Mutiny or behaviour change

Not being in politics any more, I do not meet the range of people that I once did. But my guess is that the majority of the British public feel pretty sullen, with good reason. Indeed, most people don't know the half of it, and if they appreciated more about the world that we are moving into, they might be positively mutinous.

Two things particularly have riled them: bankers' bonuses and members of parliament's expenses. Those are admittedly populist causes, and some of the public vitriol may be unfair. But whatever the misapprehensions, the two scandals have revealed that our society is divided between 'us' and 'them'. Britain, ever blighted by its class system, has even today a charmed circle of people who are paid millions or claim thousands on their second homes, and outside it a mass that peers in with disgust and envy.

Cloud-dwellers and have nots

Throughout our national history it has been possible to penetrate the élite's citadel, and it still is; but public resentment is compounded because social mobility has reduced and the gap between remuneration at the top and bottom has broadened. Incidentally, the cloud-dwelling clique includes senior local authority officers (who may be paid more than the prime minister), and the editors and broadcasters who self-righteously expose the excesses of other haves.

It would be comforting to think that out of the recent financial catastrophe a new ethical capitalism could emerge, but there is no sign of it, and there are many reasons to believe that behaviours will become worse rather than better. For example, consider the fate of people that Tories describe as trying to do the right thing – to be self-reliant even after they retire. The value of their shares has been wiped out.

While bank depositors have been protected and bank executives handsomely rewarded, no tears fall for the one group that has been penalised: those who invested their life savings in supposedly secure businesses and institutions. Few executives, even those who made the calamitous decisions that ruined the banks and shook the global economy, have suffered more than a temporary interruption of their bonus flow, whereas those who entrusted their wealth to their stewardship have been ruined.

They suffer too from interest rates close to zero, or if they are in work, watch dismayed as private sector employers dismantle their pension schemes. The example from the government is to address the problem of excessive borrowing and spending by more of both.

Lower interest rates now lure still more people (as well as the Treasury) into excessive debt. It is painfully obvious that before too long the extreme laxness of monetary policy will unleash inflation in order to decimate the state's indebtedness. It will also devastate the savings of the 'prudent'.
No more effective suite of policies could have been devised to discourage thrift. You would in any case need to be quite well paid, and be lucky with your investments, to put aside during your working lifetime enough money to raise your income in retirement above the threshold for means-tested benefits.

Quite soon half Britain's retired people will rely on income-related supplements from the state. It is not clear to me how we will cope socially and politically with the gap between the incomes of those in work and those who have retired. Pensioners will look across to continental Europe, where state pensions often reflect past earnings rather than being flat rate, and perceive a marked difference in living standards.

Impact on local government

The scenario is not attractive for local government. A growing army of embittered pensioners will become dependent on, for example, housing benefit. To make things worse, new haves and have-nots are apparent as a gulf opens between those who qualify for a public sector pension guaranteed against inflation (including local authority workers) and the rest. Over time, one government or another will have to address the public sector pension problem, by drastically reducing benefits or the number of state employees. Indeed, it will have to do both, and probably before long.

So, a much smaller local authority workforce is going to have to deal with a population increasingly affected by poverty and disappointment. The relationship between those who need state charity and those who dish it out is rarely a good one, and as councils increasingly make extra charges, for example, for parking and rubbish collection, it will hardly improve. The most important distinction between haves and have-nots is between those who have to involve the state in their lives and those who don't have to.

Towards sustainable public finances

The word 'sustainability' is often used in connection with climate change. But I can perfectly well see how with political courage and human ingenuity we could avert disaster in that area, for example with the mass development of nuclear power and electric cars. To me that seems a less daunting problem than the unsustainable economic trend on which we are now dependent: a relatively small number of people in work struggling to pay even meagre benefits to today's pensioners, and making little provision for its own retirement.

The deterioration in the public finances during the recession will require changes in taxation and public spending on a scale that has few precedents in our history. But beyond that, the British will need to make a major adjustment away from consumption towards saving. It will require us to postpone gratification, to learn to wait for the things we want and to accept more responsibility for our futures. The government will need to compel us to be thrifty (which will be highly unpopular) and to guarantee us that what we put aside will actually lift us above the welfare safety net.

After the general election, those who govern will need to lead the country into the biggest change in expectations and behaviour since the Second World War. I hope they realise that.

The Rt Hon Michael Portillo entered the House of Commons in 1984. He was a minister for 11 years and had three positions in the Cabinet, including secretary of state for defence. Since leaving politics, he has devoted himself to writing and broadcasting. He writes for the Sunday Times and is a regular on both BBC 1's This Week programme and Radio 4's Moral Maze. He has made documentaries on subjects as diverse as Richard Wagner and the death penalty.

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