Ben Chu: It's bankers who are the real drain

I am ready to accept that the benefits system harms those it is intended to help. But if a life of reliance on others is bad for the poor, then surely it is equally so for the rich

Share
Related Topics

We need to wake up. Britain has a problem with welfare. There is a deep benefits trap in this country and many thousands are caught in it. These individuals survive on help from the state. They are a drain on hard-working taxpayers. Worse, they see no future beyond this abject condition of dependency and furiously resist any attempt to alter the status quo. Go to the City of London, take a trip to Canary Wharf, and witness the victims close-up: they are Britain's too-big-to-fail bankers.

But it's surely preposterous to compare the hard workers of our financial services sector to the able-bodied welfare recipients that Iain Duncan Smith and George Osborne have pledged to liberate, isn't it? Correct. The comparison is unfair. The scale of the two abuses is quite different. The right-wing think tank Policy Exchange has estimated that £2bn a year is wasted on paying incapacity benefit to the able-bodied. But the financial support given to the financial sector by the state since 2008 amounts to £1 trillion, according to Mervyn King, the Governor of the Bank of England. As Mr King put it last year, "never in the field of financial endeavour has so much money been owed by so few to so many". No: in recent years, the bankers have been by far the bigger drain on the public purse. And while benefits scroungers unfairly appropriate the taxes of workers, their excesses, unlike those of bankers, do not have the capacity to sink the entire economy.

Mr Duncan Smith is frustrated by the complex array of benefits on offer to the jobless, the poor and the incapacitated. Well, the Work and Pensions Secretary should take a look at the financial sector's complex state support system. At the height of the crisis there were injections of £76bn of taxpayers' money to recapitalise the Royal Bank of Scotland and Lloyds Banking Group. A £500bn Asset Protection Scheme was set up to guarantee their loans. And an £185bn Special Liquidity Scheme for the sector allowed banks to swap hard-to-sell mortgage-backed securities for government bonds (which are as good as cash). Barclays is fond of reminding us that it did not take any state capital in the crisis. Yet the bank happily tapped the assistance on offer from the Bank of England's Special Liquidity Scheme.

Monetary policy, too, is the banker's constant friend. The unprecedented slashing of interest rates in recent years has been, in effect, a benefit for borrowers at the expense of savers. There are few bigger borrowers in the private sector than the banks, and unlike most normal borrowers, the UK banks can borrow short-term at the ultra-low 0.5 per cent rate directly from the Bank of England. If they use those funds to buy 10-year Treasury bonds that yield 3 per cent, which many of them have, they register an instant profit. This has been the covert bailout.

It is not just Britain that has a problem of banker dependency. The favours granted to America's giant financial institutions have been just as generous. The vast capital injections for all large US banks have now been repaid, but the Federal Reserve continues to hold interest rates down. Alan Greenspan might have left the Fed, but the old "Greenspan put" – the assumption that the central bank will slash interest rates if Wall Street gets into trouble – is alive and well.

Across Europe the bankers' welfare state also flourishes. During the crisis, the European Central Bank permitted the continent's banks to swap their dodgy sovereign bonds for cheap borrowing. And in Ireland, the toxic assets of the banks are, even now, being transferred to the state balance sheet. Being a too-big-to-fail banker in any country is the ultimate state benefit. The banks get the financial upside of the debt bubbles they inflate and society takes the downside. Heads they win, tails taxpayers lose.

Like those trapped in a life of jobseekers' allowance and housing benefit, these bankers might look like they are enjoying the good life with their vast state-underwritten bonuses. But they must be suffering inside. These overpaid financiers used to regard themselves as the masters of the universe, but in recent years they have accepted great truckloads of official help. Think of the damage it must do then to their self-esteem to know that they are propped up by the state; that they're not wealth creators, but, whisper it, economic parasites.

So those on the right who are cheering on Conservative ministers as they attempt to spring the benefits trap for those at the bottom of the social heap, I implore you: don't forget their brothers and sisters in need. Don't forget the too-big-to-fail bankers.



Some of you cheerleaders, I suspect, are insincere in your proclamations of concern for the poor and, in your heart of hearts, want to see benefits cut because you believe the recipients are mostly feckless and deserve to be punished for it. But I am ready to accept that many of you genuinely believe the benefits system, as presently configured, actually harms those it is intended to help. Yet if a life of reliance on others is demoralising and debilitating for the poor, surely it's demoralising and debilitating for the rich, too. Why should gilded lives be any less stunted by state dependency?

The solution is to break up the banks. Shrink them down and separate their functions so there can be a credible threat that they will be allowed to fail without the state needing to rescue them when they run into trouble. That is the medicine recommended by the Bank of England Governor. And that is the only way to liberate the bankers from their expectation of state benefits in times of trouble.

