies and now also in the US, the ideological momentum is, for now, very starkly with the advocates of free-market global capitalism under the leadership of financial capital. What is under attack are not the perpetrators of the current crisis but the public sectors of advanced capitalist economies – that is, the livelihoods, pensions, healthcare, education, public transport, theatres and cultural centres, and more generally the social and collective infrastructure, of those who rescued their failing banking and financial sectors from collapse only a two years ago. Officially, today’s crisis is not one of capitalism, but of public deficits.

Immediate outlook and policy alternatives

It is obvious that current policy initiatives, at the international as well as national level are either woefully inadequate or blatantly counterproductive. The starkest manifestation of the latter is, of course, the austerity hysteria that has gripped the UK and EMU economies, in particular Germany.

In the US, the Dobb-Frank bill potentially paves the way for a reform of the US financial sector that tackles the core problem, namely the separation of risk bearers from risk evaluators. Its main weakness is, however, that central features of the bill still have to be put into draft regulatory reform legislation that is more than likely to be watered down through lobbying by financial institutions and moderate senators. At their most optimistic, most commentators concede that this bill is unlikely to affect the US financial industry as it stands and may only affect potential future consolidation.

At the international level, the Basle III negotiations are still ongoing, but all signs are that a future agreement will fall far short of requirements for a fundamental re-organisation of the modern financial architecture and its structural inability to evaluate risk. The latest IMF paper on “Lessons from the crisis for central banks” (PIN dated 20 July 2010) concedes that Central Bank policy frameworks have to go beyond inflation targeting in the future, but its emphasis on a continuing primary concern with price stability, and its focus on a wide-ranging but limited-in-scope range of “macroprudential” tools signals the total failure to even begin to take account of the current structural imbalances of the world economy. The only initiative at the international level that goes beyond a patchy focus on half-hearted financial reform, is the call for the creation of a “Global Economic Coordination Council” of the Final Report of the UN Commission on the International and Monetary and Financial System, published in September 2009 and largely ignored since (http://www.un.org/ga/president/63/commission/financial_commission.shtml, see in particular pp. 87,90 f).

The immediate implication is that, in the de facto absence of any international policy project to tackle the structural flaws and imbalances of the international economy, financial capital remains at liberty to destroy core state and public capacities in advanced economies. Perhaps the most important policy insight to be drawn from the current situation is that what is under way, certainly in Europe (including the UK), is a concerted programme to roll back the state much beyond the tenets of conventional neoliberal programmes of the 1980s (and 90s): Initiatives, such as the upcoming Spending Review in the UK, or the adoption, in Germany, of a law that enshrines the requirement to balance the state budget year-by-year in the Federal Constitution (from 2016), are set not only to limit state intervention into the economy, but to destroy existing public infrastructure and the very capacity of states to intervene in the future, independently of which governments may be in power.

This programme evolves against the background of increasing economic instability and a sharpening of international economic imbalances, including:

• Major “double-dip” recession in the UK and in the US (where it is now clear that the fiscal stimulus programme of 2009 has failed to revive domestic investment (manufacturing) and consumer demand).
• In Germany, austerity hysteria in the form of the “balanced budget law” will lead either to a long-term deflationary spiral in Germany or else to an expansion of its trade surplus/dominance of the Eurozone. In both cases, the eventual collapse of the Euro becomes a much more likely prospect that is currently still the case. Whatever the inherent flaws for the EMU – and those have been obvious for some time – a collapse of the EMU primarily means the eradication of 60 years of economic and political integration in Europe, and a likely return to nationalistic fragmentation. The only winner here is, once again, financial capital faced with a large number of infighting small states, rather than at least the potential of a unified large state.
• A more difficult accumulation process in China, and a reinforcement of tendencies in the Asia Pacific region “to go its own way”, rather than this potential “powerhouse” of world economic growth being productively integrated in the global economy
• Continued downward pressures on growth in other LDCs, and concomitant increases in political instability
• Increasing political instability in particular in Southern Europe.

