On 15 September Mervyn King, the Governor of the Bank of England, addressed the TUC. He admitted, “There was nothing fair about the financial crisis. It was caused not by problems in the real economy; it came out of the financial sector. But it was the real economy that suffered and the banks that were bailed out. Your members, and indeed the businesses which employ them, are entitled to be angry…
“In the five years leading up to the crisis, the balance sheets of the West’s largest banks doubled – mainly because banks lent more to other firms within the financial sector than to the wider economy. And the proportion of capital held by banks shrank so that their leverage – the ratio of total liabilities to equity capital - rose to unprecedented levels. Immediately prior to the crisis, the leverage ratios of some UK banks approached 50. To say that was risky is an understatement: at such levels, a 2 per cent fall in the value of a bank’s assets is sufficient to wipe out its capital and render it insolvent…
“The aim should not be to prevent all bank failures. Just as with every other company in the economy, banks that get it wrong must be allowed to fail, without risk to ordinary depositors or taxpayers... When large bonuses are paid to people in organisations that only two years earlier were bailed out by the taxpayer it becomes somewhat harder to understand.”
But when it came to policy for the future rather than analysis of the past, he toed the government’s destructive line. Some delegates had more clarity, wearing T-shirts that said “Make Bankers Pay”.
Meanwhile, the Institute for Fiscal Studies has concluded that the budget is deeply regressive. Cuts to benefits and higher VAT will hit the poorest hardest.
The poorest 60 per cent will lose between £450 and £510 a year by 2014. Higher earners will lose between £250 and £300 a year. An unemployed couple with children will lose 8.2 per cent of their income by 2014. This is revealing, but the fact remains that people need work not benefits.
Much talk about inflated salaries in the public sector feeds a view that public sector workers are generally overpaid, with “gold-plated” pensions – talk that serves the interests of a government intent on taking apart public services and feeding them to the privateers.