Welcome to London, Austerity City

As government spending cuts bite in Britain, some of London's poorest residents wonder why they're the ones feeling the pain.

The towers of the Canary Wharf business and shopping district rise beyond the Robin Hood Gardens estate in London's borough of Tower Hamlets. Photo / Bloomberg
The towers of the Canary Wharf business and shopping district rise beyond the Robin Hood Gardens estate in London's borough of Tower Hamlets. Photo / Bloomberg

Bank security guards in London lock the doors when they see Liam Taylor coming.

During protests last year, the secondary school teacher and a dozen others pushed through the revolving doors of Barclays headquarters in the city's Canary Wharf financial district, chanting protests against bankers' bonuses and tax avoidance.

The British bank was handing out £65.5 million ($135 million) to eight executives, including chief executive Bob Diamond. Meanwhile, the council of the surrounding neighbourhood of Tower Hamlets was slashing £72 million from its taxpayer-funded budget.

Here, where two worlds collide, the 26-year-old teacher plays an active role in the Occupy London protest movement. Tower Hamlets has one of the highest rates of young people receiving jobless benefits in London, the highest proportion of poor children and older people in England and the worst child poverty in Britain.

In its midst is Canary Wharf, a privately owned oasis of wealth where Taylor leads Occupy tours every couple of weeks. Nine of the world's biggest banks trade, lend and advise clients here. His message: This is where the wealthy 1 per cent enrich themselves by avoiding tax, racking up debt, selling risky investments and using public funds for bailouts. They do so at the expense of the remaining 99 per cent, who bear the burden of higher taxes and fewer public services, he argues.

"These huge glass towers you can see around us are all in Tower Hamlets, and yet Tower Hamlets remains the borough with the highest rate of child poverty," says the softly-spoken Taylor. "The bonuses are being paid out of money which should have been paid in tax to provide public services."

Canary Wharf is the base for companies that pay some of the highest salaries in the world. They include Britain's Barclays and HSBC Holdings, Switzerland's Credit Suisse Group and the European operations of US-based Citigroup, JPMorgan Chase & Co, Morgan Stanley and Bank of America.

After a year of Occupy and trade union demonstrations in London, the sense of unfairness is growing as support for the Government erodes.

Austerity measures are taking effect just as Britain enters its first double-dip recession since the 1970s. The budgets of Tower Hamlets and the deprived boroughs of Hackney and Newham were cut the most among London neighbourhoods last year, while wealthy Richmond-upon-Thames' budget was reduced the least.

Income inequality among working-age people has risen faster in Britain than in any other wealthy Western country since 1975. Nowhere is the divide more evident than in Tower Hamlets and Canary Wharf. Many of Canary Wharf's 95,000 workers travel to and from the skyscrapers on trains that pass under or over the 240,000 residents of Tower Hamlets. A four-lane highway and railway separate Canary Wharf from the rest of the borough. There are guarded checkpoints for cars.

Canary Wharf's shiny underground malls are decked with advertisements for products including a Citigroup account for those with an "international lifestyle". The grubby streets of Tower Hamlets feature empty spaces covered with graffiti: "Sorry! The lifestyle you ordered is currently out of stock."

Taylor moved to Tower Hamlets in 2008 and soon began teaching history and citizenship. He had just graduated from one of the oldest colleges in one of the most elite universities in the world - Oxford University's Balliol College.

Taylor was born the same year that former Prime Minister Margaret Thatcher's "Big Bang" financial deregulation triggered a massive expansion of the British banking industry. That spurred demand for the giant trading-floor spaces of Canary Wharf.

Taylor watched as lenders took multibillion-pound government rescues. Royal Bank of Scotland and Lloyds got bailouts in October 2008. The Government propped up banks with £1 trillion in capital and guarantees. While Barclays didn't cede an equity stake to the Government, the bank did benefit from government liquidity support along with all lenders, former chief executive John Varley said in 2010.

Britain's gross domestic product is still more than 4 per cent below its peak in early 2008, and net debt has almost doubled to £1.02 trillion since then. In May 2010, Conservative Prime Minister David Cameron took office with a mandate to halt the government's debt spiral.