This may not compare to the disaster that followed 1931, but should be more than sufficient to concentrate minds. From a Left perspective, a number of closely related angles on the creation and systematic promotion of policy alternatives should be on the agenda:

• In Europe (including the UK), the core immediate policy task will, of course, be to oppose deficit and austerity hysteria. Importantly, for such opposition to be effective, it cannot simply be based on cries of “injustice”, however justified these may be. Rather, it requires a clear analysis of why state deficits can and should be financed and to what precise purpose. This means breaking the rightwing hold on hegemony over the deficit debate pro-actively and aggressively, not through defensive skirmishes about what not to cut, but through an all-round defence of the state as a forum for the political negotiation of collective interests. Perhaps ironically, the economic argument for an extended role of the state in crisis-ridden capitalist economies is easily put. There is contention about detail, but clear overall theoretical as well as empirical support for more rather than less state. What matters will be putting these (all to often still academic) arguments into clear political language, and to focus on re-conquering the very idea of the state as a collective political arena.
• National opposition to austerity programmes must, from the start, be linked to wider argument about contemporary capitalism at the international level: Neoliberalism has, for now, successfully neutralised national policy debate about the state (and deficits) by taking international capital mobility as a given: Any reform proposal that defends public spending at the national level but ignores the fact that such initiatives will only be successful in the presence of an international reform to govern (financial) capital mobility and to co-ordinate expansionary fiscal/monetary policy moves, will fail. Left counter-initiatives need not immediately have complete politically and economically feasible recipes of how to curb international capital mobility. For a start, it will suffice simply to attack neoliberalism on its weak flank: Its lack of an international equivalent to Adam Smith’s national “system of liberty” on which its advocacy of free markets is still based.
• In the medium run, a core concept to focus on for the development of policy alternatives will have to be that of economic democracy in core capitalist economies: Neoliberalism has not only successfully suppressed national economic policy over the role of the state. It also has managed to sell its anti-state stance as the epitome of political democracy (see, e.g. Camerons’s “Big Society” of volunteers). What neoliberalism, or any legitimising capitalist scheme before it, has never managed, is to defend or legitimise the total absence of economic democracy from capitalist societies, other than through the (now stalled) rise of mass consumption. But markets function like undemocratic voting systems: The individual vote is weighed by the amount of money the market participant can spend/ has access to. Your money is your voice. Focusing on the lacunae that is economic democracy in capitalist societies would to-date mean not only to revive trade unionism, but also to introduce the concept of active participation to debates about what the mass demand that drives capitalism should look like, i.e. the formulation of new forms and structures of demand and the type of markets we want to create and expand, on the basis of progressive income distribution: Demand for an expansion of social infrastructure, environmental protection, extended community services, participatory institutions, demand also for redistribution towards other, developing, economies. If the first point above is clearly enough argued, it will be obvious that the problem is not one of the availability of resources (finance), but of democratic decision-making about their use, and about the risks entailed in putting these resources to differing uses.

All of this is stuff for debate, of course. But unless we want commentators and analysts in 2087 to look back to 2010 to try and understand how the seeds of disaster were sown, we better get on with it fast.

* This is an edited version of the paper Dr Blankenburg delivered at the July LEAP meeting.

Cuts? There is an Alternative

LEAP participated in another lively and positive Convention Of The Left meeting in Manchester on Saturday 27th February, which continued its refreshingly pluralistic, comradely and non-sectarian atmosphere.

One of the major tasks for the left in the coming period is solidarity with those in struggle. But another urgent task is, as the Convention Of The Left meeting was titled, Making It Public.

We will no doubt be fighting defensively for much of the near future, but there is also a responsibility on the left to break the consensus for cuts and argue publicly and forcefully for the alternatives.

Coming out of Saturday's meeting, the Left Economics Advisory Panel and Convention Of The Left have drafted a flyer for public distribution on why the cuts consensus is wrong and what the alternatives are. It's important we make the argument for a socialist alternative and give people hope.

Download the flyer - Keeping It Public

See also the LEAP letter in the Morning Star on 4th March, which followed Rob Griffiths' article the previous day, The Truth Behind the Cuts Orgy.

