As inflation spikes, Labour must seize the agenda to argue for a fairer economy


Families across Britain are facing a poverty line. Consumer Price Index (CPI) inflation reached 4.2 percent in October, when the broader retail price index (RPI), including mortgage costs, is now 6%. And it has nothing to do with wages.

Staff shortages in the hospitality industry and among truck drivers have resulted in double-digit wage increases, but overall wages have not been sustained. Trade Union Congress (TUC) calculations in real time show that wages rose just 2.2% in the last quarter. If so, then for the first time since 2015, real wages in Britain are falling.

What is causing the inflation surge in the short term is clear: energy prices… Gas prices rose 28 percent in the 12 months to October 2021, automotive fuel prices climbed 22 percent and electricity bills rose about 19 percent. And that, in turn, is bad news for the poorest, who spend about 35% of their income on transportation and housing costs.

Plus tax increases. According to the Office of Fiscal Responsibility, even for a person earning £ 25,000 a year, the cumulative effect is recent tax hike and inflation will cut their real incomes by £ 180 a year.

Prior to this month, economists (including the majority on the Bank of England’s Monetary Policy Committee) treated inflation… It was supposed to be a temporary spike, driven by a surge in global demand for everything from silicon chips to natural gas, and it would return to normal within 18 months.

Since 2008, when central banks flooded the global market with free money that has yet to be sucked out, we live in a world of ultra-low inflation, exacerbated by a constant supply of labor from developing Asia and historically low levels. union membership and bargaining positions.

It may not be quite the “Goldilocks era” – because it is the result of the porridge of capitalism having cooled forever – but it can be survived, the arguments argued.

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Now, however, politicians are forced to act – and, according to orthodox economics textbooks, there are only three things you can do if you want to stifle growing demand: raise taxes, cut government spending, or change central bank policy. …

With UK tax collection already peaking since the 1950s and the Tories struggling to get out of the pandemic, it seems inevitable that the Bank of England will be forced to symbolically raise the rate in December.

The official inflation target of the Bank of England is 2 percent – with a buffer zone of 1 to 3 percent, after which, in accordance with its mandate, it must do something. However, if it raises rates significantly – starting December as the starting gun for a series of 0.125 point nudges – the Bank will only exacerbate the income crisis as mortgage payments (and with them rents) begin to rise.

In short, we are approaching the end of a long period beginning in the early 1990s, when economic management could be exercised mainly through decisions on interest rates at the central bank. What the bank is doing remains important and should refrain from raising interest rates next month, even as a symbolic gesture.

But in the pursuit of a better-skilled, better-paying, and more productive economy – and a solution to the cost-of-living crisis – we’ll need government, not a Bank, to take the lead.

After the Labor Party conference, Rachel Reeves, the shadow chancellor, did a rare feat for the opposition: she forced the government and the press to respond to Labor proposals, and not vice versa. She argues that as the CPI inflation rate is approaching 5%, the government should remove VAT on fuel bills. This will cut roughly £ 60 from the average fuel bill for medium-sized households (currently around £ 1,167): not terrific, but welcome, especially for the lowest paid, who spend most of their income on energy. And this argument is gaining momentum.

On top of that, according to Labor, the government should immediately raise the minimum wage to £ 10 an hour.

Reeves’ supporting argument is that the people of the working class are taxed too much because the tax revenues of the transnational monopolies are so low that the working population is forced to bear the burden of government spending. She proposes abolishing commercial rates for ordinary businesses and raising taxes on income of the wealthy from stocks, dividends and rental portfolios.

But Labor – and the labor movement – needs to move on. As Alfie Stirling, research director and chief economist at the New Economics Foundation, shows, Britain’s fundamental problem is weak wage growth. Thirteen years after the 2008 crisis, real wages for British workers are still far from where they were then and will not reach that level until 2026.

Blame the fragmented and insecure labor market created under Margaret Thatcher in the 1980s and supported by Tony Blair and Gordon Brown since 1997. Even with an acute shortage of skilled workers, workers are unable to negotiate wage agreements in line with inflation.

Part of the solution would be Labor’s adoption of an open public sector wage policy, committing – as a principle – to link underlying public sector wage growth to (at least) CPI inflation. If adopted, it would discourage the private sector from draining the workforce of councils and nursing homes to meet their own shortages, leading to increased investment in training instead.

Another option is to develop a new regime for household energy. This fall, the problem was not only a jump in global gas prices. It was the collapse of the utility companies, whose entire business model was based on unstable fixed prices.

With 1.7 million Bulb customers Now that we are once again thrown into the arms of monopoly suppliers and faced with winter price increases, we need something much more efficient than the current price cap.

Utilities say the “absolute” price cap during inflation is a recipe for their own bankruptcy. They are actively lobbying for more frequent revisions of the cap and a shift towards “relative” targets, so that all households’ bills increase by a certain percentage of the rise in world prices.

The socially just answer is in the opposite direction – a state-owned energy company with a monopoly on supply and distribution, excluding dividends and speculative financing, and guaranteeing – at least for the poorest – an absolute maximum retail price of energy for households, regardless of fluctuations in the global market. …

This would be consistent not only with Labor’s principle of social justice, but also with the principle of climate justice. If electricity generated by wind, solar and nuclear power in the UK were destined for the poorest households instead of being distributed in an artificially constructed market, supported by a massive publicly funded thermal insulation and renovation program, this would be an important step in paths to energy cancellation. poverty.

Labor leader Keir Starmer spent the entire fall picking and backing away from his previous “common ownership” obligations in the energy industry. But shared ownership is ultimately the only solution for an industry that, firstly, cannot function without repeated bankruptcies and the destruction of its own set of rules, and secondly, it needs to stop burning carbon long before the middle of the century.

Labor, faced with a barrage of criticism from the left, achieved something this fall: They began to set the agenda – not only among politically involved, but also among a large number of people in dire straits. They see the logic of lowering VAT, removing tax breaks for private schools, and forcing the rich to pay taxes at equal rates on rents and dividends.

How much better it would be if Labor could now, without gloves, justify the need to socialize energy – isolating the entire energy economy from the vagaries of the global market and threats to the security of supplies.

[See also: Labour has no hope of defeating the Conservatives until it answers the Brexit question]


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