So if you abhor cultures of dependency, press for the Coalition's Independent Commission on Banking to recommend radical structural reform of the financial sector. Don't fall for the special pleading of the banking lobby. And a message for George Osborne, David Cameron and Iain Duncan Smith: you need to throw your weight behind this effort because otherwise the public will come to the dangerous conclusion that you only care about welfare dependency when it's the poor who are doing the depending.

b.chu@independent.co.uk



For further reading : Speech by Mervyn King to Scottish business organisations: www.bankofengland.co.uk/publications/speeches/2009/speech406.pdf

React Now

iJobs Job Widget
iJobs General

Biztalk - outstanding opportunity

£75000 - £85000 per annum + ex bens: Deerfoot IT Resources Limited: Biztalk Te...

Trade Desk Specialist (FIX, Linux, Windows, Network Security)

£60000 per annum: Harrington Starr: Trade Desk Specialist (FIX, Linux, Windows...

Service Desk Analyst (Windows, Active Directory, ITIL, Reuter)

£35000 per annum: Harrington Starr: Service Desk Analyst (Windows, Active Dire...

PHP Web Developer (HTML5, CSS3, Jenkins, Vagrant, MySQL)

£40000 - £45000 per annum + Benefits + Bonus: Harrington Starr: PHP Web Develo...

Day In a Page

Read Next
 

i Editor's Letter: The final instalment of our WW1 series

Oliver Duff Oliver Duff
 

Simon Usborne: The more you watch pro cycling, the more you understand its social complexity

Simon Usborne
A History of the First World War in 100 Moments: Peace without magnanimity - the summit in a railway siding that ended the fighting

A History of the First World War in 100 Moments

Peace without magnanimity - the summit in a railway siding that ended the fighting
Scottish independence: How the Commonwealth Games could swing the vote

Scottish independence: How the Commonwealth Games could swing the vote

In the final part of our series, Chris Green arrives in Glasgow - a host city struggling to keep the politics out of its celebration of sport
Out in the cold: A writer spends a night on the streets and hears the stories of the homeless

A writer spends a night on the streets

Rough sleepers - the homeless, the destitute and the drunk - exist in every city. Will Nicoll meets those whose luck has run out
Striking new stations, high-speed links and (whisper it) better services - the UK's railways are entering a new golden age

UK's railways are entering a new golden age

New stations are opening across the country and our railways appear to be entering an era not seen in Britain since the early 1950s
Conchita Wurst becomes a 'bride' on the Paris catwalk - and proves there is life after Eurovision

Conchita becomes a 'bride' on Paris catwalk

Alexander Fury salutes the Eurovision Song Contest winner's latest triumph
Pétanque World Championship in Marseilles hit by

Pétanque 'world cup' hit by death threats

This year's most acrimonious sporting event took place in France, not Brazil. How did pétanque get so passionate?
Whelks are healthy, versatile and sustainable - so why did we stop eating them in the UK?

Why did we stop eating whelks?

Whelks were the Victorian equivalent of the donor kebab and our stocks are abundant. So why do we now export them all to the Far East?
10 best women's sunglasses

In the shade: 10 best women's sunglasses

From luxury bespoke eyewear to fun festival sunnies, we round up the shades to be seen in this summer
Germany vs Argentina World Cup 2014: Lionel Messi? Javier Mascherano is key for Argentina...

World Cup final: Messi? Mascherano is key for Argentina...

No 10 is always centre of attention but Barça team-mate is just as crucial to finalists’ hopes
Siobhan-Marie O’Connor: Swimmer knows she needs Glasgow joy on road to Rio

Siobhan-Marie O’Connor: Swimmer needs Glasgow joy on road to Rio

18-year-old says this month’s Commonwealth Games are a key staging post in her career before time slips away
The true Gaza back-story that the Israelis aren’t telling this week

The true Gaza back-story that the Israelis aren’t telling this week

A future Palestine state will have no borders and be an enclave within Israel, surrounded on all sides by Israeli-held territory, says Robert Fisk
A History of the First World War in 100 Moments: The German people demand an end to the fighting

A History of the First World War in 100 Moments

The German people demand an end to the fighting
New play by Oscar Wilde's grandson reveals what the Irish wit said at his trials

New play reveals what Oscar Wilde said at trials

For a century, what Wilde actually said at his trials was a mystery. But the recent discovery of shorthand notes changed that. Now his grandson Merlin Holland has turned them into a play
Can scientists save the world's sea life from

Can scientists save our sea life?

By the end of the century, the only living things left in our oceans could be plankton and jellyfish. Alex Renton meets the scientists who are trying to turn the tide
Richard III, Trafalgar Studios, review: Martin Freeman gives highly intelligent performance

Richard III review

Martin Freeman’s psychotic monarch is big on mockery but wanting in malice