Cameron pushed through cuts to spending on public services including hospitals and schools such as Taylor's, where about 60 per cent of students are poor enough to get free meals. Taylor's sense of injustice boiled into anger and he evolved into a political campaigner convinced that the finance industry creates inequality rather than wealth.

"My entire life I've been told that banks are a good thing, that they bring lots of money into the economy and that we shouldn't do anything about them," Taylor says. "It's time for a bit of hearing the other side of the argument."

Looking northeast, Canary Wharf bankers can see the concrete blocks of the Robin Hood Gardens estate, where Bangladeshi women grow spinach in flowerbeds and where laundry dries on balconies.

The borough stretches north to the stadium built for the Olympic Games and west to the City of London, the ancient financial district built around St Paul's Cathedral and the Bank of England. While the Olympics are managed from Canary Wharf by former Goldman Sachs executive Paul Deighton, none of the events will take place in Tower Hamlets.

People from the two worlds don't know much about each other. When a reporter asked 50 people in Canary Wharf which borough they were in, 37 said they didn't know.

"It's a bit strange that this is all part of Tower Hamlets, because it's not poor," says Eloise Hillman, an information technology consultant who works at Canary Wharf. "It's not run-down, and it's banking and financial and rich."

From the other side of the tracks, Barbara Williams can see the tower-top signs of capitalist icons such as Citigroup from her balcony. Walking through the streams of suited workers makes her feel "worthless," she says.

"They think they're above me, that I'm not worthy to share the same air as them," says Williams, 33, an unmarried mother of two. She has lived on government welfare since having her first child at 17.

With no savings and £13,000 of debt, Williams estimates she will have to earn £24,000 a year to maintain her standard of living without government benefits. Last month she found a job at a company that provides holidays for the disabled. It pays £16,000 a year.

"We didn't cause the crisis," Williams says. "The Government and the people with the high-paid jobs caused it."

The aim of the welfare overhaul is to "recreate a culture of independence and self-reliance," said David Freud, the minister for welfare reform last month. The system had trapped people in joblessness and benefit dependency, he said.

That isn't the way John Jones sees the benefit changes. Wounded twice serving in the Royal Navy during WWII, he worked 50 years as a plumber and paid taxes to fund the welfare state. Now blind, with prostate cancer and arthritis, the 91-year-old says he feels let down.

A representative of Tower Hamlets visited to tell him the borough council would discontinue his midday caregiver's visit, Jones says. That means no warm food or drink until evening.

Tower Hamlets Mayor Lutfur Rahman says a new cap on housing benefits may force 6000 people to move.

At Langdon Park School where Taylor teaches, the spending cuts became evident soon after Cameron gained power. Teacher pay was frozen. A multischool programme to increase participation in sports - dubbed by politicians as part of the Olympic Games legacy - was cut.

John Parry, a 15-year-old student at Langdon Park, won the Tower Hamlets public speaking competition this year, sponsored by Lloyd's of London, the world's oldest insurance market. He says he would be glad of an opportunity to work at Canary Wharf, yet he sees his prospects for going to university dimming since the Government almost tripled fees to as much as £9000 a year.

"You can do anything if you want to do it, but I think it would be harder for someone like me to get there [Canary Wharf]," says Parry. The son of a scaffolder, he says he is thinking of becoming a plumber and a property developer.

Government cutbacks amid bank bonus payouts helped make last year one of protest in Britain. Days after Taylor led his band into Barclays that March, 250,000 public-sector workers marched through London objecting to cuts to education and healthcare. Last August, social tension across London flared up in the worst riots since the 1980s. Thousands of young people looted shops after a peaceful protest over a police shooting in the north of the city turned violent.

In October, Taylor joined Occupy London in pitching tents outside St Paul's Cathedral. One Sunday evening in November, protesters were preparing to debate the role of the City of London Corporation, which manages the old financial district around the cathedral. The corporation traces its roots back more than 1000 years.

Stuart Fraser, the corporation's policy chairman, personifies the industry that Occupy participants criticise. He has worked in the City for a half-century after starting as a stockbrokers' messenger. The 66-year-old learned of the planned debate from Twitter, he says, and walked over to participate.

