Ed Miliband called the cost of living crisis a “social emergency”. With the May 18 CPI inflation figure climbing to 9%, he’s right. His Labor backbench colleague Dan Carden told the Commons the consequences: a 62-year-old voter from Liverpool Walton had disconnected from the gas supply network for fear of the bill she will receive in a few months.
And it’s not just about energy. Carden told me that at a local chip shop the cost of a fish and chips dinner for one has risen to £8.30, largely because of the skyrocketing price of sunflower oil due of the war in Ukraine. With a chippy forced to raise the price every few weeks, Britain’s most iconic food staple is now too expensive for working class families.
The government’s response has been so disastrous it could kill conservatism for a generation. Rishi Sunak increased benefits and pensions by just 3.1% in the spring statement while paying just £500m to the poorest families through the Household Support Fund – a form of relief to poor people of the 21st century.
This has allowed energy regulator Ofgem to protect profits rather than people: the next rise in energy prices will come sooner and hit harder – with companies banned from undercutting the market price gas and electricity in order to “stop the harmful effects”. effects of competition.
In other words, even the basic instincts of capitalism – lowering prices and winning more customers – must be suspended in order to inflict pain on consumers at all levels. As Ofgem briefed on its new poverty-inducing scheme, even mild-mannered money expert Martin Lewis erupted – he called the scheme “a goddamn disgrace”.
Let’s be clear about the causes of the price spike. These are Brexit, the post-Covid scramble for people and goods across the world, the war in Ukraine and the continued inability of British workers to secure inflation-matching pay rises.
Brexit has destroyed the UK’s existing business models with Europe, causing supply bottlenecks and shortages of key workers such as lorry drivers. When the post-lockdown recovery began, major industrial powers reacted by trying to corner the market for scarce goods – especially semiconductors – causing a shortage of new cars, computers and phones and driving up the price. of all.
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The war in Ukraine has driven up the price of gas, oil, wheat and cooking oil. Meanwhile, even with a shortage of workers – from delivery drivers to nuclear power engineers – real wages have fell 1.9% this year.
The Conservatives and their media supporters are trying to pin the blame on the Bank of England. To have trashed one British institution after another is understandable. But the bank only works within a mandate defined by the government. She has refrained from steep interest rate hikes because she believes the spike in inflation is short-term and caused by global factors that higher interest rates would not remove.
If Rishi Sunak is not satisfied with the Bank’s performance, he can write a letter saying so or change the inflation target (2%). He did not do it. His last open letter, written on March 17, 2022, merely endorsed the Bank’s assessment and listed the meager remedial measures in place.
And let’s be clear about the effects. Even if the current inflation of 9% is the peak – and the Bank expects it to come in the fall – it represents a significant transfer of income from ordinary people to the wealthy and corporations.
At the local fries shop, all links in the supply chain must make a profit – from the sunflower oil producer to the fishing fleet to the potato grower and the transport companies that deliver everything to the wholesaler. The same goes for the energy supply company whose electricity boils the grease and lights the store. In the process, for the most powerful – and there is no clearer monopoly than in the energy market – comes the opportunity to profit.
The only market player who cannot raise his price is the worker, whose power to fight for better wages has been destroyed by decades of anti-union legislation and an atomized social conscience. There is only one way to break this cycle: an emergency plan to suppress rising prices, tax profiteers, increase the purchasing power of working-class families and raise wages.
Its monetary element would be an interest rate freeze. There is no point in the Bank increasing them and there is no point in the tit for tat between the Bank and the conservative press.
Its fiscal element would be, firstly, to scrap the £5billion National Insurance hike and, secondly, to impose a windfall tax on oil and gas producers greater than that proposed by Labor and proportionate to their taking of obscene profits.
But its centerpiece would be a wage and price policy. It would not need to be permanent (although there is a strong case for long-term intervention). The government already caps the price of domestic energy, at a guaranteed rate to maintain the profits of privatized energy suppliers. It is expected to freeze the energy cap for two years, allowing retail prices to fall quickly if wholesale prices force suppliers to accept losses in the meantime.
The government is expected to announce a national rent freeze, again for two years. Sadiq Khan, who is lobbying for the policy in London, calculates it could save the average family in the capital £3,000 over two years.
Meanwhile, the cost of all local public transport is set to be cut closer to London bus prices: £1.60 each way – with a temporary government grant to make up the shortfall from private bus and rail companies iron, and a ban on all route closures for six months.
Who would suffer? Owners, energy suppliers and privatized bus and railway companies. They would lose profits and workers would gain purchasing power. If that scares you and sounds like something akin to communism, change the equation. Why are workers’ incomes simply falling and profits rising in this crisis, but not the other way around?
Work, of course, will do none of this. She found, in an exceptional tax and a reduction in VAT, the perfect political levers. The windfall tax would bring in just £2billion – a sum that doesn’t seem drastic to voters because it isn’t drastic. Sunak, having resisted the policy, is now inclined to consider it. Labor will have a day of glory in the Commons but nothing will be resolved. Even if you add a temporary VAT reduction and increase the Warm Homes rebate to £600 per family, it is not an adequate response to a ‘social emergency’.
Labour, like the Tories, is fighting a new crisis with old tools. The crisis is a combination of external shocks (Covid, Ukraine), with strong structural weaknesses (wage bargaining power), long-term austerity and the self-inflicted wound of Brexit. The old fiscal and monetary tools, even if used quickly and efficiently instead of slowly and reluctantly, will not suffice.
Pollsters tell Labor the cost of living drives everything in politics – but the party still doesn’t trust taxpayers’ money enough. All the more reason to focus emergency measures on the private sector: price caps, rent caps, subsidized transport and, if necessary, subsidized food. These measures may seem shocking, but if inflation exceeds 10% for a period of time, the results for society could be the same.