Belfast Telegraph

So, how can we help our most vulnerable people?

Crises in governments' budgets must not distract from the necessary debate on social inequality, says Derek Alcorn

The credit crunch of 2008 has moved in to the Euro crisis of 2011, with banks under continuing pressure to recapitalise, and sovereign governments in Europe under pressure to restrict expenditure and balance budgets.

In consequence, we have a recession, a contracting economy, increasing personal debt and cuts to the income of the poorest people in the UK.

The Welfare State legislation of the 1940's was a major social settlement, challenged 30 years later in 1979 by the election of Margaret Thatcher. The era of deregulation which she introduced exploded spectacularly with the US sub-prime crisis in 2008, forcing the British Government to spend £1.3tn alone on shoring up the banks.

The crisis was caused by governments. The UK financial industry was deregulated in the mid 1980s, easing restrictions on lending and credit availability. Gordon Brown took regulatory power away from the Bank of England and gave it to the Financial Services Authority.

In 1999, the Clinton Administration passed the Financial Services Modernisation Act, which lifted restrictions on the integration of banking , insurance and stock trading which had been imposed by the Glass Steagall Act of 1933.

Brown made speeches to the city about " light touch regulation" and Mandelson said publicly that the government was relaxed about people being seriously rich.

Against this background, and a deliberately engineered boom which was a one-way bet on house prices continuing to rise, the economy expanded, and people encouraged to borrow against their houses, their credit cards and against the self certification of their own income.

A Commission on Banking has now recommended that retail and investment banking now be separated. This would catch us up with where the USA was in 1933.

It is difficult to resist the argument that the country is run by a feral elite unaccountable and rewarded even for failure on this scale.

The Occupy Wall Street protesters, and their global counterparts including those in Belfast are raising fundamental issues about the growing and visible income inequalities in our society, the failure of financial regulators to do their job, the £25bn uncollected tax in the UK (HMRC 2010 estimate), the expectation that the UK public, including the poorest people, should shoulder the burden of the £1.3tn bailout of the banks, which continue to pay out huge sums in bonuses.

We can only look in envy, at Norway which has placed its oil industry proceeds into a Sovereign Wealth Fund for improving the country's public services and infrastructure, and at Canada which never deregulated its finance industry. The current challenge to the social settlement which is the welfare state is familiar in its rhetoric. It sees expenditure on health, education, housing and public transport as a cost, rather than an investment.

As the EU grapples with the Euro crisis, it is clear new financial and social models need to be developed which accept the environmental arguments about the unsustainability of unlimited economic growth.

The Euro crisis is perhaps a stage in the development of such models, but in essence we need a new social contract which reverses the growing financial and social inequality in society, provides a framework for risk and entrepreneurship to be rewarded, and achieves a balanced economy which looks after vulnerable people.

The debate around new economic models will have to consider the wider issues of population, energy, carbon emissions, and challenge the expectation of continued economic growth.

This has implications for investment in transport, the incorporation of renewable energy, energy policy and consumption, transport, agriculture and food, public service delivery and the restructuring of car manufacturing and other industry. These are the long-term issues facing the UK, and western economies.

Political structures also need to devise a mechanism which will take these issues out of the short-term pressures which every government falls prey to, and into an environment of rational analysis.


From Belfast Telegraph