"I just went along and said if you are going to talk about it, you might as well have the arch-evil person here," Fraser says. Over succeeding months, Fraser continued to defend the industry against complaints that it didn't pay enough tax while adding to economic inequality. While Fraser extols the benefits of the finance industry, including £63 billion in taxes paid last year, he says the protesters are having an impact, and credits the movement with elevating inequality on the national agenda. In March the City agreed to join Occupy protesters in backing a campaign for higher wages for cleaners and other workers.

Some people on both sides of the railway tracks are trying to break down the barriers that contribute to inequality. Rushanara Ali, a Labour member of Parliament from Tower Hamlets, helped start Fastlaners, a two-week finishing school to prepare university graduates for jobs.

Local people need that kind of help to overcome the psychological obstacles to economic opportunities, says Ali, who was born in Bangladesh, raised in Tower Hamlets and educated at Oxford.

"There has been an absolute failure of ambition in terms of getting the business community to work closely with the local community," she says.

Fastlaners' funding ran out last year and wasn't renewed by the Government, though Ali is on another programme called UpRising, designed to pair up young people with mentors from companies in Canary Wharf and elsewhere.

Vikash Gupta was one of the mentors at a twilight reception Ali attended one evening in February. He is a Barclays banker for clients with more than £10 million to invest, and works above the foyer that the teacher Taylor invaded a year ago.

"The biggest inequality we can address is the level of confidence and ambition and accessibility," says Gupta. The son of a soap maker from Jharkhand and a mother who was married at the age of 13, Gupta was the first in his family to go to university, studying mechanical engineering at Bangalore University.

He is mentor to Andrew Jude Rajanathan, a 24-year-old graduate of Queen Mary, University of London in Tower Hamlets and of the London School of Economics. Rajanathan works at Liv-ex, an online market for fine wine, and says equality campaigners have "very valid" concerns, which the Government can address with more support for entrepreneurs and work for those leaving school.

Gupta himself sees the divide between Tower Hamlets and Canary Wharf as he walks from his riverside apartment with manicured lawns. He crosses under the railway to reach the New Look barbershop in Tower Hamlets not far from Taylor's school. A good haircut there costs £7, compared with £59 for the cheapest cut at the Toni & Guy salon in Canary Wharf.

Taylor started his free Occupy tours of Canary Wharf last November. The visits began as a way of educating the public after Canary Wharf Group obtained an injunction against protesters, Taylor says.

The tour lasts a little more than an hour and draws between four and 25 people each time, plus trailing guards. The teacher insists he is motivated by justice and not by the politics of envy. The first stop is a tower occupied by JPMorgan.

"This is the most doomed, cursed building in financial history," Taylor says. It was originally intended for Enron, the world's largest energy trading company before its 2001 bankruptcy filing because of accounting fraud, he says. Then Lehman Brothers moved in. The securities firm filed the biggest bankruptcy in US history in September 2008 because of too much debt and risky real estate investments.

Taylor shepherds his group on to Barclays, telling them that "Barclays bank is systematically avoiding tax."

While bankers were grilled on the matter last year in Parliament, Barclays maintains it obeys tax law. In response to questions last year from lawmakers, the bank disclosed that in 2009 it paid £113 million corporation tax. That worked out to 4.5 per cent of the bank's British pretax profit of £2.5 billion. The statutory rate then was 28 per cent. Barclays said losses on writedowns reduced the amount owed.

"Barclays is not evading taxes," Bob Diamond, Barclays chief executive told a Treasury Committee hearing at the House of Commons. "We are complying with both the spirit and the letter of the law."

The company's 2011 citizenship report shows that almost 46,000 employees did 418,000 hours of volunteer work. The bank reported paying £1.7 billion of corporate tax globally last year, and £300 million in Britain.

But while bankers defend their actions, Taylor says marching, protesting, occupying and guiding tours are the tools he has to help rebalance the world.

"If you've got money and you've got connections, you're heard," he says.

"And if you don't have money and don't have connections, you're invisible."

- Bloomberg

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