Vulnerability of UK economy cannot be under-estimated

The UK economy has now returned to growth, albeit moderately, following the longest period of recession on record (six quarters) in which the UK economy contracted by 6.1%.

John McDonnell MP, LEAP Chair, said:

"The confirmation that the UK has emerged from recession is of course welcome, but the fragility of the economy and its vulnerability to a 'double-dip recession' cannot be under-estimated.

"Harsh public spending cuts and job losses would risk sending the UK into a prolonged recession, with the human misery of mass unemployment, poverty, and homelessness. This would be the nightmare of a Tory government."

Andrew Fisher, LEAP Co-ordinator, said:

"The recession is not over for the 2.5m unemployed and the 1.8m families waiting for housing. Nor is it over for the millions more who have reduced their hours or taken a pay cut during this recession.

"The risk of a relapse into recession is acute – with the UK banks still exposed to the US housing market, and consumer demand here weakened by unemployment, pay freezes and short-time working."

Brown presents the bill

A year and a day ago the Federal Reserve, the US central bank, took the decision to instruct Lehman Brothers to file for bankruptcy after 158 years of trading. It was a case of too big to fail and too big to save. Within days, the world economy fell off a cliff and has never recovered.

With its roots in barter, exchanging manufactured goods for raw cotton, Lehman’s history is inextricably a part of the history of capitalism. The company began its diversification into financial services in the 1880s (around the time of Marx’s death). In the 20th century, Lehman was instrumental in enabling the explosive growth of profitable commodity production and exchange, notably through finding the capital for retail giants like Woolworths, then television and later computer manufacture. It also helped finance Halliburton, the oil company at the heart of the Bush administration’s war on Iraq.

At its pinnacle it was among the elite of the world’s financial services companies, actively spinning the web of debt that enmeshed the world. As the credit crunch took hold in August 2007, it closed its sub-prime mortgage lender with the loss of 1,200 jobs.

But it was all too late. A year later, its liabilities exceeded its assets to such an extent that not even the American government could bail Lehman Brothers out and it went to the wall. Today, like much of the global capitalist economy, Lehman Brothers is bankrupt but still trading. So many dead men walking.

As the world was considering the significance of the passing of Lehman yesterday, prime minister Gordon Brown was opening a new chapter in the rapidly worsening global economic crisis that went hand-in-hand with the decline of banking and finance. Brown was a key figure in ensuring the subordination of the British economy to financial interests, announcing a new “golden age” for the City just weeks before it all went pear shaped. Now he’d come to present the bill for the damage, not to the bankers, but to the assembled ranks of the representatives of the organised working class at the TUC in Liverpool. They listened with protest messages raised while for the first time he talked of public spending cuts to come after the next election.

Attempts to restore the flow of credit have failed. Global stimulus packages have concentrated on eliminating huge swathes of the global car industry, dumping hundreds of thousands of workers on the streets. Unemployment is soaring. Tens of millions around the world are already without work, soon to be homeless if they aren’t already, without healthcare or pensions. And now Brown talks of cuts.

Politicians of all parties are competing to prepare voters for the devastation to come, the price to be paid for keeping the capitalist system in existence. This bidding process finds parties competing for the right to inflict the impact of the crisis on the majority of the world’s population, forcibly if necessary.

Commentators may delude themselves with good news, but the majority will see no sign or possibility of a “recovery”. They will not benefit from an illusory “return to growth” that is in essence the prelude to a further lurch towards outright slump. Lehman Brothers was broken by fantasy financing that in the form of debt fuelled the economic boom.

And there are mountains of debt still out there with claims on real assets and future earnings. In the absence of a recovery, these assets – in the shape of jobs, pensions and homes – are likely to be wiped out by capitalist bankers and corporations.

So this is no time to be caught up in discussions about ending “unbridled free market capitalism”, nor speculating on “a realignment of world capitalism”, nor even pushing for the kind of change that would “renew capitalism in a fairer form”. These are mere palliatives that leave the basic cause untouched and untreated.

What we must now do is to acquire the power to switch from a credit-dependent system of for-profit production based on legalised exploitation of labour to production for need guided by democratic decisions based on collective ownership. That’s how to fight the cuts as well as create a sustainable future.

