Chancellor Rishi Sunak’s spring statement failed to address the cost of living crisis and everyone knows it. Instead of taking the opportunity to protect people from skyrocketing inflation, Sunak left those on benefits, pensioners and public sector workers with their incomes trailing prices. He allowed a £693 rise in home energy bills whilst cutting a paltry 5p off petrol – a move that mostly benefits the drivers of bigger cars and even then, reversed barely a week’s worth of price increases.
Even the usually supine Tory press turned on Sunak. By the weekend the chancellor was desperate, letting it be known that further announcements, including council tax cuts and perhaps pension increases, should be expected.
The Tories don’t want to do this, but they are aware that the public mood has changed. The i quoted one “government figure” complaining that furlough had created a “nightmare” of raised expectations. In the Sunday Times, a “source close to the Chancellor” griped that lockdown has led the public to believe that “most of the economic pain can be taken away by government”.
The Tories fear that Covid has shaken up people’s sense of what is possible. As a result, Sunak and co are pushing the idea that the cost of living crisis is some natural calamity they can do little about. This is a fallacy.
First, price rises. These are often blamed on huge global events, like Covid, extreme weather or the invasion of Ukraine. It’s true that all these have threatened the supply of some essentials. But instability under capitalism always invites speculation and profiteering. If the price of oil or gas has skyrocketed, that doesn’t mean it costs more for BP or Shell to produce it; it just means they make more profit. If we shrunk those profits, we could help keep prices lower.
Second, pay. Since 2010, wages and salaries in Britain have barely risen, not even keeping pace with the generally lower rates of inflation we had then. Now, with prices rising rapidly (and even with some post-lockdown pay rises appearing), pay is falling well behind prices. The impact of this is likely to be dramatic, with the worst fall in the standard of living since records began, and forecasts of 1.3 million people being pushed into absolute poverty.
If pay was rising faster this wouldn’t be such a problem. The last time inflation was much higher in Britain, pay rises were also much higher. Between 1973 and 1983, inflation averaged 12.5%. But pay rises averaged 16%, so people were becoming much better off overall, even with high inflation. The difference between back then and now is simple: trade unions. In 1979, over half of all employees were in a union. Now it is just under 24%, most of them are in the public sector.
Where unions are still strong, like on the London Underground, they can still win inflation-busting pay rises. Sharon Graham, Unite’s new general secretary, has said the union will aim for at least 7% pay awards this year.
Everyone who can should join a union. But we can’t magically undo 40 years of declining union membership overnight. Strikes remain close to all-time lows. Our unions are still very weak. For the millions of workers outside of a trade union, and even more so for those pensioners and those not in work who are facing a huge decline in their standard of living, unions are not the obvious solution.
Most of the economic pain people are experiencing right now could be taken away by the government. The rise in national insurance contributions is the result of a government decision. Council taxes are rising because of a government decision. The £697 increase in energy bills – the first of two massive hikes expected this year – is the result of a decision by Ofgem, a government agency. The failure to increase public sector pay, benefits or pensions by enough to beat inflation is a government decision.
The money is there to pay for this. Tax revenues are much higher than expected right now, partly as a result of inflation (so, for instance, VAT receipts are up because things cost more to buy), handing the government a £50bn windfall. Borrowing costs for the government remain near all-time lows. And with corporate profits and the wealth of the mega-rich booming, there are plenty of targets for taxation. The government knows it could act, and is scared it will be forced to.
Labour is lagging well behind the crisis. Shadow chancellor Rachel Reeves refused to say when pushed if the party would support strikes by public sector workers for more pay. The measures the party has proposed, like a windfall tax, are fine but do not go far enough.
The party leadership could be putting itself at the head of the popular mood and start shaping coherent responses. But that would take the party outside of its current comfort zone, and force it to take a more obvious stand against profiteers and for government action on prices. It could be calling for a freeze on domestic gas prices, for example, or a 10 or 15% increase in the minimum wage. It could take up Sadiq Khan’s initiative and push for rent controls.
There’s a simple, immediate set of demands to be made in response to the cost-of-living crisis: higher wages, higher benefits, higher pensions. Control prices that are worst affected, like natural gas for heating homes. And don’t be afraid to squeeze profits and the super-rich to pay for the costs of the crisis.
If Labour won’t step up to the mark, it will come down to the wider movement to push for the measures needed. The TUC has called its own cost of living demonstration on 18 June. Every union in the country should be following the RMT’s lead on London Underground, and pushing for pay rises that at least match inflation. Renters’ unions are growing. We can win the argument the Tories fear the most – that we don’t need to accept the collapse in our living standards.
James Meadway is an economist and Novara Media columnist.