Cap bonuses, not benefits

Posted: January 24, 2012 in Uncategorized

by Andrew Simms
nef fellow

 
Why are we so keen to punish the victims of the economic crisis instead of its perpetrators?
 

If nothing else, the habit of blaming the victims in times of economic crisis is remarkably consistent. Making the behaviour of people receiving welfare benefits in times of high structural unemployment the focus of debate, is a convenient political trick to distract attention from the failure of government economic policy. It was used repeatedly during recessions in the 1980s and 1990s by a government that thought high unemployment was ‘a price worth paying’to control inflation.

If the discussion is about whether or not people are trying hard enough to find a job, it neatly suggests that the problem is with the individual rather than the state of the economy. As a divide and rule technique it is marvellously effective and immensely socially divisive. It pits the world (and especially the media) against the poor, and the poor against each other.

The Coalition’s benefits bill may have been blocked by the House of Lords yesterday, but there remains a mainstream political consensus on the idea of introducing a cap on state support for people who are, or have been made unemployed. Why is there no appetite for a cap on bonuses of those in the financial sector who caused the recession?

Average remuneration for the 1,200 most senior staff in financial services was £1.8 million in 2010, which means that pay for a single City worker in that group is equal to the total income of 69 families on capped benefits. Looked at more narrowly, the chief executive of nationalised bank RBS, Stephen Hester, is reportedly in line for a bonus that alone would be equal to the total income of 62 families surviving on capped benefits.

MPs are currently lobbying for a return to their own second home allowance scheme under which they could claim up to £25,000 (they can still claim a lot but it varies more now).

In terms of cause and effect, there’s a degree to which the proposed cap on welfare benefits adds insult to injury. Because housing is a big part of the benefits bill, the suggestion is that if the families of the unemployed are living in accommodation, the cost of which would take them beyond the cap, then they should simply move to cheaper areas. But the housing market, especially in the South East, is heavily distorted by the fact that London is the centre of the astronomically high-paid financial services sector. If you’re a top end City worker, a single bonus might buy you a home. As has been extensively reported, a big part of the reason that the crash happened was highly-rewarded private risk taking in the housing market, that because of the publicly guaranteed nature of banking, actually carried little risk for those banks that gambled and got it wrong.

So, not only have financial services triggered a recession leading to rising unemployment and families dependent on benefits, they’ve also driven up the cost of the housing in which the unemployed find themselves. If the poor are now forced to move to areas of the cheapest housing it will amount to a form of economic apartheid and ghettoisation. It’s worth remembering, as the Bureau of Investigative Journalism revealed, that finance as a sector is by far the largest funder to the Conservative Party. Ian Duncan Smith effectively admitted on BBC Radio 4 that the Coalition government that he was speaking on behalf of, had not modelled the likely effects of the benefits cap proposal, but merely‘believed’ it would not worsen homelessness. The danger is that the full social costs of the cap could, in a broader sense, cost far more than it is claimed it will save.

Now that even the IMF say that austerity measures have gone too far and are counterproductive to bringing about economic recovery, its easy to see the attractiveness of measures that create the impression of the problem lying elsewhere. Since the crisis began, we’ve witnessed the gymnastic ability with which the economic model’s failure has been used by its advocates to push the very same model even further into our lives.

Instead of blaming the victims, the government could stimulate the economy by investing in a brave new world of affordable, social housing. It could prevent on mortgage holding bank that has a public stake from repossessing the homes of victims of the recession. It could cap (if not abolish) bonuses in the City, or tax them at 100 percent and invest the money in solving the housing crisis.

The trouble for the poor and unemployed compared to those employed in finance is not only their lack of power, but lack of voice. Every morning on television and radio business reports we still hear deferentially treated the voices of those whose approach to the economy brought the crisis. Perhaps the unemployed should be allowed a daily right of reply.

http://www.neweconomics.org/blog/2012/01/24/caps-bonuses-not-benefits?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+neweconomics%2Fblog+%28the+new+economics+foundation+blog%29

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