Socialist Worker

How we pay for bosses’ crises

While commentators hailed Gordon Brown’s bailout of the banks as a bold move that the world would follow, few considered who would pay the bill. Socialist Worker looks at some of the ways the crisis is impacting on working class people

Issue No. 2123


Pensions

More than seven million people with pension schemes have lost an average of £20,000 this year. This is because their schemes are linked to the stock market.

At least £150 billion has been lost from money purchase schemes, where workers pay into a fund that is invested in stocks and shares.

Here the average scheme lost around a tenth of its value during last week’s market crash.

Up to 100,000 people who are set to retire now face losing a fifth of their income.

Analysis by the financial firm Standard Life suggests that, until a month ago, a 65-year old male nearing retirement with a total of £200,000 invested in a pension fund could have hoped for an annual income of £15,480.

Today he can expect £2,000 less a year.

Things are little better for 370,000 people who have retired recently, as many have as much as 70 percent of their pension invested as annuities in the stock market.

Each will have lost an estimated £36,000 in the last month alone, Standard Life says.

As a result of the crisis thousands of elderly people are being forced to delay their retirement, often by several years. There is also growing evidence of pensioners finding themselves in high levels of debt.

According to research by debt management firm Payplan people in their 50s and 60s are around 25 percent more in debt than other age groups, with average unsecured debts of £41,400.


Unemployment

More than two million people face Christmas on the dole as the economic turmoil hits firms up and down Britain.

Official unemployment figures, due as Socialist Worker goes to press, are expected to show another increase in job losses.

But many commentators predict that the worst is yet to come, with the knock-on effects of the credit crunch only now leading to job losses in the wider economy.

Communications giant Virgin Media this week announced that it is to cut more than 1,000 jobs from its sales centres in Gateshead, Manchester, Liverpool, Nottingham and Dudley.

Many firms are facing a double squeeze as shoppers spend less and banks withdraw credit facilities.

Scotland is set to be especially hard hit due to its heavy reliance on banking and finance industries, according to the Centre for Economics and Business Research. It predicts that unemployment there will rise by some 38 percent to 150,000 by the end of next year.


Taxes and cuts

The cost of bailing out the banks will be felt in higher taxes and lower public spending. That is the lesson from Ireland, where the harshest budget since the recession of the 1980s is being prepared.

The Fianna Fail-led coalition government is preparing to offset its spending on the crisis by increasing indirect taxes – such as those on fuel, alcohol and tobacco – while drastically cutting back on spending in areas such as health and education.

Gordon Brown’s bank bailout is modelled on a similar plan rolled out by the Swedish government in 1992 to deal with a banking crisis triggered by a collapsing housing bubble. Sweden spent the equivalent of £10 billion on taking controlling shares in its banks in order to rescue them.

This stabilised the banking system – but ordinary people paid the price. Throughout the rest of the 1990s successive Swedish governments implemented swingeing cuts in public spending, with welfare and social programmes bearing the brunt of the axe.

Britain’s government debt is now likely to top 50 percent of national income as a result of the financial aid being doled out.

This figure could rise to 100 percent if the government is forced to include the debts of all the banks it now owns a controlling stake in.

The Institute of Fiscal Studies (IFS) calculates that the public will be paying for the bailout for at least another five years. It says the government is likely to boost spending and restrict taxes in the short term – but enforce a massive squeeze after 2010.


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Tue 14 Oct 2008, 18:24 BST
Issue No. 2123
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