Saturday, January 11, 2014

Ideological austerity: London fire service cuts vs huge bonuses at publicly owned banks


On Thursday the 8th of January hardened London firefighters wept as their fire stations were shut down. Ten stations were closed down simultaneously in a desperate Tory attempt to save £45 million.

To put this figure of £45 million into better perspective it is useful to look at the bonuses that were paid out at the taxpayer backed banks RBS and Lloyds.

Despite making a £570 million pound loss, Lloyds - which is 43% owned by the taxpayer - handed out £365 million in bonuses for the 2012-13 economic period.

RBS fared even worse, losing £5.2 billion (making total losses of £34 billion since the 2008 bailouts), but they handed out £607 million in bonuses to their staff. RBS is 82% owned by the taxpayer.

An apologist for the Tory cuts might try to deflect from the issue by asking what these extravagant bonus handouts at loss-making banks have to do with the government. There are two main things:

  1. The government is the largest shareholder in both of these organisations, meaning that they have the power to curtail the bonus culture within the boardrooms of these institutions, should they want to.*
  2. George Osborne is currently wasting taxpayers' money appealing against an EU ruling designed to curtail outlandish bonuses in the European banking sector. He was the only one of the 27 EU finance ministers that voted against the plan to cap bankers bonuses at 100% of their salary (or 200% in exceptional circumstances). Now he's using our money to vexatiously appeal the ruling on behalf of his friends in the City of London.
Another useful comparison can be made with the vast sums that the Tory government gifted to the private sector when they decided to deliberately undervalue Royal Mail in order to sell it off on the cheap. The most conservative estimates put the losses to the taxpayer at over £1 billion, and if the estimated value provided by JP Morgan is to be believed, the losses are more like £6 billion.

If we accept the £6 billion figure from JP Morgan as a reasonable estimate, that amount would have been plenty enough to cover the £22.5 million projected annual running costs of the ten closed fire stations for 266 years!


 
It is also worth noting that when the Tories invoke the spectre of an annual £22.5 million running cost as justification for closure, they are being disingenuous. Much of that money flows straight back into the economy (through payroll taxes, supply and service contracts, firemen spending their wages ...) plus there are other economic benefits too (the amount of money saved on repairs by minimising fire damage to commercial and residential properties, lower insurance costs ...). It is entirely possible that some of these stations actually provide a positive overall returns, all things considered, and shutting them down is an example of an ideologically driven false economy.

While we can't be exactly sure how much value would have been returned into the economy by these fire stations, we can be absolutely sure of is that the Tory government and their economics wonks at the Office for Budget Responsibility Recklessness have a track record of catastrophically underestimating the returns on investment on countless other services that have been cut as part of George Osborne's ideological austerity experiment.

    

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*They quite obviously don't want to curtail the bonus culture in the City of London, in fact they are legally challenging new EU rules designed to clamp down on the problem - see point 2.

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