Gerry Gold
Economics editor
A World to Win
reposted from http://www.aworldtowin.net/

Gordon Brown - different planet

In June 2007, just as he became Prime Minister, Brown said in his Mansion House speech that we were witnessing "the beginning of a new golden age for the City of London."

You may think that the collapse of many high street and investment banks would have shaken Brown's faith in free markets, but at the Lord Mayor's Banquet in November last year he said, "I want this to become the moment when together we rise to the new challenges by purposeful visionary and international leadership . . . not as the victims of history but as shapers of an open, free trade, flexible globalisation."

I quoted this head-in-the-sand 'neoliberalism or bust' attitude (it's gone bust, Gordon!) when I addressed a meeting organised by The Commune last night.

This morning, there's an excellent article by Graham Turner in The Guardian cataloguing the effect of neoliberalism throughout the globe. Graham makes the sound point that "A new world economic order requires protectionism - for workers".

Meanwhile, Richard Murphy reports on his blog that word has reached him from the G7 that Brown has blocked reforms to to create transparency, enhance regulation, and crack open the tax havens.

What must life be like in the Gordon Brown bunker?

Who pays for the economic crisis?

The Prime Minister needs to realise that for the general public the Government's treatment of bankers' bonuses is the key test of who will pay for the economic crisis they have caused.

Allowing bonuses to be paid to the higher paid bankers who caused this crisis by their greed and recklessness will be seen as fundamentally unfair. Fumbling around with nothing more than ineffective warnings of inquiries is pointless. The Prime Minister needs to get a grip and take the decisive action needed to end the bonus culture and send a clear message that the binge banking party is over.

*John McDonnell MP has tabled EDM 353 'Banking Sector and City Bonuses' in the House of Commons. It calls for "the banking industry to be fully nationalised under public control so that finance is provided in the national interest."

5pm update: See Richard Murphy's take on Brown's hot air too.

Crisis fightback - time to be bold

I spoke at the opening session of the Communist Party's Capitalism in Crisis political school earlier today on 'Trends in the British Economy and Employment'. The other speaker, economist Frank Wilkinson was unable to attend as he was snowed in, and so CPB General Secretary Rob Griffiths spoke alongside me - giving a very coherent and theoretical analysis of the crisis.

The debate that followed was passionate, articulate and wide-ranging - exactly what the Left needs to be in the coming period if we are to make an impact in this crisis. And if we don't, others like the BNP will.

We are not living in the most cheerful times. As I pointed out in my contribution:

• We have unemployment at over two million
• Youth unemployment is at its highest for fifteen years
• The claimant count is at its highest for 18 years
• Vacancies are at the lowest level on record
• The UK economy has shrunk for two consecutive quarters meaning we're in recession
• Company insolvencies have risen by 220% in the last year
• House prices have fallen 15% in the last year, and the repossession rate doubled
• Car sales have dropped by 30% in the last year
• UK manufacturing production recorded its largest quarterly fall since 1968

However, we should be confident, bold and unintimidated in taking the fight to the Government and corporate interests. It is they who have led us into this crisis and they who are currently doing everything to ensure it is a deep recession.

The Government remains hopelessly misguided and wedded to its outdated neoliberal ideology. The banks have not been nationalised in any real sense. The meeting variously described it as 'the privatisation of public money' and 'light-touch nationalisation'.

The power workers' wildcat strikes were also discussed - emphasising the need to protect jobs, pay, and terms and conditions in the current period. Protectionism was also debated. As Rob Griffiths pointed out, what else is the labour movement for if not to protect jobs and protect wages. There is nothing progressive about the right of transnational companies to freely move capital, labour, and resources around the globe. At the same time we have to argue for the greatest international solidarity and to challenge those reactionary forces who want to turn this debate about class into one about race or nationality.

Another issue that generated alot of outrage is the Government's current attack on welfare, which at a time when unemployment is over two million and there are only 200,000 vacancies in the economy is a cruel attack on some the least powerful and most vulnerable in our society.

