The welfare debate and the end of reason

The way in which the entire debate on benefits seems to be taking place entirely outside the realms of logic seems unprecedented, says Alex Andreou.

I am quite frightened. There have always been some unreasonable people in politics. However, the way in which the entire debate on benefits seems to be taking place entirely outside the realms of logic, seems unprecedented. The way in which evidence is openly sneered at, is nothing short of medieval. The End of Reason.

People going to work early in the morning were stopped outside a London tube station and "vox-popped" by Channel 4 News.

"What do you think about the proposed cap on benefits?", they were asked. "If I have to get up and go to work, I don't see why they shouldn't have to", said one person. "I think it's fair," said another. Challenged by the reporter on whether it's fair on someone who has just been made redundant and has been paying tax and NI for years, she added "well, obviously not them".

The debate earlier in the House of Commons displayed equal levels of Daily Mail common sense. A hissing Kris Hopkins MP suggested that unemployment was "a lifestyle choice". Aidan Burley MP - you know, the one that thinks Nazis are an appropriate theme for a party - read out a letter from an unnamed constituent, relating how she had heard from an unnamed friend, that she was claiming five hundred pounds a week in benefits.

Asked about trial schemes today, Chris Grayling - the dude in charge of Justice, no less - said: “The last Government was obsessed with pilots. Sometimes you just have to believe in something and do it.” That's right. None of your namby-pamby, pinko-leftie evidence rubbish. YEAH. We just think of stuff and do it. And, as the last budget proved, then hastily undo it.

And so it goes, the End of Reason.

A national debate, orchestrated from the top down, which cares not a jot for facts or evidence. Facilitated by the poison pumped daily through our television set, which has seeped so deep into our national muscle memory that we are no longer able to distinguish between Jeremy Kyle guests, chosen because they make for good voyeurism, and ordinary decent people. Our reaction as considered as that of a patellar ligament to a doctor's reflex hammer.

So, how do we fight it? Anger may well provide the energy, but it is not the whole answer. Reason, logic, truth are - and have always been - the precision instruments for dissecting hysterical phobias.

The Conservatives will continue to speak the language of fear. It suits them; it is all they know. They released this image yesterday.

Look at that little arrow. You're only getting that now. Look at that BIG ARROW. Someone else is getting that. Look at what all that scrounger waste can win you. Iain, show the contestants what is behind door number 1. Doctors! And behind door number 2? Teachers! And let's open door number 3. A tax cut of ONE HUNDRED AND FIFTY POUNDS!

How exciting. So, what are we getting for sentencing two million innocent children to hunger? Well,  in fact, none of the above. NHS frontline staff numbers are declining, education is being hung, drawn and privatised and the tax burden on the majority of the electorate is higher than when the coalition took over.

But at least my arrow will get bigger, right?

Guess again. Quite contrary to the rhetoric of "making work pay" this measure does absolutely nothing to improve what work pays. As a matter of fact, making the 9 unemployed people chasing every 1 vacancy that much more desperate, is likely to have a deflationary effect on your wages. Your arrow is shrinking.

But at least this will get people back to work - the government keeps saying that. That's true, isn't it?

Wrong again. This bill does not create a single job. Indeed, the IMF recently admitted that cutting of precisely this sort has a disproportionately negative effect on growth. Essentially, by reducing the spending power of people who spend all their income on necessary goods and services (rather than those who squirrel it away in tropical island tax havens), local businesses sell less and the economy contracts.

What's that, Channel-4-News-lady-outside-the-tube-station? You work in a shop? Not for long. Soon, you will get your wish fulfilment. In a way. You won't have to resent those who don't get up to go to work. You will join them; with the added bonus of having the government that made you unemployed call you vermin. It may not be economic growth, but it is an opportunity for personal growth, don't you think?

So, what does it actually do, this bill? The short version: it attempts to plug a hole in the Government's forecasts, which keep getting revised down and down and further down, as if calculated by an over-enthusiastic limbo dancer. Only the savings are small, the hole is massive and their policies (including this one) are making it bigger. So, it's more like throwing a single shrimp into a shark's gaping mouth. Bad news for the shrimp, little effect on your chances of survival.

The added bonus is that nobody seems to be talking about huge multinationals paying no tax in this country, about which everybody seemed to be talking a month ago.

The End of Reason.

Several coalition MPs even suggested a link between rises in tax credits and the financial crisis. "Is there a direct correlation between the time that tax credits started," asked Marcus Jones MP, and "the start of the financial crisis"?

