[This was written in hurry: please forgive any typos or other mistakes; better still, point them out in the comments, and I’ll fix them.]
As noted in part 1, the UK’s annual fiscal deficit (the difference between its income and expenditure) is about £100 billion. The population of the UK is 64 million, so that means that as a nation we are spending £1500 per person more than we’re bringing in. To put it another way, we each need to chip in one and a half thousand pounds a year to balance the books.
That’s why Liam Byrne, the outgoing Treasury chief in 2010, famously left a note saying “I’m afraid there is no money.”
This is the note that David Cameron is forever waving around in debates (although I note that he misquotes it as “there is no money left“, which is subtly different. But we’ll let that pass.)
The question of course is why there is no money.
Is it because we’ve spent it all on unemployment benefit for lazy scroungers? We know it’s not that, because the unemployment benefits budget is only £3.8 billion — meaning that even if we cancelled all unemployment benefit, that would only clear one 26th of the deficit.
Did the money go into the bank bailout? No. That was financially catastrophic indeed — the National Audit Office’s figure is £850 billion in 2009 alone, though estimates vary wildly. But the point is that it was a one-off disaster in 2009, and doesn’t directly explain why we are continuing to haemorrhage money.
As best I can make out, the ongoing problem is the old one of the rich getting richer while the poor get poorer. It’s well documented that the wealthiest 1,000 families in Britain, far from bearing their part of the burden of the financial crisis, have more than doubled their wealth since 2009. The Sunday Times “rich list” estimates that their collective wealth has grown by 112% since the banking crisis, so that they now control £547 billion — which is more than the combined total of the poorest 40% of British households. Since the UK has 26,473,000 households, that means that 1000 families own more than ten million do.
If you’re a socialist at heart, you might object on principle to this degree of inequality; but if you’re a capitalist at heart, you might think it’s actually perfectly reasonable that some people will do better than others. Paul Graham, for example, whose insight I respect tremendously, has argued that inequality of wealth is a good sign for a country’s culture and economy. Where’s the problem?
It’s here: if you already have a billion pounds, there is nothing you can usefully do with another billion. When a billionaire doubles his wealth, the extra billion is essentially lost to the economy. Because you simply can’t meaningfully spend more than a certain amount on houses, yachts, islands, what have you. Beyond a certain level of wealth, the limiting factor on your spending is not how much money you have to spend, but how much time you have to enjoy the things you buy.
When someone on, say, £100,000 a year gets a rise of £10,000 and spends it on new car, that money continues to circulate in the economy, making its way into the hands of the manufacturers, their employees, the people who the employees buy their food from, etc. But that doesn’t happen when the very rich increase their wealth. The money doesn’t work — it just sits in bank accounts, often offshore ones.
That’s why David Cameron can argue, quite rightly, that the GDP has grown under his tenure as prime minister, but regular people are not feeling the effect of this growth. Yes, money is being generated: but it’s a simple observable fact that it’s not reaching the people who need it most. In fact, much of it is simply being moved offshore.
Why is this important to understand?
Because the facts contradict a lot of the rhetoric that surrounds this election. It’s common to hear politicians say things like “we had to make some tough choices, but we’re all in this together”. We simply are not. The wealthiest are actively benefiting from the financial crisis, and the burden is being borne by the poorest. It really is that simple. Money is being taken out of our economy by the richest, and we’re balancing the books by taking away the public spending that the poorest depend on. (That’s what “austerity” means.)
How bad is it? There is a whole science of metrics that can be used to measure inequality, so answers are not trivial to arrive at. But if you go to the Wikipedia page List of countries by income equality and sort by either of the columns “World Bank Gini” or “CIA Gini”, you will see that UK comes out ahead of essentially every other western democracy apart from the United States. We rank alongside countries like Mali, Tunisia, Jordan and Burkina Faso — much more unequal than the likes of France, Canada, Spain or Sweden. In terms of income distribution, we are basically a third-world country.
What can be done? In principle, the solution is simple and obvious: tax the rich. In practice, people argue that it’s difficult to increase total tax revenue by increasing rates. This claim is at least unintuitive, but I’ve heard in made by people much, much more informed than I am, so I can’t just write it off.
What I do know is that:
- I can’t want another Conservative-dominated government, given how the present one has presided over the continuing transfer of wealth from the ten million families that most desperately need it to the thousand that least need it.
- I’m desperately disappointed that the Labour party have completely failed to offer a distinguishable alternative to the Conservative economic policies that have brought us to this point.
- I can’t quite bring myself to trust the Greens, because of the strange mix of their policies and the oddball ideas thrown in here and there.
- I couldn’t vote for the SNP or Plaid Cymru if I wanted to, because I am English.
- UKIP are utterly contemptible.
So it seems that by a process of elimination, I am left inclining towards the Lib Dems as the least worst of an appallingly disappointing, and horribly indistinguishable, bunch. It’s hardly a ringing endorsement, and in fact I am still far from sure who I will actually vote for*, but it’s where I seem to have landed up.
Oh, but I wish we had a choice between Conservative and Labour parties that obviously and clearly stood for different things. I wish the electorate had a practical way to signify whether they prefer present course of making poor people pay for rich people’s mistakes, or whether they’d prefer something different. In the end, the greatest failure of British politics in 2015 may be that we simply don’t have that choice.
[Read on to A final thought on the election]
* In my own constituency, the Forest of Dean, there seems to be some realistic prospect of our UKIP candidate winning the seat from the Conservative incumbent. It would be so humiliating to be part of the most backward and xenophobic constituency in the country that I may in the end be forced to vote for Mark Harper, the Conservative candidate, just to keep UKIP out. This is course is a travesty of what I should be using my vote for, which is why I was so very keen that we should adopt the Alternative Vote system (aka. STV); but of course the great British public rejected that idea.