The trade union movement has been shameful at times in defending welfare rights. Unemployment benefit is worth a fraction of what it was thirty years ago, lone parent benefit entitlement is being attacked and those with children as young as three will be compelled to undertake 'work-related activity' just to keep their existing benefits. The long-term unemployed will be put on workfare programmes - full-time work just for their benefit - that's £1.73 per hour. We are on our way back to the workhouse.


It's about time that all unions started fighting on behalf of working people - at least another million of whom will become non-working people this year and be subjected to this degrading regime . . . unless we stop it.

There is a Lobby of Parliament, organised by PCS, on Tuesday 3rd March. Get to Parliament and tell your MP to vote against the Bill. This is about who pays for the crisis. Let's see the Government instead attacking the city spivs and speculators and the tax avoiding companies with the same verve.

Convention of the Left

The Convention of the Left recall conference in Manchester on Saturday, January 24 “Capitalism Isn’t Working – what is the alternative?”, met in the shadow of confirmation that, after six months continuous contraction, the UK economy was officially in recession and heading in the direction of depression.

As more than 180 delegates and individuals gathered - socialists and anarchists, trade unionists, environmentalists, democrats and those who favour direct action - they were confronted from the outset of the discussion with the global economy in free-fall.

The sudden sharp economic downturn since the September Convention, and a succession of failed bail-outs, served to dispel the myths of a stand-alone crisis in the financial sector that could be resolved by a new regime of regulation and a programme of government spending funded by increased taxes, and ever more debt.

News that car production in December had fallen to half the output one year earlier and Honda had doubled its two-month UK shutdown added to a mounting sense of the possibility of recession giving way to a complete economic collapse and gave a new urgency to a vigorous discussion, which I introduced on behalf of LEAP.

However carefully prepared, many proposals crafted in advance proved inadequate for the sudden and sharp deterioration. Almost as quickly as they were raised, calls for pressure on New Labour to pursue a growth agenda, for previously radical-sounding programmes of demands to nationalise the banks, to build resistance to job cuts, for a Green New Deal, for doubling of jobseekers’ allowance and slashing rents, all began to look too weak for the new turn of events, on a scale unprecedented, and therefore unexpected by most.

As the oil price plummeted to new lows, undermining the campaign for a windfall profits tax on energy companies, much of the discussion on the climate crisis revolved around the TUC’s proposals for a Just Transition and how to resolve the conflicting objectives of solving the energy crisis by preserving and creating jobs in coal and nuclear power, whilst moving to a low-carbon economy.

As the day progressed, stronger, bolder proposals began to dominate, coming together in agreement of the need for a coherent strategy to establish a socialist economy.

Beyond fighting to preserve jobs and hence the employment contract, which is being broken everyday as redundancies accelerate, ideas for were put forward for extending existing forms of collective ownership and creating new ones, based in the communities.

Suggestions like using unsold Jaguar/Landrover vehicles as the basis for community transport came together with the necessity not just to oppose the global corporations, but to transfer their resources and those of the privatised bus, and train companies into socially-owned enterprises, democratically controlled and managed by committees of workers and transport users.

The Convention’s own open democratic processes were tested and survived a challenge to its stated policy of broad and inclusive unity rather than campaigning for a new party. A vote to move on from a short discussion about the idea of a new party was carried by more than two to one.

A new steering group was elected with nominations from a range of organisations, and strengthened by a new sense of direction, the Convention decided to invite the absent cooperative movement to join the group.

The Convention provided a timely and valuable opportunity to bring together a wide variety of previously disparate strands. Hopefully, it will be followed up and developed through local Conventions.

The Economic Crisis and Pensions

In November 2008, LEAP published its Red Papers on the Economic Crisis. One of the papers, 'Pensions after the Credit Crunch' by Graham Turner, concluded that:

• The slide in the FTSE 100 could reverse all the rises since the early 1990s, as the recession bites – leaving a multi-billion black hole
• Remaining final salary pension schemes are likely to close, and private pension values dwindle
• There may be no escape from a return to a higher, state funded pension.

Earlier this week, the National Pensioners' Convention issued the following press release - and it seems points one and two are happening while, almost inevitably, the Government is doing nothing to protect people from this crisis.

