Banker-hatred expresses a longer, deeper crisis

Financiers' immunity from justice mirrors their insulation from recession.

Why are we so outraged by the Barclays-Libor affair? Silly question really. It is scandalous that traders appear to have manipulated a fundamental market-making interest rate in pursuit of a quick profit. It is emblematic of habits and ethics that steered the British economy onto the rocks in 2007-08. The detail of the story – the brazen emails that lay bare the scam – exude the arrogant sense of entitlement that presents the protagonists in a repulsive light. And it reminds us, when we see Bob Diamond, conspicuously unburdened by judicial investigation or conscience, that the caste of people with the strongest claim to have caused the financial crisis are the same ones who seem least afflicted by its consequences. That provokes our natural sense of injustice.

But there is another layer to public feeling about this issue. It was the subject of an event I attended this morning at the Resolution Foundation, the consistently excellent think tank that dedicates a lot of thought to the problems facing low-to-middle income households. They are famously squeezed (the low-to-middle income households, that is; Resolution are hardly even cramped in their lovely spacious West End office and, outside of Westminster, are not all that famous).

The key observation contained in Resolution analysis – available on their website – is that wages and earnings for most people in Britain stopped growing some time in the middle of the last decade. As the cost of basic goods and services has risen, a process accelerated by some painful bursts of inflation in the last couple of years, people are struggling to keep their heads above the water. Crucially, this process started before the crash and before the recession. It is also a phenomenon recorded in many other developed economies and is especially pronounced and protracted in the US. (For a brilliant account of how wage stagnation is hollowing out the American middle class, read this essay by Ed Luce in the Financial Times. Behind a paywall, sadly.)

In the UK, the trend for decline in wages and the attendant slide in living standards was held back by the growth of tax credits. Shadow Chief Secretary Rachel Reeves spoke at this morning’s event and mounted a vigorous defence of tax credits – generally scorned by the coalition as a tool of deranged Brownian micro-management and first in line for cuts. The other way Britons topped up stagnant wages was private sector borrowing: credit cards, store cards, re-mortgaging, high street lending etc. That, needless to say, was not a terribly sustainable route to prosperity.

An important point that Resolution make (and that Reeves touched on but with characteristic caution) is that, when growth returns to the UK economy, there is no reason why it should do so in a way that solves the longer term structural squeeze on incomes. This is not some abstract question of economic balances. It is probably the issue that will decide the next election. On current trajectories, the overwhelming portion of British voters will reach 2015 feeling poorer, less secure in their jobs - if they have one - and less hopeful for the future than they did in 2010. And that is true even if the economy is growing.

Downing Street are alert to the problem. One reason why fuel duty rises were scrapped this week is that David Cameron and George Osborne badly need to find ways to signal that they have noticed how hard many people are finding it to make ends meet.

One Number 10 advisor told me recently of his conviction that politics for the next decade will come to be dominated by the decline in living standards for ordinary households and the question “so what are you going to about it?” I think he is probably right.

And it is against that backdrop that the Barclays scandal has to be seen. It is not just offensive in some abstract judicial way. It isn’t just scandalous as a case of bad regulation and wickedness unpunished. Seeing what bankers have been up to and suspecting that they might get away with it, when they have escaped the financial consequences of their actions and preserved their rising incomes, is a vicious, sneering affront to the British people. Politics itself will be devalued - more than it already is - if it fails to offer an effective response to their anger.

Rafael Behr is political columnist at the Guardian and former political editor of the New Statesman

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Scottish Labour's defeat to the Tories confirms a political transformation

The defining divide is no longer between left and right but between unionist and nationalist.

It was Scotland where Labour's recovery was supposed to begin. Jeremy Corbyn's allies predicted that his brand of left-wing, anti-austerity politics would dent the SNP's hegemony. After becoming leader, Corbyn pledged that winning north of the border would be one of his greatest priorities. 

But in the first major elections of his leadership, it has proved to be Labour's greatest failure. A result that was long thought unthinkable has come to pass: the Conservatives have finished second (winning 31 seats). For the first time since the 1910 election, Labour has finished third (winning 24). Scottish Labour leader Kezia Dugdale stood on a left-wing platform, outflanking the SNP on tax (pledging to raise the top rate to 50p and increase the basic rate by 1p), promising to spend more on public services and opposing the renewal of Trident. But rather than advancing, the party merely retreated.

Its fate confirms how Scottish politics has been realigned. The defining divide is no longer between left and right but between unionist and nationalist. With the SNP as the only major pro-independence party, the Tories, led by the pugnacious Ruth Davidson, framed themselves as the pro-UK alternative - and prospered. In contrast, Dugdale refused to rule out supporting a second referendum and suggested that MPs and MSPs would be free to campaign for secession. The result was that Scottish Labour was left looking dangerously irrelevant. "Identity politics. Labour doesn't get it," a shadow minister told me. The SNP has lost its majority (denying it a mandate for a second referendum) - an outcome that the electoral system was always designed to make impossible. But its rule remains unthreatened. 

Corbyn's critics will seek to pin the baleful result on him. "We turned left and followed Jeremy's politics in Scotland, which far from solving our problems, pushed us into third," a senior opponent told me. But others will contend that a still more left-wing leader, such as Neil Findlay, is needed. Dugdale is personally supportive of Trident and was critical of Corbyn before his election. Should she be displaced, the party will be forced to elect its sixth leader in less than five years. But no one is so short-sighted as to believe that one person can revive the party's fortunes. Some Corbyn critics believe that a UK-wide recovery is a precondition of recovery north of the border. At this juncture, they say, SNP defectors would look anew at the party as they contemplate the role that Scottish MPs could play in a Westminster government. But under Corbyn, having become the first opposition to lose local election seats since 1985, it is even further from power. 

In Scotland, the question now haunting Labour is not merely how it recovers - but whether it ever can. 

George Eaton is political editor of the New Statesman.