Prem Sikka: Here are 5 immediate steps the government could take to tackle the cost of living crisis
‘Millions of Brits face the choice of living in a cold home, going without food and other essentials, not paying bills, and getting even deeper into debt. There is a strong prospect of riots and social disorder.’
Prem Sikka is an Emeritus Professor of Accounting at the University of Essex and the University of Sheffield, a Labour member of the House of Lords, and Contributing Editor at Left Foot Forward.
The cost-of-living-crisis has become an existential threat to a large part of the UK population. The annual rate of inflation, as measured by the Retail Price Index, has risen to 11.8% and is expected to climb and further deplete people’s purchasing power.
People’s capacity to manage the economic crisis is depleted by shrinking incomes. During 1970 to 2007, real wages grew by 33%, but fell to below zero in the 2010s. The government is now offering a pay rise of 4%-5% to public sector workers, which is likely to become a benchmark for many private sector workers. This is effectively another pay cut in real terms. The government plans suggest that real wages in the UK are forecast to shrink by 6.2%, or average of £1,750, over the next two years. Meanwhile, the rich with pay packets above £170,000 secured an 11% pay rise.
Corporate profiteering is responsible for nearly 60% of the current rise in inflation. Oil, gas and energy companies have been declaring record profits and dividends. In winter this year, the average annual domestic energy bill is expected to increase to nearly £3,363, nearly three times the cost of a year ago. The government has given some help to households but none to schools, hospitals or businesses. The majority of households will receive a grant of £550, leaving them to find the rest. In essence, the grant will be handed straight-back to energy companies. This fails to check profiteering and the rate of inflation.
The Joseph Rowntree Foundation estimates that low income families will hand over 26% of their income after housing costs in 2023/24 to pay for gas and electricity compared to just 12% two years previously. A single, childless, working-age person on a low income can expect to pay 67% of their income to meet energy costs. Working-age lone-parent low-income families will lose almost a third (35%) of their income to energy bills.
Millions lack saving buffers to manage the crisis. Some 1.3 million families had no savings even before the pandemic. Nearly half of all families had savings worth less than a month’s income. Some 8.2 million UK households, one-in-three, are expected to be in fuel poverty.
Millions of Brits face the choice of living in a cold home, going without food and other essentials, not paying bills, and getting even deeper into debt. There is a strong prospect of riots and social disorder.
The Tory government is not the one for listening but it needs to change its policies to avert a deeper crisis. At the very least, it needs to do the following.
1.Immediately increase the state pension, benefits and wages in line with inflation to give people some breathing space.
2. Cap energy price rises. Earlier this year, France capped gas and electricity prices at 4%, whilst they increased by 54% in the UK and filled the coffers of energy companies. Capping reduces the rate of inflation and prevents high energy cost from feeding into consumer prices for food, and essentials
3. Bring energy companies into public ownership. France is fully nationalising EDF to increase the government’s policy options.
Any mention of public ownership sends neoliberals into cold shivers and raises the question about how this will be financed. Governments which have handed £895bn of quantitative easing to speculators can also use the same process to bring the energy sector into public ownership. If that is considered to be inflationary, then the appropriate amount of cash can be removed from circulation via taxes on those with the broadest shoulders.
Those not convinced by this argument need to be reminded that public ownership results in acquisition of assets. These assets can be used to borrow money or sell bonds to finance the acquisition. This is essentially the business model of private equity and can be used for public ownership.
4. Reduce demand for energy by encouraging people to use public transport at affordable prices. Since 2020, residents of Luxembourg have been able to ride trains and buses throughout the country without buying tickets. In Spain, travel across commuter routes on certain parts of the state-owned rail network will be free from 1 September until the end of the year. In June, Germany launched a €9 unlimited monthly travel pass giving people unlimited travel on public transport throughout the country.
Such policies, funded out of taxation, reduce demand for energy; reduce traffic congestion and pollution, improve social mobility; control inflation and help with the cost of living crisis. They are only possible because the transport system is in public ownership.
The same should be possible in the UK. In 2020-21, the government handed £16.9bn subsidy to railway operators, but this has not prevented high fares as large parts have vanished into dividends and executive pay and duplication of administrative costs across more than 100 companies involved in running the railway system. A publicly owned transport system, gives governments more policy options and people a respite from soaring costs.
5) Make efficient use of energy. Government need to gives poorer households grants to insulate homes.
As you’re here, we have something to ask you. What we do here to deliver real news is more important than ever. But there’s a problem: we need readers like you to chip in to help us survive. We deliver progressive, independent media, that challenges the right’s hateful rhetoric. Together we can find the stories that get lost.
We’re not bankrolled by billionaire donors, but rely on readers chipping in whatever they can afford to protect our independence. What we do isn’t free, and we run on a shoestring. Can you help by chipping in as little as £1 a week to help us survive? Whatever you can donate, we’re so grateful – and we will ensure your money goes as far as possible to deliver hard-hitting news.