Credit crunch puts pressure on company pensions –
only the state can now offer security in retirement

Britain’s biggest pensioner organisation, the National Pensioners Convention (NPC) has called on the government to strengthen the state pension system in light of reports casting doubt on the future of decent company pension schemes.

The call comes as the National Association of Pension Funds is expected to announce on Monday (Jan 26) that 25 major companies will close their final salary pension schemes to existing members, and replace them with less secure defined contribution (money purchase) schemes.

The NPC has criticised successive governments for relying on good quality occupational pensions as a way of avoiding having to pay a decent state pension. But this approach is now unravelling:

• At least 75% of final salary occupational pensions have closed to new entrants
• The current economic crisis is estimated to have wiped £250bn from pension funds
• The average private pension pot will eventually give a single man of 65 an annual income of £1,960. A pension pot of £100,000 will give you a yearly sum of just £4,500
• Up to 9m existing workers have no pension provision other than the state

Joe Harris, NPC general secretary, said: “If we are serious about giving everyone a decent income in retirement, we must end the over-reliance on private occupational pension schemes which are governed by a volatile stock market. The pensioners of tomorrow – just like today’s pensioners – need security and that will only come when we recognise, like our European counterparts, that the state is best placed to provide it through a living state pension that ends poverty in old age.”

The NPC is calling for the state pension to be set above the official poverty level of £165 a week for all men and women and linked to earnings or prices (whichever is the greater).

This could be financed through a number of measures, including:

• Using the surplus in the National Insurance Fund, which currently stands £46bn, and is forecast to grow to £114bn by 2012
• Abolishing the upper earnings limit on national insurance contributions would raise at least £8bn a year
• Scrapping higher rate tax relief and tax avoidance (through tax havens) on private pension contributions could raise up to £40bn a year

Government failure could turn recession into depression

Official figures published today confirm that the UK is in a recession, following sequential quarters of negative growth in the UK economy. The economy shrank by 0.6% in the quarter to September, and by 1.5% in the quarter to the end of 2008. The latest figures represent the biggest quarterly fall in the UK economy since 1980.

John McDonnell MP, LEAP Chair, said:

"The Government has consistently failed to recognise the seriousness of the plight of the UK economy and has consistently failed to recognise the need for radical measures to tackle the crisis.

"Today's figures not only confirm a recession, but point to a depression - especially in light of the Government's failure."

Andrew Fisher, LEAP Co-ordinator, said:

"The UK economy is now in freefall. This is more than another recession, it is the collapse of the neoliberal capitalist model that Brown told us to be evangelical about only a few months ago.

"Simply bailing out the banks again and again shows that the Government has completely failed to appreciate the scale and the nature of the current crisis."

-Ends-

No more bailouts, nationalise now!

Today the Government announced a further 'bank rescue plan' - yet there are pigeon steps towards a more interventionist role: 'nationalised' Northern Rock to expand lending, rather than winding down and repaying its loans. The Government has also now taken a 70% stake in RBS.

These are however minor moves, and the bailout will again risk public money without adequate controls, and there is still no intention to restructure the banking system. LEAP put out the following press release in response:

No more bailouts, nationalise now!

As the Government announces yet another rescue plan for the banking sector, LEAP makes one simple demand: nationalise the banks now and use them to help resolve the crisis, rather than continue exacerbating it.

John McDonnell MP, LEAP Chair, said:

"Again we see the Government pouring public money down the bottomless drain of the banks.

"Anger is mounting about the dithering and delays as the Government skirts around the only solution: to nationalise the banks in order to develop and impose a new banking strategy in the long-term interests of the country - rather than restoring the opportunity for another round of speculation and profiteering."

Andrew Fisher, LEAP Co-ordinator, said:

"The Government cannot continue to bailout the banks, while the banks continue to turf people out of their homes and out of their jobs. Restoring people to their jobs and housing is a more urgent priority than restoring bank profitability."

"The only solution is nationalisation of the banks and the Government seems only to be edging at a snail's pace towards this realisation."

-Ends-