THE STATE WE'RE IN

How short are the memories of politicians and their class. There is now consensus among the leadership of the three main parties that the cause of the recession is the scale of public debt, and that the only way out of it is to cut public expenditure. Nick Clegg, in a rather laughable attempt to out-muscle Brown or Cameron, has even boasted those cuts must be “savage”.

The concentric bubbles which actually caused the recession, the excesses of the free market, the complete lack of regulation in the financial sector, the yawning inequalities that fuelled the credit boom, the need to bail the banks out with public money – all these have been forgotten. So has the lesson of the early 80s – that cutting back salaries and making working people redundant is no way to flee a recession.

Gordon Brown’s speech to the TUC yesterday, littered with the c-word, has gone largely unchallenged by politicians, journalists and Trade Union leaders. Even the joint-leader of Unite has argued (using a tortuous football metaphor - "in off the bar in the last minute of the game ... we are now in extra time – we can beat the Tories" - uh-huuuuh...) that Brown’s speech lays clear ground between the two parties.

But what exactly is the moral or economic rationale for making workers and recipients of public services pay for a crisis which is the result of capitalist excesses? Why does nobody challenge the orthodoxy that our economic exit strategy lies in perpetuating inequality?

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Last week, the Left Economics Advisory Panel (LEAP) published research which points out that, for all the talk of low inflation (or even deflation), costs of living have risen for the poor in Britain and fallen for the rich.

Although official measures of inflation (the CPI and RPI) for February 2009 were between 0% and 3.2%, the 2009 Inflation Report suggests a more objective yardstick which they call “Essential Inflation.” This measures the prices of “essential goods that households cannot avoid purchasing” – i.e. shelter (rental and mortgage payments, Council Tax, home insurance), heating (electricity and gas), clothing, transport, communications, food and drink, and water.

Taking Britain as a whole, Essential Inflation was -0.82% in February 2009. But broken down according to income, Essential Inflation was -3.21% for the richest 10% of households and 1.92% for the poorest. Viewed another way, the poorest 10% spend 67p of every £1 they earn on the essential items outlined above; the richest 10% spend only 29p of every £1 they earn on essentials. And, of course, the rich earn a lot more £s.

The LEAP report analyses how this works in practice by focusing on housing costs. The inflation rate for Council Tax was 3.6% in February – although this applies to everyone in permanent housing, it costs the poorest half of the population 4.1% of their income, and the richest half only 2.5%. The rate for rent – which affects poorer people disproportionately – was 2.9%. And yet the cost of mortgage payments – which applies to wealthier homeowners – fell by 39.9%. This example clearly supports LEAP’s contention that “inflation is a class issue.”

Since the cost of living has increased by nearly 2% for the poorest 10% (and by 2.38% for the next decile) but decreased by more than 3% for the richest 10%, the report concludes that,

It is important to understand that a pay freeze is a real terms cut of nearly 2% in living standards for the poor, but a real terms increase for the richest. Unions are therefore correct to argue that low paid workers should not be treated the same in pay negotiations as senior management grades ... It also means that unions representing the lowest paid workers should be calling for pay increases of at least 2% just to maintain living standards.

It is a measure of how fearful people are about having a job at all, that 89% of local government UNISON members voted to accept a general 1% pay increase, and an increase of 1.25% for the lowest paid (in reality a 0.75% pay cut). Meanwhile, the Government has recommended that the National Minimum Wage should be raised by 1.1%.

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On the other side of the spectrum, the benefits of lower living expenses for the rich have been coupled with massive hikes in pay. Executives of FTSE 100 index companies have enjoyed a 10% increase in their salaries, even as their companies lost nearly a third of their value and their workers were faced with pay freezes or made redundant. The Guardian’s report on executive pay shows that “nearly a quarter of FTSE chief executives received total 2008 pay packages in excess of £5m, and 22 directors now have basic salaries of more than £1m.” Staff at Man – a hedge fund group – earned an average of £198k each last year – an increase of 100% since 2004. Although shareholders may challenge boardroom pay, there remain no legal ceilings on how much the wealthiest in society may earn, even if their salaries are at the cost of their employees’ jobs or earnings.

Vince Cable has responded to this survey aggressively: “[it] shows that breathtaking cynicism involved in a lot of executive pay deals, which are unrelated to either personal or corporate performance and involve people who are very well off helping themselves to larger salaries when private sector wages in many companies are being cut.”

Yet his party has proposed nothing specific about keeping a check on executive pay or making Britain’s economy fairer. They have joined the chorus of belt-tightening, pay-freezing and pension-stripping for people who work in the public sector and those who depend on it.

We don’t know exactly which services will be cut most, though we can guess by a process of elimination. Not defence, where £130bn savings could be made by scrapping Trident. Not crime and immigration, both Tory comfort zones. And while the Tories would like to take the axe to health and education, we know from history that the market-based policies which they will ramp up will actually increase the burden on the taxpayer.

So the people who will ultimately bail out the wealthy are public sector workers, pensioners, people on benefits, tenants and people who don’t travel to work by helicopter – 'twas ever thus. These are the very people who, in a setback to the late nineteenth century, have nobody in Parliament who will act on their behalf. In an age of late capitalism, parliamentary democracy is worthless.

It is clear what is needed: political participation from the bottom up. But this was only ever likely to be successful during a period of Labour Government, for this should have been the period when those abandoned by Labour sought an alternative to it - and indeed, the recent simmerings of industrial action have been encouraging.

When David Cameron forms a government, he will instantly become unpopular (as it is, he is hardly a savoury proposition to most people). Workers will recall how much they hate the Tories, and how much the Tories hate them. Will they turn to the Labour Party, or what’s left of it? It seems unlikely. But as more and more people find themselves unemployed or out-of-pocket – as people find that they have nothing to lose but etc etc – something will have to give.