I would love to tell you that Hansard recorded the response: "Which crisis? The global one? The one that started in Iceland in financial institutions, spread to US  financial institutions and eventually reached the financial institutions of the UK? Of course there is no correlation, direct or indirect, you fucking numpty."

Sadly, the response by Alun Cairns MP was: "My Hon. Friend makes an excellent point". Pretty much any point is an excellent point, when you are witnessing the End of Reason.

An estate in Rochdale, named the most deprived area in the UK. Photo: Getty

Greek-born, Alex Andreou has a background in law and economics. He runs the Sturdy Beggars Theatre Company and blogs here You can find him on twitter @sturdyalex

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Let's turn RBS into a bank for the public interest

A tarnished symbol of global finance could be remade as a network of local banks. 

The Royal Bank of Scotland has now been losing money for nine consecutive years. Today’s announcement of a further £7bn yearly loss at the publicly-owned bank is just the latest evidence that RBS is essentially unsellable. The difference this time is that the Government seems finally to have accepted that fact.

Up until now, the government had been reluctant to intervene in the running of the business, instead insisting that it will be sold back to the private sector when the time is right. But these losses come just a week after the government announced that it is abandoning plans to sell Williams & Glynn – an RBS subsidiary which has over 300 branches and £22bn of customer deposits.

After a series of expensive delays and a lack of buyer interest, the government now plans to retain Williams & Glynn within the RBS group and instead attempt to boost competition in the business lending market by granting smaller "challenger banks" access to RBS’s branch infrastructure. It also plans to provide funding to encourage small businesses to switch their accounts away from RBS.

As a major public asset, RBS should be used to help achieve wider objectives. Improving how the banking sector serves small businesses should be the top priority, and it is good to see the government start to move in this direction. But to make the most of RBS, they should be going much further.

The public stake in RBS gives us a unique opportunity to create new banking institutions that will genuinely put the interests of the UK’s small businesses first. The New Economics Foundation has proposed turning RBS into a network of local banks with a public interest mandate to serve their local area, lend to small businesses and provide universal access to banking services. If the government is serious about rebalancing the economy and meeting the needs of those who feel left behind, this is the path they should take with RBS.

Small and medium sized enterprises are the lifeblood of the UK economy, and they depend on banking services to fund investment and provide a safe place to store money. For centuries a healthy relationship between businesses and banks has been a cornerstone of UK prosperity.

However, in recent decades this relationship has broken down. Small businesses have repeatedly fallen victim to exploitative practice by the big banks, including the the mis-selling of loans and instances of deliberate asset stripping. Affected business owners have not only lost their livelihoods due to the stress of their treatment at the hands of these banks, but have also experienced family break-ups and deteriorating physical and mental health. Others have been made homeless or bankrupt.

Meanwhile, many businesses struggle to get access to the finance they need to grow and expand. Small firms have always had trouble accessing finance, but in recent decades this problem has intensified as the UK banking sector has come to be dominated by a handful of large, universal, shareholder-owned banks.

Without a focus on specific geographical areas or social objectives, these banks choose to lend to the most profitable activities, and lending to local businesses tends to be less profitable than other activities such as mortgage lending and lending to other financial institutions.

The result is that since the mid-1980s the share of lending going to non-financial businesses has been falling rapidly. Today, lending to small and medium sized businesses accounts for just 4 per cent of bank lending.

Of the relatively small amount of business lending that does occur in the UK, most is heavily concentrated in London and surrounding areas. The UK’s homogenous and highly concentrated banking sector is therefore hampering economic development, starving communities of investment and making regional imbalances worse.

The government’s plans to encourage business customers to switch away from RBS to another bank will not do much to solve this problem. With the market dominated by a small number of large shareholder-owned banks who all behave in similar ways (and who have been hit by repeated scandals), businesses do not have any real choice.

If the government were to go further and turn RBS into a network of local banks, it would be a vital first step in regenerating disenfranchised communities, rebalancing the UK’s economy and staving off any economic downturn that may be on the horizon. Evidence shows that geographically limited stakeholder banks direct a much greater proportion of their capital towards lending in the real economy. By only investing in their local area, these banks help create and retain wealth regionally rather than making existing geographic imbalances worce.

Big, deep challenges require big, deep solutions. It’s time for the government to make banking work for small businesses once again.

Laurie Macfarlane is an economist at the New Economics Foundation