Not a “Well Fair” State

Mark Siara - Tue 06 May, 2008

The Welfare State costs £80bn against a bank bailout that has cost so far £150bn.

Some years ago now, Tony Benn was being interviewed on the subject of the Welfare State. He probably expected questions on the William Beveridge report which highlighted Want, Disease, Ignorance, Squalor and Idleness as the five giant evils of the time. Possibly he was expecting some in-depth debate about the Labour government’s policies circa 1945 which led to the creation of the National Health Service and the party’s commitment to look after the British public “from cradle to the grave”. Or how, since their overwhelming 1945 election victory when they stood on a promise of creating the Welfare State, that promise has been undermined ever since (think rising prescription charges, the abolition of free eye tests and the near-privatisation of the dentistry profession. See also Frank Field's commentary on the history of welfare provision in Britain)

What he actually got was something like this: “So, why do they call it the Welfare State? Is it because it’s well fair?” At this point it is probably politic to mention that the interviewer was one Ali G and that said interview rapidly deteriorated in order to keep the viewing public entertained. While the television audience were most amused, Mr Benn appeared most bemused as Mr G. baited the former politician with comments about the idle unemployed, young mothers becoming pregnant just to claim benefits and comparing striking workers to people taking “a sickie” in order to take time off “to chill”. Under this onslaught, Tony acquitted himself pretty well – YouTube have a copy if you've never seen it.

But is this a fair reflection of the modern British welfare system? While it’s apparent that, under this Labour government benefits in Britain have reached historically high levels ( £80 billion in 2006), it’s not always obvious which sector of society has gained the most. Cue howls of protest from the middle-class, middle-income, middle-England taxpayer about a vast underclass sponging from the State for generations. “Don’t work and don’t want to work”. It’s true some people are conning the system, but many are not – they are just trying to cope with William Beveridge’s five giant evils on a daily basis. And it may also be true that giving out large handouts, seemingly indiscriminately, to a significant proportion of society can create a benefit culture that saps people’s confidence, takes away their pride and removes their ability to stand on their own two feet.

But there is another sector of society where vast sums have been expended in order to help them when times are hard. But these are not the down-on-your-luck, the sick or the homeless. Instead they are a group of people complicit in their own downfall, who look up doe-eyed to the government, pleading for help. “It’s not our fault” they whine “we’re just victims of circumstance” So who are these poor unfortunates, caught up in a wider global economic maelstrom? Why it’s some of the richest people and most privileged people in the country, Britain’s bankers.

To be fair, Gordon Brown tried other tactics before he handed over £50 billion of government (for ‘government’, read ‘taxpayer’; for ‘taxpayer’ read ‘your’) money. Well, one other tactic anyway – begging. It’s quite demeaning to think of the elected head of our country, hands clasped together, on his knees in front of a right bunch of bankers, pleading for help for the British public’s mortgages (for ‘public’s’ read ‘politicians’; for ‘mortgages’ read ‘re-election’). That’s not how it actually panned out of course but it’s an image to treasure. Probably Gordon opened with “you know I woke up this morning and the first thing I thought about was the British homeowner” (for ‘homeowner’ read ‘voter’) and it all went downhill from there. I’m sure the heads of RBS, HBOS, Lloyds et al were ready. They would have been expecting some kind of early morning talking to; everyone knows there’s no such thing as a free breakfast. So for all of Gordon’s cajoling and pleading the bankers would have had their answer ready: “Show me the money.”

So show them the money he did, and he may as well have renamed the Bank of England Albemarle & Bond in the process and made the governor into Uncle Merv. But it’s alright, your money’s not at risk, as the BoE have only advanced them 80% of the value of their collateral. How’s that again? The banks are not lending to each other because they don’t know how much bad debt each holds and what some of these fancy derivatives are worth. But the BoE seem happy to lend against these same exotic financial instruments. It’s a bit like someone going into a pawnbroker with a sealed box and asking to borrow money against it.

But with the BoE taking a 20% ‘haircut’ they insist everything will be OK. Have you noticed how very groomed these City terms are – ‘haircut’ in the financial sense is now entering the public consciousness. And the phrase ‘does this deal wash its own face?’ was heard on Radio Five Live this week. Anyway, given the current shenanigans, I would hope Uncle Merv. would be insisting on a short back and sides for his £50 billion. And this isn’t necessarily a short-term loan either as the sum is to be loaned for a period of up to three years. If the loan period were for one more day, the money would have to be reflected on the UK’s balance sheet. Clever that, but not as clever as the fact that the redemption period runs until after the next election.

So that’s £100 billion for Northern Rock plus another £50 billion in collateral for a grand total of £150 billion of taxpayer’s money bailing out the banks. Compare that to the annual welfare bill of around £80 billion and there will be many that think that it’s not “Well Fair” at all.