British economy skating on thin ice


BA is currently approaching a number of private equity companies about forming a consortium to bid for Iberia airlines. Iberia said last month that the private equity firm Texas Pacific Group was targeting the airline with a £2.3bn takeover offer.

BA and Texas Pacific know each other well. The US raider sacked 800 Gate Gourmet workers by megaphone in the company car park after BA cut its contract with the company in August 2005.

Now Iberia’s shares are soaring at the news that the vultures are gathering over the company for a buy out and for an orgy of asset stripping.

Meanwhile, two private equity groups are battling over who is to asset strip Boots in a bid that will load up the company with up to £11 billion in debt which will be redeemed by selling off at least 160 of its stores, according to the GMB trade union.

The private equity raiders have profited in a period of low interest rates when billions could be borrowed from banks at low rates, and then repaid with a massive profit for the equity group, by asset stripping, savagely cutting workers’ wages, carrying out mass sackings and imposing ‘survival plans’.

They seemed to herald a bourgeois paradise in the making.

However, the IMF recently warned that the day of the private equity raider was coming to an and, and that rising interest rates would bankrupt them.

In fact, the debt dominated equity groups, are true expressions of the state of British capitalism where household debt, including mortgage debt is at £1.4 trillion, bigger than the entire British capitalist economy. The British economy as a whole is in hock and heading for disaster.

Manufacturing industry has been wound up with millions of jobs lost. The Blair-Brown government for the last 10 years has been trying to make up for this by encouraging people to stop saving, and to borrow and borrow in order to spend, to keep what is left of the British capitalist economy going.

There has also been a colossal inflation in oil, gas, electricity, transport and house prices, which has led to a slashing of living standards.

The lowest average house price in the UK is now £104,738 in the town of Lochgelly in Fife. The average house price in the UK is now over £200,000, while modest houses in London are being priced at £500,000. The former house buying middle class are now the hidden homeless staying at home with their parents into their 30s.

In the latest disaster, the US economy, the driving force of the world economy, is weakening fast. The US housing market has collapsed, major industries like the US car industry are bankrupt, and the dollar has crashed to 50 cents to the pound sterling.

This has concentrated the crisis of the UK economy where there already is a gigantic balance of trade deficit, the biggest in its history, while the official UK inflation rate is now at 4.8 per cent.

Now, a new series of interest rate rises is on hand, and even the representatives of the bourgeoisie who have been wallowing in inflationary speculation are warning that the British capitalist economy is skating on the thinnest of thin ice, with a collapse of the ice imminent.

Yesterday the Ernst & Young’s Item Club, who work on the same economic model as the treasury, was warning in its spring forecast that people are ‘overly relaxed about risk’ and are ‘spending as if it was going out of fashion’.

Club chief economic adviser Peter Spencer said that interest rates would be going up till 2011 and ‘we are heading for a fair amount of trouble’.

The report highlights the current deficit in the public sector and the Club’s verdict is ‘Ultimately we are all skating – not to say wobbling – on thin ice.’

The Item Club is warning that a bust is on the way.

Higher interest rates till 2011 will lead to massive increases in mortgage interest rates and bankrupt millions who are already up to their necks in credit card debt, as well as leading to a big growth in unemployment.

The answer of the bourgeoisie to this crisis will be cuts all round, in wages and benefits, with the aim of eliminating the Welfare State.

The answer of the working class must be a socialist revolution to overthrow crisis ridden capitalism, to go forward to a planned socialist economy.

The decisive issue for socialists is the building up of the revolutionary party to lead the coming socialist revolution to its victory.